Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From Germany: Preliminary Results of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-428-812]

Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From

Germany: Preliminary Results of Countervailing Duty Administrative

Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce

ACTION: Notice of Preliminary Results of Countervailing Duty

Administrative Review

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SUMMARY: The Department of Commerce (the Department) is conducting an

administrative review of the countervailing duty order on certain hot-

rolled lead and bismuth carbon steel products from Germany for the

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

the net subsidy for the reviewed company as well as for non-reviewed

companies, please see the Preliminary Results of Review section of this

notice. If the final results remain the same as these preliminary

results of administrative review, we will instruct the U.S. Customs

Service to assess countervailing duties as detailed in the Preliminary

Results of Review section of this notice. Interested parties are

invited to comment on these preliminary results. (See the Public

Comment section of this notice.)

EFFECTIVE DATE: April 7, 1999.

FOR FURTHER INFORMATION CONTACT: Eric B. Greynolds or Robert Copyak,

Group II, Office of AD/CVD Enforcement VI, Import Administration, U.S.

Department of Commerce, Room 4012, 14th Street and Constitution Avenue,

N.W., Washington, D.C. 20230; telephone (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

On March 22, 1993, the Department published in the Federal Register

(58 FR 15325) the countervailing duty order on certain hot-rolled lead

and bismuth carbon steel products from Germany. On March 11, 1998, the

Department published a notice of ``Opportunity to Request an

Administrative Review'' (63 FR 11868) of this countervailing duty

order. We received a timely request for review from Saarstahl AG

(Saarstahl), the respondent company to this proceeding. On April 24,

1998, we initiated the review, covering the period January 1, 1997

through December 31, 1997, (63 FR 20378). On April 28, 1999, Inland

Steel Bar Company and USS/KOBE Steel Co. (petitioners) requested that

the Department conduct verification of information submitted on the

record in all questionnaire responses.

In accordance with 19 CFR 351.213(b), this review covers only those

producers or exporters for which a review was specifically requested.

Accordingly, this review covers Saarstahl AG (Saarstahl). This review

also covers five programs. On November 19, 1998, we extended the period

for completion of the preliminary results pursuant to section 751(a)(3)

of the Tariff Act of 1930, as amended. See Hot-Rolled Lead and Bismuth

Carbon Steel Products from Germany: Extension of the Time Limit for

Preliminary Results of Countervailing Duty Administrative Review (63 FR

64235). The deadline for the final results of this review is no later

than 120 days from the date on which these preliminary results are

published in the Federal Register.

Applicable Statute

Unless otherwise indicated, all citations to the statute are

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

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

Act). The Department is conducting this administrative review in

accordance with section 751(a) of the Act. All citations to the

Department's regulations reference 19 CFR Part 351(April 1998), unless

otherwise indicated.

Scope of the Review

The products covered by this investigation are hot-rolled bars and

rods of nonalloy or other alloy steel, whether or not descaled,

containing by weight 0.03 percent or more of lead or 0.05 percent or

more of bismuth, in coils or cut lengths, and in numerous shapes and

sizes. Excluded from the scope of this investigation are other alloy

steels (as defined by the Harmonized Tariff Schedule of the United

States (HTSUS) Chapter 72, note 1 (f)), except steels classified as

other alloy steels by reasons of containing by weight 0.4 percent or

more of lead, or 0.1 percent or more of bismuth, tellurium, or

selenium. Also excluded are semi-finished steels and flat-rolled

products. Most of the products covered in this review are provided for

under subheadings 7213.20.00.00 and 7214.30.00.00 of the HTSUS. Small

quantities of these products may also enter the United States under the

following HTSUS subheadings: 7213.31.30.00; 7213.31.60.00;

7213.39.00.30; 7213.39.00.60; 7213.39.00.90; 7213.91.30.00;

7213.91.45.00; 7213.91.60.00; 7213.99.00; 7214.40.00.10, 7214.40.00.30,

7214.40.00.50; 7214.50.00.10; 7214.50.00.30, 7214.50.00.50;

7214.60.00.10; 7214.60.00.30; 7214.60.00.50; 7214.91.00; 7214.99.00;

7228.30.80.00; and 7228.30.80.50. HTSUS subheadings are provided for

convenience and Customs purposes. The written description of the scope

of this proceeding is dispositive.

