[Federal Register Volume 62, Number 204 (Wednesday, October 22, 1997)]
[Notices]
[Pages 55003-55014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27984]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-274-803]


Final Affirmative Countervailing Duty Determination: Steel Wire 
Rod From Trinidad and Tobago

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

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT: Todd Hansen, Vincent Kane, or Sally 
Hastings, Office of Antidumping/Countervailing Duty Enforcement, Group 
I, Office 1, Import Administration, U.S. Department of Commerce, Room 
1874, 14th Street and Constitution Avenue, N.W., Washington, D.C. 
20230; telephone (202) 482-1276, 482-2815, or 482-3464, respectively.

Final Determination

    The Department of Commerce (``the Department'') determines that 
countervailable subsidies are being provided to Caribbean Ispat Limited 
(``CIL''), a producer and exporter of steel wire rod from Trinidad and 
Tobago. For information on the estimated countervailing duty rates, 
please see the Suspension of Liquidation section of this notice.

Petitioners

    The petition in this investigation was filed by Connecticut Steel 
Corp., Co-Steel Raritan, GS Industries, Inc., Keystone Steel & Wire 
Co., North Star Steel Texas, Inc. and Northwestern Steel and Wire (the 
petitioners), six U.S. producers of wire rod.

Case History

    Since our preliminary determination on July 28, 1997 (62 FR 41927, 
August 4, 1997), the following events have occurred:
    We conducted verification in Trinidad and Tobago of the 
questionnaire responses of the Government of Trinidad and Tobago 
(``GOTT'') and of CIL from August 18 through August 26, 1997. 
Petitioners and respondents filed case and rebuttal briefs on September 
12 and September 17, 1997, respectively. A public hearing was held on 
September 19, 1997. On September 16, 1997, the GOTT and the U.S. 
Government initialed a proposed suspension agreement, whereby the GOTT 
agreed not to provide any new or additional export subsidies on the 
subject merchandise and to restrict the volume of direct and indirect 
exports of subject merchandise to the United States. On October 14, 
1997, the U.S. Government and the GOTT signed a suspension agreement 
(see, Notice of Suspension of Countervailing Duty Investigation: Steel 
Wire Rod from Trinidad and Tobago which is being published concurrently 
with this notice). Based on a request from petitioners on October 14, 
1997, the Department and the International Trade Commission (``ITC'') 
are continuing this investigation in accordance with section 704(g) of 
the Act. As such, this final determination is being issued pursuant to 
section 704(g) of the Act.

Scope of Investigation

    The products covered by this investigation are certain hot-rolled 
carbon steel and alloy steel products, in coils, of approximately round 
cross section, between 5.00 mm (0.20 inch) and 19.0 mm (0.75 inch), 
inclusive, in solid cross-sectional diameter. Specifically excluded are 
steel products possessing the above noted physical characteristics and 
meeting the Harmonized Tariff Schedule of the United States (``HTSUS'') 
definitions for (a) stainless steel; (b) tool steel; (c) high nickel 
steel; (d) ball bearing steel; (e) free machining steel that contains 
by

[[Page 55004]]

weight 0.03 percent or more of lead, 0.05 percent or more of bismuth, 
0.08 percent or more of sulfur, more than 0.4 percent of phosphorus, 
more than 0.05 percent of selenium, and/or more than 0.01 percent of 
tellurium; or (f) concrete reinforcing bars and rods.
    The following products are also excluded from the scope of this 
investigation:
    Coiled products 5.50 mm or less in true diameter with an average 
partial decarburization per coil of no more than 70 microns in depth, 
no inclusions greater than 20 microns, containing by weight the 
following: carbon greater than or equal to 0.68 percent; aluminum less 
than or equal to 0.005 percent; phosphorous plus sulfur less than or 
equal to 0.040 percent; maximum combined copper, nickel and chromium 
content of 0.13 percent; and nitrogen less than or equal to 0.006 
percent. This product is commonly referred to as ``Tire Cord Wire 
Rod.''
    Coiled products 7.9 to 18 mm in diameter, with a partial 
decarburization of 75 microns or less in depth and seams no more than 
75 microns in depth; containing 0.48 to 0.73 percent carbon by weight. 
This product is commonly referred to as ``Valve Spring Quality Wire 
Rod.''
    The products under investigation are currently classifiable under 
subheadings 7213.91.3000, 7213.91.4500, 7213.91.6000, 7213.99.0030, 
7213.99.0090, 7227.20.0000, and 7227.90.6050 of the HTSUS. Although the 
HTSUS subheadings are provided for convenience and customs purposes, 
our written description of the scope of this investigation 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, as amended by 
the Uruguay Round Agreements Act effective January 1, 1995 (the 
``Act''). All references to the Department's regulations at 19 CFR 
355.34 refer to the edition of the Department's regulations published 
April 1, 1997.

Injury Test

    Because Trinidad and Tobago is a ``Subsidies Agreement Country'' 
within the meaning of section 701(b) of the Act, the ITC is required to 
determine whether imports of wire rod from Trinidad and Tobago 
materially injure, or threaten material injury to, a U.S. industry. On 
April 30, 1997, 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 Trinidad and Tobago of the subject 
merchandise (62 FR 23485).

Subsidies Valuation Information

    Period of Investigation: The period for which we are measuring 
subsidies (the ``POI'') is calendar year 1996.
    Allocation Period: In the past, the Department has relied upon 
information from the U.S. Internal Revenue Service (``IRS'') on the 
industry-specific average useful life of assets in determining the 
allocation period for nonrecurring subsidies. See General Issues 
Appendix appended to Final 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 
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).
    In this investigation, the Department has followed the Court's 
decision in British Steel. Therefore, for purposes of this 
determination, the Department has calculated a company-specific AUL. 
Based on information provided by respondents, the Department has 
determined that the appropriate allocation period for CIL is 15 years.
    Equityworthiness: In analyzing whether a company is equityworthy, 
the Department considers whether that company could have attracted 
investment capital from a reasonable, private investor in the year of 
the government equity infusion based on information available at that 
time. In this regard, the Department has consistently stated that a key 
factor for a company in attracting investment capital is its ability to 
generate a reasonable return on investment within a reasonable period 
of time.
    In making an equityworthiness determination, the Department 
examines the following factors, among others:
    1. Current and past indicators of a firm's financial condition 
calculated from that firm's financial statements and accounts;
    2. Future financial prospects of the firm including market studies, 
economic forecasts, and projects or loan appraisals;
    3. Rates of return on equity in the three years prior to the 
government equity infusion;
    4. Equity investment in the firm by private investors; and
    5. Prospects in world markets for the product under consideration.
    In start-up situations and major expansion programs, where past 
experience is of little use in assessing future performance, we 
recognize that the factors considered and the relative weight placed on 
such factors may differ from those used in the analysis of an 
established enterprise.
    For a more detailed discussion of the Department's equityworthiness 
criteria see the General Issues Appendix at 37244 and Final Affirmative 
Countervailing Duty Determinations: Certain Steel Products from France, 
58 FR 37304 (July 9, 1993) (``Steel from France'').
    In our preliminary determination, we determined that the Iron and 
Steel Company of Trinidad and Tobago (``ISCOTT'') was unequityworthy 
for the period 1986-1994. Additional information and documents gathered 
at verification have given us cause to review our preliminary 
determination. As discussed below, we determine that ISCOTT was 
unequityworthy from June 13, 1984 to December 31, 1991. For a 
discussion of this determination, see the section of this notice on 
``Equity Infusions.''
    Equity Methodology: In measuring the benefit from a government 
equity infusion to an unequityworthy company, the Department compares 
the price paid by the government for the equity to a market benchmark, 
if such a benchmark exists. A market benchmark can be obtained, for 
example, where the company's shares are publicly traded. (See, e.g., 
Final Affirmative Countervailing Duty Determinations: Certain Steel 
Products from Spain, 58 FR 37374, 37376 (July 9, 1993).)
    In this investigation, where a market benchmark does not exist, the 
Department is following the methodology described in the General Issues 
Appendix at 37239. Under this methodology, equity infusions made into 
an unequityworthy firm are treated as grants. Using the grant 
methodology for equity infusions into an unequityworthy company is 
based on the premise that an unequityworthiness finding by the 
Department is tantamount to saying that the company could not have 
attracted investment capital from a reasonable investor in the infusion 
year based on the available information.
    Creditworthiness: When the Department examines whether a

