Certain Pasta From Italy: Final Results of the Second Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-819]

Certain Pasta From Italy: Final Results of the Second

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review.

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SUMMARY: On April 12, 1999, the Department of Commerce published in the

Federal Register its preliminary results of the second administrative

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

the period January 1, 1997 through December 31, 1997. For information

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

reviewed companies, see the Final Results of Review section of this

notice. We will instruct the U.S. Customs Service to assess

countervailing duties as detailed in the Final Results of Review

section of this notice.

EFFECTIVE DATE: August 16, 1999.

FOR FURTHER INFORMATION CONTACT: Vincent Kane, Sally Hastings or Suresh

Maniam, AD/CVD Enforcement, Group I, Office 1, Import Administration,

U.S. Department of Commerce, Room 1780, 14th Street and Constitution

Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-2815, 482-

3464 or 482-0176, respectively.

Applicable Statute

Unless otherwise indicated, all citations to the statute are

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

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

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

accordance with section 751(a) of the Act. In addition, unless

otherwise indicated, all citations to the Department's regulations are

to the regulations codified at 19 CFR 351 (1998).

Background

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

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

order on certain pasta from Italy.

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

covers the producers or exporters of the subject merchandise for which

a review was specifically requested. They are:

[[Page 44490]]

Audisio Industrie Alimentari S.p.A. (``Audisio''); the affiliated

companies Delverde SrL, Industrie Alimentari di Capitanata SrL,

Sangralimenti SrL, and Pietro Rotunno SrL (``Delverde/Tamma'');

Pastificio Fabianelli S.p.A. (``Fabianelli''); and Pastificio Riscossa

F.lli Mastromauro SrL (``Riscossa''). The petitioners in this review

are Borden, Inc., Hershey Foods Corp. and Gooch Foods, Inc. This review

covers 25 programs.

Since the publication of the preliminary results of the second

administrative review of the countervailing duty order on certain pasta

from Italy on April 12, 1999 (See Certain Pasta from Italy: Preliminary

Results of Countervailing Duty Administrative Review (64 FR 17618)

(Preliminary Results), the following events have occurred. On May 4,

1999, we issued supplementary questionnaires to the Government of Italy

(``GOI''), the European Union (``EU''), and the Government of the

Piedmont Region. We received responses to these questionnaires on May

20, 1999. From May 24 through May 28, 1999, we verified the

questionnaire responses of Audisio and Fabianelli. On May 12, 1999,

Riscossa submitted its case brief. On June 22, 1999, petitioners and

respondents Delverde/Tamma submitted case briefs. Respondents Audisio,

Delverde/Tamma, and Fabianelli and petitioners filed rebuttal briefs on

May 29, 1999. The Department did not conduct a hearing in this review

because none was requested.

Scope of Review

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

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

enriched or fortified or containing milk or other optional ingredients

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

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

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

fiberboard or cardboard cartons or polyethylene or polypropylene bags,

of varying dimensions.

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

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

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

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

appropriate certificate issued by the Associazione Marchigiana

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

International Services.

The merchandise under review is currently classifiable under item

1902.19.20 of the Harmonized Tariff Schedule of the United States

(HTSUS). Although the HTSUS subheading is provided for convenience and

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

is dispositive.

Scope Rulings

The Department has issued the following scope rulings to date:

(1) On August 25, 1997, the Department issued a scope ruling that

multicolored pasta, imported in kitchen display bottles of decorative

glass that are sealed with cork or paraffin and bound with raffia, is

excluded from the scope of the antidumping and countervailing duty

orders. See Memorandum from Edward Easton to Richard Moreland, dated

August 25, 1997.

(2) On July 30, 1998, the Department issued a scope ruling, finding

that multipacks consisting of six one-pound packages of pasta that are

shrink-wrapped into a single package are within the scope of the

antidumping and countervailing duty orders. See letter from Susan H.

Kuhbach, Acting Deputy Assistant Secretary for Import Administration,

to Barbara P. Sidari, Vice President, Joseph A. Sidari Company, Inc.,

dated July 30, 1998.

(3) On October 26, 1998, the Department self-initiated a scope

inquiry to determine whether a package weighing over five pounds as a

result of allowable industry tolerances may be within the scope of the

antidumping and countervailing duty orders. On May 24, 1999 we issued a

final scope ruling finding that pasta in packages weighing or labeled

up to (and including) five pounds four ounces is within the scope of

the antidumping and countervailing duty orders. See Memorandum from

John Brinkmann to Richard Moreland, dated May 24, 1999.

