[Federal Register Volume 62, Number 204 (Wednesday, October 22, 1997)]
[Notices]
[Pages 54972-54990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27986]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-122-827]


Final Affirmative Countervailing Duty Determination: Steel Wire 
Rod From Canada

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

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT: Robert Bolling or Rick Johnson, Office 
of Antidumping/Countervailing Duty Enforcement, Group III, Office IX, 
Import Administration, U.S. Department of Commerce, Room 1874, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone 
(202) 482-3434, or 482-0165, respectively.

Final Determination

    The Department of Commerce (the ``Department'') determines that 
countervailable subsidies were provided to Sidbec-Dosco (Ispat) Inc., a 
producer and exporter of steel wire rod from Canada. For information on 
the estimated countervailing duty rates, please see the Suspension of 
Liquidation section of this notice.

Case History

    Since our preliminary determination on July 28, 1997 (62 FR 41933-
39, August 4, 1997) (``Preliminary Determination''), the following 
events have occurred:
    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).
    We conducted verification in Canada of the questionnaire responses 
of the Government of Canada (``GOC''), the Government of Quebec 
(``GOQ''), the

[[Page 54973]]

Government of Ontario (``GOO''), Sidbec-Dosco (Ispat) Inc. (``SDI''), 
Sidbec (Sidbec was incorrectly referred to as ``Sidbec, Inc.'' in the 
preliminary determination), Ivaco, Inc. (Ivaco), Stelco, Inc. (Stelco), 
Bank of Canada, The Bank of Nova Scotia, and the Canadian Steel Trades 
and Employment Congress (CSTEC) from September 2 through September 11, 
1997.
    Argument: Petitioners and respondents filed case and rebuttal 
briefs on September 22 and September 25, 1997, respectively. A public 
hearing was held on September 29, 1997.

Scope of Investigation

    The products covered by this investigation are certain hot-rolled 
carbon steel and alloy steel products, in coils, of approximately round 
cross section, between 5.00 mm (0.20 inch) and 19.0 mm (0.75 inch), 
inclusive, in solid cross-sectional diameter. Specifically excluded are 
steel products possessing the above-noted physical characteristics and 
meeting the Harmonized Tariff Schedule of the United States (HTSUS) 
definitions for (a) stainless steel; (b) tool steel; (c) high nickel 
steel; (d) ball bearing steel; (e) free machining steel that contains 
by 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. These products are 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. 
These products are commonly referred to as ``Valve Spring Quality Wire 
Rod.''
    The products under investigation are currently classifiable under 
subheadings 7213.91.3000, 7213.91.4500, 7213.91.6000, 7213.99.0030, 
7213.99.0090, 7227.20.0000, and 7227.90.6050 of the HTSUS. Although the 
HTSUS subheadings are provided for convenience and customs purposes, 
our written description of the scope of this investigation is 
dispositive.

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act effective January 1, 1995 (the 
``Act'').

Injury Test

    Because Canada is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the International Trade 
Commission (ITC) is required to determine whether imports of wire rod 
from Canada materially injure, or threaten material injury to, a U.S. 
industry. On April 30, 1997, the ITC published its preliminary 
determination finding that there is a reasonable indication that an 
industry in the United States is being materially injured or threatened 
with material injury by reason of imports from Canada of the subject 
merchandise (62 FR 23485).

Petitioners

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

Corporate History

    Sidbec was established by the GOQ in 1964. In 1968, Sidbec acquired 
Dominion Steel and Coal Corporation Limited, a steel producer, and 
later changed the name to Sidbec-Dosco, Inc. The GOQ owned 100 percent 
of Sidbec's stock, and Sidbec owned 100 percent of Sidbec-Dosco, Inc.'s 
stock, until privatization in 1994.
    In 1976, Sidbec, British Steel Corporation (International), and 
Quebec Cartier Mining Company entered into a joint venture to mine and 
produce iron ore concentrates and iron oxide pellets. The company they 
formed was Sidbec-Normines Inc. (Sidbec-Normines), of which Sidbec 
owned 50.1%. These mining activities were shut down in 1984.
    Before its privatization, Sidbec-Dosco, Inc. operated steel making 
facilities in Contrecoeur, Montreal and Longueuil, Quebec. Until 1987, 
all of the facilities at Longueuil and a good portion of the facilities 
in Contrecoeur were owned by Sidbec and leased to Sidbec-Dosco, Inc. In 
1987, Sidbec reorganized in order to consolidate all steel-related 
assets under its wholly-owned subsidiary, Sidbec-Dosco, Inc. Sidbec 
itself became a holding company.
    On August 17, 1994, Sidbec-Dosco, Inc. was sold to Beheer-en 
Beleggingsmaatschappij Brohenco B.V. (Brohenco), which is wholly-owned 
by Ispat-Mexicana, S.A. de C.V. (Ispat Mexicana). It became known as 
Sidbec-Dosco (Ispat) Inc.
    Sidbec, the holding company, continues to be 100% owned by the GOQ.

Subsidies Valuation Information

    Period of Investigation: The period for which we are measuring 
subsidies (the ``POI'') is calendar year 1996.
    Allocation Period: In the past, the Department has relied upon 
information from the U.S. Internal Revenue Service on the industry-
specific average useful life of assets, in determining the allocation 
period for nonrecurring subsidies. See General Issues Appendix 
(``GIA'') appended to Final Countervailing Duty Determination; Certain 
Steel Products from Austria (58 FR 37217, 37226; July 9, 1993). 
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 the allocation methodology. In accordance with 
the Court's remand order, the Department calculated a company-specific 
allocation period for nonrecurring subsidies based on the average 
useful life (``AUL'') of non-renewable physical assets. This remand 
determination was affirmed by the Court on June 4, 1996. See British 
Steel plc. v. United States, 929 F. Supp. 426, 439 (CIT 1996).
    In this investigation, the Department has followed the Court's 
decision in British Steel. Therefore, for the purposes of this final 
determination, the Department has calculated a company-specific AUL.
    Based on information provided by Sidbec and SDI regarding 
depreciable assets, the Department has determined the appropriate 
company-specific allocation period. Due to the proprietary nature of 
data from SDI, we are unable to provide the specific AUL for Sidbec/SDI 
for the public file. The calculation of this AUL is on the official 
file in the Central Records Unit, Room B-099 of the Department of 
Commerce (see Memorandum to the File: Calculation of AUL Period, dated 
October 14, 1997).
    Because we have determined that Ivaco and Stelco did not receive 
any non-recurring subsidies during the POI,

[[Page 54974]]

we have not calculated an AUL for either company.
    Equityworthiness: In analyzing whether a company is equityworthy, 
the Department considers whether that company could have attracted 
investment capital from a reasonable, private investor in the year of 
the government equity infusion based on information available at that 
time. In this regard, the Department has consistently stated that a key 
factor for a company in attracting investment capital is its ability to 
generate a reasonable return on investment within a reasonable period 
of time.
    In making an equityworthiness determination, the Department 
examines the following factors, among others:
    1. Current and past indicators of a firm's financial condition 
calculated from that firm's financial statements and accounts;
    2. Future financial prospects of the firm including market studies, 
economic forecasts, and project or loan appraisals;
    3. Rates of return on equity in the three years prior to the 
government equity infusion;
    4. Equity investment in the firm by private investors; and
    5. Prospects in the world for the product under consideration.
    For a more detailed discussion of the Department's equityworthiness 
methodology, see GIA (58 FR at 37239 and 37244).
    Petitioners alleged that Sidbec and Sidbec-Dosco, Inc. (SDI's 
predecessor) were unequityworthy for the period 1982 through 1992. 
Petitioners alleged that any equity infusions received during those 
years would have been inconsistent with the usual investment practices 
of private investors and therefore conferred a countervailable benefit 
within the meaning of section 771(5)(E)(i) of the Act. In the 
preliminary determination, we determined Sidbec to be unequityworthy 
from 1982 to 1992 (see Preliminary Determination at 62 FR 41933).
    In this investigation, both the GOQ and SDI have submitted 
arguments regarding Sidbec's equityworthyness at the time of the 1988 
debt-to-equity conversion, and whether the Department considered the 
appropriate company (Sidbec versus Sidbec-Dosco, Inc.) when it made its 
preliminary equityworthiness determination.
    Throughout the period 1982 to 1985, Sidbec reported substantial 
losses. Although Sidbec reported a profit in 1986 and 1987, the profits 
were not of such a magnitude to offset the substantial losses suffered 
from 1982 through 1985. Additionally, return on equity was either 
negative or not meaningful (due to a negative equity balance) in every 
year from 1984 through 1987. Moreover, for the years 1984 through 1987 
Sidbec had a negative debt-to-equity ratio, which indicated that the 
company's liabilities exceeded the company's assets. Therefore, based 
on an analysis of Sidbec's data, we have determined that Sidbec was 
unequityworthy at the time of the 1988 debt-to-equity conversion (see 
Comments 8-10 below). The Department has not rendered a final 
determination on other years in the AUL period, because for this final 
determination we find only one potentially countervailable equity 
event, the 1988 debt-to-equity conversion.
    Equity Methodology: In measuring the benefit from a government 
equity infusion to an unequityworthy company, the Department compares 
the price paid by the government for the equity to a market benchmark, 
if such a benchmark exists, i.e., the price of publicly traded shares 
of the company's stock or an infusion by a private investor at the time 
of the government's infusion (the latter may not always constitute a 
proper benchmark based on the specific circumstances in a particular 
case).
    Where a market benchmark does not exist, the Department has 
determined in this investigation to continue to follow the methodology 
described in the GIA 58 FR 37239-44. Following this methodology, equity 
infusions made into an unequityworthy firm are treated as grants. Using 
the grant methodology for equity infusions into an unequityworthy 
company is based on the premise that an unequityworthiness finding by 
the Department is tantamount to saying that the company could not have 
attracted investment capital from a reasonable investor in the infusion 
year based on the available information.
    Creditworthiness: When the Department examines whether a 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 normally evaluates financial data for three years prior to 
each year at issue to determine whether or not a firm is creditworthy. 
The Department considers the following factors, among others:
    1. Current and past indicators of a firm's financial health 
calculated from that firm's financial statements and accounts;
    2. The firm's recent past and present ability to meet its costs and 
fixed financial obligations with its cash flow; and
    3. Future financial prospects of the firm including market studies, 
economic forecasts, and project or loan appraisals.
    For a more detailed discussion of the Department's creditworhiness 
criteria, see, e.g., Final Affirmative Countervailing Duty 
Determinations: Certain Steel Products from France, 58 FR 37304 (July 
9, 1993) (``Certain Steel Products from France''), and Final 
Affirmative Countervailing Duty Determination: Certain Steel Products 
from the United Kingdom, 58 FR 37393 (July 9, 1993).
    Petitioners alleged that Sidbec and Sidbec-Dosco, Inc. were 
uncreditworthy from 1977 through 1993. We first initiated an 
investigation of Sidbec-Dosco, Inc.'s creditworthiness for the years 
1982 and 1984 through 1988. Then, on July 1, 1997, we initiated an 
investigation of Sidbec's creditworthiness for the period 1984 through 
1993. In the preliminary determination, we determined Sidbec to be 
uncreditworthy from 1982 to 1992 (see Preliminary Determination, 62 FR 
at 41935).
    In its case brief, SDI submitted arguments regarding Sidbec's 
creditworthiness from 1982 to 1992, and whether the Department 
considered the appropriate company (Sidbec versus Sidbec-Dosco, Inc.) 
when it made its preliminary creditworthiness determination (see 
Comment 14 below).
    To determine the creditworthiness of Sidbec during the years 1983 
(the year of the first countervailable subsidy in the AUL period) 
through 1992 (the year of the last alleged subsidy in the AUL period), 
we have evaluated certain liquidity and debt ratios, i.e., quick, 
current, times interest earned, and debt-to-equity, on a consolidated 
basis. For the period 1980 through 1985, the company consistently 
incurred substantial losses. Despite the fact that Sidbec reported a 
profit from 1986 through 1990, the company was still thinly capitalized 
and had a high debt-to-equity ratio during this time. Additionally, the 
interest coverage ratio was negative for the years 1991 and 1992 and 
the liquidity ratios (i.e., quick and current ratio) indicated that the 
company may have had difficulty in meeting its short-term obligations. 
Consequently, based on our analysis of Sidbec's data, we have 
determined that

[[Page 54975]]

Sidbec was uncreditworthy for the years 1983 through 1992.
    Discount Rates: Respondents did not provide company-specific 
information relevant to the appropriate discount rates to be used in 
calculating the countervailable benefit for non-recurring grants and 
equity infusions in this investigation. For the preliminary 
determination, we used the long-term government bond rate in Canada 
published in the International Monetary Fund (IMF) International 
Financial Statistics Yearbook as the discount rate, plus a risk premium 
(because we had determined Sidbec to be uncreditworthy), for each year 
in which there was a non-recurring countervailable subsidy. For the 
final determination, because we now have verified long-term corporate 
rates for the AUL period (i.e., loans or bonds) from the Bank of 
Canada, we have used these rates as the discount rate, plus a risk 
premium (because we have continued to determine Sidbec to be 
uncreditworthy), for each year in which there was a non-recurring 
countervailable subsidy, i.e., 1983 through 1992.
    Privatization/Restructuring Methodology: In the GIA, we applied a 
new methodology with respect to the treatment of subsidies received 
prior to the sale of a government-owned company. Under this 
methodology, we calculate the amount of prior subsidies that passed 
through to the purchaser.
    In the specific context of a restructuring, as here, where Sidbec 
sold Sidbec-Dosco, Inc. to Ispat Mexicana's subsidiary Brohenco, we 
performed the calculation for restructuring as set forth in the GIA, 58 
FR at 37269, to derive the amount of prior subsidies that passed 
through to SDI.
    In the current investigation, we have analyzed the privatization of 
Sidbec-Dosco, Inc. in the year 1994. We have followed the methodology 
in the GIA, described above, to calculate the amount of prior subsidies 
that passed through to SDI.
    Based upon our analysis of the petition, the responses to our 
questionnaires, and verification, we determine the following:

I. Programs Determined To Be Countervailable

A. 1988 Debt-to-Equity Conversion

    Petitioners alleged that Sidbec-Dosco, Inc. received a debt-to-
equity conversion from either the GOC or the GOQ in 1988 based on 
Sidbec-Dosco, Inc.''s 1988 Annual Report. SDI reported that a portion 
of Sidbec's debt (owed to the GOQ) was converted into Sidbec capital 
stock in 1988. According to SDI, the debt consisted of four loans 
provided to Sidbec by the GOQ during the period 1982-1985, plus accrued 
interest. SDI explained that, every two years, the GOQ extended the 
maturity date for these loans for another two years. According to the 
GOQ, it converted four of Sidbec's debt instruments into equity in 
Sidbec in 1988 in order to improve Sidbec-Dosco, Inc.''s economic 
profile, for the purpose of making it more attractive for 
privatization, partnership, or investment. In the GOQ Act which 
authorized this debt conversion, Sidbec was authorized to acquire, as 
it later did, an equivalent amount in shares of Sidbec-Dosco, Inc.
    We have concluded that, consistent with our equity methodology, 
benefits to Sidbec occurred at the point when the debt instruments 
(i.e., loans) were converted to capital stock given that, as discussed 
above, we have determined that Sidbec was unequityworthy in 1988. See, 
e.g., Certain Steel Products from France, 58 FR at 37306-7, 37312. We 
consider the conversion of debt to capital stock in 1988 to constitute 
an equity infusion inconsistent with the usual investment practice of 
private investors within the meaning of section 771(5)(E)(i) of the 
Act.
    When receipt of benefits under a program is not contingent upon 
exportation, the Department must determine whether the program is 
specific to an enterprise or industry, or group of enterprises or 
industries. Under the specificity analysis, the Department examines 
both whether a government program is limited by law to a specific 
enterprise or industry, or group thereof (i.e., de jure specificity), 
and whether the government program is in fact limited to a specific 
enterprise or industry, or group thereof (i.e., de facto specificity) 
(see Section 771(5A)(D) of the Act). We determine the 1988 debt-to-
equity conversion to be specific, because it was provided only to one 
enterprise, Sidbec, and was not part of a broader program.
    For these reasons, we determine that the 1988 debt-to-equity 
conversion constitutes a countervailable subsidy within the meaning of 
section 771(5) of the Act.
    Consistent with the equity methodology, we followed our standard 
declining balance grant methodology for allocating the benefits from 
the equity infusion represented by the debt-to-equity conversion. We 
then reduced the benefit stream by applying the privatization 
calculation described in the Restructuring section of the GIA (58 FR at 
37269). We divided the benefit by SDI total sales. On this basis, we 
calculated an estimated net subsidy for this program of 0.92 percent ad 
valorem for SDI.

B. 1983-1992 Grants

    Sidbec received grants from the GOQ from 1983 to 1992 to compensate 
for expenses it incurred to finance Sidbec-Normines and its 
discontinued operations. Certain of these grants were provided by the 
GOQ to Sidbec with regard to the payment of interest on six different 
loans, the first of which was taken out in 1983. The GOQ was the 
guarantor of these loans. These grants were made in each year from 1983 
to 1992. In addition, other grants were provided by the GOQ to Sidbec 
with regard to the payment of the principal on the same six loans 
during each year from 1984 to 1992. In the preliminary determination, 
the Department noted that these payments appeared in Sidbec's 
Consolidated Contributed Surplus and treated them as equity infusions 
from the GOQ. However, at verification the Department discovered that 
these payments were not equity but grants. The receipt of these grants 
occurred as follows: (1) Sidbec paid the interest and principal, as it 
came due, on loans that were taken out to finance Sidbec-Normines and 
its discontinued mining operations; (2) Sidbec then issued statements 
to the GOQ for these amounts; and (3) the GOQ, after obtaining the 
necessary budgetary authority, issued checks to Sidbec to cover these 
expenses. According to the GOQ, to process a request for these funds, 
approval was needed from four agencies (i.e., the Quebec Ministry of 
Industry and Commerce, the Treasury Board, the National Assembly and 
the Executive Counsel). Once the approval process was completed, the 
GOQ issued a decree providing funding to Sidbec. See July 3, 1997 GOQ 
response, Exhibit H. In some years, the GOQ-approved grants did not 
cover all of the principal and interest due and paid by Sidbec (because 
of differing fiscal years for Sidbec and the GOQ), and Sidbec's 
financial statements recorded ``grants receivable'', based on 
management's ``estimate'' that the GOQ would reimburse Sidbec; the 
financial statements also explained how it would be handled ``[i]f the 
Government was to decide to pay a smaller amount'' than recorded in the 
``grants receivable'' account. Nevertheless, over time, the GOQ did 
provide grants to Sidbec covering, in full, all principal and interest 
payments due on the six loans.
    We have determined that the GOQ funds provided to Sidbec to finance 
Sidbec-Normines and its discontinued

[[Page 54976]]

mining operations were in the form of grants (see Comment 6). Based on 
our analysis of the record and the comments received from interested 
parties (in Comments 3, 4, 5, and 7), we determine that these grants 
constitute countervailable subsidies within the meaning of section 
771(5) of the Act and are non-recurring in nature. We also have 
determined that they are specific within the meaning of section 
771(5A)(D) of the Act because they were provided only to one 
enterprise, Sidbec, and were not part of a broader program.
    To calculate the countervailable subsidy, we followed our standard 
declining balance grant methodology, as discussed above. We reduced the 
benefit stream by applying the privatization calculation described in 
the Restructuring section of the GIA (58 FR at 37269).
    We divided the benefit attributable to the POI by SDI total sales 
during the same period. On this basis, we determine the countervailable 
subsidy for this program to be 8.03 percent ad valorem for SDI.

II. Programs Determined To Be Not Countervailable

A. Canadian Steel Trade Employment Congress Skill Training Program

    The GOC, through the Human Resources Development Canada (HRDC), and 
provincial regional governments provide financial support to private 
sector-led human resource projects through the Sectoral Partnerships 
Initiative (SPI). The GOC stated that SPI has been active in over 
eighty Canadian industrial sectors, including steel through the Canada 
Steel Trades and Employment Congress (CSTEC). CSTEC's activities are 
divided into two types of assistance: 1) worker adjustment assistance, 
for unemployed steel workers; and 2) skills training assistance, for 
currently employed workers.
    With regard to the worker adjustment assistance, funds flowing from 
HRDC do not go to the companies, but rather to unemployed workers in 
the form of assistance for retraining costs or income support. We have 
determined that these funds are not countervailable because the 
companies are not relieved of any obligations.
    As discussed below (see Comment 16), based on the record, we have 
determined that funds received by SDI, Stelco and Ivaco from CSTEC for 
training purposes did not provide countervailable benefits during the 
POI, because these SPI benefits, which constitute a domestic subsidy, 
were not specific to the Canadian steel industry.

B. 1987 Grant to Sidbec-Dosco, Inc.

    Petitioners alleged that in 1987, Sidbec-Dosco, Inc. received a 
grant from the GOQ. SDI stated that the GOQ did not provide a 
contribution to Sidbec-Dosco, Inc. in 1987. At verification, we found 
no evidence that the GOQ provided a grant to Sidbec-Dosco, Inc. in 
1987. In 1987, Sidbec underwent a reorganization in order to 
consolidate all steel-related assets under Sidbec-Dosco, Inc. The 
Department discovered that this transaction involved an intracompany 
reorganization, and that this arrangement was exclusively between 
Sidbec and Sidbec-Dosco, Inc. Therefore, we have determined that no 
countervailable benefits were conferred.

C. 1987 Debt-to-Equity Conversion

    Petitioners alleged that, in 1987, Sidbec-Dosco, Inc. received an 
equity infusion from either the GOC or GOQ. Specifically, petitioners 
stated that Sidbec (which was wholly-owned by the GOQ) converted loans 
to Sidbec-Dosco, Inc. into Sidbec-Dosco, Inc. shares. Both the GOC and 
the GOQ stated that they did not participate in a debt-to-equity 
conversion involving either Sidbec or Sidbec-Dosco, Inc. in 1987. We 
found no evidence at verification that the GOQ provided an infusion of 
equity, either through a debt-to-equity conversion or otherwise, to 
Sidbec-Dosco, Inc. in 1987. Furthermore, as with the alleged 1987 
grant, we found that the basis for petitioners' allegation in fact 
involved a transfer of assets associated with the intracompany 
reorganization. Therefore, we have determined that no countervailable 
benefits were conferred.

D. Contributed Surplus

    On July 1, 1997, we initiated an investigation on petitioners' 
allegation that C$51.7 million in contributed surplus constituted a 
countervailable subsidy. SDI reported that this contributed surplus was 
related to a capital expenditure program for fixed assets, and all of 
the assistance was received prior to 1980, which is outside the AUL 
period being used for Sidbec in this investigation. Additionally, the 
GOQ stated that Sidbec received these funds (which originated from both 
from the GOQ and the GOC) prior to the AUL period. At verification, we 
reviewed documentation which indicated that Sidbec received this C$51.7 
million contributed surplus prior to the AUL period. Therefore, based 
on record information, we have determined that these funds did not 
provide countervailable benefits during the POI.

E. Payments Against Accumulated Grants Receivable

    On July 1, 1997, we initiated an investigation on petitioners' 
allegation that C$43.8 million in payments against accumulated grants 
receivable in 1988 constituted a countervailable subsidy. SDI reported 
that these grants receivable are included in the amounts of the 1983-
1992 grants discussed above that went to the discontinued mining 
operations of Sidbec-Normines. At verification of the GOQ, we confirmed 
that all GOQ payments made to Sidbec between 1983 and 1993 are 
accounted for by the 1983-1992 grants discussed above (see Comment 11 
below). Therefore, based on record information, we have determined that 
no additional countervailable benefits were provided.

F. 1982 Assistance to Sidbec-Dosco, Inc.

    Petitioners alleged that in 1982, Sidbec-Dosco, Inc. received an 
infusion of emergency funds, either in the form of a grant or an equity 
infusion, from the GOQ. At verification, we gathered additional 
information on the alleged 1982 assistance to Sidbec-Dosco, Inc. Record 
evidence indicates that the GOQ did not provide any governmental 
assistance to either Sidbec or Sidbec-Dosco, Inc. in 1982 (see, e.g., 
Government of Quebec Verification report).

G. 1980 and 1981 Grants

    On July 25, 1997, petitioners' alleged that through a review of 
Sidbec's 1980 through 1982 financial statements indicated that the GOQ 
provided grants to Sidbec in 1980 and 1981. At verification, we 
gathered information on the alleged grants to Sidbec. Record evidence 
indicates that the GOQ did not provide any grants to Sidbec in 1980 or 
1981 (see, e.g., Government of Quebec Verification report).

III. Programs Determined To Be Not Used

A. Industrial Development of Quebec

    The Industrial Development of Quebec (IDQ) is a law administered by 
the Societe de Developpement Industriel du Quebec (SDIQ), a GOQ agency 
that funds a wide range of industrial development projects in many 
industrial sectors. Under Article 2(a) of the IDQ, SDIQ provided 
funding to help companies utilize modern technologies in order to 
``increase efficiency and exploit the natural resources of Quebec'' 
(see GOQ July 3, 1997 response at page 12). In 1982, the GOQ rescinded 
the applicable law authorizing SDIQ to provide these grants.

[[Page 54977]]

    The Department verified that Ivaco received grants in 1984 and 1985 
which had been authorized prior to the program's rescission in 1982. 
With respect to these grants, we analyzed the total amount of funding 
Ivaco received in each year, and we have determined that the benefits 
Ivaco received under this program for each year constituted a de 
minimis portion (i.e., less than 0.5 percent) of total sales value, and 
therefore should be expensed in each year they were received. 
Therefore, because the grants provided under this program were expensed 
in the year of receipt, we have determined that no countervailable 
benefits were bestowed on Ivaco during the POI.