Duty Absorption

On April 28, 1998, the Department received a request from

petitioners to conduct a duty absorption review to determine whether

Saarstahl absorbed countervailing duties. The issue of whether it is

appropriate to examine duty absorption in the context of a

countervailing duty review was considered in the 1997 administrative

review of the countervailing duty order on lead and bismuth carbon

steel products from the United Kingdom. The Department concluded that,

because there is no relationship between the amount of duties absorbed

and the extent of government subsidization that will take place in the

future, it is not appropriate to examine duty absorption in a

countervailing duty reviews. Therefore, we are not conducting a duty

absorption review in this administrative review. A copy of the decision

memorandum which elaborates the Department's rationale with regard to

this issue (see memorandum through Holly A. Kuga, Acting Deputy

Assistant Secretary for Group II, to Robert S. LaRussa, Assistant

Secretary for Import Administration, dated March 18, 1999, a public

document on file in the Central Records Unit, Room B-099 of the Main

Commerce Building) has been placed on the record of this administrative

review as a public document from the team to the file, dated March 25,

1999.

Subsidies Valuation Information

Allocation Period

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

9, 1995) (British Steel I), the U.S. Court of International Trade (the

Court) ruled against the allocation period methodology for non-

recurring subsidies that the Department had employed for the past

decade, a methodology that was articulated in the General Issues

Appendix appended to Final Affirmative Countervailing Duty

Determination: Certain Steel Products from Austria; 58 FR 37217 (July

9, 1993) (GIA). In accordance with the Court's decision on remand, the

Department determined that the most reasonable

[[Page 16916]]

method of deriving the allocation period for nonrecurring subsidies is

a company-specific AUL of non-renewable physical assets. This remand

determination was affirmed by the Court on June 4, 1996. British Steel

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

II).

However, in administrative reviews where the Department examines

non-recurring subsidies received prior to the POR which have been

countervailed based on an allocation period established in an earlier

segment of the proceeding, it is not practicable to reallocate those

subsidies over a different period of time. Since the countervailing

duty rate in earlier segments of the proceeding was calculated based on

a certain allocation period and resulted in a certain benefit stream,

redefining the allocation period in later segments of the proceeding

would entail taking the original grant amount and creating an entirely

new benefit stream for that grant. Such a practice may lead to an

increase or decrease in the total amount countervailed and, thus, would

result in the possibility of over-or under-countervailing the actual

benefit. In this administrative review, the Department is considering

non-recurring subsidies previously allocated in the initial

investigation. Therefore, for purposes of these final results, the

Department is using the original allocation period assigned to each

non-recurring subsidy received prior to the POR. See, e.g., Final

Results of Countervailing Duty Administrative Review: Industrial

Phosphoric Acid from Israel, 64 FR 2879 (January 19, 1999) and Final

Results of Countervailing Duty Administrative Review: Certain Carbon

Steel Products from Sweden, 62 FR 16549 (April 7, 1997).

Discount Rates

Pursuant to the Final Results of Redetermination Pursuant to Court

Remand Regarding The Privatization in Germany: Saarstahl Ag v. United

States, Consol. Ct. No. 93-04-00219 (June 30, 1997) (Remand

Determination), we find that Saarstahl was uncreditworthy in 1989 and,

therefore, have applied the uncreditworthy discount rate from the

Remand Determination for Saarstahl's calculations.

