[Federal Register Volume 60, Number 200 (Tuesday, October 17, 1995)]
[Notices]
[Pages 53739-53747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25752]



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DEPARTMENT OF COMMERCE
[C-475-819]


Preliminary Affirmative Countervailing Duty Determination: 
Certain Pasta (``Pasta'') From Italy

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

EFFECTIVE DATE: October 17, 1995.

FOR FURTHER INFORMATION CONTACT: Jennifer Yeske, Vincent Kane, Todd 
Hansen, or Cynthia Thirumalai, Office of Countervailing Investigations, 
Import Administration, U.S. Department of Commerce, Room 3099, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone 
(202) 482-0819, 482-2815, 482-1276, or 482-4087, respectively.

PRELIMINARY DETERMINATION: The Department preliminarily determines that 
countervailable subsidies are being provided to manufacturers, 
producers, or exporters of pasta in Italy. For information on the 
estimated countervailing duty rates, please see the Suspension of 
Liquidation section of this notice.

Case History

    Since the publication of the notice of initiation in the Federal 
Register (60 FR 30280, June 8, 1995), the following events have 
occurred.
    Because of the large number of pasta producers and exporters in 
Italy, we selected the five largest exporters to the United States as 
mandatory respondents. We identified those exporters using information 
provided to us by the Unione Industriali Pastai Italiani, an 
association of pasta producers in Italy, on June 9, 1995. One of the 
selected companies did not produce pasta but exported on behalf of 
several producers. We included those producers in the investigation and 
requested that they respond to our 

[[Page 53740]]
questionnaire. The companies selected were Agritalia, S.r.l. 
(``Agritalia''), Arrighi S.p.A. Industrie Alimentari (``Arrighi''), 
Pastificio Campano, S.p.A. (``Campano''), F.lli De Cecco di Filippo 
Fara S. Martino S.p.A. (``De Cecco''), Delverde, S.r.l. (``Delverde''), 
De Matteis Agroalimentare S.p.A. (``De Matteis''), Italpast S.p.A. 
(``Italpast''), Labor S.r.l. (``Labor''), Pastificio Guido Ferrara 
(``Guido Ferrara''), and Pastificio Riscossa F.lli Mastromauro S.r.l. 
(``Riscossa''). Because of their association with two of the respondent 
companies, Delverde and De Matteis, we also asked Tamma Industrie 
Alementari (``TIA'') and Demaservice S.r.l. (``Demaservice''), 
respectively, to respond to the questionnaire.
    On June 22, 1995, we issued countervailing duty questionnaires to 
the Government of Italy (``GOI''), the Commission of the European Union 
(``EU''), and the selected companies, concerning petitioners' 
allegations. We received responses to our questionnaire in July and 
August. Four additional companies also filed voluntary responses and we 
have included these companies in our analysis. The following companies 
are voluntary respondents in this investigation: Barilla G. e R. F.lli 
S.p.A. (``Barilla''), Industria Alimentare Colavita, S.p.A. 
(``Indalco''), Gruppo Agricoltura Sana S.r.L. (``Gruppo''), and Isola 
del Grano S.r.L. (``Isola''). We issued supplementary questionnaires to 
parties in August and September for which responses were received by 
early October.
    On July 5, 1995, we postponed the preliminary determination in this 
investigation until October 10, 1995 (60 FR 35899).

Scope of Investigation

    The product covered by this investigation is certain non-egg dry 
pasta in packages of five pounds (2.27 kilograms) or less, whether or 
not enriched or fortified or containing milk or other optional 
ingredients such as chopped vegetables, vegetable purees, milk, gluten, 
diastases, vitamins, coloring and flavorings, and up to two percent egg 
white. The pasta covered by this investigation is typically sold in the 
retail market in fiberboard or cardboard cartons or polyethylene or 
polypropylene bags, of varying dimensions.
    Excluded from the scope of this investigation are refrigerated, 
frozen, or canned pastas, as well as all forms of egg pasta, with the 
exception of non-egg dry pasta containing up to two percent egg white.
    The merchandise under investigation is currently classifiable under 
subheading 1902.19.20 of the Harmonized Tariff Schedule of the United 
States (HTS). Although the HTS subheading is provided for convenience 
and customs purposes, our written description of the scope of this 
proceeding is dispositive.
    On July 19, 1995, the Association of Food Industries (AFI) Pasta 
Group, a group of importers, requested that we expand the scope to 
cover all imports of non-egg dry pasta, irrespective of package size or 
channel of trade. On August 24, 1995, petitioners requested that we 
expand the scope to cover all imports of non-egg dry pasta for the 
retail and the food service markets. We have determined that the scope 
should not be expanded. According to the Department's past practice, 
products which were excluded at the petition stage are not generally 
added to the scope later in the investigatory process. In addition, 
expanding the scope would raise numerous issues such as industry 
support, and the lack of a preliminary injury determination by the U.S. 
International Trade Commission (``ITC'') concerning the expanded scope. 
For a discussion of this decision, see Memorandum to Susan G. Esserman, 
Assistant Secretary for Import Administration, dated September 10, 
1995, on file in this case in the Central Records Unit.
    On September 27, 1995, Spruce Foods, an importer of organic pasta 
from Italy, requested that organic pasta certified by the European 
Union under EEC Regulation 2092/91 be excluded from the scope of this 
investigation. Because this request was made so late, we are unable to 
consider it for purposes of this preliminary determination. However, we 
will address this issue in our final determination.

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act effective January 1, 1995 (the 
``Act''). References to Countervailing Duties: Notice of Proposed 
Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989) 
(``Proposed Regulations''), which have been withdrawn, are provided 
solely for further explanation of the Department's countervailing duty 
practice.

Injury Test

    Because Italy is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the ITC is required to determine 
whether imports of pasta from Italy materially injure, or threaten 
material injury to, a U.S. industry. On July 10, 1995, the ITC 
published its preliminary determination finding that there is a 
reasonable indication that an industry in the United States is being 
materially injured or threatened with material injury by reason of 
imports from Italy of the subject merchandise (60 FR 35563).

