Final Affirmative Countervailing Duty Determination: Certain Cut- to-Length Carbon-Quality Steel Plate From Italy

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-827]

Final Affirmative Countervailing Duty Determination: Certain Cut-

to-Length Carbon-Quality Steel Plate From Italy

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: December 29, 1999.

FOR FURTHER INFORMATION CONTACT: Norbert Gannon, Kristen Johnson, or

Michael Grossman, Office of CVD/AD Enforcement II, Import

Administration, U.S. Department of Commerce, Room 4012, 14th Street and

Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-

2786.

Final Determination. The Department of Commerce (the Department)

determines that countervailable subsidies are being provided to certain

producers and exporters of certain cut-to-length carbon-quality steel

plate from Italy. For information on the countervailing duty rates,

please see the ``Suspension of Liquidation'' section of this notice.

SUPPLEMENTARY INFORMATION:

Petitioners

The petition in this investigation was filed by Bethlehem Steel

Corporation, U.S. Steel Group, a Unit of USX Corporation, Gulf States,

Inc., IPSCO Steel Inc., and the United Steelworkers of America (the

petitioners).

Case History

Since the publication of our preliminary determination in this

investigation (Preliminary Affirmative Countervailing Duty

Determination and Alignment of Final Countervailing Duty Determination

with Final Antidumping Duty Determination: Certain Cut-to-Length

Carbon-Quality Steel Plate from Italy, 64 FR 40416 (July 26, 1999)

(Preliminary Determination)), the following events have occurred:

We issued supplemental questionnaires on July 23, 26, and 27, 1999,

to ILVA S.p.A. (ILVA) and ILVA Lamiere e Tubi S.p.A. (ILT)

(collectively referred to as ILVA/ILT), Palini & Bertoli S.p.A. (Palini

& Bertoli), and the Government of Italy (GOI), respectively. We

received the respondents' questionnaire responses on September 3, 1999.

We conducted verification of the countervailing duty questionnaire

responses from September 13 through September 24, 1999. Because the

final determination of this countervailing duty investigation was

aligned with the final antidumping duty determination (see 64 FR at

40416), and the final antidumping duty determination was postponed (see

64 FR at 46341), the Department on August 25, 1999, extended the final

determination of this countervailing duty investigation until no later

than December 13, 1999 (see 64 FR at 46341). On November 8, 1999, we

issued to all parties the verification reports for ILVA/ILT, Palini &

Bertoli, and the regional government of Friuli Venezia Giulia. On

November 12, 1999, we issued the verification report for the GOI.

Petitioners, the GOI, and ILVA/ILT filed case briefs on November 18,

1999. Rebuttal briefs were submitted to the Department by the

petitioners and ILVA/ILT on November 23, 1999. The case hearing was

held on November 30, 1999.

Scope of Investigation

The products covered by this scope are certain hot-rolled carbon-

quality steel: (1) universal mill plates (i.e., flat-rolled products

rolled on four faces or in a closed box pass, of a width exceeding 150

mm but not exceeding 1250 mm, and of a nominal or actual thickness of

not less than 4 mm, which are cut-to-length (not in coils) and without

patterns in relief), of iron or non-alloy-quality steel; and (2) flat-

rolled products, hot-rolled, of a nominal or actual thickness of 4.75

mm or more and of a width which exceeds 150 mm and measures at least

twice the thickness, and which are cut-to-length (not in coils).

Steel products to be included in this scope are of rectangular,

square, circular or other shape and of rectangular or non-rectangular

cross-section where such non-rectangular cross-section is achieved

subsequent to the rolling process (i.e., products which have been

``worked after rolling'')--for example, products which have been

beveled or rounded at the edges. Steel products that meet the noted

physical characteristics that are painted, varnished or coated with

plastic or other non-metallic substances are included within this

scope. Also, specifically included in this scope are high strength, low

alloy (HSLA) steels. HSLA steels are recognized as steels with micro-

alloying levels of elements such as chromium, copper, niobium,

titanium, vanadium, and molybdenum.

Steel products to be included in this scope, regardless of

Harmonized Tariff Schedule of the United States (HTSUS) definitions,

are products in which: (1) iron predominates, by weight, over each of

the other contained elements, (2) the carbon content is two percent or

less, by weight, and (3) none of the elements listed below is equal to

or exceeds the quantity, by weight, respectively indicated:

1.80 percent of manganese, or

1.50 percent of silicon, or

1.00 percent of copper, or

0.50 percent of aluminum, or

1.25 percent of chromium, or

0.30 percent of cobalt, or

0.40 percent of lead, or

1.25 percent of nickel, or

0.30 percent of tungsten, or

0.10 percent of molybdenum, or

0.10 percent of niobium, or

0.41 percent of titanium, or

0.15 percent of vanadium, or

0.15 percent zirconium.

All products that meet the written physical description, and in

which the chemistry quantities do not equal or exceed any one of the

levels listed above, are within the scope of these investigations

unless otherwise specifically excluded. The following products are

specifically excluded from these investigations: (1) products clad,

plated, or coated with metal, whether or not painted, varnished or

coated with plastic or other non-metallic substances; (2) SAE grades

(formerly AISI grades) of series 2300 and above; (3) products made to

ASTM A710 and A736 or their proprietary equivalents; (4) abrasion-

resistant steels (i.e., USS AR 400, USS AR 500); (5) products made to

ASTM A202, A225, A514 grade S, A517 grade S, or their proprietary

equivalents; (6) ball bearing steels; (7) tool steels; and (8) silicon

manganese steel or silicon electric steel.

The merchandise subject to these investigations is classified in

the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,

7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,

7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,

7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,

7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,

7226.91.8000, 7226.99.0000.

Although the HTSUS subheadings are provided for convenience and

Customs purposes, the written description of the merchandise under

investigation is dispositive.

[[Page 73245]]

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

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

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

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

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

regulations codified at 19 CFR Part 351 (1998) and to the substantive

countervailing duty regulations published in the Federal Register on

November 25, 1998 (63 FR 65348) (CVD Regulations).

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 April 8, 1999, 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 Cut-to-Length Steel Plate From the

Czech Republic, France, India, Indonesia, Italy, Japan, Korea, and

Macedonia; Determinations, 64 FR 17198 (April 8, 1999)).

Period of Investigation

The period of investigation for which we are measuring subsidies

(the POI) is calendar year 1998.

Corporate History of ILVA/ ILT 1

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\1\ As discussed in this section, ILVA/ILT's carbon steel

predecessor companies are: Nuova Italsider (1981-1987), Italsider

(1987-1988), ILVA S.p.A. (1989-1993), and ILP (1994-1996).

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Prior to 1981, the Italian government holding company Istituto per

la Ricostruzione Industriale (IRI), controlled Italy's nationalized

steel industry through its wholly-owned subsidiary, Finsider S.p.A

(Finsider). The steel operations of Finsider were subdivided into three

main companies: Italsider (carbon steel); Terni (stainless and special

steel); and Dalmine (pipe and tube). Italsider was the sector leader

and the primary producer of the subject merchandise. In 1981, the GOI

implemented a restructuring plan, restructuring Finsider into several

operating companies including: Nuova Italsider (carbon steel flat

products); Terni (speciality flat steels); Nuova Sias (special long

products); and other steel product divisions. In the course of the 1981

Restructuring Plan, Italsider transferred all of its assets, with the

exception of certain plants, to Nuova Italsider. Italsider became a

one-company holding company with Nuova Italsider's stock as its primary

asset.

During 1987, Finsider restructured three of its main operating

companies: Nuova Italsider, Deltasider, and Terni. Nuova Italsider

spun-off its assets to Italsider and transferred its shares in

Italsider to Finsider. Nuova Italsider ceased operations after this

divestment and Finsider had direct ownership of Italsider. Upon

completion of the 1987 restructuring, Italsider re-emerged as the steel

sector's carbon steel products producer.

Later in 1987, Finsider and its main operating companies

(Italsider, TAS, and Nuova Deltasider) were placed in liquidation, and

the GOI subsequently implemented the 1988 Restructuring Plan. The goal

of the 1988 Restructuring Plan was to restructure Finsider and its

operating companies, assembling the group's most productive assets into

a new operating company, ILVA S.p.A. (ILVA S.p.A. or (old) ILVA), which

was created on January 1, 1989. The 1988 Restructuring Plan, like the

1981 plan, was submitted to and approved by the European Commission

(EC). In accordance with the plan, ILVA S.p.A. took over some of the

assets and liabilities of the liquidating companies, and Finsider

closed certain facilities to comply with the EC's requirements. With

respect to Italsider, part of the company's liabilities and the

majority of its viable assets, including assets associated with the

production of carbon steel flat-rolled products, were transferred to

ILVA S.p.A., which commenced production on January 1, 1989. Non-

productive assets and a substantial amount of liabilities were left

behind with Finsider and the liquidating operating companies.

The facilities retained by ILVA S.p.A were organized into four

primary operating groups: carbon steel flat products, stainless steel

flat products, stainless steel long products, and seamless pipe and

tube. In 1992, ILVA Lamiere e Tubi (ILT), a carbon steel flat products

operation, was created as a wholly-owned subsidiary of ILVA S.p.A. ILVA

S.p.A. was also the majority owner of a large number of separately

incorporated subsidiaries. Some of these subsidiaries produced various

types of steel products. The other subsidiaries were service centers,

trading companies, and an electric power company, among others. ILVA

S.p.A., together with its subsidiaries, constituted the ILVA Group. The

ILVA Group was wholly-owned by IRI.

Although ILVA S.p.A. was profitable in 1989 and 1990, the company

encountered financial difficulties in 1991, and became insolvent by

1993. On October 31, 1993, ILVA S.p.A. entered into liquidation. On

December 31, 1993, IRI demerged ILVA S.p.A.''s main productive assets

and a share of its liabilities into two new companies: ILVA Laminati

Piani (ILP) (carbon steel flat products) and Acciai Speciali Terni

(AST) (speciality and stainless steel flat products). On January 1,

1994, ILP and AST were formally established as separately incorporated

firms in advance of privatization. See Memorandum to David Mueller:

Verification Report for ILVA S.p.A. and ILVA Lamiere e Tubi, dated

November 8, 1999 (public version on file in the Central Records Unit

(CRU) (Room B-099 of the Main Commerce Building) (ILVA/ILT Verification

Report), at Exhibit 1993/94-1 and Memorandum to David Mueller:

Verification Report for the Government of Italy, dated November 12,

1999 (public version on file in the CRU) (GOI Verification Report) at

11. ILT, the carbon flat steel products operation, was transferred to

ILP as its wholly-owned subsidiary. The remainder of ILVA S.p.A.''s

assets and existing liabilities, along with much of the redundant

workforce, was placed in ILVA Residua (a.k.a., ILVA in Liquidation).

In 1995, 100 percent of ILP was sold through a competitive public

tender managed by IRI with the assistance of Istituto Mobiliare

Italiano (IMI). The sale of ILP was executed through a share purchase

agreement between IRI and a consortium of investors led by Riva Acciaio

S.p.A. (RIVA) and investment companies. The contract of sale was signed

on March 16, 1995, and all shares of ILP were transferred to the

consortium on April 28, 1995. As of that date, the GOI no longer

maintained any ownership interest in ILP or had any ownership interest

in any of ILP's new owners.

On January 1, 1997, RIVA changed the name of ILP to ILVA S.p.A

(creating the ``new'' ILVA, referred to hereafter as ILVA or (new)

ILVA). ILVA continues to wholly-own ILT. Within RIVA's corporate

structure, ILT, at its Taranto Works facility, produces the subject

merchandise, which is exported to the United States. ILVA, with the

assistance of ILVA Commerciale S.p.A. (ICO), a sales company wholly-

owned by ILVA, is responsible for selling and exporting the subject

merchandise to the United States and other markets.

[[Page 73246]]

As of 1998, RIVA owns and/or controls 82.0 percent of ILVA and two

foreign-incorporated investment companies own the remaining 18.0

percent.

According to ILVA/ILT, Sidercomit Taranto C.S. Lamiere S.r.l.

(Sidercomit) was created in 1992, as an indirect subsidiary of (old)

ILVA. Sidercomit became an operating unit within (new) ILVA in 1997,

and currently operates service centers for the distribution of

merchandise, including the subject merchandise for ILVA/ILT. Any

benefits to Sidercomit under programs that have been found

countervailable have been mentioned separately within those program

sections below.

Corporate History of Palini & Bertoli

Palini & Bertoli, a 100 percent privately-owned corporation, was

incorporated in December 1963. Palini & Bertoli has never been part of

the Italian state-owned steel industry.

Change in Ownership

In the General Issues Appendix (GIA), appended to the Final

Affirmative Countervailing Duty Determination: Certain Steel Products

from Austria, 58 FR 37217, 37226 (July 9, 1993) (Certain Steel from

Austria), we outlined our methodology for the treatment of subsidies

received prior to the sale of a government-owned company to a private

entity (i.e., privatization), or the spinning-off (i.e., sale) of a

productive unit from a government-owned company to a private entity.

Under this methodology, we estimate the portion of the purchase

price attributable to prior subsidies. We do this by first dividing the

sold company's subsidies by the company's net worth for each year

during the period beginning with the earliest point at which non-

recurring subsidies would be attributable to the POI and ending one

year prior to the sale of the company. We then take the simple average

of these ratios. This averaged ratio serves as a reasonable estimate of

the percent that subsidies constitute of the overall value of the

company. Next, we multiply this ratio by the purchase price to derive

the portion of the purchase price attributable to the payment of prior

subsidies. Finally, we reduce the benefit streams of the prior

subsidies by the ratio of the repayment amount to the net present value

of all remaining benefits at the time the company is sold.

With respect to the spin-off of a productive unit, consistent with

the Department's methodology set out above, we analyze the sale of a

productive unit to determine what portion of the sales price of the

productive unit can be attributable to the repayment of prior

subsidies. To perform this calculation, we first determine the amount

of the seller's subsidies that the spun-off productive unit could

potentially take with it. To calculate this amount, we divide the value

of the assets of the spun-off unit by the value of the assets of the

company selling the unit. We then apply this ratio to the net present

value of the seller's remaining subsidies. The result of this

calculation yields the amount of remaining subsidies attributable to

the spun-off productive unit. We next estimate the portion of the

purchase price going towards repayment of prior subsidies in accordance

with the methodology set out above, and deduct it from the maximum

amount of subsidies that could be attributable to the spun-off

productive unit.

Use of Facts Available

Both the GOI and ILVA/ILT failed to fully respond to the

Department's questionnaires concerning the program ``Debt Forgiveness:

1981 Restructuring Plan.'' Section 776(a)(2) of the Act requires the

use of facts available when an interested party withholds information

that has been requested by the Department, or when an interested party

fails to provide the information requested in a timely manner and in

the form required. In such cases, the Department must use the facts

otherwise available in reaching the applicable determination. Because

the GOI and ILVA/ILT failed to submit the information that was

specifically requested by the Department, we find that the respondents

have failed to cooperate to the best of their abilities. Therefore, we

have based our determination for this program on the facts available.

In accordance with section 776(b) of the Act, the Department may

use an inference that is adverse to the interests of that party in

selecting from among the facts otherwise available when the party has

failed to cooperate by not acting to the best of its ability to comply

with a request for information. Such adverse inference may include

reliance on information derived from (1) the petition; (2) a final

determination in a countervailing duty or an antidumping investigation;

(3) any previous administrative review, new shipper review, expedited

antidumping review, section 753 review, or section 762 review; or (4)

any other information placed on the record. See 19 CFR 351.308(c). In

the absence of information from the GOI and ILVA/ILT, we consider the

February 16, 1999 petition, as well as our findings from the final

determination of Certain Steel from Italy to be appropriate bases for a

facts available countervailing duty rate calculation. See Final

Affirmative Countervailing Duty Determination: Certain Steel Products

from Italy, 58 FR 37327, 37329-30 (July 9, 1993) (Certain Steel from

Italy).

