[Federal Register Volume 62, Number 198 (Tuesday, October 14, 1997)]
[Notices]
[Pages 53306-53317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27148]


-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

International Trade Administration
[C-412-811]


Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From 
the United Kingdom; Final Results of Countervailing Duty Administrative 
Review

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

ACTION: Notice of final results of countervailing duty administrative 
review.

-----------------------------------------------------------------------

SUMMARY: On April 7, 1997, the Department of Commerce (the Department) 
published in the Federal Register its preliminary results of 
administrative review of the countervailing duty order on certain hot-
rolled lead and bismuth carbon steel products (lead bar) from the 
United Kingdom for the period January 1, 1995 through December 31, 1995 
(62 FR 16555). The Department has now completed this administrative 
review in accordance with section 751(a) of the Tariff Act of 1930, as 
amended. For information on the net subsidy for each reviewed company, 
and for all non-reviewed companies, please see the Final Results of 
Review section of this notice. We will instruct the U.S. Customs 
Service to assess countervailing duties as detailed in the Final 
Results of Review section of this notice.

EFFECTIVE DATE: October 14, 1997.

FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Suzanne King, 
Office of CVD/AD Enforcement VI, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202) 
482-2786.

SUPPLEMENTARY INFORMATION:

Background

    Pursuant to 19 CFR 355.22(a), this review covers only those 
producers or exporters of the subject merchandise for which a review 
was specifically requested. Accordingly, this review covers British 
Steel Engineering Steels Limited (BSES) (formerly United

[[Page 53307]]

Engineering Steels Limited (UES)), and British Steel plc (BS plc). This 
review also covers the period January 1, 1995 through December 31, 
1995.
    Since the publication of the preliminary results on April 7, 1997 
(62 FR 16555), the following events have occurred. We invited 
interested parties to comment on the preliminary results. On May 7, 
1997, case briefs were submitted by BSES, which exported lead bar to 
the United States during the review period (respondent), and Inland 
Steel Bar Company (petitioner). On May 14, 1997, rebuttal briefs were 
submitted by petitioner and respondent. Pursuant to section 751(a)(3) 
of the Tariff Act of 1930, we extended the due date for the final 
results to no later than 180 days after the publication of the 
preliminary results. See Certain Hot-Rolled Lead and Bismuth Carbon 
Steel Products from the United Kingdom; Extension of Time Limit for 
Countervailing Duty Administrative Review, 62 FR 39824 (July 24, 1997).

Applicable Statute

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the 
Act). The Department is conducting this administrative review in 
accordance with section 751(a) of the Act. In addition, unless 
otherwise indicated, all citations to the Department's regulations are 
to the regulations as set forth at 19 CFR 355.1, et seq., as amended by 
the interim regulations published in the Federal Register on May 11, 
1995 (60 FR 25130).

Scope of the Review

    Imports covered by this review are hot-rolled bars and rods of non-
alloy or other alloy steel, whether or not descaled, containing by 
weight 0.03 percent or more of lead or 0.05 percent or more of bismuth, 
in coils or cut lengths, and in numerous shapes and sizes. Excluded 
from the scope of this review are other alloy steels (as defined by the 
Harmonized Tariff Schedule of the United States (HTSUS) Chapter 72, 
note 1 (f)), except steels classified as other alloy steels by reason 
of containing by weight 0.4 percent or more of lead or 0.1 percent or 
more of bismuth, tellurium, or selenium. Also excluded are semi-
finished steels and flat-rolled products. Most of the products covered 
in this review are provided for under subheadings 7213.20.00.00 and 
7214.30.00.00 of the HTSUS. Small quantities of these products may also 
enter the United States under the following HTSUS subheadings: 
7213.31.30.00, 60.00; 7213.39.00.30, 00.60, 00.90; 7214.40.00.10, 
00.30, 00.50; 7214.50.00.10, 00.30, 00.50; 7214.60.00.10, 00.30, 00.50; 
and 7228.30.80. Although the HTSUS subheadings are provided for 
convenience and for Customs purposes, our written description of the 
scope of this proceeding is dispositive.

Verification

    As provided in section 782(i) of the Act, we verified information 
submitted by the European Commission, the Government of the United 
Kingdom, British Steel plc, and British Steel Engineering Steels. We 
followed standard verification procedures, including meeting with 
government and company officials and examining relevant accounting and 
financial records and other original source documents. Our verification 
results are outlined in the public versions of the verification reports 
(on file in the Central Records Unit, Room B-099 of the Department of 
Commerce).

Facts Available

    Section 776(a)(2) of the Act requires the Department to use facts 
available if ``an interested party or any other person * * * withholds 
information that has been requested by the administering authority * * 
* under this title.'' The facts on the record show that British Steel 
plc received assistance during the period of review (POR) under the 
European Union BRITE/EuRAM program. The facts also show that this 
assistance was unreported in the questionnaire response, 
notwithstanding a specific question on this program in the Department's 
questionnaire. See the March 31, 1997, Memorandum for Acting Assistant 
Secretary, Re: Facts Available for New Subsidies Discovered at 
Verification (1995) (public document on file in the Central Records 
Unit, Room B-099 of the Department of Commerce).
    Section 776(b) of the Act permits the administering authority to 
use an inference that is adverse to the interests of an interested 
party if that party has ``failed to cooperate by not acting to the best 
of its ability to comply with a request for information.'' Such an 
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 on the record. Because respondents were aware of the 
requested information but did not comply with the Department's request 
for such information, we find that respondents failed to cooperate by 
not acting to the best of their ability to comply with the Department's 
request. Therefore, we are using adverse inferences in accordance with 
section 776(b) of the Act. The adverse inference is a finding that the 
BRITE/EuRAM program is specific under section 771(5A) of the Act, and 
that the amount of each grant received by BS plc constitutes a 
financial contribution which benefits the recipient. As such, these 
grants are countervailable. This finding conforms with the Department's 
facts available determination in the Final Affirmative Countervailing 
Duty Determination; Certain Pasta From Turkey, 61 FR 30366, 30367 (June 
14, 1996).

Change in Ownership

I. Background and Analysis

    On March 21, 1995, British Steel plc (BS plc) acquired all of 
Guest, Keen & Nettlefolds' (GKN) shares in United Engineering Steels 
(UES), the company which produced and exported the subject merchandise 
to the United States during the original investigation. Thus, during 
the POR, UES became a wholly-owned subsidiary of BS plc and was renamed 
British Steel Engineering Steels (BSES).
    Prior to this change in ownership, UES was a joint venture company 
formed in 1986 by British Steel Corporation (BSC), a government-owned 
company, and GKN. In return for shares in UES, BSC contributed a major 
portion of its Special Steels Business, the productive unit which 
produced the subject merchandise. GKN contributed its Brymbo Steel 
Works and its forging business to the joint venture. BSC was privatized 
in 1988 and now bears the name BS plc.
    In the investigation of this case, the Department found that BSC 
had received a number of untied subsidies prior to the 1986 transfer of 
the Special Steels Business to UES. See Final Affirmative 
Countervailing Duty Determination: Certain Hot-Rolled Lead and Bismuth 
Carbon Steel Products From the United Kingdom, 58 FR 6237, 6243 
(January 27, 1993) (Lead Bar). Further, the Department determined that 
the sale to UES did not alter these previously bestowed subsidies, and 
thus the portion of BSC's pre-1986 subsidies attributable to its 
Special Steels Business transferred to UES. Lead Bar at 6240.

[[Page 53308]]

    In this review, we determine that BS plc's acquisition of GKN's 
shares in UES does not affect the countervailability of previously 
bestowed subsidies which were assigned to UES. However, we also 
determine that a portion of the purchase price paid by BS plc for UES 
is attributable to its prior subsidies. Therefore, we are reducing the 
amount of the subsidies that ``travel'' with UES to BS plc, taking into 
account the allocation of subsidies to GKN, the former joint-owner of 
UES. See Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From 
the United Kingdom; Preliminary Results of Countervailing Duty 
Administrative Review, 62 FR 16555, 16556 (April 7, 1997) (Preliminary 
Results).
    To calculate the amount of UES's subsidies that travel to BS plc as 
a result of the March 21, 1995, acquisition, we are applying the 
methodology described in the ``Restructuring'' section of the General 
Issues Appendix (GIA) appended to Final Countervailing Duty 
Determination: Certain Steel Products from Austria, 58 FR 37217, 37268-
37269 (July 9, 1993) (Austrian Steel). This determination is in 
accordance with our change-in-ownership findings in Final Affirmative 
Countervailing Duty Determination; Certain Pasta From Italy, 61 FR 
30288, 30289-30290 (June 14, 1996) (Certain Pasta From Italy), and with 
our finding in the 1994 administrative review of this case, in which we 
determined that ``[t]he URAA is not inconsistent with and does not 
overturn the Department's General Issues Appendix methodology or its 
findings in the Lead Bar Remand Determination.'' Certain Hot-Rolled 
Lead and Bismuth Carbon Steel Products From the United Kingdom; Final 
Results of Countervailing Duty Administrative Review, 61 FR 58377, 
58379 (November 14, 1996) (1994 UK Bar Final).
    We further determine in this review that it is appropriate to 
attribute the current benefit from BS plc's untied, nonrecurring 
subsidies to BS plc's consolidated sales of domestically produced 
merchandise, including the sales of BSES, for purposes of calculating 
the countervailing duty rate for the subject merchandise. As a 
consolidated, wholly-owned subsidiary of BS plc, BSES now benefits from 
the remaining benefit stream of BS plc's untied nonrecurring subsidies. 
See Preliminary Results, 62 FR at 16556.

