[Federal Register Volume 63, Number 172 (Friday, September 4, 1998)]
[Notices]
[Pages 47246-47253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23912]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-475-823]


Preliminary Affirmative Countervailing Duty Determination and 
Alignment of Final Countervailing Duty Determination With Final 
Antidumping Duty Determination: Stainless Steel Plate in Coils From 
Italy

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

EFFECTIVE DATE: September 4, 1998.

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

Preliminary Determination

    The Department of Commerce (the Department) preliminarily 
determines that countervailable subsidies are being provided to 
producers and exporters of stainless steel plate in coils from Italy. 
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 Allegheny Ludlum 
Corporation, Armco, Inc., J&L Specialty Steels, Inc., Lukens Inc., AFL-
CIO/CLC (USWA), Butler Armco Independent Union and Zanesville Armco 
Independent Organization (the petitioners).

Case History

    Since the publication of the notice of initiation in the Federal 
Register (see Notice of Initiation of Countervailing Duty 
Investigation: Certain Stainless Steel Plate in Coils from Belgium, 
Italy, the Republic of Korea, and the Republic of South Africa, 63 FR 
23272 (April 28, 1998) (Initiation Notice)), the following events have 
occurred. On April 30, 1998, we issued countervailing duty 
questionnaires to the Government of Italy (GOI), the European 
Commission (EC), and the producers/exporters of the subject 
merchandise. On June 1, 1998, we postponed the preliminary 
determination of this investigation until August 28, 1998 (see Notice 
of Postponement of Time Limit for Countervailing Duty Investigations: 
Stainless Steel Plate in Coils from Belgium, Italy, the Republic of 
Korea, and the Republic of South Africa, 63 FR 31201 (June 8, 1998)).
    We received responses to our initial questionnaires from the GOI, 
the EC, and Acciai Speciali Terni S.p.A. (AST) (the sole producer/
exporter of subject merchandise during the POI to the United States) 
between June 19 and June 26, 1998. On July 15 and 16, 1998, we issued 
supplemental questionnaires to the GOI, the EC and AST. We received 
responses to these supplemental questionnaires between July 29 and 
August 3, 1998.

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 (URAA) effective January 1, 1995 (the 
Act). In addition, unless otherwise indicated, all citations to the 
Department's regulations are to the current regulations codified at 19 
CFR Part 351 and published in the Federal Register on May 19, 1997 (62 
FR 27295).

Scope of Investigation

    For purposes of this investigation, the product covered is certain 
stainless steel plate in coils. Stainless steel is an alloy steel 
containing, by weight, 1.2 percent or less of carbon and 10.5 percent 
or more of chromium, with or without other elements. The subject plate 
products are flat-rolled products, 254 mm or over in width and 4.75 mm 
or more in thickness, in coils, and annealed or otherwise heat treated 
and pickled or otherwise descaled. The subject plate may also be 
further processed (e.g., cold-rolled, polished, etc.) provided that it 
maintains the specified dimensions of plate following such processing. 
Excluded from the scope of this investigation are the following: (1) 
plate not in coils, (2) plate that is not annealed or otherwise heat 
treated and pickled or otherwise descaled, (3) sheet and strip, and (4) 
flat bars.
    The merchandise subject to this investigation is currently 
classifiable in the Harmonized Tariff Schedule of the United States 
(HTSUS) at subheadings: 7219.11.00.30, 7219.11.00.60, 7219.12.00.05, 
7219.12.00.20, 7219.12.00.25, 7219.12.00.50, 7219.12.00.55, 
7219.12.00.65, 7219.12.00.70, 7219.12.00.80, 7219.31.00.10, 
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60, 
7219.90.00.80, 7220.11.00.00, 7220.20.10.10, 7220.20.10.15, 
7220.20.10.60, 7220.20.10.80, 7220.20.60.05, 7220.20.60.10, 
7220.20.60.15, 7220.20.60.60, 7220.20.60.80, 7220.90.00.10, 
7220.90.00.15, 7220.90.00.60, and 7220.90.00.80. Although the HTSUS 
subheadings are provided for convenience and customs purposes, the 
written description of the merchandise under investigation is 
dispositive.

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 May 28, 1998, 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 (see Certain Stainless Steel Plate in Coils From 
Belgium, Canada, Italy, Korea, South Africa, and Taiwan, 63 FR 29251).

Alignment With Final Antidumping Determination

    On May 27, 1998, the petitioners submitted a letter requesting 
alignment of the final determination in this investigation with the 
final

[[Page 47247]]

determination in the companion antidumping duty investigation. See 
Initiation of Antidumping Duty Investigations: Stainless Steel Plate in 
Coils from Belgium, Canada, Italy, Republic of South Africa, South 
Korea and Taiwan, 63 FR 20580 (April 27, 1998). In accordance with 
section 705(a)(1) of the Act, we are aligning the final determination 
in this investigation with the final determinations in the antidumping 
investigations of stainless steel plate in coils.

