Certain Pasta From Italy: Preliminary Results of the First Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-819]

Certain Pasta From Italy: Preliminary Results of the First

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Preliminary Results of Countervailing Duty

Administrative Review.

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SUMMARY: The Department of Commerce is conducting an administrative

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

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

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

reviewed companies, see the Preliminary Results of Review section of

this notice. If the final results remain the same as these preliminary

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

countervailing duties as detailed in the Preliminary Results of Review.

Interested parties are invited to comment on these preliminary results.

(See, Public Comment section of this notice.)

EFFECTIVE DATE: April 9, 1998.

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

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

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

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

respectively.

Background

On July 24, 1996, the Department of Commerce (the Department)

published in the Federal Register (61 FR 38544) the countervailing duty

order on pasta from Italy.

In accordance with 19 CFR 351.213(b), this review of the order

covers the producers or exporters of the subject merchandise for which

a review was specifically requested. They are: Audisio Industrie

Alimentari S.r.L (``Audisio''); the affiliated companies Delverde

S.r.L., Tamma Industrie Alimentari, S.r.L., Sangralimenti S.r.L., and

Pietro Rotunno, S.r.L. (``Delverde/Tamma''); La Molisana Industrie

Alimentari S.p.A. (``La Molisana''); and Petrini S.p.A. (``Petrini'').

Also, this review covers 24 programs.

Since the publication of the notice of initiation of this review in

the Federal Register (62 FR 45621, August 28, 1997), the following

events have occurred.

On September 29, 1997, we issued countervailing duty questionnaires

to the Government of Italy (``GOI''), the Commission of the European

Union (``EU''), and the above-named companies under review. On October

14, 1997, F.lli De Cecco di Filippo Fara S. Martino S.p.A., a company

which had requested to be included in the review, withdrew its request.

Similarly, on November 14, 1997, Industria Alimentari Colavita, S.p.A.,

another company which had requested to be included in the review,

withdrew its request. We received responses to our questionnaires and

issued additional questionnaires throughout the period of November 1997

through March 1998.

In January and February of 1998, we received comments from

petitioners on the company and GOI responses. Among the comments was a

request that the Department examine an energy savings grant received by

Petrini pursuant to Law 308/82. In a supplementary questionnaire to

Petrini, we requested further information on this grant. Subsequent to

issuing this questionnaire, however, it became evident that the program

in question had already been found not countervailable by the

Department. See, Final Affirmative Countervailing Duty Determinations:

Certain Steel Products from Italy, 58 FR 37327 (``Certain Steel from

Italy''). Therefore, we have not included this grant in our review.

Scope of Review

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

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

enriched or fortified or containing milk or other optional ingredients

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

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

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

fiberboard or cardboard cartons or polyethylene or polypropylene bags,

of varying dimensions.

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

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

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

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

appropriate certificate issued by the Associazione Marchigiana

Agricultura Biologica (``AMAB''), by Bioagricoop Scrl, or by QC&I

International Services. Furthermore, multicolored pasta imported in

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

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

review.

The merchandise under review is currently classifiable under item

1902.19.20 of the Harmonized Tariff Schedule of the United States

(``HTSUS''). Although the HTSUS subheading is provided for convenience

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

review is dispositive.

Applicable Statute

Unless otherwise indicated, all citations to the statute are

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

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

(``the Act''). The Department is conducting this administrative review

in accordance with section 751(a) of the Act. All other references are

to the Department's regulations at 19 CFR Part 351 et. seq. Antidumping

Duties; Countervailing

[[Page 17373]]

Duties; Final Rule, 62 FR 27296, May 19, 1997, unless otherwise

indicated.

Period of Review

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

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

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

calculated a 1995 rate and a 1996 rate for each of the companies under

review. We note, however, that the rates calculated for 1995 will be

applicable only to entries, or withdrawals from warehouse, for

consumption made on and after October 17, 1995, through the end of

1995.

Subsidies Valuation Information

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

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

denominated loans or other debt obligations which could be used as

benchmarks in any of the years in which grants were received or

government loans under review were given. Therefore, we used the Bank

of Italy reference rate, adjusted upward to reflect the mark-up an

Italian commercial bank would charge a corporate customer, as the

benchmark interest rate for long-term loans and as the discount rate

for years prior to 1995. For 1995 and 1996, we used the average

interest rate on medium- and long-term loans as reported by the Bank of

Italy based on a survey of 114 Italian banks.