II. Assignment of Countervailing Duty Rates

    As noted above, the acquisition of UES did not take place until 
March 21, 1995. Thus, until March 21, 1995, the subject merchandise was 
produced and exported by the independent joint-venture company, UES. 
Therefore, as discussed in the Department's Position under Comment 6, 
below, we are assigning a separate countervailing duty assessment rate 
for exports by UES for the period prior to BS plc's acquisition of 
GKN's shares in UES. This period is January 1, 1995 through March 20, 
1995. For the period March 21, 1995 through December 31, 1995, after 
UES became a wholly-owned subsidiary of BS plc, we are assigning a 
countervailing duty assessment rate for BS plc/BSES/UES that reflects 
the attribution of BS plc's untied subsidies to its consolidated sales, 
including sales by BSES (formerly UES). (See the Calculation 
Methodology and Final Results of Review sections below.)

III. Calculation Methodology

    As fully explained in the Preliminary Results, we have found it 
appropriate to make two changes to the methodology used to calculate 
the benefit from the nonrecurring subsidies. These changes involve (1) 
the calculation of the net present value used in calculating the 
subsidies which remain in subsequent periods after a change in 
ownership and (2) the period of allocation for nonrecurring subsidies. 
See Preliminary Results, 62 FR at 16557.
    To determine the countervailing duty rate for the subject 
merchandise for the period January 1, 1995 through March 20, 1995, we 
used the methodology followed in prior segments of this proceeding with 
the modifications identified above. Further, in calculating the 
countervailing duty rate for the subject merchandise after March 21, 
1995, we first determined BS plc's benefits in 1995, taking into 
account all spin-offs of productive units (including the Special Steels 
Business) and BSC's privatization in 1988. See Final Affirmative 
Countervailing Duty Determination; Certain Steels Products from the 
United Kingdom, 58 FR 37393 (July 9, 1993) (UK Steel). We then 
calculated the amount of UES's subsidies that ``rejoined'' BS plc after 
the March 21, 1995 acquisition, taking into account the reallocation of 
subsidies to GKN. As indicated above, in determining both these 
amounts, we followed the methodology outlined in the GIA. After adding 
BS plc's and UES's benefits for each program, we then divided that 
amount by BS plc's total consolidated sales of domestically produced 
merchandise in 1995.

Analysis of Programs

    Based upon the responses to our questionnaire, the results of 
verification, and written comments from the interested parties we 
determine the following:

I. Programs Conferring Subsidies

A. Programs Previously Determined To Confer Subsidies
    The following programs were previously determined to bestow 
subsidies upon BSC/BS plc and UES:

1. Equity Infusions
2. Regional Development Grant Program
3. National Loan Fund (NLF) Loan Cancellation
4. European Loan and Steel Community (ECSC) Article 54 Loans and 
Interest Rebates

    Our review of the record and our analysis of the comments submitted 
by the interested parties, summarized below, has not led us to change 
our findings from the preliminary results. Accordingly, the total net 
subsidy for all of these programs for BS plc/BSES/UES is 7.35 percent 
ad valorem for the period March 21, 1995 to December 31, 1995. The 
total net subsidy for all of these programs for UES is 2.40 percent ad 
valorem for the period January 1, 1995 through March 20, 1995.
B. New Programs Determined To Confer Subsidies
    In the preliminary results, we found that the following new program 
conferred countervailable benefits on the subject merchandise:

BRITE/EuRAM

    Our analysis of the comments submitted by the interested parties, 
summarized below, has not led us to change our findings from the 
preliminary results. UES did not benefit from this program. 
Accordingly, the net subsidies for this program for the period March 
21, 1995 to December 31, 1995 are less than 0.005 percent ad valorem.

II. Programs Determined To Be Not Used

    In the preliminary results, we found that the producers and/or 
exporters of the subject merchandise subject to this review did not 
apply for or receive benefits under the following programs during the 
POR:

A. New Community Instrument Loans
B. ECSC Article 54 Loan Guarantees
C. NLF Loans
D. ECSC Conversion Loans
E. European Regional Development Fund Aid
F. Article 56 Rebates
G. Regional Selective Assistance
H. ECSC Article 56(b)(2) Redeployment Aid
I. Inner Urban Areas Act of 1978
J. LINK Initiative

[[Page 53309]]

K. Transportation Assistance

    We did not receive any comments on these programs from the 
interested parties, and our review of the record has not led us to 
change our findings from the preliminary results.

III. Programs Determined To Be Terminated

    In the preliminary results, we found the following program to be 
terminated and that no residual benefits were being provided:
Transportation Assistance
    We did not receive any comments on this program from the interested 
parties, and our review of the record has not led us to change our 
findings from the preliminary results.

Analysis of Comments

    Comment 1: Petitioner maintains that the Department's subsidy 
repayment methodology is inconsistent with the countervailing duty 
statute, which requires that duties be imposed upon all subsidies paid 
with respect to the production, manufacture or export of subject 
merchandise. Petitioner asserts that the change in ownership of a 
company conducted at fair market value does not offset the distortion 
caused by the government's bestowal of the subsidy, and the production 
of the merchandise continues to benefit from the subsidies. Therefore, 
according to petitioner, there can be no repayment.
    Petitioner further contends that the statute and the SAA require 
the Department to determine the effect of a change in ownership on 
previously conferred subsidies on a case-by-case basis after careful 
consideration of the facts of each case. Petitioner interprets the SAA 
as meaning that absent affirmative evidence of repayment, the change in 
ownership of a company should not affect the benefit from prior 
subsidies. Therefore, because the Department has not factually shown 
that there was any repayment of subsidies to GKN as a result of BS 
plc's acquisition of UES, petitioner argues that the repayment 
methodology should not be applied in this case.
    Moreover, petitioner argues that BS plc's purchase of GKN's shares 
in UES was not a privatization, and therefore the repayment methodology 
does not apply. This transaction, petitioner states, does not 
materially differ from the sales of shares traded daily on the stock 
market. Because the Department has never argued that repayment should 
be calculated for such transactions, petitioner contends that repayment 
should likewise not apply to the transaction between BS plc and GKN.
    Petitioner claims that BSES is now in the same position as its 
precursor, the Special Steels Business, although BSES is now an 
incorporated subsidiary of BS plc instead of an unincorporated 
division. Therefore, petitioner argues that the allocation of subsidies 
should be the same as it was before the spin-off in 1985 and that all 
of UES's subsidies should travel back to BS plc. According to 
petitioner, the Department's recent Certain Pasta from Italy 
determination does not affect this result, because the facts in that 
case were significantly different. The pasta case involved several 
producers that received subsidies prior to being purchased by other 
producers, while the initial transaction is this case involved the 
formation of a joint-venture company (UES) with a partner (GKN) which 
had received no prior subsidies. Thus, the Department's repayment 
methodology has not yet been applied in a situation where a spun-off 
company is reacquired by its former parent.
    Finally, petitioner asserts that the GIA methodology is not 
appropriate in this situation. Although the GIA addresses corporate 
restructuring, such as mergers, spin-offs, and acquisitions, it does 
not address the reacquisition of a spun-off entity. Accordingly, all of 
UES's subsidies should travel back to BS plc.
    Respondent states that the Department's allocation of a portion of 
UES's subsidies to GKN does not conflict with the countervailing duty 
statute. With respect to the pre-URAA statute, respondent notes that 
the U.S. Court of Appeals of the Federal Circuit found the Department's 
credit methodology to be reasonable in Saarstahl AG v. United States, 
78 F.3d 1539 (Fed. Cir. 1996) (Saarstahl). Respondent further argues 
that this methodology is also consistent with the ``Changes in 
Ownership'' provision of the URAA-amended statute, because this 
provision does not preclude the Department from finding that changes in 
ownership have particular effects, such as the repayment of subsidies. 
According to respondent, the SAA provides the Department with further 
authority to apply a general methodology to the specific facts of cases 
involving changes in ownership.
    Respondent also asserts that petitioner's argument that the record 
must show evidence of repayment misses the point of the Department's 
methodology, namely that ``the company's new owners are virtually 
certain to repay at least a portion of the subsidy as part of the 
purchase price.'' GIA, 58 FR at 37263.
    With respect to petitioner's claim that the repayment methodology 
does not apply to transactions between private shareholders, respondent 
states that this is inconsistent with the Department's finding in 
Certain Pasta From Italy, where the methodology was applied to such 
transactions. According to respondent, the relevant fact here is not 
whether the government received any repayment, but, rather, whether the 
purchaser paid a price that reflected any past subsidies to the company 
being acquired. Respondent further notes that petitioner's argument 
that BSES is now in the same position as the Special Steels Business is 
inconsistent with the Department's determination in the investigation 
that UES and the Special Steels Business were separate entities. 
Finally, respondent states that it is immaterial whether GKN received 
any subsidies prior to the formation of UES, because the application of 
the reallocation/repayment methodology does not depend on whether the 
owner of a company has received any subsidies.
    Department's Position: We disagree with petitioner. As we explained 
in 1994 UK Bar Final, the language of section 771(5)(F) of the Act 
gives the Department discretion to consider, on a case-by-case basis, 
the impact of a change in ownership on the countervailability of past 
subsidies. Rather than mandating that a subsidy automatically transfer 
with a change-in-ownership transaction, as petitioner argues, the 
language in the statute gives the Department flexibility in this area. 
See 1994 UK Bar Final, 61 FR at 58380.
    In this case, in accordance with the SAA, we have examined the 
facts of BS plc's acquisition of UES, and we determine that the March 
21, 1995, change in ownership does not render previously bestowed 
subsidies attributable to UES no longer countervailable based on the 
methodology explained in the ``Privatization'' section of the GIA. See 
GIA 58 FR at 37262-37263. We also determine that a portion of the 
purchase price paid for UES may be reflective of its prior subsidies. 
Therefore, we have reduced the amount of the subsidies that ``travel'' 
with UES to BS plc, taking into account the allocation of subsidies to 
GKN, the former joint-owner of UES. See the March 31, 1997 Memorandum 
for Acting Assistant Secretary, Re: BS plc's March 1995 Acquisition of 
UES (public document on file in the Central Records Unit, Room B-099 of 
the Department of Commerce) (Acquisition Memo).
    As for petitioner's argument that the repayment methodology should 
not be applied because the Department has not factually shown that 
subsidies have

