[Federal Register Volume 62, Number 204 (Wednesday, October 22, 1997)]
[Notices]
[Pages 54990-55003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27985]


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

DEPARTMENT OF COMMERCE

International Trade Administration
[C-428-823]


Final Affirmative Countervailing Duty Determination: Steel Wire 
Rod From Germany

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

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT: Cynthia Thirumalai or Daniel Lessard, 
Office of Antidumping/Countervailing Duty Enforcement, Group 1, Office 
1, Import Administration, U.S. Department of Commerce, Room 1874, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone 
(202) 482-4087 or 482-1778, respectively.

Final Determination

    The Department determines that countervailable subsidies are being 
provided to Saarstahl AG (``Saarstahl'') and Ispat Hamburger Stahlwerke 
GmbH (``IHSW''), producers and exporters of steel wire rod from 
Germany. We also determine that Walzdraht Hochfeld GmbH (``WHG'') and 
Brandenburger Elektrostahlwerke GmbH (``BES'') received de minimis 
subsidies.

Case History

    Since the publication of the preliminary affirmative determination 
(``Preliminary Determination'') in the Federal Register, 62 FR 41945 
(August 4, 1997), the following events have occurred.
    Verification of the responses of the Government of the Federal 
Republic of Germany (``GOG''), the Government of the Free and Hanseatic 
City of Hamburg (``GOH''), the Government of Saarland (``GOS''), the 
European Union (``EU''), Saarstahl, IHSW, WHG, and BES was conducted 
between August 20 and September 5, 1997.
    Petitioners and respondents filed case and rebuttal briefs on 
September 19, 1997, and September 23, 1997, respectively. The hearing 
was held on September 24, 1997. Per the Department's request, post-
hearing submissions were received from parties.

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 19.00 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 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

    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'').

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 
(``petitioners''), six U.S. producers of wire rod.

Subsidies Valuation Information

    Period of Investigation: The period for which we are measuring 
subsidies (the ``POI'') is calendar year 1996.
    Allocation Period: Since benefits from nonrecurring subsidies are 
not confined to a single period of time, the Department must determine 
a reasonable period over which to allocate such benefits. In the past, 
the Department has relied upon information from the U.S. Internal 
Revenue Service on the industry-specific average useful life of assets 
to determine the allocation period for nonrecurring subsidies (see 
General Issues Appendix appended to Final Affirmative Countervailing 
Duty Determination; Certain Steel Products from Austria, 58 FR 37217, 
37226 (July 9, 1993) (``GIA'')). However, in British Steel plc. v. 
United States, 879 F. Supp. 1254 (CIT 1995) (``British Steel''), the 
U.S. Court of International Trade (the ``Court'') ruled against this 
allocation methodology. In accordance with the Court's remand order, 
the Department calculated a company-specific allocation period for 
nonrecurring subsidies based on the average useful life (``AUL'') of 
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

[[Page 54991]]

British Steel. Therefore, for the purposes of this determination, the 
Department has calculated a company-specific AUL for IHSW. However, we 
did not rely on Saarstahl or BES's company-specific AULs for purposes 
of this final determination because the calculations were significantly 
distorted by the asset valuation methodologies employed by the 
companies in 1989 and 1992, respectively. This issue is addressed with 
respect to Saarstahl in Comment 11, below.
    Based on information provided by IHSW regarding the company's 
depreciable assets, the Department has determined that the appropriate 
allocation period for IHSW is 10 years. With respect Saarstahl and BES, 
we based the companies' AUL on the depreciation schedule in Germany for 
Technical Machinery and Equipment (i.e., 11 years). The calculation of 
an allocation period for WHG was unnecessary.
    Creditworthiness: When the Department examines whether a 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 or not 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.
    3. Future financial prospects of the firm including market studies, 
economic forecasts, and projects or loan appraisals.
    For a more detailed discussion of the Department's creditworthiness 
methodology, see e.g., Final Affirmative Countervailing Duty 
Determination: Certain Steel Products from France, 58 FR 37304 (July 9, 
1993) or Final Affirmative Countervailing Duty Determination: Certain 
Steel Products from the United Kingdom, 58 FR 37393 (July 9, 1993).
    Petitioners have alleged that Saarstahl was uncreditworthy in 1989 
and between 1993 and 1996. They further allege that HSW and IHSW were 
uncreditworthy in 1984 and 1994, respectively.
    Because neither company received long-term financing in the 
relevant years, we examined other factors to determine the firms' 
creditworthiness. In making our determinations, we examined Saarstahl's 
and IHSW's current, quick, and interest/debt coverage ratios in 
addition to their net profit/loss for the three preceding years. Both 
Saarstahl and IHSW experienced operating losses in those years (except 
1988 for Saarstahl), and the financial ratios demonstrate that both 
companies were in poor financial health. The current ratio (current 
assets divided by current liabilities) measures the margin of safety 
available to cover any drop in the value of current assets, while the 
quick ratio (current assets excluding inventory and prepaids divided by 
current liabilities) shows the company's ability to pay its short-term 
liabilities. For both companies, these ratios were very small, 
demonstrating the companies' difficulty in meeting their short-term 
liabilities and interest expenses. Furthermore, the interest/debt 
coverage ratios (net income plus interest expense plus taxes divided by 
interest expense) highlighted the firms' inability to meet existing 
interest obligations. We determine that Saarstahl was uncreditworthy in 
1989 and IHSW was uncreditworthy in 1994.
    Because Saarstahl did not receive any countervailable benefits in 
the form of loans, loan guarantees, or nonrecurring grants from the GOG 
or the GOS following its 1993 bankruptcy, we do not reach the question 
of Saarstahl's creditworthiness for this period. Moreover, because 
IHSW's allocation period is ten years, we are not examining subsidies 
received prior to 1987. Therefore, we do not need to analyze HSW's 
creditworthiness for that period.
    Discount Rates: Information on the record indicates that German 
banks set interest rates for long-term, fixed rate commercial loans in 
reference to the yield earned on government bonds to which they 
normally add a margin, or spread, depending upon the borrower's 
creditworthiness. Because Saarstahl, IHSW, and BES did not provide 
company-specific discount rates, we used the German government bond 
rate plus a spread of 1.75 and 1.5 percent as the discount rate for 
Saarstahl in 1989 and IHSW in 1994, respectively. This rate represents 
the highest long-term interest rate which we could locate. As the 
discount rate for BES in 1994, we used the German government bond rate 
plus a spread of 1.15 percent (i.e., the average of the spread between 
0.8 and 1.5) because BES was not found to be uncreditworthy. We added a 
risk premium, as described in section 355.44(b)(6)(D)(iv) of the 
Countervailing Duties; Notice of Proposed Rulemaking and Request for 
Public Comment, 54 FR 23366, 23374 (May 31, 1989) (``Proposed 
Regulations''), to establish the uncreditworthy discount rate for 
Saarstahl in 1989 and IHSW in 1994.
    Privatization: In the GIA, we applied a new methodology with 
respect to the treatment of subsidies recestived prior to the sale of a 
company (privatization) or the spinning-off of a productive unit.
    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 (i.e., in 
this case 1986 for Saarstahl and 1987 for IHSW) and ending one year 
prior to the privatization.
    For Saarstahl, we modified this methodology pursuant to the Remand 
Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel 
Products from Germany, p. 4-5 (October 12, 1993). Specifically, we 
calculated the ratios in question by including in the calculation the 
assistance that Saarstahl received prior to privatization in the year 
the assistance was received. We did so even though we do not consider 
this prior assistance, at the time it was received, to be nonrecurring 
in nature and, thus, allocable over time. We followed a similar 
approach with respect to assistance received by IHSW in 1993.
    We then take the simple average of the ratios of subsidies to net 
worth. This simple average of the ratios 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.
    With respect to spin-offs, consistent with the Department's 
position regarding privatization, we analyze the spin-off of productive 
units to assess what portion of the sale price of the productive unit 
can be attributable to the repayment of prior subsidies. To perform 
this calculation, we first determine the amount of the seller's 
subsidies that the spun-off productive unit could potentially take with 
it. To calculate this amount, we divide the value of the assets of the 
spun-off unit by the value of the assets of the company selling the 
unit. We then

[[Page 54992]]

apply this ratio to the net present value of the seller's remaining 
subsidies. We next estimate the portion of the purchase price going 
towards repayment of prior subsidies in accordance with the 
privatization methodology outlined above.
    In the current investigation, we are analyzing: (1) the 
privatization of Saarstahl in 1989 and subsequent spin-off in 1994 and 
(2) the privatization of IHSW in 1994. For BES we find it unnecessary 
to conduct a spin-off calculation because its potentially 
countervailable subsidies were received after BES was spun off.
    Based upon our analysis of the petition, the responses to our 
questionnaires and the information reviewed at verification, we 
determine the following:

I. Programs Determined to Be Countervailable

A. Saarstahl

1. Forgiveness of Saarstahl's Debt in 1989
    During the period 1978 to 1989, Saarstahl and its predecessor 
companies received massive amounts of assistance from the GOS and GOG. 
Repayment of these funds eventually became contingent upon Saarstahl 
returning to profitability and earning a profit above and beyond the 
losses accumulated after 1978. This contingent repayment obligation was 
known as a Ruckzahlungsverpflichtung (``RZV'').
    In 1989, the GOS reached an agreement with Usinor-Sacilor to 
combine Saarstahl with AD der Dillinger Huttenwerke (``Dillinger'') 
under a holding company, DHS-Dillinger Hutte Saarstahl AG (``DHS''). 
Pursuant to the combination agreement and as a condition for sale, in 
1989 the GOG and GOS entered into a debt forgiveness contract 
(Entschuldungsvertrag, or ``EV'') which effectively forgave all the 
outstanding repayment obligations owed by Saarstahl to the two 
Governments (i.e., a total of DM 3.945 billion in debt was forgiven). 
The EV specified, however, that if Saarstahl went bankrupt, the GOG and 
GOS claims could be revived, but their claims would be subordinated to 
those of all other creditors.
    After several years of unprofitable operation, Saarstahl filed for 
bankruptcy in 1993 under the German Bankruptcy Regulations 
(Konkursordnung). In 1994, the GOS bought Saarstahl back from Usinor 
Sacilor for DM 1. At the time of its bankruptcy, Saarstahl's 
liabilities exceeded its assets by a factor of four, not including its 
liabilities to the GOG and GOS. Both Governments filed claims against 
the Saarstahl bankruptcy estate based on the RZV debt that was 
conditionally forgiven in 1989. These EV-related claims were rejected 
by the bankruptcy trustee as invalid in 1995 on the grounds that they 
were so subordinated that the GOG and GOS would never be repaid. The 
GOG and GOS chose not to appeal the rejection of their bankruptcy 
claims, on the grounds that the subordination of their claims made the 
likelihood of recovery very small, and not worth the high cost of 
litigating the matter.
    In the Final Affirmative Countervailing Duty Determination: Certain 
Hot Rolled Lead and Bismuth Carbon Steel Products from Germany, 58 FR 
6233, 6234 (January 27, 1993) (``Lead and Bismuth'') and the Final 
Affirmative Countervailing Duty Determination: Certain Steel Products 
from Germany, 58 FR 37315 (July 9, 1993) (``Certain Steel''), we found 
that Saarstahl's RZVs and similar related debt were forgiven by the 
1989 EV, thus conferring a countervailable benefit on Saarstahl as of 
1989. Respondents have argued that the attempt to revive the RZVs by 
the GOG and GOS disqualifies the signing of the 1989 EV as the 
countervailable event. However, as noted above, the EV-related 
bankruptcy claims of the GOG and GOS were rejected as invalid by the 
bankruptcy trustee. Thus, the 1993 bankruptcy proceeding left 
completely undisturbed the provisions of the 1989 EV agreement. 
Respondents further argue that the RZVs were worthless at the time of 
the EV. However, this argument was rejected in Lead and Bismuth at 
6237, Certain Steel at 37323 and the attendant litigation (see 
Saarstahl AG v. United States, 967 F. Supp. 1311 (CIT 1997), and 
British Steel plc v. United States, 936 F. Supp. 1053, 1069-70 (CIT 
1996).
    Therefore, we determine that the debt forgiveness constitutes a 
financial contribution in 1989 within the meaning of section 771(5) of 
the Act. It is a direct transfer of funds from the GOG and GOS 
providing a benefit in the amount of the debt forgiveness, DM 3.945 
billion. Because it was a one time event, we consider it to be a 
nonrecurring grant. Additionally, we analyzed whether the debt 
forgiveness provided to Saarstahl was specific ``in law or in fact,'' 
within the meaning of section 771(5A) of the Act. Consistent with Lead 
and Bismuth at 6233 and Certain Steel at 37315, we find that the debt 
forgiveness provided to Saarstahl was limited to a specific enterprise 
or industry because it was provided to one company.
    To calculate the countervailable subsidy, we used our standard 
declining balance grant methodology. The amount of the subsidy 
allocated to the POI was adjusted in accordance with our privatization 
methodology (described above) to reflect the privatization of Saarstahl 
in 1989 and the spin-off of Saarstahl from DHS 1994. We then divided 
the portion of the benefit attributable to the POI by the total sales 
of Saarstahl during the same period. On this basis, we determine the 
countervailable subsidy for this program to be 16.62 percent ad valorem 
for Saarstahl.
2. Assurance of Liquidity Provided to Private Banks by the GOS
    Toward the end of 1985, the GOS presented a long-term restructuring 
plan for Saarstahl to Saarstahl's creditors and requested that they 
forgive loans in the amount of DM 350 million. In a February 20, 1986 
letter from the banks to the GOS, the banks agreed to forgive DM 217.33 
million of debt owed to them by Saarstahl (DM 216.82 of which was 
forgiven in 1989), if the GOG and GOS fulfilled certain prerequisites. 
Two of the prerequisites were that the Governments forgive all debt 
owed to them by Saarstahl and that the GOS secure the future liquidity 
of Saarstahl. In an April 4, 1986 letter from the Governor of Saarland 
responding to the banks, the GOS agreed to forgive all debts owed to it 
by Saarstahl and to secure the liquidity of Saarstahl as it had in the 
past.
    We determine that in assuring the future liquidity of Saarstahl the 
GOS provided a financial contribution to Saarstahl. Specifically, this 
assurance granted a ``potential direct transfer of funds'' within the 
meaning of section 771(5). By assuring the future liquidity of 
Saarstahl, the GOS effectively guaranteed that Saarstahl would have the 
funds to satisfy its future obligations, which included the outstanding 
debt owed to the banks. This assurance was consistent with the GOS's 
long history of supporting Saarstahl. We also determine that the 
assurance was provided to a specific enterprise or industry, Saarstahl.
    While the GOS's assurance of future liquidity resembled a loan 
guarantee, it differed in certain important aspects from loan 
guarantees typically examined by the Department. First, the GOS did not 
promise to take responsibility for payment of the debt owed to the 
banks if Saarstahl failed to perform. Rather, the GOS reached an 
agreement with the private banks whereby the GOS would maintain 
Saarstahl's liquidity (i.e., Saarstahl's ability to service its 
outstanding debts). Additionally, other characteristics of a

[[Page 54993]]

typical loan guarantee which potentially confer a benefit were not 
manifested in the liquidity assurance (e.g., lower borrowing costs in 
the form of fees and/or reduced interest rates). Because there is no 
information on the record of this investigation indicating that the 
liquidity assurance resulted in more favorable terms on the remaining 
loans, we do not find additional countervailable benefits conferred by 
this assurance. Rather, the consequence of the assurance was that 
Saarstahl received partial debt forgiveness from the banks. Because of 
this, we are not using our normal methodology with respect to loan 
guarantees. Instead, we are calculating the benefit conferred by the 
liquidity assurance as the amount of debt forgiven. (We note however, 
that the assurance of future liquidity could have led to a finding of 
additional countervailable benefits, if it had resulted in lowering 
Saarstahl's borrowing costs on the unforgiven portion of the company's 
debt.)
    To calculate the countervailable subsidy, we followed the 
methodology described in the Forgiveness of Saarstahl's Debt in 1989 
section, above. We then divided the portion of the benefit attributable 
to the POI by the total sales of Saarstahl during the same period. On 
this basis, we determine the countervailable subsidy for this program 
to be 0.91 percent ad valorem for Saarstahl.
3. ECSC Redeployment Aid Under Article 56(2)(b)
    Under Article 56(2)(b) of the European Coal and Steel Community 
(``ECSC'') Treaty, persons employed in the iron, steel, and coal 
industries who lose their jobs may receive assistance for social 
adjustment. This assistance is provided to workers affected by 
restructuring measures, particularly workers withdrawing from the labor 
market into early retirement and workers forced into unemployment. The 
ECSC disburses assistance under this program on the condition that the 
affected country make an equivalent contribution. Payments were made to 
Saarstahl, on behalf of its workers, under Article 56(2)(b).
    Since the ECSC portion of payments under this program comes from 
the operational budget, which is funded by levies on the companies, we 
determine that this portion (i.e., 50 percent of the amount received) 
is not countervailable. However, with respect to the portion funded by 
the GOG, we must decide whether the government payments have relieved 
Saarstahl of an obligation it would otherwise have.
    In Germany, benefits for workers who retire or are laid off are 
subject to negotiations between labor and management. Those 
negotiations result in a social plan for each company. Following the 
policy explained in the Prepension Programs section of the GIA at 
37257, we have determined that Saarstahl and its workers were aware 
when they negotiated their social plans that the German government 
would pay a portion of the costs. Therefore, unless it can be 
specifically documented that benefits under this program did not lower 
a company's social plan obligations, we have determined that one half 
of the amount paid by the government constitutes a countervailable 
subsidy.
    We consider the benefits provided under this program to be 
recurring because a company can expect to receive the benefits on an 
ongoing basis. Therefore, we limited our analysis to funds received in 
the POI, 1996. In the case of Saarstahl, funds received by the company 
during the POI relate to five social plans, the last of which relates 
to Saarstahl's 1993 bankruptcy. We verified that this bankruptcy social 
plan provides the maximum allowable benefits to workers under German 
bankruptcy law; therefore, we determine that the knowledge of ECSC 
56(2)(b) benefits did not affect the company's social plan obligations. 
Consequently, GOG payments that relate to this social plan are not 
countervailable. For the payments made pursuant to the pre-bankruptcy 
social plans, we first calculated the GOG portion of assistance by 
taking 50 percent of the funds received by Saarstahl in 1996. As noted 
above, half of this amount is countervailable. We divided this amount 
by Saarstahl's total sales during the POI. On this basis, we determine 
the net subsidy to Saarstahl for this program to be 0.14 percent ad 
valorem.

