[Federal Register Volume 59, Number 74 (Monday, April 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9313]


[[Page Unknown]]

[Federal Register: April 18, 1994]


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DEPARTMENT OF COMMERCE
International Trade Administration
[C-475-812]

 

Final Affirmative Countervailing Duty Determination: Grain-
Oriented Electrical Steel From Italy

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

EFFECTIVE DATE: March 18, 1994.

FOR FURTHER INFORMATION CONTACT: Annika L. O'Hara or David R. Boyland, 
Office of Countervailing Investigations, Import Administration, U.S. 
Department of Commerce, room 3099, 14th Street and Constitution Avenue 
NW., Washington, DC 20230; telephone (202) 482-4198 and (202) 482-0588, 
respectively.

FINAL DETERMINATION: The Department determines that benefits which 
constitute subsidies within the meaning of section 701 of the Tariff 
Act of 1930, as amended (``the Act''), are being provided to 
manufacturers, producers, or exporters in Italy of grain-oriented 
electrical steel. For information on the estimated net subsidy, please 
see the Suspension of Liquidation section of this notice.

Case History

    Since the publication of the preliminary determination in the 
Federal Register on February 1, 1994 (59 FR 4682), the following events 
have occurred.
    We conducted verification of the responses submitted on behalf of 
the Government of Italy (``GOI''), ILVA S.p.A. (``ILVA''), and the 
European Community (``EC'') from February 7 through February 21, 1994.
    On March 22 and March 28, 1994, we received case and rebuttal 
briefs, respectively, from petitioners and respondents. Neither 
petitioners nor respondents requested a hearing in this investigation.
    On March 29, 1994, we returned to petitioners certain factual 
information submitted in their briefs because it was untimely pursuant 
to Sec. 355.31(a)(i) of the Department's regulations.

Scope of Investigation

    This investigation concerns the following class or kind of 
merchandise: grain-oriented electrical steel (``electrical steel'') 
from Italy.
    The product covered by this investigation is grain-oriented silicon 
electrical steel, which is a flat-rolled alloy steel product containing 
by weight at least 0.6 percent of silicon, not more than 0.08 percent 
of carbon, not more than 1.0 percent of aluminum, and no other element 
in an amount that would give the steel the characteristics of another 
alloy steel, of a thickness of no more than 0.56 millimeter, in coils 
of any width, or in straight lengths which are of a width measuring at 
least 10 times the thickness, as currently classifiable in the 
Harmonized Tariff Schedule (``HTS'') under item numbers 7225.10.0030, 
7226.10.1030, 7226.10.5015, and 7226.10.5065. Although the HTS 
subheadings are provided for convenience and Customs purposes, our 
written description of the scope of this proceeding is dispositive.

Injury Test

    Because Italy is a ``country under the Agreement'' within the 
meaning of section 701(b) of the Act, the U.S. International Trade 
Commission (``ITC'') is required to determine whether imports of 
electrical steel from Italy materially injure, or threaten material 
injury to, a U.S. industry. On October 12, 1993, the ITC preliminarily 
determined that there is a reasonable indication that an industry in 
the United States is being materially injured or threatened with 
material injury by reason of imports from Italy of the subject 
merchandise (58 FR 54168, October 20, 1993).

Corporate History of Respondent ILVA

    Prior to 1987, electrical steel in Italy was produced by Terni 
S.p.A. (``Terni''), a main operating company of Finsider. Finsider was 
a government-owned holding company which controlled all state-owned 
steel companies in Italy. In a restructuring of the Italian steel 
industry in 1982, Terni took over two plants, Lovere and Trieste, from 
Nuova Italsider, another Finsider-owned steel producer.
    As part of a subsequent restructuring in 1987, Terni transferred 
its assets to a new company, Terni Acciai Speciali (``TAS'') which 
thereafter held all the assets for electrical steel production in 
Italy. As part of the restructuring, Lovere and Trieste became TAS' two 
principal subsidiaries.
    In 1988, another restructuring took place in which Finsider and its 
main operating companies (TAS, Italsider, and Nuova Deltasider) entered 
into liquidation and a new company, ILVA, was formed. ILVA took over 
some of the assets and liabilities of the liquidating companies. With 
respect to TAS, part of its liabilities and the majority of its viable 
assets, including all the assets associated with the production of 
electrical steel, were transferred to ILVA on January 1, 1989. ILVA 
itself became operational on that same day. Part of TAS' remaining 
assets and liabilities were transferred to ILVA on April 1, 1990. After 
that date, TAS no longer had any manufacturing activities. Only certain 
non-operating assets (e.g., land, buildings, inventories), remained in 
TAS.
    From 1989 to 1994, ILVA consisted of several operating divisions. 
The Specialty Steels Division, located in Terni, produced the subject 
merchandise. ILVA was also the majority owner of a large number of 
separately incorporated subsidiaries. The subsidiaries produced various 
types of steel products and also included service centers, trading 
companies, an electric power company, etc. ILVA together with its 
subsidiaries constituted the ILVA Group. The ILVA Group was owned by 
the Istituto per la Ricostruzione Industriale (``IRI''), a holding 
company wholly-owned by the GOI.
    As of January 1, 1994, ILVA entered into liquidation and its 
divisions formed three companies. ILVA's former Specialty Steels 
Division is now a separately incorporated company, Acciai Speciali 
Terni, which produces electrical steel.

Spin-Offs

    ILVA sold several ``productive units,'' as defined in the General 
Issues Appendix to the Final Affirmative Countervailing Duty 
Determination: Certain Steel Products from Austria (``GIA''), 58 FR 
37225, 37265-8 (July 9, 1993), from 1990 through 1992. At verification, 
we established that one of the companies had been sold to a government 
entity and one other company had been sold by Italsider rather than 
ILVA. Our spin-off methodology does not apply in these situations. For 
the other companies, i.e., those sold to private parties, we have 
applied the pass-through methodology described in the GIA to calculate 
the proportion of subsidies received by ILVA that ``left'' the company 
as a result of the sales of these productive units.

Period of Investigation

    For purposes of this final determination, the period for which we 
are measuring subsidies (the period of investigation (``POI'')) is 
calendar year 1992. We have calculated the amount of subsidies bestowed 
on the subject merchandise by cumulating benefits provided to Terni, 
TAS and ILVA from 1978 through 1992.

Analysis of Programs

    Based on our analysis of the petition, the responses to our 
questionnaires, verification, and comments by interested parties, we 
determine the following.

Equityworthiness

    Pursuant to section 355.44(e)(1) of the Proposed Regulations 
(Countervailing Duties; Notice of Proposed Rulemaking and Request for 
Public Comments (``Proposed Regulations''), 54 FR 23366, May 31, 1989), 
we preliminarily determined that Terni, TAS, and ILVA were 
unequityworthy from 1978 through 1992, except in 1979, 1983, 1988, and 
1989 when equity infusions were not an issue. From the perspective of a 
reasonable private investor examining the firm at the time of the 
equity infusions, neither Terni, TAS, nor ILVA showed an ability to 
earn a reasonable rate of return over a reasonable period of time. We 
did not learn anything at verification that would lead us to reverse 
this finding.
    As we stated in the preliminary determination, the companies which 
were restructured to form ILVA sustained losses from 1978 onward. 
Although ILVA had a brief period of operating profits for 1989 through 
1991, its return on equity during this period declined until there was 
a negative return. Terni and ILVA's debt to equity ratios were 
relatively high. Read in conjunction with other financial indicators, 
such as net losses for numerous years, negative rates of return on 
equity and sales, the companies' financial performance was weak. Given 
this, we continue to find that Terni, TAS, and ILVA were unequityworthy 
from 1978 through 1992. Because the companies received no equity 
infusions during 1979, 1983, 1989, and 1990, we did not determine 
equityworthiness for those years. (See also Memorandum to Director of 
Accounting dated April 11, 1994 on file in Room B-099 of the Main 
Commerce Building concerning the Department's evaluation of Terni's, 
TAS', and ILVA's equityworthiness.)
    For the preliminary determination, we did not include 1988 in our 
equityworthy analysis because petitioners did not allege an infusion 
had occurred in that year and we were not aware of any such investment. 
However, in our review of ILVA's annual reports at verification, we 
learned that IRI contributed capital to ILVA in 1988 in the form of an 
equity infusion. Therefore, in accordance with Sec. 355.44(e)(2) of the 
Proposed Regulations, we have considered whether ILVA was equityworthy 
in that year to determine whether the equity infusion was made on terms 
inconsistent with commercial considerations. As explained below, we 
have determined that ILVA was not equityworthy in that year.

Creditworthiness

    Pursuant to section 355.44(b)(6)(i) of the Proposed Regulations, we 
preliminarily determined that Terni, TAS, and ILVA were uncreditworthy, 
i.e., that they did not have sufficient revenues or resources to meet 
their costs and fixed financial obligations, from 1978 through 1992. In 
making that determination, we examined Terni's, TAS', and ILVA's 
current, quick, times interest earned and debt to equity ratios. We 
determined, for example, that the companies' times interest earned 
ratios were anemic for approximately 16 years, indicating a weak long-
term solvency. Furthermore, the debt to equity ratios for both Terni 
and ILVA were relatively high.
    We did not learn anything at verification that would lead us to 
reconsider our preliminary determination. Therefore, we continue to 
find that Terni, TAS, and ILVA were uncreditworthy from 1978 through 
1992. (See also Memorandum to Director of Accounting dated April 11, 
1994, on file in Room B-099 of the Main Commerce Building concerning 
the Department's evaluation of Terni's, TAS', and ILVA's 
creditworthiness.)