[[Page 53310]]

been repaid to GKN, we agree with respondent that petitioner misses the 
point of the Department's methodology. The Department has never 
required factual proof of repayment. Rather, as we stated in the GIA, 
``to the extent that a portion of the price paid for a privatized 
company can be reasonably attributed to prior subsidies, that portion 
of those subsidies will be extinguished.'' GIA, 58 FR at 37262-37263. 
Furthermore, the Department has already examined the question of 
whether the Department's change-in-ownership methodology can be applied 
to a transaction between private parties. In the GIA, the Department 
stated that the privatization methodology applies also to transactions 
between private parties. The Department explained that ``[u]nder these 
circumstances, the issue is not the repayment of subsidies, but rather 
their allocation.'' GIA, 58 FR at 37264. Thus, the Department properly 
applied the change-in-ownership methodology in this review.
    Petitioner elevates form over substance by arguing that the GIA 
methodology does not apply to BS plc's acquisition of GKN's shares in 
UES because that acquisition somehow differs from the transactions 
discussed in the GIA. The mere fact that the Department did not 
elaborate on every type of potential change-in-ownership transaction in 
the ``Privatization'' and ``Restructuring'' sections of the GIA does 
not invalidate the application of these methodologies to transactions 
such as the reacquisition of formerly-owned companies or productive 
units. Furthermore, the fact that the unit producing the subject 
merchandise has now returned to its former owner also does not affect 
our determination that a portion of the purchase price paid by BS plc 
for GKN's shares of UES reflects past subsidies.
    Petitioner claims that BSES is now in the same position as the 
Special Steels Business, and therefore, there is no reason to 
reallocate subsidies to GKN. We disagree. In the original 
investigation, we determined that the creation of UES was not simply a 
corporate restructuring; rather, UES was a joint-venture company that 
was a separate corporate entity independent from its parent companies. 
See Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From the 
United Kingdom: Remand Determination (October 12, 1993) (public 
document on file in the Central Records Unit, Room B-099 of the 
Department of Commerce). Contrary to petitioner's assertion, the 
Special Steels Business and BSES are distinguishable, because they are 
distinct entities with different ownership structures. Therefore, our 
finding in this review that a portion of the purchase price paid for 
GKN's shares in UES is reallocated to the seller because it reflects 
past subsidies is not in conflict with our change-in-ownership 
methodology explained in the GIA or with our determination in Certain 
Pasta from Italy.
    Comment 2: According to petitioner, the Department correctly made 
the adverse inference that the BRITE/EuRAM program is specific and that 
the benefits received during the instant review are countervailable, 
because the Department discovered at verification that assistance under 
the BRITE/EuRAM program was provided to BS plc in 1995 and this 
assistance was not reported by BS plc or the European Commission in 
their questionnaire responses. However, petitioner contends that the 
Department should not have accepted information at verification that BS 
plc retained only a small portion of the BRITE/EuRAM assistance and 
disbursed most of it to third parties involved in the research project. 
Rather, the Department should have countervailed the full amount 
received by BS plc.
    Respondent asserts that the Department has discretion to determine 
an appropriate adverse inference in response to an interested party's 
oversight. Respondent also points out that information regarding 
payments to third parties allowed BS plc to demonstrate the amount of 
assistance which BS plc actually received.
    Department's Position: After discovering at verification that BS 
plc had received assistance under the BRITE/EuRAM program during the 
POR, we informed the company that they could provide information 
concerning the grant amounts and demonstrate whether the assistance was 
tied to production of non-subject merchandise. See the October 21, 1996 
Memorandum To Barbara E. Tillman, Re: Verification of the British Steel 
plc Questionnaire Responses at 12 (public version on file in the 
Central Records Unit, Room B-099 of the Department of Commerce). We 
learned that BS plc received assistance under one BRITE/EuRAM contract 
during the POR; BS plc was not able to establish that the assistance 
under that program was tied to non-subject merchandise. We reviewed 
program documents indicating that as the project coordinator for the 
BRITE/EuRAM project in question, BS plc was required to provide most of 
the BRITE/EuRAM money to third parties also involved in the research 
project. Therefore, we appropriately countervailed only the amount of 
funding actually received by BS plc for its portion of the project.
    Comment 3: According to respondent, the Department incorrectly 
determined in the Preliminary Results that BSES benefits from the 
subsidies given to BS plc. Respondent asserts that the Department's 
determination was based solely on the corporate relationship between 
the parent company (BS plc) and its subsidiary (BSES). Respondent 
claims to have reviewed the Department's practice and found no 
administrative case precedents in which the Department has imposed 
countervailing duties on a subsidiary solely on the basis of its 
relationship to the parent company and certainly not when a subsidiary 
was acquired after the subsidies were received. Respondent cites two 
court decisions and a number of cases in support of its argument that 
we have uniformly required other factors in addition to the corporate 
relationship to support the attribution of subsidies from parent to 
subsidiary, namely, that, (1) corporate machinations were used to evade 
countervailing duties, (2) the parent received subsidies in order to 
create the subsidiary, or (3) the parent served as a conduit for the 
subsidies. These cases are discussed in the Department's Position on 
the comment.
    Respondent also argues that the GIA and Final Affirmative 
Countervailing Duty Determinations: Certain Steel Products from 
Germany, 58 FR 37315 (July 9, 1993) (German Steel), both cited in the 
Preliminary Results, do not permit the automatic attribution of 
subsidies from a parent company to its newly acquired subsidiary. 
Respondent asserts that the GIA does not state that the Department 
automatically treats the parent and its subsidiaries as one for the 
purpose of attributing subsidies. Rather, respondent points out that 
``the Department often treats the parent entity and its subsidiaries as 
one when determining who ultimately benefits from a subsidy (emphasis 
added).'' See GIA, 58 FR at 37262. According to respondent, this is 
sometimes true because additional facts in those cases have permitted 
the Department to attribute a parent company's subsidies to its 
subsidiary. Respondent contends that German Steel and the cases cited 
in the GIA, e.g., Final Affirmative Countervailing Duty Determination: 
Brass Sheet and Strip from France, 52 FR 1218 (Brass Sheet and Strip 
from France); Final Affirmative Countervailing Duty Determination: 
Certain Stainless Steel Hollow Products from Sweden, 52 FR 5794 
(February 26, 1987) (SSHP from Sweden); Armco, Inc. v. U.S., 733 F. 
Supp. 1514 (CIT 1990)

