[Federal Register Volume 63, Number 72 (Wednesday, April 15, 1998)]
[Notices]
[Pages 18367-18375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9870]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-412-811]
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From
the United Kingdom; Final Results of Countervailing Duty Administrative
Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of countervailing duty administrative
review.
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SUMMARY: On December 8, 1997, the Department of Commerce published in
the Federal Register its preliminary results of administrative review
of the countervailing duty order on certain hot-rolled lead and bismuth
carbon steel products from the United Kingdom for the period January 1,
1996 through December 31, 1996. The Department has now completed this
administrative review in accordance with section 751(a) of the Tariff
Act of 1930, as amended. For information on the net subsidy for each
reviewed company, and for all non-reviewed companies, please see the
Final Results of Review section of this notice. We will instruct the
Customs Service to assess countervailing duties as detailed in the
Final Results of Review section of this notice.
EFFECTIVE DATE: April 15, 1998.
FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Richard Herring,
[[Page 18368]]
Office of CVD/AD Enforcement VI, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-
2786.
SUPPLEMENTARY INFORMATION:
Background
Pursuant to 19 CFR 355.22(a), this review covers only those
producers or exporters of the subject merchandise for which a review
was specifically requested. Accordingly, this review covers British
Steel Engineering Steels Holdings, British Steel Engineering Steels
Limited, and British Steel plc. This review also covers the period
January 1, 1996 through December 31, 1996 and 16 programs.
Since the publication of the preliminary results on December 8,
1997 (62 FR 64568) (Lead Bar 96 Preliminary Results), the following
events have occurred. We invited interested parties to comment on the
preliminary results. On January 7, 1998 case briefs were submitted by
British Steel Engineering Steels Limited (BSES), which exported to the
United States during the review period (the respondent), and Inland
Steel Bar Co. (petitioner). On January 12, 1998 and January 14, 1998
rebuttal briefs were submitted by BSES and Inland Steel Bar Co.,
respectively.
Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). In addition, unless otherwise indicated, all citations to the
Department's regulations are to the regulations codified at 19 CFR Part
355 (1997). The Department is conducting this administrative review in
accordance with section 751(a) of the Act.
Scope of the Review
Imports covered by this review are hot-rolled bars and rods of non-
alloy or other alloy steel, whether or not descaled, containing by
weight 0.03 percent or more of lead or 0.05 percent or more of bismuth,
in coils or cut lengths, and in numerous shapes and sizes. Excluded
from the scope of this review are other alloy steels (as defined by the
Harmonized Tariff Schedule of the United States (HTSUS) Chapter 72,
note 1 (f)), except steels classified as other alloy steels by reason
of containing by weight 0.4 percent or more of lead or 0.1 percent or
more of bismuth, tellarium, or selenium. Also excluded are semi-
finished steels and flat-rolled products. Most of the products covered
in this review are provided for under subheadings 7213.20.00.00 and
7214.30.00.00 of the HTSUS. Small quantities of these products may also
enter the United States under the following HTSUS subheadings:
7213.31.30.00, 60.00; 7213.39.00.30, 00.60, 00.90; 7214.40.00.10,
00.30, 00.50; 7214.50.00.10, 00.30, 00.50; 7214.60.00.10, 00.30, 00.50;
and 7228.30.80. Although the HTSUS subheadings are provided for
convenience and for Customs purposes, our written description of the
scope of this proceeding is dispositive.
Change in Ownership
(I) Background
On March 21, 1995, British Steel plc (BS plc) acquired all of
Guest, Keen & Nettlefolds' (GKN) shares in United Engineering Steels
(UES), the company which produced and exported the subject merchandise
to the United States during the original investigation. Thus, UES
became a wholly-owned subsidiary of BS plc and was renamed British
Steel Engineering Steels (BSES).
Prior to this change in ownership, UES was a joint venture company
formed in 1986 by British Steel Corporation (BSC), a government-owned
company, and GKN, a privately-owned company. In return for shares in
UES, BSC contributed a major portion of its Special Steels Business,
the productive unit which produced the subject merchandise. GKN
contributed its Brymbo Steel Works and its forging business to the
joint venture. BSC was privatized in 1988 and now bears the name BS
plc.
In the investigation of this case, the Department found that BSC
had received a number of nonrecurring subsidies prior to the 1986
transfer of its Special Steels Business to UES. See Final Affirmative
Countervailing Duty Determination: Certain Hot-Rolled Lead and Bismuth
Carbon Steel Products From the United Kingdom, 58 FR 6237, 6243
(January 27, 1993) (Lead Bar). Further, the Department determined that
the sale to UES did not alter these previously bestowed subsidies, and
thus the portion of BSC's pre-1986 subsidies attributable to its
Special Steels Business transferred to UES. Lead Bar at 6240.
In the 1993 certain steel products investigations, the Department
modified the allocation methodology developed for Lead Bar.
Specifically, the Department stated that it would no longer assume that
all subsidies allocated to a productive unit follow it when it is sold.
Rather, when a productive unit is spun-off or acquired, a portion of
the sales price of the productive unit represents the reallocation of
prior subsidies. See the General Issues Appendix (GIA), appended to the
Final Countervailing Duty Determination; Certain Steel Products From
Austria, 58 FR 37217, 37269 (July 9, 1993) (Certain Steel). In a
subsequent Remand Determination, the Department aligned Lead Bar with
the methodology set forth in the ``Privatization'' and
``Restructuring'' sections of the GIA. Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products from the United Kingdom: Remand
Determination (October 12, 1993) (Remand).
