[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33534-33539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15762]




[[Page 33533]]

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Part IV





Department of Commerce





_______________________________________________________________________



International Trade Administration



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Countervailing and Antidumping Notices; Oil Country Tubular Goods; 
Notices

  Federal Register / Vol. 60, No. 124 / Wednesday, June 28, 1995 / 
Notices   
[[Page 33534]] 

DEPARTMENT OF COMMERCE

International Trade Administration
[C-433-806]


Final Affirmative Countervailing Duty Determination: Certain Oil 
Country Tubular Goods (``OCTG'') From Austria

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

EFFECTIVE DATE: June 28, 1995.

FOR FURTHER INFORMATION CONTACT: Jennifer Yeske or Daniel Lessard, 
Office of Countervailing Investigations, Import Administration, U.S. 
Department of Commerce, Room 3099, 14th Street and Constitution Avenue, 
NW., Washington, DC 20230; telephone (202) 482-0189 or 482-1778, 
respectively.

Final Determination

    The Department of Commerce (``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 Austria of certain oil 
country tubular goods (``OCTG''). For information on the estimated net 
subsidy, please see the Suspension of Liquidation section of this 
notice.

Case History

    Since the publication of the notice of the preliminary 
determination in the Federal Register (60 FR 4600, January 24, 1995), 
the following events have occurred. On February 2, 1995, pursuant to a 
request by Voest-Alpine Stahlrohr Kindberg (``Kindberg''), the 
Department postponed the final determination in the companion 
antidumping investigation (60 FR 6512) until not later than June 19, 
1995. Because this investigation is aligned with the companion 
antidumping investigation, we notified parties that the final 
determination in this investigation would also be made no later than 
June 19, 1995.
    We conducted verification of the responses submitted by the 
Government of Austria (``GOA'') and Voest-Alpine Stahlrohr Kindberg 
(``Kindberg'') from February 27 through March 8, 1994. Both respondents 
and petitioners submitted case and rebuttal briefs on May 23 and May 
30, 1995, respectively. A hearing was not requested.

Scope of the Investigation

    For purposes of this investigation, OCTG are hollow steel products 
of circular cross-section, including oil well casing, tubing, and drill 
pipe, of iron (other than cast iron) or steel (both carbon and alloy), 
whether seamless or welded, whether or not conforming to American 
Petroleum Institute (API) or non-API specifications, whether finished 
or unfinished (including green tubes and limited service OCTG 
products). This scope does not cover casing, tubing, or drill pipe 
containing 10.5 percent or more of chromium. The OCTG subject to this 
investigation are currently classified in the Harmonized Tariff 
Schedule of the United States (HTSUS) under item numbers: 
7304.20.10.10, 7304.20.10.20, 7304.20.10.30, 7304.20.10.40, 
7304.20.10.50, 7304.20.10.60, 7304.20.10.80, 7304.20.20.10, 
7304.20.20.20, 7304.20.20.30, 7304.20.20.40, 7304.20.20.50, 
7304.20.20.60, 7304.20.20.80, 7304.20.30.10, 7304.20.30.20, 
7304.20.30.30, 7304.20.30.40, 7304.20.30.50, 7304.20.30.60, 
7304.20.30.80, 7304.20.40.10, 7304.20.40.20, 7304.20.40.30, 
7304.20.40.40, 7304.20.40.50, 7304.20.40.60, 7304.20.40.80, 
7304.20.50.15, 7304.20.50.30, 7304.20.50.45, 7304.20.50.60, 
7304.20.50.75, 7304.20.60.15, 7304.20.60.30, 7304.20.60.45, 
7304.20.60.60, 7304.20.60.75, 7304.20.70.00, 7304.20.80.30, 
7304.20.80.45, 7304.20.80.60, 7305.20.20.00, 7305.20.40.00, 
7305.20.60.00, 7305.20.80.00, 7306.20.10.30, 7306.20.10.90, 
7306.20.20.00, 7306.20.30.00, 7306.20.40.00, 7306.20.60.10, 
7306.20.60.50, 7306.20.80.10, and 7306.20.80.50.
    After the publication of the preliminary determination, we found 
that HTSUS item numbers 7304.20.10.00, 7304.20.20.00, 7304.20.30.00, 
7304.20.40.00, 7304.20.50.10, 7304.20.50.50, 7304.20.60.10, 
7304.20.60.50, and 7304.20.80.00 were no longer valid HTSUS item 
numbers. Accordingly, these numbers have been deleted from the scope 
definition.
    Although the HTSUS subheadings are provided for convenience and 
customs purposes, our written description of the scope of this 
investigation is dispositive.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute and to the 
Department's regulations are references to the provisions as they 
existed on December 31, 1994. References to the Countervailing Duties: 
Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 
23366 (May 31, 1989) (``Proposed Regulations''), which has been 
withdrawn, are provided solely for further explanation of the 
Department's CVD practice.