[[Page 53311]]

(Armco); do not support the attribution of subsidies from a parent to a 
subsidiary based only on the corporate relationship because each of 
these cases involved additional factors.
    Furthermore, respondent argues that the automatic attribution of 
subsidies between a parent and a subsidiary would not be permitted 
under the Department's proposed regulations. See Notice of Proposed 
Rulemaking and Request for Public Comment, 62 FR 8817, 8845, 8855 
(February 26, 1997) (Proposed Regulations). Respondent asserts that 
under the proposed regulations, subsidies given to a parent company 
will be allocated to the subsidiary's production only if they produce 
the same product or if subsidies have been transferred from parent to 
subsidiary. Therefore, because neither of these conditions exists, 
according to respondent, the Preliminary Results are not consistent 
with the Proposed Regulations.
    Respondent concedes that the Department may attribute subsidies to 
the production of a subsidiary which was part of the corporation when 
subsidies were received because the parent's use of subsidy funds 
benefits all operations. However, respondent argues that this reasoning 
does not apply to BSES, because BSES was not a subsidiary of BS plc at 
the time when BSC received subsidies. Therefore, respondent argues that 
BS plc's acquisition of GKN's shares of UES should not cause the 
Department to alter the way in which it determines the portion of BSC's 
subsidies which benefit the production of leaded bar by BSES.
    According to petitioner, Department practice and the facts of this 
review support the attribution of BS plc's subsidies to BSES. 
Petitioner argues that judicial decisions and administrative practice 
give the Department great latitude to allocate a parent company's 
subsidies to a subsidiary. Petitioner argues that over the past 15 
years, the Department has always permitted the attribution of subsidies 
from parent to subsidiaries, and actually has done so more and more 
frequently, especially where a substantial degree of control is present 
and business lines are related. According to petitioner, the Department 
now presumes that in most cases ``subsidies to one corporation may also 
benefit another corporation.'' Proposed Regulations, 62 FR at 8845. 
Therefore, petitioner contends, respondent's examples of the 
Department's refusal to allocate subsidies across corporate lines 
reflect the Department's previous but not its current practice. 
Petitioner cites Brass Sheet and Strip from France as an example of 
when the parent's ownership and control of its subsidiary were just as 
relevant to the Department's decision to attribute subsidies from 
parent to subsidiary as the fact that the parent served as a conduit 
for government funding. See Brass Sheet and Strip from France, 52 FR at 
1218. Petitioner also cites SSHP from Sweden, where the parent's 
ownership and control of the subsidiary, in addition to the strong 
identity of interests between parent and subsidiary, led the Department 
to conclude that the subsidiary benefitted from the parent's subsidies 
and attribute those subsidies to the subsidiary. See SSHP from Sweden, 
52 FR at 5798, 5800.
    Petitioner further contends that three of the cases cited by 
respondent, Final Affirmative Countervailing Duty Determination: 
Operators for Jalousie and Awning Windows from El Salvador, 51 FR 41516 
(November 17, 1986) (Operators for Jalousie and Awning Windows from El 
Salvador); Final Negative Countervailing Duty Determination: Low-Fuming 
Brazing Copper Rod and Wire from South Africa, 50 FR 31642 (August 5, 
1985) (Copper Rod and Wire from South Africa); and Final Affirmative 
Countervailing Duty Determination: Carbon Steel Structural Shapes from 
Luxembourg, 47 FR 39364 (September 7, 1982) (Carbon Steel Structural 
Shapes from Luxembourg), do not support respondent's position. 
Petitioner points out that the Armco court noted that these cases did 
not involve situations where the parent had exercised substantial 
control over the operations of its wholly-owned subsidiary, and the 
court distinguished these three cases from situations involving parent 
companies and their wholly-owned subsidiaries. According to petitioner, 
since BSES is a wholly-owned subsidiary of BS plc, cases involving 
companies with different corporate relationships do not support 
respondent's position.
    Petitioner also argues that the three conditions underlying Armco 
are relevant to the present case: the subsidiary is wholly-owned, the 
parent has total control of the subsidiary, and the threat of 
circumvention of countervailing duties exists. Therefore, Armco 
supports the Department's determination to attribute untied subsidies 
from BS plc to BSES.
    Petitioner argues that subsequent decisions are consistent with 
Armco in that the Department has attributed the parent's subsidies to 
the subsidiary where there has been a strong identity of interests 
between parent and subsidiary. By contrast, the Department has been 
less likely to attribute parent company subsidies to the subsidiary 
where the subsidiary is not wholly owned by the parent or where the 
interests of parent and subsidiary diverge. Petitioner argues that in 
Ferrosilicon from Venezuela, the Department did not attribute the 
parent's subsidies to the subsidiary because the parent was a holding 
company and its interests were different from those of its subsidiary. 
See Final Affirmative Countervailing Duty Determination: Ferrosilicon 
from Venezuela, 58 FR 27539, 27541 (May 10, 1993) (Ferrosilicon from 
Venezuela). According to petitioners, in Certain Pasta from Italy, the 
Department attributed subsidies to affiliates in cases where both 
companies produced the subject merchandise, or where the affiliate 
played ``an integral role'' in the production process, but did not 
attribute subsidies when the affiliate did not produce the subject 
merchandise. See 61 FR at 30308. According to petitioner, because BSES 
is wholly owned and substantially controlled by BS plc and is engaged 
in a similar line of business, BSES benefits from the remaining benefit 
stream of BS plc's subsidies. Therefore, the Department has correctly 
attributed BS plc's subsidies to BSES.
    Petitioner further argues that respondent elevates form over 
substance by arguing that BS plc's newly acquired subsidiary does not 
benefit from BS plc's subsidies. Even though BSES is now an 
incorporated subsidiary of BS plc, rather than the unincorporated 
division it was in 1985, the situation in 1995 is not materially 
different from the situation in 1985. Moreover, petitioner contends 
that if the Department did not allocate BS plc's subsidies to its newly 
acquired subsidiary even though it would have allocated them to the 
subsidiary's predecessor, the Special Steels Business, an 
unincorporated division, this would establish that corporate 
manipulations can determine countervailing duty rates, which is counter 
to the court's determination in Armco. According to petitioner, BC 
plc's subsidies should be attributed to BSES because BS plc and UES 
were closely associated prior to 1995 and are in the same line of 
business, and BS plc has substantial control over BSES today.
    According to petitioner, respondent's argument regarding the 
Department's proposed countervailing duty regulations is based upon a 
highly selective reading of the proposed rules. Petitioner points out 
that the Proposed Regulations set forth general rules for the 
attribution of subsidies and do not illustrate every possible scenario.
    Department's Position: In the Preliminary Results, the Department

[[Page 53312]]

