Final Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils From Italy
Federal RegisterJun 8, 1999
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-475-825]
Final Affirmative Countervailing Duty Determination: Stainless
Steel Sheet and Strip in Coils From Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 8, 1999.
FOR FURTHER INFORMATION CONTACT: Cynthia Thirumalai, Craig W. Matney,
Gregory W. Campbell, or Alysia Wilson, 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) 482-4087, 482-1778, 482-2239, or 482-0108,
respectively.
Final Determination
The Department of Commerce (the Department) determines that
countervailable subsidies are being provided to producers and exporters
of
[[Page 30625]]
stainless steel sheet and strip in coils from Italy. 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 Allegheny Ludlum
Corporation, Armco, Inc., J&L Specialty Steels, Inc., Lukens Inc., AFL-
CIO/CLC (USWA), Butler Armco Independent Union and Zanesville Armco
Independent Organization, Washington Steel Division of Bethlehem Steel
Corp., United Steel Workers of America (the petitioners).
Case History
Since our preliminary determination on November 9, 1998
(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 Italy, 63 FR 63900 (November 17, 1998) (Preliminary
Determination)), the following events have occurred:
We conducted verification in Belgium and Italy of the questionnaire
responses of the European Commission (EC), Government of Italy (GOI),
Acciai Speciali Terni S.p.A.(AST), and Arinox S.r.L. (Arinox) from
November 11 through November 27, 1998. The petitioners, AST, and Arinox
filed case and rebuttal briefs on February 17 and February 23, 1999. A
public hearing was held on February 25, 1999. After the hearing, at the
Department's request, additional comments were submitted by petitioners
and respondents on March 2, 1999. On March 12, 1999, the EC submitted
additional comments. On May 6, 1999, the Department solicited
information from the EC clarifying information already on the record.
Parties submitted comments on this information on May 11, 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 subheadings:
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80,
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05,
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36,
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05,
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36,
7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05,
7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35,
7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10,
7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05,
7220.20.60.10, 7220.20.60.15, 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
[[Page 30626]]
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 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 Italy is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (ITC) is required to determine whether imports of the
subject merchandise from Italy materially injure, or threaten material
injury to, a U.S. industry. On August 5, 1998, the ITC published its
preliminary determination that there is a reasonable indication that an
industry in the United States is being materially injured, or
threatened with material injury, by reason of imports from Italy of the
subject merchandise (see Certain Stainless Steel Sheet and Strip in
Coils From France, Germany, Italy, Japan, the Republic of Korea,
Mexico, Taiwan, and the United Kingdom, 63 FR 41864 (August 5, 1998)).
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1997.
Respondents Investigated
In this investigation there are six respondents, AST and Arinox,
producers and exporters of the subject merchandise, and the governments
of Italy, Terni, Liguria and the EC.
Of these two, only AST and its predecessors underwent changes in
ownership during the period for which we are measuring subsidy
benefits.
Corporate History of AST
The corporate history of AST is described fully in Final
Affirmative Countervailing Duty Determination: Stainless Steel Plate in
Coils form Italy (Plate Final), 64 FR 15508-15509 (March 31, 1999).
Changes in Ownership
Factual information pertaining to AST, parties' comments on our
methodology, our responses to those comments and the application of our
change-in-ownership methodology we employed in the instant case have
not changed since the Plate Final. Please see that notice for a full
explanation (64 FR at 15509-15510).
Subsidies Valuation Information
Benchmarks for Long-term Loans and Discount Rates: Consistent with
our finding in Final Affirmative Countervailing Duty Determination:
Certain Stainless Steel Wire Rod from Italy, 63 FR at 40474, 40477
(October 22, 1997) (Wire Rod from Italy), we have based our long-term
benchmarks and discount rates on the Italian Bankers' Association (ABI)
rate. Because the ABI rate represents a long-term interest rate
provided to a bank's most preferred customers with established low-risk
credit histories, commercial banks typically add a spread ranging from
0.55 percent to 4 percent onto the rate for other customers, depending
on their financial health.
In years in which Arinox and AST or its predecessor companies were
creditworthy, we added the average of
[[Page 30627]]
that spread to the ABI rate to calculate a nominal benchmark rate. In
years in which AST or its predecessor companies were uncreditworthy
(see Creditworthiness section below), we calculated the discount rates
in accordance with our methodology for constructing a long-term
interest-rate benchmark for uncreditworthy companies. (Arinox was not
alleged to be uncreditworthy.) Specifically, we added to the ABI rate a
spread of four percent in order to reflect the highest commercial
interest rate available to companies in Italy. We added to this rate a
risk premium equal to 12 percent of the ABI, as described in section
355.44(b)(6)(iv) of our 1989 Proposed Regulations (see 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, they do represent
the Department's practice for purposes of this investigation.
Additionally, information on the record of this case indicates that
published ABI rates do not include amounts for fees, commissions and
other borrowing expenses. Because such expenses raise the effective
interest rate that a company would experience, and because it is our
practice to use effective interest rates, where possible, we have
included an amount for these expenses in the calculation of our
effective benchmark rates (see section 355.44(b)(8) of the 1989
Proposed Regulations and Final Affirmative Countervailing Duty
Determination: Certain Pasta from Turkey, 61 FR 30366, 30373 (June 14,
1996)). While we do not have information on the expenses that would be
applied to long-term commercial loans, the GOI supplied information on
the borrowing expenses on overdraft loans as an approximation of
expenses on long-term commercial loans. This information shows that
expenses on overdraft loans range from 6 to 11 percent of interest
charged. Accordingly, we increased the nominal benchmark rate by 8.5
percent, which represents the average reported level of borrowing
expenses, to arrive at an effective benchmark rate.
Allocation Period: In the past, the Department has relied upon
information from the U.S. Internal Revenue Service (IRS) for the
industry-specific average useful life of assets in determining the
allocation period for non-recurring subsidies. See the General Issues
Appendix (GIA), attached to the Final Affirmative Countervailing Duty
Determination: Certain Steel Products from Austria, 58 FR 37217, 37227
(July 9, 1993) (Certain Steel from Austria). In British Steel plc v.
United States, 879 F. Supp. 1254 (CIT 1995) (British Steel I), the U.S.
Court of International Trade (CIT) 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 CIT's remand order, the Department calculated a
company-specific allocation period for non-recurring subsidies based on
the average useful life (AUL) of non-renewable physical assets. This
remand determination was affirmed by the court in British Steel plc v.
United States, 929 F. Supp. 426, 439 (CIT 1996) (British Steel II). In
recent countervailing duty investigations, it has been our practice to
follow the court's decision in British Steel II and to calculate a
company-specific allocation period for all countervailable non-
recurring subsidies.
After considering parties' comments and based upon our analysis of
the data submitted by AST regarding the AUL of its assets, we are using
a 12-year AUL for AST. This 12-year AUL is based on information in Wire
Rod from Italy, 63 FR at 40477, and in the Preliminary Determination,
63 FR at 63903, which we find to be a good estimate of the AUL of the
Italian stainless steel industry. For an explanation of why we have
rejected AST's company-specific AUL, see our response to Comment 6. For
Arinox, we are using its company-specific AUL, which is also 12 years.
