[Federal Register Volume 64, Number 142 (Monday, July 26, 1999)]
[Notices]
[Pages 40457-40463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18858]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-560-806]


Preliminary Affirmative Countervailing Duty Determination and 
Alignment of Final Countervailing Duty Determination With Final 
Antidumping Duty Determination: Certain Cut-to-Length Carbon-Quality 
Steel Plate From Indonesia

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

EFFECTIVE DATE: July 26, 1999.

FOR FURTHER INFORMATION CONTACT: Kathleen Lockard or Eva Temkin, Office 
of CVD/AD Enforcement VI, Import Administration, U.S. Department of 
Commerce, Room 4012, 14th Street and Constitution Avenue, NW, 
Washington, DC 20230; telephone (202) 482-2786.

PRELIMINARY DETERMINATION: The Department of Commerce (the Department) 
preliminarily determines that countervailable subsidies are being 
provided to certain producers and exporters of certain cut-to-length 
carbon-quality steel plate from Indonesia. For information on the 
estimated countervailing duty rates, please see the ``Suspension of 
Liquidation'' section of this notice.

SUPPLEMENTARY INFORMATION:

Petitioners

    The petition in this investigation was filed by Bethlehem Steel 
Corporation, U.S. Steel Group, a unit of USX Corporation, Gulf States 
Steel, Inc., IPSCO Steel, Inc., Tuscaloosa Steel Corporation, and the 
United Steel Workers of America (the petitioners).

Case History

    Since the publication of the notice of initiation in the Federal 
Register (see Initiation of Countervailing Duty Investigations: Certain 
Cut-To-Length Carbon-Quality Steel Plate from France, India, Indonesia, 
Italy, and the Republic of Korea, 64 FR 12996 (March 16, 1999) 
(Initiation Notice)), the following events have occurred. On March 16, 
1999, we issued countervailing duty questionnaires to the Government of 
Indonesia (GOI), and the producers/exporters of the subject 
merchandise. On April 21, 1999, we postponed the preliminary 
determination of this investigation until no later than July 16, 1999. 
See Certain Cut-to-Length Carbon-Quality Steel Plate From France, 
India, Indonesia, Italy, and the Republic of Korea: Postponement of 
Time Limit for Countervailing Duty Investigations, 64 FR 23057 (April 
29, 1999).
    We received responses to our initial questionnaires from the GOI 
and two of the three producers of the subject merchandise, PT Gunawan 
Dianjaya Steel (Gunawan), and PT Jaya Pari Steel Corporation (Jaya 
Pari), on April 29, 1999. On May 11, 1999 and June 3, 1999, we issued 
supplemental questionnaires to the responding parties. On June 7, 1999, 
petitioners alleged additional subsidies that were not contained in the 
original petition. We determined to include these allegations in this 
investigation on June 21, 1999. See Memorandum for Bernard Carreau, 
Deputy Assistant Secretary for AD/CVD Enforcement Group II, a public 
document on file in the Central Records Unit, room B-099 of the Main 
Commerce Building (CRU). We issued a questionnaire addressing these 
programs on June 22, 1999. We received additional responses between 
June 1, 1999 and July 14, 1999.

Scope of Investigation

    The products covered by this scope are certain hot-rolled carbon-
quality steel: (1) Universal mill plates (i.e., flat-rolled products 
rolled on four faces or in a closed box pass, of a width exceeding 150 
mm but not exceeding 1250 mm, and of a nominal or actual thickness of 
not less than 4 mm, which are cut-to-length (not in coils) and without 
patterns in relief), of iron or non-alloy-quality steel; and (2) flat-
rolled products, hot-rolled, of a nominal or actual thickness of 4.75 
mm or more and of a width which exceeds 150 mm and measures at least 
twice the thickness, and which are cut-to-length (not in coils).
    Steel products to be included in this scope are of rectangular, 
square, circular or other shape and of rectangular or non-rectangular 
cross-section where such non-rectangular cross-section is achieved 
subsequent to the rolling process (i.e., products which have been 
``worked after rolling'')--for example, products which have been 
beveled or rounded at the edges. Steel products that meet the noted 
physical characteristics that are painted, varnished or coated with 
plastic or other non-metallic substances are included within this 
scope. Also, specifically included in this scope are high strength, low 
alloy (HSLA) steels. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium, 
titanium, vanadium, and molybdenum.
    Steel products to be included in this scope, regardless of 
Harmonized Tariff Schedule of the United States (HTSUS) definitions, 
are products in which: (1) Iron predominates, by weight, over each of 
the other contained elements, (2) the carbon content is two percent or 
less, by weight, and (3) none of the elements listed below is equal to 
or exceeds the quantity, by weight, respectively indicated:

1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent zirconium.