Interested Party Comments

    Comment 1: Respondent SDI maintains that the Department's 
determination to treat Sidbec, Sidbec-Dosco, Inc., and Sidbec-Normines 
as one entity in the preliminary determination in part because they 
prepared consolidated financial statements is legally insufficient. 
First, SDI claims that, after cessation of Sidbec-Normines' operations 
in 1984, in accordance with GAAP, Sidbec-Normines' financial results 
were not consolidated with those of Sidbec or Sidbec-Dosco, Inc. Thus, 
concludes SDI, the Department's decision to treat Sidbec-Normines as 
being the same as Sidbec was based on an incorrect premise: for only 
two of the years in which the Department found subsidies were Sidbec-
Normines' financial results consolidated with the other two companies.
    SDI contends that the facts in Certain Steel Products from France, 
cited by the Department in the preliminary determination, ``are clearly 
and sharply distinguishable from those here.'' Specifically, SDI 
asserts that, in Certain Steel Products from France, the collapsed 
parties, Usinor and Sacilor, each produced the subject merchandise, 
each received subsidies whose benefits were still countervailable in 
the period of investigation, and merged together before the 
investigation was initiated. SDI also cites Ferrosilicon from 
Venezuela, 58 FR 27539, 27542 (May 10, 1993), in which the Department 
treated a parent corporation and its subsidiary as two distinct 
entities, as supporting the principle of ``choos(ing) substance over 
form'' in terms of addressing the treatment of distinct corporate 
entities. By relying only on GAAP, SDI maintains that the Department 
failed to examine whether Sidbec-Dosco, Inc. in fact benefitted from 
the subsidies at issue. SDI also argues that this approach conflicts 
with Department practice. Citing Prestressed Concrete Wire from France, 
47 FR 47031, 47036 (Oct. 22, 1982), SDI states that the Department 
noted that: ``(i)t cannot be concluded solely from the consolidation of 
financial statements that the subsidiaries or the parent are not 
operating independently.''
    Petitioners argue that respondents misread the preliminary 
determination by describing the Department's decision to treat Sidbec, 
Sidbec-Dosco, Inc., and Sidbec-Normines as a single entity as based on 
the fact that their financial statements are consolidated. According to 
petitioners, the Department collapsed the analysis of these three 
entities, not merely because of their financial statements, but also 
because of the close relationship of these entities as well as their 
common goal of creating a fully integrated steel company in Quebec.
    Petitioners believe that the close relationship between Sidbec and 
Sidbec-Dosco, Inc. renders them indistinguishable for the purposes of 
weighing subsidy benefits. Petitioners argue that Sidbec was a crown 
corporation established to create an integrated steel facility in 
Quebec. Petitioners assert that, pursuant to that mission, it acquired 
Sidbec-Dosco, Inc. Petitioners also state that Sidbec founded Sidbec-
Normines, in which it held a majority interest for the express purpose 
of supplying pelletized iron to Sidbec-Dosco, Inc. Petitioners claim 
that throughout the period of subsidies, Sidbec, Sidbec-Dosco, Inc. and 
Sidbec-Normines shared the same identity of interest: the production of 
steel from iron ore mined in Quebec. Petitioners conclude that the 
Department should not permit a result allowing Sidbec-Dosco to 
circumvent the countervailing duty law because the subsidies were 
formally bestowed on Sidbec.
    Petitioners also have noted that in Certain Steel from Germany, the 
Department found that subsidies from the parent, DHS, passed through to 
its newly acquired subsidiary, Dillinger, even though the forgiven debt 
was incurred with respect to sales of another DHS subsidiary, 
Saarstahl. Thus, according to petitioners, attribution of subsidies 
from a parent to its subsidiaries may be entirely appropriate even in 
situations involving no production of subject merchandise.
    Finally, petitioners have argued that, even if the Department 
chooses not to treat Sidbec, Sidbec-Dosco, Inc. and Sidbec-Normines as 
a single entity, it must allocate benefits to Sidbec, and through 
Sidbec to Sidbec-Dosco, Inc. Petitioners agree with SDI that, ``in 
determining whether a benefit is found for the subject merchandise, the 
Department normally must examine the recipient of the subsidy.'' 
Petitioners point to the 1997 Proposed Rules, which state as a general 
rule that the Department will normally attribute a subsidy received by 
a corporation to the products produced by that corporation and that if 
the corporation is a holding company, subsidies will normally be 
attributed to the consolidated sales of the holding company.
    Department's Position: In the preliminary determination, the 
Department stated: ``Because Sidbec, Inc.'s financial statements were 
consolidated including both its mining and steel manufacturing 
activities, and because the alleged subsidies under investigation were 
granted through Sidbec, Inc., we are treating Sidbec, Inc., Sidbec-
Dosco, Inc. and Sidbec-Normines as one entity for the purposes of 
determining benefits to the subject merchandise from alleged 
subsidies.'' Preliminary Determination, 62 FR at 41934. This statement 
needs clarification.
    There are two ways in which the Department, in applying the 
countervailing duty law, treats the parent entity and its subsidiaries 
as one when determining who ultimately benefits from a subsidy. First, 
the Department ``generally allocate[s] subsidies received by parents 
over sales of their entire group of companies.'' GIA, 58 FR at 37262. 
One example of this practice is Final Affirmative Countervailing Duty 
Determination; Certain Hot-rolled Lead and Bismuth Carbon Steel 
Products from France, 58 FR 6221 (Jan. 27, 1993) (``France Bismuth''), 
where the ``Department allocated subsidies to all French subsidiaries 
of the parent company, a French holding company, which was the 
recipient of the subsidies.'' GIA, 58 FR at 37262. Second, the 
Department has found that a subsidy provided to one company can bestow 
a countervailable benefit on another company in the same corporate 
family. As we explained in Final Affirmative Countervailing Duty 
Determination; Certain Pasta from Italy, 61 FR 30288, 30290, 30308 
(June 14, 1996) (``Pasta from Italy''), in certain situations, the 
Department will treat two (or more) affiliated companies as a single 
entity, so that a subsidy to either company is deemed a subsidy to the 
other company and allocated over the combined sales of the two 
companies. Thus, in Pasta from Italy, the Department treated two 
affiliated companies as a single entity because they were sufficiently 
related to each other, i.e., one company owned 20 percent or more of 
the other company, and both companies produced the

[[Page 54978]]

subject merchandise. The Department also treated two affiliated 
companies related by 20 percent or more ownership as a single entity 
where one company, a service company, did not produce the subject 
merchandise but nevertheless was ``deeply involved in the operations 
of'' the other company, which did produce the subject merchandise. Id. 
at 30290. See also GIA, 58 FR at 37262 (discussing Armco, Inc. v. 
United States, 733 F. Supp. 1514 (CIT, 1990), where the court 
``endorsed countervailing the parent company for subsidies received by 
the subsidiary because both were part of the same business enterprise, 
and the parent exercised control over its subsidiary'').
    In this investigation, from the beginning of the AUL period until 
1984, when Sidbec-Normines' mining operations were shut down, Sidbec 
was the parent of both Sidbec-Dosco, Inc. and Sidbec-Normines, owning 
100 percent of Sidbec-Dosco, Inc. and 50.1 percent of Sidbec-Normines, 
as well as 100 percent ownership of two other relatively less 
significant companies--Sidbec-Feruni, Inc. (steel scrap) and Sidbec 
International Inc. (sales of iron ore). In addition, Sidbec's financial 
statements included both Sidbec-Dosco, Inc. and Sidbec-Normines among 
the consolidated companies. Consistent with our past practice, 
therefore, we have treated any untied subsidy received by the parent, 
Sidbec, during this period as benefitting all of the companies in the 
Sidbec group, including Sidbec-Dosco, Inc. and Sidbec-Normines. We note 
that we also would treat Sidbec and Sidbec-Dosco, Inc. as a single 
entity during this period (and, in fact, continuing until 1987, at 
which time the Sidbec group was reorganized and Sidbec became a holding 
company and Sidbec-Dosco, Inc. assumed responsibility for all steel 
wire rod production), with the result that any untied subsidies 
received by either Sidbec or Sidbec-Dosco, Inc. during this period 
would be allocated to the sales of both companies. In this regard, both 
Sidbec and Sidbec-Dosco, Inc. were producers of the subject 
merchandise, Sidbec owned 100 percent of Sidbec-Dosco, Inc. and their 
steel wire rod operations were intertwined. Nevertheless, we need not 
reach that issue, given that Sidbec was the only entity that received 
subsidies during the entire AUL period, and these subsidies already are 
attributable to all of the members of the Sidbec group, including 
Sidbec-Dosco, Inc., under our normal practice when dealing with 
subsidies to the head of a consolidated group, as exemplified by France 
Bismuth.
    From 1984, when Sidbec-Normines' mining operations were shut down, 
until 1987, the relationship between Sidbec and Sidbec-Dosco, Inc. did 
not materially change. Consequently, our practice dictates that we 
attribute any untied subsidies received by Sidbec during this period to 
the Sidbec group, which continues to include Sidbec and Sidbec-Dosco, 
Inc., but no longer Sidbec-Normines, whose production had ceased.
    In 1987, the Sidbec group was reorganized, Sidbec became a holding 
company, and Sidbec-Dosco, Inc. took over all steel wire rod production 
for the Sidbec group. From 1987 until the privatization of Sidbec-
Dosco, Inc. in 1994, we still must attribute any untied subsidies 
received by Sidbec--now a holding company, like Usinor Sacilor in 
France Bismuth--to the Sidbec group, which included Sidbec-Dosco, Inc.
    Finally, from the privatization of Sidbec-Dosco, Inc. in 1994 
through the POI, our practice dictates that we treat all of the 
subsidies previously received by Sidbec during the AUL period and 
attributable to Sidbec-Dosco, Inc. as passing to SDI, subject to and in 
accordance with the Department's privatization and, if relevant, tying 
methodologies (see Comment 13). In this regard, at the time of 
privatization and, indeed, since 1987, when Sidbec transferred all of 
its steel wire rod assets to Sidbec-Dosco, Inc., all of the subsidies 
previously provided to Sidbec resided with Sidbec-Dosco, Inc., with the 
exception of the small portion of those subsidies allocable to Sidbec's 
steel scrap subsidiary.
    With respect to respondents' comments, first we note that it is not 
material whether Sidbec-Normines' financial results were included in 
Sidbec's consolidated financial statements after the closing of Sidbec-
Normines' mining operations in 1984. It is only material that Sidbec-
Normines was part of the Sidbec group until its mining operations were 
shut down in 1984. The post-1984 grants provided to Sidbec related to 
the closure of Sidbec-Normines' mining operations and are attributable 
to the remaining production of the Sidbec group, which is the steel 
wire rod production of Sidbec (until 1987) and Sidbec-Dosco, Inc. 
Meanwhile, the pre-1984 grants provided to Sidbec, even if considered 
tied to Sidbec-Normines' iron ore production, similarly are 
attributable to the remaining production of the Sidbec group (see 
Comment 3).
    We do not agree with respondents that Ferrosilicon from Venezuela 
is relevant to the Department's determination. There, the Department 
was addressing the issue of whether two companies, FESILVEN and CVG, 
should be treated as a single entity, so that a subsidy to either 
company would be deemed a subsidy to the other and allocated over the 
combined sales of the two companies, as in Pasta from Italy. The 
Department explained why it refused to treat the two companies as a 
single entity as follows: ``While CVG does have extensive control over 
FESILVEN, FESILVEN has other shareholders. Moreover, CVG is merely a 
holding company with ownership interest in other companies producing 
other products. Therefore, we do not see an identity of interests 
sufficient to warrant treating CVG and FESILVEN as a single company.'' 
58 FR at 27542. In this case, the issue is what production benefits 
from the subsidy to Sidbec once Sidbec-Normines ceased production. As 
explained above, the Department is following the precedent, exemplified 
by France Bismuth, pursuant to which it is the Department's practice to 
allocate subsidies received by a parent over sales of its entire group 
of companies.
    Respondent SDI's reliance on Prestressed Concrete Wire from France 
also is misplaced. There, the Department was addressing whether 
subsidies provided to an input supplier, Usinor, had been passed on to 
the producer of the finished product, CCG, which was a wholly owned 
subsidiary of Usinor. The Department held that the mere fact that CCG 
was consolidated on Usinor's financial statement was not enough to 
serve as a basis for concluding that the price charged by Usinor to CCG 
for the input was not at arm's length. Indeed, the Department 
ultimately held that the price was at arm's length after reviewing both 
Usinor's and CCG's dealings with unrelated companies. In contrast, the 
issue in this case is not whether the government has provided a 
subsidized input. Rather, the issue is whether subsidies provided to 
Sidbec should be atttributed to all of the Sidbec group's sales. 
Consequently, Prestressed Concrete Wire from France is not relevant 
here.
    We also do not agree with respondent SDI's construction of the 
Department's final determination in Certain Steel Products from France. 
SDI misunderstands both the facts of that case and the Department's 
determination. There, contrary to respondent SDI's statements, Usinor 
and Sacilor were not producers of the subject merchandise; rather, each 
of them was a parent of a large group of consolidated companies, among 
which were producers of the subject merchandise and producers of other

[[Page 54979]]