The Statement of Administrative Action accompanying the URAA

clarifies that information from the petition and prior segments of the

proceeding is ``secondary information.'' See Statement of

Administrative Action, accompanying H.R. 5110 (H.R. Doc. No. 103-316)

(1994) (SAA), at 870. If the Department relies on secondary information

as facts available, section 776(c) of the Act provides that the

Department shall, to the extent practicable, corroborate such

information using independent sources reasonably at its disposal. The

SAA further provides that to corroborate secondary information means

simply that the Department will satisfy itself that the secondary

information to be used has probative value. However, where

corroboration is not practicable, the Department may use uncorroborated

information. With respect to the program for which we did not receive

complete information from the respondents, the secondary information

was corroborated through exhibits (i.e., financial statements) attached

to the petition. The financial transactions discussed within Finsider's

1984 and 1985 financial statements confirm that the GOI engaged in

transactions which are tantamount to the assumption of debt and debt

forgiveness. Based on such review of the transactions discussed in the

financial statements, we find that the secondary information (i.e., the

petition and Certain Steel from Italy) has probative value and,

therefore, the information regarding the debt forgiveness provided

under the 1981 Restructuring Plan has been corroborated.

Subsidies Valuation Information

Allocation

Section 351.524(d)(2) of the CVD Regulations states that we will

presume the allocation period for non-recurring subsidies to be the

average useful life (AUL) of renewable physical assets for the industry

concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class

Life Asset Depreciation Range System and updated by the Department of

Treasury. The presumption will apply unless a party claims, and

establishes that, these tables do not reasonably reflect the AUL of the

renewable physical assets for the

[[Page 73247]]

company or industry under investigation, and the party can establish

that the difference between the company-specific or country-wide AUL

for the industry under investigation is significant.

On June 21, 1999, ILVA/ILT submitted to the Department four tables

illustrating company-specific AUL calculations for (old) ILVA, ILP,

ILT, and (new) ILVA, both separately and in combination. In addition,

the GOI provided estimates of the country-wide AUL for the Italian

steel industry. Based upon our analysis of the data submitted by ILVA/

ILT regarding the AUL of their assets, we preliminarily determined that

the calculation which takes into consideration all producers of the

subject merchandise over the past 10 years is the most appropriate AUL

calculation. However, because this calculation did not yield a company-

specific AUL which is significantly different from the AUL listed in

the IRS tables, in the Preliminary Determination, we used the 15 year

AUL as reported in the IRS tables to allocate non-recurring subsidies

under investigation for ILVA/ILT in the preliminary calculations.

After considering the parties' comments and verifying the data

submitted by ILVA/ILT regarding the AUL of their assets, we continue to

use a 15 year AUL for ILVA/ILT. We have rejected respondents company-

specific AUL calculation and the country-wide depreciation information

provided by the GOI and are using the IRS tables pursuant to 19 CFR

351.524(d)(2)(i). For an explanation of why we are rejecting ILVA/ILT's

company-specific AUL and the country-wide depreciation information, see

Comment 2.

In its questionnaire response of July 6, 1999, Palini & Bertoli

stated that it ``does not have sufficient resources to respond'' to the

Department's inquiry of whether the company wished to rebut the 15 year

AUL as reported in the IRS tables. Therefore, we are using a 15 year

AUL for Palini & Bertoli.

Equityworthiness

In measuring the benefit from a government equity infusion, in

accordance with section 351.507(a)(2) of the Department's CVD

Regulations, the Department compares the price paid by the government

for the equity to actual private investor prices, if such prices exist.

According to section 351.507(a)(3) of the Department's CVD Regulations,

where actual private investor prices are unavailable, the Department

will determine whether the firm was unequityworthy at the time of the

equity infusion.

In this case, private investor prices are unavailable; therefore,

it is necessary to determine whether ILVA/ILT's predecessor companies

were unequityworthy in the years in which equity infusions were made.

Our review of the record has not led us to change our findings from

prior investigations, in which we found ILVA/ILT's predecessor

companies, Nuova Italsider and (old) ILVA, unequityworthy from 1984

through 1988, and from 1991 through 1992. See, e.g.,Certain Steel from

Italy, 58 FR 37328; Final Affirmative Countervailing Duty

Determination: Certain Stainless Steel Wire Rod from Italy, 63 FR

40474, 40477 (July 29, 1998) (Wire Rod from Italy); Final Affirmative

Countervailing Duty Determination: Stainless Steel Plate in Coils from

Italy, 64 FR 15508, 15511 (March 31, 1999) (Plate in Coils from Italy)

and Final Affirmative Countervailing Duty Determination: Stainless

Steel Sheet and Strip in Coils from Italy, 64 FR 30624, 30627 (June 8,

1999) (Sheet and Strip from Italy). We have not examined whether (old)

ILVA was equityworthy in 1989 and 1990, because the company did not

receive an equity infusion from the GOI in either of those years.

Section 351.507(a)(3) of the Department's CVD Regulations views an

infusion of equity into an unequityworthy company as inconsistent with

the usual investment practices of private investors. In such cases, the

Department will apply the methodology described in section

351.507(a)(6) of the regulations, treating the equity infusion as a

grant. Use of the grant methodology for equity infusions into an

unequityworthy company is based on the premise that an

unequityworthiness finding by the Department is tantamount to saying

that the company could not have attracted investment capital from a

reasonable investor in the year in which the infusion was received

based on the available information.

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), and Final

Affirmative Countervailing Duty Determination: Steel Wire Rod from

Venezuela, 62 FR 55014 (October 21, 1997). The Department will consider

a firm to be uncreditworthy if it is determined that, based on

information available at the time of the government-provided loan, the

firm could not have obtained a long-term loan from conventional

sources. See section 351.505(a)(4)(i) of the CVD Regulations.

Italsider, Nuova Italsider, and (old) ILVA were found to be

uncreditworthy from 1977 through 1993. See Certain Steel from Italy, 58

FR at 37328-29, Wire Rod from Italy, 63 FR at 40477, and Sheet and

Strip from Italy, 64 FR at 30627. In its September 3, 1999 response,

ILVA/ILT stated that the Department has incorrectly determined that

Finsider and (old) ILVA were uncreditworthy, since these companies were

able to borrow money from commercial lenders at prevailing market rates

of interest. ILVA/ILT discussed the existence of IRI guarantees as the

reason why both Finsider and (old) ILVA were able to obtain loans at

commercial interest rates. See ILVA/ILT's September 3, 1999

Questionnaire Response (QR), at 12-13.

We disagree with respondents. The existence of commercial loans to

a government-owned company is not dispositive for purposes of

determining the company's creditworthiness. In the preamble to the CVD

Regulations, we state that for government-owned firms, the Department

will make its creditworthiness determination by examining those factors

listed in paragraph (a)(4)(i) of section 351.505. See Preamble to the

CVD Regulations, 63 FR at 65367. Those factors outlined in paragraph

(a)(4)(i) include, among other things: (1) the receipt by the firm of

comparable, commercial financing, (2) the present and past financial

health of the firm as indicated by various financial indicators, (3)

the firm's past and present ability to meet its costs and fixed

financial obligations with its cash flow, and (4) evidence of the

firm's future financial position.

No information with respect to the above factors has been presented

in this investigation that would lead us to reconsider our earlier

findings that Italsider, Nuova Italsider, and (old) ILVA were

uncreditworthy from 1977 through 1993. Therefore, consistent with our

past practice, we continue to find Italsider, Nuova Italsider, and

(old) ILVA uncreditworthy from 1977 through 1993.

We have not analyzed ILP's, (new) ILVA's, or ILT's creditworthiness

in the years 1994 through 1998, because the companies did not negotiate

new loans with the GOI or EC during these years.

Benchmarks for Long-Term Loans and Discount Rates

In the Preliminary Determination, we based our discount rates on

the Italian

[[Page 73248]]

Bankers' Association (ABI) rates, which was consistent with the

Department's finding in Wire Rod from Italy, 63 FR at 40477 and Sheet

and Strip from Italy, 64 FR at 30626-30627. However, at verification,

we learned that the ABI rate does not represent a long-term interest

rate, but is rather an average of the short-term interest rates

commercial banks charge to their most favored customers. A Bank of

Italy (BOI) official explained at verification that an overdraft loan

is the most wide-spread short-term instrument of financing available in

Italy for companies and individuals. There is no set maturity on an

overdraft loan and a company or individual repays the principal when

the banks call in the loans. The Italian Bankers Association averages

the banks' short-term interest rates to arrive at the ABI rate which

the BOI publishes in its economic bulletins and annual reports. See GOI

Verification Report, at 3-4.

At verification, we inquired whether the BOI collects data on long-

term interest rates charged by commercial banks. We learned that only

recently (i.e., beginning with financial year 1995) has the BOI started

to compile statistics on long-term interest rates charged by banks. The

only long-term interest rate for which the BOI has historical yearly

information is the rate charged on treasury bonds issued by the GOI.

See Id.

Because we were unable to gather information on commercial long-

term interest rates from either the BOI or independent research for the

period 1984 through 1998, and the government bond rate does not

represent a commercial rate, for purposes of this final determination,

we have continued to use the ABI rates to construct discount rates. We

note that, in Wire Rod from Italy, the ABI rate was said to be ``the

most suitable benchmark for long-term financing to Italian companies.''

See Memorandum to Barbara Tillman re: Countervailing Duty Investigation

of Certain Stainless Steel Wire Rod from Italy: Discussions with

Company Officials from Gabetti per L'impresa, Banca Di Roma, and

Reconta Ernst & Young, dated June 3, 1998 (public document on file in

CRU).

In calculating the interest rate applicable to a borrower,

commercial banks typically add a spread ranging from 0.55 percent to

4.0 percent, which is determined by the company's financial health. See

Wire Rod from Italy, 63 FR at 40477. Additionally, information on the

record indicates that the published ABI rates do not include amounts

for fees, commissions, and other borrowing expenses. 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 for overdraft loans in 1997, as an approximation of the

expenses on long-term commercial loans. This information shows that

expenses on overdraft loans range from 6.0 to 11.0 percent of interest

charged. Such expenses, along with the applied spread, raise the

effective interest rate that a company would pay. Because it is the

Department's practice to use effective interest rates, where possible,

we are including an amount for these expenses in the calculation of our

effective benchmark rates. See section 351.505(a)(1) of the CVD

Regulations. Therefore, we have added the average of the spread (i.e.,

2.28 percent) and borrowing expenses (i.e., 8.5 percent of the interest

charged) to the yearly ABI rates to calculate the effective discount

rates.

For the years in which ILVA/ILT or their predecessor companies were

uncreditworthy (see ``Creditworthiness'' section above), we calculated

discount rates in accordance with the formula for constructing a long-

term benchmark interest rate for uncreditworthy companies as stated in

section 351.505 (a)(3)(iii) of the CVD Regulations. This formula

requires values for the probability of default by uncreditworthy and

creditworthy companies. For the probability of default by an

uncreditworthy company, we relied on the weighted-average cumulative

default rates reported for the Caa to C-rated category of companies as

published in Moody's Investors Service, ``Historical Default Rates of

Corporate Bond Issuers, 1920-1997'' (February 1998).2 For

the probability of default by a creditworthy company, we used the

weighted-average cumulative default rates reported for the Aaa to Baa-

rated categories of companies in the study. The weighted-average

cumulative default rates for the Aaa to Baa-rated categories is

indicated as the ``Investment Grade'' default rates. See Memorandum to

the File: Moody's Investment Grade Default Rates, dated November 9,

1999 (public document on file in the CRU). For non-recurring subsidies,

the average cumulative default rates for both uncreditworthy and

creditworthy companies were based on a 15 year term, since all of ILVA/

ILT's allocable subsidies were based on this allocation period.

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\2\ We note that since publication of the CVD Regulations,

Moody's Investors Service no longer reports default rates for Caa to

C-rated category of companies. Therefore, for the calculation of

uncreditworthy interest rates, we will continue to rely on the

default rates as reported in Moody's Investors Service's publication

dated February 1998 (at Exhibit 28).

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In addition, ILVA/ILT had two long-term, fixed-rate loans under

ECSC Article 54 outstanding during the POI. Therefore, we have selected

a U.S. dollar-based interest rate as our benchmark. See section

351.505(a)(2)(i) of the CVD Regulations. Consistent with the

Preliminary Determination, we have used as our benchmark the average

yield to maturity on selected long-term corporate bonds as reported by

the U.S. Federal Reserve, since both of these loans were denominated in

U.S. dollars. We have used these rates since we were unable to obtain

at verification or through independent research, a long-term borrowing

rate for loans denominated in U.S. dollars in Italy. Because ILVA was

uncreditworthy in the years in which the loans were contracted, we

calculated the uncreditworthy benchmark rates in accordance with

section 351.505 (a)(3)(iii) of the CVD Regulations.

I. Programs Determined To Be Countervailable

Government of Italy Programs

A. Equity Infusions to Nuova Italsider and (Old) ILVA 3

The GOI, through IRI, provided new equity capital to Nuova

Italsider or (old) ILVA, two predecessor companies of ILVA/ILT that

produced carbon steel plate, in every year from 1984 through 1992,

except in 1987, 1989, and 1990. We determine that these equity

infusions constitute countervailable subsidies within the meaning of

section 771(5)(B)(i) of the Act. These equity infusions constitute

financial contributions, as described in section 771(5)(D)(i) of the

Act. Because they were not consistent with the usual investment

practices of private investors (see ``Equityworthiness'' section

above), the equity infusions confer a benefit within the meaning of

section 771(5)(E)(i) of the Act. Because these equity infusions were

limited to Finsider and its operating companies, Nuova Italsider and

(old) ILVA, we determine that they are specific within the meaning of

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

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\3\ In the Initiation Notice, these equity infusions were

separately listed as ``Equity Infusions into Italsider/Nuova

Italsider'' and ``Equity Infusions into ILVA.''

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

We have treated these equity infusions as non-recurring subsidies

given in the year each infusion was received because each required a

separate authorization. We allocated the equity infusions over a 15

year AUL.

[[Page 73249]]

Because Nuova Italsider and (old) ILVA were uncreditworthy in the years

the equity infusions were received, we constructed uncreditworthy

discount rates to allocate the benefits over time. See ``Subsidies

Valuation Information'' section, above. We noted, and petitioners

discussed in their November 18, 1999 case brief, that a ministerial

error was made in the Preliminary Determination with respect to the

1986 equity infusion Nuova Italsider received from IRI. See

Petitioners' November 18, 1999 Case Brief, at 48. The error was

numerical and was insufficient to require a ministerial error

correction of the preliminary calculations. For this final

determination, we have corrected the error.

For equity infusions originally provided to Nuova Italsider, a

predecessor company that produced carbon steel plate, we consider these

equity infusions to be attributable to (old) ILVA and subsequently to

ILP, because they are simply restructured entities of the government-

owned steel company. Accordingly, we did not apportion to the other

operations of (old) ILVA any part of the equity infusions originally

provided directly to Nuova Italsider. While we acknowledge that it

would be our preference to look at equity infusions into (old) ILVA as

a whole and then apportion an amount to ILP when it was spun-off from

(old) ILVA, we find our approach in this case to be the most feasible

since information on equity infusions provided to the non-carbon steel

operations of (old) ILVA is not available. For the equity infusions to

(old) ILVA, however, we did apportion these by asset value to all (old)

ILVA operations in determining the amount applicable to ILP.

We applied the repayment portion of our change in ownership

methodology to all of the equity infusions described above to determine

the subsidy allocable to ILP after its privatization. We divided this

amount by ILVA's total sales 4 during the POI. On this

basis, we determine the net countervailable subsidy to be 3.07 percent

ad valorem for ILVA/ILT. Palini & Bertoli did not receive any equity

infusions from the GOI.

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\4\ Since February 1997, ILVA and ILT have had an exclusive

sales arrangement, by which, all of ILT products are sold to ILVA,

which, in turn, sells them to outside customers. When ILVA purchases

goods from ILT, ILVA considers the purchase as an increase of

inventory and the transaction is recorded as an ``acquisition cost''

in its accounting books. See ILVA/ILT Verification Report, at 2.

Because of this sales arrangement, we are using as our denominator,

ILVA's 1998 sales sourced from the company's unconsolidated

financial statement.

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B. Debt Forgiveness: 1981 Restructuring Plan

The GOI reported that the objective of the 1981 Restructuring Plan

was to redress the economic and financial difficulties the iron and

steel industry was realizing in the early 1980's. The GOI stated that

this plan, which extended to 1985, due to the prolonged crisis within

the sector, envisaged financial interventions to aid in the recovery of

the Finsider group. As discussed above in the ``Use of Facts

Available'' section, the GOI and ILVA/ILT failed to submit complete

information in regard to the assistance provided under the 1981

Restructuring Plan. Therefore, based on the facts available, we

determine that certain financial transactions conducted in association

with the 1981 Restructuring Plan are countervailable subsidies.

Following Italsider's transfer of all its company facilities to

Nuova Italsider in September 1981, Italsider held 99.99 percent of

Nuova Italsider's shares. In 1983, Italsider was placed in liquidation.