Change in Ownership

(I) Background

In the investigation of this proceeding, we examined Saarstahl's

changes in ownership prior to 1991. Specifically, in 1986, Arbed, a

company owned by the Government of Luxemburg, transferred 76 percent of

Saarstahl's shares to the Government of Saarland (GOS), making

Saarstahl a majority state-owned company. The GOS then began a search

for a new investor for Saarstahl. Usinor-Sacilor, a company owned by

the Government of France, expressed interest in Saarstahl. In 1989, the

GOS and Usinor-Sacilor reached an agreement in which: (1) the two steel

companies in Saarland, Saarstahl Volingen Gmbh. (Saarstahl) and

Dillinger Huttenwerke (Dillinger) would merge to form DHS Dillinger

Hutte Saarstahl AG (DHS); (2) Usinor-Sacilor would buy the newly

created DHS; and (3) in return for Usinor-Sacilor's purchase of DHS,

the GOS and the Government of Germany (GOG) would forgive Saarstahl's

debt obligations, also known as Ruckzahlungsverpflichtungen (RZVs), to

the regional and federal governments and release the company from any

obligation to repay Saarstahl's guaranteed loans. The last step of the

change in ownership took place in 1989 with the transfer of the long

products business from DHS to a newly-formed company, Saarstahl AG.

In the investigation of this case, the Department found that the

cancellation of Saarstahl's debts constituted countervailable

subsidies. See Final Affirmative Countervailing Duty Determination:

Certain Hot Rolled Lead and Bismuth Carbon Steel Products from Germany,

58 FR 6233, 6233 (January 27, 1993) (Lead and Bismuth). Further, the

Department determined that the change in ownership transaction did not

alter the effect of these previously bestowed subsidies. In the 1993

certain steel products investigations, the Department modified its

position in Lead and Bismuth concerning changes in ownership.

Specifically, the Department stated that it could no longer be assumed

that the entire amount of subsidies passes through to the new owners

after a change in ownership. Rather, when a company is sold, even

partially, a portion of the sales price represents repayment of prior

subsidies. See GIA, 58 FR at 37263. As a result of this change, the

Department, pursuant to the Remand Determination: Certain Hot Rolled

Lead and Bismuth Carbon Steel Products from Germany, (October 12,

1993), altered its original determination regarding the effects of

privatization on subsidies previously received by Saarstahl so that it

conformed with the methodology described in the GIA. This change in

ownership methodology was upheld in Saarstahl AG v. United States, 78

F. 3d 1539 (Fed. Cir. 1996) and British Steel plc v. Untied States, 127

F.3d 1471 (Fed. Cir. 1997).

In the recent investigation of steel wire rod from Germany, we

included in our change of ownership calculations the 1994 transaction

under which Usinor-Sacilor, via DHS, spun-off 100 percent of Saarstahl

AG to the GOS for DM 1. See Final Affirmative Countervailing Duty

Determination: Steel Wire Rod from Germany (German Wire Rod), 62 FR

54990, (October 22, 1997) (German Wire Rod). Respondents have reported

in this administrative review that, in 1997, the GOS transferred the

majority of its shareholdings in Saarstahl to three parties: (1)

Saarstahl Treuhand, (2) AG der Dillinger Huttenwerke (Dillinger), and

(3) Kreditanstalt fur Wiederaufbau (Kreditanstalt). Prior to this

transfer, the GOS held approximately 99.9 percent of Saarstahl's

shares. After the share transfer, the GOS held approximately 32 percent

of the company's shares. The remaining 68 percent was divided as

follows: Saarstahl Treuhand--28.1 percent, Dillinger--19.9 percent, and

Kreditanstalt--20 percent.

Regarding the 1997 privatization, petitioners argue in their March

11, 1999, submission that the new shareholders in Saarstahl should not

be considered private entities. They argue that Saarstahl Treuhand is a

trust that was set up and is controlled by the GOG because no private

investor could be found for these shares. They argue that the GOS

(through its ownership of Saarstahl) is an owner of the parent company

of Dillinger and, therefore, Dillinger is government-controlled. They

also argue that, because the Kreditanstalt is a development bank of the

GOG, shares assigned to it represent no ultimate change in the

ownership of Saarstahl. On this basis, petitioners argue that none of

the three parties' purchase price can constitute repayment of

Saarstahl's previously bestowed subsidies. In addition, petitioners

argue that the Department should treat all of the purchase price as a

grant to Saarstahl because none of the parties to the privatization

made its purchase on terms consistent with those of a private investor.

