[Federal Register Volume 64, Number 249 (Wednesday, December 29, 1999)]
[Notices]
[Pages 73244-73277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33237]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-475-827]


Final Affirmative Countervailing Duty Determination: Certain Cut-
to-Length Carbon-Quality Steel Plate From Italy

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

EFFECTIVE DATE: December 29, 1999.

FOR FURTHER INFORMATION CONTACT: Norbert Gannon, Kristen Johnson, or 
Michael Grossman, Office of CVD/AD Enforcement II, Import 
Administration, U.S. Department of Commerce, Room 4012, 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 certain 
producers and exporters of certain cut-to-length carbon-quality steel 
plate from Italy. For information on the 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, 
Inc., IPSCO Steel Inc., and the United Steelworkers of America (the 
petitioners).

Case History

    Since the publication of our preliminary determination in this 
investigation (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 Italy, 64 FR 40416 (July 26, 1999) 
(Preliminary Determination)), the following events have occurred:
    We issued supplemental questionnaires on July 23, 26, and 27, 1999, 
to ILVA S.p.A. (ILVA) and ILVA Lamiere e Tubi S.p.A. (ILT) 
(collectively referred to as ILVA/ILT), Palini & Bertoli S.p.A. (Palini 
& Bertoli), and the Government of Italy (GOI), respectively. We 
received the respondents' questionnaire responses on September 3, 1999. 
We conducted verification of the countervailing duty questionnaire 
responses from September 13 through September 24, 1999. Because the 
final determination of this countervailing duty investigation was 
aligned with the final antidumping duty determination (see 64 FR at 
40416), and the final antidumping duty determination was postponed (see 
64 FR at 46341), the Department on August 25, 1999, extended the final 
determination of this countervailing duty investigation until no later 
than December 13, 1999 (see 64 FR at 46341). On November 8, 1999, we 
issued to all parties the verification reports for ILVA/ILT, Palini & 
Bertoli, and the regional government of Friuli Venezia Giulia. On 
November 12, 1999, we issued the verification report for the GOI. 
Petitioners, the GOI, and ILVA/ILT filed case briefs on November 18, 
1999. Rebuttal briefs were submitted to the Department by the 
petitioners and ILVA/ILT on November 23, 1999. The case hearing was 
held on November 30, 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 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.

[[Page 73245]]

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions effective January 1, 1995, the effective 
date of the amendments made to the Tariff Act of 1930 (the Act) by the 
Uruguay Round Agreements Act (URAA). In addition, unless otherwise 
indicated, all citations to the Department's regulations are to the 
regulations 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 Italy is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the International Trade 
Commission (ITC) is required to determine whether imports of the 
subject merchandise from Italy materially injure, or threaten material 
injury to, a U.S. industry. On April 8, 1999, the ITC published its 
preliminary determination that there is a reasonable indication that an 
industry in the United States is being materially injured, or 
threatened with material injury, by reason of imports from Italy of the 
subject merchandise (see Certain Cut-to-Length Steel Plate From the 
Czech Republic, France, India, Indonesia, Italy, Japan, Korea, and 
Macedonia; Determinations, 64 FR 17198 (April 8, 1999)).

Period of Investigation

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

Corporate History of ILVA/ ILT 1
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    \1\ As discussed in this section, ILVA/ILT's carbon steel 
predecessor companies are: Nuova Italsider (1981-1987), Italsider 
(1987-1988), ILVA S.p.A. (1989-1993), and ILP (1994-1996).
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    Prior to 1981, the Italian government holding company Istituto per 
la Ricostruzione Industriale (IRI), controlled Italy's nationalized 
steel industry through its wholly-owned subsidiary, Finsider S.p.A 
(Finsider). The steel operations of Finsider were subdivided into three 
main companies: Italsider (carbon steel); Terni (stainless and special 
steel); and Dalmine (pipe and tube). Italsider was the sector leader 
and the primary producer of the subject merchandise. In 1981, the GOI 
implemented a restructuring plan, restructuring Finsider into several 
operating companies including: Nuova Italsider (carbon steel flat 
products); Terni (speciality flat steels); Nuova Sias (special long 
products); and other steel product divisions. In the course of the 1981 
Restructuring Plan, Italsider transferred all of its assets, with the 
exception of certain plants, to Nuova Italsider. Italsider became a 
one-company holding company with Nuova Italsider's stock as its primary 
asset.
    During 1987, Finsider restructured three of its main operating 
companies: Nuova Italsider, Deltasider, and Terni. Nuova Italsider 
spun-off its assets to Italsider and transferred its shares in 
Italsider to Finsider. Nuova Italsider ceased operations after this 
divestment and Finsider had direct ownership of Italsider. Upon 
completion of the 1987 restructuring, Italsider re-emerged as the steel 
sector's carbon steel products producer.
    Later in 1987, Finsider and its main operating companies 
(Italsider, TAS, and Nuova Deltasider) were placed in liquidation, and 
the GOI subsequently implemented the 1988 Restructuring Plan. The goal 
of the 1988 Restructuring Plan was to restructure Finsider and its 
operating companies, assembling the group's most productive assets into 
a new operating company, ILVA S.p.A. (ILVA S.p.A. or (old) ILVA), which 
was created on January 1, 1989. The 1988 Restructuring Plan, like the 
1981 plan, was submitted to and approved by the European Commission 
(EC). In accordance with the plan, ILVA S.p.A. took over some of the 
assets and liabilities of the liquidating companies, and Finsider 
closed certain facilities to comply with the EC's requirements. With 
respect to Italsider, part of the company's liabilities and the 
majority of its viable assets, including assets associated with the 
production of carbon steel flat-rolled products, were transferred to 
ILVA S.p.A., which commenced production on January 1, 1989. Non-
productive assets and a substantial amount of liabilities were left 
behind with Finsider and the liquidating operating companies.
    The facilities retained by ILVA S.p.A were organized into four 
primary operating groups: carbon steel flat products, stainless steel 
flat products, stainless steel long products, and seamless pipe and 
tube. In 1992, ILVA Lamiere e Tubi (ILT), a carbon steel flat products 
operation, was created as a wholly-owned subsidiary of ILVA S.p.A. ILVA 
S.p.A. was also the majority owner of a large number of separately 
incorporated subsidiaries. Some of these subsidiaries produced various 
types of steel products. The other subsidiaries were service centers, 
trading companies, and an electric power company, among others. ILVA 
S.p.A., together with its subsidiaries, constituted the ILVA Group. The 
ILVA Group was wholly-owned by IRI.
    Although ILVA S.p.A. was profitable in 1989 and 1990, the company 
encountered financial difficulties in 1991, and became insolvent by 
1993. On October 31, 1993, ILVA S.p.A. entered into liquidation. On 
December 31, 1993, IRI demerged ILVA S.p.A.''s main productive assets 
and a share of its liabilities into two new companies: ILVA Laminati 
Piani (ILP) (carbon steel flat products) and Acciai Speciali Terni 
(AST) (speciality and stainless steel flat products). On January 1, 
1994, ILP and AST were formally established as separately incorporated 
firms in advance of privatization. See Memorandum to David Mueller: 
Verification Report for ILVA S.p.A. and ILVA Lamiere e Tubi, dated 
November 8, 1999 (public version on file in the Central Records Unit 
(CRU) (Room B-099 of the Main Commerce Building) (ILVA/ILT Verification 
Report), at Exhibit 1993/94-1 and Memorandum to David Mueller: 
Verification Report for the Government of Italy, dated November 12, 
1999 (public version on file in the CRU) (GOI Verification Report) at 
11. ILT, the carbon flat steel products operation, was transferred to 
ILP as its wholly-owned subsidiary. The remainder of ILVA S.p.A.''s 
assets and existing liabilities, along with much of the redundant 
workforce, was placed in ILVA Residua (a.k.a., ILVA in Liquidation).
    In 1995, 100 percent of ILP was sold through a competitive public 
tender managed by IRI with the assistance of Istituto Mobiliare 
Italiano (IMI). The sale of ILP was executed through a share purchase 
agreement between IRI and a consortium of investors led by Riva Acciaio 
S.p.A. (RIVA) and investment companies. The contract of sale was signed 
on March 16, 1995, and all shares of ILP were transferred to the 
consortium on April 28, 1995. As of that date, the GOI no longer 
maintained any ownership interest in ILP or had any ownership interest 
in any of ILP's new owners.
    On January 1, 1997, RIVA changed the name of ILP to ILVA S.p.A 
(creating the ``new'' ILVA, referred to hereafter as ILVA or (new) 
ILVA). ILVA continues to wholly-own ILT. Within RIVA's corporate 
structure, ILT, at its Taranto Works facility, produces the subject 
merchandise, which is exported to the United States. ILVA, with the 
assistance of ILVA Commerciale S.p.A. (ICO), a sales company wholly-
owned by ILVA, is responsible for selling and exporting the subject 
merchandise to the United States and other markets.

[[Page 73246]]

    As of 1998, RIVA owns and/or controls 82.0 percent of ILVA and two 
foreign-incorporated investment companies own the remaining 18.0 
percent.
    According to ILVA/ILT, Sidercomit Taranto C.S. Lamiere S.r.l. 
(Sidercomit) was created in 1992, as an indirect subsidiary of (old) 
ILVA. Sidercomit became an operating unit within (new) ILVA in 1997, 
and currently operates service centers for the distribution of 
merchandise, including the subject merchandise for ILVA/ILT. Any 
benefits to Sidercomit under programs that have been found 
countervailable have been mentioned separately within those program 
sections below.

Corporate History of Palini & Bertoli

    Palini & Bertoli, a 100 percent privately-owned corporation, was 
incorporated in December 1963. Palini & Bertoli has never been part of 
the Italian state-owned steel industry.

Change in Ownership

    In the General Issues Appendix (GIA), appended to the Final 
Affirmative Countervailing Duty Determination: Certain Steel Products 
from Austria, 58 FR 37217, 37226 (July 9, 1993) (Certain Steel from 
Austria), we outlined our methodology for the treatment of subsidies 
received prior to the sale of a government-owned company to a private 
entity (i.e., privatization), or the spinning-off (i.e., sale) of a 
productive unit from a government-owned company to a private entity.
    Under this methodology, we estimate the portion of the purchase 
price attributable to prior subsidies. We do this by first dividing the 
sold company's subsidies by the company's net worth for each year 
during the period beginning with the earliest point at which non-
recurring subsidies would be attributable to the POI and ending one 
year prior to the sale of the company. We then take the simple average 
of these ratios. This averaged ratio serves as a reasonable estimate of 
the percent that subsidies constitute of the overall value of the 
company. Next, we multiply this ratio by the purchase price to derive 
the portion of the purchase price attributable to the payment of prior 
subsidies. Finally, we reduce the benefit streams of the prior 
subsidies by the ratio of the repayment amount to the net present value 
of all remaining benefits at the time the company is sold.
    With respect to the spin-off of a productive unit, consistent with 
the Department's methodology set out above, we analyze the sale of a 
productive unit to determine what portion of the sales price of the 
productive unit can be attributable to the repayment of prior 
subsidies. To perform this calculation, we first determine the amount 
of the seller's subsidies that the spun-off productive unit could 
potentially take with it. To calculate this amount, we divide the value 
of the assets of the spun-off unit by the value of the assets of the 
company selling the unit. We then apply this ratio to the net present 
value of the seller's remaining subsidies. The result of this 
calculation yields the amount of remaining subsidies attributable to 
the spun-off productive unit. We next estimate the portion of the 
purchase price going towards repayment of prior subsidies in accordance 
with the methodology set out above, and deduct it from the maximum 
amount of subsidies that could be attributable to the spun-off 
productive unit.

Use of Facts Available

    Both the GOI and ILVA/ILT failed to fully respond to the 
Department's questionnaires concerning the program ``Debt Forgiveness: 
1981 Restructuring Plan.'' 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. In such cases, the Department must use the facts 
otherwise available in reaching the applicable determination. Because 
the GOI and ILVA/ILT failed to submit the information that was 
specifically requested by the Department, we find that the respondents 
have failed to cooperate to the best of their abilities. Therefore, we 
have based our determination for this program on the facts available.
    In accordance with section 776(b) of the Act, the Department may 
use an inference that is adverse to the interests of that party in 
selecting from among the facts otherwise available when the party has 
failed to cooperate by not acting to the best of its ability to comply 
with a request for information. Such adverse inference may include 
reliance on 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 19 CFR 351.308(c). In 
the absence of information from the GOI and ILVA/ILT, we consider the 
February 16, 1999 petition, as well as our findings from the final 
determination of Certain Steel from Italy to be appropriate bases for a 
facts available countervailing duty rate calculation. See Final 
Affirmative Countervailing Duty Determination: Certain Steel Products 
from Italy, 58 FR 37327, 37329-30 (July 9, 1993) (Certain Steel from 
Italy).
    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. However, where 
corroboration is not practicable, the Department may use uncorroborated 
information. With respect to the program for which we did not receive 
complete information from the respondents, the secondary information 
was corroborated through exhibits (i.e., financial statements) attached 
to the petition. The financial transactions discussed within Finsider's 
1984 and 1985 financial statements confirm that the GOI engaged in 
transactions which are tantamount to the assumption of debt and debt 
forgiveness. Based on such review of the transactions discussed in the 
financial statements, we find that the secondary information (i.e., the 
petition and Certain Steel from Italy) has probative value and, 
therefore, the information regarding the debt forgiveness provided 
under the 1981 Restructuring Plan has been corroborated.

Subsidies Valuation Information

Allocation

    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

[[Page 73247]]

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.
    On June 21, 1999, ILVA/ILT submitted to the Department four tables 
illustrating company-specific AUL calculations for (old) ILVA, ILP, 
ILT, and (new) ILVA, both separately and in combination. In addition, 
the GOI provided estimates of the country-wide AUL for the Italian 
steel industry. Based upon our analysis of the data submitted by ILVA/
ILT regarding the AUL of their assets, we preliminarily determined that 
the calculation which takes into consideration all producers of the 
subject merchandise over the past 10 years is the most appropriate AUL 
calculation. However, because this calculation did not yield a company-
specific AUL which is significantly different from the AUL listed in 
the IRS tables, in the Preliminary Determination, we used the 15 year 
AUL as reported in the IRS tables to allocate non-recurring subsidies 
under investigation for ILVA/ILT in the preliminary calculations.
    After considering the parties' comments and verifying the data 
submitted by ILVA/ILT regarding the AUL of their assets, we continue to 
use a 15 year AUL for ILVA/ILT. We have rejected respondents company-
specific AUL calculation and the country-wide depreciation information 
provided by the GOI and are using the IRS tables pursuant to 19 CFR 
351.524(d)(2)(i). For an explanation of why we are rejecting ILVA/ILT's 
company-specific AUL and the country-wide depreciation information, see 
Comment 2.
    In its questionnaire response of July 6, 1999, Palini & Bertoli 
stated that it ``does not have sufficient resources to respond'' to the 
Department's inquiry of whether the company wished to rebut the 15 year 
AUL as reported in the IRS tables. Therefore, we are using a 15 year 
AUL for Palini & Bertoli.

Equityworthiness

    In measuring the benefit from a government equity infusion, in 
accordance with section 351.507(a)(2) of the Department's 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 section 351.507(a)(3) of the Department's 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 are unavailable; therefore, 
it is necessary to determine whether ILVA/ILT's predecessor companies 
were unequityworthy in the years in which equity infusions were made. 
Our review of the record has not led us to change our findings from 
prior investigations, in which we found ILVA/ILT's predecessor 
companies, Nuova Italsider and (old) ILVA, unequityworthy from 1984 
through 1988, and from 1991 through 1992. See, e.g.,Certain Steel from 
Italy, 58 FR 37328; Final Affirmative Countervailing Duty 
Determination: Certain Stainless Steel Wire Rod from Italy, 63 FR 
40474, 40477 (July 29, 1998) (Wire Rod from Italy); Final Affirmative 
Countervailing Duty Determination: Stainless Steel Plate in Coils from 
Italy, 64 FR 15508, 15511 (March 31, 1999) (Plate in Coils from Italy) 
and Final Affirmative Countervailing Duty Determination: Stainless 
Steel Sheet and Strip in Coils from Italy, 64 FR 30624, 30627 (June 8, 
1999) (Sheet and Strip from Italy). We have not examined whether (old) 
ILVA was equityworthy in 1989 and 1990, because the company did not 
receive an equity infusion from the GOI in either of those years.
    Section 351.507(a)(3) of the Department's CVD Regulations views an 
infusion of equity into an unequityworthy company as inconsistent with 
the usual investment practices of private investors. In such cases, the 
Department will apply the methodology described in section 
351.507(a)(6) of the regulations, treating 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 the company could not have attracted investment capital from a 
reasonable investor in the year in which the infusion was received 
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. See, 
e.g., Final Affirmative Countervailing Duty Determinations: Certain 
Steel Products from France, 58 FR 37304 (July 9, 1993), and Final 
Affirmative Countervailing Duty Determination: Steel Wire Rod from 
Venezuela, 62 FR 55014 (October 21, 1997). The Department will consider 
a firm to be uncreditworthy if it is determined that, based on 
information available at the time of the government-provided loan, the 
firm could not have obtained a long-term loan from conventional 
sources. See section 351.505(a)(4)(i) of the CVD Regulations.
    Italsider, Nuova Italsider, and (old) ILVA were found to be 
uncreditworthy from 1977 through 1993. See Certain Steel from Italy, 58 
FR at 37328-29, Wire Rod from Italy, 63 FR at 40477, and Sheet and 
Strip from Italy, 64 FR at 30627. In its September 3, 1999 response, 
ILVA/ILT stated that the Department has incorrectly determined that 
Finsider and (old) ILVA were uncreditworthy, since these companies were 
able to borrow money from commercial lenders at prevailing market rates 
of interest. ILVA/ILT discussed the existence of IRI guarantees as the 
reason why both Finsider and (old) ILVA were able to obtain loans at 
commercial interest rates. See ILVA/ILT's September 3, 1999 
Questionnaire Response (QR), at 12-13.
    We disagree with respondents. The existence of commercial loans to 
a government-owned company is not dispositive for purposes of 
determining the company's creditworthiness. In the preamble to the CVD 
Regulations, we state that for government-owned firms, the Department 
will make its creditworthiness determination by examining those factors 
listed in paragraph (a)(4)(i) of section 351.505. See Preamble to the 
CVD Regulations, 63 FR at 65367. Those factors outlined in paragraph 
(a)(4)(i) include, among other things: (1) the receipt by the firm of 
comparable, commercial financing, (2) the present and past financial 
health of the firm as indicated by various financial indicators, (3) 
the firm's past and present ability to meet its costs and fixed 
financial obligations with its cash flow, and (4) evidence of the 
firm's future financial position.
    No information with respect to the above factors has been presented 
in this investigation that would lead us to reconsider our earlier 
findings that Italsider, Nuova Italsider, and (old) ILVA were 
uncreditworthy from 1977 through 1993. Therefore, consistent with our 
past practice, we continue to find Italsider, Nuova Italsider, and 
(old) ILVA uncreditworthy from 1977 through 1993.
    We have not analyzed ILP's, (new) ILVA's, or ILT's creditworthiness 
in the years 1994 through 1998, because the companies did not negotiate 
new loans with the GOI or EC during these years.