Injury Test

    Because Austria is a ``country under the Agreement'' within the 
meaning of section 701(b) of the Act, the U.S. International Trade 
Commission (``ITC'') must determine whether imports of OCTG from 
Austria materially injure, or threaten material injury to, a U.S. 
industry. On August 24, 1994, the ITC published its preliminarily 
determination that there is a reasonable indication that an industry in 
the United States is being materially injured or threatened with 
material injury by reasons of imports from Austria of the subject 
merchandise (59 FR 43591, August 24, 1994).

Corporate History of Respondent Kindberg

    Prior to 1987, the subject merchandise was produced in the steel 
division of Voest-Alpine AG (``VAAG''), a large conglomerate which also 
had engineering and finished products divisions. In 1987, VAAG 
underwent a major restructuring and several new companies were formed 
from the three major divisions of VAAG. The steel division was 
incorporated as Voest-Alpine Stahl GmbH, Linz (``VA Linz''). Among VA 
Linz's separately incorporated subsidiaries were Kindberg and Voest-
Alpine Stahl Donawitz GmbH (``Donawitz''). VAAG became a holding 
company for VA Linz and its other former divisions.
    In 1988, VAAG transferred its ownership interest in VA Linz to 
Voest-Alpine Stahl AG (``VAS''). At the same time, Kindberg became a 
subsidiary of Donawitz. Donawitz and other companies were owned by VAS, 
which in turn was owned by VAAG.
    In 1989, VAS and all other subholdings of VAAG were transferred to 
Industrie und Beteiligungsverwaltung GmbH (``IBVG''). In 1990, IBVG, in 
turn, was renamed Austrian Industries AG (``AI''). VAAG remained in 
existence, but separate from IBVG and AI, holding only residual 
liabilities and non-steel assets.
    In 1991, as part of the reorganization of the long products 
operations, Donawitz was split. The rail division remained with the 
existing company (i.e., Donawitz), however, the name of the company was 
changed to Voest-Alpine Schienen GmbH (``Schienen''). In addition to 
producing rails, Schienen also became the holding company for Kindberg 
and the other Donawitz subsidiaries. The metallurgical division of the 
former Donawitz was incorporated as a new company and was 
[[Page 33535]] named Voest-Alpine Stahl Donawitz (``Donawitz II'').

Equityworthiness

    As discussed below, we have determined that the GOA provided equity 
infusions, through the state-owned industry holding company, 
Osterreichische Industrieholding-Aktiengesellschaft (``OIAG''), to VAAG 
in the years 1983, 1984, and 1986, and to Kindberg in 1987. In order 
for the Department to find an equity infusion countervailable, it must 
be determined that the infusion is provided on terms inconsistent with 
commercial considerations. Petitioners have alleged that VAAG and 
Kindberg were unequityworthy in the years in which they received equity 
infusions and that the equity infusions were, therefore, inconsistent 
with commercial considerations. According to Sec. 355.44(e)(2) of the 
Department's Proposed Regulations, for a company to be equityworthy it 
must show the ability to generate a reasonable rate of return within a 
reasonable period of time. A detailed equityworthiness analysis can be 
found in the Department's Concurrence Memorandum dated June 19, 1995. A 
summary of that analysis follows.
    In the Final Affirmative Countervailing Duty Determination: Certain 
Steel Products from Austria, 58 FR 37217 (July 9, 1993) (``Certain 
Steel''), the Department found VAAG to be unequityworthy in the years 
1978-84 and 1986. Respondents have not questioned this determination 
and no additional information concerning that period has come to light. 
Therefore, we determine VAAG to be unequityworthy during the period 
1978-84, and for 1986.
    With respect to the equityworthiness of Kindberg in 1987, we have 
further examined the information provided regarding Kindberg's future 
prospects. This information included a more detailed excerpt of the VA 
Neu study than was available at the time of the preliminary 
determination, OIAG Finance Concepts, and an internal operating 
forecast performed by Kindberg. Although the forecasts show a trend 
toward profitability, they fail to establish that Kindberg would 
generate a reasonable rate of return in a reasonable period of time. 
Therefore, we determine that the 1987 equity infusion into Kindberg was 
inconsistent with commercial considerations. We also reaffirm our 
preliminary determination, based on our analysis from Certain Steel, 
that VAAG's poor performance prior to the restructuring supports a 
finding that the 1987 infusion into Kindberg was inconsistent with 
commercial considerations.

