Final Affirmative Countervailing Duty Determination: Stainless Steel Plate in Coils From Italy

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-823]

Final Affirmative Countervailing Duty Determination: Stainless

Steel Plate in Coils From Italy

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: March 31, 1999.

FOR FURTHER INFORMATION CONTACT: Cynthia Thirumalai, Craig W. Matney,

Gregory W. Campbell, or Alysia Wilson, AD/CVD Enforcement, Group I,

Office 1, Import Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue, NW, Washington, DC 20230; telephone:

(202) 482-4087, 482-1778, 482-2239, or 482-0108, respectively.

Final Determination

The Department of Commerce (the Department) determines that

countervailable subsidies are being provided to producers and exporters

of stainless steel plate in coils from Italy. For information on the

estimated countervailing duty rates, please see the ``Suspension of

Liquidation'' section of this notice.

The Petitioners

The petition in this investigation was filed by Armco, Inc., J&L

Specialty Steels, Inc., Lukens Inc., AFL-CIO/CLC (USWA), Butler Armco

Independent Union and Zanesville Armco Independent Organization (the

petitioners).

Case History

Since our preliminary determination on August 28, 1998 (Preliminary

Affirmative Countervailing Duty Determination and Alignment of Final

Countervailing Duty Determination with Final Antidumping Duty

Determination: Stainless Steel Plate in Coils from Italy, 63 FR 47246,

(September 4, 1998) (Preliminary Determination), the following events

have occurred:

Between September 21 and October 16, 1998, we issued supplemental

questionnaires to the Government of Italy (GOI), the European

Commission (EC) and Acciai Speciali Terni (AST). We received responses

to these requests between October 9 and November 4, 1998. We conducted

verification in Belgium and Italy of the questionnaire responses of the

EC, GOI, and AST from November 11 through November 24, 1998. On January

5, 1999, we postponed the final determination of this investigation

until March 19, 1999 (see Countervailing Duty Investigations of

Stainless Steel Plate in Coils from Belgium, Italy, the Republic of

Korea, and the Republic of South Africa: Notice of Extension of Time

Limit for Final Determinations, 64 FR 2195 (January 13, 1999)). The

petitioners and AST filed case and rebuttal briefs on February 17 and

February 23, 1999. A public hearing was held on February 25, 1999.

After the hearing, at the Department's request, additional comments

were submitted by petitioners and respondents on March 2, 1999. On

March 12, 1999, the EC submitted additional comments.

Scope of Investigation

For purposes of this investigation, the product covered is certain

stainless steel plate in coils. Stainless steel is an alloy steel

containing, by weight, 1.2 percent or less of carbon and 10.5 percent

or more of chromium, with or without other elements. The subject plate

products are flat-rolled products, 254 mm or over in width and 4.75 mm

or more in thickness, in coils, and annealed or otherwise heat treated

and pickled or otherwise descaled. The subject plate may also be

further processed (e.g., cold-rolled, polished, etc.) provided that it

maintains the specified dimensions of plate following such processing.

Excluded from the scope of this investigation are the following: (1)

Plate not in coils, (2) plate that is not annealed or otherwise heat

treated and pickled or otherwise descaled, (3) sheet and strip, and (4)

flat bars.

The merchandise subject to this investigation is currently

classifiable in the Harmonized Tariff Schedule of the United States

(HTSUS) at subheadings: 7219.11.00.30, 7219.11.00.60, 7219.12.00.05,

7219.12.00.20, 7219.12.00.25, 7219.12.00.50, 7219.12.00.55,

7219.12.00.65, 7219.12.00.70, 7219.12.00.80, 7219.31.00.10,

7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,

7219.90.00.80, 7220.11.00.00, 7220.20.10.10, 7220.20.10.15,

7220.20.10.60, 7220.20.10.80, 7220.20.60.05, 7220.20.60.10,

7220.20.60.15, 7220.20.60.60, 7220.20.60.80, 7220.90.00.10,

7220.90.00.15, 7220.90.00.60, and 7220.90.00.80. Although the HTSUS

subheadings are provided for convenience and customs purposes, the

written description of the merchandise under investigation is

dispositive.

The Applicable Statute

Unless otherwise indicated, all citations to the statute are

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

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

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

Department's regulations are to the regulations codified at 19 CFR part

351 (1998).

Injury Test

Because Italy is a ``Subsidies Agreement Country'' within the

meaning of section 701(b) of the Act, the International Trade

Commission (ITC) is required to determine whether imports of the

subject merchandise from Italy materially injure, or threaten material

injury to, a U.S. industry. On May 28, 1998, the ITC published its

preliminary determination that there is a reasonable indication that an

industry in the United States is being materially injured, or

threatened with material injury, by reason of imports from Italy of the

subject merchandise (see Certain Stainless Steel Plate in Coils From

Belgium, Canada, Italy, Korea, South Africa, and Taiwan, 63 FR 29251

(May 28, 1998)).

Period of Investigation

The period of investigation for which we are measuring subsidies

(the POI) is calendar year 1997.

Corporate History of AST

Prior to 1987, Terni, S.p.A, (Terni), a main operating subsidiary

of Finsider, was the sole producer of stainless steel plate in coils in

Italy. Finsider was a holding company that controlled all state-owned

steel companies in Italy. Finsider, in turn, was wholly-owned by a

government holding company, Istituto per la Ricostruzione Industriale

(IRI). As part of a restructuring in 1987, Terni transferred its assets

to a new company, Terni Acciai Speciali (TAS).

In 1988, another restructuring took place in which Finsider and its

main operating companies (TAS, Italsider, and Nuova Deltasider) entered

into liquidation and a new company, ILVA S.p.A., was formed. ILVA

S.p.A. took over some of the assets and liabilities of the liquidating

companies. With respect to TAS, part of its liabilities and the

majority of its viable assets, including

[[Page 15509]]

all the assets associated with the production of plate, transferred to

ILVA S.p.A. on January 1, 1989. ILVA S.p.A. became operational on the

same day. Part of TAS's remaining assets and liabilities were

transferred to ILVA S.p.A. on April 1, 1990. After that date, TAS no

longer possessed any operating assets. Only certain non-operating

assets remained in TAS.

From 1989 to 1993, ILVA S.p.A. consisted of several operating

divisions. The Specialty Steels Division, located in Terni, produced

subject merchandise. 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. Others

constituted service centers, trading companies, and an electric power

company, among others. ILVA S.p.A. together with its subsidiaries

constituted the ILVA Group (ILVA). ILVA was wholly-owned by IRI. All

subsidies received prior to 1994 were received by ILVA or its

predecessors.

In October 1993, ILVA entered into liquidation and became known as

ILVA Residua. On December 31, 1993, two of ILVA's divisions were

removed and separately incorporated: AST and ILVA Laminati Piani (ILP).

ILVA's Specialty Steels Division was transferred to AST while its

carbon steel flat products operations were placed in ILP. The remainder

of ILVA's assets and liabilities, along with much of the redundant

workforce, was left in ILVA Residua.

In December 1994, AST was sold to KAI Italia S.r.L. (KAI), a

privately-held holding company jointly owned by German steelmaker

Hoesch-Krupp (50 percent) and a consortium of private Italian companies

called FAR Acciai (50 percent). Between 1995 and the POI, there were

several restructurings/changes in ownership of AST and its parent

companies. As a result, at the end of the POI, AST was owned 75 percent

by Krupp Thyssen Stainless GmbH and 25 percent by Fintad Securities

S.A.

Change in Ownership

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

Affirmative Countervailing Duty Determination: Certain Steel Products

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

Austria), we applied a new methodology with respect to the treatment of

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

private entity (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

nonrecurring 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. For further

discussion of our methodology, see the Preliminary Determination, 63 FR

at 47247.

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

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

productive unit to determine what portion of the sale 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. For further discussion of these issues, see Comment 1

below regarding the application of the methodology to an arm's-length

sale of a company, Comment 2 with respect to the calculation of the

ratio representing the percentage that subsidies constitute of the

overall value of a company, and Comment 3 on the calculation of the

purchase price used in the change-in-ownership methodology.

After the 1994 privatization of AST, there were numerous changes in

the ownership structure of the parent companies of AST. Respondent

argues that the Department should apply its change-in-ownership

methodology to two of these transactions. Each of these sales involved

minority owners selling their interests in AST's parent companies. In

the Preliminary Affirmative Countervailing Duty Determination and

Alignment of Final Countervailing Duty Determination with Final

Antidumping Duty Determination; Stainless Steel Sheet and Strip from

Italy, 63 FR 63900, 63902 (November 17, 1998) (Italian Sheet and

Strip), the Department applied its methodology to one transaction but

did not have the information with which to do so for the other.

The petitioners oppose the application of the change-in-ownership

methodology. They argue that ownership transactions that fail to

transfer control of a company to an unrelated party do not warrant the

application of the change-in-ownership methodology. The petitioners

cite to Inland Bar Co. v. United States (Inland Bar), 155 F.3d 1370,

1374 (Fed. Cir. 1998) in which it is stated that a purchaser's

valuation of a company:

will depend not only on the intrinsic value of the unit, but also on

whether the purchaser opts to discharge the liability at purchase

time rather than continuing to pay countervailing duties until the

obligation expires. (Id. at 1374)

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

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

assume the liabilities and opt to repay or reallocate the

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

argue that a purchaser must take control of the company. In contrast,

Krupp has controlled AST since the 1994 privatization and only

strengthened its position by virtue of these post-privatization partial

changes in ownership, explain the petitioners.

More specifically, AST's post-privatization partial changes in

ownership involved transfers of only minority stakes, according to the

petitioners. In such cases, argue the petitioners, the liability

remains with the current majority owners while the minority purchaser

simply buys into the subsidized company. As support, the petitioners

cite to the GIA, 58 FR at 37273, where the Department stated:

A change in ownership position, whereby a company's percentage

of ownership fluctuates over time, is not a bona fide spin-off.

Therefore, we did not perform the spin-off calculation with regard

to change in ownership position.

The petitioners warn that application of the change-in-ownership

methodology

[[Page 15510]]

in such small share transactions that do not affect the control of a

company would create a loophole in the countervailing duty law whereby

each share transaction on the open market would constitute a change in

ownership. In effect, point out the petitioners, the privatization of a

company via stock issuance would result in extinguishment of subsidies

as each trade would result in a reallocation of those subsidies. The

petitioners also state that continued application of the change-in

ownership methodology involving minority transfers of ownership could

also provide an incentive for majority owners to manipulate share

transactions so as to eliminate countervailing duty liability.

Finally, the petitioners argue that AST's partial changes in

ownership are distinguishable from those examined in Industrial

Phosphoric Acid from Israel: Final Results of Countervailing Duty

Administrative Review, 61 FR 53351, 53352 (October 11, 1996) (IPA from

Israel) where the Department applied its change-in-ownership

methodology to partial privatizations. Petitioner argues that AST's

private transactions do not warrant any repayment of subsidies as would

happen when a government sells a company (see Delverde I at 16-17). The

petitioners also note that in IPA from Israel the partial changes in

ownership for which the change-in-ownership methodology was applied

occurred on the same level of analysis that the subsidy analysis was

done. However, with AST, the petitioners argue that the partial changes

in ownership occurred at a higher level than the level at which the

subsidy analysis is properly done; thereby rendering the changes in

ownership irrelevant for purposes of a change-in-ownership analysis.

AST argues that IPA from Israel clearly supports application of the

change-in-ownership methodology to all transactions including partial

changes in ownership unless application of the methodology would have

no affect on the final margin. While the case at hand involves private-

to-private partial changes in ownership and IPA from Israel involved a

public-to-private one, AST notes that the Department has found the

application of the change-in-ownership methodology to be appropriate in

private-to-private transfers of total ownership (see Final Affirmative

Countervailing Duty Determination: Certain Pasta (``Pasta'') From

Italy, 61 FR 30287, 30298 (June 14, 1996) (Pasta From Italy). Moreover,

AST points out that the application of the change-in-ownership

methodology in private-to-private transactions has been upheld by the

CIT (see Delverde, SrL. v. United States (Delverde II), 24 F. Supp. 2d

314 (CIT 1998).

As for the petitioners' reliance upon Inland Bar to show that

control of the company must change in order for the change-in-ownership

methodology to be applicable, AST states that it is misplaced.

According to AST, the issue before the Court in Inland Bar was whether

Commerce's repayment methodology as articulated in the GIA, was

reasonable. AST also mentions that in IPA from Israel, there was no

change in control yet the Department applied the change-in-ownership

methodology. Because the change-in-ownership methodology seeks to

determine what portion of the purchase price of a company is

attributable to subsidy repayment, AST explains that its post-

privatization changes in ownership should be accounted for in that the

amount of money the owners of AST paid for the company was increased by

virtue of these transactions.

For this final determination, we have determined that it is

inappropriate to apply our change in ownership methodology to AST's

post-privatization partial changes in ownership. While it is true that

the Department has applied its change in ownership methodology to

partial changes in ownership in the past, we agree with petitioners

that the facts presented here are unique and require a different

analysis. IPA from Israel involved the partial privatization of the

company for which we were measuring countervailable subsidies. The

transactions at issue in this case both involve the sale of a

relatively small amount of shares by minority owners of a holding

company two levels removed from the production of the subject

merchandise. Given the flexibility that the statute has conferred upon

the Department with respect to changes in ownership and the SAA's

guidance that we should examine changes in ownership on a case-by-case

basis, we have examined the unique facts of this case and find it

inappropriate to apply our change in ownership methodology. It would be

unreasonable and impracticable to reallocate subsidies every time a few

shares change hands; therefore, we must distinguish the circumstances

in which we will reallocate from those in which we will not. We need

not set forth the exact parameters under which we would but, rather, we

must examine the specific facts of each case. In this case, the

ownership interest transferred is relatively small and so remote from

the company upon which the subsidies were conferred that we do not

think it appropriate to reallocate the subsidies.

We are not persuaded by petitioners' argument that a transaction

must involve a transfer of control in order for our methodology to be

applicable. However, we are deeply concerned that application of our

methodology to sales of private minority share interests such as these

could lead us toward the application of our methodology to daily

transactions on the open market for publicly traded companies--a

clearly absurd result that must be prevented. Moreover, for one of

these transactions, we have less than perfect source documentation

supporting the essential elements of the transaction. For these

reasons, we have not applied our change in ownership methodology to the

transactions at issue.

Subsidies Valuation Information

Benchmarks for Long-term Loans and Discount Rates: Consistent with

the Department's finding in Final Affirmative Countervailing Duty

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

40474, 40477 (October 22, 1997) (Wire Rod from Italy), we have based

our long-term benchmarks and discount rates on the Italian Bankers'

Association (ABI) rate. Because the ABI rate represents a long-term

interest rate provided to a bank's most preferred customers with

established low-risk credit histories, commercial banks typically add a

spread ranging from 0.55 percent to 4 percent onto the rate for other

customers, depending on their financial health.

