Final Affirmative Countervailing Duty Determination: Stainless Steel Plate in Coils from South Africa

DEPARTMENT OF COMMERCE

International Trade Administration

[C-791-806]

Final Affirmative Countervailing Duty Determination: Stainless

Steel Plate in Coils from South Africa

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: March 31, 1999.

FOR FURTHER INFORMATION CONTACT: Robert Copyak, Kathleen Lockard or

Dana Mermelstein, Office of CVD/AD Enforcement VI, Group II, Import

Administration, International Trade Administration, U.S. Department of

Commerce, 14th Street and Constitution Avenue, NW, Washington, DC

20230; telephone: (202) 482-2786.

Final Determination

The Department of Commerce (the Department) determines that

countervailable subsidies are being provided to producers and exporters

of stainless steel plate in coils from South Africa. For information on

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

Liquidation'' section of this notice.

Petitioners

The petition in this investigation was filed by Allegheny Ludlum

Corporation, Armco, Inc., J&L Specialty Steel, Inc., Lukens, Inc., and

United Steelworkers of America, AFL-CIO/CLC, Butler Armco Independent

Union, and Zanesville Armco Independent Organization (the petitioners).

Case History

Since the publication of our preliminary determination in this

investigation on September 9, 1998 (63 FR 47263), the following events

have occurred.

We conducted verification of the countervailing duty questionnaire

responses from November 2 through November 13, 1998. On January 2,

1999, we terminated the suspension of liquidation of all entries of the

subject merchandise entered or withdrawn from warehouse for consumption

on or after that date, pursuant to section 703(d) of the Act. See the

``Suspension of Liquidation'' section of this notice. Because the final

determination of this countervailing duty investigation was aligned

with the final antidumping duty determination (see 63 FR 47263), and

the final antidumping duty determination was postponed, the Department

extended the final determination of the countervailing duty

investigation until no later than 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)). Petitioners, the Government of South Africa, and

Columbus Stainless (the operating unit of Columbus Joint Venture) filed

case briefs on January 11, 1999, and rebuttal briefs on January 19,

1999. A public hearing was held on January 21, 1999.

The Applicable Statute and Regulations

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 effective January 1, 1995 (the Act).

In addition, unless otherwise indicated, all citations to the

Department's regulations are to the current regulations codified at 19

CFR 351 (1998).

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

[[Page 15554]]

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

(HTS) 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 HTS

subheadings are provided for convenience and Customs purposes, the

written description of the merchandise under investigation is

dispositive.

Injury Test

Because South Africa 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 South Africa materially injure, or threaten

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

its preliminary determination finding that there is a reasonable

indication that an industry in the United States is being materially

injured, or threatened with material injury, by reason of imports from

South Africa of the subject merchandise (See Certain Stainless Steel

Plate in Coils From Belgium, Canada, Italy, Korea, South Africa, and

Taiwan, 63 FR 29251).

Period of Investigation

The period for which we are measuring subsidies (the POI) is

calendar year 1997.

Company History

In 1988, Samancor Limited (Samancor) and Highveld Steel and

Vanadium (Highveld) formed the Columbus Joint Venture (CJV) to explore

the possibility of establishing a 500,000-ton capacity, stainless steel

facility in South Africa. In 1991, the partners examined the option of

building a plant in South Africa and made a proposal to the Industrial

Development Corporation of South Africa (IDC) that it take a capital

stake in the joint venture. The IDC is a state-owned corporation,

established in 1940 to further the economic development goals of the

Government of South Africa (GOSA). The partners approached the IDC

because it provides equity investments, and facilitates and guarantees

financing for projects which contribute to the GOSA's economic

development objectives. After being approached by the partners, the IDC

performed a detailed analysis of the 1991 proposal and decided that it

would participate in the investment subject to certain conditions: That

the project be based on the expansion of an existing facility rather

than on the construction of a new plant; and, that its implementation

be delayed pending the establishment of a program providing tax

benefits for capital investments.

To meet the IDC's condition, in October 1991, Samancor and Highveld

purchased an existing stainless steel facility, the Middelburg Steel &

Alloys (MS&A) company. In 1992, the partners again approached the IDC.

Based on a revised proposal, the IDC conducted a detailed feasibility

study to analyze the prospects for the venture. Based on the

feasibility study, the IDC made a counterproposal which was accepted by

the partners. (The counterproposal is detailed in the proprietary

feasibility study. In general, it addresses the technical financial

details of the IDC's participation in the CJV.) Samancor, Highveld, and

the IDC entered into a new partnership agreement which is the basis for

the current structure of the CJV. Effective January 1, 1993, the IDC

became a one-third and equal partner in the venture.

The implementation of the CJV expansion project began in 1993 and

was undertaken over the course of two and one-half years. The expansion

was completed in 1995. Columbus Stainless, the operating unit of the

CJV, produces a range of stainless steel products including subject

merchandise.

Subsidies Valuation Information

Discount Rates: In identifying a discount rate, the Department's

options are, in the following order of preference: (1) The cost of

long-term fixed-rate debt of the firm in question, excluding loans

found to confer a countervailable subsidy; (2) the average cost of

long-term fixed-rate debt in the country in question; and (3) a rate

which we consider to be most appropriate. See Countervailing Duties;

Notice of Proposed Rulemaking and Request for Public Comments 54 FR

23336, 23384 (May 31, 1989) (1989 Proposed Regulations). With respect

to the Department's first preference, the only loans which Columbus had

outstanding during the relevant period were loans guaranteed by the

IDC/Impofin. See ``IDC/Impofin Loan Guarantees'' section below. With

respect to the average cost of long-term fixed-rate debt in South

Africa, because we were unable to obtain information about such debt

for the purposes of the preliminary determination, we used the long-

term government bond rate. We considered this rate to be the most

appropriate rate as it was the only long-term fixed interest rate for

which we had information during the relevant period. In the preliminary

determination, we stated that we would seek a rate for the final

determination that better reflects an average long-term commercial

fixed interest rate in South Africa. Although we discussed commercial

interest rates at length during our meetings with the IDC, the South

African Reserve Bank, and commercial bankers, no information was

provided that would enable us to determine a commercial long-term

interest rate that could be used as the discount rate. As such, because

the government bond rate does not represent a commercial rate, for

purposes of this final determination, we have constructed a discount

rate which we believe is more appropriate. For each of the years 1993

through 1997, we have averaged the government bond rate as reported by

respondents with the ``Lending Rate'' reported in International

Financial Statistics, December 1998, published by the International

Monetary Fund. This publication indicates that the ``Lending Rate''

represents financing that ``meets the short- and medium-term needs of

the private sector.'' By averaging these two rates, we believe that we

have identified a rate more appropriate than the rate used for the

purposes of the preliminary determination, a rate which includes the

necessary characteristics of both long-term borrowing and commercially-

available interest rates. See Department's Position on Comment 9 below.

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

information from the U.S. Internal Revenue Service on the industry-

specific average useful life of assets (AUL) in determining the

allocation period for non-recurring subsidies. See General Issues

Appendix (GIA), 58 FR 37225, 37227, appended to the Final

Countervailing Duty Determination; Certain Steel Products

[[Page 15555]]

from Austria, et al., 58 FR 37217 (July 9, 1993). However, in British

Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995) (British Steel

I), the U.S. Court of International Trade (the Court) ruled against

this allocation methodology. In accordance with the Court's remand

order, the Department calculated a company-specific allocation period

for non-recurring subsidies based on the AUL of non-renewable physical

assets. This remand determination was affirmed by the Court on June 4,

1996. See British Steel plc v. United States, 929 F. Supp. 426, 439

(CIT 1996) (British Steel II). In accordance with our new practice

following British Steel II, we intend to determine the allocation

period for non-recurring subsidies using company-specific AUL data

where reasonable and practicable. See, e.g., Certain Cut-to-Length

Carbon Steel Plate from Sweden; Final Results of Countervailing Duty

Administrative Review, 62 FR 16551, 16552 (April 7, 1997). When such

data are not available (or are otherwise unusable), our practice is to

rely upon the IRS depreciation tables.

Columbus did not provide the information necessary to calculate a

company-specific AUL. Therefore, we are relying on the Internal Revenue

Service's 1977 Class Life Asset Depreciation Range System (Rev. Proc.

77-10, 1977-1, C.B. 548 (RR-38) (IRS Tables), which report a schedule

of 15 years for the productive equipment used in the steel industry.

See the Department's Position on Comment 10 below.

I. Programs Determined To Be Countervailable

A. Section 37E Tax Allowances

The GOSA enacted Section 37E of the Income Tax Act in 1991 to

promote capital investment and thereby foster long-term economic

development. This program was intended as a ``kick-start'' for the

South African economy and was limited to investments made between

September 1991 and September 1993. The purpose of the program was to

encourage investment in large industrial expansion projects in value-

added sectors of the economy. For projects approved as valued-added

processes, Section 37E allows for depreciation of capital assets and

the deduction of pre-production interest and finance charges in

advance, that is, in the year the costs are incurred rather than the

year the assets go into use. The program also allows taxpayers in loss

positions to receive ``negotiable tax credit certificates'' (NTCCs) in

the amount of the cash value of the Section 37E tax deduction (i.e.,

deduction multiplied by the tax rate). The NTCCs can be sold (normally

at a small discount) to any other taxpayer, who then can use them to

pay taxes. The program does not provide for accelerated depreciation,

nor does it provide for additional finance charge-related deductions

beyond those available under the South African tax code. The advantage

to users of this program is the receipt of these tax deductions in

advance, i.e., when the expenses are incurred rather than when the

equipment is put into use.