Benchmarks and Discount Rates

    For uncreditworthy companies, Sec. 355.44(b)(6)(iv)(A)(1) of the 
Proposed Regulations directs us to use, as the benchmark interest rate, 
the highest long-term fixed interest rate commonly available to firms 
in the country plus an amount equal to 12 percent of the prime rate. 
Because we were unable to obtain information on the highest long-term 
interest rate commonly available in the country, we used the Bank of 
Italy reference rate which is the highest average long-term fixed 
interest rate we were able to verify. We then added to this rate an 
amount equal to 12 percent of the Italian Bankers Association (``ABI'') 
prime rate. We have used the resulting interest rate as the benchmark 
for our long-term loans. In calculations where we have not used this 
rate, we have otherwise indicated. We have also used this amount as the 
discount rate for allocating over time the benefit from equity 
infusions and non-recurring grants for the same reasons explained in 
Final Affirmative Countervailing Duty Determination: Certain Steel 
Products From Spain, 58 FR 37374, 37376 (July 9, 1993).

Calculation Methodology

    In determining the benefits to the subject merchandise from the 
programs described below, we used the following calculation 
methodology. We first calculated the benefit attributable to the POI 
for each countervailable program, using the methodologies described in 
each program section below. For those subsidies received by ILVA that 
were allocated over time, we then performed the pass-through analysis 
discussed in the GIA at 37269. The pass-through analysis accounts for 
any reduction in ILVA's subsidies that resulted from the sale of 
several productive units.
    For the subsidies remaining with ILVA, we divided the benefit 
allocable to the POI by the sales of ILVA or the sales of the Specialty 
Steels Division of ILVA, depending on which company had received the 
benefit. (The program sections below indicate which denominator has 
been used for each program.) Next, we added the benefits for all 
programs, including the benefits for programs which were not allocated 
over time, to arrive at ILVA's total subsidy rate. Because ILVA is the 
only respondent company in this investigation, this rate equals the 
country-wide rate.

I. Programs Determined To Be Countervailable

A. Benefits Associated With the 1988-90 Restructuring

    As discussed above under the ``Corporate History'' section of this 
notice, the GOI liquidated Finsider and its main operating companies in 
1988 and assembled the group's most productive assets into a new 
operating company, ILVA. In 1990, additional assets and liabilities of 
TAS, Italsider, and Finsider went to ILVA.
    In the preliminary determination, we found that a countervailable 
benefit was provided to ILVA through the 1988-1990 restructuring. In 
reaching this determination, we did not look at the transformation of 
Finsider as a whole into ILVA. Instead, we focused on the restructuring 
of TAS into the Specialty Steels Division of ILVA. We found that 
although TAS' net worth was negative prior to the restructuring, ILVA 
received a division with assets in excess of liabilities. In effect, 
TAS' balance sheet was rewritten so as to change its equity from 
negative 99,886 million lire to positive 317,836 million lire. For the 
preliminary determination, we treated the difference (417,722 million 
lire) as a countervailable benefit to ILVA.
    We have reconsidered the methodology employed in the preliminary 
determination and have revised it for the final determination. We now 
believe that the approach taken in the preliminary determination 
understated the benefit to ILVA from the restructuring. It failed to 
take into account a portion of the liabilities not assumed by ILVA, 
that would otherwise have had to be repaid, and the losses incurred by 
TAS in connection with a write down of its assets in the restructuring 
process.
    The purpose of the 1988-90 restructuring was to create a new, 
viable steel company (ILVA) by having it take over most of the 
productive assets of Finsider's operating companies like TAS, but only 
some of the liabilities. In April 1990, after all of TAS' manufacturing 
activities had either been transferred or shut down, TAS was nothing 
but a shell company in the process of liquidation, with liabilities 
exceeding its assets. ILVA, on the other hand, had received most of 
TAS' assets without being burdened by TAS' liabilities.
    The liabilities remaining with TAS through the restructuring 
process had to be repaid, assumed, or forgiven. We have identified one 
specific instance of forgiveness. This occurred in 1989 when Finsider 
forgave 99,886 million lire of debt owed to it by TAS. Even with this 
forgiveness, TAS retained a substantial amount of liabilities after the 
1990 transfer of assets and liabilities to ILVA. While no specific act 
eliminated this debt--indeed some of it is still outstanding--we 
believe that ILVA (and consequently the subject merchandise) received a 
benefit as a result of the debt being left behind in TAS.
    In addition, we learned at verification that losses had been left 
behind in TAS, because the value of the assets transferred to ILVA had 
been written down. TAS gave up assets whose book value was higher than 
their appraised value. As a result, TAS was forced to absorb losses. 
The loss from the first transfer was reflected as an extraordinary loss 
in TAS' 1988 Annual Report. With respect to the 1990 transfer, TAS had 
created a reserve in 1989 for the anticipated loss. At verification, we 
found that this loss was included in the liabilities that were left in 
TAS after the 1990 transfer.
    In summary, in restructuring TAS into the Specialty Steels Division 
of ILVA, liabilities and losses due to asset write downs were left 
behind in TAS, a shell company. Although there was only one specific 
act of debt forgiveness, which only covered a portion of the 
liabilities in TAS, we believe that ILVA received a benefit when it was 
able to leave the debt and losses remaining in TAS. Because this 
benefit was specific to ILVA, we find a countervailable subsidy to ILVA 
in the amount of the debt and losses that should have been taken by 
ILVA when it took on the assets of TAS.
    Treating these liabilities and losses as a subsidy to ILVA is 
consistent with the Department's determination in Certain Steel from 
Austria at 37221. In that case, we examined a government-owned 
operating company (VAAG) which was split up into numerous operating 
companies, one of which was subject to the investigation. In order to 
effect this split-up, the assets and liabilities of the original 
company were divided among the new companies. We determined that the 
creation of the new companies was merely a redistribution of existing 
assets which, in and of itself, did not give rise to any benefits. 
However, we also determined that a benefit arose because losses that 
had been incurred by VAAG were not distributed to the new companies. 
Therefore, we determined that the company under investigation 
effectively received a grant in the amount of the losses that should 
have been distributed to it.
    Similarly, in the case of TAS and ILVA, the transfer of assets to 
ILVA is, in itself, a redistribution of assets which does not give rise 
to subsidies. However, a substantial portion of the liabilities and the 
losses associated with the assets were not distributed to ILVA. 
Instead, they remained behind in TAS. We are countervailing these 
amounts as grants to ILVA.
    To calculate the benefit during the POI, we used our standard grant 
methodology (see section 355.49(b) of the Proposed Regulations). 
Finsider's 1989 forgiveness of TAS' debt and the loss resulting from 
the 1989 write down were treated as grants received in 1989. The second 
asset write down and the debt outstanding after the 1990 transfer 
(adjusted as described below) were treated as grants received in 1990.
    After the 1990 transfer, certain non-operating assets (e.g., land, 
buildings, inventories), remained in TAS. These assets are being 
disposed of in the liquidation process and the proceeds from the sale 
of the assets are available to pay off TAS' remaining liabilities.
    In order to account for the fact that certain assets were left 
behind in TAS, we have adjusted the amount of liabilities outstanding 
after the 1990 transfer. We did this by writing down the value of the 
assets by taking a weighted average of the earlier write downs and 
subtracted this amount from the outstanding liabilities.
    We then divided the benefits by ILVA's sales in the POI. On this 
basis, we determine the estimated net subsidy to be 12.10 ad valorem 
for all manufacturers, producers, and exporters in Italy of the subject 
merchandise.

B. Interest-Free Loans to ILVA

    In 1992, ILVA received a 300 billion lire payment from IRI. At 
verification, we reviewed documents which established this payment as a 
``provisional'' or ``anticipated'' capital increase. The reason that 
the payment was provisional was that before it could be considered as 
an equity infusion, authorization was needed from: (1) The 
shareholders, and (2) the EC.
    IRI clearly intended that the money become share capital, as there 
were no arrangements for repayment (e.g., a repayment schedule), nor 
was interest to be paid. Therefore, as IRI was the sole shareholder in 
ILVA, its approval was a formality and the only real condition was the 
EC approval. If the EC approval was not received, the amount would have 
to be repaid to IRI. Although the GOI asked for the EC's approval, it 
was not granted during the POI.
    ILVA's 1992 Annual Report shows that the company received a similar 
payment from IRI in 1991 which was entered in its accounting records in 
the same way as the 300 billion payment received in 1992. At 
verification, we learned that the background to the 1991 payment was 
the same as for the 1992 payment.
    Because these payments were not converted to equity prior to the 
end of the POI, we cannot find the payments to be equity infusions. 
Thus, we have determined to treat the payments as short-term interest-
free loans, which are being rolled over until such time as they are 
repaid or converted to equity upon EC approval.
    The typical maturity in Italy for short-term loans is at most six 
months and roll-overs are common. In accordance with 
Sec. 355.44(b)(3)(i) of the Proposed Regulations, we used the 1992 
International Monetary Fund's annualized ``lending rate,'' converted to 
a semi-annual interest rate as the short-term benchmark interest rate. 
Since ILVA paid zero interest, the benefit to ILVA was the interest it 
would have owed on both payments. These benefits were then divided by 
ILVA's sales in the POI. On this basis, we determine the estimated net 
subsidy to be 0.49 percent ad valorem for all manufacturers, producers, 
and exporters in Italy of the subject merchandise.

