[Federal Register Volume 61, Number 225 (Wednesday, November 20, 1996)]
[Notices]
[Pages 59079-59085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29661]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-122-825]


Preliminary Negative Countervailing Duty Determination: Certain 
Laminated Hardwood Trailer Flooring (``LHF'') From Canada

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

EFFECTIVE DATE: November 20, 1996.

FOR FURTHER INFORMATION CONTACT: David Boyland or Daniel Lessard, 
Office 1, Group 1, Import Administration, U.S. Department of Commerce, 
Room 3099, 14th Street and Constitution Avenue, N.W., Washington, D.C. 
20230; telephone (202) 482-4198 or 482-1778, respectively.

Preliminary Determination

    The Department preliminarily determines that countervailable 
subsidies are not being provided to manufacturers, producers, or 
exporters of LHF in Canada.

Case History

    Since the publication of the notice of initiation in the Federal 
Register (61 FR 15041 (April 4, 1996)), the following events have 
occurred:
    On April 8, 1996, we issued countervailing duty questionnaires to 
the Government of Canada (``GOC''), the Government of Quebec (``GOQ''), 
and the companies identified in the petition as exporters of LHF from 
Canada concerning petitioner's allegations. We received responses to 
our questionnaire on May 16, 1996. We issued supplemental 
questionnaires to parties in May, July, and September for which 
responses were received in June, July, August, and October.
    On June 7, 1996, we inititiated an upstream subsidy investigation 
and postponed the preliminary determination (61 FR 29077). We issued a 
questionnaire relating to the upstream subsidy allegation to Nilus 
Leclerc Inc. and Industries Leclerc Inc. (Leclerc) on June 12, 1996 
(see, Related Party section, below). We received Leclerc's response on 
June 27, 1996, with additional information submitted on July 11, 1996. 
From August 5 through 7, 1996, we conducted verification of the 
questionnaire responses relating to the upstream subsidy investigation.

Scope of Investigation

    Based on information provided by U.S. Customs, the Department, for 
purposes of clarification only, drafted proposed changes to the 
original scope language (see May 7, 1996 memo to the file from 
analyst). On May 9, 1996, petitioner submitted comments on the 
Department's proposed changes. The scope of this investigation as 
outlined below reflects the clarification.
    The scope of this investigation consists of certain edge-glued 
hardwood flooring made of oak, maple, or other hardwood lumber. Edge-
glued

[[Page 59080]]

hardwood flooring is customized for specific dimensions and is provided 
to the consumer in ``kits,'' or pre-sorted bundles of component pieces 
generally ranging in size from 6'' to 14''x48' to 57'x1'' to 1(\1/2\)'' 
for trailer flooring, from 6'' to 13''x12' to 28'x1(\1/8\)'' to 1(\1/
2\)'' for vans and truck bodies, from 9'' to 12(\1/2\)''x8' to 
10'x1(\7/8\)'' to 2(\1/2\)'' for rail cars, and from 6'' to 14''x19' to 
48'x1(\1/8\)'' to 1(\3/8\)'' for containers. The merchandise under 
investigation is currently classified, in addition to various other 
hardwood products, under subheading 4421.90.98.40 of the Harmonized 
Tariff Schedule of the United States (HTSUS). Edge-glued hardwood 
flooring is commonly referred to as ``laminated'' hardwood flooring by 
buyers and sellers of subject merchandise. Edge-glued hardwood 
flooring, however, is not a hardwood laminate for purposes of 
classification under HTSUS 4412.14. Although the HTSUS subheading is 
provided for convenience and Customs purposes, our written description 
of the scope of this proceeding is dispositive.

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930 (the ``Act''), 
as amended by the Uruguay Round Agreements Act effective January 1, 
1995. 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 Canada is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the ITC is required to determine 
whether imports of LHF from Canada materially injure, or threaten 
material injury to, a U.S. industry. On May 9, 1996, 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 
Canada of the subject merchandise (61 FR 21209).

Petitioner

    The petition in this investigation was filed by the Ad Hoc 
Committee on Laminated Hardwood Trailer Flooring, which is composed of 
the Anderson-Tully Company, Havco Wood Products Inc., Industrial 
Hardwoods Products Inc., Lewisohn Sales Company Inc., and Cloud 
Corporation.

