Initiation of Countervailing Duty Investigation of Live Cattle From Canada

DEPARTMENT OF COMMERCE

International Trade Administration

[C-122-834]

Initiation of Countervailing Duty Investigation of Live Cattle

From Canada

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: December 30, 1998.

FOR FURTHER INFORMATION CONTACT: Zak Smith, James Breeden, or Stephanie

Hoffman, Import Administration, U.S. Department of Commerce, Room 1870,

14th Street and Constitution Avenue, NW, Washington, D.C. 20230,

telephone (202) 482-0189, (202) 482-1174, or (202) 482-4198,

respectively.

Initiation of Investigation

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions effective January 1, 1995, the effective

date of the amendments made to the Tariff Act of 1930 (the Act) by the

Uruguay Round Agreements Act (URAA). In addition, unless otherwise

indicated, all citations to Department of Commerce (the Department)

regulations are to the provisions codified at 19 CFR Part 351 (April

1998).

The Petition

On November 12, 1998, the Department of Commerce received a

petition filed in proper form by the Ranchers-Cattlemen Action Legal

Foundation (R-Calf, referred to hereafter as the ``petitioner'').

The petitioner had filed a similar petition on October 1, 1998

(hereafter referred to as the ``original petition''), but had withdrawn

it on November 10, 1998. In refiling the petition on November 12, 1998,

the petitioner requested that the Department incorporate into the

record all submissions made in connection with the original petition.

The Department granted this request, and also incorporated into the

record all submissions made by other interested parties in connection

with the original petition.1

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\1\ The Government of Canada and the Government of Quebec

contested the refiling of the petition. We note, however, that there

is no statutory bar to refiling a petition which has been withdrawn.

While the Department possesses the inherent authority to prevent a

party from improperly manipulating its procedures, we have no reason

to exercise that discretion in this case, particularly given the

highly fragmented nature of the live cattle industry and the

resulting complexity for this industry in expressing views on the

petition.

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After refiling the petition, the petitioner made several additional

filings with respect to industry support. The Department also received

additional submissions on the issue of industry support from other

interested parties.

In accordance with section 702(b)(1) of the Act, the petitioner

alleges that manufacturers, producers, or exporters of the subject

merchandise in Canada receive countervailable subsidies within the

meaning of section 701 of the Act.

The Department finds that the petitioner has standing to file the

petition because it is an interested party as defined in section

771(9)(E) of the Act. Further, the Department's analysis underlying its

determination of industry support indicates that the petition in fact

has sufficient industry support (see discussion below).

Scope of the Investigation

For purposes of this investigation, the product covered is all live

cattle except imports of dairy cows for the production of milk for

human consumption and purebred cattle specially imported for breeding

purposes and other cattle specially imported for breeding purposes.

The merchandise subject to this investigation is classifiable under

subheading 0102.90.40 of the Harmonized Tariff Schedule of the United

States (HTSUS), with the exception of 0102.90.40.72 and 0102.90.40.74.

Although the HTSUS subheadings are provided for convenience and Customs

purposes, the Department's written description of the merchandise is

dispositive.

During our review of the petition, we discussed with the petitioner

whether the proposed scope was an accurate reflection of the product

for which the domestic industry is seeking relief. We noted to the

petitioner that the scope in the petition appeared to exclude all

purebred cattle. The petitioner subsequently notified the Department

that only purebred cattle intended for breeding purposes should be

excluded from the scope of the investigation. We revised the scope

accordingly. The petitioner has since indicated that this revised scope

accurately describes the product for which the domestic industry is

seeking relief.

[[Page 71890]]

Consistent with the preamble to the new regulations, we are setting

aside a period for interested parties to raise issues regarding product

coverage. See Antidumping Duties, Countervailing Duties; Final Rule, 62

FR 27296, 27323 (May 19, 1997). This period is intended to provide the

Department with the opportunity to amend the scope of the

investigation, if warranted, such that the International Trade

Commission (ITC) may be able to take the revised scope into account in

defining the domestic like product for injury purposes. In addition,

early amendment can partially alleviate the reporting burden on

respondents and avoid suspension of liquidation and posting of

securities on products of no interest to the petitioner. The Department

encourages all interested parties to submit such comments within twenty

days after the date of publication of this notice in the Federal

Register.

