Final Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils From France

DEPARTMENT OF COMMERCE

International Trade Administration

[C-427-815]

Final Affirmative Countervailing Duty Determination: Stainless

Steel Sheet and Strip in Coils From France

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 8, 1999.

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

O'Hara, AD/CVD Enforcement, Group I, Office 1, Import Administration,

U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone: (202) 482-3853, 482-6309, or 482-

3798, respectively.

Final Determination

The Department of Commerce (the Department) determines that

countervailable subsidies are being provided to producers and 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.

The 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 preliminary determination (see

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, 63

FR 63876 (November 17, 1998) (Preliminary Determination)), the

following events have occurred:

We conducted verification in Belgium and France of the

questionnaire responses submitted by the European Commission (EC), the

Government of France (GOF), and Usinor (the only respondent company in

this investigation) from November 11 through November 24, 1998. On

November 24 and December 8, 1998, we received allegations of certain

clerical errors in the Preliminary Determination. We corrected these

errors in a January 20, 1999, memorandum to Laurie Parkhill, Acting

Deputy Assistant Secretary (see ``Clerical Error Allegations in the

Preliminary Determination of Stainless Steel Sheet and Strip in Coils

from France'' (``Clerical Errors Memo'') which is on file in the

Central Records Unit of the Department). On February 18, 1999, we

postponed the final determination of this investigation until May 19,

1999 (see Countervailing Duty Investigations of Stainless Steel Sheet

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

Notice of Extension of Time Limit for Final Determinations, 64 FR 9476

(February 26, 1999)). The petitioners and Usinor/GOF filed case and

rebuttal briefs on March 3 and March 10, 1999. A public hearing was

held on March 12, 1999.

Scope of Investigation

We have made minor corrections to the scope language excluding

certain stainless steel foil for automotive catalytic converters and

certain specialty stainless steel products in response to comments by

interested parties.

For purposes of this investigation, 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 the

following 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,

[[Page 30775]]

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, 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 Department's written description

of the merchandise under investigation is dispositive.

Excluded from the scope of this investigation 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, with a prepared edge, rectangular in shape, of a width of not

more than 9.5 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).

In response to comments by interested parties the Department has

determined that certain specialty stainless steel products are also

excluded from the scope of this investigation. These excluded products

are described below:

Flapper valve steel is defined as stainless steel strip in coils

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 between 210 and 300 ksi, yield

strength of between 170 and 270 ksi, plus or minus 8 ksi, and a

hardness (Hv) of between 460 and 590. Flapper valve steel is most

commonly used to produce specialty flapper valves in compressors.

Also excluded is a product referred to as suspension foil, a

specialty steel product used 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 microns, with a thickness tolerance of plus-or-minus 2.01

microns, 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. The material must exhibit

residual stresses of 2 mm maximum deflection and flatness of 1.6 mm

over 685 mm length.

Certain stainless steel foil for automotive catalytic converters is

also excluded from the scope of this investigation. This stainless

steel strip in coils is a specialty foil with a thickness of between 20

and 110 microns used to produce a metallic substrate with a honeycomb

structure for use in automotive catalytic converters. The steel

contains, by weight, carbon of no more than 0.030 percent, silicon of

no more than 1.0 percent, manganese of no more than 1.0 percent,

chromium of between 19 and 22 percent, aluminum of no less than 5.0

percent, phosphorus of no more than 0.045 percent, sulfur of no more

than 0.03 percent, lanthanum of less than 0.002 or greater than 0.05

percent, and total rare earth elements of more than 0.06 percent, with

the balance iron.

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

excluded from the scope of this investigation. 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 228.6 mm or less,

and a thickness between 0.127 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 under proprietary trade names such

as ``Arnokrome III.'' 1

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

Company.

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Certain electrical resistance alloy steel is also excluded from the

scope of this investigation. 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 under

proprietary trade names such as ``Gilphy 36.'' 2

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

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Certain martensitic precipitation-hardenable stainless steel is

also excluded from the scope of this investigation. This high-strength,

ductile stainless steel product is designated under the Unified

Numbering System (UNS) as S45500-grade steel, and contains, by weight,

11 to 13 percent chromium and 7 to 10 percent nickel. Carbon,

manganese, silicon and molybdenum each comprise, by weight, 0.05

percent or less, with phosphorus and sulfur each comprising, by weight,

0.03 percent or less. This steel has copper, niobium, and titanium

added to achieve aging and will exhibit yield strengths as high as 1700

Mpa and ultimate tensile strengths as high as 1750 Mpa after aging,

with elongation percentages of 3 percent or less in 50 mm. It is

generally provided in thicknesses between 0.635 and 0.787 mm, and in

widths of 25.4 mm. This product is most commonly used in the

manufacture of television tubes and is currently available under

proprietary trade names such as ``Durphynox 17.'' 3

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\3\ ``Durphynox 17'' is a trademark of Imphy, S.A.

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Finally, three specialty stainless steels typically used in certain

industrial blades and surgical and medical instruments are also

excluded from the scope of this investigation. These include stainless

steel strip in coils used in the production of textile cutting tools

(e.g., carpet knives). 4 This steel is similar to AISI grade

420 but containing, by weight, 0.5 to 0.7 percent of molybdenum. The

steel also contains, by weight, carbon of between 1.0 and 1.1 percent,

sulfur of 0.020 percent or less, and includes between 0.20 and 0.30

percent copper and between 0.20 and 0.50 percent cobalt. This steel is

sold under proprietary names such as ``GIN4 Mo.'' The second excluded

stainless steel strip in coils is similar to AISI 420-J2 and contains,

by weight, carbon of between 0.62 and 0.70 percent, silicon of between

0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent,

phosphorus of no more than 0.025 percent, and sulfur of

[[Page 30776]]

no more than 0.020 percent. This steel has a carbide density on average

of 100 carbide particles per 100 square microns. An example of this

product is ``GIN5'' steel. The third specialty steel has a chemical

composition similar to AISI 420 F, with carbon of between 0.37 and 0.43

percent, molybdenum of between 1.15 and 1.35 percent, but lower

manganese of between 0.20 and 0.80 percent, phosphorus of no more than

0.025 percent, silicon of between 0.20 and 0.50 percent, and sulfur of

no more than 0.020 percent. This product is supplied with a hardness of

more than Hv 500 guaranteed after customer processing, and is supplied

as, for example, ``GIN6''. 5

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\4\ This list of uses is illustrative and provided for

descriptive purposes only.

\5\ 'GIN4 Mo,'' ``GIN5'' and ``GIN6'' are the proprietary grades

of Hitachi Metals America, Ltd.

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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 (URAA) effective January 1, 1995 (the

Act). In addition, unless otherwise indicated, all citations to the

Department's regulations are to the regulations 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)).

Period of Investigation

The period of investigation for which we are measuring subsidies

(the POI) is calendar year 1997.

Corporate History

As stated in the Preliminary Determination, 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, Usinor

Sacilor sold approximately 40 percent of its equity in Ugine S.A. to

the general public. However, in 1995, Usinor Sacilor bought back the

shares in Ugine S.A. and obtained total 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. In 1991, Credit Lyonnais, a government-owned

bank, bought 20 percent of the equity in the company.

In July 1995, the privatization of Usinor Sacilor began. At the

same time, Usinor Sacilor offered additional shares for sale in the

form of a capital increase. All 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. The privatization

continued throughout the years 1996 and 1997. At the end of the

privatization, the stable shareholders held approximately 14 percent of

Usinor's total shares, 10 percent of which were held by government-

owned or controlled entities.

Usinor purchased shares from the GOF in 1995 to sell to employees

on an extended payment plan in 1996. In addition, the GOF sold shares

to employees at the time of the 1995 privatization. Monies for these

shares were received by the GOF in 1995, 1996, and 1997. In December

1995, Usinor Sacilor repurchased shares of Ugine which had been

previously sold to the public, approximately 41 percent of Ugine's

shares.

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 their shares for at least 18 months

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

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

one percent of total Usinor shares. These shares were to be given away

without remuneration (for ``free'') in August 1998.

As noted in the February 19, 1999, Usinor Verification Report

(Usinor Report), because the French steel industry was not thriving in

the mid-1990's, Usinor made an effort to streamline its holdings and

maintain ownership of only steel-producing divisions. This streamlining

included the sale of the Richemont power plant in 1994, as well as the

sale of assets to FOS-OXY in 1993 and Entreprise Jean LeFebvre in 1994.

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 explained our

current 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 non-recurring 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

[[Page 30777]]

value of all remaining benefits at the time of privatization. For

further discussion of our privatization methodology, see Preliminary

Determination, 63 FR at 63878, and the Clerical Errors Memo.

With respect to spin-offs, consistent with our position regarding

privatization, we analyze the spin-off of productive units to assess

what portion of the sales price of the productive units can be

attributable to payment for 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

that can be viewed as payment for prior subsidies in accordance with

the privatization methodology outlined above.

Usinor and the GOF have indicated their opposition to the

Department's methodology in recalculating the amount of subsidies

attributable to Usinor after the spin-off of the Richemont facility.

(We did this recalculation to address a clerical error in the

Preliminary Determination.) The GOF and Usinor do not agree that the

subsidies attributable to Richemont should have been reallocated to

Usinor as a result of the sale of Richemont. Instead, in their view, at

least some of the subsidies originally attributable to Richemont's

production should have been assigned to Richemont after its sale.

