[Federal Register Volume 64, Number 61 (Wednesday, March 31, 1999)]
[Notices]
[Pages 15553-15567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7530]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-791-806]
Final Affirmative Countervailing Duty Determination: Stainless
Steel Plate in Coils from South Africa
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: March 31, 1999.
FOR FURTHER INFORMATION CONTACT: Robert Copyak, Kathleen Lockard or
Dana Mermelstein, Office of CVD/AD Enforcement VI, Group II, Import
Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, NW, Washington, DC
20230; telephone: (202) 482-2786.
Final Determination
The Department of Commerce (the Department) determines that
countervailable subsidies are being provided to producers and exporters
of stainless steel plate in coils from South Africa. For information on
the estimated countervailing duty rates, please see the ``Suspension of
Liquidation'' section of this notice.
Petitioners
The petition in this investigation was filed by Allegheny Ludlum
Corporation, Armco, Inc., J&L Specialty Steel, Inc., Lukens, Inc., and
United Steelworkers of America, AFL-CIO/CLC, Butler Armco Independent
Union, and Zanesville Armco Independent Organization (the petitioners).
Case History
Since the publication of our preliminary determination in this
investigation on September 9, 1998 (63 FR 47263), the following events
have occurred.
We conducted verification of the countervailing duty questionnaire
responses from November 2 through November 13, 1998. On January 2,
1999, we terminated the suspension of liquidation of all entries of the
subject merchandise entered or withdrawn from warehouse for consumption
on or after that date, pursuant to section 703(d) of the Act. See the
``Suspension of Liquidation'' section of this notice. Because the final
determination of this countervailing duty investigation was aligned
with the final antidumping duty determination (see 63 FR 47263), and
the final antidumping duty determination was postponed, the Department
extended the final determination of the countervailing duty
investigation until no later than March 19, 1999 (see Countervailing
Duty Investigations of Stainless Steel Plate in Coils from Belgium,
Italy, the Republic of Korea, and the Republic of South Africa: Notice
of Extension of Time Limit for Final Determinations, 64 FR 2195
(January 13, 1999)). Petitioners, the Government of South Africa, and
Columbus Stainless (the operating unit of Columbus Joint Venture) filed
case briefs on January 11, 1999, and rebuttal briefs on January 19,
1999. A public hearing was held on January 21, 1999.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act effective January 1, 1995 (the Act).
In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations codified at 19
CFR 351 (1998).
Scope of Investigation
For purposes of this investigation, the product covered is certain
stainless steel plate in coils. Stainless steel is an alloy steel
containing, by weight, 1.2 percent or less of carbon and 10.5 percent
or more of chromium, with or without other elements. The subject plate
products are flat-rolled products, 254 mm or over in width and 4.75 mm
or more in thickness, in coils, and annealed or otherwise heat treated
and pickled or otherwise descaled. The subject plate may also be
further
[[Page 15554]]
processed (e.g., cold-rolled, polished, etc.) provided that it
maintains the specified dimensions of plate following such processing.
Excluded from the scope of this investigation are the following: (1)
Plate not in coils, (2) plate that is not annealed or otherwise heat
treated and pickled or otherwise descaled, (3) sheet and strip, and (4)
flat bars.
The merchandise subject to this investigation is currently
classifiable in the Harmonized Tariff Schedule of the United States
(HTS) at subheadings: 7219.11.00.30, 7219.11.00.60, 7219.12.00.05,
7219.12.00.20, 7219.12.00.25, 7219.12.00.50, 7219.12.00.55,
7219.12.00.65, 7219.12.00.70, 7219.12.00.80, 7219.31.00.10,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.11.00.00, 7220.20.10.10, 7220.20.10.15,
7220.20.10.60, 7220.20.10.80, 7220.20.60.05, 7220.20.60.10,
7220.20.60.15, 7220.20.60.60, 7220.20.60.80, 7220.90.00.10,
7220.90.00.15, 7220.90.00.60, and 7220.90.00.80. Although the HTS
subheadings are provided for convenience and Customs purposes, the
written description of the merchandise under investigation is
dispositive.
Injury Test
Because South Africa is a ``Subsidies Agreement Country'' within
the meaning of section 701(b) of the Act, the International Trade
Commission (ITC) is required to determine whether imports of the
subject merchandise from South Africa materially injure, or threaten
material injury to, a U.S. industry. On May 28, 1998, the ITC published
its preliminary determination finding that there is a reasonable
indication that an industry in the United States is being materially
injured, or threatened with material injury, by reason of imports from
South Africa of the subject merchandise (See Certain Stainless Steel
Plate in Coils From Belgium, Canada, Italy, Korea, South Africa, and
Taiwan, 63 FR 29251).
Period of Investigation
The period for which we are measuring subsidies (the POI) is
calendar year 1997.
Company History
In 1988, Samancor Limited (Samancor) and Highveld Steel and
Vanadium (Highveld) formed the Columbus Joint Venture (CJV) to explore
the possibility of establishing a 500,000-ton capacity, stainless steel
facility in South Africa. In 1991, the partners examined the option of
building a plant in South Africa and made a proposal to the Industrial
Development Corporation of South Africa (IDC) that it take a capital
stake in the joint venture. The IDC is a state-owned corporation,
established in 1940 to further the economic development goals of the
Government of South Africa (GOSA). The partners approached the IDC
because it provides equity investments, and facilitates and guarantees
financing for projects which contribute to the GOSA's economic
development objectives. After being approached by the partners, the IDC
performed a detailed analysis of the 1991 proposal and decided that it
would participate in the investment subject to certain conditions: That
the project be based on the expansion of an existing facility rather
than on the construction of a new plant; and, that its implementation
be delayed pending the establishment of a program providing tax
benefits for capital investments.
To meet the IDC's condition, in October 1991, Samancor and Highveld
purchased an existing stainless steel facility, the Middelburg Steel &
Alloys (MS&A) company. In 1992, the partners again approached the IDC.
Based on a revised proposal, the IDC conducted a detailed feasibility
study to analyze the prospects for the venture. Based on the
feasibility study, the IDC made a counterproposal which was accepted by
the partners. (The counterproposal is detailed in the proprietary
feasibility study. In general, it addresses the technical financial
details of the IDC's participation in the CJV.) Samancor, Highveld, and
the IDC entered into a new partnership agreement which is the basis for
the current structure of the CJV. Effective January 1, 1993, the IDC
became a one-third and equal partner in the venture.
The implementation of the CJV expansion project began in 1993 and
was undertaken over the course of two and one-half years. The expansion
was completed in 1995. Columbus Stainless, the operating unit of the
CJV, produces a range of stainless steel products including subject
merchandise.
Subsidies Valuation Information
Discount Rates: In identifying a discount rate, the Department's
options are, in the following order of preference: (1) The cost of
long-term fixed-rate debt of the firm in question, excluding loans
found to confer a countervailable subsidy; (2) the average cost of
long-term fixed-rate debt in the country in question; and (3) a rate
which we consider to be most appropriate. See Countervailing Duties;
Notice of Proposed Rulemaking and Request for Public Comments 54 FR
23336, 23384 (May 31, 1989) (1989 Proposed Regulations). With respect
to the Department's first preference, the only loans which Columbus had
outstanding during the relevant period were loans guaranteed by the
IDC/Impofin. See ``IDC/Impofin Loan Guarantees'' section below. With
respect to the average cost of long-term fixed-rate debt in South
Africa, because we were unable to obtain information about such debt
for the purposes of the preliminary determination, we used the long-
term government bond rate. We considered this rate to be the most
appropriate rate as it was the only long-term fixed interest rate for
which we had information during the relevant period. In the preliminary
determination, we stated that we would seek a rate for the final
determination that better reflects an average long-term commercial
fixed interest rate in South Africa. Although we discussed commercial
interest rates at length during our meetings with the IDC, the South
African Reserve Bank, and commercial bankers, no information was
provided that would enable us to determine a commercial long-term
interest rate that could be used as the discount rate. As such, because
the government bond rate does not represent a commercial rate, for
purposes of this final determination, we have constructed a discount
rate which we believe is more appropriate. For each of the years 1993
through 1997, we have averaged the government bond rate as reported by
respondents with the ``Lending Rate'' reported in International
Financial Statistics, December 1998, published by the International
Monetary Fund. This publication indicates that the ``Lending Rate''
represents financing that ``meets the short- and medium-term needs of
the private sector.'' By averaging these two rates, we believe that we
have identified a rate more appropriate than the rate used for the
purposes of the preliminary determination, a rate which includes the
necessary characteristics of both long-term borrowing and commercially-
available interest rates. See Department's Position on Comment 9 below.
Allocation Period: In the past, the Department has relied upon
information from the U.S. Internal Revenue Service on the industry-
specific average useful life of assets (AUL) in determining the
allocation period for non-recurring subsidies. See General Issues
Appendix (GIA), 58 FR 37225, 37227, appended to the Final
Countervailing Duty Determination; Certain Steel Products
[[Page 15555]]
from Austria, et al., 58 FR 37217 (July 9, 1993). However, in British
Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995) (British Steel
I), the U.S. Court of International Trade (the Court) ruled against
this allocation methodology. In accordance with the Court's remand
order, the Department calculated a company-specific allocation period
for non-recurring subsidies based on the AUL of non-renewable physical
assets. This remand determination was affirmed by the Court on June 4,
1996. See British Steel plc v. United States, 929 F. Supp. 426, 439
(CIT 1996) (British Steel II). In accordance with our new practice
following British Steel II, we intend to determine the allocation
period for non-recurring subsidies using company-specific AUL data
where reasonable and practicable. See, e.g., Certain Cut-to-Length
Carbon Steel Plate from Sweden; Final Results of Countervailing Duty
Administrative Review, 62 FR 16551, 16552 (April 7, 1997). When such
data are not available (or are otherwise unusable), our practice is to
rely upon the IRS depreciation tables.