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

F.Supp. 1254, 1289 (CIT 1995) (``British Steel I''), the U.S. Court of

International Trade (the Court) ruled against the allocation

methodology for non-recurring subsidies that the Department had

employed for the past decade, which was articulated in the General

Issues Appendix, appended to the Final Countervailing Duty

Determination; Certain Steel Products from Austria, 58 FR 37225 (July

9, 1993) (``GIA''). In accordance with the Court's remand order, the

Department determined that the most reasonable method of deriving the

allocation period for nonrecurring subsidies is a company-specific

average useful life (``AUL'') of non-renewable physical assets. This

remand determination was affirmed by the Court on June 4, 1996. See,

British Steel plc. v. United States, 929 F.Supp 426, 439 (CIT 1996)

(``British Steel II''). Accordingly, the Department has applied this

method to those non-recurring subsidies that were not countervailed in

the investigation.

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

have already been countervailed based on an allocation period

established in the investigation, it is neither reasonable nor

practicable to reallocate those subsidies over a different period of

time. Therefore, for purposes of these preliminary results, the

Department is using the original allocation period assigned to each

non-recurring subsidy received prior to the POR. This conforms with our

approach in Certain Carbon Steel Products from Sweden; Final Results of

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

For non-recurring subsidies received during the POR, each company

under review submitted an AUL calculation based on depreciation and

asset values of productive assets reported in its financial statements.

Each company's AUL was derived by dividing the sum of average gross

book value of depreciable fixed assets over the past ten years by the

average depreciation charges over this period. We found this

calculation to be reasonable and consistent with our company-specific

AUL objective. We have used these calculated AULs for the allocation

period for non-recurring subsidies received during the POR and those

non-recurring subsidies received prior to the POR, which were not

countervailed in the investigation.

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

pasta) and the subject merchandise were produced within a single

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

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

subject merchandise, without conducting an upstream subsidy analysis.

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

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

Affirmative Countervailing Duty Determination: Industrial Phosphoric

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

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

30292) (``Pasta from Italy'')). In accordance with our past practice,

where the companies under review purchase their semolina from a

separately incorporated company, whether or not they are affiliated, we

have not included subsidies to the mill in our calculations. However,

for those companies where the mill is not separately incorporated from

the producer of the subject merchandise, we have included subsidies for

the milling operations in our calculations. Where appropriate, we have

also included sales of semolina in calculating the ad valorem subsidy

rate.

Changes in Ownership

One of the companies under review, Delverde, purchased an existing

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

purchased factory had received non-recurring countervailable subsidies

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

We have calculated the amount of the prior subsidies that passed

through to Delverde with the acquisition of the factory, following the

spin-off methodology described in the Restructuring section of the GIA,

58 FR at 37265.

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

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

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

acquired and absorbed a number of related companies, including one

which produced pasta. All but one of these companies were wholly-owned

by members of the Petrini family prior to their acquisition by Petrini;

the remaining company was majority-owned by the Petrini family. Prior

to the ownership restructurings, several of these companies, other than

the pasta company, received non-recurring countervailable subsidies.

The Department does not consider internal corporate restructurings

that transfer or shuffle assets among related parties to constitute a

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

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

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

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

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

restructurings to Petrini, the only remaining corporate entity.

To determine whether the benefit of any of these subsidies extended

to the subject merchandise, we examined the extent to which these

subsidies should be considered tied or untied.

The subsidies in question were loans and grants pursuant to Law 64/

86, the Industrial Development Law, which benefits companies located in

the South of Italy (the Mezzogiorno). In past cases, as well as the

present review, we have found Law 64 grants and loans to be tied to the

production of particular products. (See, Pasta from Italy, 61 FR at

30292.) In fact, the grants and loans are provided only after companies

have committed funds for investment in

[[Page 17374]]

facilities to produce a particular product or products. Law 64

applications and awards indicate clearly the level of investment

required of the recipient, the portion to be provided by the

government, and a clear statement of the purpose of the investment.

Follow-up audits by the GOI serve to ensure that funds have been used

as claimed.

The Law 64 grants and loans received by certain Petrini family

companies were for the production of products other than pasta or the

inputs to pasta. In fact, Petrini's only pasta production and flour

mill facilities are located in the North and did not qualify for Law 64

benefits.

Under these circumstances, we consider the subsidies in question to

be tied to the production of products other than pasta. Accordingly, we

preliminarily conclude that these subsidies did not confer a benefit on

the subject merchandise.

Affiliated Parties

In the present review, we have examined several affiliated

companies (within the meaning of section 771(33) of the Act) whose

relationship may be sufficient to warrant treatment as a single

company. In the countervailing duty questionnaire, consistent with our

past practice, the Department defined companies as sufficiently related

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

where companies prepare consolidated financial statements. The

Department also stated that companies may be considered sufficiently

related where there are common directors or one company performs

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

companies that produce the subject merchandise or that have engaged in

certain financial transactions with the company subject to review are

required to respond.

In accordance with this practice, we have determined that Delverde

and Tamma warrant treatment as a single company with a combined rate.