    All products that meet the written physical description, and in 
which the chemistry quantities do not equal or exceed any one of the 
levels listed above, are within the scope of these investigations 
unless otherwise specifically excluded. The following products are 
specifically excluded from these investigations: (1) Products clad, 
plated, or coated with metal, whether or not painted, varnished or 
coated with plastic or other non-metallic substances; (2) SAE grades 
(formerly AISI grades) of

[[Page 40458]]

series 2300 and above; (3) products made to ASTM A710 and A736 or their 
proprietary equivalents; (4) abrasion-resistant steels (i.e., USS AR 
400, USS AR 500); (5) products made to ASTM A202, A225, A514 grade S, 
A517 grade S, or their proprietary equivalents; (6) ball bearing 
steels; (7) tool steels; and (8) silicon manganese steel or silicon 
electric steel.
    The merchandise subject to these investigations is classified in 
the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030, 
7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000, 
7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045, 
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050, 
7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000, 
7226.91.8000, 7226.99.0000.
    Although the HTSUS subheadings are provided for convenience and 
Customs purposes, the written description of the merchandise under 
investigation is dispositive.

Scope Comments

    As stated in our notice of initiation, we set aside a period for 
parties to raise issues regarding product coverage. In particular, we 
sought comments on the specific levels of alloying elements set out in 
the description below, the clarity of grades and specifications 
excluded from the scope, and the physical and chemical description of 
the product coverage.
    On March 29, 1999, Usinor, a respondent in the French antidumping 
and countervailing duty investigations and Dongkuk Steel Mill Co., Ltd. 
and Pohang Iron and Steel Co., Ltd., respondents in the Korean 
antidumping and countervailing duty investigations (collectively the 
Korean respondents), filed comments regarding the scope of the 
investigations. On April 14, 1999, the petitioners responded to 
Usinor's and the Korean respondents' comments. In addition, on May 17, 
1999, ILVA S.p.A. (ILVA), a respondent in the Italian antidumping and 
countervailing duty investigations, requested guidance on whether 
certain products are within the scope of these investigations.
    Usinor requested that the Department modify the scope to exclude: 
(1) Plate that is cut to non-rectangular shapes or that has a total 
final weight of less than 200 kilograms; and (2) steel that is 4'' or 
thicker and which is certified for use in high-pressure, nuclear or 
other technical applications; and (3) floor plate (i.e., plate with 
``patterns in relief'') made from hot-rolled coil. Further, Usinor 
requested that the Department provide clarification of scope coverage 
with respect to what it argues are over-inclusive HTSUS subheadings 
included in the scope language.
    The Department has not modified the scope of these investigations 
because the current language reflects the product coverage requested by 
the petitioners, and Usinor's products meet the product description. 
With respect to Usinor's clarification request, we do not agree that 
the scope language requires further elucidation with respect to product 
coverage under the HTSUS. As indicated in the scope section of every 
Department antidumping and countervailing duty proceeding, the HTSUS 
subheadings are provided for convenience and Customs purposes only; the 
written description of the merchandise under investigation or review is 
dispositive.
    The Korean respondents requested confirmation whether the maximum 
alloy percentages listed in the scope language are definitive with 
respect to covered HSLA steels.
    At this time, no party has presented any evidence to suggest that 
these maximum alloy percentages are inappropriate. Therefore, we have 
not adjusted the scope language. As in all proceedings, questions as to 
whether or not a specific product is covered by the scope should be 
timely raised with Department officials.
    ILVA requested guidance on whether certain merchandise produced 
from billets is within the scope of the current CTL plate 
investigations. According to ILVA, the billets are converted into wide 
flats and bar products (a type of long product). ILVA notes that one of 
the long products, when rolled, has a thickness range that falls within 
the scope of these investigations. However, according to ILVA, the 
greatest possible width of these long products would only slightly 
overlap the narrowest category of width covered by the scope of the 
investigations. Finally, ILVA states that these products have different 
technological properties and mechanical uses than merchandise covered 
by the scope of the investigations and therefore are not covered by the 
scope of the investigations.
    As ILVA itself acknowledges, the particular products in question 
appear to fall within the parameters of the scope and, therefore, we 
are treating them as covered merchandise for purposes of these 
investigations.

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the 
Act). In addition, unless otherwise indicated, all citations to the 
Department's regulations are to the current regulations as codified at 
19 CFR Part 351 (1998) and to the substantive countervailing duty 
regulations published in the Federal Register on November 25, 1998 (63 
FR 65348) (CVD Regulations).

