[Federal Register Volume 63, Number 4 (Wednesday, January 7, 1998)]
[Notices]
[Pages 809-827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-271]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
[C-475-821]
Preliminary Affirmative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination: Certain Stainless Steel Wire Rod From
Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: January 7, 1998.
FOR FURTHER INFORMATION CONTACT: Kelly Parkhill, Kathleen Lockard, or
Eric Greynolds, Office of CVD/AD Enforcement VI, Import Administration,
U.S. Department of Commerce, Room 3099, 14th Street and Constitution
Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-2786.
Preliminary Determination
The Department of Commerce (the Department) preliminarily
determines that countervailable subsidies are being provided to
producers and exporters of certain stainless steel wire rod from Italy:
Cogne Accai Speciali S.r.l. (CAS), Acciaierie Valbruna S.r.l.
(Valbruna) and Acciaierie di Bolzano S.p.A. (Bolzano). For information
on the estimated countervailing duty rates, please see the ``Suspension
of Liquidation'' section of this notice.
Petitioners
The petition in this investigation was filed by AL Tech Specialty
Steel Corp.; Carpenter Technology Corp.; Republic Engineered Steels;
Talley Metals Technology, Inc.; and, United Steelworkers of America,
AFL-CIO/CLC (the petitioners).
Case History
Since the publication of the notice of initiation in the Federal
Register, the following events have occurred. See Notice of Initiation
of Countervailing Duty Investigation: Certain Stainless Steel Wire Rod
(``SSWR'') from Italy, 62 FR 45229 (August 26, 1997) (Initiation
Notice). On September 9, 1997, we issued countervailing duty
questionnaires to the Government of Italy (GOI), the European
Commission (EC), and the producers/exporters of the subject
merchandise. On October 1, 1997, we postponed the preliminary
determination of this investigation until December 29, 1997 (62 FR
52085, October 6, 1997).
On October 2, 1997, we met with representatives of the GOI and the
EC, pursuant to Article 13 of the Agreement on Subsidies and
Countervailing Measures (SCM) . We received responses to our initial
questionnaires from the GOI, the EC, Valbruna/Bolzano, and CAS between
October 27 and November 4, 1997. Between November 10 and December 3, we
issued several supplemental questionnaires to the parties. We received
responses to these supplemental questionnaires between November 24 and
December 11, 1997. CAS also submitted additional information on its
calculation of the average useful life of assets on December 16, 1997.
Scope of Investigation
For purposes of this investigation, certain stainless steel wire
rod (SSWR or subject merchandise) comprises products that are hot-
rolled or hot-rolled annealed and/or pickled and/or descaled rounds,
squares, octagons, hexagons or other shapes, in coils, that may also be
coated with a lubricant containing copper, lime or oxalate. SSWR is
made of alloy steels containing, by weight, 1.2 percent or less of
carbon and 10.5 percent or more of chromium, with or without other
elements. These products are manufactured only by hot-rolling or hot-
rolling, annealing, and/or pickling and/
[[Page 810]]
or descaling, and are normally sold in coiled form, and are of solid
cross-section. The majority of SSWR sold in the United States is round
in cross-sectional shape, annealed and pickled, and later cold-finished
into stainless steel wire or small-diameter bar.
The most common size for such products is 5.5 millimeters or 0.217
inches in diameter, which represents the smallest size that normally is
produced on a rolling mill and is the size that most wire drawing
machines are set up to draw. The range of SSWR sizes normally sold in
the United States is between 0.20 inches and 1.312 inches in diameter.
Two stainless steel grades SF20T and K-M35FL are excluded from the
scope of the investigation. The percentages of chemical makeup for the
excluded grades are as follows:
SF20T
Carbon--0.05 max
Manganese--2.00 max
Phosphorous--0.05 max
Sulfur--0.15 max
Silicon--1.00 max
Chromium--19.00/21.00
Molybdenum--1.50/2.50
Lead added (0.10/0.30)
Tellurium added (0.03 min)
K-M35FL
Carbon--0.015 max
Silicon--0.70/1.00
Manganese--0.40 max
Phosphorous--0.04 max
Sulfur--0.03 max
Nickel--0.30 max
Chromium--12.50/14.00
Lead--0.10/0.30
Aluminum--0.20/0.35
The products under investigation are currently classifiable under
subheadings 7221.00.0005, 7221.00.0015, 7221.00.0030, 7221.00.0045, and
7221.00.0075 of the Harmonized Tariff Schedule of the United States
(HTSUS). Although the HTSUS subheadings are provided for convenience
and customs purposes, the 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).
In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations as codified at
19 CFR 351 and published in the Federal Register on May 19, 1997 (62 FR
27295).
Injury Test
Because Italy 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 the
subject merchandise from Italy materially injure, or threaten material
injury to, a U.S. industry. On September 24, 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
Italy of the subject merchandise (62 FR 49994).
Alignment with Final Antidumping Duty Determination
On September 10, 1997, the petitioners submitted a letter
requesting alignment of the final determination in this investigation
with the final determination in the companion antidumping duty
investigations. In accordance with section 705(a)(1) of the Act, we are
aligning the final determination in this investigation with the final
antidumping duty determinations in the antidumping investigations of
certain stainless steel wire rod. See Initiation of Antidumping
Investigations: Stainless Steel Wire Rod From Germany, Italy, Japan,
Korea, Spain, Sweden, and Taiwan, 62 FR 45224 (August 26, 1997).
Period of Investigation
The period for which we are measuring subsidies (the POI) is
calendar year 1996.
Facts Available
Section 776(a)(1) of the Act requires the Department to use facts
available if ``necessary information is not available on the record.''
In three instances, information necessary to our analysis of CAS was
unavailable on the record; therefore, we have resorted to facts
available as discussed in the ``Change in Ownership'' and ``Allocation
Period'' sections below.
Company Histories
The GOI identified three producers of subject merchandise that
exported the subject merchandise to the United States during the POI:
CAS, Valbruna, and Bolzano.
CAS
In the past fifteen years, CAS has undergone several changes in
organization, name, and ownership. From 1982 to 1984, the facilities in
Aosta, where the subject merchandise is produced, were part of Nuova
Sias S.p.A., which was, in turn, wholly-owned by the GOI. From 1984 to
1987, the Aosta facilities operated under Deltasider S.p.A., a wholly-
owned subsidiary of steel producer Finsider S.p.A. Finsider S.p.A. was,
in turn, wholly-owned by the Istituto per la Ricostruzione Industriale
(IRI) of the GOI. In 1987, the Aosta operations were transferred to
Delta Cogne S.p.A., a newly-created, wholly-owned subsidiary of
Deltasider S.p.A. In 1988, IRI began the liquidation of Finsider and
its subsidiaries.
In 1988, IRI created ILVA S.p.A. as the successor to Finsider; ILVA
was also wholly-owned by IRI and the GOI. In 1989, the Aosta operations
were transferred to ILVA. In December 1989, Cogne S.r.l. was created as
a wholly-owned subsidiary of ILVA S.p.A., which held the Aosta
operations. Cogne S.r.l. was later named Cogne Acciai Speciali S.p.A.
(Cogne S.p.A.). From 1990 to 1992, Gruppo Falck S.p.A. (Falck), a
private company with holdings in steel and real estate, held 22.4
percent of Cogne S.p.A.''s stock (with the remainder and controlling
interest held by ILVA). Falck acquired the shares of Cogne S.p.A. by
exchanging shares of its own subsidiary, Bolzano. By the end of 1992,
Falck's interest in Cogne S.p.A. was dissolved, and Cogne S.p.A. again
was wholly-owned by ILVA. Based on the information we have about the
swap, we understand that neither the initial swap nor the dissolution
involved any cash transactions.
In 1991, Robles S.r.l. acquired the land and buildings, e.g. the
non-productive assets, of the Aosta facilities from Cogne S.p.A. Robles
S.r.l. was acquired by Compagnie Monegasque de Banque S.A. at the end
of 1991. In 1992, Cogne S.p.A. acquired the shares of Robles S.r.l.,
which became Cogne S.p.A.''s wholly-owned subsidiary. The name of
Robles S.r.l. was changed to Cogne Acciai Speciali, S.r.l. (CAS), later
that year.
In 1993, ILVA prepared to liquidate or privatize all of its
subsidiaries, divisions, and productive units, including Cogne S.p.A.
In preparation for the privatization, Cogne S.p.A. transferred nearly
all of the assets of the Cogne companies to CAS and assumed nearly all
of the liabilities. Concurrently, Cogne S.p.A.''s wholly-owned
subsidiary, CAS, was offered for sale in a bidding process. The sale
was advertised and open to any outside party. Three parties submitted
complete bids for CAS. GE. VAL. S.r.l.''s bid was accepted by Cogne
S.p.A. The CAS shares were transferred based on an initial cash payment
in 1993, and an additional payment in 1995. The transfer of shares also
required additional cash payments if CAS turned profits through 1998.
Cogne S.p.A. was
[[Page 811]]
later folded into ILVA, which was liquidated, in part, and merged, in
part, into IRITECNA, another IRI company. In 1995, as the result of a
merger, GE. VAL. S.r.l. became MEG S.A. (MEG). CAS has been wholly-
owned by MEG since that time.
Bolzano and Valbruna
From 1985 until 1990, Bolzano, a producer of the subject
merchandise, was a wholly-owned subsidiary of Acciaierie e Ferriere
Lombarde Falck, the main industrial company of Falck. In 1990, ILVA
acquired 44.8 percent of the stock in Bolzano. ILVA acquired the shares
of Bolzano by exchanging shares of its own subsidiary, Cogne S.p.A.
ILVA also acquired shares in other Gruppo Falck steel companies. In
1993, ILVA's interest in Bolzano was dissolved, and Falck again held
virtually all of the stock in Bolzano. Falck decided to sell Bolzano
based on its company-wide strategic decision to withdraw from the steel
industry. Falck contacted Valbruna, as a potential buyer, in late 1994.
Subsequently, the parties entered into negotiations for the transfer of
Bolzano. Falck and Valbruna are both private parties. Each had a
valuation of Bolzano done by an independent international auditing
firm. The valuation studies disagreed, so a third study was
commissioned by the two parties to determine the net equity and cash
flow of Bolzano for purposes of finalizing the purchase price. Since
August 31, 1995, Bolzano has been 99.99 percent-owned by Valbruna, and
since January 1, 1996, the two companies's financial statements have
been consolidated.
Affiliated Parties
In the present investigation, there are affiliated parties (within
the meaning of section 771(33) of the Act) whose relationship may be
sufficient to warrant treatment as a single company. In the
countervailing duty questionnaire, consistent with our past practice,
the Department defined companies as related where one company owns 20
percent or more of the other company, or where companies prepare
consolidated financial statements. See Final Affirmative Countervailing
Duty Determination: Certain Pasta (``Pasta'') From Italy, 61 FR 30287
(June 14, 1996) (Pasta). As Valbruna owns and controls Bolzano, the
companies prepare consolidated financial statements, and both produce
the subject merchandise, we preliminarily determine that it is
appropriate to treat the two SSWR producers as a single company. We
calculated a single countervailing duty rate for these companies by
dividing their combined subsidy benefits by their consolidated total
sales, or consolidated export sales, as appropriate.
Change in Ownership
In the 1993 investigations of Certain Steel Products, we developed
a methodology with respect to the treatment of non-recurring subsidies
received prior to the sale of a company. See, Final Countervailing Duty
Determination; Certain Steel Products from Austria, et. al., 58 FR
37217 (July 9, 1993) (Certain Steel from Austria). This methodology was
set forth in the General Issues Appendix (GIA), appended to Certain
Steel from Austria. The methodology was subsequently upheld by the
Federal Circuit. See Saarstahl AG v. United States, 78 F.3d 1539 (Fed.
Cir. 1996); British Steel plc v. United States, 127 F.3d 1471 (Fed.
Cir. 1997). Under the GIA methodology, we estimate the portion of the
company's purchase price which is attributable to prior subsidies. To
make this estimate, we divide the face value of the company's subsidies
by the company's net worth for each of the years corresponding to the
company's allocation period. We then take the simple average of these
ratios, which serves as a reasonable surrogate for the percentage that
subsidies constitute of the overall value, i.e., net worth, of the
company. Next, we multiply this average ratio by the purchase price of
the company to derive the portion of the purchase price that we
estimate to be a repayment of prior subsidies. Then, the benefit
streams of the prior subsidies are reduced by the ratio of the
repayment amount to the net present value of all remaining benefits at
the time of the change in ownership.
In the URAA, Congress clarified how the Department should approach
changes in ownership. Section 771(5)(F) of the Act states that:
A change in ownership of all or part of a foreign enterprise or
the productive assets of a foreign enterprise does not by itself
require a determination by the administrating authority that a past
countervailable subsidy received by the enterprise no longer
continues to be countervailable, even if the change in ownership is
accomplished through an arm's length transaction.
The Statement of Administrative Action accompanying the URAA,
reprinted in H.R. Doc. No. 103-316 (1994) (SAA) explains why Section
771(5)(F) was added to the statute. The SAA at page 928 states:
Section 771(5)(F) is being added to clarify that the sale of a
firm at arm's length does not automatically, and in all cases,
extinguish any prior subsidies conferred. Absent this clarification,
some might argue that all that would be required to eliminate any
countervailing duty liability would be to sell subsidized productive
assets to an unrelated party. Consequently, it is imperative that
the implementing bill correct such an extreme interpretation.
Consistent with the URAA and the SAA, the Department continues to
examine whether non-recurring subsidies benefit a company's production
after a change in ownership, even one accomplished at arm's length.