Equityworthiness
In measuring the benefit from a government equity infusion, the
Department compares the price paid by the government for the equity to
a market benchmark, if such a benchmark exists. In this case, a market
benchmark does not exist. Therefore, we examined whether AST's
predecessors were equityworthy in the years they received infusions.
See Final Affirmative Countervailing Duty Determination: Steel Wire Rod
From Trinidad and Tobago, 62 FR 50003, 50004 (October 22, 1997). In
analyzing whether a company is equityworthy, the Department considers
whether that company could have attracted investment capital from a
reasonable private investor in the year of the government equity
infusion, based on information available at that time. See GIA, 58 FR
at 37244. Our review of the record has not led us to change our finding
from that in Wire Rod from Italy, in which we found AST's predecessors
unequityworthy from 1986 through 1988 and from 1991 through 1992 (63 FR
40477). The petitioners did not allege in the petition that Arinox
received GOI equity infusions; therefore, we did not examine Arinox's
equityworthiness.
Consistent with our equity methodology described in the GIA, 58 FR
at 37239, we consider equity infusions into unequityworthy companies as
infusions made on terms inconsistent with the usual practice of a
private investor and, therefore, we have treated these infusions as
grants. This methodology is based on the premise that a finding by the
Department that a company is not equityworthy is tantamount to saying
that the company could not have attracted investment capital from a
reasonable investor in the year of the infusion. This determination is
based on the information available at the time of the investment.
Creditworthiness
When the Department examines whether a company is creditworthy, it
is essentially attempting to determine if the company in question could
obtain commercial financing at commonly available interest rates. See,
e.g., Final Affirmative Countervailing Duty Determinations: Certain
Steel Products from France, 58 FR 37304 (July 9, 1993); Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from
Venezuela, 62 FR 55014 (October 21, 1997).
Terni, TAS and ILVA, AST's predecessor companies, were found to be
uncreditworthy from 1986 through 1993 in Final Affirmative
Countervailing Duty Determination: Grain-Oriented Electrical Steel From
Italy, 59 FR 18357, 18358 (April 18, 1994) (Electrical Steel from
Italy), and in Wire Rod from Italy, 63 FR at 40477. No new information
has been presented in this investigation that would lead us to
reconsider these findings. (See Comment 14 below regarding the issue of
AST's creditworthiness in 1993.) Therefore, consistent with our past
practice, we continue to find Terni, TAS, and ILVA uncreditworthy from
1986 through 1993. See, e.g., Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from Brazil, 58 FR 37295, 37297
(July 9, 1993). We did not analyze AST's creditworthiness in 1994
through 1997 because AST did not negotiate new loans with the GOI or EC
during these years. There was no allegation in the petition that Arinox
was uncreditworthy; therefore, we did not analyze its creditworthiness.
[[Page 30628]]
I. Programs Determined To Be Countervailable
GOI Programs
A. Equity Infusions to Terni, TAS and ILVA
The facts pertaining to AST and its predecessor companies with
respect to these equity infusions and our methodology have not changed
since the Plate Final. Please see that notice for a full explanation
(64 FR at 15511-15512). Accordingly, we determine the estimated net
benefit to be 0.99 percent ad valorem for AST. Arinox did not receive
any GOI equity infusions.
B. Benefits From the 1988-90 Restructuring of Finsider 6
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\6\ This program was referred to as Debt Forgiveness: Finsider-
to-ILVA Restructuring in Initiation of Countervailing Duty
Investigations: Stainless Steel Plate in Coils from Belgium, Italy,
the Republic of Korea, and the Republic of South Africa, 63 FR 23272
(April 28, 1998) (Initiation Notice).
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The facts pertaining to AST and its predecessor companies with
respect to restructuring benefits and our methodology have not changed
since the Plate Final. Please see that notice for a full explanation
(64 FR at 15512). Accordingly, we determine the estimated net benefit
to be 2.71 percent ad valorem for AST. Arinox did not receive any
benefit under this program.
C. Debt Forgiveness: ILVA-to-AST 7
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\7\ Includes the following programs from the Initiation Notice:
Working Capital Grants to ILVA, 1994 Debt Payment Assistance by IRI,
and ILVA Restructuring and Liquidation Grant.
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As of December 31, 1993, the majority of ILVA's viable
manufacturing activities had been incorporated separately (or
``demerged'') into either AST or ILVA Laminati Piani (ILP); ILVA
Residua was primarily a shell company with liabilities far exceeding
assets, although it did contain some operating assets which it spun off
later. In contrast, AST and ILP, now ready for sale, had operating
assets and relatively modest debt loads.
We determine that AST (and consequently the subject merchandise)
received a countervailable subsidy in 1993 when the bulk of ILVA's debt
was placed in ILVA Residua, rather than being proportionately allocated
to AST and ILP. The amount of debt that should have been attributable
to AST but was instead placed with ILVA Residua was equivalent to debt
forgiveness for AST at the time of its demerger. In accordance with our
past practice, debt forgiveness is treated as a grant which constitutes
a financial contribution under section 771(5)(D)(i) of the Act and
provides a benefit in the amount of the debt forgiveness. Because the
debt forgiveness was received only by privatized ILVA operations, we
determine that it is specific under section 771(5A)(D) of the Act.
In the Preliminary Determination, 63 FR at 63904, the amount of
liabilities that we attributed to AST was based on the EC's 9th
Monitoring Report of the total cost of the liquidation process to the
GOI. However, for this final determination, we have re-examined our
methodology and determined that it is more appropriate to base our
calculation on the gross liabilities left behind in ILVA Residua. See
our response to Comment 9 and the March 19, 1999, Memorandum to Richard
W. Moreland on the 1993 Debt Forgiveness.
In calculating the amount of unattributable liabilities remaining
after the demerger of AST, we started with the most recent ``total
comparable indebtedness'' amount from the 10th Monitoring Report, which
represents the indebtedness, net of debts transferred in the
privatizations of ILVA Residua's operations and residual asset sales,
of a theoretically reconstituted, pre-liquidation ILVA. In order to
calculate the total amount of unattributed liabilities which amount to
countervailable debt forgiveness, we made the following adjustments to
this figure: for the residual assets that had not actually been
liquidated as of the 10th and final Monitoring Report (see Comment 13);
for assets that comprised SOFINPAR, a real estate company, because
these assets were sold prior to the demergers of AST and ILP; for the
liabilities transferred to AST and ILP; income received from the
privatizations of ILVA Residua's operations; for the amount of the
asset write-downs specifically attributable to AST, ILP, and ILVA
Residua companies; and for the amount of debts transferred to Cogne
Acciai Speciali (CAS), an ILVA subsidiary that was left behind in ILVA
Residua and later spun off, as well as the amount of ILVA debt
attributed to CAS and countervailed in Wire Rod from Italy, 63 FR at
40478. See May 19, 1999, Calculation Memorandum and our responses to
Comments 9-15 below for further information on our calculation
methodology.