Although Tamma holds less than a 20 percent direct ownership interest

in the Delverde group, there is a substantial indirect ownership

relationship between Tamma and Delverde. In addition, the same

individual is the president of Tamma, Delverde, and Delverde's parent

company. Therefore, we calculated a single countervailing duty rate for

these companies by dividing their combined subsidy benefits by their

combined sales.

Analysis of Programs

I. Programs Previously Determined to Confer Subsidies

A. Local Income Tax (``ILOR'') Exemptions

Companies located in the Mezzogiorno may receive a complete

exemption for a period of 10 years from the ILOR on profits deriving

from new plant and equipment or from plant expansion and improvement

under Presidential Decree 218 of March 6, 1978. In addition, otherwise

non-qualifying profits which are reinvested in plant or equipment may

receive an exemption from the ILOR for the year of reinvestment. The

provision for ILOR exemptions expired on December 31, 1993, but

companies which were approved for the exemptions prior to this date may

continue to benefit from the exemption until the expiration of the 10-

year benefit period approved for each company.

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

filed during the POR.

In Pasta from Italy, the Department determined that the ILOR

exemptions were subsidies within the meaning of section 771(5) of the

Act, as the tax exemptions represented revenue foregone by the GOI and

conferred tax savings on the companies. Also, they were regionally

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

limited to companies located in the Mezzogiorno. In this review,

neither the GOI nor the responding companies provided new information

which would warrant reconsideration of this determination.

To calculate the countervailable subsidy, we divided the tax

savings in each year of the POR by the company's total sales in each

year. On this basis, we determine the countervailable subsidy from this

program for Delverde/Tamma to be 0.01 percent for Delverde/Tamma in

1995 and 0.01 percent ad valorem in 1996.

B. Industrial Development Grants Under Law 64/86

Law 64/86 provided assistance to promote industrial development in

the Mezzogiorno. Grants were awarded to companies constructing new

plants or expanding or modernizing existing plants. Pasta companies

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

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

saturated. Grants were made only after a private credit institution

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

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

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

however, were authorized to receive grant amounts after 1993. La

Molisana and Delverde/Tamma benefitted from industrial development

grants during to the POR.

In Pasta from Italy, the Department determined that these grants

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

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

bestowing a benefit in the amount of the grant. Also, these grants were

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

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

new information which would warrant reconsideration of this

determination.

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

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

of the GIA, 58 FR at 37226. In the current review, we have found no

reason to depart from this treatment.

In accordance with our past practice, we have allocated those

grants, which exceeded 0.5 percent of a company's sales in the year of

receipt, over time. (See, GIA at 58 FR 37226.)

To calculate the countervailable subsidy, we used our standard

grant methodology. We divided the benefit attributable to each company

in each year of the POR by its sales in each year. Thus, we determine

the countervailable subsidy for this program to be 1.37 percent ad

valorem in 1995 and 1.11 percent ad valorem in 1996 for La Molisana and

2.25 percent ad valorem in 1995 and 2.25 percent ad valorem in 1996 for

Delverde/Tamma.

As noted in the ``Change of Ownership'' section above, certain of

the Petrini family-owned companies received Law 64 grants prior to

their acquisition and absorption by Petrini, which we found to be tied

to the production of products other than pasta. After the acquisition

and absorption of these companies, Petrini itself received several Law

64 grants. Once again, we found these grants to be tied to products

other than pasta.

C. Industrial Development Loans Under Law 64/86

Law 64/86 also provided reduced rate industrial development loans

with interest contributions to companies constructing new plants or

expanding or modernizing existing plants in the Mezzogiorno. The

interest rate on these loans was set at the reference rate, with the

GOI's interest contributions serving

[[Page 17375]]

to reduce this rate. For the reasons discussed above, pasta companies

were eligible for interest contributions to expand existing plants but

not to establish new plants.

Delverde/Tamma and La Molisana received industrial development

loans with interest contributions from the GOI. These loans were

outstanding during the POR.

In Pasta from Italy, the Department determined that these loans

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

They were a direct transfer of funds from the GOI providing a benefit

in the amount of the difference between the benchmark interest rate and

the interest rate paid by the companies after accounting for the GOI's

interest contributions. Also, they were found to be regionally specific

within the meaning of section 771(5A). In this review, neither the GOI

nor the responding companies provided new information which would

warrant reconsideration of this determination.

It is the Department's practice to measure the benefit conferred by

interest rebates using our loan methodology if the company knew in

advance that the government was likely to pay or rebate interest on the

loan at the time the loan was taken out. (See, e.g., Certain Steel from

Italy). Because, in this case, the recipients of the interest

contributions knew, prior to taking out the loans, that the GOI likely

would provide the interest contributions, we have allocated the benefit

over the life of the loan for which the contribution was received. We

divided the benefit attributable to each year of the POR for each

company by its sales in each year. On this basis, we determine the

countervailable subsidy for this program to be 0.36 percent ad valorem

in 1995 and 0.24 percent ad valorem in 1996 for La Molisana and 0.71

percent ad valorem in 1995 and 0.64 percent ad valorem in 1996 for

Delverde/Tamma.