The petitioners support the corrections described in the

Department's Clerical Errors Memo. They argue that, in making the

changes, the Department has applied correctly the spin-off methodology

upheld by the court in British Steel plc v. United States, 27 F. Supp.

2d 209 (CIT 1998). The petitioners maintain that there is not an

extinguishment of subsidies in a spin-off, citing the Final

Determination of Redetermination Pursuant to Delverde SrL v. United

States, 989 F. Supp. 218 (CIT 1997).

We disagree with the GOF and Usinor, and we have continued to apply

the methodology described in the Clerical Errors Memo regarding the

sale of the Richemont facility. The revised calculation comports with

the Department's methodology as described in the GIA, 58 FR at 37269.

In this instance, application of our methodology leads to the

conclusion that all subsidies potentially allocable to Richemont were,

in fact, returned to the seller (Usinor) through the price paid for

Richemont.

In addition, the petitioners have argued that, because the change

in ownership of Ugine in 1994, as well as the privatization of Usinor

in 1996 and 1997, did not result in changes in the control of these

companies, the change-in-ownership methodology should not be applied.

The petitioners cite to Inland Steel Bar Co. v. United States, 155 F.3d

1370, 1374 (Fed. Cir. 1998) (Inland Steel), in which the court stated

that a purchaser's valuation of a company ``will depend not only on the

intrinsic value of the unit, but also on whether the purchaser opts to

discharge the liability at purchase time rather than continuing to pay

countervailing duties until the obligation expires.''

According to the petitioners, the court's reasoning dictates that a

purchaser must be able to value a company's assets and liabilities,

assume the liabilities and opt to repay or reallocate the

countervailing duty liability. In order to do this, the petitioners

argue that a purchaser must take control of the company. The

petitioners argue that where the purchasing company acquires only a

minority share in the subsidized company, the liability remains with

the current majority owners while the minority purchaser simply buys

into the subsidized company.

In further support of their position, the petitioners cite to the

GIA, 58 FR at 37273, where the Department stated that ``a change in

ownership position, whereby a company's percentage of ownership

fluctuates over time, is not a bona fide spin-off. Therefore, we did

not perform the spin-off calculation with regard to change in ownership

position.'' The petitioners warn that application of the change-in-

ownership methodology to small-share transactions that do not affect

the control of a company would create a loophole in the countervailing

duty law whereby each share transaction on the open market would

constitute a change-in-ownership. In effect, point out the petitioners,

the privatization of a company via stock issuance would result in the

extinguishment of subsidies as each trade would result in a

reallocation of those subsidies. The petitioners also state that

continued application of the change-in-ownership methodology involving

minority transfers of ownership could also provide an incentive for

majority owners to manipulate share transactions so as to eliminate

countervailing duty liability.

The GOF and Usinor contend that the Department has never linked

application of its change-in-ownership methodology to a change in

control of the company. The GOF and Usinor insist that the methodology

should continue to be applied to the sale of shares in Ugine.

We have not adopted the position urged by the petitioners. In the

Department's recent decision in the Final Affirmative Countervailing

Duty Determination: Stainless Steel Plate in Coils from Italy, 64 FR

15508, 15510 (March 31, 1999) (Italian Plate), regarding the

application of the change-in-ownership methodology, the Department

stated:

We were not persuaded by petitioners' argument that a

transaction must involve a transfer of control in order for our

methodology to be applicable. However, we are deeply concerned that

application of our methodology to sales of private minority share

interests such as these could lead us toward the application of our

methodology to daily transactions on the open market for publicly

traded companies--a clearly absurd result that must be prevented.

The specific facts presented in Italian Plate led the Department to

conclude that it should not apply its methodology to certain changes in

the ownership of a respondent, AST. However, the Department has applied

its change-in-ownership methodology in other situations where there was

no change in control. For example, the Department applied its change-

in-ownership methodology to the partial privatizations of a respondent,

SSAB, undertaken by the Government of Sweden. See Final Affirmative

Countervailing Duty Determinations; Certain Steel Products from Sweden,

58 FR 37385, 37386 (July 9, 1993) (Certain Steel from Sweden).

Similarly, in Industrial Phosphoric Acid from Israel; Final Results of

Countervailing Duty Administrative Review, 63 FR 13626, 13627 (March

20, 1998) (IPA from Israel 1995 Review), the Department applied the

change-in-ownership methodology to the partial privatization of a

respondent, ICL. In that case, 24.9 percent of ICL's shares were sold.

Moreover, the Department has applied its change-in-ownership

methodology to transactions involving changing levels of ownership over

time. In Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from

the United Kingdom; Final Results of Countervailing Duty Administrative

Review, 63 FR 18367, 18368 (April 15, 1998) (UK Lead Bar 1996 Review),

as well as Certain Hot-Rolled Lead and Bismuth Carbon Steel Products

from the United Kingdom; Final Results of Countervailing Duty

[[Page 30778]]

Administrative Review, 61 FR 58377, 58381 (November 14, 1996) (UK Lead

Bar 1994 Review), the Department examined a situation where British

Steel placed its special steel business into a joint venture, UES. In

return, British Steel became partial owner of UES (and, consequently,

partial owner of the business it formerly owned). The Department

recognized this change and applied its change-in-ownership methodology

to this ``spin-off.'' Later, when UES was repurchased (``spun-in'') by

British Steel, the Department found that the subsidies that

``traveled'' with the UES should be ``rejoined'' with its parent

company's pool of untied subsidies. Thus, the change-in-ownership

methodology was also applied to this transaction. The UES spin-off

demonstrates, that the Department does not require a change in control

before it applies its change-in-ownership methodology. Moreover, where

changes in the level of ownership occur over time, as was the case with

British Steel and UES, we account for those changes through the change-

in-ownership methodology.

There have also been situations where application of the change-in-

ownership methodology was not appropriate. In Italian Plate, 64 FR at

15510, for example, the transactions at issue involved ``the sale of a

relatively small amount of shares by minority owners of a holding

company two levels removed from the production of the subject

merchandise.'' Also, in IPA from Israel 1995 Review, 63 FR at 13627,

the Department did not apply the change-in-ownership methodology to the

sales by another party, Rotem, of less than 0.05 percent of ICL because

the sale of shares had no impact on Rotem's overall net subsidy rate.

In light of these precedents and recognizing the flexibility

afforded by the statute in recognizing changes in ownership, we have

reexamined the circumstances surrounding the spin-off and spin-in of

Ugine, as well as the 1996 and 1997 sales of Usinor's shares by the GOF

for this final determination. We have continued to apply the change-in-

ownership methodology to the spin-off of Ugine and the post-1995 sale

of Usinor's shares by the GOF. Both sets of transactions involved sales

by a government or government-owned company (Usinor) and a significant

number of shares.

We have not, however, applied the change-in-ownership methodology

to the spin-in of Ugine. The repurchase of shares consisted of numerous

transactions between a predominately privately owned purchaser (Usinor)

and individual minority shareholders. By contrast, when UES was

reacquired by British Steel, the transaction involved only two parties,

each holding fifty percent of the subsidized company. Reallocation of

subsidies was appropriate in that case because the seller was a single

company selling a significant interest. Application of the change-in-

ownership methodology to the repurchase of Ugine shares in this case

would essentially result in an allocation of Ugine's subsidies to

individual investors who are trading Ugine shares on the market. As we

indicated in Italian Plate, the change-in-ownership methodology was

never intended to result in such an allocation. Therefore, the

subsidies spun off in the 1994 sale of Ugine's shares were returned to

Usinor in their entirety when Usinor repurchased Ugine in 1995.

Consequently, in this final determination, we have applied the

change-in-ownership methodology to the following transactions: (1) the

sale of Ugine shares in 1994; (2) the 1994 sale of Centrale

Siderurgique de Richemont (CSR); (3) the privatization of Usinor which

spans 1995, 1996, and 1997; (4) the spin-off of assets to Entreprise

Jean LeFebvre in 1994; and (5) the spin-off of assets to FOS-OXY in

1993. See also our responses to Comment 2 concerning the spin-off of

assets to FOS-OXY and Entreprise Jean LeFebvre, and Comment 3

concerning the privatization of Usinor during the years 1995, 1996, and

1997.

Subsidies Valuation Information

Benchmarks for Loans and Discount Rates: To calculate the

countervailable benefit from loans and non-recurring grants received,

we used Usinor's company-specific cost of long-term, fixed-rate loans

where available. For years where a company-specific rate was not

available, 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 (i.e., 1984 through 1988),

we added a risk premium to the benchmark interest rate (see our

response to Comment 10 below regarding the selection of this rate) in

accordance with our practice described in Sec. 355.44(b)(6)(iv) of

Countervailing Duties; Notice of Proposed Rulemaking and Request for

Public Comment, 54 FR 23366, 23374 (May 31, 1989) (1989 Proposed

Regulations). While the 1989 Proposed Regulations are not controlling

in this case, they do represent the Department's practice with respect

to this investigation.

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 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-renewable physical assets of 14 years. This remand

determination was affirmed by the Court in British Steel plc v. United

States, 929 F. Supp. 426 (CIT 1996) (British Steel II).