The amount of liabilities remaining represents the pool of
liabilities that are not individually attributable to specific ILVA
assets. We apportioned this debt to AST, ILP, and operations sold from
ILVA Residua based on their relative asset values. We used the total
consolidated asset values reported in AST's and ILP's December 31,
1993, financial results and used the sum of purchase price plus debts
transferred as a surrogate for the asset value of the operations sold
from ILVA Residua. Because we subtracted a specific amount of ILVA's
gross liabilities attributed to CAS in Wire Rod from Italy, we did not
include its assets in the amount of ILVA Residua's privatized assets.
Also, consistent with our Preliminary Determination, we did not include
in ILVA Residua's viable assets the assets of the one ILVA Residua
company sold to IRI because this sale does not represent a sale to a
non-governmental entity.
We treated the debt forgiveness to AST as a non-recurring grant
because it was a one-time, extraordinary event. The discount rate we
used in our grant formula included a risk premium based on our
determination that ILVA was uncreditworthy in 1993 (see Comment 14
below and March 19, 1999, Memorandum on the Appropriate Basis for 1993
Creditworthiness Analysis of AST). We followed the methodology
described in the Change in Ownership section above to determine the
amount appropriately allocated to AST after its privatization. (The
change in the total amount of debt forgiveness attributed to AST from
the Plate Final changes the total percent of subsidies repaid in the
1994 privatization calculations. The change in this ratio affects the
amount of subsidies repaid to the GOI for all programs which pass
through this calculation.) We divided this amount by AST's total
consolidated sales during the POI. Accordingly, we determine the
estimated net benefit to be 6.79 percent ad valorem for AST. Arinox did
not receive any benefits under this program.
D. Law 796/76: Exchange Rate Guarantees
The facts pertaining to AST with respect to Law 796/76 exchange-
rate guarantees and our methodology have not changed since the Plate
Final. Please see that notice for a full explanation (64 FR at 15513).
Accordingly, we determine the estimated net benefit to AST for this
program to be 0.82 percent ad valorem. Arinox did not receive any
benefits under this program.
E. Law 675/77
The facts pertaining to AST with respect to Law 675/77 benefits and
our methodology have not changed since the Plate Final. Please see that
notice for a full explanation (64 FR at 15513). Accordingly, we
determine the estimated net benefit from this program to be 0.07
percent ad valorem for AST. Arinox did not receive any benefits under
this program.
[[Page 30629]]
F. Law 10/91
The facts pertaining to AST with respect to Law 10/91 benefits and
our methodology have not changed since the Plate Final. Please see that
notice for a full explanation (64 FR at 15514). Accordingly, we
determine the estimated net benefit in the POI for AST to be 0.00
percent ad valorem. Arinox did not receive any benefits under this
program.
G. Pre-Privatization Employment Benefits (Law 451/94)
Law 451/94 was created to conform with EC requirements on
government assistance related to restructuring and capacity reduction
in the Italian steel industry. Law 451/94 was passed in 1994 and
enabled the Italian steel industry to implement workforce reductions by
allowing steel workers to retire early. During the 1994-1996 period,
Law 451/94 provided for the early retirement of up to 17,100 Italian
steel workers. Benefits applied for during the 1994-1996 period
continue until the employee reaches his/her natural retirement age, up
to a maximum of ten years. Employees at both AST and Arinox received
payments under Law 451 during the POI.
In the Plate Final and the Preliminary Affirmative Countervailing
Duty Determination and Alignment of Final Countervailing Duty
Determination with Final Antidumping Duty Determination: Stainless
Steel Plate in Coils from Italy, 63 FR 47246 (September 4, 1998) (Plate
Preliminary), the Department determined that the early retirement
benefits provided under Law 451/94 are a countervailable subsidy under
section 771(5) of the Act. Law 451/94 provides a financial
contribution, as described in section 771(5)(D)(i) of the Act, because
it relieves the company of costs it would have normally incurred. Also,
because Law 451/94 was developed for and exclusively used by the steel
industry, we determined that Law 451/94 is specific within the meaning
of section 771 (5A)(D) of the Act.
In the Plate Preliminary, we used the Cassa Integrazione Guadagni--
Extraordinario (``CIG-E'') program as our benchmark to determine what
the obligations of Italian steel producers would have been when laying
off workers. We compared the costs the steel companies would incur to
lay off workers under the CIG-E program to the costs they incurred in
laying off workers under Law 451/94. We found that the steel companies
received a benefit by virtue of paying less under Law 451/94 than what
they would have paid under CIG-E.
In the preliminary determination of the instant proceeding, 63 FR
at 63908, we changed our benchmark because record evidence suggested
that the CIG-E program applied in situations where the laid-off workers
were expected to return to their jobs after the layoff period. Since
the workers retiring early under Law 451/94 were separated permanently
from their company, we adopted the so-called ``Mobility'' provision as
our benchmark. Like Law 451/94, the Mobility provision addressed
permanent separations from a company.
Since then, we have learned more about the GOI's unemployment
programs under Law 223/91 (including CIG-E and Mobility) and the early
retirement program under Law 451/94. Based on this information, we do
not believe that any of the alternatives described under Law 223/91
provides a benchmark per se for the costs that AST and Arinox would
incur in the absence of Law 451/94. As noted above, the CIG-E program
addresses temporary layoffs. The Mobility provision serves merely to
identify the minimum payment the company would incur when laying
workers off permanently. Under the Mobility provision, the company is
first directed to attempt to negotiate a settlement with the unions
prior to laying workers off permanently. Only if the negotiations fail
will the company face the minimum payment required under Mobility.
Recognizing that Arinox and AST would be required to enter into
negotiations with the unions before laying off workers, the difficult
issue for the Department is to determine what the outcome of those
negotiations might have been absent Law 451/94. At one extreme, the
unions might have succeeded in preventing any layoffs. If so, the
benefit to the companies would be the difference between what it would
have cost to keep those workers on the payroll and what the companies
actually paid under Law 451/94. At the other extreme, the negotiations
might have failed and both companies would have incurred only the
minimal costs described under Mobility. Then the benefit to AST and
Arinox would have been the difference between what they would have paid
under Mobility and what they actually paid under Law
451/94.
We have no basis for believing either of these extreme outcomes
would have occurred. It is clear that AST and Arinox sought to layoff
workers. However, we do not believe that the companies would simply
have fired the workers without reaching accommodation with the unions.
Statements by GOI officials at verification indicated that failure to
negotiate a separation package with the union would lead to labor
unrest, strikes, and lawsuits. Therefore, we have proceeded on the
basis that AST and Arinox's early retirees would have received some
support from the companies.
In attempting to determine the level of post-employment support
that AST and Arinox would have negotiated with their unions, we looked
to the companies' own experiences. As we learned at verification, by
the end of 1993, AST had established a plan for the termination of
redundant workers (as part of an overall ILVA plan). Under this plan,
the early retirees would first be placed on CIG-E as a temporary
measure and then they would receive benefits under Law 451/94.
According to AST officials, the temporary measure was needed because
``they were waiting for the passage of the early retirement program
under Law 451/94, which at the time had not been implemented by the
GOI.'' Similarly, Arinox placed workers on the mobility program while
waiting to enroll in the Law 451/94 early retirement program.