D. Export Marketing Grants under Law 304/90

To increase market share in non-EU markets, Law 304/90 provides

grants to encourage enterprises operating in the food and agricultural

sectors to carry out pilot projects aimed at developing links between

Italian producers and foreign distributors and improving services in

those markets. Emphasis is placed on assisting small- and medium-sized

producers.

In Pasta from Italy, the Department determined that the export

marketing grants under Law 304 provided countervailable subsidies

within the meaning of section 771(5) of the Act. The grants were a

direct transfer of funds from the GOI providing a benefit in the amount

of the grant. The grants were also found to be specific because their

receipt was contingent upon anticipated exportation. In this review,

neither the GOI nor the responding companies provided new information

which would warrant reconsideration of this determination.

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

development project in the United States prior to the POR.

Each project funded by a grant requires a separate application and

approval, and the projects represent one-time events in that they

involve an effort to establish warehouses, sales offices, and a selling

network in new overseas markets. Therefore, in Pasta from Italy, the

Department treated the grant received under this program as ``non-

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

of the GIA, 58 FR at 37226. Further, the Department found that the

grant exceeded 0.5 percent of Delverde/Tamma's exports to the United

States in the year it was received. Therefore, in accordance with our

past practice, we allocated the benefits of this grant over time. In

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

information which would warrant reconsideration of this determination.

To calculate the countervailable subsidy, we used our standard

grant methodology. We divided the benefits attributable to each year of

the POR by Delverde/Tamma's exports to the United States in each year.

On this basis, we determine the countervailable subsidy to be 0.13

percent ad valorem in 1995 and 0.35 percent ad valorem in 1996 for

Delverde/Tamma.

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

Southern Italy

The Sabatini Law was enacted in 1965 to encourage the purchase of

machine tools and production machinery. It provides for a deferral of

up to five years of payments due on installment contracts for the

purchase of such equipment and for a one-time, lump-sum interest

contribution from Mediocredito Centrale toward the interest owed on

these contracts. The amount of the interest contribution is equal to

the present value of the difference between the payment stream over the

life of the contract based on the reference rate and the payment stream

over the life of the contract based on a concessionary rate. The

concessionary rate for companies located in the Mezzogiorno is the

reference rate less eight percentage points. The concessionary rate for

companies located outside the Mezzogiorno is the reference rate less

five percentage points.

Audisio and Petrini received interest contributions under the

Sabatini Law for loans outstanding during the POR, which were related

to the production of pasta and inputs to pasta in the North. Petrini

also received other interest contributions in both northern and

southern Italy, but these benefits were tied to non-subject

merchandise. In addition, La Molisana received an interest contribution

at the concessionary rate available in the Mezzogiorno for a loan still

outstanding during the first year of the POR, which was related to

pasta production.

With respect to the benefits provided in northern Italy, the

Department, in Pasta from Italy, analyzed whether the program was

specific ``in law or in fact,'' within the meaning of section

771(5A)(D)(i) and (iii). The Department concluded that these benefits

were not specific and, therefore, not countervailable. In this review,

the petitioner provided no new information which would warrant

reconsideration of this determination.

Because the concessionary rate for companies in southern Italy was

lower than the interest rate available to users of the program in

northern Italy, however, the Department in Pasta from Italy determined

that the Sabatini Law interest contributions to companies in southern

Italy were countervailable subsidies within the meaning of section

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

benefit in the amount of the difference between the benchmark interest

rate and the interest rate paid by the companies. In addition, they

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

review, neither the GOI nor the responding companies provided new

information which would warrant reconsideration of this determination.

As stated earlier (see, Industrial Development Loans section,

above), when a company knows in advance that the government is likely

to pay or rebate interest on a loan, we will measure the benefit

conferred by that rebate using our loan methodology. Because La

Molisana knew, prior to taking out the loan at issue here, that it

would receive the interest contribution, we have allocated the benefit

over the life of the loan for which the contribution was received. We

divided the benefit attributable to each year of the POR by La

Molisana's sales in each year. Thus, we determine the countervailable

subsidy for this program to be 0.05 percent ad valorem in 1995 and 0.00

[[Page 17376]]

percent ad valorem in 1996 for La Molisana.

F. Social Security Reductions and Exemptions

1. Sgravi Benefits. Pursuant to Law 1089 of October 25, 1968,

companies located in the Mezzogiorno were granted a 10 percent

reduction in social security contributions for all employees on the

payroll as of September 1, 1968, as well as those hired thereafter.