According to the questionnaire response, eligibility for Section

37E benefits was determined on a project-by-project basis by a

committee appointed by the Minister of Finance in concurrence with the

Minister of Trade and Industry. To demonstrate that their projects

qualified for Section 37E, applicants were required to show: (1) That

the project would add at least 35 percent to the value of the raw

material or intermediate product processed; (2) that the project would

be carried out on an internationally competitive scale; and (3) that

the taxpayer would utilize foreign term credits, where possible, when

financing the import of capital goods for the project. In addition,

qualifying investments had to be made between September 12, 1991 and

September 11, 1993.

The CJV began receiving Section 37E benefits in 1993, two years

before the 1995 completion of the plant expansion. Because the CJV is a

partnership rather than a tax-paying corporation, Section 37E benefits

earned by the CJV are claimed by the partners.

When determining whether a program is countervailable, we must

examine whether it is an export subsidy or whether it provides benefits

to a specific enterprise, industry, or group thereof, either in law (de

jure specificity) or in fact (de facto specificity). See Sections

771(5A)(A), (B), and (D) of the Act. For the Preliminary Affirmative

Countervailing Duty Determination and Alignment of Final Countervailing

Duty Determination with Final Antidumping Determination: Stainless

Steel Plate in Coils from South Africa, 63 FR 47263, 47265 (September

4, 1998) (Preliminary Determination), we determined that Section 37E

provided benefits which were de facto specific, in accordance with

section 771(5A)(D)(iii)(I) of the Act, because the number of users of

the program was limited. (63 FR at 47265.) However, in the memorandum

accompanying our preliminary determination, we noted that ``. . .

information on the record suggests that an applicant's export

performance may have been considered during the approval process. While

there is not enough information in the record at this time to conclude

that benefits provided under Section 37E constitute a de facto export

subsidy, we will continue to examine this question for the final

determination.'' See August 28, 1998, Memorandum to Maria Harris

Tildon, Acting Deputy Assistant Secretary for AD/CVD Enforcement II,

``Decision Memorandum: Countervailing Duty Investigation of Stainless

Steel Plate in Coils from South Africa'' at 7, public version on file

in the Central Records Unit, room B-099 of the main Commerce Building

(CRU) (Decision Memorandum). Under section 771(5A)(B) of the Act, a

subsidy is an export subsidy if it is, ``in law or in fact, contingent

upon export performance, alone or as 1 of 2 or more conditions.''

We now have a fuller understanding of the legislation which

implemented the program, amendments which were made to that

legislation, and the timing of Columbus' application and approval for

benefits under the program. At verification, we learned that Section

37E amending the Tax Act of 1962 was published in the Official Gazette

on July 17, 1991 and became effective September 12, 1991. To be

eligible for Section 37E, an applicant had to show that the planned

investment was in a ``beneficiation process,'' which was defined as a

process which: ``(a) Substantially adds to the value of the product

processed; (b) is carried on on such a scale that it is competitive in

the international market; and (c) is carried on with the intention of

exporting at least 60 percent (or such lesser percentage as the

committee may determine) by value of the product produced to countries

outside the customs union.'' See the December 16, 1998, ``Memorandum to

David Mueller, Director, Office of CVD/AD Enforcement VI, on

Countervailing Duty Investigation of Stainless Steel Plate in Coils

from South Africa: Verification Report of the Government of South

Africa,'' at 15 and Verification Exhibit SARS-1 at 3, public version on

file in the CRU (Government Verification Report).

In 1992, the law was amended for the first time; the amendment was

published on July 15, 1992, in the Official Gazette and was effective

retroactively to March 18, 1992. The amendment broadened the definition

of beneficiation of minerals in certain material respects and removed

the committee's discretion to approve applicants intending to export

less than 60 percent of production.

On July 20, 1993, the second amendment to Section 37E was

[[Page 15556]]

published in the Gazette. This amendment was effective retroactively to

September 12, 1992. This amendment made a material change to the law

because it removed the export performance eligibility criterion. The

deletion of this requirement is documented in the Explanatory

Memorandum on the Taxation Laws Amendment Bill, 1993. See Verification

Exhibit SARS-1 at 11. Although this amendment was retroactive,

companies that applied before July 20, 1993, addressed the export

performance criterion in their applications for Section 37E benefits.

Columbus' application for Section 37E benefits, which was filed on

August 11,1992, specifically addressed this criterion and specified the

portion of Columbus' production that was intended for export. Based on

this application, Columbus was approved for Section 37E benefits on

December 8, 1992, prior to the July, 20, 1993, amendment.

Although approved for Section 37E assistance on December 8, 1992,

the exact amount of assistance to be provided was revised as the

financial and technical aspects of the project developed (e.g.,

contracts for the supply of equipment and financing arrangements were

being finalized, enabling Columbus to identify the related costs and

expenditures more accurately than they had in the initial August, 1992

application package). Columbus was in close communication with the

relevant authorities throughout this period, and submitted an amended

application on July 19, 1993. This application did not address any of

the eligibility criteria, under the original law or the amended law,

rather, it finalized information about the categorization of equipment

and the costs of financing and amended the projected value of the

Section 37E benefits.

The Inland Revenue authority notified Columbus of its approval of

the exact amount of its Section 37E benefits on August 20, 1993.

Nevertheless, when Columbus was initially approved for Section 37E

benefits (on December 8, 1992), the approval was based on consideration

of the export performance criterion, which was in effect at that time.

Even though the law was subsequently amended to remove the export

criterion, and this amendment was retroactive to September 12, 1992,

Columbus was approved for Section 37E benefits before this amendment

was implemented. Making the amendment to remove the export criterion

retroactively effective does not undo the fact that when Columbus was

approved, it had to meet an export performance criterion.

Moreover, even though Columbus amended its application on July 19,

1993, that submission was not a revised application package. It did not

address all of the criteria that had to be met in order to be approved

and that were addressed in the initial application (of August 11,

1992). Moreover, it did not remove the export performance information

that was in the original application; rather, it contained a refinement

of previously-provided financial and technical information, which was

required by Inland Revenue to establish the final value of the Section

37E benefits Columbus would receive. Accordingly, based on these facts,

we must conclude that the Section 37E assistance provided to Columbus

constitutes an export subsidy within the meaning of section 771(5A)(B)

of the Act.

The Section 37E program provides a financial contribution within

the meaning of section 771(5)(D)(ii) of the Act as it constitutes

revenue foregone by the GOSA. Because Section 37E allows companies to

claim depreciation and finance-related deductions in advance of when

such deductions would normally be allowed, the benefit within the

meaning of section 771(5)(E) of the Act, is the value to the company of

being able to claim the depreciation in advance. The Department

normally considers that a benefit arises from a tax program in the

amount of the difference between the taxes paid and the taxes that

would have been paid absent the program. However, the Section 37E

program does not operate as a normal tax program. According to the IDC,

``[t]he accelerated tax allowances reduce the peak funding requirements

of major capital investment projects.'' See IDC 1992 Annual Report,

Annexure 7 of the July 31, 1998 Questionnaire Response, public version

on file in the CRU. Through this program, capital requirements for

investments are reduced, as evidenced by the partners' views that the

program was essential in reducing the start-up costs of the venture.

See Petition at Exhibit S-8, public version on file in CRU.

Furthermore, there is a cash flow impact regardless of the company's

tax position. As such, we consider that, although the Section 37E

program is a ``tax'' program, it functions more like a capital

contribution.

Since the Section 37E program reduces a company's capital

requirements, and because the receipt of Section 37E benefits required

express government approval, we determine that it is more appropriate

to treat the benefits provided under Section 37E as a non-recurring

subsidy. See GIA, 58 FR at 37226. Therefore, we determine that the

Section 37E program constitutes a countervailable subsidy within the

meaning of section 771(5) of the Act.

To determine the benefit, we ascertained the value of the Section

37E allowances to the company. First, we calculated the cash value of

each 37E claim by multiplying the total allowance claimed in each year

by the relevant tax rate. Then, we determined the time value of

obtaining the allowance in advance; in the preliminary determination,

we used two years for discounting purposes, however, at verification we

discovered that it was appropriate to use two years for one-third of

the value of the allowances and three years for the remaining two-

thirds. This change reflects the fact that since Columbus Stainless was

commissioned October 1, 1995, and the IDC and Samancor's tax year ends

June 30, these partners would have had to wait until June 30, 1996,

i.e., three years to take depreciation under the normal system (section

12(c)) while Highveld, which has a December 31 year-end, would have had

to wait until December 31, 1995, i.e., only two years. See Department's

Position on Comment 5 below. The difference between the tax value of

the allowances and the tax value discounted to reflect the time-value

of money is the benefit to the company, for each year in which Section

37E benefits are claimed. Finally, because we consider that the Section

37E assistance should be allocated over time as a non-recurring

subsidy, we treated each year's benefit as a non-recurring grant using

our standard grant methodology. Since Columbus did not report its AUL,

we are relying on the IRS Tables for purposes of establishing the

allocation period. The IRS Tables show a depreciation schedule of 15

years for the steel industry. See Department's Position on Comment 10

below. We summed the benefit amounts allocated to the POI and divided

by CJV's total export sales. Accordingly, we determine the net

countervailable subsidy to be 3.84 percent ad valorem.

B. IDC/Impofin Loan Guarantees

The IDC and its wholly-owned subsidiary, Impofin, Ltd., facilitate

and guarantee foreign credits for the importation of capital goods into

South Africa. The program was established in 1989, and was designed to

facilitate foreign lending to South African firms; the availability of

foreign credit in South Africa was extremely limited at that time. The

IDC/Impofin maintain

[[Page 15557]]

blanket credit lines with banks in numerous countries which are used in

two ways. First, the IDC may act as an intermediary lending authority,

borrowing funds through these credit lines from the foreign bank and

then re-lending them to the South African firm. Second, based on these

credit lines, the South African firm may negotiate its own financing

directly with the foreign lender which is then guaranteed by the IDC.