Injury Test

    Because Indonesia 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 Indonesia materially injure, or threaten 
material injury to, a U.S. industry. On April 8, 1999, 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 Indonesia of the subject merchandise. See Certain Cut-To-
Length Carbon-Quality Steel Plate from the Czech Republic, France, 
India, Indonesia, Italy, Japan, Korea, and Macedonia, 64 FR 17198 
(April 8, 1999).

Alignment With Final Antidumping Duty Determination

    On July 2, 1999, the petitioners submitted a letter requesting 
alignment of the final determination in this investigation with the 
final determination in the companion antidumping duty investigation. 
See Initiation of Antidumping Duty Investigations: Certain Cut-to-
Length Carbon-Quality Steel Plate from the Czech Republic, France, 
India, Indonesia, Italy, Japan, the Republic of Korea, and the Former 
Yugoslav Republic of Macedonia, 64 FR 12959 (March 16, 1999). 
Therefore, in accordance with section 705(a)(1) of the Act, we are 
aligning the final determination in this investigation with the final 
determinations in the antidumping investigations of cut-to-length 
plate.

Period of Investigation

    The period of investigation for which we are measuring subsidies 
(the POI) is calendar year 1998.

Attribution of Subsidies

    Section 351.525 of the CVD Regulations states that the Department

[[Page 40459]]

will attribute subsidies received by two or more corporations to the 
products produced by those corporations where cross ownership exists. 
According to Sec. 351.525(b)(6)(vi) of the CVD Regulations, cross-
ownership exists between two or more corporations where one corporation 
can use or direct the individual assets of the other corporation in 
essentially the same ways it can use its own assets. The regulations 
state that this standard will normally be met where there is a majority 
voting ownership interest between two corporations. The preamble to the 
CVD Regulations, identifies situations where cross ownership may exist 
even though there is less than a majority voting interest between two 
corporations: ``in certain circumstances, a large minority interest 
(for example, 40 percent) or a `golden share' may also result in cross-
ownership.'' See 63 FR 65401.
    Because we have preliminarily found both Gunawan and Jaya Pari to 
have zero subsidy rates, we do not reach the question of whether the 
relationship between the companies satisfies the standard of cross-
ownership. However, if we discover subsidies at verification or 
otherwise modify our findings so that one or more of the companies does 
have a subsidy rate for the final determination, we will consider 
whether there is cross-ownership between Gunawan and Jaya Pari and 
thus, whether, for purposes of calculating a countervailing duty rate, 
we should attribute any subsidies received by either or both companies 
to the products produced by both companies. Accordingly, we invite the 
parties to comment on whether the relationship between the firms 
satisfies our new cross-ownership standard.