In years in which AST or its predecessor companies were

creditworthy, we added the average of that spread to the ABI rate to

calculate a nominal benchmark rate. In years in which AST or its

predecessor companies were uncreditworthy (see Creditworthiness section

below), we calculated the discount rates in accordance with our

methodology for constructing a long-term interest rate benchmark for

uncreditworthy companies. Specifically, we added to the ABI rate a

spread of four percent in order to reflect the highest commercial

interest rate available to companies in Italy. We added to this rate a

risk premium equal to 12 percent of the ABI, as described in

Sec. 355.44(b)(6)(iv) of the Department's 1989 Proposed Regulations,

(see Countervailing Duties; Notice of Proposed Rulemaking and Request

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

Regulations)). While the 1989 Proposed Regulations are not controlling,

they do represent the Department's practice for purposes of this

investigation.

[[Page 15511]]

Additionally, information on the record of this case indicates that

published ABI rates do not include amounts for fees, commissions and

other borrowing expenses. Because such expenses raise the effective

interest rate that a company would experience, and because it is 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 355.44(b)(8) of the 1989

Proposed Regulations and Final Affirmative Countervailing Duty

Determination: Certain Pasta from Turkey, 61 FR 30366, 30373 (June 14,

1996)). While we do not have information on the expenses that would be

applied to long-term commercial loans, the GOI supplied information on

the borrowing expenses on overdraft loans as an approximation of

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

expenses on overdraft loans range from 6 to 11 percent of interest

charged. Accordingly, we increased the nominal benchmark rate by 8.5

percent, which represents the average reported level of borrowing

expenses, to arrive at an effective benchmark rate.

Allocation Period: In the past, the Department has relied upon

information from the U.S. Internal Revenue Service (IRS) for the

industry-specific average useful life of assets in determining the

allocation period for non-recurring subsidies. See the GIA, 58 FR at

37227. In British Steel plc v. United States, 879 F. Supp. 1254 (CIT

1995) (British Steel I), the U.S. Court of International Trade (CIT)

held that the IRS information did not necessarily reflect a reasonable

period based on the actual commercial and competitive benefit of the

subsidies to the recipients. In accordance with the CIT's remand order,

the Department calculated a company-specific allocation period for non-

recurring subsidies based on the average useful life (AUL) of non-

renewable physical assets. This remand determination was affirmed by

the court in British Steel plc v. United States, 929 F. Supp. 426, 439

(CIT 1996) (British Steel II). In recent countervailing duty

investigations, it has been our practice to follow the court's decision

in British Steel II, and to calculate a company-specific allocation

period for all countervailable non-recurring subsidies.

After considering parties' comments and based upon our analysis of

the data submitted by AST regarding the AUL of its assets, we are using

a 12-year AUL for AST. This 12-year AUL is based on information in Wire

Rod from Italy, 63 FR at 40477, and Italian Sheet and Strip, 63 FR at

63903, which we find to be a good estimate of the AUL of the Italian

stainless steel industry. For an explanation of why we are rejecting

AST's company-specific AUL, see Comment 6.

Equityworthiness

In measuring the benefit from a government equity infusion, the

Department compares the price paid by the government for the equity to

a market benchmark, if such a benchmark exists. In this case, a market

benchmark does not exist. We therefore examined whether AST's

predecessors were equityworthy in the years they received infusions.

See, Final Affirmative Countervailing Duty Determination: Steel Wire

Rod From Trinidad and Tobago, 62 FR 50003, 50004 (October 22, 1997)

(Wire Rod from Trinidad and Tobago). In analyzing whether a company is

equityworthy, the Department considers whether that company could have

attracted investment capital from a reasonable private investor in the

year of the government equity infusion, based on information available

at that time. See GIA, 58 FR at 37244. Our review of the record has not

led us to change our finding from that in Wire Rod from Italy, in which

we found AST's predecessors unequityworthy from 1986 through 1988, and

from 1991 through 1992, 63 FR 40474 at 40477.

Consistent with our equity methodology described in the GIA, 58 FR

at 37239, we consider equity infusions into unequityworthy companies as

infusions made on terms inconsistent with the usual practice of a

private investor and, therefore, we have treated these infusions as

grants. This methodology is based on the premise that a finding by the

Department that a company is not equityworthy is tantamount to saying

that the company could not have attracted investment capital from a

reasonable investor in the year of the infusion. This determination is

based on the information available at the time of the investment.

Creditworthiness

When the Department examines whether a company is creditworthy, it

is essentially attempting to determine if the company in question could

obtain commercial financing at commonly available interest rates. See,

e.g., Final Affirmative Countervailing Duty Determinations: Certain

Steel Products from France, 58 FR 37304 (July 9, 1993) (Certain Steel

from France); Final Affirmative Countervailing Duty Determination:

Steel Wire Rod from Venezuela, 62 FR 55014 (Oct. 21, 1997).

Terni, TAS and ILVA were found to be uncreditworthy from 1986

through 1993 in Final Affirmative Countervailing Duty Determination:

Grain-Oriented Electrical Steel From Italy, 59 FR 18357, 18358 (April

18, 1994) (Electrical Steel from Italy) and in Wire Rod from Italy, 63

FR at 40477. No new information has been presented in this

investigation that would lead us to reconsider these findings. (See

Comment 13 below regarding the issue of AST's creditworthiness in

1993.) Therefore, consistent with our past practice, we continue to

find Terni, TAS and ILVA uncreditworthy from 1986 through 1993. See,

e.g., Final Affirmative Countervailing Duty Determinations: Certain

Steel Products from Brazil, 58 FR 37295, 37297 (July 9, 1993). We did

not analyze AST's creditworthiness in 1994 through 1997 because AST did

not negotiate new loans with the GOI or EC during these years.

I. Programs Determined To Be Countervailable

GOI Programs

A. Equity Infusions to Terni, TAS and ILVA

The GOI, through IRI, provided new equity capital to Terni, TAS or

ILVA in every year from 1986 through 1992, except in 1989 and 1990. We

determine that these equity infusions constitute countervailable

subsidies within the meaning of section 771(5) of the Act. These equity

infusions constitute financial contributions, as described in section

771(5)(D)(i) of the Act, and because they were not consistent with the

usual investment practices of private investors (see Equityworthiness

section above) they 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, TAS and ILVA, we determine that

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

We have treated these equity infusions as non-recurring allocable

benefits given in the year the infusion was received because each

required a separate authorization. Because Terni, TAS and ILVA were

uncreditworthy in the years of receipt, we used discount rates that

include a risk premium to allocate the benefits over time.

For equity infusions originally provided to Terni and TAS, the

predecessor companies that produced stainless steel, we examined these

equity infusions as though they had

[[Page 15512]]

flowed directly through ILVA to AST when AST took all of the stainless

steel assets out of ILVA. Accordingly, we did not apportion to the

other operations of ILVA any part of the equity infusions originally

provided directly to Terni or TAS. While we acknowledge that it would

be our preference to look at equity infusions into ILVA as a whole and

then apportion an amount to AST when it was spun-off from ILVA, we find

our approach in this case to be the most feasible since information on

equity infusions provided to the non-stainless operations of ILVA is

not available. For the equity infusions to ILVA, however, we did

apportion these by asset value to all ILVA operations in determining

the amount applicable to AST because they were not tied to any specific

product.

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 AST after it was sold. We divided this amount

by AST's total consolidated sales during the POI. Accordingly, we

determine the estimated net benefit to be 1.03 percent ad valorem for

AST.

B. Benefits From the 1988-90 Restructuring of Finsider 1

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\1\ This program was referred to as Debt Forgiveness: Finsider-

to-ILVA Restructuring in Initiation of Countervailing Duty

Investigations: Stainless Steel Plate in Coils from Belgium, Italy,

the Republic of Korea, and the Republic of South Africa, 63 FR 23272

(April 28, 1998) (Initiation Notice)

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As discussed above in the Corporate History of AST 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. In 1990, additional assets and

liabilities of TAS, Italsider and Finsider went to ILVA.

Not all of TAS's liabilities were transferred to ILVA S.p.A.;

rather, many remained with TAS and had to be repaid, assumed or

forgiven. In 1989, Finsider forgave 99,886 million lire of debt owed to

it by TAS. Even with this debt forgiveness, a substantial amount of

liabilities left over from the 1990 transfer of assets and liabilities

to ILVA S.p.A. remained with TAS. In addition, losses associated with

the transfer of assets to ILVA S.p.A. were left behind in TAS. These

losses occurred because the value of the transferred assets was written

down. As TAS gave up assets whose book values were higher than their

appraised values, it was forced to absorb the losses. These losses were

generated during two transfers as reflected in: (1) An extraordinary

loss in TAS's 1988 Annual Report and (2) a reserve against anticipated

losses posted in TAS's 1989 Annual Report with respect to the 1990

transfer.

Consistent with our treatment of the 1988-90 restructuring in the

preliminary determination of this case and Electrical Steel from Italy,

59 FR at 18359, we determine that the debt and loss coverage provided

to ILVA constitutes a countervailable subsidy within the meaning of

section 771(5) of the Act. The debt and loss coverage provided a

financial contribution as described in section 771(5)(D)(ii) of the Act

and provided a benefit to the recipient in the amount of the debt and

loss coverage. Because this debt and loss coverage was limited to TAS,

AST's predecessor, we determine that it is specific within the meaning

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

In calculating the benefit from this program, we followed our

methodology in Electrical Steel from Italy, except for the correction

of a calculation error which had the effect of double-counting the

write-down from the first transfer of assets in 1988 by including it in

the calculation of losses generated upon the second transfer of assets

in 1990. We have treated Finsider's 1989 forgiveness of TAS' debt and

the loss resulting from the 1989 write-down as grants received in 1989.

The second asset write down and the debt outstanding after the 1990

transfer were treated as grants received in 1990. We treated these as

non-recurring grants because they were one-time, extraordinary events.

Because ILVA was uncreditworthy in these years, we used discount rates

that include a risk premium to allocate the benefits over time. As with

the equity infusions made into Terni and TAS, we have treated this debt

and loss coverage as though they flowed directly through ILVA to AST,

because we have no information on the debt and loss coverage provided

to the non-stainless operations of ILVA. We applied the repayment

portion of our change-in-ownership methodology to the debt and loss

coverage to determine the amount of the subsidy allocable to AST after

its privatization. We divided this amount by AST's total consolidated

sales during the POI. Accordingly, we determine the estimated net

benefit to be 2.81 percent ad valorem for AST.

C. Debt Forgiveness: ILVA-to-AST 2

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

\2\ Includes the following programs from the Initiation Notice:

Working Capital Grants to ILVA, 1994 Debt Payment Assistance by IRI,

and ILVA Restructuring and Liquidation Grant.

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

As of December 31, 1993, the majority of ILVA's viable

manufacturing activities had been separately incorporated (or

``demerged'') into either AST or ILP; ILVA Residua was primarily a

shell company with liabilities far exceeding assets, although it did

contain some operating assets later spun-off. In contrast, AST and ILP,

now ready for sale, had operating assets and relatively modest debt

loads.

We determine that AST (and consequently the subject merchandise)

received a countervailable subsidy in 1993 when the bulk of ILVA's debt

was placed in ILVA Residua, rather than being proportionately allocated

to AST and ILP. The amount of debt that should have been attributable

to AST but was instead placed with ILVA Residua was equivalent to debt

forgiveness for AST at the time of its demerger. In accordance with our

past practice, debt forgiveness is treated as a grant which constitutes

a financial contribution under section 771(5)(D)(i) of the ACT and

provides a benefit in the amount of the debt forgiveness. Because the

debt forgiveness was received only by privatized ILVA operations, we

determine that it is specific under section 771(5A)(D) of the Act.

In the preliminary determination of Italian Sheet and Strip, 63 FR

at 63904, the amount of liabilities that we attributed to AST was based

on the EC's 9th Monitoring Report of the total cost of the liquidation

process to the GOI. However, for this final determination, we have re-

examined our methodology and determined that it is more appropriate to

base our calculation on the gross liabilities left behind in ILVA

Residua. See Comment 9 and the March 19, 1999 Memorandum on the 1993

Debt Forgiveness to Richard W. Moreland.

In calculating the amount of debt forgiveness attributable to AST,

we started with the gross liabilities appearing on ILVA Residua's

consolidated December 31, 1993 balance sheet. This balance sheet

represents ILVA after the demergers of and associated debt transfers to

AST and ILP. From these gross liabilities, we subtracted amounts for

ILVA Residua's liquid assets (cash, bank accounts, etc.) and

liabilities eventually transferred to the companies sold from ILVA

Residua. We then subtracted the amount of the asset write-downs

specifically attributable to AST, ILP and other companies, and

attributed AST's portion of these write-downs to AST. Finally, we

subtracted the amount of liabilities (i.e., 253 billion lire) that was

attributed to Cogne Acciai Speciali

[[Page 15513]]

(CAS), an ILVA subsidiary that was left behind in ILVA Residua and

spun-off. This amount was countervailed in Wire Rod from Italy, 63 FR

at 40478. See Comments 10-14 below for further information on our

calculation methodology.

The amount of liabilities remaining represents the pool of

liabilities that are not individually attributable to specific ILVA

assets. We apportioned this debt to AST, ILP and operations sold from

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

consolidated asset values reported in AST and ILP's December 31, 1993

financial results, and used the sum of purchase price plus debts

transferred as a surrogate for the asset value of the operations sold

from ILVA Residua. Because we subtracted a specific amount of ILVA's

gross liabilities attributed to CAS in Wire Rod from Italy, we did not

include its assets in the amount of ILVA Residua's privatized assets.

Also, consistent with Italian Sheet and Strip, we did not include in

ILVA Residua's viable assets the assets of the one ILVA Residua company

sold to IRI, because this sale does not represent a sale to a non-

governmental entity.

We treated the debt forgiveness to AST as a non-recurring grant

because it was a one-time, extraordinary event. The discount rate we

used in our grant formula included a risk premium based on our

determination that ILVA was uncreditworthy in 1993 (see Comment 13

below and March 19, 1999 Memorandum on the Appropriate basis for 1993

Creditworthiness Analysis of AST). We followed the methodology

described in the Change in Ownership section above to determine the

amount appropriately allocated to AST after its privatization. We

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

Accordingly, we determine the estimated net benefit to be 9.58 percent

ad valorem for AST.

D. Law 796/76: Exchange Rate Guarantees

Law 796/76 established a program to minimize the risk of exchange

rate 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 lira-foreign currency exchange

rate in effect at the time the loan is disbursed (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 lira 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 lira 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. AST had two outstanding ECSC

loans during the POI that benefitted from these guarantees.

We determine that this program constitutes a countervailable

subsidy within the meaning of section 771(5) 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 lira 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.

In its responses to the Department's questionnaires, the GOI did

not provide information regarding the types of enterprises that have

used this program. However, during verification of the GOI, GOI

officials explained that over the last decade, roughly half of all

guarantees made under this program were given to coal and steel

companies. 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.

Therefore, we determine that the program is specific under section

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

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. At

verification, we found that AST 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 AST paid under this program

during the POI. See Wire Rod from Italy, 63 FR at 40479.