Benchmarks for Long-Term Loans and Discount Rates

    In the Preliminary Determination, we based our discount rates on 
the Italian

[[Page 73248]]

Bankers' Association (ABI) rates, which was consistent with the 
Department's finding in Wire Rod from Italy, 63 FR at 40477 and Sheet 
and Strip from Italy, 64 FR at 30626-30627. However, at verification, 
we learned that the ABI rate does not represent a long-term interest 
rate, but is rather an average of the short-term interest rates 
commercial banks charge to their most favored customers. A Bank of 
Italy (BOI) official explained at verification that an overdraft loan 
is the most wide-spread short-term instrument of financing available in 
Italy for companies and individuals. There is no set maturity on an 
overdraft loan and a company or individual repays the principal when 
the banks call in the loans. The Italian Bankers Association averages 
the banks' short-term interest rates to arrive at the ABI rate which 
the BOI publishes in its economic bulletins and annual reports. See GOI 
Verification Report, at 3-4.
    At verification, we inquired whether the BOI collects data on long-
term interest rates charged by commercial banks. We learned that only 
recently (i.e., beginning with financial year 1995) has the BOI started 
to compile statistics on long-term interest rates charged by banks. The 
only long-term interest rate for which the BOI has historical yearly 
information is the rate charged on treasury bonds issued by the GOI. 
See Id.
    Because we were unable to gather information on commercial long-
term interest rates from either the BOI or independent research for the 
period 1984 through 1998, and the government bond rate does not 
represent a commercial rate, for purposes of this final determination, 
we have continued to use the ABI rates to construct discount rates. We 
note that, in Wire Rod from Italy, the ABI rate was said to be ``the 
most suitable benchmark for long-term financing to Italian companies.'' 
See Memorandum to Barbara Tillman re: Countervailing Duty Investigation 
of Certain Stainless Steel Wire Rod from Italy: Discussions with 
Company Officials from Gabetti per L'impresa, Banca Di Roma, and 
Reconta Ernst & Young, dated June 3, 1998 (public document on file in 
CRU).
    In calculating the interest rate applicable to a borrower, 
commercial banks typically add a spread ranging from 0.55 percent to 
4.0 percent, which is determined by the company's financial health. See 
Wire Rod from Italy, 63 FR at 40477. Additionally, information on the 
record indicates that the published ABI rates do not include amounts 
for fees, commissions, and other borrowing expenses. While we do not 
have information on the expenses that would be applied to long-term 
commercial loans, the GOI supplied information on the borrowing 
expenses for overdraft loans in 1997, as an approximation of the 
expenses on long-term commercial loans. This information shows that 
expenses on overdraft loans range from 6.0 to 11.0 percent of interest 
charged. Such expenses, along with the applied spread, raise the 
effective interest rate that a company would pay. Because it is the 
Department's practice to use effective interest rates, where possible, 
we are including an amount for these expenses in the calculation of our 
effective benchmark rates. See section 351.505(a)(1) of the CVD 
Regulations. Therefore, we have added the average of the spread (i.e., 
2.28 percent) and borrowing expenses (i.e., 8.5 percent of the interest 
charged) to the yearly ABI rates to calculate the effective discount 
rates.
    For the years in which ILVA/ILT or their predecessor companies were 
uncreditworthy (see ``Creditworthiness'' section above), we calculated 
discount rates in accordance with the formula for constructing a long-
term benchmark interest rate for uncreditworthy companies as stated in 
section 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 weighted-average cumulative 
default rates 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).2 For 
the probability of default by a creditworthy company, we used the 
weighted-average cumulative default rates reported for the Aaa to Baa-
rated categories of companies in the study. The weighted-average 
cumulative default rates for the Aaa to Baa-rated categories is 
indicated as the ``Investment Grade'' default rates. See Memorandum to 
the File: Moody's Investment Grade Default Rates, dated November 9, 
1999 (public document on file in the CRU). For non-recurring subsidies, 
the average cumulative default rates for both uncreditworthy and 
creditworthy companies were based on a 15 year term, since all of ILVA/
ILT's allocable subsidies were based on this allocation period.
---------------------------------------------------------------------------

    \2\ 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's Investors Service's publication 
dated February 1998 (at Exhibit 28).
---------------------------------------------------------------------------

    In addition, ILVA/ILT had two long-term, fixed-rate loans under 
ECSC Article 54 outstanding during the POI. Therefore, we have selected 
a U.S. dollar-based interest rate as our benchmark. See section 
351.505(a)(2)(i) of the CVD Regulations. Consistent with the 
Preliminary Determination, we have used as our benchmark the average 
yield to maturity on selected long-term corporate bonds as reported by 
the U.S. Federal Reserve, since both of these loans were denominated in 
U.S. dollars. We have used these rates since we were unable to obtain 
at verification or through independent research, a long-term borrowing 
rate for loans denominated in U.S. dollars in Italy. Because ILVA was 
uncreditworthy in the years in which the loans were contracted, we 
calculated the uncreditworthy benchmark rates in accordance with 
section 351.505 (a)(3)(iii) of the CVD Regulations.

I. Programs Determined To Be Countervailable

Government of Italy Programs

A. Equity Infusions to Nuova Italsider and (Old) ILVA 3
    The GOI, through IRI, provided new equity capital to Nuova 
Italsider or (old) ILVA, two predecessor companies of ILVA/ILT that 
produced carbon steel plate, in every year from 1984 through 1992, 
except in 1987, 1989, and 1990. We determine that these equity 
infusions constitute countervailable subsidies within the meaning of 
section 771(5)(B)(i) of the Act. These equity infusions constitute 
financial contributions, as described in section 771(5)(D)(i) of the 
Act. Because they were not consistent with the usual investment 
practices of private investors (see ``Equityworthiness'' section 
above), the equity infusions confer a benefit within the meaning of 
section 771(5)(E)(i) of the Act. Because these equity infusions were 
limited to Finsider and its operating companies, Nuova Italsider and 
(old) ILVA, we determine that they are specific within the meaning of 
section 771(5A)(D)(iii) of the Act.
---------------------------------------------------------------------------

    \3\ In the Initiation Notice, these equity infusions were 
separately listed as ``Equity Infusions into Italsider/Nuova 
Italsider'' and ``Equity Infusions into ILVA.''
---------------------------------------------------------------------------

    We have treated these equity infusions as non-recurring subsidies 
given in the year each infusion was received because each required a 
separate authorization. We allocated the equity infusions over a 15 
year AUL.

[[Page 73249]]

Because Nuova Italsider and (old) ILVA were uncreditworthy in the years 
the equity infusions were received, we constructed uncreditworthy 
discount rates to allocate the benefits over time. See ``Subsidies 
Valuation Information'' section, above. We noted, and petitioners 
discussed in their November 18, 1999 case brief, that a ministerial 
error was made in the Preliminary Determination with respect to the 
1986 equity infusion Nuova Italsider received from IRI. See 
Petitioners' November 18, 1999 Case Brief, at 48. The error was 
numerical and was insufficient to require a ministerial error 
correction of the preliminary calculations. For this final 
determination, we have corrected the error.
    For equity infusions originally provided to Nuova Italsider, a 
predecessor company that produced carbon steel plate, we consider these 
equity infusions to be attributable to (old) ILVA and subsequently to 
ILP, because they are simply restructured entities of the government-
owned steel company. Accordingly, we did not apportion to the other 
operations of (old) ILVA any part of the equity infusions originally 
provided directly to Nuova Italsider. While we acknowledge that it 
would be our preference to look at equity infusions into (old) ILVA as 
a whole and then apportion an amount to ILP when it was spun-off from 
(old) ILVA, we find our approach in this case to be the most feasible 
since information on equity infusions provided to the non-carbon steel 
operations of (old) ILVA is not available. For the equity infusions to 
(old) ILVA, however, we did apportion these by asset value to all (old) 
ILVA operations in determining the amount applicable to ILP.
    We applied the repayment portion of our change in ownership 
methodology to all of the equity infusions described above to determine 
the subsidy allocable to ILP after its privatization. We divided this 
amount by ILVA's total sales 4 during the POI. On this 
basis, we determine the net countervailable subsidy to be 3.07 percent 
ad valorem for ILVA/ILT. Palini & Bertoli did not receive any equity 
infusions from the GOI.
---------------------------------------------------------------------------

    \4\ Since February 1997, ILVA and ILT have had an exclusive 
sales arrangement, by which, all of ILT products are sold to ILVA, 
which, in turn, sells them to outside customers. When ILVA purchases 
goods from ILT, ILVA considers the purchase as an increase of 
inventory and the transaction is recorded as an ``acquisition cost'' 
in its accounting books. See ILVA/ILT Verification Report, at 2. 
Because of this sales arrangement, we are using as our denominator, 
ILVA's 1998 sales sourced from the company's unconsolidated 
financial statement.
---------------------------------------------------------------------------

B. Debt Forgiveness: 1981 Restructuring Plan
    The GOI reported that the objective of the 1981 Restructuring Plan 
was to redress the economic and financial difficulties the iron and 
steel industry was realizing in the early 1980's. The GOI stated that 
this plan, which extended to 1985, due to the prolonged crisis within 
the sector, envisaged financial interventions to aid in the recovery of 
the Finsider group. As discussed above in the ``Use of Facts 
Available'' section, the GOI and ILVA/ILT failed to submit complete 
information in regard to the assistance provided under the 1981 
Restructuring Plan. Therefore, based on the facts available, we 
determine that certain financial transactions conducted in association 
with the 1981 Restructuring Plan are countervailable subsidies.
    Following Italsider's transfer of all its company facilities to 
Nuova Italsider in September 1981, Italsider held 99.99 percent of 
Nuova Italsider's shares. In 1983, Italsider was placed in liquidation. 
While in liquidation, Italsider sold its shares of Nuova Italsider to 
Finsider in December 1984. The sales price was 714.6 billion lire. As 
part of this payment, Finsider assumed Italsider's debts owed to IRI of 
696.4 billion lire. The difference between the 714.6 billion lire and 
696.4 billion lire was paid directly by Finsider to Italsider.
    On December 31, 1984, Finsider also granted to Italsider a non-
interest bearing loan of 563.5 billion lire to cover losses realized 
from the liquidation. A matching provision was also made to Finsider's 
``Reserve for Losses on Investments and Securities,'' to cover the 
losses of the liquidation of Italsider. Following a shareholders' 
meeting of Finsider on December 30, 1985, the amount of 563.5 billion 
lire was disbursed to cover the losses of Italsider and Italsider's 
state of liquidation was revoked.
    In Certain Steel from Italy, the Department determined that the 
1981 Restructuring Plan merely shifted assets and debts within a family 
of companies, all of which were owned by Finsider, and ultimately, by 
the GOI. Therefore, we determined that both the 696.4 billion lire 
assumption of debt and the 563.5 billion lire debt forgiveness were 
specifically limited to the steel companies and constitute 
countervailable subsidies. See Certain Steel from Italy, 58 FR at 
37330. No new factual information or evidence of changed circumstances 
has been provided to the Department in this instant investigation to 
warrant a reconsideration of the earlier finding that the debt 
assumption and debt forgiveness are countervailable subsidies. 
Therefore, consistent with our treatment of these transactions in 
Certain Steel from Italy, we determine that the 1984 assumption of debt 
and 1985 debt forgiveness constitute countervailable subsidies within 
the meaning of section 771(5)(B)(i) of the Act. In accordance with 
Certain Steel from Italy, debt assumption and debt forgiveness are 
treated as grants which constitute financial contributions under 
section 771(5)(D)(i) of the Act. The transactions also confer benefits 
to the recipient within the meaning of section 771(5)(E)(i) of the Act, 
in the amount of the debt coverage. Because the debt assumption and 
debt forgiveness were limited to Italsider, one of ILVA/ILT's 
predecessor companies, we determine that these transactions are 
specific within the meaning of section 771(5A)(D)(iii) of the Act.
    To calculate the benefit, we have treated the assumption of debt 
and debt forgiveness to Italsider as non-recurring subsidies because 
each transaction was a one-time, extraordinary event. We allocated the 
1984 debt assumption and 1985 debt forgiveness over a 15 year AUL. See 
the ``Allocation Period'' section, above. In our grant formula, we used 
constructed uncreditworthy discount rates based on our determination 
that Italsider was uncreditworthy in 1984 and 1985. See ``Benchmark for 
Long-Term Loans and Discount Rates'' and ``Creditworthiness'' sections, 
above.
    As with the equity infusions originally provided to Nuova 
Italsider, we consider the assumption of debt and debt forgiveness to 
be attributable to (old) ILVA and subsequently to ILP, because they are 
simply restructured entities of the government-owned steel company. To 
determine the amount appropriately allocated to ILP after its 
privatization, we followed the methodology described in the ``Change in 
Ownership'' section above. We divided this amount by ILVA's sales 
during the POI. On this basis, we determine the net countervailable 
subsidy to be 1.09 percent ad valorem for ILVA/ILT. Palini & Bertoli 
did not receive any benefit under this program.
C. Debt Forgiveness: 1988 Restructuring Plan
    As discussed above in the ``Corporate History of ILVA/ILT'' section 
of this notice, the GOI liquidated Finsider and its main operating 
companies in 1988, and assembled the group's most productive assets 
into a new operating company, ILVA S.p.A. (i.e., (old) ILVA).

[[Page 73250]]

The Finsider restructuring plan was developed at the end of 1987, and 
was approved by the GOI on June 14, 1988, and by the EC on December 23, 
1988. The objective of the plan was to restore the industrial, 
financial, and economic balance to the public iron and steel-making 
sector in Italy. The restructuring plan included the voluntary 
liquidation of Finsider, and IRI's assumption of the debts not covered 
by the sale of assets of the companies being liquidated. IRI was the 
majority owner of Finsider, and therefore, the party responsible for 
payment of Finsider's debts.
    A transfer of assets and liabilities from Finsider to (old) ILVA 
was to be accomplished at the latest by March 31, 1990. Upon completion 
of the 1988 Restructuring Plan, (old) ILVA owned Finsider's productive 
assets and a small portion of the group's liabilities. Included in the 
transfer were the productive portions of the flat-rolled facilities 
located at Taranto, Genoa, and Novi Ligure.5 The liquidating 
companies retained the non-productive assets and the vast majority of 
the liabilities, which had to be repaid, assumed, or forgiven. Thus, 
while (old) ILVA emerged from the process with a positive net worth, 
the other companies were left with capital structures in which their 
liabilities greatly exceeded the liquidation value of their assets.
---------------------------------------------------------------------------

    \5\ The subject merchandise which ILT produced and (new) ILVA 
exported to the United States in 1998, was produced at the Taranto 
facilities.
---------------------------------------------------------------------------

    We determine that certain financial transactions associated with 
the 1988 Restructuring Plan constitute countervailable subsidies. In 
1988, IRI established a fund of 2,943 billion lire to cover losses 
which Finsider would realize while in liquidation. As of December 31, 
1988, Finsider had accumulated losses in excess of its equity. In order 
to prevent Finsider from becoming insolvent during 1989, IRI utilized 
1,364 billion lire of the fund to forgive debts it was owed by Finsider 
to cover the losses. We determine that IRI's action of forgiving 
Finsider's debts in 1989, constitutes a countervailable subsidy.
    Later in 1990, IRI forgave debts it was owed by Finsider when it 
purchased (old) ILVA's stock from Finsider (and Terni) for 2,983 
billion lire. The 2,983 billion lire was used to pay the liquidated 
companies' debts which existed at the time of the sale. Prior to the 
preliminary determination, ILVA/ILT disagreed with our characterization 
in Certain Steel from Italy that the share purchase was an act of debt 
forgiveness. They stated that the price paid by IRI for (old) ILVA's 
shares reflected the market value of the shares and, therefore, the 
purchase was not an act of debt forgiveness. We preliminarily disagreed 
with ILVA/ILT's argument and determined that IRI's purchase of (old) 
ILVA's stock was tantamount to debt forgiveness; however, we stated 
that we would seek further clarification of the stock purchase 
transaction for the final determination. See Preliminary Determination, 
64 FR at 40422.
    In the July 23, 1999 questionnaire and at verification, we asked 
the GOI and ILVA/ILT to provide all feasibility studies, market 
reports, economic forecasts, or similar documents completed prior to 
(old) ILVA's share purchase, which related to the future expected 
financial performance of the company. We examined the McKinsey & 
Company (McKinsey) report of August 1988, which respondents claim 
provides a comprehensive analysis of the expected future financial 
performance of (old) ILVA. For reasons discussed in Comment 7, we find 
that the McKinsey report did not assess the expected future financial 
health of (old) ILVA. Rather, we find that the report examined the 
viability of the government's 1988 Restructuring Plan for the period 
1988 to 1990, and assessed whether the creation of (old) ILVA would 
conform with the EC's trade and competition rules. See GOI Verification 
Report, at 5. Therefore, on January 1, 1989, the day on which IRI 
committed to purchasing (old) ILVA's shares, IRI did not have 
sufficient financial data and analysis which would have allowed it to 
evaluate the potential risk versus the expected return in (old) ILVA. 
See Id., at 9-10. Because IRI did not undertake the financial analysis 
that a private investor would have prior to purchasing shares, we 
determine that ILVA's share purchase was not in accordance with the 
normal investment practice of a private investor.
    Consistent with our preliminary determination, we find that IRI's 
purchase of (old) ILVA's shares from Finsider merely shifted assets 
(i.e., ownership of company stock) within a family of companies which 
were all owned by the government. The purpose of IRI's decision to 
purchase (old) ILVA's stock on January 1, 1989, was to provide to 
Finsider in liquidation cash to repay debts. As such, IRI's purchase of 
(old) ILVA's stock was tantamount to debt forgiveness. Thus, we 
determine that IRI's purchase of (old) ILVA's stock is a 
countervailable subsidy because it effectively forgave Finsider's 
debts.
    At the Preliminary Determination, we noted that Finsider's 1989 
Annual Report at page 12 states that: ``During the fiscal year, your 
company [Finsider] recorded losses totaling 1,568 billion lire; 
therefore, the circumstances reoccur for which the shareholder IRI 
later renounced its own credits necessary to cover the difference.'' 
Thus, Finsider realized a net loss of 1,568 billion lire for fiscal 
year 1989. In order to avoid insolvency of the company, IRI should 
have, but did not, forgive the 1,568 billion lire it was due to cover 
Finsider's losses in excess of equity during 1990. At the Preliminary 
Determination, we stated that we would seek additional information 
regarding Finsider's 1,568 billion lire of losses.
    For this final determination, we have examined whether IRI expected 
to receive payment of the 1,568 billion lire debt which Finsider owed 
it in 1990. Based on the record evidence, we determine that IRI did not 
expect Finsider to pay the 1,568 billion lire debt. First, in 1988, IRI 
created a fund with the sole purpose to cover the losses which Finsider 
would realize while in liquidation. Second, IRI utilized 1,364 billion 
lire of the fund to cover losses in 1989, by forgiving debt of an 
equivalent amount. In addition, respondents did not submit information 
on the record regarding the value of the assets which remained in 
Finsider as of December 31, 1989, to demonstrate that Finsider had 
viable assets which it could sell for cash to pay the debt owed to IRI. 
On the basis of these facts, we determine that IRI had no expectation 
that Finsider would pay the 1,568 billion lire debt. Therefore, we 
determine that IRI provided to Finsider debt forgiveness of 1,568 
billion lire in 1990. For a further discussion see Comment 6.
    On the basis of the record evidence, we determine that the debt 
forgiveness which IRI provided in 1989 and 1990, constitute 
countervailable subsidies within the meaning of section 771(5)(B)(i) of 
the Act. In accordance with our practice, debt forgiveness is treated 
as a grant which constitutes a financial contribution under section 
771(5)(D)(i) of the Act, and provides a benefit in the amount of the 
debt coverage. Because the debt forgiveness was received by only (old) 
ILVA, a predecessor company of ILVA/ILT, we determine that the debt 
coverage is specific under section 771(5A)(D)(iii)(I) of the Act.
    The record of this investigation demonstrates that (old) ILVA did 
not obtain all of Finsider's assets. Based on the information submitted 
to the Department, we have calculated the percentage of Finsider's 
assets which were transferred to (old) ILVA. We calculated that, on 
December 31, 1988, 71.31 percent of Finsider's assets were transferred 
to (old) ILVA. We also

[[Page 73251]]

calculated the value of the additional assets which were transferred to 
(old) ILVA during the course of 1990. We then summed the assets 
transferred to (old) ILVA in 1989 and 1990, and divided that amount by 
Finsider's total asset value as of December 31, 1988, to derive the 
percentage of Finsider's assets which were obtained by (old) ILVA. On 
this basis, we calculated that 84.94 percent of Finsider's assets were 
transferred to (old) ILVA. For a further discussion see the 
Department's Position to Comment 5.
    To determine the benefit from these countervailable subsidies, we 
have treated the amounts of debt forgiveness provided under the 1988 
Restructuring Plan as non-recurring grants because they were one-time, 
extraordinary events. For the debt forgiveness provided in 1989, we 
applied 71.31 percent to the amount of debt forgiveness to determine 
the amount attributable to (old) ILVA. With respect to the debt 
forgiveness provided in 1990, we applied 84.94 percent to the total 
amount of debt forgiveness to determine the amount attributable to 
(old) ILVA. Because (old) ILVA was uncreditworthy in 1989 and 1990, the 
years in which the assistance was provided, we used constructed 
uncreditworthy discount rates to allocate the benefits over time. We 
allocated the debt forgiveness provided in 1989 and 1990, over a 15 
year AUL. See the ``Subsidies Valuation Information'' section, above.
    We also apportioned the debt coverage by asset value to all (old) 
ILVA operations in determining the amount applicable to ILP. We next 
applied the repayment portion of our change in ownership methodology to 
the debt forgiveness to determine the amount of the subsidy allocable 
to ILP after its privatization. We divided this amount by ILVA's total 
sales during the POI. On this basis, we determine the net 
countervailable subsidy to be 5.12 percent ad valorem for ILVA/ILT. 
Palini & Bertoli did not receive any benefit under this program.
    In addition, at the time of the Preliminary Determination, there 
was ambiguity as to whether the GOI provided additional financial 
assistance to Finsider in liquidation, and if so, the amount of 
assistance actually disbursed (see 64 FR at 40423). For purposes of the 
preliminary determination, we found, based on the information provided 
to the Department by ILVA/ILT, that IRI provided 738 billion lire to 
Finsider to cover costs and losses in 1989. See Id. However, we stated 
that we would seek further clarification from the GOI and ILVA/ILT of 
the assistance provided under the 1988 Restructuring Plan.
    At verification, we discussed with GOI and company officials the 
aid disbursed to Finsider for the closure of steel plants and other 
losses realized in the liquidation process. In particular, we asked the 
officials to account for the financial assistance the EC authorized for 
plant closure costs and liquidation losses in the 89/218/ECSC Decision 
of December 23, 1988. We learned that the EC authorized the 
disbursement of a maximum of 738 billion lire in additional financial 
aid to Finsider to cover costs and losses realized in the liquidation 
process. However, the GOI and ILVA/ILT officials stated that, although 
the EC authorized the additional financial assistance, this aid was not 
needed. They stated that no additional assistance was required because 
the cash received from the sale of Finsider's assets was greater than 
expected. See GOI Verification Report, at 10 and ILVA/ILT Verification 
Report, at 11. To confirm whether this additional 738 billion lire of 
assistance was provided, we examined Finsider's and IRI's 1989 
financial statements and found no evidence that IRI provided additional 
aid to Finsider based upon the 89/218/ECSC Decision. Therefore, we 
determine that IRI did not provide to Finsider an additional 738 
billion lire to cover closure costs and losses in 1989.
D. Debt Forgiveness: 1993-1994 Restructuring Plan, ILVA-to-ILP 
6
    During 1992 and 1993, (old) ILVA incurred heavy financial losses, 
which compelled IRI to place the company into liquidation. In December 
1993, the Italian government proposed to the EC a plan to restructure 
and privatize (old) ILVA by the end of 1994. The reorganization 
provided for splitting (old) ILVA's main productive assets into two new 
companies, ILP and AST. ILP would consist of the carbon steel flat 
production of (old) ILVA, receiving the Taranto facilities. AST would 
consist of the speciality and stainless steel production. The rest of 
(old) ILVA's productive assets (i.e., tubes, electricity generation, 
specialty steel long products, and sea transport), together with the 
bulk of (old) ILVA's existing debt and redundant work force were placed 
in a third entity known as ILVA Residua. Under the restructuring plan, 
ILVA Residua would sell those productive units it could for cash to pay 
debts and then would be liquidated, with IRI (i.e., the Italian 
government) absorbing the remaining debt.
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    \6\ This program was referred to as ``Debt Forgiveness Given in 
the Course of Privatization in Connection with the 1993-1994 
Restructuring Plan'' in the Initiation Notice (see 64 FR at 13000).
---------------------------------------------------------------------------