products. During the middle of the AUL period, in 1986, Usinor and 
Sacilor were merged and Usinor Sacilor emerged as a parent, holding 
company for the companies that previously had been part of the Usinor 
group and the Sacilor group. In addressing the subsidies provided by 
the French government to Usinor and Sacilor and, after 1986, to Usinor 
Sacilor, the Department followed its precedent in France Bismuth, where 
the Department six months earlier had faced the same consolidated 
groups of companies, the same subsidies and the same POI. Thus, the 
Department attributed subsidies provided to Usinor and Sacilor prior to 
the creation of Usinor Sacilor in 1986 to their respective groups of 
companies, and these subsidies together with all subsidies bestowed 
after 1986 were attributed to the Usinor Sacilor group (exclusive of 
Usinor Sacilor's foreign producing subsidiaries because, as in France 
Bismuth, the Department had found the subsidies at issue to be tied to 
French production). Consequently, the Department's approach in the 
final determination here--to allocate untied subsidies received by 
Sidbec, the parent, over sales of its entire group of companies--is 
entirely consistent with Certain Steel Products from France.
    Comment 2: Respondents GOQ and SDI contend that the Department's 
treatment of Sidbec-Normines as being at one with Sidbec and Sidbec-
Dosco, Inc. is in error because Sidbec-Normines was a joint venture, 
distinct from both Sidbec and Sidbec-Dosco, Inc. According to 
respondent SDI, even though Sidbec-Normines was included in Sidbec's 
consolidated financial statements up until 1984 the results of Sidbec-
Normines were treated separately from those of Sidbec-Dosco, Inc. or 
other Sidbec-related companies. Additionally, the GOQ notes (citing 
Ferrosilicon From Venezuela, 58 FR 27539, 27541 (May 10, 1993), which 
was sustained in Aimcor v. United States, 871 F. Supp. 447, 450 (CIT 
1994)) that, where the Department has found the presence of other 
shareholders (as in the case of Sidbec-Normines), it has declined to 
treat related companies as a single entity.
    Respondent SDI adds that the Department's determination to treat 
Sidbec, Sidbec-Dosco, Inc. and Sidbec-Normines as one entity in the 
preliminary determination in part because subsidies were granted to a 
parent corporation provides insufficient grounds for countervailing the 
product of a subsidiary. Citing Aimcor v. United States, 871 F. Supp. 
447, 452 (CIT 1994), construing Armco Inc. v. United States, 733 F. 
Supp. 1514, 1516 (CIT 1990), SDI notes that the Court stated that the 
Department must ``examine simply more than the corporate structure in 
deciding whether a countervailable benefit has been bestowed.''
    Petitioners argue that the existence of Sidbec-Normines as a joint 
venture does not alter the Department's approach, in applying the 
countervailing duty law, of treating the parent entity and its 
subsidiaries as one when determining who ultimately benefits from a 
subsidy. Petitioners cite to Certain Hot-Rolled Lead and Bismuth Carbon 
Steel Products from the United Kingdom, 58 FR 6237, 6240 (Jan. 27, 
1993), as a case in which the Department noted that ``the subsidies 
provided to a company presumably are utilized to finance operations and 
investments in the entire company, including productive units that are 
subsequently sold or spun off into joint ventures.''
    While petitioners acknowledge that there are decisions where the 
Department has treated parent and subsidiary corporations as distinct 
entities for purposes of subsidy analysis (e.g., Ferrosilicon from 
Venezuela and Brass Sheet and Strip from France), petitioners believe 
that there are more important precedents for this case. For example, 
petitioners assert that Certain Steel Products from Belgium holds that 
corporate formalities or maneuvering will not be permitted to subvert 
the purposes of the statute. Additionally, petitioners maintain that 
this approach was specifically endorsed by the court in Armco, Inc. v. 
United States, 733 F. Supp. 1514, 1524 (CIT 1990), which held that the 
Department ``must beware of permitting statutorily proscribed bounties 
that are avowedly of a countervailable nature to escape countervailing 
duties merely because of intra-corporate machinations.''
    Department's Position: The parties' arguments address the propriety 
of the Department treating Sidbec, Sidbec-Dosco, Inc., and Sidbec-
Normines as a single entity, as in the Pasta from Italy line of 
precedent. Moreover, the Department is following its past practice of 
attributing untied subsidies received by a parent company to all of the 
companies in the parent's consolidated group. See also response to 
Comment 5.
    Comment 3: Addressing the 1983-1992 grants, respondent SDI argues 
that, in order for the Department to find a countervailable benefit 
within the meaning of the statute (section 701(a)(1) of the Act), two 
conditions must be met: (1) a countervailable subsidy has been 
bestowed, directly or indirectly; and (2) the countervailable subsidy 
has been bestowed upon the manufacture, production or export of subject 
merchandise. SDI claims that, in the instant case, the Department 
failed to make this examination, and instead assumed without inquiry 
that the manufacturer of the subject merchandise received a benefit 
from subsidies given to its parent. Further, SDI claims that the 
Department has made this examination in other cases, such as Carbon 
Steel Structural Shapes from Luxembourg, 47 FR 39364, 39365 (Sept. 7, 
1982) and Brass Sheet and Strip from France, 52 FR 1218 (Jan. 12, 
1987).
    Petitioners argue that Sidbec and Sidbec-Dosco, Inc. were closely 
intertwined, and thus the Department was correct to consider subsidies 
provided to the parent as benefitting the subsidiary. Petitioners argue 
that Sidbec was not just a holding company, noting that, until 1987, 
Sidbec itself owned all of the steel making facilities at Longueuil, 
Quebec, and a significant portion of the facilities in Contrecoeur. 
Sidbec, in turn, leased these facilities to Sidbec-Dosco Inc., which 
operated them together with its own plants as a single unit. 
Petitioners claim that this is evidence that there was a closely 
aligned identity of interests which existed between Sidbec and its 
subsidiary. Therefore, according to petitioners, any payments to Sidbec 
must have benefitted those productive facilities, the only ones Sidbec 
owned.
    Moreover, petitioners assert that, because Sidbec-Normines was 
formed to supply pelletized iron ore for Sidbec-Dosco's steelmaking 
facilities, and because the only use of pelletized iron ore is to make 
steel, the establishment of Sidbec-Normines was part of the overall 
mission to give Sidbec ``integrated production from mining through 
semi-fabricated product stages.''
    Department's Position: We disagree with respondent SDI. We 
concluded in the preliminary determination that (1) a countervailable 
subsidy has been bestowed, directly or indirectly, and (2) the 
countervailable subsidy had been bestowed upon the manufacture, 
production or export of subject merchandise. We make the same 
conclusions here in the final determination, with the clarification 
made above in Comment 1 regarding the attribution of subsidies within 
the Sidbec group.
    With respect to whether a countervailable subsidy had been 
bestowed, directly or indirectly, we have concluded that the 1983-92 
grants were provided directly to Sidbec and that they were specific and 
non-recurring in nature.

[[Page 54980]]

    With respect to whether the countervailable subsidy had been 
bestowed upon the manufacture, production, or export of subject 
merchandise, we have followed our past practice, as described in the 
GIA, and treated the 1983-92 grants, which were designed to offset 
Sidbec's losses relating to Sidbec-Normines and its discontinued mining 
operations, as benefitting the steel wire rod production of Sidbec and 
Sidbec-Dosco, Inc. and, ultimately, SDI.
    Specifically, while the grants provided in 1983 and 1984 before 
Sidbec-Normines' mining operations were tied to Sidbec-Normines' iron 
ore production (see response to Comment 5), these subsidies became 
attributable to the remaining production of the Sidbec group once the 
shutdown of Sidbec-Normines' mining operations occurred. The Department 
explained this approach in the GIA as follows:

    The Department maintains its position that subsidies are not 
extinguished either in whole or in part when a company closes 
facilities. Rather, the subsidies continue to benefit the 
merchandise being produced by the company. The rationale underlying 
this position is that once inefficient facilities are closed, the 
company can dedicate its resources to production at its remaining 
facilities. Thus, subsidies do not diminish or disappear upon the 
closure of certain facilities but rather are spread throughout, and 
benefit, the remainder of the company's operations.

    GIA, 58 FR at 37269. Thus, for example, in Final Affirmative 
Countervailing Duty Determinations; Certain Steel Products from Spain, 
58 FR 37374 (July 9, 1993) (``Certain Steel Products from Spain''), the 
Department faced a situation where AHM had received subsidies 
benefitting both its hot-rolled steel and cold-rolled steel operations 
and subsequently closed down its hot-rolled steel operations. The 
Department allocated the portion of the subsidies previously attributed 
to the hot-rolled steel operations to AHM's cold-rolled steel 
subsidiary, SIDMED. See GIA, 58 FR at 37269; Certain Steel Products 
from Spain, 58 FR at 37374-5, 37379.
    Meanwhile, the grants provided in the years subsequent to the 
shutdown of Sidbec-Normines' mining operations in 1984 plainly reflect 
payments to effect that shutdown and, therefore, benefit the remaining 
production of the Sidbec group. According to the GIA, which describes 
the Department's practice in this area:

    The closing of plants result[s] in the increased efficiency of 
the company as a whole. In turn, the increased efficiency makes the 
company more competitive. It necessarily follows that closure 
subsidies benefit a company's remaining production beyond the year 
of receipt. The basis for finding funds for government-directed 
plant closure countervailable is that these funds relieve the 
company of the costs it would have incurred in closing down the 
plant. Therefore, because the company has been relieved of a cost, 
the funds benefit the company as a whole, and the appropriate 
denominator for calculating the benefit of such funds would be total 
sales of all products.

    GIA, 58 FR at 37270 (citing British Steel Corp. v. United States, 
605 F. Supp. 286 (CIT 1985)). The Department applied this approach in 
Final Affirmative Countervailing Duty Determinations; Certain Steel 
Products from Italy, 58 FR 37327 (July 9, 1993) (``Certain Steel 
Products from Italy''), where the head of the Falck group received 
subsidies to close down certain steel facilities. See GIA, 58 FR at 
37270.
    Thus, consistent with its past practice, the Department finds that 
grants provided both before and after the closure of Sidbec-Normines' 
mining operations in 1984 benefit the Sidbec group's remaining 
production as of 1985 onward, including the production of the subject 
merchandise, steel wire rod.
    Comment 4: SDI contends that the Department's reliance on certain 
language from the GIA, 58 FR at 37269, pertaining to spreading benefits 
throughout the remainder of the company's operations, is misplaced. 
Specifically, SDI argues that the GIA language applies to closed 
facilities within the same corporation. The GOQ adds that, in British 
Steel Corp. v. United States, 605 F. Supp. 286 (CIT 1985) (which the 
Department incorporated into its remarks involving plant closure in the 
GIA in order to indicate judicial support for the Department's 
position), unlike the situation with Sidbec, the discontinued 
facilities had produced the subject merchandise, not some other 
merchandise, and were part of the respondent company, not a distinct 
corporation.
    SDI also asserts that the rationale expressed in the language 
quoted by the Department from the GIA also applies to subsidies 
``previously received.'' With regard to funds received following 
closure of Sidbec-Normines, SDI concludes that the language is 
inapposite. Instead, SDI believes that the relevant language from the 
GIA would be that language dealing with payments for the actual closure 
of a facility within a company. And, in this respect, because the 
entire operation of Sidbec-Normines was shut down, there was no 
remaining enterprise to benefit from the restructuring. Moreover, there 
is nothing on the record to support a conclusion that the closure 
increased the competitiveness or efficiency of Sidbec-Dosco.
    Department's Position: We disagree with respondent SDI that the 
GIA's rationale for countervailing subsidies received prior to a plant 
closure and the GIA's rationale for countervailing subsidies to effect 
the closing down of a plant apply only to situations where the closed 
plant was part of the same individual company as the remaining 
production which is deemed to be benefitted. Although the language to 
which respondent SDI cites in the GIA only references ``a company,'' 
the GIA's statements are equally applicable under the circumstances 
here, where the Department is dealing with a consolidated group of 
companies (the Sidbec group). Specifically, it is appropriate to 
allocate the subsidies at issue to the remaining production of the 
consolidated group in this case given that the closed plant (the 
Sidbec-Normines mining operations) had been operated by a subsidiary 
(Sidbec-Normines) whose only production of any type came from the 
closed plant, and the parent of the consolidated group (Sidbec) is the 
group's shareholder in the subsidiary and has financed and is obligated 
to pay the debts of the subsidiary. Plainly, the subsidies at issue 
allow Sidbec ``to dedicate its resources to production at its remaining 
facilities.'' GIA, 58 FR at 37269. As the Department explained in the 
GIA, ``subsidies do not diminish or disappear upon the closure of 
certain facilities.'' Id. Moreover, in the scenario here, it is plain 
that Sidbec, the parent, is being relieved of ``the costs it would have 
incurred in closing down the plant,'' id., so that its remaining 
production (including steel wire rod) undeniably benefitted from the 
subsidies which it received.
    We note, as well, that in one of the Certain Steel Products cases, 
the Department dealt with subsidy funds provided to a parent company 
for the closing of one of its subsidiaries' facilities. In that case, 
Certain Steel Products from the United Kingdom, the Department, on 
remand from the Court of International Trade, had to determine how to 
treat, inter alia, 1984/85 equity infusions provided to British Steel 
Corporation (``BSC'') for the purpose of paying for the closure of 
facilities which, as here, were dedicated to the production of non-
subject merchandise. Indeed, the facilities were the very same 
facilities at issue in this case, the Sidbec-Normines mining 
operations, as BSC's subsidiary, British Steel Corporation 
(International) (``BSCI''),

[[Page 54981]]