Columbus did not provide the information necessary to calculate a
company-specific AUL. Therefore, we are relying on the Internal Revenue
Service's 1977 Class Life Asset Depreciation Range System (Rev. Proc.
77-10, 1977-1, C.B. 548 (RR-38) (IRS Tables), which report a schedule
of 15 years for the productive equipment used in the steel industry.
See the Department's Position on Comment 10 below.
I. Programs Determined To Be Countervailable
A. Section 37E Tax Allowances
The GOSA enacted Section 37E of the Income Tax Act in 1991 to
promote capital investment and thereby foster long-term economic
development. This program was intended as a ``kick-start'' for the
South African economy and was limited to investments made between
September 1991 and September 1993. The purpose of the program was to
encourage investment in large industrial expansion projects in value-
added sectors of the economy. For projects approved as valued-added
processes, Section 37E allows for depreciation of capital assets and
the deduction of pre-production interest and finance charges in
advance, that is, in the year the costs are incurred rather than the
year the assets go into use. The program also allows taxpayers in loss
positions to receive ``negotiable tax credit certificates'' (NTCCs) in
the amount of the cash value of the Section 37E tax deduction (i.e.,
deduction multiplied by the tax rate). The NTCCs can be sold (normally
at a small discount) to any other taxpayer, who then can use them to
pay taxes. The program does not provide for accelerated depreciation,
nor does it provide for additional finance charge-related deductions
beyond those available under the South African tax code. The advantage
to users of this program is the receipt of these tax deductions in
advance, i.e., when the expenses are incurred rather than when the
equipment is put into use.
According to the questionnaire response, eligibility for Section
37E benefits was determined on a project-by-project basis by a
committee appointed by the Minister of Finance in concurrence with the
Minister of Trade and Industry. To demonstrate that their projects
qualified for Section 37E, applicants were required to show: (1) That
the project would add at least 35 percent to the value of the raw
material or intermediate product processed; (2) that the project would
be carried out on an internationally competitive scale; and (3) that
the taxpayer would utilize foreign term credits, where possible, when
financing the import of capital goods for the project. In addition,
qualifying investments had to be made between September 12, 1991 and
September 11, 1993.
The CJV began receiving Section 37E benefits in 1993, two years
before the 1995 completion of the plant expansion. Because the CJV is a
partnership rather than a tax-paying corporation, Section 37E benefits
earned by the CJV are claimed by the partners.
When determining whether a program is countervailable, we must
examine whether it is an export subsidy or whether it provides benefits
to a specific enterprise, industry, or group thereof, either in law (de
jure specificity) or in fact (de facto specificity). See Sections
771(5A)(A), (B), and (D) of the Act. For the Preliminary Affirmative
Countervailing Duty Determination and Alignment of Final Countervailing
Duty Determination with Final Antidumping Determination: Stainless
Steel Plate in Coils from South Africa, 63 FR 47263, 47265 (September
4, 1998) (Preliminary Determination), we determined that Section 37E
provided benefits which were de facto specific, in accordance with
section 771(5A)(D)(iii)(I) of the Act, because the number of users of
the program was limited. (63 FR at 47265.) However, in the memorandum
accompanying our preliminary determination, we noted that ``. . .
information on the record suggests that an applicant's export
performance may have been considered during the approval process. While
there is not enough information in the record at this time to conclude
that benefits provided under Section 37E constitute a de facto export
subsidy, we will continue to examine this question for the final
determination.'' See August 28, 1998, Memorandum to Maria Harris
Tildon, Acting Deputy Assistant Secretary for AD/CVD Enforcement II,
``Decision Memorandum: Countervailing Duty Investigation of Stainless
Steel Plate in Coils from South Africa'' at 7, public version on file
in the Central Records Unit, room B-099 of the main Commerce Building
(CRU) (Decision Memorandum). Under section 771(5A)(B) of the Act, a
subsidy is an export subsidy if it is, ``in law or in fact, contingent
upon export performance, alone or as 1 of 2 or more conditions.''
We now have a fuller understanding of the legislation which
implemented the program, amendments which were made to that
legislation, and the timing of Columbus' application and approval for
benefits under the program. At verification, we learned that Section
37E amending the Tax Act of 1962 was published in the Official Gazette
on July 17, 1991 and became effective September 12, 1991. To be
eligible for Section 37E, an applicant had to show that the planned
investment was in a ``beneficiation process,'' which was defined as a
process which: ``(a) Substantially adds to the value of the product
processed; (b) is carried on on such a scale that it is competitive in
the international market; and (c) is carried on with the intention of
exporting at least 60 percent (or such lesser percentage as the
committee may determine) by value of the product produced to countries
outside the customs union.'' See the December 16, 1998, ``Memorandum to
David Mueller, Director, Office of CVD/AD Enforcement VI, on
Countervailing Duty Investigation of Stainless Steel Plate in Coils
from South Africa: Verification Report of the Government of South
Africa,'' at 15 and Verification Exhibit SARS-1 at 3, public version on
file in the CRU (Government Verification Report).
In 1992, the law was amended for the first time; the amendment was
published on July 15, 1992, in the Official Gazette and was effective
retroactively to March 18, 1992. The amendment broadened the definition
of beneficiation of minerals in certain material respects and removed
the committee's discretion to approve applicants intending to export
less than 60 percent of production.
On July 20, 1993, the second amendment to Section 37E was
[[Page 15556]]
published in the Gazette. This amendment was effective retroactively to
September 12, 1992. This amendment made a material change to the law
because it removed the export performance eligibility criterion. The
deletion of this requirement is documented in the Explanatory
Memorandum on the Taxation Laws Amendment Bill, 1993. See Verification
Exhibit SARS-1 at 11. Although this amendment was retroactive,
companies that applied before July 20, 1993, addressed the export
performance criterion in their applications for Section 37E benefits.
Columbus' application for Section 37E benefits, which was filed on
August 11,1992, specifically addressed this criterion and specified the
portion of Columbus' production that was intended for export. Based on
this application, Columbus was approved for Section 37E benefits on
December 8, 1992, prior to the July, 20, 1993, amendment.
Although approved for Section 37E assistance on December 8, 1992,
the exact amount of assistance to be provided was revised as the
financial and technical aspects of the project developed (e.g.,
contracts for the supply of equipment and financing arrangements were
being finalized, enabling Columbus to identify the related costs and
expenditures more accurately than they had in the initial August, 1992
application package). Columbus was in close communication with the
relevant authorities throughout this period, and submitted an amended
application on July 19, 1993. This application did not address any of
the eligibility criteria, under the original law or the amended law,
rather, it finalized information about the categorization of equipment
and the costs of financing and amended the projected value of the
Section 37E benefits.
The Inland Revenue authority notified Columbus of its approval of
the exact amount of its Section 37E benefits on August 20, 1993.
Nevertheless, when Columbus was initially approved for Section 37E
benefits (on December 8, 1992), the approval was based on consideration
of the export performance criterion, which was in effect at that time.
Even though the law was subsequently amended to remove the export
criterion, and this amendment was retroactive to September 12, 1992,
Columbus was approved for Section 37E benefits before this amendment
was implemented. Making the amendment to remove the export criterion
retroactively effective does not undo the fact that when Columbus was
approved, it had to meet an export performance criterion.
Moreover, even though Columbus amended its application on July 19,
1993, that submission was not a revised application package. It did not
address all of the criteria that had to be met in order to be approved
and that were addressed in the initial application (of August 11,
1992). Moreover, it did not remove the export performance information
that was in the original application; rather, it contained a refinement
of previously-provided financial and technical information, which was
required by Inland Revenue to establish the final value of the Section
37E benefits Columbus would receive. Accordingly, based on these facts,
we must conclude that the Section 37E assistance provided to Columbus
constitutes an export subsidy within the meaning of section 771(5A)(B)
of the Act.
The Section 37E program provides a financial contribution within
the meaning of section 771(5)(D)(ii) of the Act as it constitutes
revenue foregone by the GOSA. Because Section 37E allows companies to
claim depreciation and finance-related deductions in advance of when
such deductions would normally be allowed, the benefit within the
meaning of section 771(5)(E) of the Act, is the value to the company of
being able to claim the depreciation in advance. The Department
normally considers that a benefit arises from a tax program in the
amount of the difference between the taxes paid and the taxes that
would have been paid absent the program. However, the Section 37E
program does not operate as a normal tax program. According to the IDC,
``[t]he accelerated tax allowances reduce the peak funding requirements
of major capital investment projects.'' See IDC 1992 Annual Report,
Annexure 7 of the July 31, 1998 Questionnaire Response, public version
on file in the CRU. Through this program, capital requirements for
investments are reduced, as evidenced by the partners' views that the
program was essential in reducing the start-up costs of the venture.
See Petition at Exhibit S-8, public version on file in CRU.
Furthermore, there is a cash flow impact regardless of the company's
tax position. As such, we consider that, although the Section 37E
program is a ``tax'' program, it functions more like a capital
contribution.
Since the Section 37E program reduces a company's capital
requirements, and because the receipt of Section 37E benefits required
express government approval, we determine that it is more appropriate
to treat the benefits provided under Section 37E as a non-recurring
subsidy. See GIA, 58 FR at 37226. Therefore, we determine that the
Section 37E program constitutes a countervailable subsidy within the
meaning of section 771(5) of the Act.