    The demerger of the majority of (old) ILVA's viable manufacturing 
activities and a portion of its liabilities occurred on December 31, 
1993. On January 1, 1994, ILP and AST were formally established as 
separate corporations which, respectively, had operating assets and 
relatively modest debt loads. See ILVA/ILT Verification Report, at 
Exhibit 1993/94-1. (Old) ILVA in liquidation became a shell company, 
known as ILVA Residua, with liabilities far exceeding its assets, 
although it did contain some operating assets that were later sold. The 
liabilities which remained with ILVA Residua had to be repaid, assumed, 
or forgiven. On April 12, 1994, the EC, through the 94/259/ECSC 
decision, approved the GOI's restructuring and privatization plan for 
(old) ILVA and IRI's intention to cover ILVA Residua's remaining 
liabilities.
    We determine that ILP received a countervailable subsidy on January 
1, 1994, within the meaning of section 771(5)(B)(i) of the Act, when 
the bulk of (old) ILVA's liabilities were placed in ILVA Residua, 
rather than being proportionately allocated to ILP and AST when they 
were formally established as separate corporations. The retention of 
liabilities by (old) ILVA that should have been transferred to ILP when 
the company was created constitutes a financial contribution to ILP in 
accordance with section 771(5)(D)(i) of the Act in the form of debt 
forgiveness. Prior to the separate incorporation of ILP and AST, (old) 
ILVA significantly wrote down the value of its assets, thereby 
increasing the net liabilities that it retained when ILP and AST were 
created. These write-downs can be tied to specific assets that were 
either transferred to ILP and AST, or retained by (old) ILVA. In order 
to more accurately calculate the value of the benefit to ILP from the 
debt forgiveness, we have factored in the value of each company's asset 
write-downs, to determine the total benefit from debt forgiveness to 
ILP and AST, rather than apportioning the total benefit by using a 
ratio calculated from the asset values each company took at the point 
of demerger. This is further discussed below and in Comment 11.
    We determine that the amount of liabilities which resulted from the 
1993-94 Restructuring Plan which should have been attributable to ILP, 
but were instead retained by ILVA Residua, was equivalent to debt 
forgiveness for ILP at the time of its separate incorporation. In 
accordance with our practice, debt forgiveness is treated as a

[[Page 73252]]

grant which constitutes a financial contribution under section 
771(5)(D)(i) of the Act, and provides a benefit in the amount of the 
debt forgiveness.
    We also determine, based on record evidence, that the liquidation 
process of (old) ILVA did not occur under the normal application of a 
provision of Italian law, and therefore, the debt forgiveness is de 
facto specific under section 771(5A)(D)(iii)(II) of the Act. As stated 
above, the liquidation of (old) ILVA was done in the context of a 
massive restructuring/privatization plan of the Italian steel industry 
undertaken by the GOI and approved and monitored by the EC. Because 
(old) ILVA's liquidation was part of an extensive state-aid package to 
privatize the Italian state-owned steel industry, and the debt 
forgiveness was received by only privatized (old) ILVA operations, we 
find that the assistance provided under the 1993-1994 Restructuring 
Plan is de facto specific. In support of this finding, we note the EC's 
94/259/ECSC decision, in which the Commission identified the 
restructuring of (old) ILVA as a single program, the basic objective of 
which was the privatization of the ILVA steel group by the end of 1994. 
As set forth in the EC's decision, the 1993-1994 Restructuring Plan was 
limited by its terms to (old) ILVA and the benefits of the plan were 
received by only (old) ILVA's successor companies. For a further 
discussion see Comment 13.
    To determine the benefit attributable to ILP, it is first necessary 
to determine the total amount of liabilities which the government 
forgave. We would prefer to base our calculation on information at the 
time a portion of (old) ILVA's assets and liabilities were demerged to 
ILP and the company was separately incorporated. However, the 
information contained in (old) ILVA's 1993 financial statement 
regarding the assets and liabilities of the company was found to be 
unreliable by the company's auditor. We note the following statement 
within the ``Report on the Management'' section of ILVA Residua's 1994 
annual report: ``In the financial statement for 1993, we pointed out 
how the opening of liquidation would require drawing up a balance sheet 
formulated not with values of normal operation but with values of 
estimated cost. The brevity of time available then and the complexity 
of the valuations to be executed in that meeting allowed putting 
together only a few limited adjustments of values for which sure 
elements of judgement were available.'' See ILVA Residua's 1994 Annual 
Report in the February 16, 1999 Petition, at Volume 8, Tab 11. Because 
this information has been determined to be unreliable, we have resorted 
to facts otherwise available. As such, we have used information 
contained in the EC's 10th Monitoring Report which provides the most 
reliable data that is on the record for determining the benefit 
conferred by this program. We intend, however, to seek additional 
information to establish the value of the debt forgiveness at the time 
of the separate incorporation of ILP, in a subsequent administrative 
review should this investigation result in a countervailing duty order.
    Therefore, based upon the methodology that we employed in the final 
determination of Sheet and Strip from Italy, the amount of liabilities 
that we attributed to ILP is based on the gross liabilities left behind 
in ILVA Residua, as reported in the EC's 10th Monitoring Report (see 64 
FR at 30628). In calculating the amount of unattributable liabilities 
remaining after the separate incorporation of ILP, we started with the 
most recent ``total comparable indebtedness'' amount from the 10th 
Monitoring Report, which represents the indebtedness, net of debts 
transferred in the privatization of ILVA Residua's operations and 
residual asset sales, of a theoretically reconstituted, pre-liquidation 
(old) ILVA. In order to calculate the total amount of unattributed 
liabilities which amounted to countervailable debt forgiveness, we made 
the following adjustments to this figure: for the residual assets that 
had not actually been liquidated as of the 10th and final Monitoring 
Report; for assets that comprised SOFINPAR, a real estate company 
(because these assets were sold prior to the demergers of AST and ILP); 
for the liabilities transferred to AST and ILP; for income received 
from the sale of ILVA Residua's productive assets; and for the amount 
of debts transferred to Cogne Acciai Speciali (CAS), an ILVA subsidiary 
that was left behind in ILVA Residua and later spun off, as well as the 
amount of (old) ILVA debt attributed to CAS and countervailed in Wire 
Rod from Italy (see 63 FR at 40478). As discussed above, we subtracted 
the value of the asset write-downs taken by ILVA.
    The amount of liabilities remaining represents the pool of 
liabilities that were not individually attributable to specific (old) 
ILVA assets. We apportioned this debt to ILP, AST, and viable assets of 
ILVA Residua based on their relative asset values. We used the total 
consolidated asset values reported for ILP and AST for the year ending 
December 31, 1993.7 The asset values recorded for ILP and 
AST as of December 31, 1993, were the opening asset values for each 
company when they were separately incorporated on January 1, 1994. See 
ILVA/ILT Verification Report, at 12 and Exhibit 1993/94-2, for ILP's 
asset value. For ILVA Residua, we used the sum of the purchase price 
plus debts transferred as a surrogate for the viable asset value of the 
operations sold from ILVA Residua. Because we subtracted a specific 
amount of ILVA's gross liabilities attributed to CAS in Wire Rod from 
Italy, we did not include its assets in the amount of ILVA Residua's 
privatized assets. Also, we did not include in ILVA Residua's viable 
assets those assets sold to IRI, because the sales do not represent 
sales to a non-governmental entity. To ensure that liabilities retained 
by ILVA Residua were properly apportioned across the three companies, 
we added the amount of the write-downs that were tied to the asset pool 
which ILP took when it was separately incorporated from (old) ILVA. The 
total amount of write-downs were previously subtracted from the pool of 
liabilities.
---------------------------------------------------------------------------

    \7\ Because the ultimate objective of the 1993-94 Restructuring 
Plan was the privatization of ILP and AST, which were separately 
incorporated from (old) ILVA on January 1, 1994, we have no reason 
not to believe that the value of the assets which were transferred 
to ILP and AST were accurately assessed during the liquidation 
process.
---------------------------------------------------------------------------

    We have treated the debt forgiveness provided to ILP as a non-
recurring subsidy because it was a one-time, extraordinary event. The 
discount rate we used in our grant formula was a constructed 
uncreditworthy benchmark rate based on our determination that (old) 
ILVA was uncreditworthy in 1993, the year in which the 1993-94 
Restructuring Plan was approved by the GOI. See ``Benchmarks for Long-
Term Loans and Discount Rates'' and ``Creditworthiness'' sections, 
above. We followed the methodology described in the ``Change in 
Ownership'' section above to determine the amount of benefit 
appropriately allocated to ILP after its privatization. We divided this 
amount by ILVA's total sales during the POI. On this basis, we 
determine the net countervailable subsidy to be 13.27 percent ad 
valorem for ILVA/ILT. Palini & Bertoli did not receive any benefits 
under this program.
E. Capital Grants to Nuova Italsider Under Law 675/77
    In 1977, the Italian Parliament passed Law 675 to establish an 
industrial plan for Italy which was experiencing an economic downturn. 
The objective of the law was to identify those industries vital to the 
economic health and development of Italy and provide to them financial 
assistance to modernize

[[Page 73253]]

and restructure production facilities. See GOI Verification Report, at 
16. In total, eleven sectors were identified as eligible for 
assistance. See Certain Steel from Italy, 58 FR at 37330-31. The types 
of funding provided under Law 675/77 included: (1) interest payments on 
bank loans and bond issues; (2) low interest loans granted by the 
Ministry of Industry; (3) grants for companies located in the South; 
(4) grants for personnel retraining; and (5) increased VAT reductions 
for firms located in the Mezzogiorno area.
    In Certain Steel from Italy, we verified that of the sectors which 
received Law 675/77 funding, steel accounted for 36.4 percent of the 
total funding provided under Law 675/77 (see 58 FR 37331). On this 
basis, we determined that assistance provided to steel companies under 
Law 675/77 is limited to a specific enterprise or industry, or group of 
enterprises or industries, and therefore is countervailable.
    In regard to the record of the instant investigation, the GOI 
stated that the objective of the capital grants program was to support 
the development of regions in the south of Italy. See GOI's May 28, 
1999 QR. The only eligibility criterion for receipt of this ``one-
time'' assistance was the location of factories in the south of Italy.
    Consistent with our preliminary finding, we determine that this 
program constitutes a countervailable subsidy within the meaning of 
section 771(5)(B)(i) of the Act. The capital grants constitute a 
financial contribution under section 771(5)(D)(i) of the Act providing 
a benefit in the amount of the grants. Because the steel sector was 
found to be the dominant user of Law 675/77 and the capital grants were 
limited to enterprises located in the south of Italy, we determine that 
the program is specific under section 771(5A)(D)(iii) and (iv) of the 
Act.
    At the verification of this investigation, we examined the 
application which Italsider submitted on February 20, 1980, for 
assistance under Law 675/77, and the corresponding approval 
notification of November 19, 1982. We noted that Nuova Italsider, the 
successor company to Italsider, was awarded a grant of 125,040 million 
lire. We examined Nuova Italsider's financial statements and learned 
that the grant was disbursed in several tranches during the years 1985, 
1986, and 1987.
    To determine the benefit, we have treated the capital grant as a 
non-recurring subsidy because the receipt of the grant was a one-time, 
extraordinary event. Because the benefit to Nuova Italsider is greater 
than 0.5 percent of the company's sales for 1982 (the year in which the 
grant was approved), we allocated the benefit over a 15 year AUL. See 
section 351.524(b)(2) of the CVD Regulations. We applied the change in 
ownership methodology to the capital grant to determine the subsidy 
allocable to ILP after its privatization. We divided this amount by 
ILVA's total sales during the POI. On this basis, we determine the net 
countervailable subsidy to be 0.13 percent ad valorem for ILVA/ILT. 
Palini & Bertoli did not use this program.
F. Early Retirement Benefits
    Law 451/94 was created to conform with EC requirements of 
restructuring and capacity reduction of the Italian steel industry. Law 
451/94 was passed in 1994, and enabled the Italian steel industry to 
implement workforce reductions by allowing steel workers to retire 
early. During the 1994-1996 period, and into January 1997, Law 451/94 
provided for the early retirement of up to 17,100 Italian steel 
workers. Benefits applied for during this period continue until the 
employee reaches his/her natural retirement age, up to a maximum of ten 
years.
    In the final determinations of Plate in Coils from Italy and Sheet 
and Strip from Italy, 64 FR at 15514-15 and 64 FR at 30629-30, 
respectively, as well as in the Preliminary Determination of the 
instant investigation, 64 FR at 40425-26, the Department determined 
that early retirement benefits provided under Law 451/94 are 
countervailable subsidies under section 771(5)(B)(i) of the Act. Law 
451/94 provides a financial contribution, as described in section 
771(5)(D)(i) of the Act, because Law 451/94 relieves the company of 
costs it would have normally incurred by having to employ individuals 
until the normal age of retirement. Also, because Law 451/94 was 
developed for, and exclusively used by, the steel industry, we 
determined that Law 451/94 is specific within the meaning of section 
771(5A)(D)(iii) of the Act. No new factual information or evidence has 
led us to change our prior findings that early retirements under Law 
451/94 are countervailable.
    As in the Preliminary Determination, we have treated one-half of 
the amount paid by the GOI as benefitting the company. Recognizing 
that, under Law 223/91, ILP would have been required to enter into 
negotiations with the unions before laying off workers, it is 
impossible for the Department to determine the outcome of those 
negotiations absent Law 451/94. At one extreme, the unions might have 
succeeded in preventing lay offs. If so, the benefit to ILP would be 
the difference between what it would have cost to keep those workers on 
the payroll and what the company actually paid under Law 451/94. At the 
other extreme, the negotiations might have failed and ILP would have 
incurred only the minimal costs described under the so-called 
``Mobility'' provision of Law 223/91, which identifies the minimum 
payment the company would incur when laying off workers. The benefit to 
ILP would have been the difference between what it would have paid 
under Mobility and what it actually paid under Law 451/94.
    We have no basis for believing either of these extreme outcomes 
would have occurred. It is clear, given the EC regulations that called 
for restructuring within the steel industry, that ILP would have laid 
off workers. However, we do not believe that ILP would have simply 
fired the workers without reaching accommodation with the unions. GOI 
officials have indicated that failure to negotiate a separation package 
with the unions would likely have led to social strife. Therefore, we 
have proceeded on the assumption that ILP's early retirees would have 
received some support from ILP.
    In attempting to determine the level of post-employment support 
that ILP would have negotiated with its unions, we examined the 
situation facing (old) ILVA before ILP and AST were separately 
incorporated. By the end of 1993, (old) ILVA had established an overall 
plan for terminating redundant workers--a plan that would ultimately 
affect both ILP and AST. Under this plan, early retirees would first be 
placed on a temporary worker assistance measure under Law 223/91, Cassa 
Integrazione Guadagni--Extraordinario (CIG-E), while awaiting the 
passage of Law 451/94, and then would receive benefits under Law 451/
94, once implemented. This indicates that, at the time an agreement was 
being negotiated with the unions and the Ministry of Labor on the terms 
of the layoffs, (old) ILVA and its workers were aware that government 
contributions would ultimately be made to workers' benefits. In such 
situations, i.e., where the company and its workers are aware at the 
time of their negotiations that the government will be making 
contributions to the workers' benefits, the Department's prior practice 
has been to treat half of the amount paid by the government as 
benefitting the company. We have stated that when the government's 
willingness to provide assistance is known at the time the contract is 
being negotiated, this

[[Page 73254]]

assistance is likely to have an effect on the outcome of the 
negotiations. While we continue to adhere to this logic in the preamble 
to the CVD Regulations, we stated that we would examine the facts of 
each case to determine the appropriate portion of the funds to be 
considered countervailable. See CVD Regulations, 63 FR at 65380.
    With respect to ILP and its workers, we determine that, under 
Italian Law 223, ILP would be required to negotiate with its unions 
about the level of benefits that would be made to workers permanently 
separated from the company. Since (old) ILVA and its unions were aware 
at the time of their negotiations that the GOI would be making payments 
to those workers under Law 451/94, some portion of the payment is 
countervailable. However, we have no basis for apportioning the 
benefit. Therefore, we consider the benefit to ILVA/ILT to be one-half 
of the amount paid to the workers by the GOI under Law 451/94.
    Consistent with the Department's practice with regard to allocation 
of worker-related subsidies, we have treated benefits to ILVA/ILT under 
Law 451/94 as recurring grants expensed in the year of receipt. To 
calculate the benefit received by ILVA/ILT during the POI, we 
multiplied the number of employees by employee type (blue collar, white 
collar, and senior executive) who retired early by the average salary 
by employee type. Since the GOI was making payments to these workers 
equaling 80 percent of their salary, we attributed one-half of that 
amount to ILVA/ILT. Therefore, we multiplied the total wages of the 
early retirees by 40 percent. We then divided this total amount by 
ILVA's total sales during the POI. On this basis, we determine a net 
countervailable subsidy to be 1.39 percent ad valorem for ILVA/ILT.
    As mentioned in the ``Corporate History of ILVA/ILT'' section of 
this notice, in October 1993, (old) ILVA entered into liquidation and 
became known as ILVA Residua. In December 1993, IRI initiated the 
demerger of (old) ILVA's main productive assets into two new companies, 
ILP and AST. On January 1, 1994, ILP and AST became separately 
incorporated firms. The remainder of (old) ILVA's productive assets and 
existing liabilities, along with much of the redundant workforce, was 
placed in ILVA Residua. By placing much of this redundant workforce in 
ILVA Residua, ILP and AST were able to begin their respective 
operations with a relatively ``clean slate'' in advance of their 
privatizations. ILP and AST were relieved of having to assume their 
respective obligations to those redundant workers who were placed in 
ILVA Residua and received early retirement benefits under Law 451/94. 
Therefore, we have determined that ILVA/ILT has received a 
countervailable benefit during the POI, because it was relieved of a 
financial obligation that would otherwise have been due.
    In order to calculate the subsidy received by ILVA/ILT during the 
POI, we first needed to determine the appropriate number of early 
retirees in ILVA Residua that originally should have been apportioned 
to ILP. Consistent with our findings for the 1993-94 Restructuring 
Plan, we used the asset value we apportioned to ILP as a percentage of 
total viable assets of (old) ILVA immediately prior to ILP's separate 
incorporation. We then multiplied this percentage by the total number 
of ILVA Residua early retirees. It was then necessary to estimate the 
numbers and salaries of early retirees by employee type since the GOI 
did not provide this information. To do this, we applied the same 
ratios of workers by employee type as ILP retired, and applied this to 
ILVA Residua. We also used the same salaries of ILVA/ILT employees by 
worker type. As we did with ILP early retirees, we then multiplied the 
number of employees, by employee type, by the average salary by 
employee type. Since the GOI was making payments to these workers 
equaling 80 percent of their salary, we attributed one-half of that 
amount to ILVA/ILT. Therefore, we multiplied the total wages of the 
early retirees by 40 percent. We then divided this total amount by 
ILVA's total sales during the POI. On this basis, we determine a net 
countervailable subsidy to be 0.66 percent ad valorem for ILVA/ILT.
    The Sidercomit unit of ILVA/ILT also received early retirement 
benefits under Law 451/94 separately from ILVA/ILT. As we did with 
ILVA/ILT, we multiplied the total wages of the early retirees by 40 
percent and then divided this amount by the total sales of ILVA during 
the POI. On this basis, we preliminarily determine the net 
countervailable subsidy to be less than 0.005 percent ad valorem for 
ILVA/ILT.
    Upon consolidation of the above determined rates, we determine a 
total net countervailable subsidy of 2.06 percent ad valorem for ILVA/
ILT under Law 451/94 for the POI. Palini & Bertoli did not use this 
program.
G. Exemptions From Taxes
    Presidential Decree 218/1978 exempted firms operating in the 
Mezzogiorno from both the ILOR and IRPEG profit taxes. Companies are 
eligible for full exemption from the 16.2 percent ILOR tax on profits 
arising from eligible projects in the Mezzogiorno and less developed 
regions of the center-north of Italy for ten consecutive years after 
profits first arise. New companies undertaking productive activities in 
the Mezzogiorno are entitled to a full exemption from the IRPEG tax (37 
percent of a majority of profits and 19 percent of certain profits) for 
ten consecutive years after the project is completed. While the ILOR 
tax was repealed beginning with tax year 1998, a successor tax, IRAP, 
has been introduced beginning with tax year 1998.
    We determine that exemptions from ILOR and IRPEG taxes are 
countervailable subsidies in accordance with section 771(5)(B)(i) of 
the Act. These tax exemptions constitute financial contributions under 
section 771(5)(D)(ii) of the Act, since revenue that is otherwise due 
is being foregone. Because these exemptions are limited to a group of 
enterprises or industries within a designated geographical region, they 
are specific in accordance with section 771(5A)(D)(iv). Benefits 
resulting from ILOR and IRPEG tax exemptions were found to be 
countervailable in Certain Steel from Italy (see 58 FR at 37334-35).
    ILT received an exemption from the IRPEG tax and a partial 
exemption from the ILOR tax on its 1997 tax return, filed during the 
POI. In order to calculate the benefit stemming from the exemption from 
IRPEG, we multiplied ILT's total profits that would otherwise have been 
subject to IRPEG by the IRPEG tax rate. We then divided the result by 
ILVA's total sales during the POI to determine the ad valorem subsidy. 
On this basis, we determine the subsidy to be 1.05 percent ad valorem 
for ILVA/ILT.
    To compute ILT's partial exemption from ILOR, we took the amount of 
profits exempted from the ILOR tax, as shown in ILVA/ILT Verification 
Exhibits Tax-2 and Tax-3, and multiplied that amount by the ILOR tax 
rate of 16.2 percent to determine the benefit. We then divided the 
result by ILVA's total sales during the POI to determine the ad valorem 
subsidy. On this basis, we determine the subsidy to be 0.24 percent ad 
valorem for ILVA/ILT. Upon consolidation of the IRPEG and ILOR 
exemptions, we determine the net consolidated subsidy for ILVA/ILT to 
be 1.29 percent ad valorem. Palini & Bertoli did not use this program.
H. Exchange Rate Guarantees Under Law 796/76
    Law 796/76 established a program to minimize the risk of exchange 
rate