While in liquidation, Italsider sold its shares of Nuova Italsider to

Finsider in December 1984. The sales price was 714.6 billion lire. As

part of this payment, Finsider assumed Italsider's debts owed to IRI of

696.4 billion lire. The difference between the 714.6 billion lire and

696.4 billion lire was paid directly by Finsider to Italsider.

On December 31, 1984, Finsider also granted to Italsider a non-

interest bearing loan of 563.5 billion lire to cover losses realized

from the liquidation. A matching provision was also made to Finsider's

``Reserve for Losses on Investments and Securities,'' to cover the

losses of the liquidation of Italsider. Following a shareholders'

meeting of Finsider on December 30, 1985, the amount of 563.5 billion

lire was disbursed to cover the losses of Italsider and Italsider's

state of liquidation was revoked.

In Certain Steel from Italy, the Department determined that the

1981 Restructuring Plan merely shifted assets and debts within a family

of companies, all of which were owned by Finsider, and ultimately, by

the GOI. Therefore, we determined that both the 696.4 billion lire

assumption of debt and the 563.5 billion lire debt forgiveness were

specifically limited to the steel companies and constitute

countervailable subsidies. See Certain Steel from Italy, 58 FR at

37330. No new factual information or evidence of changed circumstances

has been provided to the Department in this instant investigation to

warrant a reconsideration of the earlier finding that the debt

assumption and debt forgiveness are countervailable subsidies.

Therefore, consistent with our treatment of these transactions in

Certain Steel from Italy, we determine that the 1984 assumption of debt

and 1985 debt forgiveness constitute countervailable subsidies within

the meaning of section 771(5)(B)(i) of the Act. In accordance with

Certain Steel from Italy, debt assumption and debt forgiveness are

treated as grants which constitute financial contributions under

section 771(5)(D)(i) of the Act. The transactions also confer benefits

to the recipient within the meaning of section 771(5)(E)(i) of the Act,

in the amount of the debt coverage. Because the debt assumption and

debt forgiveness were limited to Italsider, one of ILVA/ILT's

predecessor companies, we determine that these transactions are

specific within the meaning of section 771(5A)(D)(iii) of the Act.

To calculate the benefit, we have treated the assumption of debt

and debt forgiveness to Italsider as non-recurring subsidies because

each transaction was a one-time, extraordinary event. We allocated the

1984 debt assumption and 1985 debt forgiveness over a 15 year AUL. See

the ``Allocation Period'' section, above. In our grant formula, we used

constructed uncreditworthy discount rates based on our determination

that Italsider was uncreditworthy in 1984 and 1985. See ``Benchmark for

Long-Term Loans and Discount Rates'' and ``Creditworthiness'' sections,

above.

As with the equity infusions originally provided to Nuova

Italsider, we consider the assumption of debt and debt forgiveness to

be attributable to (old) ILVA and subsequently to ILP, because they are

simply restructured entities of the government-owned steel company. To

determine the amount appropriately allocated to ILP after its

privatization, we followed the methodology described in the ``Change in

Ownership'' section above. We divided this amount by ILVA's sales

during the POI. On this basis, we determine the net countervailable

subsidy to be 1.09 percent ad valorem for ILVA/ILT. Palini & Bertoli

did not receive any benefit under this program.

C. Debt Forgiveness: 1988 Restructuring Plan

As discussed above in the ``Corporate History of ILVA/ILT'' section

of this notice, the GOI liquidated Finsider and its main operating

companies in 1988, and assembled the group's most productive assets

into a new operating company, ILVA S.p.A. (i.e., (old) ILVA).

[[Page 73250]]

The Finsider restructuring plan was developed at the end of 1987, and

was approved by the GOI on June 14, 1988, and by the EC on December 23,

1988. The objective of the plan was to restore the industrial,

financial, and economic balance to the public iron and steel-making

sector in Italy. The restructuring plan included the voluntary

liquidation of Finsider, and IRI's assumption of the debts not covered

by the sale of assets of the companies being liquidated. IRI was the

majority owner of Finsider, and therefore, the party responsible for

payment of Finsider's debts.

A transfer of assets and liabilities from Finsider to (old) ILVA

was to be accomplished at the latest by March 31, 1990. Upon completion

of the 1988 Restructuring Plan, (old) ILVA owned Finsider's productive

assets and a small portion of the group's liabilities. Included in the

transfer were the productive portions of the flat-rolled facilities

located at Taranto, Genoa, and Novi Ligure.5 The liquidating

companies retained the non-productive assets and the vast majority of

the liabilities, which had to be repaid, assumed, or forgiven. Thus,

while (old) ILVA emerged from the process with a positive net worth,

the other companies were left with capital structures in which their

liabilities greatly exceeded the liquidation value of their assets.

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\5\ The subject merchandise which ILT produced and (new) ILVA

exported to the United States in 1998, was produced at the Taranto

facilities.

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We determine that certain financial transactions associated with

the 1988 Restructuring Plan constitute countervailable subsidies. In

1988, IRI established a fund of 2,943 billion lire to cover losses

which Finsider would realize while in liquidation. As of December 31,

1988, Finsider had accumulated losses in excess of its equity. In order

to prevent Finsider from becoming insolvent during 1989, IRI utilized

1,364 billion lire of the fund to forgive debts it was owed by Finsider

to cover the losses. We determine that IRI's action of forgiving

Finsider's debts in 1989, constitutes a countervailable subsidy.

Later in 1990, IRI forgave debts it was owed by Finsider when it

purchased (old) ILVA's stock from Finsider (and Terni) for 2,983

billion lire. The 2,983 billion lire was used to pay the liquidated

companies' debts which existed at the time of the sale. Prior to the

preliminary determination, ILVA/ILT disagreed with our characterization

in Certain Steel from Italy that the share purchase was an act of debt

forgiveness. They stated that the price paid by IRI for (old) ILVA's

shares reflected the market value of the shares and, therefore, the

purchase was not an act of debt forgiveness. We preliminarily disagreed

with ILVA/ILT's argument and determined that IRI's purchase of (old)

ILVA's stock was tantamount to debt forgiveness; however, we stated

that we would seek further clarification of the stock purchase

transaction for the final determination. See Preliminary Determination,

64 FR at 40422.

In the July 23, 1999 questionnaire and at verification, we asked

the GOI and ILVA/ILT to provide all feasibility studies, market

reports, economic forecasts, or similar documents completed prior to

(old) ILVA's share purchase, which related to the future expected

financial performance of the company. We examined the McKinsey &

Company (McKinsey) report of August 1988, which respondents claim

provides a comprehensive analysis of the expected future financial

performance of (old) ILVA. For reasons discussed in Comment 7, we find

that the McKinsey report did not assess the expected future financial

health of (old) ILVA. Rather, we find that the report examined the

viability of the government's 1988 Restructuring Plan for the period

1988 to 1990, and assessed whether the creation of (old) ILVA would

conform with the EC's trade and competition rules. See GOI Verification

Report, at 5. Therefore, on January 1, 1989, the day on which IRI

committed to purchasing (old) ILVA's shares, IRI did not have

sufficient financial data and analysis which would have allowed it to

evaluate the potential risk versus the expected return in (old) ILVA.

See Id., at 9-10. Because IRI did not undertake the financial analysis

that a private investor would have prior to purchasing shares, we

determine that ILVA's share purchase was not in accordance with the

normal investment practice of a private investor.

Consistent with our preliminary determination, we find that IRI's

purchase of (old) ILVA's shares from Finsider merely shifted assets

(i.e., ownership of company stock) within a family of companies which

were all owned by the government. The purpose of IRI's decision to

purchase (old) ILVA's stock on January 1, 1989, was to provide to

Finsider in liquidation cash to repay debts. As such, IRI's purchase of

(old) ILVA's stock was tantamount to debt forgiveness. Thus, we

determine that IRI's purchase of (old) ILVA's stock is a

countervailable subsidy because it effectively forgave Finsider's

debts.

At the Preliminary Determination, we noted that Finsider's 1989

Annual Report at page 12 states that: ``During the fiscal year, your

company [Finsider] recorded losses totaling 1,568 billion lire;

therefore, the circumstances reoccur for which the shareholder IRI

later renounced its own credits necessary to cover the difference.''

Thus, Finsider realized a net loss of 1,568 billion lire for fiscal

year 1989. In order to avoid insolvency of the company, IRI should

have, but did not, forgive the 1,568 billion lire it was due to cover

Finsider's losses in excess of equity during 1990. At the Preliminary

Determination, we stated that we would seek additional information

regarding Finsider's 1,568 billion lire of losses.

For this final determination, we have examined whether IRI expected

to receive payment of the 1,568 billion lire debt which Finsider owed

it in 1990. Based on the record evidence, we determine that IRI did not

expect Finsider to pay the 1,568 billion lire debt. First, in 1988, IRI

created a fund with the sole purpose to cover the losses which Finsider

would realize while in liquidation. Second, IRI utilized 1,364 billion

lire of the fund to cover losses in 1989, by forgiving debt of an

equivalent amount. In addition, respondents did not submit information

on the record regarding the value of the assets which remained in

Finsider as of December 31, 1989, to demonstrate that Finsider had

viable assets which it could sell for cash to pay the debt owed to IRI.

On the basis of these facts, we determine that IRI had no expectation

that Finsider would pay the 1,568 billion lire debt. Therefore, we

determine that IRI provided to Finsider debt forgiveness of 1,568

billion lire in 1990. For a further discussion see Comment 6.

On the basis of the record evidence, we determine that the debt

forgiveness which IRI provided in 1989 and 1990, constitute

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

the Act. In accordance with our 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 coverage. Because the debt forgiveness was received by only (old)

ILVA, a predecessor company of ILVA/ILT, we determine that the debt

coverage is specific under section 771(5A)(D)(iii)(I) of the Act.

The record of this investigation demonstrates that (old) ILVA did

not obtain all of Finsider's assets. Based on the information submitted

to the Department, we have calculated the percentage of Finsider's

assets which were transferred to (old) ILVA. We calculated that, on

December 31, 1988, 71.31 percent of Finsider's assets were transferred

to (old) ILVA. We also

[[Page 73251]]

calculated the value of the additional assets which were transferred to

(old) ILVA during the course of 1990. We then summed the assets

transferred to (old) ILVA in 1989 and 1990, and divided that amount by

Finsider's total asset value as of December 31, 1988, to derive the

percentage of Finsider's assets which were obtained by (old) ILVA. On

this basis, we calculated that 84.94 percent of Finsider's assets were

transferred to (old) ILVA. For a further discussion see the

Department's Position to Comment 5.

To determine the benefit from these countervailable subsidies, we

have treated the amounts of debt forgiveness provided under the 1988

Restructuring Plan as non-recurring grants because they were one-time,

extraordinary events. For the debt forgiveness provided in 1989, we

applied 71.31 percent to the amount of debt forgiveness to determine

the amount attributable to (old) ILVA. With respect to the debt

forgiveness provided in 1990, we applied 84.94 percent to the total

amount of debt forgiveness to determine the amount attributable to

(old) ILVA. Because (old) ILVA was uncreditworthy in 1989 and 1990, the

years in which the assistance was provided, we used constructed

uncreditworthy discount rates to allocate the benefits over time. We

allocated the debt forgiveness provided in 1989 and 1990, over a 15

year AUL. See the ``Subsidies Valuation Information'' section, above.

We also apportioned the debt coverage by asset value to all (old)

ILVA operations in determining the amount applicable to ILP. We next

applied the repayment portion of our change in ownership methodology to

the debt forgiveness to determine the amount of the subsidy allocable

to ILP after its privatization. We divided this amount by ILVA's total

sales during the POI. On this basis, we determine the net

countervailable subsidy to be 5.12 percent ad valorem for ILVA/ILT.

Palini & Bertoli did not receive any benefit under this program.

In addition, at the time of the Preliminary Determination, there

was ambiguity as to whether the GOI provided additional financial

assistance to Finsider in liquidation, and if so, the amount of

assistance actually disbursed (see 64 FR at 40423). For purposes of the

preliminary determination, we found, based on the information provided

to the Department by ILVA/ILT, that IRI provided 738 billion lire to

Finsider to cover costs and losses in 1989. See Id. However, we stated

that we would seek further clarification from the GOI and ILVA/ILT of

the assistance provided under the 1988 Restructuring Plan.

At verification, we discussed with GOI and company officials the

aid disbursed to Finsider for the closure of steel plants and other

losses realized in the liquidation process. In particular, we asked the

officials to account for the financial assistance the EC authorized for

plant closure costs and liquidation losses in the 89/218/ECSC Decision

of December 23, 1988. We learned that the EC authorized the

disbursement of a maximum of 738 billion lire in additional financial

aid to Finsider to cover costs and losses realized in the liquidation

process. However, the GOI and ILVA/ILT officials stated that, although

the EC authorized the additional financial assistance, this aid was not

needed. They stated that no additional assistance was required because

the cash received from the sale of Finsider's assets was greater than

expected. See GOI Verification Report, at 10 and ILVA/ILT Verification

Report, at 11. To confirm whether this additional 738 billion lire of

assistance was provided, we examined Finsider's and IRI's 1989

financial statements and found no evidence that IRI provided additional

aid to Finsider based upon the 89/218/ECSC Decision. Therefore, we

determine that IRI did not provide to Finsider an additional 738

billion lire to cover closure costs and losses in 1989.

D. Debt Forgiveness: 1993-1994 Restructuring Plan, ILVA-to-ILP

6

During 1992 and 1993, (old) ILVA incurred heavy financial losses,

which compelled IRI to place the company into liquidation. In December

1993, the Italian government proposed to the EC a plan to restructure

and privatize (old) ILVA by the end of 1994. The reorganization

provided for splitting (old) ILVA's main productive assets into two new

companies, ILP and AST. ILP would consist of the carbon steel flat

production of (old) ILVA, receiving the Taranto facilities. AST would

consist of the speciality and stainless steel production. The rest of

(old) ILVA's productive assets (i.e., tubes, electricity generation,

specialty steel long products, and sea transport), together with the

bulk of (old) ILVA's existing debt and redundant work force were placed

in a third entity known as ILVA Residua. Under the restructuring plan,

ILVA Residua would sell those productive units it could for cash to pay

debts and then would be liquidated, with IRI (i.e., the Italian

government) absorbing the remaining debt.

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\6\ This program was referred to as ``Debt Forgiveness Given in

the Course of Privatization in Connection with the 1993-1994

Restructuring Plan'' in the Initiation Notice (see 64 FR at 13000).

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The demerger of the majority of (old) ILVA's viable manufacturing

activities and a portion of its liabilities occurred on December 31,

1993. On January 1, 1994, ILP and AST were formally established as

separate corporations which, respectively, had operating assets and

relatively modest debt loads. See ILVA/ILT Verification Report, at

Exhibit 1993/94-1. (Old) ILVA in liquidation became a shell company,

known as ILVA Residua, with liabilities far exceeding its assets,

although it did contain some operating assets that were later sold. The

liabilities which remained with ILVA Residua had to be repaid, assumed,

or forgiven. On April 12, 1994, the EC, through the 94/259/ECSC

decision, approved the GOI's restructuring and privatization plan for

(old) ILVA and IRI's intention to cover ILVA Residua's remaining

liabilities.

We determine that ILP received a countervailable subsidy on January

1, 1994, within the meaning of section 771(5)(B)(i) of the Act, when

the bulk of (old) ILVA's liabilities were placed in ILVA Residua,

rather than being proportionately allocated to ILP and AST when they

were formally established as separate corporations. The retention of

liabilities by (old) ILVA that should have been transferred to ILP when

the company was created constitutes a financial contribution to ILP in

accordance with section 771(5)(D)(i) of the Act in the form of debt

forgiveness. Prior to the separate incorporation of ILP and AST, (old)

ILVA significantly wrote down the value of its assets, thereby

increasing the net liabilities that it retained when ILP and AST were

created. These write-downs can be tied to specific assets that were

either transferred to ILP and AST, or retained by (old) ILVA. In order

to more accurately calculate the value of the benefit to ILP from the

debt forgiveness, we have factored in the value of each company's asset

write-downs, to determine the total benefit from debt forgiveness to

ILP and AST, rather than apportioning the total benefit by using a

ratio calculated from the asset values each company took at the point

of demerger. This is further discussed below and in Comment 11.