Subsequent laws authorized companies located in the Mezzogiorno to take

additional reductions in social security contributions for employees

hired during later periods, provided that the new hires represented a

net increase in the employment level of the company. The additional

reductions ranged from 10 to 20 percentage points. Further, for

employees hired during the period July 1, 1976 to November 30, 1991,

companies located in the Mezzogiorno were granted a full exemption from

social security contributions for a period of 10 years, provided that

employment levels showed an increase over a base period.

In Pasta from Italy, the Department determined that the social

security reductions and exemptions were countervailable subsidies

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

by the GOI and they conferred a benefit in the amount of the savings

received by the companies. Also, they were found to be specific within

the meaning of section 771(5A) because they are limited to companies

located in the Mezzogiorno. In this review, neither the GOI nor the

responding companies provided new information which would warrant

reconsideration of this determination.

Delverde/Tamma and La Molisana received social security reductions

and exemptions during the POR.

To calculate the countervailable subsidy, we divided the savings in

social security contributions by each company during each year of the

POR by that company's sales in each year. On this basis, we calculated

the countervailable subsidy from this program to be 1.23 percent ad

valorem in 1995 and 0.91 percent ad valorem in 1996 for Delverde/Tamma

and 0.90 percent ad valorem in 1995 and 0.70 percent ad valorem in 1996

for La Molisana.

One respondent, Petrini, produces animal feed, chickens and eggs in

southern Italy. All of Petrini's facilities related to pasta production

and inputs thereto are located in the North. Petrini did not receive

countervailable social security benefits with regard to any of its

operations in the North. However, Petrini did receive social security

benefits available to companies operating in the Mezzogiorno for its

operations there.

We determine that the social security benefits received by

Petrini's operations in southern Italy were tied to the production and

sale of animal feed and other animal products. Therefore, for purposes

of these preliminary results, we have not included these social

security benefits in our calculation of the ad valorem subsidy rate

applicable to Petrini.

2. Fiscalizzazione Benefits. In addition to the sgravi deductions

described above, the GOI provides Social Security benefits of another

type, called ``fiscalizzazione.'' Fiscalizzazione is a nationwide

measure which provides a reduction of certain social security payments

related to health care or insurance. The program provides an equivalent

level of deductions throughout Italy for contributions related to

tuberculosis, orphans, and pensions. However, the program provides a

higher deduction from contributions to the National Health Insurance

system for manufacturing enterprises located in southern Italy compared

to those located in northern Italy. During the POR, the differential

was 6.16 percent of base salary until July 31, 1995, when it was

reduced to five percent. On January 1, 1996, it was further reduced to

four percent.

In Pasta from Italy, the Department determined that the

fiscalizzazione reductions were countervailable subsidies within the

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

Italy. They represented revenue foregone by the GOI and conferred a

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

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

specific within the meaning of section 771(5A). In this review, neither

the GOI nor the responding companies provided new information which

would warrant reconsideration of this determination.

Delverde/Tamma and La Molisana received the higher levels of

fiscalizzazione deductions available to companies located in the

Mezzogiorno during the POR.

To calculate the countervailable subsidy, we divided the excess

fiscalizzazione deductions realized by each company in each year of the

POR by its sales in each year. On this basis, we calculated the

countervailable subsidy from this program to be 0.44 percent ad valorem

in 1995 and 0.20 percent ad valorem in 1996 for Delverde/Tamma and 0.64

percent ad valorem in 1995 and 0.38 percent ad valorem in 1996 for La

Molisana.

3. Law 407/90 Benefits. Law 407/90 grants a two-year exemption from

social security taxes when a company hires a worker who has been

previously unemployed for a period of two years or more. A 100 percent

exemption was allowed for companies in southern Italy. However,

companies located in northern Italy received only a 50 percent

exemption.

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

exemptions provided to companies with operations in southern Italy

under Law 407 were countervailable subsidies within the meaning of

section 771(5). They represented revenue foregone by the GOI and

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

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

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

review, neither the GOI nor the responding companies provided new

information which would warrant reconsideration of this determination.

Delverde/Tamma received the higher level of Law 407 deductions

available to companies located in the Mezzogiorno during the POR.

To calculate the countervailable subsidy rate, we divided the

amount of the Law 407 exemption which exceeds the amount available in

northern Italy realized by Delverde/Tamma in each year of the POR by

that company's sales during the same period. On this basis, we

calculated the countervailable subsidy from this program to be 0.00

percent ad valorem in 1995 and 0.00 percent ad valorem in 1996 for

Delverde/Tamma.

4. Law 863 Benefits. Law 863 provides for a reduction of social

security payments of 25 percent for companies in northern Italy for

employees who are participating in a training program. Companies in

southern Italy receive a 100 percent reduction in social security

payments for such employees.

In Pasta from Italy, the Department determined that Law 863

reductions were countervailable subsidies within the meaning of section

771(5) for companies with operations in southern Italy. They

represented revenue foregone by the GOI and confer a benefit in the

amount of the greater savings accruing to the companies in southern

Italy. In addition, they were found to be regionally specific within

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

responding companies provided new information which would warrant

reconsideration of this determination.