Consultations

Pursuant to section 702(b)(4)(A)(ii) of the Act, the Department

invited representatives of the Canadian government for consultations

with respect to the petition. These consultations were held on November

20, 1998. The Department also held consultations regarding the original

petition with the Government of Canada on October 15, and November 4,

1998. We have incorporated all materials relating to those

consultations into the administrative record of this proceeding.

Determination of Industry Support for the Petition

Section 702(c)(1)(A)(ii) of the Act requires that the Department

determine, prior to the initiation of an investigation, that a minimum

percentage of the domestic industry supports a countervailing duty

petition. A petition meets these minimum requirements if the domestic

producers or workers who support the petition account for: (1) at least

25 percent of the total production of the domestic like product, and

(2) more than 50 percent of the production of the domestic like product

produced by that portion of the industry expressing support for, or

opposition to, the petition. Under section 702(c)(4)(D) of the Act, if

the petitioner(s) account for more than 50 percent of the total

production of the domestic like product, the Department is not required

to poll the industry to determine the extent of industry support.

To determine whether a petition has the requisite industry support,

the statute directs the Department to look to producers and workers who

account for production of the domestic like product. The ITC, which is

responsible for determining whether ``the domestic industry'' has been

injured, must also determine what constitutes a domestic like product

in order to define the industry. However, while both the Department and

the ITC must apply the same statutory definition of domestic like

product, they do so for different purposes and pursuant to separate and

distinct authority. In addition, the Department's determination is

subject to limitations of time and information. Although this may

result in different definitions of the like product, such differences

do not render the decision of either agency contrary to

law.2

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\2\ See Algoma Steel Corp., Ltd. v. United States, 688 F. Supp.

639, 642-44 (CIT 1988); High Information Content Flat Panel Displays

and Display Glass Therefor from Japan: Final Determination;

Rescission of Investigation and Partial Dismissal of Petition, 56 FR

32376, 32380-81 (July 16, 1991).

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Section 771(10) of the Act defines domestic like product as ``a

product that is like, or in the absence of like, most similar in

characteristics and uses with, the article subject to an investigation

under this title.'' Thus, the reference point from which the like

product analysis begins is ``the article subject to an investigation,''

i.e., the class or kind of merchandise to be investigated, which

normally will be the scope as defined in the petition.

The petition defines the domestic like product as live cattle (Bos

taurus and Bos indicus) (including calves, stocker/yearlings, feeder

steers and heifers, slaughter steers and heifers, and cull cows and

bulls) which are raised and fed for the purpose of the production of

beef. The domestic like product does not include purebred cattle that

are used for breeding, unless and until cattle are culled. The domestic

like product also does not include dairy cows used to produce milk for

human consumption.

No party has commented on the petition's definition of domestic

like product, and there is nothing in the record to indicate that this

definition is inaccurate. Therefore, we have found no basis on which to

reject the petitioner's representation that all cattle intended for

slaughter should be included in the domestic like product. The domestic

like product is functionally the same as the scope of the

investigations, with the clarification that culled cattle are to be

included. The Department has, therefore, adopted the single like

product definition set forth in the petition, as clarified in the

petitioner's letter of October 2, 1998.

With respect to the above-cited industry support requirements, our

initial review of the production data in the petition indicated that

the petitioner (and supporters of the petition) did not account for

more than 50 percent of the total production of the domestic like

product. Therefore, in accordance with section 702(c)(4)(D) of the Act,

we determined that it was necessary to poll or otherwise determine

support for the petition by the live cattle industry. Pursuant to

section 702(c)(1)(B), we extended the deadline for initiation until

December 22, 1998, in order to allow sufficient time for this

determination.