B. IHSW

1994 IHSW Debt Forgiveness
    In 1984, Hamburgische Landesbank Girozentrale (``HLB''), a bank 
wholly owned by the GOH, provided HSW with a line of credit in the 
amount of DM 130 million. The line of credit was granted for a period 
of one year and was renewed every year until 1994. Pursuant to a 
Kreditauftrag between the GOH and HLB, in the event that HSW failed to 
service this debt, the GOH was obligated to compensate the HLB for 60 
percent of the credit line (i.e., DM 78 million). In 1992 and 1993, HSW 
suffered significant losses, and the HLB refused to extend the credit 
line. At that point, the GOH assumed responsibility for the total 
amount loaned to HSW under the line of credit pursuant to an agreement 
between the GOH and HLB that extended the Kreditauftrag. At the 
beginning of 1994, the line of credit totaled approximately DM 174 
million (see Comment 12 below).
    In 1994, HSW was sold to Venuda Investments B.V. (``Venuda''), 
IHSW's parent company. At the time of privatization, the line of credit 
totaled DM 154 million. Under the terms of the sale, Venuda paid DM 10 
million for HSW. With respect to the line of credit, DM 154 million of 
the total was sold to Venuda for approximately DM 60 million according 
to a formula based on the net current asset value of HSW in 1994 (i.e., 
the difference between current assets and liabilities (less the debt 
owed to HLB)). Although the sale of HSW was structured to have two 
components, the sale of shares for DM 10 million and the sale of debt 
for approximately DM 60 million, we have treated this as a single 
transaction and we consider the payments made by Venuda to represent 
the price paid for HSW (see Comment 13 below).
    Based on our view of the sale of HSW, i.e., that the proceeds from 
both the share and debt purchase comprise the sale price, we determine 
that in the year that HSW was sold the DM 154 million owed by HSW under 
the line of credit was forgiven. This debt forgiveness constitutes a 
financial contribution in the form of a direct transfer of funds from 
the GOH providing a benefit in the amount of DM 154 million in 1994. 
While the Department will not consider a loan provided by a government-
owned bank to be a loan provided by the government, per se, the actions 
taken by the GOH during the period 1984 through 1994 regarding the 
provision of the credit line clearly demonstrate that although the debt 
was owed to HLB, HLB was acting on behalf of the GOH in this instance 
(see Comment 16 below). Moreover, we analyzed whether the program is 
specific ``in law or in fact,'' within the meaning of section 771(5)(A) 
of the Act. Since the debt forgiveness was only provided to one 
company, we determine that it is limited to a specific enterprise.
    To calculate the countervailable subsidy, we used our standard 
grant methodology. The amount of the subsidy allocated to the POI was 
adjusted in accordance with our privatization methodology (described 
above) to reflect the privatization of IHSW in 1994. We then divided 
the portion of the benefit attributable to the POI by the total sales 
of IHSW during the same period. On this basis, we determine the 
countervailable subsidy

[[Page 54994]]

for this program to be 5.61 percent ad valorem for IHSW.

II. Programs Determined to Be Not Countervailable

A. IHSW

Provision of Land Lease
    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 these situations, there may be no alternative market prices 
available in the country (e.g., private prices, 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 the leasing of land, some of the options may be to 
examine whether the government has covered its costs, whether it has 
earned a reasonable rate of return in setting its rates and 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 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 determining whether to lease land to 
a company.
    Pursuant to a 1986 lease agreement between HSW and the GOH, IHSW 
leases land located in the port of Hamburg from the GOH. The GOH owns 
approximately one-third of the commercial and industrial land in the 
port area and leases that land under approximately 450 different lease 
agreements. The GOH lease rates in the port area are established by the 
GOH Finance Deputation, an administrative authority established by the 
City Parliament of Hamburg consisting of government officials and civic 
members. The Finance Deputation sets the lease rates according to such 
factors as: (1) market value of property, (2) potential for use and 
facilities available in specific areas, (3) rentals for comparable 
areas being used, and (4) terms and conditions being paid in other 
Northern ports.
    The GOH uses a standard lease for all enterprises in the port area. 
The lease has four rate categories which are based on the location of 
the property and other attributes (e.g., land-locked, direct water 
access, railway access). Thus, IHSW's lease contains the same terms as 
all other similar lease agreements signed with enterprises in the port 
area.
    We verified that there are a very large number of enterprises 
currently leasing land in the port from the GOH. These enterprises 
cover a wide variety of industries, such as container storage and 
shipping, oil tanks and refineries, shipyards, car importers, and 
coffee and grain mills and storage facilities. There are no special 
provisions made for different industries.
    Because IHSW pays a standard rate charged by the GOH to all 
enterprises leasing land similar to IHSW's and because these prices are 
set in reference to market conditions, we determine that IHSW's lease 
rate is not countervailable.
    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.

B. BES

FRG Backing of THA Loan Guarantees
    The German Democratic Republic (``GDR'') created the 
Treuhandanstalt (``THA'') via the Trusteeship Act of June 17, 1990. THA 
became the owner and administrator of all non-private GDR enterprises. 
THA's long-term goal was to privatize these enterprises. Following the 
monetary union of the Federal Republic of Germany (``FRG'') and the GDR 
on July 1, 1990, THA issued a global loan guarantee to ensure the 
liquidity of GDR enterprises. THA guarantees were available to all GDR 
enterprises in need of them and were backed up by the FRG's commitment 
to fund THA's activities, pursuant to Article 17 of the Treaty Between 
the Federal Republic of Germany and the German Democratic Republic 
Establishing a Monetary, Economic and Social Union effective July 1, 
1990.
    Since THA had no independent sources of funds and the GDR economy 
was in disarray, the THA loan guarantees standing alone would have been 
worthless and, as such, would not have motivated private banks to lend 
to GDR enterprises. Rather, it was the secondary backing of the 
guarantees by the FRG that led private banks to lend to GDR 
enterprises. It follows that any financial benefit to GDR enterprises 
in the form of guaranteed loans flowed from the provision of the FRG 
guarantee.
    BES's predecessor, Stahl- und Walzwerk Brandenburg (``SWB'') took 
out three THA-guaranteed loans before unification and one shortly after 
unification. A little over a year after unification, THA assumed SWB's 
guaranteed loans.
    Prior to German Unification on October 3, 1990, the GDR was 
recognized by the United States as a sovereign country--separate from 
the FRG. Therefore, any provision of assistance by the FRG to former 
GDR enterprises is transnational assistance--assistance not provided by 
the government having jurisdiction over the enterprises. The preamble 
to the Proposed Regulations summarizes our practice with respect to 
transnational assistance:

    Occasionally, the Department has encountered programs which are 
funded through foreign aid, either on a bilateral or multilateral 
basis. In such instances, the Department (and Treasury before it) 
has determined such programs to be noncountervailable, to the extent 
that funds for the program are not provided by the government of the 
country in question.
    Section 355.44(o)(1) of the Proposed Regulations elaborates on 
the above:
    [A] countervailable benefit does not exist to the extent the 
Secretary determines that funding for a benefit is provided by a 
government other than the government of the country in which the 
merchandise is produced or from which the merchandise is exported, 
or by an international lending or development institution.

    Based on the foregoing, we find that the secondary backing by the 
FRG of THA loan guarantees on borrowings prior to Unification is 
transnational assistance and, therefore, not

[[Page 54995]]

countervailable. Moreover, when THA assumed the debt it was merely 
fulfilling the obligations it had taken on as guarantor prior to 
Unification. Since the guarantees upon which THA acted were non-
countervailable in nature, the subsequent debt assumption did not give 
rise to a countervailable benefit.
    As noted above, SWB took one loan under the THA global guarantee 
after Unification. However, even if we were to treat the entire amount 
of the loan principal as a grant, the amount of the benefit would be 
expensed in the year of receipt, which was prior to the POI. Since 
there is no benefit allocable to the POI, we have not analyzed whether 
FRG backing of THA loan guarantees post-Unification gives rise to a 
countervailable subsidy.

III. Programs Determined to Be Not Used

    Based on the information provided in the responses and the results 
of verification, we determine that the following programs were not 
used:

A. Saarstahl

Saarstahl's Bankruptcy Social Plan
    In 1993, Saarstahl negotiated a new social plan in accordance with 
German bankruptcy law. This new plan provided two and one-half months 
salary to laid-off workers, the maximum allowable benefit under 
bankruptcy law. To ensure that laid-off workers did not have to wait 
for the bankruptcy proceeding to be settled before receiving their 
money, the GOS purchased the workers' claims against Saarstahl, paid 
off the workers and then filed a claim under its own name against 
Saarstahl in the bankruptcy proceeding. The claim filed by the GOS was 
in the same amount as a claim filed directly by the workers would have 
been and was accepted by the bankruptcy court in its full amount. 
Therefore, the potential liability against Saarstahl in respect of 
social plan benefits was unchanged by virtue of the GOS filing the 
claim instead of the workers. Since the action by the GOS in pre-paying 
the bankruptcy social plan benefits did not alter Saarstahl's potential 
liabilities under bankruptcy, the GOS has not assumed a legal 
obligation of Saarstahl. As a result, GOS payments to workers under 
Saarstahl's bankruptcy social plan do not confer a countervailable 
benefit.

B. IHSW

1984 Equity Infusion
    In 1984, HSW emerged from bankruptcy proceedings and was taken over 
by a limited partnership called Protei Produktionsbeteiligungen GmbH & 
Co. KG (``Protei''). The vast majority of the equity Protei invested in 
the new HSW was provided via a DM 20 million loan by HLB. This DM 20 
million financing was provided to HLB by the GOH. HSW used this capital 
to purchase the assets and business of Old HSW from its receiver.
    According to the terms of the contract which provided these funds, 
repayment became due from the profits of Protei which, in turn, were 
derived from HSW's profits. The contract also provided that Protei 
could not liquidate HSW without the approval of HLB, and HLB reserved 
rights regarding the appointment of management and members of the 
supervisory committee. Between 1987 and 1988, DM 2.8 million in 
``principal'' payments and DM 2.7 million in ``interest'' were paid by 
HSW, leaving an unpaid balance of DM 17.2 million.
    We have determined that the DM 20 million ``loan'' to Protei should 
be treated as equity received in 1984 in light of the terms of the 
financing. Although the money was given in the form of a loan to 
Protei, the circumstances of the loan indicate that the funds were more 
in the nature of equity.
    First, as noted above, payments on the loan were contingent on HSW 
being profitable: so, if the company never became profitable, there was 
no obligation for the loan to be repaid. Second, under the terms of the 
loan, Protei relinquished pro rata its share of profits from HSW based 
on the ratio between the DM 20 million loan and the total share capital 
of HSW. Hence, HLB's share of any future profits generated by HSW would 
be calculated as if the loan were paid-in capital. Third, although the 
loan was made to Protei, the particular structure of the partnership 
suggests that Protei served as a mechanism for the GOH to invest in 
HSW. Fourth, as noted above, the lender, HLB, imposed numerous 
conditions on Protei which served to insert HLB into important 
ownership/management decisions affecting HSW. Finally, when this loan 
was examined by the Commission of the European Communities (the 
``Commission'') to determine whether it constituted state aid, the 
Commission determined that the loan should be considered as risk 
capital. Among the data developed by the Commission was a statement by 
the GOG that the GOH ``was exposed to financial risk fully comparable 
to the risk a shareholder injecting risk capital has to bear without 
becoming owner of the company.'' (The Commission's decision is printed 
in the Official Journal of the European Communities, No L 78, Vol 39, 
March 28, 1996, at pp. 31 ff.) While the Commission's characterization 
of this loan as equity is not dispositive, their reasoning in this 
instance is consistent with our analysis.
    Given our determination that the DM 20 million financing in 1984 
should be treated as equity and in light of HSW's AUL of 10 years, this 
1984 equity infusion would not give rise to benefits in the POI even if 
the infusion were a countervailable subsidy. Therefore, we are treating 
this equity as well as two other programs as ``not used':