Any company seeking financing for the purchase of foreign capital

equipment may apply to Impofin to use the program. Whether the

financing is arranged through the IDC/Impofin or directly with the

foreign lender, it is guaranteed through the IDC/Impofin program. The

IDC charges a fee for its guaranteeing and facilitating services.

Columbus used the IDC/Impofin program to facilitate and to

guarantee the financing of all of its foreign capital equipment

sourcing. In the preliminary determination, we analyzed this program

using our standard methodology for examining government-guaranteed

loans and compared the benchmark interest rate to the interest rate

charged by the lender on the guaranteed loans. However, based on

information collected at verification, we now have a better

understanding of this program and have revised our analysis of the

program from the preliminary determination. Because these loans

originate either with foreign government export credit agencies or

offshore foreign banks in coordination with foreign government export

credit agencies, which are not under the direction or control of the

GOSA, the loans themselves are not countervailable. Thus, we find that

it is not appropriate to compare the interest rates charged by offshore

foreign banks to commercial interest rates in order to determine

whether the program provides a financial contribution. However, the IDC

did provide guarantees on these loans for a fee. This guarantee could

constitute a financial contribution if the IDC charged less than what

would have been charged by a commercial bank for a similar guarantee.

At verification, we sought information about commercial loan

guarantee practices in South Africa at the time Columbus received the

IDC/Impofin guarantees. We learned that such guarantees were available

on only a limited basis in South Africa at the time. However, a

commercial banker informed us that the rates for providing these types

of guarantees would range between 0.25 and 0.50 percent; the banker

further stated that the fee would vary based on the quality of the

borrower and the size of the credit (a high-quality borrower would

likely pay fees at the low end of the range; a borrower seeking

guarantees for large credits would likely pay fees at the high end of

the range). See December 17, 1998, ``Memorandum for David Mueller,

Director, Office of CVD/AD Enforcement VI, on Discussions with Private

Sector and South African Reserve Bank'' (Banker's Verification Report),

a public document on file in the CRU. Since Columbus is a ``high-

quality'' borrower but the size of the credits is large, we determine

that the middle of this range, 0.375 percent, is a reasonable

approximation of what a commercial bank would have charged Columbus for

similar guarantees. Thus, when we compare what Columbus paid the IDC

for the provision of guarantees, 0.25 percent, and what it would have

paid a commercial bank, 0.375 percent, we find that the IDC did provide

a financial contribution that confers a benefit within the meaning of

the Act.

Next, we analyzed whether the program is specific in law (de jure

specificity), or in fact (de facto specificity), within the meaning of

subsections 771(5A)(D)(i) and (iii) of the Act. The enacting

legislation for the IDC/Impofin program does not explicitly limit

eligibility for these financing programs to an enterprise, industry, or

group thereof. Thus, we find that the law is not de jure specific, and

we must analyze whether the program meets the de facto criteria defined

under section 771(5A)(D)(iii). In our Preliminary Determination, we

examined information provided by the GOSA and found that since 1990,

the ``fabricated metal products'' and ``basic metal manufacture''

industries have been predominant users of the program. These industries

have received more than fifty percent, by value, of the total

guaranteed loans awarded over the life of the program. Information

provided by the GOSA in its case brief demonstrates that the steel

industry (including stainless steel) has received more than half the

total value of loan guarantees awarded over the life of the program,

while all of the rest of the users of the program (industries

including, but not limited to mining, agriculture, pulp and paper, oil,

gas, chemical, vehicles, telecommunications, and aluminum smelting and

fabrication) together accounted for less than half of the total value

of loan guarantees awarded over the life of the program. This

information clearly indicates that the steel industry is a predominant

user of this program. On this basis, we find IDC/Impofin loan

guarantees to be de facto specific within the meaning of section

771(5A)(D)(iii) of the Act. Therefore, we determine that the IDC/

Impofin guarantees constitute a countervailable subsidy within the

meaning of section 771(5) of the Act. (See the Department's Position on

Comment 6 below.)

Since the guarantee fees are paid every year the loan is

outstanding, we calculated the benefit by subtracting what Columbus

paid the IDC under this program from what it would have paid on a

comparable commercial guarantee during the POI. We then divided the

result by Columbus' total sales during the POI. Accordingly, we

determine the net countervailable subsidy to be 0.09 percent ad valorem

for Columbus.

II. Program Determined to be Non-Countervailable

IDC Participation in the Columbus Joint Venture

As discussed in the ``Company History'' Section above, in 1988,

Highveld and Samancor formed the Columbus Joint Venture to explore the

possibility of establishing a stainless steel facility in South Africa.

In 1991, the partners proposed that the IDC make a capital investment

in the venture. The IDC performed a detailed analysis of the 1991

proposal and decided to participate in the investment subject to

certain conditions: that the project would be based on the expansion of

an existing facility and that its implementation would be delayed

pending the establishment of the Section 37E program. In 1992, after

the partners acquired an existing facility for the purpose of

implementing the IDC's recommendations, the partners approached the IDC

with a revised proposal. Based on this proposal, the IDC and the two

partners conducted a detailed feasibility study to identify the

prospects for the venture. The IDC made a counterproposal which the

partners accepted. Effective January 1, 1993, the IDC became a one-

third and equal partner in the venture. Samancor, Highveld, and the IDC

entered a new partnership agreement which is the basis for the current

structure of the CJV.

The Department considers the government's provision of equity or

start-up capital to constitute a benefit ``if the investment decision

is inconsistent with the usual investment practice of private

investors, including the practice regarding the provision of risk

capital, in the country in which the equity infusion is made.'' See

section 771(5)(E)(i) of the Act. The Department applies this standard

in a case-by-case analysis of the commercial context in

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which the investment decision is made. Thus, we must determine whether

the IDC's decision to participate in the CJV was consistent with the

usual investment practices of private investors in South Africa.

While Samancor and Highveld are both private investors, their

participation in the venture, per se, is not an appropriate basis for

determining whether the IDC's participation is consistent with usual

investment practices. By the time the IDC decided to invest, Samancor

and Highveld had been partners in this investment for five years. Both

already had substantial stakes in the project, including the purchase

of the MS&A facility in 1991. Thus, their evaluation of the CJV

expansion project was affected by their interest in protecting their

existing investment and they may have been willing to accept a higher

level of risk than another private investor would. Therefore, their

continued participation is not the appropriate background against which

to examine the IDC's decision, and we have focused our analysis on the

factors considered by the IDC in making its decision in order to

determine whether it was consistent with the investment practices of a

private investor.

As discussed above, in 1991 and 1992, the partners made detailed

presentations to the IDC of the risks and projected returns of the

project. The IDC agreed to participate in the venture subject to

modifications designed to increase the rate of return of the project by

lowering its initial capital requirements. In 1992, the IDC conducted a

detailed feasibility study to analyze the strengths and weaknesses of

the venture and to project its financial performance, based upon the

expansion of the MS&A facility. This detailed analysis, which Columbus

submitted for the record, is the primary basis for the IDC's decision

to invest in the CJV.

Given the proprietary nature of the feasibility study, the specific

analysis and projections contained in the study cannot be addressed in

this public notice. At verification, we discussed at length this study

and the analysis which preceded it. IDC officials explained how the IDC

conducted its extensive analysis, and tested its projections for

various changes in forecast market and economic circumstances. See

Government Verification Report at 8-9. The study is based on reasonable

assumptions and concludes that the CJV was a viable venture which would

provide a positive real rate of return on the IDC's investment. The

study concludes that the average nominal rate of return for the project

would be 19.13 percent over an appropriate period.

We compared the projected return on the investment to information

available for other investments in South Africa during this period.

Because of the proprietary nature of the feasibility study, this

analysis cannot be detailed in this public notice. See Preliminary

Determination, 63 FR at 47262; Decision Memorandum. The nominal rate of

return of 19.13 percent exceeds government bond yields. The projected

real rate of return is comparable to returns provided by other

investment instruments at the time. We examined the dividend yields on

industrial and commercial shares as reported in the Quarterly Bulletin

of the South Africa Reserve Bank (appended to the August 28, 1998

``Memorandum to the File on Calculations for the Preliminary

Affirmative Countervailing Duty Determination: Stainless Steel Plate in

Coils from South Africa'' (Preliminary Calculation Memo) public version

on file in the CRU). We also examined the return on assets of non-

financial private incorporated businesses as reported by the Reserve

Bank of South Africa on its website: http://www.resbank.co.za (a

printout of the information we examined is appended to Preliminary

Calculation Memo). At verification, we gathered more information about

the commercial investment climate in South Africa in order to inform

our analysis for this final determination. See Banker's Verification

Report. The information on the record indicates that the projected

return was adequate and it supports a finding that the IDC's investment

decision was consistent with the behavior of a reasonable private

investor.

Finally, we examined the structure of the partnership itself, to

determine whether the IDC assumed more than its share of the risks

involved in the venture or less than its share of the potential

earnings. The three partners contributed capital to the venture

equally. They all account for one-third of the project's year-end

results in their financial statements, in accordance with the normal

practice for partnerships. They each hold the same number of seats on

the CJV's board. To the extent that the IDC's commitments and

obligations to the joint venture differ from the other partners, these

differences reflect the IDC's role as an investor, in contrast to the

other partner's experience in industrial operations. Furthermore, the

IDC took steps to protect its level of risk from the investment. For

example, where the IDC has assumed more than its pro-rata share of the

risk, it has required commitments from the other two partners which

result in the risk being shared equally.