(II) Analysis of BS plc's Acquisition of UES
On March 21, 1995, BS plc acquired 100 percent of UES. In
determining how this change in ownership affects the attribution of
subsidies to the subject merchandise, we relied on Section 771(5)(F) of
the Act, which states that a change in ownership does not require a
determination that past subsidies received by an enterprise are no
longer countervailable, even if the transaction is accomplished at
arm's length. The Statement of Administrative Action, H.R. Doc. No.
316, Vol. 1, 103d Cong., 2d Sess. 928 (1994) (SAA), explains that the
aim of this provision is to prevent the extreme interpretation that the
arm's length sale of a firm automatically, and in all cases,
extinguishes any prior subsidies conferred. While the SAA indicates
that the Department retains the discretion to determine whether and to
what extent a change in ownership eliminates past subsidies, it also
indicates that this discretion must be exercised carefully by
considering the facts of each case. Id.
In accordance with the Act and the SAA, we examined the facts of BS
plc's acquisition of GKN's shares of UES, and we determined that the
change in ownership does not render previously bestowed subsidies
attributable to UES no longer countervailable. However, we also
determined that a portion of the purchase price paid for UES is
attributable to its prior subsidies. Therefore, we reduced the amount
of the subsidies that ``traveled'' with UES to BS plc, taking into
account the allocation of subsidies to GKN, the former joint-owner of
UES. See 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) (Lead Bar 95 Final Results); see
also the
[[Page 18369]]
discussion in Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
From the United Kingdom; Preliminary Results of Countervailing Duty
Administrative Review, 62 FR 16555 (April 7, 1997) (Lead Bar 95
Preliminary Results). To calculate the amount of UES's subsidies that
passed through to BS plc as a result of the acquisition, we applied the
methodology described in the ``Restructuring'' section of the GIA. See
GIA, 58 FR at 37268-37269. This determination is in accordance with our
changes in ownership finding in Final Affirmative Countervailing Duty
Determination; Pasta From Italy, 61 FR 30288, 30289-30290 (June 14,
1996), and our finding in the 1994 administrative review of this case,
in which we determined that ``[t]he URAA is not inconsistent with and
does not overturn the Department's General Issues Appendix methodology
or its findings in the Lead Bar Remand Determination.'' 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).
With the acquisition of UES, we also determined that BS plc's
remaining subsidies are attributable to the subject merchandise, now
produced by BS plc's wholly-owned subsidiary, BSES. Where the
Department finds that a company has received untied countervailable
subsidies, to determine the countervailing duty rate, the Department
attributes those subsidies to that company's total sales of
domestically produced merchandise, including the sales of 100-percent-
owned domestic subsidiaries. If the subject merchandise is produced by
a subsidiary company, and the only subsidies in question are the untied
subsidies received by the parent company, the countervailing duty rate
calculation for the subject merchandise is the same as described above.
Similarly, if such a company purchases another company, as was the case
with BS plc's purchase of UES, then the current benefit from the parent
company's allocable untied subsidies is attributed to total sales,
including the sales of the newly acquired company. See, e.g., GIA, 58
FR at 3762 (``the Department often treats the parent entity and its
subsidiaries as one when determining who ultimately benefits from a
subsidy''). Accordingly, in the Lead Bar 95 Final Results, we
determined that it was appropriate to collapse BSES with BS plc for
purposes of calculating the countervailing duty for the subject
merchandise. BSES, as a wholly-owned subsidiary of BS plc, continues to
benefit from the remaining benefit stream of BS plc's untied subsidies.
In collapsing UES with BS plc, we also determined that UES's untied
subsidies ``rejoined'' BS plc's pool of subsidies with the company's
1995 acquisition. All of these subsidies were untied subsidies
originally bestowed upon BSC (BS plc). After the formation of UES in
1986, the subsidies that ``traveled'' with the Special Steels Business
were also untied, and were found to benefit UES as a whole. See Lead
Bar 95 Final Results.
(III) Calculation of Benefit
To calculate the countervailing duty rate for the subject
merchandise in 1996, we first determined BS plc's benefits in 1996,
taking into account all spin-offs of productive units (including the
Special Steel Business) and BSC's full privatization in 1988. See Final
Affirmative Countervailing Duty Determination; Certain Steel Products
from the United Kingdom, 58 FR 37393 (July 9, 1993) (UK Certain Steel).
We then calculated the amount of UES's subsidies that ``rejoined'' BS
plc after the 1995 acquisition, taking into account the reallocation of
subsidies to GKN. See Lead Bar 95 Final Results. As indicated above, in
determining both these amounts, we followed the methodology outlined in
the GIA. After adding BS plc's and UES's benefits for each program, we
then divided that amount by BS plc's total sales of merchandise
produced in the United Kingdom in 1996.