The evidence on the record indicates that at the time agreement was
reached with the unions on the terms of the layoffs, the companies and
their workers were aware that benefits would be made available under
Law 451/94. In such situations, i.e., where the company and its workers
are aware at the time of their negotiations that the government will be
making contributions to the workers' benefits, the Department's
practice is to treat half of the amount paid by the government as
benefiting the company. See GIA, 58 FR at 37225. In the GIA, the
Department stated that when the government's willingness to provide
assistance is known at the time the contract is being negotiated, this
assistance is likely to have an effect on the outcome of the
negotiations. In these situations, the Department will assume that the
difference between what the workers would have demanded and what the
company would have preferred to have paid would have been split between
the parties, with the result that one-half of the government payment
goes to relieving the company of an obligation that would exist
otherwise. See GIA, 58 FR at 37256. This methodology was upheld in LTV
Steel Co. v. United States, 985 F. Supp. 95, 116 (CIT 1997) (LTV
Steel).
Therefore, with respect to AST, Arinox and their workers, we
determine the following: (1) Under Italian Law
[[Page 30630]]
223/91, both companies would have been required to negotiate with their
unions about the level of benefits that would be made to workers
separated permanently from the company, and (2) since AST, Arinox, and
their unions were aware at the time of their negotiations that the GOI
would be making payments to those workers under Law 451/94, the benefit
to AST and Arinox is one half of the amount paid to the workers by the
GOI under Law 451/94. See Memorandum to Susan H. Kuhbach on Law 451/
94--Early Retirement Benefits dated May 19, 1999.
Consistent with practice, we have treated benefits to AST and
Arinox under Law 451/94 as recurring grants expensed in the year of
receipt. See GIA, 58 FR at 37226. To calculate the benefit received by
the companies during the POI, we multiplied the number of employees who
were receiving early retirement benefits during the POI by the average
salary. In the case of AST, the Department had information specifying
salary amounts by worker type, so we applied this average instead of a
broader salary average. See Plate Final, 64 FR at 15515. Since the GOI
was making payments to these workers equaling 80 percent of their
salary, and one-half of that amount was attributable to AST and Arinox,
we multiplied the total wages of the early retirees during the POI by
40 percent. We then divided this total amount by total consolidated
sales during the POI. On this basis, we determine the estimated net
benefit during the POI to AST to be 0.69 percent and Arinox 0.57
percent ad valorem.
H. Law 181/89: Worker Adjustment and Redevelopment Assistance
8
The facts pertaining to AST with respect to Law 181/89 benefits and
our methodology have not changed since the Plate Final. Please see that
notice for a full explanation (64 FR at 15515). Consequently, we
determine the estimated net benefit to AST in the POI for this program
to be 0.00 percent ad valorem. Arinox did not receive any benefits
under this program.
---------------------------------------------------------------------------
\8\ Includes the Decree Law 120/89: Recovery Plan for Steel
Industry program contained in Initiation Notice.
---------------------------------------------------------------------------
I. Law 488/92
Law 488/92 provides grants for industrial projects in depressed
regions of Italy. The subsidy amount is based on the location of the
investment and the size of the enterprise. The funds used to pay
benefits under this program are derived in part from the GOI and in
part from the Structural Funds of the European Union (EU). To be
eligible for benefits under this program, the enterprise must be
located in one of the regions in Italy identified as EU Structural
Funds Objective 1, 2 or 5b.
We determine that this program constitutes a countervailable
subsidy within the meaning of section 771(5) of the Act. The grants are
a financial contribution under section 771(5)(D)(i) of the Act
providing a benefit in the amount of the grant. Because assistance is
limited to enterprises located in certain regions, we determine that
the program is specific under section 771(5A)(D) of the Act.
According to AST officials, although the company has applied for
aid under this program, no approval has yet been granted and no funds
have yet been disbursed. Accordingly, we determine the estimated net
benefit to AST to be 0.00 percent ad valorem.
Under this program during the POI, Arinox received one grant,
disbursed in two portions. We have treated benefits under this program
as non-recurring because each grant requires separate government
approval. The benefit to Arinox was calculated as the sum of the two
portions provided. Because this sum is greater than 0.5 percent of
Arinox's sales, we allocated the benefit over Arinox's AUL. We divided
the benefit allocated to the POI by Arinox's total sales during the
POI. Accordingly, we determine the estimated net benefit to Arinox to
be 0.12 percent ad valorem.
EU Programs
A. ECSC Article 54 Loans
The facts pertaining to AST with respect to ECSC Article 54 loan
benefits and our methodology have not changed since the Plate Final.
Please see that notice for a full explanation (64 FR at 15515).
Accordingly, we determine the estimated net benefit to AST to be 0.11
percent ad valorem. Arinox did not have any outstanding Article 54
loans during the POI.
B. European Social Fund
The European Social Fund (ESF), one of the Structural Funds
operated by the EU, was established to improve workers' opportunities
through training and to raise workers' standards of living throughout
the European Community by increasing their employability. There are six
different objectives identified by the Structural Funds: Objective 1
covers projects located in underdeveloped regions, Objective 2
addresses areas in industrial decline, Objective 3 relates to the
employment of persons under 25, Objective 4 funds training for
employees in companies undergoing restructuring, Objective 5 pertains
to agricultural areas, and Objective 6 pertains to regions with very
low population (i.e., the far north).
During the POI, AST received ESF assistance for projects falling
under Objectives 2 and 4, and Arinox received assistance under
Objective 2. In the case of AST, the Objective 2 funding was to retrain
production, mechanical, electrical maintenance, and technical workers,
and the Objective 4 funding was to train AST's workers to increase
their productivity. The grants Arinox received were for worker
training.
The Department considers worker-training programs to provide a
countervailable benefit to a company when the company is relieved of an
obligation it would have otherwise incurred. See Final Affirmative
Countervailing Duty Determination: Certain Pasta (``Pasta'') From
Italy, 61 FR 30287, 30294 (June 14, 1996) (Pasta From Italy). Since
companies normally incur the costs of training to enhance the job-
related skills of their own employees, we determine that this ESF
funding relieves AST and Arinox of obligations they would have
otherwise incurred.
Therefore, we determine that the ESF grants received by AST and
Arinox are countervailable within the meaning of section 771(5) of the
Act. The ESF grants are a financial contribution as described in
section 771(5)(D)(i) of the Act which provide a benefit to the
recipient in the amount of the grants.
Consistent with prior cases, we have examined the specificity of
the funding under each Objective separately. See Wire Rod from Italy,
63 FR at 40487. In this case, the Objective 2 grants received by AST
and Arinox were funded by the EU, the GOI, the regional government of
Umbria acting through the provincial government of Terni for AST, and
the regional government of Liguria for Arinox. In Pasta From Italy, 61
FR at 30291, the Department determined that Objective 2 funds provided
by the EU and the GOI were regionally specific because they were
limited to areas within Italy which are in industrial decline. No new
information or evidence of changed circumstances has been submitted in
this proceeding to warrant reconsideration of this finding. The
provincial government of Terni and regional government of Liguria did
not provide information on the distribution of their grants under
Objective 2. Therefore, since the regional governments failed to
cooperate to the best of their ability by not supplying the requested
information on the distribution of grants under Objective 2, we are
assuming, as adverse facts
[[Page 30631]]
available under section 776(b) of the Act, that the funds provided by
the governments of Terni and Liguria are specific.