appropriately attributed the benefits from nonrecurring untied 
subsidies received by BS plc that are allocable to the POR to that 
company's domestically produced, consolidated sales, including the 
sales of consolidated subsidiaries, such as BSES. This conforms with 
our past practice and judicial precedent. Where the Department finds 
that a company has received untied countervailable domestic subsidies, 
the Department follows a general attribution principle: if a benefit is 
not ``tied'' to specific merchandise produced by a company (or 
corporation), then the benefit is attributed to that company's total 
sales. The total sales that are reported on a company's financial 
statements normally include its own sales plus the sales of its 
consolidated subsidiaries. Thus, when a company is the parent of a 
consolidated group, untied domestic subsidies are normally attributed 
to the sales of the consolidated group of companies. This attribution 
is appropriate because a parent company exercises control over the 
capital structure and commercial activities of its consolidated 
subsidiaries. Moreover, when providing loans and equity, it is 
reasonable and prudent for lenders and investors to examine the 
financial condition of not only the parent company but also its 
significant subsidiaries because the subsidiaries are incorporated into 
the balance sheet and income statement of the consolidated group. We 
noted this general approach to attributing untied subsidies in the GIA, 
where we stated that we ``generally allocate subsidies received by 
parents over sales of their entire group of companies.'' 58 FR at 
37262.
    Contrary to respondent's assertion, the presence of additional 
factors is not required for the Department to attribute untied parent-
company subsidies according to this general principle. For example, in 
Belgian Steel, untied subsidies to Sidmar, the parent company, were 
attributed to the ``total 1991 sales of the Sidmar Group.'' Final 
Affirmative Countervailing Duty Determinations: Certain Steel Products 
from Belgium, 58 FR 37293, 37282 (July 9, 1993) (Belgian Steel). In 
Italian Steel, a subsidy determined to benefit all production 
activities was ``allocated over Falck's total consolidated sales.'' 
GIA, 58 FR at 37235. See also, Final Affirmative Countervailing Duty 
Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel 
Products from France, 58 FR 6221, 6223 (January 27, 1993) (France 
Bismuth); Final Affirmative Countervailing Duty Determination: Certain 
Steel Products from France, 58 FR 37304 (July 9, 1993) (French Steel); 
Final Affirmative Countervailing Duty Determination: Certain Steel 
Products from Italy, 58 FR 37327 (July 9, 1993) (Italian Steel); and UK 
Steel. As these cases illustrate, respondent's claim that the 
Department has never attributed untied parent-company subsidies to its 
consolidated subsidiaries solely on the basis of the corporate 
relationship is incorrect.
    Respondent concedes that attributing parent-company subsidies to 
wholly-owned subsidiaries is appropriate in certain circumstances, 
stating that under ``the Department's well-established practice of not 
tracing the use of subsidy funds, the Department may presume that a 
parent company uses subsidy funds to benefit its overall operations, 
including its subsidiary operations.'' Respondent's May 7, 1997, Case 
Brief at 18. However, respondent argues that this policy is apropos 
only when the subsidiary ``is part of the corporation at the time the 
subsidies are received * * * and continues to be a subsidiary through 
the POI.'' See Respondent's May 7, 1997 Case Brief at 18. Therefore, 
respondent claims that the Department should not attribute the current 
benefit from BS plc's untied subsidies to BSES because BSES did not 
become an incorporated subsidiary of BS plc until 1995, subsequent to 
BS plc's receipt of the untied subsidies at issue. This argument 
contradicts the very principle of not tracing the use of subsidy funds 
beyond the point of bestowal with which respondent agrees.
    The Department has never made a distinction between subsidiaries 
acquired at the time when subsidies are bestowed and subsidiaries 
acquired after subsidization, and respondent has not cited any 
administrative or court precedent in support of this contention. In 
cases where the Department found that untied domestic subsidies were 
bestowed upon parent companies, prior to or during the period under 
examination, the Department has attributed these untied subsidies to 
the group's consolidated sales, without analyzing whether any of the 
subsidiaries had been acquired after subsidization had occurred. See, 
e.g., Belgian Steel, French Steel, Italian Steel, and UK Steel. In UK 
Steel, BS plc did not argue that the Department should analyze whether 
BS plc had acquired subsidiaries subsequent to receiving subsidies to 
determine whether the sales of those newly acquired subsidiaries should 
have been excluded from the denominator in calculating the subsidy 
rate. On the contrary, BS plc claimed at the time that ``untied equity 
infusions must be allocated to a company's total corporate output 
[including foreign operations] and not just to specific products or 
operations.'' GIA, 58 FR at 37236. BS plc further argued that this 
``longstanding Departmental precedent applies to national and 
multinational corporations alike.'' Id. (emphasis added).
    If the Department were to make a distinction between subsidiaries 
acquired at the time when subsidies are bestowed and subsidiaries 
acquired after subsidization, the Department would be required to 
abandon its ``well-established practice of not tracing the use of 
subsidy funds'' and to determine whether and to what extent subsidies 
``passed through'' to newly-acquired companies. Such an analysis would 
also require a detailed examination of all changes in the structure of 
the company or group of companies over the entire allocation period. 
Further, the analysis required by respondent's distinction would assume 
that ``untied'' subsidies become ``tied'' to only the assets of the 
corporate group as it existed when the subsidy was bestowed. The 
Department has never advocated nor pursued such a policy. As stated in 
the GIA, ``nothing in the statute directs the Department to consider 
the use to which subsidies are put or their effect on the recipient's 
subsequent performance * * * nothing in the statute conditions 
countervailability on the use or effect of a subsidy. Rather, the 
statute requires the Department to countervail an allocated share of 
the subsidies received by producers, regardless of their effect.'' 58 
FR at 37260; see also British Steel v. United States, 879 F. Supp. 
1254, 1298 (CIT 1995) (British Steel), appeals docketed, Nos. 96-1401 
to -06 (Fed. Cir. June 21, 1996); British Steel Corp v. United States, 
9 CIT 85, 95-96, 605 F. Supp. 286, 294-95 (1985) (``[I]t is unnecessary 
to trace the use'' of funds), citing Michelin Tire Corp. v. United 
States, 4 CIT 252, 255 (1982), vacated on agreed statement of facts, 9 
CIT 38 (1985).
    The Department also does not agree that the cases cited in the 
Preliminary Results do not support the attribution of BS plc's 
subsidies to consolidated sales of domestically produced merchandise. 
As stated in the GIA, ``[w]e also generally allocate subsidies received 
by parents over sales of their entire group of companies.'' GIA, 58 FR 
at 37262. The cases cited in the GIA as examples of the Department's 
past attribution practices do not represent an exhaustive list of all 
of the different scenarios under which the Department has dealt with 
the issue of attribution. Moreover, nothing in the GIA indicates that 
the Department is required to determine

[[Page 53313]]

that there are factors in addition to the corporate relationship, such 
as the pass-through of subsidies, in order for the Department to 
attribute a parent company's untied subsidies to the parent company's 
total consolidated domestically produced sales.
    According to respondent, the CIT's determinations in Armco and 
Aimcor, Alabama Silicon, Inc. v. United States 871 F. Supp. 447 (CIT 
1994) (Aimcor) make clear the court's view that the Department should 
not attribute subsidies from a parent company to the production of a 
newly acquired subsidiary based solely on the corporate relationship. 
Respondent's reliance on these cases is misplaced. Contrary to 
respondent's views, we find that these cases do not undermine the 
Department's general principle of attributing untied parent-company 
subsidies to the parent company's consolidated sales.
    As respondent correctly notes, the Armco court overturned the 
Department's determination in Carbon Steel Wire Rod from Malaysia and 
held that the parent company benefitted from the subsidies provided to 
its wholly-owned subsidiary. See Final Affirmative Countervailing Duty 
Determination and Countervailing Duty Order: Carbon Steel Wire Rod from 
Malaysia, 53 FR 13303 (April 22, 1988) (Carbon Steel Wire Rod from 
Malaysia). The Armco decision was based on several factors including 
the court's concern that the parent and subsidiary could potentially 
evade countervailing duties through intra-corporate machinations, the 
relationship between the parent and subsidiary, and the parent's 
extensive control over the subsidiary. See Armco, 733 F. Supp. at 1526. 
We agree with the court and the respondent that the possibility of 
circumvention can be a factor in the Department's attribution 
decisions. We further note that according to BS plc's questionnaire 
response in this review, BS plc did produce and sell the subject 
merchandise during the period of review. See the June 11, 1996, BS plc 
questionnaire response (public version on file in the Central Records 
Unit of the Department of Commerce, Room B-099). Therefore, the 
possibility of circumvention would exist if the Department did not 
attribute BS plc's untied subsidies to BS plc's total sales.
    Nevertheless, respondent's reliance on Armco for the proposition 
that the Department must always find factors in addition to the 
corporate relationship in order to attribute a parent company's untied 
subsidies to the parent company's domestically produced, consolidated 
sales is not supportable. Respondent emphasizes that the Armco court 
supported the proposition that the bestowal of the subsidy on one 
company does not automatically benefit another company merely because 
the two are related. See Armco, 733 F. Supp. at 1521-1522. However, 
this general proposition merely recognized the possibility that 
different conclusions may be drawn from different scenarios involving 
various kinds of subsidies, tied and untied, and companies of varying 
degrees of relatedness. This proposition does not stand for 
respondent's argument that the Department must always find factors in 
addition to the corporate relationship in order to attribute a parent 
company's untied subsidies to the parent company's domestically 
produced, consolidated sales, and it does not undermine the 
Department's attribution of BS plc's untied subsidies in this review.
    Respondent also claims that the Armco court rejected the notion 
that ``a subsidy, by its mere bestowal, necessarily affects every 
corner of the corporate relationship.'' See Armco, 733 F. Supp. at 
1525. However, in referring to this proposition, the Armco court 
clarified that the scope of its holding was limited to the facts of the 
case. We do not interpret Armco as stating that the Department is 
required in all cases to find factors in addition to the corporate 
relationship in order to attribute subsidies from one company to 
another.
    Respondent's reliance on Aimcor for the proposition that the 
Department may not impose duties on a company solely because it has 
been acquired by a company that has received subsidies is also 
misplaced. The facts in Aimcor are substantially different from those 
in the instant review. In Aimcor, the plaintiff alleged that a 
government-owned financial institution sold shares in Fesilven, the 
producer of the subject merchandise, to Corporacion Venezolana Guayana 
(CVG), a government-owned holding company, at less than eight percent 
of their par value. According to the plaintiff, because of the 
relationship between CVG and Fesilven, this transaction was a de facto 
share redemption which resulted in a subsidy to Fesilven. However, the 
court upheld the Department's determination that CVG and Fesilven could 
not be considered one entity and therefore the transaction was not a 
share redemption by Fesilven. Thus, the relationship between CVG and 
Fesilven was the critical factor in determining whether CVG's purchase 
of Fesilven's shares from a third party was a de facto share redemption 
by Fesilven which could have resulted in the bestowal of a subsidy on 
Fesilven. It is clear, therefore, that the issue in Aimcor was whether 
a subsidy had been bestowed at all. The issue was not whether 
countervailable subsidies that had been bestowed on a parent company 
were attributable to a wholly-owned subsidiary.
    Respondent mistakenly cites the Aimcor court for support without 
first considering the particular facts at issue. For example, 
respondent points out that in Aimcor, plaintiffs argued that Brass 
Sheet and Strip from France required an automatic attribution of 
subsidies, but the Aimcor court stated that ``Commerce does more than 
simply look at the relationship between the parties. Instead, Brass 
Sheet and Strip from France demonstrates Commerce's consistent, 
statutorily mandated policy of tracing a bounty or grant to determine 
whether it reached the merchandise before Commerce imposes a duty.'' 
Aimcor, 871 F. Supp. at 452. However, the issue in Brass Sheet and 
Strip from France was whether a government-owned holding company had 
bestowed a subsidy on a subsidiary, and the Aimcor court's statement 
must therefore be interpreted in that context, because as indicated 
above, the statute does not require the Department to trace the uses or 
the effects of subsidies. Respondent also points to the court's 
statement that a benefit to the parent corporation ``does not 
necessarily make one of its assets, such as its subsidiary, more 
valuable.'' Aimcor, 871 F. Supp. at 452. However, the court went on to 
say that ``[a]bsent a showing that the subsidy reached the exported 
merchandise, this court will not disturb Commerce's determination.'' 
Id. Thus, as reflected by the court's opinion, our determination in 
Ferrosilicon from Venezuela dealt with the issue of whether a subsidy 
had been conferred on Fesilven through a transaction involving the 
government-owned holding company, which owned shares in Fesilven, and a 
government-owned financial institution. It did not deal with the 
attribution of previously bestowed untied parent company subsidies to a 
wholly-owned subsidiary.
    In addition to Armco and Aimcor, respondent identified a number of 
other cases to support the proposition that the Department has 
uniformly required factors in addition to the corporate relationship in 
attributing a parent company's subsidies to a newly acquired 
subsidiary. According to respondent, the Department has only attributed 
a parent company's subsidies to a subsidiary when (1) corporate 
machinations could be used to evade countervailing duties, (2) the 
subsidies were provided to the parent to facilitate