Use of Facts Available

    PT Krakatau Steel (Krakatau), a producer of subject merchandise, 
failed to respond to the Department's questionnaire. Section 776(a)(2) 
of the Act requires the use of facts available when an interested party 
withholds information that has been requested by the Department, or 
when an interested party fails to provide the information requested in 
a timely manner and in the form required. As described in more detail 
below, Krakatau has failed to provide information explicitly requested 
by the Department; therefore, we must resort to the facts otherwise 
available.
    In using the facts otherwise available, however, the Department 
notes that the GOI has provided some, although not all, of the 
information requested about Krakatau. With this information from the 
GOI, we find that the administrative record with regard to Krakatau is 
not so incomplete that it cannot serve as a reliable basis for reaching 
this preliminary determination. In addition, we find that the remainder 
of the criteria listed in 782(e) of the Act have been met. 
Consequently, we find it unnecessary to resort to total facts available 
with respect to Krakatau. Where practicable, we have based our 
preliminary determination for this company on information provided by 
the GOI. We have only used facts available where specific information 
concerning Krakatau, that is necessary for our analysis, is absent from 
the record.
    Furthermore, section 776(b) of the Act provides that in selecting 
from among the facts available, the Department may use an inference 
that is adverse to the interests of a party if it determines that party 
has failed to cooperate to the best of its ability. Here, the 
Department asked Krakatau to submit the information requested in the 
initial countervailing duty questionnaire. Krakatau did not respond to 
the questionnaire. The Department then asked Krakatau once again to 
respond to the questionnaire, reminding the company that the Department 
may have to use facts available if no response was received. However, 
Krakatau failed to submit the information that was specifically 
requested by the Department on two separate occasions. Krakatau stated 
that, due to the recent financial crisis, it does not have the 
resources available to participate in the investigation. We note, 
however, that Krakatau is participating in the companion antidumping 
duty investigation.
    The Department finds that by not providing necessary information 
specifically requested by the Department and failing to participate in 
any respect in this investigation, Krakatau has failed to cooperate to 
the best of its ability. Therefore, in selecting partial facts 
available, the Department determines that an adverse inference is 
warranted.
    When employing an adverse inference, the statute indicates that the 
Department may rely upon information derived from (1) the petition; (2) 
a final determination in a countervailing duty or an antidumping 
investigation; (3) any previous administrative review, new shipper 
review, expedited antidumping review, section 753 review, or section 
762 review; or (4) any other information placed on the record. See also 
Sec. 351.308(c) of the CVD Regulations. Due to the absence of any other 
relevant information on the record, we consider the petition to be an 
appropriate source for the necessary information.
    Finally, the Statement of Administrative Action accompanying the 
URAA clarifies that information from the petition and prior segments of 
the proceeding is ``secondary information.'' See Statement of 
Administrative Action, accompanying H.R. 5110 (H.R. Doc. No. 103-316) 
(1994) (SAA), at 870. If the Department relies on secondary information 
as facts available, section 776(c) of the Act provides that the 
Department shall, ``to the extent practicable,'' corroborate such 
information using independent sources reasonably at its disposal. The 
SAA further provides that to corroborate secondary information means 
simply that the Department will satisfy itself that the secondary 
information to be used has probative value.
    As discussed above, the GOI submitted some information about 
Krakatau's use of programs included in this investigation. As discussed 
above and in the Analysis Memo for the Preliminary Countervailing Duty 
Determination, dated July 16, 1999, public version on file in the CRU 
(Analysis Memo), we find that the information submitted by the GOI may 
be used in reaching our determination in accordance with section 782(e) 
of the Act. Based on this information, we were able to determine that 
Krakatau did not use the Bank of Indonesia Rediscount Program with 
respect to shipments of subject merchandise and did not use the Tax 
Holiday Program. However, we are applying the facts available in 
countervailing the 1995 Equity Infusion to Krakatau program including 
our analysis of the company's creditworthiness. For a more detailed 
description of our treatment of this program, see the program 
description in the Program Preliminarily Determined to be 
Countervailable section of this notice. We are using information 
submitted in the countervailing duty petition, modified by and 
corroborated by Krakatau's financial statements which were submitted 
for the record by petitioners. See Analysis Memo.
    In addition, as noted earlier, on June 7, 1999, petitioners made 
new subsidy allegations with respect to Krakatau. The Department has 
not had sufficient time to collect information from Krakatau and the 
GOI on the use of the Pre-1993 Equity Infusions to Krakatau, P.T. Cold-
Rolled Mill Indonesia (CRMI) Equity Infusions and Two-Step Loan 
programs. Thus, we do not have sufficient information to make 
determinations with respect to these programs' countervailability. 
Because respondents have not had sufficient

[[Page 40460]]

opportunity to provide information about these programs for the record, 
the use of the facts available is not warranted at this time. We will 
continue to collect information that will enable us to make a 
determination about these programs in our final determination.

Subsidies Valuation Information

Allocation Period

    Section 351.524(d)(2) of the CVD Regulations states that we will 
presume the allocation period for non-recurring subsidies to be the 
average useful life (AUL) of renewable physical assets for the industry 
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class 
Life Asset Depreciation Range System and updated by the Department of 
Treasury. The presumption will apply unless a party claims and 
establishes that these tables do not reasonably reflect the AUL of the 
renewable physical assets for the company or industry under 
investigation, and the party can establish that the difference between 
the company-specific or country-wide AUL for the industry under 
investigation is significant.
    In this investigation, no party to the proceeding has claimed that 
the AUL listed in the IRS tables does not reasonably reflect the AUL of 
the renewable physical assets for the firm or industry under 
investigation. Therefore, according to Sec. 351.524(d)(2) of the CVD 
Regulations, we have allocated Krakatau's non-recurring benefits over 
15 years, the AUL listed in the IRS tables for the steel industry.