Period of Investigation

    The period for which we are measuring subsidies (the POI) is 
calendar year 1997.

Corporate History of Respondent AST

    Prior to 1987, Terni, S.p.A, (Terni), a main operating company of 
Finsider, was the sole producer of stainless steel plate in coils 
(SSPC) in Italy. Finsider was a holding company that controlled all 
state-owned steel companies in Italy. Finsider, in turn, was wholly-
owned by a government holding company, Istituto per la Ricostruzione 
Industriale (IRI). As part of a restructuring in 1987, Terni 
transferred its assets to a new company, Terni Acciai Speciali (TAS).
    In 1988, another restructuring took place in which Finsider and its 
main operating companies (TAS, Italsider, and Nuova Deltasider) entered 
into liquidation and a new company, ILVA S.p.A. (ILVA) was formed. ILVA 
took over some of the assets and liabilities of the liquidating 
companies. With respect to TAS, part of its liabilities and the 
majority of its viable assets, including all the assets associated with 
the production of SSPC, were transferred to ILVA on January 1, 1989. 
ILVA itself became operational on the same day. Part of TAS' remaining 
assets and liabilities were transferred to ILVA on April 1, 1990. After 
that date, TAS no longer had any manufacturing activities. Only certain 
non-operating assets remained in TAS.
    From 1989 to 1994, ILVA consisted of several operating divisions. 
The Specialty Steels Division, located in Terni, produced subject 
merchandise. ILVA was also the majority owner of a large number of 
separately incorporated subsidiaries. The subsidiaries produced various 
types of steel products and also included service centers, trading 
companies, and an electric power company, among others. ILVA together 
with its subsidiaries constituted the ILVA Group. The ILVA Group was 
wholly-owned by IRI. (For purposes of the grant expense test (i.e., 0.5 
percent test) and the 1994 change in ownership calculations, we used 
ILVA Group's financial information).
    In October 1993, ILVA entered into liquidation. On December 31, 
1993, two of ILVA Group's divisions were removed and separately 
incorporated: AST and ILVA Laminati Piani (ILP). The balance of ILVA's 
holdings remained in ILVA Residua. IVLA's Specialty Steels Division was 
transferred to AST while its carbon steel flat products operations were 
placed in ILP. The remainder of ILVA's assets and liabilities, along 
with much of the redundant workforce, were transferred to ILVA Residua.
    In December 1994, AST was sold to KAI Italia S.r.L. (KAI), a 
privately-held holding company jointly owned by German steelmaker 
Hoesch-Krupp (50 percent) and a consortium of private Italian companies 
called FAR Acciai (50 percent). Between 1995 and the POI, there were 
several restructurings/changes in ownership of AST and its parent 
companies. As a result, at the end of the POI, AST was owned 75 percent 
by Krupp Thyssen Stainless GmbH and 25 percent by Fintad.

Affiliated Parties

    The information presently on the record of this investigation does 
not permit us to make a determination as to whether any companies 
currently affiliated with AST are sufficiently related to it to warrant 
treating them as a single company. As a result, we limited our analysis 
to those potential benefits received by AST itself. However, for the 
final determination, we will examine this issue more critically.

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) at 37226, 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 in the years preceding the sale of the company. To 
make these calculations, we go back in time to a period corresponding 
to the company's allocation period (see below for a discussion of 
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.

We have continued 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 (Nov. 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

[[Page 47248]]

countervailability of past subsidies.'' Id. at 58379. AST, the GOI and 
the EC have all expressed the opinion that the sale of AST to a private 
consortium in an arm's length transaction extinguished all prior 
subsidies. However, information on this record provides no basis for 
distinguishing the sale of AST from other sales that we have analyzed 
under the GIA methodology. See, e.g., Final Affirmative Countervailing 
Duty Determination: Steel Wire Rod From Trinidad and Tobago, 62 FR 
55003 (October 22, 1997) (Wire Rod from Trinidad and Tobago), Final 
Affirmative Countervailing Duty Determination: Steel Wire Rod from 
Canada, 62 FR 54972 (October 22, 1997) and Final Affirmative 
Countervailing Duty Determination: Stainless Steel Wire Rod from Italy, 
63 FR 40474 (July 29, 1998) (Wire Rod from Italy). Therefore, we have 
applied the methodology set forth in the GIA for the 1994 
privatization. Furthermore, we note that after the 1994 privatization 
of AST, there were numerous changes in the ownership structure of the 
company; however, we do not have all the information necessary for the 
preliminary determination to determine whether it is appropriate to 
apply our change in ownership methodology for these later transactions.