While the partnership is structured so that the IDC's role in the

CJV is slightly different from that of the other two partners, the

agreement stipulates equal cash participation, equal representation on

the Board of Directors, and equal distribution of any returns on the

investments. In addition, the IDC protected its investment by requiring

measures to ensure that the risks would be equally distributed among

all of three partners. The IDC recommended ways to increase the

project's earnings potential and negotiated safeguards in the

partnership agreement. The IDC appears to have assumed only an amount

of risk that is commensurate with its level of participation as a

partner.

The IDC's decision to invest in the CJV appears to be based upon a

reasonable analysis that the project was viable, an informed assessment

that the IDC would realize a positive real rate of return on its

investment, and a partnership based on the equal distribution of the

risks. On this basis, we determine that the IDC's capital contribution

into the CJV was not inconsistent with the normal practice of private

investors in South Africa, and thus, does not constitute a

countervailable subsidy within the meaning of the Act.

III. Programs Determined to be Not Used

Based on the information provided in the responses and the results

of verification, we determine that Columbus did not apply for or

receive benefits under the following programs during the POI:

A. Low Interest Rate Finance for the Promotion of Exports (which is the

same program as the Low Interest Rate Scheme for the Promotion of

Exports)

B. Competitiveness Fund

C. Export Assistance Under the Export Marketing Assistance and the

Export Marketing and Investment Assistance Programs

D. Regional Industrial Development Program (RIDP)

IV. Programs Determined to be Terminated

Based on information obtained at verification, we determine that

the following programs have been terminated.

A. Export Marketing Allowance

B. Multi-Shift Scheme

[[Page 15559]]

Interested Party Comments

Comment 1: IDC Participation in the Columbus Joint Venture:

Petitioners contend that the Department did not adequately address all

five factors of the test developed in Final Affirmative Countervailing

Duty Determination: Certain Corrosion Resistant Carbon Steel Flat

Products from New Zealand, 63 FR 37366 (July 9, 1993)(New Zealand

Steel). Petitioners contend that the Department must examine the

following five factors: (1) The (un)willingness of private sector

participants to invest in the project; (2) the relative contributions

of the partners and the expected returns; (3) the feasibility study;

(4) the nature of the project (i.e., the existence of non-commercial

considerations); and, (5) the economic environment prevailing at the

time in South Africa. In addition, petitioners urge the Department to

consider the implementation of Section 37E as a factor which affected

the IDC's investment. Petitioners argue that a full examination of the

five factors must lead the Department to the conclusion that the IDC's

investment was not consistent with commercial considerations, and

therefore constitutes a countervailable subsidy. While petitioners urge

the Department to apply all five factors, and to do so completely,

petitioners suggest that the test be modified to account for the

relevant facts of record and to comport more closely with commercial

reality.

In examining the first factor, petitioners contend that record

evidence shows that the private sector was unwilling to participate in

the CJV project. With respect to the second factor, petitioners further

argue that the Department should consider the expected returns from the

project in the context of its associated risk, and this examination

leads to the conclusion that the returns were relatively low.

Petitioners also argue that the structure of the investment agreement

itself, in particular Highveld and Samancor's option to buy out a

portion of the IDC's ownership, was needed to protect the two partners

from the significant risks at the outset of the project. With respect

to New Zealand Steel factor three, petitioners argue that the IDC's

feasibility study was flawed because it was not an independent analysis

and includes consideration of government actions. In support of this

contention, petitioners cite Steel Wire Rod from Saudi Arabia 51 FR

4206, 4209 (February 3, 1986) and Steel Wire Rod from Trinidad &

Tobago, 49 FR 480, 483 (January 4, 1984), in which the Department

established that only an independent feasibility study provides an

objective analysis of a project's potential returns. According to

petitioners, the fourth factor shows that the parties to the CJV made

non-commercial decisions when they structured the venture as a

partnership in order to maximize the tax benefits, despite statements

in the feasibility study that advocate the contrary. Further,

petitioners contend that the record shows that the CJV expansion would

not have gone forward without the IDC's investment. With respect to the

fifth factor, petitioners maintain that the Department should not

consider the difficult economic conditions in the post-Apartheid era in

which the investment was made, as this could create a loophole allowing

foreign governments to subsidize without consequence simply by claiming

that unique or difficult economic conditions exist. Finally,

petitioners argue that the Department should consider an additional

factor, that the investment was conditioned upon the receipt of Section

37E benefits which, petitioners argue, creates a rebuttable presumption

that the investment is inconsistent with commercial considerations. For

these reasons, petitioners conclude that the IDC's investment is

inconsistent with commercial considerations.

The GOSA and Columbus (respondents) claim that the first New

Zealand Steel factor addresses whether private-sector participants are

willing to invest and not whether private-sector participants in

addition to those already participating are willing to invest in a

project. With respect to the second factor, respondents maintain that

the record does not support petitioners' contention that the risk was

extremely high. When considering the third factor, respondents argue

that it is incorrect to liken the IDC's feasibility study with that

analyzed in New Zealand Steel, because Section 37E had already been

implemented unlike the commitments of the government in New Zealand

Steel. In addition, respondents argue that the IDC feasibility study

was objective and contained full analysis of the relevant

considerations including a realistic projection of the stainless steel

market. With respect to the ``nature of the project,'' the structure

and capitalization of the CJV, respondents note that it is common in

South Africa to structure an undertaking as a joint venture rather than

a company, and the IDC has often used this structure for other projects

in which it is involved. Respondents argue that there is no evidence to

conclude that the project would not have gone forward absent the IDC's

participation. Lastly, respondents maintain that the final project

study and the IDC's decision to participate in the CJV were not

conditioned on the receipt of Section 37E benefits, as verification

documents indicate.

Department's Position: As a threshold matter, the analysis

conducted in New Zealand Steel does not constitute a ``test,'' or

establish a standard that the Department must follow in analyzing every

joint venture in which a government or government entity participates,

as petitioners suggest, and therefore their reliance on New Zealand

Steel is misplaced. Petitioners' identification of the ``five factors''

is an inaccurate interpretation of the analysis in New Zealand Steel.

Furthermore, the facts in this case are sufficiently different from

those in New Zealand Steel to support a conclusion different from the

one reached in that case, i.e., that the IDC's investment in the CJV is

not countervailable (see the ``IDC Participation in the Columbus Joint

Venture'' section above). Nevertheless, we address the elements of

petitioners' arguments below.

In New Zealand Steel, the Department did not directly address the

unwillingness of the private sector to participate in the project.

Rather, the Department determined that ``the participation of NZS (the

private sector participant) was not dispositive that the GONZ's

investment was consistent with commercial considerations.'' New Zealand

Steel at 37368. We made a similar finding in our preliminary

determination: The continued participation of Highveld and Samancor

``is not the appropriate background against which to examine the IDC's

decision'' because of the substantial resources the two partners

already had at stake by this time. Preliminary Determination at 47266.

We stand by this finding and therefore disagree with respondents'

position that the participation of Highveld and Samancor by itself

satisfies this factor. However, we also disagree with petitioners that

the inability of Highveld and Samancor to secure a foreign partner

(efforts to conclude a partnership arrangement with a Taiwanese company

were unsuccessful) is dispositive of private sector unwillingness to

invest in the project. At verification, we discussed the Taiwanese

investor, and the record shows that the existing two partners were

willing to use their substantial resources to provide certain

guarantees for the Columbus project, but that the Taiwanese investor

was unwilling to provide the same guarantees in return. The two

existing partners were interested in finding another partner to share

the risk equally. See December 18,

[[Page 15560]]

1998, ``Memorandum to David Mueller, Director, Office of CVD/AD

Enforcement VI, on Verification of Information Submitted by Columbus

Stainless, Ltd. and the Columbus Joint Venture in the Countervailing

Duty Investigation of Stainless Steel Plate in Coils from South Africa

(C-791-806)'' (Company Verification Report) at 10, public version on

file in the CRU. Furthermore, despite the general optimism nascent in

South Africa at the time, there were still very few companies with the

resources necessary for the project, and two of those companies were

already involved in the project through their subsidiaries, Highveld

and Samancor.

As with the first factor, the second factor, the relative

contributions and the expected returns, is not clearly identified or

addressed in New Zealand Steel. Regardless, we reject petitioners'

contention that we overlooked the risk and focused unduly on the

return. Our preliminary determination stated that we found the returns

projected in the IDC feasibility study were acceptable, and adequate to

support the IDC's investment (Preliminary Determination at 47266). The

feasibility study also contains an extensive analysis of the risk,

which we discussed at length at verification. Company Verification

Report at 9-10. In preparing the feasibility study, the IDC performed

numerous sensitivity analyses to determine the result on projected

returns of changes in variables related to the technical, marketing,

and financial aspects of the project, including future demand for

stainless steel, and world capacity for stainless steel production. The

IDC determined that the investment provided acceptable returns even in

the event of these contingencies. In addition, the IDC was deliberate

and objective in evaluating the project and prepared more conservative

projections (higher funding requirements and lower projected returns)

than the two partners had, and still determined the project's risk/

return profile to be within its investment parameters, parameters which

we find to be comparable to those that a private investor would accept.

In short, there is nothing about the project's risk vs. return that

indicates the IDC's investment is inconsistent with the usual

investment practice of private investors. Furthermore, it is not

appropriate, as petitioners urge, to conclude that the lack of

willingness on the part of the private sector indicates that the risks

outweighed the returns. The appropriate focus of our analysis is the

basis for the IDC's decision, the feasibility study. We also disagree

with petitioners' contention that the buy-out provision is one which

affords Highveld and Samancor undue protection from the project's risk.

To the contrary, we believe this provision protects the IDC's

investment and enables the IDC to recover most of its investment with a

guaranteed return, an option not available to the other two partners.

(At verification, IDC officials indicated that the IDC commonly seeks

to recover its capital in the medium term so it can use its resources

elsewhere. The IDC has begun to formalize this strategy, as indicated

in the CJV Agreement. See Government Verification Report at 6.)