To determine the benefit, we ascertained the value of the Section
37E allowances to the company. First, we calculated the cash value of
each 37E claim by multiplying the total allowance claimed in each year
by the relevant tax rate. Then, we determined the time value of
obtaining the allowance in advance; in the preliminary determination,
we used two years for discounting purposes, however, at verification we
discovered that it was appropriate to use two years for one-third of
the value of the allowances and three years for the remaining two-
thirds. This change reflects the fact that since Columbus Stainless was
commissioned October 1, 1995, and the IDC and Samancor's tax year ends
June 30, these partners would have had to wait until June 30, 1996,
i.e., three years to take depreciation under the normal system (section
12(c)) while Highveld, which has a December 31 year-end, would have had
to wait until December 31, 1995, i.e., only two years. See Department's
Position on Comment 5 below. The difference between the tax value of
the allowances and the tax value discounted to reflect the time-value
of money is the benefit to the company, for each year in which Section
37E benefits are claimed. Finally, because we consider that the Section
37E assistance should be allocated over time as a non-recurring
subsidy, we treated each year's benefit as a non-recurring grant using
our standard grant methodology. Since Columbus did not report its AUL,
we are relying on the IRS Tables for purposes of establishing the
allocation period. The IRS Tables show a depreciation schedule of 15
years for the steel industry. See Department's Position on Comment 10
below. We summed the benefit amounts allocated to the POI and divided
by CJV's total export sales. Accordingly, we determine the net
countervailable subsidy to be 3.84 percent ad valorem.
B. IDC/Impofin Loan Guarantees
The IDC and its wholly-owned subsidiary, Impofin, Ltd., facilitate
and guarantee foreign credits for the importation of capital goods into
South Africa. The program was established in 1989, and was designed to
facilitate foreign lending to South African firms; the availability of
foreign credit in South Africa was extremely limited at that time. The
IDC/Impofin maintain
[[Page 15557]]
blanket credit lines with banks in numerous countries which are used in
two ways. First, the IDC may act as an intermediary lending authority,
borrowing funds through these credit lines from the foreign bank and
then re-lending them to the South African firm. Second, based on these
credit lines, the South African firm may negotiate its own financing
directly with the foreign lender which is then guaranteed by the IDC.
Any company seeking financing for the purchase of foreign capital
equipment may apply to Impofin to use the program. Whether the
financing is arranged through the IDC/Impofin or directly with the
foreign lender, it is guaranteed through the IDC/Impofin program. The
IDC charges a fee for its guaranteeing and facilitating services.
Columbus used the IDC/Impofin program to facilitate and to
guarantee the financing of all of its foreign capital equipment
sourcing. In the preliminary determination, we analyzed this program
using our standard methodology for examining government-guaranteed
loans and compared the benchmark interest rate to the interest rate
charged by the lender on the guaranteed loans. However, based on
information collected at verification, we now have a better
understanding of this program and have revised our analysis of the
program from the preliminary determination. Because these loans
originate either with foreign government export credit agencies or
offshore foreign banks in coordination with foreign government export
credit agencies, which are not under the direction or control of the
GOSA, the loans themselves are not countervailable. Thus, we find that
it is not appropriate to compare the interest rates charged by offshore
foreign banks to commercial interest rates in order to determine
whether the program provides a financial contribution. However, the IDC
did provide guarantees on these loans for a fee. This guarantee could
constitute a financial contribution if the IDC charged less than what
would have been charged by a commercial bank for a similar guarantee.
At verification, we sought information about commercial loan
guarantee practices in South Africa at the time Columbus received the
IDC/Impofin guarantees. We learned that such guarantees were available
on only a limited basis in South Africa at the time. However, a
commercial banker informed us that the rates for providing these types
of guarantees would range between 0.25 and 0.50 percent; the banker
further stated that the fee would vary based on the quality of the
borrower and the size of the credit (a high-quality borrower would
likely pay fees at the low end of the range; a borrower seeking
guarantees for large credits would likely pay fees at the high end of
the range). See December 17, 1998, ``Memorandum for David Mueller,
Director, Office of CVD/AD Enforcement VI, on Discussions with Private
Sector and South African Reserve Bank'' (Banker's Verification Report),
a public document on file in the CRU. Since Columbus is a ``high-
quality'' borrower but the size of the credits is large, we determine
that the middle of this range, 0.375 percent, is a reasonable
approximation of what a commercial bank would have charged Columbus for
similar guarantees. Thus, when we compare what Columbus paid the IDC
for the provision of guarantees, 0.25 percent, and what it would have
paid a commercial bank, 0.375 percent, we find that the IDC did provide
a financial contribution that confers a benefit within the meaning of
the Act.
Next, we analyzed whether the program is specific in law (de jure
specificity), or in fact (de facto specificity), within the meaning of
subsections 771(5A)(D)(i) and (iii) of the Act. The enacting
legislation for the IDC/Impofin program does not explicitly limit
eligibility for these financing programs to an enterprise, industry, or
group thereof. Thus, we find that the law is not de jure specific, and
we must analyze whether the program meets the de facto criteria defined
under section 771(5A)(D)(iii). In our Preliminary Determination, we
examined information provided by the GOSA and found that since 1990,
the ``fabricated metal products'' and ``basic metal manufacture''
industries have been predominant users of the program. These industries
have received more than fifty percent, by value, of the total
guaranteed loans awarded over the life of the program. Information
provided by the GOSA in its case brief demonstrates that the steel
industry (including stainless steel) has received more than half the
total value of loan guarantees awarded over the life of the program,
while all of the rest of the users of the program (industries
including, but not limited to mining, agriculture, pulp and paper, oil,
gas, chemical, vehicles, telecommunications, and aluminum smelting and
fabrication) together accounted for less than half of the total value
of loan guarantees awarded over the life of the program. This
information clearly indicates that the steel industry is a predominant
user of this program. On this basis, we find IDC/Impofin loan
guarantees to be de facto specific within the meaning of section
771(5A)(D)(iii) of the Act. Therefore, we determine that the IDC/
Impofin guarantees constitute a countervailable subsidy within the
meaning of section 771(5) of the Act. (See the Department's Position on
Comment 6 below.)
Since the guarantee fees are paid every year the loan is
outstanding, we calculated the benefit by subtracting what Columbus
paid the IDC under this program from what it would have paid on a
comparable commercial guarantee during the POI. We then divided the
result by Columbus' total sales during the POI. Accordingly, we
determine the net countervailable subsidy to be 0.09 percent ad valorem
for Columbus.
II. Program Determined to be Non-Countervailable
IDC Participation in the Columbus Joint Venture
As discussed in the ``Company History'' Section above, in 1988,
Highveld and Samancor formed the Columbus Joint Venture to explore the
possibility of establishing a stainless steel facility in South Africa.
In 1991, the partners proposed that the IDC make a capital investment
in the venture. The IDC performed a detailed analysis of the 1991
proposal and decided to participate in the investment subject to
certain conditions: that the project would be based on the expansion of
an existing facility and that its implementation would be delayed
pending the establishment of the Section 37E program. In 1992, after
the partners acquired an existing facility for the purpose of
implementing the IDC's recommendations, the partners approached the IDC
with a revised proposal. Based on this proposal, the IDC and the two
partners conducted a detailed feasibility study to identify the
prospects for the venture. The IDC made a counterproposal which the
partners accepted. Effective January 1, 1993, the IDC became a one-
third and equal partner in the venture. Samancor, Highveld, and the IDC
entered a new partnership agreement which is the basis for the current
structure of the CJV.
The Department considers the government's provision of equity or
start-up capital to constitute a benefit ``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.'' See
section 771(5)(E)(i) of the Act. The Department applies this standard
in a case-by-case analysis of the commercial context in
[[Page 15558]]
which the investment decision is made. Thus, we must determine whether
the IDC's decision to participate in the CJV was consistent with the
usual investment practices of private investors in South Africa.
While Samancor and Highveld are both private investors, their
participation in the venture, per se, is not an appropriate basis for
determining whether the IDC's participation is consistent with usual
investment practices. By the time the IDC decided to invest, Samancor
and Highveld had been partners in this investment for five years. Both
already had substantial stakes in the project, including the purchase
of the MS&A facility in 1991. Thus, their evaluation of the CJV
expansion project was affected by their interest in protecting their
existing investment and they may have been willing to accept a higher
level of risk than another private investor would. Therefore, their
continued participation is not the appropriate background against which
to examine the IDC's decision, and we have focused our analysis on the
factors considered by the IDC in making its decision in order to
determine whether it was consistent with the investment practices of a
private investor.
As discussed above, in 1991 and 1992, the partners made detailed
presentations to the IDC of the risks and projected returns of the
project. The IDC agreed to participate in the venture subject to
modifications designed to increase the rate of return of the project by
lowering its initial capital requirements. In 1992, the IDC conducted a
detailed feasibility study to analyze the strengths and weaknesses of
the venture and to project its financial performance, based upon the
expansion of the MS&A facility. This detailed analysis, which Columbus
submitted for the record, is the primary basis for the IDC's decision
to invest in the CJV.
Given the proprietary nature of the feasibility study, the specific
analysis and projections contained in the study cannot be addressed in
this public notice. At verification, we discussed at length this study
and the analysis which preceded it. IDC officials explained how the IDC
conducted its extensive analysis, and tested its projections for
various changes in forecast market and economic circumstances. See
Government Verification Report at 8-9. The study is based on reasonable
assumptions and concludes that the CJV was a viable venture which would
provide a positive real rate of return on the IDC's investment. The
study concludes that the average nominal rate of return for the project
would be 19.13 percent over an appropriate period.
We compared the projected return on the investment to information
available for other investments in South Africa during this period.
Because of the proprietary nature of the feasibility study, this
analysis cannot be detailed in this public notice. See Preliminary
Determination, 63 FR at 47262; Decision Memorandum. The nominal rate of
return of 19.13 percent exceeds government bond yields. The projected
real rate of return is comparable to returns provided by other
investment instruments at the time. We examined the dividend yields on
industrial and commercial shares as reported in the Quarterly Bulletin
of the South Africa Reserve Bank (appended to the August 28, 1998
``Memorandum to the File on Calculations for the Preliminary
Affirmative Countervailing Duty Determination: Stainless Steel Plate in
Coils from South Africa'' (Preliminary Calculation Memo) public version
on file in the CRU). We also examined the return on assets of non-
financial private incorporated businesses as reported by the Reserve
Bank of South Africa on its website: http://www.resbank.co.za (a
printout of the information we examined is appended to Preliminary
Calculation Memo). At verification, we gathered more information about
the commercial investment climate in South Africa in order to inform
our analysis for this final determination. See Banker's Verification
Report. The information on the record indicates that the projected
return was adequate and it supports a finding that the IDC's investment
decision was consistent with the behavior of a reasonable private
investor.