Subsidies Valuation Information

    Benchmarks for Long-term Loans and Discount Rates: Consistent with 
the Department's finding in Wire Rod from Italy at 40476-77, we have 
based our long-term benchmarks and discount rates on the Italian 
Bankers' Association (ABI) rate. Because the ABI rate represents a 
long-term interest rate provided to a bank's most preferred customers 
with established low-risk credit histories, commercial banks typically 
add a spread ranging from 0.55 percent to 4 percent onto the rate for 
other customers depending on their financial health.
    In years in which AST or its predecessor companies were 
creditworthy, we added the average of that spread onto the ABI rate to 
calculate a nominal benchmark rate. In years in which AST or its 
predecessor companies were uncreditworthy, we calculated the discount 
rates according to the methodology described in the GIA at 37227. 
Specifically, we added to the ABI rate a spread of 4 percent in order 
to reflect the highest commercial interest rate available to companies 
in Italy. We then added to this rate a risk premium equal to 12 percent 
of the ABI.
    Additionally, information on the record of this case indicates that 
published ABI rates do not include amounts for fees, commissions and 
other borrowing expenses. Since such expenses raise the effective 
interest rate that a company would experience and it is the 
Department's practice to use effective interest rates, where possible, 
we are including an amount for these expenses in the calculation of our 
effective benchmark rates. While we do not have information on the 
expenses that would be applied to long-term commercial loans, 
information on the record shows that borrowing expenses on overdraft 
loans range from 6 to 11 percent of interest charged. For purposes of 
this preliminary determination, we are assuming that the level of 
borrowing expenses on overdraft loans approximates the level on long-
term commercial loans. Accordingly, we are increasing the nominal 
benchmark rate by 8.5 percent, representing the average reported level 
of borrowing expenses, to arrive at an effective benchmark rate.
    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 in that case, 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). As a result of this decision, the Department changed its 
policy so that it determines 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 by examining information submitted by AST 
regarding its average useful life of assets. In the course of this 
examination, however, the Department has noted several features of 
AST's financial records that are incompatible with the use of company-
specific AUL. For instance, the financial statements indicate that the 
depreciation schedules for at least some of AST's assets may not 
reflect the actual estimated useful life of those assets. Moreover, 
information contained in AST's and its predecessors' financial 
statements and questionnaire responses suggests that the gross value of 
AST's non-renewable physical assets has been written down during the 
period upon which AST's AUL calculation is based.
    Therefore, for the purposes of this preliminary determination, we 
are using an AUL of 15 years, as derived from industry-specific data 
from the U.S. Internal Revenue Service. We will, however, seek 
additional information regarding the useful life of AST's assets at 
verification, and will reconsider this methodology for the final 
determination.

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. See GIA at 
37244. Our review of the record has not led us to change our finding in 
Final Affirmative Countervailing Duty Determination: Grain-Oriented 
Electrical Steel from Italy, 59 FR 18357 (April 18, 1994), (Electrical 
Steel from Italy), in which we found AST's predecessors unequityworthy 
from 1984 through 1988, and from 1991 through 1992.
    In measuring the benefit from a government equity infusion into an 
unequityworthy company, the Department compares the price paid by the 
government for the equity to a market benchmark, if such a benchmark 
exists. In this case, a market benchmark does not exist so we used the 
methodology described in the GIA at 37239. See, also, Wire Rod from 
Trinidad and Tobago, 62 FR 55004. Following this methodology, equity 
infusions made on terms inconsistent with the usual practice of a 
private investor are treated as grants. Use of this methodology 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; this determination is based on the information available in that 
year.

Creditworthiness

    When the Department examines whether a company is creditworthy, it 
is essentially attempting to determine if the company in question could 
obtain commercial financing at commonly available interest rates. See, 
e.g., Final

[[Page 47249]]

Affirmative Countervailing Duty Determinations: Certain Steel Products 
from France, 58 FR 37304 (July 9, 1993) (Certain Steel from France); 
Final Affirmative Countervailing Duty Determination: Steel Wire Rod 
from Venezuela, 62 FR 55014 (Oct. 21, 1997).
    Terni, TAS and ILVA were found to be uncreditworthy from 1983 
through 1993 in Electrical Steel from Italy at 18358 and Wire Rod from 
Italy at 40477. No new information has been presented in this 
investigation that would lead us to reconsider these findings. 
Therefore, consistent with our past practice, we continue to find 
Terni, TAS and ILVA uncreditworthy from 1985 through 1993. See, e.g., 
Final Affirmative Countervailing Duty Determinations: Certain Steel 
Products from Brazil, 58 FR 37295, 37297 (July 9, 1993).