Accordingly, we continue to follow the methodology developed in the GIA
based on our determination that this methodology does not conflict with
the change in ownership provision of the URAA. As stated by the
Department, ``[t]he URAA is not inconsistent with and does not overturn
the Department's General Issues Appendix Methodology * * * .'' Certain
Hot-Rolled Lead and Bismuth Carbon Steel Products from the United
Kingdom; Final Results of Countervailing Duty Administrative Review, 61
FR 58377, 58379 (November 14, 1996) (UK Lead Bar 94). We further
clarified in UK Lead Bar 94 that, ``[t]he language of Sec. 771(5)(F) of
the Act purposely leaves discretion to the Department with regard to
the impact of a change in ownership on the countervailability of past
subsidies.'' Id. at 58379. The Department has been applying the
methodology set forth in the GIA. See, e.g., Final Affirmative
Countervailing Duty Determination: Steel Wire Rod From Trinidad and
Tobago, 62 FR 55003 (October 22, 1997) (Trinidad and Tobago) and Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from
Canada, 62 FR 54972 (October 22, 1997) (Steel Wire Rod from Canada).
None of the facts in this case indicate that the application of the GIA
methodology is inappropriate; therefore, we are applying the GIA
methodology to analyze the changes in ownership of respondent
companies, CAS and Bolzano.
CAS
To calculate the amount of the previously bestowed subsidies that
passed through to CAS, we followed the GIA methodology described above.
We were unable to calculate the subsidies-to-net worth ratios used in
the privatization calculation for 1985 and 1986 because the net worth
information was not available on the record. Therefore, in accordance
with section 776 of the Act, as facts available, we used an average of
the years available (1987 through 1992) in the privatization
calculation. As described in the ``Company Histories'' section above,
ILVA ceased operations following the
[[Page 812]]
privatization and/or liquidation of all of its subsidiaries, operating
units, and divisions. For untied non-recurring subsidies provided to
ILVA (and prior to 1989, ILVA's predecessor, Finsider), Cogne's former
parent company, we calculated the amount of these untied subsidies
attributable to Cogne by applying a ratio of Cogne's assets to its
parent company's assets in the year of receipt of the subsidy. For the
untied subsidies provided to Finsider in 1985 and 1986, we were unable
to use an asset ratio in the year of receipt because we did not have
all of the information necessary. Therefore, in accordance with section
776 of the Act, as facts available, we used a ratio of Delta Cogne's
assets to Finsider's assets in 1987, the closest year to the year of
receipt of the untied subsidies for which we have the information. We
plan to obtain information on assets for the relevant years for our
final determination. When calculating the subsidies to net worth ratios
used in the privatization methodology described above, we included
Cogne's share of the untied subsidies in the calculation.
As discussed in the ``Company Histories'' section above, from 1990-
1993, ILVA held a minority interest in Bolzano and Falck held a
minority interest in Cogne. However, as examined previously by the
Department, the exchange of shares involved no cash transactions. See
Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from Italy, 58 FR 37327 (July 9, 1993) (Certain Steel from
Italy). In addition, neither Falck nor ILVA acquired a controlling
interest in the other's subsidiary. The companies were not
consolidated, and the interest of ILVA and Falck in each other's
subsidiary was relinquished without financial obligation (see Certain
Steel from Italy). Based on the record information about the structure
of the share exchange, we understand the swap involved no financial
transfers other than the actual shares during acquisition or
dissolution. Therefore, we do not consider it to constitute a
legitimate sale which could give rise to the repayment or
redistribution of subsidies. See, e.g., GIA, 58 FR at 37266. For the
purpose of this preliminary determination, we have not attributed any
portion of (1) ILVA's untied subsidies to Bolzano or (2) Falck's untied
subsidies to CAS.
Bolzano
To calculate the amount of the previously bestowed subsidies that
passed through to Bolzano from Falck, we followed the GIA methodology
which the Department has previously determined is applicable to
private-to-private changes in ownership to examine the reallocation of
subsidies. See, e.g., Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products from the United Kingdom; Final Results of Countervailing Duty
Administrative Review, 62 FR 53306 (October 14, 1997) (UK Lead Bar 95).
When Falck sold Bolzano to Valbruna in 1995, it was in the process of
transferring or closing all of its steel operations. For untied non-
recurring subsidies provided to Falck in the years prior to Bolzano's
sale to Valbruna, we calculated the amount of these untied subsidies
attributable to Bolzano by applying a ratio of Bolzano's assets to
Falck's assets in the year of receipt of the subsidy. When calculating
the subsidy to net worth ratios used in the methodology described
above, we included Bolzano's share of the untied subsidies in the
calculation. Also as described above, we have not attributed any
portion of ILVA's untied subsidies to Bolzano during the period ILVA
held a minority interest in Bolzano.
Subsidies Valuation Information
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 non-recurring subsidies. See GIA, 58 FR at 37227. However,
in British Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995)
(British Steel I), the U.S. Court of International Trade (the Court)
ruled against this allocation methodology. In accordance with the
Court's remand order, the Department calculated a company-specific
allocation period for non-recurring 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) (British
Steel II). Thus, we intend to determine the allocation period for non-
recurring subsidies using company-specific AUL data where reasonable
and practicable. See, e.g., Certain Cut-to-Length Carbon Steel Plate
from Sweden; Final Results of Countervailing Duty Administrative
Review, 62 FR 16551 (April 7, 1997).
In this investigation, the Department has followed the Court's
decision in British Steel, and examined information submitted by the
respondent companies as to their average useful life of assets.
Valbruna/Bolzano: As discussed in the ``Affiliated Parties''
section of this notice, we have preliminarily determined that the
relationship between Valbruna and Bolzano warrants treatment as a
single company. Therefore, we calculated a single weighted-average AUL
for Valbruna and Bolzano. Based on the information submitted by the
firms on the average useful life of their non-renewable physical
assets, we preliminarily determine that the AUL for Valbruna/Bolzano is
12 years.
CAS: When we evaluated the information initially submitted by CAS
regarding its non-renewable physical assets, we found that the AUL
calculation included figures which could not be explained by the
company's submitted financial information. It appeared that the AUL
calculated by CAS was distorted by the asset valuation methodology
employed by the company in 1989 and 1993. In addition, it appeared that
CAS's calculated depreciation for 1994 through 1996 reflected the
remaining useful life of assets instead of the actual useful life of
assets, which could have resulted in further distortions. We provided
CAS with a detailed list of questions to ascertain and clarify the
source of the discrepancies. On December 16, 1997, CAS submitted
additional information on its AUL. Based on our examination of this
information and the other information on the record, we concluded that
the company's asset valuation methodology in 1989 and use of
accelerated depreciation from 1994 through 1996 results in a
calculation that does not reflect a reasonable estimate of the average
useful life of non-renewable physical assets. Accordingly, based on the
information available, we conclude that CAS's reported AUL cannot be
used for purposes of allocating non-recurring subsidies over time.
We then examined the GOI's tax depreciation schedule for the steel
sector in Italy to determine whether it reflected average useful life
of the Italian steel companies and, therefore, could be used as a basis
for CAS's allocation period. According to the GOI, the depreciation
schedule was based on information acquired from an industry survey
conducted in 1988. The depreciation schedule had a 17.5 percent
depreciation rate for heavy machinery and automated equipment in the
steel industry, which would result in an AUL of approximately 6 years.
We asked the GOI to provide the survey and calculations used to
determine these rates, but the GOI was unable to provide the survey in
time for this preliminary determination. Therefore, we could not
examine the information contained in the survey to determine whether
the depreciation schedule could serve as a reasonable surrogate for
CAS's
[[Page 813]]
allocation period. We plan to examine this study further to determine
if it reflects the average useful life of assets for the steel industry
in Italy, and may be used as a surrogate for CAS's AUL for the final
determination. However, for purposes of this preliminary determination,
we do not consider it appropriate to use the tax depreciation schedule
of approximately six years as the allocation period, when the AUL for
another producer of the subject merchandise is 12 years. Because there
are only a few producers of the subject merchandise in Italy, we find
that the AUL calculated by Valbruna/Bolzano is more appropriately
representative of the SSWR industry. Therefore, as facts available
under section 776 of the Act, we preliminarily determine that using
Valbruna/Bolzano's allocation period of 12 years is appropriate as the
allocation period of non-recurring subsidies. See Memorandum to the
File Regarding CAS's AUL Calculation, dated December 29, 1997, on file
in the Central Records Unit of the Department of Commerce, Room B-099
(CRU).
Equityworthiness
In analyzing whether a company is equityworthy, the Department
considers whether that company could have attracted investment capital
from a reasonable private investor in the year of the government equity
infusion, based on information available at that time. In this regard,
the Department has consistently stated that a key factor for a company
in attracting investment capital is its ability to generate a
reasonable return on investment within a reasonable period of time.
In making an equityworthiness determination, the Department
examines the following factors, among others:
1. Current and past indicators of a firm's financial condition
calculated from that firm's financial statements and accounts;
2. Future financial prospects of the firm including market studies,
economic forecasts, and projects or loan appraisals;
3. Rates of return on equity in the three years prior to the
government equity infusion;
4. Equity investment in the firm by private investors; and
5. Prospects in the marketplace for the product under
consideration.
For a more detailed discussion of the Department's equityworthiness
criteria, see the GIA, 58 FR at 37244.
The Department initiated an investigation of ILVA's
equityworthiness for the periods 1982 through 1988, and 1991 through
1993.1 ILVA has previously been found to be unequityworthy
from 1985 through 1988 and from 1991 through 1992 (see Initiation
Notice Certain Steel from Italy and Final Affirmative Countervailing
Duty Determination: Grain-Oriented Electrical Steel from Italy, 59 FR
18357 (April 18, 1994) (Electrical Steel)). No new information has been
provided in this investigation that would cause us to reconsider these
determinations.
---------------------------------------------------------------------------
\1\ As discussed in the ``Allocation Period'' section of this
notice, the Department has determined the appropriate allocation
period for non-recurring subsidies received by CAS to be 12 years.
Therefore, we are not examining ILVA's equityworthiness prior to
1985.
In Electrical Steel, we treated equity infusions given to ILVA
in 1991 and 1992 as interest free loans because they were
provisional until approved by the EC (the approval was granted in
1993). In this investigation, we determined that the benefit streams
from these equity infusions begin in the years they were received,
thus, we examined ILVA's equityworthiness in 1991 and 1992; we have
not examined ILVA's equityworthiness in 1993.
---------------------------------------------------------------------------
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).
In this investigation, a market benchmark does not exist.
Therefore, the Department is following the methodology described in the
GIA, 58 FR at 37239. See also Trinidad and Tobago, 62 FR at 55004.
Following this methodology, equity infusions made on terms inconsistent
with the usual practice of a private investor 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
As stated in our Notice of Initiation (62 FR 45529), we initiated
an investigation of ILVA's creditworthiness from 1982 through 1994,
CAS's creditworthiness from 1994 through 1996, Falck's creditworthiness
from 1992 through 1994, and Bolzano's creditworthiness from 1995
through 1996, to the extent that government equity infusions, long-term
loans, or loan guarantees were provided in those years.2
---------------------------------------------------------------------------
\2\ As discussed in the ``Allocation Period'' section of this
notice, the Department has determined the appropriate allocation
period for non-recurring subsidies received by CAS and Valbruna/
Bolzano to be 12 years. Therefore, we have not examined the
creditworthiness of any company prior to 1985. In addition, because
CAS was privatized on December 31, 1993, we have not examined ILVA's
creditworthiness in 1994.
---------------------------------------------------------------------------
When the Department examines whether a company is creditworthy, it
is essentially attempting to determine if the company in question could
obtain commercial financing at commonly available interest rates. If a
company receives comparable long-term financing from commercial
sources, that company will normally be considered creditworthy. In the
absence of comparable commercial borrowings, the Department examines
the following factors, among others, to determine whether or not a firm
is creditworthy:
1. Current and past indicators of a firm's financial health
calculated from that firm's financial statements and accounts.
2. The firm's recent past and present ability to meet its costs and
fixed financial obligations with its cash flow.
3. Future financial prospects of the firm including market studies,
economic forecasts, and projects or loan appraisals.
For a more detailed discussion of the Department's creditworthiness
criteria, see, e.g., Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from France, 58 FR 37304 (July
9, 1993) (Certain Steel from France); and Final Affirmative
Countervailing Duty Determinations: Certain Steel Products from the
United Kingdom, 58 FR 37393 (July 9, 1993).
CAS
ILVA, CAS's former parent company was determined to be
uncreditworthy from 1985 through 1992 in Electrical Steel. No new
information has been presented in this investigation that would lead us
to reconsider this finding. Therefore, we continue to find ILVA
uncreditworthy from 1985 through 1992. In order to determine whether
ILVA was uncreditworthy in 1993, in accordance with the Department's
past practice, we examined financial data for the prior three years.
See, e.g., Certain Steel from France, 58 FR at 37306. In the years
relevant to this finding, ILVA consistently had negative operating
profits, poor cash flow, and difficulty in meeting its short-term
liabilities as indicated by its financial ratios. See
[[Page 814]]
``Creditworthiness Memorandum,'' dated December 29, 1997, on file in
the CRU (Creditworthiness Memo).