We determine that the amount of liabilities which resulted from the

1993-94 Restructuring Plan which should have been attributable to ILP,

but were instead retained by ILVA Residua, was equivalent to debt

forgiveness for ILP at the time of its separate incorporation. In

accordance with our practice, debt forgiveness is treated as a

[[Page 73252]]

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.

We also determine, based on record evidence, that the liquidation

process of (old) ILVA did not occur under the normal application of a

provision of Italian law, and therefore, the debt forgiveness is de

facto specific under section 771(5A)(D)(iii)(II) of the Act. As stated

above, the liquidation of (old) ILVA was done in the context of a

massive restructuring/privatization plan of the Italian steel industry

undertaken by the GOI and approved and monitored by the EC. Because

(old) ILVA's liquidation was part of an extensive state-aid package to

privatize the Italian state-owned steel industry, and the debt

forgiveness was received by only privatized (old) ILVA operations, we

find that the assistance provided under the 1993-1994 Restructuring

Plan is de facto specific. In support of this finding, we note the EC's

94/259/ECSC decision, in which the Commission identified the

restructuring of (old) ILVA as a single program, the basic objective of

which was the privatization of the ILVA steel group by the end of 1994.

As set forth in the EC's decision, the 1993-1994 Restructuring Plan was

limited by its terms to (old) ILVA and the benefits of the plan were

received by only (old) ILVA's successor companies. For a further

discussion see Comment 13.

To determine the benefit attributable to ILP, it is first necessary

to determine the total amount of liabilities which the government

forgave. We would prefer to base our calculation on information at the

time a portion of (old) ILVA's assets and liabilities were demerged to

ILP and the company was separately incorporated. However, the

information contained in (old) ILVA's 1993 financial statement

regarding the assets and liabilities of the company was found to be

unreliable by the company's auditor. We note the following statement

within the ``Report on the Management'' section of ILVA Residua's 1994

annual report: ``In the financial statement for 1993, we pointed out

how the opening of liquidation would require drawing up a balance sheet

formulated not with values of normal operation but with values of

estimated cost. The brevity of time available then and the complexity

of the valuations to be executed in that meeting allowed putting

together only a few limited adjustments of values for which sure

elements of judgement were available.'' See ILVA Residua's 1994 Annual

Report in the February 16, 1999 Petition, at Volume 8, Tab 11. Because

this information has been determined to be unreliable, we have resorted

to facts otherwise available. As such, we have used information

contained in the EC's 10th Monitoring Report which provides the most

reliable data that is on the record for determining the benefit

conferred by this program. We intend, however, to seek additional

information to establish the value of the debt forgiveness at the time

of the separate incorporation of ILP, in a subsequent administrative

review should this investigation result in a countervailing duty order.

Therefore, based upon the methodology that we employed in the final

determination of Sheet and Strip from Italy, the amount of liabilities

that we attributed to ILP is based on the gross liabilities left behind

in ILVA Residua, as reported in the EC's 10th Monitoring Report (see 64

FR at 30628). In calculating the amount of unattributable liabilities

remaining after the separate incorporation of ILP, 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 privatization of ILVA Residua's operations and

residual asset sales, of a theoretically reconstituted, pre-liquidation

(old) ILVA. In order to calculate the total amount of unattributed

liabilities which amounted 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; 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; for income received

from the sale of ILVA Residua's productive assets; 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 (old) ILVA debt attributed to CAS and countervailed in Wire

Rod from Italy (see 63 FR at 40478). As discussed above, we subtracted

the value of the asset write-downs taken by ILVA.

The amount of liabilities remaining represents the pool of

liabilities that were not individually attributable to specific (old)

ILVA assets. We apportioned this debt to ILP, AST, and viable assets of

ILVA Residua based on their relative asset values. We used the total

consolidated asset values reported for ILP and AST for the year ending

December 31, 1993.7 The asset values recorded for ILP and

AST as of December 31, 1993, were the opening asset values for each

company when they were separately incorporated on January 1, 1994. See

ILVA/ILT Verification Report, at 12 and Exhibit 1993/94-2, for ILP's

asset value. For ILVA Residua, we used the sum of the purchase price

plus debts transferred as a surrogate for the viable 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, we did not include in ILVA Residua's viable

assets those assets sold to IRI, because the sales do not represent

sales to a non-governmental entity. To ensure that liabilities retained

by ILVA Residua were properly apportioned across the three companies,

we added the amount of the write-downs that were tied to the asset pool

which ILP took when it was separately incorporated from (old) ILVA. The

total amount of write-downs were previously subtracted from the pool of

liabilities.

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

\7\ Because the ultimate objective of the 1993-94 Restructuring

Plan was the privatization of ILP and AST, which were separately

incorporated from (old) ILVA on January 1, 1994, we have no reason

not to believe that the value of the assets which were transferred

to ILP and AST were accurately assessed during the liquidation

process.

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

We have treated the debt forgiveness provided to ILP as a non-

recurring subsidy because it was a one-time, extraordinary event. The

discount rate we used in our grant formula was a constructed

uncreditworthy benchmark rate based on our determination that (old)

ILVA was uncreditworthy in 1993, the year in which the 1993-94

Restructuring Plan was approved by the GOI. See ``Benchmarks for Long-

Term Loans and Discount Rates'' and ``Creditworthiness'' sections,

above. We followed the methodology described in the ``Change in

Ownership'' section above to determine the amount of benefit

appropriately allocated to ILP after its privatization. We divided this

amount by ILVA's total sales during the POI. On this basis, we

determine the net countervailable subsidy to be 13.27 percent ad

valorem for ILVA/ILT. Palini & Bertoli did not receive any benefits

under this program.

E. Capital Grants to Nuova Italsider Under Law 675/77

In 1977, the Italian Parliament passed Law 675 to establish an

industrial plan for Italy which was experiencing an economic downturn.

The objective of the law was to identify those industries vital to the

economic health and development of Italy and provide to them financial

assistance to modernize

[[Page 73253]]

and restructure production facilities. See GOI Verification Report, at

16. In total, eleven sectors were identified as eligible for

assistance. See Certain Steel from Italy, 58 FR at 37330-31. The types

of funding provided under Law 675/77 included: (1) interest payments on

bank loans and bond issues; (2) low interest loans granted by the

Ministry of Industry; (3) grants for companies located in the South;

(4) grants for personnel retraining; and (5) increased VAT reductions

for firms located in the Mezzogiorno area.

In Certain Steel from Italy, we verified that of the sectors which

received Law 675/77 funding, steel accounted for 36.4 percent of the

total funding provided under Law 675/77 (see 58 FR 37331). On this

basis, we determined that assistance provided to steel companies under

Law 675/77 is limited to a specific enterprise or industry, or group of

enterprises or industries, and therefore is countervailable.

In regard to the record of the instant investigation, the GOI

stated that the objective of the capital grants program was to support

the development of regions in the south of Italy. See GOI's May 28,

1999 QR. The only eligibility criterion for receipt of this ``one-

time'' assistance was the location of factories in the south of Italy.

Consistent with our preliminary finding, we determine that this

program constitutes a countervailable subsidy within the meaning of

section 771(5)(B)(i) of the Act. The capital grants constitute a

financial contribution under section 771(5)(D)(i) of the Act providing

a benefit in the amount of the grants. Because the steel sector was

found to be the dominant user of Law 675/77 and the capital grants were

limited to enterprises located in the south of Italy, we determine that

the program is specific under section 771(5A)(D)(iii) and (iv) of the

Act.

At the verification of this investigation, we examined the

application which Italsider submitted on February 20, 1980, for

assistance under Law 675/77, and the corresponding approval

notification of November 19, 1982. We noted that Nuova Italsider, the

successor company to Italsider, was awarded a grant of 125,040 million

lire. We examined Nuova Italsider's financial statements and learned

that the grant was disbursed in several tranches during the years 1985,

1986, and 1987.

To determine the benefit, we have treated the capital grant as a

non-recurring subsidy because the receipt of the grant was a one-time,

extraordinary event. Because the benefit to Nuova Italsider is greater

than 0.5 percent of the company's sales for 1982 (the year in which the

grant was approved), we allocated the benefit over a 15 year AUL. See

section 351.524(b)(2) of the CVD Regulations. We applied the change in

ownership methodology to the capital grant to determine the subsidy

allocable to ILP after its privatization. We divided this amount by

ILVA's total sales during the POI. On this basis, we determine the net

countervailable subsidy to be 0.13 percent ad valorem for ILVA/ILT.

Palini & Bertoli did not use this program.

F. Early Retirement Benefits

Law 451/94 was created to conform with EC requirements of

restructuring and capacity reduction of 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, and into January 1997, Law 451/94

provided for the early retirement of up to 17,100 Italian steel

workers. Benefits applied for during this period continue until the

employee reaches his/her natural retirement age, up to a maximum of ten

years.

In the final determinations of Plate in Coils from Italy and Sheet

and Strip from Italy, 64 FR at 15514-15 and 64 FR at 30629-30,

respectively, as well as in the Preliminary Determination of the

instant investigation, 64 FR at 40425-26, the Department determined

that early retirement benefits provided under Law 451/94 are

countervailable subsidies under section 771(5)(B)(i) of the Act. Law

451/94 provides a financial contribution, as described in section

771(5)(D)(i) of the Act, because Law 451/94 relieves the company of

costs it would have normally incurred by having to employ individuals

until the normal age of retirement. 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)(iii) of the Act. No new factual information or evidence has

led us to change our prior findings that early retirements under Law

451/94 are countervailable.

As in the Preliminary Determination, we have treated one-half of

the amount paid by the GOI as benefitting the company. Recognizing

that, under Law 223/91, ILP would have been required to enter into

negotiations with the unions before laying off workers, it is

impossible for the Department to determine the outcome of those

negotiations absent Law 451/94. At one extreme, the unions might have

succeeded in preventing lay offs. If so, the benefit to ILP would be

the difference between what it would have cost to keep those workers on

the payroll and what the company actually paid under Law 451/94. At the

other extreme, the negotiations might have failed and ILP would have

incurred only the minimal costs described under the so-called

``Mobility'' provision of Law 223/91, which identifies the minimum

payment the company would incur when laying off workers. The benefit to

ILP would have been the difference between what it would have paid

under Mobility and what it actually paid under Law 451/94.

We have no basis for believing either of these extreme outcomes

would have occurred. It is clear, given the EC regulations that called

for restructuring within the steel industry, that ILP would have laid

off workers. However, we do not believe that ILP would have simply

fired the workers without reaching accommodation with the unions. GOI

officials have indicated that failure to negotiate a separation package

with the unions would likely have led to social strife. Therefore, we

have proceeded on the assumption that ILP's early retirees would have

received some support from ILP.

In attempting to determine the level of post-employment support

that ILP would have negotiated with its unions, we examined the

situation facing (old) ILVA before ILP and AST were separately

incorporated. By the end of 1993, (old) ILVA had established an overall

plan for terminating redundant workers--a plan that would ultimately

affect both ILP and AST. Under this plan, early retirees would first be

placed on a temporary worker assistance measure under Law 223/91, Cassa

Integrazione Guadagni--Extraordinario (CIG-E), while awaiting the

passage of Law 451/94, and then would receive benefits under Law 451/

94, once implemented. This indicates that, at the time an agreement was

being negotiated with the unions and the Ministry of Labor on the terms

of the layoffs, (old) ILVA and its workers were aware that government

contributions would ultimately be made to workers' benefits. 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 prior practice

has been to treat half of the amount paid by the government as

benefitting the company. We have stated that when the government's

willingness to provide assistance is known at the time the contract is

being negotiated, this

[[Page 73254]]

assistance is likely to have an effect on the outcome of the

negotiations. While we continue to adhere to this logic in the preamble

to the CVD Regulations, we stated that we would examine the facts of

each case to determine the appropriate portion of the funds to be

considered countervailable. See CVD Regulations, 63 FR at 65380.

With respect to ILP and its workers, we determine that, under

Italian Law 223, ILP would be required to negotiate with its unions

about the level of benefits that would be made to workers permanently

separated from the company. Since (old) ILVA and its unions were aware

at the time of their negotiations that the GOI would be making payments

to those workers under Law 451/94, some portion of the payment is

countervailable. However, we have no basis for apportioning the

benefit. Therefore, we consider the benefit to ILVA/ILT to be one-half

of the amount paid to the workers by the GOI under Law 451/94.

Consistent with the Department's practice with regard to allocation

of worker-related subsidies, we have treated benefits to ILVA/ILT under

Law 451/94 as recurring grants expensed in the year of receipt. To

calculate the benefit received by ILVA/ILT during the POI, we

multiplied the number of employees by employee type (blue collar, white

collar, and senior executive) who retired early by the average salary

by employee type. Since the GOI was making payments to these workers

equaling 80 percent of their salary, we attributed one-half of that

amount to ILVA/ILT. Therefore, we multiplied the total wages of the

early retirees by 40 percent. We then divided this total amount by

ILVA's total sales during the POI. On this basis, we determine a net

countervailable subsidy to be 1.39 percent ad valorem for ILVA/ILT.

As mentioned in the ``Corporate History of ILVA/ILT'' section of

this notice, in October 1993, (old) ILVA entered into liquidation and

became known as ILVA Residua. In December 1993, IRI initiated the

demerger of (old) ILVA's main productive assets into two new companies,

ILP and AST. On January 1, 1994, ILP and AST became separately

incorporated firms. The remainder of (old) ILVA's productive assets and

existing liabilities, along with much of the redundant workforce, was

placed in ILVA Residua. By placing much of this redundant workforce in

ILVA Residua, ILP and AST were able to begin their respective

operations with a relatively ``clean slate'' in advance of their

privatizations. ILP and AST were relieved of having to assume their

respective obligations to those redundant workers who were placed in

ILVA Residua and received early retirement benefits under Law 451/94.

Therefore, we have determined that ILVA/ILT has received a

countervailable benefit during the POI, because it was relieved of a

financial obligation that would otherwise have been due.

In order to calculate the subsidy received by ILVA/ILT during the

POI, we first needed to determine the appropriate number of early

retirees in ILVA Residua that originally should have been apportioned

to ILP. Consistent with our findings for the 1993-94 Restructuring

Plan, we used the asset value we apportioned to ILP as a percentage of

total viable assets of (old) ILVA immediately prior to ILP's separate

incorporation. We then multiplied this percentage by the total number

of ILVA Residua early retirees. It was then necessary to estimate the

numbers and salaries of early retirees by employee type since the GOI

did not provide this information. To do this, we applied the same

ratios of workers by employee type as ILP retired, and applied this to

ILVA Residua. We also used the same salaries of ILVA/ILT employees by

worker type. As we did with ILP early retirees, we then multiplied the

number of employees, by employee type, by the average salary by

employee type. Since the GOI was making payments to these workers

equaling 80 percent of their salary, we attributed one-half of that

amount to ILVA/ILT. Therefore, we multiplied the total wages of the

early retirees by 40 percent. We then divided this total amount by

ILVA's total sales during the POI. On this basis, we determine a net

countervailable subsidy to be 0.66 percent ad valorem for ILVA/ILT.

The Sidercomit unit of ILVA/ILT also received early retirement

benefits under Law 451/94 separately from ILVA/ILT. As we did with

ILVA/ILT, we multiplied the total wages of the early retirees by 40

percent and then divided this amount by the total sales of ILVA during

the POI. On this basis, we preliminarily determine the net

countervailable subsidy to be less than 0.005 percent ad valorem for

ILVA/ILT.

Upon consolidation of the above determined rates, we determine a

total net countervailable subsidy of 2.06 percent ad valorem for ILVA/

ILT under Law 451/94 for the POI. Palini & Bertoli did not use this

program.

G. Exemptions From Taxes

Presidential Decree 218/1978 exempted firms operating in the

Mezzogiorno from both the ILOR and IRPEG profit taxes. Companies are

eligible for full exemption from the 16.2 percent ILOR tax on profits

arising from eligible projects in the Mezzogiorno and less developed

regions of the center-north of Italy for ten consecutive years after

profits first arise. New companies undertaking productive activities in

the Mezzogiorno are entitled to a full exemption from the IRPEG tax (37

percent of a majority of profits and 19 percent of certain profits) for

ten consecutive years after the project is completed. While the ILOR

tax was repealed beginning with tax year 1998, a successor tax, IRAP,

has been introduced beginning with tax year 1998.

We determine that exemptions from ILOR and IRPEG taxes are

countervailable subsidies in accordance with section 771(5)(B)(i) of

the Act. These tax exemptions constitute financial contributions under

section 771(5)(D)(ii) of the Act, since revenue that is otherwise due

is being foregone. Because these exemptions are limited to a group of

enterprises or industries within a designated geographical region, they

are specific in accordance with section 771(5A)(D)(iv). Benefits

resulting from ILOR and IRPEG tax exemptions were found to be

countervailable in Certain Steel from Italy (see 58 FR at 37334-35).