Unlike the first two ``factors'' petitioners identify in New

Zealand Steel, the third factor, the feasibility study, is clearly

identified and addressed in New Zealand Steel (58 FR at 37368).

However, we find that the facts in New Zealand Steel differ

considerably from those presented here. In that case, the Department

discounted the objectivity of the feasibility study because so many of

its assumptions and conclusions were premised on ``the implementation

of specific commitments by the GONZ, such as the assurance of certain

financing, domestic market share, supply of raw materials, and

favorable tax treatment, in their projections of the revenues of the

project. Therefore, we find that the studies did not present an

objective assessment of the viability of the project, based on market

conditions.'' Id. The commitments of the GONZ were made solely for the

benefit of the steel producer. In other words, a private investor,

considering the same investment, would not have been able to control

the variables as the GONZ could (market share, tax treatment, raw

materials supply), and the projections in the feasibility study were

premised on controlling those variables.

In this case, as discussed above, we find that the IDC's

feasibility study was objective, and the availability of Section 37E

benefits was objectively accounted for in the feasibility study. (As a

tax-paying entity, the IDC appropriately analyzed the effects of this

tax program.) As IDC officials explained at verification, ``[a]lthough

the absence of 37E would have meant a higher level of capital

expenditures, the projections were still within the range of what the

IDC was prepared to undertake.'' Government Verification Report at 10.

Furthermore, we disagree with petitioners' assumption that the

feasibility study was not objective because it was not independently

prepared. At verification, an independent third party noted that ``many

commercial interests respect the IDC for its expertise in conducting

feasibility studies.'' Banker's Verification Report at 2. As we noted

in the Preliminary Determination, the IDC withheld its decision to

participate subject to modifications in the proposed project. 63 FR at

47266. This IDC action supports a conclusion that the IDC was actively

engaged in shaping the financial and operational structure of the

project, in order to protect its investment, as a commercial investor

would do. Thus, we determine that the analyses and conclusions

contained in the feasibility study are objective, and support a

determination that the IDC's investment was not inconsistent with the

usual investment practice of private investors.

We disagree with petitioners that the ``nature of the project,''

i.e., its structure as a joint venture partnership, rather than as a

corporation, indicates that the IDC's investment was inconsistent with

commercial considerations. To the contrary, we agree with respondents

that this structure supports a conclusion that the investment was not

countervailable. Record evidence shows that the tax advantages of the

partnership structure are clear, particularly for a capital-intensive

start-up company expected to sustain tax losses for several years. The

partners' interest in maximizing those tax advantages shows all three

of them to be acting as commercial actors, and making commercially-

consistent financial decisions. Furthermore, since we find that the

feasibility study which provided the basis for the IDC's investment

decision was objective and commercially consistent, it is not relevant

to our analysis whether the project would have gone forward without the

IDC's participation. However, we note that record evidence indicates

that the two partners had enough at stake and the resources to go

forward without the IDC; they ultimately had no reason to do so.

With respect to the fifth factor, we agree with respondents that we

do not have before us any arguments with respect to the economic

environment as a factor for analyzing the IDC's investment in Columbus.

Furthermore, in New Zealand Steel, we stated that ``analysis of the

economic environment is irrelevant,'' 58 FR at 37369, and we find no

reason to address that factor here.

Finally, we disagree with petitioners' argument that the IDC's

investment was conditioned on the receipt of Section 37E benefits.

While record evidence shows that this tax program enabled the partners

to reduce their capital outlays, and that the IDC deferred its

participation until that program was

[[Page 15561]]

implemented, the record also shows that the IDC did consider its

investment in the absence of Section 37E and found that it provided

acceptable returns nevertheless. The IDC's deferral was a commercially

sound action taken to ensure that the IDC would be able to both

consider all variables prior to making a final commitment and maximize

its projected return.

Comment 2: Specificity of Section 37E and IDC/Impofin Programs:

Respondents argue that, although the Department correctly found that

both the Section 37E and the IDC/Impofin lending programs were not de

jure specific, the Department's finding that the programs were de facto

specific was incorrect. Respondents contend that the Department failed

to satisfy the preconditions of any inquiry into the possibility of de

facto specificity, which is only to be made when ``there are reasons to

believe that a subsidy may be specific as a matter of fact.'' See

section 771(5A)(D)(iii) of the Act (implementing Article 2.1(c) of the

WTO Agreement on Subsidies and Countervailing Measures (SCM

Agreement)). Respondents contend that the Department made no effort to

satisfy this precondition in its preliminary determination and

``leaped'' from a determination of no de jure specificity to an

application of the de facto specificity criteria without first

identifying the reasons to believe that such specificity might exist.

Thus, the Department's specificity finding is invalid as a matter of

law.

Petitioners argue that respondents have overstated the statutory

requirements. While both the statute and the SCM Agreement contain the

``reasons to believe'' language, the law does not require the

Department to make or publish findings with respect to the ``reasons to

believe'' that a subsidy may be de facto specific. Respondents'

arguments read a requirement into the law that does not exist. In

addition, petitioners argue that the Department's analysis of a

domestic subsidy inherently demonstrates the agency's reasons to

believe that a subsidy may be de facto specific. Petitioners cite the

initiation standard (section 702(b)(1) of the Act) which instructs the

Department to initiate an investigation when the elements necessary for

the imposition of a countervailing duty are alleged, and conclude that

a decision to initiate an investigation of a program implies that the

Department has a reason to believe the subsidy may be de facto

specific. Furthermore, petitioners note that the petition contained

information which provided the Department with reasons to believe that

both the Section 37E and the IDC/Impofin programs may be de facto

specific.

Petitioners contend that respondents ignore the fact that a de jure

specificity analysis necessarily involves examining whether there are

reasons to believe that a subsidy may be specific as a matter of fact;

in the context of specificity in general, the Department examines the

same factual information: eligibility criteria, application process,

program records, and the identity of recipients. Finally, petitioners

note, and cite numerous examples of, the Department's longstanding

practice of first examining whether a subsidy is de jure specific and

then proceeding to the de facto analysis. Petitioners argue that if

this practice conflicted with the SCM, this conflict would have been

addressed in the Statement of Administrative Action (SAA), which

instead affirms the Department's practice in analyzing the de facto

specificity of domestic subsidies. Thus, petitioners reject

respondents' argument that the Department's analyses and determinations

that Section 37E and IDC/Impofin are de facto specific are inconsistent

with both the statute and the SCM.

Department's Position: We disagree with respondent's interpretation

of the ``reasons to believe'' language in section 771(5A)(D)(iii) of

the Act. It is not stated as a precondition to a de facto analysis and

we do not interpret it as such. While the language is part of the

definition of de facto specificity it is not presented as a threshold

requirement for positive evidence to justify an inquiry into how widely

available a subsidy, in fact, is. The type of program itself (e.g., a

development loan program) may be sufficient reason to believe that it

may, in fact, be limited to a specific industry or group of industries.

In contrast, there is normally no reason to believe that other types of

programs (e.g., standard tax deductions ) that are, de jure, available

to all businesses would, in fact, be specific. Thus, the Department

would not be required to perform a de facto analysis of such a program.

The nature of the subsidy at issue here warrants a de facto analysis.

Moreover, we note that the allegations in the petition would be

sufficient to meet even the higher standard that respondent would have

us employ.

Comment 3: de facto Specificity of Section 37E: Respondents argue

that in finding Section 37E to be de facto specific, on the basis that

the actual recipients of the subsidy, whether considered on an

enterprise or an industry basis, are limited, the Department also

ignored its statutory obligation to ``take into account the extent of

diversification of economic activities within the jurisdiction of the

authority providing the subsidy, and the length of time during which

the subsidy program has been in operation.'' See Section

771(5A)(D)(iii) of the Act. Respondents argue that the Department's

failure to consider these conditions renders invalid the Department's

finding that Section 37E is de facto specific. Respondents contend that

if the Department takes these two factors into account, the Department

will find that the recipients of Section 37E are not limited in number.

Respondents cite the verification report, which shows that nine

industries in six (of eleven) provinces, have benefitted from Section

37E. Respondents argue that economic sanctions led to the

diversification of the South African economy in the early 1990s, but

that many of the industries were not world-competitive, relied on

outdated technology, and were oriented to the domestic market, i.e.,

these industries would not be viable in an open economy. Thus, very few

companies were in a position to take advantage of Section 37E.

Respondents note that the applicants for Section 37E were further

limited by statutory criteria (to add at least 35 percent to the raw

material value, to be internationally competitive, to use foreign

credits to import capital goods), reflecting the GOSA's objective to

encourage growth in capital investment and employment. Thus, the most

likely projects to receive approval were ``mega-projects'' in terms of

capital, cost, timing and output, and such projects were rare.

In addition, respondents note that Section 37E was in operation for

only two years. The program's brief lifetime, therefore, further

restricted the pool of potential claimants. Respondents have provided a

letter from a former official of the Department of Trade and Industry

(DTI) who was involved in the development and administration of Section

37E. This letter demonstrates, according to respondents, that given the

economic conditions in South Africa at that time, 19 applications and

13 approvals were considerably more than had been expected. The 13

approved companies, according to the DTI official, reflected a spread

of activity, size and geographic location, and viewed in the South

African context, were not limited in number.

Petitioners argue that the GOSA's concession that the statutory

criteria limited the number of companies that could receive Section 37E

benefits supports a conclusion that Section 37E is de jure specific,

regardless of the extent of economic diversification in

[[Page 15562]]

South Africa. Petitioners note that verification documents show that

the original purpose of Section 37E was to benefit mineral

beneficiation projects, including Columbus. Petitioners further note

that the GOSA's statement that the number of applicants was

``considerably more than had been expected'' implies that, contrary to

GOSA's claim, the statute was implemented to assist a few select

industries and was not intended as a broad-based economic stimulus.

