[Federal Register Volume 63, Number 227 (Wednesday, November 25, 1998)]
[Rules and Regulations]
[Pages 65348-65418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30565]



[[Page 65347]]

_______________________________________________________________________

Part III





Department of Commerce





_______________________________________________________________________



International Trade Administration



_______________________________________________________________________



19 CFR Part 351



Countervailing Duties; Final Rule

  Federal Register / Vol. 63, No. 227 / Wednesday, November 25, 1998 / 
Rules and Regulations  

[[Page 65348]]



DEPARTMENT OF COMMERCE

International Trade Administration

19 CFR Part 351

[Docket No. 950306068-8205-05]
RIN 0625-AA45


Countervailing Duties

AGENCY: International Trade Administration, Department of Commerce.

ACTION: Final rule.

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SUMMARY: The Department of Commerce (``the Department'') hereby issues 
final countervailing duty regulations to conform to the Uruguay Round 
Agreements Act, which implemented the results of the Uruguay Round 
multilateral trade negotiations. The Department has sought to issue 
regulations that: Where appropriate and feasible, translate the 
principles of the implementing legislation into specific and 
predictable rules, thereby facilitating the administration of these 
laws and providing greater predictability for private parties affected 
by these laws; simplify and streamline the Department's administration 
of countervailing duty proceedings in a manner consistent with the 
purpose of the statute and the President's regulatory principles; and 
codify certain administrative practices determined to be appropriate 
under the new statute and under the President's Regulatory Reform 
Initiative.

DATES: The effective date of this final rule is December 28, 1998, 
except that Sec. 351.301(d) is effective on November 25, 1998. See 
Sec. 351.702 for applicability dates.

FOR FURTHER INFORMATION CONTACT: Jennifer A. Yeske at (202) 482-1032 or 
Jeffrey May at (202) 482-4412.

SUPPLEMENTARY INFORMATION:

Background

    The publication of this notice of final rules, which deals with 
countervailing duty (``CVD'') methodology, completes a significant 
portion of the process of developing regulations under the Uruguay 
Round Agreements Act (``URAA''). The process began when the Department 
took the unusual step of requesting advance public comments in order to 
ensure that, at the earliest possible stage, we could consider and take 
into account the views of the private sector entities that are affected 
by the antidumping (``AD'') and CVD laws. On February 26, 1997, the 
Department published proposed rules dealing with CVD methodology 
(``1997 Proposed Regulations''). The Department received over 200 
written public comments regarding the 1997 Proposed Regulations. On 
October 17, 1997, the Department held a public hearing, and thereafter, 
received over 50 additional post-hearing written public comments on the 
1997 Proposed Regulations.1
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    \1\ The prior notices published by the Department as part of its 
URAA rulemaking activity are: (1) Advance Notice of Proposed 
Rulemaking and Request for Public Comments (Antidumping Duties; 
Countervailing Duties; Article 1904 of the North American Free Trade 
Agreement), 60 FR 80 (January 3, 1995); (2) Advance Notice of 
Proposed Rulemaking; Extension of Comment Period (Antidumping 
Duties; Countervailing Duties; Article 1904 of the North American 
Free Trade Agreement), 60 FR 9802 (February 22, 1995); (3) Interim 
Regulations; Request for Comments (Antidumping and Countervailing 
Duties), 60 FR 25130 (May 11, 1995); (4) Proposed Rule; Request for 
Comments (Antidumping and Countervailing Duty Proceedings; 
Administrative Protective Order Procedures; Procedures for Imposing 
Sanctions for Violation of a Protective Order), 61 FR 4826 (February 
8, 1996); (5) Notice of Proposed Rulemaking and Request for Public 
Comments (Antidumping Duties; Countervailing Duties), 61 FR 7308 
(February 27, 1996); (6) Extension of Deadline to File Public 
Comments on Proposed Antidumping and Countervailing Duty Regulations 
and Announcement of Public Hearing (Antidumping Duties; 
Countervailing Duties), 61 FR 18122 (April 24, 1996); (7) 
Announcement of Opportunity to File Public Comments on the Public 
Hearing of Proposed Antidumping and Countervailing Duty Regulations 
(Antidumping Duties; Countervailing Duties), 61 FR 28821 (June 6, 
1996); (8) Notice of Proposed Rulemaking and Request for Public 
Comment (Countervailing Duties), 62 FR 8818 (February 26, 1997); (9) 
Final Rules (Antidumping Duties; Countervailing Duties), 62 FR 27295 
(May 19, 1997); (10) Extension of Deadline to File Public Comments 
on Proposed Countervailing Duty Regulations, (Countervailing 
Duties), 62 FR 19719 (April 23, 1997); (11) Extension of Deadline to 
File Public Comments on Proposed Countervailing Duty Regulations, 
(Countervailing Duties), 62 FR 25874 (May 12, 1997); (12) Notice of 
Public Hearing on Proposed Countervailing Duty Regulations and 
Announcement of Opportunity to File Post-Hearing Comments, 
(Countervailing Duties), 62 FR 38948 (July 21, 1997); (13) Notice of 
Public Hearing on Proposed Countervailing Duty Regulations and 
Announcement of Opportunity to File Post-Hearing Comments; 
Correction, (Countervailing Duties), 62 FR 41322 (August 1, 1997); 
(14) Notice of Postponement of Public Hearing on Proposed 
Countervailing Duty Regulations and of Opportunity to File Post-
Hearing Comments, (Countervailing Duties), 62 FR 46451 (September 3, 
1997); (15) Interim Final Rules; Request for Comments (Procedures 
for Conducting Five-Year (``Sunset'') Reviews of Antidumping and 
Countervailing Duty Orders), 63 FR 13516 (March 20, 1998); and (16) 
Final Rule; Administrative Protective Order Procedures; Procedures 
for Imposing Sanctions for Violation of a Protective Order, 
(Antidumping and Countervailing Duty Proceedings), 63 FR 24391 (May 
4, 1998).
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    In drafting these final rules, the Department has carefully 
reviewed and considered each of the comments it received. While we have 
not always adopted suggestions made by commenters, we found the 
comments to be very useful in helping us to work our way through the 
many legal and policy issues addressed in the regulation. Therefore, we 
are extremely grateful to those who took the time and trouble to 
express their views regarding how the Department should administer the 
CVD laws in the future.
    In addition, in these final rules, the Department has continued to 
be guided by the objectives described in the 1997 Proposed Regulations. 
Specifically, these objectives are: (1) Conformity with the statutory 
amendments made by the URAA; (2) the elaboration through regulation of 
certain statements contained in the Statement of Administrative Action 
(``SAA''); 2 and (3) consistency with President Clinton's 
Regulatory Reform Initiative and his directive to identify and 
eliminate obsolete and burdensome regulations.
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    \2\ See Statement of Administrative Action accompanying H.R. 
5110, H.R. Doc. No. 316, Vol. 1, 103d Cong., 2d Sess. 911-955 
(1994).
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    In the case of CVD methodology, the Department previously issued 
proposed regulations in 1989 (``1989 Proposed 
Regulations'').3 Because the Department never issued final 
rules, the 1989 Proposed Regulations were not binding on the Department 
or private parties. Nevertheless, to some extent both the Department 
and private parties relied on the 1989 Proposed Regulations as a 
restatement of the Department's CVD methodology as it existed at the 
time. Thus, notwithstanding statutory amendments made by the URAA and 
subsequent developments in the Department's administrative practice, 
the 1989 Proposed Regulations still serve as a point of departure for 
any new regulations dealing with CVD methodology.
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    \3\ See Notice of Proposed Rulemaking and Request for Public 
Comments (Countervailing Duties), 54 FR 23366 (May 31, 1989).
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    In an earlier rulemaking (see item 9 in note 1), we consolidated 
the AD and CVD regulations into a single part 351. For the most part, 
the regulations contained in this notice constitute subpart E of part 
351.

Explanation of the Final Rules

    In drafting these Final Regulations, the Department carefully 
considered each of the comments received. In addition, we conducted our 
own independent review of those provisions of the 1997 Proposed 
Regulations that were not the subject of public comments. The following 
sections contain a summary of the comments we received and the 
Department's responses to those comments. In addition, these sections 
contain an explanation of changes the Department has made to the 1997 
Proposed Regulations either in response to

[[Page 65349]]

comments or on its own initiative. Finally, these sections contain a 
restatement of principles that remain unchanged from the 1997 Proposed 
Regulations and that were not the subject of any public comments.
    The Department is also hereby issuing interim final rules to set 
forth certain procedures for establishing the non-countervailable 
status of alleged subsidies or subsidy programs pursuant to section 
771(5B) of the Tariff Act of 1930, as amended (``the Act''). Pursuant 
to authority at 5 U.S.C. 553(b)(A), the Assistant Secretary for Import 
Administration waives the requirement to provide prior notice and an 
opportunity for public comment because this action is a rule of agency 
procedure. This interim final rule is not subject to the 30-day delay 
in its effective date under 5 U.S.C. 553(d) because it is not a 
substantive rule. The analytical requirements of the Regulatory 
Flexibility Act (5 U.S.C. 601 note) are inapplicable to this rulemaking 
because it is not one for which a Notice of Proposed Rulemaking is 
required under 5 U.S.C. 553 or any other statute.

Section 351.102

    These regulations add several definitions to Sec. 351.102. Many of 
these definitions are identical (or virtually identical) to definitions 
contained in Sec. 355.41 of the 1989 Proposed Regulations, and some are 
based on definitions contained in the Illustrative List of Export 
Subsidies (``Illustrative List'') annexed to the Agreement on Subsidies 
and Countervailing Measures (``SCM Agreement''). We have made some 
changes to the definitions contained in the 1997 Proposed Regulations.
    While we have not changed the definition of consumed in the 
production process, we are clarifying that the definition is not to be 
used as a way to expand significantly the rights of countries to apply 
border adjustments for a broad range of taxes on energy, particularly 
in the developed world. See SAA at 915.
    The definition of firm is based on Sec. 355.41(a) of the 1989 
Proposed Regulations, but an additional clause has been added to 
clarify that the purpose of this term is to serve as a shorthand 
expression for the recipient of an alleged subsidy. While other terms 
could be used, the use of the term ``firm'' in this manner has become 
an accepted part of CVD nomenclature. For clarification, we have added 
``company'' and ``joint venture'' to the entities listed in the 
definition in the 1997 Proposed Regulations.
    Similarly, the term government-provided is used as a shorthand 
adjective to distinguish the act or practice being analyzed as a 
possible countervailable subsidy from the act or practice being used as 
a benchmark. As made clear in the regulation, the use of ``government-
provided'' does not mean that a subsidy must be directly provided by a 
government. This definition is unchanged from our 1997 Proposed 
Regulations.
    As in our 1997 Proposed Regulations, loan is defined to include 
forms of debt financing other than what one normally considers to be a 
``loan,'' such as bonds or overdrafts. Again, this definition is 
intended as a shorthand expression in order to avoid repetitive use of 
more cumbersome phrases, such as ``loans or other debt instruments.''
    In this regard, the Department considered codifying its approach 
with respect to so-called ``hybrid instruments,'' financial instruments 
that do not readily fall into the basic categories of grant, loan, or 
equity. In the 1993 steel determinations (see Certain Steel Products 
from Austria (General Issues Appendix), 58 FR 37062, 37254 (July 9, 
1993) (``GIA'')), the Department developed a hierarchical approach for 
categorizing hybrid instruments, an approach that was sustained in 
Geneva Steel v. United States, 914 F. Supp. 563 (CIT 1996). However, 
notwithstanding this judicial imprimatur, the Department has relatively 
little experience with hybrid instruments. Therefore, although the 
Department has no present intention of deviating from the approach set 
forth in the GIA, the codification of this approach in the form of a 
regulation would be premature at this time.
    Many commenters proposed definitions of the phrase ``entrusts or 
directs'' as it is used in section 771(5)(B)(iii) of the Act, which 
deals with ``indirect subsidies.'' Indirect subsidies generally involve 
situations where a government provides a financial contribution through 
a private body. Under section 771(5)(B)(iii) of the Act, a subsidy 
exists when, inter alia, a government ``makes a payment to a funding 
mechanism to provide a financial contribution, or entrusts or directs a 
private entity to make a financial contribution * * *'' (emphasis 
added). In our 1997 Proposed Regulations, we did not address indirect 
subsidies in detail. Instead, we noted that the SAA directs the 
Department to proceed on a case-by-case basis (see SAA at 925-26), and 
we requested comments on the factors we should consider in making our 
case-by-case determinations.
    One commenter suggested that an indirect subsidy need only be 
linked to a government action or program to satisfy the ``entrusts or 
directs'' standard. This same commenter asked the Department to include 
an illustrative list of situations that would meet the ``entrusts or 
directs'' standard. A second commenter believed that the standard is 
met when a government takes an action that causes a private party to 
confer a benefit. This same commenter asked the Department to clarify 
that the term ``private body'' is not limited to a single entity, but 
also includes a group of entities or persons. A third commenter 
proposed that the ``entrusts or directs'' standard be considered 
satisfied whenever a government takes an action that proximately 
results in a private entity providing a financial contribution. Certain 
commenters also asked the Department to confirm that the standard is no 
narrower than the prior U.S. standard for finding an indirect subsidy.
    The issue of what ``entrusts or directs'' means was debated 
extensively at the Department's hearing on its 1997 Proposed 
Regulations. This debate prompted the submission of additional proposed 
definitions. Two commenters argued that an indirect subsidy occurs 
whenever a government action has the inevitable result of compelling a 
private party to provide a benefit. A second commenter proposed a ``but 
for'' test, i.e., if the government did not act, the subsidy would not 
exist.
    As the extensive comments on this issue indicate, the phrase 
``entrusts or directs'' could encompass a broad range of meanings. As 
such, we do not believe it is appropriate to develop a precise 
definition of the phrase for purposes of these regulations. Rather, we 
believe that we should follow the guidance provided in the SAA to 
examine indirect subsidies on a case-by-case basis. We will, however, 
enforce this provision vigorously.
    We agree with those commenters who urged the Department to confirm 
that the current standard is no narrower than the prior U.S. standard 
for finding an indirect subsidy as described in Certain Steel Products 
from Korea, 58 FR 37338 (July 9, 1993) and Certain Softwood Lumber 
Products from Canada, 57 FR 22570 (May 28, 1992). Also, we believe that 
the phrase ``entrusts or directs'' subsumes many elements of the 
definitions proposed by commenters. With respect to the suggestion that 
we include an illustrative list of situations that would fall under the 
``entrusts or directs'' standard, we do not believe this is necessary. 
The SAA at 926 lists a number of cases where the Department

[[Page 65350]]

has found indirect subsidies in the past, and these cases serve to 
provide examples of situations where we believe the statute would 
permit the Department to reach the same result. Similarly, regarding 
the request that we define the phrase ``private entity'' to include 
groups of entities or persons, the SAA is clear that groups are 
included (see SAA at 926). Therefore, we have not promulgated a 
regulation with this definition.
    Although the indirect subsidies that we have countervailed in the 
past have normally taken the form of a foreign government requiring an 
intermediate party to provide a benefit to the industry producing the 
subject merchandise, often to the detriment of the intermediate party, 
indirect subsidies could also take the form of a foreign government 
causing an intermediate party to provide a benefit to the industry 
producing the subject merchandise in a way that is also in the interest 
of the intermediate party. We believe the phrase ``entrusts or 
directs'' could encompass government actions that provide inducements, 
other than upstream subsidies, to a private party to provide a benefit 
to another party.
    One commenter argued that the Final Regulations should include a 
definition of consultations. Consistent with Article 13 of the SCM 
Agreement, section 702(b)(4)(A)(ii) of the Act requires the Department 
to provide the government of the exporting country named in a petition 
an opportunity for consultations with respect to the petition. This 
commenter suggested that the definition of consultations should include 
a statement of purpose as articulated in the SCM Agreement (i.e., 
clarifying the allegations in the petition and arriving at a mutually 
agreed solution). Furthermore, the commenter argued, in the Final 
Regulations the Department should commit to consult with the foreign 
government both prior to initiating and during the course of the 
investigation. Finally, the commenter proposed that the definition 
contain a requirement that all government-to-government exchanges (oral 
and written) be placed on the record of the proceeding.
    We do not believe that a regulation is required to define 
``consultations.'' We agree that, in accordance with Article 13 of the 
SCM Agreement, the purpose of consultations is to clarify the 
allegations presented in a petition and arrive at a mutually agreed 
solution. Section 351.202(h)(2)(i)(2) of Antidumping Duties; 
Countervailing Duties; Final rule, 62 FR 27295, 27384 (May 19, 1997) 
clearly states that the Department will invite the government of any 
exporting country named in a CVD petition to hold consultations with 
respect to the petition. Further, consistent with Article 13.2 of the 
SCM Agreement, the Department affords foreign governments reasonable 
opportunities to consult throughout the period of investigation. In 
regard to communications, it is the Department's longstanding practice 
that all ex parte communications with Department decisionmakers be 
placed on the record of a proceeding through memoranda to the file.

Section 351.501

    Section 351.501 restates very generally the subject matter of 
subpart E. To be more specific, the arrangement of subpart E is as 
follows. After dealing with the specificity of domestic subsidies in 
Sec. 351.502 and the concept of ``benefit'' in Sec. 351.503, 
Secs. 351.504 through 351.513 deal with the identification and 
measurement of various general types of subsidy practices. Sections 
351.514 through 351.520 focus on export subsidies, incorporating the 
appropriate standards from the Illustrative List of Export Subsidies 
contained in Annex I of the SCM Agreement. Sections 351.521 through 
351.523 deal with import substitution subsidies (currently designated 
as ``Reserved''), green light and green box subsidies, and upstream 
subsidies, respectively. Section 351.524 addresses the allocation of 
benefits to a particular time period. Section 351.525 sets forth rules 
regarding the calculation of an ad valorem subsidy rate and the 
attribution of a subsidy to the appropriate sales value of a product. 
Finally, Secs. 351.526 and 351.527 contain rules regarding program-wide 
changes and transnational subsidies, respectively. The section 
numbering in these Final Regulations reflects minor changes from the 
1997 Proposed Regulations. As discussed below, we have decided to 
codify a final rule on the concept of ``benefit.'' This rule is now 
Sec. 351.503. We have also moved the rules regarding the allocation of 
benefits, which were included in the section on grants in the 1997 
Proposed Regulations to a separate section, Sec. 351.524. Finally, we 
have moved Sec. 351.520 of the 1997 Proposed Regulations to 
Sec. 351.514(b) because general export promotion activities are more 
appropriately addressed as an exception to export subsidies.
    The last sentence of Sec. 351.501 acknowledges that subpart E does 
not address every possible type of subsidy practice. However, the same 
sentence provides that in dealing with alleged subsidies that are not 
expressly covered by these regulations, the Secretary will be guided by 
the underlying principles of the Act and subpart E.
    In this regard, the Act and the SCM Agreement serve to eliminate 
much of the confusion and controversy surrounding the necessary 
elements of a countervailable subsidy. First, under section 771(5)(B) 
of the Act and Article 1.1(a)(1) and (2) of the SCM Agreement, there 
must be a financial contribution that a government provides either 
directly or indirectly, or an income or price support in the sense of 
Article XVI of the General Agreement on Tariffs and Trade 1994 (``GATT 
1994''). Although the precise parameters will have to be determined on 
a case-by-case basis, this element provides a framework for analysis 
that previously was not directly addressed.
    Second, under section 771(5)(B) of the Act and Article 1.1(b) of 
the SCM Agreement, the financial contribution (or income or price 
support) must confer a benefit. Section 351.503 sets out the principles 
we will generally follow in determining whether a benefit has been 
conferred.
    Finally, under section 771(5)(A) of the Act and Article 1.2 of the 
SCM Agreement, a subsidy must be specific in order to be 
countervailable. The ``specificity test'' is addressed in Sec. 351.502, 
but we note here that by clarifying the purpose of the specificity test 
and the manner in which it is to be applied, the URAA, the SAA and the 
SCM Agreement should serve to reduce the controversies and volume of 
litigation concerning this issue.
    In the preamble to our 1997 Proposed Regulations we discussed our 
decision not to include two topics in our proposed changes to subpart 
E: Indirect subsidies (with the exception of upstream subsidies) and 
privatization. The numerous comments regarding our decision not to 
promulgate regulations on these two topics are addressed below.

Indirect Subsidies

    In our 1997 Proposed Regulations, we discussed only briefly the 
topic of indirect subsidies. We received several comments on this 
issue. Comments concerning the adoption of a definition of the phrase 
``entrusts or directs'' have been addressed previously (see 
Sec. 351.102). The remaining comments relating to indirect subsidies 
are addressed here.
    One commenter asked the Department to codify a rule stating that 
indirect subsidies are countervailable. In this commenter's view, this 
would eliminate any uncertainty that could become the cause of 
litigation. Another commenter requested that the Department include a

[[Page 65351]]

broad definition of indirect subsidies in our regulations.
    We have not adopted either suggestion. We believe that section 
771(5)(B)(iii) of the Act clearly states that subsidies provided by 
governments through private parties are covered by the CVD law. 
Additionally, section 771(5)(C) of the Act states that the 
determination of whether a subsidy exists shall be made ``without 
regard to whether the subsidy is provided directly or indirectly * * 
*'' (emphasis added). Therefore, no regulation is needed on this point. 
Regarding the second comment, as discussed previously, the phrase 
``entrusts or directs'' as used in section 771(5)(B)(iii) of the Act 
could encompass a broad range of meanings. As such, we do not believe 
it is appropriate to develop a precise definition of the phrase for 
purposes of these regulations.
    One commenter singled out subsidies involving the provision of 
goods and services for less than adequate remuneration and asked the 
Department to confirm that indirect subsidies can be conferred through 
the provision of goods or services by private parties. This same 
commenter also asked the Department to state in the preamble to the 
Final Regulations that the new statute will not alter the Department's 
practice of finding export restraints to be countervailable. Other 
commenters objected to this position. They argued that: (1) The 
practices constituting financial contributions under the Act are 
payments of cash or cash equivalents, while government regulatory 
measures do not entail any financial contribution; (2) export 
restraints do not direct private parties to make any type of payment; 
they simply limit the parties' ability to export; (3) regulatory 
measures that distort trade are separately covered by other World Trade 
Organization (``WTO'') Agreements (e.g., GATT 1994 Articles I-V, VII-
IX, Agreement on Sanitary and Phytosanitary Measures, Agreement on 
Technical Barriers to Trade, and Agreement on Trade-Related Investment 
Measures); and (4) expanding the definition of subsidy to include 
regulatory measures would extend that term to absurd dimensions far 
beyond the limited scope intended by the SCM Agreement and the Act. 
These same commenters urged the Department to issue a regulation which 
clarifies what they see as a conflict between the clear language in the 
statute (regulatory measures are not financial contributions within the 
meaning of the Act and, hence, cannot confer subsidies) and the 
language in the SAA at 926 (suggesting that regulatory measures can be 
countervailed as indirect subsidies).
    Regarding the issue of whether indirect subsidies can arise through 
the provision of goods and services, we believe this is clearly 
answered by the Act. Section 771(5)(D)(iii) states that financial 
contributions include the provision of goods or services. Hence, if a 
private entity is entrusted or directed to provide a good or service to 
producers of the merchandise under investigation, a financial 
contribution exists. With regard to export restraints, while they may 
be imposed to limit parties' ability to export, they can also, in 
certain circumstances, lead those parties to provide the restrained 
good to domestic purchasers for less than adequate remuneration. This 
was recognized by the Department in Certain Softwood Lumber Products 
from Canada, 57 FR 22570 (May 28, 1992) (``Lumber'') and Leather from 
Argentina, 55 FR 40212 (October 2, 1990) (``Leather''). Further, as 
indicated by the SAA (at 926), and as we confirm in these Final 
Regulations, if the Department were to investigate situations and facts 
similar to those examined in Lumber and Leather in the future, the new 
statute would permit the Department to reach the same result.
    We agree that regulatory measures that distort trade normally may 
be subject to the provisions of other WTO Agreements. We do not 
believe, however, that this negates our ability to address them through 
the application of our CVD law when such measures meet the definition 
of a countervailable subsidy. We disagree that countervailing such 
measures goes beyond the ambit of the SCM Agreement and the Act. As 
discussed above in response to an earlier comment, the SCM Agreement 
clearly permits, and the Act clearly requires, that we countervail 
subsidies provided through private parties. Also, Article VI of GATT 
1994 continues to refer to subsidies provided ``directly or 
indirectly'' by a government.

Change in Ownership

    The SAA and the House and Senate Reports emphasize the importance 
of considering the facts of individual cases to determine whether, and 
to what extent, change-in-ownership transactions eliminate previously 
conferred countervailable subsidies. In the 1997 Proposed Regulations, 
we did not include a provision dealing with change in ownership. 
Rather, we invited comment on a broad array of factors concerning this 
topic and whether we should promulgate a final rule that integrates 
some or all of the factors identified in the preamble.
    The comments we received on this issue largely fell along two 
lines. On the one hand, several commenters argued that the Department 
should promulgate a regulation stating that change-in-ownership 
transactions, even if conducted at arm's-length and at fair market 
value, have no effect on non-recurring subsidies bestowed prior to the 
sale of a firm, and that non-recurring subsidies, in most instances, 
pass through in their entirety to the sold or privatized entity. 
Conversely, other commenters contended that a change-in-ownership 
regulation should establish a rebuttable presumption that, in general, 
the sale or change in ownership of a firm at fair market value 
eliminates the benefit conferred by prior non-recurring subsidies.
    According to the first group of commenters, under section 771(5)(F) 
of the Act, the change in ownership of a firm has no effect on the 
Department's ability to countervail fully subsidies bestowed prior to 
the change in ownership. In fact, in these commenters' view, Congress 
expected the Department to continue countervailing prior subsidies, 
unless something serves to eliminate those subsidies. The sale of a 
firm at fair market value does not serve to eliminate prior subsidies; 
thus, after such a sale, prior subsidies would continue to be 
countervailed until fully amortized. The only instance where partial 
repayment of prior subsidies can exist is where economic resources have 
been returned to the government, i.e., where the investor has paid more 
than fair market value for a productive unit. The Department should 
specify this in its regulations.
    These same commenters argued that recent court decisions support 
the conclusion that subsidies continue to be countervailable after the 
privatization of a firm at fair market value. See, e.g., 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). In light of these 
decisions, one commenter stated that it would be ironic for the 
Department now to conclude under the URAA that subsidies are no longer 
countervailable after the sale of a firm at fair market value. This 
commenter also claimed that such a conclusion would result in anti-
subsidy practices weaker than those of the European Union (``EU''), 
because EU Guidelines on State Aid recognize that the sale of a company 
does not extinguish previously bestowed subsidies. Rather, according to 
this commenter, the EU requires subsidy recipients to repay illegal 
subsidies, including principal and interest, from the time the aid was 
disbursed, without

[[Page 65352]]

regard to whether the recipient is later sold or 
privatized.4
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    \ 4\ In support of this proposition, the commenter cites 
Community Guidelines on State Aid for Rescuing and Restructuring 
Firms in Difficulty, O.J. Eur. Comm. No. C283/2 at 283/4 (September 
19, 1997) (``The assessment of rescue or restructuring aid is not 
affected by changes in the ownership of the business aided. Thus, it 
will not be possible to evade control by transferring the business 
to another legal entity or owner.'')
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    These commenters opposed the Department's attempt to develop a 
``flexible'' approach toward privatization. They expressed concern that 
ascribing any significance to the broad array of factors listed in the 
1997 Proposed Regulations may lead to all or some pre-privatization 
subsidies being extinguished in a fair market privatization, which 
would involve reevaluating the amount, and possibly the existence, of 
prior subsidies based on post-bestowal events and conditions. This 
would violate the statute's prohibition against considering the effects 
of subsidies and the Department's practice of not examining subsequent 
events to determine whether the subject merchandise continues to 
benefit from subsidies. See section 771(5)(C) of the Act and GIA at 
37261. For example, one commenter stated that taking account of current 
market conditions, such as global overcapacity, in determining the 
extent to which pre-privatization subsidies pass through, is tantamount 
to considering effects. Similarly, another commenter rejected the 
suggestion that subsidies that reduce excess capacity are not 
countervailable because this too depends on an impermissible ``use'' 
analysis. Whatever the use of the subsidy, these commenters argued, the 
benefit from the subsidy continues unabated after privatization.
    Finally, this first group of commenters asserted that the 
privatization or sale of a productive unit, even at fair market value, 
does not result in any partial or full repayment of prior subsidies. To 
conclude otherwise would conflict with Congress' mandate that the 
Department's privatization methodology be ``consistent with the 
principles of the countervailing duty statute.'' S. Rep. No. 103-412, 
at 92 (1994). Those principles include prohibitions against (1) 
focusing on subsequent events, (2) analyzing alleged effects of 
subsidies, (3) granting offsets not included in the exclusive statutory 
list, and (4) valuing subsidies based on the cost-to-government 
standard. Some in this first group of commenters asserted that the 
logical reading of Congress' instruction to evaluate change-in-
ownership transactions on a case-by-case basis is to determine whether 
a privatization or sale involving a productive unit elicits some non-
commercial activity, i.e., whether under- or overpayment for the 
productive unit has occurred. In the case of underpayment, the 
Department should find that additional subsidies have been bestowed; in 
the case of overpayment, the Department should find that certain prior 
subsidies have been repaid.
    In contrast to these arguments, the second group of commenters 
asserted that the Department should issue regulations establishing a 
rebuttable presumption that the arm's-length sale of a firm, including 
a government-owned enterprise, at a price that reflects the current 
market value of its assets, in most cases extinguishes any previously 
received subsidies. This group argued that Congress' instruction to 
examine change-in-ownership transactions on a case-by-case basis 
indicates that the URAA contemplates extinguishment of prior subsidies, 
at least in certain circumstances. In these commenters' view, the 
arm's-length sale of a company at full market value is such a 
circumstance, because the market price takes into account prior 
subsidies, and the benefit is, therefore, eliminated. However, if the 
price paid for the firm does not reflect full market value, the 
question of a continuing benefit can reasonably be raised. According to 
several of these commenters, any other approach would be 
counterproductive, because it would discourage potential buyers from 
bidding on subsidized government-owned enterprises about to be 
privatized. One commenter further stressed that restructuring of, and 
foreign investment in, countries such as those in Eastern Europe, may 
be inhibited, which is a concern for U.S. investors and the United 
States' wider economic and political interests.
    One member of this group of commenters found support for the 
proposition that an arm's-length sale at fair market value must 
extinguish prior subsidies with the following statutory analysis. The 
commenter claimed that the URAA requires the Department to determine 
whether and to what extent government financial contributions confer a 
benefit on the production or sale of the investigated merchandise in 
each CVD proceeding. Such a determination is based on the nature of the 
subsidy benefit, which is the artificially reduced cost of an input 
used in the production of the merchandise. Thus, where the subsidy is 
provided for a specific use, e.g., the acquisition of capital assets, 
the continuing subsidy benefit is the reduced cost of that asset 
allocated over the useful life of the asset. Where government financial 
contributions are not tied to specific applications, as in the case of 
an equity infusion, the Department should normally view the money 
itself as the continuing subsidy benefit.
    In light of this, the commenter contended that the Department's 
privatization analysis must first examine what inputs were acquired by 
the subsidy recipient at an artificially reduced cost. Then, the 
Department must determine whether the cost for those inputs was 
artificially reduced for the privatized company as well. According to 
this commenter, where the privatization transaction occurs at arm's-
length and at fair market value, the privatized company would not 
continue to benefit from the past subsidies. Similarly, where 
government financial contributions are not tied to specific 
applications, meaning that the money itself is the continuing subsidy 
benefit, the Department's focus should be on the price and terms of the 
privatization transaction. If the privatization of the company, 
including all its physical and financial assets, was at fair market 
value, the Department would not find any benefit to have passed 
through, because the privatized company would not be operating with any 
capital for which it paid less than market value. According to this 
commenter, if the privatization of a firm were at full market value, 
the new owners of the company have paid for all of the inputs at market 
value. Therefore, the privatized firm no longer operates with inputs 
acquired at a cost that is less than what would have been paid without 
a government financial contribution.
    This commenter stressed that there are several possible exceptions 
to this rule. For example, where an asset would not have been created 
or acquired absent the government financial contribution, and where the 
creation or acquisition of the asset was not economically viable, the 
Department may conclude that the very existence of the asset is the 
continuing benefit and not the reduced costs of the asset. In such an 
instance, the benefit could be deemed to continue, even after a full 
market privatization. However, this commenter asserted that this would 
represent an exception to the general rule.
    This commenter rejected the argument that this analysis is 
tantamount to an ``effects'' test. If a subsequent event does in fact 
eliminate subsidization, limited Departmental resources should not 
prevent examination of that event. The commenter stated that, in the 
case of

[[Page 65353]]

subsidies not tied to any particular use, the only event that the 
Department would need to consider is one which would eliminate the 
artificially reduced cost of the company's inputs as a whole. The sale 
of an entire company for market value is such an event, in the 
commenter's view. Where a subsidy is tied to a particular use, the only 
event that the Department would need to consider is one that would 
affect or eliminate the benefit arising from that specific use. 
Moreover, according to the commenter, in numerous contexts the 
Department traces the use of a subsidy. These include instances where 
subsidies are provided for certain uses that may be greenlighted or 
that may benefit a company over time, i.e., non-recurring subsidies.
    Most commenters also found fault with the Department's existing 
repayment or reallocation methodology, under which pre-sale subsidies 
are partially repaid to the seller as part of the purchase price. 
Several commenters argued that the repayment/reallocation methodology 
should be abandoned, because it is not defensible, economically or 
legally. According to these commenters, the repayment/reallocation 
methodology violates the offset provision of the statute (section 
771(6) of the Act), because this provision does not include repayment 
or reallocation of subsidies in the context of a privatization at fair 
market value. Moreover, a fair-market-value privatization does not 
offset the distortion caused by government subsidies, a fact recognized 
by EU law, according to which subsidy repayment can occur only if the 
illegal aid is returned.5 According to these commenters, the 
repayment/reallocation methodology is also inconsistent with the 
Department's and the Court's ``conceptual model of subsidies,'' which 
presumes that subsidies distort market processes and result in a 
misallocation of resources (citing Carbon Steel Wire Rod from Poland, 
49 FR 19374, 19375 (May 7, 1984), and Georgetown Steel Corp. v. United 
States, 801 F.2d 1308, 1315-16 (Fed. Cir. 1986) (``Georgetown Steel''). 
Under this model, repayment or reallocation can only occur if an 
equivalent ``distortion'' takes place, that is, a return of the 
illegally provided resources from the subsidized entity. This does not 
occur, the commenters emphasized, in a fair-market privatization. 
Further, the repayment/reallocation methodology is inconsistent with 
the benefit-to-recipient standard because it is based on the assumption 
that the government was paid more money upon privatization than it 
would have received absent the subsidy, a fact that is only relevant 
under a cost-to-government standard. These commenters stated that while 
the cost of the subsidy to the government may be diminished in a fair-
market privatization, the value of the subsidy to the recipient is 
unchanged. According to these commenters, by finding that repayment/
reallocation occurs in a fair-market-value transaction, the Department 
is encouraging subsidization. This violates the basic purpose of the 
CVD law, which is intended to deter subsidization. These commenters 
also argued that the Court of International Trade's (``CIT'') decision 
in British Steel plc vs. United States, 879 F. Supp. 1254, 1277 (CIT 
1995), aff'd in part and rev'd in part, 127 F.3d 1471 (Fed. Cir. 1997), 
casts doubt on the permissibility of finding repayment in the context 
of a privatization at fair market value. One commenter also argued that 
the repayment/reallocation methodology is inconsistent with the URAA 
and the SAA's instruction to examine carefully the facts of each case 
in determining the effects of privatization on prior subsidies, because 
it is an automatic rule that always assumes a portion of the purchase 
price represents repayment or reallocation of prior subsidies.
---------------------------------------------------------------------------

    \5\ Citing Commission notice pursuant to Article 93(2) of the EC 
Treaty to other Member States and interested parties concerning aid 
which Germany has granted to Fritz Egger Spanplattenindustrie GmbH & 
Co. KG at Brilon, O.J. Eur. Comm. No. C369/6, 369/8-369/9 (1994), 
and Agreement Respecting Normal Competitive Conditions in the 
Commercial Shipbuilding and Repair Industry, opened for signature 
December 21, 1994, art. 8, para. 5.
---------------------------------------------------------------------------

    Another commenter asserted that the repayment/reallocation 
methodology does not capture the full extent of the benefit bestowed 
upon a company because it does not capture the benefit from the 
government's assumption of risk. According to this commenter, to 
encourage investment in risky industry sectors, governments can assume 
some of the risk, for example by providing start-up capital. If the 
government privatizes the company, the trade-distorting effect of the 
government action continues, and the production of the company 
continues to enjoy the benefit of the government subsidy. This 
commenter argued that if the Department maintains the repayment/
reallocation methodology, it should also consider whether the industry 
could attract private capital at the time the subsidies were provided. 
Where an industry could not attract private capital, the Department 
should find that all subsidies passed through after privatization. 
Alternatively, if the Department finds that privatization can 
extinguish or repay a subsidy, this should only be permitted when the 
price paid for the privatized company is equal to the net worth of the 
firm without the subsidy, plus the residual value of the subsidy. For 
example, a firm receives a $1 million countervailable subsidy, which 
the Department allocates over 10 years. In year two, the residual value 
of the subsidy (for countervailing duty purposes) is $900,000. In that 
year, the firm is privatized and its pre-subsidy assets are valued at 
$18 million. If the firm is sold for $18.9 million, the subsidy would 
be repaid. If it is sold for $18 million, the subsidy would pass 
through in its entirety. According to this commenter, this approach 
recognizes that the buyer of a firm is paying for the assets as well as 
the residual value of the subsidy, while the current repayment/
reallocation approach fails to do this.
    Another modification suggested by some commenters to the repayment/
reallocation methodology is to alter the calculation of ``gamma,'' 
which measures the proportion of the purchase price that the Department 
considers to be repaid to the government in a privatization 
transaction, or reallocated to the previous owner in a private-to-
private sale. This commenter stated that the gamma ratio should be 
calculated using the total remaining value of the subsidies at the time 
of the privatization to the company's total net worth in the same year, 
rather than using the average of the historical values of the subsidies 
to the firm's net worth starting in the years the subsidies were 
received. This approach would give more weight to subsidies received 
immediately preceding privatization.
    Finally, several commenters addressed the issue of whether 
subsidies provided in anticipation, or in the process, of privatization 
should be given special consideration. On the one hand, one commenter 
argued that subsidies provided shortly before, and in preparation for, 
the sale, such as debt forgiveness, asset revaluations, tax breaks, and 
other measures to ``clean up'' balance sheets, should be considered new 
subsidies and not ``pre-privatization'' subsidies. According to this 
commenter, under no circumstance should these subsidies be eliminated 
as part of the privatization transaction. On the other hand, another 
commenter suggested that steps taken by a government just prior to 
privatization to make a company more ``saleable,'' such as closing 
inefficient operations, should not by themselves be considered

[[Page 65354]]

subsidies that pass through to the privatized company.
    Except for the comments on our current repayment/reallocation 
methodology and the comments on subsidies given in the process of 
privatization, which we address below, the commenters have presented 
two general positions with respect to the impact of changes in 
ownership on subsidies bestowed prior to the sale: (1) That the arm's-
length sale of a company at fair market value has no effect on the 
countervailability of prior subsidies; and (2) that the fair-market 
sale of a firm, in general, excuses the purchaser from any CVD 
liability for prior subsidies. While the commenters suggest possible 
exceptions to these general positions that theoretically would give 
effect to the statutory direction to consider the facts of each case, 
the exceptions are narrowly defined to fit improbable circumstances. In 
most cases, the proposals, with their narrowly defined exceptions, 
would lead to either total pass-through or total extinguishment of pre-
sale subsidies.
    Although we see merit in some of the arguments presented, we 
believe that adopting either of these extreme positions would require a 
strained interpretation of the statute. The statute, SAA, and 
legislative history plainly state that the arm's-length sale of a firm 
does not by itself require a determination that prior subsidies have 
been extinguished. See section 771(5)(F), SAA at 928, and S. Rep. No. 
103-412, at 92 (1994); see also the discussion in the 1997 Proposed 
Regulations at 8821. Moreover, we continue to disagree with the claim 
that in order to impose countervailing duties on a privatized or post-
sale firm, the Department must affirmatively demonstrate how subsidies 
continue to benefit the subject merchandise after the fair-market sale 
of a company. See GIA at 37263. Our refusal to read a continuing 
competitive benefit test (sometimes called an ``effects test'') into 
the CVD law was upheld by the Federal Circuit in Saarstahl v. United 
States, 78 F.3d 1539 (Fed. Cir. 1996) (``Saarstahl'') and British Steel 
plc v. United States, 879 F. Supp. 1254 (CIT 1995), aff'd in part and 
rev'd in part 127 F.3d 1471 (Fed. Cir. 1997) (``British Steel''). As 
the CIT explained in British Steel plc v. United States, ``Commerce has 
consistently maintained that it does not measure the effects of 
subsidies once they have been determined by Commerce. In other words, 
whether subsequent events mitigate these effects is irrelevant. This 
Court, for the purposes of this proceeding, has no quarrel with that 
practice.'' 879 F. Supp. at 1273. Further, section 771(5)(C) of the Act 
specifically states that the Department ``* * * is not required to 
consider the effect of the subsidy in determining whether a subsidy 
exists * * *'' See also Certain Hot-Rolled Lead and Bismuth Carbon 
Steel Products from the United Kingdom, 61 FR 58377, 58379 (November 
14, 1996) (1994 Administrative Review UK Lead Bar).
    In this regard, it is useful to clarify what we mean in saying that 
we would not attempt to determine whether a subsidy had any ``effect'' 
on the recipient, or whether ``subsequent events'' might have mitigated 
or eliminated any potential effects from the subsidy. The term 
``effect,'' as used in the statute and SAA, and the term ``subsequent 
events,'' as used by the Courts, refer to the question of whether a 
subsidy confers a competitive benefit upon the subsidy recipient or its 
successor. There is no requirement that the Department determine 
whether there is a competitive benefit, as is made clear in the SAA (at 
926):

* * * the new definition of subsidy does not require that Commerce 
consider or analyze the effect (including whether there is any 
effect at all) of a government action on the price or output of the 
class or kind of merchandise under investigation or review.

    In the course of the 1993 steel investigations, certain respondents 
argued that: (1) A subsidy cannot be countervailed unless it bestows a 
``competitive benefit'' on merchandise exported to the United States; 
(2) the arm's-length sale of a subsidized company eliminates any 
competitive benefit from prior subsidies (because the price paid for 
the company includes payment for any continuing value the subsidies 
might have); and (3) therefore, the arm's-length sale of a subsidized 
company frees the new owner from any countervailing duty liability for 
prior subsidies to that company. We rejected this argument (see GIA at 
37260-61), explaining that the statute did not require that a subsidy 
bestow a competitive benefit on imports to the United States as a 
condition of liability for countervailing duties. Just as we would not 
attempt to determine whether a subsidy conferred a competitive benefit 
on the original recipient in the first place (that is, whether the 
subsidy had any effect on the original recipient's subsequent 
performance (usually an effect upon its output or prices)), we would 
not attempt to determine whether any potential competitive benefit 
continued with respect to the new owner in light of a subsequent event 
such as a change in ownership. The Federal Circuit upheld this position 
in Saarstahl and British Steel. As one commenter noted, the law is 
concerned with the benefit originally received, not with what the 
recipient does with it.
    When we say we do not consider ``subsequent events'' in the 
calculation of a subsidy, we generally are referring to events that 
arguably affect the subsequent performance (normally in terms of output 
or prices) of the subsidy recipient or its successor. We have never 
implied, however, that no subsequent event could ever affect the 
allocation of a subsidy. The Department may consider whether government 
or private actions occurring after the receipt of a subsidy should 
result in the reallocation of a subsidy as long as there is no tracing 
of the uses of the subsidy or the effect of the subsidy on the output 
or price of subject merchandise. Clearly, a post-subsidy change in 
ownership is an event that occurs subsequent to the receipt of the 
subsidy, and we have reallocated subsidies based on changes in 
ownership. It is entirely appropriate and consistent with the statute 
to consider whether a change in ownership is an appropriate occasion to 
reallocate countervailing duty liability for prior subsidies to the 
company that is sold. Section 771(5)(F) of the Act implies that such an 
exercise is warranted and, as explained above, a post-subsidy change in 
ownership is not the type of subsequent event or effect that is 
envisioned in section 771(5)(C).
    The language of section 771(5)(F) of the Act purposely leaves much 
discretion to the Department with regard to the impact of a change in 
ownership on the countervailability of past subsidies. Specifically, a 
change in ownership neither requires nor prohibits a determination that 
prior subsidies are no longer countervailable. Rather, the Department 
is left with the discretion to determine, on a case-by-case basis, the 
impact of a change in ownership on the countervailability of past 
subsidies. The SAA at 928 specifically states that ``Commerce retain[s] 
the discretion to determine whether, and to what extent, the 
privatization of a government-owned firm eliminates any previously 
conferred countervailable
subsidies. . . .''
    The repayment/reallocation methodology that we currently use 
achieves this objective. See 1994 Administrative Review UK Lead Bar at 
58379-80. Depending on the amount of prior subsidies in relation to the 
company's net worth and the amount paid for the company, we might find 
that a considerable amount of prior subsidies passes through or that a

[[Page 65355]]

significant amount of subsidies has been repaid to the government or 
reallocated to the previous owner. Nonetheless, we are not codifying 
the current repayment/reallocation methodology. This methodology has 
been heavily criticized by various parties, and we recognize that it 
may not provide sufficient flexibility to deal with the ``extremely 
complex and multifaceted'' nature of changes in ownership. See SAA at 
928. We will address comments related to the calculation of gamma in 
the context of specific cases.
    While we have developed some expertise on the issue of changes in 
ownership over the past five years, and the comments submitted in 
response to the 1997 Proposed Regulations have provided us with 
additional ideas to consider, we do not think it is appropriate to 
promulgate a regulation on this issue at this time. As noted above, 
many of the ideas presented by the commenters would move us in the 
direction of adopting extreme positions. Another factor weighing 
against codification of any privatization methodology at this time is 
that the Courts may, in the course of their review of the current 
methodology, adopt an interpretation of the law that would either 
validate or overturn some of the options that we have considered, 
including those proposed by the commenters. Finally, given the rapidly 
changing economic conditions around the world, particularly with 
respect to the issue of state ownership, we believe we should continue 
to develop our policy in this area through the resolution of individual 
cases. These changing economic conditions pose additional challenges in 
developing a unified framework in which to analyze change-in-ownership 
transactions. In the 1997 Proposed Regulations, we identified many of 
these additional issues and new challenges that may warrant 
consideration in this context and raised questions about them. However, 
it is our view that the comments we received did not sufficiently 
address many of these concerns.
    An additional issue that merits further discussion concerns 
subsidies received just prior to, or in conjunction with, the 
privatization of a firm. While we have not developed guidelines on how 
to treat this category of subsidies, we note a special concern because 
this class of subsidies can, in our experience, be considerable and can 
have a significant influence on the transaction value, particularly 
when a significant amount of debt is forgiven in order to make the 
company attractive to prospective buyers. As our thinking on changes in 
ownership continues to evolve, we will give careful consideration to 
the issue of whether subsidies granted in conjunction with planned 
changes in ownership should be given special treatment.
    Our decision not to include a provision on changes in ownership in 
these Final Regulations does not preclude us from issuing such a 
regulation at a later date. We will continue to examine this issue and 
consider whether an alternative analytical framework can be developed 
that addresses the variety of change-in-ownership scenarios we have 
encountered and that, like the present methodology, satisfies 
Congressional intent that we examine changes in ownership on a case-by-
case basis. In the interim, we will continue to apply our current 
methodology for ongoing CVD cases and carefully examine the facts of 
each case. However, we will consider whether modifications to the 
methodology may be appropriate.

Section 351.502

    Section 351.502 deals with the ``specificity'' of domestic 
subsidies. Unlike its predecessor, Sec. 355.43 of the 1989 Proposed 
Regulations, Sec. 351.502 does not contain a ``general'' specificity 
test. As we noted in the preamble to the 1997 Proposed Regulations, 
section 771(5A) of the Act and the SAA provide much more detail and 
clarity regarding the application of the ``specificity test'' than did 
the prior statute and its legislative history. Thus, on the subject of 
specificity, there are far fewer interpretative gaps for the Department 
to fill than there were in 1989 and, thus, less need for regulations.
    We received numerous comments arguing that we should codify the 
policies articulated in the preamble to the 1997 Proposed Regulations, 
especially those dealing with sequential analysis, purposeful 
government action, characteristics of a ``group,'' and integral 
linkage. These commenters claimed that even where the SAA is clear on a 
particular point, it is unclear how the Courts will view the SAA. In 
their opinion, detailed specificity regulations would prevent costly 
litigation of these issues.
    We have continued to limit Sec. 351.502 to those aspects of the 
specificity test that are not addressed explicitly in the statute or 
the SAA. Section 102(d) of the URAA provides that the SAA ``shall be 
regarded as an authoritative expression by the United States concerning 
the interpretation and application of (the Agreements and the URAA) in 
any judicial proceeding in which a question arises concerning such 
interpretation or application.'' 19 U.S.C. Sec. 3512(d). Therefore, we 
see no need to repeat this principle. However, in reviewing the 
comments and the relevant provisions of the statute and the SAA, we 
have identified particular issues on which the SAA may usefully be 
clarified. In particular, we found that the statute and the SAA do not 
fully address sequential analysis and the characteristics of a group. 
Accordingly, we have included final regulations on these topics.
    Sequential analysis: Paragraph (a) is a new paragraph which 
addresses the ``sequential approach'' to specificity. We received 
several requests that we codify the sequential approach. Under this 
approach, if a subsidy is de jure specific or meets any one of the 
enumerated de facto specificity factors, in order of their appearance 
in section 771(5A)(D)(iii) of the Act, further analysis is unnecessary 
and is not undertaken. In support of their position, these commenters 
emphasized the language contained both in section 771(5A)(D)(iii) of 
the Act and the SAA that a subsidy will be considered specific ``if one 
or more'' of the factors exists. See SAA at 931. Furthermore, these 
commenters contended, the SAA and the legislative history of the URAA 
make clear that the specificity test was intended to be generally 
consistent with the Department's previous practice, a practice that 
included this sequential approach. SAA at 929-31; S. Rep. No. 103-412, 
at 93-94 (1994).
    In opposition to this view, other commenters maintained that the 
sequential approach contradicts the SAA, because the SAA states that 
the Department will ``seek and consider information relevant'' to all 
four of the de facto specificity factors. SAA at 931. Moreover, these 
commenters maintained, the language in the SCM Agreement requires that 
all of the de facto specificity factors be considered and that any 
specificity determination ``shall be clearly substantiated on the basis 
of positive evidence.'' Articles 2.1(c) and 2.4 of the SCM Agreement.
    The apparent disagreement over the interpretation of the SAA 
regarding the use of a sequential approach indicates that it is 
necessary to clarify our position in a regulation. Therefore, 
Sec. 351.502(a) provides that the de facto specificity factors will be 
examined in sequence, in order of their appearance in section 
771(5A)(D)(iii) of the Act, and that the Department may find a domestic 
subsidy to be specific based on the presence of a single de facto 
specificity factor. For example, the Department will first look to see 
if there is a limited number of users. If the number of users is 
limited, we will look

[[Page 65356]]

no further. In accordance with the SAA, the Department will continue 
its practice of collecting information regarding each of the four de 
facto specificity factors; however, our analysis of the issue will stop 
if we determine that a single factor justifies a finding of 
specificity. As for the SCM Agreement, none of the provisions cited 
precludes a finding of specificity based on the presence of a single 
factor. Moreover, a finding that a certain industry receives 
disproportionate amounts under a particular government program, for 
example, constitutes positive evidence of specificity even if there are 
numerous users of the program and there is little discretion in 
awarding benefits.
    Discretion: In endorsing the use of a sequential approach in the 
preamble to the 1997 Proposed Regulations, we stated, ``with the 
exception of the government discretion factor, the Department may find 
a domestic subsidy to be specific based on the presence of a single de 
facto specificity factor.'' (1997 Proposed Regulations at 8824.) 
Certain commenters objected to the exception of the discretion factor, 
arguing that the statute accords the exercise of government discretion 
equal status with the other de facto specificity factors. They asked 
the Department to clarify that the Department may find a subsidy to be 
specific solely based on the degree of discretion exercised in the 
administration of a subsidy program.
    There appears to be a great deal of confusion and controversy over 
the role of the fourth factor, discretion, in the finding of de facto 
specificity. Based on the comments received and a review of the statute 
and SAA, we are elaborating on the statements we made in the preamble 
to the 1997 Proposed Regulations. As stated in the 1997 Proposed 
Regulations, we do not believe that a finding of specificity may be 
based solely on the fact that some measure of discretion may have been 
exercised in the administration of a subsidy program. This position is 
consistent with the SAA, which states that if a subsidy program is 
broadly available and widely used and there is no evidence of dominant 
or disproportionate use, the mere fact that government officials may 
have exercised discretion in administering the program is insufficient 
to justify a finding of specificity. SAA at 931.
    Based on our experience in administering the CVD law, some measure 
of administrative discretion exists in the operation of almost every 
alleged subsidy program. At the most basic level, an administrator of a 
program typically must exercise judgment or discretion in evaluating 
the facts and merits of an application for a subsidy to determine 
whether the applicant qualifies for the subsidy. If we were to find 
specificity based simply on the exercise of this type of discretion, 
the other de facto factors would be rendered meaningless, because 
virtually every subsidy program in the world could be declared specific 
on the basis of the discretion factor alone. This is clearly an absurd 
result and could not have been the intent of Congress.
    Instead, section 771(5A)(D)(iii)(IV) of the Act provides that a 
subsidy is specific if:

    The manner in which the authority providing the subsidy has 
exercised discretion in the decision to grant the subsidy indicates 
that an enterprise or industry is favored over others. (Emphasis 
added.)