Period of Investigation (``POI'')

    The period for which we are measuring subsidies is calendar year 
1995.

Ontario Companies

    We have preliminarily determined that three producers of the 
subject merchandise have received zero or de minimis subsidies. Two 
companies, Erie Flooring & Wood Products (Erie) and Industrial Hardwood 
Products Ltd. (IHP) formally requested that they be excluded from any 
potential countervailing duty order. The other company, Milner Rigsby 
Co. (Milner) responded to our questionnaire.
    IHP certified that the only subsidy it received during the POI was 
consulting services pursuant to the Industrial Research Assistance 
Program (IRAP). The GOC and Government of Ontario also certified that 
this was the only benefit IHP received. Even assuming this assistance 
constituted a countervailable subsidy, the benefit would be de minimis.
    Erie certified that it received no countervailable subsidies. The 
GOC and the Government of Ontario also certified this. In its 
questionnaire response, Milner states that it did not receive benefits 
during the POI.
    The remainder of this notice deals exclusively with Leclerc.

Related Parties

    In the present investigation, we have examined 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 
single, combined countervailing duty 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, where such companies produce the 
subject merchandise or where such companies have engaged in certain 
financial transactions with the company producing the subject 
merchandise, the affiliated parties are required to respond to our 
questionnaire.
    Nilus Leclerc Inc. was identified in the petition as an exporter of 
LHF from Canada. Nilus Leclerc Inc. is part of a consolidated group, 
Groups Bois Leclerc. Nilus Leclerc Inc. and Industries Leclerc Inc. are 
the only companies in the group directly engaged in the production of 
LHF. Because of the extent of common ownership, we find it appropriate 
to treat these two LHF producers as a single company (``Leclerc''). As 
a consequence, we are calculating a single countervailing duty rate for 
both companies by dividing their combined subsidies by their combined 
sales.
    In addition, certain separately incorporated companies in the group 
received subsidies. Where those subsidies were tied to the production 
of a corporation that is not directly involved in the production of 
LHF, we have not included those subsidies in our calculations. Where 
the subsidies were tied to the production of both LHF and other 
merchandise, we included those subsidies in our calculations using the 
sales of both products in the denominator of the ad valorem 
calculations.

Creditworthiness

    Petitioner has alleged that Leclerc was uncreditworthy during 1993, 
1994, and 1995. In an October 8, 1996 memorandum, we declined to 
initiate a creditworthiness investigation because Leclerc had not 
experienced losses during the relevant period. Because requiring a 
finding of prior losses before determining a company uncreditworthy may 
mask situations where it is appropriate to apply an uncreditworthy 
benchmark, we have proceeded to analyze Leclerc's creditworthiness 
looking at the other factors described in 355.44(b)(6)(i) of the 
Proposed Regulations.
    Section 355.44(b)(6)(i) of the Proposed Regulations states that the 
receipt of comparable long-term commercial loans shall normally 
``constitute dispositive evidence that the firm is creditworthy.'' In 
1993 and 1994, Leclerc received long-term commercial financing. For 
purposes of the preliminary determination we consider this financing to 
be comparable to the allegedly subsidized financing received by 
Leclerc. In a November 1, 1996 submission, Leclerc reported that it 
reached agreement in 1995 to receive comparable long-term commercial 
financing. Although the Department intends to examine the 1995 
agreement closely at verification to gain a more detailed understanding 
of it, we have preliminarily determined that Leclerc was creditworthy 
in 1993, 1994, and 1995 on the basis that it secured comparable 
commercial financing in those years.