In its March 22, 1999, submission, respondent rebuts petitioners'

contention that the buyers of Saarstahl in 1997 were not private

actors. Respondent argues that Saarstahl Treuhand is a private trust

established under German law for the benefit of bankruptcy creditors

and that it is not, in any way, controlled by the government. Regarding

Dillinger, respondent states that approximately 5 percent is held by

individual investors

[[Page 16917]]

and the remaining 95 percent is held by DHS. They then explain that the

majority of DHS is owned by the private companies Usinor-Sacilor S.A.

and ARBED S.A. Regarding Kreditanstalt, respondent argues that the

administrative record of this proceeding clearly indicates that the

development bank's decision to invest in Saarstahl was made on terms

consistent with commercial considerations and, on this basis, its

payment should be included as part of the purchase price. Thus,

respondent argues that since all three parties made their decision to

invest in Saarstahl independent of the GOG and the GOS, the Department

should determine that 100 percent of the purchase price constitutes

repayment of Saarstahl's previously bestowed subsidies.

In this administrative review, we are analyzing the privatization

of Saarstahl in 1989, its subsequent spin-off in 1994, and the

company's partial privatization in 1997. For purposes of this

preliminary determination, we have applied the Department's change in

ownership methodology for the 1989 privatization and the 1994 spin-off.

However, we have not applied the change in ownership methodology for

the 1997 reorganization. In light of petitioner's arguments that the

new shareholders should not be considered private entities and that the

purchase price constituted a countervailable grant, we are considering

whether to treat contributions by the new shareholder as grants or as

repayment of prior subsidies. We will gather further information

regarding the 1997 change in ownership, and we will consider the

comments submitted on the record by interested parties. We note that

all information submitted on the record pertaining to this issue will

be subject to verification and further analysis.

(II) Change in Ownership Calculation Methodology

Under the Change in Ownership methodology described in the GIA

concerning the treatment of subsidies received prior to the sale of a

company or the spinning-off of a productive unit, we estimate the

portion of the purchase price attributable to prior subsidies. We

compute this by first dividing the privatized company's subsidies by

the company's net worth for each year during the period beginning with

the earliest point at which nonrecurring subsidies would be

attributable to the POR (in this case 1983) and ending one year prior

to the change in ownership.

As in German Wire Rod, we have modified this methodology with

respect to Saarstahl. See 62 FR 54991. Specifically, we calculated the

ratios in question by including in the calculation the assistance that

Saarstahl received prior to privatization in the year the assistance

was received. We did so even though we do not consider this prior

assistance, at the it was received, to be nonrecurring in nature, and,

thus, allocable over time.

We then take the simple average of the ratios of subsidies to net

worth. This simple average of the ratios serves as a reasonable

surrogate for the portion subsidies constitute of the overall value of

the company. Next, we multiply the average ratio by the purchase price

to derive the portion of the purchase price attributable to repayment

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

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

of all remaining benefits at the time of privatization.

With respect to spin-offs, consistent with the Department's

position regarding privatization, we analyze the spin-off of productive

units to assess what portion of the sale price of the productive unit

can be attributable to the repayment of prior subsidies. To perform

this calculation, we first determine the amount of the seller's

subsidies that the spun-off productive unit could potentially take with

it. To calculate this amount, we divide the value of the assets of the

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

unit. We then apply this ratio to the net present value of the seller's

remaining subsidies. We next estimate the portion of the purchase price

going towards repayment of prior subsidies in accordance with the

privatization methodology outlined above.

Analysis of Programs

I. Programs Conferring Subsidies

A. Government Forgiveness of Saarstahl Debt in 1989

During the period 1978 to 1989, Saarstahl and its predecessor

companies received large amounts of assistance from the GOS and the GOG

in the form of RZVs. Repayment of these RZVs became contingent upon

Saarstahl returning to profitability and earning a profit above and

beyond the losses accumulated after 1978.

In 1989, the GOS reached an agreement with Usinor-Sacilor to

combine Saarstahl with Dillinger under a holding company, DHS. Pursuant

to the combination agreement and as a condition for sale, in 1989 the

GOG and GOS entered into a debt forgiveness contract

(Entschuldungsvertrag, or EV) which effectively forgave all the

outstanding repayment obligations owed by Saarstahl to the two

Governments (i.e., a total of DM 3.945 billion in debt was forgiven).