I. Programs Preliminarily Determined To Be Countervailable

Programs of the Government of Italy

A. Equity Infusions to Terni and ILVA
    The GOI, through IRI, provided new equity capital to Terni or ILVA 
in every year from 1984 through 1992, except in 1989 and 1990. We 
preliminarily determine that these equity infusions constitute 
countervailable subsidies within the meaning of section 771(5) of the 
Act. These equity infusions provide a financial contribution, as 
described in section 771(5)(D)(i) of the Act, and these investments 
were not consistent with the usual investment practices of private 
investors (see the Equityworthiness section above). Because these 
equity infusions were limited to Finsider and its operating companies 
and ILVA, we preliminarily determine that they are specific within the 
meaning of section 771(5A)(D) of the Act.
    AST did not report, in its response to our questionnaires, the 1988 
equity infusion provided to ILVA. We have public information from 
Electrical Steel from Italy on the existence and amount of this 
infusion and are including it in our calculations for the preliminary 
determination.
    We have treated these equity infusions as non-recurring grants 
given in the year the infusion was received because each required a 
separate authorization. Because Terni and ILVA were uncreditworthy in 
the years of receipt, we used discount rates that include a risk 
premium to allocate the benefits over time. Additionally, we followed 
the methodology described in the Change in Ownership section above to 
determine the amount of each equity infusion appropriately allocated to 
AST after its privatization. We divided this amount by AST's total 
sales during the POI. Accordingly, we preliminarily determine the 
countervailable subsidy to be 5.59 percent ad valorem for AST.
B. Benefits From the 1988-90 Restructuring (called Debt Forgiveness: 
Finsider-to-ILVA Restructuring in Initiation Notice)
    As discussed above in the Corporate History section of this notice, 
the GOI liquidated Finsider and its main operating companies in 1988 
and assembled the group's most productive assets into a new operating 
company, ILVA. In 1990, additional assets and liabilities of TAS, 
Italsider and Finsider went to ILVA.
    Not all of TAS' liabilities were transferred to ILVA; rather, many 
remained with TAS and had to be repaid, assumed or forgiven. In 1989, 
Finsider forgave 99,886 million lire of debt owed to it by TAS. Even 
with this debt forgiveness, a substantial amount of liabilities left 
over from the 1990 transfer of assets and liabilities to ILVA remained 
with TAS. In addition, losses associated with the transfer of assets to 
ILVA were left behind in TAS. These losses occurred because the value 
of the transferred assets had to be written down. As TAS gave up assets 
whose book value was higher than their appraised value, it was forced 
to absorb the losses. These losses were generated during two transfers 
as reflected in: (1) an extraordinary loss in TAS' 1988 Annual Report 
and (2) a reserve against anticipated losses posted in 1989 with 
respect to the 1990 transfer.
    Consistent with our treatment of the 1988-90 restructuring in 
Electrical Steel from Italy at 18359, we preliminarily determine that 
the debt and loss coverage provided to ILVA constitutes a 
countervailable subsidy within the meaning of section 771(5) of the 
Act. The debt and loss coverage provide a financial contribution as 
described in section 771(5)(D)(i) of the Act. Because this debt and 
loss coverage was limited to TAS, AST's predecessor, we preliminarily 
determine that it is specific within the meaning of section 771(5A)(D) 
of the Act.
    In calculating the benefit from this program, we followed our 
methodology in Electrical Steel from Italy except for a correction of a 
calculation error which had the effect of double-counting the write-
down from the first transfer of assets in 1988 by including it in the 
calculations of losses generated upon the second transfer of assets in 
1990. We have treated Finsider's 1989 forgiveness of TAS' debt and the 
loss resulting from the 1989 write-down as grants received in 1989. The 
second asset write down and the debt outstanding after the 1990 
transfer were treated as grants received in 1990. We find these 
benefits to be non-recurring since AST did not receive them on an on-
going basis. Because ILVA was uncreditworthy in these years, we used 
discount rates that include a risk premium to allocate the benefits 
over time. In addition, we find the debt and loss coverage to be untied 
subsidies which benefit all of ILVA. Finally, we followed the 
methodology described in the Change in Ownership section above to 
determine the amount of each benefit appropriately allocated to AST 
after its privatization. We divided this amount by AST's total sales 
during the POI. Accordingly, we preliminarily determine the 
countervailable subsidy to be 3.61 percent ad valorem for AST.
C. Debt Forgiveness: ILVA-to-AST (included are the following programs 
from the Initiation Notice: Working Capital Grants to ILVA, 1994 Debt 
Payment Assistance by IRI, and ILVA Restructuring and Liquidation 
Grant)
    As of December 31, 1993, the majority of ILVA's manufacturing 
activities had been separately incorporated into either AST or ILP, 
ILVA Residua was primarily a shell company with liabilities far 
exceeding assets. In contrast, AST and ILP, now ready for 
privatization, had operating assets and relatively modest debt loads.
    The liabilities remaining with ILVA Residua after the spin-off of 
AST and ILP had to be repaid, assumed, or forgiven. AST has stated that 
IRI, in accordance with Italian Civil Code, bears responsibility for 
all liabilities remaining in ILVA Residua. Furthermore, information 
submitted by AST indicates that the EC has approved IRI's plan to cover 
ILVA Residua's remaining liabilities when its final liquidation occurs.
    Although this debt has yet to be eliminated by any specific act of 
the GOI or its holding company IRI, we preliminarily determine that AST 
(and consequently the subject merchandise) received a countervailable 
subsidy in 1993 when the bulk of ILVA's debt was placed in ILVA 
Residua, rather than being placed with AST and ILP.
    The placing of this debt with ILVA Residua was equivalent to debt 
forgiveness for AST. The debt forgiveness provides a financial 
contribution, as described in section 771(5)(D)(i) of the Act because, 
in relieving AST of a proportional share of ILVA's liabilities, the GOI 
eliminated an obligation that AST otherwise would bear. Because the 
debt forgiveness was received only by AST and its sister company, ILP, 
we preliminarily