Period of Review

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

from January 1, 1997 through December 31, 1997.

Subsidies Valuation Information

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

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

denominated loans or other debt obligations which could be used as

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

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

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

Italian commercial bank would charge a corporate customer, as the

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

for years prior to 1995. For the years 1995 through 1997, we used the

Italian Bankers Association (``ABI'') interest rate increased by the

average spread charged by banks on loans to commercial customers plus

an amount for bank charges. For a further discussion of the interest

rates used in these final results, see Memorandum to File from Team,

``Calculation Memorandum for Final Results--Interest Rates,'' dated

July 31, 1999.

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

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

International Trade (the Court) ruled against the allocation

methodology for non-recurring subsidies that the Department had

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

Issues Appendix, appended to the Final Countervailing Duty

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

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

Department determined that the most reasonable method of deriving the

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

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

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

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

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

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

the original investigation.

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

have already been countervailed based on an allocation period

established in the investigation, it is neither reasonable nor

practicable to reallocate those subsidies over a different period of

time. Therefore, for purposes of these final results, the Department is

using the original allocation period assigned to each non-recurring

subsidy countervailed in the original investigation on the basis of the

allocation period established in the original investigation. This

conforms with our approach in Certain Carbon Steel Products from

Sweden; Final Results of Countervailing Duty Administrative Review, 62

FR 16549 (April 7, 1997).

For non-recurring subsidies not countervailed in the original

investigation, each company under review submitted an AUL calculation

[[Page 44491]]

based on depreciation and asset values of productive assets reported in

its financial statements. Each company's AUL was derived by dividing

the sum of average gross book value of depreciable fixed assets over

the past ten years by the average depreciation charges over this

period. We found this calculation to be reasonable and consistent with

our company-specific AUL objective. We have used these calculated AULs

for the allocation period for non-recurring subsidies not countervailed

in the original investigation.

Changes in Ownership

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

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

purchased factory had received non-recurring countervailable subsidies

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

We have calculated the amount of the prior subsidies that passed

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

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

58 FR at 37265. (For further discussion, see Comment 4 below.)

Affiliated Parties

In the present review, we have examined several affiliated

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

relationship may be sufficient to warrant treatment as a single

company. In the countervailing duty questionnaire, consistent with our

past practice, the Department defined companies as sufficiently related

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

where companies prepare consolidated financial statements. The

Department also stated that companies may be considered sufficiently

related where there are common directors or one company performs

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

companies that produce the subject merchandise or that have engaged in

certain financial transactions with the company subject to review are

required to respond.

In the Preliminary Results, and consistent with our determination

in Final Affirmative Countervailing Duty Determination: Certain Pasta

(``Pasta'') from Italy 61 FR 30288, 30290 (June 14, 1996) (Pasta from

Italy) we have treated Delverde SrL, Tamma Industrie Alimentari, SrL,

Sangralimenti SrL, and Pietro Rotunno, SrL as a single company with a

combined rate. We did not receive any comments on this treatment from

the interested parties, and our review of the record has not led us to

change this determination.

Analysis of Programs

I. Programs Previously Determined To Confer Subsidies

A. Industrial Development Grants

1. Law 64/86 Benfits

Delverde/Tamma and Riscossa benefitted from industrial development

grants under Law 64/86 during the POR. In the Preliminary Results and

in Pasta from Italy, we found that this program conferred regionally

specific, countervailable subsidies on the subject merchandise. Our

review of the record and our analysis of the comments submitted by

interested parties, summarized below in Comment 5, have not led us to

change our findings for Delverde/Tamma and Riscossa. Accordingly, the

net subsidies for this program have not changed from the Preliminary

Results and are as follows: Delverde/Tamma 2.18 percent ad valorem and

Riscossa 0.74 percent ad valorem.

2. Law 488/92 Benefits

Delverde/Tamma also benefitted from industrial development grants

under Law 488/92 during the POR. In the Preliminary Results, we found

that this program conferred regionally specific, countervailable

subsidies on the subject merchandise. We did not receive any comments

on this program from interested parties and our review of the record

has not led us to change our findings for Delverde/Tamma. Accordingly,

the net subsidy for this program has not changed from the Preliminary

Results and is as follows: Delverde/Tamma 0.23 percent ad valorem.