1. 1984 Steel Investment Allowance Grant
2. 1984 Federal Ministry for Research and Technology (BMFT) Grant

    We have determined that subsidies received by IHSW under the 
following programs were also not used because they were repaid prior to 
the POI:

3. Structural Improvement Assistance Grant
4. Loan Guarantee to HSW

C. BES

Special Depreciation
    The special depreciation program described in Section 4 of the 
Assisted Areas Act is the current manifestation of a 1990 GDR directive 
that allowed investors to claim special depreciation at an accelerated 
rate. This program was implemented in tandem with the Investment 
Allowance Act by the GDR to provide investment incentives to help 
enterprises in the former GDR (New States) transition into a market-
based economy. After Unification, FRG lawmakers included an amended 
special depreciation provision, along with the Investment Allowance 
Act, in the June 24, 1991 Tax Modification Law (StAendG 1991). A 1996 
FRG law forbids the special depreciation provision from being extended 
beyond the end of 1998.
    The GOG has claimed that this program is not countervailable 
because it is a ``green light subsidy.'' We have not determined 
whether, in fact, this program meets the green light criteria within 
the meaning of section 771(5B)(C), of the Act, because any benefit 
would arise at the time of filing a tax return. Because BES did not 
file a tax return during the POI, we are treating this program as not 
used.

IV. Other BES Programs Examined

    BES received assistance under two other programs for which the GOG 
has requested green light treatment: (1) Investment Grants Under the 
Regional Economies Act and (2) Investment Allowance Act Grants. BES 
received

[[Page 54996]]

grants under these programs in the years 1994 through 1996. However, 
regardless of whether we found the program to be countervailable, the 
combined net subsidy to BES does not rise above the de minimis level. 
Accordingly, we do not consider it necessary to address the issue of 
whether these programs are non-actionable as regional green light 
subsidies.

Interested Party Comments

Saarstahl

    Comment 1: Effect of Bankruptcy on Saarstahl's 1989 Debt 
Forgiveness: Saarstahl argues that because the GOG and the GOS filed 
claims against it in the German bankruptcy court with respect to the 
RZVs, the 1989 debt forgiveness should be disregarded. Specifically, 
Saarstahl contends that the GOG and GOS did not forego revenue due to 
them under the RZVs in 1989, because the debts were revived in 1993. 
Moreover, when the bankruptcy claims were rejected from 1993 through 
1996, Saarstahl's debt was forgiven under the non-specific German 
bankruptcy law and not under a specific relief action take by the 
Governments. Saarstahl claims that the Department may not disregard the 
revival of the Governments' rights to repayment just because the claim 
was later rejected by the bankruptcy trustees.
    Petitioners state that the bankruptcy was an irrelevant subsequent 
event that does not affect the benefit stream from the countervailable 
1989 forgiveness. Petitioners argue that the RZVs were not eliminated 
or restructured by the bankruptcy proceeding because the claims 
themselves were invalid. The revival contingency contained in the EV 
with respect to bankruptcy, according to petitioners, was structured in 
such a way as to make it meaningless. Because the claims were to be 
subordinated below all others, the EV made it impossible to collect on 
the RZVs. Thus, the EV effectively forgave the RZVs in 1989 because the 
revival contingency was structured not to be a real contingency at all.
    Department's Position: We have continued to treat Saarstahl's RZVs 
and similar government debt as having been forgiven by the 1989 EV. We 
believe that the information in this case clearly supports this 
position. First, in its questionnaire response of June 30, 1997, 
Saarstahl states that if bankruptcy is initiated on grounds of 
insolvency, then subordinated claims do not have any asset value and, 
thus, cannot be considered a valid bankruptcy claim. Hence, as noted by 
petitioners, the revival contingency contained in the EV was structured 
in such a way as to make its possible application meaningless.
    Second, Usinor Sacilor required that the RZVs be forgiven by the 
GOG and GOS prior to the combination of Saarstahl and Dillinger. This 
clear precondition to the combination of the two companies, which was 
accepted and fulfilled by the two Governments, demonstrates that from a 
commercial actor's perspective, the RVZs were a real liability. 
Moreover, the fact that Usinor Sacilor accepted the EV as the legal 
instrument by which Saarstahl's RZV debt was forgiven demonstrates the 
validity of the debt forgiveness element of the EV from a commercial 
perspective. Finally, information obtained at verification indicates 
that the GOG realized, prior to the filing of its claims, that the 
bankruptcy proceeding would not result in the reinstatement of the RZV 
debt obligation. Indeed, the GOG actions appeared to be largely 
perfunctory in nature reflecting other concerns, none of which included 
the realistic expectation that the claims would be recognized by the 
bankruptcy court (see GOG verification report at page 12). Therefore, 
we conclude that the debt obligations contained in the RZVs were 
relieved in 1989 and that the bankruptcy proceedings had no meaningful 
impact on the 1989 debt forgiveness agreement.
    Comment 2: The Nature and Timing of Saarstahl's Subsidies: 
Saarstahl states that the Department erred by not allocating any 
portion of the assistance received by Saarstahl to the company's 
production in the years 1978 to 1988. Saarstahl asserts that the 
government assistance was a subsidy when it was first received because 
it did not comport with commercial considerations. In Saarstahl's view, 
the Department cannot delay the countervailable event until 1989 (when 
the debt forgiveness was agreed to), but rather must countervail the 
subsidies when they were first received.
    Petitioners note that the Department has rejected most of these 
allocation arguments in the past, with the approval of the CIT. 
Petitioners argue that the Department should use the same analysis of 
the 1989 EV debt forgiveness as reflected in Lead and Bismuth, Certain 
Steel, and the Preliminary Determination. For petitioners, a contingent 
liability is different from the benefits allocated or capped by the 
Department's grant allocation formula. The recipient is able to use the 
full value of the subsidy upon receipt, but must repay all or part of 
the payment if the contingency occurs. Because of this repayment 
obligation, the face value of the contingent obligation is only treated 
as a benefit when forgiven, as occurred in 1989.
    Department's Position: We verified that prior to 1989 Saarstahl did 
have a financial obligation to repay the RZVs. If the Department had 
examined Saarstahl's RZVs prior to 1989, it would have countervailed 
them as contingent liabilities and calculated the benefit by treating 
the outstanding face amount as an interest-free loan. This is 
consistent with the Department's long-standing policy with respect to 
contingent liabilities (see e.g., Certain Steel from Sweden, 58 FR 
37385, 37388 (July 9, 1993)). Upon the forgiveness of such contingent 
liabilities, it is the Department's policy to treat the amount forgiven 
as a grant in the year of forgiveness (see e.g., Certain Steel from 
Sweden at 37392). We are not persuaded by Saarstahl that we should not 
apply our traditional methodology to the facts of this case.
    Comment 3: RZVs as Equity: Saarstahl claims that the Department's 
decision to treat the 1989 forgiveness as the countervailable event 
rather than the receipt of the funds in 1978-1988 is inconsistent with 
the Department's treatment in this case of government assistance made 
to the owners of HSW. Saarstahl states that in the preliminary 
determination the Department treated a DM 20 million government loan to 
HSW as equity received in 1984. Saarstahl quotes the Department as 
saying, ``if the company never became profitable, there was no 
obligation for the loan to be repaid.'' (Preliminary Determination at 
41950). Saarstahl states that the same situation is true for the monies 
received by Saarstahl; the economic effect of the RZVs was no different 
than equity. Saarstahl argues that the subsidies should be treated as 
equity capital because they served to offset massive losses that 
threatened the company's solvency. For Saarstahl, the equity capital 
nature of the assistance is even more clear in light of the fact that 
the GOG and GOS held a majority interest in Saarstahl during some of 
the time when the RZVs were in effect. Saarstahl asks that the 
Department treat the contingently repayable loans given to both 
Saarstahl and HSW in the same manner.
    Petitioners state that the methodology used for IHSW's DM 20 
million capital replacing loan is not an appropriate comparison to 
Saarstahl's situation. Petitioners argue that the forgiveness of the 
credit line in 1994 is a more appropriate comparison. While the credit 
line was first granted in 1984, petitioners note that the Department 
did not treat the principal as a benefit until