held an ownership interest in Sidbec-Normines. The Department treated 
the equity infusions as benefitting the worldwide consolidated sales of 
the BSC (actually, its successor, British Steel plc) group, see Final 
Results of Redetermination Pursuant to Court Remand on General Issue of 
Sales Denominator, in British Steel plc v. United States, Consol. Ct. 
No. 93-09-00550-CVD (CIT), dated June 23, 1995, and the court upheld 
this treatment, see British Steel plc v. United States, 929 F. Supp. 
426, 457-58 (CIT 1996).
    Similarly, we disagree with respondent GOQ's argument that the 
rationales in the GIA are limited to the situation where the closed 
plant produced the subject merchandise. Indeed, the GIA addresses 
situations where the closed plant produced non-subject merchandise, 
both in the context of subsidies received prior to a plant closure 
(Certain Steel Products from Spain) and in the context of subsidies to 
effect the closing down of a plant (Certain Steel Products from Italy). 
See GIA, 58 FR at 37269, 37270.
    Comment 5: Respondents GOQ and SDI assert that evidence on the 
record shows that the countervailed funds were all (with the exception 
of the 1988 debt-to-equity conversion) specifically tied to Sidbec's 
mining operations. SDI argues that the Department fully verified that 
Sidbec repaid loans provided to refinance part of the debt of Sidbec's 
mining operations using funds provided by the GOQ.
    Respondents SDI, the GOQ, and the GOC contend that the Department 
has departed from past practice, precedent, its Proposed Rules, and the 
Agreement on Subsidies and Countervailing Measures of the World Trade 
Organization (SCM Agreement) by countervailing subsidies tied to the 
mining operations. First, SDI and the GOQ argue that it is the 
Department's longstanding practice (as reflected in both the 1989 
Proposed Rules and the 1997 Proposed Rules) that, if the Department 
determines that a countervailable benefit is tied to a product other 
than the merchandise, it will not find a countervailable subsidy on the 
merchandise. SDI and the GOQ cite, inter alia, Certain Iron-Metal 
Castings From India, 62 FR 32297, 32302 (June 13, 1997), Certain 
Laminated Hardwood Trailer Flooring from Canada, 62 FR 5201, 5211 (Feb. 
4, 1997), and Pasta From Italy, 61 FR 30288, 30303 (June 14, 1996), as 
examples of the Department's ``tied benefits'' practice. Thus, argues 
SDI and the GOQ, to find a countervailable subsidy to Sidbec-Dosco 
(through which Quebec's obligations to Sidbec-Normines, as a separately 
incorporated joint venture, could not possibly flow) from subsidies 
given by the GOQ for purposes related to Sidbec-Normines would be in 
contravention of the Department's past practice relating to tied 
subsidies. The GOQ and the GOC add that the SCM Agreement does not 
permit the attribution to output by one company of countervailable 
benefits directed to, and received by, a separate corporate entity 
engaged in the production of a completely different product. SDI 
further argues that this is true where the subsidy is channeled through 
a parent company acting ``merely as a conduit'' for subsidies to a 
subsidiary corporation.
    SDI also maintains that, because the subsidies benefitted the 
mining operations (regardless of whether they were provided before or 
after closure of the mining facility) then they cannot be held to 
benefit the downstream product except through an upstream subsidy 
analysis.
    Petitioners assert that both the intended use and the likely effect 
of these subsidies was to benefit Sidbec, not Sidbec-Normines. 
Petitioners point to Industrial Nitrocellulose From France as 
illustrating that the Department's inquiry attempts to determine the 
ultimate destination or likely beneficiary of the subsidy, in large 
part by considering the government's intent in bestowing the subsidy. 
Petitioners claim that, applying these principles, the GOQ's subsidies 
are clearly not tied to Sidbec-Normines. Petitioners note that the 
ultimate destination and likely beneficiary of these subsidies was 
Sidbec, since the nature of these benefits was to provide loan 
forgiveness to Sidbec. Furthermore, petitioners argue that if Sidbec 
did pay the loan principal directly to Sidbec-Normines, the ultimate 
beneficiary of such forgiveness was not Sidbec-Normines, which had 
received the loans and was shutting down its operations, but Sidbec, 
which would remain in existence and was otherwise liable for repayment 
of the loans.
    Petitioners add that an analysis focusing on the intended use of 
the subsidies yields the same result: namely, that Sidbec was the 
intended user, since the GOQ's specific intent in bestowing the subsidy 
was to relieve Sidbec of its loan guarantee obligations.
    Finally, petitioners stress that the Department's approach to tied 
subsidies, like its approach to the relationship of the various Sidbec 
corporate entities, must be reasonable. Petitioners cite Industrial 
Nitrocellulose from France, noting that the Department analyzed the 
legislative history of the tied subsidies provision and concluded that 
``the single most important principle that both committees stressed 
here was that the Department should reasonably allocate subsidies to 
the products that they benefit * * * The main issue * * * is not 
whether we have considered the intent or the effect, but whether we 
have appropriately and reasonably allocated the benefits.''
    Department's Position: We disagree with respondents. While Sidbec-
Normines' mining operations were still in existence, it is true that 
the 1983 and 1984 grants would affect only iron ore. However, these 
grants could only be considered to be tied to iron ore up to 1984--the 
year Sidbec-Normines ceased production. Once the company no longer 
produced iron ore, the remaining benefits from these grants--we 
allocate grants over a period of time equal to a company's AUL--could 
only be attributed to the remaining production of the Sidbec group, 
which consists of steel products, including wire rod. Grants made to 
Sidbec after the closure of Sidbec-Normines' mining operations cannot 
be tied to non-existent production, i.e., iron ore. Rather, the 
Department's practice, as described in the GIA, is to treat these 
``closure subsidies {as} benefit{ting} a company's remaining 
production.'' GIA, 58 FR at 37270.
    We also disagree with respondent SDI's argument that the 1983-92 
grants cannot be attributed to Sidbec's steel wire rod production 
without an upstream subsidy analysis under section 701(e) of the Act, 
19 U.S.C. Sec. 1671(e). Given that Sidbec-Normines' mining operations 
were shut down in the 1984 during Sidbec's AUL period, the upstream 
subsidy provision is no longer germane. As the Department made clear in 
the GIA, closure payments for plants producing subject and non-subject 
merchandise alike are countervailable. GIA, 58 FR at 37270.
    Comment 6: The GOQ argues that the financial assistance referred to 
by the Department as ``1982-92 Equity Infusions'' in fact were grants 
representing principal payments made by the GOQ on certain loans taken 
out by Sidbec in connection with its investment in Sidbec-Normines. 
According to the GOQ, this financial assistance was no different from 
the interest payments that the GOQ made on these same loans which the 
Department correctly treated as grants. Specifically, the GOQ argues 
that nothing was given in return for the funds, nor was anything 
expected or intended. The GOQ contends that, according to Departmental 
practice, all of the monies should be characterized as

[[Page 54982]]

grants. The GOQ further asserts that the Department verified that all 
the financial assistance given by the GOQ to Sidbec were grants.
    SDI argues that the Department's conclusion that, because certain 
funds received by Sidbec were included in its financial statements 
under ``contributed surplus'' they were equity infusions, is not 
supported by precedent or accounting principles. SDI states that the 
funds referred to by the Department as ``1982-92 Equity Infusions'' 
were contributed for the express purpose of paying Sidbec obligations 
incurred in connection with its investment in Sidbec-Normines, and did 
not result in the receipt of shares by the investor.
    Petitioners argue that the GOQ's payments of contributed surplus 
are equity infusions because they are additions to shareholder's equity 
and increase the value of total shareholders' equity in the company. 
Petitioners contend that the intent to increase the company's equity 
value is indeed significant. Petitioners argue that by infusing funds 
into Sidbec's equity account, the GOQ increased the likelihood that 
equity would reach positive levels, thus allowing the GOQ to recover 
previously granted funds.
    Department's Position: We agree with the GOQ and SDI. The line item 
``Contribution by the gouvernement de la province de Quebec for 
Discontinued Mining Operation'' appearing in Sidbec's Consolidated 
Contributed Surplus refers not to equity payments, but to grants, and 
these payments by the GOQ in fact took the form of grants (see GOQ 
Verification Exhibits G-14 through G-16).
    The Department distinguishes grants from equity and debt by 
following its stated methodology as outlined in the GIA (see GIA, 58 FR 
at 37254). The Department defines grants as funds provided without 
expectation of a: (1) repayment of the grant amount; (2) payment of any 
kind stemming directly from the receipt of the grant (including 
interest or claims on profits of the firm (i.e., dividends) with the 
exception of offsets as defined in the 1989 Proposed Regulations 
Section 355.46); or (3) claim on any funds in case of company 
liquidation.
    At verification, the Department discovered that the GOQ funds 
provided to Sidbec related to principal payments due under loans that 
Sidbec had taken out, and which were guaranteed by Sidbec's 
shareholder, the GOQ (see Verification Exhibit G-8), relating to 
Sidbec-Normines and its discontinued mining operations. Although the 
GOQ as a guarantor had the right to seek reimbursement from Sidbec for 
the funds which it advanced, the Department has found that the GOQ 
provided these funds to Sidbec without a repayment obligation, and 
without compensation in the form of shares. In this regard, the Decrees 
authorizing the GOQ to provide these funds indicate that these funds 
were provided as direct subsidies to service the debt on loans taken 
out to finance Sidbec's mining obligations, and that the GOQ did not 
receive anything from Sidbec in return. Additionally, we confirmed at 
verification that the GOQ neither received new shares nor had its 
existing shares in Sidbec revalued as a result of its payments (see, 
e.g., Decree 374-91, Exhibit 15 of the GOQ Verification Report). Thus, 
the Department concludes that these funds were provided to Sidbec in 
the form of grants, and that the investor did not expect a reasonable 
return on the investment (i.e., the funds were a simple gift).
    Comment 7: The GOQ argues that all of the money countervailed in 
the Department's preliminary determination originated from the GOQ's 
decision to enter a joint mining venture (i.e., Sidbec-Normines) with 
Quebec Cartier Mining Company (QCMC) and the British Steel Corporation 
(International). The GOQ notes that it chose to assume the joint 
venture's obligations to private investors, and opted to fulfill these 
obligations by directing funds through Sidbec. The GOQ maintains that 
it financed these obligations to Sidbec-Normines through a series of 
loans, which it obligated itself to pay through guarantees, and that 
the loans (to which the GOQ was a party) were made through private 
banks. Furthermore, the GOQ and SDI argue that the GOQ assumed 
responsibility for repayment of these loans (i.e., principal and 
interest).
    On this basis, the GOQ argues that the grants provided to Sidbec 
for payment of the mining debts, i.e., 1983-1992 grants, were recurring 
because they were automatically provided (as they were guaranteed) on a 
yearly (principal) or monthly (interest) basis. As recurring grants, 
the GOQ and GOC assert that it is the Department's practice to allocate 
(expense) a recurring grant to the year in which the subsidy is 
received. According to the GOQ, all funds at issue were provided in the 
form of recurring grants, and none of those funds was received in the 
POI. Thus, the GOQ concludes that none of the money provided to Sidbec 
should be allocated to the POI, and none of the infusions can be 
considered countervailable.
    SDI asserts that the provision of funds pursuant to the mining 
operations was a commitment made by the GOQ to make full and prompt 
payment of all Sidbec obligations under the mining venture. Therefore, 
when the GOQ undertook the obligation, it made a commitment to pay, on 
a recurring basis, the principal and interest on loans incurred by 
Sidbec pursuant to its mining venture. SDI argues that these were not 
``exceptional'' grants because the recipient (Sidbec) could expect to 
receive them each year.
    SDI states that Sidbec's financial statements show the recurring 
nature of these payments. Additionally, SDI argues that the loan 
agreements pertaining to the countervailed monies had fixed and 
predetermined dates upon which the interest payments were due. 
Moreover, since the GOQ was a party to the loans, the government could 
anticipate when the interest was payable. Therefore, the funding Sidbec 
received to pay the accumulated interest was regular and predictable, 
establishing the recurring nature of these payments.
    Petitioners argue that if the Department decides that the GOQ's 
coverage of Sidbec's payments of principal are not equity but grants, 
then the Department should follow its practice and determine these 
payments as nonrecurring (see GIA 58 FR at 37226). Petitioners argue 
that all government subsidies to Sidbec were non-recurring because they 
required government approval and authorization on each individual 
expenditure prior to the distribution of the funds.
    Petitioners state that the approval process was extensive and 
exacting because each year, prior to issuing the grant, the GOQ had to 
seek budgetary authority. Additionally, the grant had to be approved at 
several stages of review, approval and regulation. Further, petitioners 
argue that the grant process was filled with inconsistencies concerning 
the use of discretion, since the GOQ sometimes failed to pay the full 
amount of interest incurred by Sidbec which lead to the entry of 
``grants receivable'' in Sidbec's financial statements. Therefore, 
petitioners contend that this variability is inconsistent with the 
regularity and predictability necessary for a non-recurring grant. 
Petitioners also maintain that a consideration in deciding whether a 
program is recurring or non-recurring is ``whether there is reason to 
believe that the program will not continue into the future.'' In 
applying this criterion, according to petitioners, the Department in 
Final Countervailing Duty Determination Certain Hot Rolled Lead and 
Bismuth Carbon Steel Products from the United Kingdom, 58 FR 6237, 6242 
(January 27, 1993) (U.K. Bismuth), deemed equity

[[Page 54983]]

infusions to be non-recurring even though the equity capital was 
received every fiscal year for eight years. The Department stated in 
U.K. Bismuth that the recipient ``had reason to believe that the 
program would not continue once the company reached viability.'' 
Petitioners similarly contend that, in this case, Sidbec had reason to 
believe that the equity infusions would not continue indefinitely.
    Lastly, petitioners assert that, although Sidbec made a profit in 
1989, the GOQ continued to pay the company principal and interest 
costs, and did not seek to require Sidbec's repayment of these funds. 
According to petitioners, this indicates that these payments were 
discretionary, and therefore were non-recurring.
    Department's Position: We disagree with respondents GOC, GOQ and 
SDI. The 1983-92 grants were non-recurring in nature.
    The Department's policy with respect to grants is (1) to expense 
recurring grants in the year of receipt, and (2) to allocate non-
recurring grants over the average useful life of assets in the 
industry, unless the sum of grants provided under a particular program 
is less than 0.50 percent of a firm's total or export sales (depending 
on whether the program is a domestic or export subsidy) in the year in 
which the grants were received (see GIA, 58 FR at 37226). We consider 
grants to be non-recurring when ``the benefits are exceptional, the 
recipient cannot expect to receive benefits on an ongoing basis from 
review period to review period, and/or the provision of funds by the 
government must be approved every year.'' Id. (quoting France Bismuth, 
58 FR at 6722). If any of these questions are answered in the 
affirmative, the Departments considers the benefits to be non-
recurring.Id. Examples of types of grants which the Department normally 
has considered non-recurring are: equity infusions, research and 
development grants, grants for loss coverage, grants for the purchase 
of fixed assets, debt forgiveness, and assumption of debt (including 
payments of principal and interest). See id. The grants at issue fall 
into this category, although that fact alone is not determinative of 
the recurring/non-recurring question.
    The Department has stated that ``the element of `government 
approval' relates to the issue of whether the program provides benefits 
automatically, essentially as an entitlement, or whether it requires a 
formal application and/or specific government approval prior to the 
provision of each yearly benefit. The approval of benefits under the 
latter type of program cannot be assumed and is not automatic'' (see 
id.) At verification, the Department discovered that for each year of 
grants issued to cover Sidbec-Normines debt, the GOQ had to engage in a 
multi-layered process seeking budgetary authority (in the form of 
Decrees) prior to issuance of the funds in the form of Decrees (see 
verification Exhibits G-13 through G-16). Therefore, the Department 
concludes that government approval was necessary prior to the receipt 
of each individual grant.
    The Department also concludes that the record evidence does not 
indicate that Sidbec could expect to receive benefits on an ongoing 
basis. Although Sidbec may have had expected that payment from the GOQ 
would continue so long as Sidbec was unprofitable, given that the GOQ 
was the guarantor on the underlying loans, Sidbec could not expect that 
payments from the GOQ in the years when Sidbec was unprofitable would 
be outright grants rather than payments for which the GOQ would later 
exercise its right as guarantor to seek reimbursement from Sidbec, the 
guarantee. Moreover, Sidbec could not expect that the GOQ would make 
payments, whether or not outright grants, in years when Sidbec was 
profitable (even though the GOQ in fact did do so).
    Other facts in the record also support this conclusion. For 
example, in its financial statements for certain years, Sidbec recorded 
``grants receivable,'' based on management's ``estimate'' that the GOQ 
would reimburse Sidbec; however, the financial statements also 
explained how reimbursement would be handled ``[i]f the GOQ was to 
decide to pay a smaller amount'' than recorded in the ``grants 
receivable'' account (see, e.g., Note 3 of Exhibit 14 of SDI's May 27, 
1997 questionnaire response). Again, this indicates the uncertainty 
associated with the GOQ's payments.
    Two similar cases include U.K. Bismuth, which petitioners have 
cited and discussed, and the Certain Steel Products from Mexico final 
determination addressed in the GIA. In Certain Steel Products from 
Mexico, the respondent had argued that the subsidies at issue--equity 
infusions--were recurring because they ``were regularly and routinely 
approved by the legislature'' and the ``infusions were provided for 
nine consecutive years.'' GIA, 58 FR at 37228. The petitioners, 
meanwhile, pointed out the requirement for ``specific government 
authorization'' and that the ``infusions were made on a case-by-case 
basis depending on the financial need of the company.'' Id. The 
Department found the subsidies to be non-recurring because the benefits 
were exceptional, had to be ``separately approved or authorized by'' 
the Mexican government and the respondent could not expect to receive 
the benefits on an ongoing basis. Id.
    Lastly, we note that the Department cannot determine that these 
payments were unexceptional simply because the payments spanned several 
years. Such a broad approach, of course, would lead to the illogical 
conclusion that any multi-year distribution of payments makes a subsidy 
program ``recurring''.
    Comment 8: Respondent SDI argues that the Department applied its 
equityworthiness test to the wrong company. Specifically, SDI contends 
that the Department should examine the financial status of Sidbec-
Dosco, Inc., not Sidbec. Respondent SDI argues that the GOQ's 1988 
debt-to-equity conversion in Sidbec was authorized for the purpose of 
investing in Sidbec-Dosco, Inc. SDI stated that the legislation 
explains that the object of the law is to ``acquire shares of the 
capital stock of Sidbec-Dosco, Inc.'' Therefore, SDI maintains that 
while the conduit of these funds was Sidbec, the actual beneficiary of 
the equity infusion was Sidbec-Dosco, Inc. and, accordingly, the 
equityworthiness of Sidbec-Dosco, Inc. alone should be at issue in this 
determination. SDI asserts that, in Final Affirmative Countervailing 
Duty Determination; Brass Sheet and Strip from France, 52 FR 1218, 
(Jan. 12, 1987) (``Brass Sheet and Strip from France''), the Department 
properly examined a corporate structure similar to the one in this 
investigation. SDI states that in Brass Sheet and Strip from France, 
the parent company, Pechiney, was a holding company 85 percent-owned by 
the Government of France, and Pechiney in turn owned virtually all the 
stock of the subject manufacturer. SDI points and that the Department 
examined the equityworthiness of Pechiney's subsidiary, not Pechiney, 
the parent. According to SDI, as in Pechiney's case, in the instant 
investigation a reasonable private investor would have examined the 
financial indicators of the subsidiary, Sidbec-Dosco, Inc., not its 
parent, Sidbec.
    SDI also argues that Preliminary Affirmative Countervailing Duty 
Determination Oil Country Tubular Goods from Austria, 60 FR 4600, 4601 
(Jan. 24, 1995) (``OCTG from Austria'') stands for the proposition 
that, only where the Department cannot use or is not provided with the 
relevant information, will it resort to use of the parent's financial 
indicators, rather than those of the subsidiary, the equity