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

recurring subsidies that were found to be countervailable in Final

Affirmative Countervailing Duty Determination: Certain Steel Products

from France, 58 FR 37304 (July 9, 1993) (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 determine that it is appropriate

to continue to allocate those subsidies over 14 years. See our response

to Comment 1, below.

This investigation includes no other non-recurring subsidies that

have been determined to provide countervailable benefits that should be

allocated over time. Accordingly, we have not calculated a new company-

specific allocation period for subsidies not previously investigated.

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

questionnaires, and the results of verification, we determine the

following:

I. Programs Determined To Be Countervailable GOF Programs

A. Loans With Special Characteristics (PACS)

The steel restructuring plan of 1978 created 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. According to the 1978 plan, bonds issued

previously 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

[[Page 30779]]

special characteristics'' or PACS. As a result of this process, the

steel companies were no longer liable for the loans and bonds, but they

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 FF

8.1 billion of new PACS. PACS in the amount of FF 13.8 billion, FF 12.6

billion, and FF 2.8 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 Bar from

France), 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 the POI of this investigation.

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

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

Because Usinor was uncreditworthy in the year 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

equity infusion appropriately allocated to Usinor during the POI. We

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

Accordingly, we determine the countervailable subsidy to be 1.22

percent ad valorem.

B. Shareholders' Advances

The GOF provided Usinor and Sacilor grants in the form of

shareholders' advances during the period 1982 through 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 Bar from France, the

Department determined that the shareholders' advances constituted

countervailable grants at the time the advances were received because

no shares were exchanged 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 during the POI. We divided this

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

determine the countervailable subsidy to be 0.97 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

Sid deg.rurgique (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 Bar from France, the

Department determined that the conversions 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 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 equity infusions as non-recurring grants given

in 1986 and 1988. 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 during

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

we determine the countervailable subsidy to be 3.09 percent ad valorem.

D. Investment and Operating Subsidies

During the period 1987 through 1997, Usinor received a variety of

small investment and operating subsidies from various GOF agencies as

well as from the European Coal and Steel Community (ECSC). The

subsidies were provided for research and development, projects to

reduce work-related illnesses and accidents, projects to combat water

pollution, etc. The subsidies are classified as investment, equipment,

or operating subsidies in the company's accounts, depending on how the

funds are used.

At verification, the GOF provided information about the water

program subsidies which indicated that Usinor received only a small

portion of the total amount of funding provided by the regional water

boards (les agences de l'eau) to reduce industrial pollution. For

reasons outlined in our response to Comment 8 below, we determine that

the water board subsidies are not specific to Usinor.

However, the GOF did not provide any information regarding the

distribution of funds under the other investment and operating subsidy

programs, citing the ``extreme burden'' of providing such information

and also because, in the GOF's view, the total amount of investment and

operating subsidies received by Usinor was ``insignificant and would .

. . be expensed.''

In accordance with section 776(a)(2) of the Act, we have,

therefore, decided to use facts available because the GOF did not

provide information that had been requested. Section 776(b) of the Act

permits the Department to draw an inference that is adverse to the

interests of an interested party if that party has ``failed to

cooperate by not acting to the best of its ability to comply with a

request for information.'' See Industrial

[[Page 30780]]

Phosphoric Acid from Israel: Final Results of Countervailing Duty

Administrative Review, 64 FR 2879, 2885 (January 19, 1999) (IPA from

Israel 1996 Review). Therefore, the Department determines it

appropriate to use an adverse inference in concluding that the

investment and operating subsidies (except those provided by the water

boards) are specific within the meaning of section 771(5A)(D) of the

Act.

We also determine that the investment and operating subsidies

provide a financial contribution, as described in section 771(5)(D)(i)

of the Act, in the form of a direct transfer of funds from the GOF and

the ECSC to Usinor, providing a benefit in the amount of the grants.

Because the investment and operating subsidies received in the

years prior to the POI were 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 subsidies received in 1997 by Usinor's total

sales during the POI. Accordingly, we determine the countervailable

subsidy to be 0.10 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 L'Agence pour la Matrise de L'nergie (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 AFME

covered the cost of some equipment for the project. This agreement

resulted in two disbursements to Ugine from 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.

The GOF has claimed that assistance for the Myosotis project was

provided under the Grands Projets Innovants (GPI) program which is

available to all industrial sectors in France. The GOF also asserts

that the program is a non-countervailable (i.e., ``green-light'')

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

At verification, we confirmed that the reimbursable advances were

provided under the GPI program. However, the information provided was

not sufficient to establish that the grants provided by the Ministry of

Industry and AFME were connected to the GPI program.

Accordingly, we determine that the grants constitute

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

Act. The amounts transferred are financial contributions in the form of

direct transfers of funds from the GOF to Usinor and/or Ugine pursuant

to section 771(5)(D)(i) of the Act. The GOF did not provide any

information indicating that the grants were provided to other companies

in France. Therefore, we determine that the grants provided to the

Myosotis project are specific within the meaning of section 771(5A)(D)

of the Act because they were provided exclusively to Usinor.

We 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 are expensing 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. Information

provided at verification indicates that Usinor makes all payments of

interest on its long-term loans on an annual basis. According to

information provided by private banks of France, we found that such a

payment schedule would not be considered atypical of general banking

practices in France. Accordingly, we have assumed that a payment on a

comparable commercial loan taken out by Usinor at the time of the

Myosotis advance 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 determine that there

is no benefit attributable to the POI. See GIA, 58 FR at 37228-29.

Consequently, we have not addressed whether the reimbursable advance

received under the GPI program in 1997 is countervailable. See our

response to Comment 9 below.

F. Electric Arc Furnace

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

reimbursable advances to support 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, 58 FR at

37228-29. Because Usinor did not receive any payments until 1998, there

is no benefit during the POI of this investigation. Consequently, we

have not addressed whether this program is countervailable.

G. GOF Conditional Advance

During our verification of Usinor, we learned that Usinor received

an interest-free conditional advance from the GOF. This advance was

provided through the Ministry of Industry in connection with a project

aimed to develop a new type of steel used in the production of

catalytic converters. Ugine, Sollac, and two unaffiliated companies

participated in the project and each company received a portion of the

total project funding provided by the GOF. Ugine received its first

payment in 1992 and a second payment in 1995. According to the

agreement between the GOF and the participating companies, repayment of

the advance was contingent upon sales of the product resulting from

this project exceeding a set amount. Because this condition has not

been met, the entire amount of the advance received by Ugine remained

outstanding during the POI.

We determine that this conditional advance constitutes a

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

Act. Because assistance was only provided to four companies, two of

which are part of the Usinor group, the program is specific pursuant to

section 771(5A)(D) of the Act. According to the Department's practice,

as reflected in Sec. 355.49(f) of the 1989 Proposed Regulations, the

Department normally treats an interest-free loan, for which the

repayment obligation is contingent upon certain subsequent events, as

an interest-free, short-term

[[Page 30781]]

loan for the purpose of calculating the amount of benefit. See also

Sec. 351.505(d) of Countervailing Duties; Final Rule, 63 FR 65438,

65410 (November 25, 1998) (Final CVD Regulations). Accordingly, we have

calculated the benefit from the advance by dividing the amount of

interest that would be due using the benchmark rate by the value of

Ugine's total sales. On this basis, we determine the countervailable

subsidy from this program to be less than 0.005 percent ad valorem.

H. Related-Party Grants

Usinor's financial statements identify ``grants from related

parties'' in the years 1992 through1995. Information provided by Usinor

demonstrates that these grants do not constitute a separate program

from the Myosotis project and investment and 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 project or investment and operating subsidies. Therefore,

we have not treated ``Related Party Grants'' as a separate program. See

``Myosotis Project'' and ``Investment and Operating Subsidies''

sections of this notice.

I. 1991 Grant to Ugine

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 project or

investment and operating subsidies. Because we investigated Myosotis

and investment and operating subsidies separately in this proceeding,

we have not treated the ``1991 Grant to Ugine'' as a separate program.

See ``Myosotis Project'' and ``Investment and Operating Subsidies''

sections of this notice.

EC Program

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

Structural Funds operated by the EC, was established in 1957. The main

purpose of the Fund is to improve workers' employment opportunities,

raise their living standards, and increase their geographical and

occupational mobility within the European Union (EU). 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 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. At

verification, we found that the Ugine Division had also received a

small ESF grant for its plant in Gueugnon in 1997. No GOF cofinancing

for the 1997 ESF grants was received during the POI. All the ESF grants

were provided under Objective 4.

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 30288, 30294 (June 14, 1996) (Pasta From Italy). While

Usinor has stated that the ESF grants did not relieve it of any

contractual or legal obligations, neither Usinor nor the GOF has

provided any documentation to support this claim. Since companies

normally incur the costs of training to enhance the job-related skills

of their employees, we determine that the ESF grants relieved Usinor of

an obligation it would have otherwise incurred.

Neither the EC nor the GOF has provided any documentation regarding

the distribution of ESF grants in France. At verification GOF officials

stated that, during the POI, Usinor did not receive a disproportionate

amount of ESF assistance, but they did not provide any documentation in

support of this statement.