Allocation of Non-Recurring Benefits

    We have determined that the subsidies received by Kindberg are 
``non-recurring'' because the benefits are exceptional and the 
recipient could not expect to receive them on an ongoing basis (see, 
the General Issues Appendix to the Final Countervailing Duty 
Determination: Certain Steel Products from Austria (``GIA''), 58 FR 
37225, 37226 (July 9, 1993)). Consequently, as explained in Sec. 355.49 
of the Proposed Regulations, we have allocated the benefits over a 
period equal to the average useful life of assets in the industry.
    A company-specific discount rate was not available for the 
allocation. Therefore, we have used the bond rate designated as being 
for ``Industry and other Austrian Issuers'' in the Austrian National 
Bank's Annual Report. Although respondents reported an alternative 
borrowing rate to be used as the discount rate, we verified that their 
proposed rate reflected large government borrowings. Because we are 
measuring the benefit to the recipient company, we prefer a commercial 
benchmark. Therefore, we have rejected the rate dominated by government 
borrowing and selected instead a rate which reflects what it costs 
businesses to borrow.

Calculation of the Benefit

    For purposes of this final determination, the period for which we 
are measuring subsidies (the POI) is calendar year 1993. In determining 
the benefits received under the various 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 each 
program, we then divided the benefit attributable to Kindberg in the 
POI by Kindberg's total sales revenue. Next, we added the benefits for 
all programs to arrive at Kindberg's total subsidy rate. Because 
Kindberg is the only respondent company in this investigation, this 
rate is also the country-wide rate.
    Based upon our analysis of the petition, responses to our 
questionnaires, verifications and comments made by interested parties, 
we determine the following:

A. Programs Determined To Be Countervailable

    We determine that subsidies are being provided to manufacturers, 
producers, or exporters in Austria of OCTG under the following 
programs:

1. Equity Infusions to Voest-Alpine AG (VAAG): 1983, 1984 and 1986

    The GOA provided equity infusions through OIAG to VAAG in 1983, 
1984 and 1986, while VAAG owned the facilities which became Kindberg, 
the producer of the subject merchandise. The 1983 and 1984 infusions 
were given by OIAG pursuant to Law 589/1983. The 1986 equity infusion 
was given as an advance payment for funds to be provided under Law 298/
1987 (the OIAG Financing Act). Law 589/1983 and Law 298/1987 provide 
authority for disbursement of funds solely to companies of OIAG, of 
which VAAG is one.
    In Certain Steel, the Department determined these equity infusions 
to be de jure specific. Respondents did not provide any information 
disputing these findings in this proceeding. Moreover, since we have 
determined that VAAG was unequityworthy in these years, we determine 
that these infusions were provided to VAAG on terms inconsistent with 
commercial considerations.
    Respondents argue that subsidies received by VAAG prior to the 1987 
restructuring are not appropriately attributable to Kindberg. However, 
we have determined that these subsidies continue to benefit Kindberg's 
production of OCTG, in accordance with restructuring methodology 
discussed in the GIA, at 37265-8. (See Comment Two, below, for a 
discussion of respondents' comments and the Department's position on 
this matter.)
    To calculate the portion of these subsidies to VAAG which is 
attributable to Kindberg, we divided Kindberg's asset value on January 
1, 1987, by VAAG's total asset value on December 31, 1986 (i.e., pre-
restructuring). This ratio best reflects the proportion of VAAG's total 
1986 assets that became Kindberg in 1987.
    We then applied this ratio to VAAG's subsidy amount to calculate 
the portion of these infusions allocable to Kindberg. 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 beginning in the years 
the equity was received by VAAG. Our treatment of equity as grants is 
discussed in the GIA, at 37239. We then divided the benefit by total 
sales of Kindberg during the POI. On this basis, we determine the net 
subsidies for these equity infusions to be 1.37 percent ad valorem for 
all manufacturers, producers, and exporters in Austria of OCTG. 
[[Page 33536]] 