C. Equity Infusions

    The GOI, through IRI, provided new equity capital to Terni, TAS, or 
ILVA in every year from 1978 through 1991, except in 1979, 1983, 1989, 
and 1990. Respondents have not provided any argument refuting our 
preliminary determination that the GOI's equity investments were 
provided specifically to the steel industry.
    As discussed above, we have determined that Terni, TAS, and ILVA 
were unequityworthy in each year that they received new equity capital. 
Therefore, these provisions of equity were inconsistent with commercial 
considerations and are countervailable.
    To calculate the benefit for the POI, we treated each of the equity 
amounts as a grant and allocated the benefits over a 15-year period. 
(Our treatment of equity as grants and our choice of allocation period 
is discussed in the GIA, at 37239 and 37225, respectively.)
    In the preliminary determination, we treated a capital increase 
received by ILVA in the amount of 205,097 million lire in 1990 as a 
countervailable equity infusion because ILVA reported it as an equity 
infusion in its responses. At verification, we established that the 
amount reported as an equity infusion was, in fact, due to the transfer 
of residual assets from Italsider, TAS, and Finsider, which were all in 
liquidation. As explained in connection with the 1988-1990 
restructuring, we do not consider the transfer of assets in connection 
with a restructuring to be an ``equity infusion'' since the transfer 
merely redistributes existing assets. Therefore, we have excluded the 
amount of this capital contribution from our calculations.
    For the equity infusions provided to Terni and TAS, we have divided 
the benefit allocated to the POI by the sales of the Specialty Steels 
Division of ILVA. We chose this sales denominator because this division 
most closely resembles the former companies, Terni and TAS. For equity 
infusions into ILVA, we used ILVA's sales as our denominator, as 
benefits from these investments are not tied to any division of ILVA. 
On this basis, we find the estimated net subsidy to be 9.71 percent ad 
valorem for all manufacturers, producers, and exporters in Italy of the 
subject merchandise.

D. The Transfer of Lovere and Trieste to Terni in 1982

    As discussed in the ``Corporate History'' section of this notice, 
Lovere and Trieste were transferred from Italsider to Terni as part of 
a 1982 restructuring.
    We have determined that this transaction is correctly characterized 
as an internal corporate restructuring. No new equity capital was 
provided to Terni through the transfer of these assets. However, just 
as subsidies given to Terni and TAS continued to bestow a benefit on 
ILVA when ILVA received TAS' assets, subsidies received by Italsider 
flowed to Terni when Terni received Lovere and Trieste.
    We determined the amount of Italsider's subsidies attributable to 
Lovere and Trieste by calculating the percentage of assets these two 
companies represented of the total Italsider assets. We applied this 
percentage to the ``untied'' subsidies received by Italsider to 
calculate the portion of the benefit that flowed to Terni when it 
received Lovere and Trieste.
    The benefit allocated to the POI was divided by the total sales of 
the Specialty Steels Division of ILVA. On this basis, we find the 
estimated net subsidy to be 0.41 percent ad valorem for all 
manufacturers, producers, and exporters in Italy of the subject 
merchandise.

E. Law 675/77 Preferential Financing

    Law 675/77 was designed to bring industrial assistance measures 
from the GOI under a single system. The program had at its core three 
main objectives: (1) the reorganization and development of the 
industrial sector as a whole; (2) the increase of employment in the 
South; and (3) the promotion of employment in depressed areas. To 
achieve these goals, Law 675/77 provided six types of benefits: (1) 
grants to pay interest on bank loans; (2) mortgage loans provided by 
the Ministry of Industry (``MOI'') at subsidized interest rates; (3) 
other grants to pay interest on loans financed by IRI bond issues; (4) 
capital grants for the South; (5) VAT reductions on capital good 
purchases for companies in the South; and (6) personnel retraining 
grants. (The fourth, fifth, and sixth components of Law 675/77 are 
discussed below.)
    As we stated in our preliminary determination, the GOI identified a 
number of different sectors as having received benefits under Law 675/
77. These sectors were: (1) Electronic technology; (2) the mechanical 
instruments industry; (3) the agro-food industry; (4) the chemical 
industry; (5) the steel industry; (6) the pulp and paper industry; (7) 
the fashion sector; (8) the automobile industry; and (9) the aviation 
sector. Law 675/77 also sought to promote optimal exploitation of 
energy resources, and ecological and environmental recovery.
    Despite the fact that Law 675/77 benefits were available to and 
used by numerous and varied industries, we preliminarily determined Law 
675/77 benefits specific within the meaning of section 771(5)(A)(ii) of 
the Act, and therefore, countervailable because the steel industry was 
a dominant user pursuant to section 355.43(b)(2)(iii) of the Proposed 
Regulations. It received 34 percent of the benefits provided under the 
interest subsidy and capital grant components of the program.
    The GOI has argued that the steel and automobile industries did not 
receive a disproportionate share of benefits when the extent of 
investment in those industries is compared to the extent of investment 
in other industries.
    We did not consider the level of investment in the industries 
receiving benefits under Law 675/77. Instead, we followed the policy 
explained in Final Affirmative Countervailing Duty Determination: 
Certain Steel Products from Brazil, 58 FR 37295, 37295 (July 9, 1993), 
of comparing the share of benefits received by the steel industry to 
the collective share of benefits provided to other users of the 
program. Consistent with our determination in Final Affirmative 
Countervailing Duty Determination: Certain Steel Products from Italy 
(``Certain Steel from Italy''), 58 FR 37327 (July 9, 1993), we found 
that the steel industry accounted for 34 percent of the benefits and 
the auto industry accounted for 33 percent of the benefits. Thus, these 
two industries represented 77 percent of the assistance while the 
remainder was spread among the other seven industries.
    On this basis, we determine that the steel industry was a dominant 
user of programs under Law 675/77 and, therefore, that benefits 
received by ILVA under this law are being provided to a specific 
enterprise or industry or group of enterprises or industries. 
Therefore, we find Law 675/77 financing to be countervailable to the 
extent that it is provided on terms inconsistent with commercial 
considerations.
1. Grants to Pay Interest on Bank Loans
    Italian commercial banks provided long-term loans at market 
interest rates to industries designated under Law 675/77. The interest 
owed by the recipient companies on these loans was offset by 
contributions from the GOI. Terni received bank loans with Law 675/77 
interest contributions which were outstanding in the POI.
    To determine whether this assistance conferred a benefit, we 
compared the effective interest rate paid on these loans to the 
benchmark interest rate, described above. Based on this comparison, we 
determine that the financing provided under this program is 
inconsistent with commercial considerations, i.e., on terms more 
favorable than the benchmark financing.
    Because Terni knew that it would receive the interest contributions 
when it obtained the loans, we consider the contributions to constitute 
reductions in the interest rates charged rather than grants (see 
Certain Steel from Italy at 37331).
    Therefore, to calculate the benefit, we used our standard long-term 
loan methodology as described in Sec. 355.49(c)(1) of the Proposed 
Regulations. We divided the benefit allocated to the POI by the sales 
of the Specialty Steels Division of ILVA. On this basis, we determine 
the estimated net subsidy to be 0.03 percent ad valorem for all 
manufacturers, producers, and exporters in Italy of the subject 
merchandise.
    2. Mortgage Loans from the Ministry of Industry Under Law 675/77, 
companies could obtain long-term low-interest mortgage loans from the 
Ministry of Industry. Terni received several loans which were still 
outstanding in the POI.
    To determine whether these loans were provided on terms 
inconsistent with commercial considerations, we used the benchmark 
interest rates described above. Because the interest rates paid on the 
Law 675/77 loans were below the benchmark interest rates, we determine 
that loans provided under this program are countervailable.
    We calculated the benefit using our standard long-term loan 
methodology. We then divided the benefit allocated to the POI by the 
sales of the Specialty Steels Division of ILVA. On this basis, we 
determine the estimated net subsidy from this program to be 0.30 
percent ad valorem for all manufacturers, producers, and exporters in 
Italy of the subject merchandise.
3. Interest Contributions on IRI Loans/Bond Issues
    Under Law 675/77, IRI was allowed to issue bonds to finance 
restructuring measures of companies within the IRI Group. The proceeds 
from the sale of the bonds were then re-lent to IRI companies. The 
effective interest rate on such loans was reduced by interest 
contributions made by the GOI. Terni had two of these loans outstanding 
during the POI. Both loans had variable interest rates.
    To determine whether these loans were countervailable, the 
Department used a long-term variable rate benchmark as described in 
Sec. 355.44(B) of the Proposed Regulations. We compared this benchmark 
rate to the effective rates paid by Terni in the years these loans were 
taken out and found that these loans were provided on terms 
inconsistent with commercial considerations.
    To determine the benefit, we first calculated the difference 
between what was paid on these loans during the POI and what would have 
been paid during the POI had the loans been provided on commercial 
terms. We divided the resulting difference by the sales of the 
Specialty Steels Division of ILVA. On this basis, we determine the 
estimated net subsidy from this program to be 0.26 percent ad valorem 
for all manufacturers, producers, and exporters in Italy of the subject 
merchandise.
F. Urban Redevelopment Financing Under Law 181/89
    Law 181/89 was implemented to ease the impact of employment 
reductions in the steel crisis areas of Naples, Taranto, Terni, and 
Genoa. The program had four main components: (1) reindustrialization 
projects; (2) job promotion; (3) training; and (4) early retirement. 
(Early retirement under Law 181/89 was not used by ILVA and the job 
promotion component has been found not countervailable (see relevant 
sections below).
    Because benefits under this program are limited to specific 
regions, we determine that assistance under this program is limited to 
a group of industries in accordance with section 355.43(b)(3).
1. Reindustrialization Under Law 181/89
    Under the reindustrialization component of Law 181/89, the GOI 
partially subsidized certain investments. ILVA received payments under 
Law 181/89 for a training center to update the technical skills of its 
workers. Training also took place at this center to improve workers' 
skills for employment outside the steel industry.
    Since the information provided to the Department indicates that the 
center supported the training of steel workers who continued to be 
employed by ILVA, we determine that ILVA received a benefit from 
reindustrialization payments under Law 181/89.
    In addition, we established that ILVA received payments under Law 
181/89 for service centers. However, these service centers were 
involved in steel processing unrelated to electrical steel. Therefore, 
payments to these service centers were not included in our 
calculations.
    To calculate the benefit to ILVA during the POI, we used our 
standard grant methodology (see Sec. 355.49(b) of the Proposed 
Regulations) and the discount rate described above. It is the 
Department's practice to treat training benefits as recurring grants 
(see GIA at 37226).
    Accordingly, we divided the amount received in the POI by the 1992 
sales of the ILVA. On this basis, we determine the estimated net 
subsidy to be 0.00 percent ad valorem for all manufacturers, producers, 
and exporters on Italy of the subject merchandise.
2. Worker Training
    Retraining grants were provided to ILVA under Law 181/89. These 
funds constituted the GOI's matching contribution to ECSC Article 
56(2)(b) training grants (see ECSC Article 56 Redeployment Aid section 
below).
    Since information provided at verification indicates that these 
funds were used to train workers remaining at ILVA, we determine that 
the GOI's training contribution under Law 181/89 constitutes a benefit 
to ILVA.
    It is the Department's practice to treat training benefits as 
recurring grants (see GIA at 37226). Accordingly, we divided the amount 
received by the sales of the Specialty Steels Division of ILVA. On this 
basis, we determine the estimated net subsidy from this program to be 
0.10 percent ad valorem for all manufacturers, producers, and exporters 
in Italy of the subject merchandise.
G. ECSC Article 54 Loans
    Under Article 54 of the 1951 ECSC Treaty, the European Commission 
can provide loans directly to iron and steel companies for 
modernization and the purchase of new equipment. The loans finance up 
to 50 percent of an investment project. The remaining financing needs 
must be met from other sources. The Article 54 loan program is financed 
by loans taken by the Commission, which are then re-lent to iron and 
steel companies in the member states at a slightly higher interest rate 
than that at which the Commission obtained them.
    ILVA had outstanding Article 54 loans in the POI. These loans were 
transferred to ILVA as part of the partial transfer of Terni's assets 
and liabilities in 1989. Two of these loans were denominated in U.S. 
dollars and two in European Currency Units (``ECU'').
    Because Article 54 loans are limited to iron and steel companies, 
we find these loans to be specific and, therefore, countervailable to 
the extent that they were provided on terms inconsistent with 
commercial considerations.
    Because these loans were denominated in foreign currencies, we used 
foreign currency benchmarks for our preliminary determination. However, 
the Article 54 loans had exchange rate guarantees that allowed Terni to 
calculate the maximum lire amount payable (see Law 796/76 Exchange Rate 
Guarantee Program described below). Since these loans were effectively 
insulated from any future changes in the exchange rate, we are not 
using foreign currency benchmark interest rates as we did in the 
preliminary determination. Rather we are using the uncreditworthy 
benchmark discussed in the Benchmark and Discount Rate section above.
    At verification we found that one of the U.S. dollar loans had been 
assumed by Terni when it became the parent company of the original 
debtor. We are using the uncreditworthy benchmark interest rate for the 
year in which the loan was assumed by Terni in order to calculate the 
benefit from this loan, as that was the year in which Terni incurred 
the liability.
    Because the interest rates paid on all the Article 54 loans were 
below the benchmark interest rates, we determine that the loans 
provided under this program are countervailable. We calculated the 
benefit using our standard long-term loan methodology. We then divided 
the benefit allocated to the POI by the sales made by the Specialty 
Steels Division of ILVA. On this basis, we determine the estimated net 
subsidy to be 1.02 percent ad valorem for all manufacturers, producers, 
and exporters in Italy of the subject merchandise.