This language does not focus on discretion alone. Rather, it states 
that discretion is relevant only to the extent that it is exercised in 
a manner that favors one enterprise or industry over others. This 
distinction is important because it supports the statements made in the 
SAA and the position we are taking in these regulations. Haphazard, 
random, or purposeless discretion cannot by itself indicate 
specificity. Only discretion that shows favoritism toward some 
enterprises or industries over others can inform the question of 
specificity. In the Department's experience, favoritism generally will 
manifest itself as one of the first three de facto factors: A limited 
number of users, dominant users, or one or a few users receiving a 
disproportionate amount of the subsidy. For example, administrators of 
a program could exercise discretion in selecting some industries 
instead of others as beneficiaries. If the selected industries 
constituted a limited number of industries, there would be specificity. 
Similarly, if benefits were distributed such that there was a 
predominant user or such that certain users received disproportionate 
benefits, there would be specificity. However, if the selected 
industries constituted more than a limited number of industries, if 
there were no dominant users or disproportionate benefits to certain 
users, or if there were no other indication that one or a group of 
enterprises or industries was favored over others, the program would 
not be specific.
    As indicated in the SAA at 931, the discretion factor is generally 
more valuable as an analytical tool that enhances the analysis of the 
other de facto specificity factors and criteria. The example given in 
the SAA is the case of a new subsidy program for which there have been 
few applicants and few recipients. In accordance with section 
771(5A)(D)(iii) of the Act, in evaluating the four de facto factors, 
the Department must take into account ``* * * the length of time during 
which the subsidy program has been in operation.'' In the case of a new 
program, the first three factors--limited number of users, dominant 
user, or disproportionately large user--may provide little or 
misleading indication regarding whether the program is de facto 
specific. Therefore, the manner in which authorities have exercised 
their discretion in the early days of a new program (e.g., by excluding 
certain applicants and limiting the benefit to a particular industry) 
might be more useful for the Department in making a specificity 
determination. See SAA at 931.
    Discretion can also come into play where evidence relating to the 
first three factors is inconclusive. As an example, where the number of 
users is borderline, discretion may help to inform whether there is 
specificity. In this situation, the factors we might consider in 
analyzing the relevance of discretion include the number of applicants 
that are turned down, the reasons they are turned down, and the reasons 
successful applicants are chosen.
    Characteristics of a ``group'': New paragraph (b) clarifies the 
Department's position regarding whether the Department must examine the 
``actual make-up'' of a group of beneficiaries when performing a 
specificity analysis. Citing PPG Industries, Inc. v. United States, 978 
F.2d 1232, 1240-41 (Fed. Cir. 1992) (``PPG II''), one group of 
commenters argued that, to be consistent with judicial precedent, the 
Department must undertake such an analysis. According to these 
commenters, if a group of recipients does not share similar 
characteristics but, instead, consists of companies in a variety of 
industries, the Department cannot conclude that the subsidy in question 
is limited to a ``group of industries.'' Moreover, they argued, nothing 
in the Act or the SAA requires the Department to ignore the 
characteristics of the group receiving the benefits from an alleged 
subsidy program.
    Other commenters argued that the Department can identify a 
``group'' of subsidy recipients without regard to any shared 
characteristics of the individual group members. According to these 
commenters, a proper understanding of what may constitute a specific 
``group of industries'' flows directly from the

[[Page 65357]]

purpose of the specificity test as articulated in Carlisle Tire & 
Rubber Co. v. United States, 564 F. Supp. 834 (CIT 1983) 
(``Carlisle''); namely, that subsidy recipients should be considered a 
specific group unless the recipient industries are numerous and 
distributed very broadly throughout the economy. Moreover, these 
commenters maintained that the Department has on several occasions 
found subsidy programs specific even when the ``group'' of recipients 
has not shared common characteristics. See, e.g., Steel Wheels from 
Brazil, 54 FR 15523, 15526 (April 18, 1989) and Cold-Rolled Carbon 
Steel Flat-Rolled Products from Korea, 49 FR 47284, 47287 (December 3, 
1984).
    As noted in the preamble to the 1997 Proposed Regulations, we 
disagree with the first set of comments. Section 771(5A)(D) of the Act 
provides that a subsidy may be found to be specific if it is limited to 
a ``group'' of enterprises or industries. There is no requirement that 
the members of a group share similar characteristics. The purpose of 
the specificity test is simply to ensure that subsidies that are 
distributed very widely throughout an economy are not countervailed. 
There is no basis for adding the further requirement that subsidies 
that are not widely distributed are also confined to a group of 
enterprises or industries that share similar characteristics. See, 
e.g., Certain Refrigeration Compressors from the Republic of Singapore, 
61 FR 10315 (March 13, 1996).
    Assuming, arguendo, that PPG II is relevant under the new law, this 
decision upheld the Department's determination that the program in 
question was not specific. To put PPG II in its proper context, it is 
necessary to understand the facts presented in the underlying CVD case. 
In that case, there were numerous enterprises that used the program 
under investigation. Therefore, when looked at in terms of the number 
of enterprises, the actual recipient enterprises did not appear to be 
limited. However, this conclusion says nothing about whether the number 
of industries that received benefits under the program was limited. To 
answer this question, the Department (and the Court) correctly focused 
on the makeup of the users. If the numerous enterprises that received 
benefits had comprised a limited number of industries, then the program 
would have been specific. However, because the users represented 
numerous and diverse industries, the program was found not to be 
specific. There is no basis in PPG II or in the language of section 
771(5A)(D) of the Act for concluding that there is a requirement that 
the limited users also share similar characteristics. Moreover, such a 
requirement would undermine the purpose of the specificity test as 
articulated in the SAA.
    Several commenters have urged the Department to codify our position 
with respect to this issue. Because this issue is not addressed in the 
statute or the SAA, we have adopted this suggestion. Accordingly, 
Sec. 351.502(b) provides that the Secretary is not required to 
determine whether there are shared characteristics among enterprises or 
industries that are eligible for, or actually receive, a subsidy in 
determining whether that subsidy is specific.
    Integral linkage: Paragraph (c) is a new paragraph which sets out 
our revised test for considering two or more subsidy programs to be 
``integrally linked.'' Section 355.43(b)(6) of the 1989 Proposed 
Regulations provided that, for purposes of applying the specificity 
test, the Department would consider two or more subsidy programs as a 
single program if the Secretary determined that the programs were 
``integrally linked.'' Section 355.43(b)(6) also set forth factors to 
be considered in making this determination.
    In the 1997 Proposed Regulations, we opted not to incorporate 
Sec. 355.43(b)(6) into these regulations. We noted that claims of 
integral linkage were relatively rare, and that when they did arise, we 
did not find the factors set forth in Sec. 355.43(b)(6) particularly 
helpful. We did not, however, rule out the possibility of considering 
two or more ostensibly separate subsidy programs as constituting a 
single program for specificity purposes, and we outlined circumstances 
that might lead us to do so.
    We received a number of comments requesting that we promulgate a 
regulation which allows for integral linkage. Two commenters argued 
that, in addition to the factors discussed in the preamble, the 
regulation should re-codify certain of the factors found in the 1989 
Proposed Regulations. These commenters also suggested that programs 
should not be considered to be integrally linked unless they were 
linked ``at their inception.'' These commenters asked the Department to 
clarify that it will view claims of integral linkage narrowly and that 
respondents will be required to establish that the programs are linked 
by clear and convincing evidence. Other commenters argued that the 
factors enumerated in both the 1989 Proposed Regulations and in the 
preamble to the 1997 Proposed Regulations are too restrictive and that 
any integral linkage test should not be applied narrowly.
    We have given further consideration to our earlier decision not to 
codify an integral linkage test. In light of the interest in this 
issue, and the fact that we have had experience with a regulation on 
this topic, we have concluded that it would be beneficial to parties to 
promulgate a rule describing when two or more separate programs may be 
integrally linked and treated as one program for specificity purposes. 
We have not codified the 1989 rule because, as we stated in the 
preamble to our 1997 Proposed Regulations, we did not find the factors 
enumerated in that provision to be particularly useful. Instead, 
Sec. 351.502(c) provides that integral linkage is possible in 
situations where the subsidy programs have the same purpose (e.g., to 
promote technological innovation), bestow the same type of benefit 
(e.g., long-term loans or tax credits), confer similar levels of 
benefits on similarly situated firms, and were linked at their 
inception.
    We believe these factors are more useful for finding integral 
linkage than those contained in the 1989 Proposed Regulations because 
they require evidence of similarities in the purposes and 
administration of the programs which are more than coincidental. For 
example, where a government claims that a program is integrally linked 
with another program, Sec. 351.502(c)(4), which calls for the programs 
to be linked at inception, requires evidence that, in establishing the 
most recent program, the government's clear and express purpose was to 
complement the other program.
    As stated in the preamble to the 1997 Proposed Regulations, when an 
interested party believes that two or more programs should be 
considered in combination for purposes of the Department's specificity 
analysis, that party will have the burden of identifying the relevant 
programs and supporting its contention that the programs are integrally 
linked by providing information and documentation regarding the 
purpose, type and levels of benefit associated with the programs.
    Agricultural subsidies: Paragraph (d) is based on Sec. 355.43(b)(8) 
of the 1989 Proposed Regulations and is the same as Sec. 351.502(a) of 
the 1997 Proposed Regulations. It provides that the Secretary will not 
consider a domestic subsidy to be specific solely because it is limited 
to the agricultural sector. Instead, as under prior practice, the 
Secretary will find an agricultural subsidy to be countervailable only 
if it is specific within the agricultural sector, e.g., a subsidy is 
limited to livestock, or

[[Page 65358]]

livestock receive disproportionately large amounts of the subsidy. See, 
e.g., Lamb Meat from New Zealand, 50 FR 37708, 37711 (September 17, 
1985).
    One commenter suggested that the Department should abandon the 
special specificity rule for agricultural subsidies, citing the fact 
that under section 771(5B)(F) of the Act and Article 13(a) of the WTO 
Agreement on Agriculture, so-called ``green box'' agricultural 
subsidies are non-countervailable. With respect to this comment, we 
note that the Department's application of the specificity test to 
agricultural subsidies was upheld in Roses, Inc. v. United States, 774 
F. Supp. 1376 (CIT 1991) (``Roses''). Given the absence of any 
indication that Congress intended the ``green box'' rules to change the 
Department's practice or to overturn Roses, we are retaining the 
special specificity rule for agricultural subsidies.
    Subsidies to small- and medium-sized businesses: Paragraph (e) is 
based on Sec. 355.43(b)(7) of the 1989 Proposed Regulations, and 
continues to provide that the Secretary will not consider a subsidy to 
be specific merely because it is limited to small or small- and medium-
sized firms. Instead, as under prior practice, the Secretary will find 
such a subsidy to be countervailable if, either on a de jure or a de 
facto basis, the subsidy is limited to certain small or small- and 
medium-sized firms. As in the case of the special specificity rule for 
agricultural subsidies, there is no indication that Congress intended 
to alter this aspect of the Department's specificity practice. We 
received no comments regarding this rule.
    Disaster relief: Paragraph (f) provides that the Secretary will not 
regard disaster relief as a specific subsidy if the relief constitutes 
general assistance available to anyone in the affected area. Although 
paragraph (f) has no counterpart in the 1989 Proposed Regulations, the 
rule contained in paragraph (f) has been part of the Department's 
specificity practice since Certain Steel Products from Italy, 47 FR 
39356, 39360 (September 7, 1982), in which the Department stated that 
``[d]isaster relief is not selective in the same manner as other 
regional programs since there is no predetermination of eligible areas 
and no part of the country, and no industry, is excluded from 
eligibility in principle.'' However, before declaring a subsidy to be 
non-specific under paragraph (f), the Department would have to be 
satisfied that the subsidy in question was, in fact, bona fide disaster 
relief. See Certain Steel Products from Italy, 58 FR 37327, 37332 (July 
9, 1993). We received no comments regarding this rule.
    Purpose of the specificity test: Some commenters requested that the 
Department restate in the regulations the policy rationale behind the 
specificity test. According to these commenters, the underlying purpose 
of the specificity test is to identify those domestic subsidies that 
confer a competitive advantage and thereby distort international trade. 
Other commenters pointed out that the new statute expressly states that 
the Department is not required to examine the effects of a subsidy or 
establish that the subsidy has any effect at all. These commenters, 
citing the reference to the Carlisle decision in the SAA, maintain that 
the sole purpose of the specificity test is to ``winnow out only those 
foreign subsidies which truly are broadly available and widely used 
throughout an economy.'' SAA at 929-30.
    In our view, the language from the SAA cited above makes the 
purpose of the specificity test abundantly clear. Given the clarity of 
the SAA on this point, the authoritative nature of the SAA (see 19 
U.S.C. 3512(d)), and our general reluctance to issue regulations that 
merely repeat the statute or the SAA, we do not consider it appropriate 
to issue a regulation that restates the purpose of the specificity 
test.
    Use of presumptions: Some commenters suggested that in applying the 
specificity test, the Department should employ certain presumptions. 
These commenters maintained that, when investigating a domestic subsidy 
program (and when considering whether to initiate an investigation of 
such a program), the Department should presume that the foreign 
government in question exercises discretion in the administration of 
the program, and that the program is specific. These commenters 
maintained that, because information regarding applications and 
approvals generally is not available to petitioners prior to the filing 
of a petition, the burden should be on respondent interested parties to 
provide such information and to rebut the presumption of specificity. 
One commenter also suggested that the Final Regulations should state 
that a previous finding that a subsidy was de facto non-specific should 
have no relevance when the same subsidy program is alleged in a new 
investigation involving different merchandise and different facts.
    Other commenters argued that there is no legal basis for making 
presumptions regarding specificity. With respect to de facto 
specificity, the SAA states that the Department is obligated to ``seek 
and consider'' information relevant to each of the four factors listed 
in section 771(5A)(D)(iii) of the Act. SAA at 931. One of these 
commenters also asserted that a petitioner alleging that a subsidy is 
specific should be required to provide a reasonable amount of 
information supporting the allegation.
    As was true under the law prior to the URAA, we note that a 
petition to initiate an investigation of alleged domestic subsidies 
must provide reasonably available information supporting the allegation 
that the subsidy is specific. See section 702(b) of the Act. On the 
other hand, we recognize that because detailed information regarding 
the distribution of program benefits usually either is not published or 
is not widely available, information supporting specificity often is 
not reasonably available to a petitioner at the time a petition is 
filed. Therefore, in deciding whether to include alleged domestic 
subsidies in our investigation, we carefully consider the information 
the petitioner has put forward, the reasons that more information may 
not be available, and any arguments the petitioner makes regarding the 
specificity of the program. Because the types of allegations and 
information available will vary from case to case, it is not possible 
to state a general rule for accepting or rejecting specificity 
allegations. However, we believe that the threshold we have used in the 
past for including alleged subsidies in CVD investigations has been 
sufficient to ensure that all potentially countervailable subsidies are 
investigated. We intend to continue employing this initiation 
threshold.
    In this regard, we note that when a subsidy program has been 
previously investigated and found to be non-specific, it would be a 
waste of administrative resources to re-investigate that program 
without a reasonable basis to believe that the facts supporting the 
previous finding have changed. In situations where a previous finding 
may be pertinent to one industry, e.g., that the paper clip industry 
did not receive dominant or disproportionate benefits under a 
particular program, petitioners seeking investigation of benefits under 
that program to the staple industry should allege that the program has 
changed or that the situation of the staple industry differs, and they 
should support their allegation with reasonably available information.
    Where domestic subsidy programs are included in an investigation, 
we will not presume such programs are specific. Instead, we will seek 
in our questionnaire all of the information

[[Page 65359]]

necessary to apply the specificity test according to section 771(5A)(D) 
of the Act. Based on our analysis of the information provided in the 
questionnaire responses, verification, and other information that may 
be collected, we will make the necessary specificity determination. If 
a respondent refuses to provide the information requested by the 
Department to conduct its specificity analysis, we may draw adverse 
inferences in the application of ``facts available.'' See section 
776(b) of the Act. However, the use of an adverse inference in these 
situations is not the same thing as relying on a rebuttable presumption 
of specificity.
    Purposeful government action: In our 1997 Proposed Regulations, we 
noted that certain commenters, citing such cases as Saudi Iron and 
Steel Co. (Hadeed) v. United States, 675 F. Supp. 1362, 1367 (CIT 
1987), maintained that a finding of specificity does not require a 
finding of targeting or some other sort of purposeful government action 
that limits the number of subsidy program beneficiaries. They cited the 
statute and its legislative history for the proposition that the 
Department should deem irrelevant the fact that program usage may be 
limited by the ``inherent characteristics'' of the thing being provided 
by the government. SAA at 932; S. Rep. No. 103-412 at 94 (1994).
    In the preamble to the 1997 Proposed Regulations, we agreed with 
these commenters, stating:

[e]xcept in the special circumstances described in section 771(5A), 
i.e., where respondents request the Department to take into account 
the extent of economic diversification in the jurisdiction of the 
granting authority or the length of time during which the program 
has been in operation, the Department is not required to explain why 
the users of a subsidy may be limited in number.

    Several of the same commenters objected to this statement, arguing 
that it could be misinterpreted to mean that evidence of purposeful 
action is required in some instances. These commenters requested that 
the Department clarify, in a regulation, that purposeful government 
action is never required.
    As we stated in the 1997 Proposed Regulations, the SAA and other 
legislative history are clear on this point. The SAA clearly indicates 
that the Department does not need to find ``targeting'' or ``purposeful 
government action'' to conclude that a domestic subsidy is specific. 
See SAA at 932 (``(E)vidence of government intent to target or 
otherwise limit benefits would be irrelevant in de facto specificity 
analysis''). Thus, for example, the fact that users may be limited due 
to the inherent characteristics of what is being offered would not be a 
basis for finding the subsidy non-specific. SAA at 932; S. Rep. No. 
103-412 at 94 (1994). Regarding situations where the Department is 
asked to consider the economic diversification in the jurisdiction or 
the length of time during which the program has been in operation, 
neither purposeful government action nor targeting is required to find 
specificity. However, evidence indicating that the government has taken 
or will take actions to limit benefits to certain industries would be 
sufficient to find specificity.
    Universe: One commenter argued that, in determining whether 
subsidies are specific, the Department generally should focus on the 
level of benefits provided to recipients, rather than the number of 
recipients to whom subsidies are provided. This commenter also argued 
that, in analyzing the level of benefits provided, the Department's 
point of reference should be the economy as a whole, as it was for the 
preferential loan programs used by the Korean steel industry in Certain 
Steel Products from Korea, 58 FR 37338 (July 9, 1993) (``Korean 
Steel''), rather than those enterprises or industries that were 
eligible to receive the subsidy.
    For the most part, we disagree. The starting point of the 
Department's analysis of specificity will always be the number of 
users. We normally will not analyze the level of benefits provided 
(that is, whether the recipients were dominant or disproportionate 
users of the program) unless the subsidy in question was provided to 
numerous and diverse industries. Even in that situation, it may be 
impracticable or impossible to determine the relative level of 
benefits.
    Once we have decided to analyze the level of benefits provided, our 
point of reference normally will be the enterprises or industries that 
received benefits under the program. In other words, we will attempt to 
determine whether one or a limited number of the recipient enterprises 
or industries were, in fact, dominant or disproportionate users. In 
certain limited circumstances, however, it may be appropriate to 
determine whether the benefits received by a particular enterprise or 
industry or group thereof were disproportionate in relation to the 
economy as a whole. The Department employed this approach in Korean 
Steel, because the type of subsidy under investigation--governmental 
use of the economy-wide banking system to direct credit to steel 
producers--required the broader analysis. We consider the Korean 
situation to be unusual compared with the majority of cases in which we 
have analyzed specificity. In addition, we agree that the analysis of 
whether an enterprise or industry or group thereof is a dominant user 
of, or has received disproportionate benefits under, a subsidy program 
should normally focus on the level of benefits provided rather than on 
the number of subsidies given to different industries.

Section 351.503

    Section 351.503 deals with the concept of benefit. Under section 
771(5)(B) of the Act and Article 1.1(b) of the SCM Agreement, a 
government action must confer a benefit in order to be considered a 
countervailable subsidy. Hence, the notion of benefit is central to the 
administration of the CVD law. In the preamble to the 1997 Proposed 
Regulations, we included a lengthy discussion of this topic. We 
described a benefit as being conferred when a firm pays less for an 
input than it otherwise would pay or receives more revenue than it 
otherwise would earn. Given the crucial role that benefit plays in our 
analysis of whether a government action confers a countervailable 
subsidy, we have decided to codify a final rule regarding benefit that 
reflects the principles outlined in the 1997 Proposed Regulations.
    Paragraph (a) states that, where a specific rule for the 
measurement of a benefit is contained in these regulations, we will 
determine the benefit as provided in that rule. Where a government 
program is covered by a specific rule contained in these regulations, 
such as a program providing grants, loans, equity, direct tax 
exemptions, or worker-related subsidies, we will not seek to establish, 
nor entertain arguments related to, whether or how that program 
comports with the definition of benefit contained in this section.
    Paragraph (b) outlines the principles we will follow when dealing 
with alleged subsidies for which these regulations do not establish a 
specific rule. In such instances, we will normally consider a benefit 
to be conferred where a firm pays less for its inputs (e.g., money, a 
good, or a service) than it otherwise would pay in the absence of the 
government program, or receives more revenues than it otherwise would 
earn.
    We have adopted this definition because it captures an underlying 
theme behind the definition of benefit contained in section 771(5)(E) 
of the Act and, in our estimation, reflects the fundamental principles 
that we have

[[Page 65360]]

articulated over the years with respect to programs and practices that 
we have determined confer either direct or indirect countervailable 
subsidies. One common element the four illustrative examples set forth 
in the statute share is that, in the overwhelming majority of cases, 
the recipient of a government financial contribution, income or price 
support, or indirect subsidy, enjoys a reduction in input costs or 
revenue enhancement that it would not otherwise have enjoyed absent the 
government action. As explained below, we are using the terms ``input'' 
and ``cost'' broadly.
    While we believe that this definition will provide useful guidance, 
we recognize that there may be programs or practices not fitting the 
input cost reduction or revenue enhancement definition in some economic 
or accounting senses that may still give rise to a benefit in the sense 
that the program or practice is similar to the illustrative examples 
listed in section 771(5)(E) of the Act. For example, without attempting 
to create a hypothetical program or practice not yet encountered in our 
experience, we would argue that a program that is similar to a 
countervailable equity infusion constitutes a reduction in a firm's 
cost of capital, or that a program that is similar to a countervailable 
provision of a freight forwarding service constitutes a reduction in a 
firm's input costs. Since both practices constitute a reduction in the 
cost of an input, there would be a benefit. We recognize that some 
might take issue with whether equity or a freight forwarding service is 
in fact an input into subject merchandise, or whether equity or freight 
forwarding constitutes a cost of producing subject merchandise. 
Nonetheless, in these and other instances in which a program or 
practice contains elements similar to those in the illustrative 
examples in the statute, a benefit would still exist. As explained 
further below, when we talk about input costs in the context of the 
definition of benefit, we are not referring to cost of production in a 
strict accounting sense. Nor are we referring exclusively to inputs 
into subject merchandise. Instead, we intend the term ``input'' to 
extend broadly to any input into a firm that produces subject 
merchandise.
    When we talk about a firm paying less for its inputs than it 
otherwise would pay (or receiving more revenues than it otherwise would 
earn), we are referring to the lower price it pays to acquire the thing 
provided by the government (e.g., money, a good, or a service), or the 
increased revenue it receives as a result of a government action. We 
believe that the definition of benefit outlined here is consistent with 
the various standards (or ``benchmarks'') used to identify and measure 
the benefit from different subsidy programs that are contained in 
section 771(5)(E) of the Act and Article 14 of the SCM Agreement. For 
example, when the amount that a firm pays on a government-provided loan 
is less than what the firm ``would pay on a comparable commercial loan 
that the (firm) could actually obtain on the market,'' the firm's cost 
of borrowing money is reduced. See section 771(5)(E)(ii) of the Act. 
Similarly, when a firm sells its goods to the government and ``such 
goods are purchased for more than adequate remuneration,'' the firm's 
revenues are increased beyond what it would otherwise earn. See section 
771(5)(E)(iv) of the Act. In neither instance need the Department do 
more than apply the test enumerated by the statute in order to find 
that a benefit has been conferred.
    Paragraph (b)(2) cautions that the definition of benefit as an 
input cost reduction or revenue enhancement does not limit our ability 
to impose countervailing duties when the facts of a particular case 
indicate that a financial contribution has conferred a benefit, even if 
that benefit does not take the form of a reduction in input costs or an 
enhancement of revenues. We will examine the concept of benefit in this 
broader sense by looking to see whether the alleged program or practice 
contains elements similar to the examples listed in sections 
771(5)(E)(i) through (iv) of the Act. We cannot possibly foresee all 
the types of government actions we will encounter in administering the 
CVD law and, hence, cannot write a definition of benefit that would be 
sufficiently broad to capture all possible countervailable subsidies.
    In this regard, it is important to note here our practice of not 
applying the CVD law to non-market economies. The CAFC upheld this 
practice in Georgetown Steel Corp. v. United States, 801 F.2d 1308 
(Fed. Cir. 1986). See also GIA at 37261. We intend to continue to 
follow this practice. Where the Department determines that a change in 
status from non-market to market is warranted, subsidies bestowed by 
that country after the change in status would become subject to the CVD 
law.
    We received several comments regarding the proposed definition of 
benefit. Two commenters expressed the opinion that the definition is 
too restrictive. These parties identified examples of benefits which 
they believed would not be captured under the proposed definition. The 
first example is where a domestic purchaser is the only customer for an 
input provided by a government entity or where non-domestic purchasers 
are not allowed to purchase an input. In these situations, the 
commenter maintains that there could be a benefit even though the price 
paid is not less than any other domestic price. The second example is 
where a transaction is structured so that the firm pays market value 
for the input but receives other perquisites, such as a higher-quality 
input or additional services or goods as part of a package.
    We disagree that our definition of a benefit is not comprehensive 
enough to include these types of scenarios. The definition of a benefit 
(in the absence of a specific rule for the measurement of the benefit) 
does not call for comparisons only to other domestic prices. Rather, it 
calls for a determination of whether the input costs were reduced 
relative to what they would be in the absence of the financial 
contribution. In the first example, a benefit exists to the extent that 
the domestic purchaser would have paid more for the input absent the 
government provision or absent the restrictions placed on foreign 
purchasers. Likewise, in the second example, if the firm would have had 
to pay more in order to receive the additional perquisites without the 
government assistance, a benefit exists. Section 351.511, governing the 
provision of goods and services, contains more detailed guidance on how 
such subsidies would be valued.
    Another commenter supported the proposed definition, but urged the 
Department to leave itself enough flexibility so that we could find a 
benefit when government action enables a firm to sell a product that 
would not have been created but for the government assistance. For 
example, if the government assists in the development of a new product, 
this commenter asserted that the benefit is not the reduced development 
cost of the new product, but the continuing existence of the product.
    We believe that in situations such as that described by the 
commenter, the existence of a benefit is directly dependent upon the 
nature of the financial contribution. If a financial contribution has 
been provided, either directly or indirectly, in a form which is 
specifically identified in the statute or regulations (e.g., a loan, a 
grant, an equity infusion, etc.), we will identify and measure the 
resulting benefit in accordance with the rules contained in the statute 
and regulations. If the financial contribution takes a form

[[Page 65361]]

which has not been specifically dealt with in these regulations, we 
will identify and measure the benefit in accordance with the definition 
of benefit contained in paragraph (b). Moreover, as noted above, 
paragraph (b) provides sufficient flexibility to accommodate 
circumstances in which the facts of a particular case indicate that a 
financial contribution has conferred a benefit, even if the benefit 
does not take the form of a reduction in input costs or an enhancement 
of revenues.
    Finally, one commenter objected to the following statement which 
was included in the preamble to the 1997 Proposed Regulations: ``By the 
same token, where a firm does not pay less for an input than it 
otherwise would pay (or its revenues are not increased) as a result of 
a financial contribution, it would be very difficult to contend that a 
benefit exists.'' This commenter argued that we should not define the 
types of practices which do not confer benefits as this would invite 
the creation and exploitation of loopholes.
    We agree that we need only provide a definition of what constitutes 
a benefit. We believe we have given ourselves the flexibility to apply 
the concept of benefit in such a way that we will be able to find a 
benefit in situations in which the regulations do not contain specific 
rules for identifying and measuring the benefit from a particular 
government program or practice.
    We received several comments regarding the extent to which the 
Department should consider the overall ``effect'' a government program 
has on a firm's behavior in determining whether a benefit exists. One 
group of commenters requested an affirmative statement preserving the 
Department's discretion to consider ``effects'' in appropriate 
circumstances. Another group of commenters urged us to renounce any use 
of our discretion and to state that the effects of government actions 
are irrelevant to the existence of a countervailable subsidy.
    As we explained in the preamble to the 1997 Proposed Regulations, 
the determination of whether a benefit is conferred is completely 
separate and distinct from an examination of the ``effect'' of a 
subsidy. In other words, a determination of whether a firm's costs have 
been reduced or revenues have been enhanced bears no relation to the 
effect of those cost reductions or revenue enhancements on the firm's 
subsequent performance, such as its prices or output. In analyzing 
whether a benefit exists, we are concerned with what goes into a 
company, such as enhanced revenues and reduced-cost inputs in the broad 
sense that we have used the term, not with what the company does with 
the subsidy. Our emphasis on reduced-cost inputs and enhanced revenues 
is derived from elements contained in the examples of benefits in 
section 771(5)(E) of the Act and in Article 14 of the SCM Agreement. In 
contrast, the effect of government actions on a firm's subsequent 
performance, such as its prices or output, cannot be derived from any 
elements common to the examples in section 771(5)(E) of the Act or 
Article 14 of the SCM Agreement.
    For example, assume that a government puts in place new 
environmental restrictions that require a firm to purchase new 
equipment to adapt its facilities. Assume also that the government 
provides the firm with subsidies to purchase that new equipment, but 
the subsidies do not fully offset the total increase in the firm's 
costs--that is, the net effect of the new environmental requirements 
and the subsidies leaves the firm with costs that are higher than they 
previously were.
    In this situation, section 771(5B)(D) of the Act, which deals with 
one form of non-countervailable subsidy, makes clear that a subsidy 
exists. Section 771(5B)(D) of the Act treats the imposition of new 
environmental requirements and the subsidization of compliance with 
those requirements as two separate actions. A subsidy that reduces a 
firm's cost of compliance remains a subsidy (subject, of course, to the 
statute's remaining tests for countervailability), even though the 
overall effect of the two government actions, taken together, may leave 
the firm with higher costs. As another example, if a government 
promulgated safety regulations requiring auto makers to install seat 
belts in back seats, and then gave the auto makers a subsidy to install 
the seat belts, we would draw the same conclusion. In the two examples, 
the government action that constitutes the benefit is the subsidy to 
install the equipment, because this action represents an input cost 
reduction. The government action represented by the requirement to 
install the equipment cannot be construed as an offset to the subsidy 
provided to reduce the costs of installing the equipment.
    Thus, if there is a financial contribution and a firm pays less for 
an input than it otherwise would pay in the absence of that financial 
contribution (or receives revenues beyond the amount it otherwise would 
earn), that is the end of the inquiry insofar as the benefit element is 
concerned. The Department need not consider how a firm's behavior is 
altered when it receives a financial contribution that lowers its input 
costs or increases its revenues.
    If there were any doubt on this score, section 771(5)(C) of the Act 
eliminates it by clarifying that the ``benefit'' and the ``effect'' of 
a subsidy are two different things. While, as stated above, there must 
be a benefit in order for a subsidy to exist, section 771(5)(C) of the 
Act expressly provides that the Department ``is not required to 
consider the effect of the subsidy in determining whether a subsidy 
exists.'' This message is reinforced by the SAA at 926, which states 
that ``the new definition of subsidy does not require that Commerce 
consider or analyze the effect (including whether there is any effect 
at all) of a government action on the price or output of the class or 
kind of merchandise under investigation or review.''
    Paragraph (c) of the new regulation further reinforces this 
principle by stating affirmatively that, in determining whether a 
benefit is conferred, the Department is not required to consider the 
effect of the government action on the firm's performance, including 
its prices or output, or how the firm's behavior otherwise is altered.
    When we examine indirect subsidies, we are inquiring into whether a 
government is entrusting or directing a private entity to provide a 
reduced-cost input or enhanced revenue to a firm that produces the 
subject merchandise. For example, we have investigated whether below-
market loans or reduced-cost goods have been provided by means of 
indirect subsidies. This analysis in no way implies that we are 
examining whether the indirect subsidy has an effect on the price or 
output of the subject merchandise. It merely means that we are 
investigating, in fulfillment of other statutory requirements, whether 
loans were provided on non-commercial terms or whether goods were 
provided for less than adequate remuneration.
    In addition to those comments relating specifically to our proposed 
definition of a benefit, we received comments on other topics which we 
believe are appropriately addressed in the context of a discussion on 
benefits. First, one commenter objected to the absence of a regulation 
regarding so-called ``tiered'' programs. Tiered programs are those 
programs which provide varying levels of government assistance based 
upon differing eligibility criteria. Our longstanding practice 
regarding such programs has been to countervail only the difference 
between the assistance provided at a

[[Page 65362]]

non-specific level (within the meaning of section 771(5A) of the Act) 
and the assistance provided to a specific enterprise or industry (or 
group thereof). This practice was reflected in Sec. 355.44(n) of the 
1989 Proposed Regulations.
    Our omission of a similar rule in this round of regulations was an 
oversight. To correct for this, we have added paragraph (d), which 
provides that where varying levels of financial contributions are 
provided, a benefit will be conferred to the extent that a specific 
enterprise or industry or group thereof receives a greater level of 
financial contribution than that provided at the non-specific level. 
The varying financial contribution levels must be set forth in a 
statute, decree, regulation, or other official act, and they must be 
clearly delineated and identifiable (e.g., the investment tax credit 
program in Certain Fresh Atlantic Groundfish from Canada, 51 FR 10041 
(March 24, 1986)). We note, however, that this exception cannot apply 
where the statute specifies a commercial test for determining the 
benefit, such as with respect to loans and loan guarantees.
    Another related topic involves the treatment of taxes on subsidies. 
Typically, we have referred to this issue as the ``secondary tax 
consequences'' of subsidies. Section 351.527 of the 1997 Proposed 
Regulations stated that we would not take account of secondary tax 
consequences. For example, if receipt of a grant increases the amount 
of income tax paid by a firm, we do not reduce the amount of the 
benefit from the grant to reflect the higher taxes paid. In these Final 
Regulations, we have retained this rule and have relocated it to 
Sec. 351.503(e).
    We received two comments expressing support for the 1997 Proposed 
Regulations. One of these commenters requested that we include in the 
regulation the following corollary, which flows from the same basic 
principle: where a subsidy is exempt from income tax, we will treat the 
tax exemption as a separate benefit in addition to the benefit from the 
original subsidy. An additional commenter requested that the regulation 
be expanded to clarify that we will not consider any secondary 
consequences or effects of the granting of the subsidy outside the 
exclusive list of subsidy offsets designated by the statute. To this 
end, this commenter advocated including the list of allowable offsets 
in the regulations and stating that we will not consider secondary 
consequences of the benefit. We have not added the requested language 
because the statute is clear regarding what is considered to be an 
allowable offset. Nor have we broadened the regulation as requested by 
either commenter. We believe that the impact of the benefit under one 
subsidy program should not be considered in calculating the benefit 
under a separate program. However, in our experience, this question has 
only arisen with respect to the impact of tax programs on other 
programs. Therefore, a broader regulation is not necessary.

Section 351.504

    Section 351.504 deals with the benefit attributable to the most 
basic type of subsidy, a grant. In the 1997 Proposed Regulations, 
paragraph (c) of this section (which was then numbered Sec. 351.503) 
included our methodology for allocating over time the benefit from a 
grant, or the benefit from a subsidy that the Department treated as a 
grant. In these Final Regulations, we have broken out the allocation 
issues from the grant section and created a separate section 
(Sec. 351.524) which deals with the allocation of benefits to a 
particular time period. Therefore, Sec. 351.504 now pertains only to 
grants.
    As in our 1997 Proposed Regulations, paragraph (a) provides that in 
the case of a grant, a benefit exists in the amount of the grant. 
Paragraph (b) sets forth the rule for determining when a firm is 
considered to have received a subsidy provided in the form of a grant. 
This paragraph provides that the Secretary will normally consider the 
benefit as having been received on the date on which the firm received 
the grant. In these Final Regulations, we have added the word 
``normally'' for reasons explained in the preamble discussion of 
Sec. 351.524. Finally, paragraph (c) provides that the benefit from a 
grant will be allocated to a particular time period pursuant to the 
methodology set forth in Sec. 351.524.
    All the comments that we received regarding grants dealt with the 
allocation of benefits. These comments are, therefore, discussed in the 
preamble to Sec. 351.524.

Section 351.505

    Section 351.505 deals with loans and other forms of debt financing. 
Paragraph (a) deals with the identification and measurement of the 
benefit attributable to a loan. Paragraph (a)(1) tracks the general 
standard set forth in section 771(5)(E)(ii) of the Act, which directs 
the Department to use a ``comparable commercial loan that the recipient 
could actually obtain on the market'' as the benchmark in determining 
whether a government-provided loan confers a benefit.
    Use of Effective Interest Rates: Paragraph (a)(1) restates the 
Department's current practice of normally seeking to compare effective 
interest rates rather than nominal rates in making this comparison. 
``Effective interest rates'' are intended to take account of the actual 
cost of the loan, including the amount of any fees, commissions, 
compensating balances, government charges (such as stamp taxes) or 
penalties paid in addition to the ``nominal'' interest. However, where 
effective rates are not available, we will compare nominal rates or, as 
a last resort, nominal to effective rates, as under current practice. 
If the ``loan'' is a bond (see definition of ``loan'' in Sec. 351.102), 
we normally will treat the yield on the bond as the effective interest 
rate.
    One commenter asked that the regulations clarify that only payments 
legitimately made on a loan will be used when calculating the effective 
interest rate. The commenter urged the Department to exclude other, 
unrelated payments to the government which the borrower might make 
along with the loan payments.
    We agree with this commenter that payments unrelated to the loan 
should not be included when we calculate the effective interest rate, 
but we do not believe that the regulation needs to be modified to 
address this concern. The preamble clearly describes the types of 
payments that would be included in calculating an effective interest 
rate. However, we will examine whether there are requirements placed on 
either the government loan or the benchmark loan affecting the cost of 
borrowing that should be factored into the calculation of the benefit 
amount.

Selection of Benchmark Loans and Interest Rates

    Paragraphs (a)(2) and (a)(3) elaborate on the criteria for 
selecting the benchmark. The criteria contained in these two paragraphs 
are much more general (and, thus, much more flexible) than the detailed 
hierarchies contained in Sec. 355.44(b) of the 1989 Proposed 
Regulations. The Department seldom used these hierarchies because, in 
practice, the information required in the 1989 Proposed Regulations was 
seldom available.
    ``Comparable commercial loan'' defined: Paragraph (a)(2) sets forth 
the criteria the Department normally will consider in selecting a 
comparable commercial loan. First, paragraph (a)(2)(i) defines the term 
``comparable.'' In the preamble to the 1997 Proposed Regulations, we 
stated that in order to be used as a benchmark, a comparable

[[Page 65363]]

commercial loan should represent a financial instrument that is similar 
to the government-provided loan and that was taken out (or could have 
been taken out) at the same time. To identify a loan that is comparable 
to the government-provided loan, the 1997 Proposed Regulations called 
for primary emphasis to be placed on the structure of the loans (e.g., 
fixed interest rate v. variable interest rate), the maturities of the 
loans (e.g., short-term v. long-term), and the currencies in which the 
loans are denominated.
    Several commenters maintained that it is not enough to look at the 
structure, maturity, and currency denomination to identify a benchmark 
loan that is comparable to the government-provided loan. These 
commenters argued that the Department should also consider the level of 
risk associated with the loans by comparing the security or collateral 
that the borrower is required to provide for each loan. One of the 
commenters observed that this approach would be consistent with the 
Department's practice in Laminated Hardwood Trailer Flooring from 
Canada, 62 FR 5201 (February 4, 1997). This commenter also noted that, 
while the risk element was discussed in the preamble of the 1997 
Proposed Regulations, it did not appear in the regulation.
    In opposition, another commenter argued that a commercial loan 
should be considered sufficiently comparable to a government loan when 
the structures and maturities of the two loans are identical or similar 
and the loans are provided in the same currency. This commenter argued 
that in the interest of predictability and uniformity, no further 
analysis, particularly with regard to the level of security of a loan, 
should be necessary. This commenter asserted that, where these three 
criteria are met, the loans would generally require the same level of 
security. Comparing the value of different assets securing different 
loans would create an unworkable test, according to the commenter, who 
suggested that the Department at least make it a rebuttable presumption 
that a commercial and a government-provided loan are comparable if the 
three criteria listed above match.
    We have not adopted the proposals put forward by either set of 
commenters. As in the 1997 Proposed Regulations, Sec. 351.505(a)(2)(i) 
states that we intend to place primary emphasis on three basic 
characteristics in determining whether particular loans are comparable 
to a government-provided loan: The structure, maturity, and currency 
denomination of the loans. This does not mean, however, that a loan in 
the same currency with a similar structure and maturity will always be 
found comparable to the government-provided loan. Nor should our 
decision to place primary emphasis on these three characteristics be 
seen as a rebuttable presumption.
    Instead, we recognize that many characteristics could factor into a 
decision of whether a loan should be considered comparable to the 
government-provided loan. Certainly, as the first set of commenters has 
pointed out, the levels of security or collateral on the two loans 
could be relevant in determining comparability. Similarly, the amounts 
of principal might differ so greatly that the two loans should not be 
compared. However, rather than identifying numerous characteristics for 
finding loans to be comparable, and thereby limiting our ability to 
find benchmarks, we have continued to place primary emphasis on what we 
believe to be the three most important characteristics. Regarding other 
characteristics that might render particular loans not comparable to 
the government-provided loan, such as collateral and size, we will 
consider arguments made by the parties based on the facts presented in 
their cases.
    Paragraph (a)(2)(ii) provides a definition of the term 
``commercial.'' The 1997 Proposed Regulations stated that we would 
normally treat a loan as ``commercial'' if it were taken out from a 
commercial lending institution or if it were a bond issued by the firm 
in commercial markets. We also stated that a loan provided under a 
government program, even if the program is not specific to an 
enterprise or industry, would not be considered a ``commercial'' loan 
for benchmark purposes. Finally, the 1997 Proposed Regulations stated 
that the Department would treat a loan from a government-owned bank as 
a commercial loan, unless there was evidence that the loan was provided 
at the direction of the government or with government funds.
    We received several comments on this issue, all of which urged us 
not to use loans from government-owned banks for benchmark purposes. 
One commenter asserted that a loan from a government-owned bank is the 
same as a loan from the government, regardless of whether the loan is 
provided under a government program, because the actions of a 
government-owned bank are presumably consistent with the policies of 
its owner, the government. A second commenter maintained that the 
distinction between ``a government program'' and ``government control'' 
is blurred and pointed to the Department's determination in Certain 
Steel Products from Korea, 58 FR 37338 (July 9, 1993), where the 
Department found that a countervailable benefit was conferred by 
government-directed, preferential access to specific sources of credit 
offered at favorable terms. Because of the availability of ``directed 
credit'' such as that found in the Korean case, this commenter argued 
that the Department should not use rates from loans provided by 
government-owned banks as benchmark rates. A third commenter argued 
that the Department should not use loans from government-owned banks 
for benchmark purposes unless the respondent can demonstrate the 
commercial nature of such loans. This and other commenters objected to 
the burden that the 1997 Proposed Regulations allegedly placed upon a 
petitioner to show that a loan from a government-owned bank is provided 
at the direction of the government or with government funds. Noting 
that the 1989 Proposed Regulations directed the Department to use 
financing provided or directed by the government as a benchmark only 
under certain exceptional circumstances, several commenters urged the 
Department to continue to apply this narrow standard.
    We have traditionally recognized that government-owned banks may 
operate as commercial banks in some countries. It is not appropriate to 
maintain that loans from government-owned banks per se are not 
commercial. Therefore, we continue to take the positions that: (1) We 
will not consider loans provided under government programs to be 
commercial loans, and (2) we will not automatically disqualify loans 
from government-owned commercial banks as benchmarks. However, we will 
not use loans from government-owned special purpose banks, such as 
development banks, as benchmarks because such loans are similar to 
loans provided under a government program or at the direction of the 
government. Regarding loans from government-owned commercial banks, we 
will treat such loans as being commercial and use them as benchmarks 
unless they are made on non-commercial terms or are provided at the 
direction of the government. We do not believe that this standard 
imposes an unreasonable burden on petitioners because this is the type 
of information they would routinely provide when alleging that 
government-provided loans are countervailable.
    Further, regarding the definition of ``commercial,'' where a firm 
receives a financing package including loans from both commercial banks 
and from the government, we intend to examine the package closely to 
determine whether

[[Page 65364]]

the commercial bank loans should in fact be viewed as ``commercial'' 
for benchmark purposes. In particular, we will look to whether there 
are any special features of the package that would lead the commercial 
lender to offer lower, more favorable terms than would be offered 
absent the government/commercial bank package.
    Paragraphs (a)(2)(iii) and (iv) specify the time period from which 
the Department will select comparable financing. Paragraph (a)(2)(iii) 
addresses long-term loans and is unchanged from the 1997 Proposed 
Regulations. This regulation directs us to use a loan whose terms were 
established during or immediately before the year in which the terms of 
the government-provided loan were established. Paragraph (a)(2)(iv) 
addresses short-term loans. In the 1997 Proposed Regulations, we stated 
that we would use as the benchmark rate an annual average of the 
interest rates on comparable commercial loans taken out during the 
period of investigation or review. However, in cases with significantly 
fluctuating interest rates, the 1997 Proposed Regulations allowed us to 
use ``the most appropriate'' interest rate as the benchmark rate.
    We received two comments regarding the benchmark interest rate for 
short-term loans. Both commenters argued against using a simple average 
of the interest rates on comparable commercial short-term loans 
obtained by the respondent. Instead, they asked the Department to 
weight the rates by the associated principal amount of each loan in 
order to prevent small, one-time loans from distorting the benchmark 
calculation. According to the commenters, this change would also 
address the Department's concern about significantly fluctuating 
interest rates.
    We have adopted the commenters' proposal in part and have amended 
paragraph (a)(2)(iv) to provide that we will calculate a weighted 
rather than a simple average benchmark interest rate for short-term 
loans. However, we do not share the commenters' view that this change 
addresses situations where the interest rate fluctuates significantly 
over the year, e.g., in economies with a high inflation rate. We are, 
therefore, retaining the provision that allows us to use benchmarks 
other than annual weighted averages in these situations.
    We also wish to clarify that we intend to follow our practice of 
calculating short-term benchmarks on a calendar year basis. In most 
instances, the period of investigation or review is a calendar year, so 
the short-term benchmark will be calculated using commercial loans that 
were obtained (or could have been obtained) during the period of 
investigation or review. In situations where the loans under 
investigation span two calendar years, we will calculate two annual 
benchmarks corresponding to the two years.
    Finally, we received one comment on the selection of benchmark 
interest rates to be used in administrative reviews of suspension 
agreements. In the preamble to the 1997 Proposed Regulations, we stated 
that in administering a suspended investigation, we would monitor 
developments in commercial benchmarks outside of the normal 
administrative review process and that this monitoring activity should 
serve to ensure that the commercial benchmarks used were timely. The 
commenter, however, claimed that a special regulation requiring the 
Department to monitor commercial benchmark rates is needed because 
otherwise there is no guarantee that the Department will do so. In the 
commenter's experience, the Department has not always undertaken this 
type of monitoring activity. Specifically, pointing to Miniature 
Carnations and Roses and Other Fresh Cut Flowers from Colombia, 59 FR 
52514 (October 18, 1994), the commenter alleged that the Department set 
new benchmarks at the conclusion of each administrative review, with 
the result that the interest rates used for purposes of the suspension 
agreement always lagged behind the contemporaneous commercial rates. 
For short-term loans, the commenter argued, the Department should 
monitor commercial interest rates on at least a quarterly basis in 
order to keep the suspension agreement current.
    We do not agree with the commenter's view that a regulation is 
needed on this issue. In the case of suspension agreements, we will 
revise the benchmarks for long- and short-term loans whenever 
appropriate, regardless of whether we are conducting an administrative 
review of the suspension agreement. To ensure that the benchmarks are 
kept as current as possible, we intend to review them once a year or 
more frequently, if information available to the Department indicates 
that a change is necessary.
    ``Could actually obtain on the market'' defined: In accordance with 
section 771(5)(E)(ii) of the Act, paragraph (a)(3) addresses the 
requirement that the comparable loan be one that the firm ``could 
actually obtain on the market,'' and reflects a change in our practice 
with respect to short-term loans. In the past, we have used national 
average interest rates to determine the benefit from government-
provided short-term loans. This practice was codified in 
Sec. 355.44(b)(3) of the 1989 Proposed Regulations. However, as early 
as 1989, we announced that we would consider using company-specific 
benchmarks for short-term loans. Based upon our experience in the 
interim, and especially because of the ability to computerize our loan 
calculations, we have concluded that we have the capability to use 
company-specific benchmarks. Moreover, we believe that company-specific 
benchmarks provide a more accurate measure of the benefit, if any, to a 
recipient of a government-provided short-term loan. Therefore, 
paragraph (a)(3)(i) states a preference for using company-specific 
benchmarks for both short- and long-term loans. Under paragraph 
(a)(3)(ii), we normally would use national averages only in the event 
that the firm did not take out any comparable commercial loans during 
the relevant period. Except for a minor clarification (adding ``for 
both short- and long-term loans'' to paragraph (a)(3)(i)), these 
paragraphs are unchanged from the 1997 Proposed Regulations.
    Two commenters warned against using the interest rates on 
hypothetical loan offers as benchmark rates. One of the commenters 
pointed to a perceived loophole in the preamble to the 1997 Proposed 
Regulations, which stated that ``a comparable commercial loan used as a 
benchmark should represent a financial instrument * * * that was taken 
out (or could have been taken out) at the same point in time.'' Another 
commenter suggested that the acceptance of hypothetical loan offers for 
benchmark purposes might tempt respondents to manipulate the benchmark 
rate by soliciting offers of loans that they do not intend to take. 
Both commenters asserted that the interest rates on such hypothetical 
loan offers would be very low and that they would, thus, distort the 
benchmark rate.
    We agree that respondents should not be permitted to submit 
hypothetical loans for use as benchmarks. The language in the preamble 
cited by the commenter was meant to address another situation: Where 
the respondent did not actually take out any commercial loans during 
the relevant period and where we, therefore, would use an appropriate 
alternative benchmark interest rate * * * such as a national average 
interest rate. The national average interest rate is representative of 
a loan that ``could have been taken out.''
    Benchmark for uncreditworthy companies: Paragraph (a)(3)(iii), 
which deals with long-term loans provided to firms considered to be 
uncreditworthy, describes our methodology for

[[Page 65365]]

calculating the benchmark that we will use in identifying and measuring 
the benefit attributable to a government-provided, long-term loan 
received by an uncreditworthy firm. One important aspect of this 
methodology has changed from the 1997 Proposed Regulations.
    Our methodology is based explicitly on the notion that, when a 
lender makes a loan to a company that is considered to be 
uncreditworthy (as opposed to a safer, creditworthy company), the 
lender faces a higher probability that the borrower will default on 
repayment of the loan. As a consequence of this higher probability of 
default, the lender will charge a higher interest rate. The calculation 
described in paragraph (a)(3)(iii) addresses the increased probability 
of default for an uncreditworthy company by adjusting upward the 
interest rate for a creditworthy company in the country in question.
    As stated in the 1997 Proposed Regulations, in making this 
adjustment, we are not proposing to calculate the probability that a 
particular uncreditworthy firm will default on a particular loan. Such 
a calculation would require extensive data and analysis, and any 
conclusion would be highly speculative. Instead, similar to the method 
we have used since 1984, we will rely on information regarding the U.S. 
debt market. In the 1997 Proposed Regulations, we stated that we would 
use the weighted average one-year default rate for speculative grade 
bonds, as reported by Moody's Investor Service. This weighted average 
default rate would be reflected indirectly in our formula for 
calculating the benchmark interest rate for uncreditworthy companies, 
which is based on the probability that these risky loans will be 
repaid.
    We received numerous comments on our new methodology. One commenter 
expressed support for the methodology, stating that it seemed to 
calculate accurately the full benefit of a loan subsidy. Certain other 
commenters supported the new methodology as long as it resulted in a 
``substantial spread'' between the observed commercial interest rates 
in the country under investigation and the benchmark interest rate used 
for uncreditworthy companies.
    One commenter did not object to the new methodology but argued 
that, in calculating the risk premium, the Department should use data 
pertaining to the country under investigation, not U.S. data, which 
should only be used as facts available.
    Another commenter criticized the reliance upon default rates in the 
U.S. ``junk'' bond market, arguing that U.S. data do not reflect the 
risk of lending to uncreditworthy companies in foreign countries, 
especially developing countries where the default rate is likely to be 
much higher. This commenter also criticized the use of a one-year 
default rate in the calculation of the risk premium, arguing that this 
significantly understates the overall default rate because default is 
more likely after the first year of the life of a loan. Should the 
Department decide to rely on U.S. market data, the commenter asked that 
the Department, at a minimum, examine the default rate over 10 years.
    Another commenter stated that the Department's new methodology 
implies a serious departure from the statutory mandate to determine an 
interest rate that the borrower could actually obtain on the market. 
First, the commenter argued, a default-based premium does not take into 
account all the costs associated with lending to an uncreditworthy 
company, e.g., collection costs and lost opportunity costs and, as a 
result, the premium is understated. Second, the commenter asserted, the 
new methodology treats all uncreditworthy borrowers as if they were 
large corporate borrowers able to issue junk bonds of the kind reported 
by Moody's. According to this commenter, many companies cannot obtain 
long-term loans even at junk bond rates and are forced to rely on 
borrowing from the venture capital market at substantially higher 
interest rates. In reality, the commenter argued, a private lender 
would assess a company's creditworthiness on a case-by-case basis using 
the same financial indicators that the Department has relied upon in 
the past (see Sec. 355.44(b)(6)(i) of the 1989 Proposed Regulations). 
The regulations, therefore, should reflect such private lender behavior 
by directing the Department to determine the risk premium on a case-by-
case basis.
    Finally, two commenters noted that the European Union (``EU'') 
takes a tougher stance on government loans to uncreditworthy borrowers 
by treating the entire loan as a grant when the recipient company's 
financial position is so weak that it could not have obtained a 
commercial loan, and implied that the Department should follow the EU's 
example.
    As stated in the 1997 Proposed Regulations, we are changing our 
methodology because we believe that the new methodology more 
appropriately reflects the risk involved in lending to firms with 
little or no access to commercial bank loans from conventional sources. 
By adjusting upward the interest rate that an average, creditworthy 
company would pay to account for the greater likelihood of default by 
an uncreditworthy company, we recognize the speculative nature of loans 
to uncreditworthy borrowers and the premium they would have to pay the 
lender to assume that risk.
    We have continued to rely on default information pertaining to the 
United States in our formula because we believe it would be difficult 
to locate detailed and comprehensive default information for many of 
the countries that we investigate. However, if such data do exist and 
are brought to our attention in the course of an investigation or 
review, and the data indicate that the default experience in the 
country in question differs significantly from that in the United 
States, we would consider using the default rate from the country under 
investigation. Therefore, we have amended the 1997 Proposed Regulation 
to say that the Secretary ``normally'' will calculate the benchmark for 
uncreditworthy companies using U.S. data.
    We have not adopted the suggestion that we follow the EU's practice 
of treating loans to uncreditworthy firms as grants. Under our 
definition, uncreditworthy firms are those that cannot obtain long-term 
loans from conventional commercial sources. This does not mean, 
however, that they cannot borrow funds from other sources. Hence, we 
would not equate loans to these companies with grants. Instead, the 
purpose of our methodology is to capture the increased risk of lending 
to these companies.
    Regarding the new calculation methodology, we agree that using a 
one-year default rate would not accurately reflect the risk that an 
uncreditworthy borrower will default on a long-term loan. We have, 
therefore, changed this aspect of our methodology and will use the 
average cumulative default rate for the number of years corresponding 
to the length of the loan, as reported in Moody's study of historical 
corporate bond default rates. In other words, we would use a five-year 
default rate for a five-year loan, a 15-year default rate for a 15-year 
loan, and so forth. We believe that using a default rate that is 
directly linked to the term of the loan is a better reflection of the 
risk associated with long-term lending to uncreditworthy borrowers.
    Our formula for calculating the benchmark interest rate for an 
uncreditworthy company is based upon the assumption that a lender's 
expected return on all loans should be equal. Under this assumption, 
the interest rate differential on loans charged to

[[Page 65366]]

creditworthy and uncreditworthy companies is such that the lender's 
expected (total) return on a loan to an uncreditworthy company equals 
the expected (total) return on a loan to a creditworthy company, after 
accounting for differences in the risk of default. A second assumption 
is that, in the event of default, no portion of the principal or 
interest is recovered by the lender. The following equation relates the 
loan rate to a creditworthy company and the loan rate to an 
uncreditworthy company:

(1-qn)(1+if)n = (1-pn)(1 + 
ib)n,

Where:
n = the term of the loan;
ib = the benchmark interest rate for uncreditworthy 
companies;
if = the long-term interest rate that would be paid by a 
creditworthy company;
pn = the probability of default by an uncreditworthy company 
within n years; and
qn = the probability of default by a creditworthy company 
within n years.