Due to, among other factors, the extraordinarily large number of

individual producers of live cattle in the United States, as well as

the lack of a comprehensive listing of such producers, we determined

that it would not be feasible to conduct a traditional sampling of

producers. We also determined that it would not be feasible to poll all

individual producers. Instead, we contacted more than 150 cattle and

cattle-related associations and requested that they report the views of

their cattle-producing members. Where individual producers contacted

the Department directly to express their views, we included those views

in our calculations after making adjustments to account for overlap of

production between associations and their members. For a full

description of the Department's industry support methodology, see

memorandum from Susan Kuhbach and Gary Taverman to Richard W. Moreland,

``Live Cattle from Canada and Mexico: Determination of Industry

Support'' (December 22, 1998) (Domestic Support Memorandum).

The Department found that the domestic producers or workers

supporting the petition account for both (1) at least 25 percent of the

total production of the domestic like product, and (2) more than 50

percent of the production of the domestic like product produced by that

portion of the industry expressing support for, or opposition to, the

petition. Therefore, we find that there is sufficient industry support

for the petition. (See Domestic Support Memorandum.)

Injury Test

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

meaning of section 701(b) of the Act, section 701(a)(2) applies to

these investigations. Accordingly, the ITC must determine whether

imports of the subject merchandise from these countries materially

injure, or threaten material injury to, a U.S. industry.

[[Page 71891]]

Allegations and Evidence of Material Injury and Causation

The petition alleges that the U.S. industry producing the domestic

like product is being materially injured, and is threatened with

material injury, by reason of the individual and cumulated subsidized

imports of the subject merchandise. The allegations of injury and

causation are supported by relevant evidence including United States

Department of Agriculture (USDA) data and U.S. Customs import data. The

Department assessed the allegations and supporting evidence regarding

material injury and causation, and determined that these allegations

are sufficiently supported by accurate and adequate evidence, and meet

the statutory requirements for initiation. See ``Countervailing Duty

Initiation Checklist for Canada.''

Allegations of Subsidies

Section 702(b) of the Act requires the Department to initiate a

countervailing duty proceeding whenever an interested party files a

petition, on behalf of an industry, that (1) alleges the elements

necessary for an imposition of a duty under section 701(a), and (2) is

accompanied by information reasonably available to petitioners

supporting the allegations.

Initiation of Countervailing Duty Investigation

The Department has examined the petition on live cattle from Canada

and finds that it meets the requirements of section 702(b) of the Act.

Therefore, in accordance with section 702(b) of the Act, we are

initiating a countervailing duty investigation to determine whether

manufacturers, producers, or exporters of live cattle from Canada

receive subsidies.

We are including in our investigation the following programs

alleged in the petition to have provided subsidies to producers and

exporters of the subject merchandise in Canada:

1. Canadian Wheat Board's Control of Feed Barley Exports

2. Ontario Feeder Cattle Loan Guarantee Program

3. Alberta Feeder Associations Guarantee Program

4. Saskatchewan Feeder Associations Loan Guarantee Program

5. Saskatchewan Breeder Associations Loan Guarantee Program

6. Manitoba Cattle Feeder Associations Loan Guarantee Program

7. British Columbia Livestock Feeder Loan Guarantee Program

8. Farm Improvement and Marketing Cooperative Loans Act (FIMCLA)

9. Northern Ontario Heritage Fund Corporation Agriculture Assistance

10. Net Income Stabilization Account

11. Saskatchewan Beef Development Fund

12. Ontario Livestock Programs for Purebred Dairy Cattle, Beef and

Sheep Sales Assistance Policy/Swine Assistance Policy

13. Canada-Alberta Beef Industry Development Fund

14. Manitoba Tripartite Cattle Stabilization/Industry Development

Transition Fund

15. Canadian Adaptation and Rural Development (CARDS) Program in

Saskatchewan

16. Quebec Farm Financing Act

17. Alberta Public Grazing Lands Improvement Program

18. Saskatchewan Crown Land Improvement Policy

19. Technology Innovation Program Under the Agri-Food Agreement

20. Feed Freight Assistance Adjustment Fund (FFAF)

21. Western Diversification Program

22. Ontario Livestock, Poultry and Honey Bee Protection Act

23. Ontario Bear Damage to Livestock Compensation Program

24. Ontario Rabies Indemnification Program

25. Quebec Farm Income Stabilization Insurance Program (FISI)

26. Ontario Artificial Insemination of Livestock Act

27. Saskatchewan Livestock and Horticultural Facilities Incentives

Program

28. The Prairie Farm Rehabilitation Community Pasture Program

29. Provincial Crown Lands Program

30. Ontario Export Sales Aid Program

We are not including in our investigation at this time the

following programs alleged to be benefitting producers and exporters of

the subject merchandise in Canada:

1. Beef Industry Development Fund

The petitioner alleges that cattle producers receive

countervailable subsidies through monies provided by the government for

the promotion and enhancement of the beef industry. Specifically, the

petition alleges that expenditures for beef industry promotion also

benefit cattle production under the Department's attribution policy,

whereby subsidies paid to a corporate entity benefit related products

within that company. According to the petitioner, beef promotion funds

received by a corporate entity that operates feedlots should be

investigated to determine whether benefits under the program benefit

cattle production.

Despite the fact that the petitioner provides evidence of

governmental assistance to the beef industry, the petition does not

provide adequate information supporting its allegation of a benefit or

financial contribution to the cattle industry. Rather, the petition

refers to the Department's ``attribution'' policy, whereby benefits

received for the production of an input pass onto the final product

when received by the same corporate entity. See Final Affirmative

Countervailing Duty Determination: Certain Pasta From Italy, 61 FR

30287 (June 14, 1996).

In this case, the petitioner has argued that subsidies attributable

to a final product benefit the production of an input, but has not

offered any evidence to support this contention. Therefore, based upon

the lack of supporting information in the petition that the Beef

Industry Development Fund provides a financial contribution or benefit

to the producers of the subject merchandise, we are not including this

program in our investigation.

2. British Columbia Farm Product Industry Act

The petitioner alleges that cattle producers receive

countervailable subsidies in the form of grants, loans and loan

guarantees which are designed to encourage and assist the development

and expansion of the agricultural industry in British Columbia. This

program is allegedly de facto specific because British Columbia

accounts for seven percent of the beef cows produced in Canada.

However, the petition does not provide any further evidence or

argumentation that the actual recipients are limited in number, that

the cattle industry is a predominant user, that the cattle industry

receives a disproportionately large amount of assistance, or that the

government has exercised discretion in favoring one enterprise or

industry over another. Furthermore, because this program is not limited

to a particular enterprise or industry within British Colombia, this

program does not qualify as a regional subsidy under section

771(5A)(D)(iv) of the Act. Therefore, based upon the lack of supporting

information in the petition that the British Colombia Farm Product

Industry Act is specific on either a de jure, de facto or regional

basis, we are not including this program in our investigation.

3. Transition Programs for Red Meats

The petitioner alleges that countervailable subsidies were provided

to cattle producers through a program titled, ``Transition Programs for

Red Meats.'' As was alleged with the Beef Industry Development Fund

(see above), the petitioner states that expenditures

[[Page 71892]]

on behalf of the beef industry also benefit cattle production under the

Department's attribution approach. However, the petitioner does not

provide adequate information supporting its allegation of a benefit or

financial contribution either to cattle producers or the beef industry.

Therefore, based upon the lack of supporting information in the

petition that Transition Programs for Red Meats provides a financial

contribution or benefit to the producers of the subject merchandise, we

are not including this program in our investigation.

4. British Columbia Grazing Enhancement Special Account Act

The petitioner alleges that cattle producers receive

countervailable benefits through the government's maintenance and

enhancement of British Columbia's public range resources. This program

is allegedly de jure specific because it benefits only farmers with

grazing livestock. However, the petition does not provide any evidence

or argumentation of a financial contribution being provided directly or

indirectly to cattle producers. Specifically, there is no evidence of a

direct transfer of funds, the foregoing or non-collection of revenue,

the provision of goods and services (other than general

infrastructure), or the purchase of goods. Therefore, based upon the

lack of supporting information in the petition that the British

Columbia Grazing Enhancement Special Account Act provides a financial

contribution to the producers of live cattle, we are not including this

program in our investigation.