[[Page 54997]]

the loan was forgiven in 1994. Based on this comparison, petitioners 
find a consistent treatment of the two companies. Petitioners counter 
the RZVs-as-equity argument by referring to the hybrid instruments 
analysis from the GIA. Petitioners note that the hybrid instruments 
analysis' first test defines an instrument as debt if a repayment 
obligation exists when the payment is provided. Thus for petitioners, 
because the RZVs had a repayment obligation they cannot be treated as 
equity.
    Department's Position: The terms of the assistance given to both 
IHSW and Saarstahl differ. Of particular note are the managerial and 
ownership rights conferred upon IHSW at the time the financing was 
provided. The terms of the RZVs did not confer similar rights to the 
GOS or GOG. While the GOS and GOG did become Saarstahl's majority 
shareholder in 1986, this was after an overwhelming majority of 
assistance had been disbursed and after all dispensation agreements had 
been put in place. While it is true that repayment in both agreements 
was contingent upon profitability, this contingency alone is not enough 
to transform a debt instrument to equity. As noted above in the program 
description, the repayment contingency for IHSW was just one of many 
terms that lead us to determine the assistance was equity.
    Comment 4: Forgiveness of Saarstahl's Debt by the Private Banks; 
Saarstahl contends that the Department should treat the private bank 
loan forgiveness as non-countervailable. Saarstahl notes that for 
assistance to constitute a countervailable subsidy it must be provided, 
directly or indirectly, by a government or other public entity. 
According to Saarstahl, when the private banks forgave debt owed to 
them by Saarstahl the banks acted in their own economic self-interests 
and their actions cannot be attributed to the GOG and GOS.
    Saarstahl notes that one of the lead negotiators on behalf of the 
banks confirmed at verification that the decision to forgive a portion 
of their loans to SVK was based entirely upon commercial 
considerations. The bank representative stated that the statement made 
by the GOS regarding the assurance of SVK's future liquidity had no 
effect upon the banks' decision to forgive the debt.
    Saarstahl adds that if the Department were to treat the private 
bank loan forgiveness as a countervailable subsidy, the economic 
benefit accrued to SVK in 1986, not 1989. Saarstahl claims that while 
the bank loans were not legally forgiven until 1989, the banks treated 
the loans as if they were forgiven on January 1, 1986, as evidenced by 
the fact that they did not require SVK to make any principal or 
interest payments with respect to the portion of debt being forgiven 
after that date.
    Petitioners argue that the evidence demonstrates that the assurance 
of liquidity played a crucial role with respect to the debt forgiveness 
by the private banks. Petitioners note that in the banks' February 20, 
1986 letter to the GOS, the banks clearly set forth as a prerequisite 
for their debt forgiveness that the GOS secure the liquidity of 
Saarstahl. Petitioners state that in its April 4, 1986 response to that 
letter, the GOS stated that it would, as in the past, secure the 
liquidity of Saarstahl. Petitioners further note that the Department 
has already determined that the banks acted on the GOS's assurance of 
liquidity and that this determination was sustained by the CIT.
    Department's Position: We agree with petitioners. The exchange of 
letters between the GOS and the banks demonstrates that the banks 
agreed to forgive a portion of SVK's (Saarstahl's predecessor) debt 
only on the condition that the GOS guarantee the liquidity of the 
company. In fact, the banks referred to the liquidity assurance as a 
``prerequisite'' for their action. While the banks may have been acting 
in their own economic self-interests when they forgave the debt, the 
GOS's liquidity guarantee was a factor that made the debt forgiveness 
more commercially reasonable because the banks were assured that the 
GOS would maintain SVK's ability to service its remaining debts. Thus, 
the liquidity assurance provided the incentive necessary to ensure the 
banks' debt forgiveness.
    With respect to the statements made by one of the banks' 
negotiators at verification, we have weighed the negotiator's claims 
against the written correspondence exchanged between the banks and the 
GOS. We have accorded greater weight to the written correspondence 
because it was contemporaneous with the events in question and reflects 
the position of all of the lenders as opposed to the views of a single 
official from a single bank.
    Lastly, although SVK was not required to make principal or interest 
payments with respect to the portion of debt forgiven after January 
1986, the loans were still recognized by the company as liabilities 
until they were forgiven in 1989. In accordance with the Department's 
standard practice for calculating the benefit from debt forgiveness, 
the benefit does not accrue to the company until the debt is actually 
forgiven. While Saarstahl may have enjoyed a benefit from not paying 
interest and principal as of 1986, the banks' decision not to collect 
interest and principal during that period represented a moratorium on 
debt payments until the forgiveness occurred in 1989.
    Comment 5: Effect of Saarstahl Privatization; Saarstahl states that 
Congress revised the definition of subsidy, bringing countervailing 
duty law in accordance with the Uruguay Round, to say that a subsidy 
would only exist if a financial contribution is given to a person and 
that person thereby receives a countervailable benefit. With respect to 
this definition, Saarstahl argues that neither it, nor its parent 
company, DHS, received any countervailable benefit from the aid given 
to SVK (Saarstahl's predecessor company). Saarstahl notes that the 
government assistance to SVK was provided prior to privatization and 
that the buyers of SVK made a fair market payment in an arm's length 
transaction. Saarstahl further argues that the price paid for SVK 
constituted adequate remuneration and, thus, did not result in a 
subsidy being received. Hence Saarstahl concludes, assistance received 
by SVK prior to privatization should not be countervailed with respect 
to Saarstahl.
    Petitioners cite the decision of the Court of Appeals for the 
Federal Circuit in Saarstahl AG v. United States, (78 F.3d 1539, 1544 
(Fed. Cir. 1996)) to counter respondent's argument. Petitioners claim 
that the issue is whether the subsidies paid to Saarstahl survived the 
privatization and that the Department's decision in its preliminary 
determination, that the subsidies did survive the privatization, is in 
accordance with the deference given to the Department by the courts in 
such matters.
    Department's Position: Section 771(5)(F) of the Act makes clear 
that the sale of a company at arm's length does not automatically 
extinguish prior subsidies. As we stated in the Final Affirmative 
Countervailing Duty Determination; Certain Pasta from Italy Pasta 61 FR 
30287, 30289 (June 14, 1996), the methodology applied by the Department 
in Certain Steel is consistent with the new law. In this investigation 
we have applied this methodology to the sale of Saarstahl to DHS and to 
the sale of Saarstahl to the GOS.
    Comment 6: Treatment of 1989 Repayment Amount; Petitioners argue 
that because the GOS repurchased Saarstahl in 1994, the repayment of 
subsidies that occurred in 1989 with the privatization should be 
reversed. Petitioners argue that the Department

[[Page 54998]]

should add the subsidy repayment back to Saarstahl's total benefit. 
Petitioners cite Certain Hot-Rolled Lead and Bismuth Carbon Steel 
Products from the United Kingdom, 61 FR 20238 (May 6, 1996) (``UK Lead 
and Bismuth'') to support their argument. Petitioners claim that in 
that case, the Department decided to aggregate the benefits of a 
company and its previously spun-off subsidiary when the two were 
reunited. Petitioners state that the Department should follow the same 
methodology here because the GOS's purchase of Saarstahl in 1994 placed 
the company in the same position it occupied prior to the 1989 
privatization. Petitioners fear that if the Department does not 
aggregate the subsidies, it will establish a precedent whereby 
governments can eliminate subsidies by privatizing an entity and then 
reacquiring it and, thus, avoid the application of the countervailing 
duty statute.
    Saarstahl argues that the GOS's purchase of it in 1994 did not 
reverse the 1989 privatization and corresponding subsidy repayment. 
When Saarstahl was privatized in 1989, the GOS received stock in 
Saarstahl's holding company, DHS. The GOS still holds stock in DHS and, 
thus, it has retained the repayment received in the privatization 
transaction.
    Department's Position: Petitioners' citing of UK Lead and Bismuth 
is misplaced. With respect to the ``spin-off'' and ``spin-in'' issues 
in UK Lead and Bismuth, the Department faced an issue of allocation of 
prior subsidies between business entities, not the repayment of prior 
subsidies to a government. In UK Lead and Bismuth, a subsidiary of one 
company was spun off, taking a portion of the benefit of subsidies with 
it. There is no repayment of subsidies under our methodology in such a 
transaction, but rather an allocation of the benefit from prior 
subsidies between a productive unit and a corporate entity. When the 
productive unit was reunited with the parent company, the formerly 
apportioned subsidies were reunited as well. The privatization and 
corresponding repayment to the GOS with respect to Saarstahl does not 
involve an issue of allocation. When the GOS privatized Saarstahl in 
1989 it received stock in DHS, which represents partial repayment and, 
therefore, extinguishment of prior subsidies. Thus, we are not adding 
back the amount considered to be repaid in 1989.
    Comment 7: Creditworthiness of Saarstahl in 1989; Saarstahl argues 
that the Department should consider financial information pertaining to 
1989 when evaluating the creditworthiness of the firm in that year. 
Specifically, Saarstahl is interested in the Department taking into 
account the effects of privatization on its financial health and its 
increase in net worth.
    Petitioners state that a creditworthy analysis does consider a 
company's future prospects, but only in the form of market studies, 
country and industry economic forecasts, and project and loan 
appraisals prepared prior to the loan agreement. The information 
present with respect to the privatization of Saarstahl is not 
sufficient for either the Department, or a commercial lender, to 
determine a company's creditworthiness.
    Department's Position: While a company's future financial prospects 
can be a factor in a creditworthiness determination, we do not have on 
record any market studies, country or industry economic forecasts or 
any other information regarding the company's prospects after 
privatization. Although we do have an excerpt from an asset appraisal, 
the purpose of this appraisal was to value the assets of Dillinger and 
Saarstahl prior to their combination. The appraisal does not 
meaningfully address the future financial prospects of either Saarstahl 
or DHS.
    Furthermore, the mere fact that the net worth of the company rose 
after privatization does not make the company creditworthy. Standing 
alone it does not provide sufficient evidence that Saarstahl was 
creditworthy, especially in light of the company's poor economic 
performance in previous years.
    Comment 8: Maximum Spread on Commercial Financing: Saarstahl argues 
that the Department should use a spread of 1.75 percentage points above 
the yield on government bonds as opposed to a spread of two to 
construct the uncreditworthy discount rate. The 1.75 point spread is 
based on the Department's conversation with a German private bank 
official, as outlined in the Department's GOS verification report.
    Petitioners state that the Department should reject any request to 
lower the discount rate. However, if the Department does use the 
information provided by the private bank, it should still add a risk 
premium.
    Department's Position: In its May 27, 1997 response, Saarstahl 
reported that German banks base interest rates for long-term commercial 
loans on the government bonds yield, adding a spread of zero to two 
percent to account for the creditworthiness of the borrower. The bank 
representative we spoke to at verification confirmed this mechanism, 
but noted that in the years prior to 1990, the spread was from 0.8 to 
1.75 percent. When determining a discount rate for uncreditworthy 
firms, the Department will use the highest long-term commercial loan 
rate commonly available and then add a risk premium in order to reflect 
the inability of a company to obtain commercial credit. In this case 
then, we are using the yield on government bonds, and adding the 1.75 
percentage least-creditworthy margin and a risk premium.
    Comment 9: Purchase Price for Saarstahl: Petitioners argue that the 
creation of DHS was a merger of Saarstahl and Dillinger. Each owner 
contributed its company and in return got an amount of shares in DHS 
that reflected the value of its contribution. Petitioners note that the 
GOS contributed shares and cash in the creation of DHS and received 
back shares worth an equal amount. Because of this, petitioners argue 
that the GOS did not receive any compensation in the 1989 transaction. 
Instead, it held on to what it already had and then bought a greater 
share of DHS. Based on this, petitioners see the real purchase price 
for Saarstahl as zero with the result that there should be no repayment 
of subsidies.
    Saarstahl argues that the Department did not overstate its purchase 
price. Rather the Department properly established the price for the 
GOS's interest in Saarstahl as the appraised value of the DHS stock 
that it received in exchange for its cash and share contribution. 
Saarstahl states that it is the nature of any commercial transaction to 
give up a valuable in return for another valuable of equal or greater 
value. In this instance, the GOS gave stock and cash and in return 
received DHS stock. Thus, the value of the DHS stock was an appropriate 
mechanism to establish the purchase price.
    Department's Position: We agree with Saarstahl. With the 
privatization of Saarstahl in 1989, the GOS did not retain what it 
already had (shares in Saarstahl) and then buy a little more (shares in 
DHS). The GOS held a majority interest in Saarstahl before the 
privatization and after the privatization held a minority share in DHS. 
While there is no denying that Saarstahl was a part of DHS, the GOS's 
interest in the company had changed. The value of DHS was determined by 
an independent auditor and the GOS's share in this company reflects the 
value it received and thus the value it paid for the company. Thus, the 
transaction serves as the basis for calculating the purchase price of 
Saarstahl.