[[Page 54984]]

recipient. SDI concludes that in this case, the Department had the 
relevant information (i.e., Sidbec-Dosco, Inc's financial statements).
    SDI argues, moreover, that the financial statements of Sidbec-
Dosco, Inc. demonstrate a reasonably healthy company, and that market 
studies forecast a healthy steel industry into which a reasonable 
private investor could have expected a reasonable return.
    Petitioners argue that the Department should reject SDI's claim 
that the Department should evaluate financial indicators for Sidbec-
Dosco, Inc. rather than Sidbec because it is inconsistent with both the 
corporate structure of Sidbec and the normal behavior of a reasonable 
investor. Petitioners contend that, until the reorganization, Sidbec 
directly owned steel facilities whose operations functioned as one unit 
with those of Sidbec-Dosco, Inc. Thus, petitioners conclude that any 
financial problems of Sidbec would limit its ability to fund Sidbec-
Dosco, Inc. Petitioners assert that the case on which SDI principally 
relies (Brass Sheet and Strip from France) is not on point because the 
parent's consolidated financial data contained information on 
``numerous'' other subsidiaries producing non-subject merchandise.
    Petitioners also argue that, even if the Department relied on 
Sidbec-Dosco Inc.'s financial indicators rather than the consolidated 
financial statements of Sidbec, Sidbec-Dosco, Inc. would still be 
unequityworthy in 1988. Petitioners contended that Sidbec-Dosco Inc.'s 
financial indicators do not support a conclusion that a reasonable 
private investor would have expected a reasonable rate of return from 
an investment in Sidbec-Dosco, Inc. in the years 1985, 1986, 1987, and 
1988 because these financial indicators do not point to a healthy 
company. Therefore, petitioners state that using Sidbec-Dosco, Inc.'s 
financial indicators would not change the results of the analysis.
    Department's Position: We disagree with SDI's claim that the 
Department should evaluate financial indicators for Sidbec-Dosco, Inc. 
rather than Sidbec for the three-year period dictated by our 
equityworthiness methodology, i.e., 1985-1987. As stated in Comment 1, 
the Department would have treated Sidbec and Sidbec-Dosco, Inc. as a 
single entity up through 1987. During that time period, the steel 
operations of Sidbec and Sidbec-Dosco, Inc. were intertwined and any 
reasonable investor would have looked to the financial indicators of 
the parent, Sidbec, as a gauge for how Sidbec (up until at least the 
end of 1987, when it transferred its steel assets to Sidbec-Dosco, Inc. 
and became a holding company) and Sidbec-Dosco, Inc. would perform. It 
was the steel assets of both companies which had just begun to reside 
in Sidbec-Dosco, Inc. in 1988, when the debt-to-equity conversion at 
issue took place. A private investor would not have confined its 
evaluation to Sidbec-Dosco, Inc.'s performance in 1985-1987, as that 
would only provide a partial picture of the steel operations of Sidbec-
Dosco, Inc. in 1988. These circumstances are quite distinct from these 
addressed in Brass Sheet and Strip from France and OCTG from Austria. 
Thus, for the final determination, the Department has evaluated the 
financial indicators of Sidbec, rather than Sidbec-Dosco, Inc., to make 
its equityworthiness determination regarding the 1988 debt-to-equity 
conversion.
    Comment 9: With respect to the GOQ's 1988 debt-to-equity 
conversion, the GOQ asserts that the Department must measure the GOQ's 
action against the standard of a reasonable private investor faced with 
the same choices as the GOQ under the same circumstances, in 
determining whether this transaction constituted a countervailable 
event. The GOQ argues that its decision to convert this debt-to-equity 
in 1988 satisfies this standard and therefore cannot constitute a 
countervailable event.
    Moreover, the GOQ notes that the Department's standard 
equityworthiness methodology was formulated for equity infusions, and 
is not designed to analyze debt-to-equity conversions. According to the 
GOQ, no money changed hands.
    In any event, respondent GOQ also argues that the record shows that 
Sidbec was equityworthy at the time of the debt-to-equity conversion. 
The GOQ suggests that Final Affirmative Countervailing Duty 
Determination; Steel Wire Rod From Trinidad and Tobago, 49 FR 480, 483 
(Jan. 4, 1984), supports the argument that it is commercially 
reasonable to rely on contemporaneous studies. For this case, the GOQ 
claims that it acted as a private investor, relying on three internal 
studies that all concluded that a debt-to-equity conversion was the 
best option for the GOQ in order to maximize its long-term return on 
its investment in Sidbec. The GOQ asserts that the Department's 
practice in determining the reasonableness of a government action is to 
examine the information available to that government at the time of a 
debt-to-equity conversion. The GOQ maintains that the trends for both 
Sidbec's financial performance and that of the steel industry had been 
very positive for more than three years by the end of 1988, when the 
GOQ made its final decision to convert some of Sidbec's existing debt 
into equity.
    Petitioners argue that the Department does not differentiate 
between equity infusions and conversions when making an 
equityworthiness determination.
    Petitioners also argue that any improvements registered in Sidbec-
Dosco, Inc.'s financial statements or forecasts for the overall 
Canadian steel market for 1987 to 1988 could not offset the magnitude 
of Sidbec's previous losses. Petitioners contend that, even if Sidbec's 
financial performance improved, the Department generally does not 
consider ``a couple of years'' of improved performance as warranting a 
finding of equityworthiness when a firm has been found unequityworthy 
for a number of years. Additionally, petitioners assert that 
information on future prospects is only one factor to consider, and the 
Department generally places ``greater reliance on past indicators as 
they are known with certainty and provide a clear track record of the 
company's performance, unlike studies of future expected performance 
which necessarily involve assumptions and speculation.'' (GIA, 58 FR at 
37244).
    Department's Position: We disagree with the GOQ that the Department 
should employ an analysis different from its standard equityworthiness 
methodology in determining the countervailability of the debt-to-equity 
conversion. What the GOQ proposes is essentially an inside investor 
standard. In past practice, however, the Department has rejected the 
insider investor arguments which have been forwarded by the GOQ in this 
case. The Department has stated that ``it is essential to recognize 
that the Department must render its equityworthiness determination on 
the basis of objective and verifiable evidence. The argument that an 
inside investor may have a greater appreciation of the workings of the 
firm does not provide the Department with a reliable means of 
distinguishing between those inside investor motivations that may be 
commercially based and those that are not'' (see GIA, 58 FR 37250). 
Further, the Department has stated that ``a determination of 
equityworthiness cannot be measured by, nor equated with, the decision 
of a creditor exchanging its debt for an equity position in a company 
in order to improve its chances for recouping money already loaned to 
that enterprise. Nor can it be based on whether an optimal debt to 
equity ratio can be achieved through the conversion of

[[Page 54985]]

debt. These may both be important commercial considerations, but they 
are considerations that relate to interests distinct from the viability 
of any given investment. The Department is fundamentally concerned with 
whether it would have been reasonable for a private investor to invest 
money in the company in question. Such an examination must take place 
each time an investment occurs, whether it is an investment with `new' 
money or a conversion of previous debt to equity. However, the proper 
focus of the Department's analysis is whether the individual 
investment, taken alone, made sound commercial sense'' (see GIA, 58 FR 
37250). Therefore, the Department determines that its equityworthiness 
analysis is appropriate.
    We also disagree with the GOQ's argument that a debt-to-equity 
conversion should not be treated as an equity infusion because no new 
money was provided by the GOQ. We reject this argument because of the 
principle laid down in the GIA, quoted immediately above, and our past 
practice, as evidenced by cases such as France Bismuth, 58 FR at 6227-
28, and Certain Steel Products from France, 58 FR at 37312, 37313, 
where we treated debt-to-equity conversions as equity infusions.
    Finally, we disagree with the GOQ that Sidbec was equityworthy at 
the time of the 1988 debt-to-equity conversion. As we have discussed 
above (see Equityworthiness Section of this Notice), the factors which 
the Department examines when making an equityworthiness determination 
showed Sidbec to be unequityworthy.
    We also note that at verification, GOQ officials stated that in the 
mid-1980s, Sidbec was not attractive to investors, because even though 
it showed some ``minor'' profits, the profits were not sufficient to 
attract a private investor. See Government of Quebec Verification 
Report. Therefore, by the GOQ's own admission, it performed this 
conversion because no private investor would provide the capital.
    Further, the ultimate aim of the studies commissioned by the GOQ 
was the privatization of Sidbec-Dosco, Inc. The GOQ stated in its July 
3, 1997 questionnaire response that a GOQ memorandum noted that ``a 
debt-to-equity conversion offered the greatest potential return to the 
GOQ.'' Specifically, the report concluded that, ``as a result of the 
contemplated debt-to-equity conversion, Sidbec would have a capital 
structure comparable to other integrated steel companies. Therefore, 
the report concluded that the debt-to-equity conversion would make the 
company much more marketable should the government wish to sell it, or 
shares in it, in the future.'' These statements lead the Department to 
the conclusion that this debt-to-equity conversion was undertaken for 
the purpose of relieving Sidbec of debt to make the company attractive 
to private investors. It also leads us to the conclusion that normal 
commercial considerations would not have led a private investor to make 
an equity infusion when the GOQ did.
    The Department is not aware of any record information suggesting 
that the marginally improved health of the Canadian steel market and 
the worldwide steel industry generally in the mid-1980s could offset 
the poor financial condition of Sidbec. As we explained in our 
preliminary determination, ``throughout the period 1982 to 1985, Sidbec 
reported substantial losses. Although Sidbec reported a profit in 1986 
and 1987, this profit trend was not of such a magnitude to offset the 
substantial losses suffered from 1982 through 1985.'' Similarly, the 
marginally improved health of the steel market in recent years was not 
significant enough to change the prior assessment of Sidbec's health.
    Comment 10: SDI argues that the Department erred in its preliminary 
determination of Sidbec's equityworthiness because the Department 
allegedly analyzed the entire 1982-92 period in determining whether the 
1988 debt-to-equity conversion was a countervailable action. Instead, 
SDI argues, the Department should have limited its equityworthiness 
analysis to 1988 (the time the equity infusion was made) and the three 
years preceding the investment, as well as the future prospects of the 
company and the industry as a whole. Respondent SDI indicated that both 
the Department's practice and Proposed Rules dictate that 
equityworthiness can only be established by examining financial 
performance prior to and at the time of the equity infusion occurs; 
later performance is irrelevant in determining whether a ``reasonable 
private investor'' would have invested at the time.
    Petitioners argue that the Department properly applied its standard 
equityworthiness methodology in its preliminary determination. 
Petitioners point out that the Department analyzed Sidbec's financial 
performance indicators for the entire period from 1982 through 1992 
because the allegations concerning equity infusions and the debt-to-
equity conversion covered this entire period.
    Department's Position: Petitioners are correct in interpreting the 
results of the Department's equityworthiness analysis. We did not use 
later performance in evaluating the 1988 debt-to-equity conversion or 
any of the equity infusions (which we have decided in this final 
determination actually are grants) made in the years 1983 through 1992. 
Rather, for each equity transaction, we followed our standard 
equityworthiness methodology, as set forth above in our 
equityworthiness section of this notice, and analyzed current and past 
financial indicators reaching back three years and future prospects as 
of the time of the equity transaction.
    Comment 11: Petitioners argue that the Department failed to 
countervail benefits from payments to Sidbec, authorized by the GOQ, 
against accumulated grants receivable. Specifically, petitioners assert 
that while some of the grants receivable covered by a 1988 payment were 
countervailed in previous years, the Department must countervail that 
portion of the grants receivable which was not covered by the payment. 
Petitioners speculate that the Department did not countervail these 
payments in the preliminary determination in order to avoid double 
counting. However, petitioners argue that, because Sidbec's financial 
statements ``clearly distinguish'' government grants from grants 
receivable, countervailing grants receivable would not result in double 
counting. Petitioners recommend that the Department countervail the 
total payment against grants receivable in 1988, while subtracting the 
value of grants receivable in 1987 and 1988 from the 1987 and 1988 
grant amounts countervailed in the preliminary determination. 
Petitioners state that the Department should follow this methodology 
because the grants receivable can only have conveyed a countervailable 
benefit in the year when they were received.
    Respondents GOQ and SDI claim that the payments against accumulated 
grants receivable cannot be countervailed because the funds are tied to 
interest due on an instrument taken by Sidbec to pay for costs of 
Normines' mining operations and therefore has no relationship to the 
subject merchandise (see Comment 5 for a discussion of funds granted 
pertaining to mining operations). The respondents also argue that the 
Department already accounted for this sum in the preliminary 
determination. According to the respondents the Department verified the 
source of the money in question, and