B. Industrial Development Loans Under Law 64/86

Delverde/Tamma received industrial development loans with interest

contributions from the GOI. In the Preliminary Results and Pasta from

Italy, we found that this program conferred countervailable subsidies

on the subject merchandise. We did not receive any comments on this

program from interested parties and our review of the record has not

led us to change our findings or calculations from the Preliminary

Results. Accordingly, the net subsidy for this program remains

unchanged and is as follows: Delverde/Tamma--0.65 percent ad valorem.

C. Export Marketing Grants Under Law 304/90

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

development project in the United States. In the Preliminary Results

and Pasta from Italy, we found that this program conferred

countervailable subsidies on the subject merchandise. We did not

receive any comments on this program from interested parties and our

review of the record has not led us to change any findings or

calculations for Delverde/Tamma. Accordingly, the net subsidy for this

program remain unchanged from the Preliminary Results and is as

follows: Delverde/Tamma--0.22 percent.

D. Social Security Reductions and Exemptions

1. Sgravi Benefits

Delverde/Tamma and Riscossa received countervailable social

security reductions and exemptions during the POR. In the Preliminary

Results and Pasta from Italy, we found that this program conferred

regionally-specific countervailable subsidies on the subject

merchandise. We did not receive any comments on this program from

interested parties and our review of the record has not led us to

change any findings or calculations. Accordingly, the net subsidies for

this program remain unchanged from the Preliminary Results and are as

follows: Delverde/Tamma--0.31 percent ad valorem and Riscossa--0.37

percent ad valorem.

2. Fiscalizzazione Benefits

Delverde/Tamma and Riscossa received the higher levels of

fiscalizzazione deductions available to companies located in the

Mezzogiorno during the POR. In the Preliminary Results and Pasta from

Italy, we found that this program conferred regionally-specific

countervailable subsidies on the subject merchandise. We did not

receive any comments on this program from interested parties and our

review of the record has not led us to change any findings or

calculations. Accordingly, the net subsidies for this program remain

unchanged from the Preliminary Results and are as follows: Delverde/

Tamma--0.07 percent ad valorem and Riscossa--0.21 percent ad valorem.

3. Law 407/90 Benefits

Delverde/Tamma received the higher level of Law 407 deductions

available to companies located in the Mezzogiorno during the POR. In

the Preliminary Results and Pasta from Italy, we found that this

program conferred regionally specific countervailable subsidies on the

[[Page 44492]]

subject merchandise. We did not receive any comments on this program

from interested parties and our review of the record has not led us to

change our findings or calculations. Accordingly, the net subsidies for

this program remains unchanged from the Preliminary Results and are as

follows: Delverde/Tamma--0.00 percent ad valorem.

4. Law 863 Benefits

Delverde/Tamma received the higher level of Law 863 deductions

available to companies located in the Mezzogiorno during the POR. In

the Preliminary Results and Pasta from Italy, we found that this

program conferred regionally specific countervailable subsidies on the

subject merchandise. We did not receive any comments on this program

from interested parties and our review of the record has not led us to

change our findings or calculations. Accordingly, the net subsidy for

this program remains unchanged from the Preliminary Results and is as

follows: Delverde/Tamma 0.17 percent ad valorem.

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

Law 227/77

Fabianelli obtained export credit insurance under this program for

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

insurance tax. In the Preliminary Results and Pasta from Italy, we

found that this program conferred countervailable subsidies on the

subject merchandise. We did not receive any comments on this program

from interested parties and our review of the record has not led us to

change our findings or calculations. Accordingly, the net subsidy for

this program remains unchanged from the Preliminary Results and is as

follows: Fabianelli--0.03 percent ad valorem.

F. 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, Audisio received an ESF training grant under

Objective 4 for the purpose of training its workers to increase

productivity.

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 Pasta From Italy 61 FR

at 30294. Since companies normally incur the costs of training to

enhance the job-related skills of their own employees, we determine

that this ESF grant relieves Audisio of obligations it would have

otherwise incurred. Consequently, the ESF grant is a financial

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

provides a benefit to the recipient in the amount of the grant.

Consistent with prior cases, we have examined the specificity of

the ESF funding under Objective 4 separately from any funding under

other objectives. See Final Affirmative Countervailing Duty

Determination: Steel Wire Rod from Italy 63 FR 40474, 40487 (July 29,

1998) (Wire Rod from Italy).