[[Page 47250]]

determine that it is specific under section 771(5A)(D) of the Act.
    As noted above, certain operating assets and non-operating assets 
(e.g., cash, bank deposits) remained in ILVA Residua. Presumedly, these 
assets have been or will be used to fund repayment of ILVA Residua's 
liabilities. In order to account for the fact that certain assets that 
could be liquidated at full value, namely cash and bank deposits, were 
left behind in ILVA Residua, we have subtracted this amount from the 
liabilities outstanding after the 1993 restructuring. For the final 
determination, we intend to examine further the liquidation of ILVA 
Residua's assets as well as any liquidation costs not represented on 
ILVA Residua's 1993 financial statements. Additionally, we have 
subtracted the amount of debt (i.e., 253 billion lire) that was tied to 
Cogne Acciai Speciali (CAS), an ILVA subsidiary privatized in 1993, 
which was left behind in ILVA. See Wire Rod from Italy at 40478. We 
have attributed ILVA Residua's remaining liabilities to AST based on 
the proportion of assets assigned to AST to the total assets assigned 
to AST and ILP and considered this amount as debt forgiveness.
    We treated the debt forgiveness to AST as a non-recurring grant 
because it was a one-time, extraordinary event. The discount rate we 
used in our grant formula included a risk premium based on our 
determination that ILVA was uncreditworthy in 1993. (For purposes of 
the final determination we will examine the issue of whether it is more 
appropriate to analyze the creditworthiness of AST rather than ILVA in 
1993.) We followed the methodology described in the Change in Ownership 
section above to determine the amount appropriately allocated to AST 
after its privatization. We divided this amount by AST's total sales 
during the POI. Accordingly, we determine the estimated net subsidy to 
be 4.19 percent ad valorem for AST.
D. 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 European Coal and Steel 
Community (ECSC) or the Council of Europe Resettlement Fund (CER) could 
apply to the Ministry of the Treasury (MOT) to obtain an exchange rate 
guarantee. The MOT, through the Ufficio Italiano di Cambi (UIC), 
calculated loan payments based on the lira-foreign currency exchange 
rate in effect at the time the loan was approved. The program 
established a floor and ceiling for exchange rate fluctuations, 
limiting the maximum fluctuation a borrower would face to 2 percent. If 
the lira depreciated against the foreign currency, AST was still able 
to purchase foreign currency at the established ceiling rate, and the 
UIC would absorb a loss in the amount of the difference between the 
ceiling rate and the actual rate. If the lira appreciated against the 
foreign currency, the UIC would realize a gain in the amount of the 
difference between the floor rate and the actual rate.
    This program was terminated effective July 10, 1992 by Decree Law 
333/92. However, the exchange rate guarantees continue on any loans 
outstanding after that date. AST received benefits from this program on 
interest and principal payments for two ECSC loans outstanding during 
the POI.
    We preliminarily determine that this program constitutes a 
countervailable subsidy within the meaning of section 771(5) of the 
Act. This program provides a financial contribution, as described in 
section 771(5)(D)(i) of the Act, to the extent that the lira 
depreciates against the foreign currency beyond the 2 percent band. 
When this occurs, the borrower receives a benefit in the amount of the 
difference between the 2 percent floor and the actual exchange rate. 
The GOI did not provide information regarding the nature of the 
enterprises who have used this program as requested. However, we have 
previously found the steel industry to be a dominant user of the 
exchange rate guarantees provided under Law 796/76 and, on this basis, 
preliminarily determine that the program is specific under section 
771(5A)(D) of the Act. See Final Affirmative Countervailing Duty 
Determination: Small Diameter Circular Seamless Carbon and Alloy Steel 
Standard, Line and Pressure Pipe From Italy, 60 FR 31996 (June 19, 
1995). No new information or evidence of changed circumstances has been 
submitted in this proceeding to warrant reconsideration of this 
finding.
    Once a loan is approved for exchange rate guarantees, access to 
foreign exchange at the established rate is automatic and occurs at 
regular intervals throughout the life of the loan. Therefore, we have 
treated benefits under this program as recurring grants. The benefit 
was calculated as the difference between the total payment due (i.e., 
the sum of interest, principal, and any guarantee fees paid by AST) in 
foreign currency converted at the current exchange rate minus the total 
payment due in foreign currency at the established (ceiling) rate. We 
divided this amount by AST's total sales during the POI. Accordingly, 
we determine the countervailable subsidy to AST for this program to be 
0.86 percent ad valorem.
E. Law 675/77
    Law 675/77 was designed to provide GOI assistance in the 
restructuring and reconversion of Italian industries. There are six 
types of assistance available under this law: (1) Grants to pay 
interest on bank loans; (2) mortgage loans provided by the Ministry of 
Industry (MOI) at subsidized interest rates; (3) grants to pay interest 
on loans financed by IRI bond issues; (4) capital grants for the South; 
(5) VAT reductions on capital good purchases for companies in the 
South; and (6) personnel retraining grants. During the POI, AST 
received assistance under grants to pay interest on loans financed by 
IRI bond issues.
    Under Law 675/77, IRI issued bonds to finance restructuring 
measures of companies within the IRI group. The proceeds from the sale 
of the bonds were then re-lent to IRI companies. During the POI, AST 
had two outstanding loans financed by IRI bond issues for which the 
effective interest rate was reduced by interest contributions made by 
the GOI. In addition to interest contributions on these variable rate 
long-term loans, the GOI also made other financial contributions 
relating to ``expenses'' associated with the loans.
    We preliminarily determine that these loans constitute a 
countervailable subsidy within the meaning of section 771(5) of the 
Act. These loans provide a financial contribution, consistent with 
section 771(5)(D)(i) of the Act.
    With regard to specificity, a number of different industrial 
sectors have received benefits under Law 675/77. However, in Electrical 
Steel from Italy, the Department determined that assistance under this 
law was specific on the basis of dominant use. This determination was 
based on the fact that the steel industry received 34 percent of the 
benefits. See Electrical Steel from Italy at 18361. In the instant 
proceeding, the GOI submitted additional information regarding the 
distribution of benefits under this program. While it is unclear 
whether this information reflects the distribution of benefits at the 
time the subsidies in question were received, the new information is 
nevertheless consistent with the previous finding of specificity.
    To measure the benefit from these loans, we compared the benchmark 
interest rate to the amounts paid by AST on these loans during the POI. 
We divided the resulting difference by AST's total sales during the 
POI.