The EV specified, however, that if Saarstahl went bankrupt, the GOG and

GOS claims could be revived, but their claims would be subordinated to

those of all other creditors.

After several years of unprofitable operation, Saarstahl filed for

bankruptcy in 1993 under the German Bankruptcy Regulations

(Konkursordnung). In 1994, the GOS bought Saarstahl back from Usinor-

Sacilor for DM 1. At the time of its bankruptcy, Saarstahl's

liabilities exceeded its assets by a factor of four, not including its

liabilities to the GOG and GOS. Both Governments filed claims against

the Saarstahl bankruptcy estate based on the RZV debt that was

conditionally forgiven in 1989. These EV-related claims were rejected

by the bankruptcy trustee as invalid in 1995 on the grounds that the

degree of their subordination resulted in the fact that the GOG and GOS

would never be repaid. The GOG and GOS chose not to appeal the

rejection of their bankruptcy claims, on the grounds that the

subordination of their claims made the likelihood of recovery very

small, and not worth the high cost of litigating the matter.

In Lead and Bismuth, 58 FR at 6234, we found that Saarstahl's RZVs

and similar related debt were forgiven by the 1989 EV, thus conferring

a countervailable benefit on Saarstahl as of 1989. This was also the

Department's finding in Certain Steel and German Wire Rod. No new

information or evidence of changed circumstances was presented in this

review to warrant any reconsideration of these findings.

To calculate the countervailable benefit in the POR, we used our

standard declining balance grant methodology. We then divided the

benefit attributable to the POR, adjusted to reflect the changes in

ownership described above, by the total sales of Saarstahl during the

same period. On this basis, we preliminarily determine the net subsidy

for this program to be 11.61 percent ad valorem for Saarstahl.

B. Debt Forgiveness by Private Banks in 1989

Toward the end of 1985, the GOS presented a long-term restructuring

plan for Saarstahl to Saarstahl's creditors and requested that they

forgive loans in the amount of DM 350 million. In 1986, the private

banks agreed to forgive DM 217.33 million of debt owed to them by

Saarstahl (DM 216.82 of which was forgiven in 1989), if the GOG and GOS

fulfilled certain prerequisites. Two of

[[Page 16918]]

the prerequisites were that the Governments forgive all debt owed to

them by Saarstahl and that the GOS secure the future liquidity of

Saarstahl. In 1986, the GOS agreed to forgive all debts owed to it by

Saarstahl and to secure the liquidity of Saarstahl as it had in the

past.

In the investigation of this case, we determined that the 1989

forgiveness of principal by private banks in the amount of DM 216.82

constituted a countervailable subsidy. See Lead and Bismuth, 58 FR

6233-34; See also, German Wire Rod, 62 FR at 54991. No new information

or evidence of changed circumstances was presented in this review to

warrant any reconsideration of that finding.

To calculate the countervailable subsidy, we followed the

methodology described in the ``Government Forgiveness of Saarstahl's

Debt in 1989'' section of the notice, above. We then divided the

benefit attributable to the POR, adjusted to reflect the changes in

ownership described above, by the total sales of Saarstahl during the

same period. On this basis, we preliminarily determine the net subsidy

for this program to be 0.64 percent ad valorem for Saarstahl.

C. Worker Assistance Program (ECSC Redeployment Aid Under Article

56(2)(b)

Under Article 56(2)(b) of the European Coal and Steel Community

(ECSC) Treaty, persons employed in the iron, steel, and coal industries

who lose their jobs may receive assistance for social adjustment. This

assistance is provided to workers affected by restructuring measures,

particularly workers withdrawing from the labor market into early

retirement and workers forced into unemployment. The ECSC disburses

assistance under this program on the condition that the affected

country makes an equivalent contribution. During the POR, payments were

made to Saarstahl, on behalf of its workers, under Article 56(2)(b).