[[Page 59081]]

Subsidies Valuation Information

    Benchmarks for Long-term Loans and Discount Rates: Leclerc reported 
that it had secured long-term, variable-rate, Canadian dollar-
denominated loans during all relevant years. Therefore, we have used 
these company-specific interest rates as the benchmark for the company 
in those years. For those years in which Leclerc did not provide a 
company-specific discount rate, we used the long-term corporate bond 
rate in Canada as the discount rate.
    Allocation Period: In the past, the Department has relied upon 
information from the U.S. Internal Revenue Service on the industry-
specific average useful life of assets to determine the allocation 
period for nonrecurring subsidies. See General Issues Appendix appended 
to Final Affirmative Countervailing Duty Determination; Certain Steel 
Products from Austria (58 FR 37217, 37226; July 9, 1993) (General 
Issues Appendix). However, in British Steel plc. v. United States, 879 
F. Supp. 1254 (CIT 1995) (British Steel), the U.S. Court of 
International Trade (the Court) ruled against this allocation 
methodology. In accordance with the Court's remand order, the 
Department calculated a company-specific allocation period for 
nonrecurring subsidies based on the average useful life (AUL) of non-
renewable physical assets. This remand determination was affirmed by 
the Court on June 4, 1996. British Steel, 929 F. Supp. 426, 439 (CIT 
1996).
    The Department has decided to acquiesce to the Court's decision 
and, as such, we intend to determine the allocation period for 
nonrecurring subsidies using company-specific AUL data where reasonable 
and practicable. In this case, the Department has preliminarily 
determined that it is reasonable and practicable to allocate all 
nonrecurring subsidies received prior to or during the POI using 
Leclerc's AUL of 18 years.
    Based upon our analysis of the petition and the responses to our 
questionnaires, we determine the following:

I. Analysis of Direct Subsidies

A. Programs Preliminarily Determined to Be Countervailable

1. Canada-Quebec Subsidiary Agreement on Industrial Development
    This Subsidiary Agreement, which spans five years, was jointly 
funded by the GOC and GOQ on March 27, 1992. Under this agreement, the 
GOC and GOQ established a program to improve the competitiveness and 
vitality of the Quebec economy by providing financial assistance to 
companies for major industrial projects. The following four types of 
activities are eligible for contributions: (1) capital investment 
projects, (2) product or process development projects involving a major 
investment or leading to a capital investment, (3) studies required to 
assess the feasibility of an investment project, and (4) municipal 
infrastructure required for a major capital investment project. Leclerc 
received a long-term interest-free loan under this program.
    We analyzed whether the program is specific ``in law or in fact,'' 
within the meaning of section 771(5A) of the Act. Funds paid out by the 
GOC under this program are limited to companies in a particular region 
of Canada (i.e., the Province of Quebec) and, hence, regionally 
specific under section 771(5A)(D)(iv) of the Act. Because the interest-
free loan provided to Leclerc was financed entirely by the GOC, we 
preliminarily determine that the total amount of assistance is 
regionally specific.
    We also preliminarily determine that the loan received by Leclerc 
constitutes a countervailable subsidy within the meaning of section 
771(5) of the Act. It is a direct transfer of funds from the GOC 
providing a benefit in the amount of the difference between the 
benchmark interest rate and the zero interest rate paid by Leclerc.
    To calculate the countervailable subsidy for Leclerc, we used as 
the benchmark the interest rate on a variable-rate, long-term loan 
taken out in 1995 by Leclerc because the company had not taken out 
either a fixed-rate, long-term loan or a fixed-rate debt obligation in 
that year. Thus, we followed our variable-rate, long-term loan 
methodology to calculate the benefit conferred on Leclerc. We then 
divided the benefit attributable to the POI by Leclerc's LHF sales in 
the POI. On this basis, we determine the countervailable subsidy for 
this program to be 0.07 percent ad valorem for Leclerc.
2. Industrial and Regional Development Program (IRDP)
    The IRDP was created by the Industrial and Regional Development Act 
and Regulations in 1983 and was administered by the Canadian Department 
of Regional Industrial Expansion. It was terminated on June 30, 1988. 
No new applications for IRDP projects were accepted after that date. 
The goals of IRDP were to achieve economic development in all regions 
of Canada, promote economic development in those regions in which 
opportunities for productive employment are exceptionally inadequate, 
and improve the overall economy in Canada. To accomplish these 
objectives, financial support in the form of grants, contributions and 
loans were provided to companies for four major purposes: (1) 
establishing, expanding, modernizing production; (2) promoting the 
marketing of products or services; (3) developing new or improved 
products or production processes, or carrying on research in respect 
thereof; and (4) restructuring so as to continue on a commercially 
viable basis.
    Under this program, Canada's 260 census districts were classified 
into one of four tiers on the basis of the economic development of the 
region. The most economically disadvantaged regions were included in 
Tier IV; the most advanced regions were classified as Tier I.
    Those districts classified as Tiers III and IV were authorized to 
receive the highest share of assistance under IRDP (as a percentage of 
assistance per approved project); those in Tiers I and II received the 
lowest. For example, a grant toward the eligible costs of modernizing 
or significantly increasing the production of companies in Tiers I and 
II could not exceed 17.5 percent of the capital costs of the project, 
while in Tiers III and IV grants could cover up to 25 percent of 
eligible costs.
    Nilus Leclerc Inc. was located in a Tier III district when it 
received three grants under this program. We have preliminarily 
determined that the grants received by Leclerc constitute a 
countervailable subsidy within the meaning of section 771(5) of the 
Act. The grants are direct transfers of funds from the GOC and confer a 
benefit in the amount of the portion of the grant that is in excess of 
the most favorable, nonspecific level of benefits (i.e., Tiers I and 
II). Also, IRDP grants are regionally specific within the meaning of 
section 771(5A) of the Act because the preferential levels of benefits 
(i.e., contributions to Tiers III and IV) are limited to companies in 
particular regions of Canada.
    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 Final Affirmative Countervailing Duty Determination: 
Certain Steel Products from Austria (58 FR 37217, 37226, July 9, 1993). 
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.
    To calculate the countervailable subsidy, we used our standard 
grant