[[Page 47251]]

Accordingly, we determine the estimated net subsidy from this program 
to be 0.10 percent ad valorem.
F. Pre-Privatization Employment Benefits (Law 451/94)
    Law 451/94 authorized early retirement packages for Italian steel 
workers from 1994-1996. The program, as described by the GOI, was 
designed to comply with the EC's reorganization of the iron and steel 
industry, specifically in regards to reducing productive capacity. The 
law entitled men of at least 50 years of age and women of 47 years of 
age with at least 15 years of pension contributions to retire early. 
AST's employees made use of this program in each year from 1994 through 
1996.
    In Wire Rod from Italy, we determined that large Italian companies 
such as AST cannot simply lay off workers, but instead must use one of 
the GOI's special early retirement programs. Hence we reviewed the 
early retirement programs that would be widely used by Italian 
companies in order to compare those programs to the program established 
under Law 451. In Wire Rod from Italy, we determined that the closest 
program to that of Law 451 is the Cassa Integrazione Guadagni (CIG) 
program. Like Law 451, CIG is available to workers whose companies are 
restructuring, reorganizing, and/or downsizing.
    Unlike Law 451, the CIG program was not developed for particular 
Italian industries and is used by a wide variety of them. Therefore, 
CIG serves as a benchmark to determine what costs AST would have 
incurred in laying off employees had it not been able to take advantage 
of Law 451. Under CIG, a company must pay a small percentage of the 
employees' salaries and continue to set aside the mandatory severance 
contributions under Article 2120 of the Italian Civil Code for 3 years. 
However, under Law 451, the employee/company relationship terminates 
immediately, and the company does not have to continue to set aside 
these benefits. Consequently, Law 451 relieves steel companies of costs 
that otherwise would incur if they participated in more widely 
available early retirement programs.
    We preliminarily determine that the early retirement benefits 
provided under Law 451/94 are a countervailable subsidy under section 
771(5) of the Act. We find that this program provides a financial 
contribution, as described in section 771(5)(D)(i) of the Act, because 
Law 451 relieves the company of costs it would have normally incurred. 
Because Law 451 was developed for and exclusively used by the steel 
industry, we preliminarily determine that Law 451 is specific within 
the meaning of section 771(5A)(D) of the Act.
    Consistent with the Department's practice, we have treated benefits 
to AST under Law 451 as recurring grants expensed in the year of 
receipt. See GIA at 37226 and Wire Rod from Italy at 40480. To 
calculate the benefit received by AST, we found the difference between 
the costs AST would have incurred during the POI had it used the CIG 
program and the costs it did incur under Law 451. We divided this 
benefit by AST's total sales during the POI. Accordingly, we determine 
the countervailable subsidy for this program to be 0.23 percent ad 
valorem for AST.