ILT received an exemption from the IRPEG tax and a partial

exemption from the ILOR tax on its 1997 tax return, filed during the

POI. In order to calculate the benefit stemming from the exemption from

IRPEG, we multiplied ILT's total profits that would otherwise have been

subject to IRPEG by the IRPEG tax rate. We then divided the result by

ILVA's total sales during the POI to determine the ad valorem subsidy.

On this basis, we determine the subsidy to be 1.05 percent ad valorem

for ILVA/ILT.

To compute ILT's partial exemption from ILOR, we took the amount of

profits exempted from the ILOR tax, as shown in ILVA/ILT Verification

Exhibits Tax-2 and Tax-3, and multiplied that amount by the ILOR tax

rate of 16.2 percent to determine the benefit. We then divided the

result by ILVA's total sales during the POI to determine the ad valorem

subsidy. On this basis, we determine the subsidy to be 0.24 percent ad

valorem for ILVA/ILT. Upon consolidation of the IRPEG and ILOR

exemptions, we determine the net consolidated subsidy for ILVA/ILT to

be 1.29 percent ad valorem. Palini & Bertoli did not use this program.

H. Exchange Rate Guarantees Under Law 796/76

Law 796/76 established a program to minimize the risk of exchange

rate

[[Page 73255]]

fluctuations on foreign currency loans. All firms that contract foreign

currency loans from the European Coal and Steel Community (ECSC) or the

Council of Europe Resettlement Fund (CERF) could apply to the Ministry

of the Treasury (MOT) to obtain an exchange rate guarantee. The MOT,

through the Ufficio Italiano di Cambi (UIC), calculates loan payments

based on the lire-foreign currency exchange rate in effect at the time

the loan is contracted (i.e., the base rate). The program establishes a

floor and ceiling for exchange rate fluctuations, limiting the maximum

fluctuation a borrower would face to two percent above or below the

base rate. If the lire depreciates more than two percent against the

foreign currency, a borrower is still able to purchase foreign currency

at the established (guaranteed) ceiling rate. The MOT absorbs the loss

in the amount of the difference between the guaranteed rate and the

actual rate. If the lire appreciates against the foreign currency, the

MOT realizes a gain in the amount of the difference between the floor

rate and the actual rate.

This program was terminated effective July 10, 1992, by Decree Law

333/92. However, the pre-existing exchange rate guarantees continue on

any loans outstanding after that date. Italsider contracted two loans,

one in 1978, and the other in 1979. Both of these loans were ultimately

transferred to ILVA/ILT. These two foreign currency denominated loans

were outstanding during the POI and exchange rate guarantees applied to

both.

We determine that this program constitutes a countervailable

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

program provides a financial contribution, as described in section

771(5)(D)(i) of the Act, to the extent that the lire depreciates

against the foreign currency beyond the two percent limit. When this

occurs, the borrower receives a benefit in the amount of the difference

between the guaranteed rate and the actual exchange rate.

During the recent verification of the GOI in the Plate in Coils

from Italy and Sheet and Strip from Italy investigations, GOI officials

explained that over the last decade, roughly half of all guarantees

made under this program were given to coal and steel companies. See

Results of Verification of the Government of Italy, Memorandum to the

File, dated February 3, 1999 (public version of the document is

available on the public file in the CRU). This is consistent with the

Department's finding in a previous proceeding that the Italian steel

industry has been a dominant user of the exchange rate guarantees

provided under Law 796/76. See Final Affirmative Countervailing Duty

Determination: Small Diameter Circular Seamless Carbon and Alloy Steel

Standard, Line and Pressure Pipe From Italy, 60 FR 31996 (June 19,

1995). No new information to contradict these earlier findings of

specificity has been received in this case. Therefore, we determine

that the program is specific under section 771(5A)(D)(iii)(II) of the

Act.

Once a loan is approved for exchange rate guarantees, access to

foreign exchange at the established rate is automatic and occurs at

regular intervals throughout the life of the loan. Therefore, we are

treating the benefits under this program as recurring grants. ILVA/ILT

and its predecessor companies from which these loans were transferred,

paid a foreign exchange commission fee to the UIC for each payment

made. We determine that this fee qualifies as an `` . . . application

fee, deposit, or similar payment paid in order to qualify for, or to

receive, the benefit of the countervailable subsidy.'' See section

771(6)(A) of the Act. Thus, for the purposes of calculating the

countervailable benefit, we have added the foreign exchange commission

to the total amount ILVA/ILT paid under this program during the POI.

See Wire Rod from Italy, 63 FR at 40479.

Under this program, we have calculated the total countervailable

benefit as the difference between the total loan payment due in foreign

currency, converted at the current exchange rate, less the sum of the

total loan payment due in foreign currency converted at the guaranteed

rate and the exchange rate commission. We divided this amount by ILVA's

total sales during the POI. On this basis, we determine the net

countervailable subsidy to be 0.07 percent ad valorem for ILVA/ILT.

Palini & Bertoli did not use this program.

I. Interest Grants on Loans Under Law 64/86

The GOI has maintained a system of ``extraordinary intervention''

in southern Italy since the 1950's, authorizing aid to the

disadvantaged region. Over time, various laws were passed, including

Decree 218/78, relating to the extraordinary intervention in the South.

In 1986, Law 64/86 was passed in order to consolidate all laws relating

to the extraordinary intervention in the South into one development

policy.

In 1992, Sidercomit was created as a subsidiary of (old) ILVA. In

1997, Sidercomit became an operating unit within (new) ILVA. During

verification, the Department determined that in 1996, Sidercomit

received a loan for which it was granted interest contributions under

Law 64. Subsequent to receiving this loan, but prior to the POI,

Sidercomit was subsumed into ILVA as an operating unit, and was no

longer a separate corporate entity.

ILVA/ILT did not report these interest contributions in its

questionnaire responses. We found at verification, through examining

the financial statements of (new) ILVA and discussions with company

officials, that Sidercomit had received a ``soft loan'' in 1996, which

was ultimately recorded in (new) ILVA's financial statements once

Sidercomit was subsumed into (new) ILVA. We further learned that, under

this loan, the Ministry of Industry was to assume a large part of the

interest payments, which effectively reduced the payments for

Sidercomit. The Ministry pays the interest contributions directly to

the bank. As such, these contributions reduce the interest rate that

Sidercomit (and now (new) ILVA) must pay on the loan. Accordingly,

under section 771(5)(D)(i) of the Act, we have determined that these

interest contributions represent financial contributions.

Under section 771(5A)(D)(iv) of the Act, we determine that these

contributions are specific since assistance under Law 64 was only

available to a limited geographical region within the country. This is

consistent with our determinations in numerous Italian countervailing

duty investigations, including the Final Affirmative Countervailing

Duty Determination: Certain Pasta from Italy, 61 FR 30288, 30293 (June

14, 1986). Pursuant to section 771(5)(E)(ii) of the Act, we are

calculating the benefit conferred as the ``difference between the

amount the recipient of the loan pays on the loan and the amount the

recipient would pay on a comparable commercial loan that the recipient

could actually obtain on the market.'' In this particular case, the

benefit conferred is equal to the amount of the interest contributions

provided by the GOI during the POI. We have divided the benefit over

ILVA's total sales during the POI. On this basis, we determine the net

countervailable subsidy to be less than 0.005 percent ad valorem for

ILVA/ILT. Palini & Bertoli did not use this program.

Programs of the Regional Government of Friuli-Venezia Giulia

A. Development Grants Under Law 30 of 1984

Law 30 of 1984 was enacted by the Regional Government of Friuli-

Venezia

[[Page 73256]]

Giulia to provide one-time development grants to companies for

investments in industrial projects, including the construction of new

plants and modernization or expansion of existing plants. Eligible

companies could receive a grant amounting to 20 percent of the cost of

the investment, with the grant not to exceed 1,000,000,000 lire. Law 30

has not been officially terminated by Decree, but funding for grants

outlined under the law has not been provided since 1993. Those projects

approved for funding prior to 1993, would still receive the grant at

the conclusion of the investment project.

At verification, the Department learned that companies from all

industries that planned future industrial investments were eligible to

receive development grants under Law 30. Eligibility under the law was,

however, confined to certain geographical areas within the Friuli-

Venezia Giulia region. Eligible firms were those operating in

mountainous zones north of Udine, those in the provinces of Trieste and

Gorizia, and those in the industrial areas of Aussa Corno and San Vitto

al Tagliamento. Because these grants are available to firms within

designated areas of the Friuli-Venezia Giulia region, they are specific

in accordance with section 771(5A)(D)(iv) of the Act. The grants

provided under this program represent a financial contribution under

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

In 1989, Palini & Bertoli submitted to the regional government an

application for a development grant under Law 30. The company received

approval for the grant in 1989, and received the grant in 1993. To

determine the benefit, we have treated the grant as a non-recurring

subsidy because receipt of the grant was a one-time, extraordinary

event. Because the benefit to Palini & Bertoli is greater than 0.5

percent of the company's sales for 1989 (the year in which the grant

was approved), we allocated the benefit over a 15 year AUL. See section

351.524(b)(2) of the CVD Regulations. To calculate the benefit, we

determined the benefit allocable to the POI and divided it by Palini &

Bertoli's total sales during the POI. On this basis, we determine the

net countervailable subsidy to be 0.12 percent ad valorem for Palini &

Bertoli. ILVA/ILT did not use this program.

European Commission Programs

A. ECSC Loans Under Article 54

Article 54 of the 1951 ECSC Treaty established a program to provide

industrial investment loans directly to the member iron and steel

industries to finance modernization and purchase new equipment.

Eligible companies apply directly to the EC (which administers the

ECSC) for up to 50 percent of the cost of an industrial investment

project. The Article 54 loans are generally financed on a ``back-to-

back'' basis. In other words, upon granting loan approval, the ECSC

borrows funds (through loans or bond issues) at commercial rates in

financial markets which it then immediately lends to steel companies at

a slightly higher interest rate. The mark-up is to cover the costs of

administering the Article 54 program.

We determine that these loans constitute a countervailable subsidy

within the meaning of section 771(5)(B)(i) of the Act. This program

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

of the Act, which confers a benefit to the extent the interest rate is

less than the benchmark interest rate. The Department has found Article

54 loans to be specific in several proceedings, including Electrical

Steel from Italy, 59 FR at 18362, Certain Steel from Italy, 58 FR at

37335, and Plate in Coils from Italy, 64 FR at 15515, because loans

under this program are provided only to iron and steel companies. The

EC has also indicated on the record of this investigation that Article

54 loans are only available to steel and coal companies which fall

within the scope of the ECSC Treaty. Therefore, we determine that this

program is specific pursuant to section 771(5A)(D)(i) of the Act.

ILVA/ILT had two long-term, fixed-rate loans outstanding during the

POI, each denominated in U.S. dollars. These loans were contracted by

Italsider, one in 1978 and one in 1979. Consistent with Wire Rod from

Italy, we have used as our benchmark the average yield to maturity on

selected long-term corporate bonds as reported by the U.S. Federal

Reserve, since both of these loans were denominated in U.S. dollars

(see 63 FR at 40486). We used these rates since we were unable to find

a long-term borrowing rate for loans denominated in U.S. dollars in

Italy. The interest rate charged on both of ILVA/ILT's two Article 54

loans was lowered part way through the life of the loan. The interest

rate on the loan contracted in 1978 was lowered in 1987, and the rate

on the loan contracted in 1979 was lowered in 1992. Therefore, for the

purpose of calculating the benefit, we have treated these loans as if

they were contracted on the date of this rate adjustment. Because ILVA

was uncreditworthy in the year these loans were contracted, 1987 and

1992 (based on the interest rate adjustments mentioned above), we

calculated the uncreditworthy benchmark rate in accordance with section

351.505 (a)(3)(iii) of the CVD Regulations. See ``Benchmark for Long-

Term Loans and Discount Rates'' section, above.

To calculate the benefit under this program, pursuant to section

351.505(c)(2) of the CVD Regulations, we employed the Department's

long-term fixed-rate loan methodology. We compared ILVA/ILT's interest

rates on the two loans to our benchmark interest rate for

uncreditworthy companies on interest paid by ILVA/ILT during the POI.

We then divided the benefit by ILVA's total sales during the POI. On

this basis, we determine the net countervailable subsidy to be 0.02

percent ad valorem for ILVA/ILT. Palini & Bertoli did not use this

program.

ILVA/ILT was also repaying four ECSC loans under Article 54 during

the POI that were taken by ILP for the construction of housing for coal

and steel industry workers. Funding for these loans came entirely from

the ECSC operational budget, which is composed of levies imposed on

coal and steel producers, investment income on those levies, guarantee

fees and fines paid to the ECSC, and interest received from companies

that have obtained loans from the ECSC. Consistent with previous

determinations, because ECSC funding for these types of loans is

completely from non-government sources, we find these loans to be not

countervailable. See Electrical Steel from Italy, 59 FR at 18364 and

Certain Steel from Italy, 58 FR at 37336.

II. Programs Determined To Be Not Countervailable

Government of Italy Programs

A. Law 308/82

On March 16, 1999, the Department initiated on the program ``Grants

to ILVA.'' In their May 13, 1999 response, ILVA/ILT report that

Italsider was approved for a grant under Law 308/82 in 1983. In Certain

Steel from Italy, we verified that benefits under Law 308/82 were

widely and fairly evenly distributed with no one sector or sectors

receiving a disproportionate amount. Because Law 308/82 grants were not

limited to a specific enterprise or industry, or group of enterprises

or industries, we determined them to be not countervailable. See

Certain Steel from Italy, 58 FR at 37336. No new factual information or

evidence of changed circumstances has been provided to the Department

in this instant investigation to warrant the Department to revisit its

earlier determination that grants provided

[[Page 73257]]

under Law 308/82 are not countervailable.

B. Unpaid Portion of Payment Price for ILP

Petitioners alleged that the GOI effectively gave RIVA a zero-

interest loan on a portion of the contract price agreed to by RIVA for

ILP, because RIVA has not paid the full contract price for ILP. RIVA

reported that the company entered into arbitration after the transfer

of ownership of ILP in April 1995. RIVA stated that it did not invoke

arbitration to challenge the purchase price of ILP, but invoked

arbitration to obtain an indemnity from pre-existing and unreported

liabilities in accordance with the indemnification provision of the

contract of sale. The dispute concerns whether IRI owes RIVA a sum of

money as indemnification for liabilities, which RIVA has potentially

incurred as a result of the acquisition of ILP. To preserve its

leverage in the dispute and ensure that the company will obtain relief

in the event that it is awarded indemnification by the arbitration

panel, RIVA has withheld payment of amounts due to IRI under the

contract of sale.

We inquired about the arbitration procedure and whether any Italian

company which purchases either a government-owned or private entity can

enter into arbitration to remedy a dispute. RIVA reported that Article

25 of the contract of sale provides for arbitration under the rules of

the International Chamber of Commerce and that Article 806 of the

Italian Civil Code authorizes the use of arbitration to settle

litigation. Any company in Italy that purchases another company from

either the government or a private seller can include such an

arbitration provision in the contract of sale. Because the use of

arbitration to settle disputes between two parties is a normal

commercial practice in Italy and there is no information that this

particular arbitration has proceeded in a non-commercial manner, we

determine that no countervailable benefit has been provided under this

process.

Programs of the Regional Government of Friuli-Venezia Giulia

A. Interest Contributions Under Law 25 of 1965

Under Regional Law 25 of 1965, companies making manufacturing

investments in the region of Friuli-Venezia Giulia were eligible to

receive interest contributions from the region on loans taken out for

those investments. For a firm to receive interest contributions, it had

to construct a new industrial plant, or modernize or expand an existing

plant. Interest contributions effectively lower the interest rate on a

loan taken out for such an investment. While the firm pays interest on

the loan at an agreed-upon rate, the regional government will reimburse

the company the difference between the agreed-upon rate and a reference

rate decided on by the region. The Department learned at verification

that, although the program has not been officially terminated, no

regional investments made after 1991 have been approved for interest

contributions.