Equityworthiness

    In analyzing whether a company is equityworthy, the Department 
considers whether that company could have attracted investment capital 
from a reasonable private investor in the year of the government equity 
infusion based on the information available at that time. In this 
regard, the Department has consistently stated that a key factor for a 
company in attracting investment capital is its ability to generate a 
reasonable return on investment within a reasonable period of time. In 
making an equityworthiness determination, in accordance with 
Sec. 351.507(a)(4) of the CVD Regulations, the Department may examine 
the following factors, among others:
    A. Objective analyses of the future financial prospects of the 
recipient firm or the project as indicated by, inter alia, market 
studies, economic forecasts, and project or loan appraisals prepared 
prior to the government-provided equity infusion in question;
    B. Current and past indicators of the recipient firm's financial 
health calculated from the firm's statements and accounts, adjusted, if 
appropriate, to conform to generally accepted accounting principles;
    C. Rates of return on equity in the three years prior to the 
government equity infusion; and
    D. Equity investment in the firm by private investors.
    The Department has examined Krakatau's equityworthiness for the 
year 1995. We are also examining Krakatau's equityworthiness for the 
period 1988 through 1992, to the extent equity infusions may have been 
received in these years. See June 1, 1999, memorandum to Bernard 
Carreau, Deputy Assistant Secretary for AD/CVD Enforcement II, a public 
document on file in the CRU. Krakatau did not respond to our first 
questionnaire regarding the new allegations pertaining to the period 
1988 through 1992, but the company has not yet had the opportunity to 
respond to any additional questionnaire on these allegations. 
Therefore, we are not addressing Krakatau's equityworthiness in these 
years for this preliminary determination.
    In considering whether Krakatau was equityworthy in 1995, we 
examined information on the above-listed factors. With respect to 
factor A, no studies or other relevant data have been submitted to the 
record. However, according to press articles submitted by petitioners, 
Krakatau was not an attractive investment. In one article, the 
Indonesian Minister for the Empowerment of State Enterprises stated, 
``[w]hy is Krakatau Steel difficult to sell? Because it has often been 
said that the company would go bankrupt and that it needed an 
investment of $1.2 billion.'' The Minister also stated in 1998 that 
Krakatau had a very low return on equity compared to its international 
competitors. Another government official stated that Krakatau would, `` 
* * * first have to restructure its subsidiaries, cut costs and reduce 
staff,'' in order to complete its proposed privatization. See 
Countervailing Duty Petition, public version on file in the CRU.
    In addition, according to information submitted by the Petitioners, 
the investment climate in Indonesia in 1995 was considered a risky one, 
further dampening any potential for private investment. According to 
press articles, problems with state-owned firms would have further 
deterred private investment in these companies.
    To address factors B and C, we examined Krakatau's financial ratios 
for the three years prior to each of the infusions based on the 
information contained in Krakatau's translated financial statements 
that were submitted by petitioners. See Analysis Memo. This data 
indicates that Krakatau did report modest profits in the years relevant 
to examination. Return on sales was positive, but declined over the 
period 1992 through 1994. Return on equity declined from 1992 to 1993, 
but recovered in 1994. In all relevant years Krakatau's return on 
equity remained less than half of the annual inflation rate; thus the 
company was posting negative returns in real terms. Further, Krakatau's 
returns during this period were well-below commercial interest rates.
    With respect to the final factor, Krakatau has no private 
investors. Therefore, there are no private investments that may be used 
to evaluate Krakatau's equityworthiness.
    In light of Krakatau's unfavorable financial position, anemic 
returns and the press reports about the company's dubious financial 
health, it seems unlikely that a reasonable private investor would have 
made equity investments in the company. On this basis, we preliminarily 
determine that Krakatau was unequityworthy in 1995.

Equity Methodology

    In measuring the benefit from a government equity infusion, in 
accordance with Sec. 351.507(a)(2) of the CVD Regulations, the 
Department compares the price paid by the government for the equity to 
actual private investor prices, if such prices exist. According to 
Sec. 351.507(a)(3) of the CVD Regulations, where actual private 
investor prices are unavailable, the Department will determine whether 
the firm was unequityworthy at the time of the equity infusion. In this 
case, private investor prices were unavailable; thus, we conducted an 
equityworthy analysis. As discussed above, we have determined that 
Krakatau was unequityworthy in 1995.
    Section 351.507(a)(3) of the CVD Regulations provides that a 
determination that a firm is unequityworthy constitutes a determination 
that the equity infusion was inconsistent with the usual investment 
practices of private investors. The Department will then apply the 
methodology described in Sec. 351.507(a)(6) of the regulations, and 
treat the equity infusion as a grant. Use of the grant methodology for 
equity infusions into an unequityworthy company is based on the premise 
that an unequityworthiness finding by the Department is tantamount to 
saying that

[[Page 40461]]

the company could not have attracted investment capital from a 
reasonable investor in the infusion year based on the available 
information.