Thus, the Department should find not that the limited economic

diversification curtailed the potential number of program

beneficiaries, but that the law itself limited access to Section 37E,

making it de jure specific.

Petitioners also argue that Section 37E is de facto specific. In

making this argument, petitioners reject the GOSA's statement that

because nine different industries benefitted, the program was widely

used. Petitioners believe that the industrial breakdown provided by the

GOSA incorrectly disaggregates the industry groups and that stainless

steel, steel, aluminum, and ferrochrome should be considered as the

``metals'' industry, reducing to six the number of industries

benefitting from Section 37E. Finally, petitioners cite to the IDC's

1997 Annual Report, which shows the IDC's involvement in many different

sectors, in rejecting the GOSA's claim that there were few viable and

diversified sectors in the South African economy.

Finally, petitioners maintain that the short operation period of

Section 37E did not necessarily limit the number of program users.

Petitioners argue that since not all of the companies that were

approved for the program actually used it, some of the approved

companies may have applied without any definite investment plan, merely

to keep open the option to use the program in the future. Petitioners

conclude that, paradoxically, the narrow window of 37E operation may

have actually increased the number of applicants, rather than limiting

it.

Department's Position: We note, as explained in the ``Section 37E

Tax Allowances'' section above, that we have reconsidered our treatment

of Section 37E and find, for purposes of our final determination, that

it is specific because it constituted an export subsidy for purposes of

section 771(5A) of the Act at the time the CJV partners applied and

received approval for its benefits. Therefore, we need not address

respondents' arguments with respect to the de facto specificity of

Section 37E benefits.

Comment 4: Benefits Under Section 37E: Petitioners contend that the

Department should recognize the benefit under the Section 37E program

as the full amount of the tax allowances claimed by Columbus, rather

than use the time-value of money approach which the Department used for

the preliminary determination. Petitioners advance two arguments in

support of this proposed approach. First, petitioners contend that the

verified record questions whether the Columbus expansion project would

have gone forward without the availability of the 37E program to reduce

the expansion's capital requirements. This, in turn, raises doubts

about the potential receipt by the CJV partners of section 12C

depreciation allowances. In other words, petitioners argue that if the

CJV expansion had not gone forward (which it did, petitioners contend,

only because of the existence of the 37E program), then the CJV

partners would never have claimed any tax allowances related to

Columbus, even the depreciation allowances normally available to all

taxpayers under section 12C. Thus, petitioners contend that the

Department's preliminary determination was inappropriately premised on

the assumption that Columbus was clearly otherwise entitled to receive

normal depreciation allowances under section 12C. Petitioners also

contend that the Department erroneously calculated the benefit as the

difference between the depreciation allowances allowed under Section

37E and those normally available under section 12C (reducing the

benefit to the time-value of money difference), rather than assuming

that the full value of the allowances constituted a countervailable

subsidy. In support of this argument, petitioners cite to the recently

published countervailing duty regulations, which acknowledge the

problems inherent in speculating upon future tax benefits to a company

in relation to accelerated depreciation.

Second, petitioners argue that the Section 37E program provides for

the accelerated write-off of assets and therefore should be treated as

an accelerated depreciation program by the Department, that is, the

full amount of the allowances should be treated as a grant in the year

of receipt consistent with the Department's practice. Petitioners

reject the Department's time-value of money approach with respect to

Section 37E, claiming that the Department itself has consistently

rejected such an approach to accelerated depreciation programs, and

treated the benefits provided by those program as grants in the full

amounts of the accelerated depreciation claims. The Department's

rejection of this approach is explicit in the new countervailing duty

regulations. See Countervailing Duties; Final Rule, 63 FR 65348, at

65376 (November 25, 1998) New Regulations. In conclusion, petitioners

note that without Section 37E, there would have been no Columbus

expansion, and therefore no depreciation allowances, either under

Section 37E or 12C. Thus, the Department should not discount the value

of these benefits based upon speculation about what Columbus may have

received in the future under the South African tax code and should

treat the full amount of the Section 37E allowances as grants in the

years of receipt.

In addition, petitioners support the Department's treatment of

benefits under Section 37E as non-recurring benefits.

Respondents argue that to capture the full amount of the Section

37E benefits, without recognizing the applicable time-value of money

discount, is to ignore record evidence which shows that in the absence

of Section 37E, deductions in the same value were fully allowable under

section 12C from the date of Columbus' commissioning, October 1, 1995.

This record evidence clearly shows, according to respondents, that the

benefit is merely a matter of timing: under Section 37E, the Columbus

partners were able to claim the depreciation allowances (available

under both sections 37E and 12C) beginning at the time the relevant

expenses were incurred, rather than waiting nearly two years until the

equipment was in use.

Department's Position: We disagree with both of petitioners'

arguments for treating the total value of Section 37E allowances as

grants. First, whether the Columbus project would have gone forward

absent the existence of the countervailable depreciation allowances

under Section 37E is not relevant to our examination of the program and

its benefits. While petitioners are correct in noting that, without the

investment in the CJV, Columbus' partners would have claimed no

depreciation allowances, either under Section 37E or the otherwise

governing section 12C, it is not appropriate to speculate about the tax

positions of the partners absent the investment which gave rise to the

depreciation allowances (regardless of which provision of the tax code

governed). It is the Department's long-standing practice to recognize

that ``a benefit exists to the extent that the taxes paid by a firm as

a result of the program are less than the taxes a firm would have paid

in the absence of the

[[Page 15563]]

program.'' See 1989 Proposed Regulations 54 FR at 23372. In other

words, the Department appropriately focused on the Columbus expansion

project, and compared the tax experience (in this case of the partners)

under the countervailable Section 37E program with the experience which

would have prevailed absent the program. In the factual circumstances

in this case, the Columbus partners' tax experiences in the absence of

the investment are not relevant in quantifying the benefit provided to

respondents from the Section 37E program.

Furthermore, petitioners' statement that the Department wishes to

avoid speculating on the future tax benefits to a company is misplaced

for two reasons. In general, and consistent with the Department's

practice of recognizing a benefit at the time that it is received, the

Department avoids calculating tax benefits which are contingent on a

company's future tax position--if a company is in a tax loss position

during the POI or for a prolonged period, benefits from countervailable

tax deductions or tax credit programs may not materialize. In

particular, petitioners overlook two details in this case which remove

any speculation from the Department's analysis: the existence of the

Section 37E program reduced the partners' projection of the project's

capital requirements and therefore resulted in a cash flow impact at

the time the partners' investments were made (see Preliminary

Determination at 47265); and, the provision of the Negotiable Tax

Credit Certificates (NTCCs) which the users of the program could

receive and convert into cash if they were in a tax-loss position

(depreciation allowances under Section 12C can only be used as

deductions to taxable income and therefore have no immediate value to

taxpayers in tax-loss positions). Thus the cash-flow of the Section 37E

benefits to the CJV partners is immediately measurable, and its timing

is easily pinpointed; there is no speculation about the value of the

countervailable allowances as there would be if the allowances were

available only as deductions to taxable income and we were examining a

company in a tax-loss position.

We also disagree with petitioners that it would be appropriate to

treat the tax benefits under Section 37E as accelerated depreciation.

As a threshold matter, Section 37E does not operate like an accelerated

depreciation program, which allows its users to depreciate assets over

an accelerated (i.e., shorter) period of time. For example, where

companies are normally allowed to depreciate equipment over 20 years,

accelerated depreciation would allow for depreciation over ten years.

Such a program would provide tax savings, vis-a-vis the normal

depreciation schedule, over the period of the accelerated depreciation,

in this example ten years. We would normally treat this tax savings as

a recurring subsidy and allocate the benefits to the year in which tax

savings were achieved.

However, we note that Section 37E does not function like an

accelerated depreciation program. As respondents reported, and as was

confirmed at verification, users of this program depreciate their

capital equipment, buildings and machinery, over the same five-year

period allowed under section 12C, the tax code provision governing

depreciation. We agree with respondents that the advantage which

Section 37E allows is that companies can begin depreciating equipment,

buildings and machinery, in the year in which the purchases of the

equipment are made, rather than having to wait until the equipment is

in use, as they would under section 12C. As we verified in the case of

Columbus, a large, capital-intensive project with a necessarily long

construction period, the use of Section 37E enabled the partners to

claim depreciation allowances two or three years in advance (depending

on the partner's tax year). (Capital equipment purchases began in 1993

and the plant was officially commissioned on October 1, 1995. The

plant's commissioning date was established by the South African tax

authorities, as equipment purchases made beyond that date were not

eligible for Section 37E depreciation.)

Thus, the benefits under this program are twofold: the opportunity

to claim the depreciation allowances in advance of the time a company

would otherwise be able to do so--that is, the time value of receiving

the allowances in advance; and, the ability to turn the allowances into

cash, through the use of the NTCCs, if a company has no tax liabilities

to reduce with the depreciation allowances which would otherwise

constitute tax deductions. Therefore, we will continue to use the

calculation methodology we used for the purposes of the preliminary

determination, with only the modifications indicated in the discussion

of the program above and in the Department's Position on Comment 5

below.

Comment 5: Calculation Methodology for Section 37E: Respondents

note that if the Department persists in finding Section 37E benefits

countervailable, the Department must correct errors in the calculation

of the subsidy rate. Respondents argue that the Department should

calculate the time-value of money, and thus the grant equivalents of

Columbus' Section 37E advanced depreciation claims, only for Section

37E allowances claimed prior to the date of Columbus' official

commissioning--October 1995. Respondents contend that depreciation

claims for years after that date do not result in countervailable

benefits to Columbus' partners because, after commissioning, the

partners would have begun claiming depreciation of Columbus' assets

under section 12C; these claims would have been in the same value as

and contemporaneous to depreciation allowances claimed under Section

37E. Therefore, respondents contend that Columbus only benefitted from

advanced depreciation under Section 37E for the years 1995/1996

(depending on the partners' respective tax years) and earlier. They

propose that the benefit is limited to the time-value of money realized

by the depreciation claims made for years for which Columbus otherwise

could not have claimed depreciation.