[[Page 55005]]

company is creditworthy, it is essentially attempting to determine if 
the company in question could obtain commercial financing at commonly 
available interest rates. If a company receives comparable long-term 
financing from commercial sources, that company will normally be 
considered creditworthy. In the absence of comparable commercial 
borrowings, the Department examines the following factors, among 
others, to determine whether a firm is creditworthy:
    1. Current and past indicators of a firm's financial health 
calculated from that firm's financial statements and accounts;
    2. The firm's recent past and present ability to meet its costs and 
fixed financial obligations with its cash flow; and
    3. Future financial prospects of the firm including market studies, 
economic forecasts, and projects or loan appraisals.
    In start-up situations and major expansion programs, where past 
experience is of little use in assessing future performance, we 
recognize that the factors considered and the relative weight placed on 
such factors may differ from those used in the analysis of an 
established enterprise. For a more detailed discussion of the 
Department's creditworthiness criteria, see, e.g., Steel from France at 
37304, and Final Affirmative Countervailing Duty Determination; Certain 
Steel Products from the United Kingdom, 58 FR 37393, 37395 (July 9, 
1993) (``Certain Steel from the U.K.'').
    In our preliminary determination, we determined that ISCOTT was 
uncreditworthy for the period 1986-1994. Additional information and 
documents gathered at verification have given us cause to review our 
preliminary determination. As discussed below, we determine that ISCOTT 
was uncreditworthy during the period June 13, 1984 to December 31, 
1994. ISCOTT did not show a profit for any year during this period and 
continued to rely upon support from the GOTT to meet fixed payments. 
The company's gross profit ratio was consistently negative in each of 
the years in which it had sales. Additionally, the company's operating 
profit (net income before depreciation, amortization, interest and 
financing charges) was consistently negative. The firm continued to 
show an operating loss in each year it was in production, and was never 
able to cover its variable costs.
    Regarding the period prior to June 13, 1984, and after December 31, 
1994, we did not examine ISCOTT's creditworthiness because ISCOTT did 
not receive any countervailable loans, equity infusions, or 
nonrecurring grants during those periods.
    Discount Rates: We have calculated the long-term uncreditworthy 
discount rates for the period 1984 through 1994, to be used in 
calculating the countervailable benefit from nonrecurring grants and 
equity infusions, using the same methodology described in our 
preliminary determination. Specifically, consistent with our practice 
(described in Final Affirmative Countervailing Duty Determination: 
Grain-Oriented Electrical Steel from Italy, 59 FR 18357, 18358 (April 
18, 1994) (``GOES'')), we took the highest prime term loan rate 
available in Trinidad and Tobago in each year as listed in the Central 
Bank of Trinidad and Tobago: Handbook of Key Economic Statistics and 
added to this a risk premium of 12% of the median prime lending rate.
    Privatization Methodology: In the General Issues Appendix at 37259, 
we applied a new methodology with respect to the treatment of subsidies 
received prior to the sale of a company (privatization).
    Under this methodology, we estimate the portion of the purchase 
price attributable to prior subsidies. We compute this by first 
dividing the privatized company's subsidies by the company's net worth 
for each year during the period beginning with the earliest point at 
which nonrecurring subsidies would be attributable to the POI (in this 
case 1982 for CIL) and ending one year prior to the privatization. We 
then take the simple average of the ratios. The simple average of these 
ratios of subsidies to net worth serves as a reasonable surrogate for 
the percent that subsidies constitute of the overall value of the 
company. Next, we multiply the average ratio by the purchase price to 
derive the portion of the purchase price attributable to repayment of 
prior subsidies. Finally, we reduce the benefit streams of the prior 
subsidies by the ratio of the repayment amount to the net present value 
of all remaining benefits at the time of privatization.
    In the current investigation, we are analyzing the privatization of 
ISCOTT in 1994.
    Based upon our analysis of the petition and responses to our 
questionnaires, we determine the following:

I. Programs Determined To Be Countervailable

A. Export Allowance Under Act No. 14

    Under the provisions of Act No. 14 of 1976, as codified in Section 
8(1) of the Corporation Tax Act, companies in Trinidad and Tobago with 
export sales may deduct an export allowance in calculating their 
corporate income tax. The allowance is equal to the ratio of export 
sales over total sales multiplied by net income. Export sales to 
certain Caricom countries are not eligible for the export allowance and 
are excluded from the amount of export sales for purposes of 
calculating the export allowance.
    A countervailable subsidy exists within the meaning of section 
771(5) of the Act where there is a financial contribution from the 
government which confers a benefit and is specific within the meaning 
of section 771(5A) of the Act.
    We have determined that the export allowance is a countervailable 
subsidy within the meaning of section 771(5) of the Act. The export 
allowance provides a financial contribution because in granting it the 
GOTT forgoes revenue that it is otherwise due. The export allowance is 
specific, under section 771(5A)(B), because its receipt is contingent 
upon export performance.
    We verified that CIL made a deduction for the export allowance on 
its 1995 income tax return, which was filed during the POI. Because the 
export allowance is claimed and realized on an annual basis in the 
course of filing the corporate income tax return, we have determined 
that the benefit from this program is recurring. To calculate the 
countervailable subsidy from the export allowance, we divided CIL's tax 
savings during the POI by the total value of its export sales which 
were eligible for the export allowance during the POI. On this basis, 
we determine the countervailable subsidy from this program to be 3.72 
percent ad valorem.

B. Equity Infusions

    In 1978, ISCOTT and the GOTT entered into a Completion and Cash 
Deficiency Agreement (``CCDA'') with several private commercial banks 
in order to obtain a part of the financing needed for construction of 
ISCOTT's plant. Under the terms of the CCDA, the GOTT was obligated to 
provide certain equity financing toward completion of construction of 
ISCOTT's plant, to cover loan payments to the extent not paid by 
ISCOTT, and to provide cash as necessary to enable ISCOTT to meet its 
current liabilities.

[[Page 55006]]

    In Carbon Steel Wire Rod from Trinidad and Tobago: Final 
Affirmative Countervailing Duty Determination and Countervailing Duty 
Order, 49 FR 480 (January 4, 1984) (``Wire Rod I''), the Department 
determined that payments or advances made by the GOTT to ISCOTT during 
its start-up years were not countervailable. In making this 
determination, the Department took into consideration the fact that it 
is not unusual for a large, capital intensive project to have losses 
during the start-up years, the fact that several independent studies 
forecast a favorable outcome for ISCOTT, and the fact that ISCOTT 
enjoyed several important natural advantages. On these bases, advances 
to ISCOTT through April of 1983, the end of the original POI, were 
found to be not countervailable.
    Given the Department's decision in Wire Rod I that the GOTT's 
initial decision to invest in ISCOTT and its additional investments 
through the first quarter of 1983 were consistent with commercial 
considerations, the issue presented in this investigation is whether 
and at what point the GOTT ceased to behave as a reasonable private 
investor. During the period from 1983 to 1989, a period of continuing 
losses, ISCOTT and the GOTT commissioned several studies to determine 
the financially preferable course of action for the company. The 
information contained in these studies is business proprietary, and is 
discussed further in a memorandum dated October 14, 1997, from Team to 
Richard W. Moreland, Acting Deputy Assistant Secretary for AD/CVD 
Enforcement (``Equity Memorandum''), a public version of which is 
available in the public file for this investigation located in the 
Central Records Unit, Department of Commerce, HCHB Room B-099 (``Public 
File''). Based on information contained in the studies and our review 
of the results of ISCOTT's operations over the period under 
consideration, we determine that the GOTT's investments made after June 
13, 1984, were no longer consistent with the practice of a reasonable 
private investor. ISCOTT continued to be unable to cover its variable 
costs, yet the GOTT continued to provide funding to ISCOTT. Despite 
ISCOTT's continued losses and no reason to believe that under the 
conditions in place at that time there was any hope of improvement, the 
GOTT did not make further investment contingent upon actions that would 
have been required by a reasonable private investor.
    In 1988, P.T. Ispat Indo (``Ispat''), a company affiliated with 
CIL, came forward and expressed an interest in leasing the plant. On 
April 8, 1989, the GOTT and Ispat reached agreement on a 10-year lease 
agreement with an option for Ispat to purchase the assets after five 
years. The first few years of the lease were marked by the GOTT 
learning to assume the role of a lessor and the management of CIL 
working to become familiar with the operations of ISCOTT and to develop 
relations with the former ISCOTT employees. Our review of internal 
documents, financial projections and historical financial data indicate 
that after December 31, 1991, the operations of the ISCOTT plant under 
CIL and ISCOTT's financial condition improved such that we determine 
that investments in ISCOTT after this date were consistent with the 
practice of a reasonable private investor. See, Equity Memorandum for 
further discussion of the information used in making this 
determination.
    We have determined that the GOTT equity infusions into ISCOTT 
during the period from June 13, 1984 through December 31, 1991 
constitute countervailable subsidies in accordance with section 771(5) 
of the Act. We determine that these equity infusions confer a benefit 
under 771(5)(E)(i) of the Act because these investments were not 
consistent with the usual investment practice of private investors. 
Also, they are specific within the meaning of section 771(5A) because 
they were limited to one company, ISCOTT.
    To calculate the benefit, we followed the ``Equity Methodology'' 
described above. The benefit allocated to the POI was adjusted 
according to the ``Privatization Methodology'' described above. The 
adjusted amount was divided by CIL's total sales of all products during 
the POI. On this basis, we calculated a countervailable subsidy rate of 
11.12 percent ad valorem.