In accordance with section 776(a)(2) of the Act, we have,

therefore, decided to use facts available because the GOF did not

provide information that we had requested. Section 776(b) of the Act

permits the Department to draw an inference that is adverse to the

interests of an interested party if that party has ``failed to

cooperate by not acting to the best of its ability to comply with a

request for information.'' See IPA from Israel 1996 Review. Therefore,

the Department determines it appropriate to use an adverse inference in

concluding that the ESF grants are specific within the meaning of

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

We also determine that the ESF grants provide a financial

contribution, as described in section 771(5)(D)(i) of the Act, in the

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

providing a benefit in the amount of the grants.

Normally, the Department considers the benefits from worker-

training programs to be recurring. See GIA, 58 FR at 37255. However,

consistent with our past practice and our understanding that ESF grants

relate to specific, individual projects which require separate

government approvals, we have treated these as non-recurring grants.

See Final Affirmative Countervailing Duty Determination: Certain

Stainless Steel Wire Rod from Italy, 63 FR 40474, 40488 (July 29, 1998)

(Wire Rod from Italy), and Pasta from Italy, 61 FR at 30295. Because

the value of the ESF grants and the accompanying GOF contribution were

less than 0.5 percent of Ugine's total sales in 1995 and 1997,

respectively, we expensed these grants in the years of receipt. We

calculated the benefit for the POI by dividing the amount of the ESF

grant received in 1997 by Ugine's total sales in that year. In this

way, we determine the countervailable subsidy to be less than 0.005

percent ad valorem for this program.

II. Programs Determined To Be Not Countervailable

A. Purchase of Power Plant

In 1994, Usinor sold the shares of 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

[[Page 30782]]

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 and 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 determine that, while FF 1

billion represented a large gain over the book value of CSR's physical

assets, the purchase price was based on independent valuation of the

future sales of electricity by EDF to Usinor. These valuations were

supported by reasonable estimates of projected costs and revenues. We

found no evidence to indicate that the transaction was anything other

than an arms-length transaction for full market value. Accordingly, we

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 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

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

locally by the 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 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. 103-316 at 931

(1994)), 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 determine that this

program is not specific and has not conferred countervailable subsidies

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

III. Programs Determined To Be Not Used

Based on the information provided in the responses and the results

of verification, 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 I and II Programs

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. Program 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 30783]]

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 the disclosure requirement in accordance

with international accounting standards 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. On this

basis, we determine that this program does not exist.

Interested Party Comments

Comment 1: Allocation Period

Usinor and the GOF argue that, in the Preliminary Determination,

the Department applied the 14-year AUL period found in Certain Steel

from France improperly to allocate the benefits of certain non-

recurring subsidies found countervailable in that case. Usinor and the

GOF urge the Department to apply instead a company-specific allocation

period based on information submitted in the instant investigation.

Usinor and the GOF argue that the Department's use of the

allocation period derived from a different proceeding is inconsistent

with the applicable court decision and the Department's past practice.

The respondents point out that, in British Steel I, the court rejected

the Department's previous allocation methodology based on the IRS

tables because the methodology was not based on substantial evidence on

the record. Consequently, the respondents note, the Department formally

abandoned the use of IRS tables and instead adopted the practice of

determining a company-specific AUL based on record evidence. Usinor and

the GOF state that this practice is reflected in the Department's

countervailing duty questionnaires, as well as in the 1997 Proposed

Regulations, which direct a firm to calculate its average AUL over a

period of ten years. By deviating from that practice, Usinor and the

GOF contend that the Department's approach in the Preliminary

Determination violated its court-ordered mandate to allocate subsidies

in a manner supported by evidence on the record of the instant

proceeding. Usinor and the GOF add that the Department's practice is

tantamount to penalizing the company simply because it happens to have

been the subject of a prior investigation. Usinor and the GOF contend

that, absent the earlier investigation, the programs at issue--PACS,

FIS and Shareholders'' Advances--would have been deemed outside the

scope of the present investigation.

Usinor and the GOF argue that the 14-year AUL from a different

investigation--involving different producers, different subject

merchandise, and a different time period--is not a proper measure of

benefit for the current investigation. According to the respondents,

the AUL merely represents a reasonable period for allocation of

benefits in a particular investigation rather than the actual duration

of the benefit. Usinor and the GOF state that any given company-

specific AUL in an investigation is a snapshot that can vary from year

to year because it is based on the company's asset values and

depreciation charges that inevitably vary from year to year. Therefore,

the respondents contend, a decision not to revisit the allocation

period in a subsequent investigation undermines the integrity of the

later investigation by failing to allocate all subsidies found in

accordance with the record of that investigation. Usinor and the GOF

assert, the methodology of focusing on the POI and the preceding nine

years is reasonable because it is linked to the time period for which

alleged subsidies were received.

Usinor and the GOF point out that, although the Department has

applied the same allocation period in different segments of the same

proceeding, it has never before applied a previously determined AUL in

an entirely separate proceeding. Citing Certain Carbon Steel Products

from Sweden; Final Results of Countervailing Duty Administrative

Review, 62 FR 16549,16550 (April 7, 1997) (Carbon Steel from Sweden),

Usinor and the GOF recognize the Department's rationale that revising

an allocation period in subsequent segments of the same proceeding

would create an entirely new benefit stream, thereby resulting in

under-countervailing or over-countervailing the benefits in the review

period. According to the respondents, however, this rationale does not

apply when dealing with an entirely separate proceeding because the

allocation period that was determined in one proceeding has no effect

on the benefit stream in a separate proceeding. Usinor and the GOF also

distinguish the current situation from UK Lead Bar 1996 Review, where

the Department applied an 18-year company-specific AUL period found in

separate proceeding (see Final Results of Redetermination Pursuant to

Court Remand on General Issue of Allocation: British Steel plc v.

United States, Consol. Ct. No. 93-09-00550-CVD, Slip Op. 95-17 and

Order (CIT Feb. 9, 1995) (UK Certain Steel)) instead of the 15-year IRS

table-based AUL used in the earlier segment of the same proceeding. In

that case, Usinor and the GOF argue, the rejected allocation period--

i.e., the IRS tables-based allocation period--was one that was

overruled by the British Steel I decision.

The petitioners counter that the Department should affirm its

decision in the Preliminary Determination and continue to apply

Usinor's 14-year AUL to the company's previously investigated

subsidies. The petitioners argue that the application of Usinor's

company-specific AUL is consistent with the Department's established

allocation methodology. According to the petitioners, the Department

has concluded in past cases, such as Pasta from Italy and Carbon Steel

from Sweden, that previously countervailed subsidies based on an

allocation period established in an earlier segment of the proceeding

should not be reallocated over a different period of time. The

petitioners contend that the principle underlying the Department's

decision to use the same AUL across different segments of a single

proceeding applies equally in the current investigation. According to

the petitioners, the Department followed this reasoning recently in UK

Lead Bar where it applied a single company-specific AUL to the same

subsidies across different proceedings involving the same company to

avoid ``significant inconsistencies.''

[[Page 30784]]

Citing to the GIA, the petitioners state further that the

Department's practice in the Preliminary Determination was consistent

with the statutory requirement that the amount of the countervailable

subsidy, including the allocated subsidy stream, is not to be

reevaluated based upon subsequent events. The petitioners contend that,

because the 14-year AUL and the benefit stream of the previously

investigated subsidies are based on data from the period when those

subsidies were received, they represent a more accurate measurement of

the duration of the benefit to the company. The petitioners note that,

for subsidies that have not been previously investigated, the

Department's current approach of requesting data for a time period

linked to the POI is a reasonable and administrable method for

allocating those subsidies. For previously investigated and allocated

subsidies, in contrast, the petitioners contend that the established

benefit streams should be maintained consistently in future

investigations. The petitioners argue that using the new 11-year AUL

would result in effectively revaluing the subsidies that were allocated

over a 14-year AUL, thereby ignoring the continuing benefit to the

company.

The petitioners contend that the fact that a company's AUL is bound

to change from year to year should not affect the Department's prior

AUL finding because, at the time Usinor received the subsidies in

question, the Department determined that those subsidies benefitted

Usinor for 14 years from the point of receipt. The changing value of

the company's assets after the appropriate allocation period, according

to the petitioners, is a subsequent event which should be considered

irrelevant to the allocated subsidy stream. The petitioners emphasize

that, despite the respondent's claims to the contrary, the present

investigation involves the same untied subsidies, the same producer,

and the same product. Specifically, the petitioners point out that, in

Certain Steel from France, the subsidies in question--FIS, PACS and

Shareholders' Advances--were found to benefit all products produced by

the entire Usinor group.

The petitioners state that the Department routinely applies a

determination from one proceeding to a separate proceeding despite the

absence of evidence on the record of the new proceeding. The

petitioners note that, for example, absent new evidence of changed

circumstances, the Department does not revisit its determinations

regarding a company's equityworthiness. Consistent with this standard,

the petitioners argue that the AUL determination based on the record

evidence in the prior proceeding should only be revisited if new

information regarding the validity of the previous determination is

presented. Because the respondents have not provided any such

information, the petitioners maintain that the Department should

continue to apply Usinor's 14-year AUL to the previously investigated

subsidies.

Department's Position: For this final determination, we have

continued to apply Usinor's company-specific AUL of 14 years found in

Certain Steel from France to allocate the benefits of certain non-

recurring subsidies found countervailable in that case.