[[Page 59082]]

methodology. For those grants which were tied to the production of both 
LHF and residential flooring, we divided the benefit attributable to 
the POI by the total sales of Leclerc and Planchers Leclerc (the 
company in the Leclerc group that produces residential flooring) during 
the same period. Otherwise, for those grants which benefited only the 
production of LHF, we divided the benefit attributable to the POI by 
Leclerc's LHF sales during the same period. On this basis, we determine 
the countervailable subsidy for this program to be 0.04 percent ad 
valorem for Leclerc.
3. Societe de Developpement industriel du Quebec (SDI): Expansion and 
Modernization program and ``Programme d'appui a la reprise'' (PREP) 
Program
    Leclerc obtained loans under SDI's Expansion and Modernization 
program and loan guarantees under SDI's PREP program. These loans and 
loan guarantees were part of a larger package of commercial and 
government financing used to increase Leclerc's productive capacity. 
Firms in Quebec can participate in Expansion and Modernization and PREP 
by meeting a requirement that ``the project  for which financing is 
requested  is aimed at markets outside Quebec.'' An alternative 
requirement for receiving assistance is that the market in Quebec is 
inadequately served by businesses in Quebec and that the supported 
production is expected to replace imported goods into Quebec. Under 
either requirement, the market for the products to be supported must 
have an expected growth rate that is above the average for the 
manufacturing sector in Canada. In addition to these requirements, 
which are contained in the regulations governing Expansion and 
Modernization and PREP, the GOQ has stated that commercial financing 
must accompany the SDI loans in all cases. Also, certain general 
requirements must be met regarding the length of the project and the 
financial structure of the company involved.
    With respect to whether this program can be considered an export 
subsidy, section 771(5A)(B) of the Act states that an export subsidy is 
``a subsidy that is, in law or in fact, contingent upon export 
performance, alone or as one of two or more conditions.'' Article 
3.1(a) and note 4 of the Agreement on Subsidies and Countervailing 
Measures clarifies that the ``in fact'' standard ``is met when the 
facts demonstrate that the granting of a subsidy, without having been 
made legally contingent upon export performance, is in fact tied to 
actual or anticipated exportation or export earnings . . .   However, t 
he mere fact that a subsidy is accorded to enterprises which export 
shall not for that reason alone be considered to be an export subsidy 
within the meaning of this provision.''
    We recognize that the projects for which Leclerc sought financing 
were largely aimed at the U.S. market in the sense that the company 
expected to sell most of its increased production to the United States. 
However, there is no evidence to support a finding that Leclerc's 
receipt of the loans and guarantees was contingent upon or tied to 
actual or anticipated exportation to the United States. Although the 
granting authority was aware of the anticipated destination of the 
output, this fact alone does not render the program a de facto export 
subsidy. Specifically, we do not believe that the assistance awarded 
Leclerc was contingent upon the company exporting outside of Canada. 
Indeed, Leclerc could have qualified for assistance by ``exporting'' to 
another province in Canada. Therefore, we have preliminarily determined 
that the loans and guarantees given under the Export and Modernization 
and PREP programs are not export subsidies.
    The situation we are addressing here can be contrasted with other 
situations that might give rise to possible de facto export subsidies. 
For example, a loan program might be structured to require repayment in 
U.S. dollars rather than local currency. If currency restrictions make 
it impossible to obtain U.S. dollars in that country except through 
exportation, then the requirement to repay the loan in U.S. dollars 
could lead to the finding of a de facto export subsidy.
    We intend to review the Export and Modernization and PREP programs 
closely at verification. In particular, we will examine the bases upon 
which the granting authority approved assistance to Leclerc. If the 
prospect of future exports outside of Canada--beyond a normal 
commercial analysis of whether a viable market, domestic or export, 
existed for the anticipated production--was one of the bases for 
granting assistance, we will likely find these programs to be export 
subsidies in the final determination.
    While we do not consider Expansion and Modernization and PREP to be 
export subsidies for purposes of the preliminary determination, we have 
considered whether these programs may be specific domestic subsidies 
within the meaning of Section 771(5A)(D)(i) of the Act. (For our 
analysis of PREP, please see the section entitled Programs 
Preliminarily Determined To Be Not Countervailable.)

