[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]
-----------------------------------------------------------------------
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