We disagree with the respondents that our use of the 14-year AUL is

inconsistent with the court decision in British Steel I and our

practice. In British Steel I, the court emphasized that by using the

IRS table-based allocation methodology, the Department did not allocate

the benefits of the non-recurring subsidies in a manner reflecting the

actual ``commercial and competitive benefits'' of the subsidies. See

British Steel I, 879 F. Supp. at 1298. Following the court's remand

order in that case, the Department calculated a Usinor-specific AUL of

14 years based on its company-specific information. The court upheld

this methodology in British Steel II, stating that ``the AUL

methodology using company-specific calculations is a reasonable method

of allocating the commercial and competitive benefit of subsidy

benefits.'' 929 F. Supp. at 438.

The most important factor in our decision is the fact that we are

investigating the same respondent, Usinor, and the same untied

subsidies. The AUL of 14 years, based on Usinor's company-specific

information, was determined to be a reasonable reflection of the actual

``commercial and competitive benefits'' for the subsidies in question.

As stated in UK Lead Bar, ``[d]ifferent allocation periods for the same

subsidies in two different proceedings involving the same company

generate significant inconsistencies.'' 63 FR at 18369.

Further, we disagree that applying the 14-year AUL amounts to

penalizing Usinor for being the subject of an earlier investigation.

The respondents were afforded ample opportunity in the earlier

proceeding (and in the subsequent remands) to submit any factual

information and comments related to the AUL calculation. The

calculation, as affirmed by the court, was based on the company-

specific facts Usinor submitted. As noted by the petitioners, it is

well within the Department's practice to apply a determination from one

proceeding to a separate proceeding absent evidence of changed

circumstances. In the instant investigation, for example, we have

applied the determination of creditworthiness from Certain Steel from

France for certain years. We also applied our finding in Certain Steel

from France that certain long-term loans issued by FDES were not

countervailable to exclude those loans from the instant investigation.

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, 37542 (July 13, 1998). A

reconsideration of the Department's determination in one proceeding,

regardless of the parties involved, would only be warranted if there is

new evidence to indicate that the circumstances with respect to the

initial decision have changed. Moreover, we find that the decision in

UK Lead Bar to apply the allocation period determined in a separate

proceeding is reflective of our current practice regarding the issue of

allocation.

Comment 2: Information on Spin-Offs Presented at Verification

The GOF and Usinor contend that the Department should apply its

change-in-ownership methodology as it relates to the spin-off of

productive assets to the sale of its oxygen-generating unit to FOS-OXY,

the sale of its lime-production division to Entreprise Jean LeFebvre,

and its sale of J&L shares. The petitioners oppose the application of

the Department's change-in-ownership methodology to these three

transactions. Pointing out that the specific information regarding

these transactions was provided to the Department at verification, the

petitioners argue that verification was not an opportunity for Usinor

to submit new information. According to the petitioners, the purpose of

verification is to ensure that the information submitted by the

respondent is complete and accurate. The petitioners cite Tianjin

Machinery Import and Export v. United States, 806 F. Supp. 1008, 1015

(CIT 1992) (Tianjin), and Heavy Forged Hand Tools, Finished or

Unfinished, with or without Handles, from the People's Republic of

China; Final Results of Antidumping Duty Administrative Review, 63 FR

16758, 16761 (April 6, 1998) (Hand Tools). The petitioners argue that

the Department has stated that it will not allow the submission of new

information that constitutes substantive information and not simply a

clerical error. The petitioners contend

[[Page 30785]]

that, because Usinor did not submit this information within the time

requirements imposed by the statute, this information should not be

considered for the final determination.

The petitioners also state that under no circumstances should the

Department apply its change-in-ownership methodology to the sale of

shares in J&L, Ugine's U.S. subsidiary. The petitioners point out that,

according to the GIA, 58 FR at 37236, the Department found that

Usinor's subsidies were ``tied to domestic production and, accordingly,

. . . allocated the benefits of those subsidies to sales of Usinor

Sacilor's domestically produced merchandise and excluded sales of

Usinor Sacilor's foreign-produced merchandise.'' Since Usinor has not

shown that any of the subsidies investigated are attributable to

merchandise produced by J&L, the petitioners claim that the Department

should not attribute any of Usinor's subsidies to J&L after the sale of

Usinor's shares in J&L.

Department's Position: Regarding the J&L shares, we agree that no

subsidies were attributable to J&L's production in this investigation.

Therefore, it would not be appropriate to apply the change-of-ownership

methodology to the sale of J&L shares.

With respect to the sale of productive assets to Entreprise Jean

LeFebvre and FOS-OXY, we have applied the change-of-ownership

methodology. Although we agree with the petitioners that the purpose of

verification is to ascertain the accuracy of already-presented

information, the special circumstances of this case have led us to use

the verified data we have on these transactions. First, we note that we

did not request information on spin-offs of productive assets in our

questionnaire. Second, because verification followed directly on the

issuance of the Preliminary Determination and, in fact, the

calculations were disclosed to the respondents at verification, Usinor

did not have any opportunity to submit data after learning of our

methodology in the Preliminary Determination and before verification.

In light of these circumstances, we believe it is appropriate to use

the data obtained at verification and to apply the change-of-ownership

methodology to these transactions.

Comment 3: Privatization and Prior Subsidies

The GOF and Usinor comment that the Department should find that

Usinor's privatization extinguished prior subsidies. The GOF and Usinor

cite section 771(5)(F) of the Act and the SAA at 928, stating that the

Department is required to examine the circumstances of the

privatization transaction to determine whether and to what extent

subsidies pass through to the privatized entity and to what extent the

privatization of a government-owned firm eliminated subsidies.

The GOF and Usinor continue their argument citing Inland Steel,

155 F.3d at 1376:

When [a market] price is paid in an arms [sic] length

transaction by a new owner, it is difficult to understand why future

production by the new owner would carry the burden of prior

subsidization.

Usinor and the GOF conclude that the full value of pre-existing

subsidies was embodied in the purchase price, such that the purchasers

of Usinor shares paid for any residual value added to the company by

the subsidies found previously. Usinor and the GOF argue that the

Department is required to make an explicit finding of this pass-through

of prior subsidies for the final determination.

The petitioners cite to section 771(5)(F) of the Act where it

states that a change-in-ownership does not require an automatic finding

of no pass-through of subsidies, even if accomplished by an arm's-

length transaction. In addition, the petitioners cite to the SAA at 928

which notes that the statutory provision is intended to ``correct and

prevent such an extreme interpretation'' as the idea that subsidies are

eliminated automatically in an arm's-length sale. Contrary to the

respondents' claim that the Department has never really faced the issue

of whether an arms-length sale extinguishes subsidies under the URAA,

the petitioners mention Wire Rod from Italy in which the Department

rejected the assertion that an arm's length privatization at market

value extinguished prior subsidies. The petitioners also point out that

the Department's repayment calculation has been upheld by the Court of

International Trade in Delverde.

Department's Position: As we stated in Italian Plate, under our

existing methodology, we neither presume automatic extinguishment nor

automatic pass-through of prior subsidies in an arms-length

transaction. Instead, our methodology recognizes that a change-in-

ownership has some impact on the allocation of previously bestowed

subsidies and, through an analysis based on the facts of each

transaction, determines the extent to which the subsidies pass through

to the buyer. In the instant proceeding, the Department relied upon the

pertinent facts of the case in determining whether the countervailable

benefits received by Usinor Sacilor pass through to Usinor and Ugine.

Following the GIA methodology, the Department subjected the level of

previously bestowed subsidies and Usinor's purchase price to a

specific, detailed analysis. This analysis resulted in a particular

``pass-through ratio'' and a determination as to the extent of

repayment of prior subsidies. On this basis, the Department determined

that when Usinor was privatized a portion of the benefits received by

Usinor Sacilor passed through to Usinor and a portion was repaid to the

government. This is consistent with our past practice and has been

upheld in Saarstahl AG v. United States, 78 F.3d 1539 (Fed. Cir. 1996)

(Saarstahl II), British Steel plc v. United States, 127 F.3d 1471 (Fed.

Cir. 1997), and Delverde.

The Department rejects Usinor's argument that an arms-length

transaction at fair market value extinguishes any previously bestowed

subsidies because no benefit was conferred. As explained in the Final

Determination of Redetermination Pursuant to Delverde. SrL v. United

States, 989 F. Supp. 218 (CIT 1997) (Delverde Remand), the

countervailable subsidy amount is fixed at the time that the government

bestows the subsidy. The sale of a company, per se, does not and cannot

eliminate this potential countervailability because the countervailing

duty statute ``does not permit the amount of the subsidy, including the

allocated subsidy stream, to be revalued based upon subsequent events

in the market place.'' GIA, 58 FR at 37263. The Court of Appeals for

the Federal Circuit, in Saarstahl II, addressed the Department's

privatization methodology and ``specifically stated that the Department

does not need to demonstrate competitive benefit.''

The Department's methodology requires it to consider and rely upon

several facts particular to the change of ownership at issue. In this

investigation, these facts included the nature of the previously

bestowed subsidies, the amounts of those subsidies, the time when those

subsidies were bestowed, the appropriate period for allocating the

subsidies, the net worth over time of the company sold, and the amount

of the purchase price. Based on these facts, the Department determined

the ultimate repayment of the prior subsidies to the GOF. In sum, the

Department considered all of the factual evidence presented by Usinor

and then followed its existing methodology properly. Furthermore, this

methodology was upheld by the Federal Circuit in

[[Page 30786]]

Saarstahl II, British Steel, 78 F.3d 1471, and Delverde.