II. Programs Determined To Be Not Countervailable

A. Early Retirement

    In Certain Steel from Italy, we determined that the threat of 
strikes and social unrest prevented Italian steel companies from laying 
off surplus labor. As a result, these companies were effectively 
obligated to retain their workers until the workers reached retirement 
age. Given this obligation, when the GOI created a program to allow for 
early retirement, we determined that the steel companies had been 
relieved of the burden of retaining these employees at full salary 
until the normal retirement age.
    In the preliminary determination of this investigation, we relied 
on Certain Steel from Italy and determined that early retirement 
provided a countervailable benefit which we measured as the savings to 
ILVA arising from not having to pay wages to the workers who took early 
retirement in the POI.
    At verification in this case, the GOI provided evidence showing 
that companies in Italy have the legal right to fire workers. Small 
companies (those with less than 15 employees) could simply eliminate 
surplus workers. Large companies, however, go through certain steps and 
procedures before they can lay workers off (other than for cause). The 
procedures and the benefits paid to employees laid off by these 
companies are provided for in Law 223/91.
    Law 223/91 provides two means of removing surplus workers: early 
retirement and lay-offs under CIG-S.
1. Early Retirement
    Early retirement is regulated in two separate articles of Law 223/
91, both of which were used by ILVA workers in the POI. Each article 
has different eligibility criteria, but essentially the program is 
available to companies in high-technologies and competitive industries 
that are undergoing restructuring. Under both articles, the companies 
pay 30 percent of the early retirement benefits, while the GOI pays the 
rest. The GOI sets an annual cap on the number of workers that can be 
retired under this provision. In 1992, 21 percent of the quota was set 
aside for steel workers.
2. CIG-S
    CIG-S (the extraordinary compensation fund) is also regulated by 
Law 223/91. CIG-S provides for lay-offs by companies that (1) are 
undergoing restructuring, (2) have more than 15 employees, and (3) 
belong to a wide range of industries. The GOI must approve use of this 
program, under which laid-off workers receive a certain percentage of 
their wages for three years. Thereafter, they may receive further 
compensation under a follow-up program (mobility). The GOI pays 80 
percent and the companies 20 percent of the benefits.
    In a meeting with a U.S. Embassy official at verification, we 
learned that approximately 25 percent of the Italian workforce is 
employed in companies eligible for the provisions under Law 223/91. The 
remaining 75 percent work for companies that do not have to offer their 
employees any benefits upon separation except the obligatory severance 
payment that is also paid to workers who take early retirement or are 
placed on the CIG-S. Employees in these smaller companies who are laid 
off receive only government-provided unemployment compensation.
    ILVA, on the other hand, belongs to that category of companies 
(larger companies in structural and economic crisis), that have to 
undertake certain specific steps before actually getting rid of surplus 
labor. Therefore, the alternatives facing ILVA are early retirement and 
the permanent lay offs under CIG-S, provided under Law 223/91.
    In determining whether worker benefits such as early retirement 
confer a subsidy on the company, we look to whether the company has 
been relieved of an obligation it would otherwise incur. (See section 
355.44(j) of the Proposed Regulations.) In this instance, we find that, 
in the absence of the early retirement program, the obligation that 
would be incurred is that imposed by the alternative available to ILVA, 
the CIG-S program. We have found that large companies in a wide variety 
of industries that are undergoing restructuring can use the CIG-S 
program to lay off workers. Therefore, we believe that this program 
establishes the benchmark for the obligations ILVA would otherwise have 
towards the workers it retires early.
    Based on the information we have received, we have not been able to 
make an exact comparison of the financial obligations ILVA would incur 
under CIG-S as opposed to the early retirement scheme. Because the 
benefits paid to a worker under early retirement can extend from one to 
more than ten years (whereas CIG-S payments are limited to three years) 
and because the percentage paid by the company is based on different 
amounts (the worker's pension, which varies from worker to worker, for 
early retirement and the worker's salary for CIG-S), we are doubtful 
that exact comparisons can be made. However, we have used the 
information we have and made certain limited assumptions to calculate 
the financial obligations on ILVA imposed by early retirement exceed 
the financial obligations that would be imposed by CIG-S. (See 
Memorandum from Team to Barbara R. Stafford dated April 11, 1994 on 
file in room B-099 of the main Commerce Building.) Therefore, we find 
that the early retirement program is not countervailable.

B. Law 796/76 Exchange Rate Guarantee Program

    This program applies to foreign currency loans taken out by Italian 
companies. Under the program, repayment amounts are calculated by 
reference to the exchange rate in effect at the time the loan is taken 
out. If the exchange rate changes over time, the program sets a ceiling 
and a floor to limit the effect of the exchange rate change on the 
borrower. For example, if the lire depreciates five percent against the 
DM (the currency in which the loan is taken out), borrowers would 
normally find that they would have to repay five percent more (in lire 
terms). However, under the Exchange Rate Guarantee Program, the ceiling 
would act to limit the increased repayment amount to two percent. There 
is also a floor in the program which would apply if the lire 
appreciated against the DM. The floor would limit any windfall to the 
borrower.
    In the preliminary determination (as in Certain Steel), we found 
this program to be de jure specific because we believed the program was 
limited to ECSC loans. However, we discovered at the verification in 
this investigation that we had overlooked information in the response 
which indicated that guarantees under this program were also available 
for loans made by the Council of Europe Resettlement Fund (``CER''). We 
attempted to learn more about the program's de facto specificity at 
verification as it became clear that the program was not de jure 
specific.
    We established that exchange rate guarantees for CER loans are 
provided for in Law 796, the same law that provides guarantees for ECSC 
loans. We learned that CER loans are designed to improve social 
conditions in the weakest sectors of society by providing loans to 
small- and medium-sized businesses to create employment opportunities. 
Officials named the following examples of areas/activities that receive 
funds from the CER: agriculture, handicraft, tourism. We examined 
certain loan documents and established that guarantees were in effect 
on CER loans. However, given the limited time and the manner in which 
the data were organized, Italian officials were not able to provide 
information regarding the distribution of benefits provided to CER and 
ECSC borrowers.
    Based on the information we have, the exchange risk guarantees may 
be non-specific. Moreover, we cannot draw adverse inferences regarding 
the distribution of benefits under the program because the GOI was not 
uncooperative or otherwise remiss in providing the requested data. 
Therefore, we determine that the program is not countervailable.
    Given the circumstances under which we have reached this 
determination, i.e., lacking certain important information, this 
finding of non-countervailability will not carry over to future 
investigations. Therefore, until a fuller record is developed which 
allows us to undertake a thorough analysis, petitioners will not have 
to provide new evidence in order for us to investigate this program. In 
addition, we intend to reinvestigate this program in the first 
administrative review requested should this investigation result in a 
countervailing duty order.