Uncreditworthy Allegation

The petitioner alleges that the Canadian cattle industry is not

creditworthy. The petitioner bases this allegation essentially on two

arguments: (1) The industry is selling below cost; and, (2) a segment

of the industry, and the industry as a whole, has been unprofitable.

Normally, the Department has required that any allegation of

uncreditworthiness be made on a company-specific basis. (See, e.g.,

Countervailing Duties; Notice of Proposed Rulemaking and Request for

Public Comments, (1989 Proposed Regulations), 54 FR 23366, 23380.) It

is the Department's policy to find a company uncreditworthy if

information at the time of the government-provided loan in question

indicates that the firm could not have obtained long-term commercial

financing from conventional sources during the period when government

loans were allegedly available to them. With respect to the analysis of

uncreditworthiness allegations in a petition, it has been the

Department's long-standing practice to employ a heightened threshold

for uncreditworthiness allegations. Specifically, the petitioner must

supply information establishing a reasonable basis to believe or

suspect that a company is uncreditworthy, rather than simply providing

reasonably available supporting information. (See 1989 Proposed

Regulations, 54 FR 23366, 23370, 23380 and Countervailing Duties; Final

Rule, 63 FR 65348, 65368, 65409.)

Although it is the Department's policy to require

uncreditworthiness allegations on a company-specific basis, we have

also recognized that such a requirement may be unreasonable in cases in

which the number of respondents is very large. (See Final Affirmative

Countervailing Duty Determination: Fresh and Chilled Atlantic Salmon

From Norway, 56 FR 7678, 7683 (February 25, 1991).) In the instant

case, we accept the petitioner's claim that the large number of

Canadian cattle producers makes it difficult to compile company-

specific information with respect to a significant (or representative)

number of producers. Therefore, we have analyzed whether the petitioner

has provided a reasonable basis to believe or suspect that the Canadian

cattle industry, in general, was unable to obtain long-term commercial

financing from conventional sources.

As noted above, the petitioner has provided information indicating

that the Canadian cattle industry has been selling below its cost and,

arguably, has been unprofitable in recent years. Although relevant,

this information does not directly address the issue of whether the

industry was unable to obtain commercial long-term

financing.3 While we recognize that the Canadian cattle

industry may be selling below cost and may have been unprofitable, it

could be argued that such phenomena are not unusual for agricultural

producers within an industry often subject to cyclical downturns.

Furthermore, the petitioner has not provided specific evidence

indicating that the current financial condition of the Canadian cattle

industry will continue into the future or any other information

directly supporting the conclusion that the industry has been unable to

obtain long-term commercial financing.

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\3\ The only information that the petitioner has provided which

may be directly relevant is a source note from a Canadian statistics

report which indicates that interest costs are computed on the basis

of monthly prime rates plus a premium. The petitioner alleges that

this confirms that cattle producers can only get short-term

financing because of their high risk of loss. Given that the report

in question was intended to estimate a Canadian cattle producer's

cost and that the use of a short-term interest rate appears to be an

assumption rather than an empirically derived fact, we consider this

information to be of little probative value.

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Distribution of Copies of the Petition

In accordance with section 702(b)(4)(A)(i) of the Act, copies of

the public version of the petition have been provided to the

representatives of the Government of Canada.

ITC Notification

Pursuant to section 702(d) of the Act, we have notified the ITC of

our initiation of this investigation.

Preliminary Determination by the ITC

The ITC will determine by January 18, 1999, whether there is a

reasonable indication that an industry in the United States is

materially injured, or is threatened with material injury, by reason of

imports of live cattle from Canada. A negative ITC determination will

result in the investigation being terminated; otherwise, the

investigation will proceed according to statutory and regulatory time

limits.

This notice is published pursuant to section 777(i) of the Act.

Dated: December 22, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-34469 Filed 12-29-98; 8:45 am]

BILLING CODE 3510-DS-P