[[Page 53314]]

the subsidiary's creation, or (3) the parent served as a conduit for 
subsidies to the subsidiary. We have examined the cases cited by 
respondent with respect to each factor, and we disagree with 
respondent's overall interpretation of the Department's past practice.
    With respect to the first and second factors, we agree with 
respondent that in certain instances the Department's attribution 
decisions were influenced by (1) the possibility that intra-corporate 
machinations would be used to evade countervailing duties, or (2) the 
fact that subsidies were provided by the parent to facilitate the 
creation of a subsidiary. See e.g., Final Affirmative Countervailing 
Duty Determinations: Carbon Steel Structural Shapes, Hot-Rolled Carbon 
Steel Plate, and Hot-Rolled Carbon Steel Bar from the United Kingdom; 
and Final Negative Countervailing Duty Determination: Cold-Formed 
Carbon Steel Bar from the United Kingdom, 47 FR 39384 (September 7, 
1982) (1982 UK Steel), Carbon Steel Wire Rod from Malaysia, Armco, 
Belgian Steel, and SSHP from Sweden. See SSHP from Sweden, 52 FR at 
5796. Nevertheless, the mere fact that we examined these factors does 
not negate the Department's general attribution principle discussed 
above, or require that these factors be present in all cases. We fail 
to see how these cases establish that ``additional'' factors must 
always be present for the Department to attribute untied parent-company 
subsidies to the parent company's total sales, including the sales of 
its consolidated subsidiaries.
    The majority of the cases cited by respondent are concerned with 
the third factor, i.e., that the parent company served as a conduit for 
subsidies to the subsidiary. However, this argument implies that in 
order to attribute untied nonrecurring domestic subsidies received by a 
parent company to the parent company's consolidated sales of 
domestically produced merchandise, the Department is required to 
analyze whether subsidies have ``passed through'' the parent to its 
subsidiary. This would amount to tracing the uses and effects of untied 
subsidies, which respondent acknowledges the Department is not required 
to do. Therefore, the Department is not required to conduct a ``pass-
through'' analysis. Moreover, as explained above, the Department's 
general attribution practice supports the attribution of BS plc's 
untied subsidies to BS plc's domestically produced, consolidated sales. 
As such, we find that the cases cited by respondent in support of its 
``pass-through'' proposition either can be distinguished from the fact 
pattern in the instant review, or actually can be found to support the 
Department's attribution approach in this case.
    For example, respondent cites Grain-Oriented Electrical Steel from 
Italy, in which the Department countervailed only the subsidies 
``specifically provided to the producer of the subject merchandise.'' 
Final Affirmative Countervailing Duty Determination: Grain-Oriented 
Electrical Steel from Italy, 59 FR 18357, 18365 (April 18, 1994) 
(Grain-Oriented Electrical Steel from Italy). Nevertheless, respondent 
fails to mention that the Department's approach was driven by the 
unique circumstances of the case, in which the parent company was a 
government-owned company which, prior to the period of investigation, 
underwent a series of intricate restructurings during which debt was 
forgiven by the Italian Government. In fact, the Department 
acknowledged that there were two alternative approaches to addressing 
the debt forgiveness associated with the restructurings: (1) ``To 
analyze the restructuring of the entire Finsider group into ILVA and to 
examine all subsidies provided to Finsider by IRI and the government of 
Italy,'' or (2) ``measure the subsidies provided to the producer of the 
subject merchandise.'' See Grain-Oriented Electrical Steel from Italy, 
59 FR at 18366. The Department chose the second approach, given ``the 
extremely complex restructuring which occurred at the Finsider group 
level'' because it would allow the Department to ``more accurately 
measure the benefits attributable to the producer of the subject 
merchandise''. See Id.
    Thus, Grain-Oriented Electrical Steel from Italy does not support 
respondent's proposition that the Department always examines facts in 
addition to the corporate relationship when attributing untied parent-
company subsidies to the parent company's total consolidated sales, 
including sales of consolidated subsidiaries. Rather, in Grain-Oriented 
Electrical Steel from Italy, the Department acknowledged the validity 
of analyzing subsidies at the parent company level in order to 
attribute them to the sales of the consolidated subsidiaries (59 FR at 
18366), which supports the approach taken in the instant review.
    In further support of its argument that in prior cases involving 
subsidy attribution, parent companies have served as conduits for 
subsidies to their subsidiaries, respondent cites a number of cases 
that involve parent companies which were government-owned holding 
companies. See, e.g., Final Affirmative Countervailing Duty 
Determinations; Certain Steel Products from the Federal Republic of 
Germany, 47 FR 39345 (September 7, 1982) (1982 German Steel); Certain 
Carbon Steel Products from Brazil; Final Affirmative Countervailing 
Duty Determinations, 49 FR 17988 (April 26, 1984) (Certain Carbon Steel 
Products from Brazil); Brass Sheet and Strip from France, and Final 
Affirmative Countervailing Duty Determinations: Certain Steel Products 
from Spain, 58 FR 37374 (July 9, 1993) (Spanish Steel). In these cases, 
the Department considered whether the government-owned holding company 
acted as the government in bestowing subsidies to the affiliated 
companies, i.e., the subsidiaries. For example, in Brass Sheet and 
Strip from France, the parent company was an unequityworthy government-
owned holding company which received equity infusions from the 
government and, in turn, provided equity infusions and other financial 
assistance to its unequityworthy subsidiary, the producer of the 
subject merchandise. The Department noted that since the parent was 
merely a holding company, the funds which were provided to it by the 
government benefitted its subsidiaries. See Brass Sheet and Strip from 
France, 52 FR at 1220. Thus, the Department considered that the holding 
company acted essentially as the government in bestowing the equity 
infusions to the subsidiary. Therefore, in that case the Department 
countervailed the benefit on the basis of the subsidiary's total sales.
    Brass Sheet and Strip from France does not support respondent's 
argument that the Department is required to analyze whether subsidies 
provided to private or government-owned parent companies have ``passed 
through'' to their subsidiaries. As demonstrated above, even in cases 
involving government-owned companies, e.g., the 1993 steel 
investigations, the Department's practice has been to attribute the 
benefit from untied domestic subsidies provided to a parent company 
based on its consolidated sales of domestically produced merchandise. 
See, e.g., Belgian Steel, French Steel, Italian Steel, and UK Steel.
    Respondent also cited Final Affirmative Countervailing Duty 
Determination: Oil Country Tubular Goods from Korea, 49 FR 35836 
(September 12, 1984); Bicycle Tires and Tubes from Korea; Final Results 
of Administrative Review of Countervailing Duty Order, 48 FR 32205 
(July 14, 1983); and Copper Rod and Wire from South Africa as cases in 
which the Department analyzed subsidy ``pass through.'' Nevertheless, 
these cases can be distinguished from the instant review because 
subsidy