Petitioners

    The petition in this investigation was filed by Borden, Inc., 
Hershey Foods Corp., and Gooch Foods, Inc.

Period of Investigation

    The period for which we are measuring subsidies (the ``POI'') is 
calendar year 1994.

Subsidies Valuation Information

    Benchmarks for Long-term Loans and Discount Rates: With the 
exception of Barilla, the companies under investigation did not take 
out any long-term, fixed-rate, lira-denominated loans or other debt 
obligations in any of the years in which grants were received or 
government loans under investigation were given. Therefore, we used the 
Bank of Italy reference rate, adjusted upward to reflect the mark-up an 
Italian bank would charge a corporate customer, as the benchmark 
interest rate for long-term loans and as the discount rate (see Final 
Affirmative Countervailing Duty Determination: Small Diameter Circular 
Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe 
(``Seamless Pipe'') From Italy (60 FR 31992, 31994-95, June 19, 1995)). 
We lacked the specific information needed to calculate the mark-up for 
years prior to 1986, so we applied an average of the mark-up for the 
years 1986 through 1994 to those earlier years.
    In the case of Barilla, the company reported that it had secured 
fixed-rate obligations during two years of the relevant period. 
Therefore, in accordance with section 355.49(b)(2) of the Proposed 
Regulations, we used this company-specific benchmark as the discount 
rate for Barilla in those years.
    Allocation Period: Non-recurring benefits are being allocated over 
a 12-year period, the average useful life of physically renewable 
assets in the food processing industry (as reported in the Internal 
Revenue Service Asset Depreciation Range System).
    Benefits to Mills: Where respondents received subsidies 
specifically tied to related milling operations, we have not included 
those subsidies in our calculations. Semolina, a primary input in the 
manufacture of pasta, is a definable good with an established 

[[Page 53741]]
market, and is thus considered an input into the manufacturing process 
for pasta, not an intermediate step in the manufacturing process. 
Petitioners have not made an upstream subsidy allegation in accordance 
with section 771A, which would be necessary for us to investigate 
subsidies to the production of semolina from durum wheat. Additionally, 
we determine that semolina, a processed agricultural product, fails to 
qualify as a raw agricultural product under section 771B.

Changes in Ownership

    Based on the information provided in the responses, we have learned 
that one of the companies under investigation, Delverde, purchased 
another company's pasta factory. The selling company received non-
recurring countervailable subsidies prior to Delverde's purchase of the 
factory. Delverde has provided sufficient information to calculate the 
amount of those prior subsidies that passed through to Delverde with 
the acquisition of the factory pursuant to the methodology followed by 
the Department in the Restructuring section of the General Issues 
Appendix in Final Affirmative Countervailing Duty Determination: 
Certain Steel Products from Austria (58 FR 37217, 37268-69, July 9, 
1993) (``General Issues Appendix''). For purposes of the preliminary 
determination, we have followed the General Issues Appendix 
methodology. We note that aspects of the General Issues Appendix 
methodology are being reviewed by the Court of Appeals for the Federal 
Circuit (CAFC). We may re-examine whether the General Issues Appendix 
methodology is appropriate for Delverde's transaction in light of facts 
developed in the final investigation, ongoing litigation, and section 
771(5)(F) of the Act.
    We are also collecting further information on acquisitions by other 
responding companies and the subsidies received by the selling 
companies prior to the acquisitions.

Related Parties

    In the present investigation, we have examined several affiliated 
companies (within the meaning of section 771(33) of the Act) whose 
relationship may be sufficient to warrant treatment as a single company 
with a combined rate. In the countervailing duty questionnaire, 
consistent with our past practice, the Department defined companies as 
sufficiently related where one company owns 20 percent or more of the 
other company, or where companies prepare consolidated financial 
statements. The Department also stated that companies may be considered 
sufficiently related where there are common directors or one company 
performs services for the other company. According to the 
questionnaire, such companies that produce the subject merchandise or 
that have engaged in certain financial transactions with the company 
under investigation are required to respond.
    We have preliminarily determined that one respondent, Arrighi, is 
affiliated to another pasta producer on the basis of common third-party 
ownership. Because of the extent of common ownership, we find it 
appropriate to treat these two pasta producers as a single company. As 
a consequence, we would calculate a single countervailing duty rate for 
both companies by dividing their combined subsidy benefits by their 
combined sales. However, there has not been sufficient time to receive 
information regarding the subsidies received by the related company for 
use in the preliminary determination. Therefore, for purposes of the 
preliminary determination, we calculated a rate based on subsidies 
received by Arrighi only, and using only Arrighi's sales in the 
denominator.
    Another respondent, De Matteis, has reported that it is related to 
another company, Demaservice, through common ownership. De Matteis 
states that Demaservice does not produce or sell the subject 
merchandise and that no financial transactions, as defined in the 
questionnaire, have occurred between these companies. Nevertheless, 
based on the information reported by De Matteis, Demaservice is deeply 
involved in the operations of De Matteis. Therefore, for purposes of 
the preliminary determination, we have determined that it is 
appropriate to treat these two companies as a single company. As a 
consequence, we would calculate a single countervailing duty rate for 
both companies by dividing their combined subsidy benefits by their 
combined sales. However, there has not been sufficient time to receive 
information regarding the subsidies received by the related company for 
use in the preliminary determination. Therefore, for purposes of the 
preliminary determination, we calculated a rate based on subsidies 
received by De Matteis only, and using only De Matteis' sales in the 
denominator.
    Agritalia has also reported that it is related through common 
ownership to another company, Meridiana. Meridiana did not produce or 
sell the subject merchandise during the POI. Only limited transactions 
have occurred between Agritalia and Meridiana. Unlike Demaservice, 
which played an integral role in De Matteis' operation, Meridiana had 
only an ancillary role in Agritalia's operation. Therefore, we have 
preliminarily determined that these transactions are limited in extent 
and are not a likely vehicle for the transmittal of subsidies. 
Therefore, we have not treated these companies as a single company.
    Finally, Delverde is part of a consolidated group, consisting of a 
parent company and two sister companies which produce pasta. Another 
company, TIA, holds less than a 20 percent ownership interest in the 
Delverde group, but shares a common director with Delverde and 
Delverde's parent. TIA's business is principally wheat milling but it 
also manufactures non-egg dry pasta. We have preliminarily determined 
that the relationship between Delverde and TIA warrants treating them 
as a single company. Although the evidence in the record does not show 
that their relationship provides a likely vehicle for the transmittal 
of subsidies, it does demonstrate the possibility that the two 
companies might shift exports between them in response to differing 
countervailing duty rates. Therefore, instead of giving these companies 
a combined rate as above, we have calculated a separate countervailing 
duty rate for each company and then weight-averaged these rates by each 
company's exports to the United States to calculate a single rate 
applicable to both companies.