Allocation Methodology
In British Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995)
(British Steel), the U.S. Court of International Trade ruled against
the Department's allocation methodology, which relied on U.S. Internal
Revenue Service information on the industry specific average useful
life (AUL) of assets for determining the allocation period for non-
recurring subsidies. In accordance with the court's remand order, the
Department calculated a company-specific allocation period based on the
AUL of non-renewable physical assets for BS plc. This allocation period
was determined to be 18 years. This remand determination was affirmed
by the Court on June 4, 1996. British Steel plc v. United States, 929
F. Supp. 426, 439 (CIT 1996).
The Department's acquiescence to the CIT's decision in the Certain
Steel cases resulted in different allocation periods between the UK
Certain Steel and Lead Bar proceedings (18 years vs. 15 years,
respectively). Different allocation periods for the same subsidies in
two different proceedings involving the same company generate
significant inconsistencies. These inconsistencies are even more
pronounced because UES became a wholly-owned subsidiary of BS plc in
1995. Therefore, in order to maintain a consistent allocation period
across the UK Certain Steel and Lead Bar proceedings, as well as in the
different segments of Lead Bar, we altered the allocation methodology
previously used to determine the allocation period for non-recurring
subsidies previously bestowed on BSC and attributed to UES. In the 1995
review, we applied the company-specific 18-year allocation period to
all non-recurring subsidies. See Lead Bar 95 Final Results. BSES
submitted comments on this issue (see Comment 5, below). Based on our
decision in the 1995 administrative review of this order, we determine
that it is appropriate in this review to continue to allocate all of
BSC's non-recurring subsidies over BS plc's company-specific average
useful life of renewable physical assets (i.e., 18 years).
Analysis of Programs
Based upon the responses to our questionnaire and written comments
from the interested parties we determine the following:
I. Programs Conferring Subsidies
A. Programs Previously Determined to Confer Subsidies
1. Equity Infusions. In the preliminary results, we found that this
program conferred countervailable subsidies on the subject merchandise.
Our review of the record and our analysis of the comments submitted by
the interested parties, summarized below, has not led us to change our
findings from the preliminary results. Accordingly, the net subsidy for
this program, which is 4.69 percent ad valorem, remains unchanged from
the preliminary results. Lead Bar 96 Preliminary Results, 62 FR at
64570.
2. Regional Development Grant Program. In the preliminary results,
we found that this program conferred countervailable subsidies on the
subject merchandise. Our review of the record and our analysis of the
comments submitted by the interested parties, summarized below, has not
led us to change our findings from the preliminary results.
Accordingly, the net subsidy for this program, which is 0.15 percent ad
valorem, remains unchanged from the preliminary results. Id.
[[Page 18370]]
3. National Loan Funds Loan Cancellation. In the preliminary
results, we found that this program conferred countervailable subsidies
on the subject merchandise. Our review of the record and our analysis
of the comments submitted by the interested parties, summarized below,
has not led us to change our findings from the preliminary results.
Accordingly, the net subsidy for this program, which is 0.44 percent ad
valorem, remains unchanged from the preliminary results. Id. at 64570-
71.
II. Programs Found to be Not Used
In the preliminary results we found that the producers and/or
exporters of the subject merchandise did not apply for or receive
benefits under the following programs:
A. New Community Instrument Loans
B. ECSC Article 54 Loan Guarantees
C. NLF Loans
D. ECSC Conversion Loans
E. European Regional Development Fund Aid
F. Article 56 Rebates
G. Regional Selective Assistance
H. ECSC Article 56(b)(2) Redeployment Aid
I. Inner Urban Areas Act of 1978
J. LINK Initiative
K. European Coal and Steel Community (ECSC) Article 54 Loans/Interest
Rebates
We did not receive any comments on these programs from the
interested parties, and our review of the record has not led us to
change our findings from the preliminary results.
III. Program Previously Found to be Terminated
Transportation Assistance
The Department found this program to be terminated in the 1995
administrative review of this countervailing duty order. See Lead Bar
1995 Final Results.
IV. Other Programs Examined
BRITE/EuRAM and Standards Measurement and Testing Program
BS plc received assistance under these two European Union programs
to fund research and development. The European Union claimed that
assistance provided under both of these programs is non-countervailable
in accordance with Article 8.2(a) of the WTO Agreement on Subsidies and
Countervailing Measures and section 771(5B)(B) of the Act (which
provide that certain research and development subsidies are not
countervailable). We determine that it is not necessary to address
whether BRITE/EuRAM and the Standards Measurement and Testing Program
qualify for non-countervailable treatment because combined, the
assistance provided under both of these programs would result in a rate
of less than 0.005 percent ad valorem, and thus would have no impact on
the overall countervailing duty rate calculated for this POR. For this
same reason we have not conducted a specificity analysis of these
programs. See, e.g., Final Affirmative Countervailing Duty
Determination: Steel Wire Rod from Germany, 62 FR 54990, 54995-54996
(October 22, 1997); Certain Carbon Steel Products from Sweden; Final
Results of Countervailing Duty Administrative Review, 62 FR 16549
(April 7, 1997) and Certain Carbon Steel Products from Sweden;
Preliminary Results of Countervailing Duty Administrative Review, 61 FR
64062, 64065 (December 3, 1996); Final Negative Countervailing Duty
Determination: Certain Laminated Hardwood Trailer Flooring (``LHF'')
From Canada, 62 FR 5201 (February 4, 1997); Industrial Phosphoric Acid
From Israel; Final Results of Countervailing Duty Administrative
Review, 61 FR 53351 (October 11, 1996) and Industrial Phosphoric Acid
From Israel; Preliminary Results of Countervailing Duty Administrative
Review, 61 FR 28845 (June 6, 1996).
Analysis of Comments
Comment 1: Whether British Steel plc's Reported Total Sales Should Be
Adjusted
According to the petitioner, the BS plc sales figure used in the
calculations for the preliminary determination appears to include
intra-corporate sales. Therefore, the Department should adjust BS plc's
reported total sales to exclude intra-corporate sales. Because BS plc
did not report a separate total for 1996 intra-corporate sales in this
review, the Department should use, as facts available, the sales figure
for the fiscal year that ended in March 1997 from BS plc's 1997 Annual
Report.