[[Page 73255]]

fluctuations on foreign currency loans. All firms that contract foreign 
currency loans from the European Coal and Steel Community (ECSC) or the 
Council of Europe Resettlement Fund (CERF) could apply to the Ministry 
of the Treasury (MOT) to obtain an exchange rate guarantee. The MOT, 
through the Ufficio Italiano di Cambi (UIC), calculates loan payments 
based on the lire-foreign currency exchange rate in effect at the time 
the loan is contracted (i.e., the base rate). The program establishes a 
floor and ceiling for exchange rate fluctuations, limiting the maximum 
fluctuation a borrower would face to two percent above or below the 
base rate. If the lire depreciates more than two percent against the 
foreign currency, a borrower is still able to purchase foreign currency 
at the established (guaranteed) ceiling rate. The MOT absorbs the loss 
in the amount of the difference between the guaranteed rate and the 
actual rate. If the lire appreciates against the foreign currency, the 
MOT realizes a gain in the amount of the difference between the floor 
rate and the actual rate.
    This program was terminated effective July 10, 1992, by Decree Law 
333/92. However, the pre-existing exchange rate guarantees continue on 
any loans outstanding after that date. Italsider contracted two loans, 
one in 1978, and the other in 1979. Both of these loans were ultimately 
transferred to ILVA/ILT. These two foreign currency denominated loans 
were outstanding during the POI and exchange rate guarantees applied to 
both.
    We determine that this program constitutes a countervailable 
subsidy within the meaning of section 771(5)(B)(i) of the Act. This 
program provides a financial contribution, as described in section 
771(5)(D)(i) of the Act, to the extent that the lire depreciates 
against the foreign currency beyond the two percent limit. When this 
occurs, the borrower receives a benefit in the amount of the difference 
between the guaranteed rate and the actual exchange rate.
    During the recent verification of the GOI in the Plate in Coils 
from Italy and Sheet and Strip from Italy investigations, GOI officials 
explained that over the last decade, roughly half of all guarantees 
made under this program were given to coal and steel companies. See 
Results of Verification of the Government of Italy, Memorandum to the 
File, dated February 3, 1999 (public version of the document is 
available on the public file in the CRU). This is consistent with the 
Department's finding in a previous proceeding that the Italian steel 
industry has been a dominant user of the exchange rate guarantees 
provided under Law 796/76. See Final Affirmative Countervailing Duty 
Determination: Small Diameter Circular Seamless Carbon and Alloy Steel 
Standard, Line and Pressure Pipe From Italy, 60 FR 31996 (June 19, 
1995). No new information to contradict these earlier findings of 
specificity has been received in this case. Therefore, we determine 
that the program is specific under section 771(5A)(D)(iii)(II) of the 
Act.
    Once a loan is approved for exchange rate guarantees, access to 
foreign exchange at the established rate is automatic and occurs at 
regular intervals throughout the life of the loan. Therefore, we are 
treating the benefits under this program as recurring grants. ILVA/ILT 
and its predecessor companies from which these loans were transferred, 
paid a foreign exchange commission fee to the UIC for each payment 
made. We determine that this fee qualifies as an `` . . . application 
fee, deposit, or similar payment paid in order to qualify for, or to 
receive, the benefit of the countervailable subsidy.'' See section 
771(6)(A) of the Act. Thus, for the purposes of calculating the 
countervailable benefit, we have added the foreign exchange commission 
to the total amount ILVA/ILT paid under this program during the POI. 
See Wire Rod from Italy, 63 FR at 40479.
    Under this program, we have calculated the total countervailable 
benefit as the difference between the total loan payment due in foreign 
currency, converted at the current exchange rate, less the sum of the 
total loan payment due in foreign currency converted at the guaranteed 
rate and the exchange rate commission. We divided this amount by ILVA's 
total sales during the POI. On this basis, we determine the net 
countervailable subsidy to be 0.07 percent ad valorem for ILVA/ILT. 
Palini & Bertoli did not use this program.
I. Interest Grants on Loans Under Law 64/86
    The GOI has maintained a system of ``extraordinary intervention'' 
in southern Italy since the 1950's, authorizing aid to the 
disadvantaged region. Over time, various laws were passed, including 
Decree 218/78, relating to the extraordinary intervention in the South. 
In 1986, Law 64/86 was passed in order to consolidate all laws relating 
to the extraordinary intervention in the South into one development 
policy.
    In 1992, Sidercomit was created as a subsidiary of (old) ILVA. In 
1997, Sidercomit became an operating unit within (new) ILVA. During 
verification, the Department determined that in 1996, Sidercomit 
received a loan for which it was granted interest contributions under 
Law 64. Subsequent to receiving this loan, but prior to the POI, 
Sidercomit was subsumed into ILVA as an operating unit, and was no 
longer a separate corporate entity.
    ILVA/ILT did not report these interest contributions in its 
questionnaire responses. We found at verification, through examining 
the financial statements of (new) ILVA and discussions with company 
officials, that Sidercomit had received a ``soft loan'' in 1996, which 
was ultimately recorded in (new) ILVA's financial statements once 
Sidercomit was subsumed into (new) ILVA. We further learned that, under 
this loan, the Ministry of Industry was to assume a large part of the 
interest payments, which effectively reduced the payments for 
Sidercomit. The Ministry pays the interest contributions directly to 
the bank. As such, these contributions reduce the interest rate that 
Sidercomit (and now (new) ILVA) must pay on the loan. Accordingly, 
under section 771(5)(D)(i) of the Act, we have determined that these 
interest contributions represent financial contributions.
    Under section 771(5A)(D)(iv) of the Act, we determine that these 
contributions are specific since assistance under Law 64 was only 
available to a limited geographical region within the country. This is 
consistent with our determinations in numerous Italian countervailing 
duty investigations, including the Final Affirmative Countervailing 
Duty Determination: Certain Pasta from Italy, 61 FR 30288, 30293 (June 
14, 1986). Pursuant to section 771(5)(E)(ii) of the Act, we are 
calculating the benefit conferred as the ``difference between the 
amount the recipient of the loan pays on the loan and the amount the 
recipient would pay on a comparable commercial loan that the recipient 
could actually obtain on the market.'' In this particular case, the 
benefit conferred is equal to the amount of the interest contributions 
provided by the GOI during the POI. We have divided the benefit over 
ILVA's total sales during the POI. On this basis, we determine the net 
countervailable subsidy to be less than 0.005 percent ad valorem for 
ILVA/ILT. Palini & Bertoli did not use this program.

Programs of the Regional Government of Friuli-Venezia Giulia

A. Development Grants Under Law 30 of 1984
    Law 30 of 1984 was enacted by the Regional Government of Friuli-
Venezia

[[Page 73256]]

Giulia to provide one-time development grants to companies for 
investments in industrial projects, including the construction of new 
plants and modernization or expansion of existing plants. Eligible 
companies could receive a grant amounting to 20 percent of the cost of 
the investment, with the grant not to exceed 1,000,000,000 lire. Law 30 
has not been officially terminated by Decree, but funding for grants 
outlined under the law has not been provided since 1993. Those projects 
approved for funding prior to 1993, would still receive the grant at 
the conclusion of the investment project.
    At verification, the Department learned that companies from all 
industries that planned future industrial investments were eligible to 
receive development grants under Law 30. Eligibility under the law was, 
however, confined to certain geographical areas within the Friuli-
Venezia Giulia region. Eligible firms were those operating in 
mountainous zones north of Udine, those in the provinces of Trieste and 
Gorizia, and those in the industrial areas of Aussa Corno and San Vitto 
al Tagliamento. Because these grants are available to firms within 
designated areas of the Friuli-Venezia Giulia region, they are specific 
in accordance with section 771(5A)(D)(iv) of the Act. The grants 
provided under this program represent a financial contribution under 
section 771(5)(D)(i) of the Act.
    In 1989, Palini & Bertoli submitted to the regional government an 
application for a development grant under Law 30. The company received 
approval for the grant in 1989, and received the grant in 1993. To 
determine the benefit, we have treated the grant as a non-recurring 
subsidy because receipt of the grant was a one-time, extraordinary 
event. Because the benefit to Palini & Bertoli is greater than 0.5 
percent of the company's sales for 1989 (the year in which the grant 
was approved), we allocated the benefit over a 15 year AUL. See section 
351.524(b)(2) of the CVD Regulations. To calculate the benefit, we 
determined the benefit allocable to the POI and divided it by Palini & 
Bertoli's total sales during the POI. On this basis, we determine the 
net countervailable subsidy to be 0.12 percent ad valorem for Palini & 
Bertoli. ILVA/ILT did not use this program.

European Commission Programs

A. ECSC Loans Under Article 54
    Article 54 of the 1951 ECSC Treaty established a program to provide 
industrial investment loans directly to the member iron and steel 
industries to finance modernization and purchase new equipment. 
Eligible companies apply directly to the EC (which administers the 
ECSC) for up to 50 percent of the cost of an industrial investment 
project. The Article 54 loans are generally financed on a ``back-to-
back'' basis. In other words, upon granting loan approval, the ECSC 
borrows funds (through loans or bond issues) at commercial rates in 
financial markets which it then immediately lends to steel companies at 
a slightly higher interest rate. The mark-up is to cover the costs of 
administering the Article 54 program.
    We determine that these loans constitute a countervailable subsidy 
within the meaning of section 771(5)(B)(i) of the Act. This program 
provides a financial contribution, as described in section 771(5)(D)(i) 
of the Act, which confers a benefit to the extent the interest rate is 
less than the benchmark interest rate. The Department has found Article 
54 loans to be specific in several proceedings, including Electrical 
Steel from Italy, 59 FR at 18362, Certain Steel from Italy, 58 FR at 
37335, and Plate in Coils from Italy, 64 FR at 15515, because loans 
under this program are provided only to iron and steel companies. The 
EC has also indicated on the record of this investigation that Article 
54 loans are only available to steel and coal companies which fall 
within the scope of the ECSC Treaty. Therefore, we determine that this 
program is specific pursuant to section 771(5A)(D)(i) of the Act.
    ILVA/ILT had two long-term, fixed-rate loans outstanding during the 
POI, each denominated in U.S. dollars. These loans were contracted by 
Italsider, one in 1978 and one in 1979. Consistent with Wire Rod from 
Italy, we have used as our benchmark the average yield to maturity on 
selected long-term corporate bonds as reported by the U.S. Federal 
Reserve, since both of these loans were denominated in U.S. dollars 
(see 63 FR at 40486). We used these rates since we were unable to find 
a long-term borrowing rate for loans denominated in U.S. dollars in 
Italy. The interest rate charged on both of ILVA/ILT's two Article 54 
loans was lowered part way through the life of the loan. The interest 
rate on the loan contracted in 1978 was lowered in 1987, and the rate 
on the loan contracted in 1979 was lowered in 1992. Therefore, for the 
purpose of calculating the benefit, we have treated these loans as if 
they were contracted on the date of this rate adjustment. Because ILVA 
was uncreditworthy in the year these loans were contracted, 1987 and 
1992 (based on the interest rate adjustments mentioned above), we 
calculated the uncreditworthy benchmark rate in accordance with section 
351.505 (a)(3)(iii) of the CVD Regulations. See ``Benchmark for Long-
Term Loans and Discount Rates'' section, above.
    To calculate the benefit under this program, pursuant to section 
351.505(c)(2) of the CVD Regulations, we employed the Department's 
long-term fixed-rate loan methodology. We compared ILVA/ILT's interest 
rates on the two loans to our benchmark interest rate for 
uncreditworthy companies on interest paid by ILVA/ILT during the POI. 
We then divided the benefit by ILVA's total sales during the POI. On 
this basis, we determine the net countervailable subsidy to be 0.02 
percent ad valorem for ILVA/ILT. Palini & Bertoli did not use this 
program.
    ILVA/ILT was also repaying four ECSC loans under Article 54 during 
the POI that were taken by ILP for the construction of housing for coal 
and steel industry workers. Funding for these loans came entirely from 
the ECSC operational budget, which is composed of levies imposed on 
coal and steel producers, investment income on those levies, guarantee 
fees and fines paid to the ECSC, and interest received from companies 
that have obtained loans from the ECSC. Consistent with previous 
determinations, because ECSC funding for these types of loans is 
completely from non-government sources, we find these loans to be not 
countervailable. See Electrical Steel from Italy, 59 FR at 18364 and 
Certain Steel from Italy, 58 FR at 37336.

II. Programs Determined To Be Not Countervailable

Government of Italy Programs

A. Law 308/82
    On March 16, 1999, the Department initiated on the program ``Grants 
to ILVA.'' In their May 13, 1999 response, ILVA/ILT report that 
Italsider was approved for a grant under Law 308/82 in 1983. In Certain 
Steel from Italy, we verified that benefits under Law 308/82 were 
widely and fairly evenly distributed with no one sector or sectors 
receiving a disproportionate amount. Because Law 308/82 grants were not 
limited to a specific enterprise or industry, or group of enterprises 
or industries, we determined them to be not countervailable. See 
Certain Steel from Italy, 58 FR at 37336. No new factual information or 
evidence of changed circumstances has been provided to the Department 
in this instant investigation to warrant the Department to revisit its 
earlier determination that grants provided

[[Page 73257]]

under Law 308/82 are not countervailable.
B. Unpaid Portion of Payment Price for ILP
    Petitioners alleged that the GOI effectively gave RIVA a zero-
interest loan on a portion of the contract price agreed to by RIVA for 
ILP, because RIVA has not paid the full contract price for ILP. RIVA 
reported that the company entered into arbitration after the transfer 
of ownership of ILP in April 1995. RIVA stated that it did not invoke 
arbitration to challenge the purchase price of ILP, but invoked 
arbitration to obtain an indemnity from pre-existing and unreported 
liabilities in accordance with the indemnification provision of the 
contract of sale. The dispute concerns whether IRI owes RIVA a sum of 
money as indemnification for liabilities, which RIVA has potentially 
incurred as a result of the acquisition of ILP. To preserve its 
leverage in the dispute and ensure that the company will obtain relief 
in the event that it is awarded indemnification by the arbitration 
panel, RIVA has withheld payment of amounts due to IRI under the 
contract of sale.
    We inquired about the arbitration procedure and whether any Italian 
company which purchases either a government-owned or private entity can 
enter into arbitration to remedy a dispute. RIVA reported that Article 
25 of the contract of sale provides for arbitration under the rules of 
the International Chamber of Commerce and that Article 806 of the 
Italian Civil Code authorizes the use of arbitration to settle 
litigation. Any company in Italy that purchases another company from 
either the government or a private seller can include such an 
arbitration provision in the contract of sale. Because the use of 
arbitration to settle disputes between two parties is a normal 
commercial practice in Italy and there is no information that this 
particular arbitration has proceeded in a non-commercial manner, we 
determine that no countervailable benefit has been provided under this 
process.

Programs of the Regional Government of Friuli-Venezia Giulia

A. Interest Contributions Under Law 25 of 1965
    Under Regional Law 25 of 1965, companies making manufacturing 
investments in the region of Friuli-Venezia Giulia were eligible to 
receive interest contributions from the region on loans taken out for 
those investments. For a firm to receive interest contributions, it had 
to construct a new industrial plant, or modernize or expand an existing 
plant. Interest contributions effectively lower the interest rate on a 
loan taken out for such an investment. While the firm pays interest on 
the loan at an agreed-upon rate, the regional government will reimburse 
the company the difference between the agreed-upon rate and a reference 
rate decided on by the region. The Department learned at verification 
that, although the program has not been officially terminated, no 
regional investments made after 1991 have been approved for interest 
contributions.
    The regional government approved Palini & Bertoli for interest 
contributions in 1991. The company began receiving payments in 1993, 
after construction of a new plant was completed. During the POI, Palini 
& Bertoli received two interest contributions under Law 25. We verified 
that assistance under Law 25 was provided to a large number of firms 
from a wide range of industries throughout the entire region of Friuli-
Venezia Giulia, and that the steel industry did not receive a 
disproportionate share of assistance under the program. Because 
interest contributions under Regional Law 25 are not specific in 
accordance with section 771(5A)(D) of the Act, we determine that this 
program is not countervailable.