[[Page 54999]]

    Comment 10: Penalizing Saarstahl Under Countervailing Duty Law and 
VRA. Saarstahl argues that because its exports were limited under a 
voluntary restraint agreement (``VRA'') from November 1, 1982, to March 
31, 1992, the Department's actions in this case are unjust. According 
to Saarstahl, under the VRA, the United States did not initiate any 
antidumping or countervailing duty investigations during the period of 
the agreement. Saarstahl argues that going after such subsidies now 
penalizes Saarstahl after already facing export restrictions.
    Petitioners state that Saarstahl received benefits from 1978 to 
1989 in the form of interest-free contingent liabilities and these 
benefits were not countervailed by the Department, regardless of the 
export restraints. Petitioners find the Department's treatment of the 
RZVs as contingent obligations, which were forgiven in 1989, to be 
reasonable.
    Department's Position: The VRA agreements neither permitted the 
provision of countervailable subsidies during the time in which the 
agreements were in effect, nor provided recipients of countervailable 
subsidies immunity from the imposition of countervailing duties after 
their expiration.
    Comment 11: Asset Revaluations and Extraordinary Depreciation in 
Saarstahl's AUL: Petitioners contend that Saarstahl's changes to its 
fixed asset valuation and depreciation practices in 1989 and 1993 
distort the AUL calculation. With respect to the 1989 privatization, 
petitioners argue that the new owner valued the transferred assets at 
their net book value (i.e., the gross value minus accumulated 
depreciation). The company then treated the 1989 net value as the gross 
value in subsequent years. Petitioners argue that consistent with its 
position in the Final Results of Redetermination Pursuant to Court 
Remand on General Issue of Allocation, British Steel plc v. United 
States, Consol. Ct. No. 93-09-00550-CVD at 48 (June 30, 1995) 
(``British Steel Remand''), the Department should reject net book 
values in the AUL calculation because their use results in a 
calculation of the average remaining life of the assets, not the 
average useful life.
    With respect to the extraordinary depreciation claimed by Saarstahl 
in 1993, petitioners note that the Department has stated in the Notice 
of Proposed Rulemaking and Request for Public Comment, 62 FR 8818, 8828 
(February 26, 1997) that it may be necessary to make normalizing 
adjustments for factors that may distort the AUL calculation. The 
Department goes on to list extraordinary write-downs, as one situation 
that would require such an adjustment.
    Further, petitioners dispute Saarstahl's claim that the value of 
the transferred assets should be viewed as the cost of acquiring those 
assets and, hence, treated as the gross book value of those assets 
after privatization. First, petitioners contend that the value of the 
assets transferred to Saarstahl from DHS (i.e., at net book value) 
differed from the value of the same assets in the context of the 
privatization (i.e., at ``modified book value''). Second, petitioners 
claim that the transfer of assets in this privatization was in the 
nature of a corporate restructuring and that the Department has 
determined that such restructuring does not constitute a ``sale.'' 
Lastly, petitioners contend that Saarstahl's compliance with Generally 
Accepted Accounting Principles should not affect the determination as 
to whether the company's AUL is valid. Because the calculation yields 
the average remaining useful life of the assets rather than an average 
useful life, it is distortive.
    Saarstahl contends that the additional depreciation expenses taken 
by the company in 1989 and 1993 did not distort the AUL because these 
adjustments were necessary to bring the asset values reported in the 
company's financial records in line with the actual economic value of 
those assets. Citing the British Steel Remand, respondent claims that 
the Department routinely includes extraordinary depreciation expenses 
in its calculation of AUL because the inclusion of such expenses 
results in a calculation that better approximates a company's actual 
experience.
    Saarstahl disagrees with petitioners' claim that the company used 
net book values in its AUL calculation. Instead, with the privatization 
in 1989, it used the cost of acquisition for the assets. In Saarstahl's 
view, this accounting treatment comports with the economic and 
commercial realities of the transfer. Saarstahl further argues that the 
1989 privatization was not simply an internal corporate transfer as 
alleged by petitioners. In this privatization, the productive assets 
were transferred to a new owner.
    Saarstahl adds that while the asset values listed in Saarstahl's 
balance sheet are different from those in the appraisal report related 
to the privatization transaction, this is explained by the fact that 
the values listed in the appraisal report and in the companies' 
financial statements were prepared for different purposes and include 
different items. Saarstahl notes, however, that these differences in no 
way led to an artificial suppression of Saarstahl's AUL. To the 
contrary, the amount recorded in the company's financial statements is 
actually higher than that suggested in the appraisal report.
    Department's Position: We agree with petitioners' argument that 
Saarstahl's AUL calculation is distorted. In particular, given the 
change in the gross book value of Saarstahl's assets, the methodology 
employed in our preliminary determination yields what is essentially a 
mixture of the average useful life of the assets and the average 
remaining useful life in 1989. This is evident when we compare the AUL 
amounts calculated on an annual basis for years prior to 1989 and the 
amounts after the privatization and before Saarstahl's bankruptcy in 
1993. This change in the gross book value had a significant impact upon 
the cumulative AUL calculated by the Department over a ten-year period 
(i.e., 1987 through 1996). In this case, the impact was significant 
enough that the AUL could not be calculated from Saarstahl's own 
records. Thus, to approximate Saarstahl's AUL, we have used the 
depreciation schedule in Germany.

IHSW

    Comment 12: Forgiveness of the DM 154 million Credit Line Owed to 
HLB by HSW: IHSW contends that the Department erred in preliminarily 
determining that the alleged forgiveness of the DM 154 million credit 
line owed to HLB by HSW constituted a countervailable subsidy. IHSW 
asserts that, pursuant to section 355.44(b)(9) of the Proposed 
Regulations, the Department will not consider a loan provided by a 
government-owned bank, per se, to be a loan from the government unless 
the government-owned bank: (1) Provided the loan at the direction of 
the government or with funds provided by the government, and (2) the 
terms of the loan were inconsistent with commercial considerations. 
IHSW argues that the HLB made prudent business decisions when it 
increased the credit line at the end of 1992 and 1993, because if the 
line of credit had not been extended, the company would have gone 
bankrupt, and the HLB's claims would have been worthless. Thus, 
according to IHSW, the increases were based on legitimate business 
considerations and were not at the direction of the GOH. With respect 
to the second factor considered by the Department, IHSW contends that 
the line of credit contained commercial loan terms (e.g., interest 
rate, security) which were not inconsistent with commercial 
considerations.
    Petitioners claim that IHSW's justification, or lack of 
justification, for