CAS did not receive equity infusions, grants, long-term loans, or
loan guarantees in 1994 and 1995. Therefore, we are not examining CAS's
creditworthiness in those years. To determine CAS's creditworthiness in
1996, in accordance with the Department's practice, we analyzed
financial data for the prior three years provided by CAS. As a result
of the debt forgiveness associated with the company's privatization in
1993, the company's poor financial condition improved significantly
over the next two years. Although CAS incurred large losses in 1993,
the company was profitable in 1994 and 1995 and its financial ratios in
those years were at acceptable levels. Therefore, we preliminarily
determine CAS to be creditworthy in 1996. See Creditworthiness Memo.
Bolzano
Falck, Bolzano's former parent company, did not receive equity
infusions, long-term loans or loan guarantees from 1992 through 1994.
Bolzano did not receive equity infusions, loans or loan guarantees in
1995 or 1996. Therefore, we are not examining either Falck's or
Bolzano's creditworthiness in this investigation. See Creditworthiness
Memo.
Discount Rates
We used as the discount rate the average long-term loan rate
available in Italy, based upon a survey of 114 Italian banks reported
by the Banca D'Italia, the central bank of Italy, since the GOI does
not maintain information on the national average long-term fixed
interest rate or the highest long-term fixed interest rate commonly
available to firms. See Electrical Steel. For any year in which a
company was uncreditworthy, we calculated the discount rates for
uncreditworthy firms following the methodology described in the GIA.
Specifically, we added to the long-term loan rate available in Italy a
risk premium of 12 percent of the Italian Bankers Association (ABI)
prime rate.
I. Programs Preliminarily Determined To Be Countervailable
Programs of the Government of Italy
A. Benefits Associated with Finsider-to-ILVA Restructuring
As discussed in the ``Company Histories'' section above, in 1988,
Finsider was liquidated, and its assets (and those of its subsidiaries
such as Delta Cogne) were transferred to the new steel holding/
operating company, ILVA S.p.A. This liquidation and asset transfer was
examined in Certain Steel from Italy and Electrical Steel, and found to
provide countervailable benefits to the production of the merchandise
subject to those investigations. Because of the complexity of the
reorganization examined in Electrical Steel, the Department focused on
the benefits specifically provided to the ILVA specialty steels
division, formerly known as Terni Accai Speciali (TAS), the producer of
subject merchandise in that investigation. In Electrical Steel, the
Department found that the reorganization transferred TAS's productive
assets to ILVA while a significant portion of the liabilities and
losses were left in TAS and were later assumed by IRI. Because both
ILVA and Finsider were wholly-owned by IRI, which was owned by the GOI,
the Department found that the transfer of assets, but not liabilities,
between the companies provided a countervailable benefit to the
specialty steels division of ILVA, and the subject merchandise, in
Electrical Steel.
In this investigation, we have a similar situation, which is
further complicated by the subsequent liquidation of ILVA. In order to
determine the countervailable benefit from the 1988/1989 restructuring,
the Department would normally focus on the liabilities left in the
shell company. However, there were significant changes in the
liabilities and assets for Delta Cogne (the Finsider subsidiary that
was liquidated) and Cogne S.r.l. (the ILVA subsidiary that was created
in 1989 and received the assets of Delta Cogne) between the two years.
We have been unable to obtain a clear picture of the circumstances of
this restructuring, in part because of the subsequent changes in
ownership of CAS, detailed in the ``Company Histories'' section above.
From the evidence on the record, it is unclear whether Delta Cogne's
liabilities were assumed, or whether they were reduced through the sale
of assets. Therefore, in this preliminary determination, we have not
focused on the distribution of liabilities between Delta Cogne and
Cogne S.r.l. Rather, we have focused on the changes in shareholders's
equity in Delta Cogne in 1988 and Cogne S.r.l. in 1989.
Under Articles 2446 and 2447 of the Italian Civil Code, companies
are required to cover their losses through net worth--share capital
plus retained earnings. The shareholder is required to subscribe to
additional shares or place the company in liquidation if the corporate
capital falls below the minimum level. As the sole shareholder of Delta
Cogne, Finsider (wholly-owned by IRI) held this obligation for Delta
Cogne. After the restructuring, ILVA (wholly-owned by IRI) held this
obligation for Cogne S.r.l. Thus, we focused on the specific losses
attributable to Delta Cogne, as shown by the changes in shareholders's
equity and losses recorded on the balance sheet of Delta Cogne in 1988
and the balance sheet of Cogne S.r.l. in 1989, the period after the
transfer. Due to the complexity of the restructuring, we have concluded
that focusing on the changes between the balance sheets of the two
Cogne companies would more accurately capture the assistance provided
to the production of the subject merchandise, instead of focusing on
the total debt forgiveness provided by IRI in connection with the
creation of ILVA (see, e.g., Electrical Steel).
In 1988, Delta Cogne's share capital was 200 billion lire, with
over 79 billion lire of losses for that year and over 90 billion lire
in losses brought forward. In 1989, Cogne S.r.l.'s share capital was
slightly above 150 billion lire with no losses for the year and none
brought forward. The difference in the value of share capital between
the two Cogne companies does not account for the losses the company had
accrued at that time. The net result is that over 120 billion lire in
losses remained with Finsider and were covered by IRI. The financial
contribution to Cogne is the amount of Delta Cogne's losses that were
covered by IRI when Cogne S.r.l. was created.
Because Cogne S.r.l. was assigned the assets of Delta Cogne but not
the losses for which the company was also responsible, its financial
position improved with the restructuring. Based on our analysis of the
distribution of assets and losses from Delta Cogne to Cogne S.r.l., we
preliminarily determine that Cogne S.r.l. received a financial
contribution within the meaning of section 771(5) of the Act, in the
amount of the losses it was not required to assume which were later
covered by the GOI through IRI. See, e.g., Certain Steel from Austria.
As restructuring benefits were provided only to the state-owned steel
sector in Italy, we find the program to be specific within the meaning
of section 771(5A)(D) of the Act.
To calculate the benefit, we treated the undistributed losses to
Cogne S.r.l. as a grant given in 1989. We further determine that the
distribution of losses is non-recurring, because the restructuring of
the Italian public steel sector required authorization from IRI, the
GOI, and the EC. We allocated this grant over 12 years as discussed in
the
[[Page 815]]
``Allocation'' section above, and applied the Department's standard
methodology for non-recurring grants. Because the company was
uncreditworthy in the year of receipt, we applied a discount rate that
included a risk premium. We then applied the methodology described in
the ``Change in Ownership'' section of this notice. We divided the
benefit attributable to the POI by CAS's total sales during the POI. On
this basis, we preliminarily determine the countervailable subsidy to
be 4.68 percent ad valorem for CAS.
B. Equity Infusions to ILVA and Finsider
The GOI, through IRI, provided equity infusions to Finsider, ILVA's
predecessor, in 1985 and 1986. IRI also provided equity infusions to
ILVA in 1991 and 1992.
We preliminarily determine that under section 771(5)(E)(i) of the
Act, the equity infusions into Finsider in 1985 and 1986 and into ILVA
in 1991 and 1992 confer a benefit in the amount of each infusion
because the GOI investments were not consistent with the usual
investment practice of private investors (see discussion of
``Equityworthiness'' above). These equity infusions are specific within
the meaning of section 771(5A)(D) of the Act because they were limited
to Finsider and ILVA. Accordingly, we find that the equity infusions to
Finsider and ILVA are countervailable subsidies within the meaning of
section 771(5) of the Act.
As explained in the ``Subsidies Valuation Information'' section, we
have treated equity infusions into unequityworthy companies as grants
given in the year the infusion was received. We have further determined
these infusions to be non-recurring subsidies because each required a
separate authorization from ILVA's or Finsider's shareholder (IRI).
Consistent with the Department's past practice, these equity infusions
are considered to be untied subsidies and, as such, benefit all of the
company's domestic production (see, e.g., Steel Wire Rod from Canada,
and UK Lead Bar 95). Since CAS has been privatized, we followed the
methodology outlined in the ``Change in Ownership'' section above to
determine the amount of each equity infusion attributable to CAS after
the privatization. Because the company was uncreditworthy in the year
of receipt, we applied a discount rate that included a risk premium. We
then divided the benefit allocated to the POI by CAS's total sales
during the POI. On this basis, we preliminarily determine the net
subsidy to be 3.58 percent ad valorem for CAS.
C. Pre-Privatization Assistance and Debt Forgiveness
As discussed in the ``Company Histories'' section above, in 1992,
Cogne S.p.A. acquired the shares of Robles S.r.l., later changing the
company's name to Cogne Acciai Speciali S.r.l. (CAS). According to the
GOI, the primary purpose in the creation of CAS was for the eventual
privatization of the Aosta facility. Initially, CAS held some of the
productive assets and the land on its books, while Cogne S.p.A. held
the remaining assets. In 1993, the land held by CAS was transferred to
Cogne S.p.A. However, from a financial perspective, the two companies
were one; assets flowed between the two without restriction.
During 1993, Cogne S.p.A. (and its owner, ILVA) decided to sell its
shares of CAS through a bidding process. According to CAS's
questionnaire response, at the same time, Cogne S.p.A. also entered
into a liquidation process, similar to a bankruptcy proceeding under
the Italian Civil Code. Concurrently, Cogne S.p.A. and ILVA entered
into negotiations with the Autonomous Region of Valle d'Aosta for the
purchase of the land and buildings of the Aosta facility (see ``Valle
d'Aosta Assistance'' below). Through this bidding process which was
finalized as of December 31, 1993, a private company bought the shares
of CAS from Cogne S.p.A. and the new owner took control of the company
in April 1994. During this entire period, production of merchandise
continued. The land and buildings were sold to the Autonomous Region of
Valle d'Aosta, which then leased them back to the now-privatized CAS.
According to the GOI questionnaire response, Cogne S.p.A. remained as a
shell company, and was later folded into ILVA; ILVA was eventually
liquidated in part and merged in part into IRITECNA, another IRI
subsidiary company.
An examination of the financial statements of Cogne S.p.A. and CAS
as of December 31, 1993, shows how the assets and liabilities were
divided between the two companies in preparation for privatization. CAS
had losses of 33 billion lire, liabilities of 161 billion lire, and 7
billion lire in share capital. Cogne S.p.A. had losses of 257 billion
lire, 411 billion worth of unaccounted liabilities, and 10 billion lire
worth of share capital. CAS received nearly all of the assets of Cogne
S.p.A. Cogne S.p.A. retained nearly all of the liabilities. These
liabilities had to be paid, assumed, or forgiven. The 1993 financial
statement of Cogne S.p.A. also indicates that the distribution of
assets and liabilities between the companies, and the consequences
thereof, was recognized by Cogne S.p.A.'s owner, ILVA: at the point of
CAS's privatization, ILVA issued a guarantee for Cogne S.p.A.'s
liabilities for 380 billion lire. Thus, we conclude that the
distribution of the assets and liabilities between CAS and Cogne S.p.A.
at the time of privatization was made with the knowledge and approval
of ILVA, Cogne's owner, and ILVA's owner, IRI. At the point of
privatization, CAS was relieved of its obligations on a significant
portion of the liabilities the Cogne companies had accrued. CAS has
stated that ILVA was forced to cover these liabilities because it was
Cogne S.p.A.'s sole shareholder and, therefore, like any sole
shareholder (government-owned or private) responsible for the
liabilities under Italian Law. However, according to the GOI, the
liabilities assumed by ILVA, were later covered by IRI. The Department
has consistently treated IRI as a government agency, and IRI's
assumption of liabilities as countervailable. See, e.g., Electrical
Steel.
Based on the information submitted, we conclude that this ultimate
assumption of Cogne S.p.A.'s liabilities by IRI was part of the 3.5
trillion lire of ILVA's debts that were covered by a GOI aid package
which was authorized by the EC. The complexity of the transactions
involved in the internal restructuring and ultimate privatization of
CAS is comparable to that of the benefits associated with Finsider-to-
ILVA restructuring program described above. Thus, instead of focusing
on the total amount of ILVA's debt forgiven or assumed by the GOI, and
finding the amount attributable to CAS, we chose to focus our analysis
on the benefits provided to CAS through the assumption of Cogne
S.p.A.'s liabilities. See, e.g., Electrical Steel, 59 FR at 18366.
In previous cases, the Department has treated forgiven liabilities
as a countervailable subsidy because the forgiven debt confers a
benefit on the production of the new entity (see, e.g., Electrical
Steel, 59 FR at 18359; Trinidad and Tobago, 62 FR at 5506). Therefore,
we preliminarily find that, in connection with the privatization of
CAS, the GOI (through IRI) provided a financial contribution, which
provides a benefit in the amount of 411 billion lire to cover the
liabilities that were not transferred to the newly privatized entity.
The pre-privatization assistance is specific under section 771(5A)(D)
of the Act because it was provided to one
[[Page 816]]
company, CAS, through ILVA and the IRI. Accordingly, we find that the
pre-privatization assistance in the form of debt forgiveness is a
countervailable subsidy within the meaning of section 771(5) of the
Act.
We treat the undistributed liabilities as a grant to CAS, received
at the time of privatization. Because this grant was part of the pre-
privatization activities, and thus was a one-time occurrence, we find
that this assistance is non-recurring. To calculate the benefit, we
applied the Department's standard non-recurring grant methodology, set
forth in the ``Allocation'' section of the GIA. Because the company was
uncreditworthy in 1993, we applied a discount rate that included a risk
premium. We also applied the methodology described in the ``Change in
Ownership'' section above. We then divided the benefit allocated to the
POI by CAS's total sales. On this basis, we preliminarily determine the
countervailable subsidy to be 21.28 percent ad valorem for CAS.