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, minus 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 AST's total

consolidated sales during the POI. Accordingly, we determine the

estimated net benefit to AST for this program to be 0.82 percent ad

valorem.

E. Law 675/77

Law 675/77 was designed to provide GOI assistance in the

restructuring and reconversion of Italian industries. There are six

types of assistance available under this law: (1) Grants to pay

interest on bank loans; (2) mortgage loans provided by the Ministry of

Industry (MOI) at subsidized interest rates; (3) grants effectively to

reduce interest payments on loans financed by IRI bond issues; (4)

capital grants for the South; (5) value-added tax reductions on capital

good purchases for companies in the South; and (6) personnel retraining

grants.

Under Law 675/77, IRI issued bonds to finance restructuring

measures of companies within the IRI group. The proceeds from the sale

of the bonds were then re-lent to IRI companies. During the POI, AST

had two outstanding loans financed by IRI bond issues. AST was

responsible for making semi-annual interest payments and annual

principal payments on these bond issues. In turn, AST applied for and

received reimbursements from the GOI for interest and expenses that,

when combined, exceed 5.275 percent semi-annually.

We determine that these loans constitute a countervailable subsidy

within the meaning of section 771(5) of the Act. These loans provided a

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

and conferred a benefit to AST to the extent that the net interest rate

was lower than the benchmark rate. With regard to specificity, a number

of different industrial sectors have received benefits under Law 675/

77. However, in Electrical Steel from Italy, the

[[Page 15514]]

Department determined that assistance under this law was specific

because the steel industry was a dominant user of the program (the

steel industry received 34 percent of the benefits). See Electrical

Steel from Italy, 59 FR at 18361. In the instant proceeding, the GOI

submitted similar information regarding the distribution of benefits

under this program. At verification, the GOI stated that this program

bestowed benefits on a limited number of industries, one of which was

the steel industry. The new information submitted by the GOI is

consistent with the information submitted in Electrical Steel from

Italy. Therefore, consistent with our finding in Electrical Steel from

Italy, we find the program to be specific within the meaning of section

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

To measure the benefit from these loans, we compared the benchmark

interest rate to the amounts paid by AST, less the reimbursements

applied for, on these loans during the POI. We divided the resulting

difference by AST's total consolidated sales during the POI. In our

calculations for the Preliminary Determination, we erred by applying

the change-in-ownership methodology to these loans. The loans at issue

here are variable-rate loans whose benefits are recurring/non-allocable

in nature. Since recurring benefits are not affected by our change-in-

ownership calculations, we have corrected our error by not reducing the

benefits from Law 675/77 loans (see GIA, 58 FR at 37263).

We determine the estimated net benefit from this program to be 0.07

percent ad valorem for AST.

F. Law 10/91

The GOI provided funds to AST under Law 10/91 for the development

of energy conserving technology. Law 10/91 authorized grants based on

applications submitted in 1991 and 1992, and was intended to fund

projects whose purpose was to save energy or promote the use of

renewable energy sources.

This program was not included in the petition and, thus, not

addressed in the Department's initial questionnaire. Rather, in

response to a supplemental questionnaire issued after the preliminary

determination, AST stated that it had received grants under Law 10/91

both prior to and after the POI. In Italian Sheet and Strip, 63 FR at

63907, we did not determine the specificity of the program given the

limited information available on the record at the time. Since the

preliminary determinations in Italian Sheet and Strip and the instant

proceeding, we have collected and verified information regarding this

program.

The aid AST received under Law 10/91, which constitutes a financial

contribution under section 771(5)(D)(i) of the Act, provides a benefit

in the amount of the grants received. Furthermore, we determine that

Law 10/91 is specific within the meaning of section 771(5A)(D)(iii) of

the Act. There is no indication that this program is de jure specific.

However, based on an examination of all the grants approved at the same

time as AST's project was approved, we find that both the steel

industry and AST's predecessor, ILVA, received a predominate and

disproportionate share of the benefits (see Memorandum to Susan H.

Kuhbach from Team, dated February 19, 1999.) Therefore, we determine

Law 10/91 grants to be countervailable.

We treated these grants to AST as non-recurring because they

required separate approvals. Because the amount of grant AST received

prior to the POI was less than 0.5 percent of its sales in the year of

receipt, the benefit was expensed in that year. Section 355.44(b)(8) of

the 1989 Proposed Regulations and Wire Rod from Canada 62 FR at 54977.

Accordingly, we determine the estimated net benefit in the POI to be

0.00 percent ad valorem.

G. Pre-Privatization Employment Benefits (Law 451/94)

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, Law 451/94 provided for the early

retirement of up to 17,100 Italian steel workers. Benefits applied for

during the 1994-1996 period continue until the employee reaches his/her

natural retirement age, up to a maximum of ten years.

In the Preliminary Determination, the Department determined that

the early retirement benefits provided under Law 451/94 are a

countervailable subsidy under section 771(5) of the Act. Law 451/94

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

of the Act, because Law 451/94 relieves the company of costs it would

have normally incurred. Also, because Law 451/94 was developed for and

exclusively used by the steel industry, we determine that Law 451/94 is

specific within the meaning of section 771 (5A)(D) of the Act. No new

information has been submitted to warrant a reconsideration of this

finding.

In the Preliminary Determination, we used the Cassa Integrazione

Guadagni-Extraordinario (``CIG-E'') program as our benchmark to

determine what the obligations of Italian steel producers would have

been when laying off workers. We compared the costs the steel companies

would incur to lay off workers under the CIG-E program to the costs

they incurred in laying off workers under Law 451/94. We found that the

steel companies received a benefit by virtue of paying less under Law

451/94 than what they would have paid under CIG-E.

In Italian Sheet and Strip, 63 FR at 63908, we changed our

benchmark because we learned that the CIG-E program applied in

situations where the laid off workers were expected to return to their

jobs after the layoff period. Since the workers retiring early under

Law 451/94 were permanently separated from their company, we adopted

the so-called ``Mobility'' provision as our benchmark. Like Law 451/94,

the Mobility provision addressed permanent separations from a company.

Since then, we have learned more about the GOI's unemployment

programs under Law 223 (including CIG-E and Mobility) and the early

retirement program under Law 451/94. Based on this information, we do

not believe that any of the alternatives described under Law 223

provides a benchmark per se for the costs that AST would incur in the

absence of Law 451/94. As noted above, the CIG-E program addresses

temporary lay offs. The Mobility provision serves merely to identify

the minimum payment the company would incur when laying workers off

permanently. Under the Mobility provision, the company is first

directed to attempt to negotiate a settlement with the unions prior to

laying-off workers permanently. Only if the negotiations fail will the

company face the minimum payment required under Mobility.

Recognizing that AST would be required to enter into negotiations

with the unions before laying off workers, the difficult issue for the

Department is to determine what the outcome of those negotiations might

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

succeeded in preventing any lay offs. If so, the benefit to AST would

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

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

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

incurred only the minimal costs described under Mobility.

[[Page 15515]]

Then the benefit to AST 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 AST

would have laid off workers. However, we do not believe that AST would

simply have fired the workers without reaching accommodation with the

unions. Statements by GOI officials at verification indicated that

failure to negotiate a separation package with the union would lead to

labor unrest, strikes, and lawsuits. Therefore, we have proceeded on

the basis that AST's early retirees would have received some support

from AST.

In attempting to determine the level of post employment support

that AST would have negotiated with its unions, we looked to AST's own

experience. As we learned at verification, by the end of 1993, the

company had established a plan for the termination of redundant workers

(as part of an overall ILVA plan). Under this plan, the early retirees

would first be placed on CIG-E as a temporary measure and then they

would receive benefits under Law 451/94. According to AST officials,

the temporary measure was needed because ``they were waiting for the

passage of the early retirement program under Law 451/94, which at the

time had not been implemented by the GOI.''

This statement indicates that at the time an agreement was reached

with the unions on the terms of the lay offs, AST and its workers were

aware that benefits would be made available under Law 451/94. In such

situations, i.e., where the company and its workers are aware at the

time of their negotiations that the government will be making

contributions to the workers' benefits, the Department's practice is to

treat half of the amount paid by the government as benefitting the

company. See, GIA, 58 FR at 37225. In the GIA, the Department stated

that when the government's willingness to provide assistance is known

at the time the contract is being negotiated, this assistance is likely

to have an effect on the outcome of the negotiations. In these

situations, the Department will assume that the difference between what

the workers would have demanded and what the company would have

preferred to have paid would have been split between the parties, with

the result that one-half of the government payment goes to relieving

the company of an obligation that would exist otherwise. See, GIA, 58

FR at 37256. This methodology was upheld in LTV Steel Co. v. United

States, 985 F. Supp. 95, 116 (CIT 1997) (LTV Steel).

Therefore, with respect to AST and its workers, we determine that:

(1) Under Italian Law 223, AST would have been required to negotiate

with its unions about the level of benefits that would be made to

workers permanently separated from the company, and (2) since AST 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, the benefit

to AST is one half of the amount paid to the workers by the GOI under

Law 451/94. See Memorandum to Susan H. Kuhbach on Law 451/94-Early

Retirement Benefits dated March 19, 1999.

Consistent with the Department's practice, we have treated benefits

to AST under Law 451/94 as recurring grants expensed in the year of

receipt. See GIA, 58 FR at 37226. To calculate the benefit received by

AST during the POI, we multiplied the number of employees by employee

type 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, and one-half of that amount was attributable to AST, we

multiplied the total wages of the early retirees by 40 percent. We then

divided this total amount by total consolidated sales during the POI.

On this basis, we determine the estimated net benefit to AST during the

POI to be 0.69 percent ad valorem.

H. Law 181/89: Worker Adjustment and Redevelopment Assistance

3

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

\3\ Includes the Decree Law 120/89: Recovery Plan for Steel

Industry program contained in Initiation Notice.

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

Law 181/89 was implemented to ease the impact of employment

reductions in the steel crisis areas of Naples, Taranto, Terni, and

Genoa. The law targeted four activities: (1) Promotion of investment in

reindustrialization, (2) promotion of employment, (3) promotion of

worker retraining, and (4) early retirement. One of AST's subsidiaries

received a grant under the reindustrialization component of Law 181/89

as partial compensation for acquiring equipment used in the processing

of subject merchandise.

We determine that this program constitutes a countervailable

subsidy within the meaning of section 771(5) of the Act. This grant

under Law 181/89 constitutes a financial contribution under section

771(5)(D)(i) of the Act and provides a benefit in the amount of the

grant received. Because assistance is limited to steel-related

enterprises located in specified regions of Italy, we determine that

the program is specific under section 771(5A)(D) of the Act.

The grant received by AST's subsidiary was disbursed in several

tranches prior to the POI. We treated each of the tranche as non-

recurring because they were all included in a single government grant

approval which was exceptional. Consistent with the Department's

methodology in the GIA, because the amount of each tranche, separately,

was less than 0.5 percent of AST's sales in the corresponding year, we

expensed the benefit of each tranche in that year. Consequently, we

determine the estimated net benefit to AST in the POI for this program

to be 0.00 percent ad valorem

J. Law 488/92

Law 488/92 provides grants for industrial projects in depressed

regions of Italy. the subsidy amount is based on the location of the

investment and the size of the enterprise. The funds used to pay

benefits under this program are derived in part from the GOI and in

part from the Structural Funds of the European Union (EU). to be

eligible for benefits under this program, the enterprise must be

located in one of the regions in Italy identified as EU Structural

Funds Objective 1, 2 or 5b.

We determine that this program constitutes a countervailable

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

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

providing a benefit in the amount of the grant. Because assistance is

limited to enterprises located in certain regions, we determine that

the program is specific under section 771(5A)(D) of the Act.

According to AST officials, although the company has applied for

aid under this program, no approval has yet been granted and no funds

have yet been disbursed. Accordingly, we determine the estimated net

benefit to AST in the POI for this program to be 0.00 percent ad

valorem.

EU Programs

A. ECSC Article 54 Loans

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 European Commission (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

[[Page 15516]]

approval, the ECSC borrows funds (through loans or bond issues) at

commercial rates in financial markets which it then immediately lends

back out to steel companies at a slightly higher interest rate. The

mark-up is sufficient 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) 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, and Final Affirmative Countervailing Duty

Determinations: Certain Steel Products from Italy, 58 FR 37327, 37335

(July 9, 1993), (Certain Steel from Italy) 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

for steel undertakings. Therefore, we determine that this program is

specific pursuant to section 771(5A)(D) of the Act.

AST had two long-term, fixed-rate loans outstanding during the POI,

each one denominated in a foreign currency. Consistent with Electrical

Steel from Italy, 59 FR at 18362, we have used the lira-denominated

interest rate discussed in the Subsidies Valuation Information section

of this notice as our benchmark interest rate because these loans

effectively had fixed exchange rates. The interest rate charged on one

of AST's two Article 54 loans was lowered part way through the life of

the loan. Therefore, for the purpose of calculating the benefit, we

have treated this loan as if it were contracted on the date of this

rate adjustment. We used the outstanding principal as of that date as

the new principal amount, to which the new, lower interest rate

applied. As our interest rate benchmark for both loans, we used the

long-term, lira-based rate in effect on the date the loan was

contracted. Because ILVA was uncreditworthy in the year these loans

were approved, the benchmark rate includes a risk premium.

To calculate the benefit under this program, pursuant to section

771(5)(E)(ii) of the Act, we employed the Department's standard long-

term loan methodology. We calculated the grant equivalent and allocated

it over the life of each loan. As with the equity infusions made into

Terni and TAS, we have treated the benefits from these loans as though

they flowed directly through ILVA to AST, because we have no

information on such loans provided to the non-stainless operations of

ILVA. We followed the methodology described in the Change in Ownership

section above to determine the amount appropriately allocated to AST

after its spin-off from ILVA. We divided this benefit by AST's total

sales during the POI. Accordingly, we determine the estimated net

benefit to AST for these two loans together to be 0.12 percent ad

valorem.

B. European Social Fund

The European Social Fund (ESF), one of the Structural Funds

operated by the EU, was established to improve workers' opportunities

through training and to raise workers' standards of living throughout

the European Community by increasing their employability. There are six

different objectives identified by the Structural Funds: Objective 1

covers projects located in underdeveloped regions, Objective 2

addresses areas in industrial decline, Objective 3 relates to the

employment of persons under 25, Objective 4 funds training for

employees in companies undergoing restructuring, Objective 5 pertains

to agricultural areas, and Objective 6 pertains to regions with very

low population (i.e., the far north).

During the POI, AST received ESF assistance for projects falling

under Objectives 2 and 4. The Objective 2 funding was to retrain

production, mechanical, electrical maintenance, and technical workers,

and the Objective 4 funding was to train AST's workers to increase

their productivity.

The Department considers worker training programs to provide a

countervailable benefit to a company when the company is relieved of an

obligation it would have otherwise incurred. See Pasta From Italy, 61

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

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

that this ESF funding relieves AST of obligations it would have

otherwise incurred.