Comment 4: Sale of Shares in 1996 and 1997

The petitioners argue that the GOF's sales of its shares in Usinor

in 1996 and 1997 did not transfer control of Usinor and the Department

should, therefore, not apply the change-in-ownership methodology to the

sales of these shares (as discussed in the change-in-ownership section

above). The petitioners purport that, because there was not a change in

control, these sales of shares do not constitute a ``bona-fide change-

in-ownership.''

The GOF and Usinor state that the Department should apply the

change-in-ownership methodology arguing that the sales of these shares

were not ``post-privatization.'' The GOF and Usinor contend that the

1996 and 1997 transfer of shares were the last stages of the

privatization rather than ``post-privatization'' transactions. The GOF

and Usinor note that the Department has applied its change-in-ownership

methodology to partial privatizations in IPA from Israel 1995 Review,

63 FR at 13627.

Department's Position: We agree with the GOF and Usinor that the

application of the change-of-ownership methodology is appropriate in

this situation. As explained above, it is not the Department's practice

to require a change in control in order to apply the change-in-

ownership methodology. As we noted at verification, the 1995

privatization continued through the years 1996 and 1997. Moreover, the

sales of these shares in these years were sufficiently large. Compare

IPA from Israel 1995 Review, 63 FR at 13627 (where the Department did

not apply the change-of-ownership methodology to small sales of

shares). Therefore, we have applied the change-in-ownership methodology

to the sales of these shares in these years.

Comment 5: Purchase of Power Plant

The petitioners urge the Department to reconsider its preliminary

determination that the purchase of CSR by EDF was not a countervailable

subsidy. The petitioners note that, in their questionnaire responses

and at verification, Usinor and the GOF focused exclusively on the

valuation method used to determine the FF 1 billion sales price.

According to the petitioners, however, the valuation methodology

detailed in the verification reports does not address the decisive

question of whether Usinor received a financial benefit from the

transaction. The petitioners argue that evidence does not establish

that the valuation methodology can serve as a benchmark for an arms-

length, negotiated commercial transaction between two entities.

According to the petitioners, the facts demonstrate that the power

plant had little, if any, commercial value and as such, could not have

been sold on the open market. The petitioners point out that there were

no other offers to purchase the plant and the only potential offer--

from Generale de Chauffe--refers to a ``significantly lower price.''

The petitioners allege that the two parties recognized that the plant

had very little commercial value and, thus, developed the ``future

revenue stream'' approach to value the transaction. The petitioners add

that, according to the GOF's description, Usinor was anxious to sell

the plant prior to its privatization.

The petitioners argue further that there is no evidence that the

valuation methodology used by Usinor and the EDF was one that would be

used by a private purchaser of a power plant. The petitioners contend

that, while a private investor may evaluate the potential revenue in

deciding whether to purchase an asset, it would not form the basis for

establishing market value to the private investor. Rather, the

petitioners claim, the basis for value would include the book value and

the market value of the assets, as well as the cost of building a

similar facility. Accordingly, the petitioners conclude that the power

plant was purchased for more than its worth, resulting in a

countervailable benefit in the amount of the gain over the net book

value of the assets.

Usinor and the GOF contend that the relevant issue is not whether

Usinor received a financial benefit from the transaction; rather, the

issue is whether EDF paid ``more than adequate remuneration'' for the

sale. Usinor and the GOF assert that facts, as verified by the

Department, demonstrate that no excess remuneration was paid by EDF

and, thus, the transaction was not countervailable. With respect to the

potential offer by Generale de Chauffe, Usinor and the GOF argue that

Generale de Chauffe never made a formal offer and the terms of the deal

contemplated by Generale de Chauffe were different from the terms

between Usinor and EDF. According to the respondents, Generale de

Chauffe's potential terms contemplated that Usinor was to retain

ownership of the plant. In addition, the respondents point out that an

independent review of the transaction by the Audit Office (a quasi-

judicial tribunal) suggested that the EDF had negotiated a good deal

for itself.

Department's Position: We disagree with the petitioners that Usinor

received a countervailable benefit from its sale of CSR to the

government-owned EDF. Evidence on the record, which we verified,

demonstrates that the valuation of the transaction was based on

reasonable projections of future costs and revenues associated with the

operation of CSR and the sale of electricity produced by CSR. The

resulting sales price for CSR represented the amount of money, in net

present terms, that would be saved by Usinor if it were to continue

producing electricity through its CSR facilities. Additionally, we

found no evidence to indicate that the negotiations were not conducted

on an arms-length basis.

Because the sales price was based entirely on the value of the

right to produce electricity, the amount of gain in excess of the

nominal book value of the physical assets of CSR is irrelevant. Both

Usinor and EDF indicated that the book value of the assets was, in

fact, never considered in the valuation process. The parties were only

interested in obtaining the right to produce and sell electricity; the

physical facility of CSR was only a means to secure that right. The

value of a company is often based on more than its physical assets.

Intangible assets, e.g., goodwill, patents, and licenses, which are

valued for the future revenue stream that they represent, may

constitute an important part of a company's worth. In the present

investigation, the exclusive right to produce electricity was the

significant intangible asset, if not the only material asset, of CSR.

In addition, given the nature of the transaction, it is not

possible to compare the sales price with that of a similar transaction

between private parties. As noted by the respondents, the difference in

the material terms, as well as its inconclusive nature, renders the

potential offer by Generale de Chauffe unsuitable for comparison

purposes. We have not found, and the petitioners have not presented, a

price from a comparable transaction that demonstrates that the price

paid by EDF exceeded the fair value of the transaction.

Comment 6: Capital Increase

The petitioners argue that, by authorizing a capital increase of FF

4,999,999,975 at the time of Usinor's 1995 privatization, the GOF

conferred a benefit upon Usinor in the amount of the increased capital.

The petitioners claim that, as the sole owner of Usinor

[[Page 30787]]

prior to the 1995 privatization, the GOF was entitled to all the

revenue from the sale of the company, whether the revenue resulted from

the sale of new or existing shares. By transferring the proceeds from

the sale of new shares to Usinor, the petitioners argue, the GOF was

foregoing revenue otherwise due to it, acting in a non-commercial

manner. According to the petitioners, the fact that the report by the

Privatization Commission concluded that the issuance of new shares

would not alter substantially the value of the shares does not

establish that the transaction did not confer a countervailable

benefit. The petitioners contend that the respondents have not provided

``any objective studies that evaluated the extent to which the new

shares diminished the value of the GOF's existing shares.''

In the alternative, the petitioners argue that the capital increase

is countervailable as an indirect subsidy because the GOF structured

the privatization transaction in such a way that the private investors

were entrusted to make an equity investment in Usinor. The petitioners

state that the transaction was inconsistent with a typical government-

equity transaction in that the GOF did not receive any form of

remuneration in exchange for its investment. As such, the petitioners

argue that the GOF conferred a benefit upon Usinor in the amount of the

foregone revenue from the sale of the new shares that the company

otherwise would not have received but for the GOF's actions.

Usinor and the GOF rebut that, because the FF 4,999,999,975 that

Usinor received through the capital increase was not provided by the

GOF, Usinor did not receive a countervailable benefit as defined by

section 771(5)(B) of the Act. The respondents argue that, rather than

giving up revenue, the GOF benefitted from the capital increase because

the private capital infusion resulted in increasing the value of the

company being sold by the GOF. The respondents explain:

It simply cannot be the case that every time a company (whether

government-owned or otherwise) raises capital by means of a stock

increase, it is the beneficiary of a grant. A shareholder does not

in such circumstances give away money to which it otherwise would be

entitled. Instead, it participates in the growth in the value of the

company attributable to the capital increase.

The respondents add that the findings at verification demonstrate

that there was an objective finding by the private investment bankers

that the price of the shares would be not affected by the capital

increase. This finding, according to the respondents, undercuts the

petitioners' argument further that the GOF gave up revenues.

Department's Position: As an initial matter, we note that the

arguments set forth by the petitioners may constitute a subsidy

allegation made in untimely manner. According to

Sec. 351.301(d)(4)(i)(A) of the Department's regulations, a subsidy

allegation in an investigation is due no later than 40 days before the

scheduled date of the preliminary determination. The record shows that

the first instance on which the petitioners presented this particular

argument was a submission dated October 29, 1998 (``pre-preliminary

comments''), merely ten days before the scheduled date of the

preliminary determination (November 9, 1998). Nevertheless, we have

opted to address the substantive aspects of the petitioners' comment.

In exercising our discretion, we considered the fact that the

respondents did not express an objection to the petitioners' allegation

with respect to its possible untimeliness.

Substantively, we disagree with the petitioners that Usinor

received a subsidy by virtue of the capital increase. The petitioners

argue first that revenue otherwise due to the GOF was foregone when the

GOF authorized a capital increase in Usinor and the money earned from

the sale of shares to effect the capital increase was paid directly to

Usinor. According to the petitioners, all revenues received from the

sale of Usinor's shares should have accrued to the GOF because the GOF

was the sole owner at that time.