In Lead and Bismuth, 58 FR at 6235, the Department determined that

the portion of ECSC payments (i.e. 50 percent) made under this program

during the POI, 1991, was not countervailable because the funds for

this program came from the ECSC's operational budget, which is funded

by levies on the companies. In Lead and Bismuth, the Department also

previously found that the portion funded by the GOG was countervailable

to the extent that the GOG's payments relieved Saarstahl of an

obligation to its laid-off workers that the company would otherwise

have incurred. See Lead and Bismuth, 58 FR at 6235.

In German Wire Rod, the Department determined this program to be

countervailable but distinguished between GOG worker assistance

payments relating to the social plan established in conjunction with

Saarstahl's bankruptcy in 1993, and GOG worker assistance payments made

pursuant to the company's pre-bankruptcy social plans. See 62 FR at

54993. In that investigation, the Department reasoned that Saarstahl's

bankruptcy social plan provides the maximum allowable benefits to

workers under German bankruptcy law and that, therefore, the knowledge

of ECSC 56(2)(b) benefits did not affect the company's social plan

obligations. Thus, the Department determined that GOG payments relating

to Saarstahl's bankruptcy social plan are not countervailable. Id.

In this administrative review, we have followed the approach taken

in German Wire Rod and, therefore, preliminarily determine that only

the worker assistance payments received pursuant to Saarstahl's pre-

bankruptcy social plans are countervailable. Because a company can

expect to receive the benefits on an ongoing basis, we have limited our

analysis to funds received during the POR, 1997. In situations where

the company and its workers are aware at the time of their negotiations

that the government will be making contributions to the workers'

benefits, the Department's practice is to treat half of the amount paid

by the government as benefitting the company. See, GIA, 58 FR at 37225.

In the GIA, the Department stated that when the government's

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

being negotiated, this assistance is likely to have an effect on the

outcome of the negotiations. In these situations, the Department will

assume that the differences between what the workers would have

demanded and what the company would have preferred to have paid would

have been split between the parties, with the result that one-half of

the government payment goes to relieving the company of an obligation

that would otherwise exist. See, GIA, 58 FR at 37256. This methodology

was upheld in LTV Steel Co. v. United States, 985 F. Supp. 95, 116 (CIT

1997).

Consistent with Department's practice described above, the benefit

to Saarstahl is one-half the amount paid to the workers by the GOG

under the pre-bankruptcy social plan. To calculate the benefit under

this program, we divided this amount by Saarstahl's total sales during

the POR. On this basis, we preliminarily determine the net subsidy to

Saarstahl under this program to be 0.06 percent ad valorem.

II. Program Preliminarily Determined to be Not Countervailable

A. ECSC Research and Development Assistance Under Article 55

Under Article 55 of the ECSC Treaty, assistance is available to

promote technical and economic research relating to the production and

increased use of coal and steel, and to occupational safety in the coal

and steel industries. Since the end of 1986, this program has been

funded solely through levies on steel producing companies.

During the POR, Saarstahl received research and development

assistance related to calcium treated and aluminum deoxidized steels

with high sulfur content under the ECSC Article 55 program.

In Final Affirmative Countervailing Duty Determination: Certain

Steel Products from Belgium, 58 FR 37273, 37285, (July 9, 1993), the

Department found this program to be not countervailable because funding

under this program was provided by levies on participating steel

companies and because the program stipulates that the results of

research conducted under Article 55 must be made publicly available.

No new information or evidence of changed circumstances has been

submitted in this proceeding to warrant reconsideration of this

determination. Therefore, for purposes of this preliminary

determination, we find this program not countervailable.

III. Other Program Examined

BRITE/EuRAM Research and Development Project (BRITE/EuRAM Project)

Under the BRITE/EuRAM Project, participants receive research and

development assistance in the form of grants from the European

Community (EC). In order to receive the assistance, participants must

make a formal proposal to the EC for the funding of a specific research

and development project. Applicants whose proposals have been accepted

then enter into a contract with the EC in which such items as the scope

of the project, project goals, applicant reporting requirements and EC

payments are established.