    Default means any missed or delayed payment of interest and/or 
principal, bankruptcy, receivership, or distressed exchange. For values 
of pn, we will normally rely on the average cumulative 
default rates reported for the Caa to C-rated categories of companies 
in Moody's study of historical default rates of corporate bond issuers. 
For values of qn, we will normally rely on the average 
cumulative default rates reported for the Aaa to Baa-rated categories 
of companies in Moody's study of historical default rates of corporate 
bond issuers.
    Solving for ib in the above equation yields a formula 
for the benchmark interest rate that should be paid by an 
uncreditworthy borrower:

ib = [(1-qn)(1+if)n/
(1-pn)]1/n-1.

    One commenter urged the Department to apply a risk premium also to 
short-term loans taken out by uncreditworthy borrowers. Another 
commenter supported this idea, arguing that even though long-term 
financing is riskier, a bank's decision on short-term loans is also 
based on the overall financial health of the borrower.
    The fact that we are using a company-specific benchmark means that 
the risk associated with providing a short-term loan to a company will 
be reflected without any special adjustment. However, even where a 
company-specific benchmark is not available, we do not believe it would 
be appropriate to include a risk premium in the short-term benchmark 
calculation. Short-term lending is less risky than long-term lending 
and the inclusion of a risk premium in the short-term benchmark would 
overcompensate for the commercial default risk. The risk of default in 
short-term lending is minimal because short-term lending is usually 
associated with specific transactions, and these transactions provide 
security for the lender (albeit by means of a wide variety of legal 
modalities). Thus, we have not adopted this suggestion.
    We note that we have identified one situation where it would be 
appropriate to include a risk premium in a short-term benchmark. This 
would arise if we were forced to use a short-term interest rate as a 
benchmark for long-term loans to an uncreditworthy company or as a 
discount rate for allocating benefits received by an uncreditworthy 
company.

Creditworthiness Analysis

    Paragraph (a)(4) sets forth the standard for determining whether a 
firm is uncreditworthy. In the 1997 Proposed Regulations, we made 
certain modifications to Sec. 355.44(b)(6)(i) of the 1989 Proposed 
Regulations to clarify the analysis we intended to undertake in 
determining whether a company is creditworthy. Specifically, we adopted 
a broader definition of ``uncreditworthiness'' where we would find a 
company to be uncreditworthy if information available at the time the 
terms of the government-provided loan were agreed upon indicated that 
the firm could not have obtained long-term financing from conventional 
commercial sources. In this context, the term ``conventional commercial 
sources'' referred to bank loans and non-speculative grade bond issues. 
Hence, uncreditworthy companies were those that would be forced to 
resort to other sources, such as junk bonds, to raise funds. We also 
listed factors we would consider in making a creditworthiness 
determination. These factors focused on the financial position of the 
firm receiving the government financing, without any consideration of 
the purpose of the financing or whether different levels of risk might 
be associated with different types of projects undertaken by the firm.
    We received several comments on our definition of 
``uncreditworthiness.'' Certain commenters urged the Department to 
retain the definition of uncreditworthiness from the 1989 Proposed 
Regulations, arguing that this standard was objective, uncontroversial, 
and easy to administer. These commenters maintained that this standard 
provided important guidance for petitioners who may have difficulties 
obtaining information on the loan options available to respondents. The 
commenters also argued that the new regulation would place a nearly 
impossible burden of proof on petitioners to demonstrate that a 
respondent is uncreditworthy.
    We have not adopted this suggestion. As we stated in the preamble 
to our 1997 Proposed Regulations, we changed the definition from the 
1989 Proposed Regulations because we found that the old definition did 
not contain a general principle to guide our determinations of 
uncreditworthiness. Instead, the 1989 Proposed Regulation relied on a 
formulaic approach to determining creditworthiness that was too 
restrictive. We believe that the general principle adopted in these 
regulations (i.e., an uncreditworthy firm is one which could not have 
obtained long-term financing from conventional sources) will give us 
the flexibility to address situations that would not have met the 
formulaic approach for finding a company uncreditworthy.
    However, although we changed the definition of uncreditworthiness, 
we did not intend to change the standard for initiating an 
investigation of a company's creditworthiness. Therefore, petitioners 
may continue to provide the same type of information we have typically 
relied upon.
    Another commenter argued that the Department should not limit 
itself to examining the creditworthiness of firms as a whole, but 
should also give itself the flexibility to examine the creditworthiness 
of individual projects. This commenter argued that some foreign 
manufacturers, though creditworthy per se, are able to carry out new 
development projects only because they obtain government financing. The 
commenter argued that these manufacturers would not have been able to 
secure financing from commercial sources for their huge development 
projects because these projects are not commercially viable and would 
be impossible to finance without government subsidies. The commenter 
noted that, under the Department's traditional approach, the Department 
would analyze the creditworthiness of the company as a whole, not the 
creditworthiness of the specific project. Hence, the Department would 
be likely to find the foreign manufacturer creditworthy, regardless of 
the commercial viability of the project. The commenter argued that, in 
this type of situation, the Department should focus on the 
creditworthiness of the project, not the firm.
    We share this commenter's concern and have amended the 1997 
Proposed Regulations to allow for a project-specific analysis in 
determining

[[Page 65367]]

creditworthiness. For example, for loans that are provided to fund a 
large investment project into new products, processes, or capacity 
(e.g., a plant expansion or new model or product line, where repayment 
of a loan is contingent upon the success of the particular project 
being funded), our traditional analysis focusing primarily on the 
creditworthiness of the company as a whole may be inappropriate because 
the risk associated with a new project may be much higher or lower than 
the average risk of the company's existing operations. In these 
situations, we would expect commercial lenders to place greater 
emphasis on the expected return and risk of the project because the 
success or failure of the project would be the most important indicator 
of the borrowing firm's ability to repay the loan. This is not to say 
that the financial position of the firm as a whole would be irrelevant 
to the lender's decision, only that the primary focus would be on the 
project itself. Therefore, paragraph (a)(4) now allows for the 
possibility of focusing the creditworthiness analysis on the project 
being financed rather than the company as a whole.
    Significance of long-term commercial loans: In the 1997 Proposed 
Regulations, paragraph (a)(4)(ii) provided that, if a privately-owned 
company received long-term commercial loans without a government loan 
guarantee, we would consider the presence of such commercial loans as 
dispositive evidence that the company was not uncreditworthy.
    Two commenters criticized the Department's proposed approach. These 
commenters maintained that the presence of a long-term, commercial loan 
does not prove that a company is creditworthy. Instead they urged the 
Department to examine all the criteria listed in paragraphs (a)(4)(i) 
(A), (B), (C), and (D) without treating one of these factors as 
dispositive. One of the commenters argued that giving one criterion 
dispositive status would constitute abuse of the Department's 
discretion to implement the statute. The other commenter argued that 
the Department's proposed approach would preclude an in-depth review of 
the company as envisioned by the regulations. Both commenters stated 
that making the presence of a commercial loan a dispositive indication 
of creditworthiness would be particularly inappropriate if the 
commercial loan had characteristics different from the government loan 
(e.g., different requirements of security).
    In general, we believe that if commercial banks are willing to 
provide loans to the firm, we should not substitute our judgment and 
find the firm to be uncreditworthy. This does not mean, however, that 
if the firm has taken out a single commercial bank loan we would find 
that loan to be dispositive evidence that the firm was creditworthy. 
Instead, the intent of this paragraph is to indicate that, where the 
firm has recourse to commercial sources for loans, as made evident by 
the receipt of such loans, and the commercial loans are comparable with 
the government loan, those loans will be dispositive of the firm's 
creditworthiness. However, if, for example, the firm has obtained a 
single commercial loan in the year in question for a relatively small 
amount, and the loan has a short repayment term (e.g., less than two 
years), or has unusual aspects, receipt of that loan will not be 
dispositive of the firm's creditworthiness, and we will go on to 
examine the other factors listed in paragraph (a)(4)(i) B through D.
    We have also made a change from the 1997 Proposed Regulations 
regarding the presence of guarantees and the firm's creditworthiness. 
We have added ``explicit or implicit'' to modify ``government 
guarantee.'' This serves to clarify our position that if either type of 
guarantee is present, the commercial loans will not be viewed as 
dispositive of the firm's creditworthiness. We may consider a 
commercial loan to be covered by an implicit government guarantee where 
the loan contributes to the financing of a project that is being 
undertaken in conjunction with government loan funds or other types of 
government participation such as development grants. In such a 
scenario, while no explicit government guarantee is present, we believe 
that banks are likely to assume that the government will stand behind 
the project and ensure that creditors are repaid.
    Finally, we note our longstanding practice that creditworthiness 
determinations are made on a year-by-year basis. For example, if we are 
trying to determine whether a firm is creditworthy in 1998, we will 
look to whether the firm has negotiated commercial loans in 1998.
    One commenter suggested that purchases of equity in a company by a 
commercial institution should also constitute dispositive evidence of 
creditworthiness. The commenter reasoned that a private entity willing 
to invest in a company would presumably also be willing to lend money 
to that company because investing is riskier than lending.
    We have not adopted this suggestion. By its very terms, equity 
differs from loans and, hence, the presence of equity investments (even 
if made by private investors) is not necessarily indicative of whether 
the firm could obtain loans from commercial sources. As an extreme 
example, private owners may inject equity into their company because 
the debt-to-equity ratio is so high that it has become virtually 
impossible for the company to borrow funds. Clearly, in this situation, 
the presence of equity purchases by the owners would not be indicative 
of the firm's access to commercial loans.
    We received two comments regarding the significance of the receipt 
of a commercial loan where we are examining the creditworthiness of a 
government-owned company. One commenter suggested that paragraph 
(a)(4)(ii) should apply also to government-owned firms. Another 
commenter took the opposite view, stating that it is not unusual to 
find commercial lenders providing loans to government-owned companies 
which are otherwise uncreditworthy.
    We do not believe that the presence of commercial loans is 
dispositive of whether a government-owned firm could have obtained 
long-term financing from conventional commercial sources. This is 
because, in our view, in the case of a government-owned firm, a bank is 
likely to consider that the government will repay the loan in the event 
of default. Accordingly, paragraph (a)(4)(ii) provides that the 
presence of comparable commercial loans will be dispositive of 
creditworthiness only for privately owned companies. For government-
owned firms, we will make our creditworthiness determination by 
examining this factor and the other factors listed in paragraph 
(a)(4)(i).
    Significance of prior subsidies: Paragraph (a)(4)(iii) in the 1997 
Proposed Regulations stated that we would ignore current and prior 
countervailable subsidies in determining whether a firm is 
uncreditworthy. In other words, we would not attempt to adjust a firm's 
financial data for current and prior subsidies in making a 
creditworthiness determination.
    We received three comments on this issue, all of which urged the 
Department to change its approach and adjust for prior subsidies when 
examining a firm's creditworthiness. One of these commenters requested 
that the Department take prior subsidies into account to the same 
extent that a reasonable private lender would. This commenter argued 
that, by ignoring prior subsidies, the Department is not adhering to 
the standards of a reasonable private lender. The commenter maintained 
that, if a

[[Page 65368]]

company's financial health is due to government assistance, a private 
lender would examine the company's underlying performance independent 
of subsidies. The private lender, who would then discover that the 
company's financial health was superficial, might not lend money to the 
company unless the lender was convinced that the government would 
continue to provide subsidies in the future. A second commenter argued 
that failure to consider prior subsidies when making a creditworthiness 
determination underestimates the benefit received. This commenter urged 
the Department to estimate the recipient company's financial situation 
without subsidies and base its creditworthiness determination on this 
estimate.
    We have not adopted this suggestion. Our longstanding practice has 
been not to take current or prior subsidies into account when 
determining a company's creditworthiness. We believe that trying to 
adjust a company's financial ratios for previously received subsidies 
would be an extremely difficult and highly speculative exercise.
    We have made one small amendment to paragraph (a)(4)(iv) addressing 
the discount rate. We have changed ``non-recurring grant'' to ``non-
recurring benefit'' to conform with the new nomenclature used in 
Sec. 351.524.

Calculation of Benefit From Long Term Variable Rate Loans

    Paragraph (a)(5) deals with long-term variable rate loans and 
codifies the methodology set forth in the GIA. Under paragraph 
(a)(5)(i), which is unchanged from the 1997 Proposed Regulations, the 
year in which the terms of the government-provided loan are set 
establishes the reference point for comparing the government-provided 
variable-rate loan with the comparable commercial variable-rate loan. 
If the interest rate on the government-provided loan is lower than the 
interest rate on the comparable commercial loan, a benefit exists. If 
the interest rate on the government-provided loan is the same or 
higher, no benefit exists. The rationale for basing the decision on the 
first-year interest rate differential is that the interest rate spread, 
if any, in that year generally will apply throughout the life of the 
loan.
    Paragraph (a)(5)(ii) recognizes that there may be situations where 
the method described in paragraph (a)(5)(i) cannot be followed and 
provides the Department with the discretion to modify that method. For 
example, there may be no comparable commercial variable-rate loan to 
use for comparison purposes, or the repayment structure of the 
government-provided variable-rate loan may be such that the simple 
interest rate comparison described in paragraph (a)(5)(i) would not 
yield an accurate measure of the benefit.

Allegations

    Paragraph (a)(6)(i) deals with the standard for initiating an 
investigation of a respondent company's creditworthiness. It is 
unchanged from the 1997 Proposed Regulations. In accordance with our 
past practice, this paragraph states that the Secretary will normally 
require a specific allegation before the Department will consider the 
creditworthiness of a firm.
    One commenter argued that the Department should not employ a 
heightened initiation standard for investigating a company's 
creditworthiness. Specifically, this commenter suggested that the 
requirement that petitioners supply information ``establishing a 
reasonable basis to believe or suspect'' that a company is 
uncreditworthy be replaced with information ``reasonably available to 
petitioners.''
    We have not adopted this suggestion. The requirement that 
petitioners establish ``a reasonable basis to believe or suspect'' 
uncreditworthiness rather than merely provide ``information reasonably 
available'' to them dates back to the 1989 Proposed Regulations. 
Because of the additional workload involved in investigating and 
determining whether a company is uncreditworthy, we continue to believe 
that it is appropriate to impose a higher standard for 
uncreditworthiness allegations. This does not involve any change in our 
past practice--the same types of allegations that we have accepted in 
the past will still suffice to start a creditworthiness inquiry.
    Paragraph (a)(6)(ii) establishes the evidentiary standard for 
investigating loans extended by government-owned banks. In the 1997 
Proposed Regulations, we made a distinction between government-owned 
banks that are operated to meet special financing needs and government-
owned commercial banks. For special purpose banks (such as national 
development banks), we asked that petitioners provide information 
reasonably available to them indicating that loans provided by such 
banks were specific and that the interest charged was not at commercial 
rates. For government-owned commercial banks, we requested that 
petitioners also provide information establishing a reasonable basis to 
believe or suspect that the loans were something more than mere 
commercial loans. In particular, we requested information suggesting 
that such loans were provided at the direction of the government or 
with funds provided by the government.
    Several commenters objected to the higher initiation standard for 
loans provided by government-owned commercial banks. They argued that 
the additional information required by the Department for initiating an 
investigation of loans from this category of banks is not reasonably 
available to petitioners. They contended that it should be sufficient 
for petitioners to demonstrate that a loan is specific and provided on 
terms inconsistent with commercial considerations. They suggested that 
the burden of proof be shifted to respondents to show that the loan 
involves no government funds or government direction. Another commenter 
asserted that the division of government-owned banks into two 
categories is a new approach and not part of the Department's past 
practice. The same commenter argued that the Department's 1997 Proposed 
Regulations would create a loophole because the Department's threshold 
for initiating an investigation of loans from government-owned 
commercial banks would be higher than for initiating an investigation 
of loans from privately-owned banks and government-owned special 
purpose banks.
    Based on our consideration of these comments, we have decided that 
the distinction between government-owned special purpose banks and 
government-owned commercial banks may not be helpful in this context 
and that it is, therefore, not meaningful to retain different 
initiation standards for investigating loans from these two categories 
of banks. Paragraph (a)(6)(ii) has, thus, been changed and now provides 
that, for loans provided by any government-owned bank, the Secretary 
will require petitioners to present information reasonably available to 
them indicating that the loans: (1) Are specific in accordance with 
section 771(5A) of the Act, and (2) are provided on terms more 
favorable than those the recipient would pay on a comparable commercial 
loan that the recipient could actually obtain on the market. This 
initiation standard is consistent with the initiation standard for most 
subsidy allegations, i.e., petitioner must allege (and provide 
reasonably available information in support of the allegation) that the 
subsidy is specific and that it confers a benefit. We believe that, for 
initiation purposes, government ownership is sufficient to indicate 
that funds have been provided at the direction of the government.

[[Page 65369]]

    One commenter argued that loans provided by special purpose 
government-owned banks should be presumed to be specific for purposes 
of making a subsidy allegation because such banks promote specific and 
narrow objectives. This commenter stated that many petitioners cannot 
obtain the information needed to show that a loan is specific. In this 
commenter's view, the Department should instead require respondents to 
show that the loans are generally available.
    We have not adopted this suggestion. With any presumption, there 
must be a factual basis for making the presumption, and none exists in 
this instance. The fact that special purpose banks may be set up to 
achieve certain objectives does not necessarily mean that they provide 
funds to a specific group of enterprises or industries. As with any 
other domestic program, petitioners must provide information reasonably 
available to them indicating that the bank's loans are specific and 
that they confer a benefit.

Timing of Receipt of Benefit

    Paragraph (b) sets forth a rule regarding the point in time at 
which the benefit from a loan arises. The 1997 Proposed Regulations 
stated that we would consider the benefit as having been received on 
the date on which the firm is due to make a payment on the government-
provided loan. In these Final Regulations, we have amended the 
regulation such that we will consider the benefit to have been received 
in the year in which the firm otherwise would have had to make a 
payment on the comparable commercial loan. The second sentence of 
paragraph (b) addresses loans with special characteristics, e.g., loans 
with non-commercial grace periods. With these types of loans, we 
believe that the benefit stream starts upon the receipt of the loan. It 
would not be appropriate to wait until the end of the grace period to 
begin assigning the benefit from such loans because the firm would have 
had to make loan payments during this period if the loan were provided 
on commercial terms.

Allocation Over Time

    Paragraph (c) deals with the allocation of the benefits of a 
government-provided loan to a particular time period and reflects one 
minor change from the 1997 Proposed Regulations.
    Paragraph (c)(1) provides that the benefit of a short-term loan 
will be allocated (expensed) to the year(s) in which the firm is due to 
make interest payments on the loan. This approach, which essentially 
treats short-term loans as recurring subsidies, is consistent with 
longstanding Department practice. We have added to the paragraph the 
same condition that applies to long-term loans, i.e., that the amount 
of the subsidy conferred by a government-provided loan can never exceed 
the amount that would have been calculated if the loan had been given 
as a grant.
    Paragraph (c)(2) deals with situations in which the benefit of a 
government-provided long-term loan stems solely from the concessionary 
interest rate of the loan, not from any differences in repayment terms. 
Where this is the case, there is no need to engage in the complicated 
calculations called for by Sec. 355.49(c) of the 1989 Proposed 
Regulations. Instead, as paragraph (c)(2) provides, the annual benefit 
can be determined by simply calculating, for each year in which the 
loan is outstanding, the difference in interest payments between the 
government-provided loan and the comparison loan. The last sentence of 
paragraph (c)(2) restates our long-held principle that the amount of 
the subsidy conferred by a government-provided loan never can exceed 
the amount that would have been calculated if the loan had been given 
as a grant.
    Paragraph (c)(3) deals with situations where both the government-
provided loan and the comparison loan are long-term, fixed-interest 
rate loans, but where the two loans have dissimilar grace periods or 
maturities, or where the repayment schedules have different shapes 
(e.g., declining balance versus annuity style). Because a firm may 
derive a benefit from special repayment terms, in addition to any 
benefit derived from a concessional interest rate, we will calculate 
the benefit in a two-step process. First, paragraph (c)(3)(i) directs 
us to calculate the present value, in the year in which repayment would 
begin on the comparable commercial loan, of the difference between the 
amount that the firm is to pay on the government-provided loan and the 
amount that the firm would have paid on the benchmark loan (this 
difference is called ``the grant equivalent''). Second, paragraph 
(c)(3)(ii) provides that we allocate this grant equivalent over time by 
using the allocation formula in Sec. 351.524(d)(1). We have decided to 
eliminate our old loan allocation formula described in the 1989 
Proposed Regulations, as part of our effort to streamline 
methodologies, where possible. In determining that the benefit from 
these types of loans occurs in the year in which the government-
provided loan was received (see Sec. 351.505(b)), the old loan formula 
is unnecessary, because its primary purpose was to begin assigning 
annual benefit amounts in the year after the receipt of the loan.
    We received two comments on this issue. Both commenters objected to 
our use of the number of years in the life of the government-provided 
loan when allocating the benefit of loans with concessionary grace or 
deferral periods. The commenters argued that, because of the 
concessionary grace/deferral period, the Department is diluting the 
annual benefit by including this period in the allocation period. 
Instead, the commenters urged the Department to allocate the benefit 
over the length of the benchmark loan. In addition, the commenters 
asked the Department to ``add an additional amount to reflect the 
present value of the benefit from reduced interest and principal 
payments'' due to a deferral of the repayment schedule.
    We have not adopted these suggestions. With regard to the former 
comment, matching the allocation period with the life of the 
government-provided loan is a more predictable, transparent, and 
logical methodology. This is because we will be allocating subsidy 
benefits as long as the government-provided loan is on the firm's 
books. Using a different allocation period, such as the life of the 
benchmark loan, could mean that subsidy benefits would end even though 
the subsidized loan itself is still outstanding. Moreover, we do not 
share the commenters' view that our methodology dilutes the annual 
benefit. Although the amounts countervailed each year may be smaller 
under our methodology, the benefit stream will correspond to a period 
that matches the life of the subsidized loan.
    Paragraph (c)(4) sets forth the method of calculating an annual 
benefit for government-provided variable-rate loans. No comments were 
received on this paragraph.

Contingent Liabilities

    Paragraph (d) sets forth the method for calculating the annual 
benefit attributable to a long-term interest-free loan, for which the 
obligation for repayment is contingent upon the company taking some 
future action or achieving some goal in fulfillment of the loan's 
requirements, such as the achievement of a particular profit level by 
the firm. We have made changes to this paragraph so that our 
methodology for these loans conforms to the methodology for tax 
deferrals (see, e.g., Sec. 351.509). In the case of tax deferrals, we 
recognized that if the event that triggers repayment will not occur for 
several years, the deferral should be treated as a long-term loan and 
the

[[Page 65370]]

benefit measured using a long-term benchmark. Contingent liability 
loans are analogous to tax deferrals. Consequently, our regulation now 
states that where the event triggering repayment will occur at a point 
in time after one year from receipt of the contingent liability, we 
will treat the contingent liability as a long-term loan.
    Additionally, paragraph (d)(2) now recognizes that it may be 
appropriate in certain circumstances to treat contingent liabilities as 
grants. This would occur, if at any point in time, we determine from 
record evidence that the event upon which repayment depends is not a 
viable contingency. In this instance, we will treat the outstanding 
balance of the loan as a grant received in the year in which this 
condition manifests itself.
    One commenter asked that the regulations clarify that in the event 
of forgiveness of a contingent liability, a new subsidy arises whose 
benefit is equal to the unpaid principal of the loan.
    We will continue our longstanding practice and treat the entire 
unpaid principal of a forgiven loan and any accumulated interest, 
regardless of whether it is a contingent liability loan or a regular 
loan, as a grant bestowed at the time of the forgiveness (see, e.g., 
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from Germany, 
58 FR 6223, 6234-35 (January 27, 1993)).

Section 351.506

    Section 351.506 deals with loan guarantees. Paragraph (a)(1) sets 
forth the general rule for identifying and measuring the benefit 
attributable to a government-provided loan guarantee, and conforms to 
the new standard contained in section 771(5)(E)(iii) of the Act. 
According to this general rule, a benefit exists to the extent that the 
total amount a firm pays for a loan with a government-provided loan 
guarantee is less than what the firm would have paid for a comparable 
commercial loan that the firm could actually obtain on the market 
absent the government guarantee. In this context, ``total amount'' 
includes both the loan guarantee fee and the effective interest paid on 
the loan. The terms ``comparable commercial loan'' and ``could actually 
obtain on the market'' are defined in Sec. 351.505(a)(2) and (3), 
respectively.
    One commenter asked the Department to recognize that the very 
existence of a government loan guarantee constitutes prima facie 
evidence that a countervailable benefit exists because a government 
loan guarantee is only necessary when a company cannot obtain a loan 
without a loan guarantee and when such a guarantee is not available 
from private sources.
    We have not adopted this suggestion. As with other forms of 
financial contributions, the Department must determine that a benefit 
is conferred before we can find a subsidy program to be 
countervailable. However, we acknowledge that the presence of a 
government loan guarantee may affect other terms of the loan, such as 
the interest rate. Therefore, when we are dealing with a government-
guaranteed loan, we will carefully examine all of the terms of both the 
government loan and the benchmark loan to ensure that we capture all of 
the benefit.
    One commenter asked the Department to clarify that the term 
``comparable loan'' includes both comparable size and risk level. 
Another commenter urged the Department to recognize that the risk to 
the lender would be higher without a loan guarantee and that the 
borrower, therefore, would have to pay a higher interest rate absent 
the guarantee.
    We intend to interpret the term ``comparable commercial loan'' as 
it affects loan guarantees in the same manner as when we are addressing 
loans. The role of relative risk levels is discussed in the preamble to 
Sec. 351.505. We agree with the second commenter that a lender faces 
greater risk if a loan is not guaranteed. We believe that this 
additional risk will be captured in the benefit methodology described 
in paragraph (a). This is because the interest rate on the guaranteed 
loan will be compared with either (1) the interest rate on a comparable 
unguaranteed (and, hence, riskier) loan that was obtained, or could 
have been obtained, by the firm; or (2) the interest rate on a 
comparable commercially guaranteed loan that was obtained, or could 
have been obtained, by the firm. In the latter case, we would expect 
that the two guaranteed loans would have similar risk levels and that 
the interest rates would be similar, assuming that the loans are 
comparable as defined above. Of course, we would also adjust for 
differences in guarantee fees as paragraph (a)(1) directs us to do.
    Two commenters urged the Department to make sure that we capture 
the full benefit conferred by a government loan guarantee by measuring 
the difference in loan terms resulting from the government guarantee as 
well as the difference in the cost of the guarantees.
    We believe that paragraph (a)(1) addresses the commenters' 
concerns. By measuring the difference between the total amount that a 
firm pays for a loan guaranteed by the government and the amount that 
the firm would have paid on a comparable commercial loan (including any 
difference in guarantee fees), we are capturing both elements brought 
up by the commenters.
    Paragraph (a)(2) of the 1997 Proposed Regulations specified that a 
government loan guarantee that was given by the government in its 
capacity as owner (i.e., not under a government guarantee program used 
by government-owned and privately owned companies) would not be 
considered countervailable if private owners normally provide 
guarantees in the same circumstances. In the preamble of the 1997 
Proposed Regulations, we said that if the government directly 
guarantees the debt of a company it owns, it would fall upon the 
respondent to demonstrate that it is normal commercial practice for 
private shareholders in that country to guarantee the debt of the 
companies in which they own shares. The preamble further provided that 
in a situation where a government-owned holding company guarantees the 
debt of its subsidiaries, the respondent would need to show that it is 
normal commercial practice for non-government-owned corporations to 
guarantee the debt of their subsidiaries. In addition, the respondent 
would need to demonstrate that the holding company has sufficient 
internally-generated resources to serve as guarantor of the debt.
    One commenter maintained that, because of their greater financial 
resources and also for social and political reasons, governments have a 
greater ability and interest in guaranteeing certain loans than private 
shareholders do. Therefore, the commenter argued, in a situation where 
a government provides a loan guarantee to a company it owns, the 
Department should presume that the guarantee constitutes a 
countervailable subsidy unless the respondent can show that the 
guarantee was provided on commercial terms. In addition, this commenter 
emphasized that the burden should be on the respondent, not on the 
Department, to show that it is normal commercial practice in the 
country under investigation to provide loan guarantees.
    We have not adopted a presumption that government-provided loan 
guarantees to government-owned firms are countervailable subsidies. If 
the respondent cannot provide evidence showing that it is normal 
commercial practice for private owners to give comparable loan 
guarantees to firms they own, the Department will determine whether the 
government loan guarantee resulted in the borrower

[[Page 65371]]

receiving a loan on terms more favorable than the firm would have 
received on a comparable commercial loan. We have modified paragraph 
(a)(2) to reflect this burden.
    In the preamble to the 1997 Proposed Regulations, we also stated 
that where the government or a government-owned holding company 
guarantees the debt of an ``uncredit worthy'' company it owns (see 
Sec. 351.505(a)(4) regarding uncreditworthy companies), the respondent 
must provide evidence that private owners would also guarantee the debt 
of uncreditworthy companies they own.
    Two commenters argued that in the case of uncreditworthy companies, 
the countervailable benefit is equal to the amount of the guaranteed 
loan because an uncreditworthy company would not have been able to 
obtain any loan at all without government loan guarantees. They urged 
the Department to treat the entire amount of a guaranteed loan provided 
to an uncreditworthy company as a grant. In addition, one of the 
commenters implied that the European Union follows this practice.
    We have not adopted this suggestion. Subsidized loan guarantees are 
essentially treated as subsidized loans. Therefore, consistent with our 
methodology of constructing a benchmark for loans to uncreditworthy 
companies (see Sec. 351.505(a)(3)(iii)), we would construct a benchmark 
when uncreditworthy companies are given loan guarantees.
    Paragraph (b) sets forth a rule regarding the point in time at 
which the benefit from a loan guarantee arises. The 1997 Proposed 
Regulations stated that we would consider the benefit as having been 
received on the date on which the firm is due to make a payment on the 
government-guaranteed loan. In these Final Regulations, we have amended 
the regulation such that we will consider the benefit to have been 
received in the year in which the firm otherwise would have had to make 
a payment on the comparable commercial loan.
    Paragraph (c) deals with the allocation of the benefit to a 
particular time period. It is unchanged from the 1997 Proposed 
Regulations.

Section 351.507

    Section 351.507 pertains to equity infusions. The methodology 
reflected here has changed from that laid out in the 1997 Proposed 
Regulations. The changes stem from our consideration of the comments 
received and a reevaluation of certain fundamental assumptions 
regarding the nature of, and circumstances surrounding, a government's 
purchase of shares in a company.
    The 1997 Proposed Regulations assigned all equity infusions to one 
of two main methodological tracks according to whether or not a market 
share price for the company receiving the infusion was available. Where 
a market share price was available, we intended to use that price as a 
benchmark against which to compare the government purchase price of the 
stock. Any premium paid by the government was to be considered a 
benefit. While we expressed a preference for the use of a market price 
for newly issued shares which were identical or similar to the shares 
purchased by the government, we stated that, where such a price was not 
available, we would resort to using a market price for similar, pre-
existing shares (i.e., a ``secondary market price'') as the benchmark. 
Where secondary market prices were to be used, we proposed using post-
infusion prices to ensure that our analysis captured any ``dilution'' 
effects (i.e., any effects from the issue of new shares on the value of 
existing shares).
    Where a market price for the shares purchased by the government was 
not available, we explained that we would first conduct our 
conventional equityworthiness test. If the company was deemed 
equityworthy, i.e., appeared capable of generating a ``reasonable rate 
of return within a reasonable period of time,'' and if there were no 
special conditions or restrictions attached to the government's shares 
rendering their purchase inconsistent with the usual investment 
practice of private investors, the equity infusion would not confer a 
benefit. A finding that the company was unequityworthy would equate to 
a finding that the investment was inconsistent with the usual 
investment practice of private investors. To measure the benefit, the 
Department would attempt to construct a price that a reasonable private 
investor would theoretically have been willing to pay for the shares 
(``constructed private investor price'' or ``CPIP''). Any difference 
between the government purchase price and the CPIP would be considered 
a subsidy. If the information necessary for calculating the CPIP was 
not available, the Department would allocate the entire infusion amount 
over time, but deduct from the portion allocated to a particular year 
the amount of actual returns achieved by the firm in question in that 
year.
    We received numerous comments regarding many aspects of the 
proposed methodology. Several comments focused on the use of private 
prices: Some commenters suggested abandoning any reference to market 
prices in all cases; some suggested abandoning only any reference to 
secondary market prices; and some supported use of private market 
prices, but requested that a pre-infusion rather than a post-infusion 
price be used.
    Some commenters argued that the fact that a company's previously 
issued shares are traded in the secondary market is not conclusive 
evidence of that company's ability to raise new capital from private 
investors. These commenters pointed to the case where an otherwise 
financially sound company is contemplating a new expansion project 
about which general sentiment among private investors is pessimistic 
given the increased risk or low value the expansion is expected to add 
to the company as a whole. In this case, private investors would not 
likely purchase new shares. These commenters argued that, rather than 
using the secondary market shares as a benchmark to measure the 
benefit, the Department should move straight to its equityworthiness 
analysis as it does when there is no benchmark.
    If the Department relies on secondary market prices as a standard 
by which to evaluate the reasonableness of the government's equity 
investment, however, several commenters argued that post-infusion 
prices should not be used. These commenters argued that such prices are 
inappropriate because a reasonable private investor could not know at 
the time of the purchase of new shares what the subsequent market price 
of that stock would be. Pre-infusion, rather than post-infusion, prices 
are, therefore, a better standard by which to judge the reasonableness 
of a government equity infusion.
    The vast majority of equity comments addressed the proposed 
methodology for measuring the benefit to unequityworthy companies. 
While a few commenters expressed support for the proposed methodology, 
many others objected, arguing that a change from the current 
methodology (i.e., treating the entire infusion as a benefit) is not 
mandated by either the SCM Agreement or the URAA, and that such a 
change represents a troublesome weakening of the CVD law. According to 
these commenters, the Department's stated legal authorities for the 
proposed change are not relevant to this particular issue: the GATT 
Panel ruling in the Lead and Bismuth case was rejected by the United 
States as inconsistent with U.S. law and the international subsidy 
code, and the CIT ruling in AIMCOR dealt only with the case of an

[[Page 65372]]

equityworthy firm (see United States--Imposition of Countervailing 
Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products 
Originating in France, Germany and the United Kingdom, SCM/185 
(November15, 1994) and AIMCOR, Alabama Silicon, Inc. v. United States, 
912 F. Supp. 549, 552-55 (CIT 1995) (``AIMCOR II'')).
    The central point of the commenters opposing our proposed 
methodology was that, once a company has been deemed unequityworthy, 
the full amount of any equity infusion by the government should be 
considered a benefit. In other words, because the company would not 
have received any new capital absent government involvement, the 
benefit to the recipient is equal to the amount of the infusion. In 
contrast, the proposed methodology of constructing a private investor 
price, and the alternative methodology of adjusting for returns, use a 
cost-to-government standard which has been explicitly rejected as 
unlawful by the CIT. See British Steel Corp. v. United States, 605 F. 
Supp. 286, 295-296 (CIT 1985). These commenters also provided further 
theoretical, practical and legal reasons why each of the proposed 
methodologies is inappropriate.
    First, several commenters maintain that the proposed CPIP 
methodology is based on the erroneous assumption that prices of a new 
share issue in an unequityworthy firm could be priced low enough to 
yield an overall return (dividends plus capital appreciation) to the 
new investor comparable to a market return. If the investment in which 
the new capital is used is not expected to yield a market return (which 
is why the firm is unequityworthy), issuing new shares at a discounted 
price would lower the existing shareholders' expected returns by 
diluting their claim on the firm's total equity. The existing 
shareholders, from the view of a reasonable private investor, have no 
incentive to allow this to happen. Hence, there is no price--in theory 
or in practice--at which, simultaneously, private investors would be 
willing to buy, and current shareholders willing to sell, shares in an 
unequityworthy company.
    Another problem with the CPIP approach, according to these 
commenters, is that it is subject to manipulation in the case of an 
equity infusion into a 100 percent government-owned firm. In such a 
case, the earnings per share could always be manipulated (by adjusting 
the number of shares purchased) to reflect a fabricated per share 
``market return'' without any adverse consequences for the government, 
which, in any case, would retain its claim on all of the company's 
profits.
    Finally, as a practical matter, these commenters argue that the 
analysis called for under the CPIP approach places a significant burden 
on the Department. They argue that calculating the theoretical price a 
private investor would have been willing to pay for a stock would 
require a considerable level of financial expertise, would prove an 
inordinate drain on the Department's resources, and would involve too 
much conjecture on the part of the Department in matters of financial 
forecasting.
    Several commenters also objected to the proposed alternative 
methodology of treating the entire infusion as a benefit, but then 
adjusting that benefit by actual returns. These commenters likened this 
methodology to the rate-of-return-shortfall (``RORS'') approach 
rejected by the Department in 1993. In their opinion, the arguments 
proffered by the Department for rejecting the RORS approach are equally 
valid in this case.
    One such argument is that dividends (or actual returns) cannot be 
considered a ``repayment'' of the benefit conferred by the government 
equity infusion because dividends are, in fact, generated from that 
benefit. Nor can the dividends be used to reduce the amount of the 
benefit because the CIT has ruled that dividends are not explicitly 
included in the statutory list of allowable offsets. British Steel PLC. 
v. United States, 879 F. Supp. 1254, 1309 (CIT 1995).
    These commenters highlighted several additional arguments, 
originally identified by the Department with regard to the RORS 
methodology, that explain why it is inappropriate to adjust for actual 
returns. First, the actual returns method is a post-hoc valuation of an 
investment which measures events subsequent to the equity infusion. 
Second, the proposed approach fails to account for later subsidies 
which could improve the financial status of the company, improperly 
reducing the benefit associated with earlier subsidies. Third, a 
company that was performing poorly could have an anomalous profitable 
year, allowing it to escape countervailing duties for that year. 
Fourth, the proposed approach does not measure the rate of return on 
the government's original equity infusion, but rather the rate of 
return in the period of investigation or review on the firm's total 
equity. Finally, the approach engenders bias in the administration of 
the law in that investments in unequityworthy companies will escape 
countervailing duties when results are unexpectedly good, but 
investments in equityworthy companies will not be countervailed when 
the results are unexpectedly bad.
    After considering all of the comments, we have decided to revise 
the methodology described in the 1997 Proposed Regulations for 
analyzing equity infusions. In large measure, we are codifying our 
current practice with a number of important modifications. We believe 
that the approach detailed below better reflects the principles set 
forth in the statute, SAA and the SCM Agreement, and addresses many 
commenters' concerns while maintaining, to the extent possible, 
continuity with past Department practice.
    Consistent with section 771(5)(E)(i) of the Act, paragraph (a)(1) 
provides that a benefit is conferred by a government-provided equity 
infusion if the investment decision is inconsistent with the usual 
investment practice of private investors, including the practice 
regarding the provision of risk capital, in the country in which the 
equity infusion is made. As in the 1997 Proposed Regulations, our 
methodology for identifying and measuring the resulting benefit is 
divided into two methodological tracks, with the choice of methodology 
dependent upon whether or not actual private investor prices can serve 
as a benchmark for the shares purchased by the government. However, for 
reasons discussed in greater detail below, we have changed our proposed 
methodology for calculating the benefit where there are no private 
investor prices and we will not construct the theoretical price a 
private investor would pay. Therefore, we have deleted the second 
sentence that appeared in paragraph (a)(1) of the 1997 Proposed 
Regulations.

Actual Private Investor Prices Available

    Paragraph (a)(2) contains rules for analyzing equity infusions when 
actual private investor prices (i.e., market prices) are available--the 
first methodological track--and has retained only some portions of the 
language in the 1997 Proposed Regulations. Under Sec. 351.507(a), the 
initial step in analyzing an equity infusion is to determine whether, 
at the time of the infusion, there was a market price for newly issued 
equity. If so, the Department would consider the equity infusion to 
have conferred a benefit if the price paid by the government for the 
newly issued equity was more than the price paid by private investors 
for the same new issue. For example, if a government pays $10 per share 
for newly issued shares in a firm, and private investors pay $8 per 
share for shares in the same share issue,

[[Page 65373]]

a benefit exists in the amount of $2 per share ($10-$8=$2).
    Paragraph (a)(2)(i) also provides for the use of a ``similar form'' 
of new, contemporaneously issued shares as the basis for the reasonable 
private investor benchmark. As noted in the preamble to the 1997 
Proposed Regulations, in the Certain Steel determinations the 
Department determined that, in appropriate circumstances, shares with 
similar characteristics can be compared, as long as appropriate 
adjustments are made. See GIA at 37252. The CIT subsequently upheld the 
principle of relying on a similar form of equity where the same form of 
equity does not exist. Geneva Steel v. United States, 914 F. Supp. 563, 
580 (CIT 1996).
    Where similar new, contemporaneously issued shares are used as the 
benchmark, paragraph (a)(2)(iv) provides that the Department will make 
a price adjustment for differences in the types of shares when it is 
appropriate. See, e.g., Certain Fresh Atlantic Groundfish from Canada, 
51 FR 10047 (March 24, 1986). Moreover, paragraph (a)(2)(iii) requires 
that, where the Department uses the private investor prices, the amount 
of shares purchased by private investors must be significant so as to 
provide an appropriate benchmark. See, e.g., Small Diameter Circular 
Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe from 
Italy, 60 FR 31992, 31994 (June 19, 1995).
    An important change to paragraph (a)(2) from the 1997 Proposed 
Regulations is that we have eliminated any provision for the use of 
secondary-market share prices. As discussed in greater detail below, in 
cases where private investor prices for the newly issued shares are not 
available, we will proceed directly to an equityworthiness 
determination without any reference to secondary market prices. 
Although previous Department practice has been to prefer market-
determined share prices (including secondary prices) when available and 
useable, we are persuaded that a revision of this practice is now 
warranted for the following reasons.
    In our view, secondary market prices do not necessarily reflect the 
market value of new shares, regardless of the point in time the 
comparison is made. Use of secondary market prices before a government 
infusion does not account for the dilution of company ownership and 
does not take into consideration private investors' perceptions of the 
recipient company's intended use of the newly obtained equity capital. 
Use of post-infusion secondary market prices may also be problematic. 
For example, the fact that the government has made an infusion may 
cause investors to bid up the secondary market price of the stock to a 
higher level than that warranted by the improved capital position of 
the company. The Department cannot reasonably account for such 
secondary market phenomena. In sum, secondary market prices are not a 
reliable basis for measuring the market value of newly issued equity.

Actual Private Investor Prices Unavailable

    One of the most difficult methodological problems confronted by the 
Department in its administration of the CVD law involves the analysis 
of government-provided equity infusions in situations where there is no 
market benchmark price. Since 1982, the Department has dealt with this 
problem by categorizing firms as either ``equityworthy'' or 
``unequityworthy.'' As set forth in Sec. 355.44(e)(2) of the 1989 
Proposed Regulations, an equityworthy firm was one that showed ``an 
ability to generate a reasonable rate of return within a reasonable 
period of time.'' An unequityworthy firm did not show such an ability. 
If the Department found that a firm was equityworthy, the Department 
would declare a government-provided equity infusion in the firm to not 
be countervailable. The Department would not consider whether, 
notwithstanding the general financial health of a firm, an excessive 
price was paid for government-provided equity. Conversely, if the 
Department found a firm to be unequityworthy, the Department would 
declare a government-provided equity infusion in the firm to be 
countervailable without further analysis.
    In these Final Regulations, we have retained the equityworthy/
unequityworthy distinction. Thus, in paragraph (a)(3), if actual 
private investor prices are not available under paragraph (a)(2), the 
Secretary will determine whether the firm funded by the government-
provided equity was equityworthy at the time of the equity infusion. 
Paragraph (a)(4) sets forth the standard the Secretary will apply in 
determining equityworthiness, and broadly follows Sec. 355.44(e)(2) of 
the 1989 Proposed Regulations.
    Several commenters have argued that, under certain circumstances, 
the equityworthiness of the project being financed, rather than the 
firm as a whole, should be the focus of the Department's 
equityworthiness analysis. This is especially true, according to these 
commenters, when the investment contemplated by a firm represents a 
significant departure, in terms of its riskiness or expected return, 
from the firm's existing operations. These commenters maintain that the 
riskiness of a firm's new investment can significantly impede the 
firm's ability to raise new capital on equity markets on commercially 
available terms.
    We received a similar comment with respect to our creditworthiness 
determinations. Consistent with the position we have taken regarding 
loans and creditworthiness, in the case of equityworthiness 
determinations, we recognize the possibility that it may be 
appropriate, in certain circumstances, to focus on the risk and 
expected return of the project being financed rather than the firm as a 
whole. Therefore, we have included a provision that allows the 
Secretary to do a project analysis where appropriate, but we are 
maintaining the general principle that the focus of an equityworthiness 
determination will normally be on the firm as a whole. We will address 
issues relating to the appropriateness of a project-specific 
equityworthiness analysis in the context of specific cases.
    Paragraph (a)(4)(ii) discusses the significance of the analysis 
performed prior to a government equity purchase. For every government 
equity infusion, we will analyze whether the government's decision to 
invest was consistent with ``the usual investment practice of private 
investors, including the practice regarding the provision of risk 
capital.'' Section 771(5)(E)(i). Obviously, to answer this question, 
the basis upon which the government infusion was made must be clear. In 
prior CVD proceedings, governments have often failed to provide the 
Department any commercial rationale for their investment. This has been 
true for even very large infusions. In contrast, prior to making a 
significant equity infusion, it is the usual investment practice of a 
private investor to evaluate the potential risk versus the expected 
return, using the most objective criteria and information available to 
the investor. This includes an analysis of information sufficient to 
determine the expected risk-adjusted return and how such a return 
compares to that of alternative investment opportunities of similar 
risk. Absent such an objective analysis--performed prior to the equity 
infusion--it is unlikely that we would find that the infusion was in 
accordance with the usual investment practice of a private investor, 
except where we are satisfied that the lack of such an analysis is 
consistent with the actions of a reasonable private investor in the 
country.