In this case, the Objective 4 grant received by Audisio emanated

from a regional operational program, which had been set up pursuant to

the Single Programming Document for Italy, negotiated by the EU, the

GOI and Italian regional authorities. The funding for this regional

operational program came from the EU, the GOI and the regional

government of Piedmont. For the reasons set forth in Wire Rod from

Italy, we have examined each level separately to determine specificity.

In the case of Objective 4 funding, the Department has determined

in past cases that the EU portion of the funding is de jure specific

because its availability is limited on a regional basis within the EU.

In this regard, although Objective 4 funding is available throughout

the Member States, the EU negotiates a separate programming document to

govern the implementation and administration of the program with each

Member State. 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. The specificity of the regional funding, meanwhile, has been a

de facto issue.

Audisio argues that all of the Objective 4 agreements negotiated

between the EU and Member States should be considered together. If this

were done, according to Audisio, the Department by its own admission

would arguably be unable to determine that the program is de jure

specific at the EU level. See Final Affirmative Countervailing Duty

Determination: Stainless Steel Plate in Coils from Italy 64 FR 15508,

15517 (March 31, 1999) (Plate from Italy).

While we agree with Audisio that it may be appropriate for the

Department to revisit its decision in Wire Rod from Italy on this

issue, this is not the case to do it in. Given the lack of information

on the use of Objective 4 funds by the EU, the GOI or the Piedmont

regional government, we must base the specificity determination on

facts available. In addition, we determine that it is appropriate to

use adverse facts available because, in our view, information on the

distribution of benefits by industry and by region could have been

provided given a reasonable effort by the GOI and the Piedmont regional

government to do so. See 19 U.S.C. 1677e(b). The EU and the GOI stated

that they were unable to provide the Department with the industry and

region distribution information for each Objective 4 grant in Italy

despite requests in our original questionnaire and a supplementary

questionnaire. In addition, while the GOI provided a list of grantees

that received funds under the multiregional operating programs in non-

Objective 1 regions, it did not identify the industry and region of

such grantees. Although this information may not have been on file with

the GOI, it was, in our view, information that was readily accessible

to the GOI and could have been provided to us given a reasonable effort

on the part of the GOI. Furthermore, the regional government similarly

refused to cooperate to the best of its ability in this investigation

despite Department requests. In its supplementary questionnaire

response, the Piedmont regional government simply indicated that

certain information was on file at its offices and that we could review

this information during verification. The regional government made no

effort to provide the information as requested.

Therefore, as adverse facts available, we continue to find that the

aid received by Audisio is specific. Accordingly, we determine that the

ESF grants received by Audisio are countervailable within the meaning

of section 771(5) of the Act.

The Department normally considers the benefits from worker training

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

with the Department's 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

[[Page 44493]]

Audisio's project was less than 0.5 percent of Audisio's sales in the

year of receipt, which was the POI, we have expensed the grant received

in the year of receipt. To calculate the benefit from Audisio's ESF

grant, we divided the grant amount by total sales in the POR because

the grant benefitted sales of all of the company's products. On this

basis, we calculated a benefit of 0.04 percent ad valorem.

G. Export Restitution Payments

Delverde/Tamma, Fabianelli, Audisio and Riscossa received export

restitution payments during the POR on shipments of subject merchandise

to the United States. In the Preliminary Results and Pasta from Italy,

we found that this program conferred countervailable subsidies on the

subject merchandise. We did not receive any comments on this program

from interested parties and our review of the record has not led us to

change any findings or calculations. Accordingly, the net subsidies for

this program remain unchanged from the Preliminary Results and are as

follows: Delverde/Tamma 0.22 percent ad valorem, Audisio--1.03 percent

ad valorem, Riscossa--0.81 percent ad valorem and Fabianelli--0.42

percent ad valorem.

II. Programs Preliminarily Determined To Be Not Used

In the Preliminary Results, we determined that the producers and/or

exporters of the subject merchandise did not apply for or receive

benefits under the following programs during the POR:

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

B. VAT Reductions

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

Southern Italy

D. Export Credits Under Law 227/77

E. Capital Grants Under Law 675/77

F. Retraining Grants Under Law 675/77

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

H. Interest Grants Financed by IRI Bonds

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

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

K. Urban Redevelopment Under Law 181

L. Debt Consolidation Law 341/95

M. Grant Received Pursuant to the Community Initiative Concerning the

Preparation of Enterprises for the Single Market (``PRISMA'')

N. European Agricultural Guidance and Guarantee Fund (``EAGGF'')

O. European Regional Development Fund (``ERDF'')

We did not receive any comments on these programs from the

interested parties, and our review of the record has not led us to

change our findings from the Preliminary Results.