Finally, we examined the structure of the partnership itself, to
determine whether the IDC assumed more than its share of the risks
involved in the venture or less than its share of the potential
earnings. The three partners contributed capital to the venture
equally. They all account for one-third of the project's year-end
results in their financial statements, in accordance with the normal
practice for partnerships. They each hold the same number of seats on
the CJV's board. To the extent that the IDC's commitments and
obligations to the joint venture differ from the other partners, these
differences reflect the IDC's role as an investor, in contrast to the
other partner's experience in industrial operations. Furthermore, the
IDC took steps to protect its level of risk from the investment. For
example, where the IDC has assumed more than its pro-rata share of the
risk, it has required commitments from the other two partners which
result in the risk being shared equally.
While the partnership is structured so that the IDC's role in the
CJV is slightly different from that of the other two partners, the
agreement stipulates equal cash participation, equal representation on
the Board of Directors, and equal distribution of any returns on the
investments. In addition, the IDC protected its investment by requiring
measures to ensure that the risks would be equally distributed among
all of three partners. The IDC recommended ways to increase the
project's earnings potential and negotiated safeguards in the
partnership agreement. The IDC appears to have assumed only an amount
of risk that is commensurate with its level of participation as a
partner.
The IDC's decision to invest in the CJV appears to be based upon a
reasonable analysis that the project was viable, an informed assessment
that the IDC would realize a positive real rate of return on its
investment, and a partnership based on the equal distribution of the
risks. On this basis, we determine that the IDC's capital contribution
into the CJV was not inconsistent with the normal practice of private
investors in South Africa, and thus, does not constitute a
countervailable subsidy within the meaning of the Act.
III. Programs Determined to be Not Used
Based on the information provided in the responses and the results
of verification, we determine that Columbus did not apply for or
receive benefits under the following programs during the POI:
A. Low Interest Rate Finance for the Promotion of Exports (which is the
same program as the Low Interest Rate Scheme for the Promotion of
Exports)
B. Competitiveness Fund
C. Export Assistance Under the Export Marketing Assistance and the
Export Marketing and Investment Assistance Programs
D. Regional Industrial Development Program (RIDP)
IV. Programs Determined to be Terminated
Based on information obtained at verification, we determine that
the following programs have been terminated.
A. Export Marketing Allowance
B. Multi-Shift Scheme
[[Page 15559]]
Interested Party Comments
Comment 1: IDC Participation in the Columbus Joint Venture:
Petitioners contend that the Department did not adequately address all
five factors of the test developed in Final Affirmative Countervailing
Duty Determination: Certain Corrosion Resistant Carbon Steel Flat
Products from New Zealand, 63 FR 37366 (July 9, 1993)(New Zealand
Steel). Petitioners contend that the Department must examine the
following five factors: (1) The (un)willingness of private sector
participants to invest in the project; (2) the relative contributions
of the partners and the expected returns; (3) the feasibility study;
(4) the nature of the project (i.e., the existence of non-commercial
considerations); and, (5) the economic environment prevailing at the
time in South Africa. In addition, petitioners urge the Department to
consider the implementation of Section 37E as a factor which affected
the IDC's investment. Petitioners argue that a full examination of the
five factors must lead the Department to the conclusion that the IDC's
investment was not consistent with commercial considerations, and
therefore constitutes a countervailable subsidy. While petitioners urge
the Department to apply all five factors, and to do so completely,
petitioners suggest that the test be modified to account for the
relevant facts of record and to comport more closely with commercial
reality.
In examining the first factor, petitioners contend that record
evidence shows that the private sector was unwilling to participate in
the CJV project. With respect to the second factor, petitioners further
argue that the Department should consider the expected returns from the
project in the context of its associated risk, and this examination
leads to the conclusion that the returns were relatively low.
Petitioners also argue that the structure of the investment agreement
itself, in particular Highveld and Samancor's option to buy out a
portion of the IDC's ownership, was needed to protect the two partners
from the significant risks at the outset of the project. With respect
to New Zealand Steel factor three, petitioners argue that the IDC's
feasibility study was flawed because it was not an independent analysis
and includes consideration of government actions. In support of this
contention, petitioners cite Steel Wire Rod from Saudi Arabia 51 FR
4206, 4209 (February 3, 1986) and Steel Wire Rod from Trinidad &
Tobago, 49 FR 480, 483 (January 4, 1984), in which the Department
established that only an independent feasibility study provides an
objective analysis of a project's potential returns. According to
petitioners, the fourth factor shows that the parties to the CJV made
non-commercial decisions when they structured the venture as a
partnership in order to maximize the tax benefits, despite statements
in the feasibility study that advocate the contrary. Further,
petitioners contend that the record shows that the CJV expansion would
not have gone forward without the IDC's investment. With respect to the
fifth factor, petitioners maintain that the Department should not
consider the difficult economic conditions in the post-Apartheid era in
which the investment was made, as this could create a loophole allowing
foreign governments to subsidize without consequence simply by claiming
that unique or difficult economic conditions exist. Finally,
petitioners argue that the Department should consider an additional
factor, that the investment was conditioned upon the receipt of Section
37E benefits which, petitioners argue, creates a rebuttable presumption
that the investment is inconsistent with commercial considerations. For
these reasons, petitioners conclude that the IDC's investment is
inconsistent with commercial considerations.
The GOSA and Columbus (respondents) claim that the first New
Zealand Steel factor addresses whether private-sector participants are
willing to invest and not whether private-sector participants in
addition to those already participating are willing to invest in a
project. With respect to the second factor, respondents maintain that
the record does not support petitioners' contention that the risk was
extremely high. When considering the third factor, respondents argue
that it is incorrect to liken the IDC's feasibility study with that
analyzed in New Zealand Steel, because Section 37E had already been
implemented unlike the commitments of the government in New Zealand
Steel. In addition, respondents argue that the IDC feasibility study
was objective and contained full analysis of the relevant
considerations including a realistic projection of the stainless steel
market. With respect to the ``nature of the project,'' the structure
and capitalization of the CJV, respondents note that it is common in
South Africa to structure an undertaking as a joint venture rather than
a company, and the IDC has often used this structure for other projects
in which it is involved. Respondents argue that there is no evidence to
conclude that the project would not have gone forward absent the IDC's
participation. Lastly, respondents maintain that the final project
study and the IDC's decision to participate in the CJV were not
conditioned on the receipt of Section 37E benefits, as verification
documents indicate.
Department's Position: As a threshold matter, the analysis
conducted in New Zealand Steel does not constitute a ``test,'' or
establish a standard that the Department must follow in analyzing every
joint venture in which a government or government entity participates,
as petitioners suggest, and therefore their reliance on New Zealand
Steel is misplaced. Petitioners' identification of the ``five factors''
is an inaccurate interpretation of the analysis in New Zealand Steel.
Furthermore, the facts in this case are sufficiently different from
those in New Zealand Steel to support a conclusion different from the
one reached in that case, i.e., that the IDC's investment in the CJV is
not countervailable (see the ``IDC Participation in the Columbus Joint
Venture'' section above). Nevertheless, we address the elements of
petitioners' arguments below.
In New Zealand Steel, the Department did not directly address the
unwillingness of the private sector to participate in the project.
Rather, the Department determined that ``the participation of NZS (the
private sector participant) was not dispositive that the GONZ's
investment was consistent with commercial considerations.'' New Zealand
Steel at 37368. We made a similar finding in our preliminary
determination: The continued participation of Highveld and Samancor
``is not the appropriate background against which to examine the IDC's
decision'' because of the substantial resources the two partners
already had at stake by this time. Preliminary Determination at 47266.
We stand by this finding and therefore disagree with respondents'
position that the participation of Highveld and Samancor by itself
satisfies this factor. However, we also disagree with petitioners that
the inability of Highveld and Samancor to secure a foreign partner
(efforts to conclude a partnership arrangement with a Taiwanese company
were unsuccessful) is dispositive of private sector unwillingness to
invest in the project. At verification, we discussed the Taiwanese
investor, and the record shows that the existing two partners were
willing to use their substantial resources to provide certain
guarantees for the Columbus project, but that the Taiwanese investor
was unwilling to provide the same guarantees in return. The two
existing partners were interested in finding another partner to share
the risk equally. See December 18,
[[Page 15560]]
1998, ``Memorandum to David Mueller, Director, Office of CVD/AD
Enforcement VI, on Verification of Information Submitted by Columbus
Stainless, Ltd. and the Columbus Joint Venture in the Countervailing
Duty Investigation of Stainless Steel Plate in Coils from South Africa
(C-791-806)'' (Company Verification Report) at 10, public version on
file in the CRU. Furthermore, despite the general optimism nascent in
South Africa at the time, there were still very few companies with the
resources necessary for the project, and two of those companies were
already involved in the project through their subsidiaries, Highveld
and Samancor.
As with the first factor, the second factor, the relative
contributions and the expected returns, is not clearly identified or
addressed in New Zealand Steel. Regardless, we reject petitioners'
contention that we overlooked the risk and focused unduly on the
return. Our preliminary determination stated that we found the returns
projected in the IDC feasibility study were acceptable, and adequate to
support the IDC's investment (Preliminary Determination at 47266). The
feasibility study also contains an extensive analysis of the risk,
which we discussed at length at verification. Company Verification
Report at 9-10. In preparing the feasibility study, the IDC performed
numerous sensitivity analyses to determine the result on projected
returns of changes in variables related to the technical, marketing,
and financial aspects of the project, including future demand for
stainless steel, and world capacity for stainless steel production. The
IDC determined that the investment provided acceptable returns even in
the event of these contingencies. In addition, the IDC was deliberate
and objective in evaluating the project and prepared more conservative
projections (higher funding requirements and lower projected returns)
than the two partners had, and still determined the project's risk/
return profile to be within its investment parameters, parameters which
we find to be comparable to those that a private investor would accept.