III. Programs Determined To Be Not Used

Government of Italy Programs

A. Lending From the Ministry of Industry Under Law 675/77
    ILVA/ILT reported that at the time of its privatization the company 
became responsible for certain loan obligations of its predecessor 
companies. ILVA/ILT was responsible for repaying loans provided under 
Law 675/77, which were applicable to those facilities that produce the 
subject merchandise. We confirmed at verification that the repayment 
obligations on these loans ended in December 1997. We also verified 
with the GOI that no new loans have been provided under Law 675/77 
since 1987. Because ILVA/ILT did not have loans under Law 675/77 
outstanding during the POI, we determine that the program was not used.
B. Interest Contributions Under Law 675/77
    ILVA/ILT reported and we verified that the company received an 
interest contribution in 1998, against a loan provided under Law 675/
77. Because the loan against which the interest contribution was 
received was repaid in full in December 1997, we determine that this 
program was not used during the POI. It is the Department's practice to 
treat an interest contribution as countervailable on the date the 
company made the corresponding interest payment, despite any delay in 
the receipt of the interest contribution. This is because the company's 
entitlement to the interest contribution was automatic when it made the 
interest payment and the amount of any benefit from the interest 
contribution was known at the time of the interest payment. Therefore, 
we find, for purposes of the benefit calculation, that the benefit was 
received at the time the interest payment was made, and, as such, the 
program was not used during the POI. See e.g., Sheet and Strip from 
Italy, and Final Affirmative Countervailing Duty Determination: Oil 
Country Tubular Goods from Italy, 60 FR 33577, 33579 (June 28, 1995) 
(Oil Country Tubular Goods from Italy).
C. Law 305/89
    ILVA/ILT reported that (old) ILVA, its predecessor company, applied 
for a grant under Law 305/89 in 1990. The GOI approved (old) ILVA's 
application in 1991, and awarded the company a grant of 2.2 billion 
lire. However, payment of the grant was delayed. We learned at 
verification that ILP received a portion of the grant in 1996, and 
ILVA/ILT received the remaining portion of the grant in 1997. We 
applied the 0.5 percent allocation test against the full grant amount 
approved in 1991. See section 351.524(b)(2) of the CVD Regulations. We 
calculated the amount of the grant received under Law 305/89 to be less 
than 0.5 percent ad valorem of (old) ILVA's sales in 1991. Therefore, 
even if we determined that Law 305/89 is countervailable, the grant 
would have been expensed in the years of receipt, 1996 and 1997. 
Because the grant would be expensed, it would not provide any benefit 
to ILVA/ILT during the POI. Therefore, we determine that Law 305/89 was 
not used by ILVA/ILT.
D. Interest Grants for ``Indirect Debts'' Under Law 750/81
    In 1984, Italsider received a residual payment of 25.3 billion lire 
against interest grants provided in fiscal years 1981, 1982, and 1983. 
At verification, we learned that under Law 750 of 1981, the GOI 
approved funding for IRI, which was providing financial assistance to 
its sub-holdings that were incurring debts. See GOI Verification 
Report, at 19-20. In 1981, 1982, and 1983, Italsider incurred costs, 
associated with debts, at the Bagnoli plant and the Elba Island

[[Page 73258]]

mines, and the grant received in 1984, was for the plant and mines. 
However, since the grant was received in 1984, the POI (i.e., 1998) 
would be the last year of the allocation period. Therefore, even if we 
were to allocate the grant over time, rather than expense it in the 
year of receipt, any benefit during the POI would be less than 0.005 
percent ad valorem.
E. Capital Grants Under Decree 218/78 and Law 64/86
    The GOI reported that (old) ILVA received a grant in 1988, under 
Decree 218. The original grant amount was approved in 1978. We applied 
the 0.5 percent test against the full grant amount approved in 1978. 
See section 351.524(b)(2) of the CVD Regulations. We calculated the 
benefit as less than 0.5 percent ad valorem of Italsider's sales in 
1978. Additionally, Sidercomit and Centro Acciai received several 
grants under Decree 218 and Law 64 between 1984 and 1997. We summed all 
grants by year of approval and applied the 0.5 percent test against the 
total amounts for each year. We calculated the benefit as less than 0.5 
percent ad valorem of the sales of ILVA/ILT or its respective 
predecessor company corresponding to the year the grants were received. 
Therefore, even if we determined that this program is countervailable, 
the above-mentioned grants would have been expensed in the respective 
years of receipt. Because the grants would be expensed and would not 
provide any benefit to ILVA/ILT during the POI, we determine that this 
program was not used.
F. Urban Redevelopment Packages Under Law 181/89
    ILVA/ILT and its predecessor companies, ILP and (old) ILVA, 
received grants under Law 181/89 between 1991 and 1997. No grants were 
received during the POI. Because the approved amount of each grant, 
separately, was less than 0.5 percent of total sales of ILVA/ILT (or 
predecessor company) in the corresponding year, we would expense the 
benefit of each approved grant in that year. See section 351.524(b)(2) 
of the CVD Regulations. Therefore, since the grants would be expensed 
in the years of receipt, and ILVA/ILT would not realize any benefit 
during the POI, we determine that Urban Redevelopment Packges under Law 
181/89 were not used.
G. Grants to ILVA
    For a discussion, see Comment 20, below.
H. Closure Payments Under Law 481/94 and Predecessor Law
I. Closure Grants Under Laws 46 and 706
J. Decree Law 120/89
K. Law 488/92
L. Law 341/95 Tax Concessions
M. Interest Rate Reductions Under Law 902
N. Interest Contributions Under the Sabatini Law
O. Export Marketing Grants Under Law 394/81
P. Law 549/95: Tax Exemptions on Reinvested Profits for Steel Producers 
in Objective 1, 2, and 5(B) Areas

European Commission Programs

A. European Social Fund (ESF)
    The GOI has reported that ESF grants were provided to Nuova 
Italsider, Italsider and (old) ILVA from 1985 through 1993. Because the 
total of all grants provided under the program in each year was less 
than 0.5 percent of total sales of Nuova Italsider, Italsider or (old) 
ILVA (depending on the year of approval) in the corresponding year, we 
would expense the benefit of each grant payment received in that year. 
See section 351.524(b)(2) of the CVD Regulations. Therefore, there is 
no benefit to ILVA/ILT during the POI.
    ILVA/ILT has reported that ESF payments were also made to ILP in 
1994 and 1995, and to ILVA/ILT in 1998, for the DUSID, DUTEM, and DUMES 
training programs having taken place in 1994 and 1995. While some ILP 
employees took part in these training programs, there is no evidence 
that ILP benefitted from the ESF payments under these training 
programs, or that these programs provided training to ILP employees 
that ILP would otherwise have had to incur. As such, we find that these 
programs do not provide a countervailable subsidy. See Comment 19, 
below.
    Based on the fact that grants received in 1985 through 1993, would 
provide no benefit to ILVA/ILT during the POI, and that funds received 
for the DUSID, DUTEM, and DUMES training programs are not 
countervailable, we determine that the ESF was not used by ILVA/ILT.
B. Interest Rebates on ECSC Article 54 Loans
C. ECSC Conversion Loans, Interest Rebates, Restructuring Grants and 
Traditional and Social Aid Under Article 56
D. ERDF Aid
E. Resider and Resider II (Commission Decision 88/588)

IV. Programs Determined Not To Exist or To Have Been Terminated

A. Additional Debt Forgiveness in the Course of Privatization

B. Grants to ILVA To Cover Closure and Liquidation Expenses as Part of 
the 1993-1994 Privatization Plan

C. Working Capital Grants to ILVA in 1993

    With respect to the programs A, B, and C listed above, the GOI 
reported in its May 10, 1999 questionnaire response that all monetary 
assistance (old) ILVA received in the course of the 1993-1994 
Restructuring Plan was effected in the EC Decision 94/259/ECSC of April 
12, 1994. We found no evidence at verification that there was any 
further debt forgiveness or grants provided as part of the 1993-1994 
Restructuring Plan beyond the assistance outlined in the April 12, 1994 
EC decision. We therefore determine that these programs do not exist.

D. Personnel Retraining Grants Under Law 675/77

    The GOI reported, and we verified, that personnel retraining grants 
provided under Law 675/77 were terminated in 1987. The government 
stated that the resources provided under this program were allocated 
over the years 1981 through 1987. The GOI reported that no other law 
providing personnel retraining grants or financial allocations under 
Law 675/77 have been approved since 1987.

E. VAT Reductions Under Law 675/77

    The GOI reported, and we verified that, the tax reductions referred 
to in Section 18 of Law 675 of August 12, 1977, were terminated 
effective March 29, 1991. Pursuant to Section 14(3) of Law 64 of March 
1, 1986, Section 18 of Law 675/77, applied for a period of five years 
from the date of promulgation of the law.

F. Grants to RIVA/ILP

Interested Party Comments
    The case brief submitted by the GOI addresses, what they consider 
to be, errors and omissions contained the in the GOI's verification 
report issued by

[[Page 73259]]

the Department on November 12, 1999. Principally, they state the errors 
concern the liquidation of Finsider and the assistance provided by IRI 
in connection with the liquidation. The GOI also states that no 
subsidies passed through to the new owner of ILP upon its privatization 
in 1995, and that failure by the Department to recognize this fact 
would be inconsistent with U.S. obligations under the WTO Agreement. 
With regard to the GOI's statement on the privatization of ILP, we 
address the issue of privatization in Comment 14 below. Because the 
other comments made by the GOI are not substantive arguments, we have 
not addressed them separately.
    Palini & Bertoli did not submit any comments, therefore, when we 
refer to ``respondents'' below, we are referring to ILVA/ILT, except 
for Comment 14 where we refer to ILVA/ILT and the GOI.

Comment 1: Use of ILVA's Verified 1998 Sales

    Respondents argue that the Department in calculating the final CVD 
rates should use the correct and verified 1998 sales denominator. They 
state that at the time of the preliminary determination ILVA (i.e., 
(new) ILVA) had not completed its official trial balance for 1998. When 
preparing for verification, using the finalized trial balance, ILVA 
found that the sales denominator submitted earlier to the Department 
was incorrect. Respondents note that the Department confirmed the 
correct sales denominator at verification, and therefore, that sales 
denominator should be used in the final determination.
    Department's Position: We agree with the respondents that the 
Department should use ILVA's verified 1998 sales figure as the 
denominator to calculate the final CVD rates. We verified the correct 
1998 sales figure by reconciling that amount to ILVA's completed trial 
balance which was examined at verification. Therefore, we have used 
ILVA's corrected 1998 sales denominator in the final determination.

Comment 2: Average Useful Life of Assets

    Respondents provided four tables illustrating its proposed company-
specific AUL calculations for ILVA's (i.e., (new) ILVA) and ILT's 
assets, both separately and in combination. Both respondents and 
petitioners have focused their arguments on two of the four tables. The 
primary difference between the AUL calculations contained in each of 
these two tables is the treatment of the 1993 write-down of ILVA's 
assets. The first calculation presents a simple division of the annual 
average gross book values of the depreciable fixed assets by the 
aggregated annual charge to accumulated depreciation over a ten-year 
period (calculation 1). The second calculation adjusts the figures 
contained in the first calculation to reduce the gross book values by 
the amount of write-downs that occurred in connection with the 1993-94 
restructuring and demerger of ILP from the (old) ILVA (calculation 2).
    According to respondents, they provided the Department an 
inadequate explanation of ILVA's AUL worksheets prior to the 
Preliminary Determination, and, as a result, the Department relied on a 
worksheet (calculation 1) that substantially overstated the value of 
ILVA's depreciable assets. Respondents further maintain that, as 
demonstrated at verification, using the correct numbers from the 
correct worksheet yields an AUL for the renewable physical assets of 
ILVA and ILT of approximately 11 years.
    Respondents state that this 11-year AUL not only accords with 
Generally Accepted Accounting Principals (GAAP) and is consistent with 
ILVA's financial statements, but also reflects precisely the type of 
normalizing adjustment required by the Department for companies that 
have recorded asset write-downs as per the preamble to the Department's 
final CVD Regulations, (see 63 FR at 65397). Respondents maintain that 
because ILVA made the normalizing adjustment, the Department should use 
this 11-year AUL from calculation 2 in its final determination. 
According to respondents, the AUL calculation, which was provided by 
respondents and used by the Department in its preliminary determination 
does not produce an AUL using actual asset values, since it disregards 
the write-downs of 1993. In other words, this calculation does not 
include the normalizing adjustment for the asset write-down, and as a 
result seriously distorts the AUL calculation. Respondents also claim 
the Department cannot accept the calculation 1 result, because it omits 
the normalizing adjustment for the asset write-down and the only 
purpose served by calculation 1 was to illustrate the impact of the 
1993 write down on the asset values and depreciation recorded in 
calculation 2.
    Petitioners contend that calculation 1 provides the closest 
approximation to the AUL methodology established by the Department in 
19 CFR 351.524(d)(iii) and that this calculation produces an AUL of 
assets that does not differ by a year or more from the 15 year period 
provided for in the IRS tables. Therefore, petitioners request that the 
Department use the AUL established by the IRS as it did in the 
preliminary determination.
    Petitioners contend that adjusting the asset values to account for 
the extraordinary write-downs in the value of ILVA's fixed assets in 
1993 due to the liquidation of ILVA in connection with the 1993-94 
restructuring has the effect of distorting the AUL calculation in a 
manner that makes the calculation unreliable for purposes of 
determining ILVA/ILT's company-specific AUL. Petitioners cite the 
preamble to the current regulations (see 63 FR at 65396) to support 
their contention that the company-specific AUL calculation is not 
appropriate ``* * * for companies that have been sold and that it 
presents problems when a company revalues its assets, for example, as a 
result of declaring bankruptcy.''
    Petitioners cite Steel Wire Rod from Germany to support the 
contention that whether or not an asset write-down is done in 
accordance with GAAP is not necessarily the determining factor when 
examining whether these write-downs should be reflected in the average 
annual gross value of fixed assets in the AUL calculation. See Final 
Affirmative Countervailing Duty Determination: Stainless Steel Wire Rod 
from Germany, 62 FR 54990, 54999 (October 22, 1997) (Steel Wire Rod 
from Germany). Petitioners state that the asset write-down adjustment 
does not represent a reasonable estimate of the life of equipment at 
the time it was purchased, but instead ILVA/ILT 's calculation 
represents a mixture of the average useful life of the assets and the 
remaining useful life of assets after the revaluation. They further 
state that a company-specific AUL may be inappropriate when the company 
under investigation has faced recent changes in ownership or 
bankruptcy.
    Finally, both respondents and petitioners argue that the country-
wide AUL information provided by the GOI should not be used by the 
Department.
    Department's Position: Under 19 CFR 351.524(d)(2), the Department 
presumes that the AUL set out in the IRS's 1977 Class Life Asset 
Depreciation Range System is the appropriate allocation period by which 
to allocate non-recurring subsidies, and the burden is placed on the 
party contesting these AULs to establish that the IRS tables do not 
reasonably reflect the company-specific AUL. In addition, the 
contesting party must demonstrate that the company-specific AUL differs 
significantly from the AUL in the IRS tables.

[[Page 73260]]

    It is clear from the preamble to the CVD Regulations that, based on 
the Department's experience, using a company-specific AUL in situations 
where there have been major asset revaluations in connection with 
bankruptcy poses significant problems: ``We have found that the method 
[i.e., company-specific AUL calculation] may not be appropriate for 
companies that have been sold and that it presents problems when a 
company revalues its assets as a result of declaring bankruptcy (see, 
e.g., Steel Wire Rod from Germany, 62 FR at 54990 (October 22, 
1997)).'' See CVD Regulations, 63 FR at 65396. In addition, the 
preamble states: ``It may also be necessary to make normalizing 
adjustments for factors that distort the calculation of an AUL. We are 
not in a position at this time to provide additional detail in the 
regulation itself on when we will make normalizing adjustments and how 
such adjustments will be made because the types of necessary 
adjustments will likely vary based on the facts of a particular case. 
However, certain obvious normalizing adjustments that come to mind are 
situations in which a firm may have charged an extraordinary write-down 
of fixed assets to depreciation, or where the economy of the country in 
question has experienced persistently high inflation.'' See Id., at 
65397.
    With regard to this last statement from the preamble, we disagree 
with respondents that adjusting the AUL calculation for the asset 
write-downs, as was done in calculation 2, is the normalizing 
adjustment called for in the regulations. Respondents misread the 
regulations; it is precisely the existence of a massive asset write-
down that requires a ``normalizing adjustment'' in the first place. We 
also find the distinction drawn between Saarstahl's situation in Steel 
Wire Rod from Germany and ILVA/ILT by respondents to be uninformative. 
There is little substantive difference between a situation where a 
company acquires assets from another company then revalues them at 
acquisition cost and a situation where assets are revalued before the 
transfer with the new owner carrying the assets on its books at the new 
revalued amount.
    The basic point being made in the Department's regulations is that 
the basis of a company-specific AUL calculation is called into question 
when a situation exists such as the situation we are currently facing 
with ILVA/ILT, i.e., numerous changes in ownership, a massive asset 
write-down, and bankruptcy. We do not agree with respondents that the 
only issue here is one of consistency between the numerator and the 
denominator in the company-specific calculation. The larger issue is 
whether we should depart from the IRS asset depreciation schedules. We 
do not find the fact that the 1993 asset write-downs were in accordance 
with GAAP to be particularly persuasive. The AUL calculation is an 
attempt to derive the average useful life of renewable physical assets. 
Whether or not it is in accordance with GAAP, the accounting treatment 
of asset values, which is usually done for tax purposes, does not 
necessarily attempt to accurately reflect the physical life of a 
particular asset. Because there are so many different ways to calculate 
asset values for tax purposes, the IRS constructed its tables to ensure 
consistency. There is a tendency on the part of the Department to rely 
on the IRS tables because, as is stated in the preamble to the 
countervailing duty regulations: ``In our experience, we have found 
that for most industries and most types of subsidies, the IRS tables 
have provided an accurate and fair approximation of the AUL of assets 
in the industry in question. * * *'' See CVD Regulations, 63 FR at 
65396. In other words, the presumption that the IRS tables do not 
reflect the actual physical life of an asset for a particular company 
is not an easy one to overcome. In our view, respondents have failed to 
meet this threshold.
    As noted above, respondents have provided four different AUL 
calculations, all with different results. By respondents' own 
admission, very little, if any explanation of how these calculations 
were done was provided until relatively late in the case. Respondents 
have argued that the main issue in the AUL calculation for this 
investigation is a simple matter of consistency between the numerator 
and the denominator. Respondents argument that their calculation 2, 
which takes the asset write-downs into account in both the asset value 
and depreciation, is the only reliable calculation is unpersuasive. 
Calculation 1, which we relied upon in the Preliminary Determination, 
is flawed according to respondents, because the asset values do not 
reflect the write-down while depreciation does reflect the write-down. 
Since by respondents' own admission, calculation 1 is flawed, we are 
rejecting calculation 1 as a basis for the company-specific AUL.
    With regard to the Italian country-wide AUL, 19 CFR 
351.524(d)(2)(iii) states that ``A country-wide AUL for the industry 
under investigation will not be accepted by the Secretary unless the 
respondent government demonstrates that it has a system in place to 
calculate AULs for its industries, and that this system provides a 
reliable representation of AUL.'' The GOI has not met this burden, nor 
have respondents argued that they have.
    We therefore reject respondents company-specific AUL calculation 
and the country-wide depreciation information provided by the GOI, and 
have used the IRS tables for purposes of determining the period over 
which to allocate non-recurring subsidies.
    We note that in the 1993 Certain Steel cases, our practice was to 
use the IRS tables to allocate non-recurring subsidies over time. 
Subsequent to that case, the Court overturned over use of the IRS 
tables in favor of company-specific rates. See British Steel plc v. 
United States, 879 F. Supp. 1254 (CIT 1995) and British Steel plc v. 
United States, 929 F. Supp. 426, 439 (CIT 1996). Under the current 
regulations, we have decided to revert to the IRS tables as a 
rebuttable presumption. In a 1997 Italian investigation, while we did 
attempt to calculate a company-specific AUL, we were unable to do so 
and used a surrogate AUL instead. See Wire Rod from Italy, 63 FR 40477.
    While our preference is to apply the same AUL to the same subsidies 
across cases, we have not been able to do that in Italy due to the 
changes in our allocation methodology mandated by the Court and our 
subsequent decision to use the IRS table as a rebuttable presumption. 
This is the first Italy case subject to the new regulations. 
Accordingly, we are applying the regulatory standard to determine the 
AUL.

Comment 3: 1984 Debt Transfer Was Not a Countervailable Event

    Respondents disagree with the Department's classification of the 
1984 debt transfer from Italsider to Finsider as being equivalent to a 
government grant. They note that, under section 771(5)(D) of the Act, 
the Department can countervail a transfer of debt only if it involves a 
financial contribution from the government.
    In 1984, debts were transferred from Italsider's balance sheet to 
that of Finsider, which under the sole shareholder provision of the 
Italian Civil Code, had legal responsibility for all debts of 
Italsider. Respondents contend that the debts remained fully in effect, 
but that Finsider now had direct rather than indirect responsibility 
for their payment. They argue that IRI made no financial contribution 
in 1984, by allowing the transfer of debt from Italsider to Finsider. 
Respondents point out that the Department itself

[[Page 73261]]

recognized that the transfer ``merely shifted assets and debts within a 
family of companies, all of which were owned by Finsider.'' They submit 
that it would be double-counting to countervail both the 1984 debt 
transfer and the subsequent forgiveness of the same debt through the 
liquidation of the Finsider Group in 1988. Since no debt was forgiven 
in 1984, the Department has no legal or factual justification to 
countervail the 696.4 billion lire of debt which was transferred within 
the Finsider Group.
    Petitioners urge the Department to continue to use facts available 
to make its finding with respect to the debt forgiveness provided under 
the 1981 Restructuring Plan. They state that, despite numerous 
requests, the GOI failed to provide to the Department the necessary 
information regarding the 1984 assumption of debt and 1985 debt 
forgiveness. Therefore, the Department should continue to rely on 
information provided in the petition and Certain Steel Products from 
Italy (see 58 FR at 37329-30), and determine that the 1984 assumption 
of debt and 1985 debt forgiveness are countervailable subsidies.
    Department's Position: We disagree with ILVA/ILT that IRI provided 
no financial contribution in 1984, by allowing the transfer of debt 
from Italsider to Finsider. Under section 771(5)(D)(i) of the Act, the 
GOI provided a financial contribution when it allowed Finsider to 
assume the debts Italsider owed to IRI. The benefit provided to 
Italsider was debt forgiveness. See section 351.508 of the CVD 
Regulations.
    We also disagree with respondents' argument that it would be 
double-counting to countervail both the 1984 debt transfer and the 
subsequent forgiveness of the same debt through the liquidation of the 
Finsider Group in 1988. Respondents have not demonstrated that the 
696.4 billion lire which was transferred to Finsider in 1984, was part 
of the 1,364 billion lire of debt forgiveness which IRI provided to 
Finsider in 1989. As noted above, we requested information from 
respondents on several occasions regarding the debt assumption and debt 
forgiveness provided under the 1981 Restructuring Plan. The burden is 
on respondents to provide to the Department the necessary information 
with which to conduct a complete analysis. Absent information regarding 
how the 1984 debt transfer is connected to the 1989 debt forgiveness, 
the Department must rely on the facts available.
    Therefore, we affirm our Preliminary Determination that, based on 
the facts available, the 696.4 billion lire transferred to Finsider in 
1984, was tantamount to debt forgiveness because respondents have not 
demonstrated that it was part of Finsider's 1,364 billion lire debt 
which IRI forgave in 1989.