[[Page 17377]]

Delverde/Tamma and La Molisana received the higher level of Law 863

deductions available to companies located in the Mezzogiorno during the

POR.

To calculate the countervailable subsidy, we divided the amount of

the Law 863 reductions which exceeds the amount available in northern

Italy realized by each company in each year of the POR by it sales in

that year. On this basis, we calculated the countervailable subsidy

from this program to be 0.05 percent ad valorem in 1995 and 0.11

percent ad valorem in 1996 for Delverde/Tamma and 0.03 percent for La

Molisana.

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

Law 227/77

The Special Section for Export Credit Insurance (``SACE'') was

created under Article 2 of Law 227/77 as the branch of the GOI

responsible for the administration of government export credit

insurance and guarantee programs. Pursuant to Article 3 of Law 227/77,

SACE insures and reinsures political, catastrophic, economic,

commercial and exchange-rate risks which Italian operators are exposed

to in their foreign activities.

During the POR, only one private insurance company, Societa

Italiana Crediti S.p.A. (``SIAC''), had a reinsurance agreement with

SACE. Under the reinsurance agreement, SIAC passed along a fixed

percentage (i.e., 45 percent) of its export credit insurance premia to

SACE. In return, SACE assumed that same percentage of risk on export

credit insurance policies sold by SIAC (i.e., SACE would pay 45 percent

of any claim for which SIAC would become liable).

Article 33 of Law 227/77 provides for the remission of insurance

taxes on policies directly insured or reinsured with SACE. For

reinsurance policies, this remission of insurance taxes applied not

only to the portion of the risk covered by SACE, but also the remaining

portion covered by the private insurance company. As a result, export

credit insurance policies sold by SIAC during the POR were totally

exempt from the insurance tax by virtue of its reinsurance agreement

with SACE. Export credit insurance policies sold by other private

insurance companies, however, were not exempt from the insurance tax.

The insurance tax rate was 12.5 percent of premia paid.

In Pasta from Italy, we determined that the exemption from the

insurance tax for policies directly insured or reinsured with SACE was

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

Act. The exemption represents revenue foregone by the GOI and confers

tax savings on the companies. Also, because export credit insurance was

available only to exporters and was by its nature contingent upon

export performance, we found the remission of taxes on export credit

insurance to be specific within the meaning of section 771(5A) of the

Act. In this review, neither the GOI nor the responding companies

provided new information which would warrant reconsideration of this

determination.

La Molisana obtained export credit insurance from SIAC for its

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

insurance tax. To calculate the benefit, we multiplied the premia paid

during each year of the POR for exports to the United States by the

insurance tax rate and divided the amount by total exports to the

United States in each year. We calculated a countervailable subsidy

rate of 0.04 percent ad valorem in 1995 and 0.04 percent ad valorem in

1996 for La Molisana.

H. European Social Fund

The ESF is one of the Structural Funds operated by the EU. The ESF

was created under Article 123 of the Treaty of Rome in order to improve

employment opportunities for workers and to help raise their living

standards. The ESF provides principally vocational training and

employment aids. ESF aid is generally provided directly to public

institutions or non-commercial enterprises. However, it can also be

provided directly to a company, as long as it is located in an

Objective 1, Objective 2, or Objective 5(b) region. Objective 1 regions

are those regions whose development and structural adjustment has been

identified by the EU as lagging behind. Objective 2 regions are

frontier regions seriously affected by industrial decline. Objective

5(b) regions are rural regions in need of development. The ESF provides

grants to companies located in such regions in order to train current

employees for new jobs or to hire new employees.

Delverde/Tamma received ESF grants.

In Pasta from Italy, the Department determined that ESF grants were

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

Act. The Department considers worker assistance programs to be

countervailable when a company is relieved of an obligation it would

otherwise have incurred. (See, GIA 58 FR at 37255.) In addition to

providing funds for training programs which may or may not relieve

companies of an obligation, ESF funds were available to aid companies

in hiring new employees. Because a company is normally obligated to

meet its hiring needs without assistance from the government, ESF funds

clearly relieved companies of an obligation. Thus, the grants were a

direct transfer of funds providing a benefit in the amount of the

grant. Also, because ESF assistance to individual companies is limited

to companies located in Objective 1, Objective 2, and Objective 5(b)

regions, they were found to be regionally specific within the meaning

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

responding companies provided new information which would warrant

reconsideration of this determination.

Because a separate application is required for each grant and

because grants are awarded for specific projects, we have found the

grants to be non-recurring. We determined that the grants received by

Delverde/Tamma were less than 0.5 percent of the companies' sales in

1995, the year of receipt. Therefore, in accordance with past practice,

we expensed these non-recurring grants to the year of receipt. On this

basis, we calculated a countervailable subsidy rate of 0.04 percent ad

valorem for Delverde/Tamma in 1995.