Creditworthiness

    When the Department examines whether a company is creditworthy, it 
is essentially attempting to determine if the company in question could 
obtain commercial financing at commonly available interest rates. To do 
so, the Department examines whether the company received long-term 
commercial loans in the year in question, and, if necessary, the 
overall financial health and future prospects of the company. If a 
company not owned by the government receives long-term financing from 
commercial sources without government guarantees, that company will 
normally be considered creditworthy. In the absence of commercial 
borrowings, in accordance with Sec. 351.505(a)(4) of the CVD 
Regulations, the Department examines the following factors, among 
others, to determine whether or not a firm is creditworthy:
    A. The receipt by the firm of comparable commercial long-term 
loans;
    B. The present and past financial health of the firm, as reflected 
in various financial indicators calculated from the firm's financial 
statements and accounts;
    C. The firm's recent past and present ability to meet its costs and 
fixed financial obligations with its cash flow; and
    D. Evidence of the firm's future financial position, such as market 
studies, country and industry economic forecasts, and project and loan 
appraisals prepared prior to the agreement between the lender and the 
firm on the terms of the loan.
    With respect to the first factor, Krakatau received one long-term 
commercial loan in 1995 amounting to approximately 3 billion Rupiah. 
However, because Krakatau is owned by the government, this loan may not 
be considered dispositive as to the company's creditworthiness. See 
Sec. 351.505(a)(4)(ii) of the CVD Regulations.
    Therefore, to determine whether Krakatau was creditworthy in 1995, 
in accordance with the Department's past practice, we analyzed 
financial ratios for each of the three years prior to the year under 
examination to address factors B and C. In examining these ratios, 
however, because tKrakatau failed to respond to our questionnaires (as 
discussed in the ``Facts Available'' section of this notice), we do not 
have the company's financial statements for 1992 and 1993. The only 
financial information for the years 1992 and 1993 on the record of this 
investigation is taken from data from the Indonesian Commercial 
Newsletter submitted by petitioners. Thus, we are not able to evaluate 
whether this data is supported by the financial statements and whether 
there may be any notes to the financial statements that would call the 
data into question.
    Using the only information available on the record, we found that, 
as discussed above, Krakatau had positive returns on sales and equity 
during the relevant years, but these rates were lower than commercial 
interest rates and lower than the level of inflation. Krakatau's 
current ratio remained relatively strong during this period, ranging 
from 3.86 to 6.51, showing a fairly strong degree of short-term 
protection for creditors and no indication of difficulty in covering 
short-term liabilities.
    The Department normally examines other financial ratios including 
the quick ratio and times-interest-earned ratio; however, data on the 
record is incomplete, allowing us only to examine the company's 
position in 1994. Both of these ratios indicate that the company 
probably did not have difficulties managing its debt obligations in 
1994, but we are unable to examine the company's ratios for the other 
relevant years.
    With respect to the final factor, there are no studies or analyses 
submitted to the record that may be used to evaluate Krakatau's 
financial position.
    While the data we have indicates that Krakatau may not have had any 
difficulty obtaining financing at commercial interest rates, again, we 
note that the record evidence is incomplete. In addition, other 
financial data and press reports, as discussed in the 
``Equityworthiness'' section above, indicate that Krakatau had 
financial difficulties. Therefore, as adverse facts available we 
preliminarily find that Krakatau was uncreditworthy in 1995.

Discount Rates

    We calculated the discount rates in accordance with the formula for 
constructing a long-term interest rate benchmark for uncreditworthy 
companies as stated in the Department's new regulations. See 
Sec. 351.505 (a)(3)(iii) of the CVD Regulations. This formula requires 
values for the probability of default by uncreditworthy and 
creditworthy companies. For the probability of default by an 
uncreditworthy company, we relied on the average cumulative default 
rated reported for the Caa to C-rated category of companies as 
published in Moody's Investors Service, ``Historical Default Rates of 
Corporate Bond Issuers, 1920-1997,'' (February 1998). For the 
probability of default by a creditworthy company we used the average 
cumulative default rates reported for the Aaa to Baa.1 For 
the period before 1998, we used the average cost of long-term fixed-
rate loans in Indonesia in 1995 as the interest rate that would be paid 
by a creditworthy company, specifically the investment rate offered by 
commercial banks in Indonesia as reported in the Indonesian Financial 
Statistics of February 1999, attached to the GOI's April 29, 1999, 
questionnaire response, a public document on file in the CRU. For this 
period, we used the average cumulative default rates for both 
uncreditworthy and creditworthy companies that were based on a 15 year 
term, since Krakatau's allocable subsidy was based on this allocation 
period. For 1998, since Indonesia experienced high inflation during 
this year, we converted the subsidy into U.S. dollars and then applied 
a long-term dollar rate as the discount rate, specifically, the average 
yield to maturity on selected long-term Baa-rated bonds. See Analysis 
Memo. This conforms with our practice in Final Affirmative 
Countervailing Duty Determination: Steel Wire Rod from Venezuela, 62 FR 
55014, 55019 (October 22, 1997). In calculating the uncreditworthy rate 
for 1998, we used the average cumulative default rates for both 
uncreditworthy and creditworthy companies based on a 12 year term, 
since that period remained on Krakatau's allocated subsidy.
---------------------------------------------------------------------------