In short, there is nothing about the project's risk vs. return that
indicates the IDC's investment is inconsistent with the usual
investment practice of private investors. Furthermore, it is not
appropriate, as petitioners urge, to conclude that the lack of
willingness on the part of the private sector indicates that the risks
outweighed the returns. The appropriate focus of our analysis is the
basis for the IDC's decision, the feasibility study. We also disagree
with petitioners' contention that the buy-out provision is one which
affords Highveld and Samancor undue protection from the project's risk.
To the contrary, we believe this provision protects the IDC's
investment and enables the IDC to recover most of its investment with a
guaranteed return, an option not available to the other two partners.
(At verification, IDC officials indicated that the IDC commonly seeks
to recover its capital in the medium term so it can use its resources
elsewhere. The IDC has begun to formalize this strategy, as indicated
in the CJV Agreement. See Government Verification Report at 6.)
Unlike the first two ``factors'' petitioners identify in New
Zealand Steel, the third factor, the feasibility study, is clearly
identified and addressed in New Zealand Steel (58 FR at 37368).
However, we find that the facts in New Zealand Steel differ
considerably from those presented here. In that case, the Department
discounted the objectivity of the feasibility study because so many of
its assumptions and conclusions were premised on ``the implementation
of specific commitments by the GONZ, such as the assurance of certain
financing, domestic market share, supply of raw materials, and
favorable tax treatment, in their projections of the revenues of the
project. Therefore, we find that the studies did not present an
objective assessment of the viability of the project, based on market
conditions.'' Id. The commitments of the GONZ were made solely for the
benefit of the steel producer. In other words, a private investor,
considering the same investment, would not have been able to control
the variables as the GONZ could (market share, tax treatment, raw
materials supply), and the projections in the feasibility study were
premised on controlling those variables.
In this case, as discussed above, we find that the IDC's
feasibility study was objective, and the availability of Section 37E
benefits was objectively accounted for in the feasibility study. (As a
tax-paying entity, the IDC appropriately analyzed the effects of this
tax program.) As IDC officials explained at verification, ``[a]lthough
the absence of 37E would have meant a higher level of capital
expenditures, the projections were still within the range of what the
IDC was prepared to undertake.'' Government Verification Report at 10.
Furthermore, we disagree with petitioners' assumption that the
feasibility study was not objective because it was not independently
prepared. At verification, an independent third party noted that ``many
commercial interests respect the IDC for its expertise in conducting
feasibility studies.'' Banker's Verification Report at 2. As we noted
in the Preliminary Determination, the IDC withheld its decision to
participate subject to modifications in the proposed project. 63 FR at
47266. This IDC action supports a conclusion that the IDC was actively
engaged in shaping the financial and operational structure of the
project, in order to protect its investment, as a commercial investor
would do. Thus, we determine that the analyses and conclusions
contained in the feasibility study are objective, and support a
determination that the IDC's investment was not inconsistent with the
usual investment practice of private investors.
We disagree with petitioners that the ``nature of the project,''
i.e., its structure as a joint venture partnership, rather than as a
corporation, indicates that the IDC's investment was inconsistent with
commercial considerations. To the contrary, we agree with respondents
that this structure supports a conclusion that the investment was not
countervailable. Record evidence shows that the tax advantages of the
partnership structure are clear, particularly for a capital-intensive
start-up company expected to sustain tax losses for several years. The
partners' interest in maximizing those tax advantages shows all three
of them to be acting as commercial actors, and making commercially-
consistent financial decisions. Furthermore, since we find that the
feasibility study which provided the basis for the IDC's investment
decision was objective and commercially consistent, it is not relevant
to our analysis whether the project would have gone forward without the
IDC's participation. However, we note that record evidence indicates
that the two partners had enough at stake and the resources to go
forward without the IDC; they ultimately had no reason to do so.
With respect to the fifth factor, we agree with respondents that we
do not have before us any arguments with respect to the economic
environment as a factor for analyzing the IDC's investment in Columbus.
Furthermore, in New Zealand Steel, we stated that ``analysis of the
economic environment is irrelevant,'' 58 FR at 37369, and we find no
reason to address that factor here.
Finally, we disagree with petitioners' argument that the IDC's
investment was conditioned on the receipt of Section 37E benefits.
While record evidence shows that this tax program enabled the partners
to reduce their capital outlays, and that the IDC deferred its
participation until that program was
[[Page 15561]]
implemented, the record also shows that the IDC did consider its
investment in the absence of Section 37E and found that it provided
acceptable returns nevertheless. The IDC's deferral was a commercially
sound action taken to ensure that the IDC would be able to both
consider all variables prior to making a final commitment and maximize
its projected return.
Comment 2: Specificity of Section 37E and IDC/Impofin Programs:
Respondents argue that, although the Department correctly found that
both the Section 37E and the IDC/Impofin lending programs were not de
jure specific, the Department's finding that the programs were de facto
specific was incorrect. Respondents contend that the Department failed
to satisfy the preconditions of any inquiry into the possibility of de
facto specificity, which is only to be made when ``there are reasons to
believe that a subsidy may be specific as a matter of fact.'' See
section 771(5A)(D)(iii) of the Act (implementing Article 2.1(c) of the
WTO Agreement on Subsidies and Countervailing Measures (SCM
Agreement)). Respondents contend that the Department made no effort to
satisfy this precondition in its preliminary determination and
``leaped'' from a determination of no de jure specificity to an
application of the de facto specificity criteria without first
identifying the reasons to believe that such specificity might exist.
Thus, the Department's specificity finding is invalid as a matter of
law.
Petitioners argue that respondents have overstated the statutory
requirements. While both the statute and the SCM Agreement contain the
``reasons to believe'' language, the law does not require the
Department to make or publish findings with respect to the ``reasons to
believe'' that a subsidy may be de facto specific. Respondents'
arguments read a requirement into the law that does not exist. In
addition, petitioners argue that the Department's analysis of a
domestic subsidy inherently demonstrates the agency's reasons to
believe that a subsidy may be de facto specific. Petitioners cite the
initiation standard (section 702(b)(1) of the Act) which instructs the
Department to initiate an investigation when the elements necessary for
the imposition of a countervailing duty are alleged, and conclude that
a decision to initiate an investigation of a program implies that the
Department has a reason to believe the subsidy may be de facto
specific. Furthermore, petitioners note that the petition contained
information which provided the Department with reasons to believe that
both the Section 37E and the IDC/Impofin programs may be de facto
specific.
Petitioners contend that respondents ignore the fact that a de jure
specificity analysis necessarily involves examining whether there are
reasons to believe that a subsidy may be specific as a matter of fact;
in the context of specificity in general, the Department examines the
same factual information: eligibility criteria, application process,
program records, and the identity of recipients. Finally, petitioners
note, and cite numerous examples of, the Department's longstanding
practice of first examining whether a subsidy is de jure specific and
then proceeding to the de facto analysis. Petitioners argue that if
this practice conflicted with the SCM, this conflict would have been
addressed in the Statement of Administrative Action (SAA), which
instead affirms the Department's practice in analyzing the de facto
specificity of domestic subsidies. Thus, petitioners reject
respondents' argument that the Department's analyses and determinations
that Section 37E and IDC/Impofin are de facto specific are inconsistent
with both the statute and the SCM.
Department's Position: We disagree with respondent's interpretation
of the ``reasons to believe'' language in section 771(5A)(D)(iii) of
the Act. It is not stated as a precondition to a de facto analysis and
we do not interpret it as such. While the language is part of the
definition of de facto specificity it is not presented as a threshold
requirement for positive evidence to justify an inquiry into how widely
available a subsidy, in fact, is. The type of program itself (e.g., a
development loan program) may be sufficient reason to believe that it
may, in fact, be limited to a specific industry or group of industries.
In contrast, there is normally no reason to believe that other types of
programs (e.g., standard tax deductions ) that are, de jure, available
to all businesses would, in fact, be specific. Thus, the Department
would not be required to perform a de facto analysis of such a program.
The nature of the subsidy at issue here warrants a de facto analysis.
Moreover, we note that the allegations in the petition would be
sufficient to meet even the higher standard that respondent would have
us employ.
Comment 3: de facto Specificity of Section 37E: Respondents argue
that in finding Section 37E to be de facto specific, on the basis that
the actual recipients of the subsidy, whether considered on an
enterprise or an industry basis, are limited, the Department also
ignored its statutory obligation to ``take into account the extent of
diversification of economic activities within the jurisdiction of the
authority providing the subsidy, and the length of time during which
the subsidy program has been in operation.'' See Section
771(5A)(D)(iii) of the Act. Respondents argue that the Department's
failure to consider these conditions renders invalid the Department's
finding that Section 37E is de facto specific. Respondents contend that
if the Department takes these two factors into account, the Department
will find that the recipients of Section 37E are not limited in number.
Respondents cite the verification report, which shows that nine
industries in six (of eleven) provinces, have benefitted from Section
37E. Respondents argue that economic sanctions led to the
diversification of the South African economy in the early 1990s, but
that many of the industries were not world-competitive, relied on
outdated technology, and were oriented to the domestic market, i.e.,
these industries would not be viable in an open economy. Thus, very few
companies were in a position to take advantage of Section 37E.
Respondents note that the applicants for Section 37E were further
limited by statutory criteria (to add at least 35 percent to the raw
material value, to be internationally competitive, to use foreign
credits to import capital goods), reflecting the GOSA's objective to
encourage growth in capital investment and employment. Thus, the most
likely projects to receive approval were ``mega-projects'' in terms of
capital, cost, timing and output, and such projects were rare.