Expansion and Modernization program

    Loans under the Expansion and Modernization program can be provided 
to companies involved in: manufacturing, recycling, computer services, 
software or software package design and publishing, contaminated soils 
remediation, the operation of a research laboratory, and the production 
of technical services for clients outside of Quebec. The regulations 
for this program further indicate that businesses in other categories 
may be considered ``in exceptional cases.'' The assistance may be used 
to cover the following types of expenditures: (1) capital investments; 
(2) the purchase and introduction of a new technology; (3) the 
acquisition of information production or management equipment; (4) 
investments for project-related training; and (5) other training 
investments related to project start-up. Based on our review of the 
eligibility criteria, we preliminarily determine that the program is 
not de jure specific.
    Pursuant to section 771(5A)(D)(iii) of the Act, a subsidy is de 
facto specific if one or more of the following factors exists: (1) the 
number of enterprises, industries or groups thereof which use a subsidy 
is limited; 2) there is predominant use of a subsidy by an enterprise, 
industry, or group; (3) there is disproportionate use of a subsidy by 
an enterprise, industry, or group; or (4) the manner in which the 
authority providing a subsidy has exercised discretion indicates that 
an enterprise or industry is favored over others.
    During the period 1990 through 1995, assistance under this program 
was distributed to a large number and wide variety of users. Therefore, 
the program is not limited based on the number of users. During this 
same period, the level of financing obtained by the wood products 
industry and by Leclerc varied. In 1993, 1994, and 1995, the wood 
products industry was consistently among the largest beneficiaries 
under the program. Leclerc's share of financing as a percentage of 
total authorized financing was also large relative to the shares 
received by other users. Taking these two findings together, we 
preliminarily determine that the assistance received by Leclerc was 
disproportionate in 1993, 1994, and 1995 and, therefore, the subsidy is 
specific.
    In order to calculate the benefit from long-term variable rate 
loans, the Department normally calculates the difference during the POI 
between the amount of interest paid on the