The regional government approved Palini & Bertoli for interest

contributions in 1991. The company began receiving payments in 1993,

after construction of a new plant was completed. During the POI, Palini

& Bertoli received two interest contributions under Law 25. We verified

that assistance under Law 25 was provided to a large number of firms

from a wide range of industries throughout the entire region of Friuli-

Venezia Giulia, and that the steel industry did not receive a

disproportionate share of assistance under the program. Because

interest contributions under Regional Law 25 are not specific in

accordance with section 771(5A)(D) of the Act, we determine that this

program is not countervailable.

III. Programs Determined To Be Not Used

Government of Italy Programs

A. Lending From the Ministry of Industry Under Law 675/77

ILVA/ILT reported that at the time of its privatization the company

became responsible for certain loan obligations of its predecessor

companies. ILVA/ILT was responsible for repaying loans provided under

Law 675/77, which were applicable to those facilities that produce the

subject merchandise. We confirmed at verification that the repayment

obligations on these loans ended in December 1997. We also verified

with the GOI that no new loans have been provided under Law 675/77

since 1987. Because ILVA/ILT did not have loans under Law 675/77

outstanding during the POI, we determine that the program was not used.

B. Interest Contributions Under Law 675/77

ILVA/ILT reported and we verified that the company received an

interest contribution in 1998, against a loan provided under Law 675/

77. Because the loan against which the interest contribution was

received was repaid in full in December 1997, we determine that this

program was not used during the POI. It is the Department's practice to

treat an interest contribution as countervailable on the date the

company made the corresponding interest payment, despite any delay in

the receipt of the interest contribution. This is because the company's

entitlement to the interest contribution was automatic when it made the

interest payment and the amount of any benefit from the interest

contribution was known at the time of the interest payment. Therefore,

we find, for purposes of the benefit calculation, that the benefit was

received at the time the interest payment was made, and, as such, the

program was not used during the POI. See e.g., Sheet and Strip from

Italy, and Final Affirmative Countervailing Duty Determination: Oil

Country Tubular Goods from Italy, 60 FR 33577, 33579 (June 28, 1995)

(Oil Country Tubular Goods from Italy).

C. Law 305/89

ILVA/ILT reported that (old) ILVA, its predecessor company, applied

for a grant under Law 305/89 in 1990. The GOI approved (old) ILVA's

application in 1991, and awarded the company a grant of 2.2 billion

lire. However, payment of the grant was delayed. We learned at

verification that ILP received a portion of the grant in 1996, and

ILVA/ILT received the remaining portion of the grant in 1997. We

applied the 0.5 percent allocation test against the full grant amount

approved in 1991. See section 351.524(b)(2) of the CVD Regulations. We

calculated the amount of the grant received under Law 305/89 to be less

than 0.5 percent ad valorem of (old) ILVA's sales in 1991. Therefore,

even if we determined that Law 305/89 is countervailable, the grant

would have been expensed in the years of receipt, 1996 and 1997.

Because the grant would be expensed, it would not provide any benefit

to ILVA/ILT during the POI. Therefore, we determine that Law 305/89 was

not used by ILVA/ILT.

D. Interest Grants for ``Indirect Debts'' Under Law 750/81

In 1984, Italsider received a residual payment of 25.3 billion lire

against interest grants provided in fiscal years 1981, 1982, and 1983.

At verification, we learned that under Law 750 of 1981, the GOI

approved funding for IRI, which was providing financial assistance to

its sub-holdings that were incurring debts. See GOI Verification

Report, at 19-20. In 1981, 1982, and 1983, Italsider incurred costs,

associated with debts, at the Bagnoli plant and the Elba Island

[[Page 73258]]

mines, and the grant received in 1984, was for the plant and mines.

However, since the grant was received in 1984, the POI (i.e., 1998)

would be the last year of the allocation period. Therefore, even if we

were to allocate the grant over time, rather than expense it in the

year of receipt, any benefit during the POI would be less than 0.005

percent ad valorem.

E. Capital Grants Under Decree 218/78 and Law 64/86

The GOI reported that (old) ILVA received a grant in 1988, under

Decree 218. The original grant amount was approved in 1978. We applied

the 0.5 percent test against the full grant amount approved in 1978.

See section 351.524(b)(2) of the CVD Regulations. We calculated the

benefit as less than 0.5 percent ad valorem of Italsider's sales in

1978. Additionally, Sidercomit and Centro Acciai received several

grants under Decree 218 and Law 64 between 1984 and 1997. We summed all

grants by year of approval and applied the 0.5 percent test against the

total amounts for each year. We calculated the benefit as less than 0.5

percent ad valorem of the sales of ILVA/ILT or its respective

predecessor company corresponding to the year the grants were received.

Therefore, even if we determined that this program is countervailable,

the above-mentioned grants would have been expensed in the respective

years of receipt. Because the grants would be expensed and would not

provide any benefit to ILVA/ILT during the POI, we determine that this

program was not used.

F. Urban Redevelopment Packages Under Law 181/89

ILVA/ILT and its predecessor companies, ILP and (old) ILVA,

received grants under Law 181/89 between 1991 and 1997. No grants were

received during the POI. Because the approved amount of each grant,

separately, was less than 0.5 percent of total sales of ILVA/ILT (or

predecessor company) in the corresponding year, we would expense the

benefit of each approved grant in that year. See section 351.524(b)(2)

of the CVD Regulations. Therefore, since the grants would be expensed

in the years of receipt, and ILVA/ILT would not realize any benefit

during the POI, we determine that Urban Redevelopment Packges under Law

181/89 were not used.

G. Grants to ILVA

For a discussion, see Comment 20, below.

H. Closure Payments Under Law 481/94 and Predecessor Law

I. Closure Grants Under Laws 46 and 706

J. Decree Law 120/89

K. Law 488/92

L. Law 341/95 Tax Concessions

M. Interest Rate Reductions Under Law 902

N. Interest Contributions Under the Sabatini Law

O. Export Marketing Grants Under Law 394/81

P. Law 549/95: Tax Exemptions on Reinvested Profits for Steel Producers

in Objective 1, 2, and 5(B) Areas

European Commission Programs

A. European Social Fund (ESF)

The GOI has reported that ESF grants were provided to Nuova

Italsider, Italsider and (old) ILVA from 1985 through 1993. Because the

total of all grants provided under the program in each year was less

than 0.5 percent of total sales of Nuova Italsider, Italsider or (old)

ILVA (depending on the year of approval) in the corresponding year, we

would expense the benefit of each grant payment received in that year.

See section 351.524(b)(2) of the CVD Regulations. Therefore, there is

no benefit to ILVA/ILT during the POI.

ILVA/ILT has reported that ESF payments were also made to ILP in

1994 and 1995, and to ILVA/ILT in 1998, for the DUSID, DUTEM, and DUMES

training programs having taken place in 1994 and 1995. While some ILP

employees took part in these training programs, there is no evidence

that ILP benefitted from the ESF payments under these training

programs, or that these programs provided training to ILP employees

that ILP would otherwise have had to incur. As such, we find that these

programs do not provide a countervailable subsidy. See Comment 19,

below.

Based on the fact that grants received in 1985 through 1993, would

provide no benefit to ILVA/ILT during the POI, and that funds received

for the DUSID, DUTEM, and DUMES training programs are not

countervailable, we determine that the ESF was not used by ILVA/ILT.

B. Interest Rebates on ECSC Article 54 Loans

C. ECSC Conversion Loans, Interest Rebates, Restructuring Grants and

Traditional and Social Aid Under Article 56

D. ERDF Aid

E. Resider and Resider II (Commission Decision 88/588)

IV. Programs Determined Not To Exist or To Have Been Terminated

A. Additional Debt Forgiveness in the Course of Privatization

B. Grants to ILVA To Cover Closure and Liquidation Expenses as Part of

the 1993-1994 Privatization Plan

C. Working Capital Grants to ILVA in 1993

With respect to the programs A, B, and C listed above, the GOI

reported in its May 10, 1999 questionnaire response that all monetary

assistance (old) ILVA received in the course of the 1993-1994

Restructuring Plan was effected in the EC Decision 94/259/ECSC of April

12, 1994. We found no evidence at verification that there was any

further debt forgiveness or grants provided as part of the 1993-1994

Restructuring Plan beyond the assistance outlined in the April 12, 1994

EC decision. We therefore determine that these programs do not exist.

D. Personnel Retraining Grants Under Law 675/77

The GOI reported, and we verified, that personnel retraining grants

provided under Law 675/77 were terminated in 1987. The government

stated that the resources provided under this program were allocated

over the years 1981 through 1987. The GOI reported that no other law

providing personnel retraining grants or financial allocations under

Law 675/77 have been approved since 1987.

E. VAT Reductions Under Law 675/77

The GOI reported, and we verified that, the tax reductions referred

to in Section 18 of Law 675 of August 12, 1977, were terminated

effective March 29, 1991. Pursuant to Section 14(3) of Law 64 of March

1, 1986, Section 18 of Law 675/77, applied for a period of five years

from the date of promulgation of the law.

F. Grants to RIVA/ILP

Interested Party Comments

The case brief submitted by the GOI addresses, what they consider

to be, errors and omissions contained the in the GOI's verification

report issued by

[[Page 73259]]

the Department on November 12, 1999. Principally, they state the errors

concern the liquidation of Finsider and the assistance provided by IRI

in connection with the liquidation. The GOI also states that no

subsidies passed through to the new owner of ILP upon its privatization

in 1995, and that failure by the Department to recognize this fact

would be inconsistent with U.S. obligations under the WTO Agreement.

With regard to the GOI's statement on the privatization of ILP, we

address the issue of privatization in Comment 14 below. Because the

other comments made by the GOI are not substantive arguments, we have

not addressed them separately.

Palini & Bertoli did not submit any comments, therefore, when we

refer to ``respondents'' below, we are referring to ILVA/ILT, except

for Comment 14 where we refer to ILVA/ILT and the GOI.

Comment 1: Use of ILVA's Verified 1998 Sales

Respondents argue that the Department in calculating the final CVD

rates should use the correct and verified 1998 sales denominator. They

state that at the time of the preliminary determination ILVA (i.e.,

(new) ILVA) had not completed its official trial balance for 1998. When

preparing for verification, using the finalized trial balance, ILVA

found that the sales denominator submitted earlier to the Department

was incorrect. Respondents note that the Department confirmed the

correct sales denominator at verification, and therefore, that sales

denominator should be used in the final determination.

Department's Position: We agree with the respondents that the

Department should use ILVA's verified 1998 sales figure as the

denominator to calculate the final CVD rates. We verified the correct

1998 sales figure by reconciling that amount to ILVA's completed trial

balance which was examined at verification. Therefore, we have used

ILVA's corrected 1998 sales denominator in the final determination.

Comment 2: Average Useful Life of Assets

Respondents provided four tables illustrating its proposed company-

specific AUL calculations for ILVA's (i.e., (new) ILVA) and ILT's

assets, both separately and in combination. Both respondents and

petitioners have focused their arguments on two of the four tables. The

primary difference between the AUL calculations contained in each of

these two tables is the treatment of the 1993 write-down of ILVA's

assets. The first calculation presents a simple division of the annual

average gross book values of the depreciable fixed assets by the

aggregated annual charge to accumulated depreciation over a ten-year

period (calculation 1). The second calculation adjusts the figures

contained in the first calculation to reduce the gross book values by

the amount of write-downs that occurred in connection with the 1993-94

restructuring and demerger of ILP from the (old) ILVA (calculation 2).

According to respondents, they provided the Department an

inadequate explanation of ILVA's AUL worksheets prior to the

Preliminary Determination, and, as a result, the Department relied on a

worksheet (calculation 1) that substantially overstated the value of

ILVA's depreciable assets. Respondents further maintain that, as

demonstrated at verification, using the correct numbers from the

correct worksheet yields an AUL for the renewable physical assets of

ILVA and ILT of approximately 11 years.

Respondents state that this 11-year AUL not only accords with

Generally Accepted Accounting Principals (GAAP) and is consistent with

ILVA's financial statements, but also reflects precisely the type of

normalizing adjustment required by the Department for companies that

have recorded asset write-downs as per the preamble to the Department's

final CVD Regulations, (see 63 FR at 65397). Respondents maintain that

because ILVA made the normalizing adjustment, the Department should use

this 11-year AUL from calculation 2 in its final determination.

According to respondents, the AUL calculation, which was provided by

respondents and used by the Department in its preliminary determination

does not produce an AUL using actual asset values, since it disregards

the write-downs of 1993. In other words, this calculation does not

include the normalizing adjustment for the asset write-down, and as a

result seriously distorts the AUL calculation. Respondents also claim

the Department cannot accept the calculation 1 result, because it omits

the normalizing adjustment for the asset write-down and the only

purpose served by calculation 1 was to illustrate the impact of the

1993 write down on the asset values and depreciation recorded in

calculation 2.

Petitioners contend that calculation 1 provides the closest

approximation to the AUL methodology established by the Department in

19 CFR 351.524(d)(iii) and that this calculation produces an AUL of

assets that does not differ by a year or more from the 15 year period

provided for in the IRS tables. Therefore, petitioners request that the

Department use the AUL established by the IRS as it did in the

preliminary determination.

Petitioners contend that adjusting the asset values to account for

the extraordinary write-downs in the value of ILVA's fixed assets in

1993 due to the liquidation of ILVA in connection with the 1993-94

restructuring has the effect of distorting the AUL calculation in a

manner that makes the calculation unreliable for purposes of

determining ILVA/ILT's company-specific AUL. Petitioners cite the

preamble to the current regulations (see 63 FR at 65396) to support

their contention that the company-specific AUL calculation is not

appropriate ``* * * for companies that have been sold and that it

presents problems when a company revalues its assets, for example, as a

result of declaring bankruptcy.''

Petitioners cite Steel Wire Rod from Germany to support the

contention that whether or not an asset write-down is done in

accordance with GAAP is not necessarily the determining factor when

examining whether these write-downs should be reflected in the average

annual gross value of fixed assets in the AUL calculation. See Final

Affirmative Countervailing Duty Determination: Stainless Steel Wire Rod

from Germany, 62 FR 54990, 54999 (October 22, 1997) (Steel Wire Rod

from Germany). Petitioners state that the asset write-down adjustment

does not represent a reasonable estimate of the life of equipment at

the time it was purchased, but instead ILVA/ILT 's calculation

represents a mixture of the average useful life of the assets and the

remaining useful life of assets after the revaluation. They further

state that a company-specific AUL may be inappropriate when the company

under investigation has faced recent changes in ownership or

bankruptcy.

Finally, both respondents and petitioners argue that the country-

wide AUL information provided by the GOI should not be used by the

Department.

Department's Position: Under 19 CFR 351.524(d)(2), the Department

presumes that the AUL set out in the IRS's 1977 Class Life Asset

Depreciation Range System is the appropriate allocation period by which

to allocate non-recurring subsidies, and the burden is placed on the

party contesting these AULs to establish that the IRS tables do not

reasonably reflect the company-specific AUL. In addition, the

contesting party must demonstrate that the company-specific AUL differs

significantly from the AUL in the IRS tables.

[[Page 73260]]

It is clear from the preamble to the CVD Regulations that, based on

the Department's experience, using a company-specific AUL in situations

where there have been major asset revaluations in connection with

bankruptcy poses significant problems: ``We have found that the method

[i.e., company-specific AUL calculation] may not be appropriate for

companies that have been sold and that it presents problems when a

company revalues its assets as a result of declaring bankruptcy (see,

e.g., Steel Wire Rod from Germany, 62 FR at 54990 (October 22,

1997)).'' See CVD Regulations, 63 FR at 65396. In addition, the

preamble states: ``It may also be necessary to make normalizing

adjustments for factors that distort the calculation of an AUL. We are

not in a position at this time to provide additional detail in the

regulation itself on when we will make normalizing adjustments and how

such adjustments will be made because the types of necessary

adjustments will likely vary based on the facts of a particular case.

However, certain obvious normalizing adjustments that come to mind are

situations in which a firm may have charged an extraordinary write-down

of fixed assets to depreciation, or where the economy of the country in

question has experienced persistently high inflation.'' See Id., at

65397.

With regard to this last statement from the preamble, we disagree

with respondents that adjusting the AUL calculation for the asset

write-downs, as was done in calculation 2, is the normalizing

adjustment called for in the regulations. Respondents misread the

regulations; it is precisely the existence of a massive asset write-

down that requires a ``normalizing adjustment'' in the first place. We

also find the distinction drawn between Saarstahl's situation in Steel

Wire Rod from Germany and ILVA/ILT by respondents to be uninformative.