2. Grants Provided to VAAG: 1981-86

    The GOA provided grants to VAAG through OIAG pursuant to Law 602/
1981, Law 589/1983, and Law 298/1987. In Certain Steel, the Department 
found grants disbursed under Law 602/1981, Law 589/1983 and Law 298/
1987 to be provided specifically to the steel industry and, hence, 
countervailable (58 FR 37221). Respondents have not challenged the 
countervailability of these grants in this proceeding.
    The grant received in 1981 was less than 0.50 percent of VAAG's 
sales in that year. Hence, as explained in Sec. 355.44(a) of our 
Proposed Regulations and the GIA, at 37217, we have expensed the grant 
received in 1981 in that year. To calculate the benefit from the other 
grants, we used the methodology described in Equity Infusions to VAAG: 
1983-84, 1986 section, above. On this basis, we determine the net 
subsidies under this program to be 3.68 percent ad valorem for all 
manufacturers, producers, and exporters in Austria of OCTG.

3. Assumption of Losses at Restructuring by VAAG on Behalf of Kindberg

    In Certain Steel, we determined that, in connection with the 1987 
restructuring, VAAG retained all the losses carried forward on its 
balance sheet and that no losses were assigned to its newly created 
subsidiaries. VAAG later received funds from the GOA under Law 298/1987 
to offset these losses. We found that VAAG's subsidiaries benefitted 
because VAAG retained these losses when the company was restructured. 
In the present investigation, petitioners allege that this assumption 
of losses provided a countervailable subsidy to Kindberg, a subsidiary 
of VAAG.
    In our preliminary determination, respondents argued that the 
assumption of losses did not provide a benefit to Kindberg because 
Kindberg could have used such losses to reduce income-tax liabilities 
in the future. We stated that this argument would be more closely 
analyzed for our final determination.
    At verification, we learned that Austrian Commercial Law and 
Austrian Tax Law distinguish between two types of losses: tax losses 
and commercial losses. Kindberg's tax losses were carried forward after 
the restructuring and were used to offset income taxes in future years. 
The losses which were retained by VAAG and countervailed in Certain 
Steel, were commercial losses. All commercial losses were retained by 
VAAG after the restructuring. Hence we conclude that the losses 
retained by VAAG could not be used to reduce the future tax liabilities 
of Kindberg.
    Respondents now argue that these commercial losses were not 
generated by Kindberg and, therefore, the assumption of losses by VAAG 
does not benefit Kindberg. At verification, however, respondents were 
unable to identify how the losses which remained on VAAG's books were 
incurred. Moreover, Kindberg's auditor's report states that Kindberg 
incurred significant commercial losses in 1985 and 1986. Hence, we find 
no basis for concluding that the losses retained by VAAG should not be 
attributed in part to Kindberg.
    We concluded in Certain Steel that, ``if VAAG had assigned these 
losses to its new companies, then each of the new companies would have 
been in a * * * precarious financial position'' (Certain Steel, 37221). 
Similarly, we determine that the assumption of losses provided a 
benefit to Kindberg.
    To calculate the benefit, we have treated the losses not 
distributed to Kindberg as a grant received in 1987. Kindberg's share 
of the losses was determined by reference to its asset value relative 
to total VAAG assets. To allocate the benefit, we used the methodology 
described in Equity Infusions to VAAG: 1983-84, 1986 section, above. On 
this basis, we determine the net subsidies for this program to be 1.26 
percent ad valorem for all manufacturers, producers, and exporters in 
Austria of OCTG.

4. Equity Infusion to Kindberg: 1987

    A direct equity infusion from OIAG to Kindberg was made on January 
1, 1987, pursuant to Law 298/1987. As under Law 589/1983, funds under 
Law 298/1987 were provided solely to the steel industry. Therefore, we 
find this infusion to be specific. Moreover, since we have determined 
that Kindberg was unequityworthy in 1987, this infusion was made on 
terms inconsistent with commercial considerations. Thus, we determine 
this infusion to be countervailable.
    To calculate the benefit for the POI, we treated the equity amount 
as a grant and allocated the benefit over 15 years. Because the equity 
investment was made directly in Kindberg, and because Kindberg was 
separately incorporated as of that year, the entire benefit has been 
attributed to Kindberg. The portion allocated to the POI was divided by 
total sales of Kindberg during the POI to determine the ad valorem 
benefit. On this basis, we determine the net subsidies for this program 
to be 5.13 percent ad valorem for all manufacturers, producers, and 
exporters in Austria of OCTG.
B. Programs Determined not to Benefit the Subject Merchandise