In the case of Objective 4 funding, the Department has determined
in past cases that the EU portion is de jure specific because its
availability is limited on a regional basis within the EU. The GOI
funding was also determined to be de jure specific because eligibility
is limited to the center and north of Italy (non-Objective 1 regions).
See Wire Rod from Italy, 63 FR at 40487. AST has argued that this
decision is not reflective of the fact that ESF Objective 4 projects
are funded throughout Italy and all Member States, albeit under the
auspices of separate, regionally limited documents (see Comment 16). We
agree with AST that it may be appropriate for us to revisit our
previous decision regarding the de jure specificity of assistance
distributed under the ESF Objective 4 Single Programming Document (SPD)
in Italy. Our decision in Wire Rod from Italy was premised upon our
determination in the Final Affirmative Countervailing Duty
Determination; Certain Fresh Atlantic Groundfish from Canada, 51 FR
10055 (March 24, 1986) (Groundfish from Canada). In that case,
respondents argued that benefits provided under the General Development
Agreement (GDA) and Economic and Regional Development Agreements (ERDA)
were not specific because the federal government had negotiated these
agreements with every province. We did not accept this argument because
the GDAs and ERDAs ``do not establish government programs, nor do they
provide for the administration and funding of government programs.''
Instead, the Department analyzed the specificity of the ``subsidiary
agreements'' negotiated individually under the framework of the GDA and
ERDA agreements.
In contrast to Groundfish from Canada, 51 FR at 10066, the
agreements negotiated between the EU and the Member States (i.e.,
Single Programming Documents and Community Support Frameworks) both
establish government programs and provide for the administration and
funding of such programs throughout the entirety of the European Union.
Therefore, if we were to consider all the EU-Member State agreements
together, we would arguably be unable to determine that the program is
de jure specific.
Notwithstanding this argument, given the lack of information on the
use of Objective 4 funds by either the EC or GOI, we must, as adverse
facts available in the instant case, find the aid to be de facto
specific. Both the EC and GOI stated that they were unable to provide
us with the industry and region distribution information for each
Objective 4 grant in Italy despite requests in our questionnaires and
at verification. While the GOI, at verification, provided a list of
grantees that received funds under the multiregional operating programs
in non-Objective 1 regions, it declined the opportunity to identify the
industry and region of such grantees (see February 3, 1999, memorandum
on the Results of Verification of the GOI at 16). Furthermore, the
regional governments have refused to cooperate to the best of their
ability in this investigation despite our requests. Therefore, we
continue to find that the aid received by AST is specific.
The Department normally considers the benefits from worker-training
programs to be recurring. See GIA, 58 FR at 37255. However, consistent
with our determination in Wire Rod from Italy, 63 FR at 40488, that
these grants relate to specific, individual projects, we have treated
these grants as non-recurring grants because each required separate
government approval.
Because the amount of funding for each of AST's projects was less
than 0.5 percent of AST's sales in the year of receipt, we have
expensed these grants received in the year of receipt. Two of AST's
grants were received during the POI. For these grants, we divided this
benefit by AST's total sales during the POI and calculated an estimated
net benefit of 0.01 percent ad valorem for ESF Objective 2 funds and
0.03 percent ad valorem for ESF Objective 4 funds. In the case of
Arinox, since the amount of ESF Objective 2 funding was more than 0.5
percent of Arinox's sales in the year of receipt, we have allocated
these grants over Arinox's AUL. We divided the benefit allocated to the
POI by Arinox's total sales during the POI. Accordingly, we determine
the estimated net benefit to Arinox for this program to be 0.34 percent
ad valorem.
II. Programs Determined To Be Not Countervailable
A. AST's Participation in the THERMIE Program
The facts pertaining to the THERMIE program and our analysis of
that program have not changed since the Plate Final. Please see that
notice for a full explanation (64 FR at 15517).
IV. Other Programs Examined
A. Loan to KAI for Purchase of AST
The facts pertaining to the loan to KAI for the purchase of AST
have not changed since the Plate Final. Please see that notice for a
full explanation (64 FR at 15517). Using even the most adverse of
assumptions, the estimated net benefit to AST for this program would be
0.00 percent ad valorem, when rounded. Therefore, we find it
unnecessary to analyze this program.
B. Brite-EuRam
The facts pertaining to the Brite-EuRam program have not changed
since the Plate Final. Please see that notice for a full explanation
(64 FR at 15517-15518). Consistent with the Plate Final, we are not
making a determination on the countervailability of the Brite-EuRam
program in this proceeding. Should an order be put in place, however,
we will solicit information on the Brite-EuRam program in a future
administrative review, if one is requested. See 19 CFR 351.311(c)(2).
V. Programs Determined To Be Not Used
GOI Programs
A. Benefits from the 1982 Transfer of Lovere and Trieste to Terni
(called ``Benefits Associated With the 1988-90 Restructuring'' in the
Initiation Notice)
B. Law 345/92: Benefits for Early Retirement
C. Law 706/85: Grants for Capacity Reduction
D. Law 46/82: Assistance for Capacity Reduction
E. Debt Forgiveness: 1981 Restructuring Plan
F. Law 675/77: Mortgage Loans, Personnel Retraining Aid and VAT
Reductions
G. Law 193/84: Interest Payments, Closure Assistance and Early
Retirement Benefits
H. Law 394/81: Export Marketing Grants and Loans
I. Law 341/95 and Circolare 50175/95
J. Law 227/77: Export Financing and Remission of Taxes
EU Programs
A. ECSC Article 56 Conversion Loans, Interest Rebates and Redeployment
Aid
B. European Regional Development Fund
C. Resider II Program and Successors
D. 1993 EU Funds
Interested Party Comments
Comment 1: The Extinguishment v. Pass-Through of Subsidies during
Privatization
The facts at hand regarding this issue, parties' arguments, and our
response to those arguments have not changed since
[[Page 30632]]
the Plate Final. Please see that notice for a full explanation (Comment
1, 64 FR at 15518-15519).
Comment 2: Calculation of ``Gamma''
The facts at hand, parties'' arguments regarding this issue, and
our response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 2, 64 FR at
15519).
Comment 3: Calculation of the Purchase Price
AST argues that the Department undervalued the subsidies repaid in
the preliminary determination by basing the purchase price only on the
cash paid for the company. Instead, AST suggests that the purchase
price should also include the debt assumed by the purchasers as part of
the sales transaction.
AST maintains that including assumed debt in the purchase price is
appropriate because buyers and sellers are indifferent as to the mix of
cash paid and debt assumed; a dollar of debt assumed, AST argues, is
equivalent to a dollar of cash paid. If the buyers of ILVA's stainless
division had offered only the cash portion of their offer and had not
agreed to assume the debt, AST contends that their bid would not have
been accepted.