Facts Available

    Section 776(a)(2)(A) of the Act requires the Department to use the 
facts available if ``an interested party or any other person withholds 
information that has been requested by the administering authority or 
the Commission under this title.'' Two of the companies selected to 
provide responses in this investigation, Italpast and Labor, did not 
respond to our countervailing duty questionnaire. Section 776(b) of the 
Act provides that the administering authority may use an inference that 
is adverse to the interests of the non-responding party in selecting 
from among the facts otherwise available. Such adverse inference may 
include reliance on information derived from: (1) The petition, (2) a 
final determination in the investigation under this title, (3) any 
previous review under section 751 or determination under section 753 
regarding the country under consideration, or (4) any other information 
placed in the record. Because petitioners did not include subsidy rates 
in the petition, we were unable to use the petition as a source for 

[[Page 53742]]
facts available. Therefore, we have used the sum of the highest rates 
calculated for each program for respondent companies as the facts 
available for Italpast and Labor.
    Based upon our analysis of the petition and the responses to our 
questionnaire, we determine the following:

Claims for ``Green Light'' Subsidy Treatment

    Section 771(5B) of the Act describes subsidies that are 
noncountervailable, the so-called ``green light'' subsidies. Among 
these are subsidies to disadvantaged regions, as defined in section 
771(5B)(C). The GOI has requested that the Department find the 
following subsidies to disadvantaged regions to be noncountervailable 
under section 771(5B)(C):
     ILOR and IRPEG Tax Exemptions under Decree 218 of 1978
     Industrial Development Grants under Law 64 of 1986
     Industrial Development Loans under Law 64 of 1986
     VAT Reductions on Capital Goods under Law 675 of 1977. 
Analysis
    After World War II, the GOI recognized that the South lagged behind 
the rest of the country economically and established a number of 
programs to encourage industrial development in the South. Law 646 
created the Fund for Southern Italy. Grants, interest contributions, 
and tax and social security reduction were provided for in this law.
    In 1986, Law 64 created the Agency for the Promotion of Growth in 
Southern Italy. A total of 120,000 billion lira was allocated over the 
next nine years for development in the South. In 1988, after an 
investigation of Law 64 by the European Community (EC), the GOI barred 
four regions from receiving Law 64 benefits. After certain 
modifications, Law 64 was found to be compatible with the Treaty of 
Rome.
    In 1992, the EC again investigated Law 64. As a result, Law 488 of 
1992 was enacted to replace Law 64. The new law established a regional 
development policy for the entire country. As of August 21, 1992, 
applications under Law 64 were no longer accepted.
    The programs for which the GOI has requested green light treatment 
all fall, directly or indirectly, under Law 64. The Industrial 
Development Grants and Loans were granted under Law 64. The VAT 
reductions under Law 675 were limited in 1986, by Law 64, to companies 
located in the South. Finally, the ILOR and IRPEG tax exemptions 
granted pursuant to Law 218/78 were extended by Law 64 through December 
31, 1993.
    We have preliminarily determined that it is appropriate to focus 
our green light analysis on the law(s) and programs that were in place 
at the time the assistance in question was granted. None of the 
companies being investigated has received benefits under Law 488. 
Therefore, we have limited our analysis to the above-named programs 
under Law 64.
    We have preliminarily concluded that the information submitted by 
the GOI does not support the claim that these programs qualify as 
noncountervailable subsidies. For example, section 771(5B)(C) (i) and 
(iii) requires that regional subsidy programs be part of ``a generally 
applicable regional development policy.'' Yet Law 64 provides benefits 
solely to the South of Italy and there is no information regarding 
other laws (or provisions within Law 64) that make regional development 
a generally applicable policy across Italy. Also, section 
771(5B)(C)(i)(II) and (ii) requires that economically disadvantaged 
regions be designated on the basis of neutral and objective criteria, 
which are clearly stated in the relevant statute, regulation or other 
official document and include a measure of per capita income or 
unemployment. No information has been provided to indicate that Law 64 
or its implementing regulations met this standard. Therefore, for 
purposes of this preliminary determination we have not treated these 
programs as green light subsidies.