Therefore, we determine that the ESF grants received by AST are

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

ESF grants are a financial contribution as described in section

771(5)(D)(i) of the Act which provide a benefit to the recipient in the

amount of the grants.

Consistent with prior cases, we have examined the specificity of

the funding under each Objective separately. See Wire Rod from Italy,

63 FR at 40487. In this case, the Objective 2 grants received by AST

were funded by the EU, the GOI, and the regional government of Umbria

acting through the provincial government of Terni. In Pasta From Italy,

61 FR at 30291, the Department determined that Objective 2 funds

provided by the EU and the GOI were regionally specific because they

were limited to areas within Italy which are in industrial decline. No

new information or evidence of changed circumstances has been submitted

in this proceeding to warrant reconsideration of this finding. The

provincial government of Terni did not provide information on the

distribution of its grants under Objective 2. Therefore, since the

regional government failed to cooperate to the best of its ability by

not supplying the requested information on the distribution of grants

under Objective 2, we are assuming, as adverse facts available under

section 776(b) of the Act, that the funds provided by the provincial

government of Terni are specific.

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

in past cases that the EU portion is de jure specific because its

availability is limited on a regional basis within the EU. The GOI

funding was also determined to be de jure specific because eligibility

is limited to the center and north of Italy (non-Objective 1 regions).

See Wire Rod from Italy, 63 FR at 40487. AST has argued that this

decision is not reflective of the fact that ESF Objective 4 projects

are funded throughout Italy and all Member States, albeit under the

auspices of separate, regionally-limited documents (see Comment 15). We

agree with AST that it may be appropriate for the Department to revisit

its previous decision regarding the de jure specificity of assistance

distributed under the ESF Objective 4 Single Programming Document (SPD)

in Italy. Our decision in Wire Rod was premised upon our determination

in the Final Affirmative Countervailing Duty Determination; Certain

Fresh Atlantic Groundfish from Canada 51 FR 10055 (March 24, 1986),

(Groundfish from Canada). In that case, respondents argued that

benefits provided under the General Development Agreement (GDA) and

Economic and Regional Development Agreements (ERDA) were not specific

because the federal government had negotiated these agreements with

every province. We did not accept this argument because the GDAs and

ERDAs ``do not establish government programs, nor do they provide for

the administration and funding of government programs.'' Instead, the

Department analyzed the

[[Page 15517]]

specificity of the ``subsidiary agreements'' negotiated individually

under the framework of the GDA and ERDA agreements.

In contrast to Groundfish from Canada, 51 FR at 10066, the

agreements negotiated between the EU and the Member States (i.e.,

Single Programming Documents and Community Support Frameworks) both

establish government programs and provide for the administration and

funding of such programs throughout the entirety of the European Union.

Therefore, if we were to consider all the EU-Member State agreements

together, we would arguably be unable to determine that the program is

de jure specific.

Notwithstanding this argument, given the lack of information on the

use of Objective 4 funds by either the EC or GOI, we must, as adverse

facts available in the instant case, find the aid to be de facto

specific. Both the EC and GOI stated that they were unable to provide

the Department with the industry and region distribution information

for each Objective 4 grant in Italy despite requests in our

questionnaires and at verification. While the GOI, at verification,

provided a list of grantees that received funds under the multiregional

operating programs in non-Objective 1 regions, it declined the

opportunity to identify the industry and region of such grantees (see

February 3, 1999 memorandum on the Results of Verification of the GOI

at 16). Furthermore, the regional governments have refused to cooperate

to the best of their ability in this investigation despite Department

requests. Therefore, we continue to find that the aid received by AST

is specific.

The Department normally considers the benefits from worker training

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

with the Department's determination in Wire Rod from Italy, 63 FR at

40488, that these grants relate to specific, individual projects, we

have treated these grants as non-recurring grants because each required

separate government approval. Because the amount of funding for each of

AST's projects was less than 0.5 percent of AST's sales in the year of

receipt, we have expensed these grants received in the year of receipt.

Two of AST's grants were received during the POI. For these grants, we

divided this benefit by AST's total sales during the POI and calculated

an estimated net benefit of 0.01 percent ad valorem for ESF Objective 2

funds and 0.03 percent ad valorem for ESF Objective 4 funds.

II. Programs Determined To Be Not Countervailable

A. AST Participation in the THERMIE Program

The EU provided funds to AST for the development of a pilot plant

through an EU program promoting research and development in the field

of non-nuclear energy (THERMIE). The objective of the THERMIE program

is to encourage the development of more efficient, cleaner, and safer

technologies for energy production and use. The THERMIE program is part

of a larger program categorized under the EU's Fourth Framework

Programme which covers activities in research and technological

development from 1994-1998.

The objective of AST's demonstration plant is to reduce energy

consumption in the production of stainless steel by eliminating some of

the traditional production steps through the adoption of ``strip

casting'' technology. In Italian Sheet and Strip, as well as in the

instant proceeding, the EU has requested noncountervailable (green

light) treatment for this project as a research subsidy under section

771(5B)(B)(ii)(II) of the Act regarding precompetitive development

activities.

In the instant proceeding and in Italian Sheet and Strip, the

Department preliminarily determined that the THERMIE program did not

merit green light treatment because it did not meet the statutory

requirement that ``the instruments, equipment, land or buildings be

used exclusively and permanently (except when disposed on a commercial

basis) for the research activity'' (see section 771(5B)(B)(i) (II) of

the Act). No new information has been submitted on the record in the

instant proceeding to warrant a reconsideration of this finding.

However, in the preliminary determination we did not have

sufficient information to determine if the technology and the

demonstration plant provided a benefit to subject merchandise, nor did

we have information on the distribution of project funds by industry or

by company for the year in which AST's project was approved.

Since the preliminary determination, the EU has submitted

information on the distribution of assistance under the THERMIE program

for 1995 and 1996. Based on the information on the record, there is no

indication that this program is de jure specific because eligibility is

not limited to certain industries or groups thereof. Additionally,

based on an examination of the distribution information, the program

benefitted a large number of users in different industries, and neither

AST nor the steel industry received a disproportionate share of the

benefits (see Memorandum to Susan Kuhbach from Team, dated February 19,

1999.) Therefore, we determine that the THERMIE program is not specific

within the meaning of section 771(5A)(D) of the Act and, consequently,

not countervailable.

IV. Other Programs Examined

A. Loan to KAI for Purchase of AST

The government holding company, IRI, granted a loan to KAI for the

purchase of AST. The loan had two basic components: an installment loan

based on the up-front purchase price, and subsequent price adjustments.

While the installment loan functioned as a long-term loan, the price

adjustments were more akin to short-term extensions of credit. In

addition, the terms of the price adjustments were independent of the

terms of the installment loan. Accordingly, we regarded the price

adjustments to be distinct from the installment loan.

We are not making a determination as to the countervailability of

either the installment loan or the price adjustments since they

separately yield no benefit. With respect to the installment loan, the

full amount was paid off prior to the POI; hence there was no benefit

during the POI. As for the short-term extensions of credit on the price

adjustments, the benefit potentially attributable to AST during the

POI, even using the most adverse of assumptions (e.g., no grace

period), is 0.00 percent ad valorem, when rounded.

B. Brite-EuRam

At verification it was discovered that AST received a grant during

the POI under the Brite-EuRam program administered by the EC. This

program was not alleged in the petition. This program has been looked

at by the Department once before in Certain Hot-Rolled Lead and Bismuth

Carbon Steel Products From the United Kingdom; Final Results of

Countervailing Duty Administrative Review, 63 FR 18367, 18370 (April

15, 1998) (1996 UK Lead and Bismuth). However, in 1996 UK Lead and

Bismuth, the Department did not make a specificity determination with

respect to Brite-EuRam assistance because the amount received by the

respondent in that review was so small that it would not have impacted

the ad valorem rate.

In this case, we have no information upon which to make a

specificity determination. In addition, because the use of the Brite-

EuRam program had not

[[Page 15518]]

been alleged or discovered in time to solicit adequate information from

all of the necessary respondents, we have no basis upon which to use

facts available with respect to this program. Accordingly, we are not

making a determination on the countervailability of the Brite-EuRam

program in this proceeding. Should an order be put in place, however,

we will solicit information on the Brite-EuRam program in a future

administrative review, if one is requested. See 19 CFR 351.311(c)(2).

V. Programs Determined To Be Not Used

GOI Programs

A. Benefits from the 1982 Transfer of Lovere and Trieste to Terni

(called ``Benefits Associated With the 1988-90 Restructuring'' in the

Initiation Notice)

B. Law 345/92: Benefits for Early Retirement

C. Law 706/85: Grants for Capacity Reduction

D. Law 46/82: Assistance for Capacity Reduction

E. Debt Forgiveness: 1981 Restructuring Plan

F. Law 675/77: Mortgage Loans, Personnel Retraining Aid and VAT

Reductions

G. Law 193/84: Interest Payments, Closure Assistance and Early

Retirement Benefits

H. Law 394/81: Export Marketing Grants and Loans

I. Law 341/95 and Circolare 50175/95

J. Law 227/77: Export Financing and Remission of Taxes

EU Programs

A. ECSC Article 56 Conversion Loans, Interest Rebates and

Redeployment Aid

B. European Regional Development Fund

C. Resider II Program and Successors

D. 1993 EU Funds

Interested Party Comments

Comment 1. The Extinguishing v. Pass-Through of Subsidies during

Privatization. AST emphasizes that section 771(5)(F) of the Act directs

the Department to consider the facts of each change in ownership and

permits the Department to find that subsidies may be extinguished in

privatization transactions. In particular, AST argues that the Act does

not allow the Department to ignore events subsequent to the receipt of

a subsidy in the context of privatization. AST postures that the

Department's present privatization methodology does not adequately

address the question of whether subsidies are passed through to the

purchaser of a privatized firm. Instead, the privatization methodology

merely reduces the amount of subsidies that are attributed to the

purchaser.

AST cites to section 771(5)(B) of the Act to show that for a

subsidy to exist, a benefit must be conferred. In order to determine

whether a benefit has been conferred, AST states the measure is that of

benefit to recipient (section 771(5)(E) of the Act). While

acknowledging that the Department's new regulations are not applicable

in this case, AST looks to them as potentially instructive to the

extent that they restate prior policy where they state that the

Department normally will consider a benefit to be conferred where a

firm pays less for its inputs than it otherwise would pay (19 CFR

Section 351.503(b)). AST argues that if the normal benefit conferred by

a subsidy is the artificially reduced cost to the company of an input,

then the benefit no longer exists after a market-value privatization.

AST points to the open bidding process used to select the ultimate

buyer of AST as evidence that full market value was paid and argues

accordingly, that prior subsidies were extinguished upon privatization.

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

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

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

length transaction. In addition, the petitioners cite to the Statement

of Administrative Action (SAA) which notes that the statutory provision

is intended to ``correct and prevent such an extreme interpretation''

as the idea that subsidies are automatically eliminated in an arm's-

length sale see SAA H.R. Rep. No. 103-316, at 928 (1994). Contrary to

AST's claim that the Department has never really faced the issue of

whether an arm's-length sale extinguishes subsidies under the URAA, the

petitioners mention Wire Rod from Italy in which the Department

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

value extinguished prior subsidies. The petitioners also point out that

the Department's repayment calculation was upheld by the CIT (see

Delverde II and British Steel PLC v. United States (British Steel IV),

27 F. Supp 2d 209 (CIT 1998)). In particular, the petitioners quote

British Steel IV where the court says at page 216:

As the equations developed by Commerce satisfy the statutory goal of

identifying the value of the net subsidies initially provided and as

the equations identify a relationship between the net subsidies over

time and the value of the corporation at privatization, this Court

finds the equations developed by Commerce to apply its repayment

methodology are a reasonable interpretation of the statute and are

otherwise in accordance with law.

Department's Position. Under our existing methodology, we neither

presume automatic extinguishment nor automatic pass through of prior

subsidies in an arm's-length transaction. Instead, our methodology

recognizes that a change in ownership has some impact on the allocation

of previously bestowed subsidies and, through an analysis based on the

facts of each transaction, determines the extent to which the subsidies

pass through to the buyer. In the instant proceeding, the Department

relied upon the pertinent facts of the case in determining whether the

countervailable benefits received by AST predecessor companies passed

through to AST. Following the GIA methodology, the Department subjected

the level of previously bestowed subsidies and AST's purchase price to

a specific, detailed analysis. This analysis resulted in a particular

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

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

that when AST was privatized a portion of the benefits received by ILVA

passed through to AST and a portion were repaid to the government. This

is consistent with our past practice and has been upheld in the Federal

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

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

Cir. Oct. 24, 1997) (British Steel II) and Delverde II.

The Department rejects AST's argument that an arm's-length

transaction at fair market value extinguishes any previously bestowed

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

Determination Pursuant to Delverde. SrL v. United States, 989 F. Supp.

218 (CIT 1997), (Delverde Remand), the countervailable subsidy amount

is fixed at the time that the government bestows the subsidy. The sale

of a company, per se, does not and cannot eliminate this potential

countervailability because the countervailing duty statute ``does not

permit the amount of the subsidy, including the allocated subsidy

stream, to be revalued based upon subsequent events in the market

place.'' GIA, 58 FR at 37263. The Federal Circuit Saarstahl II

addressed the Department's privatization methodology and ``specifically

stated that the Department does not need to demonstrate competitive

benefit.''

Furthermore, AST's contention that the sale of AST was an arm's-

length,

[[Page 15519]]

market-valued transaction does not demonstrate that previous subsidies

were extinguished. 4 Section 771(5)(F) of the Act states

that the change in ownership of the productive assets of a foreign

enterprise does not require an automatic finding of no pass through

even if accomplished through an arm's-length transaction. Section

771(5)(F) of the Act instead leaves the choice of methodology to the

Department's discretion. Additionally, the SAA directs the Department

to exercise its discretion in determining whether a privatization

eliminates prior subsidies by considering the particular facts of each

case. SAA at 928.

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

\4\ For example, the precise selection criteria used by the GOI

in selecting a buyer apparently were never made clear. Company

officials at verification, for example, could not explain the basis

upon which their bid was selected over other bids. Moreover, based

on the questionnaire responses and verification, it is clear that

the GOI required potential purchasers to make certain commitments

with respect to the operations of the company after privatization.

Additionally, based on statements made by company officials at

verification, the GOI may have required that any potential bidder

include some degree of participation by Italian companies. Given

these circumstances, it could be argued that the price received by

the GOI did not reflect the full market value of the company.

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

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

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

investigation, these facts included the nature of the previously

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

subsidies were bestowed, the appropriate period for allocating the

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

of the purchase price. On the basis of these facts, the Department

determined the ultimate repayment of the prior subsidies to the GOI. In

sum, the Department considered all of the factual evidence presented by

AST, and then properly followed its existing methodology. Furthermore,

this methodology was upheld by the Federal Circuit in Saarstahl II,

British Steel II and (Delverde II).