In addition, respondents note that Section 37E was in operation for
only two years. The program's brief lifetime, therefore, further
restricted the pool of potential claimants. Respondents have provided a
letter from a former official of the Department of Trade and Industry
(DTI) who was involved in the development and administration of Section
37E. This letter demonstrates, according to respondents, that given the
economic conditions in South Africa at that time, 19 applications and
13 approvals were considerably more than had been expected. The 13
approved companies, according to the DTI official, reflected a spread
of activity, size and geographic location, and viewed in the South
African context, were not limited in number.
Petitioners argue that the GOSA's concession that the statutory
criteria limited the number of companies that could receive Section 37E
benefits supports a conclusion that Section 37E is de jure specific,
regardless of the extent of economic diversification in
[[Page 15562]]
South Africa. Petitioners note that verification documents show that
the original purpose of Section 37E was to benefit mineral
beneficiation projects, including Columbus. Petitioners further note
that the GOSA's statement that the number of applicants was
``considerably more than had been expected'' implies that, contrary to
GOSA's claim, the statute was implemented to assist a few select
industries and was not intended as a broad-based economic stimulus.
Thus, the Department should find not that the limited economic
diversification curtailed the potential number of program
beneficiaries, but that the law itself limited access to Section 37E,
making it de jure specific.
Petitioners also argue that Section 37E is de facto specific. In
making this argument, petitioners reject the GOSA's statement that
because nine different industries benefitted, the program was widely
used. Petitioners believe that the industrial breakdown provided by the
GOSA incorrectly disaggregates the industry groups and that stainless
steel, steel, aluminum, and ferrochrome should be considered as the
``metals'' industry, reducing to six the number of industries
benefitting from Section 37E. Finally, petitioners cite to the IDC's
1997 Annual Report, which shows the IDC's involvement in many different
sectors, in rejecting the GOSA's claim that there were few viable and
diversified sectors in the South African economy.
Finally, petitioners maintain that the short operation period of
Section 37E did not necessarily limit the number of program users.
Petitioners argue that since not all of the companies that were
approved for the program actually used it, some of the approved
companies may have applied without any definite investment plan, merely
to keep open the option to use the program in the future. Petitioners
conclude that, paradoxically, the narrow window of 37E operation may
have actually increased the number of applicants, rather than limiting
it.
Department's Position: We note, as explained in the ``Section 37E
Tax Allowances'' section above, that we have reconsidered our treatment
of Section 37E and find, for purposes of our final determination, that
it is specific because it constituted an export subsidy for purposes of
section 771(5A) of the Act at the time the CJV partners applied and
received approval for its benefits. Therefore, we need not address
respondents' arguments with respect to the de facto specificity of
Section 37E benefits.
Comment 4: Benefits Under Section 37E: Petitioners contend that the
Department should recognize the benefit under the Section 37E program
as the full amount of the tax allowances claimed by Columbus, rather
than use the time-value of money approach which the Department used for
the preliminary determination. Petitioners advance two arguments in
support of this proposed approach. First, petitioners contend that the
verified record questions whether the Columbus expansion project would
have gone forward without the availability of the 37E program to reduce
the expansion's capital requirements. This, in turn, raises doubts
about the potential receipt by the CJV partners of section 12C
depreciation allowances. In other words, petitioners argue that if the
CJV expansion had not gone forward (which it did, petitioners contend,
only because of the existence of the 37E program), then the CJV
partners would never have claimed any tax allowances related to
Columbus, even the depreciation allowances normally available to all
taxpayers under section 12C. Thus, petitioners contend that the
Department's preliminary determination was inappropriately premised on
the assumption that Columbus was clearly otherwise entitled to receive
normal depreciation allowances under section 12C. Petitioners also
contend that the Department erroneously calculated the benefit as the
difference between the depreciation allowances allowed under Section
37E and those normally available under section 12C (reducing the
benefit to the time-value of money difference), rather than assuming
that the full value of the allowances constituted a countervailable
subsidy. In support of this argument, petitioners cite to the recently
published countervailing duty regulations, which acknowledge the
problems inherent in speculating upon future tax benefits to a company
in relation to accelerated depreciation.
Second, petitioners argue that the Section 37E program provides for
the accelerated write-off of assets and therefore should be treated as
an accelerated depreciation program by the Department, that is, the
full amount of the allowances should be treated as a grant in the year
of receipt consistent with the Department's practice. Petitioners
reject the Department's time-value of money approach with respect to
Section 37E, claiming that the Department itself has consistently
rejected such an approach to accelerated depreciation programs, and
treated the benefits provided by those program as grants in the full
amounts of the accelerated depreciation claims. The Department's
rejection of this approach is explicit in the new countervailing duty
regulations. See Countervailing Duties; Final Rule, 63 FR 65348, at
65376 (November 25, 1998) New Regulations. In conclusion, petitioners
note that without Section 37E, there would have been no Columbus
expansion, and therefore no depreciation allowances, either under
Section 37E or 12C. Thus, the Department should not discount the value
of these benefits based upon speculation about what Columbus may have
received in the future under the South African tax code and should
treat the full amount of the Section 37E allowances as grants in the
years of receipt.
In addition, petitioners support the Department's treatment of
benefits under Section 37E as non-recurring benefits.
Respondents argue that to capture the full amount of the Section
37E benefits, without recognizing the applicable time-value of money
discount, is to ignore record evidence which shows that in the absence
of Section 37E, deductions in the same value were fully allowable under
section 12C from the date of Columbus' commissioning, October 1, 1995.
This record evidence clearly shows, according to respondents, that the
benefit is merely a matter of timing: under Section 37E, the Columbus
partners were able to claim the depreciation allowances (available
under both sections 37E and 12C) beginning at the time the relevant
expenses were incurred, rather than waiting nearly two years until the
equipment was in use.
Department's Position: We disagree with both of petitioners'
arguments for treating the total value of Section 37E allowances as
grants. First, whether the Columbus project would have gone forward
absent the existence of the countervailable depreciation allowances
under Section 37E is not relevant to our examination of the program and
its benefits. While petitioners are correct in noting that, without the
investment in the CJV, Columbus' partners would have claimed no
depreciation allowances, either under Section 37E or the otherwise
governing section 12C, it is not appropriate to speculate about the tax
positions of the partners absent the investment which gave rise to the
depreciation allowances (regardless of which provision of the tax code
governed). It is the Department's long-standing practice to recognize
that ``a benefit exists to the extent that the taxes paid by a firm as
a result of the program are less than the taxes a firm would have paid
in the absence of the
[[Page 15563]]
program.'' See 1989 Proposed Regulations 54 FR at 23372. In other
words, the Department appropriately focused on the Columbus expansion
project, and compared the tax experience (in this case of the partners)
under the countervailable Section 37E program with the experience which
would have prevailed absent the program. In the factual circumstances
in this case, the Columbus partners' tax experiences in the absence of
the investment are not relevant in quantifying the benefit provided to
respondents from the Section 37E program.
Furthermore, petitioners' statement that the Department wishes to
avoid speculating on the future tax benefits to a company is misplaced
for two reasons. In general, and consistent with the Department's
practice of recognizing a benefit at the time that it is received, the
Department avoids calculating tax benefits which are contingent on a
company's future tax position--if a company is in a tax loss position
during the POI or for a prolonged period, benefits from countervailable
tax deductions or tax credit programs may not materialize. In
particular, petitioners overlook two details in this case which remove
any speculation from the Department's analysis: the existence of the
Section 37E program reduced the partners' projection of the project's
capital requirements and therefore resulted in a cash flow impact at
the time the partners' investments were made (see Preliminary
Determination at 47265); and, the provision of the Negotiable Tax
Credit Certificates (NTCCs) which the users of the program could
receive and convert into cash if they were in a tax-loss position
(depreciation allowances under Section 12C can only be used as
deductions to taxable income and therefore have no immediate value to
taxpayers in tax-loss positions). Thus the cash-flow of the Section 37E
benefits to the CJV partners is immediately measurable, and its timing
is easily pinpointed; there is no speculation about the value of the
countervailable allowances as there would be if the allowances were
available only as deductions to taxable income and we were examining a
company in a tax-loss position.
We also disagree with petitioners that it would be appropriate to
treat the tax benefits under Section 37E as accelerated depreciation.
As a threshold matter, Section 37E does not operate like an accelerated
depreciation program, which allows its users to depreciate assets over
an accelerated (i.e., shorter) period of time. For example, where
companies are normally allowed to depreciate equipment over 20 years,
accelerated depreciation would allow for depreciation over ten years.
Such a program would provide tax savings, vis-a-vis the normal
depreciation schedule, over the period of the accelerated depreciation,
in this example ten years. We would normally treat this tax savings as
a recurring subsidy and allocate the benefits to the year in which tax
savings were achieved.
However, we note that Section 37E does not function like an
accelerated depreciation program. As respondents reported, and as was
confirmed at verification, users of this program depreciate their
capital equipment, buildings and machinery, over the same five-year
period allowed under section 12C, the tax code provision governing
depreciation. We agree with respondents that the advantage which
Section 37E allows is that companies can begin depreciating equipment,
buildings and machinery, in the year in which the purchases of the
equipment are made, rather than having to wait until the equipment is
in use, as they would under section 12C. As we verified in the case of
Columbus, a large, capital-intensive project with a necessarily long
construction period, the use of Section 37E enabled the partners to
claim depreciation allowances two or three years in advance (depending
on the partner's tax year). (Capital equipment purchases began in 1993
and the plant was officially commissioned on October 1, 1995. The
plant's commissioning date was established by the South African tax
authorities, as equipment purchases made beyond that date were not
eligible for Section 37E depreciation.)
Thus, the benefits under this program are twofold: the opportunity
to claim the depreciation allowances in advance of the time a company
would otherwise be able to do so--that is, the time value of receiving
the allowances in advance; and, the ability to turn the allowances into
cash, through the use of the NTCCs, if a company has no tax liabilities
to reduce with the depreciation allowances which would otherwise
constitute tax deductions. Therefore, we will continue to use the
calculation methodology we used for the purposes of the preliminary
determination, with only the modifications indicated in the discussion
of the program above and in the Department's Position on Comment 5
below.