I. Programs Preliminarily Determined To Be Countervailable

A. Local Income Tax (``ILOR'') and Corporate Income Tax (``IRPEG'') 
Exemptions

    Companies located in the Mezzogiorno may receive a complete 
exemption for a period of 10 years from the ILOR and the IRPEG on 
profits deriving from new plant and equipment or from plant expansion 
and improvement under Presidential Decree 218 of March 6, 1978. Prior 
to March 29, 1986, the IRPEG exemption applied to only 50 percent of 
profits deriving from new or expanded plant and equipment. Effective 
March 29, 1986, Law 64/86 granted a total exemption for the IRPEG, as 
well. In addition, otherwise non-qualifying profits which are 
reinvested in plant or equipment may receive an exemption from the ILOR 
for the year of reinvestment. Reinvested profits do not receive any 
exemption from the IRPEG. The provision for ILOR and IRPEG exemptions 
expired on December 31, 1993, but companies which were approved for the 
exemptions prior to this date may continue to benefit from the 
exemption until the expiration of the 10-year benefit period approved 
for each company.
    We have determined that these tax exemptions are countervailable 
subsidies. They constitute subsidies within the meaning of section 
771(5) of the Act, as the tax exemptions represent revenue foregone by 
the GOI and confer tax savings on the companies. Also, they are 
regionally specific within the meaning of section 771(5A) because they 
are limited to companies located in the Mezzogiorno. (As discussed 
above, the GOI has not demonstrated that the ILOR and IRPEG exemptions 
are entitled to noncountervailable status under section 771(5B)(C).)
    Barilla, De Cecco, and Delverde claimed ILOR tax exemptions on tax 
returns filed during the POI.
    To calculate the countervailable subsidy for each company, we 
divided the tax savings during the POI by the company's sales during 
the POI. On this basis, we determine the countervailable subsidy from 
this program to be 0.20 percent ad valorem for Barilla, 0.94 percent ad 
valorem for De Cecco, and 0.15 percent ad valorem for Delverde.

B. Industrial Development Grants Under Law 64/86

    Law 64/86 provided for extraordinary intervention in favor of the 
Mezzogiorno, with the purpose of promoting industrial development in 
the region. Grants were awarded to companies constructing new plants or 
expanding or modernizing existing plants. Pasta companies were eligible 
for grants to expand existing plants but not to establish new plants, 
because the market for pasta was deemed to be close to saturated. 
Grants were made only after a private credit institution chosen by the 
applicant made a positive assessment of the project.
    In 1992, the Italian Parliament decided to abrogate Law 64. This 
decision became effective in 1993. Projects approved prior to 1993, 
however, were authorized to receive grant amounts after 1993.
    Barilla, De Cecco, La Molisana, Delverde, TIA, and Riscossa 
received industrial development grants.
    We preliminarily determine that these grants provide a 
countervailable subsidy within the meaning of section 771(5) of the 
Act. They are a direct transfer of funds from the GOI providing a 
benefit in the amount of the grant. Also, these grants are regionally 
specific, within the meaning of section 771(5A). (As discussed above, 
the GOI has not 

[[Page 53743]]
demonstrated that these grants are entitled to noncountervailable 
status under section 771(5B)(C).)
    We have treated these grants as ``non-recurring'' grants based on 
the analysis set forth in the Allocation section of the General Issues 
Appendix. In accordance with our past practice, we have allocated those 
grants which exceeded 0.5 percent of a company's sales in the year of 
receipt over time. For Barilla, no grants exceeded 0.5 percent of 
Barilla's sales in the year of receipt. Accordingly, all of Barilla's 
grants were expenses. Barilla did not receive any grants during the 
POI. Therefore, Barilla had no benefit during the POI.
    To calculate the countervailable subsidy, we used our standard 
grant methodology. We divided the benefit attributable to the POI for 
each company by that company's sales in the POI. On this basis, we 
determine the countervailable subsidy for this program to be 0.00 
percent ad valorem for Barilla, 0.26 percent ad valorem for De Cecco, 
0.35 percent ad valorem for La Molisana, 2.83 percent ad valorem for 
Delverde, 2.90 percent ad valorem for TIA, and 1.01 percent ad valorem 
for Riscossa.

C. Industrial Development Loans Under Law 64/86

    Law 64/86 also provided for interest contributions on industrial 
development loans to companies located in the Mezzogiorno for 
constructing new plants or expanding or modernizing existing plants. 
The interest rate on these loans was set at the reference rate, with 
the GOI's interest contributions serving to reduce this rate. For the 
reasons discussed above, pasta companies were eligible for interest 
contributions to expand existing plants but not to establish new 
plants.
    Barilla, De Cecco, Delverde, TIA and La Molisana received interest 
contributions on industrial development loans.
    We have preliminarily determined that these interest contributions 
are countervailable subsidies within the meaning of section 771(5). 
They are a direct transfer of funds from the GOI providing a benefit in 
the amount of the difference between the benchmark interest rate and 
the interest rate paid by the companies after accounting for the GOI's 
interest contributions. Also, they are regionally specific within the 
meaning of sections 771(5A). (As discussed above, the GOI has not 
demonstrated that industrial development loans are entitled to 
noncountervailable status under section 771(5B)(C).)
    Because the recipients of the interest contributions knew, prior to 
taking out the loans, that they would receive the interest 
contributions, we have allocated the benefit over the life of the loan 
for which the contribution was received. We divided the benefit 
attributable to the POI for each company by that company's sales. On 
this basis, we determine the countervailable subsidy for this program 
to be 0.08 percent ad valorem for Barilla, 0.44 percent ad valorem for 
De Cecco, 2.35 percent ad valorem for Delverde, 0.86 percent ad valorem 
for TIA, and 0.17 percent ad valorem for La Molisana.

D. Export Marketing Grants Under Law 304/90

    To increase market share in non-EU markets, Law 304/90 provides 
grants to encourage enterprises operating in the food and agricultural 
sectors to carry out pilot projects aimed at developing links between 
Italian producers and foreign distributors in non-EU markets and 
improving the quality of services in those markets. Emphasis is placed 
on assisting small- and medium-sized producers.
    We have determined that the export marketing grants under Law 304 
provide countervailable subsidies within the meaning of section 771(5) 
of the Act. The grants are a direct transfer of funds from the GOI 
providing a benefit in the amount of the grant. The grants are also 
specific because their receipt is contingent upon export performance.
    Delverde received a grant under this program for a market 
development project in the United States.
    We have determined that Law 304 grants are ``non-recurring,'' 
because they are exceptional events rather than an ongoing occurrence. 
Each project funded by the a grant requires a separate application and 
approval, and the projects represent one-time events in that they 
involve an effort to establish warehouses, sales offices, and a selling 
network in new overseas markets. Therefore, we have treated the grant 
received under this program as ``non recurring'' based on the analysis 
set forth in the Allocation section of the General Issues Appendix. 
Further, we have determined that the grant exceeded 0.5 percent of 
Delverde's exports to the United States in the year it was received. 
Therefore, in accordance our past practice, we allocated the benefits 
of this grant over time.
    To calculate the countervailable subsidy, we used our standard 
grant methodology. We divided the benefits attributable to the POI by 
the total value of Delverde's exports to the United States. On this 
basis, we determine the countervailable subsidy to be 0.19 percent ad 
valorem for Delverde.