    \1\  We note that since publication of the CVD Regulations, 
Moody's Investors Service no longer reports default rates for Caa to 
C-rated category of companies. Therefore for the calculation of 
uncreditworthy interest rates, we will continue to rely on the 
default rates as reported in Moody Investor Service's publication 
dated February 1998 (see Exhibit 28).
---------------------------------------------------------------------------

I. Program Preliminarily Determined To Be Countervailable

1995 Equity Infusion Into Krakatau
    Because Krakatau did not respond to this allegation, we used the 
information and data provided in the petition as adverse facts 
available, in accordance with section 776(b) of the Act (See ``Facts 
Available'' discussion above). According to both the Countervailing 
Duty Petition and Krakatau's financial statements, the GOI provided 
Krakatau with equity in the form of debt-to-equity conversions in 1995. 
See Analysis Memo. In 1995, the GOI converted subordinated loans into 
equity. The conversion was authorized by the

[[Page 40462]]

Minister of Finance in decree number S-44/MK016/1995 dated July 25, 
1995. According to Krakatau's financial statement, provided in the 
petition, on April 29, 1996, through decree of the Minister of Finance 
S-240/MK016/1996, the conversion was approved at a slightly lower 
amount than originally authorized. The excess amount has not yet been 
converted into capital and has been recorded as a loan in the financial 
statement, with interest still due.
    We preliminarily determine that under section 771(5)(E)(i) of the 
Act, the equity conversion into Krakatau was not consistent with the 
usual investment practice of a private investor and confers a benefit 
in the amount of each infusion (see ``Equityworthiness'' section 
above). The equity conversion is specific within the meaning of section 
771(5A)(D) of the Act because it was limited to Krakatau. Accordingly, 
we preliminarily find that the 1995 debt-to-equity conversion is a 
countervailable subsidy within the meaning of section 771(5) of the 
Act.
    As explained in the ``Equity Methodology'' section above, we have 
treated equity infusions into unequityworthy companies as grants given 
in the year the infusion was received because no market benchmark 
exists. In accordance with Sec. 351.507(c) of the CVD Regulations, the 
equity conversion is allocated as a non-recurring subsidy. We allocated 
the subsidy and converted the remaining face value of the infusion in 
1998 into U.S. dollars using the average 1997 rupiah/dollar exchange 
rate and applied the long-term U.S. dollar uncreditworthy interest rate 
described in the ``Discount Rate'' section of this notice. We then 
divided the benefit amount allocable to the POI by Krakatau's estimated 
1998 U.S. dollar total sales figure, which was calculated based on the 
facts available in the petitioner's submission. See Analysis Memo. On 
this basis, we preliminarily determine the net countervailable subsidy 
to be 17.38 percent ad valorem for Krakatau.

II. Program Preliminarily Determined To Be Not Countervailable

Reduction in Electricity Tariffs
    Petitioners alleged that discounts on electricity rates were 
provided to the steel industry during the POI; they alleged that after 
the GOI increased electricity rates in 1998, the GOI decreased rates 
for the steel industry. According to the questionnaire response, in 
1998, the GOI instituted a substantial increase in electricity tariff 
rates for electricity supplied by the state-owned electricity company, 
PT Perusahaan Listrik Negara, known as Persero. In accordance with 
Presidential Decree No. 70/1998 of May 4, 1998, rates were scheduled to 
increase periodically throughout the year, in May, August, and 
November. The May 1998 increase was implemented as discussed in the 
Announcement of the Minister of Mines and Energy, No. Pm/40/MPE/1998 
dated May 4, 1998, submitted in the June 23, 1999, questionnaire 
response. Subsequently, the August and November increases were 
retroactively postponed, by Presidential Decree No. 1/1999 of January 
7, 1999, submitted in the June 1, 1999, questionnaire response. 
According to this decree, the rate increase was postponed for all 
electricity customers, with the exception of large residential 
households.
    The postponement of the rate increase applied broadly throughout 
the economy, with only large residential households excepted from the 
new rate. According to the GOI, all ``[i]ndustrial customers pay 
electricity rate solely according to the tariff and time of use.'' 
Thus, contrary to petitioners' allegation, there is no basis for 
concluding that the steel industry received a special electricity 
discount. Based on the record evidence, the electricity discount was 
not limited to a specific enterprise, industry or group thereof, but 
was available to all industrial users in the country. Therefore, we 
preliminarily determine that the electricity discount program is not 
countervailable.