Comment 2. Calculation of ``Gamma''. Should the Department continue

to find that subsidies were not extinguished during the arm's-length

purchase of AST, AST argues that the Department should revise its

calculation of ``gamma,'' the measure of the percentage that prior

subsidies constitute of the overall value of the company. Presently,

gamma is calculated by taking the ratio of the nominal value of

subsidies received each year over the company's net worth for every

year in the AUL prior to privatization, and then taking a simple

average of those ratios. AST argues that this calculation is distortive

as evidenced by the fact that if gamma were multiplied by a firm's

equity at any given date, the result would not equal the present value

of the subsidy stream. Instead, AST proposes calculating gamma by

taking the ratio of the present value of remaining subsidies to assets

in the year of privatization. This asset-based calculation of gamma,

argues AST, would result in a more reasonable standard upon which to

measure the level of subsidization by more accurately measuring the

amount of subsidies ``imbedded'' in the assets. According to AST, a

buyer acquires assets, not the seller's equity, and the buyer's equity

position is independent of the seller's. In addition, AST notes that

equity as a percentage of assets can change drastically over time due

to many factors, some of which are beyond the control of the company,

as opposed to assets which are more constant. In addition to using

assets as a reasonable basis upon which to measure subsidization, AST

states that its proposed method for calculating gamma would be more

consistent with the Department's grant amortization methodology which

also assumes that benefits from grants extend over time as opposed to

just the year of receipt.

The petitioners take issue with using the present value of subsides

in the year of privatization as opposed to the nominal values received

in the years preceding the same. According to the petitioners, using

the present value in the year of privatization would be tantamount to

``revaluing'' the subsidies in a year other than that in which they

were received. The petitioners argue that such a revaluation would be

contrary to Department practice as articulated in the GIA, 58 FR at

37263, in which it is stated that the countervailable subsidy and the

amount of it to be allocated over time are fixed at the time of

bestowal. The petitioners also imply that performing such a revaluation

would be equivalent to looking at the effects of the subsidies which is

prohibited by section 771(5)(C)) of the Act. The petitioners emphasize

that the Department's present methodology has been upheld by CIT. In

addition, the petitioners point out that the Department rejected the

use of the present value of remaining subsidies in Wire Rod from

Trinidad and Tobago, 62 FR at 55011. In any event, the petitioners add

that the Department's current methodology does, in effect, take into

account the amortization of subsidies at the point when gamma is

applied to determine the amount of repayment.

The petitioners claim that AST has not explained how assets, as

opposed to net worth, would be a better measure of a company's value

with respect to calculating the portion of the value attributable to

subsidies. The petitioners state that a company's value depends upon

both its assets and its liabilities. As for AST's concern about net

worth being variable over time, the petitioners assert that variation

in the nominal value of net worth is irrelevant in that it is the ratio

of subsidies received to net worth that matters. The petitioners add

that asset values, too, vary over time and can depend upon factors not

necessarily related to the true value of that asset, such as the method

of depreciation. Also, the petitioners state that assets are carried in

a company's accounting records at historical cost which does not

reflect current market value.

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

continued to calculate gamma using historical subsidy and net worth

data. In considering parties arguments, we had to keep in mind that

gamma is the measure of the level of past subsidies in a selling

company and that it is ultimately applied to the purchase price.

Our current methodology for calculating gamma reasonably measures

the level of subsides in the selling company by examining a range of

years and has been upheld by the courts in Saarstahl II, British Steel

II and Delverde II. AST has proposed using the net present value of the

remaining benefit stream in the numerator mainly out of a concern that

the application of gamma to the company's net worth should render the

present value of the remaining benefits. In response, we note that

while gamma itself is not a construction of the present value of the

remaining benefits, the results of the gamma calculation are, however,

applied to the present value. In this sense, our calculations, as a

whole, do take into account the present value of remaining benefits.

Comment 3. Calculation of the Purchase Price. AST argues that the

Department undervalued the subsidies repaid in the Preliminary

Determination by basing the purchase price only on the cash paid for

the company. Instead, AST suggests that the purchase price should also

include the debt assumed by the purchasers as part of the sales

transaction.

AST maintains that including assumed debt in the purchase price is

appropriate because buyers and sellers are indifferent as to the mix of

cash paid and debt assumed; a dollar of debt assumed, AST argues, is

equivalent to a dollar of cash paid. If the buyers of ILVA's stainless

division had offered

[[Page 15520]]

only the cash portion of their offer, and had not agreed to assume the

debt, AST contends that their bid would not have been accepted.

To support its argument, AST offers the example of purchasing a

house with an assumable mortgage. A person wanting to buy the house,

according to AST, has several financing options: (1) Paying cash for

the total sales price, (2) paying a down payment for some portion of

the sales price and obtaining a new mortgage on the balance, or (3)

assuming the existing mortgage and paying cash for the balance. AST

states that in all cases, the purchase price of the home remains the

same.

Moreover, by not including assumed debt in the purchase price the

Department's privatization methodology for determining the amount of

subsidies repaid will render different results depending upon the mix

of assumed debt and cash required in a particular purchase.

The petitioners counter by stating that the cash price paid for a

company already reflects the liabilities in that the price paid is the

valuation by the buyer of the company as a whole, including assumed

liabilities. In addition, the petitioners claim that it is the

Department's well-established practice not to add assumed liabilities

to the purchase price citing Final Affirmative Countervailing Duty

Determination: Steel Wire Rod from Germany, 62 FR 55490, 55001 (October

22, 1997) (Wire Rod from Germany), and Final Affirmative Countervailing

Duty Determination: Steel Wire Rod from Canada, 62 FR 54972, 54986

(October 22, 1997) (Wire Rod from Canada), as two cases in which the

Department expressly declined to make an upwards adjustment to price to

account for assumed liabilities/obligations. In looking at AST's

example of a home purchased with an assumable mortgage, the petitioners

point out that the value of that home to the buyer is the net equity

position--the difference between the value of the home and the

mortgage. Additionally, the petitioners point out that the seller of

the home only receives the amount of equity in the home and not the

full market value.

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

purchase price should include only the cash paid in the sales

transaction. First, as noted by the petitioners, it has been the

Department's normal practice not to include assumed debts in the

purchase price. Second, the purchase price is multiplied by gamma to

determine the amount of the purchase price which represents repayment

or reallocation of remaining benefits. Given that, under the

Department's current methodology, the gamma denominator is net worth

(equity) which, in the case of the privatization of AST, equals the

amount of cash that was transferred in the sales transaction, it would

be incongruous to multiply gamma by a purchase price amount which

includes cash and debt. Third, adding debt to the cash price would

imply that some portion (depending on the gamma) of that debt can go

towards repayment of subsidy benefits. However, debt assumption by the

purchaser, particularly where the creditors are third parties, is not a

means through which repayment or reallocation of subsidy benefits back

to the seller can occur. Therefore, for the final determination, we

have included only cash paid in the purchase price of the units sold in

the 1990 and 1992 spin-offs and in the 1994 AST privatization.

Comment 4. Repayment in Spin-Off Transactions. AST suggests that

the proper way to apportion untied grants between a company and spun-

off division is simply on the basis of the percentage of assets.

However, in the Preliminary Determination the Department did not simply

stop there, explains AST, but further performed a ``pass-through''

analysis on the amount apportioned to the spun-off unit via assets to

determine an even smaller portion of prior subsidies that would be

ultimately attributable to the spun-off company. The difference between

the amount apportioned by assets to the spun-off unit and the amount

ultimately attributable to it was inexplicably not extinguished, claims

AST. Instead of being taken out of the benefit stream as they should

have been, states AST, the extinguished subsidies remained in the

benefit stream of the selling company--AST.

The petitioners claim that AST does not understand the difference

between a privatization transaction and a spin-off transaction. Only in

a privatization context wherein the seller is the government can

subsidies be repaid to the government, according to the petitioners. In

spin-off transactions, claim the petitioners, subsidies are simply

reallocated between the seller and the purchaser.

Department's Position. The Department's calculations in the

Preliminary Determination properly accounted for all prior subsidies by

means of our standard spin-off calculation. In spin-off transactions,

such as those at issue, the benefits from prior subsidies are

reallocated between buyers and sellers. Our spin-off calculation is not

premised solely upon the value of assets spun-off. Rather, we use the

ratio of the value of assets spun-off to the value of the selling

company's total assets to derive the maximum amount of prior subsidies

that can pass through to the purchaser. From this maximum amount, we

subtract the amount of subsidies which remain with the seller based on

our ``gamma'' calculation and the purchase price of the spun-off unit.

Comment 5: Sale of a Unit to a Government Agency. In the

Preliminary Determination, explains AST, the Department failed to

attribute a portion of prior subsidies to Verres when it was spun off

from ILVA. Since subsidies travel with assets, the sale of Verres to a

government agency is irrelevant and should not prohibit the attribution

of subsidies to that productive unit, argues AST. In any event, AST

states that ILVA eventually sold its share in Verres to a private

company.

With respect to AST's claim that the spin-off methodology should be

applied to the sale of Verres because there is no basis for treating a

sale to a government agency differently from a sale to a private

investor, the petitioners counter that the Department's practice has

been not to consider transfers among related parties to constitute

legitimate sales (see GIA, 58 FR at 37266).

Department's Position. We agree with petitioners that ILVA's sale

of some of its shares in Verres to a government entity does not warrant

the application of our spin-off methodology. Regarding the government-

to-government aspect of the first transfer, the Department stated in

the GIA, 58 FR at 37266:

[T]he Department has not considered internal corporate

restructurings that transfer or shuffle assets among related parties

to constitute a ``sale'' for purposes of evaluating the extent to

which subsidies pass through from one party to another. Legitimate

``sales,'' for purposes of evaluating the pass-through of subsidies,

must involve unrelated parties, one of which must be privately-

owned.

ILVA was a wholly owned government entity. Therefore, the transfer of

Verres shares from one government-owned entity to another is not a

``sale'' recognized under the criteria of the GIA.

With respect to the sale of ILVA's remaining shares in Verres to a

private company, there is insufficient verified information on the

record regarding the ultimate sale of Verres on which to base a spin-

off calculation. We also note that, based on the limited information

that is available for Verres, it appears that any application of our

spin-off methodology in this case would probably have a minimal, if

any, effect on the final estimated countervailing duty rate due to the

relatively small size of the sale.

[[Page 15521]]

Comment 6: Use of Company-Specific AUL. The petitioners argue that

AST has not fully accounted for and corrected all the data concerns

raised by the Department in its preliminary determination.

Specifically, argue the petitioners, the effects on financial reporting

of the various changes in ownership of the stainless steel assets that

now comprise AST cast doubt on the reliability of the data provided by

AST. A clear indication of actual distortion from these restructurings,

the petitioners assert, is that the largest fluctuations in AST's

calculated annual AUL occur in the years surrounding the 1989 and 1993

restructurings. Moreover, the petitioners continue, AST's failure to

include all of its depreciable assets (e.g., industrial buildings) in

its initial AUL calculation, its unwillingness to provide the tenth

year of data, its (and its predecessors') use of certain accelerated

depreciation methods, and its various practices regarding write-downs,

render AST's company-specific AUL unusable.

AST, however, claims that it has sufficiently addressed the

purported deficiencies in its company-specific AUL calculation, as

cited by the Department in its preliminary determination and raised at

verification. To support this contention, AST states the following:

First, the Department verified that AST had not included accelerated

depreciation in calculating its AUL. Second, the Department verified

that the asset write-down undertaken in 1993 does not significantly

impact the AUL calculation. Third, though the company-specific AUL is

based on only 9 years of historical data, the Department has in the

past acknowledged that an AUL based on fewer years would not

necessarily be incorrect or inaccurate. Fourth, although the Department

has noted that there was a significant variation in the annual gross

asset-to-depreciation ratio, this fact alone is not a basis for

rejecting the company-specific AUL. Finally, in the end the Department

was able to completely verify the AUL asset and depreciation data

submitted by AST. For these reasons, according to AST, the Department

should use the revised AUL calculated by AST and verified by the

Department.

AST further argues, however, that if the Department does reject

AST's company-specific AUL as deficient, the Department should use a

12-year AUL rather than the 15 years indicated in the IRS tables. AST

argues that given that the AUL of the other respondent in Italian Sheet

and Strip, Arinox, is 12 years, and the AUL for all the respondents in

Wire Rod from Italy was 12 years, this allocation period appears to

represent an average for the Italian stainless steel industry in

general. As such, this would be a more appropriate allocation period

than the 15 years from the IRS tables.

In response, the petitioners, citing the Countervailing Duties;

Final Rule 63 FR 65348 (November 25, 1998) (New Regulations), pre-1995

practice, and certain countervailing cases since 1995, argue that the

Department's preference is to use the 15-year industry-wide AUL derived

from the IRS tables, and claim that the Department should continue to

do so in the instant proceeding. Though recognizing that these are not

binding in the instant proceeding, the petitioner notes that according

to the New Regulations at 65395 ``the IRS tables method offers

consistency and predictability and * * * it is simple to administer.''

Furthermore, the petitioners continue, the Countervailing Duties;

Proposed Rule, 62 FR 8817, 8827 (February 26, 1997), (1997 Proposed

Regulations) makes clear that the Department intends to reserve the

option to use the IRS tables in determining AUL, if appropriate. See 62

FR at 8828. Finally, the petitioners note, in Wire Rod from Italy the

Department stated that it would only use a company-specific AUL ``where

reasonable and practicable.'' See 63 FR at 40474.

Regarding subsidies that have been countervailed in prior

proceedings, the petitioners argue that it is inappropriate to allocate

the same subsidy over different periods in different proceedings. Given

that some of the subsidies to AST were previously allocated over a 15-

year period in Electrical Steel, petitioners state that allocating

AST's subsidies over a 15-year AUL would be is consistent with the

Department's practice of not altering the allocation period during the

administrative review process under a countervailing duty order.

AST states that since the Electrical Steel decision, the courts

have rejected the use of the IRS tables in favor of a company-specific

approach for determining AUL (see, e.g., British Steel I). Accordingly,

AST claims that it would be inappropriate to use the 15-year AUL from

Electrical Steel since that was based on the IRS tables.

Department's Position. The Department has not used, in its final

determination, AST's calculated, company-specific AUL. Though some of

the other concerns noted in the Preliminary Determination regarding

AST's AUL calculation remain, our decision not to use the company-

specific AUL is primarily based on the large discontinuity over time in

the annual ratios of asset value to depreciation amounts. Such

discontinuity, apparently correlated with the changes in ownership,

strongly indicates a disparity between the basis on which the AULs of

ILVA and AST are based.

For our final determination, in lieu of an adequate company-

specific AUL, we have used an allocation period of 12 years for AST as

facts available. Twelve years represents a reasonable estimate of a

general AUL for the Italian stainless steel industry, as supported by

evidence in another case (Wire Rod from Italy) and by the company-

specific verified data provided by another respondent, Arinox, in

Italian Sheet and Strip.

With respect to the use of allocation periods from prior

proceedings for subsidies previously countervailed, we find it

unnecessary to resolve the issue in this case. The allocation period we

find appropriate for AST is based on facts available. We believe that,

as facts available, 12 years is more appropriate for AST than 15 years

because the 15-year period is based upon the IRS tables and not the

experience of Italian companies.