[[Page 65374]]

    Certain commenters have specifically requested that independent 
studies commissioned by foreign governments be considered by the 
Department in making an equityworthiness determination.
    We will closely examine such studies. In order to be considered in 
our equityworthiness analysis, any study must have been prepared prior 
to the government's approval of the infusion and must be sufficiently 
objective and comprehensive. We intend to review such studies carefully 
to determine whether the government acted like a reasonable private 
investor, subjecting both the assumptions and the analysis to scrutiny. 
This will enable us to decide whether the decision to invest was 
commercially sound given the information at the disposal of the 
government.
    Some independent studies commissioned to analyze the merits of a 
given investment may present an assessment of the company's expected 
returns and risks that is predicated on certain future actions by the 
company in question. For instance, a study might conclude that the 
investment in a company planning to close one outmoded plant and 
construct a new one in a different location is commercially viable so 
long as the company also reduces its workforce by half. In this case, 
the Department would take into consideration whether the downsizing 
will actually occur. If the company has known for a long time that a 
reduction in its workforce was a necessary condition for improved 
financial performance, but has consistently shown itself unwilling or 
incapable of making that reduction, this may prove sufficient cause to 
believe that the projected return is unattainable.
    Some commenters cautioned the Department about relying too heavily 
on independent studies given their inherently speculative and 
subjective nature. We are well aware of the potential difficulties in 
using independent analyses, not least of which is the fact that 
independent experts often fundamentally disagree about the prospects of 
a given investment. In other instances, the objectivity of some studies 
is called into question. However, private investors are likewise 
usually faced with a similar variety of competing views and must 
exercise their own judgement with respect to the objectivity of 
information before them. When considering the suitability of a 
submitted study, we will seek to ensure the study is accurate and 
reliable, and exercise our own judgement with respect to a study's 
objectivity. Specifically, we will take into consideration the extent 
to which the study's premises and conclusions differ from those of 
other independent studies, accepted financial analysis principles, or 
market sentiment in general (e.g., industry-specific business 
publications or general industry market studies).
    Paragraph (a)(4)(iii) discusses the significance of prior subsidies 
in our equityworthiness determination. As in the 1997 Proposed 
Regulations, it states that in determining whether a firm or project 
was equityworthy, we will ignore current and prior subsidies received 
by the firm. Several commenters objected to this rule, arguing that any 
reasonable investor would take into consideration the role that past 
subsidies have played in a company's financial performance. These 
commenters noted that, while a company might appear to be successful, a 
reasonable investor may deem the company unequityworthy if he or she 
believes that, when forced to stand on its own (i.e., without 
subsidies), the company would not yield a market return.
    While we recognize the potential for prior subsidies to affect the 
present financial performance of a company, we are continuing with our 
practice of not considering the impact of prior subsidies when 
conducting an equityworthiness test. We continue to believe that it 
would be too difficult and speculative a task to determine what the 
company's performance would have been had it not previously benefitted 
from a subsidy.
    Paragraph (a)(5) pertains to those infusions in which the firm or 
project is determined to be equityworthy. In our 1997 Proposed 
Regulations, we stated our intent to conduct a further examination of 
equityworthy companies to determine whether the particular investment 
was consistent with usual investment practice. We adopted this policy 
in light of the CIT decision in AIMCOR II, 912 F. Supp. at 552-55, in 
which the Court ruled that, because of restrictions imposed on the 
shares bought by the government, the government's purchase of those 
shares was inconsistent with commercial considerations, notwithstanding 
the fact that the firm in question was equityworthy.
    Certain commenters objected to this proposal, arguing that if a 
firm has been deemed to be equityworthy, any investment in that firm is 
per se consistent with usual private investment practices and should 
not be countervailed. However, we note that, as the Court pointed out 
in a previous determination, ``[w]here a company is equityworthy, as 
here, it does not necessarily follow that the purchase of stock from 
that company will be consistent with commercial considerations.'' See 
AIMCOR v. United States, 871 F. Supp. 447, 454 (CIT 1994) (``AIMCOR 
I''). Therefore, as provided in paragraph (a)(5), we will conduct a 
further analysis into whether the shares purchased by the government 
have special conditions or restrictions attached and, if so, whether 
those conditions render the investment inconsistent with usual private 
investment practices as stipulated in paragraph (a)(1). Any benefit 
found from these types of equity purchases will be determined on a 
case-by-case basis. In situations where the shares purchased by the 
government in an equityworthy firm are common shares, we will normally 
consider the infusion to have been consistent with usual private 
investment practice.
    In cases where a government equity infusion has been made and the 
firm is unequityworthy, paragraph (a)(6) states that the amount of the 
benefit will be equal to the amount of the equity infusion. This is a 
codification of our current practice which has been in place since the 
1993 steel determinations and has been upheld by the CIT in British 
Steel plc v. United States, 879 F. Supp. 1254, 1309 (CIT 1995), aff'd 
in part and rev'd in part, 127 F.3d 1471 (Fed. Cir. 1997). See, also, 
Usinor Sacilor v. United States, 893 F. Supp. 1112, 1125-26 (CIT 1995).
    We believe this approach is most appropriate based mainly on the 
argument that, because a reasonable private investor could not expect a 
reasonable return on the invested capital, no such investor would 
provide the infusion. The CPIP approach, which we explored in the 1997 
Proposed Regulations, attempted to measure the hypothetical price at 
which the investor would provide the funds. In the case of an 
unequityworthy firm or project, this hypothetical price would have to 
be lower than the price of existing shares. However, as explained in 
the summary of comments above, from the perspective of the existing 
shareholders of the company that received the infusion, such a lower 
price would be unacceptable. These shareholders would generally not 
allow the new shares to be issued at a reduced price because this would 
simultaneously lower the expected return on their existing investment. 
There is, therefore, no mutually acceptable price at which the 
transaction would take place between two private investors, and the 
investment would not occur.

[[Page 65375]]

    Thus, the benefit to the operations of the recipient firm is the 
entire amount of the government infusion. That is not to say that the 
shares received by the government are worthless; they may have value. 
However, the comparison here is what the company actually received with 
what the company would have received absent the government 
intervention. In the case of an unequityworthy firm, the amount the 
company would have received is zero. Thus, although the government 
equity infusion is not per se a grant, it is appropriate to consider 
the full amount of the infusion as the benefit because the government 
provided a sum of money that would not have been provided by a private 
investor. This is the fundamental point overlooked by the GATT panel 
report. (See United States--Imposition of Countervailing Duties on 
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating 
in France, Germany, and the United Kingdom, SCM/185 (November 15, 1994) 
(unadopted).
    Paragraph (a)(7) pertains to allegations regarding equity infusions 
and is based on Sec. 355.44(e)(3) of the 1989 Proposed Regulations.
    Paragraph (b) provides that the Secretary normally will consider 
the benefit from an equity infusion to have been received on the date 
on which the firm received the infusion. Paragraph (c) pertains to the 
allocation of the benefit to particular years and provides that the 
benefit conferred by an equity infusion will be allocated as if it were 
a non-recurring subsidy, using the methodology set forth in 
Sec. 351.524(d).

Section 351.508

    Section 351.508 deals with assumptions or forgiveness of debt. 
Paragraph (a), which deals with the identification and measurement of 
the benefit attributable to government-provided debt assumptions or 
forgiveness, is little changed from Sec. 355.44(k) of the 1989 Proposed 
Regulations and from Sec. 351.507 of the 1997 Proposed Regulations. 
Paragraph (b) describes when the benefit from debt assumption or 
forgiveness will be deemed to have been received. Paragraph (c) 
provides that the Secretary will normally treat the benefit from debt 
assumption or forgiveness as a non-recurring subsidy for allocation 
purposes. However, paragraph (c)(2) provides that, where the government 
is assuming interest under certain narrowly drawn circumstances, the 
interest assumption will be treated as a reduced-interest loan and 
allocated according to the loan allocation rules. Although it has 
undergone some refinement, this exception is consistent with the policy 
articulated by the Department in the 1993 Certain Steel determinations.

Section 351.509

    Section 351.509 deals with subsidy programs that provide a benefit 
in the form of relief from direct taxes. (``Direct tax'' is defined in 
Sec. 351.102.) Such relief includes exemptions, remissions, and 
deferrals of direct taxes. The most common form of a direct tax is an 
income tax, and the subsidy programs most frequently encountered are 
those that provide special income tax exemptions, deductions, or 
credits. With respect to the benefit provided by these types of 
programs, paragraph (a)(1) of Sec. 351.509 retains the standard set 
forth in Sec. 355.44(i)(1) of the 1989 Proposed Regulations, i.e., a 
benefit exists to the extent that the taxes paid by a firm as the 
result of a program are less than the taxes the firm would have paid in 
the absence of the program. See 1989 Proposed Regulations at 23372 and 
related cases cited.
    Paragraph (a)(2) deals with another type of direct tax program: the 
deferral of direct taxes owed. Although Sec. 355.44(i)(1) of the 1989 
Proposed Regulations included tax deferrals with exemptions and 
remissions of direct taxes, the Department has consistently used a 
different methodology for identifying and measuring the benefits of 
deferrals by treating deferrals as government-provided loans. We have 
normally treated deferrals of one year or less as short-term loans, 
while multi-year deferrals have been treated as short-term loans rolled 
over on the anniversary date(s) of the deferral.
    We received two comments on the deferral of direct taxes. One 
commenter maintained that it would be more appropriate to treat multi-
year tax deferrals as long-term loans rather than as a series of 
rolled-over short-term loans. The commenter observed that the 
Department had not explained why multi-year tax deferrals should be 
treated as a series of short-term loans, arguing that this approach 
enables the recipient company to receive long-term benefits that are 
countervailed using a short-term benchmark interest rate. The commenter 
stated that long-term interest rates are typically higher than short-
term rates and that the Department, therefore, should use the long-term 
rate as the benchmark rate. The second commenter argued that multi-year 
tax deferrals should be treated as long-term loans because such 
deferrals are authorized only once for the entire period of deferral. 
However, the second commenter stated, even if a multi-year deferral 
were authorized annually on a routine basis, the benefit would resemble 
a long-term loan and, therefore, a long-term interest rate should be 
used as the benchmark rate.
    We agree that, in certain circumstances, where it is reasonable to 
conclude from the record that a deferral will extend over more than one 
year, multi-year deferrals should be viewed as long-term loans. For 
example, if the firm knows at the time the taxes would normally be due 
that the firm would not become liable for the taxes until five years 
later, it would be appropriate to view the deferral as a five-year loan 
and to use the appropriate benchmark. Moreover, if it is known at the 
time of the deferral that the deferral will be longer than one year, 
but the term is indefinite, we will also use a long-term benchmark to 
calculate the benefit in each year. However, if the deferral has an 
uncertain endpoint, we will examine whether it is appropriate to view 
the deferral as a short-term or long-term loan.
    As in the past, tax deferrals of one year or less will be treated 
as short-term loans, using a short-term interest rate as the benchmark 
rate in accordance with Sec. 351.505(a). Similarly, if it is not known 
if a tax deferral will extend over more than one year (e.g., if the 
firm's payment of taxes is made contingent upon some future event) and 
we have no reasonable basis to conclude that the deferral will extend 
over more than one year, such tax deferral will be treated as a short-
term loan.
    In the 1997 Proposed Regulations, we identified one aspect of 
direct tax subsidy programs that might warrant modification. We stated 
that, in the case of special accelerated depreciation allowances, a 
firm typically experiences tax savings in the early years of an asset's 
life and tax increases in the latter years of the asset's life. In the 
past, the Department has focused on the tax savings but has not 
acknowledged the later tax increases. In the 1997 Proposed Regulations, 
we discussed adopting a methodology that accounts for both the early 
tax savings and the later tax increases by calculating the net present 
value of the expected tax savings at the outset of the accelerated 
depreciation period. However, we stated that we wanted to obtain the 
views of the public before changing our methodology.
    We received several comments on this issue, all of which contained 
objections to our proposed change of methodology. The comments focused 
on four areas. First, the commenters characterized our proposed 
methodology as speculative because the Department cannot be certain 
that the benefits of an

[[Page 65376]]

accelerated depreciation program will be offset by higher taxes in the 
future. The commenters pointed to factors such as changes in tax 
provisions and government tax policies, the provision of additional 
future tax benefits, and the possibility that the recipient company 
would incur losses in the future, all of which might prevent higher 
taxes from materializing in the future. One commenter pointed to the 
Department's findings in Extruded Rubber Thread from Malaysia, 57 FR 
38472 (August 25, 1992) (``Malaysian Rubber Thread''), where a 
hypothetical tax burden in later years did not prevent the Department 
from countervailing tax benefits provided during the period of 
investigation. In sum, these commenters argued that the Department 
should not give a company credit for a contingent tax liability that we 
could not be sure the company ever would incur.
    Second, some of the commenters maintained that the Department's 
proposed change would be contrary to the central purpose of the CVD 
law, i.e., to discourage the provision of subsidies. According to these 
commenters, the proposed methodology would encourage foreign 
governments to modify their tax programs so that future tax payments 
would appear to offset current countervailable tax benefits.
    Third, some commenters asserted that it would be unlawful for the 
Department to offset countervailable benefits with higher future tax 
payments. These commenters pointed to the statutory list of permissible 
offsets, which does not include future tax payments. They also argued 
that our proposed methodology would be akin to taking secondary tax 
effects into account, which would be contrary to Sec. 351.527 of the 
1997 Proposed Regulations (this section, which deals with the tax 
consequences of benefits, is included in Sec. 351.503(e) of these Final 
Regulations).
    Fourth, a few commenters pointed to the administrative burden that 
the Department would assume if it were to adopt the proposed 
methodology. One commenter stated that it would be difficult to track 
companies' future tax payments. Another commenter portrayed it as 
unlikely that the Department would verify that higher taxes were 
actually paid in future years. Finally, one commenter recommended that 
the Department adopt a regulation saying that benefits resulting from 
accelerated depreciation may not be offset by a potentially higher tax 
burden in the future.
    Based on the comments we have received, we are not changing our 
methodology. We will, therefore, continue our current methodology for 
calculating the tax benefits from accelerated depreciation schemes on a 
year by year basis.
    In the 1997 Proposed Regulations, we also sought public comment on 
how we should address tax subsidies when the recipient company is 
incurring losses, including loss carryforwards and losses under 
accelerated depreciation. We received only a few comments on these 
issues. All the commenters agreed that losses should be dealt with 
according to the same underlying principle that guides the rest of the 
Department's direct tax methodology, i.e., the Department should treat 
as a countervailable benefit the difference between the amount of taxes 
actually paid and the amount of taxes that would have been paid in the 
absence of the countervailable tax benefit. With respect to loss 
carryforwards, the commenters outlined two scenarios under which such 
carryforwards can convey countervailable benefits: (1) When a company 
is allowed to carry forward a greater value of losses from one year to 
the next than other companies, and (2) when a company is allowed to 
carry forward losses for a longer period of time than other companies. 
In both cases, the commenters urged the Department to follow the 
underlying principle described above, i.e., to countervail the 
difference between the actual taxes paid and the taxes that would have 
been paid under normal circumstances. Regarding losses associated with 
accelerated depreciation, the commenters requested the Department to 
countervail the accelerated depreciation allowance only to the extent 
that it results in a reduction of taxes paid.
    We agree with the commenters that our guiding principle is to treat 
as a countervailable benefit the difference between the taxes a company 
actually pays and the taxes it would have paid if it had not incurred a 
loss or a diminished profit as a result of accelerated depreciation or 
a loss carryforward (provided that these tax benefits are specific). We 
intend to follow the approach used in Malaysian Rubber Thread. We do 
not see any need to change or to add to our regulations in this 
respect.
    Paragraph (b) of Sec. 351.509 deals with the question of when the 
benefit from a direct tax subsidy is considered to have been received 
by a firm. In our 1997 Proposed Regulations, we proposed to consider 
the benefit as having been received on the date the firm knew the 
amount of its tax liability. However, as stated in the 1989 Proposed 
Regulations, the date the firm knows its tax liability normally is the 
date on which it files its tax return. In these Final Regulations, we 
have decided that, with respect to a full or partial tax exemption or 
remission, we will consider the benefit as having been received on the 
date on which the recipient firm would otherwise have had to pay the 
taxes associated with the exemption or remission, which is usually the 
date it files its tax return. This conforms the regulations to our 
experience.
    With respect to deferrals, under paragraph (b)(2), the Secretary 
normally will treat the deferral of a direct tax as a loan, and will 
treat the benefit as received, as follows. The Secretary normally will 
treat a tax deferral of one year or less as a short-term loan received 
on the date the tax originally was due and repaid when the tax was 
actually paid. The Secretary normally will consider the benefit from a 
multi-year deferral as having been received on the anniversary date(s) 
of the deferral.
    Paragraph (c) deals with the allocation of the benefits of direct 
tax subsidies to particular time periods. As under the 1997 Proposed 
Regulations, the Department normally will allocate such benefits to the 
year in which the benefits are considered to have been received under 
paragraph (b).
    Finally, the Department will apply Sec. 351.509 consistently with 
WTO rules concerning direct tax measures. Thus, for example, in the 
case of a foreign tax measure that exempts from taxation (either in 
whole or in part) income attributable to economic processes (including 
transactions involving exported goods) located outside the territorial 
limits of the exporting country, the Department would not consider such 
a measure to be an export subsidy, provided that the measure complied 
with other relevant WTO rules.

Section 351.510

    Section 351.510 deals with programs that provide full or partial 
exemptions from, and deferrals of, indirect taxes or import charges. 
(``Indirect tax'' and ``import charge'' are defined in Sec. 351.102.) 
However, Sec. 351.510 deals only with programs that potentially would 
be considered import substitution subsidies or domestic subsidies under 
section 771(5A)(C) or section 771(5A)(D) of the Act, respectively. 
Sections 351.517 through 519 deal with programs that potentially would 
be considered export subsidies under section 771(5A)(B) of the Act 
because separate guidelines must be applied when examining export 
subsidy programs that involve exemptions or rebates of indirect taxes 
or import charges.

[[Page 65377]]

    Paragraph (a)(1) of Sec. 351.510 is based on Sec. 355.44(i)(2) of 
the 1989 Proposed Regulations, and continues to provide that a benefit 
exists to the extent that the taxes or import charges paid by a firm as 
the result of a program are less than the taxes the firm would have 
paid in the absence of the program. As in the case of direct taxes 
under Sec. 351.509, deferrals of indirect taxes and import charges will 
be treated under paragraph (a)(2) as government-provided loans. 
Normally, we will use a short-term interest rate as the benchmark for 
deferrals of one year or less and a long-term interest rate as the 
benchmark for multi-year deferrals. The treatment of multi-year 
deferrals represents a change from the 1997 Proposed Regulations and is 
discussed in detail in the preamble to Sec. 351.509.
    Paragraph (b) of Sec. 351.510 is based on Sec. 355.48(b)(6) of the 
1989 Proposed Regulations, and continues to provide that the Secretary 
will consider the benefit from a full or partial exemption of indirect 
taxes or import charges to have been received on the date when the 
recipient firm otherwise would have had to pay the tax or charge. In 
the case of deferrals of one year or less, the Secretary normally will 
consider the benefit to have been received when the deferred amount 
becomes due. For multi-year deferrals, the benefit is received on the 
anniversary date(s) of the deferral.
    Paragraph (c) deals with allocation to a particular time period, 
and provides that the Secretary normally will expense the benefits 
attributable to the types of subsidy programs covered by Sec. 351.510 
in the year of receipt.

Section 351.511

    Section 351.511 deals with the provision of goods and services. 
Prior to the URAA, section 771(5)(A)(ii)(II) of the Act provided that 
the provision of goods or services constituted a subsidy if such 
provision was ``at preferential rates.'' Now, under section 
771(5)(E)(iv) of the Act, a subsidy exists if such provision is ``for 
less than adequate remuneration.'' Under section 771(5)(E) of the Act, 
the adequacy of remuneration is to be determined:

``in relation to prevailing market conditions for the good or 
service being provided * * * in the country which is subject to the 
investigation or review. Prevailing market conditions include price, 
quality, availability, marketability, transportation, and other 
conditions of purchase or sale.''

    In our 1997 Proposed Regulations, we designated paragraph (a) as 
``(reserved),'' stating that we wished to acquire some experience with 
the new statutory provision before codifying our methodology in the 
form of a regulation. We received several comments expressing 
disappointment in the lack of a regulation on this topic. While these 
parties recognized that our relative lack of experience with the new 
statutory provision made it difficult to promulgate a regulation, they 
requested guidance as to how we intend to identify and measure adequate 
remuneration.
    Several commenters stressed the importance of basing the adequate 
remuneration benchmark on market prices that have not been distorted by 
the government's involvement in the market. According to these 
commenters, where government involvement has distorted prices, the 
Department should either adjust the price to account for the distortion 
or resort to the use of an alternative price. These commenters also 
argued that the benchmark used should include all delivery charges and, 
if necessary, import duties.
    We also received several comments in response to our stated 
intention of continuing to employ a preferentiality type analysis where 
the government is the sole provider of goods or services such as 
electricity, water, or natural gas. One commenter supported such an 
approach and encouraged us to codify it. Other commenters argued that 
the preferentiality approach does not sufficiently capture the benefit 
mandated by the adequate remuneration standard. That is, it does not 
adequately measure the differential between the price paid for the 
input and the full market value of the input.
    Since issuing the 1997 Proposed Regulations, the Department has 
gained some experience in applying the adequate remuneration standard. 
See, e.g., Steel Wire Rod from Germany, 62 FR 54990, 54994 (October 22, 
1997), Steel Wire Rod from Trinidad and Tobago, 62 FR 55003, 55006-07 
(October 22, 1997), and Steel Wire Rod from Venezuela, 62 FR 55014, 
55021-22 (October 22, 1997) (``Venezuelan Wire Rod''). Based on our 
experience in these cases and on the comments received on this issue, 
we are providing guidance on how we intend to apply this new standard. 
Accordingly, paragraph (a) outlines the conceptual approach we will 
follow to measure the benefit from governmental provision of goods or 
services.
    Paragraph (a)(1) states that a benefit exists to the extent that 
the good or service is provided for less than adequate remuneration. 
Paragraph (a)(2)(i) provides that our preference is to compare the 
government price to market-determined prices stemming from actual 
transactions within the country. Such market-determined prices include 
actual sales involving private sellers and actual imports. They may 
also include, in certain circumstances, actual sales from government-
run competitive bidding. The circumstances where such prices would be 
appropriate are where the government sells a significant portion of the 
goods or services through competitive bid procedures that are open to 
everyone, that protect confidentiality, and that are based solely on 
price. In choosing actual transactions, the Secretary will consider 
product similarity, quantities sold or imported, and other factors 
affecting comparability.
    We normally do not intend to adjust such prices to account for 
government distortion of the market. While we recognize that government 
involvement in a market may have some impact on the price of the good 
or service in that market, such distortion will normally be minimal 
unless the government provider constitutes a majority or, in certain 
circumstances, a substantial portion of the market. Where it is 
reasonable to conclude that actual transaction prices are significantly 
distorted as a result of the government's involvement in the market, we 
will resort to the next alternative in the hierarchy.
    Paragraph (a)(2)(ii) provides that, if there are no useable market-
determined prices stemming from actual transactions, we will turn to 
world market prices that would be available to the purchaser. We will 
consider whether the market conditions in the country are such that it 
is reasonable to conclude that the purchaser could obtain the good or 
service on the world market. For example, a European price for 
electricity normally would not be an acceptable comparison price for 
electricity provided by a Latin American government, because 
electricity from Europe in all likelihood would not be available to 
consumers in Latin America. However, as another example, the world 
market price for commodity products, such as certain metals and ores, 
or for certain industrial and electronic goods commonly traded across 
borders, could be an acceptable comparison price for a government-
provided good, provided that it is reasonable to conclude from record 
evidence that the purchaser would have access to such internationally 
traded goods.
    Where there is more than one commercially available world market 
price to be used as a benchmark, we intend to average these prices to 
the extent practicable, with due allowance for factors affecting 
comparability. If the

[[Page 65378]]

most appropriate benchmarks are for products that are dumped or 
subsidized in the country where the subject merchandise is produced, we 
will adjust the benchmarks to reflect the dumping or subsidization. 
However, we will only make an adjustment to reflect a determination of 
dumping or subsidization made by the importing country with respect to 
the input product imported from the country from which the world market 
price is derived.
    Paragraph (a)(2)(iii) provides that, in situations where the 
government is clearly the only source available to consumers in the 
country, we normally will assess whether the government price was 
established in accordance with market principles. Where the government 
is the sole provider of a good or service, and there are no world 
market prices available or accessible to the purchaser, we will assess 
whether the government price was set in accordance with market 
principles through an analysis of such factors as the government's 
price-setting philosophy, costs (including rates of return sufficient 
to ensure future operations), or possible price discrimination. We are 
not putting these factors in any hierarchy, and we may rely on one or 
more of these factors in any particular case. In our experience, these 
types of analyses may be necessary for such goods or services as 
electricity, land leases, or water, and the circumstances of each case 
vary widely. See, e.g., Pure Magnesium and Alloy Magnesium from Canada, 
57 FR 30946, 30954 (July 13, 1992) and Venezuelan Wire Rod.
    We believe that this approach addresses the concerns raised by 
commenters about potentially continuing the use of the preferentiality 
standard by shifting the focus of our inquiry toward whether the 
government employed market principles in setting prices. Although we do 
not have enough experience with the adequate remuneration standard to 
state when a price discrimination analysis may be appropriate, we 
believe there may be instances where government prices are the most 
reasonable surrogate for market-determined prices. We would only rely 
on a price discrimination analysis if the government good or service is 
provided to more than a specific enterprise or industry, or group 
thereof.
    Paragraph (a)(2)(iv) provides that, in determining the adequacy of 
remuneration, the Department will adjust comparison prices to reflect 
the price a company would pay if it imported the good or service. This 
adjustment will account for delivery charges and import duties. In 
addition, if the price of the imported good includes antidumping or 
countervailing duties imposed by the country in question, we would use 
the price inclusive of those duties for comparison purposes. Absent the 
imposition of antidumping or countervailing duties by the country in 
question, however, we would not adjust the import prices to reflect 
alleged dumping or subsidies.
    Paragraph (b) is based on Sec. 355.48(b)(2) of the 1989 Proposed 
Regulations, and continues to provide that the benefit from a 
government-provided good or service is considered received when the 
firm pays, or is due to pay, for the good or service. Paragraph (c), 
which also is consistent with existing practice, provides that the 
Secretary normally will expense the benefit of a government-provided 
good or service to the year of receipt. However, benefits conferred by 
the provision of non-general infrastructure normally will be allocated 
over time.
    Paragraph (d) deals with the provision of general infrastructure. 
Section 355.43(b)(4) of the 1989 Proposed Regulations contained a 
special test for determining whether government-provided infrastructure 
was specific and, therefore, countervailable. In our 1997 Proposed 
Regulations, we explained that, unlike the pre-URAA statute, section 
771(5) of the Act, as amended by the URAA, expressly mentions certain 
types of government-provided infrastructure. However, it does so not in 
the context of specificity, but in the context of ``financial 
contribution,'' one of the prerequisites for a subsidy. Section 
771(5)(D)(iii) of the Act, which implements Article 1.1(a)(1)(iii) of 
the SCM Agreement, provides that the term ``financial contribution'' 
includes the provision of ``goods or services, other than general 
infrastructure.'' In other words, the provision of ``general 
infrastructure'' does not constitute a ``financial contribution,'' and, 
thus, does not constitute a subsidy.
    We noted in our 1997 Proposed Regulations that, in light of the 
change in the statute, the countervailability of infrastructure depends 
on the definition of ``general infrastructure.'' However, because of 
our inexperience in applying this definition and our uncertainty 
regarding the extent to which the principles reflected in the 1989 
Proposed Regulations remained useful analytical tools for 
distinguishing potentially countervailable infrastructure from non-
countervailable general infrastructure, we opted not to issue a 
regulation on infrastructure.
    We received several comments regarding the definition of general 
infrastructure. One commenter argued that the word ``general'' 
essentially describes types of infrastructure--such as roads, bridges, 
railroads, etc.--which would never be countervailable. This commenter 
maintained that the word ``general'' should not be interpreted as 
relating to the question of specificity and argued that to do so would 
be to ignore the plain language of the statute. Several other 
commenters argued that the language in the SCM Agreement regarding 
general infrastructure was meant to codify the U.S. practice of 
countervailing specific infrastructure.
    We disagree with the proposition that certain types of 
infrastructure automatically constitute general infrastructure and, 
thus, are not countervailable. Roads, bridges, and railroads do not 
necessarily constitute ``general infrastructure'' and can provide 
benefits to particular industries, as in the case where a road or 
bridge is built in an industrial park or port facility that is used 
only by one industry, or a group of industries. See, e.g., Certain 
Steel Products from Korea, 58 FR 37338, (July 9, 1993) (``Korean 
Steel''). Therefore, the type of infrastructure per se is not 
dispositive of whether the government provision constitutes ``general 
infrastructure.'' Rather, the key issue is whether the infrastructure 
is developed for the benefit of society as a whole.
    Paragraph (d) defines ``general infrastructure'' as infrastructure 
that is created for the broad societal welfare of a country, region, 
state, or municipality. For example, interstate highways, schools, 
health care facilities, sewage systems, or police protection would 
constitute general infrastructure if we found that they were provided 
for the good of the public and were available to all citizens or to all 
members of the public. Because we have no experience with the new 
concept of general infrastructure, we are not establishing more precise 
criteria at this time. However, we intend to follow these broad 
principles in future cases and we may develop more detailed criteria as 
we gain more experience.
    Any infrastructure that satisfies this public welfare concept is 
general infrastructure and therefore, by definition, is not 
countervailable and not subject to any specificity analysis. Any 
infrastructure that does not satisfy this public welfare concept is not 
general infrastructure and is potentially countervailable. The 
provision of industrial parks and ports, special purpose roads, and 
railroad spur lines, to name some examples (some of which

[[Page 65379]]

we have encountered in our cases), that do not benefit society as a 
whole, does not constitute general infrastructure and will be found 
countervailable if the infrastructure is provided to a specific 
enterprise or industry and confers a benefit. See, e.g., Korean Steel.

Section 351.512

    Section 351.512 deals with the purchase of goods. Section 
771(5)(E)(iv) of the Act provides that the purchase of goods by a 
government can confer a benefit if the goods are purchased ``for more 
than adequate remuneration.'' As with the provision of goods and 
services, our lack of experience in applying the adequate remuneration 
standard led us to designate this section ``[reserved]'' in the 1997 
Proposed Regulations. Unlike the case with the provision of goods and 
services, however, we have not had the opportunity to gain sufficient 
experience applying the new standard in the context of government 
purchases. In addition, while government procurement potentially was a 
countervailable subsidy prior to the URAA, allegations of procurement 
subsidies were extremely rare. Thus, we still do not have experience on 
such matters as the ``timing'' of procurement subsidies or the 
allocation of such subsidies to a particular time period. Therefore, 
given our lack of experience with procurement subsidies we are not 
issuing regulations concerning the government purchase of goods. 
Instead, we have continued to designate Sec. 351.512 as ``[reserved].''
    One commenter, however, encouraged the Department to provide 
further guidance regarding how it intended to apply the adequate 
remuneration standard in the context of the government purchase of 
goods. In particular, this commenter advocated a definition of adequate 
remuneration which focuses on a comparison of comparable prices for the 
good or service provided based on prevailing market conditions in the 
country subject to investigation or review.
    As noted above, we are hesitant to promulgate a regulation dealing 
with the purchase of goods by a government because of our relative lack 
of experience in this area. However, our intended approach toward the 
measurement of the adequacy of remuneration is outlined in detail in 
Sec. 351.511 (government provision of goods or services). While we have 
not codified this approach with respect to government purchases, we 
expect that any analysis of the adequacy of remuneration will follow 
the same basic principle, i.e., will focus on what a market-determined 
price for the good in question would be.
    We also received one comment regarding the threshold for initiating 
an investigation into whether government purchases have been made for 
more than adequate remuneration. In particular, this commenter argued 
for a ``reasonable basis to believe or suspect'' standard. In other 
words, a petitioner would be required to allege facts that give the 
Department a reasonable basis to believe or suspect that government 
purchases have been made for more than adequate remuneration.
    We disagree that a heightened initiation threshold should be 
employed for this type of subsidy. Because we have virtually no 
experience with this type of subsidy, it would be inappropriate to 
require petitioners to meet a higher threshold for initiation than that 
imposed by the statute. According to section 702(b)(1) of the Act, the 
petitioner need only allege the elements necessary for the imposition 
of the duty (i.e., the existence of a countervailable subsidy) and 
support the allegation with reasonably available information.
    One additional commenter stated that the government purchase of 
services should be treated similarly to the government purchase of 
goods. In the discussion of this point in the preamble to the 1997 
Proposed Regulations, we noted that only government purchase of goods 
is identified as a financial contribution under section 771(5)(D)(iv) 
of the Act and Article 1.1(a)(1)(iii) of the SCM Agreement. This 
commenter argued, however, that according to the statute and the SCM 
Agreement, a subsidy can exist where there is either a financial 
contribution or an income or price support. A governmental purchase of 
services, according to this commenter, can be considered an income 
support and, therefore, can result in a subsidy.
    We have not adopted this suggestion. We believe that if 
governmental purchases of services were intended to be treated 
similarly to the government purchase of goods, the statute and the SCM 
Agreement would specifically mention services as they do with the 
government provision of goods and services.
    Finally, we received one comment arguing that if we chose to 
promulgate a regulation regarding government purchases, we should make 
clear that purchases by government monopolies are included. While we 
are not issuing a regulation on this subject, we agree that purchases 
by government monopolies can constitute subsidies provided there is a 
benefit and the benefit is specific.

Section 351.513

    Section 351.513 deals with worker-related subsidies. Under 
paragraph (a), the Department will identify and measure the benefit of 
government-provided assistance to workers based on the extent such 
assistance relieves the firm of an obligation it otherwise normally 
would incur. The comments we received dealt mainly with the form the 
obligation must take in order for worker-related assistance to be 
countervailable.
    All commenters agreed that the Department should continue its 
practice of countervailing worker-related assistance when there is a 
pre-existing obligation for the company to provide such assistance. 
However, the commenters differed in how they defined the term 
``obligation.'' Some commenters asked the Department to adopt a broad 
definition of the term ``obligation'' and not limit it to only 
contractual or statutory obligations, whereas others argued that an 
obligation must be contractual or statutory in order for the Department 
to find the assistance to be countervailable.
    As in our 1997 Proposed Regulations, we continue to take the 
position that ``obligation'' should be interpreted broadly. Even though 
an obligation is not binding in a contractual or statutory sense, an 
exemption from it may nevertheless provide a benefit to a firm. As an 
example, social or political conditions in a country may be such that, 
although no legal or contractual obligation exists, it is normal 
practice that companies make severance payments to laid-off workers. If 
the government decides to shoulder all or part of such payments, then 
the government relieves the company of a payment it otherwise would 
have incurred. In this situation, we will find that a countervailable 
subsidy exists, as long as the government's action is specific.
    A related issue arises in situations where a company's obligations 
to its workers are negotiated by labor and management with the 
knowledge that the government will make a contribution. We encountered 
this situation in Certain Steel Products from Germany, 58 FR 38318 
(July 9, 1993) (``Certain Steel from Germany''), where we concluded 
that the parties'' knowledge of the government's willingness to make a 
contribution had an impact on the outcome of the negotiations. In the 
absence of the government's payment, the company would likely have 
agreed to pay the

[[Page 65380]]

workers more. Because the additional amount would depend upon the 
relative negotiating strengths of labor and management, we found it 
reasonable to assume that workers and management held approximately 
equal negotiating strength. We, therefore, decided to split the 
difference and concluded that in the absence of the government's 
contribution, the company would have had to pay the workers 50 percent 
of the amount paid by the government. As a result, we decided that 50 
percent of the government's contribution was countervailable because it 
relieved the company of a payment it otherwise would have had to make.
    Some commenters asked the Department to continue to apply the 
methodology used in Certain Steel from Germany whereas another 
commenter maintained that this approach is too generous to respondents 
and that the Department should countervail the full amount of the 
government's contribution. In opposition, other commenters 
characterized the methodology as speculative and urged the Department 
not to countervail governmental social aid at all.
    As in the 1997 Proposed Regulations, we have declined to codify the 
approach used in Certain Steel from Germany. We believe, and the CIT 
has found, that where a company's obligations to its workers are 
negotiated with the knowledge that the government will make a 
contribution, it is reasonable to conclude that the government's 
commitment, and the negotiating parties' awareness of the commitment, 
have an impact on the outcome of the negotiations (see LTV Steel v. 
United States, 985 F. Supp. 95 (1997)). However, we believe it is 
necessary to examine the facts in each case before determining whether 
it is appropriate to countervail 50 percent of the government's 
contribution or some other amount.
    Paragraph (b) deals with the form and timing of worker-related 
subsidies. Even though we did not receive any comments on these issues, 
we are making the following clarifications: Although most worker-
related subsidies are provided in the form of cash payments, we 
consider the term ``payment'' in paragraph (b) to include non-cash 
benefits. With respect to timing, the Secretary will consider the 
subsidy to have been received by the firm on the date on which the 
payment is made that relieves the firm of an obligation that it 
normally would have incurred.
    Paragraph (c) deals with the allocation of worker-related subsidies 
to a particular time period. As in the past, these subsidies will 
normally be considered to provide recurring benefits and they will be 
allocated to the year of receipt (expensed) in accordance with 
Sec. 351.524(a).

Section 351.514

    Section 351.514 contains the standard for determining when a 
subsidy is an export subsidy, as opposed to a domestic or import 
substitution subsidy. Consistent with section 771(5A)(B) of the Act, 
paragraph (a) of Sec. 351.514 codifies the expansion of the definition 
of an export subsidy to include any subsidy that is, in law or in fact, 
contingent upon export performance, alone or as one of two or more 
conditions. Paragraph (b) has been added, incorporating the previously 
separate regulation regarding general export promotion.
    We received a number of comments regarding the expanded definition 
of export subsidy in the 1997 Proposed Regulations. Several commenters 
supported the expanded definition in the 1997 Proposed Regulations but 
suggested that language be added to the regulation making it clear that 
an export requirement need not be an explicit condition of the program 
as long as the facts indicated that the benefits were contingent upon 
actual or anticipated exportation. These commenters highlighted several 
factual scenarios under which the Department should find an export 
subsidy to exist. These include subsidies provided to ``for-export'' 
industries; subsidies provided in situations where the export market is 
the only market for the subject merchandise; and subsidies provided 
where a substantial portion of a subsidized project will be devoted to 
export production.
    Several other commenters were opposed to the expanded definition. 
These commenters argued that, if narrowly applied, the definition would 
disproportionately penalize exporting countries which may have broad 
policy statements referring to exports. With the growing economic 
integration of the North American market under the North American Free 
Trade Agreement (``NAFTA''), firms in these countries may base their 
investment decisions on servicing the NAFTA market rather than a 
domestic and export market, and, as such, the assistance is not truly 
contingent upon export performance. Further, these commenters argued 
that mere consideration of possible exportation as one of the factors 
considered by the government in granting the benefit does not mean that 
the benefit is ``contingent'' upon export performance. As support, they 
cited footnote 4 to Article 3.1(a) of the SCM Agreement which states 
that ``the mere fact that a subsidy is granted to enterprises which 
export shall not for that reason alone be considered to be an export 
subsidy within the meaning of this provision.'' One commenter argued 
that ``contingent upon actual or anticipated exportation or export 
earnings'' should be limited to situations where the subsidy is 
conferred only upon actual exportation or is lost if the recipient is 
unable to demonstrate that the goods were exported.
    Finally, one commenter suggested that the regulations should 
include illustrative (but not all-inclusive) guidance regarding the 
factors that the Department will consider in its analysis of de facto 
export subsidies. In this commenter's view, the regulations should also 
incorporate language that clarifies the distinction between a de jure 
and a de facto analysis.
    While we have made minor changes to more closely conform the 
language of the 1997 Proposed Regulations with the language in the SCM 
Agreement and the statute, we have made no changes in response to these 
comments. However, in applying the standard contained in Sec. 351.514, 
we will distinguish between broad development goals or economic policy, 
and specific program objectives and criteria. For purposes of our 
analysis, we have developed a list of factors that we may consider. 
This list is non-exhaustive and includes: (1) The stated purpose or 
purposes of the subsidy as put forth in the governing laws or 
regulations; (2) the selection criteria and reasons for approval/
disapproval; (3) application and approval documents, including market 
or economic viability studies; (4) the existence and nature of any 
monitoring or enforcement mechanism; (5) governmental collection of 
data regarding the program recipients' exports (other than the 
customary collection of export and import data); (6) the exporting 
history of recipient firms or industries; and (7) other evidence that 
the Department deems relevant to consider. We need not examine all of 
the factors to determine that the program is an export subsidy if our 
examination of one or more factors provides sufficient evidence to 
determine that the program is a de facto export subsidy.
    In situations where the government evaluates multiple criteria 
under a program, Sec. 351.514 would require an analysis different from 
that described in Extruded Rubber Thread from Malaysia, 57 FR 38472 
(August 25, 1992). In that case, the Malaysian Government considered 12 
criteria in evaluating

[[Page 65381]]

whether a particular company should receive ``Pioneer'' status. Two of 
these criteria addressed the export potential of a product or activity. 
In addition, in certain situations, companies were required to agree to 
export commitments. In analyzing the Pioneer program, the Department 
examined the criteria being applied with respect to a particular 
company. If one or more of the criteria applied by the Government 
included favorable prospects for export, but the export criteria did 
not carry preponderant weight, we did not consider the award of Pioneer 
status to constitute an export subsidy. However, under the new standard 
contained in Sec. 351.514, if exportation or anticipated exportation 
was either the sole condition or one of several conditions for granting 
Pioneer status to a firm, we would consider any benefits provided under 
the program to the firm to be export subsidies unless the firm in 
question can clearly demonstrate that it had been approved to receive 
the benefits solely under non-export-related criteria. In such 
situations, we would not treat the subsidy to that firm as an export 
subsidy.
    We have not adopted the suggestion to limit the interpretation of 
the phrase ``contingent upon actual or anticipated export performance'' 
to situations where the subsidy is conferred only upon actual 
exportation or is lost if the recipient is unable to demonstrate that 
the goods were exported. Such language would effectively negate the 
phrase ``tied to * * * anticipated exportation or export earnings'' and 
directly conflicts with the intent of Congress and the language of the 
SCM Agreement. The SCM Agreement states that a de facto export subsidy 
exists ``when the facts demonstrate that the granting of a subsidy, 
without having been made legally contingent upon export performance, is 
in fact tied to actual or anticipated exportation or export earnings.'' 
See Footnote 4 to Article 3.1 of the SCM Agreement (emphasis added).
    One commenter protested that the 1997 Proposed Regulations failed 
to provide a mechanism for notifying export subsidies discovered during 
an investigation to the Office of the U.S. Trade Representative 
(``USTR'') for submission to the WTO. We do not believe a regulation is 
needed given the clear language of the statute which requires the 
Department to notify USTR of any subsidies which are ``prohibited'' 
under Article 3 of the SCM Agreement. (See section 281(b)(1) of the Act 
(19 U.S.C. 3571(b)(1) and (c)(1).)
    General Export Promotion: Paragraph (b) contains an exception to 
the general rule which codifies the Department's practice with respect 
to certain types of government export promotion activities. In the 1997 
Proposed Regulations, this paragraph was a separate section (see, 
Sec. Section 351.520). However, we have decided it fits more 
appropriately as an exception to our discussion of what constitutes an 
export subsidy. As we have observed in the past, most countries 
maintain general export promotion programs. As long as these programs 
provide only general information services, such as information 
concerning export opportunities or government advocacy efforts on 
behalf of a country's exporters, they do not confer a benefit for 
purposes of the CVD law. However, if such activities promote particular 
products or provide financial assistance to a firm, a benefit could 
exist.
    For example, government guides on how to export, overseas marketing 
reports, and marketing opportunity bulletins would be considered to be 
general promotion activities and, as such, would not be 
countervailable. Similarly, certain advocacy efforts, such as country 
image events or country product displays, could also be considered to 
be general promotion activities. However, image events or product 
displays that focus on individual products or which provide financial 
assistance to participants would not meet the exception for general 
export promotion. See, e.g., the discussion regarding the treatment of 
two ProChile trade promotions, ``Event Bon Appetit'' and ``Summer 
Harvest'' in Fresh Atlantic Salmon from Chile, 63 FR 31437, 31440 (June 
9, 1998).
    Two commenters argued that the regulation should be modified first 
to identify what constitutes countervailable export promotion 
assistance and then to identify the criteria for potentially non-
countervailable export promotion assistance. Another commenter argued 
that the regulation should be revised to make it clear that general 
export promotion programs never constitute export subsidies because 
such programs can never be considered to be contingent upon export 
results. According to the commenter, such treatment would be consistent 
with the ``green box'' treatment of general marketing and promotional 
programs under the WTO Agricultural Agreement. This commenter further 
suggested that the focus of the regulation should be on programs rather 
than activities. The commenter also argued that even where an export 
promotion program confers a benefit, the program should be considered 
to be non-countervailable if it is non-specific. Another commenter 
argued that even if an export promotion program is superficially 
generally available but upon examination is de facto specific, then it 
is countervailable.
    Having clarified the exception for general export promotion by 
incorporating that proposed regulation into the general export 
subsidies regulation, we are not adopting the suggested modification 
regarding the identification of countervailable export promotion 
assistance. We also disagree that the regulation should be revised to 
state that general export promotion activities can never be 
countervailable because they are never contingent upon export results. 
As discussed in response to a similar comment posed by this commenter 
with respect to the general definition of an export subsidy contained 
in paragraph (a), the phrase ``contingent upon actual or anticipated 
export performance'' is not limited to actual exportation. Assistance 
to promote exports, even of a general nature, is designed to result in 
actual export performance.
    With respect to whether the regulation should refer to export 
promotion programs rather than export promotion activities, we do not 
see the need to make this change. We often examine and make 
determinations with respect to certain aspects of, or activities under, 
a program, and as a result may find one project or activity under a 
program to be countervailable while finding another project or activity 
under the same program to be not countervailable.
    Finally, with respect to the comments regarding the ``specificity'' 
of export promotion assistance, we do not need to reach this issue. All 
export promotion programs, even those of a general nature, are specific 
under section 771(5A)(B) of the Act. However, as noted above, as long 
as these programs provide only information services, such as 
information concerning export opportunities, or government advocacy 
efforts on behalf of a country's exporters, they do not confer a 
benefit for purposes of the CVD law.

Section 351.515

    Section 351.515 corresponds to paragraph (c) of the Illustrative 
List, and deals with preferential internal transport and freight 
charges on export shipments. It is unchanged from the 1997 Proposed 
Regulations. Paragraph (a)(1) restates the general principle that a 
benefit exists to the extent that a firm pays less for the transport of 
goods destined for export than it would for the transport of goods 
destined for domestic consumption. In addition, paragraph

[[Page 65382]]

(a)(2), which is based on Sec. 355.44(g)(2) of the 1989 Proposed 
Regulations, provides that the Secretary will not consider a benefit to 
exist if differences in charges are the result of an arm's-length 
transaction or are commercially justified.
    Paragraph (b) provides that the Secretary will consider the benefit 
to have been received on the date on which the firm pays or, in the 
absence of payment, was due to pay the transport or freight charges. 
Paragraph (c) provides that the Secretary will normally allocate 
(expense) the benefit to the year in which the benefit is received.

Section 351.516

    Section 351.516 deals with the government provision of goods or 
services on favorable terms or conditions to exporters. Like its 
predecessor, Sec. 355.44(h) of the 1989 Proposed Regulations, 
Sec. 351.516 is based on paragraph (d) of the Illustrative List, and 
reflects the changes to paragraph (d) made as part of the Uruguay 
Round. Paragraph (a) contains the standard for determining the 
existence and amount of the benefit attributable to these types of 
subsidy programs. As paragraph (a)(2) makes clear, in determining 
whether the domestically sourced input is being provided on more 
favorable terms than are commercially available on world markets, the 
Department will add to the world market price delivery charges to the 
country in question. In our view, delivered prices offer the best 
measure of prices that are commercially available to exporters in that 
country. Paragraphs (b) and (c) contain rules regarding the timing of 
benefit receipt and the allocation of the benefit to a particular time 
period, respectively. As discussed below, one change has been made to 
paragraph (a)(1) of the 1997 Proposed Regulations.
    As noted in the 1997 Proposed Regulations, one commenter argued 
that the Department should provide that all export subsidy payments are 
prohibited per se under the SCM Agreement and U.S. law, and that 
nothing in paragraph (d) permits them. According to this commenter, in 
the past, foreign governments have claimed an exception to paragraph 
(d) for practices that protect domestic markets while promoting 
subsidized exports of agricultural and manufactured goods. As an 
example, this commenter cited the European Union program providing 
``export restitution'' payments or ``export refunds'' on durum wheat, 
the primary agricultural product used in the production of pasta. The 
commenter stated that these refunds were prohibited because paragraph 
(d) applies only to the ``provision'' of goods and/or services, not 
export payments, and that the Department's regulations should clearly 
prohibit export ``payments.''
    This argument is identical to one put forth by petitioners in 
the1985 administrative review on Certain Iron-Metal Castings from 
India, 55 FR 50747, 50748 (December 10, 1990). In that case, India's 
International Price Reimbursement Scheme (``IPRS'') provided payments 
to castings exporters, refunding the difference between the price of 
raw materials purchased domestically and the price exporters otherwise 
would have paid on the world market. We refused to examine whether the 
IPRS met the criteria for non-countervailability under the exception in 
item (d) and countervailed the IPRS payments in their entirety.
    Exporters and importers challenged the Department's determination, 
and, in its decision in Creswell Trading Co. v. United States, 783 F. 
Supp. 1418 (1992), the CIT remanded the case to the Department with 
instructions to analyze the consistency of the IPRS with item (d). The 
Federal Circuit discussed this decision with approval in connection 
with an appeal from a second CIT decision in this same case. See 
Creswell Trading Co. v. United States, 15 F. 3d 1054 (1994) 
(``Creswell''). Therefore, based on the above judicial precedent, we 
disagree with the commenter that paragraph (d) does not apply to 
programs where a government reimburses an exporter for the difference 
between a higher domestic price for an input and a lower price that the 
exporter would have paid on the world market, as opposed to providing 
the input itself.
    Also consistent with the Federal Circuit's decision in Creswell, 
where a program exists that provides inputs for exported goods at a 
lower price than is available for inputs for use in the production of 
goods for domestic consumption, the burden will be on respondents to 
provide evidence that the lower price reflects the price that is 
commercially available on world markets.
    In the preamble to the 1997 Proposed Regulations, we asked parties 
to comment on whether dumped or subsidized prices should be considered 
to be commercially available world market prices suitable for use as a 
benchmark to determine whether a government is providing price 
preferences for inputs used for exports. Several commenters opposed 
using dumped or subsidized prices as a benchmark because it would 
understate the subsidy, undermine the purpose of the SCM Agreement and 
would be inconsistent with our proposed upstream subsidy methodology. 
Other commenters argued that subsidized or dumped prices should be 
considered as a possible benchmark because they represent 
``commercially available'' prices.
    Where there is more than one commercially available world market 
price to be used as a benchmark, we intend to average these prices to 
the extent practicable, making due allowance for factors affecting 
comparability. If the most appropriate benchmarks are for products that 
are dumped or subsidized in the country where the subject merchandise 
is produced, we will adjust the benchmark. However, we will only make 
an adjustment to reflect a determination of dumping or subsidization 
made by the importing country with respect to the input product 
imported from the country from which the world market price is derived.
    A number of parties commented on the Department's inclusion of 
delivery charges in determining the commercially available world market 
price benchmark. While some commenters supported the inclusion of 
delivery charges in the benchmark arguing that it more accurately 
reflected the price available to exporters in that country, others 
disagreed arguing that delivery charges merely reflect the distance the 
good is being transported. The difference in delivery costs between a 
locally sourced product and an imported product is not due to the 
government subsidy; rather it reflects the comparative advantage the 
domestic product has over the imported product with respect to 
geographic proximity.
    Consistent with our past practice in evaluating such subsidies, we 
intend to continue to include delivery charges in the commercially 
available world market price benchmark used to measure price 
preferences for inputs used for exports. Item (d) of the Illustrative 
List specifically sets the benchmark as the price ``commercially 
available on world markets to their exporters.'' By its very terms, the 
price they would pay would include freight.
    This practice was upheld by the Federal Circuit in Creswell v. the 
United States, 141 F.3d 1471 (Fed. Cir. 1998) (``Creswell II''), a case 
which involves IPRS and exporters of iron-metal castings in India. 
According to the Court:


[[Page 65383]]


    Item (d) thus recognizes that foreign governments may subsidize 
their domestic industries to allow them to compete effectively on 
the world market as long as the extent of the subsidization is not 
more favorable to their exporters than if those exporters had to 
participate in the world market without assistance. If the amount of 
the subsidization exceeds this point, it is excessive and this 
excessive amount is countervailable under Item (d). Accordingly, 
Item (d) mandates a comparison between the terms and conditions 
under which product was supplied to exporters by their governments 
and the terms and conditions to which those exporters would have 
been subject had they instead participated in the world market.