C. Benefits Associated With the 1994 Sale of ISCOTT's Assets to CIL

    In December 1994, CIL, the company created by Ispat to lease and 
operate the plant, exercised the purchase option in the plant lease and 
purchased the assets of ISCOTT. After the sale of its assets, ISCOTT 
was nothing but a shell company with liabilities exceeding its assets. 
CIL, on the other hand, had purchased most of ISCOTT's assets without 
being burdened by ISCOTT's liabilities.
    The liabilities remaining with ISCOTT after the sale of productive 
assets to CIL had to be repaid, assumed, or forgiven. In 1995, the 
National Gas Company of Trinidad and Tobago Limited (``NGC''), which 
was owned by the GOTT, and the National Energy Corporation of Trinidad 
and Tobago Limited (``NEC''), a wholly owned subsidiary of NGC, wrote 
off loans owed to them by ISCOTT totaling TT $77,225,775. Similarly, 
Trinidad and Tobago National Oil Company Limited (``TRINTOC''), also 
owned by the GOTT, wrote off debts owed by ISCOTT totaling TT 
$10,492,830 as bad debt. While no specific government act eliminated 
this debt, CIL (and consequently the subject merchandise) received a 
benefit as a result of this debt being left behind in ISCOTT.
    We have determined that this debt forgiveness constitutes a 
countervailable subsidy in accordance with section 771(5) of the Act 
because it represents a direct transfer of funds. Also, it is specific 
within the meaning of section 771(5A) because it was limited to one 
company.
    In this case, to calculate the benefit during the POI, we used our 
standard grant methodology and applied an uncreditworthy discount rate. 
The debt outstanding after the December 1994 sale of assets to CIL 
(adjusted as described below) was treated as grants received at the 
time of the sale of the assets.
    After the 1994 sale of assets, certain non-operating assets (e.g., 
cash and accounts receivable) remained with ISCOTT. These assets were 
used to fund repayment of ISCOTT's remaining accounts payable. In order 
to account for the fact that certain assets, including cash, were left 
behind in ISCOTT, we have subtracted this amount from the liabilities 
outstanding after the 1994 sale of assets.
    The benefit allocated to the POI was adjusted according to the 
``Privatization Methodology'' described above. The adjusted amount was 
divided by CIL's total sales of all products during the POI. On this 
basis, we determine the net subsidy to be 1.17 percent ad valorem.

D. Provision of Electricity

    According to section 771(5)(E) of the Act, the adequacy of 
remuneration with respect to a government's provision of a good or 
service

    * * * shall be determined in relation to prevailing market 
conditions for the good or service being provided or the goods being 
purchased in the country which is subject to the investigation or 
review. Prevailing market conditions include price, quality, 
availability, marketability, transportation, and other conditions of 
purchase or sale.

    Particular problems can arise in applying this standard when the 
government is the sole supplier of the good or service in the country 
or within the area where the respondent is located. In this situation, 
there may be no alternative market prices available in the country 
(e.g., private prices,

[[Page 55007]]

competitively-bid prices, import prices, or other types of market 
reference prices). Hence, it becomes necessary to examine other options 
for determining whether the good has been provided for less than 
adequate remuneration. This consideration of other options in no way 
indicates a departure from our preference for relying on market 
conditions in the relevant country, specifically market prices, when 
determining whether a good or service is being provided at a price 
which reflects adequate remuneration.
    With respect to electricity, some of the options may be to examine 
whether the government has followed a consistent rate making policy, 
whether it has covered its costs, whether it has earned a reasonable 
rate of return in setting its rates, and/or whether it applied market 
principles in determining its rates. Such an approach is warranted 
where it is only the government that provides electricity within a 
country or where electricity cannot be sold across service 
jurisdictions within a country and there are divergent consumption and 
generation patterns within the service jurisdictions.
    The Trinidad and Tobago Electric Commission (``TTEC''), which is 
wholly-owned by the GOTT, is the sole supplier of electric power in 
Trinidad and Tobago. For billing purposes, TTEC classifies electricity 
consumers into one of the following categories: residential, 
commercial, industrial, and street lighting. Industrial users are 
further classified into one of four categories depending on the voltage 
at which they take power and the size of the load taken. CIL is the 
sole user in the very large load category taking its power at 132 kV 
for loads over 25,000 KVA. Other large industrial users take power at 
33 kV, 66 kV or 132 kV at loads from 230 Volts up to 25,000 KVA.
    TTEC's rates and tariffs for the sale of electricity are set by the 
Public Utilities Commission (``PUC''), an independent authority. In 
setting electricity rates, the PUC takes into account cost of service 
studies done by TTEC. These studies are submitted to the PUC, where 
they are reviewed by teams of economists, statisticians, and auditors. 
Public hearings are held and views expressed orally and in writing. 
After considering all of the views and studies submitted, the PUC 
issues detailed orders with the new rates and explanations of how they 
were calculated. In establishing these rates, the PUC is required by 
section 32 of its regulations to ensure that the new rates will cover 
costs and expenses and allow for a return.
    The electricity rates in effect during the POI were based on cost 
of service studies for 1987 and 1991. Based on these studies and staff 
audit reports, the PUC in 1992 issued Order Number 80 with the new 
electricity rates and a lengthy explanation of the bases for these 
rates. The order allowed for a specified return to TTEC on its sales of 
electricity. In 1993 and 1994, the first two years following the order, 
TTEC was profitable for the first time in years. However, TTEC had 
large losses in 1995 and losses in 1996 of about half the 1995 losses.
    As noted above, TTEC is the only supplier in Trinidad and Tobago of 
electricity. Consequently, there are no competitively-set, private 
benchmark prices in Trinidad and Tobago to use in determining whether 
TTEC is receiving adequate remuneration within the meaning of section 
771(5)(E) of the Act. Lacking such benchmarks, the only bases we have 
for determining what constitutes adequate remuneration are TTEC's costs 
and revenues.
    Despite PUC's mandate to set rates that will cover the costs of 
providing electricity plus an adequate return, past history indicates 
that this directive has seldom been met. In addition, evidence in the 
cost of service studies, including the most recent cost of service 
study prepared in 1997, indicates that TTEC did not receive adequate 
remuneration on its sales of electricity to CIL. This evidence is 
proprietary and is discussed in the October 14, 1997 proprietary 
memorandum entitled Adequate Remuneration for Electricity. 
Consequently, we determine that the GOTT is bestowing a benefit on CIL 
through TTEC's provision of electricity. We further determine that this 
benefit is specific because CIL is the only user in its customer 
category and, hence, the only company paying fees and tariffs at that 
rate.
    Adequacy of remuneration is a new statutory provision which 
replaced ``preferentiality'' as the standard for determining whether 
the government's provision of a good or service constitutes a 
countervailable subsidy. The Department has had no experience 
administering section 771(5)(E) and Congress has provided no guidance 
as to how the Department should interpret this provision. This case and 
the other concurrent wire rod cases, mark the first instances in which 
we are applying the new standard. We anticipate that our policy in this 
area will continue to be refined as we address similar issues in the 
future.
    We calculated the benefit for electricity by comparing CIL's actual 
electricity rate in 1996 with the rate that would have yielded an 
adequate return to TTEC, as calculated in its 1996 cost of service 
study. (We used the cost of service study to calculate the benefit as 
there was no suitable market-based benchmarks for electricity in 
Trinidad and Tobago.) We divided the total shortfall based on CIL's POI 
electricity consumption by CIL's total sales of all products during the 
POI. On this basis, we calculated a countervailable subsidy rate of 
1.46 percent ad valorem.