C. Finsider Loan Guarantees

    Certain loans made to Terni were assumed by ILVA, and were still 
outstanding during the POI. At the time the loans were taken out they 
were guaranteed by Finsider, the holding company of Terni and then TAS. 
Finsider entered into liquidation in 1988. Nevertheless, ILVA continued 
to pay the guarantee fees for these loans to Finsider until 1991. At 
that time, ILVA ceased to pay guarantee fees to Finsider and, in 
essence, ``self-guaranteed'' these loans.
    Petitioners argue that the Department should countervail these loan 
guarantees because: (1) The fees paid for the guarantees were less than 
what would have been paid to a commercial guarantor; and (2) guarantees 
to Terni, an uncreditworthy company, constitute government intervention 
ensuring the extension of the loans.
    Although information obtained at verification indicates that ILVA 
paid Finsider less than it would have paid a commercial guarantor, we 
have concluded that ILVA received no benefit. Given that Finsider was 
in liquidation and presumably could not have carried out the guarantee, 
ILVA was receiving nothing in exchange for its payments. Therefore, we 
find that these loan guarantees are not countervailable.

D. Interest Grants for ``Indirect Debts'' Under Law 750/81

    At verification, we established that Law 750/81 was passed as a 
result of the 1981 Iron and Steel plan to provide interest grants to 
sectors within the steel industry which were designated as strategic 
sectors. The program was in place from 1981 through 1983.
    One of the sectors designated as a strategic sector was forgings 
and castings, as these steel products were used in the construction of 
electrical power plants. Since Terni was the only producer of this type 
of forgings and castings, the GOI provided assistance to Terni to allow 
it to reach full production capacity.
    Because these benefits were provided for the production of forgings 
and castings, we determine that they do not provide a benefit to the 
subject merchandise.

E. ECSC Article 56 Redeployment Aid

    Under Article 56(2)(b) of the ECSC Treaty, redeployment assistance 
is provided to workers affected by the restructuring of the coal and 
steel industries in the ECSC member states. The assistance consists of 
the following types of grants: (1) Income support grants for workers 
affected by unemployment, re-employment at a lower salary or early 
retirement; (2) grants to enable companies to continue paying workers 
who have been laid off temporarily; (3) vocational training grants; and 
(4) resettlement grants. The decision to grant Article 56 assistance is 
contingent upon a matching contribution from the member state.
    The portion of Article 56 redeployment grants funded by the ECSC 
comes from the European Commission's operational budget for the ECSC 
steel program. This budget is funded by (1) levies imposed on coal and 
steel producers in the member countries; (2) income from ECSC's 
investments; (3) guarantee fees and fines paid to the ECSC; and (4) 
interest received from companies that have obtained loans from the 
ECSC.
    Because payments from the ECSC under Article 56 are sourced from 
producer levies, we find them to be not countervailable (see Certain 
Steel from Italy at 37336). (The matching contributions from the GOI 
for the training elements of Article 56 were discussed above under Law 
181/89.)

F. European Social Fund (``ESF'') Grants

    The ESF was established by the 1957 European Economic Community 
Treaty to increase employment and help raise the living standards of 
workers.
    We found in Certain Steel from Italy that the ESF receives its 
funds from the EC's general budget, whose main revenue sources are 
customs duties, agricultural levies, value-added taxes collected by the 
member states, and other member state contributions.
    The member states are responsible for selecting the projects to be 
funded by the EC. The EC then disburses the grants to the member states 
which manage the funds and implement the projects. According to the EC, 
ESF grants are available to (1) people over 25 who have been unemployed 
for more than 12 months; (2) people under 25 who have reached the 
minimum school-leaving age and who are seeking a job; and (3) certain 
workers in rural areas and regions characterized by industrial decline 
or lagging development.
    ESF grants received by Italy were used for two purposes: (1) 
training laid-off employees for jobs outside the sector in which they 
had previously been working; and (2) training of workers to perform new 
jobs within the same company.
    Every region in Italy has received ESF funds. Therefore, we 
determine that this program is not regionally specific within the 
meaning of Sec. 355.43(b)(3) of the Proposed Regulations. Furthermore, 
we note that to the extent there is any disproportionality in the 
regional distribution of ESF benefits (i.e., to the regions of southern 
Italy), it has not resulted in a countervailable benefit to the 
production of the subject merchandise, which is produced in northern 
Italy.

G. Aid Under the National Research Plan

    In 1985, the Ministry for University, Technology and Scientific 
Research assigned 19 billion lire to Terni under the National Research 
Plan for steel. The research funds covered costs of personnel assigned 
to specific research projects in research laboratories. The research 
under this plan was contracted out to Terni as the result of a 
competitive bidding process.
    At verification, we established that the assistance under the 
National Research Plan was provided under Law 46/82. Under the same 
law, the GOI has supported similar research plans for 17 other 
industries or sectors. Moreover, documentation provided by the GOI 
showed that the steel industry did not receive a disproportionate share 
of the funds provided for research plans.
    Thus, we determine that benefits under the program are not limited 
to a specific enterprise or industry or group of enterprises or 
industries. Therefore, we find this program to be not countervailable.

H. Job Promotion Under Law 181/89

    The job promotion component of Law 181/89 involved a number of 
measures designed to promote self-employment among workers in Naples, 
Taranto, Terni, and Genoa. These measures included, among others, 
assisting former workers in starting their own businesses, providing 
specialized management training, and increasing the level of financing 
available to new businesses. In general, these measures were 
coordinated by an IRI-owned company, Societa Finanziaria di Promozione 
e Sviluppo Imprenditoriale.
    Based on the information provided at verification, we determine 
that the ``job promotion'' component of Law 181/89 provides for workers 
leaving the steel industry. Moreover, there is no indication that ILVA 
(or other companies in Italy) had an obligation, legal or otherwise, to 
provide assistance to workers leaving the steel industry. Therefore, we 
determine that ILVA did not receive a benefit from assistance provided 
under the job promotion component of Law 181/89.

III. Programs Which Were Not Used or Which Did Not Benefit the Subject 
Merchandise in the POI

    A. We established at verification that the following programs were 
not used during the POI.

1. Subsidized Export Financing Under Law 227/77
2. Early Retirement Provision under Law 181/89
3. Personnel Retraining Grants under Law 675/77

    B. We established at verification that loans provided under the 
following programs were not outstanding in the POI.

1. Finsider Loans
2. Interest Subsidies under Law 617/81
3. Financing under Law 464/72

    C. We established at verification that the following programs were 
directed to the South of Italy. Since production of the subject 
merchandise takes place outside the South, we determine that these 
programs did not benefit the subject merchandise.

1. Law 675/77 Capital Grants
2. Reductions of the Value Added Tax (``VAT'') under Law 675/77
3. Interest Contributions under the Sabatini Law (Law 1329/65)
4. Social Security Exemptions
5. ILOR and IRPEG Exemptions

Interested Party Comments

Comment 1
    Petitioners argue that the Department's preliminary decision to 
measure subsidization by a comparison of TAS' equity before and after 
restructuring, which they labeled the ``snapshot'' approach, was 
improperly substituted for, and contrasts sharply with, the cash flow 
approach the Department has historically used to measure subsidies. 
Petitioners allege that by focusing only on the differences in TAS' 
balance sheet at two different points in time, to the exclusion of a 
review of the intermediate activities undertaken by the GOI to bestow 
funds on ILVA, the Department ignored the full measure of debt 
forgiveness and other assistance provided to ILVA.
    Petitioners also argue that the problem with the Department's 
approach is that it ignored the sizeable liabilities and negative 
equity position left behind in the ``empty shell'' of TAS which were 
brought about by the restructuring as a result of the artificial 
separation of TAS' assets and liabilities. Petitioners maintain the 
Department's approach focuses exclusively on net changes in equity, 
regardless of the individual transactions that caused the changes which 
would have been captured in a cash flow analysis. According to 
petitioners, the only way to accurately measure the subsidies provided 
to Terni/TAS is to identify and measure the value of each individual 
transaction, be it a grant, equity infusion, debt forgiveness, or loss 
coverage.
    Respondents contend that the Department should exclude from the 
calculation of any countervailable subsidy any of the TAS assets 
transferred to ILVA or assets remaining in TAS. In addition, 
respondents argue that changes in TAS' equity position resulting from 
the official appraisal of assets and liabilities conferred no 
countervailable benefit to ILVA. Furthermore, according to respondents, 
assets and liabilities remaining in TAS could not have conferred a 
countervailable benefit to ILVA. Finally, respondents argue that 
Sec. 355.48 of the Proposed Regulations explicitly provides for a 
departure from the cash flow methodology in ``unusual circumstances.'' 
Respondents argue that it would be unreasonable to review each of the 
transactions as suggested by petitioners because of the extreme 
complexity of the transactions involved in this case. Respondents 
maintain the Department has performed a transaction-specific analysis 
wherever practicable.