To support its argument, AST offers the example of purchasing a
house with an assumable mortgage. A person wanting to buy the house,
according to AST, has several financing options: (1) Paying cash for
the total sales price, (2) paying a down payment for some portion of
the sales price and obtaining a new mortgage on the balance, or (3)
assuming the existing mortgage and paying cash for the balance. AST
states that, in all cases, the purchase price of the home remains the
same.
Moreover, AST contends, by not including assumed debt in the
purchase price, the Department's privatization methodology for
determining the amount of subsidies repaid will render different
results depending upon the mix of assumed debt and cash required in a
particular purchase.
The petitioners counter by stating that the cash price paid for a
company already reflects the liabilities in that the price paid is the
valuation by the buyer of the company as a whole, including assumed
liabilities. In addition, the petitioners claim that it is the
Department's well-established practice not to add assumed liabilities
to the purchase price citing Final Affirmative Countervailing Duty
Determination: Steel Wire Rod from Germany, 62 FR 55490, 55001 (October
22, 1997) (Wire Rod from Germany), and Final Affirmative Countervailing
Duty Determination: Steel Wire Rod from Canada, 62 FR 54972, 54986
(October 22, 1997) (Wire Rod from Canada), as two cases in which the
Department declined expressly to make an upwards adjustment to price to
account for assumed liabilities/obligations. In looking at AST's
example of a home purchased with an assumable mortgage, the petitioners
point out that the value of that home to the buyer is the net equity
position-the difference between the value of the home and the mortgage.
Additionally, the petitioners point out that the seller of the home
only receives the amount of equity in the home and not the full market
value.
Department's Position: For purposes of this final determination, we
have continued to calculate the purchase price as the amount of cash
received and have not included the amount of debt assumed by the
purchasers of AST. As noted by petitioners, it has not been the
Department's practice to include assumed debt as part of the purchase
price in calculating the amount of subsidies that are repaid through a
privatization transaction (see cases cited by petitioners). Moreover,
beyond its mere assertion that buyers and sellers are indifferent as to
the mix of cash paid and debt assumed, AST has not provided any
information to support its claim that cash paid and debt assumed by the
buyer are interchangeable. See also our response to Comment 3 in the
Plate Final (64 FR at 15520).
Comment 4: Repayment in Spin-Off Transactions
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 4, 64 FR at
15520).
Comment 5: Sale of a Unit to a Government Agency
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 5, 64 FR at
15520).
Comment 6: Use of Company-Specific AUL
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 6, 64 FR at
15521).
Comment 7: Revision of AST's Volume and Value Data
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 7, 64 FR at
15521-15522).
Comment 8: Ratio Adjusting the Benefit Stream for the Sale of AST
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 8, 64 FR at
15522).
Comment 9: Use of Gross Versus Net Debt in 1993 Debt Forgiveness
Calculation
AST argues that the record of this case establishes a precise
amount that represents the ``actual cost to the GOI'' for the
liquidation of ILVA, based on the EC's strict monitoring. Assuming that
the Department countervails these costs, AST argues that the Department
cannot consider the benefit to the recipients to be larger than the
amount calculated by the EC as the actual cost to the GOI.
AST states that, in past cases, such as Al Tech Specialty Steel
Corp. v. United States, 661 F. Supp. 1206, 1213 (CIT 1987), the
Department concluded that it would be inappropriate to look behind the
action of a tribunal charged with the administration of a liquidation
process. AST states that the GOI would have been subject to significant
legal penalty had it failed to abide by the requirements of the EC-
supervised liquidation. Thus, AST implicitly argues that the Department
should accept the amount of remaining debt calculated by the EC,
without examining the underlying calculation of this remaining debt
figure.
Furthermore, AST asserts that, because buyers should be indifferent
to the mix of cash paid and debts assumed in purchasing a company, the
Department's methodology inappropriately attributes a greater amount of
debt forgiveness to a company whose buyers assume less debt but pay a
higher cash price. In fact, claims AST, if the GOI had paid down the
same amount of ILVA's liabilities calculated as uncovered in the EC's
Monitoring Reports prior to the liquidation process, each of the
companies could have been ``sold'' entirely for a transfer of debt
(i.e., no cash transfer) in the amount of transferred assets. In this
event, AST argues, there would be no residual debt and the Department's
methodology
[[Page 30633]]
would lead it to countervail only the grant given prior to the
liquidation process.
The petitioners state that the Department, consistent with its
practice, should consider the total amount of ILVA's liabilities and
losses forgiven on behalf of AST at the time of its spin-off as the
benefit to AST. See, e.g., Electrical Steel from Italy, 59 FR at 18365,
and Certain Steel from Austria, 58 FR at 37221. The petitioners assert
that the income received as a result of the sales of ILVA's productive
units should not be deducted from the gross amount of ILVA's losses and
liabilities for three reasons. First, the petitioners argue, the debt
forgiveness occurred prior to the actual sales of ILVA's productive
units and, thus, should be treated separately. Second, the petitioners
contend, the amount of income at the time of the sales was greater than
it would have been without the debt reduction. Finally, according to
the petitioners, the Department's change-in-ownership methodology
accounts separately for repayment of prior subsidies associated with
the purchase price of the company sold.
Department's Position: We disagree with AST that we are precluded
from ``looking behind'' the EC's Monitoring Report. While the EC's
Monitoring Report is a useful source of information about the
liquidation of ILVA, the methodologies the EC uses to measure and
report amounts associated with the liquidation may not be appropriate
for our purposes, i.e., for identifying and measuring the
countervailable benefit to AST from the GOI liquidation activities. For
example, we could not rely on calculations based on the cost to the
government rather than the benefit to the recipient.
As we understand AST's argument, rather than carry out the
liquidation of ILVA and privatization of ILVA's constituent parts as it
did, the GOI could simply have forgiven the ILVA Group's debt up to the
point where assets equaled liabilities (and the Group's net equity was
zero). In turn, each of the constituent parts of ILVA could be ``sold''
with assets equal to liabilities at a price of zero. Under this
scenario, the total countervailable subsidy under the Department's
methodology would clearly be the amount of debt forgiven, which
corresponds to the amount in the EC's Monitoring Report. However,
because the privatization was structured so that ILVA's constituent
parts took certain liabilities with them when they were privatized and
because the Department does not include debt assumed as part of the
purchase price, the amount of the debt forgiveness and, consequently,
the amount of the subsidy the Department found was vastly larger that
the amount in the EC's Monitoring Report. In AST's view, this anomaly
should be addressed by treating the amount of debt forgiveness reported
by the EC as a grant to the new companies (and, hence, not passing
through the change-in-ownership calculation), while the debt assumed by
the purchasers should be included in the purchase price in calculating
the amount of old subsidies that are repaid through privatization.
As discussed above in response to Comment 3, the Department's
practice is not to include debt assumed by the buyer as part of the
purchase price, and AST has not supported its assertion that buyers and
sellers would be indifferent as to the mix of cash paid and debt
assumed. See also our response to Comment 3 in the Plate Final (64 FR
at 15520). Without support for this premise, we believe that AST's
proposed methodology measures the cost to the Government of Italy of
liquidating ILVA and not the benefit to AST resulting from the
assignment and forgiveness of debt involved in the AST's demerger.