Programs of the European Union

G. 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 EU 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 European Union (EU), which are then 
refinanced at slightly higher interest rates than those at which the EU 
obtained them. AST had two long-term, fixed-rate loans outstanding 
during the POI under this program.
    We preliminarily determine that these loans constitute a 
countervailable subsidy within the meaning of section 771(5) of the 
Act. This program provides a financial contribution, as described in 
section 771(5)(D)(i) of the Act. The Department has found Article 54 
loans to be specific in several proceedings, including Electrical Steel 
from Italy at 18362 and Certain Steel from Italy at 37335 because loans 
under this program are provided only to iron and steel companies. The 
EU has also indicated on the record of this investigation that Article 
54 ECSC loans are for steel undertakings. Thus, no new information or 
evidence of changed circumstances has been submitted in this proceeding 
to warrant reconsideration of our previous finding that this program is 
specific.
    AST had two long-term, fixed-rate loans outstanding during the POI, 
each one denominated in a foreign currency. Consistent with Electrical 
Steel from Italy at 18362, we have used the lira-denominated interest 
rate discussed in the Subsidies Valuation Information section of this 
notice as our benchmark interest rate. The interest rate charged on one 
of AST's two ECSC loans was lowered part way through the life of the 
loan. Therefore, for the purpose of calculating the benefit, we have 
treated this loan as if it were contracted on the date of this rate 
adjustment. We used the outstanding principal as of that date as the 
new principal amount, to which the new, lower interest rate applied. As 
our interest rate benchmark, we used the long-term, lira-based rate in 
effect on the date of the downward rate adjustment.
    To calculate the benefit under this program, 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 
followed the methodology described in the Change in Ownership section 
above to determine the amount appropriately allocated to AST after its 
privatization. We divided this benefit by AST's total sales during the 
POI. Accordingly, we determine the countervailable subsidy to AST for 
these to loans together to be 0.13 percent ad valorem.
H. European Social Fund
    The European Social Fund (ESF), one of the Structural Funds 
operated by the EU, was established to improve workers' opportunities 
through training and to raise their standards of living throughout the 
community by increasing their employability. Like other EU structural 
funds, there are five different Objectives (sub-programs) identified 
under ESF: Objective 1 covers projects located in underdeveloped 
regions, Objective 2 addresses areas in industrial decline, Objective 3 
relates to the employment of persons under 25, Objective 4 funds 
training for employees in companies undergoing restructuring, and 
Objective 5 pertains to agricultural areas.
    During the POI, AST received ESF assistance under Objectives 2 and 
4. The Objective 2 funding was to retrain production, mechanical, 
electrical maintenance, and technical workers. The Objective 4 funding 
was to train AST's workers to increase their productivity.
    The Department considers training programs to provide a 
countervailable benefit to a company when the company is relieved of an 
obligation it would have otherwise incurred. See Final Affirmative 
Countervailing Duty Determination: Certain Pasta (``Pasta'') From 
Italy, 61 FR 30287, 30294 (June 14, 1996) (Pasta From Italy). Since 
companies normally incur the costs of training to enhance the job-
related skills of their own employees, and we have no information on 
the record to indicate that this training was not for this

[[Page 47252]]

purpose, we preliminarily determine that ESF funding under both 
Objectives relieves AST of an obligation it would have otherwise 
incurred.
    Therefore, we preliminarily determine that the ESF grants received 
by AST are countervailable within the meaning of section 771(5) of the 
Act. The ESF grants are a financial contribution as described in 
section 771(5)(D)(i) of the Act which provide a benefit to the 
recipient in the amount of the grant.
    Consistent with prior cases, we have examined the specificity of 
the funding under each Objective separately. See Wire Rod from Italy at 
40487. In Pasta From Italy at 30291, the Department determined that 
Objective 2 funds provided by the EU and the GOI were regionally 
specific because they were limited to areas within Italy which are in 
industrial decline. No new information or evidence of changed 
circumstances has been submitted in this proceeding to warrant 
reconsideration of this finding. In this case, the Objective 2 grant 
received by AST was funded by the EU, the GOI, and the regional 
government of Umbria acting through the provincial government of Terni. 
Because we have not been provided with information from the regional 
government as to the distribution of grants it has provided under 
Objective 2, we are assuming for purposes of this preliminary 
determination, as adverse facts available under section 776(b) of the 
Act, that the funds provided by the provincial government of Terni are 
also specific.
    In the case of Objective 4 funding, the Department has determined 
in past cases that the EU portion is de jure specific because its 
availability is limited on a regional basis within the EU. The GOI 
funding was also determined to be de jure specific because eligibility 
is limited to the center and north of Italy (non-Objective 1 regions). 
See Wire Rod from Italy at 40487. No new information or evidence of 
changed circumstances has been submitted in this proceeding to warrant 
reconsideration of this finding.
    The Department normally considers the benefits from worker training 
programs to be recurring. See GIA at 37255. However, consistent with 
the Department's past practice and our understanding that these grants 
relate to specific, individual projects which require separate 
government approval, we are treating these benefits as non-recurring 
grants. See Wire Rod from Italy at 40488 and Pasta from Italy at 30295. 
Because the benefits received under both Objectives 2 and 4 are less 
than 0.5 percent of AST's sales during the relevant years, we have 
expensed these grants in the year of receipt. Two of these grants were 
received during the POI. For these grants, we divided this benefit by 
AST's total sales during the POI. Accordingly, we determine the 
countervailable subsidy to be 0.01 percent ad valorem for ESF Objective 
2 and 0.03 percent ad valorem for ESF Objective 4.