III. Programs Preliminarily Determined To Be Not Used

    Based on the information provided by respondents and the GOI, we 
determine that Gunawan, Jaya Pari, and Krakatau did not apply for or 
receive benefits under the following programs during the POI:

A. Bank of Indonesia Rediscount Loans
B. Corporate Income Tax Holidays

Verification

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

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we have 
calculated individual rates for each of the companies under 
investigation.
    According to section 705(5)(A)(i) of the Act, the all others rate 
is, ``an amount equal to the weighted average countervailable subsidy 
rates established for exporters and producers individually 
investigated, excluding any zero and de minimis countervailable subsidy 
rates and any rates determined entirely under section 776.'' Thus, in 
accordance with section 705(5)(A)(i) of the Act, we are excluding the 
rates calculated for Gunawan and Jaya Pari because they are zero rates. 
Although the subsidy rate calculated for Krakatau is based in part on 
facts available, section 705(5)(A)(i) specifies that only those rates 
calculated entirely under section 776 (facts available) are excluded; 
thus, we are including the subsidy rate calculated for Krakatau in the 
all others rate.

------------------------------------------------------------------------
          Producer/exporter                    Net subsidy rate
------------------------------------------------------------------------
P.T. Krakatau Steel.................  17.38% ad valorem.
P.T. Gunawan Steel..................  0.00% ad valorem.
P.T. Jaya Pari......................  0.00% ad valorem.
All Others Rate.....................  17.38% ad valorem.
------------------------------------------------------------------------

    In accordance with section 703(d) of the Act, we are directing the 
U.S. Customs Service to suspend liquidation of all entries of cut-to-
length plate from Indonesia, except with respect to Gunawan and Jaya 
Pari as discussed above, which are entered or withdrawn from warehouse, 
for consumption on or after the date of the publication of this notice 
in the Federal Register, and to require a cash deposit or bond for such 
entries of the merchandise in the amounts indicated above. Since the 
estimated preliminary net countervailing duty rates for Gunawan and 
Jaya Pari are zero, these two companies will be excluded from the 
suspension of liquidation. This suspension will remain in effect until 
further notice.

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all nonprivileged and nonproprietary information relating to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under an administrative protective order, without the written consent 
of the Assistant Secretary for Import Administration.
    In accordance with section 705(b)(2) of the Act, if our final 
determination is affirmative, the ITC will make its final determination 
within 45 days after the Department makes its final determination.

[[Page 40463]]

Public Comment

    In accordance with 19 CFR 351.310, we will hold a public hearing, 
if requested, to afford interested parties an opportunity to comment on 
this preliminary determination. The hearing is tentatively scheduled to 
be held 57 days from the date of publication of the preliminary 
determination at the U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, DC 20230. Individuals who wish to 
request a hearing must submit a written request within 30 days of the 
publication of this notice in the Federal Register to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, 14th Street and Constitution Avenue, NW, Washington, DC 20230. 
Parties should confirm by telephone the time, date, and place of the 
hearing 48 hours before the scheduled time.
    Requests for a public hearing should contain: (1) The party's name, 
address, and telephone number; (2) the number of participants; and, (3) 
to the extent practicable, an identification of the arguments to be 
raised at the hearing. In addition, six copies of the business 
proprietary version and six copies of the non-proprietary version of 
the case briefs must be submitted to the Assistant Secretary no later 
than 50 days from the date of publication of the preliminary 
determination. As part of the case brief, parties are encouraged to 
provide a summary of the arguments not to exceed five pages and a table 
of statutes, regulations, and cases cited. Six copies of the business 
proprietary version and six copies of the non-proprietary version of 
the rebuttal briefs must be submitted to the Assistant Secretary no 
later than 5 days from the date of filing of the case briefs. An 
interested party may make an affirmative presentation only on arguments 
included in that party's case or rebuttal briefs. Written arguments 
should be submitted in accordance with 19 CFR 351.309 and will be 
considered if received within the time limits specified above.
    This determination is published pursuant to sections 703(f) and 
777(i) of the Act.

    Dated: July 16, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-18858 Filed 7-23-99; 8:45 am]
BILLING CODE 3510-DS-P