Comment 10: 1993 Debt Forgiveness Apportionment
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 10, 64 FR at
15523).
Comment 11: ILVA Residua Asset Value
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 11, 64 FR at
15523).
Comment 12: Use of Consolidated Asset Values for 1993 Debt Forgiveness
Calculation
The facts at hand, parties' arguments regarding this issue and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 12, 64 FR at
15523-15524).
Comment 13: ILVA to AST Debt-Forgiveness Methodology
AST argues that, if the Department maintains the debt-forgiveness
methodology it used in the Plate Final, it should make certain
adjustments to its calculation to improve its accuracy. Specifically,
AST asserts that the Department's methodology overstates the amount of
liabilities assigned to AST as debt forgiveness by understating both
the amount of residual assets liquidated and the amount of liabilities
that were transferred in the privatization of ILVA Residua's
operations. AST claims that the Department can correct both of these
errors by basing its calculation on the ``total comparable
indebtedness'' as calculated in the EC 10th Monitoring Report rather
than ILVA Residua's 1993 financial statement.
Although the Department declined to make the requested adjustments
as clerical-error corrections in the Plate Final, AST asserts that
additional information exists on the record of the instant case that
would allow the Department to make the requested adjustments in the
final determination. Specifically, AST states that the Department's May
6, 1999, Memorandum to File, detailing a telephone conversation between
Department personnel and the EC official who was in charge of compiling
the Monitoring Reports, provides definitive support to make the
requested changes. AST asserts that this telephone conversation
confirmed that the Department did not take into account additional,
``non-financial'' (e.g., accounts payable, accruals), liabilities that
were transferred to the companies privatized from ILVA Residua, and
that certain other residual assets, other than just liquid assets, were
sold in the liquidation process. AST states that the EC official also
confirmed that the Monitoring Report methodology accounts for both of
these issues. Furthermore, while AST admits that the Department in past
cases has only reduced the remaining liability pool by liquid assets,
AST states that this was because it was not known whether any other
assets had value. However, in this case, AST asserts, the Department
has information on the value of all residual assets in the EC's
Monitoring Reports. Despite the petitioners' claims in the Plate Final,
AST submits that the Department did not specifically reject the use of
the Monitoring Reports in the Plate Final but rather ``re-examined''
its methodology with regard to a different issue, the use of gross
versus net debt (discussed in Comment 9).
The petitioners argue that the Department should not alter its
calculation of the 1993 debt forgiveness adopted in the Plate Final
because the suggested changes are not supported by record evidence, are
based on events that happened after the 1993 demerger, and contain
other errors. The petitioners contend that the Department found, in its
May 4, 1999, Memorandum on Ministerial Errors in the Plate Final, that
[[Page 30634]]
the Monitoring Reports did not support the changes suggested by AST.
Thus, the EC official's ``mere references'' to this report supporting
AST's alleged errors in the May 6 telephone conference does not provide
``definitive proof of AST's claim,'' states the petitioners.
Additionally, the petitioners argue that the amount of non-financial
debts that were allegedly transferred with the privatized companies may
have been influenced by changes in the amounts of such debt after the
1993 demergers. While the petitioners admit that, if actually
transferred, it would be appropriate to deduct any of ILVA's non-
financial debts, they argue that the record does not establish any such
non-financial debts transferred as tied to pre-demerger ILVA.
Continuing, the petitioners argue that at the time of AST's demerger,
ILVA Residua's liquidators could only be assured that its liquid assets
would sell at their stated value. The fact that certain fixed and
capital assets were sold later is irrelevant to the Department's intent
to calculate the debt forgiveness conferred at the moment of AST's
demerger, the petitioners posit. The petitioners also contend that the
Department already accounted for fixed-asset sales through its change-
in-ownership methodology such that it would be inappropriate to deduct
these sales from ILVA's total indebtedness. Last, petitioners argue
that AST's proposed calculation methodology uses the 1998 rather than
the 1993 ``total comparable indebtedness'' figure from the Monitoring
Reports incorrectly, and that the amount AST subtracted for the pre-
demerger sale of assets should be added rather than subtracted.
Department's Position: In contrast to the Plate Final, the record
of the instant case confirms AST's assertion that a greater amount of
liabilities than we accounted for in the Plate Final were actually
transferred with ILVA Residua's privatized assets and that the ``total
comparable indebtedness'' reported in the Monitoring Reports more
accurately reflects the residual assets that were sold in liquidation
than the amount of ``liquid assets'' we used in the Plate Final. We
agree with AST that we did not reject the use of the Monitoring Reports
in the Plate Final but rather changed our methodology to capture the
debt-forgiveness benefit to AST by starting with the gross rather than
the net debt (see our response to Comment 9). We also agree with AST
that our typical practice of deducting only liquid assets from total
liabilities left in a shell company is based on the presumption that
the value of other residual assets is unknown and difficult to
determine, and is likely to be far less than their book value. However,
in this case, the Monitoring Reports provide an actual accounting of
the liquidation process through June 1998. We note that 423 billion
lire of non-liquid assets remained in ILVA Residua as of June 1998.
Because we do not know what the actual value of these assets will be in
liquidation, nor will there be any further monitoring of their
liquidation by the EC (see May 6, 1999, Memorandum to File), we
increased the indebtedness we allocated to ILVA's viable assets by this
amount. Additionally, while it is possible that the composition of the
non-financial debts transferred in the sales of ILVA's viable assets
changed somewhat after the demergers of AST and ILP, there is no
evidence on the record to indicate that such debts, which arise as a
direct result of the operations of the business units privatized, would
have changed dramatically over this time period.
We do not agree with the petitioners that our methodology is to
calculate the amount of debt forgiveness as of the moment AST was
demerged. While we have set the benefit stream to AST to begin with the
demerger, we view AST's demerger as only one part of the process of
liquidating ILVA. That process involved a series of actions, including
the demergers of AST and ILP. If we were to look only at the assets and
liabilities that had been disposed of by the time of AST's demerger, we
would be ignoring much of the liquidation activity inappropriately. For
example, CAS had not been sold as of the time of AST's demerger. Thus,
under the petitioners' approach, subsidies which we assigned to CAS in
Wire Rod would also be assigned to AST just because of the sequence of
events.
We also disagree with the petitioners that we had accounted for the
residual assets in question already in our change-in-ownership
methodology. None of the residual assets at issue constitute
``productive units'' (i.e., a collection of assets capable of
generating sales and operating independently, see GIA at 37268).
Therefore, application of the change-in-ownership methodology would be
inappropriate. Instead, it is appropriate to net the liquidation value
of these individual assets against residual liabilities in the same
manner as liquid assets. Last, because the 1998 ``total comparable
indebtedness'' provides a more accurate basis than the similar 1993
figure, we have used this as the starting point of our calculation.
While we have not altered our determination with regard to the
issue of gross debt versus net debt, we can address both that issue and
calculate a more accurate amount of debt forgiveness by using the final
``total comparable indebtedness'' figure reported in the 10th
Monitoring Report as the starting point of our calculation. For an
overview of our calculation methodology, see ILVA to AST Debt
Forgiveness section above.