    The Court explained that:

    A castings manufacturer procuring pig iron on the world market 
would have to pay the FOB price for the pig iron itself, plus the 
cost of shipping that iron to India. Accordingly, the world market 
price must include the cost of shipping. To the extent that the 
Indian government's world market price did not include oceanic 
shipping costs, its world market price was artificially low and its 
rebate artificially high by this amount. The price of pig iron that 
is not delivered to India cannot be fairly compared with the price 
of pig iron that is delivered. Thus, because of the omission of 
oceanic shipping costs from the calculation of the world market 
price, the IPRS program has in effect provided pig iron to India's 
castings manufacturers on terms more favorable than had those 
manufacturers actually procured pig iron on the world market.

    One commenter stated that, consistent with the SCM Agreement, 
Sec. 351.516(a)(1) should be amended to include government-provided 
services. We have adopted this suggestion and have amended 
Sec. 351.516(a)(1) to include services.
    This same commenter also stated that when a foreign government 
charges less than the commercially available price on world markets, 
the Department should countervail the full amount of the difference 
between the price the government charges to domestic producers and that 
charged to exporters, not just the difference between the government 
price and the delivered commercially available world market price 
benchmark. Such an approach would be consistent with the Court's 
decision in RSI (India) Pvt., Ltd. v. United States, 687 F. Supp. 605, 
611 (CIT 1988) (``RSI'').
    We have not adopted this suggestion. Where there is a government-
mandated scheme in place, the benefit to the recipient from price 
preferences for inputs used in the production of goods for export is 
the difference between what the producer actually pays and what the 
producer would otherwise pay (i.e., the commercially available price on 
the world market). We disagree that the suggested approach is 
consistent with the Federal Circuit's decision in RSI. In RSI, the 
Court was addressing a situation where the record was deficient, and it 
found that the Department was under no obligation to make calculations 
that should have been made by respondents. However, consistent with RSI 
and the Federal Circuit's decision in Creswell II, we continue to take 
the position that the respondents must provide evidence establishing 
that the lower price being charged by the government reflects the price 
that is commercially available on world markets.

Section 351.517

    Section 351.517 deals with the exemption, remission or rebate upon 
export of indirect taxes. (``Indirect tax'' is defined in 
Sec. 351.102.) Section 351.517 is consistent with longstanding U.S. 
practice, (see Zenith Radio Corp. v. United States, 437 U.S. 443 
(1978)), and is based on paragraph (g) of the Illustrative List. The 
regulation has been changed to reflect paragraph (g) of the 
Illustrative List by adding that it also applies to the exemption of 
indirect taxes, as well as to their remission. Paragraph (g) deals with 
indirect taxes on the production or distribution of the exported 
merchandise, such as value added taxes, and provides that the remission 
or rebate of such taxes constitutes an export subsidy only if the 
amount of the remittance or rebate is excessive; i.e., if it exceeds 
the amount of indirect taxes levied on like products sold for domestic 
consumption. For example, if a government imposes a $7 tax on a widget 
sold for domestic consumption and provides a $10 rebate if the same 
type of widget is exported, an export subsidy exists in the amount of 
$3. In accordance with paragraph (g), the non-excessive exemption or 
remission upon export of indirect taxes does not constitute a subsidy. 
See note 1 of the SCM Agreement.
    Paragraph (b) provides that the benefit from an excessive exemption 
or rebate of indirect taxes is deemed to be received on the date of 
exportation. Paragraph (c) provides that the Secretary will normally 
expense these types of subsidies in the year of receipt.

Section 351.518

    While Sec. 351.517 deals with the exemption or remission of 
indirect taxes in general, Sec. 351.518 deals with the exemption, 
remission, or deferral of prior-stage cumulative indirect taxes and has 
been changed from the 1997 Proposed Regulations, as described below. 
(``Prior-stage indirect tax'' and ``cumulative indirect tax'' are 
defined in Sec. 351.102.) Section 351.518 is based on paragraph (h) of 
the Illustrative List, and reflects certain changes made to paragraph 
(h) as part of the Uruguay Round negotiations. Section 351.518 is 
consistent with paragraph (h) and the Guidelines on Consumption of 
Inputs in the Production Process (Annex II to the SCM Agreement).
    Section 351.518 is drafted to address separately exemptions, 
remissions and deferrals of prior stage cumulative indirect taxes. 
Paragraph (a) deals with whether a benefit is received and how it is 
calculated. Paragraph (a)(1) deals with exemptions and states that 
where inputs are exempt from prior stage cumulative indirect taxes, a 
benefit exists to the extent that the exemption extends to inputs not 
consumed in the production of the exported product, as defined in 
accordance with the SAA and Annex II to the SCM Agreement, making 
normal allowance for waste, or where the exemption covers taxes other 
than indirect taxes. (``Consumed in the production process'' is defined 
in Sec. 351.102.) Where a benefit exists, it is equal to the amount of 
the taxes the firm would otherwise pay on inputs not consumed in the 
production of the exported product.
    Paragraph (a)(2) addresses remissions of indirect taxes and states 
that a benefit exists to the extent that the amount remitted exceeds 
the amount of prior stage cumulative indirect taxes paid on inputs that 
are consumed in the production of the exported product, making normal 
allowance for waste. Where a benefit exists, paragraph (a)(2) sets 
forth a general rule to the effect that the amount of the benefit 
normally will equal the difference between the amount remitted and the 
amount of prior stage cumulative indirect taxes on inputs that are 
consumed in the production of the exported product.
    Paragraph (a)(3) deals with the amount of the benefit attributable 
to a deferral of prior-stage cumulative indirect taxes. We have 
modified paragraph (a)(3) in response to comments that the regulation 
should identify the practice considered countervailable before 
addressing the exception. Consistent with footnote 59 to the SCM 
Agreement, the first sentence of paragraph (a)(3) provides that a 
deferral gives rise to a benefit if the deferral extends to inputs that 
are not consumed in the production of the exported product, making 
normal allowance for waste, and the government does not charge the 
appropriate interest on the taxes deferred.

[[Page 65384]]

    Another commenter urged the Department to treat multi-year 
deferrals as long-term loans, because using a short-term interest rate 
as a benchmark understates the benefit to the recipient. For the 
reasons discussed in Sec. 351.509 regarding deferrals of direct taxes, 
we have adopted this position. Consequently, Sec. 351.518(a)(3) permits 
us to use long-term benchmark rates for determining the benefit 
conferred by deferrals of prior stage cumulative indirect taxes, where 
appropriate.
    We have also modified the exception outlined in paragraph (a)(4) in 
response to a comment that the 1997 Proposed Regulations erroneously 
applies procedures set out in Annex II to the SCM Agreement only to 
remissions of indirect taxes and should apply as well to exemptions and 
deferrals. We agree that Annex II to the SCM Agreement applies not only 
to remissions but also to exemptions and deferrals. Accordingly, 
paragraph (a)(4) has been changed and directs that, based on Annex II 
to the SCM Agreement, the Secretary may consider the entire amount of 
an exemption, remission or deferral of prior-stage cumulative taxes to 
be a benefit if the Secretary determines that the foreign government 
has not examined the inputs in order to confirm which inputs are 
consumed in the production of exported products and in what amounts, 
and the taxes that are imposed on those inputs. This qualification is 
essentially a modified version of the Department's ``linkage test,'' a 
test upheld in Industrial Fasteners Group, American Importers Ass'n v. 
United States, 710 F.2d 1576 (Fed. Cir. 1983). The test has been 
modified to conform to the guidelines of Annex II. Under the modified 
test, we will first examine whether the exporting government has a 
system in place that confirms which inputs are consumed in the 
production of the exported product, and in what amounts, and which 
taxes are imposed on the inputs consumed in production. Where we find 
that such a system is in operation, we will examine the system to 
determine whether it is reasonable, effective, and based on generally 
accepted commercial practices in the exporting country. Where such a 
system is not in operation, or where the system is not reasonable or 
effective, the government of the exporting country may examine the 
actual inputs involved to demonstrate that the exemption, remission or 
deferral of indirect taxes reflects only those inputs consumed in the 
production of the exported product, the quantity of those inputs 
consumed in production, including a normal allowance for waste, and 
only those indirect taxes imposed on the input product.
    Paragraph (b) deals with the time of receipt of the benefit. 
Paragraph (b)(1) provides that in the case of a tax exemption, the 
benefit is received on the date of exportation. Paragraph (b)(2) 
provides that in the case of a tax remission, the benefit arises as of 
the date of exportation. Paragraphs (b)(3) and (b)(4) address deferrals 
and state that the benefit from deferrals of less than one year will be 
received on the date the deferred tax becomes due. For multi-year 
deferrals, the benefit is received on the anniversary date(s) of the 
deferral.
    Paragraph (c) deals with the allocation of the benefit to a 
particular time period, and provides that the Secretary normally will 
allocate (expense) the benefit from an exemption, remission or deferral 
of prior-stage cumulative indirect taxes to the year in which the 
benefit is considered to have been received under paragraph (b).
    Two commenters argued that Sec. 351.518(a)(2) should state that the 
system, procedure or methodology of examination used by foreign 
governments to confirm the consumption of inputs in the production 
process is subject to the further examination by the Department, 
including verification. We have not adopted the suggested language 
regarding verification. We see no need to add this language. As with 
any information relied upon by the Department for its determinations, 
this information is subject to verification.

Section 351.519

    Section 351.519 deals with the remission or drawback of import 
charges. The regulation has been changed to clarify that the term 
``remission or drawback'' includes full or partial exemptions and 
deferrals of import charges. Section 351.519 is generally consistent 
with prior Department practice, but contains some revisions to reflect 
changes made to paragraph (i) of the Illustrative List during the 
Uruguay Round negotiations. Section 351.519 is based on paragraph (i), 
the Guidelines on Consumption of Inputs in the Production Process, and 
the Guidelines in the Determination of Substitution Drawback Systems as 
Export Subsidies (Annex III to the SCM Agreement).
    Paragraph (a)(1) reflects the longstanding principle that 
governments may remit or drawback import charges paid on imported 
inputs consumed in production when the finished product is exported. 
However, if the amount remitted or drawn back exceeds the amount of 
import charges paid, a benefit exists. In addition, paragraph (a)(1) 
now incorporates exemptions and deferrals of import charges on inputs 
consumed in the production of exported products.
    Paragraph (a)(2) deals with so-called ``substitution drawback.'' 
Under a substitution drawback system, a firm may substitute domestic 
inputs for imported inputs without losing its eligibility for drawback. 
However, a benefit exists if the amount drawn back exceeds the amount 
of import charges levied on imported inputs, or if the export of the 
finished product does not occur within a reasonable time (not to exceed 
two years) of the import of the inputs.
    Paragraph (a)(3) deals with the calculation of the amount of 
benefit. Paragraph (a)(3)(i) sets forth the rule for calculating the 
benefit from an excessive remission or drawback and states that the 
amount of the benefit equals the difference between the amount remitted 
or drawn back and the amount of import charges paid on the inputs 
consumed in production for which the remission or drawback is claimed. 
For example, assume that a firm imports a widget which is an input 
consumed in the production of a gizmo, and pays $2 in import duties on 
the widget. If, when the firm exports the finished gizmo, the firm 
receives $5 in drawback, the benefit equals $3 ($5-$2 = $3). Paragraphs 
(a)(3) (ii) and (iii) deal with calculation of the benefit from an 
exemption or deferral of import charges and parallel the language set 
forth in Sec. 351.518.
    However, paragraph (a)(4) provides that in certain circumstances, 
the Secretary may consider the amount of the benefit to equal the 
amount of the exemption, deferral, remission or drawback. Paragraph 
(a)(4) provides for a ``linkage'' test, and is essentially identical to 
Sec. 351.518(a)(4). See discussion of Sec. 351.518(a)(4), above.
    One commenter suggested that language be added to 
Sec. 351.519(a)(4) to clarify further the type of system or procedure 
referred to by the regulation. This commenter and another commenter 
also argued that the Department should state that the system, procedure 
or methodology of examination used by foreign governments to confirm 
the consumption of inputs in the production process is subject to 
further examination by the Department, including verification.
    We have not adopted this clarifying language in Sec. 351.519(a)(4). 
We believe that clarification regarding the type of system or procedure 
is unnecessary because any system, regardless of the

[[Page 65385]]

type, must meet the standards set forth in paragraph (a)(4) in order to 
be non-countervailable. We will examine all such systems carefully to 
ensure full compliance with these standards. With respect to the 
suggested language regarding verification, we have not adopted this 
language. As with any information relied upon by the Department for its 
determinations, this information is subject to verification.
    Paragraph (b) deals with the time of receipt of the benefit. 
Paragraph (b)(1) provides that, in the case of remission or drawback, 
the Secretary normally will consider the benefit to have been received 
as of the date of exportation. Paragraphs (b)(2), (b)(3) and (b)(4) 
have been added to reflect the addition of exemptions and deferrals of 
import charges to this section. The timing of receipt of the benefit 
from an exemption or deferral of import charges parallels Sec. 351.518. 
Paragraph (c) provides that the Secretary normally will allocate this 
benefit to the year in which the benefits are considered to have been 
received under paragraph (b).

Section 351.520

    Section 351.520 deals with export insurance and is unchanged from 
the 1997 Proposed Regulations. Paragraph (a), which deals with the 
benefit attributable to export insurance, is based on paragraph (j) of 
the Illustrative List. Paragraph (a) differs from the section of the 
1989 Proposed Regulations dealing with export insurance, 
Sec. 355.44(d). First, to reflect changes made to the Illustrative List 
during the Uruguay Round, the word ``manifestly'' has been deleted.
    Second, Sec. 355.44(d)(1) of the 1989 Proposed Regulations required 
that an export insurance program must have exhibited losses for a five-
year period before the Secretary would consider the program a 
countervailable subsidy. We have not included the five-year loss 
requirement in these regulations, because, depending on how an export 
insurance program is structured, it may be evident within less than 
five years that premiums will be inadequate to cover the long-term 
operating costs and losses of the program. On the other hand, where the 
program is structured in such a way that expected premiums can cover 
expected long-term operating costs and losses, we anticipate that we 
will continue to apply the five-year rule. For example, we would 
continue to apply the five-year rule to programs like Israel's Exchange 
Rate Risk Insurance Scheme. With respect to this program, we originally 
determined that it was structured so as to be self-balancing in the 
sense that it could reasonably be expected to break even over the long 
term. See Potassium Chloride from Israel, 49 FR 36122, 36124 (September 
14, 1984). Therefore, we did not find a countervailable subsidy despite 
losses in the early years of the program. Id. However, after observing 
losses for five years, we concluded that the premiums charged were 
inadequate, and we determined that the scheme conferred a 
countervailable benefit. See Industrial Phosphoric Acid from Israel, 52 
FR 25447, 25449-50 (July 7, 1987).
    Finally, Sec. 355.44(d)(1) of the 1989 Proposed Regulations stated 
that the Department would take into account income from other insurance 
programs operated by the entity in question. As discussed in the 
Preamble to the 1997 Proposed Regulations, we have reconsidered this 
policy, and, although we do not have much experience in this regard, 
have concluded that this requirement may be overly restrictive. For 
example, there may be instances where the insuring entity operates on a 
commercial basis, except for the export insurance function that may be 
specifically underwritten by the government. In such a situation, it 
would be inappropriate to take into account the insuring company's 
income from other insurance programs.
    One commenter suggested that the Department's regulations should 
clearly state that the Department's evaluation of whether export 
insurance programs are being subsidized will be limited to those 
programs and not other insurance programs which may be offered by the 
insurer.
    Section 351.520(a)(1) states, ``In the case of export insurance, a 
benefit exists if the premium rates charged are inadequate to cover the 
long-term operating costs and losses of the program.'' (Emphasis 
added). We do not see a need to clarify the regulation any further.

Section 351.521

    Section 771(5A)(C) of the Act defines an ``import substitution 
subsidy'' as ``a subsidy that is contingent upon the use of domestic 
goods over imported goods, alone or as 1 of 2 or more conditions.'' As 
stated in the Senate Report, ``the category of import substitution 
subsidies is a new one that is neither part of the 1979 Subsidies Code 
nor included in current law.'' S. Rep. No. 103-412, at 93 (1994). Under 
the new law, import substitution subsidies are automatically considered 
to be specific.
    In the 1997 Proposed Regulations, we stated that we were not 
issuing a regulation on import substitution subsidies due to our lack 
of experience in dealing with this new category of subsidies.
    One commenter supported the Department's decision not to issue a 
regulation on this topic but asked that we explain in these Final 
Regulations our reasons for not doing so. This commenter also requested 
that we reiterate our view, as expressed in the 1997 Proposed 
Regulations, that section 771(5A)(C) of the Act does not limit the 
definition of import substitution subsidies to include only de jure 
subsidies. Another commenter urged us to issue a regulation to clarify 
that both de jure and de facto import substitution subsidies are 
countervailable.
    Because of our lack of experience in dealing with import 
substitution subsidies, we have continued to designate Sec. 351.521 as 
``reserved.'' We intend to develop our practice regarding import 
substitution subsidies on a case-by-case basis. As we stated in the 
1997 Proposed Regulations, the plain language of section 771(5A)(C) of 
the Act does not limit the definition of import substitution subsidies 
to only those subsidies that are contingent ``in law'' upon the use of 
domestic goods. Moreover, the absence of a regulation making explicit 
the coverage of de facto import substitution subsidies should not be 
construed as an indication that the Department believes that section 
771(5A)(C) applies only to de jure import substitution subsidies.
    A third commenter contended that investigations of import 
substitution subsidies would be very complex and time-consuming and 
that they, therefore, would divert attention and resources from the 
main countervailing duty investigation. For this reason, the commenter 
argued, the Department should not initiate an investigation of import 
substitution subsidies absent a specific allegation by petitioners that 
gives the Department a reasonable basis to believe or suspect that such 
subsidies have been bestowed.
    We have not adopted this suggestion. Contrary to the commenter's 
view, we believe that investigation of import substitution subsidies 
may place less of a burden on the Department and respondents because 
import substitution subsidies are per se specific. Consequently, we 
would only need to investigate the existence and amount of any benefit. 
Therefore, we see no basis for employing a heightened initiation 
standard.
    A fourth commenter asked that the regulations clarify that the term 
``domestic goods'' should also apply to purchases within a customs 
union of which the subsidizing country is a member. The commenter 
argued that

[[Page 65386]]

this definition of ``domestic'' would be consistent with the definition 
of ``country'' in section 771(3) of the Act. The commenter noted that 
the Department has countervailed subsidies provided by the European 
Union in the past. According to the commenter, a regulation that 
includes purchases from within a customs union in the term ``domestic 
goods'' would, therefore, be consistent with the Department's past 
practice.
    Import substitution subsidies generally protect domestic input 
producers by imposing requirements or providing incentives for 
companies to use these inputs. It seems unlikely that one country would 
provide incentives to use inputs from another country, even if the 
other country is in the same customs union. However, if the subsidy is 
provided by the customs union itself, we can reach that program 
directly through the definition of ``country,'' as defined further in 
the preamble to Sec. 351.523 on upstream subsidies. Furthermore, we 
believe the commenter's analysis of the relationship between ``domestic 
goods'' as used in section 771(5A)(C) and ``country'' as used in 
section 771(3) may have merit, and we will look carefully at this 
suggestion if the situation is presented in a specific case.

Section 351.522

    Section 351.522 of the 1997 Proposed Regulations, entitled 
``Certain agricultural subsidies,'' codified particular aspects of how 
the Department intends to analyze ``green box'' subsidies. We did not 
promulgate proposed regulations governing the non-countervailable 
status of ``green light'' subsidies because we considered the statute 
and the SAA sufficiently clear with respect to these exceptions in the 
countervailing duty law. However, based on comments received, as 
discussed below, we have codified certain standards concerning our 
analysis of green light research and environmental subsidies in 
Secs. 351.522(b) and 351.522(c). To reflect these changes from the 1997 
Proposed Regulations, we have renamed Sec. 351.522 ``Green Light and 
Green Box Subsidies,'' and we have added paragraphs (b) and (c) in 
these Final Regulations.
    Certain agricultural subsidies: Section 771(5B)(F) of the Act 
implements Article 13(a)(i) of the WTO Agreement on Agriculture 
regarding the non-countervailable status of certain ``domestic support 
measures.'' Under Article (6)(1) of the Agreement on Agriculture, 
domestic support measures that meet the policy-specific criteria and 
conditions of Annex 2 of the WTO Agreement on Agriculture are exempt 
from member countries' commitments to reduce subsidies. In addition, 
Article 13(a)(i) of the Agreement on Agriculture directs that these 
subsidies, commonly referred to as ``green box'' subsidies, will be 
non-countervailable during the nine-year implementation period 
described in Article 1(f) of the Agreement on Agriculture.
    Consistent with Article 13(a)(i) of the Agreement, section 
771(5B)(F) of the Act provides that the Secretary will treat as non-
countervailable domestic support measures that (1) are provided with 
respect to products listed in Annex 1 to the Agreement on Agriculture, 
and (2) the Secretary ``determines conform fully to the provisions of 
Annex 2'' to that Agreement. To implement section 771(5B)(F) of the 
Act, Sec. 351.522(a) sets out the criteria the Secretary will consider 
in determining whether a particular domestic support measure conforms 
fully to the provisions of Annex 2.
    One commenter argued that the Department should clarify that, in 
order to obtain green box status, a subsidy must truly be designed for 
agriculture because the Agreement on Agriculture makes a distinction 
between support provided to raw products and support provided to 
processed products. Specifically, the Department should make clear that 
a grant to upgrade a facility for processing agricultural products, 
while technically covered by the Agreement on Agriculture, would not 
receive green box treatment.
    We have not adopted this proposal because neither Annex 1 nor Annex 
2 of the Agreement on Agriculture draws a distinction between raw and 
processed agricultural products for purposes of green box treatment. 
Annex 1 covers products from HS Chapters 1-24 and various other HS 
Codes and Headings. These tariff categories include numerous forms of 
both raw and processed agricultural products. The policy-specific 
criteria and other conditions set forth in Annex 2 are not product-
specific. Hence, a domestic support measure provided with respect to 
the specific agricultural products identified only in Annex 1, whether 
raw or processed, may warrant green box treatment as long as the 
measure fully conforms to the relevant criteria in Annex 2.
    One commenter argued that the regulations should require the 
Department to consider whether or not an alleged green box subsidy has 
trade-distorting effects. Further, the commenter noted that the SAA 
enumerates certain U.S. programs that meet the green box criteria. 
According to the commenter, the regulations should explicitly treat as 
non-countervailable a foreign program that is similar to an enumerated 
U.S. program. This same commenter also argued that the list of eight 
types of direct payments to producers included in Annex 2 is 
illustrative, not exclusive. The commenter stated that the regulations 
should provide ``precise, objective and even-handed'' criteria for 
determining whether a particular subsidy is a green box subsidy.
    Another commenter disputed the suggestion that the regulations 
should include a list of agricultural programs that the Department 
automatically would consider as non-countervailable. According to this 
commenter, there is no basis in the statute for automatically exempting 
particular programs from the CVD law. Instead, this commenter argued, 
the Department should assess whether particular programs meet the green 
box criteria on a case-by-case basis.
    We believe there is little to be gained from enumerating in the 
regulations specific types of programs that would qualify automatically 
as green box subsidies. Annex 2 of the Agreement provides explicit 
criteria that a program must meet in order to receive green box status, 
and Sec. 351.522(a) incorporates these criteria. Consistent with 
section 771(5B)(F) of the Act and the Agreement on Agriculture, 
paragraph (a) of Sec. 351.522 provides that we will treat as non-
countervailable a subsidy provided to an agricultural product listed in 
Annex 1 of the Agreement if the subsidy fully conforms to both the 
basic criteria of subparagraphs (a) and (b) of paragraph 1 of Annex 2 
of the Agreement on Agriculture and the relevant policy-specific 
criteria and conditions set out in paragraphs 2 through 13 of that 
Annex.
    We received two comments concerning the so-called ``peace clause'' 
in the Agreement on Agriculture. Specifically, Articles 13(b) and (c) 
of that Agreement require WTO member countries to exercise ``due 
restraint'' in initiating CVD proceedings on agricultural subsidies 
provided by a member whose total non-green box agricultural subsidies 
(both domestic and export) are within that member's reduction 
commitments. See SAA at 723-25. The obligation to exercise ``due 
restraint'' exists only during the ``implementation period,'' defined 
in Article 1(f) of the Agreement on Agriculture.
    One commenter argued that the Department's regulations should 
ensure that the Department exercise due restraint by not self-
initiating CVD

[[Page 65387]]

investigations on products that benefit from subsidies described in 
Articles 13(b) and (c). A second commenter argued that the Department 
should interpret the due restraint clause narrowly.
    We do not believe that a regulation is necessary. The Department 
understands the due restraint requirement to entail a commitment to 
refrain from self-initiating CVD investigations with respect to 
agricultural subsidies described in Articles 13(b) and (c) during the 
implementation period, and the Department will administer the statute 
accordingly. See SAA at 937.
    Green light subsidies in general: Under section 771(5B) of the Act, 
which implements Article 8 of the SCM Agreement, certain domestic 
subsidies and domestic subsidy programs that meet all the requirements 
may be treated as non-countervailable. There are three categories of 
these so-called ``green light'' subsidies: (1) Research subsidies (see 
section 771(5B)(B) of the Act); (2) subsidies to disadvantaged regions 
(see section 771(5B)(C) of the Act); and (3) subsidies for adaptation 
of existing facilities to new environmental requirements (see section 
771(5B)(D) of the Act).
    The non-countervailable status of these green light subsidies can 
be established in two ways. First, a WTO Member country can notify a 
subsidy program to the WTO SCM Committee in accordance with Article 8.3 
of the SCM Agreement. Once notified, section 771(5B)(E) of the Act 
provides that a green light subsidy program ``shall not be subject to 
investigation or review'' by the Department. However, an exception to 
this rule exists in situations where a Member country has successfully 
challenged in the WTO a claim for green light status. In the event of a 
successful challenge, section 751(g) and section 775 of the Act 
establish mechanisms for promptly including the subsidy or subsidy 
program in an existing CVD proceeding should there be reason to believe 
that merchandise subject to the proceeding may be benefitting from the 
subsidy or subsidy program.
    We received one comment on subsidy notifications. The commenter 
requested that the Department ensure that public subsidy notifications 
under Article 8.3 are made available and are circulated promptly upon 
receipt. We have adopted this suggestion. The Subsidies Enforcement 
Office within Import Administration intends to promptly add to the 
Subsidies Library all derestricted subsidy notifications, including 
those reported under Article 8.3. The Subsidies Library can be accessed 
via the Internet at http://www.ita.doc.gov/import__admin/records/esel/.
    The second method for obtaining green light status involves 
situations where a subsidy or subsidy program has not been notified to 
the SCM Committee. In the case of a subsidy given under a non-notified 
program, the subsidy is non-countervailable if the Secretary determines 
in a CVD investigation or review that the subsidy satisfies the 
relevant green light criteria contained in subparagraphs (B), (C) or 
(D) of section 771(5B) of the Act (or a WTO panel determines in a 
dispute settlement proceeding that the relevant criteria of Article 8 
of the SCM Agreement are met). The Secretary must determine that the 
subsidy satisfies all of the relevant criteria before a given subsidy 
will be treated as non-countervailable. See section 771(5B)(A) of the 
Act; SAA at 936. Moreover, as discussed in the SAA, in investigations 
and reviews of non-notified subsidies, the burden will be on the party 
claiming green light status to present evidence demonstrating that a 
particular subsidy meets all of the relevant criteria. SAA at 936. In 
addition, under section 771(5B)(A) of the Act, green light status may 
be claimed only in proceedings involving merchandise imported from a 
WTO Member country.
    In the 1997 Proposed Regulations, we stated that, in accordance 
with the Administration's commitment in the SAA, we intend to construe 
strictly the various green light provisions to ``limit the scope of the 
provision[s] to only those situations which clearly warrant non-
countervailable treatment.'' SAA at 935. Thus, the Department ``will 
not limit its analysis * * * to a narrow review of the technical 
criteria of Article 8 of the SCM Agreement, but will analyze all 
aspects of the subsidy program and its implementation to ensure that 
the purposes and terms of Article 8 have been respected.'' SAA at 937.
    Two commenters argued that the green light provisions should not be 
construed more restrictively than other CVD law provisions. Therefore, 
these commenters stated that the Department should either eliminate any 
references to a strict interpretation of these provisions or explain 
why this different treatment is necessary, appropriate, and justified.
    We reaffirm our commitment to interpret these provisions strictly 
as required by the SAA. The legislative history recognizes that 
complete exemption from the CVD law of government programs that meet 
the definition of a countervailable subsidy and that cause injury is 
extraordinary. Strict interpretation is needed both to prevent 
circumvention and to preserve the balance of commitments negotiated in 
the SCM Agreement. For these reasons, where there is a question 
regarding the green light status of a particular subsidy, we will 
ensure that the subsidy clearly qualifies before according it green 
light status. Moreover, a determination that a particular subsidy 
received by a firm is a green light or green box subsidy would not 
necessarily mean that we would find that the entire program under which 
the subsidy is provided satisfies all of the applicable green light 
criteria in all cases.
    Certain commenters suggested that the Department ``incorporate 
fully'' in the regulations the discussion of green light subsidies 
contained in the SAA or the preamble to the 1997 Proposed Regulations. 
Another commenter suggested that the Department publish a regulation 
stating that green light is set to expire unless extended.
    We have not adopted these suggestions. As with other areas of these 
regulations, unless we have determined that a particular aspect of our 
CVD methodology warrants clarification, we have not repeated language 
from the statute or the SAA. In response to the latter comment, the 
statute, at section 771(5B)(G), is explicit regarding the provisional 
application of the green light provisions.
    Investigation of notified subsidies: One commenter, noting the text 
of section 771(5B)(E) of the Act, suggested that the Department should 
refrain from investigating notified subsidy programs. According to the 
commenter, a failure to ``screen out'' notified subsidies prior to the 
initiation of an investigation would result in a waste of Departmental 
resources and unnecessary burdens on foreign governments.
    In response, several commenters argued that if there is any 
ambiguity regarding whether a subsidy alleged by a petitioner does, in 
fact, qualify as a notified green light subsidy, the Department should 
include the subsidy in its CVD investigation or review to determine 
whether it qualifies for a green light exemption. One example given by 
these commenters is a situation where a petitioner presents evidence 
that a subsidy program has been modified subsequent to its notification 
to the SCM Committee. These commenters also suggested that it may 
simply be unclear whether an alleged subsidy is the same as the 
notified subsidy, in which case the Department should include the 
alleged subsidy in the investigation to make this determination.

[[Page 65388]]

    We reaffirm our position in the preamble to the 1997 Proposed 
Regulations that section 771(5B)(E) of the Act and the SAA make clear 
that, if a subsidy program has been notified under Article 8.3 of the 
SCM Agreement, any challenge regarding its eligibility for green light 
treatment, whether due to later modification or otherwise, must be made 
through the review procedures under the WTO rather than in the context 
of a CVD proceeding. As described above, the Department may not 
initiate a CVD investigation or review of a notified subsidy program 
(which appears to benefit subject merchandise) unless informed by USTR 
that a violation has been determined under the procedures of Article 8.
    However, as we explained further in the preamble to the 1997 
Proposed Regulations, the identity of a subsidy is a different matter. 
If there is a legitimate question as to whether a subsidy alleged in a 
petition is, in fact, a subsidy provided under a program that has been 
notified under Article 8.3, pre-initiation consultations may be used to 
clarify that a subsidy or subsidy program contained in the petition 
was, in fact, notified. If consultations do not resolve the question, 
the Department will include the subsidy in a CVD investigation or 
review until the party claiming green light status demonstrates that a 
subsidy has been notified. If the party fails to establish that the 
alleged subsidy or subsidy program has been notified, then we will 
analyze the subsidy's eligibility for green light status in the same 
manner as for any other non-notified subsidy. To clarify the 
Department's procedure for investigating alleged subsidy programs 
notified under Article 8.3, as set forth below, we have codified 
Sec. 351.301(d)(7) as an interim final rule.
    Policy for investigating non-notified subsidies: One commenter 
argued that the Department should adopt a regulation providing that, 
whenever a petition includes a potential green light subsidy that has 
not been notified under Article 8.3, the Department will conduct a full 
investigation to determine whether the subsidy meets the relevant 
requirements of section 771(5B) of the Act. This commenter and others 
emphasized that the regulations also should include the SAA's express 
requirement that the party claiming green light status has the burden 
of presenting evidence demonstrating compliance with all of the 
relevant criteria for any particular subsidy category. See SAA at 936.
    While we agree with the policy espoused, we do not believe that 
this policy must be codified in the regulations. As discussed above, 
the SAA is clear that in investigations and reviews of subsidies that 
have not been notified under Article 8.3 of the SCM Agreement, the 
party claiming green status must provide evidence demonstrating that a 
particular subsidy meets all of the relevant criteria for non-
countervailable status.
    Another commenter argued that all non-notified programs should be 
presumed countervailable. We have not adopted this suggestion. The SCM 
Agreement and the URAA make clear that there are two ways to achieve 
green light status--WTO notification and pursuant to a CVD 
investigation. We see no basis for presuming that a program is 
countervailable simply because a foreign government elects not to use 
the notification procedures established under Article 8.
    Alleged green light subsidies not used during the period of 
investigation or review: As we stated in the preamble to the 1997 
Proposed Regulations, in an investigation or a review of a CVD order or 
suspended investigation, we will not consider claims for green light 
status if the subject merchandise did not benefit from the subsidy 
during the period of investigation or review. Instead, consistent with 
the Department's existing practice, the green light status of a subsidy 
will be considered only in an investigation or review of a time period 
where the subject merchandise did benefit from the subsidy.
    One commenter supported this position and argued that it should be 
codified. However, we continue to believe that a regulation is not 
needed to clarify this issue.
    Research subsidies: Prior to the enactment of the URAA, we treated 
assistance provided by a government to finance research and development 
(``R&D'') as non-countervailable if the R&D results were (or would be) 
made available to the public, including the U.S. competitors of the 
recipient of the assistance. This policy, sometimes referred to as the 
public availability test, was described by the Department in 
Sec. 355.44(l) of the 1989 Proposed Regulations.
    In the 1997 Proposed Regulations, we elected not to retain the 
public availability test. We stated that the objectives served by the 
public availability test were better met by applying the criteria 
listed in section 771(5B)(B) of the Act and Article 8.2(a) of the SCM 
Agreement. Two commenters supported our decision not to codify the 
public availability test, and two commenters argued that the Department 
should reinstate the public availability test. One commenter requested 
clarification of whether the public availability test would apply to 
the aircraft sector in light of the fact that the R&D green light 
provisions of the SCM Agreement do not apply to aircraft. In this 
commenter's view, the public availability test should be abandoned 
completely.
    In these Final Regulations, we confirm our decision not to retain 
the public availability test for any sector. We believe the public 
availability test is inconsistent with the concept of benefit which 
underlies the SCM Agreement and statute, and which we have codified in 
Sec. 351.503. According to Sec. 351.503, a benefit is conferred when a 
firm pays less for its ``inputs'' than it otherwise would pay in the 
absence of the government-provided input or earns more than it 
otherwise would earn. A research and development subsidy would reduce 
the firm's input costs, whether or not the results of the research were 
made publicly available. This same rationale applies to the aircraft 
industry. Consequently, even though the R&D green light provisions of 
the SCM Agreement do not apply to aircraft, we do not intend to apply 
the public availability standard to the aircraft sector.
    One commenter suggested that the Department should adopt an 
assumption that only grants will qualify for green light status under 
the R&D provisions; tax breaks and subsidized loans usually will not 
qualify. We have not adopted this proposal because neither the statute 
nor the SAA limits R&D green light provisions to grants.
    One commenter argued that, in determining whether a given research 
subsidy falls within the 75 and 50 percent maximums allowed under 
section 771(5B)(B) of the Act, the Department should base its analysis 
on the total costs incurred over the duration of the project in 
question. Under this reasoning, the Department would not countervail a 
subsidy if the 75 or 50 percent maximum were exceeded in the particular 
year covered by the investigation or review, provided that the 
applicable threshold ``is not exceeded over the life of the project.'' 
This commenter further argued that, if the Department determined that 
the applicable threshold was exceeded over the life of the project, 
only the amount of subsidy in excess of the relevant ``maximum'' should 
be countervailed.
    Several commenters challenged these arguments. First, they argued 
that the Department should evaluate the 75 and 50 percent maximums 
based on the costs already incurred at the time of the relevant 
investigation or administrative review, and not on the basis of 
expected

[[Page 65389]]

costs over the lifetime of the project. Second, these commenters argued 
that, if the Department determined that the applicable threshold had 
been exceeded, the entire benefit--not just the excess over the 
relevant threshold--should be countervailed. According to these 
commenters, the SAA states clearly that all of the relevant criteria 
must be met for a given program to receive green light status, and that 
a failure to meet all relevant criteria would result in the ``entire 
subsidy'' being countervailable in full. See SAA at 936.
    We agree in part with the first commenter, and in part with the 
latter commenters. With respect to the proper frame of reference for 
determining whether a given research subsidy has exceeded the specified 
statutory thresholds, section 771(5B)(B)(iii)(II) of the Act instructs 
the Department to base its analysis on ``the total eligible costs 
incurred over the duration of a particular project.'' Thus, it would be 
improper for the Department to limit its analysis to only those costs 
incurred as of the time period covered by an investigation or 
administrative review. We recognize that a finding of non-
countervailability may be based on projected or estimated costs. Given 
the Agreement's ceilings on government support, we expect that such 
projections will have been required by the program's administrators. On 
the basis of a reasonably-supported allegation in a subsequent review, 
we will revisit this finding to ensure that actual costs expended did 
not differ from the estimates upon which an earlier finding of green 
light status was based. Changes or amendments to the original project 
will be carefully scrutinized to ensure consistency with these 
provisions. We agree that, if it becomes clear at any point during the 
life of the project that the subsidy will exceed the relevant statutory 
threshold, the entire amount of the subsidy would be countervailable, 
not merely the excess.
    Subsidies to disadvantaged regions: One commenter argued that the 
Department should clarify that the green light category regarding 
subsidies to disadvantaged regions is not limited to subsidies provided 
by national governments, but also includes subsidies granted by 
subnational levels of government, such as states or provinces. This 
commenter further argued that, in determining whether a subsidy 
provided by a state or province to a disadvantaged region meets the 
criteria of section 771(5B)(C) of the Act, the Department should assess 
the criteria within the framework of the subnational government's 
jurisdiction.
    In response, other commenters argued that the Department should 
assess the green light criteria in relation to the investigated country 
as a whole, not just in relation to the jurisdiction of the subsidizing 
government if that government is at the subnational level. According to 
these commenters, the statute and the SAA instruct the Department to 
evaluate the relevant green light criteria in relation to the ``average 
for the country subject to investigation or review.''
    We agree with the first commenter that the green light categories 
include subsidies granted by governments at the subnational level and 
that, in the case of the regional green light category, we should 
assess the relevant criteria in relation to the jurisdiction of the 
granting authority. In discussing the language in section 
771(5B)(C)(ii) of the Act regarding the ``average for the country 
subject to investigation or review,'' the SAA explains that, where a 
CVD proceeding involves a member of a customs union, the term 
``country'' shall be defined in accordance with the structure of the 
regional assistance program. SAA at 934-35. For example, if we were to 
investigate a product from Luxembourg, the term ``country'' would refer 
to the EU as a whole if the subsidy being investigated were received 
under an EU regional assistance program. Thus, the SAA indicates that 
the Department should make its determinations based on averages for the 
jurisdiction granting the regional assistance subsidy.
    Other commenters argued that where certain regions receiving 
assistance under a program do not meet the criteria for green light 
treatment, that should not prejudice the green light treatment of 
assistance to regions that do meet the criteria.
    Because we have only limited experience in administering the 
regional green light provisions, we are not prepared to adopt a formal 
policy at this time. However, we find persuasive the argument that some 
regions that meet the jurisdiction's general framework of economic 
development but do not otherwise meet the green light criteria could 
potentially be given aid without automatically disqualifying all 
regions from green light treatment.
    The language in section 771(5B)(C) of the Act states that a subsidy 
provided to a person in a disadvantaged region, ``pursuant to a general 
framework of regional development,'' shall be treated as non-
countervailable. This implies that some of the regions within the 
general framework may not necessarily meet the statutory criteria to be 
considered ``disadvantaged.'' However, if the number of regions that do 
not qualify for green light treatment but continue to receive 
assistance is significant, this may call into question the basic 
principles of the general framework itself and, therefore, the 
eligibility for green light treatment of any subsidies provided under 
it.
    Subsidies for adaptation of existing facilities to new 
environmental requirements: Certain commenters argued that, with 
respect to the Department's criteria for green light environmental 
subsidies described in section 771(5B)(D) of the Act, the Department 
should treat as non-countervailable those subsidies given to upgrade 
existing facilities to environmental standards that are higher than the 
minimum standards imposed by law or regulation. According to these 
commenters, governments should be allowed to encourage higher 
environmental standards than the minimum required by law by sharing the 
additional costs of achieving the higher environmental standards. 
Moreover, according to these commenters, the language of the statute 
does not limit green light treatment to subsidies that allow companies 
to meet, rather than exceed, standards. These commenters believe that 
the Department should retain the flexibility to find non-
countervailable subsidies that assist in upgrading existing facilities 
to higher environmental standards than the minimum imposed by law or 
regulation.
    Several commenters disputed this suggestion, claiming that section 
771(5B)(D)(i) of the Act specifically limits green light status for 
environmental subsidies to those that are ``provided to promote the 
adaptation of existing facilities to new environmental requirements * * 
*.'' According to these commenters, the Department has no authority to 
broaden the scope of environmental subsidies eligible for green light 
treatment. One commenter further argued that where the environmental 
subsidy exceeds the amount necessary to meet the minimum regulatory 
requirements of the law, even by a de minimis amount, the Department 
should confirm its intent to find countervailable the entire subsidy.
    Although we acknowledge that governments have the flexibility to 
encourage higher environmental standards, we agree with the latter 
commenters. As noted above, section 771(5B)(D)(i) of the Act provides 
that non-countervailable environmental subsidies are those that are 
``provided to promote the adaptation of existing facilities to new 
environmental requirements that are imposed by statute or by 
regulation.'' According to

[[Page 65390]]

the SAA, ``strict application of these requirements is essential in 
order to limit the scope of the provision to only those situations 
which clearly warrant non-countervailable treatment.'' SAA at 935. 
Given the clear language of the statute and the SAA, we believe that 
subsidies given to upgrade existing facilities to environmental 
standards in excess of legal requirements are countervailable. In 
response to the last comment on subsidies which exceed the amount 
necessary to meet the minimum statutory or regulatory requirements, we 
agree that the full amount of the subsidy would be countervailable.
    One commenter suggested that the regulations should specify that 
environmental subsidies will receive green light treatment only if: (1) 
Required by law or regulations (administrative practice should not be 
sufficient); (2) limited to investments absolutely needed to meet new 
requirements; (3) limited to the adaptation of equipment and plant 
facilities; and (4) directly linked to the new investment.
    Because we have received no green light claims for environmental 
subsidies and, therefore, have no experience in administering these 
provisions, we are not adopting the proposed criteria. Without 
experience, we cannot judge what impact the proposed criteria would 
have. Therefore, we are not yet prepared to adopt criteria such as 
these at this time. However, we do not rule out the possibility that 
such criteria may be adopted at a later time. With respect to the first 
proposed criterion (required by law or regulation, as opposed to 
practice), section 771(5B)(D)(i) of the Act and the SAA already include 
such a limitation.
    One commenter argued that when a respondent can show that 
environmental assistance is not relieving a company of an obligation 
and that the assistance does not benefit the manufacture, production, 
or exportation of the subject merchandise, such assistance should not 
be countervailable. We disagree with the commenter's attempt to expand 
the criteria, which are clearly stated in the SCM Agreement, statute, 
and the SAA, under which the Department would find environmental 
assistance non-countervailable.
    Finally, we have concluded that procedural rules setting forth the 
deadlines and obligations for filing green light and green box claims 
are necessary to ensure efficient and orderly administration of these 
new provisions in the CVD statute. As discussed in the Explanation of 
the Final Rules, we are issuing these procedural rules as interim final 
rules effective on their date of publication in the Federal Register. 
In keeping with our decision to consolidate antidumping and 
countervailing duty procedures, these interim final rules amend 
Sec. 351.301(d) of the Department's regulations.
    Section 351.301(d)(6) sets forth time limits for filing green light 
and green box claims. These time limits parallel the deadlines for 
filing new countervailable subsidy allegations in investigations and 
reviews. Consistent with the evidentiary burden to establish the 
validity of such claims, Sec. 351.301(d)(6) also clarifies that all 
green light and green box claims must be made by the competent 
government with the full participation of the administering authority 
of the relevant program. We note that examinations of green light and 
green box requests require the full participation of the administering 
governments. Section 301(d)(7) clarifies procedures for investigating 
subsidies or subsidy programs notified under Article 8.3 of the SCM 
Agreement.

Section 351.523

    Section 351.523 deals with the identification and measurement of 
upstream subsidies. Because the URAA did not significantly amend the 
corresponding statutory provision (section 771A of the Act), 
Sec. 351.523 is based largely on Sec. 355.45 of the 1989 Proposed 
Regulations, except for the deletion of language that merely repeats 
the statute. We have, however, adopted new terminology in 
Sec. 351.523(a). Specifically, ``affiliation'' replaces ``control'' as 
the standard for when we will have a reasonable basis to believe or 
suspect that a competitive benefit is bestowed on the subject 
merchandise. This also represents a change from our 1997 Proposed 
Regulations, where the standard was ``cross-ownership'' (see discussion 
of cross-ownership in preamble to Sec. 351.525 below) . We believe the 
new definition of ``affiliated persons'' contained in section 771(33) 
of the Act is sufficient to meet the threshold for deciding whether a 
competitive benefit is bestowed for purposes of initiating an upstream 
subsidy investigation. In addition, because we have changed our 
attribution rules regarding cross-owned input and downstream suppliers, 
it is no longer appropriate to use the ``cross-ownership'' standard.
    With regard to the upstream subsidy provision in general, one 
commenter requested that the Department issue a regulation making clear 
its ability to apply an upstream subsidy analysis even where the 
subsidized input producer is located in a separate country from the 
producer of the subject merchandise. We agree that the statute provides 
the Department the flexibility to perform such an analysis in two 
specific circumstances. First, where two or more foreign countries are 
organized as a customs union, section 771A(a) clearly states that the 
Department may treat the customs union as a single country in 
conducting an upstream subsidy analysis if the countervailable subsidy 
is provided by the customs union. In addition, the definition of 
``country'' in section 771(3) of the Act does not limit this reading of 
``country'' to situations in which the subsidy is provided by the 
customs union itself. Second, where an international consortium is 
engaged in the production of the subject merchandise, section 701(d) of 
the Act allows the Department to cumulate the subsidies provided to 
members of the consortium by their respective home countries. We 
interpret this provision to include the receipt by members of the 
consortium of upstream subsidies provided by the member's own country 
or (where appropriate) customs union. Therefore, we see no need to 
include a regulation on this issue.
    Another commenter suggested that the Final Regulations should 
expressly state that the Department is not required to investigate 
upstream subsidies further than one stage back in the chain of 
production. This commenter cites to legislative history which indicates 
Congress' intent to limit the scope of an upstream inquiry to the stage 
prior to final manufacture or production, unless information 
demonstrates the significance of subsidies at earlier stages. H.R. Rep. 
No. 725, 98th Cong., 2d Sess. 33-34 (1984).
    We do not believe it is necessary to issue a regulation on this 
topic. Section 351.523(a)(iii) already requires a demonstration of the 
significance of prior-stage subsidies in order for the Department to 
initiate an upstream subsidy investigation. As one moves back in the 
chain of commerce, it is less and less likely that the subsidies will 
have a significant effect on the cost of manufacturing or producing the 
subject merchandise and, therefore, less likely that we would initiate 
an upstream subsidy investigation. However, in those circumstances 
where a party is able to demonstrate the significance of subsidies at 
earlier stages, we will investigate accordingly.
    As noted in the 1997 Proposed Regulations, one aspect of these 
regulations which differs from the 1989 Proposed Regulations involves 
the standard for determining whether a

[[Page 65391]]

competitive benefit exists. In this regard, section 771A(b)(1) of the 
Act provides that a competitive benefit has been bestowed when:

    The price for the (subsidized) input product * * * is lower than 
the price that the manufacturer or producer of merchandise which is 
the subject of a countervailing duty proceeding would otherwise pay 
for the product in obtaining it from another seller in an arms-
length transaction.