I. Export Restitution Payments

Since 1962, the EU has operated a subsidy program which provides

restitution payments to EU pasta exporters based on the durum wheat

content of their exported pasta products. Generally, under this

program, a restitution payment is available to any EU exporter of pasta

products, regardless of whether the pasta was made with imported wheat

or wheat grown within the EU. The amount of the restitution payment is

calculated by multiplying the prevailing restitution payment rate on

the date of exportation by the weight of the unmilled durum wheat used

to produce the exported pasta. The weight of the unmilled durum wheat

is calculated by applying a conversion factor to the weight of the

pasta. The EU calculates the restitution payment rate, on a monthly

basis, by first computing the difference between the world market price

of durum wheat and an internal EU price and then adding a monthly

increment (in all months except June and July, which are harvest

months). The EU will not normally allow the restitution payment rate to

be higher than the levy that the EU imposes on imported durum wheat, as

such a situation would lead to circular trade.

In 1987, the nature of this program changed with regard to exports

to the

[[Page 17378]]

United States as a result of a settlement reached by the United States

and the EU. This settlement arose out of a GATT panel proceeding,

brought by the United States, in which the panel ruled (in 1983) that

the restitution program violated the EU's GATT obligations and did not

fall within the exception under Item (d) of the Illustrative List of

Export Subsidies.

Under the settlement, the EU agreed to allow the importation of

durum wheat from any non-EU country free of any levy under a system

described in the settlement as ``Inward Processing Relief'' (``IPR'').

Under this system, the EU pasta exporter would not receive a

restitution payment when exporting to the United States pasta products

containing durum wheat imported with IPR. Essentially, a restitution

payment no longer was necessary because no levy had been paid upon

importation of durum wheat in the first place.

As to pasta products containing EU durum wheat or durum wheat that

had been imported without IPR, a restitution payment remained available

for exports to the United States, except that the restitution rate was

reduced, originally by 27.5 percent and later by approximately 35

percent, from the normal level available for exports to all other

countries.

As a further condition of the settlement, the EU agreed to attempt

to balance its exports to the United States equally between pasta

products containing durum wheat imported with IPR, on the one hand, and

pasta products containing EU durum wheat or durum wheat imported

without IPR, on the other hand. The goal was for 50 percent of the EU's

pasta exports to the United States to contain durum wheat imported with

IPR (for which the exporter had paid world market price, free of any

levy, and had received no restitution payments), while the remaining 50

percent of the EU's pasta exports to the United States would contain EU

durum wheat or durum wheat imported without IPR (for which the exporter

could receive reduced restitution payments). In all other respects, the

program remained unchanged.

In Pasta from Italy, the Department determined that export

restitution payments were countervailable subsidies within the meaning

of section 771(5) of the Act. Each payment represented a direct

transfer of funds from the EU providing a benefit in the amount of the

payment. The restitution payments were found to be specific because

their receipt is contingent upon export performance. In this review,

neither the GOI, the EU nor the responding companies provided new

information which would warrant reconsideration of this determination.

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

restitution payments during the POR on shipments to the United States.

In accordance with our normal practice of recognizing subsidy

benefits when there is a cash-flow effect, we have calculated the

subsidy rate for export restitution benefits based on the amount

actually received during the POR. Export restitution benefits are not

``automatic'' in that their receipt is not certain until an application

has been filed. The amounts received, while generally quite close to

the amounts requested, do not always equal the amount indicated by the

company on its request form. Thus, we have calculated the subsidy rate

for export restitution benefits based on the amount actually received

during the POR.

To calculate the subsidy, we divided the export restitution

payments received in each year of the POR on shipments to the United

States by the company's sales of pasta for export to the United States

in each year. We calculated a countervailable subsidy under this

program of 0.23 percent ad valorem in 1995 and 0.19 percent ad valorem

in 1996 for Delverde/Tamma, 0.08 percent ad valorem in 1995 and 0.07

percent ad valorem in 1996 for La Molisana, 2.27 percent ad valorem in

1995 and 0.00 percent ad valorem in 1996 for Petrini, and 7.78 percent

ad valorem in 1995 and 0.00 percent ad valorem in 1996 for Audisio.

II. Program Preliminarily Determined to Confer a Subsidy: Grant

Received Pursuant to the Community Initiative Concerning the

Preparation of Enterprises for the Single Market (PRISMA)

PRISMA, a program funded by the European Structural Fund, seeks to

contribute to the creation of a single EU market by improving

standardization and quality control procedures, and seeks to assist

small- and medium-sized enterprises in Objective 1 regions to adapt to

a single EU market and increased competition.

La Molisana received a PRISMA grant in 1996.