Comment 14: 1993 Creditworthiness
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 13, 64 FR at
15524).
Comment 15: ILVA Asset Write-Downs
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 14, 64 FR at
15524-15525).
Comment 16: ESF Objective 4 Specificity
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 15, 64 FR at
15525).
Comment 17: ESF Objective 3
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 16, 64 FR at
15525).
Comment 18: Law 10/91
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 17, 64 FR at
15525-15526).
Comment 19: Specificity of THERMIE
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 18, 64 FR at
15526).
Comment 20: Law 675 Bond Issues
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 19, 64 FR at
15526).
Comment 21: 1988 Equity Infusion
The facts at hand, parties' arguments regarding this issue, and our
response to
[[Page 30635]]
those arguments have not changed since the Plate Final. Please see that
notice for a full explanation (Comment 20, 64 FR at 15526-15527).
Comment 22: Law 451/94
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 21, 64 FR at
15527).
Comment 23: Law 675/77--Worker Training Program
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 22, 64 FR at
15527-15528).
Comment 24: Law 796/76 Benefit Calculation
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 23, 64 FR at
15528).
Comment 25: AST's Brite-EuRam Grant
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 24, 64 FR at
15528).
Comment 26: ECSC Article 56 Aid
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 25, 64 FR at
15528).
Comment 27: ECSC Article 54 Loans
The facts at hand, parties' arguments regarding this issue, and our
response to those arguments have not changed since the Plate Final.
Please see that notice for a full explanation (Comment 26, 64 FR at
15528-15529).
Comment 28: Exclusion of Floor Plate from the Scope of the
Investigation
AST requests that the Department exclude floor plate from the scope
of the instant proceeding. AST argues that floor plate should not be
included in the scope of this investigation because floor plate is not
manufactured in the United States, it does not compete with any product
manufactured in the United States or with imports of other covered
products, and it is materially different from the other products
subject to this investigation. Furthermore, AST argues that floor plate
has only one end-use, which is as flooring material and it cannot be
used for any other application that requires a smooth surface, as is a
common requirement of end-uses of stainless steel. Lastly, AST argues
that the Department has the inherent authority to exclude products from
the scope of an investigation that are not included properly therein.
The petitioners object to AST's request to exclude floor plate from
the scope of this investigation. The petitioners argue that floor plate
falls clearly within the scope of this case. Furthermore, the
petitioners cite Melamine Institutional Dinnerware Products from the
People's Republic of China, 62 FR 1708 (January 13, 1997), as evidence
of the Department's clear and consistent practice of examining the
interests of the domestic industry in defining the scope of a case. The
petitioners point out that numerous requests to exclude certain
products from the scope have been considered and, where there was no
interest on the part of the domestic industry, the petitioners have
excluded such products from the scope as evidenced in the revisions to
the initial scope definition set forth in the Preliminary
Determination. The petitioners object to AST's argument that, in order
for a product to remain within the scope, the domestic industry must be
producing currently. The petitioners state that often products are
included in the scope of an investigation because they are similar to
and competitive with the domestic like product.
Department's Position: We disagree with AST. Despite AST's
arguments, the scope as set forth in the Preliminary Determination
covers merchandise described as floor plate if it is less than 4.75 in
thickness. The scope specifically describes the subject merchandise as
``flat-rolled product in coils that is greater than 9.5 mm in width and
less than 4.75 mm in thickness' and notes further that ``[t]he 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.'' See
Notice of Initiation of Countervailing Duty Investigations: Stainless
Steel Sheet and Strip in Coils From France, Italy, and the Republic of
Korea Notice of Initiation, 63 FR 37521 (July 13, 1998). Additionally,
the petitioners have objected to the exclusion of floor plate from the
scope of the investigation. Furthermore, we have addressed this issue
earlier. See Memorandum to the File regarding Scope Changes in
Stainless Steel Sheet and Strip in Coils from Korea, Italy and France,
dated December 14, 1998. Therefore, the Department has not amended the
scope of the investigation to exclude stainless steel floor plate.
Comment 29: Termination of Investigation of Arinox
The petitioners argue that the Department should terminate its
investigation of Arinox for failure to comply with the statute and
agency regulations and, furthermore, the Department should assign
Arinox the ``All Others'' rate. The petitioners object to the
Department's acceptance of Arinox's information, given the company's
failure to comply with the Department's instructions for submitting
factual information. The petitioners point out that Arinox has
consistently neglected to serve its responses on the petitioners and,
by not enforcing the statutory requirement to serve interested parties
with all information submitted, the Department has deprived the
petitioners of the opportunity to submit comments on potential
subsidies to Arinox. Moreover, the petitioners assert, by accepting the
procedurally defective submissions of Arinox and calculating a de
minimis subsidy rate in the Preliminary Determination based on those
submissions, the Department would exclude Arinox from the scope of the
countervailing duty order at the outset of this proceeding, thus
precluding the petitioners from ever analyzing Arinox's data and the
Department from assessing the potential countervailable benefits.
Arinox states that it is a small company and was unfamiliar with
the process of serving its submissions on interested parties. Arinox
argues that it has cooperated fully with the Department's investigation
by providing information as requested. Arinox points out that, at
verification, the company welcomed Department personnel and provided
information requested in order to verify the information provided.
Arinox argues that since it has cooperated fully in the investigation
and the Department verified the information provided by the company, it
would be inappropriately punitive to apply the ``All Others'' rate to
Arinox. Finally, Arinox maintains that it is a fairly new company which
has never been owned by the Italian government and the only programs in
which it participated are small social programs which help depressed
areas in Italy.
Department's Position: The Department recognizes the petitioners'
concerns regarding the failure of Arinox to comply with the statutory
requirement to serve all interested
[[Page 30636]]
parties with its responses to the Department's questionnaires in a
timely fashion. However, the Department believes that Arinox, a pro se
company, was operating in good faith and to the best of its ability in
attempting to respond to the Department's requests for information.
Although Arinox's responses to our questionnaires and other information
were not served immediately upon the petitioners, it submitted this
information in a timely fashion, was sufficiently complete so as to
provide a reliable basis for our determination, was capable of being
used without undue difficulty, and we provided it to the petitioners
shortly before the preliminary determination. We conducted the
verification of Arinox approximately three weeks later and verified the
accuracy of Arinox's submissions. This three-week period provided the
petitioners with a reasonable amount of time to make substantive
comments regarding any potential subsidies to Arinox prior to
verification. For these reasons and consistent with sections 782(c)(2)
and (e) of the Act, the Department has continued to calculate a
separate ad valorem subsidy rate for Arinox in this final
determination.
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 each company investigated. We
determine that the total estimated net countervailable subsidy rate is
12.22 percent ad valorem for AST and 1.03 percent ad valorem for
Arinox. The All Others rate is 12.09 percent, which is the weighted
average of the rates for both companies.
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 Italy, 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 November
17, 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.
Return or 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)(3). 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. 99-13683 Filed 6-7-99; 8:45 am]
BILLING CODE 3510-DS-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.