In addition, section 771A(b)(2) of the Act provides that when the 
Secretary has determined in a previous proceeding that a 
countervailable subsidy is paid or bestowed on the comparison input 
product, the Department ``may (A) where appropriate, adjust the price 
that the manufacturer or producer of merchandise which is the subject 
of such proceeding would otherwise pay for the product to reflect the 
effects of the countervailable subsidy, or (B) select in lieu of that 
price a price from another source.''
    In the past, as reflected in Sec. 355.45(d) of the 1989 Proposed 
Regulations, we preferred to base our comparisons upon the price 
charged for unsubsidized inputs produced by other producers in the same 
country as the producer of the subject merchandise. If we had 
determined in a prior CVD proceeding that a countervailable subsidy had 
been bestowed in the subject country on the comparison input, our next 
preferred alternative was to adjust the price of the input product to 
reflect the subsidy. As a final alternative, we could select a ``world 
market price for the input product.'' We interpreted the phrase ``world 
market price'' broadly to include (1) actual prices charged for the 
input product by producers located in other countries, and (2) average 
import prices. Additionally, because the statute did not preclude, for 
comparison purposes, the use of prices of subsidized, imported inputs, 
we had determined that it would be ``inappropriate to exclude all 
subsidized producers, even assuming that we could identify them.'' 
Circular Welded Non-Alloy Steel Pipe From Venezuela, 57 FR 42964, 
42967-68 (September 17, 1992) (``Venezuelan Steel Pipe'').
    We have revised our approach regarding ``competitive benefit'' in 
the following manner. Under paragraph (c)(1)(i), we will rely first 
upon the actual price charged or offered for an unsubsidized input 
product, regardless of whether the producer of that input is located in 
the same country as the producer of the subject merchandise. We will 
make due allowance for quantities, physical characteristics, and other 
factors that affect comparability. Upon further reflection, we see no 
justification for distinguishing between input products based on the 
country of production. Section 771A(b)(1) of the Act merely requires 
the Department to compare the price paid for the subsidized input 
product to the price that the producer ``would otherwise pay for the 
product in obtaining it from another seller in an arms-length 
transaction.'' The price that the producer ``would otherwise pay'' 
could include the actual price paid by the producer of subject 
merchandise to an unrelated supplier or a bid offered by an unrelated 
supplier, regardless of the location of that supplier. However, we will 
examine quantities, physical characteristics, and other factors that 
may affect the comparability of the prices.
    While several commenters argued against the use of offered prices, 
asserting that such prices do not reflect the true cost of alternative 
purchases, we have left this provision unchanged. Our preference, of 
course, is to use a price resulting from an actual sale; however, a 
bona fide price offer made at a time reasonably corresponding to the 
time of the purchase of the input does constitute a commercial 
alternative to the subsidized input product and, as such, is an 
acceptable benchmark.
    Other comments concerning the use of actual or offered prices 
focused on the extent to which such prices are ``representative.'' 
Essentially, these commenters defined a ``representative'' price as a 
price that is not less than the world market price. Therefore, they 
argued that if the actual unsubsidized price is less than the world 
market price, the Department should presume that the price is not 
representative and use the world market price.
    We have not adopted this suggestion. As noted above, an actual 
price charged or offered represents the best example of what a 
downstream producer would ``otherwise pay'' for the subsidized input 
product. However, we are willing to entertain arguments during the 
course of a proceeding pertaining to whether an actual price or offer 
is anomalous or otherwise not comparable, including arguments that such 
price may be dumped or subsidized.
    If actual prices or offers for unsubsidized inputs are not 
available, we will rely upon a world market price, i.e., generally an 
average of publicly available prices for unsubsidized inputs from 
different countries or some other surrogate price deemed appropriate by 
the Department. See paragraph (c)(1)(ii). One commenter objected to the 
use of an average price, arguing that it is more reasonable to assume 
that the downstream producer would purchase the input product at the 
lowest publicly available price. Another commenter supported the use of 
an average world market price, but urged the Department to make it a 
weighted-average price.
    We have made no change in response to these comments. Absent an 
actual price or offer for an unsubsidized product, we are in a position 
of having to construct the price that a company would ``otherwise 
pay.'' We cannot assume that the downstream producer would always be 
able to purchase its inputs at the lowest publicly available price. 
Such a price might be an anomaly resulting from unusual market 
circumstances which may not always be available to the producer in 
question. Therefore, it is more appropriate to use an average of the 
publicly available prices. The use of weighted-average prices, however, 
is impractical because we are unlikely to have the information with 
which to weight the publicly available prices. Although we will 
generally use an average of available world market prices, we will 
consider arguments that certain world market prices may be 
inappropriate.
    Finally, if there are no prices for unsubsidized inputs available 
from any source, we will resort to prices of subsidized input products, 
adjusted to reflect the countervailable subsidy. In such a case, under 
paragraph (c)(1)(iii), we first will rely upon the actual price that 
the producer of the subject merchandise otherwise would pay for the 
input product adjusted to reflect the subsidy, regardless of the 
country in which the input product is produced. If such a price is not 
available, under paragraph (c)(1)(iv), we would use an average price 
for the input product from different countries adjusted to reflect the 
subsidy or some other adjusted surrogate price. When no adjustable 
price is available (e.g., the only available price is a published price 
reflecting an average of both subsidized and non-subsidized prices), we 
may include the price of a subsidized input in our analysis or we may 
resort to any other reasonable price. See paragraph (c)(1)(v).
    We believe that this new approach for measuring the competitive 
benefit better reflects the overall purpose of the upstream subsidies 
provision, which is to account, when appropriate, for upstream 
subsidies provided on input products used in the production or 
manufacture of subject merchandise. The language of section 771A itself 
does not express a preference regarding the selection of a comparison 
input price, and grants the Department wide latitude in determining 
when to adjust the price

[[Page 65392]]

of the comparison product to reflect known countervailable subsidies. 
However, parts of the legislative history underlying the Trade and 
Tariff Act of 1984, which added section 771A to the Act, support a 
preference for using the price of an unsubsidized input, and support 
making adjustments for subsidies when there is no price for 
unsubsidized inputs. See, e.g., 130 Cong. Rec. S13970 (daily ed. Oct. 
9, 1984) (statement of Sen. Dole). Although, as described above, we are 
revising our practice regarding the identification and measurement of a 
competitive benefit, the preference for using the price of unsubsidized 
inputs also was reflected in our earlier practice See, e.g., Certain 
Agricultural Tillage Tools From Brazil, 50 FR 24270, 24273 (June 10, 
1985).
    In determining whether a price is subsidized, we will rely 
primarily on CVD findings made by the United States or the 
investigating authorities of other countries in the recent past (i.e., 
within the past five years).
    As we noted in the 1997 Proposed Regulations, in determining 
whether there is a competitive benefit, we will adjust prices upward to 
account for delivery charges (e.g., c.& f.). We received a number of 
comments concerning this point. Several commenters expressed support of 
this policy. One commenter objected, however, arguing that the 
inclusion of delivery charges could result in the Department finding a 
competitive benefit which results solely from the difference in the 
cost of transporting the subsidized versus unsubsidized goods, rather 
than from the subsidy to the input product.
    Although the statute does not specify the precise basis for 
calculating a benchmark price for the input product, section 771A(b)(1) 
does require the use of the price that the manufacturer or producer of 
the subject merchandise ``would otherwise pay.'' In our view, this 
requires the use of a price that represents a commercial alternative to 
the producer of the subject merchandise, and f.o.b. prices do not 
provide a measurement of the commercial alternative to the downstream 
producer. See, e.g., Venezuelan Steel Pipe.
    As the Federal Circuit recently stated in upholding the 
Department's inclusion of freight charges in determining the world 
price under Item (d) of the Illustrative List of Export Subsidies, ``A 
castings manufacturer procuring pig iron on the world market would have 
to pay the f.o.b. price for the pig iron itself, plus the cost of 
shipping that iron to India. Accordingly, the world market price must 
include the cost of shipping.'' Creswell Trading Co. v. United States, 
141 F.3d 1471, 1478 (Fed. Cir. 1998). For these reasons, we have not 
changed the position taken in the 1997 Proposed Regulations.

Section 351.524

    In the 1997 Proposed Regulations, the Department's method for 
allocating benefits from subsidies was included in the grant section 
(see Sec. 351.503(c) of the 1997 Proposed Regulations). For these Final 
Regulations, however, we have decided to issue a separate regulation on 
allocation because this issue concerns all types of subsidies, not only 
grants. Therefore, unless otherwise specified in Secs. 351.504-523, the 
Secretary will allocate benefits to a particular time period in 
accordance with this section.

Which Benefits Are Allocated Over Time

    Section 351.524 retains the distinction between ``recurring'' and 
``non-recurring'' benefits. Although more precise terms might be ``non-
allocable'' and ``allocable,'' we are retaining the terms ``recurring'' 
and ``non-recurring'' because they are widely understood in the 
international trading community. Paragraph (a) provides that the 
Secretary will allocate a recurring benefit to the year in which the 
subsidy is considered to have been received, a practice usually 
referred to as ``expensing.'' Paragraph (b) provides that, with one 
exception (discussed as ``the 0.5 percent test'' below), the Secretary 
will allocate non-recurring benefits over time.
    Paragraph (c) contains a test for distinguishing between recurring 
and non-recurring benefits. In the 1997 Proposed Regulations, we 
proposed to codify the test applied by the Department in the GIA. Under 
the GIA standard, if a benefit is exceptional, i.e., not received on a 
regular or predictable basis, or if it requires express government 
authorization or approval, the Department will consider it as non-
recurring. Otherwise, the Department will treat it as a recurring 
benefit. However, as stated in the preamble to the 1997 Proposed 
Regulations, we were considering:

     * * * whether there might be a better standard for 
distinguishing between these two types of benefits. An important 
purpose of the recurring/non-recurring test is to reduce the burden 
on the Department and interested parties by limiting the amount of 
information requested on subsidies bestowed prior to the period of 
investigation or review. However, the Department is increasingly 
facing arguments regarding its application of the standard described 
in the GIA. At some point, the burden of applying the GIA standard 
may well outweigh the benefits. Therefore, we particularly invite 
comments on this issue. We note that the Department has considered 
other options in the past including: (1) Developing a list of the 
types of subsidies that would be allocated and those that would be 
expensed; (2) allocating any grant-like benefit that exceeds 0.5 
percent * * * ; and (3) allocating only those grant-like subsidies 
that are tied to the purchase of fixed assets.

    We received a number of comments on this issue. (Because this and 
the other allocation issues discussed below were included in the grant 
section of our 1997 Proposed Regulations, the comments consistently 
refer to ``grants.'' Our responses, however, are more generally drafted 
and refer not only to grants, but also to the allocation of other types 
of subsidies.)
    One commenter argued that the regulation should include a provision 
that there will be a rebuttable presumption that certain grants will be 
expensed and others allocated. This commenter supported the option of 
developing an illustrative list showing which types of grants will be 
expensed and which will be allocated. According to the commenter, this 
approach would make the application of the law more predictable and 
consistent, and would reduce the administrative burden on the 
Department. Another commenter opposed the inclusion of an illustrative 
list as a rebuttable presumption, arguing that this would unfairly 
benefit respondents who control all information relating to the purpose 
and use of a subsidy.
    Most commenters asked the Department to retain the GIA test for 
determining whether a grant is recurring or non-recurring. They argued 
that this methodology is both predictable and flexible and that it has 
worked well in the past. One commenter, however, asked the Department 
to take into consideration two factors which were included in the 
preamble to the Department's 1989 Proposed Regulations, but not in the 
GIA: (1) Whether the program is of a longstanding nature, and (2) 
whether there is reason to believe that the program will continue in 
the future.
    Most of the commenters rejected our three suggested alternatives to 
the GIA test. They argued that the first option (i.e., to develop a 
list of different types of subsidies) would be rigid, unworkable, 
inconsistent with commercial reality, and subject to abuse. In 
addition, they felt that it would be very difficult for the Department 
to compile a binding list, which would not only have to identify and 
categorize every type of subsidy we

[[Page 65393]]

have ever encountered, but which would also have to anticipate future 
grant programs. However, one commenter suggested that, as an 
alternative, the Department could develop a non-binding informative 
list, based on previous practice, as a complement to the GIA test.
    These commenters agreed that the second option (to allocate all 
grants that exceed 0.5 percent ad valorem) would create unnecessary 
work since the Department would have to obtain historical information 
for all grant programs regardless of their nature and the Department's 
past treatment of identical or similar programs. One commenter argued 
that the courts are likely to find such a methodology arbitrary, adding 
that it was Congress' intent that only non-recurring subsidies be 
allocated over time.
    The commenters agreed that the third option (i.e., to allocate only 
grants that can be tied to the purchase of fixed assets) would be 
inconsistent with commercial reality since it would be based upon a 
flawed assumption, namely that only fixed assets continue to provide 
benefits after the year of receipt. In addition, this methodology would 
require the Department to abandon its longstanding practice of not 
considering the effect of a subsidy, the commenters stated.
    We agree with the commenters that none of the three options listed 
in the 1997 Proposed Regulations provides a more reliable basis for 
determining whether a subsidy benefit should be treated as recurring or 
non-recurring than that in the GIA test. However, we do not think that 
the GIA test, on its own, should be the sole basis for determining 
whether a subsidy is recurring or non-recurring. If we applied only the 
GIA test, we believe we would run the risk of expensing some subsidies 
in the year of receipt that are more appropriately allocated over time, 
as explained in further detail below. In addition, the GIA test alone 
may lead to unnecessary arguments over which subsidies are recurring or 
non-recurring. We also do not agree with the commenter who asked us to 
modify the GIA test by resurrecting two standards from our 1989 
Proposed Regulations (i.e., to examine whether a program is 
longstanding and if there is reason to believe that it will continue in 
the future). As stated in the GIA, we changed our approach for 
distinguishing between recurring and non-recurring benefits in Certain 
Hot-Rolled Lead and Bismuth Carbon Steel Products from France, 58 FR 
6221 (January 27, 1993). In that determination, we explained that the 
two standards from the 1989 Proposed Regulations had not proven helpful 
in determining the nature of a benefit and that they had been difficult 
to interpret and apply in practice. Nothing in our subsequent 
experience has changed our view on this matter.
    However, we find persuasive the comment that suggested developing a 
non-binding illustrative list as a complement to the GIA test. We 
believe that non-binding lists illustrating which types of subsidies we 
will normally treat as providing recurring benefits, and which types of 
subsidies we will normally treat as providing non-recurring benefits, 
would offer valuable guidance on how the Department views different 
types of subsidies. Since they are non-binding, the lists do not have 
to cover every single type of subsidy that we have encountered in the 
past, nor do they have to anticipate all conceivable new subsidies that 
we might come across in the future.
    Therefore, for illustrative purposes we have added to paragraph (c) 
non-binding lists of subsidies which we will normally treat as 
providing recurring benefits, and subsidies which we will normally 
treat as providing non-recurring benefits. These lists have been 
developed based upon our past experience and our findings described in 
the GIA. Because these lists are non-binding, paragraph (c) also 
provides that parties may argue that the benefit from a subsidy on the 
recurring list should be considered non-recurring, or that the benefit 
from a subsidy on the non-recurring list should be considered 
recurring.
    Our determination of whether a recurring subsidy should be treated 
as non-recurring, or vice versa, will rely principally on the test set 
forth in the GIA. However, because we have decided to codify these 
illustrative lists, we have reevaluated the GIA test to ensure that it 
covers all of the factors that should be considered in determining 
whether a subsidy should be treated as recurring or non-recurring. 
Based on this reevaluation, and the comments we received, we have 
determined that it is appropriate to expand the criteria that will be 
considered in applying the test of whether a subsidy traditionally 
considered as recurring should be treated as non-recurring, or whether 
a subsidy traditionally considered as non-recurring should be treated 
as recurring. Therefore, in addition to examining whether the subsidy 
is exceptional, or whether express government authorization or approval 
is provided or required, we will also examine whether the subsidy was 
provided for, or tied to, the capital structure or capital assets of 
the company. In this context, capital structure is considered to be the 
combination of common equity (including retained earnings), preferred 
stock, and long-term debt that comprises a firm's financial framework. 
Capital assets are the plant and equipment which produce other goods, 
and include industrial buildings, machinery and equipment. Thus, it is 
appropriate to consider the benefit from a subsidy provided for, or 
tied to, the capital structure or capital assets of a firm to be non-
recurring because these types of subsidies generally benefit the 
creation, expansion, and/or continued existence of a firm.
    The addition of this criterion to the GIA test in no way envisions 
or requires an examination of the effects or uses of the subsidy. 
Rather, we will examine whether, at the point of bestowal, the subsidy 
was provided to, or tied to, the company's capital structure or capital 
assets. For example, debt forgiveness benefits the capital structure of 
a company by reducing long-term liabilities, and thus increasing net 
worth. Similarly, a government's coverage of a company's losses 
benefits its capital structure because the company need not cover the 
losses out of its retained earnings.
    If the government provides a grant expressly for the purchase of an 
industrial building, the capital assets of the firm are benefitted and, 
as such, it is reasonable to conclude that the benefit from the grant 
should be considered non-recurring. In the same vein, if the government 
provides import duty exemptions tied to major capital equipment 
purchases, it may be reasonable to conclude that, because these duty 
exemptions are tied to capital assets, the benefits from such duty 
exemptions should be considered non-recurring, even though import duty 
exemptions are on the list of recurring subsidies.
    While we agree with the commenters who argued that one of the 
proposed options--allocating only those grant-like subsidies tied to 
the purchase of fixed assets--is based on a flawed assumption that only 
fixed assets continue to provide benefits after the year of receipt, we 
do not consider that our addition to the GIA test in these Final 
Regulations reflects the same flawed assumption. By including not only 
capital assets, but also capital structure, in our examination of 
whether a subsidy is recurring or non-recurring, we will be better able 
to identify those subsidies that continue to benefit a company after 
the year of receipt.
    Under paragraph (c), a party may argue that a subsidy included on 
the illustrative list of recurring subsidies be

[[Page 65394]]

treated as non-recurring or that a subsidy on the non-recurring list be 
treated as recurring. If such arguments are presented to us and 
supported by sufficient information, we will apply the standards set 
forth in the regulation. In other words, we will examine whether the 
program is exceptional, whether it requires express government 
authorization or approval, or whether, at the point of bestowal, the 
subsidy was provided for, or was tied to, the capital structure or 
capital assets of the company. If a subsidy is not on either list, the 
Secretary will apply the standards set forth in the regulation to 
determine if it should be treated as recurring or non-recurring.

The 0.5 Percent Test and the Expensing of Small Subsidies

    Although we normally will allocate non-recurring benefits over 
time, paragraph (b)(2) retains the so-called 0.5 percent test with a 
few minor modifications which are discussed below. See 
Sec. 355.49(a)(3)(i) of the 1989 Proposed Regulations and the GIA at 
37226. Under this test, we will expense non-recurring benefits under a 
particular subsidy program in the year of receipt if the total amount 
of such benefits is less than 0.5 percent ad valorem, as calculated 
under Sec. 351.525.
    We consider this test to be an important part of our efforts to 
simplify countervailing duty proceedings and to reduce the burdens on 
all parties involved. By expensing small non-recurring benefits in the 
year of receipt, we avoid the need to: (1) Collect, analyze, and verify 
the data needed to allocate such benefits over time; and (2) keep track 
of the allocation calculations for minuscule subsidies from year to 
year. If considered only in the context of a single case, the burdens 
imposed by this activity may not appear to be particularly onerous. 
However, when considered across all investigations and administrative 
reviews, the cumulative burden becomes considerable.
    Since the 1993 Certain Steel investigations, we have performed the 
0.5 percent test using the so-called ``program-by-program'' approach. 
Under this approach, we add the ad valorem rates for all subsidies 
received by a company under a single program in that year. If the 
resulting sum is below 0.5 percent, we expense the benefits in the year 
of receipt. An alternative approach would be to add the ad valorem 
rates for all subsidies approved under all programs for each company in 
a given year and examine whether this total rate is below 0.5 percent 
(the so-called ``company-by-company'' approach). In the 1997 Proposed 
Regulations, we stated that we intended to retain the program-by-
program approach, but that we wanted to preserve ``the flexibility to 
take a different approach in situations where petitioners are able to 
point to clear evidence that the foreign government has deliberately 
structured its subsidy programs so as to reduce the exposure of its 
exporters to countervailing duties.''
    We received three comments on the 0.5 percent test, all of which 
urged us to administer the test on a company-by-company basis. One 
commenter argued that the current program-by-program test could lead to 
anomalous results. For example, a company that received several small 
non-recurring grants, all below 0.5 percent of the company's total 
sales, would face a countervailing duty rate different from a company 
that received the same total amount of money in the form of one large 
non-recurring grant. Such anomalies would allow foreign governments to 
evade the countervailing duty law by providing several small subsidies 
instead of one large subsidy, according to the commenter. All three 
commenters agreed that the administrative convenience of expensing 
small non-recurring grants would be outweighed by the potential for 
abuse.
    The same commenters also criticized the exception to the 0.5 
percent rule as outlined in the 1997 Proposed Regulations, i.e., that 
petitioners must show the intent of the foreign government if the 
Department is to deviate from the rule. These commenters argued that 
the standard imposes an improper burden on petitioners, who cannot be 
expected to divine the intent of a foreign government.
    As explained above, the administrative burden on the Department to 
collect the information necessary to allocate very small non-recurring 
benefits over time would be considerable. This burden cannot be 
justified given that, after careful consideration, we believe that in 
most cases there would be little demonstrable impact in aggregating all 
programs on a company-specific basis. However, we agree that some 
potential for manipulation exists with the program-by-program approach. 
We also agree that petitioners may have difficulty demonstrating the 
intent of a foreign government. To address these concerns, we have made 
several changes to the 1997 Proposed Regulations.
    Paragraph 351.524(b)(2) now states that the Secretary will normally 
expense non-recurring benefits in the year of receipt if the total of 
the benefits from subsidies approved in each year under a program is 
less than 0.5 percent ad valorem of the relevant sales. The relevant 
sales that we use to calculate the ad valorem rate are either the 
firm's total sales or, if the subsidy is tied, the sales of the 
product(s) or the sales to the market to which the subsidy is tied. In 
the case of an export subsidy program, we use the firm's export sales. 
The new paragraph adds the word ``normally'' and makes clear that we 
will apply the 0.5 percent test to all benefits associated with a 
particular program, not each individual benefit, if there are more than 
one. We have also changed the word ``received'' to ``approved'' with 
respect to all benefits associated with a particular program. This is 
intended to cover the situation where a government approves a subsidy 
in one year but disburses the funds in installments over a period of 
years. We will apply the 0.5 percent test to the full amount approved, 
not to each individual installment. In our experience, governments 
often make one-time approvals for large grants, but disburse the funds 
over a period of years. This is often the case in research and 
development programs. As such, basing our 0.5 percent test on 
disbursements could result in certain large non-recurring subsidies 
being expensed rather than allocated. To avoid this, it is more 
appropriate to base our determination of whether the subsidy should be 
allocated over time on the full amount approved, rather than on 
periodic installments. However, we will continue to countervail 
according to the amount received by the company in each year. The only 
difference is that once the 0.5 percent test has been applied to the 
approved amount and the subsidy exceeds 0.5 percent of sales, all 
disbursements will be allocated over time.
    In addition, we have abandoned the requirement that petitioners 
show, in order to convince the Department to abandon the program-by-
program approach, that a government deliberately structured its subsidy 
program so as to reduce exposure to countervailing duties. Instead, we 
intend to follow the program-by-program method, but we will consider 
aggregating all programs on a company-specific basis where the 
application of the 0.5 percent rule would have a significant impact on 
the results of the investigation or review. Since we have no experience 
in determining what constitutes a significant impact, we will examine 
this on a case-by-case basis in response to comments or on our own 
initiative.

[[Page 65395]]

The Time Period Over Which Non-Recurring Benefits Are Allocated

    As described below, we have made changes in the methods used to 
determine certain variables included in our formula for allocating non-
recurring benefits over time. In a departure from our current practice 
and from the 1997 Proposed Regulations, we have adopted a rebuttable 
presumption that non-recurring benefits will be allocated over the 
number of years corresponding to the average useful life (``AUL'') of a 
firm's renewable physical assets, as set forth for the industry 
concerned in the U.S. Internal Revenue Service's 1977 Class Life Asset 
Depreciation Range System (Rev. Proc. 77-10, 1977-1, C.B. 548 (RR-38)) 
(``the IRS tables method''), as updated by the Department of Treasury, 
unless the parties establish that the IRS tables do not reasonably 
reflect the AUL of a firm's assets. Parties may rebut the presumption 
to use the IRS tables by demonstrating either that the company-specific 
AUL or country-wide AUL for the industry in the respondent country 
differs by one year or more from the AUL in the IRS tables for the 
industry under investigation. Before describing the criteria that we 
will consider in determining whether the presumption has been rebutted, 
we will first explain why we have decided to change the 1997 Proposed 
Regulations, which stated that we would use a company-specific AUL.

Selection of AUL Method

    Before 1995, we allocated non-recurring benefits over the AUL 
listed in the IRS tables in accordance with our 1989 Proposed 
Regulations. We believed, and continue to believe, that the IRS tables 
method offers consistency and predictability and that it is simple to 
administer. However, for purposes of the 1997 Proposed Regulations, we 
decided to change our practice due to several CIT decisions which ruled 
against our use of the IRS tables method (see, e.g., Ipsco v. United 
States, 687 F. Supp. 614, 626 (CIT 1988) (``Ipsco'')). One common theme 
of these decisions was that because the IRS tables method was not a 
company-specific approach, it failed to reflect adequately the benefit 
of a subsidy to a particular firm. Another common theme was that the 
IRS tables method could not be affirmed in the absence of a properly 
promulgated regulation (see Ipsco). In the 1997 Proposed Regulations, 
we also cited the findings in an unadopted GATT panel report (United 
States--Imposition of Countervailing Duties on Certain Hot-Rolled Lead 
and Bismuth Carbon Steel Products Originating in France, Germany, and 
the United Kingdom, SCM/185, Nov. 15, 1994) (``Leaded Bar'') which 
criticized the way in which the Department applied the IRS tables 
method.
    Although we did not necessarily agree with the reasoning of these 
decisions, we decided to develop an alternative method. Among several 
options, we chose to allocate non-recurring subsidies over the company-
specific AUL of productive assets because we believed that this 
methodology would be more administrable and predictable than the 
alternatives and, also, that it would be easily calculable from a 
firm's accounting records. Consequently, in the 1997 Proposed 
Regulations, we codified our recent practice of allocating non-
recurring benefits over a period corresponding to the company-specific 
AUL of productive assets.
    We received many comments on the AUL method. Several commenters, 
including respondents, urged the Department to return to the use of the 
IRS tables or, alternatively, to use the IRS tables as a rebuttable 
presumption or a fallback methodology in situations where a company-
specific AUL could not be calculated. These commenters argued that the 
main reason for the CIT's rejection of the IRS tables was that the 
Department had failed to codify its methodology into a regulation 
pursuant to the Administrative Procedure Act. One commenter observed 
that the GATT panel report referred to in the 1997 Proposed Regulations 
did not find that the Department was barred from using the IRS tables. 
Rather, the panel determined that the use of this methodology in Leaded 
Bar had not been supported by sufficient reasoning on the record.
    The main arguments in favor of codifying the IRS tables methodology 
presented by the commenters were that this approach offers consistency 
and predictability and that the Department's use of the IRS tables has 
not been controversial in the vast majority of cases. In contrast, the 
commenters stated, the company-specific AUL methodology would produce 
inconsistent and unpredictable results, among other things, due to the 
respondents' varying accounting practices. In addition, it would 
increase the workload for all parties. Also, it would not be possible 
to use the methodology universally, e.g., when respondent companies do 
not collect the information needed to calculate the AUL, when they do 
not use straight-line depreciation, or when they write down the value 
of their assets. Furthermore, one of the commenters pointed to problems 
allegedly associated with the Department's calculation of the gross 
book value of a firm's assets. The same commenter was also troubled by 
the fact that all of a company's assets are included in the asset base, 
as opposed to only those assets that are used to produce the subject 
merchandise.
    We also received comments on our statement in the 1997 Proposed 
Regulations that, in certain situations, it might ``be necessary to 
make normalizing adjustments for factors that may distort the 
calculation of an AUL'' (e.g., adjustments for extraordinary asset 
write-downs or hyperinflation). Some commenters expressed misgivings 
about such adjustments which, they said, might compromise the 
reliability of the data. One commenter also argued that relying on a 
company-specific AUL would allow respondents to manipulate the data and 
that the methodology, therefore, would lead to more litigation.
    Other commenters suggested other approaches. One commenter argued 
that the Department should not limit its discretion to use one method 
or the other. Rather, the commenter suggested, the Department should 
make a case-by-case determination of the appropriate methodology after 
requiring respondents to report the average useful life of assets used 
in the production of the subject merchandise. In this commenter's view, 
the burden should be on respondents to show that their reported data 
are superior to the IRS tables.
    Another commenter argued that unless challenged by respondents, the 
Department should use the AUL of fixed assets alleged in the petition, 
which generally would be the number of years set forth in the IRS 
tables. This commenter cited the significant burden that would be put 
on all parties, particularly respondents, and on the Department if the 
company-specific methodology were codified.
    One group of commenters urged the Department not to return to the 
IRS tables methodology. One of these commenters supported the company-
specific AUL methodology, arguing that this approach is more accurate 
than the IRS tables methodology, thus rendering fairer and more 
equitable results. The other commenters in this group expressed a 
preference for either of the two alternative methods for determining 
the allocation period which were outlined in our 1997 Proposed 
Regulations (i.e., the company-specific average maturity of long-term 
debt and the company-specific weighted-average use of funds). These 
commenters' chief arguments against the IRS tables methodology were (1) 
that it had been struck down by the CIT and a GATT

[[Page 65396]]

panel, and (2) that it does not accurately reflect the benefit 
conferred upon the actual recipient of the subsidy.
    Another commenter conveyed general criticism of what it claimed was 
the U.S. practice of assessing subsidy benefits over an ``inordinate'' 
number of years. This commenter stated that countervailing duties are 
intended to be remedial, not punitive, and urged the Department to 
achieve a fairer, more transparent, and more consistent regime. A 
second commenter argued that data from outside a certain country can 
never be used to evaluate subsidies within that country except in the 
absence of data from the country in question, which seems to suggest 
that in this commenter's view, the IRS tables should only be used as 
``facts available.''
    We have gained some experience with the company-specific AUL method 
over the last few years. In some cases, this method has turned out to 
be more burdensome than we had envisioned. We have also found that the 
method may not be appropriate for companies that have been sold and 
that it presents problems when a company revalues its assets, for 
example as a result of declaring bankruptcy (see, e.g., Steel Wire Rod 
from Germany, 62 FR 54990 (October 22, 1997)). The results we have 
obtained using the company-specific AUL method have been mixed: in some 
cases, they have been close to the IRS tables, whereas in other cases 
we have found anomalies within the same industry.
    Taking into account our experience with the use of the company-
specific AUL method and our review of the numerous comments and 
concerns raised by both petitioner and respondent parties, we have 
decided to codify the IRS tables method as a rebuttable presumption. In 
our view, the IRS tables method offers consistency, predictability, and 
simplicity, and presents a reasonable substitute for the AUL of assets 
in specific industries around the world. Furthermore, we agree with the 
comment that one important reason behind the CIT's decisions regarding 
the IRS tables method was that it had not been codified into a final 
regulation. With respect to the GATT panel report, it is true that the 
panel found fault with the way the Department applied the IRS tables 
method. However, it is also true, as suggested by one commenter, that 
the panel concluded that it was not necessarily inconsistent with 
GATT's Guidelines on Amortization and Depreciation (Committee on 
Subsidies and Countervailing Measures, April 1985) for a signatory to 
apply a standard period as the average useful life of assets in a given 
industry, provided that such standard period was not established on an 
arbitrary basis and that it was applied with a degree of flexibility, 
taking into account the circumstances of a given case.
    Therefore, as set forth in paragraph (d)(2), we will use the AUL 
listed in the IRS tables for the industry under investigation, unless 
parties claim and establish that these tables do not reasonably reflect 
the AUL of the renewable physical assets for the firm or industry under 
investigation. Since it is quite likely that the IRS tables, which are 
based on industry averages, will never exactly match a firm's AUL, we 
will not allow parties to claim that the IRS tables do not reflect the 
firm's AUL unless they can demonstrate either: (1) That the AUL for the 
firm differs by one year or more from the AUL listed for the industry 
in the IRS tables, or (2) that the relevant authorities in the 
respondent country have in place a system, equivalent to the IRS 
tables, for determining the actual AUL of assets in specific 
industries, and the respondent country's tables show that the AUL for 
the industry under investigation differs by one year or more from the 
IRS tables.
    By requiring any party objecting to the application of the IRS 
tables to show that either the company-specific AUL, or the industry 
AUL in that country, differs by one year or more from the IRS tables, 
we will reduce the burden on all parties, as well as the Department, in 
analyzing, commenting on, and challenging claims that, even if 
ultimately accepted, would have relatively little impact on the 
calculation.
    Although most commenters focused on some variation of the AUL 
method as the appropriate period over which to allocate non-recurring 
subsidies, one commenter urged the Department to adopt a special rule 
for determining the period over which to allocate subsidies that are 
tied to the development of a new product or which fund a specific 
project. This commenter maintained that the proper allocation period in 
cases where a subsidy is provided for the development of a specific 
product is the life of the product, and not the life of the renewable 
physical assets used to manufacture the product. The commenter stated 
that subsidies for the development of a new product continue to benefit 
the recipient over the life of the product and have no relationship to 
the recipient's AUL.
    The same commenter noted that under the Department's methodology, 
regardless of whether it uses the IRS tables or the company-specific 
AUL, the allocation period begins with the receipt of the subsidy. The 
commenter argued that the allocation period should begin with the sale 
of the first product that has been developed with the aid of the 
subsidy, which may be several years after the initial provision of the 
subsidy. In the commenter's view, the Department's standard calculation 
methodology severely understates the duration of the benefit.
    In our experience, we have found that for most industries and most 
types of subsidies, the IRS tables have provided an accurate and fair 
approximation of the AUL of assets in the industry in question, and 
that the AUL of assets represents a reasonable reflection of the 
duration of the benefit from a non-recurring subsidy. We recognize, 
however, that for certain types of industries or certain types of 
subsidies, the AUL of assets may not represent the best reflection of 
the duration of the benefit. In addition, with respect to certain types 
of subsidies, even if we were to use the AUL of assets, it is not clear 
when the benefit stream should commence.
    It is reasonable to assume that the AUL of assets closely 
approximates the duration of the benefit in mature or traditional 
industries. For example, if a government provides a grant to a chair 
producer to purchase electric saws and wood-carving equipment, it is 
reasonable to assume that the grant will continue to benefit the chair 
producer as long as the equipment lasts. In this instance, the focus of 
the government's attention is to provide the means for the company to 
produce already developed products, or modest innovations in the 
manufacturing process of developed products. Often, both the equipment 
and the products made from the equipment have already been developed. 
There is usually only a relatively short lead time between receipt of 
the subsidy and production. In comparison with the total investment, 
research and development and marketing expenses are likely to be 
relatively low. In addition, the level of risk associated with the 
investment may be lower than that associated with the type of 
investment described below.
    However, when a government provides a subsidy to fund the 
development of certain new technologies, or to fund an extraordinarily 
large project for the development of new products that encompasses not 
only basic research and development, but also implementation and 
commercialization, the duration of the benefit may not necessarily be 
related to the AUL of assets in that industry. For one thing, by 
definition, estimates of the AUL of

[[Page 65397]]

assets are based on existing equipment used to make existing products. 
The assets needed to develop new technologies, or to produce a new 
product may not even have been designed yet, and certainly the product 
is not yet developed. Often there is a significant lead time between 
receipt of the subsidy and development of the product and between the 
development of the product and the product's commercialization (e.g., 
the first commercial sale); in some industries, these lead times can be 
several years. In these instances, even if we were to rely on the AUL 
of assets, there is a question as to when the benefit stream should 
begin: at the time the grant is received or at the time the product 
reaches commercial production.
    For these reasons, we have added an exception to paragraph (d). 
Under paragraph (d)(2)(iv), we will consider arguments, with respect to 
subsidies to develop certain new technologies, or to fund 
extraordinarily large development projects that require extensive 
research and development prior to implementation of production, that we 
should rely on allocation periods other than AUL, or that the benefit 
stream should begin at some time other than the date the subsidy is 
received.

Calculation of a Company-Specific AUL

    As noted above, in order to rebut the presumption that the IRS 
tables reasonably reflect the AUL of assets of the respondent company, 
a party must provide information showing either that a company-specific 
AUL differs by one year or more from the AUL listed in the IRS tables 
for that industry, or that the AUL of the industry in the respondent 
country differs by one year or more from the AUL in the IRS tables. The 
criteria that the Department will apply in deciding whether the 
presumption has been rebutted are discussed below and are set forth in 
paragraphs (d)(2)(ii) and (iii).
    Because firms usually do not calculate the ``actual'' AUL of assets 
in the normal course of business, and requiring firms to calculate this 
figure for purposes of a countervailing duty proceeding could pose an 
extremely onerous burden on firms with thousands of individual assets, 
and on the Department to verify the accuracy of those calculations, we 
intend to continue relying on the basic method for calculating company-
specific AUL which has been used by the Department since the remand 
determination in the 1993 Certain Steel investigations (see, British 
Steel v. United States, 929 F. Supp. 426, 432-34 (CIT 1996)). Under 
this method, which is set forth in general terms in paragraph 
(d)(2)(iii), a firm calculates an AUL as follows. First, the annual 
average gross book value of the firm's depreciable productive fixed 
assets (which is usually based on acquisition cost) is cumulated, for a 
period considered appropriate by the Department. In the preamble to the 
1997 Proposed Regulations, we indicated that we had been requesting 10 
years of data to calculate a company-specific AUL; however, we are 
still evaluating whether 10 years of data are necessary or appropriate. 
Second, the firm's annual charges to accumulated depreciation for the 
same time period are summed. Third, the sum of the annual average gross 
book values is divided by the sum of annual depreciation charges. The 
resulting number is a company-specific AUL. As we gain more experience 
in addressing the calculation of AULs under these regulations, we may 
make refinements to the approach described above.
    The Secretary will attempt to exclude fixed assets that are not 
depreciable (such as land or construction in progress) and assets that 
have been fully depreciated and that are no longer in service. However, 
assets that are in service would be included even if they have been 
fully depreciated. There may be situations in which the company-
specific AUL calculated in the manner described above is not 
representative of the company's actual AUL. For example, if a firm's 
depreciation is not based on an estimate of the actual useful life of 
its assets, the calculation described above is not a reasonable method 
of calculating AUL. Similarly, AUL cannot be calculated in this manner 
if the firm does not use straight-line depreciation unless additions to 
the firm's asset pool are regular and even. In addition, we will not 
use a company-specific AUL where we conclude that the company-specific 
AUL is aberrational, or in some other way not usable. As noted above, 
we have found that company-specific AULs may not be usable in the face 
of a recent change in ownership or bankruptcy.
    It may also be necessary to make normalizing adjustments for 
factors that distort the calculation of an AUL. We are not in a 
position at this time to provide additional detail in the regulation 
itself on when we will make normalizing adjustments and how such 
adjustments will be made because the types of necessary adjustments 
will likely vary based on the facts of a particular case. However, 
certain obvious normalizing adjustments that come to mind are 
situations in which a firm may have charged an extraordinary write-down 
of fixed assets to depreciation, or where the economy of the country in 
question has experienced persistently high inflation.
    If a party can show that a company's AUL meets all of the 
requirements set forth in paragraph (d)(2)(iii), and that the company-
specific AUL differs from the IRS tables by one year or more, we will 
consider that the presumption has been rebutted and will use the 
company's own AUL for purposes of its analysis. Because petitioners may 
not have access to translated financial statements (which is where much 
of the required information on asset values and depreciation is 
reported), petitioners will be allowed to base their arguments that the 
IRS tables are not representative of a company's AUL either on the 
financial statements they submit in the petition, or on information 
submitted by respondents in their initial questionnaire responses. We 
recognize that, by waiting until the initial questionnaire response to 
examine claims to rebut the IRS tables presumption, we may be faced 
with a situation where we will need to collect additional years of 
information on the alleged subsidy programs. If that situation arises, 
we will determine on a case-by-case basis whether this provides 
sufficient reason to declare an investigation extraordinarily 
complicated in accordance with section 703(c) of the Act.
    In addition to rebutting the presumption to use the IRS tables 
through the calculation of a company-specific AUL, we will also permit 
the respondent government to demonstrate that it has a system in place 
which reasonably reflects the AUL for industries. The government must 
demonstrate that the system was set up to determine the AUL of 
industries in the country, that it has conducted reliable surveys and/
or studies to gather information from the companies on their AULs, and 
that it has ensured the accuracy of any reported information and of any 
calculations performed. If the respondent government's system meets 
these standards, and the AUL for the industry under investigation 
differs by one year or more from the IRS tables, we will consider that 
the presumption has been rebutted, and will use the AUL from the 
respondent government's system for the industry under investigation.
    As is the case for any other information included in a response to 
a countervailing duty questionnaire, a firm's calculation of its AUL, 
or a government's system for determining the AULs of its industries, 
would be subject to verification by the Department and comment by 
parties to

[[Page 65398]]

the proceeding. The regulation setting forth the use of the IRS tables 
as a rebuttable presumption is in paragraph (d)(2)(i); the standards we 
will apply to determine if the presumption has been rebutted are set 
forth in paragraphs (d)(2)(ii) and (iii).
    Several commenters who objected to the use of a company-specific 
AUL also submitted comments on the method for calculating the company-
specific AUL should the Department decide to retain this methodology. 
Although we have decided to use the IRS tables as a rebuttable 
presumption to determine the allocation period, parties will be able to 
use the company-specific AUL method to rebut the presumption. As such, 
we address these additional comments below regarding the calculation 
and application of a company-specific AUL.
    One commenter argued that, in a situation where the petition is 
based upon the IRS tables and the company-specific AUL exceeds the AUL 
in the IRS tables, the Department must investigate all subsidies 
provided during the allocation period, and the petitioners must have a 
reasonable amount of time after the Department has made its AUL 
determination to allege additional subsidies from earlier years. To 
this effect, the commenter suggested that the investigation be declared 
extraordinarily complicated in accordance with the Department's 
regulations for postponing preliminary and final countervailing duty 
determinations when the company-specific AUL exceeds the AUL in the IRS 
tables.
    In cases where the petition is based upon the AUL listed in the IRS 
tables, and where a party rebuts that presumption based on the factors 
discussed above, it is our intention to give the parties a reasonable 
amount of time to provide information concerning subsidies received in 
the earlier period (see the rules regarding the time limits for 
submission of factual information in Sec. 351.301(b) of Antidumping 
Duties; Countervailing Duties; Final rule, 62 FR 27296 (May 19, 1997)). 
We will decide on a case-by-case basis if rebutting the use of the IRS 
tables provides sufficient reason to declare an investigation 
extraordinarily complicated in accordance with section 703(c) of the 
Act.
    The same commenter asked that the regulations clearly state that 
the company-specific AUL method will be used only if the respondent (1) 
bases its depreciation charges on an estimate of the actual useful life 
of its productive assets, and (2) employs a straight-line depreciation 
methodology. Another commenter argued that there are two circumstances 
under which the Department should be precluded from using the company-
specific AUL method: (1) When additions to a firm's asset pool are 
irregular and uneven, and (2) when the number of producers and 
exporters is so large that the Department uses aggregate data, as was 
the case in, e.g., Live Swine from Canada, 62 FR 18087 (April 14, 
1997).
    As stated in the 1997 Proposed Regulations and reiterated 
previously, there are certain situations in which a company cannot 
compute its AUL using the methodology described above. For example, if 
a firm's depreciation is not based on an estimate of the actual useful 
life of its assets, the methodology cannot be used. Similarly, an AUL 
cannot be calculated in this manner if the firm does not use straight-
line depreciation and additions to the firm's asset pool are irregular 
and uneven. With respect to the last comment about aggregate cases, we 
have found that in some aggregate cases it is possible to calculate an 
AUL based on combined data from a large number of companies (see, e.g., 
Fresh Atlantic Salmon from Chile, 63 FR 31437 (June 9, 1998)). However, 
because we now intend to use the AUL in the IRS tables as a rebuttable 
presumption in all investigations, parties in an aggregate case that 
wish to rebut the presumption would have to provide the same type of 
information outlined above.
    One commenter criticized the Department's practice of including 
fully depreciated assets that are still in service in the asset base 
used to calculate the company-specific AUL. The commenter argued that 
the Department would have to assign an actual value to a fully 
depreciated asset to be used as a substitute for its acquisition cost 
which would involve complicated calculations. The commenter asked that 
the Department instead exclude fully depreciated assets from the asset 
base for purposes of the AUL calculation.
    We note that, in cases where assets are fully depreciated, yet 
remain in service, their useful life is simply longer than the 
depreciation period used by the respondent for accounting purposes. By 
including fully depreciated assets that are still in service, our 
calculation more accurately reflects the assets' useful life. With 
respect to the commenter's concern that we would have to assign a value 
to a fully depreciated asset in lieu of its acquisition cost, this is 
simply incorrect. As explained above, one element of our calculation of 
the AUL of productive fixed assets is the gross book value of these 
assets, which is based on their acquisition cost. We will still use the 
gross book value when the asset has been written off, just as we will 
use the aggregated depreciation of the asset. Thus, there is no need to 
assign a fictional value to a fully depreciated asset that is still in 
use for purposes of calculating the company-specific AUL.
    The 1997 Proposed Regulations stated that, in administrative 
reviews, we would recalculate the AUL for non-recurring subsidies 
received after the period of investigation based upon updated 
information. One commenter labeled this approach as misguided and 
argued that there is no need to undertake such recalculation. Moreover, 
the commenter argued, this approach would lead to anomalous results, 
e.g., in cases where a company that received two identical subsidies in 
two different years might face different countervailing duty rates 
based solely upon the company's financial structure and accounting 
practices.
    We disagree that this approach would lead to anomalous results. 
Even if the subsidy amounts are identical, if they are provided in two 
different years, they will have different discount rates and, 
consequently, different benefit streams regardless of the allocation 
period. However, because we have limited experience in this area, we 
are continuing to evaluate whether we should recalculate the allocation 
period for new subsidies, and we will address this issue in the context 
of individual cases.

Calculation of the Benefit Stream

    Once we have determined that a benefit is non-recurring and that it 
should not be expensed under the 0.5 percent rule under paragraph 
(b)(2), we will calculate the amount of the benefit that will be 
assigned to a particular year according to the formula described in 
paragraph (d)(1).
    We noted in the 1997 Proposed Regulations that we had recently 
received comments on our allocation formula and that we intended to 
address the comments we had received in these Final Regulations. Those 
comments and our position follow.
    One commenter, who argued that the Department's traditional 
calculation methodology is biased in favor of respondents, outlined 
four alternatives for determining when a grant is received: (1) In the 
beginning of the year of receipt, (2) at the end of the year of 
receipt, (3) on the actual date of receipt, or (4) in the middle of the 
year of receipt. The commenter maintained that because our traditional 
methodology is based on the implicit assumption that grants are 
received in the beginning of

[[Page 65399]]

the year of receipt, it favors respondents because it undervalues the 
benefit and artificially shortens the amortization period. The 
commenter also found our methodology to be inconsistent with commercial 
realities and with Sec. 351.503(b) of the 1997 Proposed Regulations.
    Regarding the second alternative (i.e., basing the benefit 
calculation on the assumption that grants are received at the end of 
the year of receipt), the commenter stated that this would also be 
inconsistent with commercial realities and would unfairly favor 
petitioners. The third alternative (i.e., using the actual date of 
receipt) was described as a neutral methodology that would favor 
neither petitioners nor respondents. According to the commenter, this 
approach is consistent with commercial reality, with the Department's 
past practice, and with Sec. 351.503(b) of the 1997 Proposed 
Regulations. However, the commenter noted that this methodology would 
be burdensome and urged the Department to adopt the fourth alternative, 
i.e., the mid-year methodology. The commenter maintained that this 
option is neutral, consistent with commercial realities, and would 
require only minor changes in the calculation formula. On average, the 
mid-year option would produce the same result as the actual date of 
receipt alternative and would thus be a fair methodology, according to 
the commenter. (A detailed explanation of how to calculate the annual 
benefit in accordance with the mid-year approach was also provided.)
    A second commenter agreed with the previous argument that the 
Department's traditional calculation methodology favors respondents by 
undervaluing the benefit and preventing the Department from fully 
offsetting the benefit received. However, this commenter argued that 
the Department should change its calculation methodology to reflect the 
assumption that the benefit is received at the end of the year. The 
commenter asked that this underlying assumption should control unless 
respondents can establish the actual date of receipt.
    We have not adopted any of the proposed alternatives to our current 
formula. Our current formula for allocating non-recurring benefits over 
time, which is shown in paragraph (d)(1), was developed as a result of 
the CIT's examination of our previous allocation method in Michelin 
Tire Corp. v. United States, 6 CIT 320 (1983). The formula first 
appeared in the Subsidies Appendix to Certain Cold-Rolled Carbon Steel 
Flat Products from Argentina, 49 FR 18006 (April 26, 1984) and has 
since been part of the Department's longstanding practice. This 
methodology has been uncontroversial and has worked well in past cases. 
We, therefore, do not see any compelling need to change it. Moreover, 
we disagree with the commenters' specific proposals, including the 
proposed calculation formula developed by the first commenter. We find 
this commenter's methodology unduly complicated because it involves 
three different calculation formulas to be used at different times 
during the allocation period. Furthermore, the commenter's formula is 
not consistent with the declining balance methodology, which has been 
an important part of the Department's past practice.

Selection of Discount Rate

    Paragraph (d)(3) deals with the selection of a discount rate. 
Consistent with the GIA at 37227, paragraph (d)(3)(ii) provides that, 
in the case of an uncreditworthy firm, the Secretary will use as a 
discount rate an interest rate with a ``risk premium'' included.