Comment 5: Calculation Methodology for Section 37E: Respondents
note that if the Department persists in finding Section 37E benefits
countervailable, the Department must correct errors in the calculation
of the subsidy rate. Respondents argue that the Department should
calculate the time-value of money, and thus the grant equivalents of
Columbus' Section 37E advanced depreciation claims, only for Section
37E allowances claimed prior to the date of Columbus' official
commissioning--October 1995. Respondents contend that depreciation
claims for years after that date do not result in countervailable
benefits to Columbus' partners because, after commissioning, the
partners would have begun claiming depreciation of Columbus' assets
under section 12C; these claims would have been in the same value as
and contemporaneous to depreciation allowances claimed under Section
37E. Therefore, respondents contend that Columbus only benefitted from
advanced depreciation under Section 37E for the years 1995/1996
(depending on the partners' respective tax years) and earlier. They
propose that the benefit is limited to the time-value of money realized
by the depreciation claims made for years for which Columbus otherwise
could not have claimed depreciation.
Petitioners reject respondents' proposed corrections to the
calculations on two accounts. First, petitioners reiterate their
argument that the time-value of money treatment is flawed and has been
rejected by the Department (see Department's Position on Comment 4
above). Second, petitioners argue that respondents' proposed correction
rests on an erroneous analytical assumption with respect to the timing
of depreciation claims (the details of which are proprietary).
Department's Position: We disagree with respondents that Columbus
benefitted from Section 37E only to the extent that the partners
claimed depreciation allowances for years for which they otherwise
could not have claimed depreciation allowances under section 12C. As
explained above, by claiming depreciation in advance, Columbus'
partners were able to realize capital savings which directly reduced
the projects's financing requirements. Section 37E benefits were more
than just a tax benefit. Therefore, the advanced depreciation claimed
under Section 37E results in an ongoing benefit to the company, and the
Department correctly found a benefit to Columbus in the advanced
depreciation claimed under Section 37E throughout the length of the
depreciation schedule. In other words, for each of the five years of
the depreciation schedule, we calculated a grant equivalent; we then
allocated each grant equivalent over the AUL of 15 years.
[[Page 15564]]
With regard to the contentions that the preliminary calculations
contained errors, we have reviewed the calculation methodology used for
our preliminary determination and have made corrections. For the
preliminary determination, we incorrectly used two years as the sole
basis for determining the time value, and thus the grant equivalent, of
the advanced depreciation claimed under Section 37E by the three
Columbus partners in each year of the depreciation schedule. We have
adjusted our final calculations to reflect two years as the basis for
calculating the time value of the yearly claims made by Highveld and
three years as the basis for calculating the time value of the yearly
claims made by Samancor and the IDC. This adjustment reflects the
different tax years of the companies, the actual timing of the
companies' tax claims, and their actual receipt of benefits under the
program.
Comment 6: De Facto Specificity of IDC/Impofin Lending:
Notwithstanding what respondents view as the Department's failure to
satisfy the statutory preconditions to a de facto specificity analysis,
discussed in Comment 2 above, respondents argue that the IDC/Impofin
program is not de facto specific. The preliminary determination was
based on the fact that the ``fabricated metal products'' and the
``basic metal products'' industries are predominant users of the
program and that these industries have received more than fifty
percent, by value, of the total loan guarantees awarded over the life
of the program. Preliminary Determination at 47266. Respondents argue
that by examining value, the Department did not account for the three
``mega projects'' in the basic metal manufacture industries; these huge
and extraordinary projects necessarily skew the results of any analysis
based on value. Respondents note that in order to properly evaluate
whether there is a predominant user of a program, one must analyze the
number of loans and their distribution by industry, not the value of
the loans and the distribution of that value by industry. Respondents
cite verification documents which show no predominant user on this
basis: 12 percent of approvals were for the basic metal manufacturing
and fabricated metal products industries; the mining industry received
14.7 percent; the pulp and paper industry and the engine and vehicle
industry each received 11.2 percent.
Respondents further note that the South African economy is
dependent on the beneficiation of local raw materials for economic
growth. The abundance of minerals and energy resources present
competitive advantages for large-scale beneficiation; thus, investment
in industrial infrastructure, in value terms, favors large
beneficiation projects. These competitive advantages are centered in
South Africa's basic metal manufacture industry. The fact that
industrial development initiatives and the accompanying IDC/Impofin
financing are weighted by value toward this industry does not indicate
disproportionate use; rather, respondents conclude, it is a valid
reflection of the sources available for beneficiation.
Petitioners note that respondents' comparison of the number of
users, without examining the distribution of benefits, suggests not
that the program was disproportionately used but rather that the steel
industry was a dominant user of the program. Petitioners argue that the
statute does not require the Department to make an exception for ``mega
projects'' which may skew the distribution of benefits, and that this
factor would necessarily lead the Department to a de facto specificity
finding based on disproportionate use. According to petitioners, the
Department cannot view only the number of projects without considering
the relative weights of assistance by enterprise, industry, or group
thereof. In addition, petitioners note that the Department's
examination of IDC/Impofin financing over a seven-year period accounts
for any ``skewed'' result caused by a mega-project in a particular
year. Petitioners also note that the sectoral distribution of benefits
was confirmed at verification.
Department's Position: We stand by our preliminary determination
that the IDC/Impofin loan guarantee program provides benefits which are
de facto specific to an enterprise, industry, or group thereof within
the meaning of section 771(5A)(D)(iii) of the Act. We disagree with
respondents' suggestion that the appropriate basis for our analysis is
the number of loan guarantees and their distribution by industry and we
note the Department's practice of examining the distribution of
benefits, by value, when analyzing whether a program is de facto
specific because an industry or group of industries is the predominant
user of the program or receives a disproportionate share of the
benefits granted under a program. See, e.g., Final Affirmative
Countervailing Duty Determination: Certain Stainless Steel Wire Rod
from Italy, 63 FR 40474, 40485 (July 29, 1998). Respondents' statement
that there were three ``mega-projects'' which necessarily skewed the
distribution of benefits in fact supports the Department's specificity
finding. In our preliminary determination, we found that the
information provided by the IDC regarding the distribution of benefits
(by value) over the life of the program showed that the ``basic metals
manufacture industry'' (which includes the manufacture of stainless
steel) and the ``fabricated metal products industry'' together received
more than half of the loan guarantees awarded over the life of the
program. See Preliminary Determination, 63 FR at 47266. In fact,
information which respondents submitted with their brief enables us to
refine our finding of de facto specificity for this final
determination. This information shows that, by value, the steel
industry (including stainless steel) received more than half of all
loan guarantee approvals (the rest of the industries using the
program--including the mining, agriculture, and chemical industries,
among others--together accounted for less than half of the loan
approvals by value). This is clear evidence that the steel industry is
a predominant user of this program and thus it is de facto specific.
Furthermore, if we perform an analysis of the information which
respondents presented in their case brief parallel to the analysis in
our preliminary determination, this information shows that the basic
metals manufacture and the fabricated metal products industries
received more than three-quarters of all loan guarantee approvals, by
value. Thus, these two industries together are clearly predominant
users of the program.
By examining the distribution of benefits over time, the Department
accounts for any anomalous industry-specific activity in a particular
year. The fact that three mega-projects received the bulk of the loan
guarantees supports our finding of de facto specificity based on
predominant use, as these three projects are in the basic metal
manufacture industry (basic iron and steel, stainless steel and
aluminum). Finally, the information which respondents have provided
with respect to the South African economy's dependence on the
beneficiation of raw materials is not relevant to our analysis.
Comment 7: Calculation Methodology for IDC/Impofin Lending:
Respondents argue that the interest rates which Columbus paid for IDC/
Impofin financing were not preferential, as they were established by
reference to independently-prescribed rates that reflected prevailing
market conditions. The interest rates for the loans were either the
Commercial Interest Reference Rate (CIRR) or the London Interbank
Offered Rate (LIBOR) plus a
[[Page 15565]]
margin. The CIRR were fixed by the foreign export credit agency (ECA)
for the full loan term at the time of the loan negotiation and
contract; the LIBOR-based rates were variable rates.
For all of the loans, respondents note, Columbus paid to the
foreign banks management and commitment fees, typically 0.5 percent and
0.25 percent, respectively, and to the IDC/Impofin a facility
(guarantee) fee of 0.25 percent. Respondents argue that these fees were
comparable to fees paid by other borrowers. In addition, for some of
the loans, Columbus paid export credit insurance premiums to the banks,
which in turn paid these fees to their respective export credit
agencies. Respondents argue that there is no evidence in the record
that the various fees and premiums paid by Columbus were preferential.
Petitioners argue that regardless of how the interest rates were
established (by the CIRR or LIBOR), the verification report indicates
that the rates were clearly not based upon loans to Columbus; rather
they were ``based on the risk associated with lending to the IDC.''
(Government Verification Report at 11-12.) Since, as the verification
report indicates, ``foreign banks like to use the IDC as a borrower
because they do not have to investigate the credit of each borrowing
firm,'' id., petitioners argue that the interest rates paid by Columbus
program are preferential.
Petitioners also contend that Columbus would not have received
financing without the IDC and GOSA guarantees. Petitioners note that,
because the IDC was a partner, Columbus did not have to formally apply
for financing or undergo the IDC's risk assessment; foreign lenders
required the IDC to guarantee the loans because Columbus had no
established credit history; and, some countries required an additional
back-up guarantee from the GOSA. Id. at 13. Petitioners contend that
this information further demonstrates that IDC financing conferred a
benefit.
Department's Position: As discussed in the ``IDC/Impofin Loan
Guarantee Program'' section above, the Department has revised the
analysis of the program from the preliminary determination. Because
these loans originate either with foreign government export credit
agencies or offshore foreign banks in coordination with foreign
government export credit agencies, which are not under the direction or
control of the GOSA, the loans themselves are not countervailable and
it is inappropriate to compare the interest rates charged by offshore
foreign banks to commercial interest rates in order to determine
whether the program provides a benefit to Columbus. For the same
reason, an examination of the fees paid to the foreign government banks
is inappropriate. Thus, respondent's and petitioners' comments on the
benchmark, fees to foreign government banks, and whether the program
provides a benefit using this type of analysis, need not be addressed.