During the POR, Saarstahl received grants from the EC under the

BRITE/EuRAM Project for the development of a project entitled, ``World

Class Performance for Wire Drawing through Improved Quality of the

Manufacturing Process (WIREMAN).'' According to the

[[Page 16919]]

EC and Saarstahl, the objective of the WIREMAN project was to minimize

waste and resource usage in the drawing process with the main focus of

the project on the processing of steelcord for use in the manufacture

of tires.

Because the research and development assistance related to this

program is tied to merchandise other than subject merchandise, we

preliminarily determine that this assistance did not benefit

Saarstahl's production of subject merchandise during the POR. (For

further discussion, see the Memorandum to the File, ``BRITE/EuRAM

Project,'' dated March 31, 1999, on file in the Central Records Unit

(CRU)). We note that we intend to verify the EC's and Saarstahl's

statements as they relate to the tying of benefits under this program

to merchandise other than subject merchandise.

IV. Programs About Which More Information Is Needed

Subsidies Leading Up to the 1997 Reorganization

In this administrative review, petitioners argue that information

contained in Saarstahl's financial statements indicates that Saarstahl

claimed large write-offs of loans and other liabilities both in 1996

and in 1997. They argue that the Department should analyze these write-

offs within an overall context of Saarstahl's operation as a

government-owned but bankrupt company and its reorganization out of

bankruptcy in 1997.

In its original July 20, 1998, questionnaire response, Saarstahl

explained that it was unable to submit the 1997 financial data

requested by the Department because it had not yet completed its

financial statements for 1997. Saarstahl submitted its financial

statements for 1997 on the record on January 15, 1999. In a submission

dated February 9, 1999, petitioners raised the issue of potentially

large amounts of debt forgiveness and grants leading up to the 1997

reorganization. On February 26, 1999, Saarstahl submitted a

questionnaire response containing further information regarding its

large amounts of extraordinary income and writeoffs. On March 11, 1999,

upon reviewing this new information, petitioners suggested that the

Department should consider whether, as in the years leading up to the

1989 reorganization, massive debt forgiveness and additional government

contributions allowed Saarstahl to remain an ongoing concern and emerge

from its bankruptcy. Additionally, petitioners suggest that Saarstahl

may have been forgiven value-added taxes that it owed. Saarstahl

addressed petitioners claims in a submission dated March 22, 1999. In

general, Saarstahl argues that its bankruptcy proceeding was handled in

full accordance with German law and that the forgiveness of debts as a

result of bankruptcy is not countervailable, in accordance with the

Department's practice.

The issues raised by petitioners regarding Saarstahl's operation as

a government-owned bankrupt company and the nature of its extraordinary

income and write-offs leading up to its reorganization in 1997 merit

further examination in this administrative review. Due to the delayed

submission of Saarstahl's financial data for 1997, these issues were

raised with very little time for the Department to collect all of the

information needed to examine them fully. While the Department

preliminarily concludes that the information on the record is

insufficient to demonstrate the existence of a countervailable program,

the Department will consider the issues further and gather additional

information, which will be subject to verification. Among other things,

we will examine: (1) the terms of Saarstahl's bankruptcy, (2) its

operation as a going concern during bankruptcy, (3) the relationship

between Saarstahl and its creditors, (4) the nature of its liabilities,

(5) the terms of the 1997 reorganization, (6) the establishment of the

purchase price, (7) the nature of Saarstahl debt writeoffs, and (8) the

relationship between the new shareholders and the governments of

Saarstahl and Germany. We will consider whether Saarstahl's writeoffs

of liabilities leading up to the 1997 reorganization constitute

countervailable subsidies, whether it received countervailable

subsidies in the form of tax forgiveness, and whether the sale of

Saarstahl provided the company with countervailable grants. After we

collect additional information and conduct verification, we will

prepare an analysis memorandum addressing all of the pertinent issues

surrounding Saarstahl's reorganization in 1997. Prior to issuing our

final determination, we intend to provide all parties the opportunity

to comment on our analysis.

Verification

As provided in section 782(i) of the Act, we intend to verify the

information submitted by the Governments of Germany and Saarland and

Saarstahl. In addition, we will schedule our verification so that all

parties to the proceeding will have ample time to comment on our

findings prior to the publication of our final results of this

administrative review.