Comment 7: Revision of AST's Volume and Value Data. The petitioners

object to AST's attempts to revise its volume and value data after the

start of verification. Emphasizing that the purpose of verification is

to ``verify the accuracy and completeness of submitted factual

information (19 CFR 351.307(d)(1998)), the petitioners argue that AST's

revised numbers should be rejected. The petitioners take particular

issue with AST's revisions which report volume and value data on a

consolidated level when AST refused to provide full information on

subsidies provided to AST's consolidated subsidiaries. According to the

petitioners, the Department should not allow AST to dilute its margins

via the use of consolidated volume and value data when the subsidiary

companies are not included in the investigation by virtue of AST's

withholding of information. To do so, object the petitioners, would

provide respondents with an incentive to withhold information as was

done here.

AST counters by saying that it provided its consolidated volume and

value data during verification at the behest of the Department's

verifiers. According to AST, the Department's regulations permit it to

request factual information from parties at any time during the

proceeding (see 19 CFR 351.303(b)(5)). AST adds that the information

was verified and served on

[[Page 15522]]

the petitioners. Noting that under 19 CFR 351.301(c)(1), the

petitioners were afforded ten days in which to rebut the information,

AST points out that the petitioners failed to do so. AST additionally

notes that the petitioners do not argue that using consolidated sales

data is methodologically incorrect. As for the petitioners argument

that AST should have reported information on subsidies received by its

affiliates, AST explains that such information would be useless in this

proceeding as these affiliates neither produce nor sell subject

merchandise. Furthermore, AST states that it has reported all of its

financial transactions with its related parties. Any information on

programs utilized by AST and its affiliates that could conceivably

benefit subject merchandise has already been provided, evaluated and

verified, according to AST. Based on the foregoing, AST maintains that

there is no basis upon which to apply facts available with respect to

its volume and value information.

Department's Position: For purposes of this final determination, we

are not rejecting AST's consolidated volume and value data. At

verification, Department officials requested this data from AST

recognizing that the use of consolidated data would be consistent with

the Department's practice in certain circumstances. As for the

petitioners' concerns regarding the dilution of the ad valorem rate due

to the use of a consolidated sales value as the denominator in cases

where only unconsolidated benefit information is being used in the

numerator, we disagree that such dilution is occurring. With respect to

all the subsidies received prior to AST's privatization, we believe

that those subsidies should be allocated to AST on a consolidated

basis. The only benefits relevant to this proceeding that AST received

subsequent to its privatization are under Law 10/91, Law 451/94 and

ESF. Regardless of whether the consolidated or unconsolidated data is

used, Law 10/91 benefits are expensed prior to the POI. With respect to

Law 451/94 and ESF benefits, AST provided information pertaining to

benefits received by its consolidated operations.

Comment 8: Ratio Adjusting the Benefit Stream for the Sale of AST.

AST claims that the Department erred in the Preliminary Determination

in adjusting the future benefit stream for the sale of AST. In

particular, AST states that instead of adjusting the benefit stream by

the ratio of prior subsidies repaid to the present value of the benefit

stream applicable to AST in the year of sale in accordance with

Departmental practice, the Department mistakenly used the present value

of the predecessor company's benefit stream in the denominator.

The petitioners counter that the Department's calculations in the

Preliminary Determination did account for the fact that only a portion

of ILVA's assets were spun-off with AST. Unlike the methodology

proposed by AST, the Department followed the GIA by multiplying the net

present value of the seller's remaining subsidies by the ratio of the

assets of the spun-off unit to the assets of the selling company.

Making AST's proposed change, claim the petitioners, would amount to

reducing the subsidies attributable to AST's assets twice.

Department's Position: AST's proposed adjustment to our

calculations would amount to reducing the subsidy benefit stream twice

to account for the portion of assets taken by AST. We first apportioned

the remaining benefit stream (not including the Terni/TAS equity

infusions, benefits associated with the 1989/1990 restructuring and

ECSC loans) between AST and ILVA, the seller, by multiplying the

benefit stream by the ratio of AST's assets to ILVA's. Second, we

reduced the benefit stream assigned to AST (inclusive of Terni/TAS

equity infusions, benefits associated with the 1989/1990 restructuring

and ECSC loans) to reflect any repayment of those subsidies via the

purchase price. In addition to apportioning the remaining benefit

stream by the AST asset ratio in the first step, AST's proposed

adjustment would amount to apportioning the remaining benefit stream by

the asset ratio an extra time in the second step. Accordingly, we have

not made the adjustment requested by AST.

We note that in our Preliminary Determination, we erred in

multiplying the AST asset ratio against all subsidies in ILVA,

including benefits to Terni and TAS which are being attributed to AST

in their entirety. (For further discussion, see the Equity Infusions to

Terni, TAS and ILVA; Benefits from the 1988-90 Restructuring of

Finsider; and ECSC Article 54 Loans sections of this notice.)

Comment 9: Use of Gross versus Net Debt in 1993 Debt Forgiveness

Calculation. AST argues that the record of this case establishes a

precise amount that represents the ``actual cost to the GOI'' for the

liquidation of ILVA, based on the EC's strict monitoring. Assuming that

the Department countervails these costs, AST argues that the Department

cannot consider the benefit to the recipients to be larger than the

amount calculated by the EC as the actual cost to the GOI.

AST states that in past cases, such as Al Tech Specialty Steel

Corp. v. United States, 661 F. Supp. 1206, 1213 (CIT, 1987), the

Department has concluded that it would be inappropriate to look behind

the action of a tribunal charged with the administration of a

liquidation process. AST states that the GOI would have been subject to

significant legal penalty had it failed to abide by the requirements of

the EC supervised liquidation. Thus, AST implicitly is arguing that the

Department should accept the amount of remaining debt calculated by the

EC, without examining the underlying calculation of this remaining debt

figure.

Furthermore, AST asserts that, because buyers should be indifferent

to the mix of cash paid and debts assumed in purchasing a company, the

Department's methodology inappropriately attributes a greater amount of

debt forgiveness to a company whose buyers assume less debt but pay a

higher cash price. In fact, claims AST, if the GOI had paid down the

same amount of ILVA's liabilities calculated as uncovered in the EC's

Monitoring Reports prior to the liquidation process, each of the

companies could have been ``sold'' entirely for a transfer of debt

(i.e., no cash transfer) in the amount of transferred assets. In this

event, AST argues, there would be no residual debt, and the

Department's methodology would lead it to countervail only the grant

given prior to the liquidation process.

The petitioners state that the Department, consistent with its

practice, should consider the total amount of ILVA's liabilities and

losses forgiven on behalf of AST at the time of its spin-off as the

benefit to AST. See, e.g., Electrical Steel from Italy, 59 FR at 18365,

and Certain Steel from Austria, 58 FR at 37221. The petitioners assert

that the income received as a result of the sales of ILVA's productive

units should not be deducted from the gross amount of ILVA's losses and

liabilities for three reasons. First, the petitioners argue, the debt

forgiveness occurred prior to the actual sales of ILVA's productive

units and, thus, should be treated separately. Second, the amount of

income at the time of the sales was greater than it would have been

without the debt reduction. Third, the Department's change-in-ownership

methodology separately accounts for repayment of prior subsidies

associated with the purchase price of the company sold.

Department's Position: We do not dispute AST's contention that the

liquidation of ILVA Residua proceeded

[[Page 15523]]

as detailed in the EC monitoring reports, and that the final cost,

after subtracting income earned from the sale of productive units, to

the GOI for the liquidation was as reported in the EC monitoring

reports. However, section 771(5)(E) of the Act directs the Department

to calculate subsidies as the benefit to the recipient, rather than the

cost to the government. (See Memorandum to Richard W. Moreland on 1993

Debt Forgiveness dated March 19, 1999). At the time of the demerger,

AST clearly benefitted to the extent that it did not assume a

proportional share of ILVA's liabilities. In fact, the cash transfer

did not take place at the time of the demerger, but nearly a year later

when AST was privatized. Furthermore, we note that the liquidation

process did not proceed as in AST's hypothetical example. Rather, AST

was left with a substantial positive equity position as a result of

ILVA Residua's assumption of the vast majority of ILVA's liabilities,

unlike the firm in AST's hypothetical.

We agree with the petitioners that it is the Department's practice

to determine the size of the benefit to a respondent as the amount of

liabilities that are not directly associated with any given assets and

that the respondent should have taken. If such a firm is later sold,

such as was the case with AST, the Department applies its change-in-

ownership methodology to determine the portion of the purchase price

attributable to the repayment of prior subsidies.

However, we disagree with the petitioners that the Department

should countervail both the liabilities and accumulated losses on

ILVA's balance sheet in 1993 because ILVA's gross liabilities already

reflect such losses. While we agree it is the Department's practice to

countervail grants to cover losses as well as grants to cover

liabilities, ILVA did not receive a separate grant in 1993 to cover

operating losses. However, if it had received such a grant, ILVA's

gross liabilities would have been reduced or its liquid assets would

have increased. Because such a grant was not received, ILVA's gross

liabilities, after netting out its liquid assets, were higher than they

would have been if such a grant had been received and, thus, the total

debt forgiveness calculated by the Department already captures such

losses.

Comment 10: 1993 Debt Forgiveness Apportionment. According to AST,

the Department improperly apportioned ILVA's residual debt after the

1993 demergers based on total viable assets taken by AST and other ILVA

operations. AST argues that because there is no record evidence

attributing any of this residual debt to the operations assumed by AST,

none of that debt should be attributed to it. For example, AST posits,

if a government-owned company that consisted of two divisions of equal

assets, one healthy and one unhealthy, were split into two, the

Department's methodology would illogically allocate the old debts

equally, thereby punishing the heathy company for the afflictions of

the unhealthy one.

The petitioners state that AST did not provide any information to

allow the Department to attribute specific ILVA liabilities to specific

ILVA assets despite numerous requests for information such as the

financial records of ILVA's specialty stainless steel division.

Additionally, the petitioners assert that in various cases, the

Department has attributed otherwise untied liabilities left behind in

shell corporations to the operations that had been demerged. See

Certain Steel From Austria at 37221 and Wire Rod from Trinidad and

Tobago at 55006.

Department's Position: It is the Department's practice to allocate

otherwise untied liabilities remaining in a shell corporation to the

new, viable operations that had been removed from the predecessor

company. In Certain Steel from Austria, the Department stated that it

treated as debt forgiveness liabilities left behind in the predecessor

company, even though there was no indication that these liabilities

were specifically related to the operations taken by the new entity

(see 58 FR at 37221). Therefore, consistent with our past practice, we

have assigned a portion of these liabilities to AST based on its

proportion of assets taken to the total viable assets of ILVA.

We note, however, that because losses attributable to the write

down of AST's assets can be specifically identified, we have assigned

those losses to AST. We have not assigned losses attributable to the

write down of ILP or Residua's viable assets to AST.

Comment 11: ILVA Residua Asset Value. The petitioners argue that

the Department misallocated the amount of debt forgiveness attributable

to AST in 1993 in its most recent calculation of the benefit from this

program in Italian Sheet and Strip by using an incorrect asset amount

for ILVA Residua. The petitioners assert that by using the cash price

plus the liabilities transferred as a surrogate for asset values in

ILVA Residua the Department was inconsistent with its normal practice

of excluding liabilities in the determination of the asset value of a

company (see Wire Rod from Trinidad and Tobago 62 FR at 55012). Thus,

the petitioners argue that the Department should only use the cash paid

as a surrogate for the viable asset value of the operations sold from

ILVA Residua.

AST responds that record evidence contradicts the petitioners'

assertion that the value of the viable assets privatized from ILVA

Residua is better represented only by the cash price of those assets

rather than by the cash price plus debts transferred. Specifically, the

asset value of Dalmine, the largest privatization from ILVA Residua, is

approximately equal to the value used by the Department. Furthermore,

AST argues that relying on only the cash price, in effect the net worth

of each privatized unit, to value ILVA Residua's assets is inconsistent

with the petitioners' assertion that the Department should use the

total consolidated assets, rather than net worth, in compiling the

remainder of ILVA's total viable assets. Finally, AST claims that the

petitioners reach an erroneous conclusion that Wire Rod from Trinidad

and Tobago requires the Department to estimate the asset value of a

company solely based on its purchase price. AST states that in that

case, the issue at hand was not raised because the purchase price did

not include any assumption of debt.

Department's Position: For operations sold from ILVA Residua, the

Department did not have the necessary asset values. Therefore, as a

surrogate for the asset values of these companies, the Department used

the cash price plus liabilities transferred. We believe this approach

provides a reasonable surrogate asset value because the newly sold

company's books will, by the basic accounting equation of ``assets

equal liabilities plus owners' equity,'' reflect an asset value that is

equal to the debts transferred plus the cash purchase price. The debts

transferred become the liabilities in the new company's books, while

the cash purchase price becomes the owners' equity. If the assets

transferred do not have a book value equal to the cash purchase price

plus debts transferred, the new company will, in effect, write-up its

asset value by crediting the difference as a goodwill asset. Thus, we

have continued to use the cash price plus liabilities transferred as a

surrogate for the asset values of the units sold from ILVA Residua.

Comment 12: Use of Consolidated Asset Values for 1993 Debt

Forgiveness Calculation. AST argues that the Department improperly

calculated the total viable assets of ILVA by using the unconsolidated

financial statements of AST and ILP. This error led to an incorrect

calculation of the proportion of total viable assets assumed by AST

[[Page 15524]]

and, thus, an incorrect assignment of debt forgiveness bestowed on AST,

according to the company. AST notes that it provided the Department

with the consolidated financial statements of AST and ILP during

verification, and that the Department should correct its calculation

based on the consolidated asset figures provided therein.

The petitioners agree with AST that the Department should use

consolidated asset values in determining total viable ILVA assets.

However, they argue that the Department should exclude the asset values

for the companies sold out of ILVA Residua to ILP from ILP's

consolidated assets in order to avoid double-counting. AST asserts,

however, that these assets are not double-counted because they had not

yet been sold to ILP by 1993. Therefore, they are not included in ILP's

December 31, 1993 consolidated assets.

Department's Position: Consistent with our position in Comment 7,

we have altered the calculation allocating the debt forgiveness to

account for AST's and ILP's consolidated asset values. Furthermore, we

agree with AST that because the companies purchased by ILP from ILVA

Residua were purchased after 1993, they are not included in its 1993

consolidated assets. Therefore, our methodology does not double-count

these assets.

Comment 13: 1993 Creditworthiness. AST notes that the Department

used an uncreditworthy benchmark discount rate to allocate the benefit

from the debt forgiveness imputed by the Department to AST as a result

of its 1993 demerger from ILVA. AST points out that the Department

stated in the Preliminary Determination that it would determine whether

it would be more appropriate to analyze the creditworthiness of AST,

rather than ILVA, in the final determination. Citing the preamble of

the Department's new regulations (at 65366), AST states that it is the

Department's practice to consider the creditworthiness of the firm

receiving the aid, rather than the entity granting the aid.