The respondent has certified that the 1996 sales figure that the
Department used for the preliminary results does not include intra-
corporate sales. The respondent further states that the reported figure
was calculated on the same basis as the figure reported for the 1995
administrative review.
Department's Position
In the 1995 proceeding, we verified the basis by which BS plc
prepared its total sales, excluding intra-corporate sales. The
respondent has certified that the sales figure reported in this
proceeding was prepared on the same basis as in the 1995 proceeding.
Therefore, in the calculations for the final results of this review, we
have not modified the BS plc 1996 sales figure used for the preliminary
results.
Comment 2: Allocation of Subsidies to Guest, Keen & Nettleford (GKN)
The petitioner asserts that the Department should not allocate
subsidies to GKN as a result of GKN's sale of its shares of UES to BS
plc. According to the petitioner, the Department's subsidy repayment
methodology is inconsistent with the countervailing duty statue, basic
economic principles, and evidence produced in this proceeding. The
petitioner asserts that the Department's subsidy credit methodology is
invalid, that there is no evidence of repayment, and that BS plc's
acquisition of GKN's shares does not differ from sales of shares traded
daily on the stock market. Because BSES is the same position as BSC's
special steels business in 1985, all of UES's subsidies should travel
back to BS plc with the sale of GKN's UES shares to BS plc.
Furthermore, the petitioner asserts that the GIA and Certain Pasta from
Italy are distinguishable from the current case. The petitioner
submitted the same arguments in the 1995 review of this case. See 1995
UK Lead Bar Final, 62 FR at 53309.
The respondent points out that the petitioner did not acknowledge
that, in the 1995 review, the Department rejected the petitioner's
arguments with respect to the attribution of a portion of UES's
subsidies to GKN. Therefore, the respondent asserts that the Department
should reject the petitioner's arguments again. The respondent also
notes that the petitioner did not discuss the CAFC's recent holding in
British Steel plc v. United States, 1997 U.S. App. LEXIS 29,353,
(October 24, 1997) (British Steel II) that the Department has the
discretion to apply a subsidy credit methodology. Finally, the
respondent asserts that if the petitioner is correct and the statute
focuses on the production of merchandise and the ownership of
production is irrelevant, then the Department must determine that UES
is now in the same position as before the March 1995 acquisition, not
the same position as in 1985.
Department's Position
Our position with respect to the petitioner's comments was outlined
in detail in the 1995 review of this case. See 1995 UK Lead Bar Final,
62 FR at 53309-10. The petitioner has not presented any new arguments
or facts that would lead the Department to
[[Page 18371]]
depart from its original conclusion with respect to this issue.
Further, the Department's position has been strengthened, as the
respondent notes, with the CAFC's recent holding in British Steel II,
affirming the Department's discretion to apply the subsidy credit
methodology. For these reasons, we continue to apply the credit
methodology in these final results.
Comment 3: The ``Change in Ownership'' Issue
BSES argues that the Department should revisit its determinations
on the change-in-ownership issues in this case because of the CIT's
recent decision in Delverde SrL v. United States (No. 96-08-01997, Slip
Op. 97-163) (CIT Dec. 2, 1997) (Delverde). According to the respondent,
the Delverde court concluded that while the change in ownership
provision would permit the Department to find that subsidies pass
through in an arm's length transaction, the Department may not conclude
that they always pass through. Because the Department determined that
the 1986 sale of the special steels business was an arm's length
transaction and was consistent with commercial considerations, the
respondent argues that the Department must find that UES received no
financial benefit when it acquired BSC's special steels division in
1986. According to the respondent, the same conclusion applied to 1995
acquisition of UES, which occurred at arm's length and for fair market
value.
In rebuttal, the petitioner argues that the Delverde decision has
limited precedential value in this case because, in Delverde, the CIT
explicitly excluded privatization from the analysis, and issued limited
instructions about private transactions. The petitioner asserts that
the Department's change of ownership methodology is fully consistent
with the statute, the legislative history, and the concerns expressed
in Delverde. The petitioner also contends that the Department's
existing privatization and repayment methodologies determine whether
and to what extent a subsidy passes through by measuring how much of
the subsidy remains with the seller and how much with the buyer and
are, therefore, consistent with Delverde.
Department's Position
In its opinion in Delverde, the CIT did not overturn the
Department's methodology. It only directed the Department, on remand,
to provide a fuller explanation of its methodology and how it applied
it to the facts of the change of ownership transaction at issue. While
the CIT did present its views regarding many of the issues that it
wanted the Department to address when explaining its methodology, it
did not, however, order the Department to adopt any of its views.
On April 2, 1998, the Department filed its remand determination in
Delverde. In it, the Department continued to follow its existing
methodology, and it provided the CIT with the full explanations that it
had requested. In these final results, the Department similarly has not
made any changes to its methodology based on the Delverde opinion.
Comment 4: Whether Subsidies Provided to BS plc Benefit UES
According to the respondent, the Department incorrectly assumed in
its preliminary determination that BSES's production of leaded bar
benefits from subsidies provided to BS plc solely due to the corporate
relationship between the two companies. The respondent asserts that the
preliminary determination conflicts with two final CIT decisions: Armco
Inc. v. United States, 733 F. Supp. 1514 (CIT 1990) and Aimcor v.