We preliminarily find that PRISMA grants constitute countervailable

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

represent a transfer of funds from the administering government and

provide a benefit in the amount of the grant. Further, we preliminarily

find that they are specific within the meaning of section 771(5A)

because they are limited to firms located in designated geographic

regions.

Because the grant received by La Molisana was less than 0.5 percent

of the company's sales in 1996, the year of receipt, we have allocated

the entire grant to that year. To calculate the countervailable

subsidy, we divided the benefit received by La Molisana's sales in

1996, the year of receipt. On this basis, we determine the

countervailable subsidy for this program to be 0.00 percent ad valorem

in 1995 and 0.10 percent ad valorem in 1996 for La Molisana.

III. Programs Preliminarily Determined to Be Not Used

We examined the following programs and preliminarily determine that

the producers and/or exporters of the subject merchandise did not apply

for nor receive benefits under these programs during the POR:

A. VAT Reductions

B. Export Credits Under Law 227/77

C. Capital Grants Under Law 675/77

D. Retraining Grants Under Law 675/77

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

F. Interest Grants Financed by IRI Bonds

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

H. Corporate Income Tax (``IRPEG'') Exemptions

I. European Agricultural Guidance and Guarantee Fund

J. Urban Redevelopment Under Law 181

Preliminary Results of Review

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

individual subsidy rate for each producer/exporter subject to this

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

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

24, 1996, through December 31, 1996, we preliminarily determine the net

subsidy rates for producers/exporters under review to be those

specified in the chart shown below. (In accordance with section 703(d)

of the Act, countervailing duties will not be assessed on entries made

during the period February 14, 1996, through July 23, 1996.) If the

final results of this review remain the same as these preliminary

results, the Department intends to instruct customs to assess

countervailing duties at these net subsidy rates.

The Department also intends to instruct Customs to collect cash

deposits of estimated countervailing duties at these rates on the

f.o.b. value

[[Page 17379]]

of all shipments of the subject merchandise from the producers/

exporters under review entered, or withdrawn from warehouse, for

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

this administrative review.

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

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

investigated and reviewed companies, the procedures for establishing

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

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

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

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

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

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

rate, and cash deposits must continue to be collected, at the rate

previously ordered. As such, the countervailing duty cash deposit rate

applicable to a company can no longer change, except pursuant to a

request for a review of that company. See, Federal-Mogul Corporation

and The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993)

and Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993)

(interpreting 19 CFR 353.22(e), the antidumping regulation on automatic

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

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

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

these reviews.

We will instruct Customs to continue to collect cash deposits for

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

(``Barilla'') and Gruppo Agricoltura Sana S.r.L. (``Gruppo'') (which

were excluded from the order during the investigation), at the most

recent company-specific or country-wide rate applicable to the company.

Accordingly, the cash deposit rates that will be applied to non-

reviewed companies covered by this order are those established in the

Notice of Countervailing Duty Order and Amended Final Affirmative

Countervailing Duty Determination: Certain Pasta (``Pasta'') from Italy

(61 FR 38544, July 24, 1996), the most recently published

countervailing duty rates for companies not reviewed in this

administrative review. These rates shall apply to all non-reviewed

companies until a review of a company assigned these rates is

requested. In addition, for the periods from October 17, 1995, through

February 13, 1996, and from July 24, 1996, through December 31, 1996,

the assessment rates applicable to all non-reviewed companies covered

by these orders are the cash deposit rates in effect at the time of

entry, except for Barilla and Gruppo (which were excluded from the

order during the original investigation).

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

Ad valorem rate

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

01/01/96 to 02/

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

31/95 24/96 to 12/31/

96

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

Delverde, S.r.l......................... 5.09 4.66

La Molisana Alimentari S.p.A............ 3.44 2.67

Tamma Industrie Alimentari di Capitanata 5.09 4.66

Petrini................................. 2.27 0.00

Audisio................................. 7.78 0.00

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

Public Comment

Parties to this proceeding may request disclosure of the

calculation methodology and interested parties may request a hearing

not later than 30 days after the date of publication of this notice.

Interested parties may submit written arguments in case briefs on these

preliminary results within 30 days of the date of publication. Rebuttal

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

five days after the time limit for filing the case brief. Parties who

submit an argument in this proceeding are requested to submit with the

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

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

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

and rebuttal briefs must be served on interested parties in accordance

with 19 CFR 351.303(f).

Representatives of parties to the proceeding may request disclosure

of proprietary information under administrative protective order no

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

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

the case briefs, under 19 CFR 351.309(c)(ii), are due.

The Department will publish the final results of this

administrative review, including the results of its analysis of issues

raised in any case or rebuttal briefs or at a hearing.

This administrative review and notice are in accordance with

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

Dated: April 2, 1998.

Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-9434 Filed 4-8-98; 8:45 am]

BILLING CODE 3510-DS-P