Analysis of Comments

Comment 1

Petitioners claim that ESF aid provided to Audisio is de jure

specific within the meaning of section 771(5A)(D)(iv) because it is

limited to enterprises in certain regions. In Wire Rod from Italy at

40474 the Department determined that ESF aid was de jure specific

because the European Union (``EU'') negotiates a separate program

document with each Member State and because GOI funding of Objective 4

projects is available only in central and northern Italy.

Further, petitioners claim that Objective 4 aid is de facto

specific because the GOI and the EU have failed to provide information

on the distribution of Objective 4 benefits by industry and by region.

Audisio claims that the Department indicated in Plate from Italy at

15517 that it is appropriate to consider all the Member States of the

European Union together and that, therefore, the Department is ``unable

to determine that the program is de jure specific.'' Additionally,

Audisio, the EU and the GOI have provided sufficient evidence for the

Department to determine that the ESF funding received by Audisio during

this review was not de facto specific.

DOC Position

We agree with Audisio that it may be appropriate for the Department

to revisit its previous decision in Wire Rod from Italy regarding the

de jure specificity of assistance distributed under the ESF Objective 4

Single Programming Document in Italy, as explained in Plate from Italy.

However the EU, the GOI and the Piedmont Regional Government failed to

provide a breakdown of the number of companies by industry and by

region, which received ESF Objective 4 benefits in 1996 and each of the

previous three years. In addition, they failed to provide information

on the amount of benefits received by industry and by region in 1996

and each of the previous three years. The three governments stated that

this information was not maintained by the administering agencies

because region of the country and type of industry were not taken into

consideration in awarding ESF Objective 4 grants. As explained above,

however, in our view the information was readily accessible and could

have been provided to the Department given a reasonable effort on the

part of the administering agencies. For these reasons, we have found

that the three governments did not act to the best of their ability to

comply with our information requests and, on the basis of adverse facts

available, have determined that the ESF Objective 4 aid is de facto

specific.

Comment 2

Petitioners claim that the ``separately incorporated'' test used by

the Department in Pasta from Italy to determine whether subsidies to

the mills should be attributed to the production of pasta elevates form

over substance. In Pasta from Italy, the Department attributed

subsidies received by semolina mills not only to semolina but also to

pasta in those instances where the mills and the pasta factories were

owned and operated by a single corporation. Where the mills and pasta

factories were owned by affiliated but separately incorporated

companies, however, the Department determined that it would not

consider subsidies to mills absent the filing of an upstream subsidy

allegation.

Petitioners further claim that the recently published substantive

countervailing duty regulations reflect a change in the Department's

policy in this regard. Petitioners quote from the preamble to section

351.525(b) of the new regulations which states that ``where the input

and downstream production takes place in separately incorporated

companies with cross-ownership * * * and the production of the input

product is primarily dedicated to the production of the downstream

product, paragraph (b)(6)(iv) requires the Department to attribute the

subsidies received by the input producer to the combined sales of the

input and downstream products (excluding the sales between the two

corporations).'' (See Countervailing Duties: Final Rule, 63 FR 65,401.)

Petitioners claim that Tamma/Delverde meet the cross-ownership

provision and that subsidies to Tamma's mill should be attributed to

both Tamma and Delverde.

Delverde claims that the Department has consistently included Law

64 grants benefitting Tamma's semolina mill in its calculation of the

Delverde/Tamma subsidy rate. The Department has ``collapsed'' the two

companies since the original investigation. See Pasta from Italy.

Consequently, the Department has in each of the previous proceedings

attributed to Delverde subsidies that benefitted Tamma's semolina mill.

The Department has done so on the basis of the fact that

[[Page 44494]]

Tamma's semolina mill is not separately incorporated. It is simply an

operating unit of the Tamma corporation.