[[Page 59083]]

subsidized loan and the amount of interest that would have been paid 
using a benchmark interest rate that reflects what the company would 
pay to obtain a comparable commercial loan. In this case, the loans 
given under the Expansion and Modernization program include premia and 
stock options. In addition, the SDI loans have variable repayment 
schedules. In order to account for the value of the premia and the 
variable repayment schedule, we have estimated a repayment schedule for 
the SDI loan and compared the amount Leclerc would repay under that 
schedule with the amount Leclerc would repay under a comparable 
commercial loan. For purposes of the preliminary determination, we have 
not determined the value of the stock option. We note, however, that we 
are considering methods to do so for the final determination.
    We next determined the grant equivalent of these loans, i.e., the 
present value of the difference between what would be paid under the 
commercial loan and the SDI loan, using the discount rates described in 
the Subsidies Valuation Information section above. If the grant 
equivalent calculated under this methodology was less than .5 percent 
of Leclerc's sales of subject merchandise, the benefit was expensed. If 
the grant equivalent was greater than .5 percent, we allocated the 
benefit over the life of the benchmark loan using the grant allocation 
formula outlined in section 355.49 (b)(4)(3) of the Department's 
Proposed Regulation. We used the life of the benchmark loan as the 
allocation period because of the variable repayment schedule on the SDI 
loans. We would, however, welcome comments on the appropriate 
allocation period for our final determination. The benefit allocated to 
the POI was then divided by Leclerc's total sales of subject 
merchandise during the POI. Using this methodology, we determine the 
countervailable subsidy from the Expansion and Modernization program to 
be 0.20 percent ad valorem.

B. Programs Preliminarily Determined to Be Not Countervailable

1. Export Development Corporation (EDC)
    The EDC was established by the Export Development Act in 1969 to 
support and develop Canada's export trade. One of its services is the 
provision of insurance to exporters of Canadian goods. The insurance 
policies protect exporters against losses due to non-payment relating 
to commercial and political risks. Nilus Leclerc Inc. and Industries 
Leclerc Inc. purchased export credit insurance from the EDC during the 
POI which covered sales of the subject merchandise. No claims were made 
or payouts received by Leclerc during this period.
    The Department's standard methodology for examining government 
export credit insurance programs (as outlined in section 355.44(d) of 
the Proposed Regulations) is to determine whether the premium rates 
charged by the government entity are adequate to cover the long-term 
operating costs and losses of the program. Under this approach, the 
Department analyzes the financial results of the department responsible 
for administering the program during the POI and the four previous 
years. According to EDC Annual Reports, the EDC and the EDC's insurance 
program, in particular, have reported profits during each of the years 
from 1991 to 1995.
    Given that the premium rates charged by the EDC have been more than 
adequate to cover the operating costs and losses of its export 
insurance program, we preliminarily determine that this program does 
not confer a countervailable subsidy.
2. Hydro-Quebec Electrotechnology Implementation Program
    The Electrotechnology Implementation Assistance Program is 
administered by Hydro-Quebec, a public utility wholly-owned by the GOQ. 
The program was first available in 1985 and has been implemented in 
three phases, the most recent of which has been extended until December 
31, 1996. Phases I and II of this program were designed to reduce 
dependence on fossil fuels by increasing the consumption of 
hydroelectric power. Phase III was created to promote research and 
development on more efficient uses of energy and to contribute toward 
industrial development in Quebec. It is primarily intended for Quebec 
industries seeking to improve their overall productivity. To be 
eligible for this program, the company must: (1) be subject to 
electricity rates G, G-9, M or L and (2) consume electrical power to 
manufacture, assemble, or process merchandise, or to extract raw 
materials.
    With respect to the grants received by Leclerc under this program, 
we analyzed whether the program is specific ``in law or in fact,'' 
within the meaning of section 771(5A)(D) (i) and (iii). Based on our 
review of the eligibility criteria, we preliminarily determine that 
this program is not de jure specific.
    Section 771(5A)(D)(iii) of the Act provides that a subsidy is de 
facto specific if one or more of the following factors exists: (1) the 
number of enterprises, industries or groups thereof which use a subsidy 
is limited; (2) there is predominant use of a subsidy by an enterprise, 
industry, or group; (3) there is disproportionate use of a subsidy by 
an enterprise, industry, or group; or (4) the manner in which the 
authority providing a subsidy has exercised discretion indicates that 
an enterprise or industry is favored over others.
    Regarding de facto specificity, during the period 1985 through 
1992, assistance under this program was distributed over a large number 
and wide variety of users, representing a wide cross-section of the 
Quebec economy. Thus, the program is not specific based on the number 
of users. We also examined evidence regarding the usage of the program 
to determine whether Leclerc or the wood products industry was a 
predominant user or received disproportionately large amounts of the 
subsidies. We preliminarily determine that neither Leclerc nor the wood 
products industry received a dominant or disproportionate share of the 
benefits distributed under this program. As explained in the Statement 
of Administrative Action (SAA) (H.R. Doc. No. 316, Vol. 1, 103d Cong., 
2d Session (1994) at 931), where the number of users is large and there 
is no dominant or disproportionate use of the program by Leclerc, we do 
not reach the issue of whether administrators of the program exercised 
discretion in awarding benefits. Therefore, we preliminarily determine 
that this program is not specific and has not conferred countervailable 
subsidies on Leclerc.
3. Decentralized Fund for Job Creation Program (DFJC) of the Societe 
Quebecoise de Developpement de la Main-d'Oeuvre (SQDM)
    The Decentralized Fund for Job Creation Program (DFJC) was created 
by the Societe Quebecoise de Developpement de la Main-d'Oeuvre (SQDM), 
an agency of the GOQ, in 1994 for the purpose of increasing employment 
and reducing public expenditures for the unemployed. By providing a 
one-time cash grant to qualifying enterprises, the program aims to 
induce private enterprises to develop projects to hire the unemployed. 
The GOQ reported that all commercial enterprises, except retail 
businesses, all nonprofit incorporated entities, and local and regional 
municipalities, are eligible for the grants. The criteria for selection 
include: (1) the number and type of jobs created; (2) whether the 
project is consistent with regional