We do not agree that, in fact, revenue was foregone by the GOF in

this situation. In 1995, the GOF decided to privatize Usinor by selling

off the majority of the existing shares in the company. At the same

time, the GOF authorized an increase in Usinor's share capital. This

increase was funded through the sale of newly issued shares in Usinor.

These new shares were sold as part of the privatization but, instead of

the proceeds going to the GOF, they went to Usinor. Potential

purchasers of shares in Usinor were aware that new shares were being

issued and how the proceeds from the sale of those shares would be

used.

Had the GOF sold its outstanding shares in Usinor without any

capital increase, the GOF would have received an amount reflecting the

value of Usinor as it existed without the new capital. With the

increase in its capital, the value of Usinor increased. However, since

the increase in value did not result from an infusion of GOF funds, the

GOF did not have a direct or exclusive claim on the increased value.

Instead, the increase in Usinor's value came from the purchasers of the

new shares and all shareholders benefitted. Thus, petitioners are

incorrect that the GOF should have claimed all the proceeds of the sale

of Usinor's shares. The GOF received the return from the sale of its

existing shares and did not forego revenue when the proceeds from the

sale of new shares went to Usinor.

As a holder and seller of existing shares, the GOF did have an

indirect claim on the increased value of Usinor resulting from the

capital increase. Specifically, as the value of Usinor increased, the

value of shares in Usinor should have increased. At the same time,

however, because the capital increase was effected through a sale of

new shares, the total number of shares increased. Thus, although the

total value of Usinor increased, the concurrent increase in the number

of shares would offset the increase in value per share. The

Privatization Commission Report to which the petitioners refer makes

this very point when it states in reference to the share increase that,

``on the basis of experts'' reports which have been submitted to it,

the Commission believes that this transaction shall not substantially

alter the value of shares, in as much as its diluting nature shall be

offset by its beneficial effects upon the Group's financial

structure.'' These statements support the conclusion that no value was

forgone by the GOF in authorizing the capital increase for Usinor

through the sale of new shares.

In the alternative, the petitioners have argued that the capital

increase was an indirect subsidy because the GOF structured the

privatization such that private investors were entrusted to make a

countervailable equity infusion into Usinor. We do not need to reach

the issue of whether private investors were ``entrusted'' to provide a

subsidy because we find that there is no subsidy in this equity

purchase. Under section 771(5)(E)(i) of the Act, a countervailable

subsidy is conferred, in the case of an equity infusion, ``if the

investment decision is inconsistent with the usual investment practice

of private investors * * * in the country in which the equity infusion

is made.'' The focus of the Department's inquiry into this allegation

is whether the decision Usinor's investors made was consistent with the

private-investor standard. The Department will determine that the

equity infusion was inconsistent with usual investment practice of

private investors if the company is determined to be unequityworthy or

if the terms and the nature of the equity purchased

[[Page 30788]]

otherwise indicates that the investment was inconsistent with the usual

private investment practice. See Sec. 351.507(3) of the Final CVD

Regulations.

In the instant investigation, we have not found, and the

petitioners have failed to provide, any evidence indicating that Usinor

was unequityworthy or that the equity purchased by the investors was

otherwise inconsistent with the usual investment practice of private

investors. See also Sec. 351.507(a)(7) of the Final CVD Regulations

(stating that the Department will not investigate an equity infusion in

a firm absent a specific allegation by the petitioner that the

investment decision was inconsistent with the usual investment practice

of private investors). Therefore, we determine that Usinor's investors

acted in a manner consistent with the investment practices of private

investors.

For the reasons discussed above, we determine that the 1995 capital

increase in Usinor was not a countervailable subsidy.

Comment 7: European Social Fund Grants

Usinor and the GOF argue that the ESF grant the Ugine Division

received in 1997 is not specific and, therefore, not countervailable.

The respondents point to two factors in support of their position.

First, they claim that the Department found at verification that the

Ugine Division did not receive a disproportionate amount of the ESF

funds provided to France in 1997. Second, the respondents maintain that

the purpose of the grant was to train people at risk of unemployment

pursuant to Objective 4. Because Objective 4 projects are funded

throughout France, assistance provided to such projects is not

regionally specific, the respondents argue.

The petitioners refute the respondents' arguments. First, they say,

the verification report merely quotes statements by GOF officials to

the effect that Usinor did not get a disproportionate amount of ESF

assistance and that Usinor was the only steel company receiving such

funds during the POI. The petitioners note that GOF officials did not

provide any documentation in support of these statements. Second, they

argue that while EU officials stated at verification that Objective 4

projects are funded throughout France, they did not provide any

documentation supporting this assertion. The petitioners also point out

that, according to the EU verification report, the EU does not maintain

any records showing which individual companies receive ESF funding.

Thus, there is no documentation to support the notion that ESF grants

are not specific, according to the petitioners.

Department's Position: We agree with the petitioners. Because we do

not have sufficient information on the record regarding the actual use

of Objective 4 funds in France during the POI, we must use facts

available (see discussion under the description of the ESF grants in

Section I above). On this basis, we have determined that the ESF grants

received by the Ugine Division are specific and, therefore,

countervailable.

Comment 8: Investment and Operating Subsidies

Usinor and the GOF argue that the investment and operating

subsidies Usinor received from the GOF are not specific and, therefore,

should not be countervailed. With regard to the funds received from

regional water boards for water protection, pollution control, and

water rehabilitation projects, Usinor and the GOF contend that the

Department verified that these funds were not limited to Usinor or to

the steel industry. Based on the information submitted by the GOF at

verification, Usinor and the GOF also maintain that the steel industry

did not receive a disproportionate amount of the water board subsidies.

The petitioners contend that the Department should continue to

treat the investment and operating subsidies as specific and that they,

therefore, should be subject to countervailing duties. The petitioners

assert that the Department's GOF verification report does not draw any

conclusions with respect to the specificity of this program.

Furthermore, the petitioners argue that information supporting a

respondent's claim of non-specificity should be submitted with the

original questionnaire response in order to ensure that the Department

and the petitioners have ample time to evaluate and comment upon the

factual evidence prior to verification. They state that verification

should not be used as an opportunity to submit new, substantive

information to supplement the original questionnaire response.

The petitioners finally contend that, even if the information GOF

officials provided at verification had been submitted in a timely

manner, it would not corroborate the respondents' claim of non-

specificity. The petitioners argue that, although GOF officials

maintained that this assistance was provided to any type of enterprise

or industry, the documentation presented at verification did not

demonstrate actual usage by type of industry.

Department's Position: In our Preliminary Determination, we found

that the investment and operating subsidies, including the assistance

from the regional water boards, provided a financial contribution in

the form of a direct transfer of funds from the GOF to Usinor pursuant

to section 771(5)(D)(i) of the Act. Prior to the Preliminary

Determination, the GOF argued that the water board grants were not

specific but did not provide any information to support this statement.

Therefore, as facts available, we determined preliminarily that these

subsidies were specific under section 771(5A)(D) of the Act.

However, at verification the GOF presented, and we verified,

information showing that assistance under the program provided by the

water boards was provided to a wide variety of water-related projects.

We also found that the amount received by Usinor constituted a very

small percentage of the total amount provided by the water boards to

combat industrial pollution. In principle we agree with the petitioners

that information supporting a respondent's claim of non-specificity, as

well as other factual information, should be submitted with the

questionnaire response, but we do not believe that the information

presented to us at verification should be classified as entirely

``new.'' We learned about the existence of the water program from

Usinor's and the GOF's questionnaire responses in which the GOF also

made a claim for non-specificity of this program. The Department has

the discretion to accept new information at verification when ``the

information makes minor revisions to information already on the record

or * * * the information corroborates, supports, or clarifies

information already on the record.'' See Final Results of Antidumping

Administrative Review: Titanium Sponge from the Russian Federation, 61

FR 58525 (November 15, 1996), and Certain Refrigeration Compressors

from the Republic of Singapore: Final Results of Countervailing Duty

Administrative Review, 63 FR 32849, 32852 (June 16, 1998). In this

instance, we believe that the information presented to us at

verification merely clarified information already on the record.

Although this information is not sufficient to determine that the water

board program is not specific in general, we believe that it is enough

to support a finding that the program is not specific to Usinor.

Accordingly, we determine that the grants from the regional water

boards are not specific to Usinor within the meaning of section

771(5A)(D)(iii) of

[[Page 30789]]

the Act and, therefore, not countervailable.

However, due to the lack of information about their usage and

distribution, as adverse facts available, we continue to find the other

programs included in the category investment and operating subsidies to

be countervailable (our reasons for using adverse facts available are

explained in section I.D above).

Comment 9: Myosotis Project

Usinor and the GOF urge the Department to grant green-light status

to the benefits received by Usinor for the Myosotis project. They argue

that this project qualifies as industrial research as defined by

section 771(5B)(B)(ii)(I) of the Act because its purpose is to develop

``new products, processes, or services'' or to bring about ``a

significant improvement to existing products, processes, or services.''

The respondents state further that the level of assistance is far below

the 75-percent maximum that the statute permits for industrial research

and that the EU has found the project to be in concordance with its

State Aids Code. Moreover, the respondents argue, the Myosotis project

qualifies for green-light treatment because it is a pre-competitive

development activity involving the development of a prototype that

cannot be put to commercial use as described in section

771(5B)(B)(ii)(II) of the Act. According to the respondents, the level

of assistance is well below the 50-percent maximum that the statute

allows for pre-competitive development activities.