DOC Position

We agree with Delverde. In Pasta from Italy, we did not countervail

subsidies to affiliated mills that were separately incorporated,

indicating that we would not consider such subsidies absent an upstream

allegation. However, in Delverde's case, the Department collapsed

Delverde and Tamma treating the two as one company because of stock

ownership between the companies and common board members. Moreover,

because Tamma's mill was not separately incorporated from Tamma's pasta

production operation, subsidies to Tamma's mill were included as

subsidies to Tamma's pasta. As a result, subsidies to Tamma's mill were

viewed as benefitting both Tamma and Delverde and were allocated over

the combined sales of both companies excluding intercompany sales. In

both the preliminary and final results of this review, we have done the

same.

Comment 3

Petitioners claim that there is no evidence on the record of this

review regarding the countervailability or non-countervailability of

Sabatini benefits to companies in northern Italy. In Pasta from Italy,

the Department found that Sabatini benefits to companies in the North

were widely distributed by industry and by region and, therefore, were

not specific. Petitioners argue, however, that the finding in the

original investigation that Sabatini benefits in northern Italy were

not specific is insufficient to support such a finding in later

periods. In addition, petitioners claim that it is unfair for the

Department to require them to provide information indicating that

Sabatini benefits in the North may no longer be provided on a non-

specific basis before the Department will again examine the question of

specificity. Petitioners maintain that the GOI is in the best position

to provide the relevant information and because it has not done so, the

Department should countervail Sabatini benefits received by companies

in the North.

Fabianelli claims that it does not qualify for the special

concessionary rate available to companies in southern Italy because its

only production facilities are located in Castiglion Fiorentino, which

is not in the southern Italy. Further, Fabianelli claims that the

Department did not refer to the Sabatini Law in its Preliminary Results

because benefits to companies in the North are no longer an issue.

DOC Position

In the original investigation, Sabatini Law benefits were found to

be widely distributed and to benefit many companies representing a

broad cross section of industries throughout Italy. In the original

investigation, we found that during the years 1988 through 1993,

assistance under the program was distributed over 19 sectors and that

benefits to the food producing industry amounted to only 4.9 percent of

all benefits granted, which did not represent a disproportionately

large share of benefits. Given this compelling evidence of non-

specificity of benefits to pasta production, the Department sees no

reason to re-open the question of specificity absent information that

changes have occurred. The Department has consistently followed this

practice regarding programs previously found not countervailable. See,

e.g., Preliminary Countervailing Duty Determinations and Alignment of

Final Countervailing Duty Determinations with Final Antidumping Duty

Determinations: Certain Steel Products from Belgium, 57 FR 57750, 57758

(December 7, 1992) and Preliminary Affirmative Countervailing Duty

Determination: Extruded Rubber Thread from Malaysia, 56 FR 67276, 67280

(December 30, 1991).

Comment 4

Delverde maintains that the change of ownership provision contained

in the Uruguay Round Agreements Act requires the Department to analyze

the facts in each change of ownership situation in order to determine

whether and to what extent subsidies received by the original owner are

passed through to the new owner. The change of ownership provision

recognizes that an arm's length sale of an enterprise or an asset does

not require a determination by the Department that a past

countervailable subsidy received by the enterprise no longer continues

to be countervailable. However, the change in ownership provision

plainly does not preclude such a conclusion. For this reason, the

Department must carefully analyze the facts of each change of ownership

situation.

According to Delverde, the Department's ``privatization/

restructuring'' methodology as described in the GIA does not provide

for an analysis of the facts of each change of ownership separately and

on its own merits. Rather, this methodology presumes as a matter of law

that subsidies travel from the seller to the buyer in all

circumstances. Only the amount of the subsidies that passes through

varies as determined by the gamma calculation depending on the facts in

each case.

In Delverde's view careful analysis of the facts in this case will

show that the preliminary results in this administrative review fail to

meet the post-URAA requirement that the Department find both a

financial contribution to and a benefit conferred on current

production. Delverde purchased MI.BI in an arm's length transaction at

a purchase price established by an independent, court-ordered

appraiser. Consequently, prior subsidies received by MI.BA did not

benefit Delverde; they simply increased the profit realized by MI.BA

upon the sale of its pasta factory.

Petitioners claim that the change in ownership provision contained

in section 251(a) of the URAA, amending section 771(5) of the Tariff

Act of 1930, reiterated and formally codified the Department's

practice, affirmed by the CAFC on no less than five occasions, that an

arm's length sale of a firm or asset does not automatically extinguish

previously bestowed countervailable subsidies. (See, e.g, Saarstahl AG

v. United States, 78 F. 3d 1539, 1544 (Fed. Cir. 1996)).