Petitioners also alleged that CAS was provided with a restructuring
fund at the time of privatization that provided countervailable
assistance to the company. According to CAS and the GOI, when CAS was
privatized it was given a restructuring fund of 105 billion lire to
cover the approximately 33 billion lire in losses that were transferred
with the company, and for other costs associated with the transfer. The
restructuring fund was created from an additional transfer of assets to
CAS from Cogne S.p.A. just prior to privatization. We found no
indication of capital infusions by ILVA, IRI, or the GOI before this
restructuring fund was established. We preliminarily determine that any
benefit from this restructuring fund has been captured by
countervailing the net liabilities left in Cogne S.p.A., because the
net liabilities left in Cogne, S.p.A. would have been reduced if the
restructuring fund had not been transferred to CAS. Therefore, we
preliminarily determine that the restructuring fund is already
accounted for in the assumption of liabilities discussed above.
D. Capacity Reduction Payments Under Law 193/1984
Among the benefits provided by Law 193/1984 were payments to
companies in the private steel sector which achieved capacity
reductions consistent with an agreement by the European Coal and Steel
Community (ECSC). This program was examined and found countervailable
in Certain Steel from Italy (58 FR at 37332-3), based on the
availability of benefits only to the private steel sector. No new
information or evidence of changed circumstances has been submitted in
this proceeding to warrant reconsideration of this finding.
Valbruna received payments for capacity reduction in 1985 and 1986.
Falck received payments in 1985. These payments were determined to be
non-recurring grants. Id. To calculate the benefit attributable to
Valbruna/Bolzano during the POI from the grants to Falck, we first
determined the amount of Falck's grants attributable to Bolzano at the
time the grants were given, using the ratio of Bolzano's assets to
Falck's assets. We then allocated this amount over Valbruna/Bolzano's
AUL to determine the benefit in each year. We then determined the
amount of the benefit which remained with Bolzano after Bolzano was
acquired by Valbruna in 1995, consistent with the methodology described
in the ``Change in Ownership'' section above.
To calculate the benefit attributed to Valbruna/Bolzano from the
grants Valbruna received, we allocated the grants over Valbruna/
Bolzano's AUL to determine the benefit in each year. We then summed the
benefit amounts attributable to the POI from Falck's and Valbruna's
grants and divided the total benefit by Valbruna/Bolzano's total sales.
On this basis, we preliminarily determine the countervailable subsidy
to be 0.12 percent ad valorem for Valbruna/Bolzano.
E. Law 796/76 Exchange Rate Guarantees
Law 796/76 established a program to minimize the risk of exchange
rate fluctuations on foreign currency loans. All firms that had
contracted foreign currency loans from the ECSC or the Council of
Europe Resettlement Fund (CER) could apply to the Ministry of the
Treasury (MOT) to obtain the guarantee. Under the program, loan
payments are calculated based on the lira-foreign currency exchange
rate in effect at the time the loan was approved. The program
establishes a floor and ceiling for exchange rate fluctuations,
limiting the maximum fluctuation a borrower would face to two percent.
If the lire depreciated against the foreign currency, the MOT paid the
difference between the ceiling rate and the actual rate. If the lire
appreciated against the foreign currency, the MOT collected the
difference between the floor rate and the actual rate.
The Department previously found the steel industry to be a dominant
user of the exchange rate guarantees provided under Law 796/76, and on
this basis, determined that the program was specific, and therefore,
countervailable. See Final Affirmative Countervailing Duty
Determination: Small Diameter Circular Seamless Carbon and Alloy Steel
Standard, Line and Pressure Pipe (``Seamless Pipe'') from Italy, 60 FR
31992, 31996 (June 19, 1995). No new information or evidence of changed
circumstances has been submitted in this proceeding to warrant
reconsideration of this finding. This program provides a financial
contribution to the extent that the lire depreciates against the
foreign currency beyond the two percent band and provides a benefit in
the amount of the difference between the two percent ceiling rate and
the actual exchange rate.
We note that the program was terminated effective July 10, 1991, by
Decree Law 333/91. However, payments continue on loans that were
outstanding after that date. Bolzano was the only producer who used
this program, and it received payments in 1996 on loans outstanding
during the POI.
Once a loan is approved for exchange rate guarantees, payments are
automatic and made on a yearly basis throughout the life of the loan.
Therefore, we treat the payments as recurring grants. To calculate the
countervailable subsidy, we used our standard grant methodology for
recurring grants and expensed the benefits in the year of receipt. We
divided the total payments received in 1996 on the two loans by the
value of Valbruna/Bolzano's total sales in 1996. On this basis, we
preliminarily determine the countervailable subsidy to be 0.08 percent
ad valorem for Valbruna/Bolzano.
F. Law 227/77 Export Loans and Remission of Taxes
Under Law 227/77, the Mediocredito Centrale S.p.A. (Mediocredito),
a GOI-owned development bank, provides interest subsidies on export
credit financing. Under the program, the Mediocredito makes an interest
contribution to offset the cost of a supplier's or buyer's credit
financed by an Italian or foreign commercial bank. The holder of the
loan contract pays a fixed, low-interest rate on export credits taken
out through the program with a commercial bank. The Mediocredito
guarantees a specified variable market rate, and pays the lender any
shortfall between the guaranteed market rate and the fixed rate
provided to the borrower. If the market rate falls below the rate
provided to the borrower, the Mediocredito receives the difference.
Interest payments are assessed on an annual basis, with contributions
made by the Mediocredito every six months. In order to obtain the
interest subsidy,
[[Page 817]]
an application which includes the export supply contract and the
commercial loan agreement must be submitted to the Mediocredito. Upon
approval, Mediocredito notifies the borrower of the new terms and
conditions.
The export credit financing under Law 227/77 provides a financial
contribution within the meaning of section 771(5)(D) of the Act and
confers a benefit in the amount of Mediocredito's interest
contribution. The Department's practice is to treat export loan
programs, through which the government provides a benefit to the
foreign importer, the same as programs that provide benefits directly
to the exporter. See e.g., Final Affirmative Countervailing Duty
Determination: Steel Wheels from Brazil, 54 FR 15523 (April 18, 1989)
and Porcelain-on-Steel Cookingware from Mexico: Final Results of
Countervailing Administrative Review, 56 FR 26064 (June 6, 1991). The
contribution is made in connection with the exportation of the
merchandise and provides a direct benefit to the production and
distribution of products. We also find that Law 227/77 export financing
is specific under 771(5A)(B) because it is provided solely to finance
exports. Therefore, we preliminarily determine that Law 227/77 export
financing constitutes a countervailable subsidy within the meaning of
section 771(5) of the Act.
The GOI reported that under Law 227/77, ``[i]nterest subsidies are
provided within the guidelines of the international agreement OECD
Consensus'' and as such would qualify for an Item (k) exemption (GOI
October 28, 1997, Questionnaire Response, on file in the CRU). Annex I
to the WTO Agreement on Subsidies and Countervailing Measures contains
the Illustrative List of prohibited export subsidies. Item (k) of Annex
1 states that certain export financing programs are not considered to
be prohibited export subsidies if certain conditions are met, namely,
``* * * if a Member is a party to an international undertaking on
official export credits * * * or if in practice, a Member applies the
interest rate provisions of the relevant undertaking * * * .''
We are aware of the exemption under Item (k); however, we are
unable to determine whether the interest rate available under Law 227/
77 conforms with the OECD guidelines. We are countervailing the
assistance provided by this program in accordance with our benefit-to-
recipient standard (see SAA at 928) and will continue to examine this
issue for the final determination.
CAS and Bolzano did not use this program. Valbruna used this
program for a supply contract with its affiliated U.S. subsidiary,
Valmix Corporation, which entered into a loan contract for purposes of
importing merchandise manufactured by Valbruna. The term of the loan
was 18 months and during the course of this financing arrangement, the
Mediocredito made interest contributions to Valmix's commercial lender.
In order to obtain Law 227/77 export financing, a company must have
already obtained a commercial loan. Thus, a company does not know at
the time it takes out the commercial loan whether it will receive the
reduced interest rate available under Law 227/77. Therefore, we
consider these interest contributions to be grants. Because Law 227/77
provides on-going interest contributions over the life of the loan, we
find that it provides recurring grants. See GIA. We divided the total
amount paid by the Mediocredito on the Valmix loan during the POI by
Valbruna/Bolzano's total exports to the United States. On this basis,
we preliminarily determine the countervailable subsidy to be 0.15
percent ad valorem for Valbruna/Bolzano.
Programs of the Regional Governments
A. Valle d'Aosta Regional Assistance Associated with the Sale of CAS
As discussed in the ``Company Histories'' section above, in 1993,
the GOI privatized CAS. While the company operations were sold in a
bidding process to the company's present owners, the land and buildings
were sold to the Autonomous Region of Valle d'Aosta. The Regional
Council of Valle d'Aosta, under Regional Law 4 of January 26, 1993,
authorized negotiations with the ILVA Group for the acquisition of the
property and buildings, including the hydroelectric plants which were
the property of ILVA Centrali Elettrische S.p.A. (ICE). This ``urgent''
law also outlined a plan for the Region to reclaim and recover the
environmental condition of the industrial area of Cogne. As also stated
in the law, a fundamental goal was ``to enhance the industrial
activities of `Cogne S.p.A.' in order to ensure adequate employment
levels.''
Protocol agreements for the triangular transaction were signed by
the Region, ILVA, and GE. VAL. S.r.l., the purchaser of CAS's shares
(now MEG), on November 19, 1993. The Region, through its wholly-owned
financing corporation, Finaosta S.p.A., agreed to (1) purchase the
land, including the ICE hydroelectric plants for 150 billion lire, in
five annual installments, (2) to construct a waste plant, (3) to cover
the costs of environmental reclamation on the land, up to 32 billion
lire in accordance with a third-party estimate, and (4) to supply
electricity directly to CAS from the ICE plants. These commitments were
conditional upon ILVA entering into a contract with a private party for
the transfer of CAS by December 31, 1993, and transferring CAS with a
restructuring fund. The purchaser of CAS's shares agreed to (1) to
vacate and abandon areas of the property not used in production
activity and (2) to guarantee that at least 800 employees would be
employed by CAS after privatization.
Because of the complex nature of these transactions, which included
different elements that were alleged to provide subsidies to CAS, we
have analyzed each section separately as detailed below.
1. Purchase of the Cogne Industrial Site. Under section 771(5) of
the Act, in order for a subsidy to be countervailable it must, inter
alia, confer a benefit. In the case of goods or services, a benefit is
normally conferred if the goods or services are provided for less than
adequate remuneration, or, in the case of the government acquiring
goods, for more than adequate remuneration. The adequacy of
remuneration is normally determined in relation to prevailing market
conditions for the good or service provided in the country of
exportation. Section 771(5)(E) of the Act states, ``[p]revailing market
conditions include price, quality, availability, marketability,
transportation, and other conditions of purchase or sale.'' Problems
can arise in applying this standard when the government is the sole
purchaser of the good or service in the country or within the area
where the respondent is located. In these situations, there may be no
alternative market prices available in the country (e.g., private
prices, competitively-bid prices, or other types of market reference
prices). Hence, it becomes necessary to examine other options for
determining whether the good has been purchased for more than adequate
remuneration. This consideration of other options in no way indicates a
departure from our preference for relying on market conditions in the
relevant country, specifically market prices, when determining whether
a good or service is being purchased at a price which reflects adequate
remuneration. See, e.g., Final Affirmative Countervailing Duty
Determination: Steel Wire Rod from Germany, 62 FR 54990 (October 22,
1997) (German Wire Rod) at 54994.
[[Page 818]]
In order to determine whether Valle d'Aosta acquired the Cogne
industrial area for more than adequate remuneration, we would normally
have compared this acquisition to a similar market transaction, e.g., a
comparable sale of commercial real estate. The Autonomous Region of
Valle d'Aosta provided information on the market for industrial land
within its borders. The Region indicated that because of the location
and terrain of its land, there is very little viable industrial
property. The Region reported that it has purchased other industrial
areas, but that the largest was only 12 hectares, in comparison to the
100 hectares of the Cogne industrial site. Therefore, we understand
that there are no private purchases of industrial sites comparable in
size to the Cogne industrial property that are representative of the
prevailing market conditions by which to assess the adequacy of
remuneration for the purchase of the Cogne industrial site. We also
found no information about any other market transactions that could
serve as an appropriate benchmark in determining the adequacy of
remuneration.
We next turned to the actual purchase price for the site to examine
whether this price was determined in reference to market principles.
The acquisition price that the Region paid for the Cogne industrial
site was determined by a third-party study, undertaken by a private
firm. We examined a copy of this study provided by the Region. At the
Region's request, the Descriptive Report provided by American Appraisal
Italia S.r.l., presented estimated purchase prices for the Cogne
industrial site based on valuation of the land and buildings contained
in the area. The appraisal included a detailed inventory of the many
buildings and structures on the property, which could continue to be
used, and the costs involved to destroy the others. The study was
conducted in reference to market-based principles and included a
thorough examination of the value of the property, including estimates
based on different scenarios for the future use of the property. We
understand that this appraisal was used by the parties in their
negotiations. Based on our examination, we conclude that the prices
contained in the Appraisal are a reasonable benchmark for determining
whether the price paid by the Region was determined in reference to
market conditions. Because the price paid for the Cogne industrial area
was not more than the estimates, we preliminarily determine that the
Autonomous Region of Valle d'Aosta did not acquire the site for more
than adequate remuneration. Therefore, we preliminarily determine that
the purchase of the Cogne industrial site does not constitute a subsidy
within the meaning of section 771(5) of the Act.