II. Programs Determined to Be Not Countervailable

A. Import Duty Concessions under Section 56 of the Customs Act

    Section 56 of the Customs Act of 1983 provides for full or partial 
relief from import duties on certain machinery, equipment, and raw 
materials used in an approved industry. The approved industries that 
may benefit from this relief are listed in the Third Schedule to 
Section 56. In all, 76 industries are eligible to qualify for relief 
under Section 56.
    Companies in these industries that are seeking import duty 
concessions apply by letter to the Tourism and Industries Development 
Company, which reviews the application and forwards it with a 
recommendation to the Ministry of Trade and Industry. If the Ministry 
of Trade and Industry approves the application, the applicant receives 
a Duty Relief License, which specifies the particular items for which 
import duty concessions have been authorized. CIL received import duty 
exemptions under Section 56 of the Customs Act during the POI.
    In its June 30, 1997, supplemental response, the GOTT provided a 
breakdown by industry of the number of licenses issued during the first 
six months of the POI. During the POI, the Ministry of Trade and 
Industry issued a large number of licenses to a wide cross-section of 
industries. Some of the licenses were new issuances and others were 
renewals of licenses previously issued. The breakdown of licenses by 
industry indicated that the recipients of the exemption were not 
limited to a specific industry or group of industries. The breakdown 
also indicated that the steel industry was not a predominant user of 
the subsidy nor did it receive a disproportionate share of benefits 
under this program. For these reasons, we determine that import duty 
concessions under Section 56 of the Customs Act are not limited to a 
specific industry or group of industries and, hence, are not 
countervailable.

[[Page 55008]]

B. Point Lisas Industrial Estate Lease

    As noted above in the Provision of Electricity section of this 
notice, particular problems can arise in applying the standard for 
adequate remuneration when the government is the sole supplier of the 
good or service in the country or within the area where the respondent 
is located. With respect to the leasing of land, some of the options to 
consider in determining whether the good has been provided for less 
than adequate remuneration may be to examine whether the government has 
covered its costs, whether it has earned a reasonable rate of return, 
and/or whether it applied market principles in determining its prices. 
In the instant case, we have found no alternative market reference 
prices to use in determining whether the government has provided 
(leased) the land for less than adequate remuneration. As such, we have 
examined whether the government's price was determined according to the 
same market factors that a private lessor would use in setting lease 
rates for a tenant.
    The Point Lisas Industrial Port Development Company (``PLIPDECO'') 
owns and operates Point Lisas Industrial Estate. Prior to 1994, 
PLIPDECO was 98 percent government-owned. Since then, PLIPDECO's issued 
share capital has been held 43 percent by the government, eight percent 
by Caroni Limited, a wholly-owned government entity, and 49 percent by 
2,500 individual and corporate shareholders whose shares are publicly 
traded on the Trinidad and Tobago Stock Exchange. We were unable to 
find any privately-owned industrial estates in Trinidad and Tobago to 
provide competitively-set, private, benchmark rates to determine the 
adequacy of PLIPDECO's lease rates.
    ISCOTT, the predecessor company to CIL, entered into a 30-year 
lease contract for a site at Point Lisas in 1983, retroactive to 1978. 
The 1983 lease rate was revised in 1988. In 1989, the site was 
subleased to CIL at the revised rental fee. In 1994, ISCOTT and 
PLIPDECO signed a novation of the lease whereby ISCOTT's name was 
replaced on the lease by CIL's. During the POI, CIL paid the 1988 
revised rental fee for the site.
    Under section 771(5) of the Act, in order for a subsidy to be 
countervailable it must, inter alia, confer a benefit. In the case of 
goods or services, a benefit is normally conferred if the goods or 
services are provided for less than adequate remuneration. The adequacy 
of remuneration is determined in relation to prevailing market 
conditions for the good or service provided in the country of 
exportation.
    In establishing lease rates for sites in the industrial estate, 
PLIPDECO uses a standard schedule of lease rates as a starting point 
for negotiating with prospective tenants. The standard lease rates 
reflect PLIPDECO's evaluation of the market value of land in the 
estate. Individual rates are negotiated based on a variety of factors, 
such as the size of the lot, the type of lease, the type of business, 
the attractiveness of the tenant, and the date on which the lease 
contract was signed. Because rates are negotiated individually with 
each tenant, the rate paid by CIL (and other tenants) is specific.
    The site leased by ISCOTT in 1983 and now occupied by CIL is the 
largest site in the Point Lisas Industrial Estate with an overall area 
that is considerably more than double the size of the next largest 
site. After CIL's site and the next largest, the size of the remaining 
sites drops significantly. At verification, we examined leases of other 
sites in the estate and found only one site with a 30-year lease that 
was signed contemporaneously with CIL's lease. The remaining leases 
examined had terms of 99 years, or 30-year leases that were signed much 
later than CIL's. The method of calculating the lease rate on a 99-year 
lease is fundamentally different from the calculation on a 30-year 
lease, because tenants with 99-year leases effectively purchased the 
land at the start of the lease, making only token annual lease payments 
thereafter.
    Tenants with 30-year leases make substantial annual lease payments 
throughout the lease but no large initial payment. Therefore, we 
decided not to compare a 99-year lease rate to CIL's 30-year lease 
rate. Eliminating the 99-year leases left only one lease with a site 
that was somewhat comparable in size to CIL's site. CIL's lease fee per 
square meter was in line with the lease fee for the next most 
comparable site.
    Aside from the lease contract on the next most comparable site, we 
have no other readily available benchmark or guideline to determine 
whether the lease rate paid by CIL provides adequate remuneration to 
PLIPDECO. The standard lease cannot serve as an appropriate benchmark 
because it is used as the starting point for negotiations. All of the 
leases examined at verification had rates below the standard rate. 
Aside from the next largest site, the leases for other sites in the 
estate were also found to be unsuitable. The disparity in both the 
sizes of these leases and the years in which they were signed when 
compared with CIL's site and lease rendered their use inappropriate. 
Further, we found no privately owned industrial estates in Trinidad and 
Tobago. Therefore, in addition to a direct comparison of CIL's lease 
rate with that of the next most similar site, we also considered other 
factors in determining whether PLIPDECO received adequate remuneration.
    PLIPDECO considered ISCOTT to be the anchor tenant in the estate 
because it was the first company to locate in the estate, and because 
of its size and its role as the first steel producer in Trinidad and 
Tobago. Further, ISCOTT's annual lease payments provided a considerable 
cash flow to PLIPDECO, especially in the early years of the estate when 
PLIPDECO was in need of funds for continued development. In addition, 
ISCOTT was expected to draw other companies into the estate. As we 
found at verification, PLIPDECO's expectations that ISCOTT would draw 
other companies into the estate were, in fact, realized. Although a 
precise dollar value cannot be placed on these factors, PLIPDECO took 
them into consideration when establishing ISCOTT's lease rate. That 
PLIPDECO took these factors into consideration is an indication that 
its negotiations were intended to assure adequate remuneration on its 
lease to CIL.
    During the years for which we have information, 1992 through 1995, 
PLIPDECO has been consistently profitable. In addition, PLIPDECO's 
successful public stock offering of 49 percent of its shares in 1994 
demonstrates that investors viewed the company as a good investment.
    All of these facts support our determination that PLIPDECO is a 
company that has succeeded in achieving adequate remuneration in its 
dealings with CIL and with other tenants in the estate. Therefore, we 
determine that CIL's lease rates have provided adequate remuneration 
for its site in the Point Lisas Industrial Estate.