United States, 871 F. Supp. 447 (CIT 1994). The respondent contends
that under the CIT's decisions in Armco and Aimcor, the Department is
required to examine more than the corporate relationship in deciding
whether a subsidy has been bestowed.
According to the respondent, in its characterization of Armco in
the 1995 final results, the Department distorted and confused the CIT's
holding that the corporate relationship alone does not support a
blanket policy of subsidy attribution. The respondent claims that the
Department turned the court's decision on its head when it attempted to
limit Armco's statements to the facts of the case. The respondent
emphasizes that the Armco court did not intend to overturn the
Department's general policy of not attributing subsidies between
related companies. According to the respondent, the Department
contended in the 1995 review that the attribution of subsidies between
BS plc and BSES was consistent with Armco because BS plc also produced
a small quantity of the subject merchandise, which creates the
possibility of circumvention. The respondent argues, however, that
there is no meaningful possibility of circumvention in this case,
because BS plc has a higher countervailing duty rate than BSES,
manufactures only a small quantity of subject merchandise, and has not
exported any subject merchandise to the United States.
With respect to Aimcor, the respondent states that, in the final
results of the 1995 review, the Department contended that the issue
involved the bestowal rather than the attribution of a subsidy. The
respondent argues that the issue decided by the CIT in Aimcor did
involve attribution, and the Department's position in its brief to the
CIT in that case demonstrates that this was the Department's
understanding. The respondent emphasizes that even if the parent-
company, CVG, had been found to receive a subsidy, the CIT would have
concluded in Aimcor that such a subsidy did not provide a benefit to
the subsidiary, FESILVEN, because the fact that ``CVG exercised some
control over FESILVEN does not necessarily indicate that the benefit to
CVG passed through to FESILVEN.'' 871 F. Supp. at 451-52.
The respondent also argues that the Department's attribution policy
is problematic from a policy perspective. First, it conflicts with the
Department's privatization policy, which is based upon the premise that
subsidies are provided to the manufacture, production or export of
subject merchandise rather than to companies or businesses that produce
subject merchandise. Second, the Department's policy will dilute the
duties that otherwise would have been imposed on a subsidized
productive unit. Therefore, the respondent contends, the Department
should not attribute BS plc's subsidies to the production of BSES for
the final results of this review.
The petitioner contends that the statue, Department practice, and
the particular facts of this review support the Department's
attribution of untied subsidies from BS plc to BSES. Petitioner
disputes the respondent's attempt to limit Armco to a single principle:
that attribution of subsidies was appropriate due to the threat of
circumvention rather than the corporate relationship between parent and
subsidiary. According to the petitioner, the court's decision to
attribute subsidies from parent to subsidiary was based on two
considerations in addition to circumvention concerns: (1) The status of
ASM and Angkasa as parent and wholly owned subsidiary, and (2) the
substantial control that ASM exercised over Angkasa's activities. The
petitioner argues that all three of these concerns are also present in
this case, and that Armco therefore supports the Department's
attribution decision in the preliminary results. The petitioner also
made these arguments in the 1995 administrative review. See Lead Bar 95
Final Results, 62 FR at 53111.
Department's Position
The respondent's argument focuses on the Department's
interpretation of
[[Page 18372]]
Armco and Aimcor in the 1995 proceeding, concluding that these CIT
decisions prohibit the Department's attribution approach. In the 1995
proceeding, we stated that the Aimcor and Armco cases ``do not
undermine the Department's general principle of attributing untied
parent company subsidies to the parent company's consolidated sales.''
More importantly, we stated that the facts of this case do not require
the Department ``to find factors in addition to the corporate
relationship'' when attributing subsidies from one corporation to
another. Lead Bar 1995 Final Results, 62 FR at 53313. The Department
analyzed numerous cases to illustrate that parent company subsidies
have in fact been attributed to the consolidated sales, including the
sales of consolidated subsidiaries, solely on the basis of the
corporate relationship.1 The arguments presented by the
respondent in this review have not led us to reach a different
conclusion.
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\1\ See, e.g., Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from Belgium, 58 FR 37293,
37282 (July 9, 1993) (untied subsidies to Sidmar, the parent
company, were attributed to the ``total 1991 sales of the Sidmar
Group''); Final Affirmative Countervailing Duty Determinations:
Certain Steel Products from Italy, 58 FR 37327 (July 9, 1993) (a
subsidy determined to benefit all production activities was
``allocated over Falck's total consolidated sales,'' GIA, 58 FR at
37235); GIA, 58 FR at 37262 (the Department ``often treats the
parent entity and its subsidiaries as one when determining who
ultimately benefits from a subsidy,'' and ``generally allocate[s]
subsidies received by parents over sales of their entire group of
companies''). See also, Final Affirmative Countervailing Duty
Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel
Products from France, 58 FR 6221, 6223 (January 27, 1993); Final
Affirmative Countervailing Duty Determination: Certain Steel
Products from France, 58 FR 37304 (July 9, 1993) (French Steel); UK
Steel (BS plc argued in that case that untied subsidies ``must be
allocated to a company's total corporate output {including foreign
operations} and not just to specific products or operations,'' GIA,
58 FR at 37236).
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As a preliminary matter, the respondent's arguments reveal a
misunderstanding of the Department's position. According to the
respondent's interpretation, the Department would in all cases
attribute subsidies from one corporation to another, solely based on
the relatedness of those companies. However, the position outlined in
the 1995 review concerns only untied subsidies to a parent company and
the principle, supported by numerous prior cases, that those subsidies
are attributed to the consolidated domestically produced sales of the
company, including the domestically produced sales of consolidated
subsidiaries. This attribution principle hinges on the facts specific
to this case, that the subsidies to the parent company are untied, and
the subsidiary companies are consolidated with the parent company.