Comment 4: Allocation of Benefits From the 1981 Plan Using the Correct 
Asset Ratios

    Respondents assert that the Department has incorrectly allocated 
100 percent of the countervailable benefits received by Italsider and 
Nuova Italsider to ILP. During verification, the Department reviewed 
the separation of certain carbon steel flat product assets that 
occurred between 1985, and the creation of ILP on January 1, 1994, 
verifying that ILP inherited only 88.29 percent of the total fixed, 
productive assets of Nuova Italsider. See ILVA/ILT Verification Report, 
at Exhibit 1985Rest-1.
    Respondents submit that under, long-standing policy, the Department 
apportions benefits to successor and spin-off companies on the basis of 
asset ratios. As noted in the 1993 General Issues Appendix, to 
calculate benefits, the Department divides ``the value of the assets of 
the spun-off unit by the value of the assets of the company selling the 
unit.'' See GIA, 58 FR at 37269. Therefore, consistent with this 
established policy, the Department should attribute benefits in 
accordance with the ratio of assets that actually traveled with ILP.
    Petitioners argue that the Department should reject the information 
regarding the assets of Nuova Italsider because, not only was it 
untimely, but is also inconsistent with other evidence on the record. 
Section 351.301 of the Department's procedural regulations mandates 
that ``a submission of factual information is due no later than * * * 
seven days before the date on which the verification of any person is 
scheduled to commence.'' They emphasize that verification was the first 
time ILVA/ILT mentioned a 1985 Restructuring Plan and the transfer of 
Nuova Italsider's assets. No such plan was discussed in the GOI's 
questionnaire response, though the Department requested information on 
``the restructuring of the Italian steel industry from 1981 through 
1998,'' including ``a detailed description of each restructuring 
plan.'' See Department's March 19, 1999 questionnaire, at Section II-1, 
Part I, Question A.1.
    Petitioners add that, should the Department decide to consider this 
new information, it should not reduce the subsidy benefit to (new) ILVA 
(i.e., formerly named ILP) from the 1981 Restructuring Plan because the 
information provided by ILVA/ILT does not clearly establish that any 
productive units of Nuova Italsider were spun-off in 1985. They argue 
that the mere fact that assets related to certain plants were not 
listed as part of the assets of ILP does not establish that they were 
spun-off as productive units in 1985. In fact, there is record evidence 
that two plants were in fact closed down as part of the 1988 and 1993-
94 Restructuring Plans. See EC Decision 89/218/ECSC of December 23, 
1988, and EC Decision 94/259/ECSC of April 12, 1994.
    ILVA/ILT rebuts petitioners' arguments, stating that there was no 
restructuring plan in 1985, and that the company has never maintained 
otherwise. Respondents explain that ILVA/ILT's verification exhibit 
simply traces the disposition of assets under the 1988 and 1993-94 
restructuring plans that Italsider and Nuova Italsider had owned prior 
to 1987, but which ultimately did not travel to ILP. See ILVA/ILT 
Verification Report, at Exhibit 1985Rest-1. They state that the asset 
allocation arose for the first time in the Preliminary Determination, 
when the Department incorrectly presumed that 100 percent of the assets 
of Nuova Italsider traveled to ILP.
    Department's Position: Information regarding the percentage of 
Nuova Italsider's assets which were transferred to ILP was first 
presented to the Department during ILVA/ILT's verification. Thus, the 
Department did not have sufficient time between the presentation of the 
information and this final determination to permit a thorough 
examination of the accuracy of the data. In addition, information 
necessary to determine the amount of productive assets which remained 
with Nuova Italsider was not placed on the record of this 
investigation. Therefore, in accordance with section 351.311(c)(2) of 
the Department's procedural regulations, we have deferred consideration 
of the percentage of Nuova Italsider's assets which were transferred to 
ILP. If this investigation goes to order and an administrative review 
is requested, we will, at that time, examine this issue again if 
complete information is provided in that review.

Comment 5: Use of the Verified Asset Ratio to Apportion Finsider 
Benefits From the 1988 Restructuring Plan

    Respondents state that, at the Preliminary Determination, the 
Department allocated the countervailable benefits from the 1988 
Restructuring Plan in accordance with an asset allocation table 
prepared by ILVA/ILT which used the best

[[Page 73262]]

information available prior to verification (see 64 FR at 40423). At 
verification, IRI, the owner of both Finsider and (old) ILVA, provided 
to the Department a more precise allocation of assets between Finsider 
and (old) ILVA based on IRI's consolidated financial statements. See 
GOI Verification Report, at 7 and ILVA/ILT Verification Report, at 10. 
Respondents argue that the Department not only verified the asset ratio 
using IRI's consolidated statements, but also tied the results to (old) 
ILVA's consolidated financial statements. Therefore, in line with the 
Department's long-standing policy of allocating benefits in accordance 
with asset ratios, respondents argue that the Department should use the 
correct and verified ratio of 51.2 percent to allocate the benefits of 
the Finsider restructuring to (old) ILVA.
    Petitioners assert that the Department's methodology in the 
Preliminary Determination with respect to the percentage of debt 
forgiveness from the 1988 Restructuring Plan attributable to (old) ILVA 
is incorrect. They argue that only where a portion of Finsider's assets 
were transferred to a productive unit other than (old) ILVA, should the 
Department allocate a portion of the subsidy amount to those assets. 
They note that this approach was taken by the Department in Plate in 
Coils from Italy (see 64 FR at 15523) and is consistent with the 
opinion of the CIT in British Steel Corp. v. United States, 605 F. 
Supp. 286 (1985) (British Steel). In that decision, the court ruled 
that ``the competitive benefit of funds used to acquire assets does not 
cease upon the assets' premature retirement, but rather such benefit 
continues to contribute to the firm's manufacture, production, or 
exportation of products accomplished by the firm's remaining assets.'' 
See British Steel, at 296.
    However, if the Department insists on calculating the percentage of 
Finsider's assets actually transferred to (old) ILVA as a result of the 
1988 Restructuring Plan, petitioners urge the Department to reject the 
estimate used in the Preliminary Determination and the estimate 
provided at verification. They contend that these estimates are 
incorrect because: (1) the estimate used in the preliminary analysis 
does not account for the additional assets transferred to (old) ILVA in 
1990, as part of the 1988 Restructuring Plan, and (2) neither 
calculation accounts for the write-down in the value of Finsider's 
assets which took place in 1989. Therefore, if the Department continues 
to use ILVA/ILT's calculations for the final, the amount of debt 
forgiveness that benefitted (old) ILVA will be substantially 
underestimated.
    Petitioners claim that it would be inappropriate to use net asset 
values from the end of 1989 or 1990, to estimate the assets transferred 
from Finsider to (old) ILVA, because the asset values were 
substantially written down in 1989, in connection with the 
restructuring. To compare asset values after the write-down (those 
assets in (old) ILVA) with asset values before (those assets remaining 
in Finsider) will inevitably lead to the incorrect conclusion that a 
substantial amount of Finsider's assets were not transferred to (old) 
ILVA.
    In their rebuttal brief, ILVA/ILT submits that petitioners have 
confused the benefit of liquidation, i.e., debt coverage, with the 
allocation of this benefit. They contend that liquidation provides a 
benefit because it enables a spun-off company to emerge without the 
unsustainable debt burden that had deprived the company in liquidation 
of viability; it is the liquidated company that lacks viability, not 
the individual assets. The viability of the assets of the Finsider 
Group was demonstrated both by the audited financial statements of 
1988, and by the subsequent success of the liquidated Finsider Group in 
generating revenue from the sale of assets to offset its net debt 
coverage.
    ILVA/ILT further states that since the benefit was received by the 
Finsider Group as a whole, the Department must allocate the benefit 
over the entire Group. As stated in the GIA, ``The amount of the 
potential pass-through subsidy is calculated by applying the ratio of 
the book value of the productive unit sold to the book value of the 
assets of the entire company at the time the productive unit is spun-
off.'' See GIA, 58 FR at 37268. Accordingly, the Department must use a 
ratio that bases the asset values in the numerator (the assets of each 
successor) and the asset values in the denominator (all assets of the 
predecessor, before the spin-offs) on the same base year and the same 
valuation method. Respondents add that it is the Department's 
established policy to use book value in the last accounting period 
preceding the spin-offs, taken from the consolidated audited financial 
statements.
    Department's Position: We reject the respondents' asset allocation 
calculation, which indicates that 51.2 percent of Finsider's assets 
were transferred to (old) ILVA. The calculation appears to take into 
consideration Finsider's asset value of December 31, 1988, prior to the 
write downs, and (old) ILVA's asset value after the write downs, and 
consequently derives an incorrect percentage of assets transferred. 
Record evidence indicates the opposite of ILVA/ILT's statement that 
``assets were transferred from Finsider to ILVA at their written down 
value.'' We note in IRI's 1989 consolidated financial statement that 
Finsider's net fixed asset value for year-end 1988, was 8,023 billion 
lire. For year-end 1989, Finsider's net fixed asset value was 1,345 
billion lire and (old) ILVA's was 3,910 billion lire. These amounts 
closely reconcile to those presented in the June 14,1989 McKinsey 
report 8 which indicates that the write down of assets 
occurred on January 1, 1989, after they were transferred to (old) ILVA 
on December 31, 1988. We learned at verification that Finsider 
transferred assets to (old) ILVA on December 31, 1988, in advance of 
the company's commencement of production as a steel company on January 
1, 1989. See GOI Verification Report, at 6.
---------------------------------------------------------------------------

    \8\ This report was submitted to the Department by the GOI on 
July 9, 1999.
---------------------------------------------------------------------------

    We further note that ILVA/ILT was not able to substantiate their 
claim that Finsider's assets were transferred to (old) ILVA at their 
written down value. In support of their statement, respondents simply 
translated a paragraph from Finsider's 1989 financial statement. ILVA/
ILT did not place information on the record which clearly indicates 
when the asset write downs were taken or the method by which the assets 
were revalued. In particular, at verification, ILVA/ILT did not 
demonstrate that Finsider's net fixed asset value of 8,023 billion lire 
as of December 31, 1988, was the value of the company's assets post-
write downs.
    On the basis of the record evidence, for purposes of this final 
determination, we have recalculated the percentage of Finsider's assets 
transferred to (old) ILVA using pre-write down asset values. To 
calculate the percentage of assets transferred to (old) ILVA, we used 
information from the June 14, 1989 McKinsey report which the GOI 
submitted to the Department on July 9, 1999. The report indicates that 
Finsider as of December 31, 1988, had a net fixed asset value of 8,610 
billion lire. Of Finsider's assets, 6,140 billion lire of the assets 
were conferred to (old) ILVA on December 31, 1988. On January 1, 1989, 
(old) ILVA's assets were written down. This information demonstrates 
that prior to the write downs, 71.31 percent of Finsider's assets were 
transferred to (old) ILVA.
    We agree with petitioners that it is necessary to add to the 71.31 
percent asset figure the assets transferred to (old) ILVA during 1990. 
During 1990,

[[Page 73263]]

705 billion lire in assets were transferred to (old) ILVA. See (old) 
ILVA's 1990 Annual Report, at 46, contained in the February 16, 1999 
Petition, at Volume VIII, Exhibit 4 and 5. Because it is likely that 
the 705 billion lire is based on asset values after the write-downs of 
1989, we have assumed that these assets were written down by a similar 
percentage as (old) ILVA'' assets on January 1, 1989, (i.e., 39.9 
percent). Accordingly, we have increased the value of the assets 
transferred during 1990, to their pre-write down value of 1,173 billion 
lire. We then summed the 1,173 billion lire and the 6,140 billion lire 
assets values, to arrive at the total asset value of 7,313 billion lire 
which was transferred to (old) ILVA. Therefore, we determine that, in 
total, 84.94 percent of Finsider's assets were transferred to (old) 
ILVA.
    Respondents are incorrect in arguing that the methodology to be 
applied here is the ``spin-off'' methodology described in the GIA. We 
do not consider the creation of (old) ILVA to be a ``spin-off'' from 
Finsider, because they were still government-owned companies. Normally, 
in such a situation, we would not separate the untied subsidies within 
the corporate group. However, the facts of this case, i.e., numerous 
restructurings and assumption of liabilities by the government which 
should have been taken by each new company created, dictate that we 
must apportion the subsidies provided to each of the new companies 
created. The most reliable way to determine the percentage of subsidies 
provided to the predecessor companies that are attributable to the 
successor companies is through the value of the assets taken by each 
company.

Comment 6: Debt Forgiveness Provided From the Reserve Fund

    Petitioners claim that, in the Preliminary Determination, the 
Department did not countervail the 1,568 billion lire in net losses 
which Finsider realized in 1989, stating that it would seek additional 
information in regard to Finsider's indebtedness to IRI (see 64 FR at 
40422-23). While the Department notes in its verification report that 
Finsider is still officially in liquidation, the fact that Finsider has 
not paid IRI for the debt a decade after the 1988 restructuring should 
be sufficient for the Department to determine that this debt has been 
forgiven. See GOI Verification Report, at 8. They state that since the 
1988 restructuring, Finsider has been a shell corporation that assumed 
the liabilities which were stripped from those assets transferred to 
(old) ILVA. Accordingly, the Department must countervail the 1,568 
billion lire debt forgiveness as benefitting (old) ILVA in 1990, the 
year in which it was identified, as an amount that would not be repaid 
to IRI.
    In their rebuttal brief, ILVA/ILT states that the reserve fund 
involved a suspension rather than a forgiveness of debt. See GOI 
Verification Report, at 8 and ILVA/ILT's September 3, 1999 QR, at 
Exhibit 1. They emphasize that the record demonstrates that no 
forgiveness of the 1,568 billion lire debt has yet occurred and that 
Finsider, in liquidation, continues to possess assets that may enable 
it to cover the debt without recourse to IRI's reserve. See GOI 
Verification Report, at 9. Because IRI has not forgiven Finsider's 
remaining debt, and ultimately may not need to forgive any of this 
debt, they argue that no countervailable forgiveness has yet occurred.
    Department's Position: On the record of this investigation, the GOI 
has reported that in 1988, IRI established a fund of 2,943 billion lire 
to cover Finsider's losses while in liquidation. See GOI's July 8, 1999 
QR, at Program 4, Question 3a and GOI Verification Report, at 8. The 
government stated that the fund equaled the total amount of assistance 
IRI expected to provide to Finsider during the liquidation process. 
IRI, which earlier extended 2,943 billion lire in loans to Finsider, 
questioned whether Finsider would default on the loans, and therefore, 
established the reserve fund to cover the outstanding loans. See GOI 
Verification Report, at 8.
    Finsider realized losses of 1,364 billion lire in 1988. To prevent 
Finsider from becoming insolvent, IRI utilized 1,364 billion lire of 
the fund in 1989, to forgive debts Finsider owed to it. In 1989, 
Finsider realized losses of 1,568 billion lire. Because the purpose of 
the reserve fund was to cover losses that Finsider would realize while 
in liquidation, IRI should have, but did not, cover the 1,568 billion 
lire of losses in 1990, by forgiving debt of an equivalent amount.
    At verification, we learned that Finsider, which remains in 
liquidation, still had losses of 1,568 billion lire carried forward in 
its financial statement of December 31, 1998. Likewise, within IRI's 
financial statement as of year-end 1998, IRI still maintained a balance 
of 1,568 billion lire in the reserve fund. See GOI Verification Report, 
at 9. IRI officials explained that the agency expects Finsider to repay 
all outstanding debts with revenue realized through the sale of 
remaining assets. However, until the liquidation is officially 
terminated, IRI must keep the fund on its books in case any outstanding 
debts cannot be covered with cash earned from the sale of assets. See 
Id.
    We analyzed whether, when Finsider realized losses of 1,568 billion 
lire in 1990, IRI expected to receive payment against the debts owed to 
it by Finsider. Based on the record evidence, we determine that IRI did 
not expect Finsider to pay the 1,568 billion lire debt. First, in 1988, 
IRI created a fund with the sole purpose to cover the losses which 
Finsider would realize while in liquidation. Second, IRI utilized 1,364 
billion lire of the fund to cover losses in 1989, by forgiving debt of 
an equivalent amount. In addition, respondents did not submit 
information on the record regarding the value of the assets which 
remained in Finsider as of December 31, 1989, to demonstrate that 
Finsider had viable assets which it could sell to obtain cash to pay 
IRI. On the basis of these facts, we determine that in 1990, IRI had no 
expectation that Finsider would pay the 1,568 billion lire debt. 
Therefore, for this final determination, we find that in 1990, IRI 
provided to Finsider debt forgiveness of 1,568 billion lire.

Comment 7: IRI's Purchase of Finsider Shares

    Respondents contend that IRI's purchase in 1990, of (old) ILVA's 
shares from Finsider, Italsider, and Terni in liquidation was step one 
of a two-step asset purchase. They state that the liquidators of the 
Finsider Group used a two-step process to raise cash for the benefit of 
creditors by selling assets of the liquidated companies. In step one, 
Finsider, Italsider, and Terni in liquidation sold assets to (old) ILVA 
in exchange for shares of the company. In step two, Finsider, Italsider 
and Terni in liquidation sold their shares in (old) ILVA to IRI in 
exchange for cash at the same value. Respondents contend that this two-
step sale enabled the companies in liquidation to liquidate productive 
assets at the assets' appraised market value for the benefit of their 
creditors.
    They argue that, because IRI's purchase of shares was an asset sale 
at market value, the Department has no legal or factual basis for 
countervailing the transaction. They stress that this process was not 
``tantamount to debt forgiveness,'' stating that IRI simply purchased 
the shares in (old) ILVA which Finsider, Italsider and Terni in 
liquidation had received in exchange for the assets which they 
transferred to (old) ILVA. IRI paid the assets' appraised market value 
to Finsider, Italsider and Terni in liquidation. Under section 
771(5)(E)(iv) of the Act, a

[[Page 73264]]

purchase of assets by or for the government provides a countervailable 
benefit only ``if such goods are purchased for more than adequate 
remuneration'' and that adequate remuneration ``shall be determined in 
relation to prevailing market conditions.''
    Respondents state that the appraisal of the assets in question was 
based on prevailing market conditions, and utilized the comprehensive 
market assessment of McKinsey, as described in ILVA/ILT's September 3, 
1999 QR. Therefore, they argue that no countervailable benefit was 
conveyed because the remuneration provided by the government for the 
assets was adequate.
    Petitioners argue that the McKinsey study was not an analysis of 
whether (old) ILVA in 1990, was a good investment. Rather, the study 
was an analysis of the viability of the 1988 Restructuring Plan, i.e., 
whether the restructuring of Finsider into (old) ILVA would meet the 
objectives set out by the GOI and the EC. At verification, the 
Department learned that ``[t]he consulting firm of McKinsey & Company 
was hired to examine whether the creation of ILVA S.p.A. would conform 
with the EC's trade and competition rules.'' See GOI Verification 
Report, at 5. No analysis of the risk of an investment in (old) ILVA 
versus the potential return of such an investment is contained in the 
study, nor any comparison to the expected return of alternative 
investment opportunities, as is required under the Department's 
practice.
    Petitioners add that there is no basis for concluding that the GOI 
was acting as a normal investor in buying (old) ILVA's shares in 1990. 
They highlight (old) ILVA's negative return on equity for the years 
1986, 1987, and 1988, and conclude that no private investor would have 
made an investment in such a financially unsound company. On the basis 
of this information, the Department should determine that (old) ILVA 
was unequityworthy in 1989, and that IRI's purchase of (old) ILVA's 
shares was equivalent to debt forgiveness.
    In their rebuttal brief, ILVA/ILT dispute petitioners' argument 
that (old) ILVA was unequityworthy in 1989. They state that. contrary 
to petitioners' calculation, which appears to have been based on data 
for Finsider in liquidation and not (old) ILVA, (old) ILVA had a return 
on equity of 7.6 percent for 1989. The McKinsey report, which they 
contend does satisfy the Department's requirements for investment 
studies, projected a level of profitability of 12.8 percent in 1990, 
for (old) ILVA.
    Department's Position: As in our Preliminary Determination, we 
continue to find that IRI's purchase of (old) ILVA's shares is 
countervailable. It is the Department's position that prior to 
purchasing shares of a company, it is the usual investment practice of 
a private investor to evaluate the potential risk versus the expected 
return. This includes an objective analysis of information sufficient 
to determine the expected risk-adjusted return and how such a return 
compares to that of alternative investment opportunities of similar 
risk. In the July 23, 1999 questionnaire and at verification, we asked 
the GOI and ILVA/ILT to provide all feasibility studies, market 
reports, economic forecasts, or similar documents completed prior to 
(old) ILVA's share purchase, which related to the future expected 
financial performance of the company.
    We disagree with respondents that IRI's purchase of (old) ILVA's 
shares in 1990, was preceded by a comprehensive and objective financial 
analysis of (old) ILVA. We find that the McKinsey report which was 
commissioned by the EC and the GOI, examined not the expected financial 
performance of (old) ILVA, but assessed the viability of the 
government's ``ILVA Steel Plan'' (i.e., the 1988 Restructuring Plan) 
for the period 1988 to 1990. The scope of the study was to ``examine 
the ILVA Steel Plan trying to verify consistency with the Italian 
government proposals' and focused on (old) ILVA's steel making 
activities to ensure compliance with the EC's trade and competition 
rules. See GOI Verification Report, at 5. We note that the McKinsey 
team's evaluation involved: (1) reviewing the ILVA plan with the 
managers to ensure a full understanding of the underlying programs; (2) 
validating the feasibility of the plan using sound management 
principles; and (3) verifying EC mandated guidelines for price/cost 
squeeze and profitability. See McKinsey Report, ``Evaluating the 
Viability of the ILVA Steel Plan,'' of August 5, 1988, in the GOI's 
July 8, 1999 QR.
    We determine that the McKinsey report did not incorporate the type 
of objective, quantitative analysis that an investor would require 
prior to a share purchase to evaluate the potential risk versus the 
expected return of an investment in (old) ILVA. There is no financial 
forecasting of (old) ILVA which would inform the investor of the 
viability of the company. Respondents discuss in their case brief that 
the McKinsey report evaluated (old) ILVA's ability to realize a minimum 
level of profitability of 12.8 percent in 1990. See ILVA/ILT's November 
23, 1999 Rebuttal Brief, at 6. However, respondents have taken that 
``probability'' out of context. In fact, the report states, ``[T]he 
overall plan meets CEC [EC] guidelines for a 2.5 percent annual price/
cost squeeze and exceeds guidelines for a minimum MOL [operating margin 
improvement]-profitability level in 1990 of 12.8 percent of revenue.'' 
See Id. As discussed in the report, the MOL level of 12.8 percent of 
consolidated revenues is the target level that (old) ILVA had to reach, 
as a whole, in order to meet the EC guidelines for viability, and not 
the company's projected profitability. The report further states that 
when calculating (old) ILVA's MOL profitability-level, the McKinsey 
team had no confirmation of (old) ILVA's official financial plans. 
Therefore, they assumed a normal capital structure for (old) ILVA in 
their evaluation and urged the government to create a sound financial 
base for the new enterprise. See Id., at section ``1990 Profitability 
Meets CEC Guidelines.''
    The facts on the record indicate that IRI, which committed itself 
on January 1, 1989, to purchase (old) ILVA's shares from Finsider, did 
not have sufficient financial data which would have allowed it to 
evaluate the potential risk versus the expected return in an investment 
in (old) ILVA. Further, at the GOI's verification, we learned that 
under Italian law, a company in liquidation must sell all of its assets 
to repay outstanding debt. See GOI Verification Report, at 9-10. IRI, 
which wanted to remain in the steel business, committed itself on the 
day (old) ILVA was created, to purchase from Finsider the shares of the 
company. See Id. With the cash from the sale, Finsider repaid a portion 
of its outstanding debts. See Id. Therefore, on the basis of the record 
evidence, IRI did not act like a private investor when it decided to 
purchase (old) ILVA's stock on January 1, 1989. The purpose of the 
share purchase was to provide to Finsider with cash to repay debts.