2. Lease of Cogne Industrial Site. Under section 771(5) of the Act,
in order for a subsidy to be countervailable it must, inter alia,
confer a benefit. In the case of goods or services, a benefit is
normally conferred if the goods or services are provided for less than
adequate remuneration. The adequacy of remuneration is normally
determined in relation to prevailing market conditions for the good or
service provided in the country of exportation. Section 771(5)(E) of
the Act states, ``[p]revailing market conditions include price,
quality, availability, marketability, transportation, and other
conditions of purchase or sale.'' Problems can arise in applying this
standard when the government is the sole supplier of the good or
service in the country or within the area where the respondent is
located. In these situations, there may be no alternative market prices
available in the country (e.g., private prices, competitively-bid
prices, or other types of market reference prices). Hence, it becomes
necessary to examine other options for determining whether the good has
been provided for less than adequate remuneration. The Department has
recognized several options with respect to the leasing of land, ``to
examine whether the government has covered its costs, whether it has
earned a reasonable rate of return in setting its rates and whether it
applied market principles in determining its prices.'' See e.g., German
Wire Rod at 54994. This consideration of other options in no way
indicates a departure from our preference for relying on market
conditions in the relevant country, specifically market prices, when
determining whether a good or service is being provided at a price
which reflects adequate remuneration.
The Region agreed in the 1993 protocol agreement to lease part of
the acquired industrial site to CAS. That agreement also explains that
the Region decided to undertake the transaction, because ``* * * of the
seriousness of the general economic situation and that of the steel
industry at the present time, [the Region] has decided to intervene
with actions specifically aimed at fostering the continuation of this
activity, with the precise objective of protecting jobs * * * .'' The
landlord-tenant relationship between CAS and the Region was developed
based on the understandings and stipulations enumerated in the protocol
agreements and Regional Law No. 17 of 1994.
Until an official lease was signed between CAS and Struttura Valle
d'Aosta S.r.l. (Structure), a company wholly-owned by the Region, CAS's
use of the Cogne site was governed by a lease which had been signed by
CAS and Cogne S.p.A. The protocol agreements required that this lease
be established for a transition period. The Region accepted the terms
of lease established between the two affiliated Cogne companies until
another could be negotiated. An official lease between Structure and
CAS was not signed until April 1996. The terms of the CAS-Structure
contract granted CAS a 30-year lease. The lease required CAS to vacate
certain areas and buildings between the beginning of 1995 and the end
of 1996. Under both the CAS-Cogne S.p.A. lease and the CAS-Structure
lease, the annual rent of 770 million lire was due in quarterly
deferred payments. The lease also stipulated that CAS held
responsibility for extraordinary maintenance.
We would normally evaluate the adequacy of remuneration of lease
rates in reference to an alternative market price, e.g., lease rates of
comparable commercial real estate. However, as discussed above, there
is little industrial property in Valle d'Aosta. We also understand that
there is no comparable commercially leased property in the region.
Unlike the situations examined by the Department in other cases, there
are no other leases that could possibly serve as a benchmark for
determining the adequacy of remuneration. See, e.g., German Wire Rod
and Trinidad and Tobago.
We therefore examined the Structure-CAS lease to see if its terms
appear to reflect normal market conditions. Most of the lease
provisions establish CAS's obligations to return part of the property
it formerly occupied, the time limits for the removal of its equipment,
the incentives for meeting the deadlines, and the penalties for failing
to meet these deadlines. We note that the lease includes a clause under
which CAS is entitled to a payment for vacating the agreed-upon areas
within the specified time limits. However, CAS reported that it has not
received such a payment to date. The lease also contains provisions
relating to the disposal of industrial waste because Valle d'Aosta has
not constructed the waste disposal facility discussed in the protocol
agreement. Other clauses regarding indemnity, taxes, etc., seem
comparable to those likely to be in a lease between two private
parties, and appear to reflect
[[Page 819]]
conditions that would be set for a normal commercial lease.
However, as noted in the preamble of the lease, the Structure-CAS
lease was intended to further implement the protocol agreements. The
preamble of the protocol agreements states, ``* * * the Region, which
is aware that the steel production activity carried on, at the present
time, by Cogne constitutes a very significant reality in the economic
and industrial structure of Valle d'Aosta, and is also aware of the
seriousness of the general economic situation and that of the steel
industry at the present time, has decided to intervene with actions
specifically aimed at fostering the continuation of this activity, with
the precise objective of protecting jobs * * *'' (emphasis added). The
parties specifically agreed that under the protocol agreement CAS would
maintain at least 800 employees at the facility. These goals would not
normally be included in an agreement negotiated between private
parties; a lessee would not normally be obligated to commit to a
certain employment level. Also, in response to our questions about the
return on its investment, the Region of Valle d'Aosta clarified its
goals related to the transaction, stating ``* * * it is not possible
for use [sic] to provide within this context a detailed financial
analysis of the time required to recoup the costs and the annual
estimated rate of return on the investment made by the Region at the
time the purchase was made * * * as such an analysis would not take
into account the social, environmental and urban renewal
considerations, which it should be stressed were decisive for the
decision to approve the Regional Law that authorized the purchase.'' A
private actor considering the purchase leaseback of real estate would
normally undertake a detailed financial analysis before leasing a large
piece of property. Thus, we preliminarily conclude that the
negotiations between CAS and the Autonomous Region of Valle d'Aosta
were not conducted in reference to normal market considerations.
We then turned to the terms establishing the lease rates in order
to determine whether the Region charged a lease rate that reflects an
adequate return on its investment. Because we have no market leases
with which to compare this lease, we determined that it was appropriate
to construct a reference price for the lease of the land, using
standard real estate analysis principles. See, e.g., Edward John
Golden, The Art and Science of Real Estate Investment Analysis (1980).
The type of transaction presented here is normally called a purchase
leaseback: the Region purchased the land and now leases it back to the
former owner/occupant. In evaluating a purchase leaseback, one way to
conceptualize the transaction is to think of it as an asset that is
being borrowed. In a lease, an asset is borrowed for a set period of
time and the price of the transaction is normally established based on
the value of the use of the asset over time. There are several ways to
value commercial property over time, the most conservative of which
accounts for the depreciation of the buildings. Only the value
associated with the buildings is amortized; land values are held
constant and the benchmark price reflects only the interest paid with
respect to the land.
In the instant case, the market value of the land and buildings
covered by the lease was established by the third party appraisal
discussed above. We used the purchase price for the land and buildings
currently used by CAS (not including the vacated property). We would
have adjusted for the depreciation of the buildings over time by
amortizing their value. However, because we did not have a breakdown of
the value of the land and buildings, we could not make this adjustment.
We will examine this issue further for our final determination. In
addition, we noted that according to the GOI, Italian law obligates
landlords to cover the costs of extraordinary maintenance. Under the
Structure-CAS lease, CAS was assigned the obligation to perform
extraordinary maintenance and the parties negotiated a rate which would
take those maintenance costs into consideration. Although CAS reported
costs for extraordinary maintenance during the years of the lease, we
were unable to examine fully these costs to ensure that the values
reported by CAS as extraordinary maintenance did not include work more
appropriately termed normal maintenance. In addition, we did not have
the information to calculate an adjustment to our benchmark for the
cost of extraordinary maintenance. Therefore, we did not make an
adjustment for maintenance for the preliminary determination. We will
also examine this issue for our final determination.
To determine if the lease was established consistent with market
principles, we examined the return to the Region of Valle d'Aosta on
their investment in the industrial site. Thus, we multiplied the value
of the asset, i.e., the price paid by the Region for the land and
buildings, by an interest rate that represents the return an investor
would expect to earn on an alternative investment. For this preliminary
determination, we used the average interest rate on treasury bonds as
reported by the Banca D'Italia. However, the Department normally does
not use government interest rates in benchmark calculations. See, e.g.,
Final Affirmative Countervailing Duty Determination Oil Country Tubular
Goods from Israel, 52 FR 1649 (January 15, 1987). Therefore, we will
seek a rate for the final determination that may be more indicative of
market behavior. We used this analysis to establish a benchmark for
determining whether the annual lease rate charged by the Region
reflected adequate remuneration. We compared this amount to the amount
actually paid by CAS during the POI. Based on this comparison, we found
that the Region is not receiving an adequate rate of return on its
investment. This finding corroborates our conclusion that the lease
terms were not established based on normal market conditions.
Therefore, we preliminarily determine that the lease was provided for
less than adequate remuneration.
Through this lease, the Autonomous Region of Valle d'Aosta made a
financial contribution to CAS within the meaning of section
771(5)(D)(iii) of the Act, equal to the difference between what would
have been paid annually in a lease established in accordance with
market conditions and what was actually paid. The lease is specific
within the meaning of section 771(5A)(D) of the Act, because the lease
rate is limited to CAS. Therefore, we preliminarily determine that the
CAS industrial lease is a countervailable subsidy within the meaning of
section 771(5) of the Act.
To calculate the benefit, we found the difference between the
amount that would have been paid during the POI if the lease rate had
been determined with reference to market conditions and the amount
actually paid. We divided the amount by CAS's total sales in 1996. On
this basis, we preliminarily determine the countervailable subsidy to
be 0.53 percent ad valorem for CAS.
3. Provision of Electricity. As described above, the Autonomous
Region of Valle d'Aosta also acquired the shares of ICE, the operator
of the hydroelectric plants, which is now known as Compagnia Valdostana
delle Acque S.p.A. (Valdostana), when it purchased the Cogne industrial
site. The Region planned to supply electricity directly to CAS, and had
applied to establish a consortium, with CAS as a shareholder, to sell
directly to customers instead of to ENEL, the National Electricity
Board. Petitioners alleged that this provision of electricity may
constitute a countervailable subsidy under section 771(5) of the Act.
[[Page 820]]
However, according to Valle d'Aosta and the GOI, the application to
establish the consortium has not been approved and Valdostana has not
been permitted to supply electricity to CAS. Instead, Valdostana
continues to sell its production to the National Electricity Board,
ENEL. CAS purchases electricity from ENEL in accordance with the
standard provisions applied to other commercial electricity users in
Italy. Therefore, as Valdostana has not created a special consortium to
provide electricity to CAS, and CAS appears to obtain its electricity
through ENEL like other firms in Italy, we preliminarily find that this
program does not exist.
4. Waste Plant. As described above, Valle d'Aosta agreed to
construct a waste plant, for CAS and other users, as one of the terms
of the protocol agreements. Petitioners alleged that the construction
of the waste plant, which would have been used by CAS, constituted a
countervailable subsidy. However, Valle d'Aosta reported that the waste
plant is still in the planning stages and construction has not begun.
Also, there is no indication from information on the record that funds
have yet been expended on this facility. However, we will continue to
examine this issue for the final determination. Based on the above, we
preliminarily determine that this program does not exist.
5. Loans Provided to CAS to Transfer Its Property. In the protocol
agreements of November 1993, the Autonomous Region of Valle d'Aosta
agreed to provide financing through Finaosta S.p.A. for the costs
involved with the transfer of CAS property off the portion of the site
not subject to the lease. After the environmental reclamation of the
land, Valle d'Aosta planned to develop facilities for small and medium-
sized enterprises on this portion of the site. Accordingly, the
Regional Council authorized this financing in Law 37 of August 30,
1995. The law authorized financing up to 25 billion lire, ``to cover
the expenses for the transfer of installations, warehouses, utilities
and offices from the area.'' See Questionnaire Response from the GOI,
dated October 28, 1997, on file in the CRU. While the financing was
discussed in the protocol agreements, we found no indication in the
appraisal, or elsewhere, that these loans were factored into the
purchase price for the land. Therefore, we are analyzing the transfer
loans as a separate subsidy event to determine whether they are
countervailable.
Finaosta provided this financing in three separate loan agreements
over 1996 and 1997 with the interest rate set at 50 percent of the
Rendistato interest rate (as published in SOLE 24 Ore) for each loan.
Under the terms of each loan contract, a deferred six-month payback
schedule was established. Each tranche received an eighteen-month,
interest-free grace period.
In accordance with ECSC procedures, the GOI notified this loan to
the EC for evaluation of whether it constituted ``State assistance'' to
CAS. In its decision of June 15, 1995, the EC determined that the loan
was not aid, but instead an indemnity to CAS. The EC found that the
total savings from the reduced interest rate, estimated at 4.6 billion
lire, was less than the cost of the transfers, 4.9 billion lire,
according to an independent estimate. The EC also stated that the
Autonomous Region of Valle d'Aosta had unilaterally terminated part of
CAS's lease (for the property to be vacated), and the loan represented
compensation for the costs associated with the partial termination of
the contract by the landlord.
Notwithstanding the EC's determination, we conclude from the facts
presented in this proceeding that the transfer loan is not an
indemnity. Pursuant to the protocol agreements, all parties agreed that
CAS would vacate part of the property before any lease was signed. The
transfer of property from part of the land was one of the conditions of
the leaseback. From the information on the record, there is no
indication that the lease, or any of the other agreed-upon
stipulations, was unilaterally terminated. In addition, according to
the protocol agreements, the Autonomous Region of Valle d'Aosta agreed
to provide ``financing'' for the costs. CAS reported that it submitted
invoices and estimates to Finaosta in order to receive each individual
loan. CAS also reported that an independent appraiser estimated the
cost of the relocation at 4.945 billion lire (see submission from CAS,
dated December 17, 1997, on file in the CRU).
Thus, we compared the interest rate provided under these loans to
the average interest rates on medium and long-term loans as established
by the GOI's survey and found that the rate provided was lower.