The petitioners state that the Department should continue to

consider the creditworthiness of ILVA, rather than AST, in determining

the discount rate used to allocate the 1993 debt forgiveness

attributable to AST. The petitioners state that because the GOI

provided the debt forgiveness to ILVA Residua, it is appropriate to

analyze the creditworthiness of ILVA. Additionally, the petitioners

assert that it is illogical to evaluate AST's prospects after ILVA's

debt had been lifted from its shoulders.

Department's Position: For the final determination, in allocating

the benefit of the 1993 debt forgiveness, we have continued to base our

creditworthiness analysis on ILVA as a whole. Our reasons are as

follows: Contrary to AST's assertions, ILVA was not the provider of the

debt forgiveness to AST. Rather, it was the GOI which ultimately

assumed the losses involved in the privatization and liquidation of

those units which originally comprised ILVA. All of ILVA, of which AST

was but a part, directly benefitted from this GOI assumption of losses.

Therefore, focusing on ILVA is in accordance with the Department's

practice of focusing on the receiver of the benefit.

It would, moreover, be illogical for the Department to base, as AST

argues, its creditworthiness analysis on AST's future financial data

(i.e., AST's future prospects after the debt forgiveness had been

granted) given the fact that these data were likely considerably

impacted by the very program for which the creditworthiness analysis is

necessary in the first place. Clearly, the shedding of billions of lire

of debt would impact private, commercial lenders' views in deciding

whether to loan funds to AST. However, it would be impracticable (if

not impossible), based on the information available on the record, to

construct what AST's future financial situation would have been absent

the debt forgiveness.

Under its normal methodology for analyzing creditworthiness, the

Department could, in theory, rely largely on AST's financial data prior

to and contemporaneous with the granting of the debt forgiveness.

However, this too would be impossible in this instance. AST's debt

forgiveness occurred at the moment of the demerger, i.e., at the point

when ILVA's stainless steel operating unit was carved out and

separately incorporated as AST. There is insufficient AST-specific

financial data for the period prior to the demerger on which to base a

creditworthiness analysis.

Therefore, because the appropriate level of creditworthiness

analysis is the receiver of the debt forgiveness, and because there is

insufficient ``untainted'' AST financial data both prior and subsequent

to the debt forgiveness on which to base an AST-specific

creditworthiness analysis, we have continued to base our 1993

creditworthiness determination on ILVA as a whole.

Comment 14: ILVA Asset Write-Downs. AST argues that the Department

improperly countervailed asset write-downs in the calculation of the

1993 debt forgiveness because the write-downs are not countervailable.

The company states that the write-downs did not provide a benefit to

AST because the company is simply restating the value of the assets to

reflect their market values. AST also asserts that even if one

considered there to be a benefit associated with the write-downs, such

write downs are generally available because all companies must restate

the value of their assets when they are sold. Additionally, AST argues

that even if the write-down of assets is treated as a subsidy, the

Department must deduct the write-down from the loss incurred in the

liquidation of ILVA to ensure that it is not double-counted.

The petitioners rebut AST's argument that write-downs should not be

countervailable because they are routinely performed during asset

sales. The petitioners argue that AST's focus on the write-downs is

misplaced, because the Department's actual concern is not the write-

down, but rather the additional loss generated by the write-down which

had to be eventually covered by the GOI. Furthermore, the petitioners

dispute AST's claim that the write-downs are double-counted in the

Department's methodology. The petitioners state that this allegation is

based on the fact that the Department excluded the amount of write-

downs in its calculation of the debt forgiveness associated with the

transfer of TAS's assets to ILVA in 1989 and 1990. The petitioners

assert that the Department excluded these write-downs from the

remaining liabilities because it captured them separately in the

calculations of the loss coverage. However, in the case of the 1993

restructuring, the petitioners note, the Department has not

countervailed the write-downs separately and is appropriately measuring

the benefit by examining the debt assumed by the GOI.

AST also states that even if the Department finds the write-downs

countervailable, the Department should separate all the ILVA write-

downs from the other debt forgiveness and instead countervail only the

portion of total write-downs attributable to AST assets. AST states

that this suggested methodology is consistent with the Department's

methodology in countervailing write-downs associated with TAS when it

was merged into ILVA in 1989 and that the Department has the

appropriate information on the record. Furthermore, AST reasons that

for other liquidation losses, the Department should, where possible,

attribute the losses to specific assets, only distributing losses that

cannot be tied based on relative viable assets.

The petitioners counter that, according to generally accepted

accounting principles, losses associated

[[Page 15525]]

with write-downs typically are assumed by the company as a whole,

rather than tied to specific assets. Additionally, the petitioners note

that in AST's calculation, most of the write-downs are left in ILVA

Residua, rather than tied to specific assets and, therefore, should be

attributed based on relative asset values consistent with the

Department's standard debt forgiveness methodology.

Department's Position: We disagree with AST that the write-downs in

question are not countervailable. Because the write-downs in question

generated a loss that eventually was covered by the GOI through its

debt forgiveness to ILVA, we find the write-downs countervailable. This

approach is consistent with the treatment of write-downs in the 1988-90

restructuring in the instant case and in Electrical Steel from Italy.

However, we agree with AST that the Department should attribute the

portion of ILVA's losses associated with the write down of assets to

the specific written down assets and, thus, to the company who took

those assets. This issue is addressed in more detail in the March 19,

1999 Memorandum on the 1993 Debt Forgiveness to Susan H. Kuhbach. We

have modified our calculations accordingly.

Comment 15: ESF Objective 4 Specificity. AST states that the

Department found ESF Objective 4 funding countervailable based on its

erroneous conclusion that this aid is de jure limited to certain

regions. AST asserts that Objective 4 funding is available throughout

the EU Member States, and that the Department has acknowledged this in

the instant case and in previous cases (see Wire Rod from Italy, 63 FR

at 40487). Despite this acknowledgment, the Department has based its

specificity finding on the fact that the EU has decided to detail its

Objective 4 funding in separate documents for each Member State as well

as two separate documents within Italy itself, one covering Objective 1

regions, and one covering non-Objective 1 regions. AST asserts that

this ``documentary distinction'' does not alter the fact that Objective

4 aid is available to all regions for the same basic goal of reducing

unemployment. Regardless of these documentary distinctions, AST claims

that all Objective 4 aid is ``integrally linked'' and, thus, the

Department must analyze its specificity on this basis.

AST states that in order to find a domestic subsidy de jure

specific, section 771(5A)(D) of the Act requires that the granting

authority ``expressly limit access to the subsidy to an enterprise or

industry'' or that the subsidy be expressly limited to ``an enterprise

or industry located within a designated geographical region within the

jurisdiction of the authority providing the subsidy.'' AST argues that

neither of these criteria has been met for ESF Objective 4 funding

because the ESF Objective 4 funds available to firms in non-Objective 1

regions are also available to firms in Objective 1 regions. Lastly, AST

argues that there is no basis to find the Objective 4 funding de facto

specific given that it is distributed to a wide variety of industries

throughout Italy and the EU.

The petitioners argue that the Department should affirm its

decision in Preliminary Determination that the funding that AST

received under ESF Objective 4 is de jure specific. The petitioners

assert that this finding is consistent with the Department's decision

in Wire Rod from Italy which found that this funding was specific

because the ``EU negotiates a separate programming document to govern

the implementation of the program with each Member State'' and that

different programming documents govern the distribution of aid in

Objective 1 and non-Objective 1 regions. The petitioners assert that EC

officials admitted at verification that aid approved under the

programming document for Objective 1 regions has separate purposes,

administration, and distribution requirements than aid approved under

the programming document for non-Objective 1 regions. Lastly, the

petitioners assert that because the aid in question was received by AST

through Riconversider, a steel industry group, the aid is also specific

because it was disbursed by a organization that by its nature limited

its grants to the steel industry.

Department's Position: We agree with AST that it may be appropriate

for the Department to revisit its previous decision regarding the de

jure specificity of assistance distributed under the ESF Objective 4

SPD in Italy. Notwithstanding this argument, the facts of the instant

case lead us to find that the Objective 4 funding received by AST was

de facto specific, as facts available (see European Social Fund section

above). For this reason, we have continued to countervail the aid in

question. As discussed above, while there are separate agreements for

different regions in the EC and within Italy, these agreements can be

distinguished from the agreements discussed in Groundfish from Canada,

51 FR at 10066. Moreover, the statements by EC officials are taken out

of context and would need to be examined against all the information

before concluding that Objective 4 financing is de jure specific.

Because we have considered this aid to be de facto specific, the

petitioners last point is moot.

Comment 16: ESF Objective 3. The petitioners state that the

Department should countervail the amount spent by AST on an ESF

Objective 3 project for which it claimed reimbursement. The petitioners

claim that AST was unable to provide any documentation showing that it

did not, in fact, receive any reimbursement for the amount spent on the

project.

In response, AST argues that it would be inappropriate for the

Department to countervail assistance that AST did not receive. While

AST does not dispute that it was unable to provide the Department with

any specific document showing that it did not receive the Objective 3

assistance that it applied for, AST states that the Department, in its

review of the company's financial statements, did not encounter any

previously ``unidentified governmental financial assistance.''

Department's Position: We agree with AST that the Department should

not countervail the amount of AST's request for ESF Objective 3 funds.

While company officials were not able to provide direct documentation

showing that AST's relatively small claim shown in its records for ESF

Objective 3 funds was disapproved, we found no indication that this aid

was received by AST during verification.

Comment 17: Law 10/91. AST states that funding under Law 10/91 is

not limited to any industry or enterprise and, thus, should not be

found countervailable. Furthermore, according to AST, Law 10/91 is the

successor to Law 308/82 which the Department found not countervailable

in Pasta from Italy, 63 FR at 30299, Wire Rod from Italy, 63 FR at

40488, and (Certain Steel from Italy).

The petitioners argue that, whether or not AST received benefits

during the POI, the Department should find Law 10/91 de facto specific

and, thus, countervailable consistent with the finding in its February

19, 1999 analysis memorandum that the steel industry received over half

of all aid approvals in 1991 under this program and ILVA companies

received over 40 percent of such approvals.

Department's Position: Consistent with the Department's February

19, 1999 analysis memorandum, we find that the funding received by AST

under Law 10/91 is de facto specific based on the predominant and

disproportionate use of this program by the steel industry and AST's

predecessor, ILVA. In the

[[Page 15526]]

year that the aid in question was approved, the steel industry was

approved for 50.52 percent and ILVA was approved for 43.52 percent.

Just because a program may replace or succeed a non-specific program,

the finding of non-specificity for the earlier program does not carry

over to the replacement or successor program.

Comment 18: Specificity of THERMIE. AST argues that the Department

should maintain its previous finding in the instant case that the

THERMIE program is neither de jure nor de facto specific and, thus,

find the program not countervailable for this final determination. The

Department should reaffirm its previous finding, reinforced by a

successful verification, that the THERMIE program has not been

disproportionately or predominantly used by the steel industry or AST.

The petitioners argue that the Department should find the THERMIE

sub-program, ``Rational Use of Energy (RUE) in Industry,''

countervailable because AST's receipt of nearly a third of the funding

under this subprogram constitutes disproportionate use. The petitioners

state that the Department, in Wire Rod from Italy, recently found an

Italian subsidy program de facto specific when a firm received about

one-third of the total assistance (see 63 FR at 40483.) The petitioners

add that AST's project was one of the three largest projects funded

under the RUE in Industry program. Lastly, the petitioners note that

the Department found at verification that several of the projects

reported as approved by the EC, had in fact, not been funded; thereby

increasing the concentration of AST's share of the reported funding.

AST does not dispute the usage figures presented by the

petitioners, but states that they are incorrectly based on the usage of

only one portion of the THERMIE program (RUE in Industry) and, thus,

are legally irrelevant. AST argues that the THERMIE sub-programs are

integrally linked and, therefore, the Department must view the usage

data of the sub-programs collectively when considering its de facto

specificity.

The petitioners note that the team recommended finding the RUE in

Industry sub-program de facto specific in its Italian Sheet and Strip

concurrence memorandum for the preliminary determination based on the

same usage data cited by the petitioners. The petitioners suggest that

the Department reverse its preliminary decision to analyze the usage

data of the program as a whole, and return to analyzing the specificity

based on RUE in Industry.

If the Department finds this program countervailable, the

petitioners argue that the Department should consider AST, rather than

AST and its partners, as the sole beneficiary of the EU assistance for

the project funded because AST will retain the entire value of the

project, including licensing rights, after its completion. However, AST

argues that the petitioners' claim that AST will have the sole right to

retain and exploit equipment and technology is completely false, and

contradicted by the Department's verification report. AST notes that

the verification report specifically states that ``AST and its

partners'' will retain the equipment and technology from the project.

Given this, should it find the assistance countervailable, the

Department should only countervail the assistance actually attributable

to AST.

Lastly, the petitioners state that the Department should find the

grant to be tied to sheet and strip because the company admitted at

verification that the technology would primarily benefit that product.

Department's Position: Consistent with our finding in Italian Sheet

and Strip, 63 FR at 63907, and our February 19, 1999 Memorandum on the

EC THERMIE Program, we continue to find that the THERMIE program is

neither de jure nor de facto specific. We analyzed the usage data for

the THERMIE program at verification, and found no discrepancies within

the database of projects reported as approved by the EC. While we did

note that a small number of the projects approved were not funded for a

variety of reasons, this fact does not substantially alter the usage

data reported.

We disagree with the petitioners that we should analyze the

specificity of the aid received based on one of THERMIE's sub-programs,

RUE in Industry. At verification with the EC, we found that the goals,

project selection, and general administration of the programs did not

vary significantly between the sub-programs, and that the

classification into sub-programs was primarily for administrative

convenience. According to the EC, while the technical evaluation of

each project is handled by different individuals, this is a result of

the need to have evaluators with highly technical specialties in order

to evaluate the projects submitted. We also verified that the same

level of funding and eligible expense restrictions applied across all

three sub-programs, and that each sub-program was subject to the same

EC regulations and application procedures (see Annex 12, 13, and 14 of

the EC's initial questionnaire response).

Comment 19: Law 675 Bond Issues. AST requests that the Department

change the methodology used for calculating the benefit for the loans

it received under Law 675. Specifically, AST states that the Department

should not include the interest accrued for the first semi-annual

payment in the principal amount used to calculate the interest due on

the second semi-annual payment, because, as verified, AST actually

makes semi-annual payments.

Additionally, AST states that the Department, consistent with

accrual accounting, should only account for the interest and fee

reimbursements from the GOI accrued by AST for its repayments made in

the POI, not for reimbursements actually received in the POI for

previous year's accruals.

With regard to AST's second point, the petitioners argue that in

determining the benefit from this program, the Department should

countervail the amount of reimbursements actually received in the POI,

rather than those accrued but not received.