[[Page 55000]]

extension of the line of credit is by no means dispositive of whether 
the subsequent forgiveness of the debt under the line of credit was 
countervailable. Nonetheless, petitioners provide several arguments as 
to why the HLB acted under GOH compulsion and not in a commercially 
reasonable manner when it initially provided and subsequently increased 
the credit line to HSW. First, petitioners note that at the time of Old 
HSW's bankruptcy in 1983, the company owed DM 181 million to the GOH 
and the HLB. Petitioners argue that, given the history between HSW and 
the HLB as of 1984, it is completely illogical to suggest that a 
lender, after losing a significant amount of money on a debtor, would 
respond by loaning more funds to the same bad debtor.
    Second, petitioners note that the line of credit was extended to 
HSW by the HLB pursuant to a 1984 Kreditauftrag, according to which the 
GOH was to compensate the HLB for 60 percent of the line of credit if 
HSW failed to service its debt. Petitioners state that GOH officials 
confirmed at verification that the Kreditauftrag was an exceptional 
occurrence.
    Third, petitioners note that HSW's financial condition deteriorated 
in 1992 and 1993. Citing the EU decision concerning state aid granted 
by the GOH to HSW, petitioners contend that at the end of 1993 the HLB 
refused to prolong the credit line. At that point, according to 
petitioners, the GOH was forced to provide a Kreditauftrag covering 100 
percent of the line of credit. Petitioners argue that the GOH's 
willingness to give a blanket guarantee to a company whose situation 
was steadily worsening eliminated any pretense that the extension of 
the line of credit was commercially reasonable.
    Fourth, petitioners note that the EU concluded that ``no private 
investor, in the situation prevailing in December 1993, would have been 
prepared to inject new risk capital * * * {T}he behaviour of the {the 
city of Hamburg} could not be deemed to be behaviour of a normal 
investor in a market economy.'' Petitioners assert that the law on 
kapitalersetzende Darlehen (``KSD's''), a legal term that translates as 
``capital-replacing loans,'' buttresses this conclusion. KSD's are 
treated as risk capital and are only repaid in insolvency proceedings 
if all other creditors receive full compensation. By the end of 1993, 
it was recognized that loans from the HLB or GOH would be subordinated 
to the claims of all other creditors in the case of bankruptcy. Thus, 
petitioners argue that no reasonable lender or investor would put 
further money in the company knowing that it would go to the pockets of 
other lenders who were less subordinated.
    Lastly, petitioners contend that because the GOH refused to provide 
the Department with a report that explained the rationale for extending 
the line of credit, the Department should make an adverse inference 
that the HLB indeed refused to extend the line of credit and that it 
was acting under government compulsion. Petitioners add, however, that 
even without the use of adverse inferences, the evidence on the record 
shows that the HLB agreed to extend the credit line only if the GOH 
assumed full responsibility for the line of credit.
    Department's Position: While we agree with IHSW's assertion that 
the Department will not consider a loan provided by a government-owned 
bank, per se, to be a loan from the government, the history of 
interaction among the GOH, the HLB, and HSW demonstrates that the HLB 
did not act in a commercially reasonable manner, but rather at the 
direction of the GOH, when it provided and subsequently extended the 
line of credit to HSW. Moreover, the credit line ceased to be 
consistent with commercial considerations when the HLB refused to 
extend the credit line in 1993.
    The history of interaction among the GOH, HLB, and HSW demonstrates 
that the line of credit was clearly a loan provided at the direction of 
the GOH. In 1983, at the time of HSW's insolvency, the HLB held 49 
percent of the company's shares and had claims totaling DM 181 million 
(DM 129 million of the claims was covered by the GOH). Also at that 
time, the bankruptcy trustee determined under German law that the funds 
loaned by the HLB did not qualify as claims against the insolvent 
estate because they were considered KSD's. Since the GOH (which had 
guaranteed a portion of the loans provided by the HLB) and the HLB had 
no chance of recovering their money if HSW was liquidated in 
insolvency, they jointly decided to restructure HSW to continue 
operations under a new company.
    Also in 1984, the GOH provided HSW with DM 20 million in equity, 
through the HLB and Protei, so that the company could continue 
operations. This contribution contained strict contractual obligations, 
such that the EU determined that HSW was now a de facto public steel 
company. The EU noted that the ``entire contractual situation created 
in 1984 provided for the control of (GOH), through HLB, over HSW.''
    It is against this background that the HLB opened a revolving 
credit line in the amount of DM 130 million in favor of HSW. However, 
even at that early date the HLB required that the GOH provide a 
guarantee (Kreditauftrag) for 60 percent of the credit line. In 1993, 
when the HLB refused to extend the credit line, the GOH was forced to 
provide an additional Kreditauftrag covering 100 percent of the credit 
line.
    With respect to whether the loan was consistent with commercial 
considerations, the GOG, in response to the EC's investigation, 
indicated that the GOH and the HLB were aware that, in the event of 
HSW's bankruptcy, they would receive repayment from HSW only in a 
subordinated position in view of recent KSD precedent. Moreover, the 
HLB was not willing to extend the credit line absent the additional 
Kreditauftrag from the GOH covering 100 percent of the credit line. At 
that point, the provision of the credit line ceased to be consistent 
with commercial considerations. Rather, the HLB, acting as a reasonable 
commercial actor, refused to extend the line of credit, and the GOH was 
forced to accept full economic risk connected with the line of credit.
    Comment 13: Line of Credit Purchased for Full Commercial Value: 
IHSW asserts that the line of credit was purchased from HLB by Venuda 
for commercial value in an arm's length transaction. Moreover, IHSW 
contends that the purchase of the loan was a separate and distinct 
transaction from the purchase of HSW's shares. Therefore, according to 
IHSW, there was no loan forgiveness and no countervailable benefit 
arising from Venuda's purchase of the loan. IHSW further claims that 
numerous forms of consideration given by Venuda for the assignment of 
the loan, and the fact that HSW may have been on the verge of 
bankruptcy, clearly show that Venuda purchased the loan in an arm's 
length transaction for commercial consideration. IHSW adds that 
numerous other factors (e.g., restrictions from the GOH and lack of 
property ownership) further reduce the value of the company's assets 
significantly below the purchase price paid by Venuda. Thus, IHSW 
argues there was no loan forgiveness in the sale of HSW, and IHSW did 
not receive a financial contribution. IHSW adds that, even if the 
purchase of the line of credit is considered to be a part of the 
purchase of HSW, this would not change the fact that the loan to HSW 
was not forgiven because HLB received full commercial value for the 
loan.
    IHSW further argues that if the credit line purchase by Venuda is 
viewed as a ``forgiveness,'' then the Department

[[Page 55001]]

should credit all payments and obligations assumed by IHSW pursuant to 
the loan purchase agreement against any alleged or implied benefit. 
IHSW adds that, at the very least, the DM 60 million paid by Venuda to 
HLB for the loan must be recognized as a repayment of part of the loan 
and any possible countervailable benefit curtailed by that amount.
    Petitioners assert that the purchase of HSW's shares and the 
purchase of the credit line were clearly part of a single agreement by 
Venuda to purchase all of the government's interest in HSW, and cannot 
be separated. Petitioners note that during verification IHSW officials 
admitted that the purchase price of HSW included the approximately DM 
60 million paid for the HLB loan. Petitioners add that large 
transactions, such as the sale of HSW, typically are complex and 
involve multiple parties and agreements. Thus, according to 
petitioners, treating the two transactions as the purchase price paid 
for HSW is consistent with commercial reality.
    Petitioners further argue that IHSW's post-purchase investments and 
commitments do not constitute part of the purchase price. Petitioners 
contend that the payment for any good, service, or asset is the amount 
that is exchanged between the buyer and seller in exchange for the 
good, service, or asset. Petitioners assert that the only exchange 
between the buyer and seller in this case is the DM 10 million and DM 
60 million that was paid to purchase the company. Petitioners add that 
IHSW's subsequent investments in the company, whether or not required 
by the purchase agreement, do not go to the seller. Therefore, 
according to petitioners, these payments do not warrant treatment as 
part of the purchase price for HSW or as a repayment of subsidies.
    With respect to IHSW's claim that HSW owned too few of its assets 
and was encumbered with too many restrictions from the GOH to warrant 
the purchase price paid by Venuda, petitioners contend that there is 
absolutely no evidence that would permit the Department to evaluate 
IHSW's claim. Therefore, according to petitioners, IHSW's argument must 
fail.
    Department's Position: We continue to view Venuda's purchase of 
HSW's loan and HSW's shares as a single transaction. At verification, 
IHSW officials explained that the purchase price paid for HSW's shares 
(i.e., the DM 10 million) represented their valuation of HSW's non-
current assets taking into consideration HSW's negative equity 
position, the company's remaining liabilities, and the obligations that 
the company was required to fulfill pursuant to various articles in the 
loan purchase agreement between HLB and Venuda. The DM 60 million 
payment represented Venuda's valuation and payment for HSW's net 
current assets at December 31, 1994 (i.e., the difference between 
current assets and liabilities (less the debt owed to HLB)).
    These verified facts demonstrate that it was not the HLB debt that 
was purchased for commercial value in an arm's length transaction--it 
was the company. Venuda valued and purchased a company that was free of 
all HLB debt. While part of the purchase price was structured to 
resemble a debt purchase, Venuda paid DM 60 million to purchase HSW's 
net current assets. Thus, forgiveness of the debt owed to HLB occurred 
separate and apart from the purchase of the company. Moreover, the debt 
forgiveness constitutes a financial contribution to HSW.
    We also disagree with IHSW's argument that the Department should 
credit the post-purchase investments and commitments against any 
benefit from the alleged debt forgiveness. At verification, officials 
explained that the DM 10 million paid for the shares of HSW 
incorporated their valuation of HSW's remaining assets taking into 
consideration, inter alia, the obligations in question. Thus, the 
obligations in question related to the purchase of the company and not 
to the loan. Additionally, because we have determined that the debt 
forgiveness occurred separate from the sale of the company, the post-
purchase investments and commitments do not affect the amount of debt 
forgiven.
    Comment 14: The Loan Payments to a Related Party: IHSW contends 
that, in fact, the liability for the ``forgiven'' loan is still 
outstanding and payments on that loan are currently being made by 
IHSW's sister company, DSG, to an affiliated company, Picaro Limited. 
Thus, according to IHSW, inasmuch as the loan continues to be paid at 
the full amount there is no loan forgiveness and no countervailable 
benefit.
    Petitioners argue that a loan cannot be said to have been repaid by 
the device of simply shifting funds around within a group of related 
companies. Petitioners add that the verification shows that the loan 
``repayment'' actually returns to IHSW in the form of a shareholder 
contribution from Venuda.
    Department's Position: The company under investigation, IHSW, does 
not carry the loan liability to Picaro Limited on its books. The debt 
in question is recorded in the books of an affiliated company, DSG. 
Thus, from the perspective of IHSW, the loan has been totally forgiven. 
The company is under no obligation to make payments on the loan--all 
loan payments are made by DSG.
    Furthermore, we agree with petitioners that this loan cannot be 
considered outstanding with payments still occurring simply by shifting 
the liabilities within a group of related companies. Even if we were to 
examine this issue at the larger, corporate level, the loan payments 
are being made by DSG, a company which has no income other than the 
lease payments it receives from IHSW. These lease payments, which then 
become loan payments from DSG, are eventually reinvested into IHSW as 
shareholder contributions. Thus, even at this level of analysis the 
subject merchandise still benefits from the loan forgiveness because 
any payments that are made against the loan are reinvested to benefit 
production.
    Comment 15: IHSW's AUL calculation: Petitioners contend that there 
is an error in IHSW's AUL calculation because the ending gross book 
value of productive assets in 1995 does not match the beginning gross 
book value in 1996. Petitioners argue that absent a change in 
methodology at the end of 1995, which IHSW has not reported, the 
closing asset value for one year should equal the opening asset value 
for the next.
    IHSW asserts that its AUL calculation was correct and based on 
verified facts. IHSW notes that, as set forth in the 1996 annual audit 
reports for IHSW and HSW/DSG, a transfer of assets and liabilities 
occurred between DSG and IHSW. Moreover, respondents claims that the 
1996 beginning gross book value was examined by the Department at 
verification in DSG's 1996 development of fixed assets.
    Department's Position: We agree with IHSW that there is not an 
error in the company's AUL calculation. As noted by respondent, there 
was a transfer of assets between IHSW and HSW/DSG at the beginning of 
1996. The transfer is documented on the record of this investigation 
(see e.g., IHSW supplemental questionnaire response, July 3, 1997).
    Comment 16: F.O.B. Sales Value: IHSW contends that basing the ad 
valorem subsidy rate calculation on an F.O.B. sales value is not in 
accordance with the universal commercial fact that freight costs, if 
born by the foreign producer, are included in the value of the 
merchandise supposedly benefitting from a subsidy or grant. IHSW 
further disputes the Department's rationale for this policy, i.e., that 
customs valuation is performed on an F.O.B. basis. According to IHSW, 
most countries use