E. Social Security Reductions and Exemptions

    Pursuant to Law 1089 of October 25, 1986, companies located in the 
Mezzogiorno were granted a 10 percent reduction in social security 
contributions for all employees on the payroll as of September 1, 1968, 
as well as those hired thereafter. Subsequent laws authorized companies 
located in the Mezzogiorno to take additional reductions in social 
security contributions for employees hired during later periods, 
provided that the new hires represented a net increase in the 
employment level of the company. The additional reductions ranged from 
10 to 20 percentage points. Further, for employees hired during the 
period July 1, 1976 to November 30, 1991, companies located in the 
Mezzogiorno were granted a full exemption from social security 
contributions for a period of 10 years, provided that employment levels 
showed an increase over a base period.
    We determine that the social security reductions and exemptions are 
countervailable subsidies within the meaning of section 771(5). They 
represent revenue foregone by the GOI and they confer a benefit in the 
amount of the savings received by the companies. Also, they are 
specific within the meaning of section 771(5A) because they are limited 
to companies located in the Mezzogiorno.
    Barilla, De Cecco, Delverde, TIA, La Molisana, Guido Ferrara, 
Campano, De Matteis, Riscossa, and Indalco received social security 
reductions and exemptions during the POI.
    To calculate the countervailable subsidy, we have divided the total 
savings in social security contributions realized by each company by 
that company's sales during the same period. On this basis, we 
calculated the countervailable subsidy from this program to be 0.69 
percent ad valorem for Barilla, 0.70 percent ad valorem for De Cecco, 
0.45 percent ad valorem for TIA, 2.60 percent ad valorem for Delverde, 
2.58 percent ad valorem for La Molisana, 0.98 percent ad valorem for 
Guido Ferrara, 1.77 percent ad valorem for Campano, 1.51 percent ad 
valorem for De Matteis, 0.78 percent ad valorem for Riscossa, and 1.17 
percent ad valorem for Indalco.
    Several companies reported that in addition to the social security 
tax relief described above, they received Social Security tax holidays 
under another program, called ``Fiscalizzazione'' The GOI has provided 
no information with 

[[Page 53744]]
regard to these benefits. According to respondent companies, 
Fiscalizzazione is available to companies in both Northern and Southern 
Italy. However, the percentage of the tax reduction that may be taken 
in Southern Italy is greater.
    We preliminarily determine that the Fiscalizzazione reductions are 
countervailable subsidies within the meaning of section 771(5) for 
companies with operations in Southern Italy. They represent revenue 
foregone by the GOI and confer a benefit in the amount of the greater 
savings accruing to the companies in Southern Italy. In addition, they 
are regionally specific within the meaning of section 771(5A).
    The available information suggests that all companies with 
operations in Southern Italy which received the social security tax 
relief described above also received these Fiscalizzazione benefits. 
These companies include Barilla, Campano, De Cecco, De Matteis, 
Delverde, Guido Ferrara, Indalco, La Molisana, Riscossa, and TIA.
    To calculate the countervailable subsidy, we have divided the 
additional savings in social security contributions realized by each 
company by that company's sales during the same period. We note that we 
do not have the information necessary to calculate individual rates for 
some of these companies. Therefore, we have calculated individual rates 
for those companies for which we have the information. We have applied 
a weighted average of these rates to the companies for which we do not 
have the necessary information. On this basis, we calculated the 
countervailable subsidy from this program to be 0.46% ad valorem for 
Barilla, 0.46% ad valorem for Campano, 0.34% ad valorem for De Cecco, 
0.46% ad valorem for De Matteis, 0.73% ad valorem for Delverde, 0.46% 
ad valorem for Guido Ferrara, 0.06% ad valorem for Indalco, 0.46% ad 
valorem for La Molisana, 0.46% ad valorem for Riscossa, and 0.29% ad 
valorem for TIA.

F. Regional Development Grant

    One respondent, Arrighi, claims to have received a grant in 1994 
under the European Regional Development Fund (``ERDF''). However, the 
EU has claimed that no Italian pasta producers or exporters received 
money under the ERDF and that Arrighi is located in a region that would 
not be eligible for ERDF assistance. Moreover, our review of the 
supporting documentation supplied by Arrighi provides no indication 
that the ERDF was the source of the funds.
    For purposes of the preliminary determination, we are not treating 
this as an ERDF grant. Consequently, we have not analyzed the 
information provided by the EU in support of its claim that the ERDF is 
a noncountervailable subsidy under section 771(5B)(C) of the Act. 
However, we intend to clarify the origin of the assistance reported by 
Arrighi so that we can analyze it fully for our final determination.
    We are treating the assistance reported by Arrighi as a 
countervailable subsidy within the meaning of section 771(5) of the 
Act. The grant is a direct transfer of funds providing a benefit in the 
amount of the grant. Also, the available information indicates that the 
grant is regionally specific within the meaning of section 771(5A) of 
the Act.
    We view this as a ``non-recurring'' grant based on the analysis set 
forth in the Allocation section of the General Issues Appendix. 
According to the information received, there is no indication that the 
grants are available on an ongoing basis, and separate government 
approval is required for each grant. However, we have determined that 
the grant was less than 0.5 percent of Arrighi's total pasta sales in 
the POI (excluding sales of pasta produced by other producers) which 
was the year of receipt of the grant. Therefore, in accordance with our 
past practice, we are allocating the full amount of the grant to the 
POI.
    To calculate the countervailable subsidy, we divided the full 
amount of the grant by Arrighi's total pasta sales, excluding its sales 
of pasta from other producers. On this basis, we calculated the 
countervailable subsidy from this program to be 0.34 percent ad valorem 
for Arrighi.