C. Provision of Natural Gas

    As noted above in the Provision of Electricity section of this 
notice, particular problems can arise in applying the standard for 
adequate remuneration when the government is the sole supplier of the 
good or service in the country or within the area where the respondent 
is located. With respect to the provision of natural gas, some of the 
options may be to examine whether the government has covered its costs, 
whether it has earned a reasonable rate of return, and/or whether it 
applied market principles in determining its prices. In the instant 
case, we have found no alternative market reference

[[Page 55009]]

prices to use in determining whether the government has provided 
natural gas for less than adequate remuneration. As such, we have 
examined whether the government earned a reasonable rate of return and 
whether the government applied market principles in determining its 
prices.
    NGC is the sole supplier of natural gas to industrial and 
commercial users in Trinidad and Tobago. NGC provides gas pursuant to 
individual contracts with each of its customers. Natural gas prices to 
small consumers are fixed prices with an annual escalator. Prices to 
large consumers are negotiated individually based on annual volume, 
contract duration, payment terms, use made of the gas, any take or pay 
requirement in the contract, NGC's liability for damages, and whether 
new pipeline is required. Prices must be approved by NGC's Board of 
Directors. Although NGC is 100 percent government-owned, the GOTT 
indicates that none of the current members of the board is a government 
official nor do any government laws or regulations regulate the pricing 
of natural gas.
    The price paid by CIL for natural gas during the POI was 
established in a January 1, 1989 contract between ISCOTT and NGC that 
ISCOTT assigned to CIL on April 28, 1989. Average price data submitted 
by the GOTT for large industrial users of natural gas indicate that the 
price paid by CIL during the POI was in line with the average price 
paid by large industrial users overall.
    At verification, NGC officials explained that the company operates 
on a strictly commercial basis, purchasing natural gas at the lowest 
prices it can negotiate and selling and distributing the gas at prices 
that assure the company's profitability. The years for which we have 
information on NGC's profitability, 1992 to 1995, demonstrate that the 
company has been consistently profitable.
    Clearly, in its contract negotiations and its overall operations, 
NGC has demonstrated that it realizes an adequate return on its sales 
and distribution of natural gas to CIL and its other customers. For 
this reason, we have determined that the prices paid by CIL, which are 
in line with those paid by other large consumers, provide adequate 
remuneration to NGC for the natural gas supplied to CIL. Therefore, we 
have determined that NGC's provision of natural gas to CIL is not a 
countervailable subsidy under section 771(5) of the Act.

IV. Programs Determined To Be Not Used

A. Export Promotion Allowance

B. Corporate Tax Exemption

V. Program Determined Not To Exist

A. Loan Guarantee From the Trinidad and Tobago Electricity Commission

    By 1988, ISCOTT had accumulated TT $19,086,000 in unpaid 
electricity bills owed to TTEC. To manage this debt, TTEC obtained a 
loan from the Royal Bank of Trinidad and Tobago which enabled TTEC to 
more readily carry the receivable due from ISCOTT. By 1991, ISCOTT 
extinguished its debt to TTEC.
    At no time during this period did TTEC provide a guarantee to 
ISCOTT which enabled ISCOTT to secure a loan to settle the outstanding 
balance on its account. The financing obtained by TTEC from the Royal 
Bank benefitted TTEC rather than ISCOTT because it allowed TTEC to have 
immediate use of funds that otherwise would not have been available to 
it. On this basis, we determine that TTEC did not provide a loan 
guarantee to ISCOTT for purposes of securing a loan to settle the 
outstanding balance owed to TTEC. Therefore, we determine that this 
program did not exist.

Interested Party Comments

    Comment 1: Treatment of shareholder advances: Petitioners claim 
that GOTT advances to ISCOTT should be treated as grants rather than as 
equity. In petitioners' view, these advances had none of the 
characteristics of debt or equity, such as provisions for repayment, 
dividends, or any additional claim on funds in the event of 
liquidation. Petitioners cite to Certain Hot Rolled Lead and Bismuth 
Carbon Steel Products from France, 58 FR 6221 (January 27, 1993) 
(``Leaded Bar from France''), where the Department treated shareholder 
advances as grants because no shares were distributed when the advances 
were made, despite the fact that shares were issued at a later date. 
Petitioners point out that the GOTT received no shares at the time of 
its advances to ISCOTT.
    Respondents claim that the advances should be treated as equity. 
Respondents note that ISCOTT's annual reports consistently state that 
it was the practice for advances to be capitalized as equity, and that 
in fact, ISCOTT issued shares for nearly all advances through 1987. In 
addition, according to respondents, the CCDA states that pending the 
issuance of any shares, any payment from the GOTT shall constitute 
paid-up share capital. Respondents further note that Wire Rod I, the 
Department characterized GOTT funding as equity contributions. 
Respondents cite to Certain Steel from the U.K. at 37395, where the 
Department stated that despite the fact that the U.K. government did 
not receive any additional ownership, such as stock or additional 
rights, in return for the capital provided to BSC under Section 18(1) 
since it already owned 100 percent of the company, such advances to BSC 
were treated as equity.
    Department's Position: We agree with respondents and have continued 
to treat advances from the GOTT as equity at the time of receipt. In 
Certain Steel from the U.K., as in this case, requests for funding from 
the government were examined on a case-by-case basis. This treatment is 
consistent with our treatment of advances in Wire Rod I and our 
preliminary determination in this proceeding. Further, similar to 
Certain Steel from the U.K., ISCOTT issued additional shares to the 
GOTT on several occasions to reduce the balance of the shareholder 
advances, whereas in Leaded Bar from France there was no understanding 
that shareholder advances were to be converted to equity, and 
conversion occurred only as part of a government-sponsored debt 
restructuring.
    Comment 2: Equityworthiness: Petitioners claim that if the 
Department treats the stockholder advances as equity, ISCOTT's 
financial statements and information gathered at verification 
demonstrate that ISCOTT was unequityworthy after March 1983, and the 
Department should view the provision of equity as inconsistent with the 
practice of a reasonable private investor. Petitioners note that ISCOTT 
had losses in every year from 1982 through 1994. Petitioners argue that 
ISCOTT's inability to cover its variable costs while operating the 
steel plant demonstrates that the company should have been shut down. 
Petitioners urge the Department to follow its practice of placing 
greater reliance on past indicators rather than on flawed studies 
projecting dubious future expectations, which respondents have pointed 
to as evidence of ISCOTT's equityworthiness. Petitioners cite to the 
1983 Report of the Committee Appointed by Cabinet to Consider the 
Future of ISCOTT (``Committee Report''), where under any of the options 
considered, ISCOTT was projected to show a loss, as further evidence 
that ISCOTT was unequityworthy.
    Respondents claim that the financial ratios in this case must be 
interpreted in the context of a start-up enterprise.

[[Page 55010]]