Therefore, through these transfer loans, the Region of Valle d'Aosta
made a financial contribution that provided a benefit to the recipient
in the difference between what CAS pays on these loans and what CAS
would pay on a comparable commercial loan. The transfer loans are de
jure specific within the meaning of section 771(5)(D) of the Act,
because their provision is limited, by law, to CAS. Therefore, we
preliminarily determine that the transfer loans are a countervailable
subsidy within the meaning of section 771(5) of the Act.
In the POI, CAS received a benefit from one of the relocation
loans. To calculate the benefit, we employed the Department's standard
long-term loan methodology. See, e.g., GIA. We divided the benefit by
the 1996 sales of CAS. On this basis, we preliminarily determine the
countervailable subsidy to be 0.37 percent ad valorem for CAS.
B. Valle d'Aosta Regional Law 64/92
Law 64/92 of the autonomous region of Valle d'Aosta provides
funding to cover up to 30 percent of the cost of installing
environmentally-friendly industrial plants in the province.
Administered by the Industry, Craft, and Energy Department (ICED), the
program was initiated in 1993. Any firm in Valle d'Aosta may apply to
the ICED to have part of its costs covered for a specific
environmentally friendly project. According to the application
procedures established by the ICED, a firm must submit a separate
application for each individual project. A technical consultant
committee appointed by the ICED evaluates each application to determine
whether the proposed project would reduce environmental pollution in
the province. Each project must receive the approval of the technical
consultant committee in order to receive funding from the Regional
Authority. Once a project is approved, the Regional Authority will
provide a grant of up to 30 percent of the cost of the project. These
grants provide a financial contribution within the meaning of section
771(5)(D)(i) of the Act.
We analyzed whether the program is specific in law (de jure
specificity), or in fact (de facto specificity), within the meaning of
section 771(5A)(D) (i) and (iii) of the Act. We examined the
eligibility criteria contained in the law, and find that the law is not
de jure specific because the enacting legislation does not explicitly
limit eligibility to an enterprise or industry or group thereof. We
then examined data on the provision of assistance under this program to
determine whether Law 64/92 meets the criteria for de facto specificity
under section 771(5A)(D)(iii) of the Act. Since the inception of the
program, the authorities have approved the applications of nine firms
in several different industries. While this alone would be sufficient
for a finding of de facto specificity because there are only a few
companies in a few industries that have received assistance under this
program, we also examined data on the value of grants given to these
firms. CAS and a firm in the food and beverage industry received close
to two-thirds of
[[Page 821]]
the total assistance awarded, with each firm receiving approximately
one-third of the total assistance. The remaining third of the
assistance was distributed to the other seven firms. As such, CAS
received a disproportionate share of the total assistance under this
program. On this basis, we find Law 64/92 to be de facto specific
within the meaning of section 771(5A)(D)(iii) of the Act. Therefore, we
preliminarily determine that Law 64/92 provides a countervailable
subsidy within the meaning of section 771(5) of the Act.
CAS received funding for three projects under this law: two were
approved in 1995 and one was approved in 1996. As CAS submitted a
separate application to the regional authority for each project, we are
treating the grants received under this program as non-recurring (see
GIA). However, the total of the two grants approved in 1995 did not
exceed 0.5 percent of sales in 1995. As such, these grants would be
attributable solely to 1995 and would not be allocated over time (see
GIA). In addition, the grant approved in 1996 is also less than 0.5
percent of sales in 1996. As such, we are allocating the entire value
of this grant to the POI.
To calculate the countervailable subsidy, we divided the total
amount of the 1996 grant by the value of CAS's total sales. On this
basis, we preliminarily determine the countervailable subsidy to be
0.02 percent ad valorem for CAS.
C. Valle d'Aosta Regional Law 12/87
Law 12/87 of the Autonomous Region of Valle d'Aosta funds the
promotion of commercial activities of local firms in other regions of
Italy, and abroad. The Law became effective in 1987, and is
administered by the ICED. Under the provisions of the Law, funding can
only be provided to companies for participation in shows, fairs, and
exhibitions in Italy and abroad, and for participation in delegations
for commercial promotion abroad. Companies apply for funding up to 30
percent of costs for promotional activities in Italy (up to 10 million
lire) and 40 percent of the costs for promotional activities abroad (up
to 15 million lire). CAS submitted three applications for funding under
this program. The region approved and funded two of the proposals, both
in 1996: a grant of 15 million lire for participation in the Singapore
Wire & Cable Fair and a grant of 12.7 million lire for participation in
the Dusseldorf Wire Fair. While neither show was held in the United
States, both included numerous U.S. participants.
Law 12/87 provides a financial contribution within the meaning of
section 771(5) of the Act, and provides a benefit to the recipient in
the amount of the grant. The Department has recognized that general
export promotion programs, programs which provide only general
informational services, do not constitute countervailable subsidies.
(See, e.g., Fresh Cut Flowers from Mexico, 49 FR 15007 (1984)).
However, where such activities promoted a specific product, or provided
financial assistance to a firm, we have found the programs to
constitute export subsidies. (See, e.g., Fresh Atlantic Groundfish from
Canada, 51 FR 10041 (1986); and Fresh Cut Flowers from Israel, 52 FR
3316 (1987)). Because financial assistance under this law was provided
to CAS for the promotion of its exports, we preliminarily find the
assistance to CAS constitutes an export subsidy within the meaning of
section 771(5A)(B) of the Act.
We find that the grants received under this program are non-
recurring because they are exceptional rather than ongoing events (see
GIA.) Each project funded by a grant requires a separate application
and approval by the regional authority. However, the grants did not
exceed 0.5 percent of CAS's total exports in the year they were
received. Therefore, in accordance with our practice, we allocated the
entire amount of the grant to the year of receipt. We divided the total
amount of the two grants by the value of CAS's total exports during the
POI. On this basis, we preliminarily determine the countervailable
subsidy to be 0.01 percent ad valorem for CAS.
D. Province of Bolzano Assistance: Purchase and Leaseback of Bolzano
Industrial Site
As discussed in the ``Company Histories'' section above, in 1995,
Falck sold Bolzano to Valbruna. Concurrent with the change in
ownership, Falck and Bolzano entered into negotiations to sell the
Bolzano industrial site land to the Province of Bolzano. Two pieces of
property (land and buildings) were subject to these negotiations, the
``Stabilimento Sede,'' which was owned by Bolzano, and the
``Stabilimento Erre,'' owned by Immobiliare Toce, a subsidiary of
Gruppo Falck with real estate holdings. The purchase price for the
Stabilimento Sede and Stabilimento Erre, approximately 63 billion lire,
was established by the cadastral office of the Province. The Province
paid for the property in full, with funds authorized under the
Provincial Council Resolution 850 of February 20, 1995. Valbruna
entered into concurrent negotiations with the Province for a long-term
lease of the Bolzano industrial site.
1. Purchase of Bolzano Industrial Site. Under section 771(5) of the
Act, in order for a subsidy to be countervailable it must, inter alia,
confer a benefit. In the case of goods or services, a benefit is
normally conferred if the goods or services are provided for less than
adequate remuneration, or, in the case of the government acquiring
goods, for more than adequate remuneration. In assessing the adequacy
of remuneration of this transaction, we have applied the standards
discussed in the ``Purchase of the Cogne Industrial Site'' above.
In order to determine whether the Province of Bolzano acquired the
Bolzano industrial site for more than adequate remuneration, we would
normally have compared this acquisition to a similar market transaction
in the Province. Although the Province of Bolzano provided some
information on the provincial territory and market for industrial
property, like the Autonomous Region of Valle d'Aosta, there is very
little industrial property in the Province. The Province reported that
only 530 hectares are occupied by industrial firms. The Province also
reported that no other property transactions occurred around the time
that it purchased the Bolzano industrial site. Thus, we understand that
there are no private purchases of industrial sites comparable in size
to the Bolzano property that are representative of the prevailing
market conditions by which to assess the adequacy of remuneration for
the purchase of the Bolzano industrial area. As such, there is no
information on the record about other market transactions that could
serve as an appropriate benchmark in determining whether the Province
purchased the property for more than adequate remuneration.
Valbruna indicated that it had agreed to purchase the Bolzano site
at the price determined by the province, if the province and Falck were
unable to reach an agreement for the purchase of the property. While
Valbruna was a party to the series of transactions, as a private party,
its interests would not have been served by agreeing to pay an inflated
price for the property. Therefore, Valbruna can be considered an
uninterested third party for purposes of evaluating whether the price
of the property was established in reference to market conditions.
Since Valbruna agreed to pay the price determined by the cadastral
office if the province did not purchase the site, we preliminarily
determine that the price the Province of Bolzano paid was established
in accordance with normal market
[[Page 822]]
conditions. On this basis, we conclude that the Province of Bolzano did
not purchase the Bolzano industrial site for more than adequate
remuneration. Therefore, we preliminarily determine that the purchase
of the Bolzano industrial site does not constitute a subsidy within the
meaning of section 771(5) of the Act.
2. Lease of Bolzano Industrial Site. As discussed above, under
section 771(5) of the Act, in order for a subsidy to be countervailable
it must, inter alia, confer a benefit. In the case of goods or
services, a benefit is normally conferred if the goods or services are
provided for less than adequate remuneration, or, in the case of the
government acquiring goods, for more than adequate remuneration. In
assessing the adequacy of remuneration of this lease agreement, we
applied the standards discussed in the ``Lease of the Cogne Industrial
Site'' above.
Concurrent with the sale of Bolzano and the sale of the property,
Valbruna/Bolzano began negotiations with the Province of Bolzano to
lease the Bolzano industrial site (including the Stabilimento Sede and
the Stabilimento Erre) from the Province. Valbruna/Bolzano and the
Province of Bolzano signed a thirty-year lease on July 31, 1995, for
the Bolzano industrial site.
With respect to the lease of land and buildings, adequacy of
remuneration would normally be evaluated in reference to an alternative
market price, e.g., lease rates of comparable commercial real estate.
However, as described above, there is little comparable commercial
property in the Province. We also understand that there is no
comparable commercially-leased property in the Province which could be
used to establish a benchmark to evaluate the adequacy of remuneration
in Valbruna/Bolzano's lease. The Province did provide some information
on two leases it has with other private parties, however, the amount of
property covered by these leases is much smaller than that covered by
the Valbruna/Bolzano lease, and therefore, inappropriate for comparison
purposes. Thus, there are no other leases that could possibly serve as
a benchmark for determining the adequacy of remuneration.
We therefore examined the lease for the Bolzano industrial site to
determine whether its terms reflected normal market conditions. In
general, the terms of the lease appear to reflect conditions that would
be set for a normal commercial lease. However, as discussed in the
public version of the November 4, 1997, response of the GOI (public
version on file in the CRU), the lease requires Valbruna/Bolzano to
maintain a minimum employment level of 650 employees at Bolzano. We
note that this minimum employment level requirement can be waived under
certain circumstances, such as technological improvement.
Notwithstanding the waiver provision, however, the record evidence
indicates that the Province of Bolzano intended to preserve jobs at the
Bolzano facility through this lease. Although the Province claimed that
it includes similar requirements in the leases it has offered other
parties, we do not find this clause to be indicative of normal market
considerations because such employment obligations would not normally
be included in agreements negotiated between private parties. Thus, we
preliminarily conclude that the negotiations between Valbruna/Bolzano
and the Province of Bolzano were not conducted in reference to normal
market considerations.
We then turned to the terms establishing the lease rates in order
to determine whether the Province of Bolzano charged a lease rate that
reflects adequate remuneration. Because we have no market leases with
which to compare this lease, we determined that it was appropriate to
construct a reference price for the property using standard real estate
analysis principles, as described in the ``Valle d'Aosta'' section
above. We again followed the most conservative methodology in valuing
the asset over time. In the instant case, the value of the property was
found to be equivalent to a market-determined price. We would have made
an adjustment to account for the depreciation of the buildings over
time by amortizing their value. However, as we did not have a breakdown
of the value of the land and buildings, we could not make this
adjustment. We plan to add amortization of buildings to the calculated
lease rate for the final determination.
According to the GOI, Italian law obligates landlords to cover the
cost of extraordinary maintenance. Under the lease, Valbruna/Bolzano
was assigned the obligation to perform extraordinary maintenance and
the parties negotiated a rate which would take those maintenance costs
into consideration. However, we did not have the information to
calculate an adjustment to our benchmark for the cost of extraordinary
maintenance. Therefore, we did not make such an adjustment for the
preliminary determination. We will examine this issue for our final
determination.
As described above, we used this analysis as a benchmark for
determining whether the region obtained an adequate return on its
investment, because we had no comparable market-determined leases to
use in determining the adequacy of remuneration. Thus, we multiplied
the value of the asset, i.e., the price paid by the Region for the land
and buildings, by an interest rate that represents the return an
investor would expect to earn on an alternative investment. As
described above, for this preliminary determination, we used the
average interest rate on treasury bonds as reported by the Banca
D'Italia. We used this analysis to establish a benchmark for
determining whether the annual lease rate charged by the region
reflected adequate remuneration. We compared this amount to the amount
actually paid by Valbruna/Bolzano during the POI. Based on this
comparison, we found that the Region is not receiving an adequate rate
of return on its investment. This finding corroborates our conclusion
that the lease terms were not establish based on normal market
conditions. Therefore, we preliminarily find that the lease was
provided for less than adequate remuneration. Through this lease, the
Province of Bolzano made a financial contribution to Valbruna/Bolzano
within the meaning of section 771(5)(D) of the Act, equal to the
difference between what would have been paid annually in a lease
established in accordance with market conditions, and what was actually
paid. The lease is specific within the meaning of section 771(5A)(D) of
the Act, because the lease rate is limited to Valbruna/Bolzano.