Section 351.525

    Section 351.525 deals with the calculation of the ad valorem 
subsidy rate and the attribution of a subsidy to a particular product. 
While Sec. 351.525 is based roughly on Sec. 355.47 of the 1989 Proposed 
Regulations, it contains changes that reflect further refinements in 
the Department's practice since 1989.
    Paragraph (a) deals with the calculation of the ad valorem subsidy 
rate, and continues to provide that the Secretary will calculate the 
rate by dividing the amount of the subsidy benefit by the sales value 
of the product or products to which the subsidy is attributed. For 
example, if a firm receives an untied domestic subsidy for which the 
benefit in the period of investigation or review is $100 and the firm's 
total sales in that period amount to $1,000, the ad valorem subsidy 
rate would be 10 percent ($100  $1,000 = 10 percent).
    The second and third sentences of paragraph (a) deal with the basis 
on which the Secretary will determine the sales value of a product. The 
Department's longstanding practice has been to determine the sales 
value for products that are exported on an f.o.b. (port) basis in order 
to correspond to the basis on which the Customs Service assesses 
duties. However, in the GIA, we announced that we would begin using 
sales values as recorded in a firm's financial statements. We did so 
with the belief that this approach would be more accurate, would reduce 
the burden on the firms involved, and would allow us to account for the 
fact that shipping expenses might be subsidized. However, in order to 
ensure that the Customs Service collected the correct amount of duties 
based on an f.o.b. (port) basis, we found it necessary to adjust the 
calculated ad valorem subsidy rate based on a ratio of the invoice 
value of exports to the United States to the f.o.b. value of exports to 
the United States. In the end, only one of the respondents in the 1993 
steel investigations had the information needed to calculate this 
ratio. Therefore, for all other firms in those cases, the Department 
resorted to its traditional f.o.b. (port) methodology.
    Because our experiment with a different basis was not successful, 
in the second sentence of paragraph (a) we have reverted to our 
standard practice of determining sales value on an f.o.b. (port) basis 
in the case of products that are exported. In the case of products that 
are sold for domestic consumption, we would determine sales value on an 
f.o.b. factory basis. While this method imposes a bit more work on 
firms than does a method that relies on booked values, we believe that 
the burden can be mitigated by relying on aggregate figures and 
reasonable allocations of those figures across markets (e.g., 
subtracting total freight and insurance expenses--expenses that usually 
are maintained in ledgers that are separate from sales information).
    In addition, there is no compelling reason for allocating subsidy 
benefits over sales values that include freight and other shipping 
costs. Although there may be rare instances where the movement 
component of a transaction is subsidized, we can deal with those 
instances on a case-by-case basis. Accordingly, the third sentence of 
paragraph (a) provides that the Secretary may make appropriate 
adjustments to the ad valorem subsidy rate to account for movement 
subsidies.
    Paragraph (b) deals with the attribution of a subsidy to a 
particular product. Paragraphs (b)(2) through (b)(7) set forth general 
rules of attribution that the Secretary will apply to a given factual 
situation. We have taken this approach because, depending on the facts, 
several of the different rules may come into play at the same time. If 
we tried to account for all the possible permutations in advance, the 
result would be an extremely lengthy set of rules that might prove 
unduly rigid.
    On the other hand, we appreciate that there needs to be a certain 
degree of predictability as to how the Department will attribute 
subsidies. We believe that the rules set forth in paragraph (b) are 
sufficiently precise that parties can

[[Page 65400]]

predict with a reasonable degree of certainty how we will attribute 
subsidies to particular products in a given factual scenario. In this 
regard, our intent is to apply these rules as harmoniously as possible, 
recognizing that unique and unforeseen factual situations may make 
complete harmony among these rules impossible.
    With respect to the attribution rules themselves, they are 
consistent with the concept of ``benefit'' described in Sec. 351.503, 
i.e., that a benefit generally is conferred when a firm pays less than 
it otherwise would pay in the absence of the government-provided input 
or when a firm receives more revenue than it otherwise would earn. In 
light of this, subsidies are by these rules attributed, to the extent 
possible, to the sales for which costs are reduced (or revenues 
increased). For example, an export subsidy reduces the costs of a 
firm's exports and is, therefore, attributed only to export sales. 
Similarly, a subsidy provided by a government for a specific product is 
attributed only to sales of that product for which the subsidy was 
provided (and any downstream products produced from that product), as 
it reduces the costs of a firm's sales of those products. This 
attribution principle applies equally to the current benefit from non-
recurring subsidies allocated over time. For example, the current 
benefit of an untied subsidy will be attributed to the firm's total 
sales, even if the products produced by the firm differ significantly 
from the time the subsidy was provided. We will not, therefore, examine 
whether product lines have been expanded or terminated, or whether and 
to what extent the corporate structure of the firm has changed over 
time.
    The principle of attributing a subsidy to sales of a particular 
product or products is embodied in the Department's longstanding 
practice concerning the ``tying'' of subsidies. See, e.g., Sec. 355.47 
of the 1989 Proposed Regulations. As discussed below, there are various 
ways in which a subsidy can be tied. However, regardless of the method, 
we attribute a subsidy to sales of the product or products to which it 
is tied. In this regard, one can view an ``untied'' subsidy as a 
subsidy that is tied to sales of all products produced by a firm. For 
example, we consider certain subsidies, such as payments for plant 
closures, equity infusions, debt forgiveness, and debt-to-equity 
conversions, to be untied because they benefit all production.
    Paragraphs (b)(2) through (b)(7) set forth rules that we will apply 
to different types of tying situations. For example, paragraph (b)(2) 
contains an attribution rule regarding export subsidies. Because an 
export subsidy is, by definition, limited to exports, paragraph (b)(2) 
provides that the Secretary will attribute an export subsidy only to 
the sales of products exported by a firm.
    As noted above, we intend to apply paragraphs (b)(2) through (b)(7) 
consistently with each other, to the extent practicable. As an example, 
assume that a government provides an export subsidy on exports of 
widgets to Country X. Here, three attribution rules come into play. 
Under paragraph (b)(2), the subsidy would be attributed to the export 
sales of a firm. Under paragraph (b)(4), the subsidy would be 
attributed to products sold by a firm to Country X. Under paragraph 
(b)(5), the subsidy would be attributed to widgets sold by a firm. 
Putting the three rules together, the subsidy in this example would be 
attributed to the firm's export sales of widgets to Country X.
    Certain commenters have identified potential scenarios where the 
Department should allow itself the flexibility to deviate from these 
tying rules (e.g., where subsidies allegedly ``tied'' to non-subject 
merchandise or markets are actually meant to benefit the overall 
operations of the company).
    We recognize that there may be many scenarios where these 
attribution rules do not fit precisely the facts of a particular case. 
Furthermore, we are extremely sensitive to potential circumvention of 
the countervailing duty law. We intend to examine all tying claims 
closely to ensure that the attribution rules are not manipulated to 
reduce countervailing duties. If the Secretary determines as a factual 
matter that a subsidy is tied to a particular product, then the 
Secretary will attribute that subsidy to sales of that particular 
product, in accordance with paragraph (b)(5). If subsidies allegedly 
tied to a particular product are in fact provided to the overall 
operations of a company, the Secretary will attribute the subsidy to 
sales of all products by the company. This example illustrates that the 
rules as proposed, and as finalized here, do serve their intended 
purpose, but that the facts of each case must be carefully examined.
    The rules set forth in paragraphs (b)(5) and (b)(6) warrant 
additional explanation because of the special nomenclature that is 
being used. In all other sections of these regulations, the term 
``firm'' is used to describe the recipient of the subsidy. See 
Sec. 351.102. However, for purposes of certain attribution rules, where 
we are describing how subsidies will be attributed within firms, 
``firm'' is too broad. Therefore, for purposes of paragraphs (b)(5) and 
(b)(6), we are using the term ``corporation.'' In so doing, we are not 
intending to limit the application of these rules to firms that are 
organized as corporations. However, based on our experience, most of 
the firms we investigate are organized as corporations. Therefore, our 
use of the term ``corporation'' makes these attribution rules as clear 
as possible. If a respondent is not organized as a corporation, we will 
address any attribution issues covered by the rules in paragraphs 
(b)(5) and (b)(6) based on the facts of that case, while following as 
closely as possible the rules and principles set forth in paragraphs 
(b)(5) and (b)(6).
    Paragraph (b)(5) sets out our rules regarding product tying. 
Paragraph (b)(5)(i) states our longstanding general rule that where a 
subsidy is tied to production of a particular product, the subsidy will 
be attributed to sales of that product. One commenter argued that the 
regulations should make clear that where a subsidy is provided to 
develop a specific model of a product (or to modernize a particular 
production facility), the subsidy should be attributed to sales of that 
model (or to production from that facility). We believe that this 
commenter's concerns may already be addressed by the proposed product-
tying rule. If subsidies are provided for a specific model, they can be 
tied to that model. If a countervailing duty case is brought solely 
against that model, the subsidy would be attributed to that model, and 
a model-specific rate will, in effect, be calculated. However, if the 
case is brought against several models that comprise the subject 
merchandise, we would normally blend the model-specific rates to arrive 
at a single rate to apply to all merchandise covered by the 
countervailing duty order.
    Our 1997 Proposed Regulations contained an exception to the general 
product tying rule which provided that, if an input product is produced 
within the same corporation, subsidies tied to the input product would 
be attributed to sales of both the input and the downstream products. 
Our stated intention was to limit this exception to situations where 
production of the input and downstream product occur within the same 
corporation. We took the position that if the input product is produced 
by a separately incorporated company, regardless of the level of 
affiliation or ``cross-ownership'' (as discussed further below), 
subsidies to the input product would only be considered in the context 
of an upstream subsidy investigation initiated

[[Page 65401]]

on the basis of a sufficient allegation from the petitioner.
    We received numerous comments objecting to such an approach, 
arguing that the rule elevates form over substance. These commenters 
suggested that the rule creates a loophole whereby vertically 
integrated businesses could avoid countervailing duty exposure for 
input subsidies simply by separately incorporating the division that 
makes the input. In their opinion, where there is cross-ownership 
between the input supplier and the downstream product, subsidies to the 
input supplier should be automatically attributed to the downstream 
product. In situations where the cross-ownership standard is not met, 
but the corporations are nonetheless affiliated, the Department should 
determine whether to attribute the subsidies between the two companies 
according to the particular facts of the case.
    Paragraph (b)(5)(ii) of these Final Regulations maintains the 
exception to the product tying rule whereby we will attribute a subsidy 
tied to the input product to the sales of both the input and downstream 
products where the production of the input and downstream products 
occurs within the same corporation. However, upon consideration of the 
comments received and a careful review of the upstream subsidy 
provision of the statute, we have decided to modify our practice 
regarding separately incorporated input and downstream producers.
    The main concern we have tried to address is the situation where a 
subsidy is provided to an input producer whose production is dedicated 
almost exclusively to the production of a higher value added product--
the type of input product that is merely a link in the overall 
production chain. This was the case with stumpage subsidies on timber 
that was primarily dedicated to lumber production and subsidies to 
semolina primarily dedicated to pasta production. (See Certain Softwood 
Lumber Products from Canada, 57 FR 22570, 22578 (May 28, 1992) and 
Certain Pasta from Italy, 61 FR 30287-309 (June 14, 1996).) We believe 
that in situations such as these, the purpose of a subsidy provided to 
the input producer is to benefit the production of both the input and 
downstream products. Accordingly, where the input and downstream 
production takes place in separately incorporated companies with cross-
ownership (see discussion below defining cross-ownership) and the 
production of the input product is primarily dedicated to the 
production of the downstream product, paragraph (b)(6)(iv) requires the 
Department to attribute the subsidies received by the input producer to 
the combined sales of the input and downstream products (excluding the 
sales between the two corporations).
    Where we are dealing with input products that are not primarily 
dedicated to the downstream products, however, it is not reasonable to 
assume that the purpose of a subsidy to the input product is to benefit 
the downstream product. For example, it would not be appropriate to 
attribute subsidies to a plastics company to the production of cross-
owned corporations producing appliances and automobiles. Where we are 
investigating products such as appliances and automobiles, we will rely 
on the upstream subsidy provision of the statute to capture any 
plastics benefits which are passed to the downstream producer. 
Moreover, we believe that the upstream subsidy provision is still 
applicable when dealing with lower levels of affiliation. Therefore, if 
the relationship between the input and downstream producers meets the 
affiliation standard but falls short of cross-ownership, even if the 
input product is primarily dedicated to the downstream product, we will 
only consider subsidies to the input producer in the context of an 
upstream subsidy investigation.
    Paragraph (b)(6) deals with situations where cross-ownership exists 
between corporations. We have decided to codify the definition of 
cross-ownership outlined in the preamble to the 1997 Proposed 
Regulations. Accordingly, paragraph (b)(6)(vi) makes clear that the 
relationships captured by the cross-ownership definition include those 
where the interests of two corporations have merged to such a degree 
that one corporation can use or direct the individual assets (or 
subsidy benefits) of the other corporation in essentially the same ways 
it can use its own assets (or subsidy benefits). For example, cross-
ownership exists where corporation A owns corporation B (or vice 
versa), or where A and B are both owned by corporation C. Cross-
ownership does not require one corporation to own 100 percent of the 
other corporation. Normally, cross-ownership will exist where there is 
a majority voting ownership interest between two corporations or 
through common ownership of two (or more) corporations. In certain 
circumstances, a large minority voting interest (for example, 40 
percent) or a ``golden share'' may also result in cross-ownership.
    As we noted in the 1997 Proposed Regulations, the term ``cross-
ownership'' as it is used here clearly differs from ``affiliation,'' as 
that term is defined in section 771(33) of the Act. In response to 
this, one commenter protested that reliance upon cross-ownership for 
attribution purposes will unlawfully limit the affiliated party 
standard as outlined in section 771(33) of the Act. Another commenter 
asked the Department to revise the definition of cross-ownership such 
that cross-ownership will be found when one ``affiliated'' company 
exercises control over another.
    We believe that the definition of cross-ownership in these Final 
Regulations is a more useful basis than mere affiliation for 
identifying the types of relationships where it is reasonable to 
presume that subsidies to one corporation could benefit another 
corporation. The underlying rationale for attributing subsidies between 
two separate corporations is that the interests of those two 
corporations have merged to such a degree that one corporation can use 
or direct the individual assets (or subsidy benefits) of the other 
corporation in essentially the same ways it can use its own assets (or 
subsidy benefits). The affiliation standard does not sufficiently limit 
the relationships we would examine to those where corporations have 
reached such a commonality of interests. Therefore, reliance upon the 
affiliated party definition would result in the Department expending 
unnecessary resources collecting information from corporations about 
subsidies which are not benefitting the production of the subject 
merchandise, or diluting subsidies more properly attributed to input 
producers by allocating such subsidies over the production of remotely 
related and affected downstream producers. In response to the second 
comment, we note that varying degrees of control can exist in any 
relationship. Therefore, we believe the more precise definition of 
cross-ownership that we have adopted in these Final Regulations is more 
appropriate.
    Contrary to the assertions of the commenters, in limiting our 
attribution rules to situations where there is cross-ownership, we are 
not reading ``affiliated'' out of the CVD law--we simply do not find 
the affiliation standard to be a helpful basis for attributing 
subsidies. Nowhere in the statute or the SAA is there any indication 
that the affiliated party definition was intended to be used for 
subsidy attribution purposes. Rather, it identifies the broadest 
category of relationships which might be relevant to either an 
antidumping or a countervailing duty analysis. Therefore,

[[Page 65402]]

we intend to include in our questionnaires a request for respondents to 
identify all affiliated parties. Also, persons affiliated with 
companies that shipped during the period of investigation will not be 
entitled to request a new shipper review under section 751(a)(2)(B) of 
the Act. However, we do not intend to investigate subsidies to 
affiliated parties unless cross-ownership exists or other information, 
such as a transfer of subsidies, indicates that such subsidies may in 
fact benefit the subject merchandise produced by the corporation under 
investigation.
    Paragraph (b)(6) begins by stating a general rule, which is 
followed by four exceptions to that rule deriving from the rationale 
described above. Paragraph (b)(6)(i) states that the Secretary will 
normally attribute a subsidy received by a corporation to the products 
produced by that corporation. Hence, for example, if corporation A 
receives a subsidy, then that subsidy will normally be attributed to 
the sales of products produced by corporation A.
    However, under paragraph (b)(6)(ii), if two (or more) corporations 
with cross-ownership produce the subject merchandise, then subsidies 
received by either or both of those corporations will be attributed to 
the combined sales of the two corporations. Thus, for example, if 
corporation A and corporation B are both owned by corporation C and 
both A and B produce widgets, benefits to A and B will be combined to 
determine the subsidy on widgets and the subsidy will be attributed to 
the combined production of A and B.
    Paragraph (b)(6)(iii) addresses a second instance where subsidies 
received by one corporation might be attributed to sales of another 
corporation with cross-ownership. This is where the subsidy is received 
by a holding company. The term ``holding company'' is intended to mean 
any company that owns or controls subsidiaries through the ownership of 
voting stock or other means. In paragraph (b)(6)(iii) of these Final 
Regulations, we have clarified that the term ``holding company'' 
includes investment companies with no business of their own (commonly 
referred to as holding companies) as well as companies with their own 
operations (commonly referred to as parent companies). Under paragraph 
(b)(6)(iii), subsidies to a holding company will normally be attributed 
to the consolidated sales of the holding company (including the sales 
of subsidiaries). However, if the Department determines that the 
holding company is merely serving as a conduit for government-provided 
funds to one (or more) of its subsidiaries, then the subsidy will be 
attributed to the production of that subsidiary.
    Analogous to the situation of a holding or parent company is the 
situation where a government provides a subsidy to a non-producing 
subsidiary (e.g., a financial subsidiary) and there are no conditions 
on how the money is to be used. Consistent with our treatment of 
subsidies to holding companies, we would attribute a subsidy to a non-
producing subsidiary to the consolidated sales of the corporate group 
that includes the non-producing subsidiary. See, e.g., Certain Steel 
Products from Belgium, 58 FR 37273, 37282 (July 9, 1993) (``Certain 
Steel from Belgium'').
    Paragraph (b)(6)(iv) incorporates the change in practice with 
regard to separately incorporated input producers discussed previously. 
This rule allows the Department to attribute the subsidies received by 
the input producer to the input and downstream products produced by 
both corporations when the input is primarily dedicated to the 
production of the downstream product.
    Finally, where the exceptions contained in paragraphs (b)(6)(i)-
(iv) have not been met, subsidies received by one corporation may still 
be attributed to sales of another corporation with cross-ownership if 
the Secretary determines under paragraph (b)(6)(v) that the corporation 
receiving the subsidy transfers it to the corporation producing the 
subject merchandise. Such a transferral could be shown by some form of 
extraordinary transaction between the two companies, e.g., a transfer 
of assets, an assumption of debt, or a significant loan. Where we find 
such transfer mechanisms, we will attribute the subsidy to the combined 
sales of the two corporations.
    Although cross-ownership is broadly defined, permitting us to 
include corporations under common government ownership, we expect that 
common government ownership will not normally be viewed as cross-
ownership. Instead, we intend to continue our longstanding practice of 
treating most government-owned corporations as the government itself, 
and not as corporations that transfer subsidies received from the 
government to other government-owned corporations through loans or 
other financial transactions. For example, where a government-owned 
corporation producing the product under investigation purchases 
electricity from a government-owned utility, a subsidy is conferred if 
the utility does not receive adequate remuneration. However, given the 
complexity and variety of the government-owned corporate structures 
that we have encountered, the nature of the allegation may determine 
the nature of the analysis and the level at which the analysis should 
be applied. The situations where we would normally expect to apply the 
cross-ownership rules to common government ownership are: (1) 
Government-owned corporations producing the same product (see 
Sec. 351.525(b)(6)(ii)) and (2) government-owned corporations producing 
different products where the corporations are under the control of the 
same ministry or within a corporate group containing producers of 
similar products (see Sec. 351.525(b)(6)(v)).
    Although the rules described in paragraphs (b)(2)--(b)(7) of 
Sec. 351.525 deal with tying, Sec. 351.525 does not contain a 
definition of ``tied.'' In the past, the Department has described this 
concept in a variety of ways. For example, in Appendix 2 to Certain 
Steel Products from Belgium, 47 FR 39304, 39317 (September 7, 1982), we 
stated that ``a grant is `tied' when the intended use is known to the 
subsidy giver and so acknowledged prior to or concurrent with the 
bestowal of the subsidy.'' In the preamble to the 1989 Proposed 
Regulations at 23374, we stated that a ``tied'' subsidy benefit is 
``e.g., a benefit bestowed specifically to promote the production of a 
particular product.''
    Given the wide variety of factual scenarios that we have 
encountered in the past, and are likely to encounter in the future, we 
are not promulgating an all-encompassing definition of ``tied.'' 
Moreover, the absence of a definition of ``tied'' has not proven to be 
a problem in practice, and Annex IV to the SCM Agreement, which refers 
to ``tied'' subsidies in paragraph 3, also lacks a definition of this 
term. While the preamble to the 1997 Proposed Regulations requested 
comments regarding what factors are relevant to the Department's 
determination of whether benefits are tied, we received no such 
comments. For these reasons, at this time we intend to apply the term 
``tied'' on a case-by-case basis, using the guidelines in this section.
    Virtually every comment submitted on attribution-related issues 
included a reference to the fungibility of money. Certain commenters 
argued that because money is fungible, the Department should not allow 
subsidies to be tied to particular products or to particular export 
markets. In their view, the only distinction that should be made is 
between export and domestic subsidies. Other commenters invoked the

[[Page 65403]]

fungibility principle in support of their position that untied capital 
infusions to companies with multinational production should be 
attributed to worldwide sales of the firm.
    While we agree with these commenters that money is fungible, these 
comments are somewhat misplaced. Fungibility has to do with the issue 
of whether we could, or should, trace the use of specific funds to 
determine whether such funds were used for their stated purpose, or the 
purpose that we evince from record evidence. We have generally stated 
that we will not trace the use of subsidies through a firm's books and 
records. Rather we analyze the purpose of the subsidy based on 
information available at the time of bestowal. Once the firm receives 
the funds, it does not matter whether the firm used the government 
funds, or some of its own funds that were freed up as a result of the 
subsidy, for the stated purpose or the purpose that we evince. This is 
what we mean when we say that money is fungible. Fungibility does not 
mean that we cannot attribute subsidies to particular portions of a 
firm's activities. This interpretation of fungibility would undermine 
congressional intent to attribute subsidies to the products that 
directly benefit from the subsidy. See, e.g., H.R. Rep. No. 96-317, at 
74-75 (1979) (``[W]ith regard to subsidies which provide an enterprise 
with capital equipment or a plant * * * the net amount of the subsidy 
should be * * * assessed in relation to the products produced with such 
equipment or plant * * *.'').
    For example, if we were to adopt some of the suggestions made by 
the commenters, there should be no distinction between export and 
domestic subsidies. Yet, this agency's consistent and, for the most 
part, non-controversial practice over the past 18 years has been to 
attribute export subsidies to the sales value of exported products and 
domestic subsidies to all products sold. As additional examples, over 
time, we also have adopted the practices of attributing subsidies that 
can be tied to particular products to sales of those products and 
attributing subsidies that can be tied to particular markets to 
products sold to those markets.
    Our tying rules recognize that a government subsidy may not benefit 
all products or corporate entities equally. At the same time, they 
recognize that a subsidy may provide benefits to persons, products, or 
entities, not specifically named in a government program. Our tying 
rules are an attempt at a simple, rational set of guidelines for 
reasonably attributing the benefit from a subsidy based on the stated 
purpose of the subsidy or the purpose we evince from record evidence at 
the time of bestowal.
    Section 351.525(b)(7) addresses the attribution of subsidies 
received by companies with multinational production. As we stated in 
the 1997 Proposed Regulations, it is our continued position, based upon 
our past administrative experience, that:

    The government of a country normally provides subsidies for the 
general purpose of promoting the economic and social health of that 
country and its people, and for the specific purposes of supporting, 
assisting or encouraging domestic manufacturing or production and 
related activities (including, for example, social policy activities 
such as the employment of its people).

GIA at 37231. Moreover, a government normally will not provide 
subsidies to firms that refuse to use them as the government wants, and 
firms receiving subsidies will not use them in a way that would 
contravene the government's purposes, as they otherwise risk losing 
future subsidies. Consistent with this, Sec. 351.525(b)(7) states that 
we normally will attribute subsidies to sales of merchandise produced 
within the jurisdiction of the granting authority. However, where a 
respondent can demonstrate that the purpose of the subsidy was to 
benefit more than domestic production (i.e., the subsidy was tied to 
more than domestic production), the subsidy will be attributed to 
multinational sales.
    One commenter argued that it is inappropriate to assume that untied 
subsidies received by a multinational holding company benefit only the 
national operations of the company because such subsidies release 
resources for international as well as domestic operations. This 
argument, however, rests on the principle that money is fungible and, 
as discussed above, we do not believe that fungibility should be the 
guiding principle for attributing subsidies. Moreover, the presumption 
that domestic subsidies benefit domestic production has been a well-
established practice since the Certain Steel investigations and has 
been upheld by the CIT. See GIA at 37231; see also British Steel plc v. 
United States, 929 F. Supp. 426, 453-55 (CIT 1996), appeal pending sub 
nom. Inland Steel Industries, Inc. v. United States, Nos. 98-1230, 1259 
(Fed. Cir.).
    The same commenter objected to the change from the rebuttable 
presumption adopted in 1993. We note that under the 1993 practice, a 
respondent was required to show that a subsidy was not tied to domestic 
production. If a respondent successfully demonstrated this, the subsidy 
would be attributed to multinational production. Under the proposed 
paragraph (b)(7), however, respondents were required to demonstrate 
that the subsidies were tied to foreign production. If we found the 
subsidy to be tied to foreign production, it would not be 
countervailed. The final rule, which is worded slightly differently, 
still requires affirmative evidence that the purpose of the subsidy was 
to benefit more than domestic production. We continue to believe that 
the shift in emphasis will bring our practice with respect to 
multinational companies more in line with the other attribution rules 
that require evidence of tying, as opposed to evidence that a subsidy 
is not tied.
    Another commenter, while not objecting to the proposed change in 
the formulation of the presumption, objected to our statement that, if 
the Department found a subsidy tied to foreign production, it would not 
be countervailed. This commenter argued that if the Department 
maintains a countervailing duty order covering exports from the country 
in which the foreign production occurred, it should countervail those 
subsidies.
    We have not adopted this suggestion because the statute permits 
countervailing subsidies provided by one government for the benefit of 
production in another country only in limited circumstances. See 
Sec. 351.527 (transnational subsidies). However, this comment did 
prompt a closer examination of the proposed rule. Recognizing that 
governments are not likely to provide subsidies solely for the benefit 
of foreign production, we believe that the purpose, even of subsidies 
which may be tied to foreign production, is in fact to benefit 
multinational operations, including those in the subsidizing 
jurisdiction. Therefore, we have revised the rule so that if a 
respondent demonstrates that a subsidy is tied to more than domestic 
production, the subsidy will be attributed to multinational sales 
including sales in the subsidizing jurisdiction. We will examine such 
claims closely to ensure that the subsidy was, in fact, tied to more 
than domestic production. Respondents must show that, in the 
authorization and/or approval documents, the government explicitly 
stated that the subsidy was being provided for more than domestic 
production. Simply approving a loan to a company with multinational 
production, or providing an equity infusion to the company, is not 
sufficient to demonstrate that the subsidy was tied to more than 
domestic

[[Page 65404]]

production. The documentation must show that, at the point of bestowal, 
one of the express purposes of the subsidy was to provide assistance to 
the firm's foreign subsidiaries. Absent such a demonstration, all 
subsidies, whether tied or untied, will be attributed to the 
appropriate category of domestically-produced sales as mandated by the 
rules contained in paragraphs (b)(1) through (b)(6).
    We received one comment requesting the Department to include 
language in its Final Regulations which would allow the agency to tie 
regional subsidies to production in a particular region--essentially to 
calculate factory-specific subsidy rates. This commenter points to Live 
Swine from Canada, 61 FR 26879 (May 29, 1996) (``Live Swine from 
Canada'') in support of this proposal. In that case, the Department 
allocated regional benefits over regional production and then 
calculated a single country-wide rate based on each region's exports to 
the United States.
    We have not adopted this suggestion. The calculation methodology 
employed in Live Swine from Canada was particular to the facts of that 
case `` an aggregate case in which the majority of subsidy programs 
examined were regionally provided. If such a methodology were to be 
universally applied, foreign companies could easily escape payment of 
countervailing duties by selling the production of a subsidized region 
domestically, while exporting from a facility in an unsubsidized 
region.
    Another commenter argued that if it were true that governments 
normally will not provide subsidies to firms that refuse to use them as 
the government wants, then even ``untied'' subsidies are worth less 
than their face value by virtue of the fact that the subsidy is 
inherently ``restricted'' in its use. This commenter appears to be 
seeking to have the Department reduce the value of the subsidy because 
of potential constraints placed on its receipt. We note that such a 
reduction is not an allowable offset under the statute.
    Finally, we note that we have added a paragraph to this section 
which codifies our longstanding practice regarding the attribution of 
subsidies to trading companies. See, e.g., Certain Stainless Steel 
Cooking Ware from the Republic of Korea, 51 FR 42867 (November 26, 
1986) and Certain Steel Wire Nails from Thailand, 52 FR 36987 (October 
2, 1987). Although we did not receive any comments on this issue and 
our practice has been non-controversial, we believe it is important to 
codify those practices that we intend to continue. Therefore, paragraph 
(c) has been added which states that benefits from subsidies provided 
to trading companies (or any firm that only sells and does not produce 
subject merchandise) will be cumulated with benefits from subsidies 
provided to the producer of subject merchandise, regardless of whether 
the trading company and the producer are affiliated.

Section 351.526

    Section 351.526 deals with program-wide changes, and is almost 
identical to Sec. 355.50 of the 1989 Proposed Regulations.
    One commenter suggested that the Department should add specific 
language to the regulation stating that the cash deposit rate will not 
be adjusted for a terminated program, unless the respondent has 
presented positive evidence demonstrating that no residual benefits 
will be bestowed and that no transitional program has been, or will be 
enacted. The commenter further suggested that the regulation also 
clearly set forth that the Department will not adjust the cash deposit 
rate based on mere assertion or announcement of a government's intent 
to terminate a program.
    We agree with the commenter that program-wide changes must be 
documented by the respondent, beyond mere assertion. However, we do not 
feel that it is necessary to codify this position through an amended 
regulation. Given the general nature of this policy and our current 
practice, to which the commenter does not object, there is no reason to 
amend the current regulation.
    A second commenter argued that Sec. 351.526 should allow for the 
possibility that evidence of a program-wide change received subsequent 
to the period of investigation or review, but before the preliminary 
determination or preliminary results of an administrative review, may 
change the final determination or final results of the review. For 
example, when a program has been terminated and no residual benefits 
exist, the Department's final determination or final results should be 
negative (assuming that there is only one program). The commenter 
asserted that the 1997 Proposed Regulations, which would require the 
Department to render an affirmative determination with a zero cash 
deposit rate, is inconsistent with the overall purpose of the U.S. 
countervailing duty law. The commenter further argued that the 
Department should not have the discretion to determine that a 
``substitute program'' continues to provide benefits; a substitute 
program must be considered only in a new investigation or upon an 
allegation in an administrative review.
    We have not adopted the suggested changes of this commenter. It has 
been our longstanding practice to impose (or not to impose) a CVD order 
based exclusively on the subsidy rate in effect during the period of 
investigation. In Pipe and Tube from Malaysia, where the period of 
investigation rate was zero, we rendered a negative determination, even 
though we knew other benefits existed after the period of 
investigation. See, Standard Pipe, Line Pipe, Light-Walled Rectangular 
Tubing and Heavy-Walled Rectangular Tubing from Malaysia, 53 FR 46904, 
46906 (November 21, 1988). If a subsidy exists during the period of 
investigation, we will issue a CVD order (where any required injury 
determination is affirmative) regardless of whether the program and the 
subsidy are eliminated after the period of investigation, but before 
our final determination. In regard to substitute programs, it is our 
practice to consider whether such programs exist when adjusting deposit 
rates. If we did not have such discretion to determine whether a 
substitute program offers the same benefits as a terminated program, 
then governments could terminate investigated or reviewed programs and 
replace them with other programs to obtain a lower deposit rate.

Section 351.527

    Section 351.527, which is based on Sec. 355.44(o) of the 1989 
Proposed Regulations, provides that so-called ``transnational 
subsidies'' are not countervailable. Subsidies of this type include 
situations where the funding for the subsidy is provided (a) by the 
government of a country other than the country in which the recipient 
firm is located, of (2) by an international lending or development 
institution. Except for the addition of the phrase `` * * * supplied in 
accordance with, and as part of, a program or project funded,'' which 
we discuss below, Sec. 351.527 is the same as the provision in the 1997 
Proposed Regulations and Sec. 355.44(o) of the 1989 Proposed 
Regulations.
    Paragraph (o)(2) of Sec. 355.44(o) of the 1989 Proposed Regulations 
essentially duplicated what is now section 701(d) of the Act, a 
provision that deals with subsidies to international consortia. In 
light of our decision to avoid regulations that merely repeat the 
statute, Sec. 351.527 merely references, but does not repeat, section 
701(d).
    One commenter stated that paragraph (a) in the 1997 Proposed 
Regulations should be clarified to apply solely to

[[Page 65405]]

foreign aid; otherwise any subsidy provided by the government of one 
country to a recipient located in another country would be not 
countervailable. The commenter argued that, as written, the regulation 
would prevent the Department from conducting an upstream analysis in a 
case where a subsidy is provided by the government of one country to an 
input producer in that country, that producer sells the input to a firm 
in another country, and this last firm ultimately sells subject 
merchandise to the United States. Another commenter stated that the 
statutory basis for not countervailing subsidies provided by one 
country to an entity producing or manufacturing the subject merchandise 
in another country no longer exists following the repeal of section 303 
by the URAA and, prior to the URAA, did not exist for Subsidies Code 
members covered by section 701, notwithstanding previous assertions by 
the Department to the contrary. Therefore this commenter suggests 
striking paragraph (a) in its entirety. Both commenters supported 
paragraph (b), which addresses subsidies funded by international 
lending or development institutions.
    Section 351.527 derives from prior section 303(a)(l) of the Act 
(now repealed), which stated:

    Whenever any country * * * shall pay or bestow, directly or 
indirectly, any bounty of grant upon the manufacture or production 
or export of any article * * * manufactured or produced in such 
country * * * there shall be levied a duty equal to the net amount 
of such bounty or grant * * * .

19 U.S.C. section 1303(a)(1)(1994)(emphasis added).

    In our view, neither the successorship of section 701 for Subsidies 
Code members, nor the repeal of section 303 by the URAA, eliminated the 
transnational subsidies rule, and there is no other indication that 
Congress intended to eliminate this rule. In addition, Sec. 351.527 
does not preclude the Department from conducting an upstream analysis 
in a case where a subsidy is provided by the government of one country 
to an input producer in that country, that producer sells the input to 
a firm in another country, and this last firm ultimately sells subject 
merchandise to the United States. As explained in the preamble to 
Sec. 351.523, section 701(d), the international consortia provision of 
the statute, allows the Department to countervail such subsidies where 
both countries are ``members (or other participating entities)'' in an 
international consortium and the subsidy on the input product 
``assisted, permitted, or otherwise enabled'' the participation of that 
producer in the consortium. Furthermore, section 771A, the upstream 
subsidies provision of the statute, allows the Department to reach 
subsidies provided by one country that is a member in a customs union 
to an input produced in that country for incorporation into subject 
merchandise produced in another country that is a member of the same 
customs union.
    With respect to Sec. 351.527(b), we agree with the commenters that 
a subsidy does not exist if the funding for the subsidy is provided by 
an international lending or development institution. Common examples of 
this type of international funding include the construction of a dam, a 
hydroelectric plant, or some other large infrastructure project. The 
exemption in Sec. 351.527 applies if sufficient evidence is provided 
showing that the funding for the subsidy is supplied in accordance 
with, and as part of, a program or project funded by another government 
or by an international lending or development institution. If, however, 
the recipient government decides on its own, outside of such a program 
or project, to provide a subsidy, that subsidy will be subject to the 
countervailing duty law. At the same time, the provision of 
transnational funds to a government does not in and of itself create a 
presumption of subsidization. We have amended Sec. 351.527 to reflect 
the limited application of this exemption and to clarify that national 
government subsidy programs, if they meet the statutory criteria for a 
countervailable subsidy, will not escape countervailing duties.

Comments Relating to Procedural Regulations

    We received comments arguing that remand determinations, like other 
determinations, should be published in the Federal Register. Although 
this issue was addressed in Antidumping Duties; Countervailing Duties; 
Final rule, 62 FR 27295, 27330 (May 19, 1997) (``Procedural 
Regulations''), these commenters assert that the alternatives described 
therein do not provide sufficient access to remand determinations. The 
commenters argue that the publication of remand determinations is 
crucial as they correct previously published determinations found to be 
unsupported by substantial evidence or not in accordance with the law. 
Moreover, remand decisions often include new analysis or expanded 
discussions of the Department's methodology which is not included in 
published decisions.
    While we understand the concerns of the commenters, given the high 
cost of publishing notices in the Federal Register, we do not agree 
that remand determinations should be published in the Federal Register. 
At this time, we will continue the current plan of posting final remand 
determinations on the Import Administration web site (http://
www.ita.doc.gov/import__admin/). After this system has been in place 
for a reasonable period of time, we will evaluate whether this system 
provides adequate distribution of the determinations, or if another 
system would provide better public access.
    We also received a comment encouraging the Department to codify and 
follow all procedures relating to the issuance of deposit instructions 
to Customs. Under Sec. 351.211(b) of the Department's Procedural 
Regulations, the Department is obligated to issue deposit instructions 
within seven days of a final affirmative ITC determination, and 
promptly after final review results. However, the commenter stated that 
the Department frequently misses these deadlines, and parties have no 
remedy. Also, the commenter noted that the regulations do not address 
changes resulting from remands. The commenter stated that in some 
cases, deposit rates are not amended until all appeals are exhausted, 
and that this harms petitioners. According to the commenter, a fair 
rule would be to issue amended deposit rates immediately after the 
remand results are approved by the Court, if the amended rate is higher 
than the rate calculated in the previous segment. If that higher rate 
is eventually determined to be incorrect, then the difference can be 
refunded.
    We agree that we should issue deposit instructions promptly. With 
regard to changes in deposit rates after remand results are affirmed, 
our policy has been to follow the decision in Timken v. United States, 
893 F.2d 337 (Fed. Cir. 1990). Pursuant to our interpretation of this 
case, we do not change deposit instructions following a remand 
determination until all appeals are exhausted. If, however, the remand 
changes a negative determination to an affirmative determination, we 
will instruct Customs to suspend liquidation at a zero rate until all 
appeals are exhausted.

Subpart G--Effective Dates

    Subpart G currently consists of a single Sec. 351.701, which 
established the dates on which the new substantive AD and procedural AD 
and CVD regulations published on May 19, 1997, became effective. 
Section 701 also explains the extent to which the previous AD and 
procedural regulations govern segments of proceedings to which the new

[[Page 65406]]

regulations do not apply and the limited role of the new regulations in 
such proceedings.
    We are now adding a new Sec. 351.702 to establish effective dates 
for the new CVD substantive regulations. Because the procedural 
regulations published on May 19, 1997, apply to CVD proceedings, the 
effective dates in the substantive CVD regulations are structured as an 
exception to the effective dates in the procedural regulations.
    Section 351.702(a) provides that the new substantive CVD 
regulations will apply to all investigations initiated pursuant to 
petitions filed more than 30 days after the date on which they are 
published. In addition, Sec. 351.702(a) provides that the new 
regulations will apply to all administrative reviews initiated on the 
basis of requests filed in the month following the month in which the 
date 30 days after publication of this notice falls (in other words, 
the month following the month in which the regulations otherwise become 
effective). The slight difference in effective dates for requested 
administrative reviews is to avoid confusion over whether the new 
regulations apply to administrative reviews requested by different 
parties on different days during the month in which the new regulations 
become effective. Finally Sec. 351.702(a) applies to all investigations 
or reviews that the Department self-initiates more than 30 days after 
the date on which the new regulations are published.
    Section 351.702(b) provides that investigations and reviews to 
which the substantive CVD regulations do not apply will continue to be 
governed by the Department's previous CVD methodology, except to the 
extent that the previous methodology was invalidated by the URAA. 
Although there are no previous CVD substantive regulations, the 
Department's previous methodology generally is described in the 
proposed substantive CVD regulations published May 31, 1989. In 
situations where the previous methodology was invalidated by the URAA, 
the new regulations will serve as a restatement of the Department's 
interpretation of the Act as amended by the URAA. The 1997 Proposed 
Regulations have no role as precedent for any CVD determinations.

Classification

E.O. 12866

    This final rule has been determined to be significant under E.O. 
12866.

Regulatory Flexibility Act

    The Assistant General Counsel for Legislation and Regulation of the 
Department of Commerce certified to the Chief Counsel for Advocacy of 
the Small Business Administration that this final rule will not have a 
significant economic impact on a substantial number of small entities. 
The Department does not believe that there will be any substantive 
effect on the outcome of AD and CVD proceedings as a result of the 
streamlining and simplification of their administration. With respect 
to the substantive amendments implementing the URAA, the Department 
believes that these regulations benefit both petitioners and 
respondents without favoring either, and, therefore, would not have a 
significant economic effect. As such, an initial regulatory flexibility 
analysis was not prepared.

Paperwork Reduction Act

    Notwithstanding any other provision of law, no person is required 
to respond to nor shall a person be subject to a penalty for failure to 
comply with a collection of information subject to the requirements of 
the Paperwork Reduction Act unless that collection of information 
displays a currently valid OMB Control Number. This final rule does not 
contain any new reporting or recording requirements subject to the 
Paperwork Reduction Act.
    There are three separate collections of information contained in 
this rule. Each is currently approved by the Office of Management and 
Budget. The Petition Format for Requesting Relief Under U.S. 
Antidumping Laws, OMB Control No. 0625-0105, is estimated to impose an 
average public reporting burden of 40 hours. The information submitted 
is used to assess the petitioner's allegations of unfair trade 
practices and to determine whether an investigation is warranted. The 
information requested relates to the existence of sales at less than 
fair value and injury to the affected U.S. industry. Second, the Format 
for Petition Requesting Relief Under the Countervailing Duty Law is 
approved under OMB Control No. 0625-0148. This format is used to elicit 
the information required by the Tariff Act of 1930, as amended, and its 
implementing regulations, for the initiation of a CVD investigation. 
Specifically, the Format requests information about the imported 
product, a description of the alleged subsidies to the imported 
product, and the extent to which the domestic industry is being injured 
by the imported product. Finally, OMB Control No. 0625-0200, 
Antidumping and Countervailing Duties, Procedures for Initiation of 
Downstream Product Monitoring, provides for the filing of a petition 
requesting the review of a ``downstream'' product. A downstream product 
is one that has incorporated as a component part, a part that is 
covered by a U.S. antidumping or countervailing duty finding. To be 
eligible to file a petition, the petitioner must produce a product like 
the component part or the downstream product. It is estimated to 
require 15 hours per petition.
    These estimates include the time for reviewing instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collections of information. 
Send comments regarding these burden estimates or any other aspect of 
these collections of information, including suggestions for reducing 
the burden, to the Department of Commerce, 14th Street and Constitution 
Avenue, NW, Washington, DC. 20230, or to OMB Desk Officer, New 
Executive Office Building, Washington, DC. 20503.

E.O. 12612

    This final rule does not contain federalism implications warranting 
the preparation of a Federalism Assessment.

List of Subjects

19 CFR Part 351

    Administrative practice and procedure, Antidumping, Business and 
industry, Cheese, Confidential business information, Countervailing 
duties, Investigations, Reporting and recordkeeping requirements.

19 CFR Part 353

    Administrative practice and procedure, Antidumping, Business and 
industry, Confidential business information, Investigations, Reporting 
and recordkeeping requirements.

19 CFR Part 355

    Administrative practice and procedure, Business and industry, 
Cheese, Confidential business information, Countervailing duties, 
Freedom of Information, Investigations, Reporting and recordkeeping 
requirements.

    Dated: November 10, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
    For the reasons stated, 19 CFR part 351 is amended as follows:

[[Page 65407]]

PART 351--ANTIDUMPING AND COUNTERVAILING DUTIES

    The authority citation for part 351 continues to read as follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 1202 note; 19 U.S.C. 1303 
note; 19 U.S.C. 1671 et seq. and 19 U.S.C. 3538.

    2. Section 351.102 (Definitions) is amended by adding new 
definitions to read as follows:


Sec. 351.102  Definitions

* * * * *
    (b) * * *
    Consumed in the production process. Inputs ``consumed in the 
production process'' are inputs physically incorporated, energy, fuels 
and oil used in the production process and catalysts which are consumed 
in the course of their use to obtain the product.
    Cumulative indirect tax. ``Cumulative indirect tax'' means a multi-
staged tax levied where there is no mechanism for subsequent crediting 
of the tax if the goods or services subject to tax at one stage of 
production are used in a succeeding stage of production.
* * * * *
    Direct tax. ``Direct tax'' means a tax on wages, profits, 
interests, rents, royalties, and all other forms of income, a tax on 
the ownership of real property, or a social welfare charge.
* * * * *
    Export insurance. ``Export insurance'' includes, but is not limited 
to, insurance against increases in the cost of exported products, 
nonpayment by the customer, inflation, or exchange rate risks.
    Firm. For purposes of subpart E (Identification and Measurement of 
Countervailable Subsidies), ``firm'' is used to refer to the recipient 
of an alleged countervailable subsidy, including any individual, 
company, partnership, corporation, joint venture, association, 
organization, or other entity.
* * * * *
    Government-provided. ``Government-provided'' is a shorthand 
expression for an act or practice that is alleged to be a 
countervailable subsidy. The use of the term ``government-provided'' is 
not intended to preclude the possibility that a government may provide 
a countervailable subsidy indirectly in a manner described in section 
771(5)(B)(iii) of the Act (indirect financial contribution).
    Import charge. ``Import charge'' means a tariff, duty, or other 
fiscal charge that is levied on imports, other than an indirect tax.
* * * * *
    Indirect tax. ``Indirect tax'' means a sales, excise, turnover, 
value added, franchise, stamp, transfer, inventory, or equipment tax, a 
border tax, or any other tax other than a direct tax or an import 
charge.
* * * * *

Loan. ``Loan'' means a loan or other form of debt financing, such 
as a bond.

    Long-term loan. ``Long-term loan'' means a loan, the terms of 
repayment for which are greater than one year.
    Prior-stage indirect tax. ``Prior-stage indirect tax'' means an 
indirect tax levied on goods or services used directly or indirectly in 
making a product.
* * * * *
    Short-term loan. ``Short-term loan'' means a loan, the terms of 
repayment for which are one year or less.
* * * * *
    3. A new subpart E is added to 19 CFR part 351, to read as follows:

Subpart E--Identification and Measurement of Countervailable Subsidies

Sec.
351.501  Scope.
351.502  Specificity of domestic subsidies.
351.503  Benefit.
351.504  Grants.
351.505  Loans.
351.506  Loan guarantees.
351.507  Equity.
351.508  Debt forgiveness.
351.509  Direct taxes.
351.510  Indirect taxes and import charges (other than export 
programs).
351.511  Provision of goods or services.
351.512  Purchase of goods. [Reserved]
351.513  Worker-related subsidies.
351.514  Export subsidies.
351.515  Internal transport and freight charges for export 
shipments.
351.516  Price preferences for inputs used in the production of 
goods for export.
351.517  Exemption or remission upon export of indirect taxes.
351.518  Exemption, remission, or deferral upon export of prior-
stage cumulative indirect taxes.
351.519  Remission or drawback of import charges upon export.
351.520  Export insurance.
351.521  Import substitution subsidies. [Reserved]
351.522  Green light and green box subsidies.
351.523  Upstream subsidies.
351.524  Allocation of benefit to a particular time period.
351.525  Calculation of ad valorem subsidy rate and attribution of 
subsidy to a product.
351.526  Program-wide changes.
351.527  Transnational subsidies.

Subpart E--Identification and Measurement of Countervailable 
Subsidies


Sec. 351.501  Scope.

    The provisions of this subpart E set forth rules regarding the 
identification and measurement of countervailable subsidies. Where this 
subpart E does not expressly deal with a particular type of alleged 
subsidy, the Secretary will identify and measure the subsidy, if any, 
in accordance with the underlying principles of the Act and this 
subpart E.


Sec. 351.502  Specificity of domestic subsidies.

     (a) Sequential analysis. In determining whether a subsidy is de 
facto specific, the Secretary will examine the factors contained in 
section 771(5A)(D)(iii) of the Act sequentially in order of their 
appearance. If a single factor warrants a finding of specificity, the 
Secretary will not undertake further analysis.
    (b) Characteristics of a ``group.'' In determining whether a 
subsidy is being provided to a ``group'' of enterprises or industries 
within the meaning of section 751(5A)(D) of the Act, the Secretary is 
not required to determine whether there are shared characteristics 
among the enterprises or industries that are eligible for, or actually 
receive, a subsidy.
    (c) Integral linkage. Unless the Secretary determines that two or 
more programs are integrally linked, the Secretary will determine the 
specificity of a program under section 771(5A)(D) of the Act solely on 
the basis of the availability and use of the particular program in 
question. The Secretary may find two or more programs to be integrally 
linked if:
    (1) The subsidy programs have the same purpose;
    (2) The subsidy programs bestow the same type of benefit;
    (3) The subsidy programs confer similar levels of benefits on 
similarly situated firms; and
    (4) The subsidy programs were linked at inception.
    (d) Agricultural subsidies. The Secretary will not regard a subsidy 
as being specific under section 771(5A)(D) of the Act solely because 
the subsidy is limited to the agricultural sector (domestic subsidy).
    (e) Subsidies to small-and medium-sized businesses. The Secretary 
will not regard a subsidy as being specific under section 771(5A)(D) of 
the Act solely because the subsidy is limited to small firms or small-
and medium-sized firms.
    (f) Disaster relief. The Secretary will not regard disaster relief 
as being specific under section 771(5A)(D) of the

[[Page 65408]]

Act if such relief constitutes general assistance available to anyone 
in the area affected by the disaster.


Sec. 351.503  Benefit.

    (a) Specific rules. In the case of a government program for which a 
specific rule for the measurement of a benefit is contained in this 
subpart E, the Secretary will measure the extent to which a financial 
contribution (or income or price support) confers a benefit as provided 
in that rule. For example, Sec. 351.504(a) prescribes the specific rule 
for measurement of the benefit of grants.
    (b) Other subsidies.--(1) In general. For other government 
programs, the Secretary normally will consider a benefit to be 
conferred where a firm pays less for its inputs (e.g., money, a good, 
or a service) than it otherwise would pay in the absence of the 
government program, or receives more revenues than it otherwise would 
earn.
    (2) Exception. Paragraph (b)(1) of this section is not intended to 
limit the ability of the Secretary to impose countervailing duties when 
the facts of a particular case establish that a financial contribution 
(or income or price support) has conferred a benefit, even if that 
benefit does not take the form of a reduction in input costs or an 
enhancement of revenues. When paragraph (b)(1) of this section is not 
applicable, the Secretary will determine whether a benefit is conferred 
by examining whether the alleged program or practice has common or 
similar elements to the four illustrative examples in sections 
771(5)(E)(i) through (iv) of the Act.
    (c) Distinction from effect of subsidy. In determining whether a 
benefit is conferred, the Secretary is not required to consider the 
effect of the government action on the firm's performance, including 
its prices or output, or how the firm's behavior otherwise is altered.
    (d) Varying financial contribution levels.--(1) In general. Where a 
government program provides varying levels of financial contributions 
based on different eligibility criteria, and one or more of such levels 
is not specific within the meaning of Sec. 351.502, a benefit is 
conferred to the extent that a firm receives a greater financial 
contribution than the financial contributions provided at a non-
specific level under the program. The preceding sentence shall apply 
only to the extent the Secretary determines that the varying levels of 
financial contributions are set forth in a statute, decree, regulation, 
or other official act; that the levels are clearly delineated and 
identifiable; and that the firm would have been eligible for the non-
specific level of contributions.
    (2) Exception. Paragraph (d)(1) of this section shall not apply 
where the statute specifies a commercial test for determining the 
benefit.
    (e) Tax consequences. In calculating the amount of a benefit, the 
Secretary will not consider the tax consequences of the benefit.


Sec. 351.504  Grants.

    (a) Benefit. In the case of a grant, a benefit exists in the amount 
of the grant.
    (b) Time of receipt of benefit. In the case of a grant, the 
Secretary normally will consider a benefit as having been received on 
the date on which the firm received the grant.
    (c) Allocation of a grant to a particular time period. The 
Secretary will allocate the benefit from a grant to a particular time 
period in accordance with Sec. 351.524.


Sec. 351.505  Loans.

    (a) Benefit.--(1) In general. In the case of a loan, a benefit 
exists to the extent that the amount a firm pays on the government-
provided loan is less than the amount the firm would pay on a 
comparable commercial loan(s) that the firm could actually obtain on 
the market. See section 771(5)(E)(ii) of the Act. In making the 
comparison called for in the preceding sentence, the Secretary normally 
will rely on effective interest rates.
    (2) ``Comparable commercial loan'' defined.--(i) ``Comparable'' 
defined. In selecting a loan that is ``comparable'' to the government-
provided loan, the Secretary normally will place primary emphasis on 
similarities in the structure of the loans (e.g., fixed interest rate 
v. variable interest rate), the maturity of the loans (e.g., short-term 
v. long-term), and the currency in which the loans are denominated.
    (ii) ``Commercial'' defined. In selecting a ``commercial'' loan, 
the Secretary normally will use a loan taken out by the firm from a 
commercial lending institution or a debt instrument issued by the firm 
in a commercial market. Also, the Secretary will treat a loan from a 
government-owned bank as a commercial loan, unless there is evidence 
that the loan from a government-owned bank is provided on non-
commercial terms or at the direction of the government. However, the 
Secretary will not consider a loan provided under a government program, 
or a loan provided by a government-owned special purpose bank, to be a 
commercial loan for purposes of selecting a loan to compare with a 
government-provided loan.
    (iii) Long-term loans. In selecting a comparable loan, if the 
government-provided loan is a long-term loan, the Secretary normally 
will use a loan the terms of which were established during, or 
immediately before, the year in which the terms of the government-
provided loan were established.
    (iv) Short-term loans. In making the comparison required under 
paragraph (a)(1) of this section, if the government-provided loan is a 
short-term loan, the Secretary normally will use an annual average of 
the interest rates on comparable commercial loans during the year in 
which the government-provided loan was taken out, weighted by the 
principal amount of each loan. However, if the Secretary finds that 
interest rates fluctuated significantly during the period of 
investigation or review, the Secretary will use the most appropriate 
interest rate based on the circumstances presented.
    (3) ``Could actually obtain on the market'' defined.--(i) In 
general. In selecting a comparable commercial loan that the recipient 
``could actually obtain on the market,'' the Secretary normally will 
rely on the actual experience of the firm in question in obtaining 
comparable commercial loans for both short-term and long-term loans.
    (ii) Where the firm has no comparable commercial loans. If the firm 
did not take out any comparable commercial loans during the period 
referred to in paragraph (a)(2)(iii) or (a)(2)(iv) of this section, the 
Secretary may use a national average interest rate for comparable 
commercial loans.
    (iii) Exception for uncreditworthy companies. If the Secretary 
finds that a firm that received a government-provided long-term loan 
was uncreditworthy, as defined in paragraph (a)(4) of this section, the 
Secretary normally will calculate the interest rate to be used in 
making the comparison called for by paragraph (a)(1) of this section 
according to the following formula:

ib = [(1-qn)(1+if)n/
(1-pn)]1/n-1,

where:

n = the term of the loan;
ib = the benchmark interest rate for uncreditworthy 
companies;
if = the long-term interest rate that would be paid by a 
creditworthy company;
pn = the probability of default by an uncreditworthy company 
within n years; and
qn = the probability of default by a creditworthy company 
within n years.