G. Export Restitution Payments

    Since 1962, the EU has operated a subsidy program which provides 
restitution payments to EU pasta exporters based on the durum wheat 
content of their exported pasta products.
    Generally, under this program, a restitution payment is available 
to any EU pasta producer exporting pasta products, regardless of 
whether the EU pasta producer has purchased the durum wheat used in its 
pasta exports from within the EU or has imported it. The amount of the 
restitution payment is calculated by multiplying the prevailing 
restitution payment rate per 100 kilograms of durum wheat by the weight 
of the wheat, in kilograms, used to produce the exported pasta. The 
restitution payment rate itself is based on a levy that the EU imposes 
on imported durum wheat in order to bring the price of imported durum 
wheat up to the (typically higher) price level within the EU. 
Consequently, the amount of the restitution payment, in theory, should 
equal the difference between the EU's internal price for durum wheat 
and the world market price for durum wheat, as determined by the EU, 
exclusive of the levy. The restitution payment rate, like the levy on 
which it is based, is adjusted by the EU monthly.
    The EU uses the restitution payment rate prevailing on the date of 
exportation of the pasta products to calculate the amount of the 
restitution payment.
    Additionally, under this program, the EU permits a pasta exporter 
to purchase a certificate that locks in a restitution payment rate if 
the pasta exporter promises to export a certain amount of pasta by a 
certain date. The promised export date can be as much as 6 months 
later. Moreover, the pasta exporter is free to sell this certificate to 
another pasta exporter. The selling price is determined through 
negotiations between the seller and the purchaser and typically will be 
dependent on such factors as the amount of time left until the 
certificate expires, the purchaser's projected volume of exports, the 
restitution payment rate under the certificate, and the current and 
expected future restitution payment rates set by the EU. A pasta 
exporter that fails to use a certificate by the date set forth in the 
certificate must pay a penalty.
    In 1987, the nature of this program changed with regard to exports 
to the United States as a result of a settlement reached by the United 
States and the EC. This settlement arose out of a GATT panel 
proceeding, brought by the United States, in which the panel ruled (in 
1983) that the program violated the EC's GATT obligations and did not 
fall within the exception under Item (d) of the Illustrative List of 
Export Subsidies.
    Under the settlement, the EC agreed to allow the importation of 
durum wheat from any non-EC country free of any levy under a system 
described in the settlement as ``Inward Processing Relief,'' or 
``IPR.'' Under this system, the EC pasta producer would not receive a 
restitution payment when exporting to the United States pasta products 
containing durum wheat imported with IPR. Essentially, a restitution 
payment no longer was necessary because no levy had been paid upon 
importation in the first place.
    As to pasta products containing EC durum wheat or durum wheat that 
had been imported without IPR, a restitution payment remained available 
for exports to the United States, except that the 

[[Page 53745]]
restitution rate was reduced, originally by 27.5 percent and later by 
approximately 35 percent, from the normal level available for exports 
to all other countries.
    As a further condition of the settlement, the EC agreed to attempt 
to balance its exports to the United States equally between pasta 
products containing durum wheat imported with IPR, on the one hand, and 
pasta products containing EC durum wheat or durum wheat imported 
without IPR, on the other hand. The goal was for 50 percent of the EC's 
pasta exports to the United States to contain durum wheat imported with 
IPR (for which the exporter had paid world market price, free of any 
levy, and had received no restitution payments), while the remaining 50 
percent of the EC's pasta exports to the United States would contain EC 
durum wheat or durum wheat imported without IPR (for which the exporter 
could receive reduced restitution payments).
    In all other respects, the program remained unchanged.
    For purposes of this preliminary determination, we have concluded 
that the restitution payments made are countervailable subsidies within 
the meaning of section 771(5) of the Act. Each payment represents a 
direct transfer of funds from the EU providing a benefit in the amount 
of the payment. The restitution payments are specific because their 
receipt is contingent upon export performance.
    Respondent firms in this investigation have argued that this 
program escapes countervailability because it falls within the 
exception under Item (d) of the Illustrative List of Export Subsidies, 
although the EU itself has not made this claim. Item (d) explains that 
one type of export subsidy is

    The provision by governments or their agencies either directly 
or indirectly through government-mandated schemes, of imported or 
domestic products or services for the use in the production of 
exported goods, on terms or conditions more favorable than for 
provision of like or directly competitive products or services for 
use in the production of goods for domestic consumption, if (in case 
of products) such terms or conditions are more favorable than those 
commercially available on world markets to their exporters.

    Subsidies Agreement, Annex 1 (footnote omitted) (emphasis added). 
In a footnote, Item (d) defines the term ``commercially available'' as 
meaning ``the choice between domestic and imported products is 
unrestricted and depends only on commercial considerations.'' Id., 
n.57.
    We do not find that this program fits within the Item (d) exception 
because two features of the program render any comparison to the terms 
and conditions commercially available on world markets to EU exporters 
inapposite. The first feature is the ability to buy and sell 
certificates representing the right to a locked-in restitution payment 
rate. Here, it is possible for an EU exporter to realize a windfall by 
selling the certificate to another exporter rather than using it to 
export.
    The other differentiating feature of the program that makes Item 
(d) inapplicable is that the actual restitution payment is based on the 
prevailing rate at the time of exportation rather than at the time of 
the purchase of the input, durum wheat, which was used to produce the 
exported pasta. It is possible that months or even a year or more may 
transpire between the time of the purchase of the input and the time 
when the restitution payment is set. As a result, with any fluctuation 
in the world market price commercially available to the EU exporter 
over this time period, the restitution payment will not equal (even in 
theory) the difference between the EU price for the input and the world 
market price commercially available to the EU exporter. In any given 
instance, therefore, depending on the direction of the price 
fluctuation, the restitution payment will either undercompensate or, 
more significantly, overcompensate the EU exporter within the meaning 
of Item (d).
    We also note that, in any event, we could not find that this 
program fits within the Item (d) exception because neither the EU nor 
the respondent firms have produced the pricing and related information 
necessary for the Department to determine whether the program satisfies 
this exception.
    As the United States Court of Appeals for the Federal Circuit 
explained in Creswell Trading Co. v. United States, 15 F.3d 1054, 1060 
(Fed. Cir. 1994):