DOC Position

    Insofar as our preliminary determination focused on the change in 
the net equity position of TAS, it failed to account for certain 
liabilities and losses left behind in TAS. In this final determination, 
we have addressed this shortcoming. We recognize that the restructuring 
resulted in TAS holding liabilities and absorbing losses, and that 
those liabilities and losses would somehow have to be covered. As ILVA 
would not be covering them, ILVA received a benefit in that amount.
    However, we disagree with petitioners that the so-called snapshot 
approach cannot be substituted for the cash flow approach traditionally 
used by the Department. First, our approach in this final determination 
is consistent with the methodology used to assess countervailable 
benefits arising out of restructuring in Certain Steel from Austria. 
Second, it fully and accurately measures the benefits conferred on the 
production of the subject merchandise. Finally, petitioners misuse the 
concept of the cash flow effect.
    As explained above, in Certain Steel from Austria, when the company 
producing steel was restructured, we found that a benefit to the new 
company arose because the new company did not receive any of the losses 
accumulated by the former company. There was no specific act of payment 
or loss coverage undertaken by the Government of Austria to eliminate 
those losses as part of the restructuring. Instead, the losses were 
simply left behind in the former company. In Certain Steel from 
Austria, these losses left in the ``shell'' company were determined to 
be countervailable.
    Similarly, in the case of restructuring TAS into the Specialty 
Steels Division of ILVA, the liabilities and losses left behind in TAS 
have been found to give rise to a benefit to ILVA. There was one 
specific act of debt forgiveness between Finsider and TAS. That was 
accounted for in our calculations, but only as a part of the totality 
of the restructuring action.
    We further believe that the snapshot approach has fully captured 
the benefit to the subject merchandise. Based primarily on the annual 
reports of IRI, Finsider and TAS, petitioners have developed a long 
list of ``subsidies'' that include IRI's forgiveness of Finsider's debt 
and numerous and varied forms of payments to TAS throughout and 
subsequent to the restructuring. We have concluded that countervailing 
subsidies from IRI to Finsider and from Finsider to TAS would lead to 
an overstatement of the benefit. (See DOC response to Comment 2.)
    With respect to the subsidies received by TAS after the second 
asset transfer to ILVA (e.g., interest paid to TAS on its shares in 
ILVA, capital gain on real estate received by TAS, etc.), we recognize 
that these payments did, in fact, reduce the liabilities in TAS. 
However, because we included in the restructuring benefit the amount of 
liabilities remaining in TAS after the second transfer, we have already 
captured the benefits from these subsidies.
    This is similar to the situation that occurred in Certain Steel 
from Austria. As discussed above, we treated as a subsidy the amount of 
losses left behind in the former company, without regard to whether 
there was a specific act by the government to cover those losses. In 
fact, the Government of Austria did make a payment a few years later to 
that company. Recognizing that the second transaction was basically to 
clean up the company's books for an event that had occurred earlier 
(the failure to transfer losses), we did not countervail the payment by 
the Government of Austria as it would have amounted to double-counting.
    Finally, petitioners misuse the concept of cash flow effect when 
they argue that this concept prohibits us from using a snapshot 
approach. Cash flow effects do not identify subsidies. Instead, the 
cash flow concept tells us when to assign the benefit from a particular 
subsidy. For example, the cash flow concept tells us to assign the 
benefits received from a subsidized loan to the point in time when the 
company would have made the interest payment because this is when the 
company's cash flow is affected. In this case, the effect on ILVA of 
not assuming TAS' liabilities and losses occurred when the assets were 
transferred, in 1989 and 1990, and we have assigned the benefits to 
these years.
Comment 2
    Petitioners argue that the Department did not directly address the 
question of the benefit to the Finsider group as a whole, and through 
the Finsider group to TAS, of a multi-billion lire debt forgiveness 
provided in connection with the 1988/90 steel industry restructuring. 
The only debt forgiveness that was included in the Department's 
preliminary calculations was the 99.9 billion lire in debt forgiveness 
provided to TAS.
    Petitioners claim that the Department should countervail a debt 
forgiveness in the amount of 6.2 trillion lire to the Finsider Group in 
1988 and allocate the resulting benefit over a sales denominator 
reflecting the scope of operations of the Finsider companies that were 
liquidated and merged into ILVA. Moreover, petitioners argue that the 
Department should countervail the 99.9 billion lire debt forgiveness 
provided specifically to TAS in 1989 as a separate benefit.
    Respondents argue that petitioners have failed to establish that 
the forgiveness of Finsider's debt is tied to the subject merchandise. 
Respondents argue that the 1988 debt forgiveness to Finsider pre-dates 
the restructuring of Finsider into ILVA by nearly one year. Thus, 
Finsider at the time of the debt forgiveness was not the same company 
as it was when its assets were transferred into ILVA. Respondents 
maintain that Finsider and TAS existed and functioned as two separate 
corporate entities and, therefore, argue that TAS was never potentially 
responsible for the assumption of Finsider's debt. Respondents assert 
that only the 99.9 billion lire debt forgiveness provided directly to 
TAS should be treated as a countervailable debt forgiveness.

DOC Position

    In the early stages of this investigation, it became clear to us 
that there were two alternative approaches to addressing the 
allegations in the petition regarding subsidies to the producers of 
electrical steel. One approach would have been to analyze the 
restructuring of the entire Finsider group into ILVA and to examine all 
subsidies provided to Finsider by IRI and the GOI. Using this approach 
we would, in essence, be measuring subsidies provided to the Finsider 
group as a whole. Therefore, we would not have allocated subsidies to 
any of the group's operating companies, such as TAS.
    The second approach would measure the subsidies provided to the 
producer of the subject merchandise. In other words, our analysis would 
focus on subsidies such as equity infusions, loans, and grants 
specifically provided to the producer of the subject merchandise, i.e., 
Terni/TAS and the Specialty Steels Division of ILVA.
    We chose the second approach for several reasons. First, it is the 
Department's policy to try to ``tie'' subsidies to the subject 
merchandise whenever possible (see GIA at 37267). Second, since the 
Finsider group was very large, consisting of numerous state-owned steel 
producers, only one of which produced the subject merchandise, we 
believed it would be more appropriate to focus our analysis on the 
producer of the subject merchandise. Finally, due to the extremely 
complex restructuring which occurred at the Finsider group level, we 
felt we would be able to more accurately measure the subsidies provided 
to the producer of the subject merchandise by following the second 
approach.
    Petitioners have argued that the Department should countervail the 
subsidies emanating from the debt forgiveness provided to Finsider. 
Petitioners also argue that we should countervail the 99.9 billion lire 
debt forgiveness provided to TAS as well. However, countervailing both 
instances of debt forgiveness would overstate the benefit to TAS 
because we would then be looking at the forgiveness from two different 
levels of analysis at the same time. As stated in the verification 
reports, the 99.9 billion debt forgiveness to TAS was part of the 
larger debt forgiveness provided to Finsider. Therefore, in order to be 
consistent with the approach chosen in this investigation, i.e., to 
focus on the producer of the subject merchandise, we are countervailing 
only the debt and loss forgiveness provided to TAS.
Comment 3
    Petitioners argue that the 300 billion lire payment from IRI to 
ILVA in 1992 should be countervailed as an equity infusion and not as 
an interest-free loan. Petitioners maintain that this capital 
contribution in 1992 was called an ``interest free loan'' because, at 
that time, it had not been expressly approved as an equity infusion. 
Also, petitioners point to the fact that there was no loan agreement. 
Petitioners maintain that the Department should not base its decision 
on ``technicalities'' such as the EC's delayed approval and the 
continued absence of a shareholders' decision approving a capital 
increase. Petitioners conclude that since the Department determined at 
verification that the EC has recently sanctioned this amount as an 
equity infusion, the Department should treat it as such.
    Petitioners also argue that the 10,900 million lire ``payment on 
capital account'' to ILVA in 1991, which the Department found at 
verification, should be countervailed as an equity infusion. The nature 
of this payment was identical to that of the 1992 payment. Respondents 
argue that the Department's verification confirmed that this 1992 
infusion was a liability as opposed to an equity infusion. 
Additionally, respondents state that there were two conditions which 
had to be met before the 1992 capital contribution could be considered 
an equity infusion: (1) Authorization from the EC; and (2) 
authorization from the company's shareholder. Neither of these two 
conditions was met during the POI and the amount was considered a 
``provisional capital increase.'' Thus, the Department properly 
recognized the legal limitations placed on this fund and, treated it as 
a short-term loan.
    Respondents state that EC's preliminary approval of the capital 
contribution in 1993 did not occur until nearly a year and a half after 
the POI. Citing Countervailing Duty Determinations: Certain Steel 
Products from France (``Certain Steel from France''), 58 FR 37313 (July 
9, 1993), respondents argue that it is the reclassification of debt 
into equity which itself constitutes the potentially countervailable 
event in this case. According to respondents, since the potentially 
countervailable event took place after the POI, it is not subject to 
analysis in this investigation.
DOC Position
    Based on an analysis of the primary features of the 1991 and 1992 
provisional capital contributions, we find that the potential 
obligation to repay IRI (in the event that the EC did not approve the 
capital contribution) effectively makes these contributions contingent 
liabilities. To reflect their contingent nature, we have modelled the 
provisional capital contributions as short-term zero-interest loans 
which are rolled over every six months until such time as they are 
repaid or the EC approves their conversion to equity.
    We disagree with respondents that Certain Steel from France is 
applicable in this instance. In the French case, we were looking at the 
year the debt-to-equity conversion occurred and decided that the equity 
infusion was the potentially countervailable event rather than the 
loan. In this case, the provisional capital increase is being treated 
as a loan throughout the POI. Therefore, there is no other potentially 
countervailable event in the POI.
    We disagree with petitioners that there must be a loan repayment 
schedule or payment of interest in order for the Department to consider 
these payments to represent liabilities. The possibility of repayment 
was real. Therefore, the provisional capital increase is properly 
treated as a loan.
Comment 4
    Petitioners argue that the scope of operations of the various 
entities that produce(d) electrical steel (i.e., Terni, TAS, and the 
Specialty Steels Division of ILVA) has changed significantly over the 
years as a result of a series of restructurings. Petitioners argue that 
since TAS was created during the 1987 restructuring out of the assets 
of Terni, I.A.I. and Terninoss, Terni between 1978 and 1986 was not the 
same as the Specialty Steels Division of ILVA after 1989, which 
includes the assets of I.A.I. and Terninoss. According to petitioners, 
the Department must use a denominator which represents the ability to 
generate sales at the time a subsidy was given.
    According to petitioners, the significant difference between 1986 
sales of Terni and 1992 sales of ILVA's Specialty Steels Division 
indicates that these two entities are similar in name only. Petitioners 
note that, in cases involving a merger, it is the Department's practice 
to perform a ``tying analysis'' in order to measure the benefits to the 
entity originally receiving the subsidy. Petitioners argue that since 
the 1987 restructuring of Terni cannot be separated from the overall 
Finsider restructuring, the Department, as it did in the preliminary 
determination of Certain Steel from Italy, should adjust ILVA's sales 
denominator in order to ``reflect steel activities prior its 
restructuring.'' According to petitioners, the Department should use 
the sales of ILVA's Specialty Steels Divisions Terni plant (plus its 
share of intercompany sales) as the denominator for Terni-specific 
loans and grants, thereby excluding the stainless steel activities of 
ILVA's Specialty Steels Division.
    Respondents argue that, since Terni's stainless steel producing 
subsidiaries (I.A.I. and Terninoss), and other Terni assets were merely 
merged into a new entity, TAS, which subsequently became the Specialty 
Steels Division of ILVA, the restructurings did not dramatically alter 
the entity producing the subject merchandise. As such, according to 
respondents, the Department should reject suggestions that stainless 
steel sales be subtracted from the denominator.
    Respondents further argue that the difference between Terni sales 
in 1986 and ILVA's Specialty Steels Division sales in 1992 can be 
explained by increased activity in areas whose production capability 
was enhanced pursuant to restructuring. Moreover, respondents argue 
that a company's sales cannot be expected to remain ``static'' as 
petitioners suggest. Finally, respondents also argue that, according to 
the Department's ``pass-through'' methodology, the Department should 
find that the price paid by TAS for I.A.I. and Terninoss represented 
the exchange of one ``subsidized'' asset for another asset.