Therefore, we preliminarily determine that the Bolzano industrial lease
is a countervailable subsidy within the meaning of section 771(5) of
the Act.
To calculate the benefit, we found the difference between the
amount that would have been paid during the POI if the lease had been
determined with reference to market conditions and the amount that
actually was paid. We divided this amount by Valbruna/Bolzano's total
sales in 1996. On this basis, we preliminarily determined the
countervailable subsidy to be 0.47 percent ad valorem for Valbruna/
Bolzano.
3. Lease Exemption. Under the Province of Bolzano-Valbruna/Bolzano
lease, Valbruna/Bolzano agreed to assume certain environmental
reclamation costs instead of paying rent for the first two years of the
lease. The GOI stated in its public version of the November 4, 1997,
response that these costs were, in fact, more than the uncollected rent
to date. However, in order to determine whether the nonpayment of rent
for the first two
[[Page 823]]
years constituted a countervailable subsidy to Valbruna/Bolzano, we
examined whether or not the Province of Bolzano would have been
responsible for these environmental reclamation costs.
Under Italian law, the landlord would normally bear the
responsibility for pre-existing environmental costs under a normal
lease agreement. Valbruna/Bolzano reported some of the projects
undertaken and their associated costs connected with this environmental
reclamation. Most of the projects undertaken by Valbruna/Bolzano in
exchange for the non-payment of rent related only to the plant and
equipment owned by the company. The Province would not have had an
obligation to undertake costs associated with plant and equipment it
did not own. We preliminarily find that the relief from rent payment
for the first two years of the Valbruna/Bolzano industrial lease
provides a financial contribution within the meaning of section
771(5)(D)(ii) of the Act, in the form of revenue forgone, which
provides a benefit in the amount of rent that would normally have been
collected.
We preliminarily determine that the lease exemption was specific
under section 771(5A)(D) of the Act because it was provided to a single
enterprise, Valbruna/Bolzano. Therefore, we preliminarily determine
that the exemption from payment of rent under the lease of the Bolzano
industrial site provides a countervailable subsidy under section 771(5)
of the Act.
To calculate the countervailable subsidy, we treated the exemption
as a grant. Because the exemption from payment of the lease is limited
to a specific period of time, which could not be extended without
extraordinary government action, we find that it is non-recurring (see
GIA). The lease stipulates payments every six months. Therefore, we
treat each nonpayment as a non-recurring grant. There was one
nonpayment in 1995, two in 1996, and one after the POI. Because the
total amount in each year was less than 0.5 percent of Valbruna/
Bolzano's total sales in the year of receipt, we allocate the grants to
the year of receipt. Thus, we have allocated the full amount of the
grants received during 1996 to the POI, in accordance with the
Department's practice. We divided the grants received in 1996 by
Valbruna/Bolzano's total sales. On this basis, we preliminarily
determine the countervailable subsidy to be 0.38 percent ad valorem for
Valbruna/Bolzano.
Programs of the European Commission
A. ECSC Article 54 Loans
Article 54 of the 1951 ECSC Treaty established a program to provide
industrial investment loans directly to the iron and steel industries
to finance modernization and the purchase of new equipment. Eligible
companies apply directly to the EC for up to 50 percent of the cost of
an industrial investment project. The Article 54 loan program is
financed by loans taken out by the EC, which are then refinanced at
slightly higher interest rates than those at which the EC obtained
them.
The Department has found Article 54 loans to be specific in several
proceedings, including Electrical Steel, Certain Steel from Italy, and
UK Lead Bar 94, because loans under this program are provided only to
the iron and steel industries. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this finding. This program provides a financial
contribution within the meaning of section 771(5)(D)(i) of the Act to
the extent that it provides loans with an interest rate less than what
the recipient would pay on a comparable commercial loan and provides a
benefit to the recipient in the difference between the amount paid on
the loan and the amount which would be paid on a comparable commercial
loan.
Valbruna did not use this program. Bolzano and CAS received Article
54 loans. Bolzano had two loans outstanding during the POI, one
denominated in U.S. Dollars, the other in Dutch Guilders. CAS received
one Article 54 loan with a variable interest rate on which no interest
or principal were due during the POI. Consistent with the Department's
loan methodology, the benefit would be received after the POI, and
thus, the program is not used.
With respect to the loans to Bolzano, we would have used as a
benchmark interest rate a long-term borrowing rate for loans
denominated in the appropriate foreign currency in Italy. However, we
were unable to find such rates. Therefore, we used the average yield to
maturity on selected long-term corporate bonds as reported by the U.S.
Federal Reserve for the loan denominated in U.S. dollars, and the long-
term bond rate in the Netherlands as reported by the International
Monetary Fund for the loan denominated in guilders.3 We then
compared the cost of the benchmark financing for each loan to the
financing Bolzano received under the program and found that both loans
provided a financial contribution. To calculate the benefit in the POI,
we employed the Department's standard long-term loan methodology. We
calculated the grant equivalent and allocated it over the life of each
loan. We also applied the methodology discussed in the ``Change in
Ownership'' section above. We divided the benefit allocated to the POI
by the 1996 sales of Valbruna/Bolzano. On this basis, we preliminarily
determine the countervailable subsidy to be 0.02 percent ad valorem for
Valbruna/Bolzano.
---------------------------------------------------------------------------
\3\ We note that Bolzano entered into the loan contract for the
loan denominated in U.S. dollars in 1979. However, the interest rate
for that loan was renegotiated in 1992. Therefore, we have treated
it as a new loan from that point and used a 1992 benchmark.
---------------------------------------------------------------------------
II. Programs Preliminarily Determined To Be Not Countervailable
A. Law 46: Deliberazione Grants under the Technological Innovation Fund
Under the Deliberazione Law 46/82, Technological Innovation Fund
(FIT), the GOI provides grants to companies for projects that contain a
high degree of technological innovation. The program is administered
through the Ministry of Industry. Eligibility criteria were established
by the Interdepartmental Committee for Economic Planning (CIPI) in a
resolution dated March 30, 1983, and a special technical committee
evaluates all applications.
Each application must include a detailed description of the
proposed technical project, which is evaluated by the technical
committee on both its scientific and industrial merits and economic and
environmental impact. If a proposal is deemed successful, the company
will be termed ``innovative'' or ``highly innovative'' and then will
become eligible for funding at 35 percent or 50 percent, respectively.
The Ministry of Industry, acting on the opinions of the CIPI, then
issues a decree declaring a specific company and project eligible for
benefits. Through Law 46, the GOI makes a financial contribution that
provides a benefit in the form of grants or low-interest loans.
Valbruna, Bolzano, Delta Cogne (a CAS predecessor company), and Falck
received assistance under this program during the allocation periods.
We analyzed whether the program is specific in law (de jure
specificity), or in fact (de facto specificity), within the meaning of
section 771(5A)(D) (i) and (iii) of the Act. First, we examined the
eligibility criteria contained in the law. The CIPI resolutions
identified the
[[Page 824]]
following broad categories as priority sectors for eligibility and
participation in the program: automobile and automotive components,
electronics, steel, aerospace, chemicals, motorcycle, agri-food, and
environmental. Small and medium-sized enterprises from any sector are
also eligible to participate in the program. We find that the FIT
portion of Law 46/82 is not de jure specific because the enacting
legislation, by including all small and medium enterprises, does not
explicitly limit eligibility to a specific enterprise or industry or
group thereof.
We then examined data on the distribution of assistance under this
program to determine whether the Deliberazione program meets the
criteria for de facto specificity under section 771(5A)(D)(iii) of the
Act. We found Law 46 Deliberazione benefits were distributed to a large
number of firms in a wide variety of industries. The GOI also provided
information on the sector-specific provision of benefits under the
program. The electronics and chemicals industries received the largest
percent of assistance provided to any of the sectors. In addition,
``other industries'' not specifically named received a large percentage
of assistance. We found that the steel sector received 1.5 percent of
total benefits awarded, and did not receive more than 3 percent of
annual benefits awarded in any single year covered by the allocation
periods. The steel industry received far less than a number of the
other industries. Therefore, we preliminarily determine that the Law
46/82 Deliberazione program is not specific under section 771(5A)(D) of
the Act.
We sought information from the GOI to determine whether export
performance was a factor in determining eligibility for Deliberazione
benefits. The GOI responded that export performance was not an
eligibility criterion, but did indicate that a high percentage of
exports, in terms of turnover, is one of the criteria examined under
the economic impact analysis. Based on the information on the record,
we do not find that the Law 46/82 Deliberazione Fund for Technological
Innovation program meets the definition of an export subsidy within the
meaning of section 771(5A)(B) of the Act. However, we will continue to
examine whether provision of Law 46 Deliberazione assistance may be
contingent upon export performance for the final determination.
B. Law 451/94 Early Retirement Benefits
Under Article 8 of Law 451/94, the GOI authorized an early
retirement program to be implemented between 1994 and 1996. Under this
program, a maximum of 15,500 (later amended to 17,100) workers could be
retired early. Under Law 451/94, employees in the public and private
iron and steel sector become eligible for retirement at age 50 for men
and 47 for women. In order to qualify, the worker must have had 15
years of contributions to the early retirement program (under the
provisions of Decree Law 503/92) or at least 30 years of regular
contributions. The program was implemented to meet Italy's commitments
for capacity reductions under the ECSC plan for rationalization of the
iron and steel sector.
The provisions of Law 451/94 are similar to the early retirement
provisions the Department has examined in prior cases (e.g., Law 181/
89, 193/84 and 223/91 in Certain Steel from Italy and Electrical
Steel). The GOI, through the program, makes a contribution to the
retirement program to allow each participating worker to retire with a
full pension. These programs were designed to ease the collateral
impact of the steel crises, allowing workers to retire instead of
facing large numbers of layoffs.
The Department's practice with respect to early retirement and
other prepension programs is articulated in the GIA, 58 FR at 37255:
``. . . in order for worker assistance programs to be countervailable,
the company must be relieved of an obligation it would otherwise have
incurred.'' In Certain Steel from Italy, we found that because of
social unrest, companies could not layoff workers at will, thus early
retirement programs provided a countervailable benefit because they
allowed companies to reduce their payrolls. However, in Electrical
Steel, the Department reversed this finding, determining that, when a
company lays off workers, the company actually faces higher costs when
a worker uses an early retirement provision instead of a standard
severance package.
In this investigation, we examined whether Law 451/94 and similar
provisions relieved any company of obligations to its workers. Bolzano
is the only company that had workers retire under Law 451/94 during or
before the POI. According to that company and the GOI, companies are
able to lay off or fire workers at will. The obligations to those
workers are dictated by Italian Labor Law. Pursuant to Article 2120 of
the Italian Civil Code, workers are provided a minimum notice period
and severance pay of approximately one month's salary. In order to
participate in the early retirement program, workers, through the
company, must apply to the GOI for consideration. Companies must
continue to pay salaries until the applications are settled, through
the end of the month following the approval of the application.
Therefore, companies face the same, if not greater, financial
commitments to their workers under Law 451/94 as they do under Article
2120 of the Italian Civil Code which governs obligations to workers in
all industries. Accordingly, we preliminarily determine that Law 451/94
did not relieve companies of any obligation that they normally would
incur, and, as such, we preliminarily find that Law 451/94 is not
countervailable.
C. Law 308/82
In response to our request for information on ``other subsidies''
in the questionnaire, the GOI reported that Valbruna received grants
for energy conservation under Law 308/82. However, this program was
found to be non-countervailable in Certain Steel from Italy because it
provided benefits to a wide variety of industries, with no sector
receiving a disproportionate amount. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this determination.
III. Programs For Which We Need More Information
A. Province of Bolzano Law 25/81
The Province of Bolzano established programs under Law 25/81 to aid
the commercial development of the province. In general, under this law,
the province provides grants to companies whose technical fixed assets
are below 8.5 billion lire, and targets advanced technology, energy
consumption, and ecology projects. However, there are separate and
distinct eligibility requirements set forth and benefits provided under
Article 14 of Law 25/81. Under Article 14, companies in the
manufacturing and mining sectors with at least 20 employees may qualify
for restructuring grants. Unlike funding provided under other
provisions of the law, there are no limitations on capital investment
for companies which qualify for benefits under Article 14 (and Article
22 for conversion benefits). Therefore, we find it appropriate to
examine Article 14 of law 25/81 as a separate program. See, e.g., Live
Swine from Canada; Final Results of Countervailing Duty Administrative
Review, 62 FR 18087, 18091 (April 14, 1997). Under Article 14 of Law
25/81, the Province of Bolzano provides
[[Page 825]]
financial contributions in the form of grants and low-interest loans.
Bolzano received restructuring grants pursuant to Article 14 in the
years 1983, 1985, 1987, and 1988. It also received loans under Article
14, all of which were repaid prior to the POI. It did not receive
assistance under any other Article of this law.
We note that on July 17, 1996, the EC found in its decision
numbered 96/617/ECSC that the aid granted to Bolzano was illegal
because it was not notified to the EC, and was ``incompatible with the
common market pursuant to Article 4(c) of the ECSC treaty.'' See
October 27, 1997, response of the EC, public version on file in the
CRU. As a result, the EC ordered that all grants and loans made to
Bolzano after January 1, 1986, be repaid. According to the EC's policy,
Bolzano was not required to repay benefits conferred prior to January
1, 1986.
As discussed in the ``Company Histories'' section above, Falck sold
Bolzano to Valbruna in 1995. According to the terms of the sale, Falck
retained the liability for repayment of these benefits should the EC
decide against Bolzano. Thus, the level of benefits attributable to
production of subject merchandise does not change subsequent to the
sale of Bolzano.