    [I]n the context of an Item (d) investigation, Commerce 
necessarily requires information that is within the knowledge and 
control of the government of the exporting country, its exporters, 
or both, which information Commerce cannot obtain independently * * 
*. Thus, it is only logical that some burden be placed on the 
government or exporter to come forward with such information * * *.
    To this end, we hold that the existence of a program wherein a 
government, or an agency thereof, delivers to an exporter products 
or services for use in the production of exported goods on terms and 
conditions more favorable than for delivery of like or directly 
competitive products or services for use in the production of goods 
for domestic consumption is, standing alone, presumptive evidence 
that the program also provides the products or services under 
investigation to that exporter on terms or conditions more favorable 
than the terms and conditions available on world markets. Commerce's 
initial burden of production is thus satisfied by way of this 
presumption. The burden of production accordingly shifts to the 
exporter to come forward with evidence that the services or products 
were not provided on terms or conditions more favorable than 
available on world markets.
    We do not hold that the ultimate burden of proof is shifted by 
this presumption. Rather, we merely hold that this presumption 
creates a prima facie case that shifts the burden of production to 
the exporter to come forward with sufficient evidence to rebut this 
presumption * * *. [If the exporter is able to rebut this 
presumption,] [t]he totality of evidence must then be weighed to 
determine whether a countervailable subsidy exists.

    In this investigation, the Department has carried its initial 
burden of production because it can point to record evidence 
demonstrating the existence of the EU's export restitution program, 
which provides terms more favorable than those for domestic goods. This 
evidence, therefore, gives rise to a rebuttable presumption that the 
program is countervailable and places on the EU and the respondent 
firms the burden of producing sufficient evidence to rebut this 
presumption, which must be accomplished through the submission of the 
pricing and related information necessary for the Department to 
determine whether the program satisfies the exception under Item (d). 
Because neither the EU nor the respondent firms have produced this 
information, they have not rebutted the presumption that the EU's 
program is countervailable.
    Arrighi, Delverde, TIA, La Molisana, Riscossa and Indalco realized 
benefits from this program during the POI.
    Since pasta exporters are able to calculate the precise benefit 
from the restitution payments at the time of exportation, we have 
calculated the countervailable subsidy on an earned, rather than 
received, basis. (See Final Affirmative Countervailing Duty 
Determination: Certain Steel Wire Nails from New Zealand, 52 FR 37196, 
37197, October 5, 1987). Hence, the export restitution payments earned 
during the POI are allocated solely to the POI.
    To calculate the countervailable subsidy, we divided the export 
restitution payments earned during the POI on shipments to the United 
States by the company's total export sales to the United States during 
the POI. On this basis, we calculated a countervailable subsidy under 
this program of 0.62 percent ad valorem for Arrighi, 0.62 percent ad 
valorem for Del Verde, 0.05 percent ad valorem for TIA, 0.08 percent ad 
valorem for La 

[[Page 53746]]
Molisana, 0.25 percent ad valorem for Riscossa and 0.21 percent ad 
valorem for Indalco.

II. Program Found To Be Not Countervailable Lump-Sum Interest 
Payment Under Law 1329/65 for Companies in Northern Italy

    Law 1329 (the Sabatini Law) was enacted in 1965 to encourage the 
sale of machine tools and production machinery. It provides for a 
deferral of up to five years of payments due on installment contracts 
for the purchase of such equipment and for a one-time, lump-sum 
interest contribution from Mediocredito Centrale (``MCC'') toward the 
interest owed on these contracts. The amount of the interest 
contribution is equal to the present value of the difference between 
the payment stream over the life of the contract based on the reference 
rate and the payment stream over the life of the contract based on a 
concessionary rate. The concessionary rate for companies located in the 
Mezzogiorno is the reference rate less eight percentage points. The 
concessionary rate for companies located outside the Mezzogiorno is the 
reference rate less five percentage points.
    No companies located in the Mezzogiorno had Law 1329 loans 
outstanding during the POI, which related to the subject merchandise.
    Arrighi, which is located outside the Mezzogiorno, had Law 1329 
loans outstanding during the POI. Isola, also a company in the north, 
had Law 1329 loans outstanding but we are awaiting more information on 
these loans.
    For Arrighi's loans, we have analyzed whether the program is 
specific ``in law or in fact,'' within the meaning of section 
771(5A)(D) (i) and (iii). Section 771(5A)(D)(iii) of the Act provides 
the following four factor to be examined with respect to de facto 
specificity: (1) The number of enterprises, industries or groups 
thereof which usually use a subsidy; (2) predominant use of a subsidy 
by an enterprise, industry, or group; (3) the receipt of 
disproportionately large amounts of a subsidy by an enterprise, 
industry, or group; and (4) the manner in which the authority providing 
a subsidy has exercised discretion in its decision to grant the 
subsidy.
    Law 1329, which created the program, contains no limitations on the 
types of industries that can apply for assistance. Further, during the 
POI, assistance under the program was distributed over 19 sectors, 
representing a wide cross-section of the economy. On this basis, we 
concluded that the subsidy recipients were not limited to a specific 
industry or group of industries. We also examined evidence regarding 
the usage of this program and found no predominant use by the pasta 
industry. We next examined whether a disproportionately large share of 
benefits was granted to the pasta industry. We found that during the 
POI, benefits to the food processing industry, which includes the pasta 
industry, amounted to 7.1 percent of all benefits granted in that 
period. The shares of the 19 reported sectors ranged from 0.5 percent 
for sundry manufacturing to 18.2 percent for metal products, machines, 
and mechanical products. Considering the number and variety of sectors 
receiving benefits and the range of benefits over the various sectors, 
we do not consider the benefits received by the food processing sector 
to constitute a disproportionate share of the benefits distributed 
under this program. Given our findings that the number of users is 
large and that there is no dominant or disproportionate use of the 
program by the pasta producers, we do not reach the issue of whether 
administrators of the program exercised discretion in awarding 
benefits. Thus, for companies located outside the Mezzogiorno, we 
preliminarily determine that interest contributions under the Sabatini 
Law are not specific.
    We note, however, that our practice in determining specificity is 
to examine the distribution of benefits in the year they were approved 
for the company under investigation and in each of the three previous 
years. Because this information was not available for the preliminary 
determination, we based our de facto analysis on information relating 
to the POI. For the final determination, we intend to gather 
information for the period 1988 through 1991.