DOC Position

    We disagree with petitioners that the 1987 restructuring was so 
fundamental that a comparison cannot be made between Terni and the 
Specialty Steels Division of ILVA. We believe that it is incorrect to 
characterize the merger of I.A.I. and Terninoss into TAS as the 
introduction of unrelated assets to the producer of the subject 
merchandise. Since I.A.I. and Terninoss were both subsidiaries of Terni 
prior to the 1987 restructuring, we find no reason to eliminate 
stainless steel sales from the Terni-specific denominator.
    We do not disagree with petitioners that ILVA's sales have to be 
adjusted to properly measure subsidies given to Terni/TAS. As noted by 
petitioners, in Certain Steel from Italy the Department adjusted ILVA 
sales to calculate subsidy margins for benefits accruing to Italsider 
and/or Nuova Italsider. To accomplish the same results in this 
investigation, we have used the sales of the Specialty Steels Division 
of ILVA to calculate the subsidy margin for Terni-specific benefits, 
rather than the sales of ILVA.
    Finally, we agree with respondents that a company's sales cannot be 
expected to remain the same over time; i.e., a comparison of nominal 
sales values separated by six years does not take into consideration 
inflation or the internal economies of scale resulting from 
restructuring.
Comment 5
    Petitioners state that the Department did not use the highest 
interest rate on the record of the investigation for calculating the 
benchmark in its preliminary determination. Petitioners note that the 
IMF interest rates that it submitted in the petition are higher in some 
instances than the interest rate used by the Department.
    The GOI, on the other hand, argues that petitioners' suggestion 
that the Department use the Italian ``lending rate,'' as provided by 
the IMF, should be rejected since this is a short-term interest rate. 
Therefore, according to the GOI, this interest rate should not be 
considered representative of the highest long-term interest rate in 
Italy. Respondents state that the Department, as it did in the final 
determination of Certain Steel, correctly used the reference rate 
provided by the Bank of Italy to calculate benchmark rates.

DOC Comment

    We note that the Bank of Italy's reference rate is the highest 
average long-term fixed interest rate on the record of this 
investigation. Because section 355.44(b)(6)(iv)(A) of the Proposed 
Regulations lists short-term interest rates as the least preferred 
choice for an uncreditworthy long-term interest rate benchmark, we 
cannot use the IMF ``lending rate'' as suggested by petitioners. 
Accordingly, the Department has continued to use the reference rate 
plus 12 percent of the ABI prime rate for purposes of constructing 
benchmark and discount rates.
Comment 6
    Respondents argue that in cases involving companies experiencing a 
major restructuring or expansion, the Department recognizes that a 
reasonable private investor's analysis may depend on the company's 
prospects, rather than its past financial experience. Respondents cite 
to Certain Carbon Steel Products from Sweden, 58 FR 37385 (July 9, 
1993) in support of their argument.
    According to respondents, the ECSC Treaty permits government 
investment in a state-owned steel company only in cases where the EC 
determines that such investment is provided ``under circumstances 
acceptable to a private investor operating under normal market economy 
conditions.'' Because of this requirement, a team of independent 
experts examined the GOI's proposed restructuring plan and concluded 
that the implementation of the plan afforded ILVA reasonable chances of 
achieving financial viability under normal market conditions.
    Respondents further argue that the Department has considered the 
EC's approval of government equity investments as evidence that the 
transaction confers no countervailable benefits. Respondents cite to 
the administrative review of Industrial Nitrocellulose from France, 52 
FR 833 (January 9, 1987), which involved the French nitrocellulose 
industry.
    Petitioners argue that ILVA's claim of equityworthiness in 1988 is 
without merit. ILVA's predecessor companies, including Terni, incurred 
losses in every year examined by the Department. In addition, 
petitioners argue that nothing on the record suggests that ILVA's 
prospects after 1988 were so optimistic as to overcome years of poor 
financial performance and justify commercial investment by a private 
investment company.

DOC Position

    We agree with respondents that where a major restructuring or 
expansion occurs, it may be appropriate to place greater reliance on 
the future prospects of the company than would be the case where an 
equity investment is made in an established enterprise (see GIA at 
37244). For example, in the Swedish Steel case cited by respondents, we 
considered such factors as: (1) The anticipated rate of return on 
equity; (2) the extended length of time before the company was 
projected to be profitable; (3) the prospects of the world steel 
industry; (4) the cost structure of the company.
    In this instance, the 1988 equity investment was made in ILVA, a 
company which would differ from the operating companies that went into 
it principally because of the substantial debt forgiveness that 
occurred as part of the 1988-90 restructuring. Relieved of this debt, 
ILVA's balance sheet, when it began operations in 1989, would be much 
improved over that of its predecessor, Finsider.
    Beyond this, however, we have little indication of ILVA's future 
prospects. There is no information on expected rates of return, the 
time frame for achieving profitability, or developments in the steel 
market that would allow us to reach a conclusion that ILVA would yield 
a reasonable rate of return in a reasonable period of time.
    Respondents have discussed two indicators of the future prospects 
of ILVA, the independent study undertaken by the EC and the EC's 
decision allowing the investment. With respect to the study, it was not 
placed on the record and we have had no opportunity to analyze it. 
Without such analysis, we cannot simply accept respondents' 
characterization of the study's conclusion.
    We also disagree with respondents that the EC's finding on this 
investment is dispositive. Our determinations of equityworthiness are 
made in accordance with the Department's standards, not the EC's. In 
Final Affirmative Countervailing Duty Determination: Certain Hot Rolled 
Lead and Bismuth Carbon Steel Products from France, 58 FR 6221, 6232 
(January 27, 1993), we explicitly rejected the EC approval of the 
investment as not relevant. In Industrial Nitrocellulose from France, 
cited by respondents, the Department performed its own analysis and, 
contrary to respondents' assertion, did not rely on an EC finding. 
Respondents' reliance on ``principles of comity'' (citing the 
Restatement (Third) of Foreign Relations Law of the United States (ALI) 
section 481, is also inapposite, because comity involves respecting 
foreign judgments regarding the disposition of property and the status 
of persons.
    Finally, while indicators of past performance may be less 
important, we do not believe that a private investor would ignore them 
entirely. As explained in our discussion of Terni's equityworthiness 
above, that company had performed poorly. Similarly, Italsider, another 
company that was restructured into ILVA, had performed poorly (see 
Certain Steel from Italy). Therefore, the past performance of companies 
that became ILVA offered no basis to believe that the 1988 investment 
in ILVA was consistent with commercial considerations.
Comment 7
    Respondents argue that the Department only countervails worker 
assistance when a company is relieved of an obligation it would 
otherwise incur. According to respondents, because it confirmed at 
verification that Italian companies have no obligation to retrain their 
workers, the Department should conclude that ECSC Article 56 worker 
training is not countervailable.

DOC Position

    First, it should be noted that we did not countervail the portion 
of Article 56 retraining grants funded by the ECSC. With respect to the 
portion funded by the GOI under Law 181/89, we disagree that the 
workers assistance provision of the Proposed Regulations is applicable 
in this situation. There is a distinction between funds which cover the 
cost of upgrading the skills of workers remaining at ILVA (which is a 
cost normally born by the company to improve the efficiency of its work 
force), and funds provided to train workers leaving ILVA, which we 
consider a benefit solely to the worker. Only the former is properly 
categorized as countervailable ``worker assistance'' under section 
355.44(j) of the Proposed Regulations, to the extent that it relieves 
the company of the cost of improving its workers' skills.
    Since the GOI's contributions to match the ECSC Article 56 payments 
were only available to steel companies and these funds were used to 
cover part of ILVA's costs of training workers who remained at ILVA, we 
find that a countervailable benefit is being provided.
Comment 8
    The GOI states that, based on the clearer understanding gained by 
the Department at verification regarding the types of loans eligible 
for Law 796/76 exchange rate guarantees, this program should be found 
not countervailable.