Thus, contrary to the respondent's contention, the position outlined in
the 1995 proceeding does not stand for the proposition that subsidies,
regardless of their nature, would in all cases be attributed to related
companies without an examination of the type of relationship between
the companies.
According to the respondent, the Armco court required attribution
between ASM and Angkasa solely because of the case-specific evidence of
circumvention. This decision to attribute subsidies between the related
companies, the respondent states, was not intended to ``swallow the
Department's general rule of non-attribution, with which the court
agreed.'' BSES'' case brief, January 7, 1998 at 17. We disagree with
this interpretation. While the Armco court may not have endorsed an
across-the-board policy of attributing subsidies between related
companies, the court clearly stated that the Department's prior
determinations ``do not show a blanket policy of automatically not
attributing benefits received by one company to a closely related
company.'' Armco, 733 F. Supp. 1522 (emphasis in original). Rather, the
court understood that attribution decisions in prior cases ``turn[ed]
essentially upon the Department's findings in particular cases.'' Id.
The court also recognized that ``the Department has attributed benefits
received by one company to a related company'' in other cases. Id.
(emphasis in original). Accordingly, we do not agree that Armco
represents an endorsement of a ``general rule of non-attribution.''
Moreover, the case-specific evidence upon which the court relied
was not limited solely to evidence of circumvention, as the respondent
suggests. As petitioner correctly points out, other crucial factors
considered by the court included the nature of the relationship between
the parent, ASM, and the subsidiary, Angkasa, and the degree of
involvement in each other's business. The court emphasized that ``[a]s
the owner of 100 percent of Angkasa's stock, ASM clearly benefits from
Angkasa's revenues derived from the export of products to the United
States'' and that ``ASM was intimately involved in Angkasa's business
decisions and operations. . . .'' Id. at 1524. The Armco court
concluded that ``[t]he present decision is based in part upon the
status of ASM and Angkasa as parent and wholly-owned
subsidiary. . .'' Id. at 1526. To that extent, the Department's
determination to attribute BS plc's untied subsidies to the
consolidated sales of the company is in conformance with the CIT's
decision in Armco. Specifically, the Department examined the nature of
the subsidies originally bestowed upon BS plc, as well as the
relationship between the parent, BS plc, and subsidiary,
BSES.2 In the 1995 proceeding, we stated that BS plc, as 100
percent owner of BSES, ``has the authority to make all major decisions
for UES, including any decision to invest in the subsidiary, change its
operations, restructure or even close it down.'' See the ``Acquisition
Memorandum'' at 4, attached as Exhibit 1 to the petitioner's rebuttal
brief, January 14, 1998 (Acquisition Memo). Given these case-specific
circumstances, the Department appropriately treated parent, BS plc, and
subsidiary, BSES, as one company for purposes of attributing BS plc's
untied subsidies. Nothing in the Armco decision prohibits such a
conclusion, which our discussion in the 1995 final results of this case
makes clear.
---------------------------------------------------------------------------
\2\ We also continue to maintain that legitimate circumvention
concerns exist in this case. See the discussion in the Lead Bar 1995
Final Results, 62 FR at 53313.
---------------------------------------------------------------------------
According to the respondent, however, the Department's discussion
in the 1995 final results sought to limit Armco to the specific facts
underlying the court's ruling. We disagree. Our discussion of Armco
merely recognized that ``different conclusions may be drawn from
different scenarios involving various kinds of subsidies, tied and
untied, and companies of varying degrees of relatedness.'' Lead Bar
1995 Final Results, 62 FR at 53313. As the court stated, attribution
decisions are based ``essentially upon the Department's findings in
particular cases.'' Armco, 733 F. Supp. at 1522. In light of this, it
is the respondent and not the Department that attempts to restrict the
court's attribution decision, by stating that the Armco ruling
represents an ``exception'' to the Department's general rule of non-
attribution. However, the court's ruling in Armco was not an attempt to
create a blanket rule that favored automatic attribution or non-
attribution of subsidies between related companies. Rather, the court
recognized that, even in the absence of evidence of pass-through, the
facts of a case may allow a subsidy to be attributed among related
companies. The court specifically stated that subsidies to one company
should not escape countervailing duties ``merely because there is no
evidence that the subsidiary itself overtly transfers to the parent any
specific subsidy benefits received.'' Id. at 1525. This was
[[Page 18373]]
precisely our position in the 1995 proceeding, in which we argued that
the CIT's decision in Armco does not require the Department to find, in
all cases, factors in addition to the corporate relationship, when
attributing untied parent company subsidies to that company's
consolidated sales, including the sales of consolidated subsidiaries.
The respondent has not shown that Armco requires such factors, or that
the Department erred in the many prior cases where precisely the same
attribution principle was followed.