Petitioners reject respondents' proposed corrections to the

calculations on two accounts. First, petitioners reiterate their

argument that the time-value of money treatment is flawed and has been

rejected by the Department (see Department's Position on Comment 4

above). Second, petitioners argue that respondents' proposed correction

rests on an erroneous analytical assumption with respect to the timing

of depreciation claims (the details of which are proprietary).

Department's Position: We disagree with respondents that Columbus

benefitted from Section 37E only to the extent that the partners

claimed depreciation allowances for years for which they otherwise

could not have claimed depreciation allowances under section 12C. As

explained above, by claiming depreciation in advance, Columbus'

partners were able to realize capital savings which directly reduced

the projects's financing requirements. Section 37E benefits were more

than just a tax benefit. Therefore, the advanced depreciation claimed

under Section 37E results in an ongoing benefit to the company, and the

Department correctly found a benefit to Columbus in the advanced

depreciation claimed under Section 37E throughout the length of the

depreciation schedule. In other words, for each of the five years of

the depreciation schedule, we calculated a grant equivalent; we then

allocated each grant equivalent over the AUL of 15 years.

[[Page 15564]]

With regard to the contentions that the preliminary calculations

contained errors, we have reviewed the calculation methodology used for

our preliminary determination and have made corrections. For the

preliminary determination, we incorrectly used two years as the sole

basis for determining the time value, and thus the grant equivalent, of

the advanced depreciation claimed under Section 37E by the three

Columbus partners in each year of the depreciation schedule. We have

adjusted our final calculations to reflect two years as the basis for

calculating the time value of the yearly claims made by Highveld and

three years as the basis for calculating the time value of the yearly

claims made by Samancor and the IDC. This adjustment reflects the

different tax years of the companies, the actual timing of the

companies' tax claims, and their actual receipt of benefits under the

program.

Comment 6: De Facto Specificity of IDC/Impofin Lending:

Notwithstanding what respondents view as the Department's failure to

satisfy the statutory preconditions to a de facto specificity analysis,

discussed in Comment 2 above, respondents argue that the IDC/Impofin

program is not de facto specific. The preliminary determination was

based on the fact that the ``fabricated metal products'' and the

``basic metal products'' industries are predominant users of the

program and that these industries have received more than fifty

percent, by value, of the total loan guarantees awarded over the life

of the program. Preliminary Determination at 47266. Respondents argue

that by examining value, the Department did not account for the three

``mega projects'' in the basic metal manufacture industries; these huge

and extraordinary projects necessarily skew the results of any analysis

based on value. Respondents note that in order to properly evaluate

whether there is a predominant user of a program, one must analyze the

number of loans and their distribution by industry, not the value of

the loans and the distribution of that value by industry. Respondents

cite verification documents which show no predominant user on this

basis: 12 percent of approvals were for the basic metal manufacturing

and fabricated metal products industries; the mining industry received

14.7 percent; the pulp and paper industry and the engine and vehicle

industry each received 11.2 percent.

Respondents further note that the South African economy is

dependent on the beneficiation of local raw materials for economic

growth. The abundance of minerals and energy resources present

competitive advantages for large-scale beneficiation; thus, investment

in industrial infrastructure, in value terms, favors large

beneficiation projects. These competitive advantages are centered in

South Africa's basic metal manufacture industry. The fact that

industrial development initiatives and the accompanying IDC/Impofin

financing are weighted by value toward this industry does not indicate

disproportionate use; rather, respondents conclude, it is a valid

reflection of the sources available for beneficiation.

Petitioners note that respondents' comparison of the number of

users, without examining the distribution of benefits, suggests not

that the program was disproportionately used but rather that the steel

industry was a dominant user of the program. Petitioners argue that the

statute does not require the Department to make an exception for ``mega

projects'' which may skew the distribution of benefits, and that this

factor would necessarily lead the Department to a de facto specificity

finding based on disproportionate use. According to petitioners, the

Department cannot view only the number of projects without considering

the relative weights of assistance by enterprise, industry, or group

thereof. In addition, petitioners note that the Department's

examination of IDC/Impofin financing over a seven-year period accounts

for any ``skewed'' result caused by a mega-project in a particular

year. Petitioners also note that the sectoral distribution of benefits

was confirmed at verification.

Department's Position: We stand by our preliminary determination

that the IDC/Impofin loan guarantee program provides benefits which are

de facto specific to an enterprise, industry, or group thereof within

the meaning of section 771(5A)(D)(iii) of the Act. We disagree with

respondents' suggestion that the appropriate basis for our analysis is

the number of loan guarantees and their distribution by industry and we

note the Department's practice of examining the distribution of

benefits, by value, when analyzing whether a program is de facto

specific because an industry or group of industries is the predominant

user of the program or receives a disproportionate share of the

benefits granted under a program. See, e.g., Final Affirmative

Countervailing Duty Determination: Certain Stainless Steel Wire Rod

from Italy, 63 FR 40474, 40485 (July 29, 1998). Respondents' statement

that there were three ``mega-projects'' which necessarily skewed the

distribution of benefits in fact supports the Department's specificity

finding. In our preliminary determination, we found that the

information provided by the IDC regarding the distribution of benefits

(by value) over the life of the program showed that the ``basic metals

manufacture industry'' (which includes the manufacture of stainless

steel) and the ``fabricated metal products industry'' together received

more than half of the loan guarantees awarded over the life of the

program. See Preliminary Determination, 63 FR at 47266. In fact,

information which respondents submitted with their brief enables us to

refine our finding of de facto specificity for this final

determination. This information shows that, by value, the steel

industry (including stainless steel) received more than half of all

loan guarantee approvals (the rest of the industries using the

program--including the mining, agriculture, and chemical industries,

among others--together accounted for less than half of the loan

approvals by value). This is clear evidence that the steel industry is

a predominant user of this program and thus it is de facto specific.

Furthermore, if we perform an analysis of the information which

respondents presented in their case brief parallel to the analysis in

our preliminary determination, this information shows that the basic

metals manufacture and the fabricated metal products industries

received more than three-quarters of all loan guarantee approvals, by

value. Thus, these two industries together are clearly predominant

users of the program.

By examining the distribution of benefits over time, the Department

accounts for any anomalous industry-specific activity in a particular

year. The fact that three mega-projects received the bulk of the loan

guarantees supports our finding of de facto specificity based on

predominant use, as these three projects are in the basic metal

manufacture industry (basic iron and steel, stainless steel and

aluminum). Finally, the information which respondents have provided

with respect to the South African economy's dependence on the

beneficiation of raw materials is not relevant to our analysis.

Comment 7: Calculation Methodology for IDC/Impofin Lending:

Respondents argue that the interest rates which Columbus paid for IDC/

Impofin financing were not preferential, as they were established by

reference to independently-prescribed rates that reflected prevailing

market conditions. The interest rates for the loans were either the

Commercial Interest Reference Rate (CIRR) or the London Interbank

Offered Rate (LIBOR) plus a

[[Page 15565]]

margin. The CIRR were fixed by the foreign export credit agency (ECA)

for the full loan term at the time of the loan negotiation and

contract; the LIBOR-based rates were variable rates.

For all of the loans, respondents note, Columbus paid to the

foreign banks management and commitment fees, typically 0.5 percent and

0.25 percent, respectively, and to the IDC/Impofin a facility

(guarantee) fee of 0.25 percent. Respondents argue that these fees were

comparable to fees paid by other borrowers. In addition, for some of

the loans, Columbus paid export credit insurance premiums to the banks,

which in turn paid these fees to their respective export credit

agencies. Respondents argue that there is no evidence in the record

that the various fees and premiums paid by Columbus were preferential.

Petitioners argue that regardless of how the interest rates were

established (by the CIRR or LIBOR), the verification report indicates

that the rates were clearly not based upon loans to Columbus; rather

they were ``based on the risk associated with lending to the IDC.''

(Government Verification Report at 11-12.) Since, as the verification

report indicates, ``foreign banks like to use the IDC as a borrower

because they do not have to investigate the credit of each borrowing

firm,'' id., petitioners argue that the interest rates paid by Columbus

program are preferential.

Petitioners also contend that Columbus would not have received

financing without the IDC and GOSA guarantees. Petitioners note that,

because the IDC was a partner, Columbus did not have to formally apply

for financing or undergo the IDC's risk assessment; foreign lenders

required the IDC to guarantee the loans because Columbus had no

established credit history; and, some countries required an additional

back-up guarantee from the GOSA. Id. at 13. Petitioners contend that

this information further demonstrates that IDC financing conferred a

benefit.

Department's Position: As discussed in the ``IDC/Impofin Loan

Guarantee Program'' section above, the Department has revised the

analysis of the program from the preliminary determination. Because

these loans originate either with foreign government export credit

agencies or offshore foreign banks in coordination with foreign

government export credit agencies, which are not under the direction or

control of the GOSA, the loans themselves are not countervailable and

it is inappropriate to compare the interest rates charged by offshore

foreign banks to commercial interest rates in order to determine

whether the program provides a benefit to Columbus. For the same

reason, an examination of the fees paid to the foreign government banks

is inappropriate. Thus, respondent's and petitioners' comments on the

benchmark, fees to foreign government banks, and whether the program

provides a benefit using this type of analysis, need not be addressed.

Instead, we have determined that it is appropriate to focus on the fee

charged by the IDC for the guarantee on these loans.