    We included in our investigation subsidies provided after 1987 to 
VA Linz, VAAG and VAS based on petitioners' allegation that subsidies 
to these companies benefitted Kindberg. Based on information provided 
in the responses and our findings at verification, we determine that no 
subsidies were being transmitted to Kindberg from its related 
companies. Therefore, the following programs did not bestow a benefit 
on Kindberg. For a discussion of the transmittal of subsidies, see the 
Department's Concurrence Memorandum dated June 19, 1995.
    1. 1987 Equity Infusion to VA Linz.
    2. Post-Restructuring Equity Infusions to VAAG.
    3. Post-Restructuring Grants to VAAG.
    4. Post-Restructuring Grants to VAS.

C. Analysis of Upstream Subsidies

    The petitioners have alleged that manufacturers, producers, or 
exporters of OCTG in Austria receive benefits in the form of upstream 
subsidies. Section 771A(a) of the Tariff Act of 1930, as amended (the 
Act), defines upstream subsidies as follows:
    The term ``upstream subsidy'' means any subsidy * * * by the 
government of a country that:

    (1) Is paid or bestowed by that government with respect to a 
product (hereinafter referred to as an ``input product'') that is 
used in the manufacture or production in that country of merchandise 
which is the subject of a countervailing duty proceeding;
    (2) In the judgment of the administering authority bestows a 
competitive benefit on the merchandise; and
    (3) Has a significant effect on the cost of manufacturing or 
producing the merchandise.

Each of the three elements listed above must be satisfied in order for 
the Department to find that an upstream subsidy exists. The absence of 
any one element precludes the finding of an upstream subsidy. As 
discussed below, respondents have shown that a competitive benefit does 
not exist. Therefore, we have not addressed the first and third 
criteria.

Competitive Benefit

    In determining whether subsidies to the upstream supplier(s) confer 
a competitive benefit within the meaning of section 771A(a)(2) on the 
subject merchandise, section 771A(b) directs that:

* * * a competitive benefit has been bestowed when the price for the 
input product * * * is lower than the price that the manufacturer or 
producer of merchandise [[Page 33537]] which is the subject of a 
countervailing duty proceeding would otherwise pay for the product 
in obtaining it from another seller in an arms-length transaction.

The Proposed Regulations offer the following hierarchy of benchmarks 
for determining whether a competitive benefit exists:

* * * In evaluating whether a competitive benefit exists pursuant to 
paragraph (a)(2) of this section, the Secretary will determine 
whether the price for the input product is lower than:
    (1) The price which the producer of the merchandise otherwise 
would pay for the input product, produced in the same country, in 
obtaining it from another unsubsidized seller in an arm's length 
transaction; or
    (2) A world market price for the input product.

In this instance, there is not another supplier in Austria of the input 
product, steel blooms. However, Kindberg does purchase the input 
product from an unrelated foreign supplier. Therefore, we have used the 
prices charged to Kindberg by the foreign supplier as the benchmark 
world market price.
    Because the foreign supplier's prices are delivered, we made an 
upward adjustment to the domestic supplier's prices to account for the 
cost of freight between Kindberg and that supplier. Based on our 
comparison of these delivered prices for identical grades of steel 
blooms, we found no competitive benefit was bestowed on Kindberg during 
the POI. Therefore, we determine that Kindberg did not receive an 
upstream subsidy.