[[Page 59084]]

objectives; (3) whether the project is likely to be self-supporting in 
a reasonable period of time; and (4) whether financing from other 
sources is available.
    With respect to the grants received by Leclerc under this program, 
we analyzed whether the program is specific ``in law or in fact,'' 
within the meaning of section 771(5A)(D) (i) and (iii). Based on our 
review of the eligibility criteria, we preliminarily determine that 
this program is not de jure specific. Regarding de facto specificity, 
during the period of February 1994 to March 1996, assistance under the 
program was distributed to many sectors representing virtually every 
industry and commercial sector found in Quebec. On this basis, we 
preliminarily conclude that the program is not specific based on the 
number of users.
    We also examined evidence regarding the usage of the program and 
found that neither Leclerc nor the wood products industry was a 
dominant or disproportionate user of this program. Because the number 
of users is large and there is no dominant or disproportionate use of 
the program by producers under investigation, we do not reach the issue 
of whether administrators of the program exercised discretion in 
awarding benefits. Thus, we preliminarily determine that this program 
is not specific and has not conferred a countervailable subsidy on 
Leclerc.
4. Societe de placement dans l'enterprise quebecoise (SPEQ)
    The SPEQ program is administered by the SDI to encourage equity 
investments into Quebec companies. It provides a tax incentive for 
owners of business investment companies to make equity investments in 
eligible, small-to-medium sized Quebec companies.
    With respect to assistance received by Leclerc under this program, 
we analyzed whether the program is specific ``in law or in fact,'' 
within the meaning of section 771(5A)(D) (i) and (iii). Any enterprise 
which has gross assets of less than $25 million or net shareholders'' 
equity equal to or less than $10 million, and which has engaged in 
manufacturing, recycling, tourism, research and development, 
environmental, exporting, cinematography production, ``industriel 
culture,'' or aquaculture/incubator activities is eligible to apply for 
assistance under this program. Based on our review of the eligibility 
criteria, we preliminarily determine that this program is not de jure 
specific. Regarding de facto specificity, during 1988 through 1993, 
assistance under this program was distributed over a large number and 
wide variety of users, representing a wide cross-section of the Quebec 
economy. Thus, the program is not specific based on the number of 
users.
    We also examined evidence regarding the usage of the program and 
determined that neither Leclerc nor the wood products industry was a 
dominant or disproportionate user of this program. Therefore, we do not 
reach the issue of whether administrators of the program exercised 
discretion in awarding benefits. Thus, we preliminarily determine that 
this program is not specific and has not conferred a countervailable 
subsidy on Leclerc.
5. Societe de Developpement Industriel du Quebec (SDI): ``Programme 
d'appui a la reprise'' (PREP) Program
    PREP was a temporary program under which SDI provided loan 
guarantees on commercial bank loans. The program was active between 
1992 and 1995 and was designed to assist small-to-medium sized firms in 
Quebec experiencing liquidity problems as a result of the recession of 
the early 1990s. Among other things, PREP financing was provided for 
production expansion.
    The GOQ has stated that the same general eligibility criteria apply 
to PREP and Expansion and Modernization. Therefore, consistent with our 
analysis of the Expansion and Modernization program, we preliminarily 
determine that assistance under PREP is not de jure specific.
    Regarding de facto specificity, the companies that obtained loan 
guarantees under PREP represented a large number of different 
industries. Based on the broad mix of industries using the program, 
PREP is not limited in terms of the number of users.
    We also examined evidence regarding the usage of the program and 
determined that neither Leclerc nor the wood products industry was a 
dominant or disproportionate user of this program. Therefore, we do not 
reach the issue of whether administrators of the program exercised 
discretion in awarding benefits. Thus, we preliminarily determine that 
this program is not specific and has not conferred countervailable 
subsidies on Leclerc.