The respondent argues that the issue in Aimcor involved corporate
attribution, and not whether a subsidy was bestowed, as claimed by the
Department in the 1995 proceeding. The respondent also makes extensive
reference to the Government's February 1994 brief to the court (to
restate its position that Aimcor prohibits the Department from
attributing parent company subsidies to a subsidiary without showing
that the subsidy passed-through to the subsidiary). Even assuming,
arguendo, that attribution was an issue, the facts in Aimcor are
significantly different from this case such that the Department's
decision here is not in conflict with Aimcor.3
---------------------------------------------------------------------------
\3\ It remains our view that the issue of the bestowal of a
subsidy was an important issue in the Department's decision in
ferrosilicon from Venezuela. See the discussion in the Lead Bar 1995
Final Results, 62 FR at 53313.
---------------------------------------------------------------------------
In the investigation underlying the Aimcor decision, the Department
decided to treat the parent company, CVG, as a separate entity from its
subsidiary, FESILVEN, because there was an insufficient ``identity of
interests'' between the companies. Final Affirmative Countervailing
Duty Determination: Ferrosilicon from Venezuela, 58 FR 27539 (May 10,
1993) (Ferrosilicon from Venezuela). In this proceeding, however, we
did not make a determination that BS plc and BSES should be treated as
separate entities. Rather, we found the inverse, that BS plc, as 100-
percent owner of its consolidated subsidiary, BSES, ``has the authority
to make all major decision for UES, including any decision to invest in
the subsidiary, change its operations, restructure or even close it
down.''
The Department's analysis in this proceeding, therefore, is
fundamentally different from that presented in Ferrosilicon from
Venezuela. This is further illustrated by the fact that the parent
company in Ferrosilicon from Venezuela, CVG, was a government-owned
holding company. Cases involving the attribution of subsidies between
government-owned holding companies and their related companies are not
illustrative of the Department's attribution policy concerning untied
subsidies to corporations which produce merchandise and which also have
numerous consolidated subsidiaries. Rather, in cases involving
government-owned holding companies, we have examined whether the
holding company, acting as the government, through its investments
provided subsidies to its producing subsidiaries. We noted this policy
in the 1995 final results, where we stated that in cases involving
government-owned holding companies, ``the Department considered whether
the government-owned holding company acted as the government in
bestowing subsidies to the affiliated companies, i.e., the
subsidiaries.'' Id. at 53314. No such practice exists, however, for
cases involving untied subsidies benefitting corporations such as BS
plc, and their consolidated subsidiaries. Rather, the Department's
practice in such cases is to ``generally allocate subsidies received by
parents over sales of their entire group of companies.'' GIA, 58 FR at
37262. This was also the position of the Aimcor court, when it stated
that ``if Commerce was incorrect in treating the two companies
separately, any benefit to CVG may be attributable to FESILVEN.''
Aimcor, 871 F. Supp. at 451. In other words, if the ``identity of
interests'' between the companies had not been found to be
insufficient, any benefit to CVG would also be attributable to
FESILVEN. This conforms with our approach in this case, and in the
numerous other cases cited by the Department. Accordingly, the
respondent has failed to show that the Aimcor decision is in conflict
with our attribution approach in this proceeding.
Comment 5: Allocation Methodology
The respondent argues that the Department should not apply a
company-specific period for allocating subsidies over time, because it
produces arbitrary and fluctuating results. Instead, the Department
should return to its prior practice of using the IRS tables for the
average useful life of assets, and promulgate a regulation consistent
with that approach. This approach would provide sufficient support to
comply with the concerns raised by the CIT in British Steel, because,
the respondent states, the CIT's ruling was premised on the fact that
the Department's allocation methodology was not supported by
regulations. The respondent argues that if the Department does
promulgate a regulation stating that it will use the IRS tables, the
Department should follow this approach for the final results of this
review.
However, if the Department does apply a company-specific allocation
period for the final results, the Department should calculate this AUL
based on BS plc's average useful life of assets during the ten-year
period that most closely overlaps the period of subsidization. This
would exclude the period FY 1986/87 through FY 1990/91, where BS plc
was found not to have received any subsidies. The respondent further
claims that using 14 years to calculate BS plc's AUL is inconsistent
with the approach taken by the Department in the countervailing duty
questionnaires, in which only ten years of information is sought for
the AUL calculation.
The petitioner maintains that the Department should continue to
apply BS plc's 18-year company-specific AUL in this review, based upon
the prior record of this case and the proposed countervailing duty
regulations. Moreover, the CIT in British Steel found the prior
methodology to be contrary to law. In any case, the petitioner states
that BS plc was originally opposed to the IRS tables approach, stating
that it was arbitrary.
Department's Position
The countervailing duty regulations have not yet been finalized.
Even if the regulations were finalized and the Department did
promulgate a regulation stating that it will use the IRS tables, the
regulations would not be controlling in the instant review.
The Department's acquiescence to the CIT's decision in British
Steel resulted in different allocation periods for the same subsidies
in two proceedings. Therefore, in the 1995 review of this case, we
applied BS plc's company-specific AUL to all nonrecurring subsidies in
order to maintain a consistent allocation period across the UK Steel
and UK Lead Bar proceedings. This approach brought the Lead Bar
proceeding in line with the CIT's ruling in British Steel. To now
return to the IRS tables in this administrative review would run
counter to that ruling, which the Department has followed in all
countervailing duty cases since the court affirmed the Department's
remand. See British Steel plc v. United States, 929 F. Supp. 426, 439
(CIT 1996). Therefore, we will not return to the IRS tables for
purposes of calculating the allocation period for the final results of
this review.