Respondents contend that a venture capitalist would recognize that a 
start-up enterprise will incur losses for several years. Second, 
respondents point out that while the Committee Report cited by 
petitioners predicted an overall loss over the next five years, the 
trend was decidedly positive, with increasing profits projected for the 
last two years included in the study, 1986 and 1987.
    Department's Position: We agree with petitioners, in part. At some 
point, a reasonable private investor would have come to question 
ISCOTT's continued inability to achieve forecasted operating results, 
and would have made future funding contingent on timely, fundamental 
changes in the company's operations, shutting down the plant, or 
privatizing ISCOTT. As discussed above in the Equity Infusions section 
of this notice, we are including advances from the GOTT to ISCOTT 
during the period June 13, 1984 through December 31, 1991, in our 
calculation of CIL's countervailable subsidy rate.
    Comment 3: Loan guarantees under the CCDA: Respondents claim that 
the GOTT's principal and interest payments on ISCOTT's behalf made 
pursuant to loan guarantees under the CCDA are not countervailable. In 
the 1984 final, the Department found that the GOTT's loan guarantees 
under the CCDA were on terms consistent with commercial considerations. 
Therefore, payments which the GOTT made on these loans pursuant to the 
guarantees should also be considered consistent with commercial 
considerations. In Carbon Steel Wire Rod from Saudi Arabia, 51 FR 4206 
(February 3, 1986), the Department determined that funding in 1983 made 
pursuant to a prior agreement, which was on terms consistent with 
commercial considerations, was not countervailable, even though funds 
provided pursuant to a new investment decision in 1983 were 
countervailable because the company was no longer equityworthy. 
Similarly, in Final Affirmative Countervailing Duty Determination: 
Certain Corrosion resistant Carbon Steel Flat Products from New 
Zealand, 58 FR 37366, 37368 (July 9, 1993), the Department confirmed 
that a government's payment of loans under a guarantee agreement is not 
countervailable if the underlying guarantee was commercially 
reasonable.
    Respondents also seek to clarify that even if the GOTT had 
liquidated ISCOTT, the GOTT could not have avoided its payment 
obligations. As of 1983, all funding under the loans covered by the 
CCDA had been drawn down, and were subject to guarantees by the GOTT.
    Petitioners argue that when the Department determined in 1984 that 
the GOTT's decision to enter into the CCDA was rational, it was not at 
that time determining that any and all future payments under the CCDA 
would necessarily be consistent with the private investor standard. 
Petitioners contend that if the GOTT had acted as a reasonable private 
investor, it would have shut ISCOTT down and stopped the financial 
hemorrhaging. Instead, petitioners argue, both ISCOTT and the GOTT were 
too preoccupied with non-commercial considerations to consider the 
reasonable course of action.
    Department's Position: We disagree with respondents that the GOTT 
was inexorably committed to make continued payments on ISCOTT's behalf 
as a result of the loan guarantees contained in the CCDA. Had the 
GOTT's actions been consistent with those of a reasonable private 
investor, as a controlling shareholder in ISCOTT, the GOTT would have 
sought to minimize losses. Shutting down the plant would have been less 
expensive than continuing to operate the plant in such a manner that no 
projection was ever achieved and variable costs were never covered by 
revenues. The GOTT constructed the ISCOTT plant because it had studies 
indicating the plant was a viable investment. When CIL leased the 
ISCOTT plant, it demonstrated that ISCOTT was viable. The GOTT could 
have pursued less costly alternatives than continued funding of 
ISCOTT's operations with no requirement that timely and demonstrable 
actions, including consideration of shutting down the plant, be taken 
to reduce or eliminate the amount needed to fulfill all of its 
obligations under the CCDA.
    Comment 4: Countervailability of cash deficiency payments under the 
CCDA: Respondents claim that the CCDA imposed a further legal 
obligation on the GOTT that was distinct from its commitment to meet 
ISCOTT's CCDA debt service obligations. Specifically, the CCDA required 
the GOTT to provide funds to ISCOTT to cover any other cash deficiency, 
such as an operating loss. Respondents argue that both external and 
internal studies demonstrate that GOTT's decisions to cover these cash 
deficiencies were consistent with those of a reasonable private 
investor.
    Petitioners reply that the Department's prior determination that 
the GOTT's decision to enter into the CCDA was rational has no bearing 
on whether or not subsequent decisions to fund money-losing operations 
was rational. Petitioners contend that the rationality of guarantee 
payments must be evaluated anew each time, and that the GOTT should 
have realized that shutting down the ISCOTT plant would have been the 
least cost available alternative.
    Department's Position: We agree with petitioners that our 1984 
decision regarding the CCDA did not give the GOTT license to provide 
continued funding to ISCOTT immune from potential countervailability 
under U.S. law. A reasonable private investor acting on a guarantee 
would pursue the least-cost alternative, and would ensure that the 
amount of funding under such a guarantee is truly necessary. We are not 
persuaded that the GOTT's actions were consistent with those of a 
reasonable private investor, as discussed above in the Equity Infusions 
section of this notice.
    Comment 5: Post-lease funding of ISCOTT: Respondents claim that 
after ISCOTT's assets were leased to CIL in May 1989, any funds 
provided to ISCOTT by the GOTT did not provide a subsidy to CIL's 1996 
production. Respondents note that CIL has always been a separate and 
distinct company, with no ownership interest in, or other affiliation 
with, ISCOTT. Therefore, according to respondents, there is no basis 
for attribution of ISCOTT's subsidies to CIL. Respondents note that as 
discussed in Final Affirmative Countervailing Duty Determination; 
Certain Hot Rolled Lead and Bismuth Carbon Steel Products from the 
United Kingdom, 58 FR 6237 (January 27, 1993) (``Leaded Bar from the 
U.K.''), the Department did not attribute any subsidies received by BSC 
after it had spun off its Special Steels Division into a joint venture, 
United Engineering Steels Limited (``UES''). In that case the 
Department did not attribute any subsidies received by BSC after the 
spin off to the joint venture, stating that there was ``no evidence of 
any mechanisms for passing through subsidies from British Steel plc to 
UES (e.g., cash infusions) after the formation of the joint venture. 
Therefore we determine that any benefits received by BSC after the 
formation of the joint venture do not pass through to UES.'' 
Respondents contend that, similarly, in this case there is no evidence 
that subsidies received by ISCOTT after CIL took control of the steel-
making facilities continued to benefit CIL.
    Respondents further contend that any past subsidies found to have 
been received by ISCOTT cannot be found to have conferred a benefit on 
CIL's production of wire rod in 1996, as required by section 771(5)(E) 
of the Act. Respondent's argue that CIL never received any of the 
advances provided to ISCOTT, and note that CIL remained

[[Page 55011]]

a completely separate company from ISCOTT after purchasing ISCOTT's 
plant in an arm's length transaction. Respondents argue that the 
Department did not articulate how CIL received a benefit from financial 
contributions to ISCOTT, as required by the Subsidies and 
Countervailing Measures Agreement.
    Petitioners claim that the Department has consistently found that 
past subsidies are not extinguished by an arm's length sale of a 
company that had received the subsidies. Petitioners cite to 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) (``Leaded Bar from the U.K. Review''), 
where the Department found that a portion of the subsidies traveled 
with BSC's Special Steel Business assets when, in 1986, the government-
owned BSC exchanged its Special Steels Business for shares in UES. 
Petitioners note that In Final Affirmative Countervailing Duty 
Determination: Certain Pasta from Italy, 61 FR 30288, (June 14, 1996) 
(``Pasta from Italy''), the Department made a similar finding. 
Petitioners contend that in these cases, the Department views subsidy 
payments to a company as a benefit to the entire company and all of its 
productive assets, and, for this reason, the sale of the company or a 
part of it does not extinguish the prior subsidies. Section 771(5)(F) 
of the Act makes it very clear that the Department has the discretion 
to find prior subsidies countervailable despite an arm's length sale of 
company or assets.
    Department's Position: We disagree with respondents, and have 
allocated a portion of the nonrecurring subsidies received by ISCOTT 
prior to the sale of the steel plant to CIL. In Leaded Bar from the 
U.K., the Department found that subsidies received by BSC after the 
spin-off did not pass through to UES. We note that in this case the 
sale of ISCOTT's assets to CIL occurred after the lease period, 
providing a mechanism for pass-through of subsidies received by ISCOTT 
to CIL. Consistent with the Department's past practice in Pasta from 
Italy and several pre-URAA cases, we determine that a portion of the 
subsidies received by ISCOTT, including subsidies received during the 
lease period, traveled with the assets sold to CIL.
    Comment 6: Repayment of subsidies upon sale of assets: Petitioners 
claim that the sale of ISCOTT's assets at a fair value did not offset 
the distortion caused by the GOTT's original bestowal of subsidies. 
Moreover, according to petitioners, the countervailing duty statute 
establishes a presumption that a change in ownership of the productive 
assets of a foreign enterprise does not render past countervailable 
subsidies non-countervailable. Petitioners contend that once subsidies 
are allocated to a productive unit, they should travel with that unit 
upon sale or privatization. Therefore, petitioners argue that the 
Department should not recognize a partial repayment of the subsidy 
benefit stream at the time ISCOTT assets were sold.
    Department's position: We disagree with petitioners and have 
continued to allocate a portion of the sales price of ISCOTT's assets 
to the previously bestowed subsidies. This is consistent with the URAA 
and the Department's past practice (see, e.g., Leaded Bar from the U.K. 
Review). Section 771(5)(F) of the Act reads:

    Change in Ownership.--A change in ownership of all or part of a 
foreign enterprise or the productive assets of a foreign enterprise 
does not by itself require a determination by the administering 
authority that a past countervailable subsidy received by the 
enterprise no longer continues to be countervailable, even if the 
change in ownership is accomplished through an arm's length 
transaction.

    The language of section 771(5)(F) of the Act purposely leaves 
discretion to the Department with regard to the impact of a change in 
ownership on the countervailability of past subsidies. Rather than 
mandating that a subsidy automatically transfer with a productive unit 
that is sold, as petitioners argue, the language in the statute clearly 
gives the Department flexibility in this area. Specifically, the 
Department is left with the discretion to determine, on a case-by-case 
basis, the impact of a change in ownership on the countervailability of 
past subsidies. Moreover, the SAA states that ``Commerce retain[s] the 
discretion to determine whether, and to what extent, the privatization 
of a government-owned firm eliminates any previously conferred 
countervailable subsidies* * *'' SAA at 928.
    In this case, we have determined that when ISCOTT's assets were 
sold, a portion of the sales price reflected past subsidies. To account 
for that, we treated a portion of the sales price as repaying those 
past subsidies to the GOTT.
    Comment 7: Calculation of amount of subsidies remaining with the 
seller of a productive unit: Respondents argue that the Department's 
methodology for calculating the amount of subsidies that pass through 
in a change of ownership transaction is inconsistent with the rest of 
the Department's practice with regard to nonrecurring subsidies because 
the Department does not provide for any amortization when calculating 
the percentage of the purchase price that is attributable to past 
subsidies. Respondents claim that if the Department continues to 
conclude that subsidies may survive privatization, it must revise its 
methodology for calculating the percentage of the purchase price that 
is attributed to previously bestowed subsidies to take into account the 
fact that subsidies received prior to privatization must be amortized 
from the time of receipt until the time of privatization. Respondents 
propose that the Department determine the amount of the purchase price 
attributable to previously bestowed subsidies as the ratio of the 
amount of subsidies remaining in the company to the company's net worth 
at the time of privatization.
    Petitioners claim the ratio calculated under the Department's 
current methodology, commonly referred to as ``gamma,'' is intended to 
measure the share of the purchase price attributable to past subsidies, 
not the value of past subsidies at the time of privatization. 
Petitioners argue that the methodology proposed by respondents will 
yield anomalous results. Petitioners claim that the sale of a thinly-
capitalized, heavily-subsidized company would result in 100 percent of 
the purchase price being allocated to previously bestowed subsidies, 
while all of the assets of the company benefitted from the past 
subsidies. According to petitioners, a similarly situated company with 
equity financing instead of debt would have a small amount of the 
purchase price allocated to previously bestowed subsidies using 
respondents' proposed methodology.
    Department's position: In accordance with our past practice and 
policy, we have continued to calculate the portion of the purchase 
price attributable to past subsidies using historical subsidy and net 
worth data (see, e.g., General Issues Appendix at 37263). Because this 
methodology relies on several years' data, as opposed to data from just 
a single year, it offers a more reliable representation of the 
contribution that subsidies have made to the net worth of the 
productive unit being sold. We take into account the amortization of 
previously bestowed subsidies in our pass-through calculation as we 
apply gamma to the amount of the remaining, unamortized countervailable 
subsidy benefits to calculate the amount that remains with the seller.
    Comment 8: Benefits associated with the 1994 sale of ISCOTT's 
assets to CIL: Respondents claim that the write-off of