C. Programs Preliminarily Determined To Be Not Used

    The following programs were not used:

1. Capital Gains Exemptions
2. Investment Tax Credits
3. Performance Security Services through the Export Development 
Corporation
4. Program for Export Market Development
5. Working Capital for Growth from BDBC
6. St. Lawrence Environmental Technology Development Program (ETDP)
7. Canada-Quebec Subsidiary Agreement on the Economic Development of 
Quebec
8. Quebec Stumpage Program
9. Programs Provided by the Industrial Development Corporation (SDI)
    Article 7 Assistance
    Export Assistance Program
    Business Financing Program
    Research and Innovation Activities Program
10. Export Promotion Assistance Program (APEX)
11. Private Forest Development Program (PFDP)

D. Program for Which Additional Information Is Required

    On November 1, 1996, the GOQ submitted information regarding a 
program operated by SQDM entitled Program for the Development of Human 
Resources. This information was received too late to be taken into 
account for purposes of this preliminary determination.

II. Analysis of Upstream Subsidies

    The petitioner alleged that Leclerc receives upstream subsidies 
through its purchase of lumber from suppliers which harvest stumpage 
from Quebec's public forest (``allegedly subsidized'' suppliers). 
Section 771A(a) of 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, we preliminarily determine that a competitive benefit 
is not bestowed on Leclerc through its purchases of

[[Page 59085]]

allegedly subsidized lumber. 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 
producer of 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 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 Department's 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, Leclerc purchases the input product, lumber, from 
numerous unsubsidized, unrelated suppliers in Canada. Therefore, we 
have used the prices charged to Leclerc by these suppliers as the 
benchmark.
    We compared the prices paid by Leclerc to its ``allegedly 
subsidized'' suppliers with the prices paid to unsubsidized suppliers 
on a product-by-product and aggregate basis (see, October 10 and 
November 6, 1996, Memoranda from Team to Susan H. Kuhbach, Acting 
Deputy Assistant Secretary). Based on our comparison of these prices, 
we found that the price of allegedly subsidized lumber was generally 
equal to or exceeded the price of unsubsidized lumber. Therefore, we 
preliminarily determine that Leclerc did not receive an upstream 
subsidy.

Summary

    The total estimated preliminary net countervailable subsidy rate 
for Leclerc is 0.31 percent, which is de minimis. As noted above, the 
rates for IHP, Erie and Milner are either zero or de minimis. 
Therefore, we preliminarily determine that countervailable subsidies 
are not being provided to manufacturers, producers, or exporters of LHF 
in Canada.

Verification

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

Critical Circumstances

    The petitioner alleged that critical circumstances exist with 
respect to imports of subject merchandise. Because we have reached a 
negative preliminary determination, this issue is moot.

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, 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 January 3, 
1997, at the U.S. Department of Commerce, Room 3708, 14th Street and 
Constitution Avenue, N.W., Washington, D.C. 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, N.W., 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 17, 1996. 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 23, 1996. 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: November 12, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-29661 Filed 11-19-96; 8:45 am]
BILLING CODE 3510-DS-P