There is little substantive difference between a situation where a

company acquires assets from another company then revalues them at

acquisition cost and a situation where assets are revalued before the

transfer with the new owner carrying the assets on its books at the new

revalued amount.

The basic point being made in the Department's regulations is that

the basis of a company-specific AUL calculation is called into question

when a situation exists such as the situation we are currently facing

with ILVA/ILT, i.e., numerous changes in ownership, a massive asset

write-down, and bankruptcy. We do not agree with respondents that the

only issue here is one of consistency between the numerator and the

denominator in the company-specific calculation. The larger issue is

whether we should depart from the IRS asset depreciation schedules. We

do not find the fact that the 1993 asset write-downs were in accordance

with GAAP to be particularly persuasive. The AUL calculation is an

attempt to derive the average useful life of renewable physical assets.

Whether or not it is in accordance with GAAP, the accounting treatment

of asset values, which is usually done for tax purposes, does not

necessarily attempt to accurately reflect the physical life of a

particular asset. Because there are so many different ways to calculate

asset values for tax purposes, the IRS constructed its tables to ensure

consistency. There is a tendency on the part of the Department to rely

on the IRS tables because, as is stated in the preamble to the

countervailing duty regulations: ``In our experience, we have found

that for most industries and most types of subsidies, the IRS tables

have provided an accurate and fair approximation of the AUL of assets

in the industry in question. * * *'' See CVD Regulations, 63 FR at

65396. In other words, the presumption that the IRS tables do not

reflect the actual physical life of an asset for a particular company

is not an easy one to overcome. In our view, respondents have failed to

meet this threshold.

As noted above, respondents have provided four different AUL

calculations, all with different results. By respondents' own

admission, very little, if any explanation of how these calculations

were done was provided until relatively late in the case. Respondents

have argued that the main issue in the AUL calculation for this

investigation is a simple matter of consistency between the numerator

and the denominator. Respondents argument that their calculation 2,

which takes the asset write-downs into account in both the asset value

and depreciation, is the only reliable calculation is unpersuasive.

Calculation 1, which we relied upon in the Preliminary Determination,

is flawed according to respondents, because the asset values do not

reflect the write-down while depreciation does reflect the write-down.

Since by respondents' own admission, calculation 1 is flawed, we are

rejecting calculation 1 as a basis for the company-specific AUL.

With regard to the Italian country-wide AUL, 19 CFR

351.524(d)(2)(iii) states that ``A country-wide AUL for the industry

under investigation will not be accepted by the Secretary unless the

respondent government demonstrates that it has a system in place to

calculate AULs for its industries, and that this system provides a

reliable representation of AUL.'' The GOI has not met this burden, nor

have respondents argued that they have.

We therefore reject respondents company-specific AUL calculation

and the country-wide depreciation information provided by the GOI, and

have used the IRS tables for purposes of determining the period over

which to allocate non-recurring subsidies.

We note that in the 1993 Certain Steel cases, our practice was to

use the IRS tables to allocate non-recurring subsidies over time.

Subsequent to that case, the Court overturned over use of the IRS

tables in favor of company-specific rates. See British Steel plc v.

United States, 879 F. Supp. 1254 (CIT 1995) and British Steel plc v.

United States, 929 F. Supp. 426, 439 (CIT 1996). Under the current

regulations, we have decided to revert to the IRS tables as a

rebuttable presumption. In a 1997 Italian investigation, while we did

attempt to calculate a company-specific AUL, we were unable to do so

and used a surrogate AUL instead. See Wire Rod from Italy, 63 FR 40477.

While our preference is to apply the same AUL to the same subsidies

across cases, we have not been able to do that in Italy due to the

changes in our allocation methodology mandated by the Court and our

subsequent decision to use the IRS table as a rebuttable presumption.

This is the first Italy case subject to the new regulations.

Accordingly, we are applying the regulatory standard to determine the

AUL.

Comment 3: 1984 Debt Transfer Was Not a Countervailable Event

Respondents disagree with the Department's classification of the

1984 debt transfer from Italsider to Finsider as being equivalent to a

government grant. They note that, under section 771(5)(D) of the Act,

the Department can countervail a transfer of debt only if it involves a

financial contribution from the government.

In 1984, debts were transferred from Italsider's balance sheet to

that of Finsider, which under the sole shareholder provision of the

Italian Civil Code, had legal responsibility for all debts of

Italsider. Respondents contend that the debts remained fully in effect,

but that Finsider now had direct rather than indirect responsibility

for their payment. They argue that IRI made no financial contribution

in 1984, by allowing the transfer of debt from Italsider to Finsider.

Respondents point out that the Department itself

[[Page 73261]]

recognized that the transfer ``merely shifted assets and debts within a

family of companies, all of which were owned by Finsider.'' They submit

that it would be double-counting to countervail both the 1984 debt

transfer and the subsequent forgiveness of the same debt through the

liquidation of the Finsider Group in 1988. Since no debt was forgiven

in 1984, the Department has no legal or factual justification to

countervail the 696.4 billion lire of debt which was transferred within

the Finsider Group.

Petitioners urge the Department to continue to use facts available

to make its finding with respect to the debt forgiveness provided under

the 1981 Restructuring Plan. They state that, despite numerous

requests, the GOI failed to provide to the Department the necessary

information regarding the 1984 assumption of debt and 1985 debt

forgiveness. Therefore, the Department should continue to rely on

information provided in the petition and Certain Steel Products from

Italy (see 58 FR at 37329-30), and determine that the 1984 assumption

of debt and 1985 debt forgiveness are countervailable subsidies.

Department's Position: We disagree with ILVA/ILT that IRI provided

no financial contribution in 1984, by allowing the transfer of debt

from Italsider to Finsider. Under section 771(5)(D)(i) of the Act, the

GOI provided a financial contribution when it allowed Finsider to

assume the debts Italsider owed to IRI. The benefit provided to

Italsider was debt forgiveness. See section 351.508 of the CVD

Regulations.

We also disagree with respondents' argument that it would be

double-counting to countervail both the 1984 debt transfer and the

subsequent forgiveness of the same debt through the liquidation of the

Finsider Group in 1988. Respondents have not demonstrated that the

696.4 billion lire which was transferred to Finsider in 1984, was part

of the 1,364 billion lire of debt forgiveness which IRI provided to

Finsider in 1989. As noted above, we requested information from

respondents on several occasions regarding the debt assumption and debt

forgiveness provided under the 1981 Restructuring Plan. The burden is

on respondents to provide to the Department the necessary information

with which to conduct a complete analysis. Absent information regarding

how the 1984 debt transfer is connected to the 1989 debt forgiveness,

the Department must rely on the facts available.

Therefore, we affirm our Preliminary Determination that, based on

the facts available, the 696.4 billion lire transferred to Finsider in

1984, was tantamount to debt forgiveness because respondents have not

demonstrated that it was part of Finsider's 1,364 billion lire debt

which IRI forgave in 1989.

Comment 4: Allocation of Benefits From the 1981 Plan Using the Correct

Asset Ratios

Respondents assert that the Department has incorrectly allocated

100 percent of the countervailable benefits received by Italsider and

Nuova Italsider to ILP. During verification, the Department reviewed

the separation of certain carbon steel flat product assets that

occurred between 1985, and the creation of ILP on January 1, 1994,

verifying that ILP inherited only 88.29 percent of the total fixed,

productive assets of Nuova Italsider. See ILVA/ILT Verification Report,

at Exhibit 1985Rest-1.

Respondents submit that under, long-standing policy, the Department

apportions benefits to successor and spin-off companies on the basis of

asset ratios. As noted in the 1993 General Issues Appendix, to

calculate benefits, the Department divides ``the value of the assets of

the spun-off unit by the value of the assets of the company selling the

unit.'' See GIA, 58 FR at 37269. Therefore, consistent with this

established policy, the Department should attribute benefits in

accordance with the ratio of assets that actually traveled with ILP.

Petitioners argue that the Department should reject the information

regarding the assets of Nuova Italsider because, not only was it

untimely, but is also inconsistent with other evidence on the record.

Section 351.301 of the Department's procedural regulations mandates

that ``a submission of factual information is due no later than * * *

seven days before the date on which the verification of any person is

scheduled to commence.'' They emphasize that verification was the first

time ILVA/ILT mentioned a 1985 Restructuring Plan and the transfer of

Nuova Italsider's assets. No such plan was discussed in the GOI's

questionnaire response, though the Department requested information on

``the restructuring of the Italian steel industry from 1981 through

1998,'' including ``a detailed description of each restructuring

plan.'' See Department's March 19, 1999 questionnaire, at Section II-1,

Part I, Question A.1.

Petitioners add that, should the Department decide to consider this

new information, it should not reduce the subsidy benefit to (new) ILVA

(i.e., formerly named ILP) from the 1981 Restructuring Plan because the

information provided by ILVA/ILT does not clearly establish that any

productive units of Nuova Italsider were spun-off in 1985. They argue

that the mere fact that assets related to certain plants were not

listed as part of the assets of ILP does not establish that they were

spun-off as productive units in 1985. In fact, there is record evidence

that two plants were in fact closed down as part of the 1988 and 1993-

94 Restructuring Plans. See EC Decision 89/218/ECSC of December 23,

1988, and EC Decision 94/259/ECSC of April 12, 1994.

ILVA/ILT rebuts petitioners' arguments, stating that there was no

restructuring plan in 1985, and that the company has never maintained

otherwise. Respondents explain that ILVA/ILT's verification exhibit

simply traces the disposition of assets under the 1988 and 1993-94

restructuring plans that Italsider and Nuova Italsider had owned prior

to 1987, but which ultimately did not travel to ILP. See ILVA/ILT

Verification Report, at Exhibit 1985Rest-1. They state that the asset

allocation arose for the first time in the Preliminary Determination,

when the Department incorrectly presumed that 100 percent of the assets

of Nuova Italsider traveled to ILP.

Department's Position: Information regarding the percentage of

Nuova Italsider's assets which were transferred to ILP was first

presented to the Department during ILVA/ILT's verification. Thus, the

Department did not have sufficient time between the presentation of the

information and this final determination to permit a thorough

examination of the accuracy of the data. In addition, information

necessary to determine the amount of productive assets which remained

with Nuova Italsider was not placed on the record of this

investigation. Therefore, in accordance with section 351.311(c)(2) of

the Department's procedural regulations, we have deferred consideration

of the percentage of Nuova Italsider's assets which were transferred to

ILP. If this investigation goes to order and an administrative review

is requested, we will, at that time, examine this issue again if

complete information is provided in that review.

Comment 5: Use of the Verified Asset Ratio to Apportion Finsider

Benefits From the 1988 Restructuring Plan

Respondents state that, at the Preliminary Determination, the

Department allocated the countervailable benefits from the 1988

Restructuring Plan in accordance with an asset allocation table

prepared by ILVA/ILT which used the best

[[Page 73262]]

information available prior to verification (see 64 FR at 40423). At

verification, IRI, the owner of both Finsider and (old) ILVA, provided

to the Department a more precise allocation of assets between Finsider

and (old) ILVA based on IRI's consolidated financial statements. See

GOI Verification Report, at 7 and ILVA/ILT Verification Report, at 10.

Respondents argue that the Department not only verified the asset ratio

using IRI's consolidated statements, but also tied the results to (old)

ILVA's consolidated financial statements. Therefore, in line with the

Department's long-standing policy of allocating benefits in accordance

with asset ratios, respondents argue that the Department should use the

correct and verified ratio of 51.2 percent to allocate the benefits of

the Finsider restructuring to (old) ILVA.

Petitioners assert that the Department's methodology in the

Preliminary Determination with respect to the percentage of debt

forgiveness from the 1988 Restructuring Plan attributable to (old) ILVA

is incorrect. They argue that only where a portion of Finsider's assets

were transferred to a productive unit other than (old) ILVA, should the

Department allocate a portion of the subsidy amount to those assets.

They note that this approach was taken by the Department in Plate in

Coils from Italy (see 64 FR at 15523) and is consistent with the

opinion of the CIT in British Steel Corp. v. United States, 605 F.

Supp. 286 (1985) (British Steel). In that decision, the court ruled

that ``the competitive benefit of funds used to acquire assets does not

cease upon the assets' premature retirement, but rather such benefit

continues to contribute to the firm's manufacture, production, or

exportation of products accomplished by the firm's remaining assets.''

See British Steel, at 296.

However, if the Department insists on calculating the percentage of

Finsider's assets actually transferred to (old) ILVA as a result of the

1988 Restructuring Plan, petitioners urge the Department to reject the

estimate used in the Preliminary Determination and the estimate

provided at verification. They contend that these estimates are

incorrect because: (1) the estimate used in the preliminary analysis

does not account for the additional assets transferred to (old) ILVA in

1990, as part of the 1988 Restructuring Plan, and (2) neither

calculation accounts for the write-down in the value of Finsider's

assets which took place in 1989. Therefore, if the Department continues

to use ILVA/ILT's calculations for the final, the amount of debt

forgiveness that benefitted (old) ILVA will be substantially

underestimated.

Petitioners claim that it would be inappropriate to use net asset

values from the end of 1989 or 1990, to estimate the assets transferred

from Finsider to (old) ILVA, because the asset values were

substantially written down in 1989, in connection with the

restructuring. To compare asset values after the write-down (those

assets in (old) ILVA) with asset values before (those assets remaining

in Finsider) will inevitably lead to the incorrect conclusion that a

substantial amount of Finsider's assets were not transferred to (old)

ILVA.

In their rebuttal brief, ILVA/ILT submits that petitioners have

confused the benefit of liquidation, i.e., debt coverage, with the

allocation of this benefit. They contend that liquidation provides a

benefit because it enables a spun-off company to emerge without the

unsustainable debt burden that had deprived the company in liquidation

of viability; it is the liquidated company that lacks viability, not

the individual assets. The viability of the assets of the Finsider

Group was demonstrated both by the audited financial statements of

1988, and by the subsequent success of the liquidated Finsider Group in

generating revenue from the sale of assets to offset its net debt

coverage.

ILVA/ILT further states that since the benefit was received by the

Finsider Group as a whole, the Department must allocate the benefit

over the entire Group. As stated in the GIA, ``The amount of the

potential pass-through subsidy is calculated by applying the ratio of

the book value of the productive unit sold to the book value of the

assets of the entire company at the time the productive unit is spun-

off.'' See GIA, 58 FR at 37268. Accordingly, the Department must use a

ratio that bases the asset values in the numerator (the assets of each

successor) and the asset values in the denominator (all assets of the

predecessor, before the spin-offs) on the same base year and the same

valuation method. Respondents add that it is the Department's

established policy to use book value in the last accounting period

preceding the spin-offs, taken from the consolidated audited financial

statements.

Department's Position: We reject the respondents' asset allocation

calculation, which indicates that 51.2 percent of Finsider's assets

were transferred to (old) ILVA. The calculation appears to take into

consideration Finsider's asset value of December 31, 1988, prior to the

write downs, and (old) ILVA's asset value after the write downs, and

consequently derives an incorrect percentage of assets transferred.

Record evidence indicates the opposite of ILVA/ILT's statement that

``assets were transferred from Finsider to ILVA at their written down

value.'' We note in IRI's 1989 consolidated financial statement that

Finsider's net fixed asset value for year-end 1988, was 8,023 billion

lire. For year-end 1989, Finsider's net fixed asset value was 1,345

billion lire and (old) ILVA's was 3,910 billion lire. These amounts

closely reconcile to those presented in the June 14,1989 McKinsey

report 8 which indicates that the write down of assets

occurred on January 1, 1989, after they were transferred to (old) ILVA

on December 31, 1988. We learned at verification that Finsider

transferred assets to (old) ILVA on December 31, 1988, in advance of

the company's commencement of production as a steel company on January

1, 1989. See GOI Verification Report, at 6.

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

\8\ This report was submitted to the Department by the GOI on

July 9, 1999.

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

We further note that ILVA/ILT was not able to substantiate their

claim that Finsider's assets were transferred to (old) ILVA at their

written down value. In support of their statement, respondents simply

translated a paragraph from Finsider's 1989 financial statement. ILVA/

ILT did not place information on the record which clearly indicates

when the asset write downs were taken or the method by which the assets

were revalued. In particular, at verification, ILVA/ILT did not

demonstrate that Finsider's net fixed asset value of 8,023 billion lire

as of December 31, 1988, was the value of the company's assets post-

write downs.