In addition, according to petitioners, the URAA statutory

definitions of ``benefit'' and ``financial contribution'' do not

require any different agency scrutiny or lead to any different

conclusions in examining the countervailability of subsidies following

a change of ownership than was true under pre-URAA law. This is clear

from the SAA's plain statement that this benefit standard merely

reflects the longstanding Commerce standard and does not inject a new

requirement into the law. (See SAA at 925-928.) Petitioners claim that

Delverde is seeking to superimpose on the statute the requirement that

there be a beneficial competitive effect on the acquiring company's

operations when the change in ownership occurred as a result of the

original subsidy. This ``effect'' requirement, however, has been

rejected by the Court in pre-URAA cases and the new statute expressly

states that no beneficial ``effect'' of a subsidy is required. (See 19

U.S.C. 1677(5)(C)).

DOC Position

We agree with petitioners. The arguments which Delverde raises in

this comment are addressed fully in the remand determination which the

Department filed with the CIT on April 2, 1998 in Delverde, Srl. v.

United States, Consol. Ct. No. 96-08-01997. The CIT later sustained

that remand determination and upheld the

[[Page 44495]]

Department's methodology in Delverde, Srl. v. United States, 24 F.

Supp. 2d 314 (CIT 1998).

Comment 5

Riscossa claims that in calculating the benefit from two Law 64

grants received by the company, the Department incorrectly

countervailed the full amount of the benefit received under Law 64

including both the grant amount and the reduction in interest according

to the terms of the lease. Riscossa claims that the benefit from the

interest rate reduction has expired because the leases in question are

no longer outstanding.

Petitioners claim that in both the original investigation and the

Preliminary Results, the Department correctly treated the Law 64 lump-

sum contributions to the leasing companies as grants to Riscossa. In

its November 9, 1998 questionnaire response, Riscossa describes the

contributions as grants to the leasing companies, which had the effect

of lowering Riscossa's lease payments. Riscossa had no repayment

obligation as a result of these grants as would be the case for a Law

64 loan. Therefore, the Department should not treat these grants as

reduced rate loans.

DOC Position

We agree with petitioners. The GOI made lump-sum payments to

leasing companies on Riscossa's behalf. We view these payments as

grants. Since 1984, the Department has allocated non-recurring grants

such as these over a period corresponding to the average useful life of

the recipient firm's or the industry's fixed assets. (See Subsidies

Appendix appended to Final Affirmative Countervailing Duty

Determination and Countervailing Duty Order: Cold-Rolled Carbon Steel

Flat-Rolled Products from Argentina 49 FR 18006, 18018). We do not, as

Riscossa suggests, look to how the recipient uses the funds received

from the government. Therefore, the fact that Riscossa used its grants

to reduce its payments under two lease agreements, which have since

expired, is not relevant to our calculations. Therefore, as in the

original investigation, the Department has allocated the grants over 12

years.

Comment 6

Petitioners claim the Department should use the ABI rate as a

benchmark rate for long-term loans. They claim that in the Preliminary

Results, the Department used an average interest rate reported by the

Bank of Italy based on a survey of 114 Italian banks. In addition,

petitioners claim that a spread of 2.275 percent should be added to the

ABI rate because this has been Department practice in the last three

investigations of Italian products. See Wire Rod from Italy 63 FR at

40476-40477; Plate from Italy 64 FR at 15510-15511; and Final

Affirmative Countervailing Duty Determination: Stainless Steel Sheet

and Strip from Italy 64 FR 30624, 30626-30627 (June 8, 1999).

DOC Position

In the Preliminary Results, in the section on Benchmarks for Long-

term Loans and Discount Rates, we explained that we used the average

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

Italy based on a survey of 114 banks for our benchmark interest rate.

This explanation was not correct. In our calculations, we actually used

the ABI rate plus a spread of 2.275 percent as the benchmark interest

rate following the practice in the three earlier cases cited above by

petitioners. In these final results, we have also used this benchmark

in our subsidy calculations and have correctly described it in the

Subsidies Valuation section of this notice. We also used this benchmark

in the first administrative review of the Pasta from Italy order

because in Wire Rod from Italy, based on information obtained during

verification, the Department determined that the ABI rate is the most

suitable benchmark for long-term financing to Italian companies.