Preliminary Results of Review

In accordance with 19 CFR 355.221(b)(4)(i), we have calculated an

individual subsidy rate for Saarstahl, the producer/exporter subject to

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

December 31, 1997, we preliminarily determine the net subsidy for

Saarstahl to be 12.31 percent ad valorem. If the final results of this

review remain the same as these preliminary results, the Department

intends to instruct the U.S. Customs Service to assess countervailing

duties for Saarstahl at 12.31 percent ad valorem. The Department also

intends to instruct the U.S. Customs Service (Customs) to collect a

cash deposit of 12.31 percent of the f.o.b. invoice price on all

shipments of the subject merchandise from Saarstahl, entered, or

withdrawn from warehouse, for consumption on or after the date of

publication of the final results of this review.

Because the URAA replaced the general rule in favor of a country-

wide rate with a general rule in favor of individual rates for

investigated and reviewed companies, the procedures for establishing

countervailing duty rates, including those for non-reviewed companies,

are now essentially the same as those in antidumping cases, except as

provided for in section 777A(e)(2)(B) of the Act. The requested review

will normally cover only those companies specifically named. See 19 CFR

355.22(b). Pursuant to 19 CFR 355.22(c), for all companies for which a

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

rate, and cash deposits must continue to be collected, at the rate

previously ordered. As such, the countervailing duty cash deposit rate

applicable to a company can no longer change, except pursuant to a

request for a review of that company. See Federal-Mogul Corporation and

The Torrington Company v. United States, 822 F. Supp. 782 (CIT 1993)

and Floral Trade Council v. United States, 822 F. Supp. 766 (CIT 1993)

(interpreting 19 CFR 353.22(e), the antidumping regulation on automatic

assessment, which is identical to 19 CFR 355.22(g)). Therefore, the

cash deposit rates for all companies except those covered by this

review will be unchanged by the results of this review.

We will instruct Customs to continue to collect cash deposits for

non-reviewed companies at the most recent

[[Page 16920]]

company-specific or country-wide rate applicable to the company.

Accordingly, the cash deposit rates that will be applied to non-

reviewed companies covered by this order are those established in the

most recently completed administrative proceeding conducted under the

URAA. If such a review has not been conducted, the rate established in

the most recently completed administrative proceeding pursuant to the

statutory provisions that were in effect prior to the URAA amendments

is applicable. See Lead Bar. These rates shall apply to all non-

reviewed companies until a review of a company assigned these rates is

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

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

covered by this order are the cash deposit rates in effect at the time

of entry.

Public Comment

Pursuant to 19 CFR 351.224(b), the Department will disclose to

parties to the proceeding any calculations performed in connection with

these preliminary results within five days after the date of

publication of this notice. Pursuant to 19 CFR 351.309, interested

parties may submit written comments in response to these preliminary

results. Case briefs must be submitted within 30 days after the date of

publication of this notice, and rebuttal briefs, limited to arguments

raised in case briefs, must be submitted no later than five days after

the time limit for filing case briefs. Parties who submit argument in

this proceeding are requested to submit with the argument: (1) A

statement of the issue, and (2) a brief summary of the argument. Case

and rebuttal briefs must be served on interested parties in accordance

with 19 CFR 351.303(f). Also, pursuant to 19 CFR 351.310, within 30

days of the date of publication of this notice, interested parties may

request a public hearing on arguments to be raised in the case and

rebuttal briefs. Unless the Secretary specifies otherwise, the hearing,

if requested, will be held two days after the date for submission of

rebuttal briefs, that is, thirty-seven days after the date of

publication of these preliminary results.

The Department will publish the final results of this

administrative review, including the results of its analysis of issues

raised in any case or rebuttal brief or at a hearing.

This administrative review is issued and published in accordance

with sections 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1)

and 19 U.S.C. 1677f(i)(1)).

Dated: March 31, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-8621 Filed 4-6-99; 8:45 am]

BILLING CODE 3510-DS-P