[[Page 53315]]

bestowal, rather than subsidy attribution, was the key issue. Moreover, 
Bicycle Tires and Copper Rod from South Africa dealt with the issue of 
whether a privately-owned company had provided a subsidy to one of its 
related companies. In those cases, we stated that absent evidence of 
government involvement we would not examine whether a transaction 
between related private parties constituted a subsidy. In the instant 
case, we have already determined that the government of the United 
Kingdom bestowed untied nonrecurring subsidies on BSC/BS plc. The 
matter at issue here is whether the current benefit from those 
previously bestowed subsidies which have been allocated over time is 
attributable to only BS plc's operations or to its consolidated 
operations. As such, Bicycle Tires and Copper Rod from South Africa do 
not support respondent's contention.
    In another example, respondent asserts that in Austrian Steel, the 
Department found that VAAG, a government-owned company, provided a 
subsidy to its new subsidiaries by not requiring them to assume a 
portion of its prior losses. However, Austrian Steel is distinguishable 
from the instant review. As part of a restructuring of a production 
company into a holding company, the newly-created holding company 
carried forward losses on its balance sheet, but did not assign a 
proportionate share of those losses to its newly-created subsidiaries. 
The Department determined that the holding company provided a subsidy 
to its subsidiaries by assuming losses that should have been assigned 
to the subsidiaries. See Austrian Steel, 58 FR at 37221. Thus, this 
aspect of Austrian Steel concerned the government-owned holding 
company's bestowal of a subsidy on its subsidiaries. This was not an 
issue of whether untied nonrecurring subsidies to a parent company 
benefit its consolidated sales.
    Several of the cases cited by respondent in support of its pass-
through argument can be distinguished from UK Lead Bar due to the 
nature of the corporate relationships and the fact that attribution of 
untied parent-company subsidies was not an issue. Operators for 
Jalousie and Awning Windows from El Salvador involved two private 
companies which had the same parent company. The subsidy in question 
was an income tax exemption from export earnings, and the law did not 
permit any transfer of these exemptions from the recipient to the other 
company, which had a different status under the Export Promotion Law. 
See Operators for Jalousie and Awning Windows from El Salvador, 51 FR 
at 41519 (1986). Thus, this was not a parent/subsidiary issue. The 
subsidies received by one company were not attributed to the other 
company, because the companies operated as distinct entities and had 
different status under the tax law. Respondent's example from Certain 
Pasta From Italy also involves two private companies with a common 
parent. Furthermore, the subsidies in that case were either subsidies 
to a privately-owned affiliated supplier or the subsidies were 
otherwise tied. Accordingly, the subsidies and the relationships in 
these cases are distinguishable from the instant review.
    Respondent also cites Carbon Steel Structural Shapes from 
Luxembourg where the Department treated the parent company and its 
subsidiary separately because benefits were provided separately and 
``are not allowed to pass through.'' Carbon Steel Structural Shapes 
from Luxembourg, 47 FR at 39365 (1982). Nevertheless, a key 
distinguishing factor is that Carbon Steel Structural Shapes from 
Luxembourg involved a parent company and a 40 percent-owned subsidiary, 
and the two companies had separate financial structures, i.e., the 
subsidiary was not consolidated with the parent company. See Carbon 
Steel Structural Shapes from Luxembourg, 47 FR at 39365 (1982).
    Even, assuming arguendo, that the Department were required to make 
a finding that the allocated benefit from untied subsidies to a parent 
company ``pass through'' to a subsidiary, the information on the record 
of this review would be sufficient to warrant the inclusion of BSES's 
sales in calculating the subsidy benefit from BS plc's untied 
subsidies. The Department's verification established that BS plc 
exercises considerable control over its consolidated subsidiary BSES. 
As the sole owner of BSES, BS plc has the authority to make all major 
decisions for BSES, including any decision to invest in BSES, change 
its operations, or close it down. Furthermore, BS plc performs a number 
of services, and even acts as a banker, for BSES and its other 
consolidated subsidiaries. See the October 21, 1996, Memorandum to 
Barbara E. Tillman, Re: Verification of the BS plc Questionnaire 
Responses in the 1995 Administrative Review of the Countervailing Duty 
Order on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from 
the United Kingdom at 3-5 (public version on file in the Central 
Records Unit, Room B-099 of the Department of Commerce.)
    With respect to respondent's and petitioner's comments on the 
proposed countervailing duty regulations, we note that these have not 
yet been finalized, and thus, are not controlling in this review.
    Comment 4: Respondent states that the Department will over-
countervail BS plc's subsidies in the 1995 and subsequent reviews as a 
result of changing the allocation period for nonrecurring subsidies 
from 15 to 18 years. Respondent points out that the Department has 
recognized that double-counting subsidy benefits is ``inconsistent with 
both the statute and the subsidies code.'' See, e.g., Certain Castor 
Oil Products from Brazil; Final Results of Review of Countervailing 
Duty Order, 49 FR 9921 (1984), Unprocessed Float Glass from Mexico; 
Suspension of Countervailing Duty Investigation, 49 FR 7264 (1984), and 
General Agreement on Tariffs and Trade 1994, Art. VI(3). In recognition 
of the problem of over-or-under-countervailing subsidy benefits when 
transitioning to company-specific allocation periods, the Department 
adopted a policy of using the allocation period first assigned to a 
subsidy countervailed in earlier proceedings. According to respondent, 
because the mandate against over-countervailing subsidies is a 
statutory matter and not one of administrative discretion, as the 
Department has recognized, the Department must adhere to the 15-year 
amortization methodology which it previously adopted in countervailing 
subsidies received by UES.
    According to petitioner, the 18-year allocation period is 
consistent with BS plc's corporate practice and all determinations 
involving BS plc. Changing the allocation period from 15 to 18 years 
enables the Department to countervail at the proper rate. Petitioner 
points out that the Department does not have the option of acceding to 
respondent's request to continue with a 15-year allocation period for 
BSES, because the CIT decided that the statute requires company-
specific allocation periods based on the average useful life of assets 
and approved an 18 year allocation period for British Steel. See 
British Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995) 
(British Steel). Petitioner points out that British Steel's successful 
appeal of the Department's 15-year allocation period led to the 
establishment of an 18-year allocation period in the first place.
    According to petitioner, respondent's allegation that the 
Department's methodology results in ``double-counting'' of subsidies is 
misleading because only a minor amount of double-counting occurs when 
the allocation period is lengthened after the subsidies

[[Page 53316]]