We analyzed whether Article 14 of Law 25/81 is specific in law (de
jure specificity), or in fact (de facto specificity), within the
meaning of section 771(5A)(D) (i) and (iii) of the Act. We examined the
eligibility criteria contained in Article 14, and found that the
Article is not de jure specific because the enacting legislation does
not explicitly limit eligibility to an enterprise or industry or group
thereof. While the Province of Bolzano provided general information on
the amount of benefits awarded per year under the entire law, we do not
have information on the distribution of benefits under Article 14 of
Law 25/81. Since we must examine distribution under Article 14 to
determine if the program is specific, it is necessary to gather
additional information from the Province of Bolzano. Therefore, for the
purposes of this preliminary determination, we do not have enough
information to evaluate whether Article 14 of Law 25/81 is specific
under the Act. However, we will continue to examine whether Article 14
of Law 25/81 assistance may be de facto specific for the final
determination.
B. European Social Fund
The European Social Fund (ESF) is one of the Structural Funds
operated by the EC. The ESF was established in 1957 to improve workers'
opportunities and raise their standards of living. It is based on
Articles 123-128, 130(a)-130(e) of the EEC Treaty. The ESF principally
provides vocational training and employment aids. There are five
objectives identified under the ESF for funding: Objective 1 covers
projects located in underdeveloped regions, Objective 2 covers areas in
industrial decline, Objective 3 relates to employment of persons under
25, Objective 4 relates to restructuring companies, and Objective 5
relates to agricultural areas. The ESF provides funding for projects to
train workers and promote employment. While funding is ultimately
approved and provided by the EC, each Member State, in this case the
GOI, is responsible for selecting plans to submit to the Commission.
Each project must conform with the priorities and timetables approved
by the Commission. All EC funding for Italian projects is paid to the
Italian Ministry of the Treasury in ECUs. The Ministry then distributes
funding to the approved participants, including national matching
funds. Funds are distributed in three sections: one part upon approval
of the project; one part after the program has been monitored; and the
third after the conclusion of the program. Most projects last three to
five years.
While the ESF funds general employment programs around the EU,
under certain circumstances, companies may receive funding directly to
implement training programs, or to recruit new employees. When provided
to a company, the ESF provides a financial contribution to recipients
which provides a benefit to the recipient in the form of a grant.
Cogne, Valbruna, and Bolzano received ESF grants.
The Department has examined the ESF grant program in previous
investigations and found it to be regionally specific within the
meaning of section 771(5A) of the Act, because benefits have been
provided under Objectives 1, 2, or 5(b) (see, e.g., Pasta). However the
companies in this investigation received grants under Objectives 3 and
4. The EC indicated that Objectives 3 and 4 are broad initiatives that
allow participation from companies in all areas. In Pasta, however, the
Department found that only companies located in Objective 1, 2, or 5(b)
regions received funds directly under this program. Since Cogne,
Valbruna, and Bolzano are located in Objective 2 regions, the program
may still be regionally-specific. Even though the companies implemented
projects that received approval under Objective 3 and/or 4, the ESF may
have provided funds directly to these companies because of their
locations in Objective 2 regions. However, based on the information on
the record, we are unable to determine whether the companies received
funds due to their location. In addition, we were unable to obtain
information on the distribution of assistance under Objectives 3 and 4.
Therefore, we do not have enough information to make a determination on
whether the assistance provided to Cogne, Valbruna and Bolzano is
specific. We will continue to examine whether this assistance is
specific for the final determination.
IV. Programs Preliminarily Determined To Be Not Used
We preliminarily determine that the companies under investigation
did not apply for or receive benefits under the following programs
during the POI:
A. Grants for Interest Payments Under Law 193/1984
Article 3 of Law 193/1984, which came into effect on May 31, 1984,
provided grants for interest payments on medium-term loans outstanding
between January 1, 1983, and September 7, 1984 (three months after the
law came into effect). These grants reduced the rate of interest on
medium-term financing to 11 percent, with no reduction to exceed 10
percentage points. This program was available only to steel companies
with medium-term debts outstanding during the period indicated. Bolzano
received a grant for interest payments on two loans incurred during
this period; Valbruna received interest payment grants in 1985 and 1986
for payments corresponding to debts on bond issuances which were
outstanding during the eligibility period. Cogne did not receive any
grants for interest payments under this program.
Because Bolzano was aware that it would receive grants on interest
payments for loans provided after May 31, 1984, we treat Bolzano's
grants as reduced-interest loans. However, because the loans for which
Bolzano received interest payment grants were repaid in full prior to
the POI, there is no benefit attributable to the POI. Thus, Bolzano
effectively did not use this program during the POI.
At the time Valbruna made its bond issuances, the company did not
know that the GOI would provide grants for interest payments under law
193/1984. Therefore, we are treating the assistance on interest
payments on the two bond issuances as grants. Because Valbruna did not
receive the grants on an ongoing basis, the Department considers this
[[Page 826]]
program to be non-recurring and therefore employed its standard non-
recurring grant methodology (see GIA).
However the grants on interest payments Valbruna received in the
years 1985 and 1986 were less than 0.5 percent of Valbruna's total
sales in each of those years. Therefore, in accordance with the
Department's practice, these non-recurring grant amounts are allocated
to the year of receipt. Thus, Valbruna received no benefit under this
program during the POI.
B. Law 46 and 706 Grants for Capacity Reduction
Article 20 of Law 46/1982 provided capital account grants for
private steel companies that reduced their production capacity of raw,
semi-finished, or rolled steel by closing down plants which were
technologically obsolete or had marginal economic viability. The grants
provided up to 100,000 lire for every ton of raw steel capacity which
was reduced and up to 150,000 lire for every ton of semi-finished or
rolled capacity which was reduced. In Certain Steel from Italy (58 FR
37333), the Department found that capacity reduction grants under Law
46 were specific because they were available only to companies in the
private steel sector. Falck received grants in 1983 and 1984, which are
outside the 12 year allocation period we are using in this
investigation. Cogne, as a government-owned steel company, was
presumably ineligible for grants under this program. However, the
record evidence compiled in this investigation to date does not
definitively state that only the private steel sector could receive
assistance, and information on the record indicates that the GOI
provided grants to one steel company in the Valle D'Aosta, where Cogne
is located. Although, for purposes of this preliminary determination,
we have concluded that benefits under this program were not used, we
will request clarification on which company in Valle d'Aosta received
grants under this program.
Section 4 of Decree Law 706/1985 was designed to complete the steel
sector restructuring program and was a follow-on to the Law 46 capacity
reduction program. It provided capital investment grants to steel
producers which reduced production capacity by scrapping the rolling
mills and the furnaces producing long products. None of the companies
under investigation received grants under this program.
C. ECSC Article 56(2)(b) Retraining Grants
In 1994, Bolzano received a grant under the ECSC Article 56(2)(b).
This grant was referenced on a line item of its financial statements,
which led us, in part, to initiate on the ``subsidies for operating
expenses and easy-term funds'' program (see Initiation Notice and
``Programs Determined Not to Exist'' section below). This program has
been examined in several investigations by the Department and found to
provide recurring benefits (see e.g., German Wire Rod). No information
or evidence of changed circumstances has been submitted during this
proceedings to warrant reconsideration of the recurring nature of the
program. Therefore, since the grants were received in 1994, there are
no benefits attributable to the POI and the program was not used.
D. Resider (II) Program
The Resider program was established by the EC to fund projects for
the reclamation of steel areas. The Resider II program funds projects
for the period 1993 through 1999. The Autonomous Region of Valle
d'Aosta received funding under this program in 1996 to clean up the
environmental damage on the Cogne industrial land that CAS no longer
occupies. According to CAS, the GOI, and the EC, there is no connection
between the benefits provided under this program and CAS. The
assistance was provided after the land was purchased by the Autonomous
Region of Valle d'Aosta. Further, as discussed in the ``Valle d'Aosta
Assistance'' section above, the appraised value of the Cogne industrial
site was reduced based on the costs of the reclamation. However, given
the close proximity of the CAS facility to the area under reclamation,
we will continue to examine whether CAS benefits from the reclamation
project.
E. Law 675
1. IRI Bonds. We note that Delta Cogne, a predecessor of CAS, was
assigned 54 billion lire worth of IRI debenture bonds on which the GOI
made interest contributions between 1986 and 1993. In 1994, presumably
because of the privatization of CAS, the bonds were assigned to another
party. According to CAS, the bonds remained with Cogne S.p.A.
Therefore, we believe that any debt obligation for which CAS may have
been relieved would be captured in the ``Pre-Privatization Assistance''
program described above. During verification, we plan to examine the
payment of interest contributions by the GOI and the assignment of the
bonds. However, we preliminarily find that no benefits were provided to
the subject merchandise under this program during the POI, and as such,
this program was not used.
2. Mortgage Loans
3. Personnel Retraining Aid
4. Interest Grants on Bank Loans
F. Debt Forgiveness: 1981 Restructuring Plan
G. Law 481/94
H. Decree Law 120/89
I. Law 394/81 Export Marketing Grants and Loans
J. Law 488/92 and Legislative Decree 96/93
K. Law 341/95 and Circolare 50175/95
L. Valle d'Aosta Regional Law 16/88
M. Valle d'Aosta Regional Law 3/92
N. Bolzano Regional Law 44/92
O. Interest Rebates on ECSC Article 54 Loans
P. ECSC Article 56 Loans
Q. European Regional Development Fund
V. Programs Preliminarily Determined Not To Exist
Based on information provided by the GOI, we preliminarily
determined that the following programs do not exist:
A. R&D Grants to Valbruna
We initiated on this program based on information contained in the
petition regarding a program that provided research and development
grants, which was discussed in an EC publication. According to the GOI,
this program is the same as the Law 46 Deliberazione technological
innovation program discussed in the ``Programs Preliminarily Determined
To Be Not Countervailable'' section above. Accordingly, we
preliminarily determine that this program does not exist.
B. Subsidies for Operating Expenses and ``Easy Term'' Funds
We initiated on this program based upon information contained in
the petition and references in the annual reports of Valbruna and
Bolzano, indicating receipt of ``subsidies for operating expenses'' and
``easy term funds.'' However, the companies reported that the line
items in the annual reports refer to other programs examined in this
investigation: European Social Fund, Law 308/82, and ECSC Article
56(2)(b) Retraining Aid.
[[Page 827]]
C. 1993 European Commission Funds
We initiated on this program based on information in the petition
indicating that the EC may have funded bailouts for state-owned and
private-owned steel producers in Italy. However, based on information
submitted on the record of this proceeding, the EC was examining the
GOI's program. Therefore, it appears this program is identical to the
Pre-Privatization Assistance program discussed above in the ``Programs
Preliminarily Determined To Be Countervailable'' section of this
notice.
Verification
In accordance with section 782(i) of the Act, we will verify the
information submitted by respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated individual rates for each of the companies under
investigation. As discussed in the ``Affiliated Parties'' section of
this notice, we calculated a single rate for Valbruna/Bolzano. To
calculate the ``all others'' rate, we weight-averaged the company rates
by each company's exports of the subject merchandise to the United
States.
In accordance with section 703(d) of the Act, we are directing the
U.S. Customs Service to suspend liquidation of all entries of certain
stainless steel wire rod from Italy, 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. This suspension will remain in effect until further notice. We
also note that pursuant to section 705(a)(1) of the Act, this
investigation is now aligned with the antidumping investigations of
certain stainless steel wire rod.
Ad Valorem Rate
------------------------------------------------------------------------
Net
Producer/Exporter subsidy
rate %
------------------------------------------------------------------------
CAS.......................................................... 30.47
Valbruna/Bolzano............................................. 1.22
All Others................................................... 19.48
------------------------------------------------------------------------
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged 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 Assistant Secretary, Import Administration.
If our final determination is affirmative, the ITC will make its
final determination within 45 days after the Department makes its final
determination.
Public Comment
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held on March 9, 1998, at the U.S. Department of Commerce, 14th
Street and Constitution Avenue, N.W., Washington, D.C. 20230.
Individuals who wish to request a hearing must submit a written request
within 30 days of the publication of this notice in the Federal
Register to the Assistant Secretary for Import Administration, U.S.
Department of Commerce, Room B-099, 14th Street and Constitution
Avenue, N.W., Washington, DC 20230. Parties should confirm by telephone
the time, date, and place of the hearing 48 hours before the scheduled
time.
Requests for a public hearing should contain: (1) the party's name,
address, and telephone number; (2) the number of participants; and, (3)
to the extent practicable, an identification of the arguments to be
raised at the hearing. In addition, six copies of the business
proprietary version and six copies of the nonproprietary version of the
case briefs must be submitted to the Assistant Secretary no later than
50 days from the date of publication of the preliminary determination.
As part of the case brief, parties are encouraged to provide a summary
of the arguments not to exceed five pages and a table of statutes,
regulations, and cases cited. Six copies of the business proprietary
version and six copies of the nonproprietary version of the rebuttal
briefs must be submitted to the Assistant Secretary no later than 55
days from the date of publication of the preliminary determination. An
interested party may make an affirmative presentation only on arguments
included in that party's case or rebuttal briefs. Written arguments
should be submitted in accordance with 19 CFR 351.309 and will be
considered if received within the time limits specified above.
This determination is published pursuant to section 703(f) of the
Act.
Dated: December 29, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-271 Filed 1-6-98; 8:45 am]
BILLING CODE 3510-DS-P