``Default'' means any missed or delayed payment of interest and/or 
principal,

[[Page 65409]]

bankruptcy, receivership, or distressed exchange. For values of 
pn, the Secretary will normally rely on the average 
cumulative default rates reported for the Caa to C-rated category of 
companies in Moody's study of historical default rates of corporate 
bond issuers. For values of qn, the Secretary will normally 
rely on the average cumulative default rates reported for the Aaa to 
Baa-rated categories of companies in Moody's study of historical 
default rates of corporate bond issuers.
    (4) Uncreditworthiness.--(i) In general. The Secretary will 
consider a firm to be uncreditworthy if the Secretary determines that, 
based on information available at the time of the government-provided 
loan, the firm could not have obtained long-term loans from 
conventional commercial sources. The Secretary will determine 
uncreditworthiness on a case-by-case basis, and may, in appropriate 
circumstances, focus its creditworthiness analysis on the project being 
financed rather than the company as a whole. In making the 
creditworthiness determination, the Secretary may examine, among other 
factors, the following:
    (A) The receipt by the firm of comparable commercial long-term 
loans;
    (B) The present and past financial health of the firm, as reflected 
in various financial indicators calculated from the firm's financial 
statements and accounts;
    (C) The firm's recent past and present ability to meet its costs 
and fixed financial obligations with its cash flow; and
    (D) Evidence of the firm's future financial position, such as 
market studies, country and industry economic forecasts, and project 
and loan appraisals prepared prior to the agreement between the lender 
and the firm on the terms of the loan.
    (ii) Significance of long-term commercial loans. In the case of 
firms not owned by the government, the receipt by the firm of 
comparable long-term commercial loans, unaccompanied by a government-
provided guarantee, will normally constitute dispositive evidence that 
the firm is not uncreditworthy.
    (iii) Significance of prior subsidies. In determining whether a 
firm is uncreditworthy, the Secretary will ignore current and prior 
subsidies received by the firm.
    (iv) Discount rate. When the creditworthiness of a firm is 
considered in connection with the allocation of non-recurring benefits, 
the Secretary will rely on information available in the year in which 
the government agreed to provide the subsidy conferring a non-recurring 
benefit.
    (5) Long-term variable rate loans.--(i) In general. In the case of 
a long-term variable rate loan, the Secretary normally will make the 
comparison called for by paragraph (a)(1) of this section by relying on 
a comparable commercial loan with a variable interest rate. The 
Secretary then will compare the variable interest rates on the 
comparable commercial loan and the government-provided loan for the 
year in which the terms of the government-provided loan were 
established. If the comparison shows that the interest rate on the 
government-provided loan was equal to or higher than the interest rate 
on the comparable commercial loan, the Secretary will not consider the 
government-provided loan as having conferred a benefit. If the 
comparison shows that the interest rate on the government-provided loan 
was lower, the Secretary will consider the government-provided loan as 
having conferred a benefit, and, if the other criteria for a 
countervailable subsidy are satisfied, will calculate the amount of the 
benefit in accordance with paragraph (c)(4) of this section.
    (ii) Exception. If the Secretary is unable to make the comparison 
described in paragraph (a)(5)(i) of this section or if the comparison 
described in paragraph (a)(5)(i) of this section would yield an 
inaccurate measure of the benefit, the Secretary may modify the method 
described in paragraph (a)(5)(i) of this section.
    (6) Allegations.-- (i) Allegation of uncreditworthiness required. 
Normally, the Secretary will not consider the uncreditworthiness of a 
firm absent a specific allegation by the petitioner that is supported 
by information establishing a reasonable basis to believe or suspect 
that the firm is uncreditworthy.
    (ii) Government-owned banks. The Secretary will not investigate a 
loan provided by a government-owned bank absent a specific allegation 
that is supported by information reasonably available to petitioners 
indicating that:
    (A) The loan meets the specificity criteria in accordance with 
section 771(5A) of the Act; and
    (B) A benefit exists within the meaning of paragraph (a)(1) of this 
section.
    (b) Time of receipt of benefit. In the case of loans described in 
paragraphs (c)(1), (c)(2), and (c)(4) of this section, the Secretary 
normally will consider a benefit as having been received in the year in 
which the firm otherwise would have had to make a payment on the 
comparable commercial loan. In the case of a loan described in 
paragraph (c)(3) of this section, the Secretary normally will consider 
the benefit as having been received in the year in which the firm 
receives the proceeds of the loan.
    (c) Allocation of benefit to a particular time period.--(1) Short-
term loans. The Secretary will allocate (expense) the benefit from a 
short-term loan to the year(s) in which the firm is due to make 
interest payments on the loan. In no event may the present value (in 
the year of receipt of the loan) of the amounts calculated under the 
preceding sentence exceed the principal of the loan.
    (2) Long-term fixed-rate loans with concessionary interest rates. 
Except as provided in paragraph (c)(3) of this section, the Secretary 
normally will calculate the subsidy amount to be assigned to a 
particular year by calculating the difference in interest payments for 
that year, i.e., the difference between the interest paid by the firm 
in that year on the government-provided loan and the interest the firm 
would have paid on the comparison loan. However, in no event may the 
present value (in the year of receipt of the loan) of the amounts 
calculated under the preceding sentence exceed the principal of the 
loan.
    (3) Long-term fixed-rate loans with different repayment 
schedules.--(i) Calculation of present value of benefit. Where the 
government-provided loan and the loan to which it is compared under 
paragraph (a) of this section are both long-term, fixed-interest rate 
loans, but have different grace periods or maturities, or where the 
shapes of the repayment schedules differ, the Secretary will determine 
the total benefit by calculating the present value, in the year that 
repayment would begin on the comparable commercial loan, of the 
difference between the amount that the firm is to pay on the 
government-provided loan and the amount that the firm would have paid 
on the comparison loan. In no event may the total benefit calculated 
under the preceding sentence exceed the principal of the loan.
    (ii) Calculation of annual benefit. With respect to the benefit 
calculated under paragraph (c)(3)(i) of this section, the Secretary 
will determine the portion of that benefit to be assigned to a 
particular year by using the formula set forth in Sec. 351.524(d)(1) 
and the following parameters:

Ak = the amount countervailed in year k,
y = the present value of the benefit (see paragraph (c)(3)(i) of this 
section),

[[Page 65410]]

n = the number of years in the life of the loan,
d = the interest rate on the comparison loan selected under paragraph 
(a) of this section, and
k = the year of allocation, where the year that repayment would begin 
on the comparable commercial loan = 1.

    (4) Long-term variable interest rate loans. In the case of a 
government-provided long-term variable-rate loan, the Secretary 
normally will determine the amount of the benefit attributable to a 
particular year by calculating the difference in payments for that 
year, i.e., the difference between the amount paid by the firm in that 
year on the government-provided loan and the amount the firm would have 
paid on the comparison loan. However, in no event may the present value 
(in the year of receipt of the loan) of the amounts calculated under 
the preceding sentence exceed the principal of the loan.
    (d) Contingent liability interest-free loans.--(1) Treatment as 
loans. In the case of an interest-free loan, for which the repayment 
obligation is contingent upon the company taking some future action or 
achieving some goal in fulfillment of the loan's requirements, the 
Secretary normally will treat any balance on the loan outstanding 
during a year as an interest-free, short-term loan in accordance with 
paragraphs (a), (b), and (c)(1) of this section. However, if the event 
upon which repayment of the loan depends will occur at a point in time 
more than one year after the receipt of the contingent liability loan, 
the Secretary will use a long-term interest rate as the benchmark in 
accordance with paragraphs (a), (b), and (c)(2) of this section. In no 
event may the present value (in the year of receipt of the contingent 
liability loan) of the amounts calculated under this paragraph exceed 
the principal of the loan.
    (2) Treatment as grants. If, at any point in time, the Secretary 
determines that the event upon which repayment depends is not a viable 
contingency, the Secretary will treat the outstanding balance of the 
loan as a grant received in the year in which this condition manifests 
itself.


Sec. 351.506  Loan guarantees.

    (a) Benefit.--(1) In general. In the case of a loan guarantee, a 
benefit exists to the extent that the total amount a firm pays for the 
loan with the government-provided guarantee is less than the total 
amount the firm would pay for a comparable commercial loan that the 
firm could actually obtain on the market absent the government-provided 
guarantee, including any difference in guarantee fees. See section 
771(5)(E)(iii) of the Act. The Secretary will select a comparable 
commercial loan in accordance with Sec. 351.505(a).
    (2) Government acting as owner. In situations where a government, 
acting as the owner of a firm, provides a loan guarantee to that firm, 
the guarantee does not confer a benefit if the respondent provides 
evidence demonstrating that it is normal commercial practice in the 
country in question for shareholders to provide guarantees to their 
firms under similar circumstances and on comparable terms.
    (b) Time of receipt of benefit. In the case of a loan guarantee, 
the Secretary normally will consider a benefit as having been received 
in the year in which the firm otherwise would have had to make a 
payment on the comparable commercial loan.
    (c) Allocation of benefit to a particular time period. In 
allocating the benefit from a government-provided loan guarantee to a 
particular time period, the Secretary will use the methods set forth in 
Sec. 351.505(c) regarding loans.


Sec. 351.507  Equity.

    (a) Benefit.--(1) In general. In the case of a government-provided 
equity infusion, a benefit exists to the extent that the investment 
decision is inconsistent with the usual investment practice of private 
investors, including the practice regarding the provision of risk 
capital, in the country in which the equity infusion is made. See 
section 771(5)(E)(i) of the Act.
    (2) Private investor prices available.--(i) In general. Except as 
provided in paragraph (a)(2)(iii) of this section, the Secretary will 
consider an equity infusion as being inconsistent with usual investment 
practice (see paragraph (a)(1) of this section) if the price paid by 
the government for newly issued shares is greater than the price paid 
by private investors for the same (or similar form of) newly issued 
shares.
    (ii) Timing of private investor prices. In selecting a private 
investor price under paragraph (a)(2)(i) of this section, the Secretary 
will rely on sales of newly issued shares made reasonably concurrently 
with the newly issued shares purchased by the government.
    (iii) Significant private sector participation required. The 
Secretary will not use private investor prices under paragraph 
(a)(2)(i) of this section if the Secretary concludes that private 
investor purchases of newly issued shares are not significant.
    (iv) Adjustments for ``similar'' form of equity. Where the 
Secretary uses private investor prices for a form of shares that is 
similar to the newly issued shares purchased by the government (see 
paragraph (a)(2)(i) of this section), the Secretary, where appropriate, 
will adjust the prices to reflect the differences in the forms of 
shares.
    (3) Actual private investor prices unavailable.--(i) In general. If 
actual private investor prices are not available under paragraph (a)(2) 
of this section, the Secretary will determine whether the firm funded 
by the government-provided equity was equityworthy or unequityworthy at 
the time of the equity infusion (see paragraph (a)(4) of this section). 
If the Secretary determines that the firm was equityworthy, the 
Secretary will apply paragraph (a)(5) of this section to determine 
whether the equity infusion was inconsistent with the usual investment 
practice of private investors. A determination by the Secretary that 
the firm was unequityworthy will constitute a determination that the 
equity infusion was inconsistent with usual investment practice of 
private investors, and the Secretary will apply paragraph (a)(6) of 
this section to measure the benefit attributable to the equity 
infusion.
    (4) Equityworthiness.--(i) In general. The Secretary will consider 
a firm to have been equityworthy if the Secretary determines that, from 
the perspective of a reasonable private investor examining the firm at 
the time the government-provided equity infusion was made, the firm 
showed an ability to generate a reasonable rate of return within a 
reasonable period of time. The Secretary may, in appropriate 
circumstances, focus its equityworthiness analysis on a project rather 
than the company as a whole. In making the equityworthiness 
determination, the Secretary may examine the following factors, among 
others:
    (A) Objective analyses of the future financial prospects of the 
recipient firm or the project as indicated by, inter alia, market 
studies, economic forecasts, and project or loan appraisals prepared 
prior to the government-provided equity infusion in question;
    (B) Current and past indicators of the recipient firm's financial 
health calculated from the firm's statements and accounts, adjusted, if 
appropriate, to conform to generally accepted accounting principles;
    (C) Rates of return on equity in the three years prior to the 
government equity infusion; and
    (D) Equity investment in the firm by private investors.

[[Page 65411]]

    (ii) Significance of a pre-infusion objective analysis. For 
purposes of making an equityworthiness determination, the Secretary 
will request and normally require from the respondents the information 
and analysis completed prior to the infusion, upon which the government 
based its decision to provide the equity infusion (see, paragraph 
(a)(4)(i)(A) of this section). Absent the existence or provision of an 
objective analysis, containing information typically examined by 
potential private investors considering an equity investment, the 
Secretary will normally determine that the equity infusion received 
provides a countervailable benefit within the meaning of paragraph 
(a)(1) of this section. The Secretary will not necessarily make such a 
determination if the absence of an objective analysis is consistent 
with the actions of reasonable private investors in the country in 
question.
    (iii) Significance of prior subsidies. In determining whether a 
firm was equityworthy, the Secretary will ignore current and prior 
subsidies received by the firm.
    (5) Benefit where firm is equityworthy. If the Secretary determines 
that the firm or project was equityworthy (see paragraph (a)(4) of this 
section), the Secretary will examine the terms and the nature of the 
equity purchased to determine whether the investment was otherwise 
inconsistent with the usual investment practice of private investors. 
If the Secretary determines that the investment was inconsistent with 
usual private investment practice, the Secretary will determine the 
amount of the benefit conferred on a case-by-case basis.
    (6) Benefit where firm is unequityworthy. If the Secretary 
determines that the firm or project was unequityworthy (see paragraph 
(a)(4) of this section), a benefit to the firm exists in the amount of 
the equity infusion.
    (7) Allegations. The Secretary will not investigate an equity 
infusion in a firm absent a specific allegation by the petitioner which 
is supported by information establishing a reasonable basis to believe 
or suspect that the firm received an equity infusion that provides a 
countervailable benefit within the meaning of paragraph (a)(1) of this 
section.
    (b) Time of receipt of benefit. In the case of a government-
provided equity infusion, the Secretary normally will consider the 
benefit to have been received on the date on which the firm received 
the equity infusion.
    (c) Allocation of benefit to a particular time period. The benefit 
conferred by an equity infusion shall be allocated over the same time 
period as a non-recurring subsidy. See Sec. 351.524(d).


Sec. 351.508  Debt forgiveness.

    (a) Benefit. In the case of an assumption or forgiveness of a 
firm's debt obligation, a benefit exists equal to the amount of the 
principal and/or interest (including accrued, unpaid interest) that the 
government has assumed or forgiven. In situations where the entity 
assuming or forgiving the debt receives shares in a firm in return for 
eliminating or reducing the firm's debt obligation, the Secretary will 
determine the existence of a benefit under Sec. 351.507 (equity 
infusions).
    (b) Time of receipt of benefit. In the case of a debt or interest 
assumption or forgiveness, the Secretary normally will consider the 
benefit as having been received as of the date on which the debt or 
interest was assumed or forgiven.
    (c) Allocation of benefit to a particular time period.--(1) In 
general. The Secretary will treat the benefit determined under 
paragraph (a) of this section as a non-recurring subsidy, and will 
allocate the benefit to a particular year in accordance with 
Sec. 351.524(d).
    (2) Exception. Where an interest assumption is tied to a particular 
loan and where a firm can reasonably expect to receive the interest 
assumption at the time it applies for the loan, the Secretary will 
normally treat the interest assumption as a reduced-interest loan and 
allocate the benefit to a particular year in accordance with 
Sec. 351.505(c) (loans).


Sec. 351.509  Direct taxes.

    (a) Benefit.--(1) Exemption or remission of taxes. In the case of a 
program that provides for a full or partial exemption or remission of a 
direct tax (e.g., an income tax), or a reduction in the base used to 
calculate a direct tax, a benefit exists to the extent that the tax 
paid by a firm as a result of the program is less than the tax the firm 
would have paid in the absence of the program.
    (2) Deferral of taxes. In the case of a program that provides for a 
deferral of direct taxes, a benefit exists to the extent that 
appropriate interest charges are not collected. Normally, a deferral of 
direct taxes will be treated as a government-provided loan in the 
amount of the tax deferred, according to the methodology described in 
Sec. 351.505. The Secretary will use a short-term interest rate as the 
benchmark for tax deferrals of one year or less. The Secretary will use 
a long-term interest rate as the benchmark for tax deferrals of more 
than one year.
    (b) Time of receipt of benefit.--(1) Exemption or remission of 
taxes. In the case of a full or partial exemption or remission of a 
direct tax, the Secretary normally will consider the benefit as having 
been received on the date on which the recipient firm would otherwise 
have had to pay the taxes associated with the exemption or remission. 
Normally, this date will be the date on which the firm filed its tax 
return.
    (2) Deferral of taxes. In the case of a tax deferral of one year or 
less, the Secretary normally will consider the benefit as having been 
received on the date on which the deferred tax becomes due. In the case 
of a multi-year deferral, the Secretary normally will consider the 
benefit as having been received on the anniversary date(s) of the 
deferral.
    (c) Allocation of benefit to a particular time period. The 
Secretary normally will allocate (expense) the benefit of a full or 
partial exemption, remission, or deferral of a direct tax to the year 
in which the benefit is considered to have been received under 
paragraph (b) of this section.


Sec. 351.510  Indirect taxes and import charges (other than export 
programs).

    (a) Benefit.--(1) Exemption or remission of taxes. In the case of a 
program, other than an export program, that provides for the full or 
partial exemption or remission of an indirect tax or an import charge, 
a benefit exists to the extent that the taxes or import charges paid by 
a firm as a result of the program are less than the taxes the firm 
would have paid in the absence of the program.
    (2) Deferral of taxes. In the case of a program, other than an 
export program, that provides for a deferral of indirect taxes or 
import charges, a benefit exists to the extent that appropriate 
interest charges are not collected. Normally, a deferral of indirect 
taxes or import charges will be treated as a government-provided loan 
in the amount of the taxes deferred, according to the methodology 
described in Sec. 351.505. The Secretary will use a short-term interest 
rate as the benchmark for tax deferrals of one year or less. The 
Secretary will use a long-term interest rate as the benchmark for tax 
deferrals of more than one year.
    (b) Time of receipt of benefit.--(1) Exemption or remission of 
taxes. In the case of a full or partial exemption or remission of an 
indirect tax or import charge, the Secretary normally will consider the 
benefit as having been received at the time the recipient firm

[[Page 65412]]

otherwise would be required to pay the indirect tax or import charge.
    (2) Deferral of taxes. In the case of the deferral of an indirect 
tax or import charge of one year or less, the Secretary normally will 
consider the benefit as having been received on the date on which the 
deferred tax becomes due. In the case of a multi-year deferral, the 
Secretary normally will consider the benefit as having been received on 
the anniversary date(s) of the deferral.
    (c) Allocation of benefit to a particular time period. The 
Secretary normally will allocate (expense) the benefit of a full or 
partial exemption, remission, or deferral described in paragraph (a) of 
this section to the year in which the benefit is considered to have 
been received under paragraph (b) of this section.


Sec. 351.511  Provision of goods or services.

    (a) Benefit.--(1) In general. In the case where goods or services 
are provided, a benefit exists to the extent that such goods or 
services are provided for less than adequate remuneration. See section 
771(5)(E)(iv) of the Act.
    (2) ``Adequate Remuneration'' defined.--(i) In general. The 
Secretary will normally seek to measure the adequacy of remuneration by 
comparing the government price to a market-determined price for the 
good or service resulting from actual transactions in the country in 
question. Such a price could include prices stemming from actual 
transactions between private parties, actual imports, or, in certain 
circumstances, actual sales from competitively run government auctions. 
In choosing such transactions or sales, the Secretary will consider 
product similarity; quantities sold, imported, or auctioned; and other 
factors affecting comparability.
    (ii) Actual market-determined price unavailable. If there is no 
useable market-determined price with which to make the comparison under 
paragraph (a)(2)(i) of this section, the Secretary will seek to measure 
the adequacy of remuneration by comparing the government price to a 
world market price where it is reasonable to conclude that such price 
would be available to purchasers in the country in question. Where 
there is more than one commercially available world market price, the 
Secretary will average such prices to the extent practicable, making 
due allowance for factors affecting comparability.
    (iii) World market price unavailable. If there is no world market 
price available to purchasers in the country in question, the Secretary 
will normally measure the adequacy of remuneration by assessing whether 
the government price is consistent with market principles.
    (iv) Use of delivered prices. In measuring adequate remuneration 
under paragraph (a)(2)(i) or (a)(2)(ii) of this section, the Secretary 
will adjust the comparison price to reflect the price that a firm 
actually paid or would pay if it imported the product. This adjustment 
will include delivery charges and import duties.
    (b) Time of receipt of benefit. In the case of the provision of a 
good or service, the Secretary normally will consider a benefit as 
having been received as of the date on which the firm pays or, in the 
absence of payment, was due to pay for the government-provided good or 
service.
    (c) Allocation of benefit to a particular time period. In the case 
of the provision of a good or service, the Secretary will normally 
allocate (expense) the benefit to the year in which the benefit is 
considered to have been received under paragraph (b) of this section. 
In the case of the provision of infrastructure, the Secretary will 
normally treat the benefit as non-recurring and will allocate the 
benefit to a particular year in accordance with Sec. 351.524(d).
    (d) Exception for general infrastructure. A financial contribution 
does not exist in the case of the government provision of general 
infrastructure. General infrastructure is defined as infrastructure 
that is created for the broad societal welfare of a country, region, 
state or municipality.


Sec. 351.512 Purchase of goods.  [Reserved]


Sec. 351.513  Worker-related subsidies.

    (a) Benefit. In the case of a program that provides assistance to 
workers, a benefit exists to the extent that the assistance relieves a 
firm of an obligation that it normally would incur.
    (b) Time of receipt of benefit. In the case of assistance provided 
to workers, the Secretary normally will consider the benefit as having 
been received by the firm on the date on which the payment is made that 
relieves the firm of the relevant obligation.
    (c) Allocation of benefit to a particular time period. Normally, 
the Secretary will allocate (expense) the benefit from assistance 
provided to workers to the year in which the benefit is considered to 
have been received under paragraph (b) of this section.


Sec. 351.514  Export subsidies.

    (a) In general. The Secretary will consider a subsidy to be an 
export subsidy if the Secretary determines that eligibility for, 
approval of, or the amount of, a subsidy is contingent upon export 
performance. In applying this section, the Secretary will consider a 
subsidy to be contingent upon export performance if the provision of 
the subsidy is, in law or in fact, tied to actual or anticipated 
exportation or export earnings, alone or as one of two or more 
conditions.
    (b) Exception. In the case of export promotion activities of a 
government, a benefit does not exist if the Secretary determines that 
the activities consist of general informational activities that do not 
promote particular products over others.


Sec. 351.515  Internal transport and freight charges for export 
shipments.

    (a) Benefit.--(1) In general. In the case of internal transport and 
freight charges on export shipments, a benefit exists to the extent 
that the charges paid by a firm for transport or freight with respect 
to goods destined for export are less than what the firm would have 
paid if the goods were destined for domestic consumption. The Secretary 
will consider the amount of the benefit to equal the difference in 
amounts paid.
    (2) Exception. For purposes of paragraph (a)(1) of this section, a 
benefit does not exist if the Secretary determines that:
    (i) Any difference in charges is the result of an arm's-length 
transaction between the supplier and the user of the transport or 
freight service; or
    (ii) The difference in charges is commercially justified.
    (b) Time of receipt of benefit. In the case of internal transport 
and freight charges for export shipments, the Secretary normally will 
consider the benefit as having been received by the firm on the date on 
which the firm paid, or in the absence of payment was due to pay, the 
charges.
    (c) Allocation of benefit to a particular time period. Normally, 
the Secretary will allocate (expense) the benefit from internal 
transport and freight charges for export shipments to the year in which 
the benefit is considered to have been received under paragraph (b) of 
this section.


Sec. 351.516  Price preferences for inputs used in the production of 
goods for export.

    (a) Benefit.--(1) In general. In the case of a program involving 
the provision by governments or their agencies, either directly or 
indirectly through government-mandated schemes, of imported or domestic 
products or services for use in the production of exported goods, a 
benefit exists to the extent that the Secretary determines that

[[Page 65413]]

the terms or conditions on which the products or services are provided 
are more favorable than the terms or conditions applicable to the 
provision of like or directly competitive products or services for use 
in the production of goods for domestic consumption unless, in the case 
of products, such terms or conditions are not more favorable than those 
commercially available on world markets to exporters.
    (2) Amount of benefit. In the case of products provided under such 
schemes, the Secretary will determine the amount of the benefit by 
comparing the price of products used in the production of exported 
goods to the commercially available world market price of such 
products, inclusive of delivery charges.
    (3) Commercially available. For purposes of paragraph (a)(2) of 
this section, commercially available means that the choice between 
domestic and imported products is unrestricted and depends only on 
commercial considerations.
    (b) Time of receipt of benefit. In the case of a benefit described 
in paragraph (a)(1) of this section, the Secretary normally will 
consider the benefit to have been received as of the date on which the 
firm paid, or in the absence of payment was due to pay, for the 
product.
    (c) Allocation of benefit to a particular time period. Normally, 
the Secretary will allocate (expense) benefits described in paragraph 
(a)(1) of this section to the year in which the benefit is considered 
to have been received under paragraph (b) of this section.


Sec. 351.517  Exemption or remission upon export of indirect taxes.

    (a) Benefit. In the case of the exemption or remission upon export 
of indirect taxes, a benefit exists to the extent that the Secretary 
determines that the amount remitted or exempted exceeds the amount 
levied with respect to the production and distribution of like products 
when sold for domestic consumption.
    (b) Time of receipt of benefit. In the case of the exemption or 
remission upon export of an indirect tax, the Secretary normally will 
consider the benefit as having been received as of the date of 
exportation.
    (c) Allocation of benefit to a particular time period. Normally, 
the Secretary will allocate (expense) the benefit from the exemption or 
remission upon export of indirect taxes to the year in which the 
benefit is considered to have been received under paragraph (b) of this 
section.


Sec. 351.518  Exemption, remission, or deferral upon export of prior-
stage cumulative indirect taxes.

    (a) Benefit.--(1) Exemption of prior-stage cumulative indirect 
taxes. In the case of a program that provides for the exemption of 
prior-stage cumulative indirect taxes on inputs used in the production 
of an exported product, a benefit exists to the extent that the 
exemption extends to inputs that are not consumed in the production of 
the exported product, making normal allowance for waste, or if the 
exemption covers taxes other than indirect taxes that are imposed on 
the input. If the Secretary determines that the exemption of prior-
stage cumulative indirect taxes confers a benefit, the Secretary 
normally will consider the amount of the benefit to be the prior-stage 
cumulative indirect taxes that otherwise would have been paid on the 
inputs not consumed in the production of the exported product, making 
normal allowance for waste, and the amount of charges other than import 
charges covered by the exemption.
    (2) Remission of prior-stage cumulative indirect taxes. In the case 
of a program that provides for the remission of prior-stage cumulative 
indirect taxes on inputs used in the production of an exported product, 
a benefit exists to the extent that the amount remitted exceeds the 
amount of prior-stage cumulative indirect taxes paid on inputs that are 
consumed in the production of the exported product, making normal 
allowance for waste. If the Secretary determines that the remission of 
prior-stage cumulative indirect taxes confers a benefit, the Secretary 
normally will consider the amount of the benefit to be the difference 
between the amount remitted and the amount of the prior-stage 
cumulative indirect taxes on inputs that are consumed in the production 
of the export product, making normal allowance for waste.
    (3) Deferral of prior-stage cumulative indirect taxes. In the case 
of a program that provides for a deferral of prior-stage cumulative 
indirect taxes on an exported product, a benefit exists to the extent 
that the deferral extends to inputs that are not consumed in the 
production of the exported product, making normal allowance for waste, 
and the government does not charge appropriate interest on the taxes 
deferred. If the Secretary determines that a benefit exists, the 
Secretary will normally treat the deferral as a government-provided 
loan in the amount of the tax deferred, according to the methodology 
described in Sec. 351.505. The Secretary will use a short-term interest 
rate as the benchmark for tax deferrals of one year or less. The 
Secretary will use a long-term interest rate as the benchmark for tax 
deferrals of more than one year.
    (4) Exception. Notwithstanding the provisions in paragraphs (a)(1), 
(a)(2), and (a)(3) of this action, the Secretary will consider the 
entire amount of the exemption, remission or deferral to confer a 
benefit, unless the Secretary determines that:
    (i) The government in question has in place and applies a system or 
procedure to confirm which inputs are consumed in the production of the 
exported products and in what amounts, and to confirm which indirect 
taxes are imposed on these inputs, and the system or procedure is 
reasonable, effective for the purposes intended, and is based on 
generally accepted commercial practices in the country of export; or
    (ii) If the government in question does not have a system or 
procedure in place, if the system or procedure is not reasonable, or if 
the system or procedure is instituted and considered reasonable, but is 
found not to be applied or not to be applied effectively, the 
government in question has carried out an examination of actual inputs 
involved to confirm which inputs are consumed in the production of the 
exported product, in what amounts, and which indirect taxes are imposed 
on the inputs.
    (b) Time of receipt of benefit. In the case of the exemption, 
remission, or deferral of priorstage cumulative indirect taxes, the 
Secretary normally will consider the benefit as having been received:
    (1) In the case of an exemption, as of the date of exportation;
    (2) In the case of a remission, as of the date of exportation;
    (3) In the case of a deferral of one year or less, on the date the 
deferred tax became due; and
    (4) In the case of a multi-year deferral, on the anniversary 
date(s) of the deferral.
    (c) Allocation of benefit to a particular time period. The 
Secretary normally will allocate (expense) the benefit of the 
exemption, remission or deferral of prior-stage cumulative indirect 
taxes to the year in which the benefit is considered to have been 
received under paragraph (b) of this section.


Sec. 351.519  Remission or drawback of import charges upon export.

    (a) Benefit.--(1) In general. The term ``remission or drawback'' 
includes full or partial exemptions and deferrals of import charges.
    (i) Remission or drawback of import charges. In the case of the 
remission or

[[Page 65414]]

drawback of import charges upon export, a benefit exists to the extent 
that the Secretary determines that the amount of the remission or 
drawback exceeds the amount of import charges on imported inputs that 
are consumed in the production of the exported product, making normal 
allowances for waste.
    (ii) Exemption of import charges. In the case of an exemption of 
import charges upon export, a benefit exists to the extent that the 
exemption extends to inputs that are not consumed in the production of 
the exported product, making normal allowances for waste, or if the 
exemption covers charges other than import charges that are imposed on 
the input.
    (iii) Deferral of import charges. In the case of a deferral, a 
benefit exists to the extent that the deferral extends to inputs that 
are not consumed in the production of the exported product, making 
normal allowance for waste, and the government does not charge 
appropriate interest on the import charges deferred.
    (2) Substitution drawback. ``Substitution drawback'' involves a 
situation in which a firm uses a quantity of home market inputs equal 
to, and having the same quality and characteristics as, the imported 
inputs as a substitute for them. Substitution drawback does not 
necessarily result in the conferral of a benefit. However, a benefit 
exists if the Secretary determines that:
    (i) The import and the corresponding export operations both did not 
occur within a reasonable time period, not to exceed two years; or
    (ii) The amount drawn back exceeds the amount of the import charges 
levied initially on the imported inputs for which drawback is claimed.
    (3) Amount of the benefit.--(i) Remission or drawback of import 
charges. If the Secretary determines that the remission or drawback, 
including substitution drawback, of import charges confers a benefit 
under paragraph (a)(1) or (a)(2) of this section, the Secretary 
normally will consider the amount of the benefit to be the difference 
between the amount of import charges remitted or drawn back and the 
amount paid on imported inputs consumed in production for which 
remission or drawback was claimed.
    (ii) Exemption of import charges. If the Secretary determines that 
the exemption of import charges upon export confers a benefit, the 
Secretary normally will consider the amount of the benefit to be the 
import charges that otherwise would have been paid on the inputs not 
consumed in the production of the exported product, making normal 
allowance for waste, and the amount of charges other than import 
charges covered by the exemption.
    (iii) Deferral of import charges. If the Secretary determines that 
the deferral of import charges upon export confers a benefit, the 
Secretary will normally treat a deferral as a government-provided loan 
in the amount of the import charges deferred on the inputs not consumed 
in the production of the exported product, making normal allowance for 
waste, according to the methodology described in Sec. 351.505. The 
Secretary will use a short-term interest rate as the benchmark for 
deferrals of one year or less. The Secretary will use a long-term 
interest rate as the benchmark for deferrals of more than one year.
    (4) Exception. Notwithstanding paragraph (a)(3) of this section, 
the Secretary will consider the entire amount of an exemption, 
deferral, remission or drawback to confer a benefit, unless the 
Secretary determines that:
    (i) The government in question has in place and applies a system or 
procedure to confirm which inputs are consumed in the production of the 
exported products and in what amounts, and the system or procedure is 
reasonable, effective for the purposes intended, and is based on 
generally accepted commercial practices in the country of export; or
    (ii) If the government in question does not have a system or 
procedure in place, if the system or procedure is not reasonable, or if 
the system or procedure is instituted and considered reasonable, but is 
found not to be applied or not to be applied effectively, the 
government in question has carried out an examination of actual inputs 
involved to confirm which inputs are consumed in the production of the 
exported product, and in what amounts.
    (b) Time of receipt of benefit. In the case of the exemption, 
deferral, remission or drawback, including substitution drawback, of 
import charges, the Secretary normally will consider the benefit as 
having been received:
    (1) In the case of remission or drawback, as of the date of 
exportation;
    (2) In the case of an exemption, as of the date of the exportation;
    (3) In the case of a deferral of one year or less, on the date the 
import charges became due; and (4) In the case of a multi-year 
deferral, on the anniversary date(s) of the deferral.
    (c) Allocation of benefit to a particular time period. The 
Secretary normally will allocate (expense) the benefit from the 
exemption, deferral, remission or drawback of import charges to the 
year in which the benefit is considered to have been received under 
paragraph (b) of this section.


Sec. 351.520  Export insurance.

    (a) Benefit.--(1) In general. In the case of export insurance, a 
benefit exists if the premium rates charged are inadequate to cover the 
long-term operating costs and losses of the program.
    (2) Amount of the benefit. If the Secretary determines under 
paragraph (a)(1) of this section that premium rates are inadequate, the 
Secretary normally will calculate the amount of the benefit as the 
difference between the amount of premiums paid by the firm and the 
amount received by the firm under the insurance program during the 
period of investigation or review.
    (b) Time of receipt of benefit. In the case of export insurance, 
the Secretary normally will consider the benefit as having been 
received in the year in which the difference described in paragraph 
(a)(2) of this section occurs.
    (c) Allocation of benefit to a particular time period. The 
Secretary normally will allocate (expense) the benefit from export 
insurance to the year in which the benefit is considered to have been 
received under paragraph (b) of this section.


Sec. 351.521  Import substitution subsidies. [Reserved]


Sec. 351.522  Green light and green box subsidies.

    (a) Certain agricultural subsidies. The Secretary will treat as 
non-countervailable domestic support measures that are provided to 
certain agricultural products (i.e., products listed in Annex 1 of the 
WTO Agreement on Agriculture) and that the Secretary determines conform 
to the criteria of Annex 2 of the WTO Agreement on Agriculture. See 
section 771(5B)(F) of the Act. The Secretary will determine that a 
particular domestic support measure conforms fully to the provisions of 
Annex 2 if the Secretary finds that the measure:
    (1) Is provided through a publicly-funded government program 
(including government revenue foregone) not involving transfers from 
consumers;
    (2) Does not have the effect of providing a price support to 
producers; and (3) Meets the relevant policy-specific criteria and 
conditions set out in paragraphs 2 through 13 of Annex 2.
    (b) Research subsidies. In accordance with section 
771(5B)(B)(iii)(II) of the Act, the Secretary will examine the total 
eligible costs to be incurred over the

[[Page 65415]]

duration of a particular project to determine whether a subsidy for 
research activities exceeds 75 percent of the costs of industrial 
research, 50 percent of the costs of precompetitive development 
activity, or 62.5 percent of the costs for a project that includes both 
industrial research and precompetitive activity. If the Secretary 
determines that, at some point over the life of a particular project, 
these relevant thresholds will be exceeded, the Secretary will treat 
the entire amount of the subsidy as countervailable.
    (c) Subsidies for adaptation of existing facilities to new 
environmental requirements. If the Secretary determines that a subsidy 
is given to upgrade existing facilities to environmental standards in 
excess of minimum statutory or regulatory requirements, the subsidy 
will not qualify for non-countervailable treatment under section 
771(5B)(D) of the Act and the Secretary will treat the entire amount of 
the subsidy as countervailable.


Sec. 351.523  Upstream subsidies.

    (a) Investigation of upstream subsidies.--(1) In general. Before 
investigating the existence of an upstream subsidy (see section 771A of 
the Act), the Secretary must have a reasonable basis to believe or 
suspect that all of the following elements exist:
    (i) A countervailable subsidy, other than an export subsidy, is 
provided with respect to an input product;
    (ii) One of the following conditions exists:
    (A) The supplier of the input product and the producer of the 
subject merchandise are affiliated;
    (B) The price for the subsidized input product is lower than the 
price that the producer of the subject merchandise otherwise would pay 
another seller in an arm's-length transaction for an unsubsidized input 
product; or
    (C) The government sets the price of the input product so as to 
guarantee that the benefit provided with respect to the input product 
is passed through to producers of the subject merchandise; and
    (iii) The ad valorem countervailable subsidy rate on the input 
product, multiplied by the proportion of the total production costs of 
the subject merchandise accounted for by the input product, is equal 
to, or greater than, one percent.
    (b) Input product. For purposes of this section, ``input product'' 
means any product used in the production of the subject merchandise.
    (c) Competitive benefit.--(1) In general. In evaluating whether a 
competitive benefit exists under section 771A(b) of the Act, the 
Secretary will determine whether the price for the subsidized input 
product is lower than the benchmark input price. For purposes of this 
section, the Secretary will use as a benchmark input price the 
following, in order of preference:
    (i) The actual price paid by, or offered to, the producer of the 
subject merchandise for an unsubsidized input product, including an 
imported input product;
    (ii) An average price for an unsubsidized input product, including 
an imported input product, based upon publicly available data;
    (iii) The actual price paid by, or offered to, the producer of the 
subject merchandise for a subsidized input product, including an 
imported input product, that is adjusted to account for the 
countervailable subsidy;
    (iv) An average price for a subsidized input product, including an 
imported input product, based upon publicly available data, that is 
adjusted to account for the countervailable subsidy; or
    (v) An unadjusted price for a subsidized input product or any other 
surrogate price deemed appropriate by the Secretary.
    For purposes of this section, such prices must be reflective of a 
time period that reasonably corresponds to the time of the purchase of 
the input.
    (2) Use of delivered prices. The Secretary will use a delivered 
price whenever the Secretary uses the price of an input product under 
paragraph (c)(1) of this section.
    (d) Significant effect.--(1) Presumptions. In evaluating whether an 
upstream subsidy has a significant effect on the cost of manufacturing 
or producing the subject merchandise (see section 771A(a)(3) of the 
Act), the Secretary will multiply the ad valorem countervailable 
subsidy rate on the input product by the proportion of the total 
production cost of the subject merchandise that is accounted for by the 
input product. If the product of that multiplication exceeds five 
percent, the Secretary will presume the existence of a significant 
effect. If the product is less than one percent, the Secretary will 
presume the absence of a significant effect. If the product is between 
one and five percent, there will be no presumption.
    (2) Rebuttal of presumptions. A party to the proceeding may present 
information to rebut these presumptions. In evaluating such 
information, the Secretary will consider the extent to which factors 
other than price, such as quality differences, are important 
determinants of demand for the subject merchandise.


Sec. 351.524  Allocation of benefit to a particular time period.

    Unless otherwise specified in Secs. 351.504-351.523, the Secretary 
will allocate benefits to a particular time period in accordance with 
this section.
    (a) Recurring benefits. The Secretary will allocate (expense) a 
recurring benefit to the year in which the benefit is received.
    (b) Non-recurring benefits. (1) In general. The Secretary will 
normally allocate a non-recurring benefit to a firm over the number of 
years corresponding to the average useful life (``AUL'') of renewable 
physical assets as defined in paragraph (d)(2) of this section.
    (2) Exception. The Secretary will normally allocate (expense) non-
recurring benefits provided under a particular subsidy program to the 
year in which the benefits are received if the total amount approved 
under the subsidy program is less than 0.5 percent of relevant sales 
(e.g., total sales, export sales, the sales of a particular product, or 
the sales to a particular market) of the firm in question during the 
year in which the subsidy was approved.
    (c) ``Recurring'' versus ``non-recurring'' benefits.--(1) Non-
binding iIlustrative lists of recurring and non-recurring benefits. The 
Secretary normally will treat the following types of subsidies as 
providing recurring benefits: Direct tax exemptions and deductions; 
exemptions and excessive rebates of indirect taxes or import duties; 
provision of goods and services for less than adequate remuneration; 
price support payments; discounts on electricity, water, and other 
utilities; freight subsidies; export promotion assistance; early 
retirement payments; worker assistance; worker training; wage 
subsidies; and upstream subsidies. The Secretary normally will treat 
the following types of subsidies as providing non-recurring benefits: 
equity infusions, grants, plant closure assistance, debt forgiveness, 
coverage for operating losses, debt-to-equity conversions, provision of 
non-general infrastructure, and provision of plant and equipment.
    (2) The test for determining whether a benefit is recurring or non-
recurring. If a subsidy is not on the illustrative lists, or is not 
addressed elsewhere in these regulations, or if a party claims that a 
subsidy on the recurring list should be treated as non-recurring or a 
subsidy on the non-recurring list should be treated as recurring, the 
Secretary will consider the following criteria in determining whether 
the benefits from the subsidy

[[Page 65416]]

should be considered recurring or non-recurring:
    (i) Whether the subsidy is exceptional in the sense that the 
recipient cannot expect to receive additional subsidies under the same 
program on an ongoing basis from year to year;
    (ii) Whether the subsidy required or received the government's 
express authorization or approval (i.e., receipt of benefits is not 
automatic), or
    (iii) Whether the subsidy was provided for, or tied to, the capital 
structure or capital assets of the firm.
    (d) Process for allocating non-recurring benefits over time.--(1) 
In general. For purposes of allocating a non-recurring benefit over 
time and determining the annual benefit amount that should be assigned 
to a particular year, the Secretary will use the following formula:
[GRAPHIC] [TIFF OMITTED] TR25NO98.006

Where:

Ak = the amount of the benefit allocated to year k,
y = the face value of the subsidy,
n = the AUL (see paragraph (d)(2) of this section),
d = the discount rate (see paragraph (d)(3) of this section), and
k = the year of allocation, where the year of receipt = 1 and 1 
 k  n.

    (2) AUL.--(i) In general. The Secretary will presume the allocation 
period for non-recurring subsidies to be the AUL of renewable physical 
assets for the industry concerned as listed in the Internal Revenue 
Service's (``IRS'') 1977 Class Life Asset Depreciation Range System 
(Rev. Proc. 77-10, 1977-1, C.B. 548 (RR-38)), as updated by the 
Department of Treasury. The presumption will apply unless a party 
claims and establishes that the IRS tables do not reasonably reflect 
the company-specific AUL or the country-wide AUL for the industry under 
investigation, subject to the requirement, in paragraph (d)(2)(ii) of 
this section, that the difference between the company-specific AUL or 
country-wide AUL for the industry under investigation and the AUL in 
the IRS tables is significant. If this is the case, the Secretary will 
use company-specific or country-wide AULs to allocate non-recurring 
benefits over time (see paragraph (d)(2)(iii) of this section).
    (ii) Definition of ``significant.'' For purposes of this paragraph 
(d), significant means that a party has demonstrated that the company-
specific AUL or country-wide AUL for the industry differs from AUL in 
the IRS tables by one year or more.
    (iii) Calculation of a company-specific or country-wide AUL. A 
calculation of a company-specific AUL will not be accepted by the 
Secretary unless it satisfies the following requirements: the company 
must base its depreciation on an estimate of the actual useful lives of 
assets and it must use straight-line depreciation or demonstrate that 
its calculation is not distorted through irregular or uneven additions 
to the pool of fixed assets. A company-specific AUL is calculated by 
dividing the aggregate of the annual average gross book values of the 
firm's depreciable productive fixed assets by the firm's aggregated 
annual charge to accumulated depreciation, for a period considered 
appropriate by the Secretary, subject to appropriate normalizing 
adjustments. A country-wide AUL for the industry under investigation 
will not be accepted by the Secretary unless the respondent government 
demonstrates that it has a system in place to calculate AULs for its 
industries, and that this system provides a reliable representation of 
AUL.
    (iv) Exception. Under certain extraordinary circumstances, the 
Secretary may consider whether an allocation period other than AUL is 
appropriate or whether the benefit stream begins at a date other than 
the date the subsidy was bestowed.
    (3) Selection of a discount rate. (i) In general. The Secretary 
will select a discount rate based upon data for the year in which the 
government agreed to provide the subsidy. The Secretary will use as a 
discount rate the following, in order of preference:
    (A) The cost of long-term, fixed-rate loans of the firm in 
question, excluding any loans that the Secretary has determined to be 
countervailable subsidies;
    (B) The average cost of long-term, fixed-rate loans in the country 
in question; or
    (C) A rate that the Secretary considers to be most appropriate.
    (ii) Exception for uncreditworthy firms. In the case of a firm 
considered by the Secretary to be uncreditworthy (see 
Sec. 351.505(a)(4)), the Secretary will use as a discount rate the 
interest rate described in Sec. 351.505(a)(3)(iii).


Sec. 351.525  Calculation of ad valorem subsidy rate and attribution of 
subsidy to a product.

    (a) Calculation of ad valorem subsidy rate. The Secretary will 
calculate an ad valorem subsidy rate by dividing the amount of the 
benefit allocated to the period of investigation or review by the sales 
value during the same period of the product or products to which the 
Secretary attributes the subsidy under paragraph (b) of this section. 
Normally, the Secretary will determine the sales value of a product on 
an f.o.b. (port) basis (if the product is exported) or on an f.o.b. 
(factory) basis (if the product is sold for domestic consumption). 
However, if the Secretary determines that countervailable subsidies are 
provided with respect to the movement of a product from the port or 
factory to the place of destination (e.g., freight or insurance costs 
are subsidized), the Secretary may make appropriate adjustments to the 
sales value used in the denominator.
    (b) Attribution of subsidies. (1) In general. In attributing a 
subsidy to one or more products, the Secretary will apply the rules set 
forth in paragraphs (b)(2) through (b)(7) of this section.
    (2) Export subsidies. The Secretary will attribute an export 
subsidy only to products exported by a firm.
    (3) Domestic subsidies. The Secretary will attribute a domestic 
subsidy to all products sold by a firm, including products that are 
exported.
    (4) Subsidies tied to a particular market. If a subsidy is tied to 
sales to a particular market, the Secretary will attribute the subsidy 
only to products sold by the firm to that market.
    (5) Subsidies tied to a particular product. (i) In general. If a 
subsidy is tied to the production or sale of a particular product, the 
Secretary will attribute the subsidy only to that product.
    (ii) Exception. If a subsidy is tied to production of an input 
product, then the Secretary will attribute the subsidy to both the 
input and downstream products produced by a corporation.
    (6) Corporations with cross-ownership. (i) In general. The 
Secretary normally will attribute a subsidy to the products produced by 
the corporation that received the subsidy.
    (ii) Corporations producing the same product. If two (or more) 
corporations with cross-ownership produce the subject merchandise, the 
Secretary will attribute the subsidies received by either or both 
corporations to the products produced by both corporations.
    (iii) Holding or parent companies. If the firm that received a 
subsidy is a holding company, including a parent company with its own 
operations, the Secretary will attribute the subsidy to the 
consolidated sales of the holding company and its subsidiaries. 
However, if the Secretary finds that the holding company merely served 
as a conduit for the transfer of the subsidy from the government to a 
subsidiary of the holding company, the Secretary will attribute the 
subsidy to products sold by the subsidiary.

[[Page 65417]]

    (iv) Input suppliers. If there is cross-ownership between an input 
supplier and a downstream producer, and production of the input product 
is primarily dedicated to production of the downstream product, the 
Secretary will attribute subsidies received by the input producer to 
the combined sales of the input and downstream products produced by 
both corporations (excluding the sales between the two corporations).
    (v) Transfer of subsidy between corporations with cross-ownership 
producing different products. In situations where paragraphs (b)(6)(i) 
through (iv) of this section do not apply, if a corporation producing 
non-subject merchandise received a subsidy and transferred the subsidy 
to a corporation with cross-ownership, the Secretary will attribute the 
subsidy to products sold by the recipient of the transferred subsidy.
    (vi) Cross-ownership defined. Cross-ownership exists between two or 
more corporations where one corporation can use or direct the 
individual assets of the other corporation(s) in essentially the same 
ways it can use its own assets. Normally, this standard will be met 
where there is a majority voting ownership interest between two 
corporations or through common ownership of two (or more) corporations.
    (7) Multinational firms. If the firm that received a subsidy has 
production facilities in two or more countries, the Secretary will 
attribute the subsidy to products produced by the firm within the 
country of the government that granted the subsidy. However, if it is 
demonstrated that the subsidy was tied to more than domestic 
production, the Secretary will attribute the subsidy to multinational 
production.
    (c) Trading companies. Benefits from subsidies provided to a 
trading company which exports subject merchandise shall be cumulated 
with benefits from subsidies provided to the firm which is producing 
subject merchandise that is sold through the trading company, 
regardless of whether the trading company and the producing firm are 
affiliated.


Sec. 351.526  Program-wide changes.

    (a) In general. The Secretary may take a program-wide change into 
account in establishing the estimated countervailing duty cash deposit 
rate if:
    (1) The Secretary determines that subsequent to the period of 
investigation or review, but before a preliminary determination in an 
investigation (see Sec. 351.205) or a preliminary result of an 
administrative review or a new shipper review (see Secs. 351.213 and 
351.214), a program-wide change has occurred; and
    (2) The Secretary is able to measure the change in the amount of 
countervailable subsidies provided under the program in question.
    (b) Definition of program-wide change. For purposes of this 
section, ``program-wide change'' means a change that:
    (1) Is not limited to an individual firm or firms; and
    (2) Is effectuated by an official act, such as the enactment of a 
statute, regulation, or decree, or contained in the schedule of an 
existing statute, regulation, or decree.
    (c) Effect limited to cash deposit rate.--(1) In general. The 
application of paragraph (a) of this section will not result in 
changing, in an investigation, an affirmative determination to a 
negative determination or a negative determination to an affirmative 
determination.
    (2) Example. In a countervailing duty investigation, the Secretary 
determines that during the period of investigation a countervailable 
subsidy existed in the amount of 10 percent ad valorem. Subsequent to 
the period of investigation, but before the preliminary determination, 
the foreign government in question enacts a change to the program that 
reduces the amount of the subsidy to a de minimis level. In a final 
determination, the Secretary would issue an affirmative determination, 
but would establish a cash deposit rate of zero.
    (d) Terminated programs. The Secretary will not adjust the cash 
deposit rate under paragraph (a) of this section if the program-wide 
change consists of the termination of a program and:
    (1) The Secretary determines that residual benefits may continue to 
be bestowed under the terminated program; or
    (2) The Secretary determines that a substitute program for the 
terminated program has been introduced and the Secretary is not able to 
measure the amount of countervailable subsidies provided under the 
substitute program.


Sec. 351.527  Transnational subsidies.

    Except as otherwise provided in section 701(d) of the Act 
(subsidies provided to international consortia) and section 771A of the 
Act (upstream subsidies), a subsidy does not exist if the Secretary 
determines that the funding for the subsidy is supplied in accordance 
with, and as part of, a program or project funded:
    (a) By a government of a country other than the country in which 
the recipient firm is located; or
    (b) By an international lending or development institution.
    4. Section 351.301 of subpart C is amended by adding the following 
paragraphs (d)(6) and (7) to read as follows:


Sec. 351.301(d)  Time limits for submission of factual information.

* * * * *
    (d) * * *
    (6) Green light and Green box claims. (i) In general. A claim that 
a particular subsidy or subsidy program should be accorded non-
countervailable status under section 771(5B),(C), or (D) of the Act 
(``green light subsidies'') or under section 771(5B)(F) of the Act 
(``green box subsidies'' must be made by the competent government with 
the full participation of the government authority responsible for 
funding and/or administering the program. Such claims are due no later 
than:
    (i) In a countervailing duty investigation, 40 days before the 
scheduled date of the preliminary determination, or
    (ii) In an administrative review, new shipper review, or changed 
circumstance review, 20 days afer all responses to the initial 
questionnaires are filed with the Department, unless the Secretary 
alters this time limit.
    (7) Investigation of notified subsidies. If the Secretary 
determines that there is insufficient evidence to demonstrate that an 
alleged subsidy or subsidy program has been notified under Article 8.3 
of the WTO Subsidies and Countervailing Measures Agreement, the alleged 
subsidy or subsidy program will be included in the countervailing duty 
investigation or administrative, new shipper, or changed circumstance 
review. If the government authority claiming green light status 
establishes to the Secretary's satisfaction that the alleged subsidy or 
subsidy program has been notified, the Secretary will terminate the 
investigation of the notified subsidy.
    5. Subpart G (Applicability Dates) is amended by adding the 
following Sec. 351.702, to read as follows:


Sec. 351.702  Applicability dates for countervailing duty regulations.

    (a) Notwithstanding Sec. 351.701, the regulations in subpart E of 
this part apply to:
    (1) All CVD investigations initiated on the basis of petitions 
filed after December 28, 1998;
    (2) All CVD administrative reviews initiated on the basis of 
requests filed on

[[Page 65418]]

or after the first day of January 1999; and
    (3) To all segments of CVD proceedings self-initiated by the 
Department after December 28, 1998.
    (b) Segments of CVD proceedings to which subpart E of this part 
does not apply will continue to be guided by the Department's previous 
methodology (in particular, as described in the 1989 Proposed 
Regulations), except to the extent that the previous methodology was 
invalidated by the URAA, in which case the Secretary will treat subpart 
E of this part as a restatement of the Department's interpretation of 
the requirements of the Act as amended by the URAA.

[FR Doc. 98-30565 Filed 11-24-98; 8:45 am]
BILLING CODE 3510-DS-P