Usinor and the GOF argue that, if the Department should decide not

to grant the Myosotis project green-light status, it should determine

that the assistance for this project is not countervailable because it

is not specific. The respondents state that the Myosotis assistance

came from the GPI program which is administered by the Ministry of

Industry. They contend that at verification the Department found that

GPI funding is not limited by law to any particular industry and, also,

that assistance from this fund is provided to a wide range of

industries. Last, the respondents assert that the Department found at

verification that the steel industry did not receive a disproportionate

share of GPI funds in the years that Usinor received assistance for the

Myosotis project.

The petitioners urge the Department to follow its decision in the

Preliminary Determination and not address the respondents' green-light

claim for the Myosotis project. First, the petitioners state, in the

preliminary determination, the Department expensed the grants Usinor

received between 1989 and 1993 for Myosotis because they were below 0.5

percent of the company's sales in the years of receipt and, with

respect to the reimbursable advance received in 1997, the Department

preliminarily determined that there was no benefit attributable to the

POI. Accordingly, the petitioners observe, the countervailable subsidy

rate for the Myosotis program was 0.00 percent ad valorem in the

Preliminary Determination. The petitioners note that the new

regulations state specifically that the Department will not consider a

green-light claim for a subsidy that does not provide a benefit to the

subject merchandise in the period of investigation or review.

Therefore, they argue, the Department should not address the green-

light claim advanced by Usinor and the GOF.

As a second argument for not making a green-light determination,

the petitioners point to administrative efficiency. Citing Final

Negative Countervailing Duty Determination: Fresh Atlantic Salmon from

Chile, 63 FR 31437 (June 9, 1998), Final Affirmative Countervailing

Duty Determination: Steel Wire Rod from Germany, 62 FR 54990 (October

22, 1997), and Final Negative Countervailing Duty Determination and

Final Negative Critical Circumstances Determination: Certain Laminated

Hardwood Trailer Flooring from Canada, 62 FR 5201 (February 4, 1997),

the petitioners argue that a decision not to address Usinor's green-

light claim would be consistent with the Department's practice, as

established in these cases, of not analyzing a program that has no

impact on the net countervailable subsidy rate.

Third, the petitioners argue that the Department should not make a

green-light determination because the administrative record in this

proceeding is incomplete. Specifically, the petitioners point to the

GOF's refusal to make certain reports on the Myosotis project available

to the Department at verification. The petitioners believe that the

absence of these documents from the record is particularly relevant in

light of the Department's ``commitment to interpret [the green-light]

provisions strictly as required by the SAA.''

The petitioners recommend that the Department to postpone a green-

light decision on the Myosotis project until the next administrative

review to ensure (1) that a more complete administrative record can be

developed, and (2) that there is a benefit to Usinor from the 1997

reimbursable advance.

Department's Position: We agree with the petitioners that there is

no need for us to make a determination regarding green-light treatment

of the assistance provided under the Myosotis project. As stated in the

preamble to the Department's recently issued regulations:

[W]e will not consider claims for green light status if the

subject merchandise did not benefit from the subsidy during the

period of investigation or review. Instead, consistent with the

Department's existing practice, the green light status of a subsidy

will be considered only in an investigation or review of a time

period where the subject merchandise did benefit from the subsidy.

See Final CVD Regulations, 63 FR at 65388. While these final

regulations are not controlling in this case, they do reflect the

Department's current practice. Therefore, we will not make a green-

light determination when there is no countervailable benefit in the

period of investigation or review, in accordance with our existing

practice. We also consider a specificity determination to be

unwarranted when there is no benefit in the POI. Instead, we intend to

make determinations on green-light status and specificity in an

administrative review, if this investigation results in a

countervailing duty order.

Comment 10: Lending Rates

The petitioners argue that the Department should use the lending

rates reported in Table 4.11 of the Bulletin of Banque de France as the

benchmark lending rate for the years in which Usinor was found to be

uncreditworthy. The petitioners assert that the statements made by

private bank and GOF officials at verification indicate the lending

rates in question represent an average cost of credit for companies in

France which includes high- and low-risk financing. The petitioners

argue that these interest rates provide a better indication of the rate

at which Usinor could have actually obtained financing for those years

in which Usinor was found to be uncreditworthy because they reflect

some degree of greater risk.

Usinor and the GOF point out that the officials of the Banque de

France indicated that the rates reported in Table 4.11 include variable

rates. Usinor and the GOF argue that, as such, the Table 4.11 rates are

inappropriate to use as benchmark rates because the Department's

preference, as reflected in the 1989 Proposed Regulations, is to use

the average cost of long-term fixed-rate loans. Moreover, Usinor and

the GOF point to the statement made by the GOF officials at

verification asserting that the Table 4.11 rates ``do not reflect the

cost of credit for a company as Usinor because the rates are surveys of

rates applicable for companies of all sizes and

[[Page 30790]]

types'' and that an average interest rate derived from a survey would,

thus, not be an accurate indicator of the cost of credit for an

individual company.

Department's Position: We agree with the petitioners that the rates

reported in Table 4.11 of the Bulletin are more appropriate benchmark

and discount rates for the years in which Usinor was found to be

uncreditworthy and where the other benchmark interest rates are lower

than the rates reported in Table 4.11. For this final determination, we

have applied the methodology described in the 1989 Proposed Regulations

for calculating the benchmark and discount rates for the years in which

Usinor was found uncreditworthy. Specifically, the 1989 Proposed

Regulations state that the long-term fixed benchmark rate for an

uncreditworthy firm will be calculated by taking the sum of 12 percent

of the prime interest rate in the country in question and, in order of

preference: ``(1) the highest long-term fixed interest rate commonly

available to firms in the country in question; (2) the highest long-

term variable interest rate commonly available to firms in the country

in question; or (3) the short-term benchmark interest rate determined

in accordance with [the Department's methodology].''

Sec. 355.44(b)(6)(iv)(A) of the 1989 Proposed Regulations (emphasis

added). Accordingly, we have applied the rates reported in Table 4.11

in our calculation where those rates represented the highest long-term

interest rate among the various types of interest rates the respondents

provided to us. Contrary to the respondents' assertion, an expressed

``preference'' for a fixed rate does not preclude us from using a rate

that we find more appropriate, even if that rate happens to include

variable rate loans. Further, we disagree with the respondents that the

Table 4.11 rates are not appropriate because the rates are derived from

surveys of rates applicable for companies of all sizes and types. While

an average rate which by its very definition is derived from rates

applicable to more than one company, may not represent the most

accurate rate applicable to any single company, it nevertheless

provides a reasonable indicator of rates ``commonly available to firms

in the country in question.''

Verification. In accordance with section 782(i) of the Act, we

verified the information used in making our final determination. We

followed standard verification procedures, including meeting with

government and company officials, and examining relevant accounting

records and original source documents. Our verification results are

detailed in the public versions of the verification reports, which are

on file in the Central Records Unit.

Suspension of Liquidation. In accordance with section

705(c)(1)(B)(i) of the Act, we have calculated an individual rate for

Usinor. Because Usinor is the only respondent in this case, its rate

serves as the all-others rate. We determine that the total estimated

net countervailable subsidy rate is 5.38 percent ad valorem for Usinor

and for all others.

In accordance with our Preliminary Determination, we instructed the

U.S. Customs Service to suspend liquidation of all entries of stainless

steel sheet and strip in coils from France, which were entered or

withdrawn from warehouse, for consumption on or after November 17,

1998, the date of the publication of our Preliminary Determination in

the Federal Register. In accordance with section 703(d) of the Act, we

instructed the U.S. Customs Service to discontinue the suspension of

liquidation for merchandise entered on or after January 2, 1999, but to

continue the suspension of liquidation of entries made between

September 4, 1998, and January 1, 1999. We will reinstate suspension of

liquidation under section 706(a) of the Act if the ITC issues a final

affirmative injury determination, and will require a cash deposit of

estimated countervailing duties for such entries of merchandise in the

amounts indicated above. If the ITC determines that material injury, or

threat of material injury, does not exist, this proceeding will be

terminated and all estimated duties deposited or securities posted as a

result of the suspension of liquidation will be refunded or canceled.

ITC Notification. In accordance with section 705(d) of the Act, we

will notify the ITC of our determination. In addition, we are making

available to the ITC all non-privileged and non-proprietary information

related 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 for Import Administration.

If the ITC determines that material injury, or threat of material

injury, does not exist, these proceedings will be terminated and all

estimated duties deposited or securities posted as a result of the

suspension of liquidation will be refunded or canceled. If, however,

the ITC determines that such injury does exist, we will issue a

countervailing duty order.

Destruction of Proprietary Information. In the event that the ITC

issues a final negative injury determination, this notice will serve as

the only reminder to parties subject to Administrative Protective Order

(APO) of their responsibility concerning the destruction of proprietary

information disclosed under APO in accordance with 19 CFR 351.305(a).

Failure to comply is a violation of the APO.

This determination is published pursuant to sections 705(d) and

777(i) of the Act.

Dated: May 19, 1999.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 99-13677 Filed 6-7-99; 8:45 am]

BILLING CODE 3510-DS-P