Interested Party Comments

Comment One: Attribution of VAAG subsidies to Kindberg

    Respondents argue that in British Steel plc v. United States, the 
CIT established that ``a subsidy cannot be provided to a `productive 
unit' or `travel' with it unless the `productive unit' is itself an 
artificial person capable of receiving a subsidy.'' Prior to 1987, 
Kindberg was not a separately incorporated company--Kindberg was not an 
``artificial person.'' Therefore, respondents claim that subsidies 
received by VAAG prior to 1987 could not ``travel'' with Kindberg after 
the restructuring. Moreover, they argue that the requirements in 
British Steel also preclude the Department from attributing losses 
assumed at restructuring by VAAG to Kindberg because only subsidies 
received directly by Kindberg after its incorporation are 
countervailable.
    Petitioners assert that British Steel is irrelevant to Kindberg 
because it involved cases where subsidized state-owned companies were 
privatized. However, in this investigation, the Austrian government 
still owns 100% of Kindberg (i.e., Kindberg has not been privatized). 
Petitioners note that two types of corporate restructuring were 
identified in Certain Steel. Privatizations (i.e., mergers, spin-offs, 
and acquisitions) were one type of corporate restructuring, while 
internal corporate restructurings were the other type. The 1987 VAAG 
restructuring was identified as an internal corporate restructuring. 
Petitioners note that an internal restructuring does not constitute a 
sale for purposes of evaluating the extent to which subsidies passed 
through to a new entity. Therefore, they assert that none of the issues 
addressed in British Steel are relevant.

DOC Position

    Respondents' reliance on British Steel PLC v. United States, Slip 
Op. 95-17 (CIT February 9, 1995) is misplaced. First, British Steel is 
not a final decision of the CIT, and no decision has been made 
regarding whether any issue contained in that opinion should be 
appealed. Therefore, the Department is not bound by that opinion.
    Further, even if British Steel were a final decision, the issues 
contained in the opinion which relate to privatization are inapposite 
in this case. The entire British Steel opinion is premised on an actual 
privatization of a company, i.e., a sale of all or part of the 
government's interest. In this case, Kindberg has not been privatized. 
Although the immediate parent of Kindberg changed through the 
restructuring, the ultimate equity owner was and remains the GOA. The 
British Steel opinion did not address a situation in which a company 
was restructured, but there was no sale of the government's interest.

Comment Two: Allocation Time-Period

    Respondents argue that allocating benefits from nonrecurring grants 
and equity infusions over fifteen years, based on the IRS tables, 
contravenes established judicial precedent, as well as congressional 
intent. They state that a recent CIT decision (i.e., British Steel plc 
v. the United States) held that this allocation methodology, used in 
Certain Steel, was contrary to law. Respondents argue that the 
Department should employ an allocation methodology which reasonably 
reflects the relevant commercial and competitive advantages enjoyed by 
Kindberg. Specifically, the Department should allocate benefits using 
the 3, 5, and 10-year schedules of depreciation found in Kindberg's 
balance sheet and statement of profit and loss.
    Petitioners claim that the the CIT did not find that the 
Department's allocation methodology was unlawful per se. The court's 
specific concern was that the Department had not adequately explained 
how the IRS tables reflected the benefit from subsidies used for 
purposes other than the purchase of physical assets. The court 
recognized that, after engaging in an examination of the firms under 
investigation, the Department might still find that the IRS tables 
could serve as a proxy for allocating subsidy benefits.
    Petitioners argue that Kindberg has not provided sufficient 
evidence that fifteen years does not reflect the benefit to Kindberg 
from non-recurring subsidies. Petitioners note that Kindberg did not 
provide cites for the 3, 5, and 10 year depreciation schedules. 
Moreover, Kindberg did not explain the relevance of these depreciation 
schedules, nor did it identify the assets that are subject to the 
depreciation schedules. Given the lack of contrary evidence in the 
record, the Department should determine that the 15-year allocation 
period reasonably represents the benefit to Kindberg from non-recurring 
subsidies.

DOC Position

    As noted previously, respondents' reliance on British Steel PLC v. 
United States, Slip Op. 95-17 (CIT February 9, 1995) is misplaced. 
British Steel is not a final decision of the CIT, and no decision has 
been made regarding whether any issue contained in that opinion should 
be appealed. Therefore, the Department is not bound by that opinion.
    Furthermore, renewable physical assets are essential to the 
continuation of a company's productive activity, which in turn affects 
the commercial and competitive position of a company. Therefore, the 
Department has determined that the average useful life of renewable 
physical assests is an appropriate measure of the commercial and 
competitive benefits from non-recurring subsidies (see, GIA, at 37227).