Comment 8: Finsider Received No Countervailable Operating Assistance 
During Its Liquidation

    Respondents argue that the Department should not countervail the 
amount of 738 billion lire which was the ceiling the EC imposed on 
IRI's coverage of losses incurred during the liquidation of Finsider. 
They contend that IRI provided no such assistance apart from the 1,364 
billion lire in loss coverage which the Department has countervailed 
separately. They point out that IRI demonstrated that the global

[[Page 73265]]

assistance amount did not exceed 1,364 billion lire, as documented in 
the relevant financial statements. See GOI Verification Report, at 
Exhibits Plan 1988/1-6.
    Petitioners argue that the Department should affirm its preliminary 
determination for the following reasons: One, the GOI claimed that no 
assistance beyond the 1,364 billion lire in debt forgiveness from 1989, 
was provided by IRI; however this statement made at verification 
conflicted with the GOI's own July 8, 1999 QR. See GOI Verification 
Report, at 10, and GOI's July 8, 1999 QR, at Part II, P.S. Q. Program 
4. Two, the GOI could not provide any documentation to support its 
claim that IRI only provided 1,364 billion lire in assistance. See GOI 
Verification Report, at 10.
    Department's Position: In the Preliminary Determination, we 
discussed the ambiguous information on the record regarding the 
additional financial assistance, if any, the GOI provided to Finsider 
in liquidation (see 64 FR at 40423). We preliminarily found, based on 
information provided by ILVA/ILT, that IRI provided 738 billion lire to 
Finsider to cover costs and losses in 1989. See Id. However, we stated 
that we would seek further clarification from the GOI and ILVA/ILT 
regarding all assistance provided under the 1988 Restructuring Plan.
    We learned that through the 89/218/ECSC Decision of December 23, 
1988, the EC authorized the disbursement of a maximum of 738 billion 
lire in additional financial assistance to Finsider to cover costs and 
losses realized in the liquidation process. However, because the cash 
received from the sale of Finsider's assets was greater than expected, 
IRI did not have to disburse to Finsider any portion of the 738 billion 
lire of aid authorized for closure costs and liquidation expenses. See 
GOI Verification Report, at 10 and ILVA/ILT Verification Report, at 11. 
At verification, we examined Finsider's and IRI's 1989 financial 
statements, in particular, sections where such assistance would have 
been recorded. We found no evidence that IRI provided any aid to 
Finsider in addition to the 1,364 billion lire in 1989. Therefore, on 
this basis, we determine that IRI did not provide to Finsider an 
additional 738 billion lire to cover closure costs and losses in 1989.

Comment 9: Allocation of the 1993 Restructuring Benefits Using the 
Consolidated Asset Values for the ILVA Group

    Respondents contend that in the Preliminary Determination, the 
Department incorrectly allocated the benefits from the 1993-94 ILVA 
restructuring to ILP, AST and ILVA Residua. Though it is the 
Department's policy to allocate benefits to successor and spin-off 
companies by asset value, the Department did not use the actual 
consolidated asset values of all three companies as the denominator for 
its allocation of the 1993-94 benefits. Rather, the Department used the 
consolidated asset values only for ILP and AST. For ILVA Residua, the 
Department ``used the sum of the purchase price plus debts transferred 
as a surrogate for the viable asset value of the operations sold from 
ILVA Residua.'' See Preliminary Determination, 64 FR at 40424. They 
explain that by using the consolidated assets of ILP and AST, but not 
ILVA Residua, the Department distorted the allocation and exaggerated 
the benefits attributed to ILP from the restructuring.
    The respondents stress that by using a surrogate value for ILVA 
Residua's assets, the Department erred in three fundamental respects: 
First, the Department had no basis in law or accounting to use a 
surrogate, because ILVA/ILT submitted the actual consolidated asset 
value for ILVA Residua as recorded in audited financial statements. 
Second, the surrogate was based not on year-end 1993 data, but on ``the 
purchase price plus debts'' of ``operations sold from ILVA Residua.'' 
See Id. These sales occurred after year-end 1993, and, in many cases, 
not until years later. In contrast, the ILP and AST assets used in the 
Preliminary Determination were from year-end 1993 financial statements. 
For purposes of consistency and accuracy, allocations of asset values 
must incorporate the value of all the assets at one common point in 
time. Third, respondents emphasize that the Department used as its 
surrogate the post-1993 purchases of assets from the unconsolidated 
ILVA Residua, which excluded the asset values of the many subsidiary 
companies that ILVA Residua sold in market transactions. They add that 
by using consolidated assets for ILP and AST (i.e., including 
subsidiary companies owned by ILP and AST), but using a surrogate only 
for the unconsolidated ILVA Residua's assets (i.e., excluding 
subsidiary companies), the Department significantly understated the 
asset value of ILVA Residua in comparison to ILP and AST as of year-end 
1993.
    Petitioners argue that the correct asset value for ILVA Residua is 
the price paid for each subsidiary sold plus the debts transferred. 
This approach reflects the fact that the debt forgiveness should only 
be allocated to the viable assets of (old) ILVA and not to any assets 
that were to be closed or otherwise ceased to be viable. See Plate in 
Coils from Italy, 64 FR at 15523.
    They contend that this analysis is consistent with legal precedent 
with respect to subsidies provided for closure of inefficient plants. 
Petitioners cite British Steel in which the CIT ruled that subsidies 
used to close redundant facilities provide countervailable benefits to 
the remaining, productive assets of the recipient firm because 
``redundancy funds and plant closures make the recipient more efficient 
and relieve it of significant financial burdens.'' See British Steel, 
at 293. They also reference the GIA, in which the Department states: 
``* * * subsidies are not extinguished either in whole or in part when 
a company closes facilities. Rather, the subsidies continue to benefit 
the merchandise being produced by the company.'' See GIA, 58 FR at 
37269.
    It would not be appropriate to allocate the debt forgiveness to the 
total assets of ILVA Residua as of year-end 1993, as this would 
allocate benefits to assets that were closed or otherwise became non-
viable following the restructuring. They emphasize that, at 
verification, the ILVA/ILT officials could not support their statement 
that all assets remaining in ILVA Residua were viable. See ILVA/ILT 
Verification Report, at 11. Therefore, the Department should continue 
to rely on the EC's 10th Monitoring Report for purposes of determining 
the viable assets remaining in ILVA Residua, and use that figure for 
purposes of allocating the debt forgiveness of the 1993-94 
Restructuring Plan among ILP, AST and ILVA Residua.
    Department's Position: We find that, given the information on the 
record, the most reliable asset value for ILVA Residua is the price 
paid for each subsidiary sold plus the debts transferred. It is the 
Department's practice to apportion otherwise untied liabilities 
remaining in a shell corporation to the new, viable operations that had 
been removed from the predecessor company. Therefore, consistent with 
our past practice, we have assigned a portion of these liabilities to 
ILP and AST based on the ratio of assets each company took to the total 
viable assets of all three companies, including ILVA 
Residua.9 This approach is consistent with the methodology 
employed in the recent

[[Page 73266]]

stainless steel investigations. See, e.g., Plate in Coils from Italy, 
64 FR at 15523.
---------------------------------------------------------------------------

    \9\ Because the ultimate objective of the 1993-94 Restructuring 
Plan was the privatization of ILP and AST, which were separately 
incorporated from (old) ILVA on January 1, 1994, we have no reason 
not to believe that the value of the assets which were transferred 
to ILP and AST were accurately assessed during the liquidation 
process.
---------------------------------------------------------------------------

    As stated earlier in the notice, based on the record evidence of 
this investigation, the EC's 10th Monitoring Report is the only 
reliable information available to the Department to establish the value 
of those productive assets which remained in ILVA Residua at the point 
ILP and AST were separately incorporated. We disagree with respondents 
that the best source of data is the consolidated asset value for ILVA 
Residua as of December 31, 1993. Evidence on the record indicates that 
the asset value for ILVA Residua as of year-end 1993, is seriously 
flawed. At verification, the EC economist who monitored the 
restructuring and privatization of (old) ILVA stated that the ``balance 
sheets for December 31, 1993, provide only an estimate of ILVA in 
Liquidation's indebtedness which IRI would have to cover, the amount of 
debts to be transferred, etc.'' See GOI Verification Report, at 13. He 
also explained that the balance sheets of December 31, 1994, were the 
first audited financials of IRI and ILVA Residua since the commencement 
of the liquidation in the fall of 1993. See Id.
    We examined ILVA Residua's 1994 annual report and noted the 
following statement pertaining to 1993, within the ``Report on the 
Management:'' ``In the financial statement for 1993, we pointed out how 
the opening of liquidation would require drawing up a balance sheet 
formulated not with values of normal operation but with values of 
estimated cost. The brevity of time available then and the complexity 
of the valuations to be executed in that meeting allowed putting 
together only a few limited adjustments of values for which sure 
elements of judgement were available.'' See ILVA Residua's 1994 Annual 
Report in the February 16, 1999 Petition, at Volume 8, Tab 11. In 
addition, at verification, we obtained a listing of the amount of 
assets from each ILVA Group company which were placed in ILVA Residua 
as of December 31, 1993. See ILVA/ILT Verification Report, at Exhibit 
1993/94-4. Respondents claimed, but could not document, that all of the 
assets were viable. See ILVA/ILT Verification Report, at 11. As the 
auditor's opinion clearly indicates, the asset value for ILVA Residua, 
recorded in the company's financial statement as of December 31, 1993, 
was distorted, and respondents have submitted no evidence to 
substantiate their claim that the assets were accurately valued. As 
such, it is not appropriate to apportion the subsidies to ILVA Residua 
using the company's 1993 consolidated asset value. To determine the 
amount of liabilities from the 1993-94 Restructuring Plan, that should 
be apportioned to ILVA Residua, we must first determine the value of 
the productive assets that remained in ILVA Residua.
    Given that the Department does not have the necessary asset values 
to make this determination from financial statements prepared at the 
point (old) ILVA's assets were demerged into ILP and AST, we consider 
that the EC report provides the only reliable information on the record 
to determine the viable assets which remained in ILVA Residua. The EC 
report provides a list of subsidiaries and shareholdings sold by ILVA 
Residua from 1993 through 1998, together with the sales price for each 
company and the debts transferred from ILVA Residua upon each sale. 
Respondents themselves note this fact in their case brief: ``The 10th 
EC Monitoring Report describes these sales [i.e., ILVA Residua's assets 
sold in market transactions], which involved virtually all of ILVA 
Residua's consolidated assets.'' See ILVA/ILT's November 18, 1999 Case 
Brief, at 16. Moreover, the EC Monitoring Report notes that ``[t]he 
privatisation or the sale of shareholdings of all the companies 
formerly part of the ILVA Group (over 100 companies) is now practically 
completed,'' with only a negligible amount of assets remaining to be 
sold.
    Therefore, to calculate the asset value of the viable operations, 
which were in ILVA Residua, we summed the cash price paid plus debts 
transferred at the time of their sale. We believe this approach 
provides a reasonable surrogate asset value because the newly sold 
company's books will, by the basic accounting equation of ``assets 
equal liabilities plus owners'' equity,'' reflect an asset value that 
is equal to the debts transferred plus the cash purchase price. The 
debts transferred become the liabilities in the new company's books, 
while the cash purchase price becomes the owners' equity. See Plate in 
Coils from Italy, 64 FR at 15523. Given the record evidence of this 
investigation, this calculation is the most reasonable estimate of the 
amount of viable assets that were left in ILVA Residua upon the 
separate incorporation of ILP and AST. However, should this 
investigation result in an order and an administrative review is 
requested, we will examine whether, at the point ILP and AST were 
separately incorporated, more accurate information can be obtained with 
regard to the value of those productive assets which remained in ILVA 
Residua.

Comment 10: Countervailable Debt Coverage Should Be Offset by Revenue 
From ILP/AST Sales

    Respondents state that the Department's preliminary analysis, 
guided by the EC's 10th Monitoring Report, disregarded the EC's 
treatment of revenue from the sale of ILP and AST as an offset to debt 
coverage. They argue that, by overlooking this revenue offset, the 
Department overstated the net amount of debt coverage. The record of 
the case demonstrates the legal obligation of the GOI and IRI to use 
the revenue from the sale of ILP and AST for the benefit of ILVA 
Residua's creditors. See GOI Verification Report, at 14. Since revenue 
from the ILP and AST privatizations is no different from revenue 
generated by the sale of ILVA Residua's other productive enterprises, 
they argue that all revenue should be deducted from the gross 
liabilities of ILVA Residua prior to attributing any countervailable 
debt coverage to ILP.
    In support of their argument, respondents note that the EC in its 
Decision 94/259 of April 12, 1994, at Article 3(2), states: ``The 
income obtained through the sale of the companies in the (old) ILVA 
Group shall be used in full to reduce the indebtedness of the group.'' 
Because the revenue from the privatizations was intended to reduce the 
debt coverage provided by IRI to ILVA Residua, the Department has no 
legal justification to exclude this revenue from its calculation of the 
net debt relief attributable to the liquidation process. Respondents 
add that under the Italian Civil Code, IRI had a legal obligation to 
the ILVA Group's creditors to apply the revenue from the subsequent 
privatizations of ILP and AST for the creditors' benefit.
    They further state that the Department in the Preliminary 
Determination (see 64 FR 40424) recognized the revenue from asset sales 
by ILVA Residua as an offset to the countervailable debt coverage 
provided by the liquidation. Because no justifiable distinction can be 
drawn between the ILP and AST privatization revenue and the revenue 
from other asset sales, the Department should apply the 2,665 billion 
lire from the privatization of ILP and AST as an offset to the 
countervailable debt coverage attributed to the 1993-94 restructuring 
process.
    Petitioners counter that the subsidy at issue is the amount of 
liabilities stripped from the operating company of (old) ILVA, which 
were placed in ILVA Residua, and not the amount of ILVA Residua's debts 
the GOI ultimately forgave or paid, nor the source of the

[[Page 73267]]

funds used to satisfy the debt. ILVA/ILT is confusing the benefit to 
the recipient of the subsidy the Department must measure (i.e., the net 
liabilities stripped from ILP) with the subsequent transactions between 
ILVA Residua and the GOI. They argue that the Department rejected the 
same argument in Plate in Coils from Italy (see 64 FR at 15522-23), 
stating that such an analysis would calculate the cost to government, 
rather than the benefit to the recipient, in violation of the law. 
Petitioners submit that the same analysis is applicable in the instant 
investigation.
    They add that there is a fundamental difference between the revenue 
from the privatization of ILP and AST and the revenue from other asset 
sales by ILVA Residua. Despite ILVA/ILT's claims, the GOI's receipt of 
cash from the proceeds of its sale of ILP (and AST) did not come from 
(old) ILVA itself and therefore does not constitute an ``offset'' to 
the liabilities stripped from (old) ILVA. Petitioners note that section 
771(6) of the Act provides a list of proper offsets in determining the 
net countervailable subsidy and the proceeds from a privatization are 
not included within the list.
    Department's Position: As mandated by law under section 771(5)(E) 
of the Act, the Department must calculate subsidies as the benefit to 
the recipient and not the cost to the government as proposed by 
respondents. Accordingly, we must determine, at the time ILP was spun-
off from (old) ILVA, the benefit that ILP received, calculated as the 
portion of (old) ILVA's liabilities which was forgiven on behalf of 
ILP. At the time of ILP's separate incorporation of January 1, 1994, 
ILP clearly benefitted to the extent that it did not assume a 
proportional share of (old) ILVA's liabilities. ILP emerged with a 
positive equity position as a result of ILVA Residua's assumption of 
the vast majority of (old) ILVA's liabilities, which included that 
portion of liabilities which should have been transferred to ILP.
    While the EC's Monitoring Report is a useful source of information 
about the liquidation of (old) ILVA, the methodologies the EC employs 
to measure and report amounts associated with the liquidation may not 
be appropriate for our purposes, i.e., for identifying and measuring 
the countervailable benefit to ILP from the GOI's liquidation 
activities. For example, we cannot rely on calculations based on the 
cost to the government rather than the benefit to the recipient. See 
Sheet and Strip from Italy, 64 FR at 30633.
    It is the Department's practice to determine the benefit to a 
respondent as the amount of liabilities that are not directly 
associated with any given assets that the respondent should have taken. 
See Plate in Coils from Italy, 64 FR at 15522-23. If liabilities are 
not properly distributed to a new company through a restructuring 
process, a benefit is conferred upon the productive assets of the new 
entity. The assumption by a government of those liabilities not 
apportioned is the countervailable event. If the new company is later 
sold, as was the case with ILP, then the Department applies its change 
in ownership methodology to determine the portion of the purchase price 
attributable to the repayment of prior subsidies. We note that the cash 
transfer for ILP did not take place at the time of the company's 
separate incorporation, but over a year later when ILP was sold to the 
RIVA Group in April 1995. Therefore, consistent with the Department's 
policy, we determine that ILP received a benefit when it was separately 
incorporated from (old) ILVA; the benefit was that portion of 
liabilities of (old) ILVA which should have transferred to ILP, but 
instead remained with ILVA Residua. See, e.g., Electrical Steel from 
Italy, 59 FR at 18365, and Certain Steel from Austria, 58 FR at 37221.