II. Programs Preliminarily Determined To Be Not Used

    Based on the information provided in the responses, we determine 
that the company under investigation did not apply for or receive 
benefits under the following programs during the POI:

A. Benefits from the 1982 Transfer of Lovere and Trieste to Terni 
(called Benefits Associated With the 1988-90 Restructuring in the 
Initiation Notice)
B. Decree Law 120/89: Recovery Plan for the Steel Industry
C. Law 181/89: Worker Adjustment and Redevelopment Assistance
D. Law 345/92: Benefits for Early Retirement
E. Law 706/85: Grants for Capacity Reduction
F. Law 488/92: Aid to Depressed Areas
G. Law 46/82: Assistance for Capacity Reduction
H. Loan to KAI for Purchase of AST
I. Debt Forgiveness: 1981 Restructuring Plan
J. Law 675/77: Mortgage Loans, Personnel Retraining Aid and VAT 
Reductions
K. Law 193/84: Interest Payments, Closure Assistance and Early 
Retirement Benefits
L. Law 394/81: Export Marketing Grants and Loans
M. Law 341/95 and Circolare 50175/95
N. ECSC Article 56 Conversion Loans, Interest Rebates and Redeployment 
Aid
O. European Regional Development Fund
P. Resider II Program and Successors
Q. Law 227/77: Export Financing and Remission of Taxes

III. Programs For Which We Need More Information

AST Participation in the THERMIE Program

    The EU provided funds to AST for the development of a demonstration 
project (pilot plant) through an EU program promoting research and 
development in the field of non-nuclear energy (THERMIE). The objective 
of the THERMIE program is to design and demonstrate more efficient, 
cleaner, and safer technologies for energy production and use. The 
THERMIE program is part of a larger program categorized under the EU's 
Fourth Framework Programme which covers activities in research and 
technological development from 1994-1998.
    The objective of AST's demonstration plant is to reduce energy 
consumption in the production of stainless steel by eliminating some of 
the traditional production steps through the adoption of ``strip 
casting'' technology. The EU has requested noncountervailable (green 
light) treatment for this project as a research and development subsidy 
under section 771(5B)(B)(ii)(II) of the Act.
    In evaluating this request, the statute requires the Department to 
make a finding that all five specifically enumerated conditions of 
section 771(5B)(B)(i) of the Act have been met before according green 
light status to a research subsidy. One of these criteria specifies 
that the instruments, equipment, land, or buildings must be used 
exclusively and permanently (except when disposed of on a commercial 
basis) for the research activity.
    Information contained on the record of this proceeding indicates 
that the Terni project can be converted to commercial use. Furthermore, 
there is no provision in the program mandating that the demonstration 
plant be ``disposed of on a commercial basis'' if it is to be used for 
commercial production. Therefore, we preliminarily determine that the 
EU's funding of the Terni project does not meet all of the criteria for 
a noncountervailable research subsidy as mandated by the Act and is not 
entitled to green light treatment.
    However, it is not clear from the current record if this program 
benefits the production of the subject merchandise. The Terni project 
description indicates that the funds will cover the design, 
construction, and operation of a pilot plant which would demonstrate 
the commercial viability of strip casting technology. We do not have 
sufficient information at this time to determine if this technology and 
the demonstration plant could benefit subject merchandise. After we 
collect additional information and conduct verification, we will 
prepare an analysis memorandum addressing the countervailability of 
this program, and provide all parties an opportunity to comment on our 
analysis.

Verification

    In accordance with section 782(i)(1) of the Act, we will verify the 
information submitted by the respondent prior to making our final 
determination.

[[Page 47253]]

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we have 
calculated an individual subsidy rate for AST. Since AST is the only 
respondent in this investigation, we have also used its rate as the 
all-others rate. In accordance with section 703(d) of the Act, we are 
directing the U.S. Customs Service to suspend liquidation of all 
entries of stainless steel plate in coils from Italy.

Company Ad Valorem Rate

AST-14.75 percent
All Others-14.75 percent

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 non-privileged and non-proprietary information related 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 for 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 57 days from the date of publication of this preliminary 
determination, at the U.S. Department of Commerce, 14th Street and 
Constitution Avenue N.W., Washington, DC 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 
1870, 14th Street and Constitution Avenue NW., 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; (3) the 
reason for attending; and (4) a list of the issues to be discussed. 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 publication of 
this notice. 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 publication of this notice. 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 sections 703(f) and 
777(i) of the Act.

    Dated; August 28, 1998.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-23912 Filed 9-3-98; 8:45 am]
BILLING CODE 3510-DS-P