[[Page 55012]]

ISCOTT's debts after the sale of the plant to CIL is not a 
countervailable subsidy to CIL. Typically, companies acquiring the 
assets of other companies do not also acquire the debt of these 
companies. In contrast, when companies acquire the stock of other 
companies, they would normally be expected to assume the debt of the 
acquired company. Respondents argue that the Department incorrectly 
relied on GOES as precedent, because the circumstances in that case 
were very different from the circumstances in the case of ISCOTT. 
Respondents note that in GOES, the Government of Italy liquidated 
Finsider and its main operating companies in 1988 and assembled the 
group's most productive assets into a new operating company, ILVA 
S.p.A. Respondents argue that the movement of assets and liabilities 
between two government-owned companies, as was the case in GOES, is 
very different from the arm's length nature of the sale of ISCOTT's 
assets to CIL. Respondents claim that the purchase price paid in an 
arm's length transaction, such as the sale of ISCOTT's assets to CIL, 
reflects the fact that the purchaser is not also assuming the 
liabilities of the seller.
    Petitioners claim that the Department has precedent for its 
decision to countervail loans to ISCOTT, which were not transferred to 
CIL when CIL purchased ISCOTT's assets. Petitioners note that in Final 
Affirmative Countervailing Duty Determination; Certain Steel Products 
from Austria, 58 FR 37217, 37221 (July 9, 1993), the Department found 
that losses incurred by a government-owned steelmaker, which were not 
transferred to new companies upon their purchase of the steelmaker's 
assets, conferred a subsidy to the new companies. Department's 
Position: We have continued to treat the amount of ISCOTT's remaining 
liabilities in excess of the amount of remaining assets after the sale 
of ISCOTT's assets to CIL as a subsidy to ISCOTT at the time of the 
sale. In Leaded Bar from the U.K., we explained why we allocate 
subsidies to productive units, stating:

    In the end, a ``bubble'' of subsidies would remain with a 
virtually empty corporate shell which would not be affected by any 
countervailing duties because it did not produce or export the 
countervailed merchandise to the United States.

    Here, the ``empty corporate shell'' was ISCOTT, with no productive 
operations, no source of future earnings, and debts exceeding its 
assets. Under such circumstances, it was inevitable that ISCOTT would 
be unable to pay the balance owing on the notes payable, and, in fact, 
the notes were forgiven by the lenders in 1995. When a government funds 
an entity through loans which are later forgiven, the Department 
includes in its calculation of the countervailing duty rate for that 
entity an amount for debt forgiveness. In this situation, we determine 
that the debt forgiveness, which for all intents and purposes occurred 
at the time of the sale of ISCOTT's assets, is a countervailable 
subsidy.
    While the purchase price may have been lower if CIL had assumed the 
responsibility for the notes payable in the purchase transaction, the 
result would be that less of any pre-existing subsidies would be 
repaid.
    Comment 9: Calculation of net present value of unamortized 
subsidies: Petitioners claim that the Department appears to have 
improperly discounted the 1994 subsidy amount in calculating the net 
present value of subsidies to which the gamma calculation is applied.
    Respondents claim that because the Department begins allocating 
subsidies in the year of receipt, the net present value amount for the 
1994 subsidies should reflect one year of amortization.
    Department's Position: We agree with petitioners that our 
preliminary calculation of the net present value of previously bestowed 
subsidies was not consistent with the Department's past practice in 
this regard, and we have corrected this error in our final 
calculations.
    Comment 10: Amortization of nonrecurring subsidies: Respondents 
claim that in amortizing advances to ISCOTT, the Department began 
amortizing in the year after the year of receipt, without allocating 
any amount to the year of receipt.
    Department's Position: We agree with respondents and have corrected 
our calculations.
    Comment 11: Adequacy of remuneration for electricity: Respondents 
claim that CIL does not benefit from the provision of electricity for 
less than adequate remuneration because Section 32 of the PUC's 
regulations requires the Commission to set rates that will cover costs 
and earn a reasonable profit. In 1992, when setting the electricity 
rates in effect during the POI, the PUC set rates for each customer 
class based on cost of service studies for 1987 and 1991. These rates 
were calculated to cover costs and expenses plus yield a reasonable 
return. In addition, they were published rates that applied to all 
customers within each of the rate classes.
    Further, respondents argue that the electricity rates set by the 
PUC in 1992 provided adequate remuneration because the PUC made upward 
adjustments to the rates that had been proposed by TTEC. For example, 
the PUC adopted a flat rate structure rather than the declining block 
structure. As high volume users, CIL and other large industrial users 
paid more under the flat rate structure than they would have under the 
declining block structure. The declining block structure would have 
allowed for a rate reduction as usage increased over the billing 
period.
    Petitioners claim that TTEC did not receive adequate remuneration 
during the POI, nor did it receive an adequate return in two of the 
four preceding years, despite the assertions by PUC and TTEC officials 
that the utility is expected to cover costs and expenses and show a 
return. Further, TTEC intends to file a cost of service study based on 
1996 operating costs and request a rate increase. Petitioners argue 
that this demonstrates that TTEC's current revenues are not adequate to 
cover costs. Petitioners urge the Department to calculate CIL's benefit 
from its electricity rates as a recurring grant valued as the 
difference between CIL's payment at the current rate and the amount it 
would pay if it were in the next largest rate class on which a profit 
was realized.
    Department's Position: We agree with petitioners that CIL's rate 
did not provide adequate remuneration. Although the PUC's regulations 
may require it to set rates that cover costs plus a return, history 
demonstrates that the PUC has seldom achieved this. The rates in place 
in the year preceding the POI and during the POI resulted in losses for 
TTEC. Although a different rate structure such as declining block rates 
might have led to other results, particularly for CIL, we have no basis 
to depart from the structure that was actually adopted by the PUC.
    We disagree, however, with the calculation methodology proposed by 
petitioners. Instead, we have relied upon the most recent cost of 
service study by TTEC which establishes a rate for CIL that will cover 
the cost of supplying electricity to CIL plus a reasonable return. This 
provides a better measure of adequate remuneration for a very large 
customer like CIL than applying the rate for smaller customers, as 
proposed by petitioners.
    Comment 12: Adequacy of remuneration for lease: Petitioners claim 
that CIL's lease rate is less than the standard lease rate. In Wire Rod 
I (at 482), the Department found this lease rate to result in a subsidy 
of 2.246 percent. Further, the record in this investigation has 
information on only