have already been calculated in previous reviews. Overall, BS plc is 
charged more over the longer allocation period mainly due to an 
increase in interest charges. Petitioner suggests that the minor amount 
of double-counting can be corrected if the Department requests a remand 
of its original determination and adopts an 18-year allocation period 
for the entire period of the investigation and all administrative 
reviews, i.e., from 1992 forward.
    Department's Position: The position adopted by the Department on 
the allocation period for BS plc's/BSES's subsidies is discussed in 
detail in the Preliminary Results and the March 31, 1997 Memorandum for 
Acting Assistant Secretary, Re: Allocation Period for Nonrecurring 
Subsidies (Allocation Memorandum) (public document on file in the 
Central Records Unit, Room B-099 of the Department of Commerce). In 
this review, we are determining that it is appropriate, due to the 
unique circumstances of this case, to change the allocation period for 
the subsidies which were previously bestowed on BSC/BS plc and which 
were attributable to UES/BSES, even though all of these subsidies were 
bestowed prior to the period of review and had established allocation 
periods in prior proceedings. See UK Steel, 58 FR 37396. The 
Department's acquiescence to the CIT's decision in British Steel 
resulted in different allocation periods between the UK Steel and UK 
Lead Bar proceedings (18 years versus 15 years). Significant 
inconsistencies would result from different allocation periods for the 
same subsidies in two proceedings involving the same company. 
Therefore, in this review, we have applied the company-specific 18-year 
allocation period to all nonrecurring subsidies in order to maintain a 
consistent allocation period across the UK Steel and UK Lead Bar 
proceedings, as well as the different segments of UK Lead Bar.
    Since the countervailing duty rate in earlier segments of the 
proceeding was based on a certain allocation period and resulting 
benefit stream, redefining the allocation period in this segment of the 
proceeding entails the creation of a new benefit stream for the 
original grant amount. The Department recognizes that this practice may 
lead to an increase (or decrease) in the subsidy rate calculated. Thus, 
applying an 18-year allocation period in this review to nonrecurring 
subsidies which had been calculated based on 15-year periods in prior 
segments of the proceeding could possibly lead to a larger total 
countervailable benefit for the subsidies spun off with the creation of 
UES and rejoining BS plc's subsidies with BS plc's acquisition of GKN's 
shares of UES. However, because the UK Lead Bar investigation and 
subsequent reviews of the order up to the instant review are currently 
subject to judicial review, no actual countervailing duties have been 
collected from any of the review periods in which the 15-year 
allocation period was applied. Thus, the issue of whether there would 
be an over-countervailing or double-counting of the subsidy is moot 
because the change to 18-years can be dealt with in the pending 
litigation.
    Comment 5: Respondent contends that the Department's ``gamma 
methodology'' understates the portion of subsidies which should have 
been considered repaid to the government in connection with the 
privatization of BS plc in 1988 because of the assumption that a 
subsidy given in one year is considered non-subsidy capital in the 
following year. Respondent claims that according to the Department's 
methodology, only a portion of the capital of unprofitable, heavily 
subsidized companies would be attributed to subsidies. As an example, 
respondent states that even though BSC allegedly received subsidies 
from 1977/1978 to 1985/1986 of more than six times its total capital at 
fiscal year end 1978, the Department attributed only 46 percent of 
BSC's capital to subsidies at the end of 1987/1988.
    Respondent proposes an alternative methodology for calculating the 
gamma based on the idea that a firm's capital is comprised of subsidy 
funds and non-subsidy funds at the time of sale. In the alternative 
methodology, the proportion of the firm's capital which would be 
attributable to subsidies at the time of the firm's sale is represented 
by the ratio of all subsidy capital to all capital from all sources 
during the time period in which subsidies were examined.
    According to petitioner, the only appropriate change to the gamma 
would be its elimination, but if the Department continues to assume 
that a portion of the purchase price of a subsidized state-owned 
company represents the repayment of subsidies, the Department's 
existing gamma methodology is the most reasonable valuation of 
repayment.
    According to petitioner, respondent's argument that the 
Department's methodology distorts the percentage of capital 
attributable to subsidies is misplaced, because the administrative 
practice of disregarding the effects of subsidies on financial 
performance in creditworthiness and equityworthiness analysis requires 
the assumption that a subsidy given in one year becomes non-subsidy 
capital in the following year. Petitioner cites Saarstahl AG v. United 
States 78 F.3d 1539, 1543 (Fed. Cir. 1996), North American Free Trade 
Agreement Implementation Act, S. Rep. No. 189, 103d Cong. 1st Sess. 4 
(1993), and the Proposed Regulations to demonstrate that Congress and 
the courts have long discouraged the practice of determining the actual 
impact of subsidies on the company's capital structure.
    Petitioner argues that even if the Department's methodology 
resulted in the respondent's alleged distortions, respondent's 
alternative methodology would result in greater errors, because it 
provides an inaccurate measure of how subsidies affect capital 
formation by ignoring the company's ability to fund improvements from 
positive cash flow or profitability. Finally, petitioner asserts that 
respondent's methodology does not account for inflation, which would 
cause early capital investments to be worth more than later ones in 
constant currency terms. According to petitioner, the Department's 
existing gamma methodology avoids the problem of inflation by comparing 
subsidies to capital only in the year of receipt.
    Department's Position: We disagree with respondent's proposal, 
which would require the Department to analyze the effects of subsidies 
on a company's financial structure. Such an exercise is not only highly 
speculative, it is also inconsistent with the Department's statutory 
mandate. See GIA, 58 FR at 37260; see also British Steel, 879 F. Supp. 
at 1298. Respondent's assumption that the opening balance of capital 
represents unsubsidized capital would not be realistic for companies 
which have received subsidies from the time they were established. In 
addition, it is not clear what ``non-subsidy capital infusions'' 
represent, particularly with respect to unequityworthy government-owned 
companies. We also agree with petitioner that respondent's methodology 
is inaccurate to the extent that it does not appear to include profits 
as a significant non-subsidy source of funds.
    Comment 6: Respondent notes that BS plc acquired GKN's shares of 
UES on March 21, 1995 and that the Department based the Preliminary 
Results on that event. Nevertheless, it is not apparent how entries 
involving merchandise exported from the United Kingdom prior to the 
March 21, 1995 acquisition could have been affected by the transaction, 
according to respondent.
    Department's Position: We agree. Pursuant to the change in 
ownership section of the Act (771(5)(F)), we have taken the unique 
circumstances of the change in ownership of United

[[Page 53317]]

Engineering Steels into consideration for purposes of determining the 
net subsidies attributable to the merchandise subject to this review 
period. Accordingly, we are assigning two net subsidy rates for the 
POR: one for UES which will apply to exports prior to March 21, 1995, 
and one for BS plc/BSES/UES which will apply to exports on or after 
March 21, 1995.

Final Results of Review

    In accordance with 19 CFR 355.22(c)(7)(ii), we calculated an 
individual subsidy rate for each producer/exporter subject to this 
administrative review. As explained in the ``Change in Ownership'' 
section of the notice, above, we have calculated two net subsidy rates 
for the merchandise subject to this period of review: one for UES which 
will apply for that part of the review period prior to the change in 
ownership of UES, and one for BS plc/BSES/UES which will apply for that 
part of the review period on and after the change in ownership when UES 
became a consolidated subsidiary of BS plc. Thus, the net subsidy for 
UES is 2.40 percent ad valorem for the period January 1, 1995 through 
March 20, 1995, and the net subsidy for British Steel plc/British Steel 
Engineering Steels/United Engineering Steels (BS plc/BSES/UES) is 7.35 
percent ad valorem for the period March 21, 1995 through December 31, 
1995.
    We will instruct the U.S. Customs Service (Customs) to assess 
countervailing duties as indicated above. The Department will also 
instruct Customs to collect cash deposits of estimated countervailing 
duties in the percentage detailed above (for BS plc/BSES/UES) of the 
f.o.b. invoice price on all shipments of the subject merchandise from 
reviewed companies, entered, or withdrawn from warehouse, for 
consumption on or after the date of publication of the final results of 
this review.
    Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for 
investigated and reviewed companies, the procedures for establishing 
countervailing duty rates, including those for non-reviewed companies, 
are now essentially the same as those in antidumping cases, except as 
provided for in Sec. 777A(e)(2)(B) of the Act. The requested review 
will normally cover only those companies specifically named. See 19 CFR 
355.22(a). Pursuant to 19 CFR 355.22(g), for all companies for which a 
review was not requested, duties must be assessed at the cash deposit 
rate, and cash deposits must continue to be collected at the rate 
previously ordered. As such, the countervailing duty cash deposit rate 
applicable to a company can no longer change, except pursuant to a 
request for a review of that company. See Federal-Mogul Corporation and 
The Torrington Company v. United States, 822 F. Supp. 782 (CIT 1993), 
and Floral Trade Council v. United States, 822 F. Supp. 766 (CIT 1993) 
(interpreting 19 CFR 353.22(e), the antidumping regulation on automatic 
assessment, which is identical to 19 CFR 355.22(g)). Therefore, the 
cash deposit rates for all companies except those covered by this 
review will be unchanged by the results of this review.
    We will instruct Customs to continue to collect cash deposits for 
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit 
rates that will be applied to non-reviewed companies covered by this 
order are those established in the most recently completed 
administrative proceeding, conducted pursuant to the statutory 
provisions that were in effect prior to the URAA amendments. See 
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from the 
United Kingdom; Final Results of Countervailing Duty Administrative 
Review, 61 FR 58377 (November 14, 1996). These rates shall apply to all 
non-reviewed companies until a review of a company assigned these rates 
is requested. In addition, for the period January 1, 1995 through 
December 31, 1995, the assessment rates applicable to all non-reviewed 
companies covered by this order are the cash deposit rates in effect at 
the time of entry.
    This notice serves as a reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the disposition of proprietary information disclosed under 
APO in accordance with 19 CFR 355.34(d). Timely written notification of 
return/destruction of APO materials or conversion to judicial 
protective order is hereby requested. Failure to comply with the 
regulations and the terms of an APO is a sanctionable violation.
    This administrative review and notice are in accordance with 
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).

    Dated: October 6, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-27148 Filed 10-10-97; 8:45 am]
BILLING CODE 3510-DS-P