Comment Three: Assumption of Losses

    Respondents argue that the evidence on record does not support the 
Department's preliminary finding that VAAG's assumption of losses 
provided a countervailable subsidy to Kindberg. According to 
respondents, it was determined at verification that the losses which 
remained on VAAG's books after the restructuring were incurred by other 
units of Voest-Alpine. Respondents claim that ``absent substantial 
evidence on the record attributing VAAG's losses to Kindberg, 
[[Page 33538]] the Department's final determination should not result 
in a net subsidy calculation for these fictive benefits.''
    According to petitioners, the Department was told at verification 
that the majority of the losses in question were incurred by divisions 
other than Kindberg, and that Kindberg's portion would therefore be 
small. Petitioners note that respondents were unable to document or 
even to determine the actual amount of the losses which were 
attributable to Kindberg. Petitioners further argue that, had any of 
VAAG's losses been allocated to Kindberg, the newly formed company 
would have required additional capital in order to avoid insolvency. 
They conclude that at least some of the losses assumed by VAAG may have 
been incurred by Kindberg and should, therefore, have been allocated to 
Kindberg. The assumption of those losses provided a countervailable 
subsidy to Kindberg.

DOC Position

    We agree with petitioners. At verification, VAAG officials 
explained that the amount of VAAG's losses attributable to Kindberg is 
not determinable. While we did see evidence that substantial losses 
were incurred by other divisions of VAAG prior to the restructuring, it 
does not follow that no losses were created by Kindberg. Moreover, an 
excerpt from Kindberg's 1987 auditor's report notes that Kindberg 
incurred operating losses in the amounts of AS 781 million in 1985 and 
AS 289 million in 1986. Thus, the evidence on the record indicates that 
Kindberg incurred losses prior to 1987.

Comment Four: 1987 Equityworthiness of Kindberg

    Respondents assert that the Department should not rely solely on 
the past financial performance of VAAG in determining whether Kindberg 
was equityworthy in 1987. The Department's determination should take 
into consideration Kindberg's expected future performance--as outlined 
in the VA Neu study, the FGG reports, and Kindberg's operating 
forecasts. Respondents claim that these sources all predicted 
profitability within three years of the date of incorporation.
    Furthermore, respondents argue that the company's performance both 
prior to and after its effective incorporation date should be 
considered. With respect to Kindberg's actual performance, respondents 
note that as early as the third quarter of 1987, Kindberg's performance 
showed marked improvement over 1986. Therefore, even before Kindberg's 
equity infusion was provided, future financial prospects for the firm 
had improved significantly. Moreover, they state that Kindberg's 
performance continued to improve during 1988 and 1989 and that by 1990, 
Kindberg was operating at a profit. They contend that at the time of 
the equity infusion, a reasonable private investor would have 
recognized that Kindberg was capable of generating a sizable return on 
investment in a reasonable amount of time.
    Petitioners claim that the Department's stated policy in the GIA is 
to place greater reliance on past indicators than on studies of future 
expected performance. The starting point of the Department's analysis, 
therefore, should be a review of VAAG's past performance--which would 
lead to a finding that Kindberg was unequityworthy in 1987.
    With respect to the VA Neu Study, petitioners argue that the 
information is inadequate to establish whether Kindberg was 
equityworthy. They argue that the Department cannot properly analyze 
the study because respondents only submitted excerpts containing 
general discussions of possible cost savings.
    Additionally, petitioners assert that Kindberg's predicted 
profitability does not establish that the company would generate a 
reasonable rate of return within a reasonable time--particularly in 
light of the substantial losses that Kindberg was expected to incur 
prior to achieving profitability.
    Finally, petitioners stress that the Department does not consider 
the actual performance of the company subsequent to the receipt of an 
equity infusion. Kindberg's actual performance after 1987 is irrelevant 
for purposes of an equityworthiness determination because such 
information would not have been available to a private investor at that 
time.

DOC Position

    We agree with respondents that the Department should not rely 
solely on the past financial performance of VAAG to determine whether 
the 1987 equity infusion in Kindberg was consistent with commercial 
considerations. As stated in the GIA, as 37244, in circumstances such 
as a restructuring it may be appropriate to place greater weight on 
certain factors (such as future prospects), than others (past 
performance). Hence, the Department has examined closely the expected 
results of the restructuring for Kindberg. At the same time, we 
reaffirm our earlier conclusion as to VAAG's performance.
    We also disagree with petitioners that the information provided by 
respondents regarding future prospects is inadequate. While the VA Neu 
study by itself might not be sufficient, largely because it was 
internally generated and because it was undertaken for different 
purposes, we have not relied solely on that study. In addition, we have 
relied on the estimates provided in conjunction with the FGG's 
``oversight'' activities in the restructuring. Although the FGG is part 
of the Austrian Finance Ministry, there is no indication that it did 
not operate independently in its assessments of the restructuring 
process.
    We do, however, agree with petitioners that these forecasts do not 
provide a basis for concluding that the GOA would receive a reasonable 
return within a reasonable amount of time. Heavy losses were predicted 
for the early years and the best year showed only that the company 
would break even (or possibly return a small profit). Although these 
estimates showed a trend toward profitability, they also showed a 
negative net return over the time horizon they covered.
    We also agree with petitioners that Kindberg's actual performance 
after the equity infusion is irrelevant to this determination. Our 
examination focuses on what the investor could have expected to receive 
at the time the investment was made.
Comment Five: Amount of the 1987 Equity Infusion