With respect to respondent's comment that there is no evidence that

the fees charged by the IDC were preferential, we disagree. As

discussed in greater detail in the ``IDC/Impofin Loan Guarantee

Program'' section above, we have determined, based on conversations

with an independent banker in South Africa, that a commercial bank

would offer Columbus similar guarantees at a slightly higher rate,

0.375 percent. Thus, when we compare what Columbus paid the IDC for the

provision of guarantees, 0.25 percent, and what it would have paid a

commercial bank, 0.375 percent, we find that the IDC did provide a

financial contribution that confers a benefit within the meaning of the

Act.

Comment 8: IDC/Impofin Financing Calculation Adjustments:

Petitioners argue that the Department's calculations for the IDC/

Impofin financing understate the benefits to Columbus from this

program. First, petitioners urge the Department to adhere to the

preliminary determination, in which the Department stated that it would

gather information about commercial fees and add an appropriate amount

to the benchmark for the purposes of calculating the benefit for the

final determination. Second, petitioners urge the Department to treat

interest capitalizations not as interest payments but as increases in

principal and to avoid double-counting the payment of capitalized

interest in calculating the net present value. Third, in the absence of

any record information regarding grace periods on loans in South

Africa, petitioners argue that the Department should capture any

countervailable benefits associated with the grace periods granted to

Columbus for its IDC/Impofin financing. Fourth, the Department should

correct errors which resulted in the finding of no benefit for some of

the loan tranches examined. Finally, the Department should include in

its loan calculations several loans, outstanding during the POI, which

were omitted from Columbus' questionnaire responses and which were

discovered at verification.

Respondents argue that since the Department's de facto specificity

finding is in error, and the interest rates provided on the IDC/Impofin

financing are not preferential, there is no need to comment on the

manner in which the benefit should be calculated.

Department's Position: As discussed above, we have changed our

analysis of the IDC/Impofin loan program. Thus, we need not address

petitioners' comments with respect to adding fees to the benchmark,

interest capitalization and grace periods. The Department did collect

information about the guarantee fees that commercial banks charged, and

based on this information, we have calculated a benefit comparing what

Columbus paid the IDC to guarantee the loans under this program and

what Columbus would have paid on comparable commercial guarantees. We

have included the fees paid during the POI on loan tranches that were

discovered at verification in our calculation of the benefit from the

program.

With respect to Respondent's comment, we disagree. As discussed in

the program description above and the Department's Position on Comment

6 above, we find that the IDC/Impofin loan guarantee program is de

facto specific.

Comment 9: Discount Rate: Petitioners argue that the Department

should adjust the discount rate used in the preliminary determination

because, although the Department relied on the long-term South African

government bond rate as the discount rate, the Department noted its

interest in finding a more appropriate rate for the final

determination. Petitioners contend that discussions at verification of

the Prime Overdraft rate (the rate at which commercial banks lend to

their best customers), and the spreads added to it, support the use of

this rate plus 50 to 60 basis points as the discount rate for the final

determination.

Respondents note that the CIRR and LIBOR are the appropriate

benchmark interest rates, and that application of these rates yields no

countervailable benefits from the IDC/Impofin loans. Therefore, a

benchmark based on South African lending rates is irrelevant.

Department's Position: Petitioners are correct that the Department

expressed interest in finding an alternative discount rate for use in

the final determination. However, as discussed in the section entitled

``Discount Rates'' above, we did not find an alternative long-term

fixed interest rate. Thus, for the purposes of this final

determination, we have constructed a discount rate by averaging the

government bond rate as

[[Page 15566]]

reported by respondents with the ``Lending Rate'' reported in

International Financial Statistics, December 1998, published by the

International Monetary Fund. By averaging these two rates, we believe

that we have identified a rate more appropriate than the rate used for

the purposes of the preliminary determination, a rate which includes

the necessary characteristics of both long-term borrowing and

commercially-available interest rates.

We disagree with petitioners' suggestion of using the Prime

Overdraft rate plus 50 to 60 basis points, as that rate is not a long-

term fixed interest rate. Respondents' comment is misplaced as the

original comment addressed the choice of discount rates for use in

calculating the benefit from non-recurring subsides, not the benchmark

used in calculating the benefit from the IDC/Impofin loan program. The

calculation methodology for the IDC/Impofin loan program is discussed

in the Department's Position on Comment 8, above.

Comment 10: Average Useful Life of Assets: Petitioners argue that

the Department should use five years as the average useful life of

assets (AUL), as facts available, for purposes of allocating non-

recurring benefits over time. In support of this argument, petitioners

note that Columbus did not provide information that would allow the

Department to calculate an AUL, despite the Department's repeated

requests for such information. Petitioners note that the statute

justifies the Department's use of adverse facts available (see sections

776, 782(d) and (e) of the Act) because of Columbus' unwillingness to

provide the requested information. Petitioners argue that five years is

the appropriate AUL for two reasons: first, the Department confirmed at

verification that Columbus depreciates assets for tax purposes over

five years from the date of commissioning; second, Columbus' refusal to

provide the information after a preliminary determination in which the

Department used 15 years, as facts available and based on the IRS

tables, supports the conclusion 15 years is more beneficial than the

AUL that Columbus would have reported. Petitioners cite D & L Supply

Company versus United States, 113 F. 3d 1220, 1223 (Fed. Cir. 1997) and

Censaldo Componenti S.p.A. versus United States, 628 F. Supp. 198 (CIT

1986) to support their contention that Columbus should not be allowed

to benefit from its refusal to cooperate with the Department's

information requests.

Respondents argue that petitioners are incorrect in stating that

Columbus has persistently failed to provide information about its AUL.

Questionnaire responses indicate that Columbus depreciates buildings

over 40 years and plant and machinery, vehicles and equipment over four

to 25 years. Further, Columbus has consistently expressed its view

that, since Columbus has never received a non-recurring grant or any

other allocable subsidy from the GOSA, further information about its

AUL is unnecessary. Thus, petitioners inappropriately draw an adverse

inference from Columbus' carefully explained response.

Department's Position: We disagree with petitioners. Using five

years as the allocation period for any non-recurring grants received by

Columbus is unwarranted for two reasons. First, respondents did provide

information about their general depreciation practices: buildings are

depreciated over 40 years and plant and machinery, vehicles and

equipment are depreciated over four to 25 years. While this information

does not enable the Department to calculate an average useful life of

assets, it does not warrant the use of an adverse inference in

determining Columbus' AUL, as petitioner urges. Second, five years is

not at all relevant to the actual average useful life of assets in the

steel industry. Thus, without a basis for calculating a company-

specific AUL, we find that the most reasonable alternative is to rely

on the IRS Tables, which do reflect a reasonable determination of the

AUL of assets in the steel industry. In addition, using 15 years as the

allocation period is reasonable in light of the information which

Columbus did provide about its depreciation practices. Further, the

``Allocation Period'' section above discusses the Department's practice

of determining the allocation period for non-recurring subsidies using

company-specific AUL data where reasonable and practicable, and relying

on the IRS Tables when company-specific AUL data are not available or

otherwise cannot be used.

Verification

In accordance with section 782(i) of the Act, we verified the

information used in making our final determination. We followed

standard verification procedures, including meeting with the government

and company officials, and examining relevant accounting records and

original source documents. Our verification results are outlined in

detail in the public versions of the verification reports, which are on

file in the CRU.

Suspension of Liquidation

In accordance with section 705(c)(1)(B)(i) of the Act, we have

calculated an individual subsidy rate for Columbus Stainless, the

operating unit of the Columbus Joint Venture. Because this is the only

company under investigation, Columbus' rate serves as the all-others

rate. We determine that the total estimated net countervailable subsidy

rate is 3.93 percent ad valorem for Columbus.

In accordance with our preliminary affirmative determination, we

instructed the U.S. Customs Service to suspend liquidation of all

entries of stainless steel plate in coils from South Africa which were

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

September 4, 1998, the date of the publication of our preliminary

determination in the Federal Register. In accordance with section

703(d) of the Act, we instructed the U.S. Customs Service to

discontinue the suspension of liquidation for merchandise entered on or

after January 2, 1999, but to continue the suspension of liquidation of

entries made between September 4, 1998, and January 1, 1999. We will

reinstate suspension of liquidation under section 706(a) of the Act if

the ITC issues a final affirmative injury determination, and will

require a cash deposit of estimated countervailing duties for such

entries of merchandise in the amounts indicated above. If the ITC

determines that material injury, or threat of material injury, does not

exist, this proceeding will be terminated and all estimated duties

deposited or securities posted as a result of the suspension of

liquidation will be refunded or canceled.

ITC Notification

In accordance with section 705(d) of the Act, we will notify the

ITC of our determination. In addition, we are making available to the

ITC all non-privileged and non-proprietary information related to this

investigation. We will allow the ITC access to all privileged and

business proprietary information in our files provided the ITC confirms

that it will not disclose such information, either publicly or under an

administrative protective order, without the written consent of the

Assistant Secretary for Import Administration.

If the ITC determines that material injury, or threat of material

injury, does not exist, this proceeding will be terminated and all

estimated duties deposited or securities posted as a result of the

suspension of liquidation will be refunded or canceled. If, however,

the ITC determines that such injury does

[[Page 15567]]

exist, we will issue a countervailing duty order.

Return or Destruction of Proprietary Information

In the event that the ITC issues a final negative injury

determination, this notice will serve as the only reminder to parties

subject to Administrative Protective Order (APO) of their

responsibility concerning the return or destruction of proprietary

information disclosed under APO in accordance with 19 CFR 355.34(d).

Failure to comply is a violation of the APO.

This determination is published pursuant to sections 705(d) and

777(i) of the Act.

Dated: March 19, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-7530 Filed 3-30-99; 8:45 am]

BILLING CODE 3510-DS-P