Department's Position: We agree with AST's first point and have

altered our calculations accordingly. With regard to AST's second

point, it is the Department's practice to calculate the benefit from an

interest rebate program using its loan methodology if the recipient

knows at the time the loan is received that it will receive interest

rebates (see Certain Steel from Italy, 58 FR at 37331, and Pasta from

Italy, 61 FR at 30293). Because AST knew at the time it assumed

repayment of these bond issues from ILVA that it would receive

reimbursements from the GOI for any payments above a certain interest

rate, it is appropriate to treat this aid simply as a below benchmark

interest rate loan.

Comment 20: 1988 Equity Infusion. According to AST, the Department

incorrectly countervailed the September 1988 equity infusion received

by ILVA because the infusion was received prior to ILVA becoming a

steel company at the beginning of 1989. AST argues that the payment is

instead tied to real estate management services because these services

were ILVA's only activities at the time of the infusion.

The petitioners argue that the 1988 infusion should be

countervailed by the Department because the Department typically treats

equity infusions as untied subsidies, benefitting the company as a

whole (see 1989 Proposed CVD Regulations, 54 FR at 23366, and

Countervailing Duties, Final Rule, 63 FR 65348, 65400 (November 25,

1998)). Additionally, the petitioners state that the Department has

countervailed this same infusion in Electrical Steel from

[[Page 15527]]

Italy and Certain Steel from Italy, and that in Electrical Steel from

Italy the Department found in that ILVA was more than a real estate

company in 1988, owning land, buildings, a plant and machinery.

Department's Position: We have continued to countervail the 1988

equity infusion to ILVA. As noted by petitioners, we consider equity

infusions to be untied subsidies benefitting the total consolidated

sales of the recipient company. In this case, AST has not provided any

information indicating that the benefits of this equity infusion should

be tied to non-steel activities.

Comment 21: Law 451/94. The petitioners argue that the Department

must countervail early retirement benefits AST received under Law 451/

94 because the program relieved AST of an obligation it would otherwise

incur during the POI. The petitioners state that an affirmative finding

of countervailable benefits under Law 451/94 is consistent with the

Department's determination in Wire Rod from Italy and in the

preliminary determination of this proceeding.

The petitioners note that in the preliminary determination for

Italian Sheet and Strip, the Department inappropriately found that the

Mobility program provided the most accurate benefit benchmark for this

program. The petitioners maintain that verification confirms that the

Mobility is an inappropriate benchmark by which to measure the benefit

of Law 451/94 and a more appropriate benchmark is CIG-E. The

petitioners point out that Law 451/94 and CIG-E have similar

characteristics in that both are designed for companies which are

undergoing structural, long-term problems. Additionally, the

petitioners note that at verification an AST official confirmed that

the company has placed redundant workers in the CIG-E program while

waiting for the passage of Law 451/94.

Lastly, the petitioners object to AST's claims that it was under no

legal obligation to retain its workers. First, the petitioners point

out that the Department has determined in Certain Steel from Italy and

Wire Rod from Italy that large Italian companies cannot simply lay-off

workers. Second, the petitioners maintain that AST's argument misses

the point because the obligation refers to the payment that a company

would have to make absent government payments. The petitioners argue

that record evidence confirms that in the normal course of business,

Italian companies are obligated to make severance payments to laid-off

workers and the fact that Law 451/94 reduced the financial obligation

AST would incur is a countervailable benefit.

AST argues that Law 451/94 early retirement benefits to former AST

employees are not countervailable because AST did not receive Law 451/

94 benefits during the POI. AST points out that the Department

correctly determined in Italian Sheet and Strip that since employees

were eligible to apply for Law 451/94 only through 1996, AST could not

have received benefits during the POI because the Department's practice

is to treat employment benefits as recurring grants that are expensed

in the year of receipt. AST further argues that as specified by the

terms of the Law and AST's own records, all of AST's employees who

chose to leave the company under Law 451/94 did so prior to the POI.

AST argues that its use of Law 451/94 did not benefit the company

because AST's overall costs under Law 451/94 were greater than those

the company would have incurred had it followed the normally applicable

Mobility provisions under Law 223. Lastly, the respondents argue that

Law 451/94 is not countervailable because AST was under no de jure or

de facto obligation to retain workers. The respondents point out that

in the past, the Department has concluded that Italian firms cannot

simply fire workers. However, in the instant proceeding, the

respondents note that the GOI has informed the Department that Italian

companies are under no legal obligation to participate in the GOI's

early retirement programs, and if an Italian company is unable to reach

an agreement with worker unions and if there are no better means, then

the company can fire employees. AST also argues that countervailing the

Italian social safety net based on the vague perception that social or

political conditions make it impossible to fire workers is

inappropriate and unreasonable. Furthermore, AST states that the

Department should not assume that it was impossible for AST to fire its

workers had it chosen to do so. In fact, the Mobility program would

have no purpose if, as a legal or practical matter, employees in Italy

could not be fired.

Department's Position: As set forth in the program description for

Law 451/94 above, the Department has determined that Law 451/94

provided a countervailable benefit to AST during the POI. Although AST

employees applied for Law 451/94 from 1994 to 1996, AST has indicated

that all of these employees received pre-pension payments from the GOI

during the POI.

We do not dispute AST's argument that it can fire workers. However,

as mandated by Law 223, AST was required to negotiate with the labor

unions before it fired more than five employees in 120 days. As we

stated in the program description above, the outcome of these

negotiations is uncertain, and we have no basis for expecting either

that AST would have been able to fire the total number of workers

without additional payments over and above the standard Mobility costs

or that the unions would have successfully negotiated no lay-offs.

Since AST's own experience in laying-off employees indicated that its

workers were aware beforehand of the GOI's forthcoming early retirement

plan and the amount of the GOI's contribution to them, we applied our

standard methodology as set forth in the GIA, 58 FR at 37256. See also

Certain Steel from Germany, 58 FR at 32320-21. Furthermore, this

methodology was upheld by the CIT in LTV Steel. For more information on

this program see Memorandum to Richard Moreland regarding Law 451/94--

Early Retirement Benefits dated March 19, 1999.

Comment 22: Law 675/77--Worker Training Program. The petitioners

argue that, at verification, the Department confirmed that AST received

grants under Law 675/77 between 1984 and 1987 for worker retraining.

The petitioners allege that AST failed to document this assistance in

its response to the Department's original and supplemental

questionnaires. Because AST failed to supply information regarding

these grants, the Department should resort to facts available for this

program. Furthermore, the petitioners maintain that since several

Departmental determinations indicate that benefits received under Law

675/77 are countervailable, the Department should countervail the

worker retraining portion of Law 675/77 in the final determination and

treat those benefits as a non-recurring grant.

AST argues that it has made available both in its submissions and

at verification all factual information available to the company

regarding the personnel retraining component of law 675/77. AST points

out that these benefits were applied for and received by a predecessor

to AST which ceased to exist years ago. Additionally, AST maintains

that it is the Department's long-standing policy to treat worker

retraining programs as recurring benefits and there is no support in

law or Department practice for the treatment of this program as a non-

recurring grant as suggested by the petitioners.

Department's Position: We agree with AST. At verification, AST

officials indicated that an AST predecessor

[[Page 15528]]

company, Terni, received personnel retraining grants between 1984 and

1987. As pointed out by the respondent, it is the Department's practice

to treat training benefits as recurring grants and expense the benefit

in the year of receipt (see GIA at 37226). Furthermore, personnel

retraining grants under Law 675/77 were countervailed in Certain Steel

from Italy, 58 FR at 37331. In Certain Steel from Italy, the Department

used best information available to determine the benefit provided by

this program. However, in Certain Steel from Italy, the Department also

determined that the treatment of benefits under this program as non-

recurring was not appropriate. In the instant proceeding, there is no

new information to warrant a reconsideration of this finding.

Therefore, since the training grants in question were provided before

the POI, there is no countervailable benefit derived from this program

during the POI.

Comment 23: Law 796 Benefit Calculation. AST argues that the

Department should revise its methodology for allocating the benefit AST

received under the Law 796 exchange rate guarantees covering certain

ECSC loans. AST notes that in the Preliminary Determination, the

Department calculated the benefit from these exchange rate guarantees

by multiplying the difference between the guaranteed and benchmark

exchange rates by the sum of principal and interest paid during the

POI. This, AST argues, is a reasonable approach where the loan

repayment is structured such that there are regular installment

payments of principal and interest. AST notes, however, at least one of

its ECSC loans has a balloon payment, i.e., the principal comes due in

one lump payment at the end of the loan term. In the cases of balloon-

payment loans, AST argues, the Department should treat exchange rate

guarantee benefits as non-recurring and allocate these benefits over

the full term of the loan.

The petitioners respond that the benefits provided under Law 796 do

not stem from the nature of the loans themselves but, rather, from the

exchange rate guarantees on those loans. The structure of the

underlying loan, argue the petitioners, is not relevant to the analysis

of the benefit from the guarantees. Therefore, the petitioners

conclude, for its final determination the Department should continue to

use the same methodology as that used in the Preliminary Determination

for calculating the Law 796 benefits.

Department's Position: We agree with the petitioners that no change

to the methodology used in the Preliminary Determination is warranted.

As stated in the Preliminary Determination, once an ECSC loan is

approved for an exchange rate guarantee, access to foreign exchange at

the established rate is automatic and occurs at regular intervals

throughout the life of the loan. Longstanding Department practice is to

treat non-exceptional, automatically-approved benefits as recurring

grants (see the Preamble to the 1989 Proposed Regulations, 54 FR at

23376). Consistent with the Department's regulations, recurring

benefits are expensed in the year in which the benefit is received.

Accordingly, no change has been made to the Law 796 benefit

calculation.

Comment 24: AST's Brite-EuRam Grant. The petitioners argue that the

Department should countervail the grant received by AST under the EU's

Brite-EuRam program that was discovered at verification. According to

the petitioners, AST failed to submit information on this grant in its

questionnaire responses and was unable at verification to provide

information on the use of the aid and other materials relating to it.

In response, AST notes that the petitioners never requested the

Department to investigate the Brite-EuRam program. Since it was not

asked a single question regarding the Brite-EuRam program, AST

maintains that it cannot be found to be uncooperative by not providing

information on assistance received under this program. AST argues that

any determination of countervailability of Brite-EuRam assistance

should properly be done in the context of an administrative review,

should one occur.

Department's Position: We agree with AST that any determination

regarding the countervailability of assistance under the Brite-EuRam

program cannot be done in the context of this investigation. During the

course of this proceeding, the Department did not request information

on this program from either the relevant government bodies or AST.

Therefore, a finding that respondents were ``uncooperative'' would be

inappropriate as would the application of facts available. We will,

however, request information on the Brite-EuRam program in a future

administrative review in the event one occurs.

Comment 25: ECSC Article 56 Aid. The petitioners argue that, based

on information collected by the Department at the verification of the

EC, its appears that Law 451/94 benefits were still being provided to

AST during the POI. The information further suggests, the petitioners

contend, that the GOI made additional severance payments related to

ECSC Article 56(2)(b) on AST's behalf. All payments made by the GOI or

the EC, the petitioners conclude, should be countervailed.

AST responds that the results of verification make clear that no

additional Article 56 assistance, beyond that already countervailed

under Law 451/94, has been given to AST. The petitioners' claims to the

contrary, AST contends, merely represent a mis-reading of the

verification report.

Department's Position: In the course of verifying both the EC and

AST, we found no evidence suggesting that additional Article 56(2)(b)

assistance has been given to AST beyond that already found

countervailable under Law 451/94. At verification we learned that the

Article 56(2)(b) program partially compensates the GOI for benefits the

GOI has already paid out to workers under its Law 451/94 early

retirement program. Moreover, the severance payments, referred to by

the petitioners, are benefits stipulated under Law 451/94 and,

therefore, have already been incorporated into our analysis of the Law

451/94 benefits.

Comment 26: ECSC Article 54 Loans. AST points out that a subsidy

exists only where ``a government of a country or any public entity''

provides a ``financial contribution'' or ``makes a payment to a funding

mechanism to provide a financial contribution or entrusts or directs a

private entity to make a financial contribution. * * *'' AST then

argues that ECSC Article 54 loans do not convey government funds to

borrowers and that no financial contribution is provided from the

treasury of any public or quasi-public entity. Rather, Article 54 loans

are commercially obtained funds re-lent on a private, fully commercial

basis. (The European Commission made a similar argument in a submission

made prior to the briefing schedule.) Citing to the Department's prior

treatment of the ECSC Article 56(2)(b) program (see, e.g., Certain Hot-

Rolled Lead and Bismuth Carbon Steel Products from Germany, 58 FR 6233,

6236 (January 27, 1993)), AST maintains that if the program operates

without government funds, it is the Department's practice to find no

countervailable benefit. Finally, respondents argue that no public

entity has ``entrusted or directed'' the ECSC to make Article 54 loans

to AST.

Petitioners maintain that the Department has previously found that

the ECSC met the definition of an ``authority'' capable of granting

subsidy benefits (see section 771(5)(B) of the Act) and that the ECSC

is, in fact, a public entity. Pointing out that the Department's

verification found that

[[Page 15529]]

ECSC and European Community administrative functions are merged,

petitioners argue that it is inconceivable that a purely private entity

would be run by Commission officials as claimed by AST. Finally,

petitioners argue that the new reference to ``financial contribution''

was not intended by Congress ``to become a loophole when unfairly

traded imports enter the United States and injure a U.S. industry.''

SAA at 926.

Department's Position: We determine that the ECSC is a public

entity under sections 701(a)(1) and 771(5)(B) of the Act. It is part of

the European Union, which undeniably is a particular form of

governmental body. Neither AST nor the EC have contested this position.

Rather, the issue raised is whether the ECSC has made a ``financial

contribution'' to AST. Under the Act and the WTO Subsidies Agreement, a

financial contribution includes the direct transfer of funds, such as

the provision of loans. While AST and the EC have acknowledged that

ECSC loans were provided to AST, they both attempt to make the case

that because the loans were not financed directly from ``the treasury

of any public or quasi-public entity'' they cannot be considered

``financial contributions.'' However, we see no requirement in the WTO

Subsidies Agreement nor the Act that the financial contribution must be

funded in a particular manner. In fact, it is common practice for

governments and other public entities to finance at least some of their

operations via the issuance of bonds or other debt instruments, the

proceeds of which are commonly used to fund normal government

operations, including subsidy programs.

While this position may arguably conflict with the approach we have

previously taken with respect to Article 56(2)(b), there are

differences between the two programs. For example, the Article 56(2)(b)

program has been funded directly by producer levies, while Article 54

loans, as noted above, are generally financed by means of ``back-to-

back loans.'' To the extent this fact fails to adequately distinguish

the two programs, we may re-visit our prior reasoning with respect to

the Article 56(2)(b) program in light of the new provisions of the WTO

Subsidies Agreement and the changes to the Act made pursuant to the

Uruguay Round Agreements Act.

Comment 27: Exclusion of Floor Plate from the Scope of the

Investigation. AST requests that the Department exclude floor plate

from the scope of the instant proceeding and the Italian Sheet

investigation. AST argues that floor plate should not be included in

the scope of these investigations because floor plate is not

manufactured in th

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