[[Page 55002]]

C.I.F. as the basis for customs valuation. Finally, respondent argues 
that the customs treatment has no relationship to the fact that the 
value of commercial transactions is the sum of all those factors 
embodied in the sale and evidenced by the sales price.
    Petitioners contend that IHSW's argument that the denominator in 
the ad valorem calculation should be based on the C.I.F. value or 
``sale price'' is mathematically invalid. Petitioners note that the 
Department allocates the countervailing duty margin over the customs 
value of sales because the U.S. Customs Service (``U.S. Customs'') will 
later multiply the resulting margin by the customs value to determine 
the total duty per entry. Petitioners assert that if the denominator 
uses any other measure of value, the duty calculation will be 
incorrect.
    Department's Position: We agree with petitioners. Pursuant to 
section 402(2)(A) of the Act, U.S. Customs is directed to exclude from 
the customs value any expenses incident to the international shipment 
of the merchandise from the country of exportation to the place of 
importation in the United States. Thus, the Department requests sales 
data on an F.O.B basis so that the Department and Customs are 
consistent in the calculation and assessment of countervailing duties, 
respectively. BES
    Comment 17: Countervailability of Pre-Unification Assistance to the 
New States: The GOG argues that loan guarantees issued by THA prior to 
Unification are not countervailable because they were available to all 
THA companies and hence, not specific to SWB. Both the GOG and BES 
point out that these guarantees were transnational in nature and are, 
therefore, not subject to the countervailing duty law (see Georgetown 
Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1987)).
    Petitioners argue that because the GDR eventually became part of 
the unified Germany and the ultimate beneficiary (i.e., SWB/BES) 
likewise became a citizen of the same, any assistance provided to SWB/
BES was not transnational in nature. In particular, petitioners point 
out that at the time that assistance was granted to SWB, both the FRG 
and the GDR had taken major steps in the direction of unification.
    Department's Position: We agree with the GOG and BES that any 
financial benefit, received directly by SWB and/or indirectly by BES, 
through secondary FRG loan guarantees issued prior to Unification is 
not countervailable (see the section on FRG Backing of THA Loan 
Guarantees under Programs Determined Not To Be Countervailable above). 
As previously discussed, the GDR and the FRG were separate sovereign 
countries prior to Unification; therefore, the provision of FRG backing 
of THA loan guarantees to GDR enterprises constituted transnational 
assistance, notwithstanding the steps already taken toward Unification. 
That the two countries eventually were joined is not relevant because 
our analysis is focused on the nature of the benefit at the time it was 
bestowed.
    Comment 18: Non-Use of Special Depreciation by BES: Petitioners 
acknowledge that the Department's normal practice is to recognize tax 
benefits when tax returns are filed. According to petitioners, this 
practice is justified in the context of recurring tax benefits (see 
Final Affirmative Countervailing Duty Determination: Brass Sheet and 
Strip from Brazil, 51 FR 40837, 40841 (November 10, 1986)) . 
Petitioners argue, however, that the Department should deviate from 
this practice here since BES did not file a tax return during the POI. 
By allowing BES to record no benefits in one year and then benefits 
from two tax years in another would result in changing two recurring 
benefits into a single nonrecurring benefit in the year of filing. In 
order to ensure continued treatment of Special Depreciation as a 
recurring benefit, petitioners argue that the Department should 
countervail the amount of Special Depreciation recorded in BES's books, 
regardless of the date of filing.
    BES and the GOG argue that since BES did not file a tax return 
during the POI, it did not receive a financial benefit in the form of 
Special Depreciation.
    Department's Position: We agree that with BES and the GOG that BES 
did not receive a financial benefit from Special Depreciation during 
the POI. This program provides a tax benefit. Therefore, under the 
Department's current practice, any financial contribution arising from 
Special Depreciation is realized when the ``cash flow'' effect occurs, 
i.e., when the tax return is filed (see Proposed Regulations). In past 
cases where respondents did not file tax returns during the period in 
question, or had an operating loss or were otherwise unable to benefit 
from a tax concession, the Department has not altered its methodology 
to compensate for any unevenness of benefits over time (see e.g., 
Certain Steel at 37315 and Ferrochrome From South Africa: Preliminary 
Results of the 1992 Review, 61 FR 65546, 65547 (December 13, 1996)). A 
major reason for waiting until the tax return is filed is that only 
then can we be certain of the level of the benefit. In this case, we 
found at verification that BES did not file a tax return during the 
POI; accordingly, BES did not receive a benefit from the Special 
Depreciation program during the POI.
    Comment 19: Other Arguments Regarding Countervailability: 
Interested parties made other arguments regarding the 
countervailability of assistance to BES. These arguments are now moot 
since we have found benefits pertaining to the FRG backing of THA loan 
guarantees to be not countervailable, special depreciation to be not 
used, and benefits from all other programs to be de minimis, assuming, 
arguendo, they are countervailable.
    Comment 20: Improper Inclusion of BES: BES alleges that the 
Department did not have authority to initiate an investigation against 
it because petitioners did not allege that BES was receiving any 
countervailable subsidies and did not provide evidence of regional 
assistance programs targeted at the New States.
    Department's position: The statute does not require company-
specific allegations to initiate an investigation. A petitioner must 
only allege that the government of a country is providing 
countervailable subsidies with respect to the manufacture, production 
or export of a class or kind of merchandise imported or sold for 
exportation into the United States, and that such subsidies are causing 
injury to the U.S. industry. See section 701(a) and 702(a)(b)(1) of the 
Tariff Act. The petition met these requirements.
    If sufficient allegations are made, the Department initiates a 
proceeding to determine whether the government of the country in 
question is providing subsidies to the subject industry. As an initial 
matter, the Department asks a petitioner to identify all the 
manufacturers or exporters of the subject merchandise. Normally, the 
Department sends all identified companies questionnaires, in addition 
to sending a complete set of questionnaires to the government involved. 
The Act requires the Department to attempt to determine an individual 
countervailable subsidy rate for each known exporter or producer of the 
subject merchandise. See section 777(e)(1). There is no authority to 
exclude a respondent from an investigation except through the 
determination that the company had an ad valorem subsidy rate of zero 
or de minimis. See 19 CFR Section 355.14.
    Suspension of Liquidation: In accordance with section 
705(c)(1)(B)(i) of the Act, we have calculated an

[[Page 55003]]

individual subsidy rate for each company investigated. For companies 
not investigated, we have determined an all-others rate by weighting 
individual company subsidy rates by each company's exports of the 
subject merchandise to the United States. The all-others rate does not 
include zero or de minimis rates.
    In accordance with section 703(d)(5) of the Act, we are directing 
the U.S. Customs Service to continue to suspend liquidation of all 
entries of steel wire rod from Germany, except those of BES and WHG, 
which are entered, or withdrawn from warehouse for consumption, on or 
after the date of publication of this notice in the Federal Register, 
and to require a cash deposit or bond for such entries of the 
merchandise in the amounts indicated below. This suspension will remain 
in effect until further notice.

------------------------------------------------------------------------
                                                                   Ad   
                           Company                              valorem 
                                                                  rate  
------------------------------------------------------------------------
Saarstahl....................................................      17.67
IHSW.........................................................       5.61
All others...................................................      11.08
------------------------------------------------------------------------

    Since the estimated net subsidy rate for BES and WHG is de minimis, 
these companies are not subject to the suspension of liquidation and 
will be excluded from any countervailing duty order.

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 determines that material injury, or threat of material 
injury, does not exist, these proceedings will be terminated and all 
estimated duties deposited or securities posted as a result of the 
suspension of liquidation will be refunded or canceled. If, however, 
the ITC determines that such injury does exist, we will issue a 
countervailing duty order directing Customs officers to assess 
countervailing duties on steel wire rod from Germany.

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 are on 
file in the Central Records Unit (Room B-099 of the Main Commerce 
Building).

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. 97-27985 Filed 10-21-97; 8:45 am]
BILLING CODE 350-DS-P