Instead, we have determined that it is appropriate to focus on the fee
charged by the IDC for the guarantee on these loans.
With respect to respondent's comment that there is no evidence that
the fees charged by the IDC were preferential, we disagree. As
discussed in greater detail in the ``IDC/Impofin Loan Guarantee
Program'' section above, we have determined, based on conversations
with an independent banker in South Africa, that a commercial bank
would offer Columbus similar guarantees at a slightly higher rate,
0.375 percent. Thus, when we compare what Columbus paid the IDC for the
provision of guarantees, 0.25 percent, and what it would have paid a
commercial bank, 0.375 percent, we find that the IDC did provide a
financial contribution that confers a benefit within the meaning of the
Act.
Comment 8: IDC/Impofin Financing Calculation Adjustments:
Petitioners argue that the Department's calculations for the IDC/
Impofin financing understate the benefits to Columbus from this
program. First, petitioners urge the Department to adhere to the
preliminary determination, in which the Department stated that it would
gather information about commercial fees and add an appropriate amount
to the benchmark for the purposes of calculating the benefit for the
final determination. Second, petitioners urge the Department to treat
interest capitalizations not as interest payments but as increases in
principal and to avoid double-counting the payment of capitalized
interest in calculating the net present value. Third, in the absence of
any record information regarding grace periods on loans in South
Africa, petitioners argue that the Department should capture any
countervailable benefits associated with the grace periods granted to
Columbus for its IDC/Impofin financing. Fourth, the Department should
correct errors which resulted in the finding of no benefit for some of
the loan tranches examined. Finally, the Department should include in
its loan calculations several loans, outstanding during the POI, which
were omitted from Columbus' questionnaire responses and which were
discovered at verification.
Respondents argue that since the Department's de facto specificity
finding is in error, and the interest rates provided on the IDC/Impofin
financing are not preferential, there is no need to comment on the
manner in which the benefit should be calculated.
Department's Position: As discussed above, we have changed our
analysis of the IDC/Impofin loan program. Thus, we need not address
petitioners' comments with respect to adding fees to the benchmark,
interest capitalization and grace periods. The Department did collect
information about the guarantee fees that commercial banks charged, and
based on this information, we have calculated a benefit comparing what
Columbus paid the IDC to guarantee the loans under this program and
what Columbus would have paid on comparable commercial guarantees. We
have included the fees paid during the POI on loan tranches that were
discovered at verification in our calculation of the benefit from the
program.
With respect to Respondent's comment, we disagree. As discussed in
the program description above and the Department's Position on Comment
6 above, we find that the IDC/Impofin loan guarantee program is de
facto specific.
Comment 9: Discount Rate: Petitioners argue that the Department
should adjust the discount rate used in the preliminary determination
because, although the Department relied on the long-term South African
government bond rate as the discount rate, the Department noted its
interest in finding a more appropriate rate for the final
determination. Petitioners contend that discussions at verification of
the Prime Overdraft rate (the rate at which commercial banks lend to
their best customers), and the spreads added to it, support the use of
this rate plus 50 to 60 basis points as the discount rate for the final
determination.
Respondents note that the CIRR and LIBOR are the appropriate
benchmark interest rates, and that application of these rates yields no
countervailable benefits from the IDC/Impofin loans. Therefore, a
benchmark based on South African lending rates is irrelevant.
Department's Position: Petitioners are correct that the Department
expressed interest in finding an alternative discount rate for use in
the final determination. However, as discussed in the section entitled
``Discount Rates'' above, we did not find an alternative long-term
fixed interest rate. Thus, for the purposes of this final
determination, we have constructed a discount rate by averaging the
government bond rate as
[[Page 15566]]
reported by respondents with the ``Lending Rate'' reported in
International Financial Statistics, December 1998, published by the
International Monetary Fund. By averaging these two rates, we believe
that we have identified a rate more appropriate than the rate used for
the purposes of the preliminary determination, a rate which includes
the necessary characteristics of both long-term borrowing and
commercially-available interest rates.
We disagree with petitioners' suggestion of using the Prime
Overdraft rate plus 50 to 60 basis points, as that rate is not a long-
term fixed interest rate. Respondents' comment is misplaced as the
original comment addressed the choice of discount rates for use in
calculating the benefit from non-recurring subsides, not the benchmark
used in calculating the benefit from the IDC/Impofin loan program. The
calculation methodology for the IDC/Impofin loan program is discussed
in the Department's Position on Comment 8, above.
Comment 10: Average Useful Life of Assets: Petitioners argue that
the Department should use five years as the average useful life of
assets (AUL), as facts available, for purposes of allocating non-
recurring benefits over time. In support of this argument, petitioners
note that Columbus did not provide information that would allow the
Department to calculate an AUL, despite the Department's repeated
requests for such information. Petitioners note that the statute
justifies the Department's use of adverse facts available (see sections
776, 782(d) and (e) of the Act) because of Columbus' unwillingness to
provide the requested information. Petitioners argue that five years is
the appropriate AUL for two reasons: first, the Department confirmed at
verification that Columbus depreciates assets for tax purposes over
five years from the date of commissioning; second, Columbus' refusal to
provide the information after a preliminary determination in which the
Department used 15 years, as facts available and based on the IRS
tables, supports the conclusion 15 years is more beneficial than the
AUL that Columbus would have reported. Petitioners cite D & L Supply
Company versus United States, 113 F. 3d 1220, 1223 (Fed. Cir. 1997) and
Censaldo Componenti S.p.A. versus United States, 628 F. Supp. 198 (CIT
1986) to support their contention that Columbus should not be allowed
to benefit from its refusal to cooperate with the Department's
information requests.
Respondents argue that petitioners are incorrect in stating that
Columbus has persistently failed to provide information about its AUL.
Questionnaire responses indicate that Columbus depreciates buildings
over 40 years and plant and machinery, vehicles and equipment over four
to 25 years. Further, Columbus has consistently expressed its view
that, since Columbus has never received a non-recurring grant or any
other allocable subsidy from the GOSA, further information about its
AUL is unnecessary. Thus, petitioners inappropriately draw an adverse
inference from Columbus' carefully explained response.
Department's Position: We disagree with petitioners. Using five
years as the allocation period for any non-recurring grants received by
Columbus is unwarranted for two reasons. First, respondents did provide
information about their general depreciation practices: buildings are
depreciated over 40 years and plant and machinery, vehicles and
equipment are depreciated over four to 25 years. While this information
does not enable the Department to calculate an average useful life of
assets, it does not warrant the use of an adverse inference in
determining Columbus' AUL, as petitioner urges. Second, five years is
not at all relevant to the actual average useful life of assets in the
steel industry. Thus, without a basis for calculating a company-
specific AUL, we find that the most reasonable alternative is to rely
on the IRS Tables, which do reflect a reasonable determination of the
AUL of assets in the steel industry. In addition, using 15 years as the
allocation period is reasonable in light of the information which
Columbus did provide about its depreciation practices. Further, the
``Allocation Period'' section above discusses the Department's practice
of determining the allocation period for non-recurring subsidies using
company-specific AUL data where reasonable and practicable, and relying
on the IRS Tables when company-specific AUL data are not available or
otherwise cannot be used.
Verification
In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with the government
and company officials, and examining relevant accounting records and
original source documents. Our verification results are outlined in
detail in the public versions of the verification reports, which are on
file in the CRU.
Suspension of Liquidation
In accordance with section 705(c)(1)(B)(i) of the Act, we have
calculated an individual subsidy rate for Columbus Stainless, the
operating unit of the Columbus Joint Venture. Because this is the only
company under investigation, Columbus' rate serves as the all-others
rate. We determine that the total estimated net countervailable subsidy
rate is 3.93 percent ad valorem for Columbus.
In accordance with our preliminary affirmative determination, we
instructed the U.S. Customs Service to suspend liquidation of all
entries of stainless steel plate in coils from South Africa which were
entered, or withdrawn from warehouse, for consumption on or after
September 4, 1998, the date of the publication of our preliminary
determination in the Federal Register. In accordance with section
703(d) of the Act, we instructed the U.S. Customs Service to
discontinue the suspension of liquidation for merchandise entered on or
after January 2, 1999, but to continue the suspension of liquidation of
entries made between September 4, 1998, and January 1, 1999. We will
reinstate suspension of liquidation under section 706(a) of the Act if
the ITC issues a final affirmative injury determination, and will
require a cash deposit of estimated countervailing duties for such
entries of merchandise in the amounts indicated above. If the ITC
determines that material injury, or threat of material injury, does not
exist, this proceeding will be terminated and all estimated duties
deposited or securities posted as a result of the suspension of
liquidation will be refunded or canceled.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and non-proprietary information related to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files provided the ITC confirms
that it will not disclose such information, either publicly or under an
administrative protective order, without the written consent of the
Assistant Secretary for Import Administration.
If the ITC determines that material injury, or threat of material
injury, does not exist, this proceeding will be terminated and all
estimated duties deposited or securities posted as a result of the
suspension of liquidation will be refunded or canceled. If, however,
the ITC determines that such injury does
[[Page 15567]]
exist, we will issue a countervailing duty order.
Return or Destruction of Proprietary Information
In the event that the ITC issues a final negative injury
determination, this notice will serve as the only reminder to parties
subject to Administrative Protective Order (APO) of their
responsibility concerning the return or destruction of proprietary
information disclosed under APO in accordance with 19 CFR 355.34(d).
Failure to comply is a violation of the APO.
This determination is published pursuant to sections 705(d) and
777(i) of the Act.
Dated: March 19, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-7530 Filed 3-30-99; 8:45 am]
BILLING CODE 3510-DS-P