We also find no merit in the respondent's argument that the AUL
calculation should be based on BS plc's average useful life of assets
during the
[[Page 18374]]
ten-year period that most closely overlaps the period of subsidization,
i.e., FY 1976/77 through 1985/86. The Department's decision in the
British Steel remand to use 14 years of data to calculate the AUL was
reasonable. Fourteen years of data were on the record at the time we
calculated BS plc's AUL, and we found no reason to exclude it from the
calculation. Rather, we found that these data provided a reasonable
calculation of BS plc's AUL.
Contrary to the respondent's contention, the approach taken in the
British Steel remand is not in conflict with the Department's
countervailing duty questionnaire. We have found that basing the AUL
calculation on ten years of data, as requested in the questionnaire, is
reasonable and administrable. However, this does not indicate that an
AUL calculation based on more or fewer years would be incorrect or
inaccurate. Furthermore, assuming the Department had chosen ten years
of data, that information would be taken from the years immediately
preceding the investigation. In this case, that would be FY 1981/82
through FY 1990/91. Therefore, the respondent cannot argue in hindsight
and for its own convenience that the AUL should be recalculated using
the ten-year period that most closely overlaps the period of
subsidization. For these reasons, we will not recalculate BS plc's AUL.
Comment 6: Subsidy Repayment Methodology
BSES asserts that the Department should revise its calculation of
the amount of subsidies that are considered repaid with privatization.
According to the respondent, the ratio of subsidies to net worth that
the Department currently uses is unreasonable because it is based upon
the subsidies' historical value. The result is arbitrary because the
company's historical subsidy worth may have no relationship to the
company's subsidy worth at the time of privatization. The respondent
argues that it would make more sense to use a ratio of (1) the total
unamortized value of non-recurring subsidies at the time of
privatization to (2) the net worth of the company being privatized.
According to the respondent, the suggested approach would also be
consistent with the Department's practice of amortizing subsidies.
According to the petitioner, the only appropriate change to the
Department's methodology would be its abolition; however, if the
Department continues to assume that a portion of the purchase price of
a government-owned company represents the repayment of subsidies, the
Department's existing methodology is the most reasonable valuation of
repayment. The petitioner contends that BSES's proposed approach is
ill-advised and inconsistent with the Department's practice.
Department's Position
While respondent has suggested some alternatives to the
Department's subsidy payment methodology, we believe the Department's
current methodology is reasonable in accomplishing the intended purpose
of determining what portion of the purchase price is allocable to prior
subsidies. Indeed, the Federal Circuit has stated that ``the
methodology developed by Commerce to account for the repayment of
subsidies during privatization is a reasonable interpretation of the
countervailing duty statute.'' British Steel plc v. United States, 127
F.3d 1471, 1475 (Fed. Cir. 1997). Moreover, the Department's subsidy
calculation methodology is currently subject to judicial review which
the court has yet to address. For these reasons, we will continue to
use the methodology as set out and explained in the GIA.
Final Results of Review
In accordance with 19 CFR 355.22(c)(4)(ii), we calculated an
individual subsidy rate for each producer/exporter subject to this
administrative review. As discussed in the ``Change in Ownership''
section of the notice, above, we are treating British Steel plc and
British Steel Engineering Steels as one company for purposes of this
proceeding. For the period January 1, 1996 through December 31, 1996,
we determine the net subsidy for British Steel plc/British Steel
Engineering Steels (BS plc/BSES) to be 5.28 percent ad valorem.
We will instruct the Customs Service to assess countervailing
duties for BS plc/BSES at 5.28 percent ad valorem. The Department will
also instruct Customs to collect a cash deposit of estimated
countervailing duties of 5.28 percent of the f.o.b. invoice price on
all shipments of the subject merchandise from BS plc/BSES entered, or
withdrawn from warehouse, for consumption on or after the date of
publication of the final results of this review.
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as
provided for in Sec. 777A(e)(2)(B) of the Act. The requested review
will normally cover only those companies specifically named. See 19 CFR
355.22(a). Pursuant to 19 CFR 355.22(g), for all companies for which a
review was not requested, duties must be assessed at the cash deposit
rate, and cash deposits must continue to be collected at the rate
previously ordered. As such, the countervailing duty cash deposit rate
applicable to a company can no longer change, except pursuant to a
request for a review of that company. See Federal-Mogul Corporation and
The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993)
(interpreting 19 CFR 353.22(e) (now 19 CFR 351.212(c)), the antidumping
regulation on automatic assessment, which is identical to 19 CFR
355.22(g)). Therefore, the cash deposit rates for all companies except
those covered by this review will be unchanged by the results of this
review.
We will instruct Customs to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order are those established in the most recently completed
administrative proceeding, conducted pursuant to the statutory
provisions that were in effect prior to the URAA amendments. See,
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from the
United Kingdom; Final Results of Countervailing Duty Administrative
Review, 60 FR 54841 (October 26, 1995). These rates shall apply to all
non-reviewed companies until a review of a company assigned these rates
is requested. In addition, for the period January 1, 1996 through
December 31, 1996, the assessment rates applicable to all non-reviewed
companies covered by this order are the cash deposit rates in effect at
the time of entry.
This notice serves as a reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 CFR 355.34(d). Timely written notification of
return/destruction of APO materials or conversion to judicial
protective order is hereby requested. Failure to comply with the
regulations and the terms of an APO is a sanctionable violation.
This administrative review and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).
[[Page 18375]]
Dated: April 7, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-9870 Filed 4-14-98; 8:45 am]
BILLING CODE 3510-DS-P