[[Page 54986]]

traced it back to monies already accounted for in the preliminary 
determination. Additionally, respondent SDI argues that, by definition, 
``grants receivable'' have not yet been received, and therefore cannot 
be countervailed in the years in which they are recorded as ``grants 
receivable.'' Finally, the GOQ suggests that, in the alternative, the 
Department could do what petitioners have asked. The GOQ argues that, 
should the Department decide to accept petitioners' argument, the end 
result, using petitioners' suggested method to avoid double counting, 
would be a net reduction in the margin.
    Department's Position: We believe that the focus of our effort to 
calculate the countervailable subsidy should be twofold. First, we need 
to ensure that grants receivable (which eventually may become grants 
received) are not improperly included in the countervailing duty 
margin. A grant receivable is not a subsidy; only a grant is. Second, 
we need to ensure that all countervailable subsidies have been captured 
by our methodology. In order to achieve these goals with respect to GOQ 
grants to Sidbec, the Department reconciled payments to Sidbec as 
recorded in the GOQ's public accounts to amounts received per Sidbec's 
accounting records. In doing so, the Department confirmed that all GOQ 
payments made between 1983 and March 31, 1993 (the end of the GOQ's 
1992 fiscal year) were accounted for in the Department's preliminary 
determination. See Sidbec Verification Report, Exhibit 7. Therefore, 
the Department finds that no adjustments are necessary in the final 
determination.
    Comment 12: Respondent SDI argues that the purchase price for 
Sidbec-Dosco, Inc. used by the Department in the preliminary 
determination did not reflect the true purchase price. SDI states that 
the purchase price used by the Department represented the cash payment 
by the buyer; however, it grossly understated the actual purchase price 
because it failed to take into account the additional consideration 
paid by the buyer for the shares of Sidbec-Dosco, Inc. The specific 
nature of the additional consideration is proprietary.
    The petitioners did not comment on respondent SDI's argument.
    Department's Position: We disagree with SDI. SDI does not cite any 
past Departmental practice where the Department has included in its 
purchase price calculation the additional consideration to which SDI 
refers, nor does any sound financial analysis support SDI's approach 
(see Memorandum to the File, Final Analysis Memorandum for the 
Investigation of Steel Wire Rod from Canada).
    We note that although Article 6.1 of the Stock Purchase Agreement 
provided for the buyer to assume other obligations in the purchase of 
Sidbec-Dosco, Inc., Articles 3.1 and 3.2 of the Stock Purchase 
Agreement specifically outline the actual purchase price that Ispat 
Mexicana , through its subsidiary, Brohenco, paid for Sidbec-Dosco, 
Inc. Nowhere in Articles 3.1 and 3.2 is reference made to other 
obligations being included in the purchase price of Sidbec-Dosco, Inc. 
Additionally, the record includes clear statements from both SDI and 
the GOQ in their questionnaire responses indicating the amount of money 
that Ispat Mexicana paid for outstanding shares of Sidbec-Dosco, Inc. 
(see SDI May 27, 1997 questionnaire response and GOQ July 3, 1997 
questionnaire response). This amount does not include the additional 
consideration to which SDI now refers. Furthermore, at verification, 
SDI officials specifically stated that the official price at which 
Ispat Mexicana purchased Sidbec-Dosco, Inc. from Sidbec was the price 
that agreed with the amount in the questionnaire responses (see SDI 
verification report, Sept. 17, 1997). We also reviewed documents at 
verification showing the Department this same purchase price. Moreover, 
at Sidbec, we verified the price that Ispat Mexicana paid for Sidbec-
Dosco, Inc. and that this price agreed with the questionnaire responses 
(see Sidbec verification report, Sept. 17, 1997). Furthermore, at 
Sidbec, we examined sale documentation and found that the purchase 
price in this documentation agreed with the purchase price in the 
responses (see Exhibit S-1).
    Therefore, for the final determination, the Department will 
continue to use the purchase price from the preliminary determination.
    Comment 13: SDI asserts that any possible countervailable subsidies 
were extinguished by privatization. SDI argues that the privatization 
methodology used in the preliminary determination is incorrect for the 
following reasons: (1) The accepted practice in virtually every part of 
the world for valuing a company for purposes of acquisition is to look 
at the discounted stream, or present value, of future earnings; (2) the 
forecasted earnings are calculated by excluding any interest payments, 
and any income or expenses which do not impact on cash flow, such as 
depreciation; and (3) the forecasted tax burden is also calculated and 
subtracted from the pre-tax earnings. SDI contends that after 
calculating the future earnings, the earnings are discounted using the 
relevant cost of capital (to the purchaser) and then summed, and that 
this sum represents the value of the company as if all the financing 
were share capital. Also, if there are loans or other debts 
outstanding, these liabilities are subtracted from the sum of 
discounted future values in order to arrive at the net (unleveraged) 
value of the company. SDI points out that grants taken by the company 
effectively decrease the amount of the loans that the company would 
otherwise have to take to finance the given level of investment, and 
the value of the company increases by the amount of the grants and 
this, in turn, increases the amount that the purchaser is willing to 
pay for the company. Moreover, SDI points out that if the operations 
are not financed completely by loans, but are financed in part by 
grants and equity infusions, the value of the company is reduced only 
by the amount of the loans, not the grants and equity infusions, when 
calculating the present value of future earnings. SDI argues that Ispat 
Mexicana's purchase of Sidbec-Dosco, Inc. paid back the grants dollar 
for dollar. Therefore, SDI argued that the subsidies that Sidbec-Dosco, 
Inc. received prior to privatization are extinguished at the point of 
privatization.
    The GOC asserts that it has concerns with the Department's 
privatization methodology. The GOC contends that it was advised that 
the sale of Sidbec-Dosco, Inc. was an arm's length transaction and 
fully reflected the market value of the company's assets. Therefore, 
the Department should conclude that any alleged subsidies were 
extinguished at privatization.
    Department's Position: We disagree with both the GOC and SDI.
    In deciding how to treat non-recurring subsidies after a 
privatization, the Department has followed the methodology which was 
discussed in the ``Restructuring'' section of the GIA, 58 FR at 37266-
69. There we stated that ``subsidies were not extinguished when a 
productive unit was sold. Instead, some portion of prior subsidies 
received `by the seller ``travel (with the productive unit) to its new 
home'':

    The Department determines that a company's sales of a 
``business'' or ``productive unit'' does not alter the effect of 
previously bestowed subsidies. The Department does not examine the 
impact of subsidies on particular assets or tie the benefit level of 
subsidies to changes in the company under investigation. Therefore, 
it follows that when a company sells a productive unit, the sale 
does nothing to alter

[[Page 54987]]

the subsidies enjoyed by that productive unit.

Id. At 37268 (quoting U.K. Bismuth). We then described the calculation 
that we would use to measure the portion of the subsidies which passed 
through. This calculation takes into account the sale price for the 
productive unit and calls for an allocation of previously bestowed 
subsidies between the buyer and seller. See id. at 37269.
    Consistent with this approach, we treated a portion of the 
subsidies received by Sidbec as passing through to SDI. We calculated 
the allocated amounts pursuant to the formula developed in the 
Restructuring section of the GIA, 58 FR at 37269.
    As to the argument that an arm's length transaction, at fair market 
value, extinguishes prior subsidies, the decision of the United States 
Court of Appeals for the Federal Circuit in Saarstahl AG v. United 
States, 78 F.3d 1539 (Fed. Cir. 1996) (``Saarstahl''), is controlling. 
There, the Federal Circuit found that an arm's length transaction, at 
fair market value, does not automatically extinguish subsidies 
previously bestowed on a government-owned company, given that the 
countervailing duty statute does not require the Department to find 
that the buyer--here, Ispat Mexicana--has a competitive benefit 
resulting from those subsidies. The Federal Circuit indicated that the 
Department can impose countervailing duties upon the buyer once it 
finds (1) a subsidy with regard to the production of the subject 
merchandise, and (2) injury to the domestic industry by reason of 
imports of that merchandise. See id. at 1542-43. These prerequisites 
have been met in this final determination.
    The Department continues to believe that its approach with regard 
to privatization is reasonable, and this approach has received support 
from the Federal Circuit, as indicated above. Therefore, for the final 
determination, the Department has continued to follow that approach in 
addressing the restructuring at issue.
    Comment 14: SDI argues that the Department's finding that Sidbec 
was uncreditworthy in its preliminary determination is not supported by 
evidence on the record. SDI contends that the Department did not 
consider evidence of comparable long-term commercial financing received 
by Sidbec when making its funding. SDI argues that it provided the 
Department with evidence of commercial debt obtained contemporaneously 
with the receipt of government grants. SDI maintains that Sidbec 
entered into a long-term capital lease obligation and the terms of the 
lease stated that Sidbec would pay the rent. SDI argues that the lease 
was not guaranteed by the government; hence, the lease constituted 
comparable long-term financing obtained through private commercial 
sources.
    SDI further argues that the Department should have considered the 
creditworthiness of Sidbec-Dosco, Inc., the producer of the subject 
merchandise, and not Sidbec. SDI stated that in (LHF from Canada), the 
Department examined the creditworthiness of two related companies 
``directly engaged in the production of LHF,'' and not the 
creditworthiness of the entire consolidated group. SDI noted that the 
Department should have made a similar determination in this case. 
Additionally, SDI states that Sidbec-Dosco Inc.'s financial ratios 
indicates that it was creditworthy during in the years prior to the 
1988 debt-to-equity conversion, and that the Department erred in using 
Sidbec's financial ratios when determining creditworthiness. Finally, 
SDI asserts that the Department failed to consider record evidence 
showing that Sidbec-Dosco, Inc. received comparable long-term financing 
from commercial sources during the AUL from 1985-1988.
    SDI asserts that the above errors resulted in the Department adding 
a risk premium to the discount rate. Citing the 1997 Proposed Rules, 62 
FR at 8829-30, SDI argues that the risk premium is greater than the 
benchmark of 4.3 percent that the Department proposes as ``a more 
accurate measure of risk involved in lending to firms with little or no 
access to commercial bank loans'' that captures ``more precisely the 
speculative nature of loans to uncreditworthy companies and the premium 
they would have to pay the lender to assume that risk.'' Therefore, the 
Department's use of a risk premium is not legally correct.
    Petitioners argue that the Department should reject SDI's argument 
that the Department should base its creditworthiness analysis on 
Sidbec-Dosco, Inc., and not Sidbec, financial ratios because of the 
nature of Sidbec's corporate relationship with Sidbec-Dosco, Inc. 
Petitioners state that this analysis is accurate because no reasonable 
creditor would lend to Sidbec-Dosco, Inc. without evaluating the 
financial condition of Sidbec. However, petitioners assert that if the 
Department does consider Sidbec-Dosco Inc.'s financial ratios, Sidbec-
Dosco, Inc. still had a high debt-to-equity ratio and ultra-low quick 
ratio and thus would not be attractive to a commercial lender.
    Petitioners contend that Sidbec's lease obligation is not proof of 
creditworthiness. Petitioners note that in the preliminary 
determination for Steel Wire Rod From Germany, the Department found 
that respondent Ispat Hamburger Stahlwerke was uncreditworthy in 1994 
even though it had long-term lease agreements. Therefore, the 
Department should disregard the evidence of Sidbec's long-term lease.
    Petitioners state that they agree with SDI in its suggestion that 
the Department use the new uncreditworthiness calculation from the 
proposed countervailing duty regulations in this review. However, 
petitioners contend that the Department should use the entire 
methodology, including the formula in Section 351.504(a)(3)(iii). 
Petitioners note that while it may not be appropriate to apply the new 
regulations to all of these investigations, it believes it is entirely 
correct when petitioners and the respondent agree that it would yield 
to a more accurate measure.
    Department's Position: The creditworthiness analysis that the 
Department performed in its preliminary determination (and subsequently 
in this final determination) is consistent with our decision (see 
Comment 1) to analyze the subsidies at issue as benefitting the 
consolidated group of the parent/holding company, Sidbec. Therefore, 
for the final determination, we have limited our analysis to Sidbec. 
See, e.g., Final Affirmative Countervailing Duty Determination: Small 
Diameter Circular Seamless Carbon and Alloy Steel Standard, Line and 
Pressure Pipe from Italy, 60 FR 3199 (June 19, 1995).
    Since the Department has limited its analysis of creditworthiness 
to Sidbec, we feel that it is not appropriate to address the Sidbec-
Dosco, Inc.'s long-term commercial loans in this final determination. 
We also note that, in any event, SDI did not provide complete data 
regarding these borrowings.
    Additionally, we disagree with SDI that Sidbec's long-term capital 
lease is comparable long-term commercial financing. The lease that SDI 
points to is a capital lease, which is secured by a first-rank specific 
charge (see Exhibit 13, Note 8 of SDI's May 27, 1997 questionnaire 
response), which is not unlike a typical mortgage. In this case, the 
lessor has first lien rights on the capital equipment should the 
lessee, Sidbec, be in default. On this basis, the Department 
distinguishes this capital lease from a typical long-term