We note that during verification in this review, we obtained

information from a commercial bank confirming the fact that the ABI

rate was appropriate for establishing a benchmark interest rate. (See

June 16, 1999 Memorandum to the File: Meeting with Commercial Bank

Officers.) In addition, information from the bank officers regarding

the typical spread plus charges which are added to the ABI rate served

to confirm the spread which was added in calculating a benchmark in the

earlier investigations.

The ABI rate for 1997, as reported in our discussion with officers

of the commercial bank, was lower than that reported in the Bank of

Italy's February 1998 Economic Bulletin. The ABI rate in the Economic

Bulletin, however, corresponded closely with the 1997 lending rates

published for Italy in the International Monetary Fund's June 1999

International Financial Statistics. Therefore, we used the ABI rate as

published in the Economic Bulletin plus a spread as the appropriate

benchmark interest rate for this review.

Comment 7

Petitioners claim that in its subsidy calculation, the Department

has used a longer, company-specific AUL of 15 years to allocate non-

recurring subsidies received well before the current period of review.

They claim that the 12-year period used in the original investigation

should apply to these earlier subsidies.

DOC Response

We have continued to use 12 years as the allocation period for

those non-recurring subsidies countervailed in the original

investigation. As we explained in the first Pasta from Italy review, it

is neither reasonable nor practicable to reallocate these subsidies

over a different time period. 63 FR 43905, 43906 (August 17, 1998) For

all other non-recurring subsidies, however, whether received during the

current POR or prior to the current POR, we have used a company-

specific AUL for allocation purposes.

As indicated in the section entitled ``Allocation Period,'' the

Department is applying the Court's decision in British Steel II and

calculating company-specific allocation periods based on the average

useful life of each respondent's physical assets. Thus, for subsidies

not previously allocated over a particular allocation period, we are

using company-specific AULs. (See Final Affirmative Countervailing Duty

Determination: Stainless Steel Sheet and Strip in Coils from France 64

FR 30774, 30778 (June 8, 1999).)

Final Results of Review

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

individual subsidy rate for each producer/exporter subject to this

administrative review. For the period January 1, 1997 through December

31, 1997, we determine the net subsidy rates for producers/exporters

under review to be those specified in the chart shown below.

Ad Valorem Rates

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

01/01/97

Producer/exporter through 12/

31/97

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

Delverde/Tamma............................................. 4.05

Audisio Industrie Alimentari di Capitanata S.p.A........... 1.03

Pastificio Fabianelli S.p.A................................ 0.49

Pastificio Riscossa F.lli Mastromauro SrL.................. 2.13

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

We will instruct the U.S. Customs Service (Customs) to assess

countervailing duties as indicated above. The Department will also

instruct Customs to collect cash deposits of estimated countervailing

duties in the percentage detailed above of the f.o.b. invoice prices on

all

[[Page 44496]]

shipments of the subject merchandise from the producers/exporters under

review, entered, or withdrawn from warehouse, for consumption on or

after the date of publication of the final results of this

administrative review.

Pursuant to 19 CFR 351.212(c), for all companies for which a review

was not requested, duties must be assessed at the cash deposit rate in

effect at the time of entry of the subject merchandise and cash

deposits must continue to be collected at the previously ordered rate.

Therefore, the cash deposit rates for all companies except those

covered by this review will be unchanged by the results of this review.

We will instruct Customs to continue to collect cash deposits for

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

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

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

recent rate applicable to the company. Accordingly, the cash deposit

rates that will be applied to non-reviewed companies covered by this

order are those established in the Notice of Countervailing Duty Order

and Amended Final Affirmative Countervailing Duty Determination:

Certain Pasta from Italy (61 FR 38544, July 24, 1996), or those

established in Certain Pasta from Italy: Final Results of

Countervailing Duty Administrative Review (63 FR 43905, August 17,

1998), whichever notice provides the most recently published

countervailing duty rates for companies not reviewed in this

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

companies until a review of a company assigned these rates is

completed. In addition, for the period January 1, 1997 through December

31, 1997, the assessment rates applicable to all non-reviewed companies

covered by these orders are the cash deposit rates in effect at the

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

the order during the original investigation).

This notice serves as a reminder to parties subject to

administrative protective order (``APO'') of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 351.301. Timely written notification of

return or destruction of APO materials or conversion to judicial

protective order is hereby requested. Failure to comply with the

regulations and the terms of an APO is a sanctionable violation.

This administrative review and notice are in accordance with

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

Dated: August 9, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-21201 Filed 8-13-99; 8:45 am]

BILLING CODE 3510-DS-P