III. Program for Which More Information Is Needed

A. Export Credit Insurance Under Law 227/77

    The GOI reported that one company, La Molisana, obtained export 
credit insurance from a private insurer for a shipment to the United 
States and that the private insurer had, in turn, reinsured the export 
transaction with the GOI's Export Insurance Agency. The GOI further 
reported that its Export Insurance Agency had suffered substantial 
losses over the past five years.
    For purposes of the final determination, we will be seeking more 
information and giving further consideration to whether a subsidy is 
being provided to La Molisana through its purchase of export insurance.

IV. Programs Preliminarily Determined To Be Not Used

    The responses indicated that certain companies received assistance 
under the European Social Fund (``ESF'') and Italian Law 675/77. 
Specifically, worker training grants were reported under the ESF and 
VAT reductions under Law 675/77. We have determined that any payments 
received under these programs are ``recurring,'' as they are among the 
types of benefits the Department has identified as normally being 
expensed in the year of receipt. (See Allocation section of the General 
Issues Appendix.) Since no payments were received by any investigated 
companies under these programs during the POI, we are treating the 
programs as ``not used'' and, consequently, have not analyzed whether 
they confer countervailable subsidies.
    Similarly, as discussed above, no companies located in the 
Mezzogiorno had loans under law 1329/65 outstanding during the POI. 
Therefore, we have not analyzed whether lump-sum interest payments on 
such loans confer countervailable subsidies on companies located in the 
Mezzogiorno.
    Other programs that were not used were:

A. Export Credits under Law 227/77
B. Capital Grants under Law 675/77
C. Retraining Grants under Law 675/77
D. Interest Contributions on Bank Loans under Law 675/77
E. Interest Grants Financed by IRI Bonds
F. Preferential Financing for Export Promotion under Law 394/81

Verification

    In accordance with section 782(i) of the Act, we will verify the 
information submitted by respondents prior to making our final 
determination.

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we have 
calculated an individual subsidy rate for each company investigated. 
For companies not investigated, we have determined an ``all others'' 
rate by weighting individual company subsidy rates by each company's 
exports of the subject merchandise to the United States, if available, 
or pasta exports to the United States. The all others rate does not 
include zero and de minimis rates or any rates based solely on the 
facts available.
    In accordance with section 703(d) of the Act, we are directing the 
U.S. Customs Service to suspend liquidation of all entries of pasta 
from Italy which 

[[Page 53747]]
are entered or withdrawn from warehouse, for consumption, on or after 
the date of the publication of this notice in the Federal Register, and 
to require a cash deposit or bond for such entries of the merchandise 
in the amounts indicated below. This suspension will remain in effect 
until further notice.

------------------------------------------------------------------------
               Company                          Ad valorem rate         
------------------------------------------------------------------------
Arrighi..............................   0.96 (de minimis)               
Agritalia............................   2.41                            
Barilla..............................   1.43                            
Campano..............................   2.23                            
De Cecco.............................   2.68                            
De Matteis...........................   1.97                            
Demaservice*.........................   1.97                            
Delverde*............................   9.20                            
Gruppo...............................   0.00                            
Guido Ferrara........................   1.44                            
Indalco..............................   1.44                            
Isola del Grano......................   0.00                            
Italpast.............................  10.67                            
Labor................................  10.67                            
La Molisana..........................   3.64                            
Riscossa.............................   2.50                            
TIA*.................................   9.20                            
All Others...........................   4.08                            
------------------------------------------------------------------------
*See Related Parties section for explanation of why the rates for       
  Delverde and TIA and the rates for De Matteis and Demaservice are the 
  same.                                                                 

    Since the estimated preliminary net countervailable subsidy rate 
for Arrighi, Gruppo, and Isola del Grano is either zero or de minimis, 
these companies will be excluded from the suspension of liquidation.

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all non-privileged 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 our final determination is affirmative, the ITC will make its 
final determination within 45 days after the Department makes its final 
determination.

Public Comment

    In accordance with 19 CFR 355.38, we will hold a public hearing, if 
requested, to afford interested parties an opportunity to comment on 
this preliminary determination. The hearing will be held on December 8, 
1995, at the U.S. Department of Commerce, Room 3708, 14th Street and 
Constitution Avenue NW., Washington, DC 20230. Individuals who wish to 
request a hearing must submit a written request within 10 days of the 
publication of this notice in the Federal Register to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
B099, 14th Street and Constitution Avenue NW., Washington, DC 20230. 
Parties should confirm by telephone the time, date, and place of the 
hearing 48 hours before the scheduled time.
    Requests for a public hearing should contain: (1) The party's name, 
address, and telephone number; (2) the number of participants; (3) the 
reason for attending; and (4) a list of the issues to be discussed. In 
addition, 10 copies of the business proprietary version and five copies 
of the nonproprietary version of the case briefs must be submitted to 
the Assistant Secretary no later than December 1, 1995. Ten copies of 
the business proprietary version and five copies of the nonproprietary 
version of the rebuttal briefs must be submitted to the Assistant 
Secretary no later than December 6, 1995. An interested party may make 
an affirmative presentation only on arguments included in that party's 
case or rebuttal briefs. Written arguments should be submitted in 
accordance with 19 CFR 355.38 and will be considered if received within 
the time limits specified above.
    This determination is published pursuant to section 703(f) of the 
Act.

    Dated: October 10, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-25752 Filed 10-16-95; 8:45 am]
BILLING CODE 3510-DS-P