[[Page 54988]]

commercial loan, which is not secured in this way. The Department 
therefore does not consider Sidbec's lease to be comparable long-term 
commercial financing. Lastly, the Department has determined that the 
use of a risk premium is appropriate and legally correct in this case 
because the Department continues to operate under its existing practice 
rather than the 1997 Proposed Rules.
    Comment 15: Respondent SDI contends that the Department erred in 
calculating the ad valorem countervailing duty rate by using an FOB 
sales value as the denominator in its formula. SDI cites the GIA (58 FR 
at 37237) as supporting the concept of using respondents' sales value 
as recorded in their financial statements and accounts as the 
denominator when calculating the ad valorem subsidy rate. SDI notes 
that, in contrast, Commerce in this case has used an estimated FOB 
factory sales value for domestic sales, and an estimated FOB port sales 
value for export sales, even though Sidbec-Dosco (Ispat) maintains its 
sales records and reports sales figures in its financial statements on 
a delivered price basis.
    Petitioners did not comment on this argument.
    Department's Position: The Department acknowledges that, in the 
GIA, it stated that it would be ``more appropriate to use respondents' 
sales value as recorded in their financial statement and accounts in 
the denominator when calculating the ad valorem subsidy rate.'' GIA, 58 
FR at 37237. However, an adjustment (a ratio of invoice value of 
exports to the United States to the FOB value of exports to the United 
States) was still necessary under the GIA methodology to ensure that 
Customs would collect the correct amount of subsidy based on an FOB 
invoice price of the imported merchandise. In the 1997 Proposed Rules, 
the Department noted that the methodology discussed in the GIA had not 
proven useful, because so few companies had the data in the form 
necessary to calculate the ratio. While SDI maintains that it does 
possess the necessary information, it is also true that, so long as the 
estimates used to calculate the FOB value are reasonable, there should 
be no net effect on the calculated margin. The Department verified 
SDI's estimated freight calculations, and found them to be reasonable. 
See SDI Verification Report. Therefore, for the purposes of calculating 
a final margin, we have made no adjustments.
    Comment 16: The GOQ supports the Department's preliminary 
determination not to countervail benefits received through the Canadian 
Steel Trades and Employment Congress (CSTEC), but argues that the 
Department should acknowledge that benefits under the Sectoral 
Partnerships Initiative (of which CSTEC is a part) are generally 
available to Canadian industry, and that only ``additional training'' 
qualifies for government funding through CSTEC. The GOQ also notes that 
petitioners made no claim in their subsidy submission that CSTEC 
programs constituted a subsidy to Canadian employers, nor did they 
request that CSTEC be included in the calculation of a Canadian 
countervailing duty margin.
    Petitioners did not comment on this argument.
    Department's Position: At verification of the response of the 
Government of Canada and CSTEC, the Department reviewed documentation 
supporting record evidence that benefits under the Sectoral 
Partnerships Initiative, of which CSTEC is a part, are not de jure 
specific to the Canadian steel industry, as is discussed above in Part 
II. See Government of Canada Verification Report, page 4; Canada Steel 
Trades and Employment Congress Verification Report, page 1. See also 
GOC July 2, 1997 Supplemental Questionnaire response, exhibit 4 
(Sectoral Activities Update Report; Spring 1996, which shows that over 
50 separately classified industrial sectors were included in SPI). 
Additionally, there is no record evidence suggesting that the 
administration of SPI vis-a-vis the steel industry would lead the 
Department to determine that SPI is de facto specific with respect to 
the steel industry. Therefore, benefits received under this program are 
not countervailable.
    Comment 17: Respondent GOQ states that in the Department's 
preliminary determination it concluded that funding by the Societe de 
Developpement Industriel du Quebec (SDIQ) did not confer a 
countervailable subsidy during the POI. Respondent notes that 
verification confirmed that no SDIQ benefits were received by steel 
wire rod producers or sellers during the POI, and that SDIQ monies 
received by a steel company prior to the POI constituted a de minimis 
portion of total sales value in those years. Moreover, the GOQ argues 
that the verified record demonstrates that SDIQ monies received by the 
respondent companies could not possibly be countervailed in that the 
monies were not specific to the steel wire rod industry because SDIQ 
provided benefits to over 1,100 companies. The GOQ contends that while 
there were many users, from a wide variety of industries, no steel 
producer was a dominant user, and steel did not receive a 
disproportionate share. Therefore, SDIQ was not specific.
    The petitioners did not comment on this argument.
    Department's Position: We agree with the GOQ that respondent Ivaco 
was the only steel wire rod producer to receive any benefits from SDIQ 
during the AUL period. As we explained above (see Part III), Ivaco 
received de minimis benefits in two years prior to the POI, and we 
therefore expensed them in the years of receipt. As a result, we did 
not countervail any benefits under this program.
    Comment 18: Respondent SDI states the Department did not correctly 
sum its depreciation expense that it used to calculate its AUL. SDI 
notes that the Department's AUL calculation only summed nine years of 
depreciation expense as opposed to ten years, and therefore, the 
Department should correct the summing of its depreciation expense in 
its final determination.
    The petitioners did not comment on this argument.
    Department's Position: We agree with respondent SDI. In the 
preliminary determination, the Department incorrectly calculated SDI's 
depreciation expense that it used to calculate SDI's AUL. The 
Department has recalculated SDI's depreciation expense by summing the 
appropriate number of years (i.e., ten). This recalculation has changed 
the length of the AUL period (see Memorandum to the File, Final 
Analysis Memorandum in the Investigation of Steel Wire Rod from 
Canada).
    Comment 19: Respondent GOQ states that petitioner alleged that 
Sidbec's 1982 financial statements indicated that Sidbec received 
C$51.7 million contributed surplus from the GOQ and the GOC. The GOQ 
notes that the Department verified that this contributed surplus 
represents funds provided to Sidbec before the AUL period. Therefore, 
the GOQ maintains that these funds are not relevant to the 
investigation.
    Petitioners did not comment on this argument.
    Department's Position: We agree with respondent GOQ. Although 
Sidbec's 1980 consolidated financial statement indicated that Sidbec 
did receive a C$51.7 million contributed surplus, the Department 
verified that Sidbec received this C$51.7 million contributed surplus 
from 1977 to 1979 (See Sidbec Verification Exhibit S-4). Consequently, 
these funds were provided outside of the Department's calculated AUL 
period for SDI.
    Comment 20: Petitioners state that a review of Sidbec's 1980 
through 1982

[[Page 54989]]

financial statements indicates that the GOQ provided grants to Sidbec 
in 1980 and 1981. Petitioners state that the 1980 financial statement 
described these grants as ``an amount that the government has consented 
to pay to the company to finance specific investment projects'' and 
Sidbec officials stated at verification that Sidbec had received these 
amounts (see Sidbec's Verification report). Therefore, petitioners 
argue that Sidbec received grants from the GOQ. Lastly, petitioners 
state although the regulatory time limit for alleging new subsidies has 
passed, if the Department does not include these subsidies it will 
reward Sidbec's refusal to provide the Department with requested 
information.
    The GOQ states that the amounts of funding are not grants, but are 
payments for equity purchased in 1979. The GOQ argues that the 
Department verified the funding to be grants provided in 1980 and 1981, 
and were the last of two installment payments on equity that the GOQ 
purchased from Sidbec in 1979. The GOQ notes that it passed legislation 
which allowed it to purchase shares of Sidbec stock in 1979, that 
legislation permitted the GOQ to pay for those shares in installments 
over three years, and Sidbec's 1980 balance sheet confirms that the 
shares were issued prior to 1979. Furthermore, the GOQ argues that the 
date of issuance of the shares, not the dates on which the purchase 
price was fully paid, establishes as a matter of law the date on which 
an equity infusion is made. The GOQ asserts that the shares were issued 
in 1979.
    Additionally, respondent SDI notes that Sidbec's financial 
statements for 1980 and 1981 do not provide a basis for countervailing 
these amounts. According to SDI, states that there is no evidence on 
the record to indicate that Sidbec-Dosco, Inc. received any funding in 
either 1980 or 1981.
    Lastly, both the GOQ and SDI state that these equity infusions were 
outside of the Department's calculated AUL period.
    Department's Position: We disagree with petitioners. At 
verification of Sidbec, officials informed the Department that Sidbec 
did receive equity infusions from the GOQ from 1979 through 1981. See 
Sidbec Verification Report, dated September 17, 1997. Therefore, we 
determine that no countervailable benefits were conferred through this 
program.
    Comment 21: Respondent GOQ notes that petitioners alleged that in 
1987 Sidbec-Dosco received a grant from the GOQ. The GOQ states that 
the Department verified that no such program existed and that Sidbec-
Dosco never received any money from the GOQ during 1987 or any other 
year during the AUL.
    The petitioners did not comment on this argument.
    Department's Position: We agree with respondent GOQ. At 
verification, we found no evidence that the GOQ provided a grant to 
Sidbec-Dosco, Inc. in 1987. Sidbec underwent a reorganization in 1987 
in order to consolidate all steel-related assets under Sidbec-Dosco, 
Inc., and all assets previously belonging to Sidbec had been leased to 
Sidbec-Dosco, Inc. We discovered that this transaction reflected an 
intracomapany reorganization, and that this arrangement was exclusively 
between Sidbec and Sidbec-Dosco, Inc. and was designed to effect the 
reorganization. See GOQ and Sidbec-Dosco (Ispat) Verification Reports, 
dated Sept. 17, 1997. Therefore, we determine that no countervailable 
benefits were conferred through this program.
    Comment 22: Respondent GOQ states that petitioners alleged that in 
1987 Sidbec-Dosco, Inc. received an equity infusion (i.e., a debt-to-
equity conversion) from either the GOQ or the GOC. Respondent argues 
that the Department concluded in its preliminary determination that no 
countervailable benefits were provided under this program. The GOQ 
notes that the Department verified that the GOQ made no equity 
infusions into Sidbec-Dosco, Inc. or Sidbec in 1987.
    The petitioners did not comment on this argument.
    Department's Position: We agree with respondent GOQ. At 
verification, we found no evidence that the GOQ provided an equity 
infusion (i.e., a debt-to-equity conversion) to Sidbec-Dosco, Inc. in 
1987. We discovered that this transaction reflected an intracompany 
reorganization. See GOQ and Sidbec-Dosco (Ispat) Verification Reports, 
dated Sept. 17, 1997. Therefore, we determine that no countervailable 
benefits were conferred through this program.
    Comment 23: Respondent GOQ asserts that the Department concluded in 
its preliminary determination that neither Sidbec nor Sidbec-Dosco, 
Inc. received any equity infusions in 1982. However, the Department 
noted that it was uncertain as to whether any grants were provided to 
either of these companies in 1982. The GOQ states that the record now 
shows that neither Sidbec nor Sidbec-Dosco, Inc. received any 
countervailable assistance in 1982, whether in the form of grants or 
equity.
    The petitioners did not comment on this argument.
    Department's Position: We agree with the GOQ. At verification, we 
found no evidence that the GOQ provided any form of governmental 
assistance to either Sidbec or Sidbec-Dosco, Inc. in 1982. See the GOQ 
and Sidbec-Dosco (Ispat) Verification Reports, dated Sept. 17, 1997. 
Therefore, we determine that no countervailable benefits were conferred 
through this program.

Suspension of Liquidation

    In accordance with section 705(c)(1)(B)(i) of the Act, we have 
calculated individual rates for each of the companies under 
investigation.
    To calculate the all others rate, we weight-average all individual 
company rates which are positive by each company's exports of the 
subject merchandise to the United States. In this case, because Stelco 
and Ivaco's rates are zero, we are using SDI's rate as the All Others 
rate.
    In accordance with section 703(d) of the Act, we are directing the 
U.S. Customs Service to suspend liquidation of all entries of steel 
wire rod from Canada, except those of Ivaco and Stelco, which are 
entered, or withdrawn from warehouse, for consumption on or after the 
date of the publication of this notice in the Federal Register, and to 
require a cash deposit or bond for such entries of the merchandise in 
the amounts indicated below. Because there is no estimated net subsidy 
for Ivaco and Stelco, they are exempt from the suspension of 
liquidation. This suspension will remain in effect until further 
notice.

------------------------------------------------------------------------
                                                             Ad valorem 
                  Manufacturers/exporters                       rate    
                                                              (percent) 
------------------------------------------------------------------------
Sidbec-Dosco (Ispat) Inc..................................          8.95
Ivaco, Inc................................................          0   
Stelco, Inc...............................................          0   
All Others................................................          8.95
------------------------------------------------------------------------

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 Deputy Assistant Secretary for AD/CVD Enforcement, Group III, 
Import Administration.
    If the ITC determines that material injury, or threat of material 
injury, does

[[Page 54990]]

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 Canada.

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 LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-27986 Filed 10-21-97; 8:45 am]
BILLING CODE 3510-05-P