    Petitioners argue that the Department should find the total amount 
of equity received by Kindberg in 1987 (i.e., both the direct infusion 
from OIAG and the initial equity contribution by VAAG) to be a 
countervailable subsidy.

DOC Position

    The equity on Kindberg's opening balance sheet for 1987 was 
composed of initial start-up capital provided by VAAG, an increase in 
VAAG's equity position due to a revaluation of the assets contributed 
by VAAG to Kindberg, and the 1987 equity infusion by OIAG. VAAG was 
later reimbursed by OIAG for its initial equity contribution.
    In Certain Steel, the Department concluded that VAAG's 
contributions of equity capital to its newly formed subsidiaries in 
1987 did not constitute countervailable equity infusions. Rather, VAAG 
merely distributed its pre-existing assets and liabilities to its 
subsidiaries. Because the method used to allocate assets and 
liabilities to the new subsidiaries was reasonable, the Department 
found that no countervailable benefit was conferred in this action. The 
initial equity received by Kindberg was part of that 
[[Page 33539]] redistribution of VAAG's assets. Therefore, consistent 
with Certain Steel, we have found that the assets provided by VAAG to 
Kindberg are not a subsidy. However, as discussed above, the losses 
retained by VAAG did give rise to a subsidy to Kindberg.

Comment Six: Bayou Steel Corporation (``BSC'')

    Respondents assert that the Department should not countervail the 
equity infusions and grants received by VAAG in 1983 and 1984 because 
these funds were used to cover losses incurred by BSC in the United 
States. Moreover, because BSC was sold in 1986, Kindberg cannot be 
receiving any benefits from those funds.
    Petitioners argue that in Certain Steel, the Department found that 
the funds in question were provided to cover VAAG's worldwide losses, 
including those associated with Bayou Steel. Therefore, the subsidies 
are attributable to all of VAAG, including Kindberg.

DOC Position

    We agree with petitioner. In Certain Steel, we determined that 
these funds were provided to cover VAAG's worldwide losses. Respondents 
have not provided information that these funds were intended solely to 
benefit BSC (see GIA, at 37236). With respect to the sale of BSC, we 
have applied the spin off methodology applied in the Certain Steel 
cases. A portion of the subsidies received by VAAG would have been 
allocated to BSC at the time of its sale, but the payment VAAG received 
for BSC was sufficiently large that all of the subsidies reverted to 
VAAG. Hence, these subsidies continue to be, in part, attributable to 
Kindberg.

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, and examination of relevant accounting records and 
original source documents. Our verification results are outlined in 
detail in the public versions of the verification reports, which are on 
file in the 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 OCTG from Austria, which were entered or withdrawn from 
warehouse for consumption, on or after January 24, 1995, the date our 
preliminary determination was published in the Federal Register.
    Under Article 5, paragraph 3 of the GATT Subsidies Code, 
provisional measures cannot be imposed for more than 120 days without 
final affirmative determinations of subsidization and injury. 
Therefore, we instructed the U.S. Customs Service to discontinue 
suspension of liquidation on the subject merchandise beginning May 24, 
1995, but to continue suspension of liquidation of all entries, or 
withdrawals from warehouse, for consumption of the subject merchandise 
entered from January 24 through May 23, 1995. We will reinstate 
suspension of liquidation under section 703(d) of the Act, if the ITC 
issues a final affirmative injury determination, and will require a 
cash deposit of estimated countervailing duties for such entries of 
merchandise in the amount indicated below.

OCTG

Country-Wide Ad Valorem Rate: 11.44 percent

ITC Notification

    In accordance with section 705(c) 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 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 OCTG from Austria.

Return or 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: June 19, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-15762 Filed 6-27-95; 8:45 am]
BILLING CODE 3510-DS-P