On the basis of the record evidence, for purposes of this final

determination, we have recalculated the percentage of Finsider's assets

transferred to (old) ILVA using pre-write down asset values. To

calculate the percentage of assets transferred to (old) ILVA, we used

information from the June 14, 1989 McKinsey report which the GOI

submitted to the Department on July 9, 1999. The report indicates that

Finsider as of December 31, 1988, had a net fixed asset value of 8,610

billion lire. Of Finsider's assets, 6,140 billion lire of the assets

were conferred to (old) ILVA on December 31, 1988. On January 1, 1989,

(old) ILVA's assets were written down. This information demonstrates

that prior to the write downs, 71.31 percent of Finsider's assets were

transferred to (old) ILVA.

We agree with petitioners that it is necessary to add to the 71.31

percent asset figure the assets transferred to (old) ILVA during 1990.

During 1990,

[[Page 73263]]

705 billion lire in assets were transferred to (old) ILVA. See (old)

ILVA's 1990 Annual Report, at 46, contained in the February 16, 1999

Petition, at Volume VIII, Exhibit 4 and 5. Because it is likely that

the 705 billion lire is based on asset values after the write-downs of

1989, we have assumed that these assets were written down by a similar

percentage as (old) ILVA'' assets on January 1, 1989, (i.e., 39.9

percent). Accordingly, we have increased the value of the assets

transferred during 1990, to their pre-write down value of 1,173 billion

lire. We then summed the 1,173 billion lire and the 6,140 billion lire

assets values, to arrive at the total asset value of 7,313 billion lire

which was transferred to (old) ILVA. Therefore, we determine that, in

total, 84.94 percent of Finsider's assets were transferred to (old)

ILVA.

Respondents are incorrect in arguing that the methodology to be

applied here is the ``spin-off'' methodology described in the GIA. We

do not consider the creation of (old) ILVA to be a ``spin-off'' from

Finsider, because they were still government-owned companies. Normally,

in such a situation, we would not separate the untied subsidies within

the corporate group. However, the facts of this case, i.e., numerous

restructurings and assumption of liabilities by the government which

should have been taken by each new company created, dictate that we

must apportion the subsidies provided to each of the new companies

created. The most reliable way to determine the percentage of subsidies

provided to the predecessor companies that are attributable to the

successor companies is through the value of the assets taken by each

company.

Comment 6: Debt Forgiveness Provided From the Reserve Fund

Petitioners claim that, in the Preliminary Determination, the

Department did not countervail the 1,568 billion lire in net losses

which Finsider realized in 1989, stating that it would seek additional

information in regard to Finsider's indebtedness to IRI (see 64 FR at

40422-23). While the Department notes in its verification report that

Finsider is still officially in liquidation, the fact that Finsider has

not paid IRI for the debt a decade after the 1988 restructuring should

be sufficient for the Department to determine that this debt has been

forgiven. See GOI Verification Report, at 8. They state that since the

1988 restructuring, Finsider has been a shell corporation that assumed

the liabilities which were stripped from those assets transferred to

(old) ILVA. Accordingly, the Department must countervail the 1,568

billion lire debt forgiveness as benefitting (old) ILVA in 1990, the

year in which it was identified, as an amount that would not be repaid

to IRI.

In their rebuttal brief, ILVA/ILT states that the reserve fund

involved a suspension rather than a forgiveness of debt. See GOI

Verification Report, at 8 and ILVA/ILT's September 3, 1999 QR, at

Exhibit 1. They emphasize that the record demonstrates that no

forgiveness of the 1,568 billion lire debt has yet occurred and that

Finsider, in liquidation, continues to possess assets that may enable

it to cover the debt without recourse to IRI's reserve. See GOI

Verification Report, at 9. Because IRI has not forgiven Finsider's

remaining debt, and ultimately may not need to forgive any of this

debt, they argue that no countervailable forgiveness has yet occurred.

Department's Position: On the record of this investigation, the GOI

has reported that in 1988, IRI established a fund of 2,943 billion lire

to cover Finsider's losses while in liquidation. See GOI's July 8, 1999

QR, at Program 4, Question 3a and GOI Verification Report, at 8. The

government stated that the fund equaled the total amount of assistance

IRI expected to provide to Finsider during the liquidation process.

IRI, which earlier extended 2,943 billion lire in loans to Finsider,

questioned whether Finsider would default on the loans, and therefore,

established the reserve fund to cover the outstanding loans. See GOI

Verification Report, at 8.

Finsider realized losses of 1,364 billion lire in 1988. To prevent

Finsider from becoming insolvent, IRI utilized 1,364 billion lire of

the fund in 1989, to forgive debts Finsider owed to it. In 1989,

Finsider realized losses of 1,568 billion lire. Because the purpose of

the reserve fund was to cover losses that Finsider would realize while

in liquidation, IRI should have, but did not, cover the 1,568 billion

lire of losses in 1990, by forgiving debt of an equivalent amount.

At verification, we learned that Finsider, which remains in

liquidation, still had losses of 1,568 billion lire carried forward in

its financial statement of December 31, 1998. Likewise, within IRI's

financial statement as of year-end 1998, IRI still maintained a balance

of 1,568 billion lire in the reserve fund. See GOI Verification Report,

at 9. IRI officials explained that the agency expects Finsider to repay

all outstanding debts with revenue realized through the sale of

remaining assets. However, until the liquidation is officially

terminated, IRI must keep the fund on its books in case any outstanding

debts cannot be covered with cash earned from the sale of assets. See

Id.

We analyzed whether, when Finsider realized losses of 1,568 billion

lire in 1990, IRI expected to receive payment against the debts owed to

it by Finsider. Based on the record evidence, we determine that IRI did

not expect Finsider to pay the 1,568 billion lire debt. First, in 1988,

IRI created a fund with the sole purpose to cover the losses which

Finsider would realize while in liquidation. Second, IRI utilized 1,364

billion lire of the fund to cover losses in 1989, by forgiving debt of

an equivalent amount. In addition, respondents did not submit

information on the record regarding the value of the assets which

remained in Finsider as of December 31, 1989, to demonstrate that

Finsider had viable assets which it could sell to obtain cash to pay

IRI. On the basis of these facts, we determine that in 1990, IRI had no

expectation that Finsider would pay the 1,568 billion lire debt.

Therefore, for this final determination, we find that in 1990, IRI

provided to Finsider debt forgiveness of 1,568 billion lire.

Comment 7: IRI's Purchase of Finsider Shares

Respondents contend that IRI's purchase in 1990, of (old) ILVA's

shares from Finsider, Italsider, and Terni in liquidation was step one

of a two-step asset purchase. They state that the liquidators of the

Finsider Group used a two-step process to raise cash for the benefit of

creditors by selling assets of the liquidated companies. In step one,

Finsider, Italsider, and Terni in liquidation sold assets to (old) ILVA

in exchange for shares of the company. In step two, Finsider, Italsider

and Terni in liquidation sold their shares in (old) ILVA to IRI in

exchange for cash at the same value. Respondents contend that this two-

step sale enabled the companies in liquidation to liquidate productive

assets at the assets' appraised market value for the benefit of their

creditors.

They argue that, because IRI's purchase of shares was an asset sale

at market value, the Department has no legal or factual basis for

countervailing the transaction. They stress that this process was not

``tantamount to debt forgiveness,'' stating that IRI simply purchased

the shares in (old) ILVA which Finsider, Italsider and Terni in

liquidation had received in exchange for the assets which they

transferred to (old) ILVA. IRI paid the assets' appraised market value

to Finsider, Italsider and Terni in liquidation. Under section

771(5)(E)(iv) of the Act, a

[[Page 73264]]

purchase of assets by or for the government provides a countervailable

benefit only ``if such goods are purchased for more than adequate

remuneration'' and that adequate remuneration ``shall be determined in

relation to prevailing market conditions.''

Respondents state that the appraisal of the assets in question was

based on prevailing market conditions, and utilized the comprehensive

market assessment of McKinsey, as described in ILVA/ILT's September 3,

1999 QR. Therefore, they argue that no countervailable benefit was

conveyed because the remuneration provided by the government for the

assets was adequate.

Petitioners argue that the McKinsey study was not an analysis of

whether (old) ILVA in 1990, was a good investment. Rather, the study

was an analysis of the viability of the 1988 Restructuring Plan, i.e.,

whether the restructuring of Finsider into (old) ILVA would meet the

objectives set out by the GOI and the EC. At verification, the

Department learned that ``[t]he consulting firm of McKinsey & Company

was hired to examine whether the creation of ILVA S.p.A. would conform

with the EC's trade and competition rules.'' See GOI Verification

Report, at 5. No analysis of the risk of an investment in (old) ILVA

versus the potential return of such an investment is contained in the

study, nor any comparison to the expected return of alternative

investment opportunities, as is required under the Department's

practice.

Petitioners add that there is no basis for concluding that the GOI

was acting as a normal investor in buying (old) ILVA's shares in 1990.

They highlight (old) ILVA's negative return on equity for the years

1986, 1987, and 1988, and conclude that no private investor would have

made an investment in such a financially unsound company. On the basis

of this information, the Department should determine that (old) ILVA

was unequityworthy in 1989, and that IRI's purchase of (old) ILVA's

shares was equivalent to debt forgiveness.

In their rebuttal brief, ILVA/ILT dispute petitioners' argument

that (old) ILVA was unequityworthy in 1989. They state that. contrary

to petitioners' calculation, which appears to have been based on data

for Finsider in liquidation and not (old) ILVA, (old) ILVA had a return

on equity of 7.6 percent for 1989. The McKinsey report, which they

contend does satisfy the Department's requirements for investment

studies, projected a level of profitability of 12.8 percent in 1990,

for (old) ILVA.

Department's Position: As in our Preliminary Determination, we

continue to find that IRI's purchase of (old) ILVA's shares is

countervailable. It is the Department's position that prior to

purchasing shares of a company, it is the usual investment practice of

a private investor to evaluate the potential risk versus the expected

return. This includes an objective analysis of information sufficient

to determine the expected risk-adjusted return and how such a return

compares to that of alternative investment opportunities of similar

risk. In the July 23, 1999 questionnaire and at verification, we asked

the GOI and ILVA/ILT to provide all feasibility studies, market

reports, economic forecasts, or similar documents completed prior to

(old) ILVA's share purchase, which related to the future expected

financial performance of the company.

We disagree with respondents that IRI's purchase of (old) ILVA's

shares in 1990, was preceded by a comprehensive and objective financial

analysis of (old) ILVA. We find that the McKinsey report which was

commissioned by the EC and the GOI, examined not the expected financial

performance of (old) ILVA, but assessed the viability of the

government's ``ILVA Steel Plan'' (i.e., the 1988 Restructuring Plan)

for the period 1988 to 1990. The scope of the study was to ``examine

the ILVA Steel Plan trying to verify consistency with the Italian

government proposals' and focused on (old) ILVA's steel making

activities to ensure compliance with the EC's trade and competition

rules. See GOI Verification Report, at 5. We note that the McKinsey

team's evaluation involved: (1) reviewing the ILVA plan with the

managers to ensure a full understanding of the underlying programs; (2)

validating the feasibility of the plan using sound management

principles; and (3) verifying EC mandated guidelines for price/cost

squeeze and profitability. See McKinsey Report, ``Evaluating the

Viability of the ILVA Steel Plan,'' of August 5, 1988, in the GOI's

July 8, 1999 QR.

We determine that the McKinsey report did not incorporate the type

of objective, quantitative analysis that an investor would require

prior to a share purchase to evaluate the potential risk versus the

expected return of an investment in (old) ILVA. There is no financial

forecasting of (old) ILVA which would inform the investor of the

viability of the company. Respondents discuss in their case brief that

the McKinsey report evaluated (old) ILVA's ability to realize a minimum

level of profitability of 12.8 percent in 1990. See ILVA/ILT's November

23, 1999 Rebuttal Brief, at 6. However, respondents have taken that

``probability'' out of context. In fact, the report states, ``[T]he

overall plan meets CEC [EC] guidelines for a 2.5 percent annual price/

cost squeeze and exceeds guidelines for a minimum MOL [operating margin

improvement]-profitability level in 1990 of 12.8 percent of revenue.''

See Id. As discussed in the report, the MOL level of 12.8 percent of

consolidated revenues is the target level that (old) ILVA had to reach,

as a whole, in order to meet the EC guidelines for viability, and not

the company's projected profitability. The report further states that

when calculating (old) ILVA's MOL profitability-level, the McKinsey

team had no confirmation of (old) ILVA's official financial plans.

Therefore, they assumed a normal capital structure for (old) ILVA in

their evaluation and urged the government to create a sound financial

base for the new enterprise. See Id., at section ``1990 Profitability

Meets CEC Guidelines.''

The facts on the record indicate that IRI, which committed itself

on January 1, 1989, to purchase (old) ILVA's shares from Finsider, did

not have sufficient financial data which would have allowed it to

evaluate the potential risk versus the expected return in an investment

in (old) ILVA. Further, at the GOI's verification, we learned that

under Italian law, a company in liquidation must sell all of its assets

to repay outstanding debt. See GOI Verification Report, at 9-10. IRI,

which wanted to remain in the steel business, committed itself on the

day (old) ILVA was created, to purchase from Finsider the shares of the

company. See Id. With the cash from the sale, Finsider repaid a portion

of its outstanding debts. See Id. Therefore, on the basis of the record

evidence, IRI did not act like a private investor when it decided to

purchase (old) ILVA's stock on January 1, 1989. The purpose of the

share purchase was to provide to Finsider with cash to repay debts.

Comment 8: Finsider Received No Countervailable Operating Assistance

During Its Liquidation

Respondents argue that the Department should not countervail the

amount of 738 billion lire which was the ceiling the EC imposed on

IRI's coverage of losses incurred during the liquidation of Finsider.

They contend that IRI provided no such assistance apart from the 1,364

billion lire in loss coverage which the Department has countervailed

separately. They point out that IRI demonstrated that the global

[[Page 73265]]

assistance amount did not exceed 1,364 billion lire, as documented in

the relevant financial statements. See GOI Verification Report, at

Exhibits Plan 1988/1-6.

Petitioners argue that the Department should affirm its preliminary

determination for the following reasons: One, the GOI claimed that no

assistance beyond the 1,364 billion lire in debt forgiveness from 1989,

was provided by IRI; however this statement made at verification

conflicted with the GOI's own July 8, 1999 QR. See GOI Verification

Report, at 10, and GOI's July 8, 1999 QR, at Part II, P.S. Q. Program

4. Two, the GOI could not provide any documentation to support its

claim that IRI only provided 1,364 billion lire in assistance. See GOI

Verification Report, at 10.

Department's Position: In the Preliminary Determination, we

discussed the ambiguous information on the record regarding the

additional financial assistance, if any, the GOI provided to Finsider

in liquidation (see 64 FR at 40423). We preliminarily found, based on

information provided by ILVA/ILT, that IRI provided 738 billion lire to

Finsider to cover costs and losses in 1989. See Id. However, we stated

that we would seek further clarification from the GOI and ILVA/ILT

regarding all assistance provided under the 1988 Restructuring Plan.

We learned that through the 89/218/ECSC Decision of December 23,

1988, the EC authorized the disbursement of a maximum of 738 billion

lire in additional financial assistance to Finsider to cover costs and

losses realized in the liquidation process. However, because the cash

received from the sale of Finsider's assets was greater than expected,

IRI did not have to disburse to Finsider any portion of the 738 billion

lire of aid authorized for closure costs and liquidation expenses. See

GOI Verification Report, at 10 and ILVA/ILT Verification Report, at 11.

At verification, we examined Finsider's and IRI's 1989 financial

statements, in particular, sections where such assistance would have

been recorded. We found no evidence that IRI provided any aid to

Finsider in addition to the 1,364 billion lire in 1989. Therefore, on

this basis, we determine that IRI did not provide to Finsider an

additional 738 billion lire to cover closure costs and losses in 1989.

Comment 9: Allocation of the 1993 Restructuring Benefits Using the

Consolidated Asset Values for the ILVA Group

Respondents contend that in the Preliminary Determination, the

Department incorrectly allocated the benefits from the 1993-94 ILVA

restructuring to ILP, AST and ILVA Residua. Though it is the

Department's policy to allocate benefits to successor and spin-off

companies by asset value, the Department did not use the actual

consolidated asset values of all three companies as the denominator for

its allocation of the 1993-94 benefits. Rather, the Department used the

consolidated asset values only for ILP and AST. For ILVA Residua, the

Department ``used the sum of the purchase price plus debts transferred

as a surrogate for the viable asset value of the operations sold from

ILVA Residua.'' See Preliminary Determination, 64 FR at 40424. They

explai

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