DOC Position

    We note that the Department failed to send the GOI a deficiency 
questionnaire indicating that more information was needed to 
demonstrate the de facto use of Law 796/76. When it became evident at 
verification that such information was needed, we attempted to gather 
it. However, the information could not be provided in the form 
necessary in the limited time available during verification.
    Accordingly, we have not made the adverse inference that this 
program is de facto specific to the steel industry. However, we note 
that this finding of non-countervailability only relates to this 
investigation and is subject to revision at the first administrative 
review if a countervailing duty order is issued.
Comment 9
    The GOI notes that exports of the subject merchandise to the U.S. 
were not financed using Law 227/77. According to the GOI, this 
financing should not be considered countervailable because it is not 
limited to a particular industry and is also consistent with the 
Organization for Economic Cooperation and Development Understanding on 
official export credits. The GOI argues that since this financing is 
permitted by a multilateral agreement binding both the U.S. and Italy, 
it should not be considered countervailable.

DOC Position

    We found no countervailable benefits under this program because 
ILVA did not use this financing for exports to the United States. With 
respect to the other arguments raised by the GOI, since this program 
provided export financing, its availability to a large number of 
industries is not relevant. For export subsidies, we need only find, 
pursuant to 355.43(a)(1) of the Proposed Regulations, that the 
financing for exports is provided at preferential rates. Second, 
although the U.S. and Italy participate in the OECD arrangement which 
establishes the interest rates that can be charged on export loans, 
nothing in that arrangement would preclude the application of 
countervailing duties on merchandise entering the U.S. which received 
subsidized financing.
Comment 10
    Respondents note that at verification, the Department determined 
that Law 181/89 actually had three components: (1) the creation of 
alternative employment opportunities; (2) the development of new 
industrial initiatives (``reindustrialization''); and (3) worker 
retraining. Respondents state that the Department further determined 
that ILVA only received funds under the reindustrialization provision 
of Law 181/89.
    Of the three reindustrialization projects, respondents claim that 
two were tied to non-subject merchandise. Therefore, they are not 
countervailable pursuant to section 355.47 of the Proposed Regulations. 
The third reindustrialization project was a ``retraining center.'' 
Respondents argue that the Proposed Regulations state that ``worker 
assistance'' is only countervailable to the extent that it relieves a 
company of an obligation that it would otherwise incur (see section 
355.44(j) of the Proposed Regulations). Since there is no obligation in 
Italy to retrain workers, this project does not provide a 
countervailable benefit.

DOC Position

    As a matter of clarification, we found that Law 181/89 has four 
components, the fourth being early retirement. However, the early 
retirement component expired prior to the POI. Since early retirement 
is typically considered a recurring benefit and, therefore, allocable 
to the year in which received, we did not establish the extent to which 
it had or had not been used by ILVA.
    Regarding the reindustrialization component, we agree that two of 
the projects involved the further processing of non-subject 
merchandise. Therefore, we have found them not countervailable.
    However, with respect to the training center, we disagree that this 
amounted to worker assistance within the meaning of the Proposed 
Regulations. As discussed in Comment 7 above, there is a distinction 
between worker assistance and funds that are being used to cover the 
costs that ILVA would incur to train its work force. Although not 
exclusively, the training center in question is used to upgrade the 
technical skills of ILVA workers. Therefore, we have determined that 
the GOI payments to cover part of the cost of building a training 
center provide a countervailable benefit to ILVA.
Comment 11
    The GOI argues that the early retirement program would only be 
countervailable if companies had no choice but to keep surplus workers 
on the payroll. However, companies can carry out large-scale lay-offs 
under Italian law. Thus, the GOI contends that early retirement is an 
alternative to lay-offs and not an alternative to maintaining excess 
workers. The GOI contends that because companies are required to 
contribute to the costs for early retirement, the program is a burden, 
not a benefit, to them. The only beneficiaries under the early 
retirement program are the workers.
    Moreover, according to respondents, early retirement is available 
to workers in a broad range of industries. The Department should, 
therefore, find that there is no selective treatment under the program.
    According to petitioners, verification confirmed that early 
retirement is only available to a limited group of industries. 
Moreover, because use of early retirement under Article 27 is 
contingent upon approval from a government committee, the GOI exercises 
discretion in determining which industries can use the program. 
Petitioners also argue that Italian companies have an obligation to 
provide early retirement benefits once the workers have opted for the 
program. The benefit should, therefore, be calculated as the GOI's 
contribution to the program because if government funds had not been 
provided, ILVA would have been legally responsible for the entire cost, 
according to petitioners.

DOC Position

    We agree with the GOI that, by law, companies in Italy can carry 
out large-scale lay-offs. Moreover, we have no evidence that Italian 
companies have a legal obligation to keep workers on the payroll until 
they reach normal retirement age. However, based on verification, we 
have found that some companies, including ILVA, belong to a category of 
firms that must go through certain ``steps and procedures,'' in the 
form of the provisions under Law 223/91 before they actually can reduce 
the workforce. In practice, therefore, large companies are obligated to 
use Law 223/91 to deal with surplus workers.
    Regarding the general availability of early retirement, the 
structure of Law 223/91 is such that the early retirement option is 
available to a smaller group of companies than the lay-off option, CIG-
S. Because the GOI was not able to provide evidence showing that the 
steel producers did not receive a disproportionate share of the quota 
granted under the early retirement option, we have used CIG-S as our 
``benchmark.'' Since the financial obligations imposed on the company 
under early retirement are more onerous that the obligations under CIG-
S, we have determined that ILVA did not receive a benefit under the 
early retirement program.
Comment 12
    Petitioners argue that the shares in ILVA owned by Italsider (in 
liquidation) were transferred to TAS free-of-charge in 1990. 
Respondents argue that ILVA did provide an invoice from Italsider 
requesting payment from TAS but that ILVA was unable to locate the 
payment record during verification. Moreover, respondents argue that 
the Department never posed the question of payment to TAS (in 
liquidation), nor did the Department verify the records of TAS (in 
liquidation). Therefore, respondents argue, ILVA should not be 
penalized for any missing information over which it has no control.

DOC Position

    As discussed above in connection with the 1988-90 restructuring, 
petitioners alleged several subsidies to TAS after the second asset 
transfer and receipt of Italsider's shares by TAS was among them. As we 
explained, we believe that we have captured the full benefit to the 
subject merchandise from the restructuring without analyzing these 
individual transactions. Therefore, TAS' payment or non-payment to 
Italsider is irrelevant to our analysis.
    However, although we did not verify that TAS (in liquidation) paid 
Italsider for the shares, we do not believe that TAS kept the proceeds 
from the sale. This is because the proceeds were so large (1,563 
billion lire) that they would have been more than enough to pay off all 
of TAS' outstanding liabilities and to return the company to a positive 
equity position. However, as TAS' books indicate, this did not happen.
Comment 13
    Petitioners maintain that although evidence presented at 
verification may demonstrate that Terni received Law 750/81 funds based 
on its identity as a producer of forgings and castings, the Department 
nevertheless found that Terni's accounting records did not reflect that 
these grants were designated only for the production of forgings and 
castings. Therefore, petitioners argue that Terni treated and accounted 
for these grants as general funds, and did not specifically allocate 
them to its forgings and castings operations.

DOC Position

    We find these grants to be not countervailable since they applied 
to merchandise not subject to this investigation. We disagree with 
petitioners' argument that Terni's treatment of these funds as 
``general funds'' demonstrates that they were not specifically 
allocated to the production of forgings and castings. We stated in the 
GIA that when a company receives a general subsidy, the Department does 
not attempt to ``trace'' or establish how the subsidy was used. 
Conversely, if the subsidy is tied to the production of merchandise 
other than the merchandise under investigation, the Department also 
does not attempt to trace or establish how the subsidy was ultimately 
used. Furthermore, we believe that respondents provided sufficient 
documentation, which is fully discussed in the ILVA verification 
report, that grants under this program specifically applied to the 
production of forgings and castings. As stated in the GIA at 37267, if 
the benefit is tied to a product other than the merchandise under 
investigation, the Department will not find a countervailable subsidy 
on the subject merchandise.

Verification

    In accordance with section 776(b) of the Act, we verified the 
information used in making our final determination. We followed 
standard verification procedures, including meeting with government and 
company officials, examination of relevant accounting records and 
examination of original source documents. Our verification results are 
outlined in detail in the public versions of the verification reports, 
which are on file in the Central Records Unit (room B-099 of the Main 
Commerce Building).

Suspension of Liquidation

    In accordance with our affirmative preliminary determination, we 
instructed the U.S. Customs Service to suspend liquidation of all 
entries of electrical steel from Italy, which were entered or withdrawn 
from warehouse for consumption, on or after February 1, 1994, the date 
our preliminary determination was published in the Federal Register. If 
the ITC issues a final affirmative injury determination, we will 
instruct Customs to require a cash deposit for entries of the 
merchandise after that date in the amounts indicated below. 

------------------------------------------------------------------------
                                                                Percent 
------------------------------------------------------------------------
Electrical Steel                                                        
  Country-Wide Ad Valorem Rate..............................       24.42
------------------------------------------------------------------------

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 nonprivileged and nonproprietary information relating 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 Deputy Assistant Secretary for Investigations, Import 
Administration.
    If the ITC determines that material injury, or threat of material 
injury, does not exist, these proceedings will be terminated and all 
estimated duties deposited or securities posted as a result of the 
suspension of liquidation will be refunded or cancelled. If, however, 
the ITC determines that such injury does exist, we will issue a 
countervailing duty order directing Customs officers to assess 
countervailing duties on electrical steel from Italy.

Return of Destruction of Proprietary Information

    This notice serves 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 section 705(d) of the 
Act and 19 CFR 355.20(a)(4).


    Dated: April 11, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 94-9313 Filed 04-15-94; 8:45 am]
BILLING CODE 3510-DS-P