[[Page 55013]]

four other leases. This limited information does not allow for a 
meaningful comparison with the lease rate paid by CIL. Even these four 
leases, however, suggest that CIL's lease does not provide adequate 
remuneration. For these reasons, CIL's lease rate should be found 
countervailable.
    Respondents maintain that the rate CIL pays for its 105.7 hectares 
provides adequate remuneration to PLIPDECO. At verification, the 
Department attempted to find a suitable benchmark for CIL's lease and 
found only two companies with 30-year leases on sites of 10 hectares or 
more. Other companies with sites of 10 hectares or more had 99-year 
leases. These 99-year leases are structured much differently and cannot 
be compared to a 30-year lease. Of the two sites with 30-year leases, 
the first was the second largest site in the estate, and the lease for 
the property was signed at about the same time as CIL's. The second was 
a small site with a lease signed years after CIL's lease. Comparing the 
most comparable lease to CIL's reveals that CIL was paying a higher 
rate.
    Department's Position: PLIPDECO officials informed us at 
verification that the standard lease rate is used as a starting point 
for negotiation and indicated that only very small sites would pay this 
rate. The lease rates of the four leases examined during verification 
were all less than the standard rate. Therefore, we concluded that the 
standard rate was not used as the lease rate in all cases and was not 
an appropriate benchmark for CIL's lease rate.
    Moreover, neither the GOTT nor PLIPDECO limited the verification 
team's access to leases during verification. The team selected the 
leases to be reviewed on the basis of their similarity to CIL's lease. 
First, the team selected leases with sites of 10 hectares or more. Of 
these, only two had leases with the same 30-year term as CIL's. The 
others were 99-year leases. The team then selected two leases with 
sites of less than 10 hectares to review the lease terms on these 
smaller sites. Because CIL's site was 105.7 hectares, the team did not 
make further selections from the leases with sites under 10 hectares.
    Although we did find that the 1983 lease conferred a subsidy in 
Wire Rod I, we note that CIL's lease rate increased significantly in 
1988. In addition, the Department used the standard lease rate as its 
benchmark in Wire Rod I. However, as discussed above, our review in 
this proceeding showed that several leases had rates below the standard 
rate. Therefore, we have concluded that the standard rate is not an 
appropriate benchmark.
    Comment 13: Export allowance program: Respondents argue that in 
computing the subsidy attributable to the export allowance program 
(``EAP'') for the POI, the Department should use CIL's income tax 
return for fiscal year 1996 rather than CIL's 1995 income tax return. 
In respondents' view, this would be consistent with the Department's 
established cash flow methodology as described in the Countervailing 
Duties: Notice of Proposed Rulemaking and Request for Public Comments, 
54 FR 23366, 23384 (May 31, 1989) (``1989 Proposed Regulations'') at 
section 355.48(a). Under that policy, the Department will ordinarily 
deem a countervailable benefit to be received at the time that there is 
a cash flow effect on the firm receiving the benefit. Respondents 
assert that CIL experienced the cash flow effect of the EAP throughout 
1996, when CIL paid its quarterly installments of the Business Levy.
    Respondents also argue that use of the 1995 tax return distorts the 
countervailable subsidy by attributing to CIL the export allowance 
benefit earned in 1995, when both exports and total sales were greater 
than in 1996. Respondents contend that the Department's regulations 
give it the discretion to use the 1996 tax return and that the 
Department should use that discretion to avoid this distortion.
    Petitioners agree with the Department's approach used in the 
preliminary determination and urge the Department to continue using the 
benefits reported in the 1995 tax return which was filed during the POI 
in calculating the amount of benefit received by CIL. Petitioners state 
that this approach is consistent with the Department's prior 
determinations and policy as well as section 351.508(2)(b) of the 
Proposed Countervailing Duty Regulations, 62 FR 8818, 8880 (February 
26, 1997) (``1997 Proposed Regulations''). Petitioners also cite 
section 355.48(b)(4) of the 1989 Proposed Regulations, which states 
that in the case of a direct tax benefit a firm can normally calculate 
the amount of the benefit when the firm files its tax return. 
Petitioners argue that CIL realized the benefit on October 29, 1996, 
the date when it filed its 1995 tax return, and that CIL did not 
realize benefits on its 1996 exports until it filed its 1996 tax return 
on August 25, 1997, after the POI. Petitioners dismiss respondents' 
arguments about cash flow methodology and estimated tax payment as 
meritless. Petitioners assert that CIL only claimed benefits from the 
export allowance when it filed its corporate tax return. Moreover, 
petitioners state that the filing of the formal income tax return is 
the earliest date upon which the Department can determine whether the 
EAP had been used.
    Department's Position: We agree with petitioners that CIL received 
the benefit of the tax savings attributable to the EAP when it filed 
its corporate tax return. Consequently, we have continued to value this 
benefit based on the tax return filed during the POI.
    In Trinidad and Tobago, a company pays either the corporation tax 
or Business Levy, whichever is higher. The corporation tax is 
calculated on the company's profits, and the Business Levy is 
calculated as a straight percentage of gross sales or receipts.
    The Department's long-established practice in treating income tax 
benefits has been to recognize the benefit of income tax programs at 
the time the income tax return is actually filed, usually in the year 
following the tax year for which the benefit is claimed (see, e.g., 
Final Affirmative Countervailing Duty Determination: Iron Ore Pellets 
from Brazil, 51 FR 21961, 21967 (June 17, 1986)). It is at that time 
that the recipient normally realizes a difference in cash flow between 
the income tax paid with the benefit of the program and the tax that 
would have been paid absent the program. Even when companies make 
estimated quarterly income tax payments during the tax year, the 
Department has delayed recognition of the benefit until the tax return 
is filed and the amount of the benefit is definitively established.
    In this case, CIL acknowledges that the 1996 EAP was not claimed 
until it filed its 1996 tax return in 1997. Nevertheless, CIL claims 
that because of the export allowance, it does not pay the corporate 
income tax. Instead, because it must pay the higher of the Business 
Levy or the corporate income tax, CIL typically pays the Business Levy. 
Moreover, because CIL makes quarterly deposits of its estimated 
Business Levy, the company claims the cash flow effect of the EAP 
occurs when these quarterly deposits are made.
    Although we agree that CIL has typically paid the Business Levy 
rather than the corporate income tax as a result of the EAP, we do not 
agree that this should lead us to countervail the benefits arising from 
the EAP as if they were connected with the Business Levy.
    First, CIL will only be certain that it will pay the Business Levy 
when the income tax is computed and the export allowance is claimed. 
Second, the amount of the benefit is not calculable prior to the filing 
of the corporate tax

[[Page 55014]]

return. An income tax benefit can potentially have numerous cash flow 
effects. The Department's practice is to single out the cash flow 
effect most directly associated with the tax benefit; in this case, the 
actual savings which arise when the taxes are due.

Verification

    In accordance with section 782(i) of the Act, we verified the 
information used in making our final determination. We followed 
standard verification procedures, including meeting with government and 
company officials, and examination of relevant accounting records and 
original source documents. Our verification results are outlined in 
detail in the public versions of the verification reports, which in the 
Public File for this investigation.

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we have 
calculated an ad valorem subsidy rate of 17.47 percent for CIL, the one 
company under investigation. We are also applying CIL's rate to any 
companies not investigated or any new companies exporting the subject 
merchandise.
    We have concluded a suspension agreement with the GOTT which 
eliminates the injurious effects of imports from Trinidad and Tobago 
(see, Notice of Suspension of Investigation: Steel Wire Rod from 
Trinidad and Tobago being published concurrently with this notice). As 
indicated in the notice announcing the suspension agreement, pursuant 
to section 704(h)(3) of the Act, we are directing the U.S. Customs 
Service to continue suspension of liquidation. This suspension will 
terminate 20 days after publication of the suspension agreement or, if 
a review is requested pursuant to section 704(h)(1) of the Act, at the 
completion of that review. Pursuant to section 704(f)(2)(B) of the Act, 
however, we are not applying the final determination rate to entries of 
subject merchandise from Trinidad and Tobago; rather, we have adjusted 
the rate to zero to reflect the effect of the agreement.

ITC Notification

    In accordance with section 705(d) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all 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 Acting Deputy Assistant Secretary for AD/CVD Enforcement, Import 
Administration.
    If the ITC's injury determination is negative, the suspension 
agreement will have no force or effect, this investigation will be 
terminated, and the Department will instruct the U.S. Customs Service 
to refund or cancel all securities posted (see, section 704(f)(3)(A) of 
the Act). If the ITC's injury determination is affirmative, the 
Department will not issue a countervailing duty order as long as the 
suspension agreement remains in force, and the Department will instruct 
the U.S. Customs Service to refund or cancel all securities posted 
(see, section 704(f)(3)(B) of the Act). This notice is issued pursuant 
to section 704(g) of the Act.

Return or Destruction of Proprietary Information

    This notice serves as the only reminder to parties subject to 
Administrative Protective Order (APO) of their responsibility 
concerning the return or destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to 
comply is a violation of the APO.
    This determination is published pursuant to section 705(d) of the 
Act.

    Dated: October 14, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-27984 Filed 10-21-97; 8:45 am]
BILLING CODE 3510-DS-P