Comment 11: ILVA 1993 Asset Write-Downs

    Respondents contend that as a matter of law, accounting and simple 
fact, the Department's preliminary approach to this subject was in 
error. In the Preliminary Determination, according to respondents, the 
Department countervailed the asset write-downs taken by (old) ILVA in 
1993, treating the write-downs as a countervailable event. This, 
according to respondents, reflected the Department's preliminary view 
that the write-downs generated losses and that these losses were the 
equivalent of debts that would have to be covered by the government. 
Respondents maintain that the asset write-downs taken by the ILVA Group 
in 1993 amounted to 1,780 billion lire, including write-downs of 1,685 
billion lire for assets that would later be transferred to ILP.
    Respondents claim that both Italian and U.S. GAAP require the write 
down of asset values, once the impaired condition of the assets is 
manifest, particularly in the face of an impending sale or transfer of 
assets. Respondents state that the correct application of these 
accounting rules in the current investigation requires an appreciation 
of the fundamental distinctions between asset write-downs, losses, and 
debts.
    According to respondents, the occurrence of a loss by a company, as 
reflected on the balance sheet by a reduction in shareholder's equity 
and an accompanying asset write-down, involves neither a direct 
transfer of funds into the company nor the forgiveness of any debts. 
Rather, the asset write-downs are accounting entries required by 
Italian and U.S. GAAP in the event the losses reflect a material 
impairment of an asset's earnings potential over its remaining useful 
life. The asset write-down does not ``cause'' the loss; instead events 
or circumstances which cause losses, such as overcapacity or 
obsolescence, may require an extraordinary write down of asset values 
on the asset side of the balance sheet and an offsetting reduction to a 
capital account on the liabilities/shareholders' equity side of the 
balance sheet.
    Respondents take issue with the Department's analysis in the 
Preliminary Determination. Although respondents agree that under 
section 771(5)(D) of the Act, the Department has an obligation to 
identify a ``financial contribution'' from the government to (old) 
ILVA, they believe the Department erred in preliminarily determining 
that asset write-downs are a ``direct transfer of funds'' in accordance 
with section 771(5)(D)(I). See Preliminary Determination, 64 FR at 
40423.
    Respondents claim that two fundamental flaws with the Department's 
Preliminary Determination are evident. First, the Department has 
confused ``real'' events and obligations with accounting entries that 
create no such obligations. Second, the Department has double or even 
treble counted benefits conferred by a single financial contribution. 
Regarding the confusion over ``real'' events versus accounting entries, 
respondents state that the assumption or forgiveness of a debt is 
equivalent to a grant only if the government voluntarily pays a debt on 
behalf of the company, or voluntarily waives its right to receive a 
payment from the company. They further state that above all, there has 
to be a debt and it has to be forgiven and that a loss is not a debt 
and is by no means equivalent to a debt. A loss is recorded on the 
income statement and typically impacts the balance sheet as a reduction 
to retained earnings, reserves or other capital account. If the loss-
making company wants to avoid an erosion in its capital, it can 
replenish its funds either by obtaining additional equity or incurring 
additional debt. The loss, in and of itself, will have no direct impact

[[Page 73268]]

on debt and may never have any impact on debt, given other means of 
absorbing losses available to the company. Respondents contend that an 
asset write-down neither increases debt nor forgives debt. The act of 
borrowing is a ``real'' event, not simply an accounting event, just as 
the act of debt forgiveness is a ``real'' event, whereas the recording 
of an asset write-down, or the reduction of shareholders' equity, are 
accounting entries that impose no new obligations on the company.
    Regarding double counting the benefit from a single financial 
contribution, respondents state that the failure to distinguish between 
(1) past financial contributions, (2) potential future financial 
contributions, and (3) actual financial contributions that occur in 
subsequent years, has led the Department to double or even treble count 
the benefit from individual contributions of the same capital. To the 
extent that the government contributed either equity or debt to (old) 
ILVA, and thereby conferred a subsidy, those financial contributions 
remain countervailable over the AUL period. To the extent the 
government forgave accumulated debt, that act of debt forgiveness is 
also potentially countervailable. Respondents go on to argue that an 
intervening loss and asset write-down incurred by the company that 
received the original equity infusion, and that might later benefit 
from a debt forgiveness, would not represent an additional financial 
contribution from the government or confer a separate countervailable 
benefit. In the absence of a new financial contribution, as defined by 
section 771(5)(D) of the Act, there can be no subsidy.
    In (old) ILVA's case, according to respondents, the 1991/92 equity 
infusions of 660 billion lire provided a financial contribution from 
the GOI that supported the acquisition of assets and other operations 
of (old) ILVA and thereby conferred a countervailable benefit. (Old) 
ILVA's subsequent losses (and associated write downs) involved no 
additional financial contribution or benefit because they involved no 
affirmative action of any sort on the government's part. Instead, they 
simply reflected the company's failure to earn a profit. As described 
above, such losses result in a reduction of retained earnings or other 
capital account on the balance sheet. No government action is 
associated with an accounting entry of this type, and no benefit is 
conferred. An additional financial contribution by the government can 
be said to occur only in the event of additional equity infusions, 
loans or debt forgiveness provided by the government. Thus, to impose 
countervailing duties in connection with the 1993 asset write-down 
would unlawfully double penalize ILVA for the same capital.
    Petitioners contend that the debt forgiveness and coverage of 
losses provided by IRI to ILP (now (new) ILVA) in connection with the 
1993-94 Restructuring Plan provided a financial contribution to (new) 
ILVA in the form of a direct transfer of funds--the equivalent of a 
grant--as described in section 771(5)(D)(I) of the Act. Petitioners 
cite Sheet and Strip from Italy, 64 Fed. Reg. at 30,628. They point out 
that ILVA/ILT has repeatedly argued that the coverage of losses by the 
GOI resulting from asset write-downs in the various restructurings of 
the Italian state-owned steel industry does not constitute a financial 
contribution and that this argument is in error.
    Petitioners cite Plate in Coils from Italy in their argument that 
the Department has previously considered the countervailability of the 
coverage of losses resulting from the write-down of assets in 
connection with the 1993-94 restructuring. In that case the Department 
found that because the asset write-downs generated a loss that was 
eventually covered by the GOI through its debt forgiveness to ILVA, the 
asset write-downs are countervailable. Petitioners also cite Electrical 
Steel from Italy for their assertion that the Department has previously 
considered countervailability of asset write-downs in Italy. In that 
case assets transferred from a GOI created ``shell company'' (TAS) to 
(old) ILVA were written down prior to the transfer and as a result, the 
GOI created ``shell company'' was forced to absorb greater losses, 
which were countervailed.
    According to petitioners, in order to understand the connection 
between the countervailable benefit from the reduction of liabilities 
afforded (old) ILVA and the asset write-downs, the Department need only 
consider the methodology it used to determine the amount of 
countervailable benefit that arises from the liabilities that were 
stripped from (old) ILVA in the 1993-94 restructuring. In particular, 
the countervailable benefit equals the total (gross) liabilities 
transferred out of (old) ILVA minus the total assets transferred, which 
equals the net liabilities transferred. For example, if the government 
transfers $100 in gross liabilities and $20 in assets, then the net 
benefit is $80. Obviously, the correct result from this calculation 
depends on the correct value of both the gross liabilities and the 
assets. If, in this example, it is determined after the transfer takes 
place that the assets are, in fact, worth only $10 and are written down 
accordingly, then the true amount of net liabilities transferred is 
$90--or $10 more as reflected in the amount of the asset write-down.
    Respondents dispute petitioners use of Electrical Steel from Italy 
(see, 59 FR at 18359) pointing out that the passages from that final 
used by petitioners address the Finsider restructuring (not the (old) 
ILVA restructuring) and that this passage neither references nor 
identifies a financial contribution. In fact, respondents claim that 
the Electrical Steel from Italy determination illustrates that by 
focusing exclusively on the perceived benefit without identifying any 
financial contribution, the Department has unlawfully engaged in double 
counting of a single subsidy event. Further, respondents dispute 
petitioners' other cited case, Plate in Coils from Italy (see, 64 FR at 
15525). Respondents argue that the issue of countervailing asset write-
downs in Plate in Coils from Italy was decided on the basis of a 
deficient record in which the Department did not have the benefit of 
the complete legal, accounting, and factual information contained in 
the record of this current investigation, which is necessary for the 
Department to reach an informed determination.
    Respondents argue that the Department has countervailed (old) 
ILVA's equity infusions that preceded the asset write-down as well as 
the debt forgiveness that followed the asset write-downs, and that it 
would be unlawful to countervail the intervening asset write-downs, 
which involved no new or separate financial contribution from the GOI.
    Department's Position: Respondents misunderstand the Departments 
position concerning the asset write-downs that (old) ILVA took in 1993 
as part of the restructuring/privatization plan. We disagree with 
respondents that the technical GAAP requirements on asset write-downs 
of either country are particularly relevant to the issue. The main 
point is that retained liabilities of (old) ILVA represent the portion 
of the company not covered by assets and, therefore, this is the pool 
of liabilities covered by the GOI. To clarify, the recognition of the 
fact that (old) ILVA's assets had become impaired in value (a real 
event), and needed to be written-down, increases the retained losses 
(i.e., negative equity), in the same manner as any other operating 
expense or loss. The large retained losses, while not technically debt, 
represents the portion of the company's liabilities that cannot be 
covered by the sale or transfer of assets. It is clear that the total 
amount

[[Page 73269]]

of debt is not increased by the asset write-downs. However, the writing 
down of assets must be factored in to accurately reflect the amount of 
debt the GOI is forgiving.
    It is important to note that in its history of examining asset 
write-downs in connection with Italian state-owned steel industry 
restructurings, the Department has not determined that asset write-
downs per se are countervailable events. In each instance, the 
Department referred to the specific situation in the Italian steel 
industry, where debt forgiveness was involved. Certainly, there are 
many instances where private sector companies revalue their assets in 
accordance with GAAP for perfectly legitimate reasons. What the 
Department has consistently determined in Electrical Steel from Italy, 
Plate in Coils from Italy, and Sheet and Strip from Italy, is that 
coverage of liabilities by the GOI, whether those liabilities are 
created or increased by asset write-downs or any other economic event, 
is countervailable. In all of these cases, the Department was presented 
with the issue of how to apportion liabilities that were retained by 
the GOI that should have been transferred to the new companies, ILP and 
AST. To the extent that asset write-downs, recorded prior to the 
separate incorporation of the companies, increased the liabilities 
retained by the GOI, the Department has considered those write-downs in 
the calculation of the benefit from the debt forgiveness. The real 
issue here is how to apportion liabilities retained by the GOI across 
the companies created by the 1993-94 Restructuring Plan, namely AST and 
ILP. We can only identify the actual liabilities covered by the 
government if we factor in the value of the asset write-downs. Because 
the asset write-downs can be tied to specific assets that went to ILP 
and AST, it is appropriate to factor these into our calculation. 
Assigning the amounts of the tied write-downs to the appropriate 
companies (ILP and AST) is a more reliable way to apportion the 
liabilities that should have been transferred.
    We disagree with respondents' argument that Electrical Steel from 
Italy is not relevant here because it involved Finsider's restructuring 
rather than (old) ILVA's restructuring. Respondents' distinction 
between these two cases is largely cosmetic. Respondents' allegation of 
double counting benefits is also without merit. In its calculation of 
the total benefit from the 1993-94 Restructuring Plan, the Department 
was careful to deduct the amount of liabilities associated with (old) 
ILVA's asset write-downs from the amount of liabilities covered by the 
GOI that were apportioned according to asset values. The amount of net 
liabilities created by the asset write-downs associated with assets 
transferred to ILP were then added directly to the first calculation 
described above to arrive at the total amount of countervailable debt 
forgiveness, thereby negating the possibility of double counting. This 
calculation is consistent with Plate in Coils from Italy. We disagree 
with respondents that Plate in Coils from Italy is not relevant here 
since that case was ``decided on the basis of a deficient record in 
which the Department did not have the benefit of the complete legal, 
accounting, and factual information contained in the record of this 
current investigation'' (see ILVA/ILT's November 23, 1999 Rebuttal 
Brief, at 19). The issue in this current case as well as the Plate in 
Coils from Italy, Sheet and Strip from Italy, and Electrical Steel from 
Italy cases is not the completeness of the record. It is the 
countervailability of liabilities/losses covered by the GOI and how to 
apportion those amounts among respondent companies.

Comment 12: Any Benefit From Debt Coverage Was Received at the Time of 
the Original Loans, Not Upon Liquidation of (Old) ILVA or Finsider

    Respondents disagree with the Department's analysis that the debt 
coverage provided at the time of the liquidation of Finsider in 1988 
and the ILVA Group in 1993, was a new and separately countervailable 
benefit. They argue that the actual benefit was many years before, when 
IRI guaranteed the loans that it later had to cover during the 
liquidations of Finsider and (old) ILVA. It was the loan guarantees 
that later obliged IRI to provide the debt coverage, and therefore, the 
only possible subsidy event occurred at the time when IRI provided the 
guarantees, i.e., at the time of the original commercial borrowings.
    Respondents also argue that the loan guarantee which (old) ILVA 
received at the time of its commercial borrowings was consistent with 
normal commercial practice in Italy, and thus, did not provide a 
countervailable benefit, citing to section 351.506(b) of the CVD 
Regulations. They state that Article 2362 of the Italian Civil Code 
makes the sole shareholder an automatic guarantor of all loans obtained 
by its wholly-owned subsidiary, and point to information placed on the 
record that demonstrates the widespread use of the sole shareholder 
structure in Italy. However, if the Department finds a countervailable 
benefit, then that benefit could only have occurred at the time of the 
original commercial borrowings which IRI guaranteed and not at the time 
of liquidation. Respondents argue that the Department would be 
impermissibly double-counting a single subsidy event by finding that 
IRI's coverage of the same loans during liquidation subsequently 
provided a new countervailable benefit.
    Petitioners state that, with respect to the 1988 restructuring, 
there is record evidence that the guarantee of Finsider debt by IRI was 
an integral part of the overall 1988 Restructuring Plan. First, IRI 
issued an explicit guarantee to the Finsider Group's creditors that all 
the principal and interest of the Group's existing loans would be 
repaid. See EC Decision 89/218/ECSC of December 23, 1988, contained in 
the Petitioners' November 12, 1999 Case Brief, at Exhibit 1, page 77. 
The guarantee issued in connection with the 1988 restructuring was 
issued in 1988, and not when any outstanding loans were made to 
Finsider at some earlier date. Therefore, the proper countervailable 
event is the actual provision of the debt forgiveness and coverage of 
losses in connection with the 1988 restructuring.
    With regard to the 1993-94 Restructuring Plan, there were no IRI 
``guarantees'' of loans to (old) ILVA prior to the enactment of the 
plan. According to ILVA/ILT's September 3, 1999 QR, the provisions of 
Italian Civil Law (i.e., Article 2362) did not apply to IRI, the ``sole 
shareholder'' of (old) ILVA, until July 1992, when IRI was converted 
into a public limited company. Thus, the ``sole shareholder'' guarantee 
argued by respondents could not have been applicable to any loans taken 
by (old) ILVA, or predecessor companies, prior to July 1992. They add 
that record evidence indicates that (old) ILVA's loans pre-date July 
1992. Therefore, petitioners argue that the ``guarantee'' provided by 
IRI under Article 2362 is irrelevant to this case and the 
countervailable event is the forgiveness of debt and coverage of losses 
that occurred when (old) ILVA was demerged into AST and ILP. In 
addition, petitioners argue that the ``sole shareholder'' provision is 
not a normal loan guarantee.
    Department's Position: ILVA/ILT's arguments that the Department is 
countervailing the wrong subsidy event (i.e., debt forgiveness provided 
under the 1988 and 1993-94 Restructuring Plans) and double-counting 
subsidies in terms of both loan guarantees and debt coverage are 
incorrect. We find that, even if there had been some earlier loan 
guarantee by the GOI, a loan guarantee and the forgiveness of debt are 
two

[[Page 73270]]

separate and distinct subsidy events. In a commercial context, where a 
borrower defaults on a loan that is guaranteed, the borrower is still 
liable to the guarantor for the debt that is now being paid by the 
guarantor. Thus, if a borrower defaulted on a government-provided loan 
guarantee, the borrower would still be liable to the government for the 
debt, and the subsequent forgiveness of the debt would be a separate, 
countervailable event from the government-provided loan guarantee. See 
section 351.508 of the CVD Regulations.

Comment 13: Italy's Generally Available Liquidation Process Provided No 
Countervailable Benefits

    Respondents state that even if the Department regards liquidation 
as a separate subsidy event from the original loan guarantees provided 
by IRI, the Department must address the question of specificity under 
section 771(5A) of the Act. They discuss that in the Preliminary 
Determination, the Department found a specific benefit from the 
liquidation of (old) ILVA, under the theory that liquidation occurred 
under an EC directive which was specific to (old) ILVA (see 64 FR at 
40423-24). Respondents argue, however, that the liquidation occurred 
under a generally applicable provision of the Italian Civil Code, not 
under an EC directive.
    In support of their argument, respondents state that (old) ILVA 
entered into voluntary liquidation on October 31, 1993, in accordance 
with Articles 2448 et. seq. of the Italian Civil Code, which is similar 
to U.S. bankruptcy procedure. The liquidation took place prior to the 
EC's April 1994 Commission Decision which provided the EC with 
oversight authority to prevent ``unfair competition'' and to protect 
``conditions of trade in the Community steel industry.'' See EC 
Decision 94/259 of April 1994, contained within ILVA/ILT's May 13, 1999 
questionnaire response, at Exhibit 16.
    Respondents argue that the same liquidation procedures 
automatically apply to all Italian corporations, regardless of whether 
they are privately-held or state-owned, and regardless of the 
industrial sector in which they operate (i.e., broad cross-section of 
firms utilize the process without any disproportionate or predominant 
users or favoritism in the law's application). The Court of Rome's 
acceptance of (old) ILVA's entry into liquidation was not the type of 
discretionary government action that justifies a finding of specificity 
by the Department.
    They further discuss that judicial precedent has firmly established 
that receivership under a generally-available bankruptcy law does not 
confer a countervailable subsidy, citing Al Tech Specialty Steel Corp. 
v. U.S., 661 F. Supp. 1206 (CIT 1987) (Al Tech). The court in Al Tech 
upheld the Department's finding, in Certain Stainless Steel Products 
from Spain, that the receivership of Olarra had extinguished prior 
subsidies received in the form of loans to that company. In that case, 
the Department ruled that ``where the [local] court has specifically 
recognized the company's receivership, we find that any countervailable 
benefits associated with loans incorporated in the receivership plan 
cease to exist.'' See Certain Stainless Steel Products from Spain, 47 
FR 51453, 51455 (November 15, 1982).
    Petitioners state that the Department rejected the same 
``generally-available liquidation'' argument with respect to a similar 
restructuring plan for Cogne S.p.A. in Wire Rod from Italy (see 63 FR 
40498). They submit that the record of the instant investigation 
provides clear evidence that the privatization of ILP and AST was the 
purpose of (old) ILVA's liquidation and that, as in Wire Rod from 
Italy, the liquidation was merely the mechanism through which one 
aspect of a massive government restructuring and state aid plan was to 
be implemented.
    Based on this record evidence, petitioners conclude that ILVA/ILT's 
argument that (old) ILVA's liquidation was a normal proceeding under 
Italian law is specious at best. The Plan was limited by its terms to 
one entity, (old) ILVA, and the benefits were limited to (old) ILVA and 
its two privatized companies: ILP and AST. The Department in both Plate 
in Coils from Italy (see 64 FR 15508) and Sheet and Strip from Italy 
(see 64 FR 30624) treated the 1993-94 Restructuring of (old) ILVA as 
providing specific countervailable subsidies to AST. To petitioners' 
knowledge, the only other entities in Italy to receive similar 
restructuring benefits were other pieces of the Italian state-owned 
steel industry, such as Cogne, itself formerly a part of (old) ILVA; 
and these benefits were found to be specific (see, Stainless Steel Wire 
Rod, 63 FR 40475). Therefore, under section 771(5A)(D), the Department 
should continue to find the 1993-94 Restructuring Plan de facto 
specific.
    Petitioners also argue that ILVA/ILT's reliance on Al Tech to 
support its position is misplaced. Al Tech involved a normal recourse 
to traditional bankruptcy protection, in which the company in question 
received traditional benefits under a receivership plan without special 
consideration. See Al Tech, at 1212. The court made clear that the mere 
use of a bankruptcy law would not insulate a subsidy recipient from the 
countervailing duty law where special benefits were bestowed on 
specific enterprises. See Id.
    Department's Position: Consistent with our determination in Wire 
Rod from Italy (see 63 FR 40498), we disagree with respondents' 
argument pertaining to the sole shareholder provision of Italian law. 
The record evidence demonstrates that the liquidation of (old) ILVA, 
including the debt forgiveness provided, was done in the context of a 
massive restructuring/privatization plan undertaken by the GOI, which 
was approved and monitored by the EC. The debt forgiveness which ILP 
realized was provided in the context of a massive state-aid package 
designed to allow the GOI to restructure and privatize its steel 
holdings. At verification, GOI officials ``emphasized that the goal of 
the 1993-94 Restructuring Plan was not simply the liquidation of ILVA 
S.p.A and demerger of AST and ILP, but the privatization of the Italian 
steel industry.'' See GOI Verification Report, at 10-11.
    While the EC did not direct the GOI to place (old) ILVA in 
liquidation on October 31, 1993, the 1993-94 restructuring and 
privatization plan, of which liquidation was an integral part, was 
subject to the approval of, and monitoring by,10 the EC. In 
fact, ILVA/ILT, in their May 13, 1999 response, states that ``[T]he 
restructuring that occurred during the liquidation process was reviewed 
by the EC under its competition rules and resulted in the EC decision 
[of April 12, 1994].'' This statement indicates that the restructuring 
and liquidation were not separate events, but two processes which the 
GOI set in motion with the ultimate objective of privatizing (old) ILVA 
through the demerger and separate incorporation of two spin-off 
companies: ILP and AST.
---------------------------------------------------------------------------

    \10\ As stated in the EC's April 12, 1994 approval, the GOI was 
responsible for furnishing reports on the implementation of the 
``privatization and reorganization programme and in particular * * * 
financial data necessary to allow the Commission to assess whether 
its conditions and requirement are fulfilled.'' See EC's 94/259/ECSC 
Decision of April 12, 1994, at 69.
---------------------------------------------------------------------------

    The evidence on the record demonstrates that the liquidation was 
not a normal occurrence, but was part of an extensive state-aid package 
designed to bestow special benefits on a specific enterprise. In 
support of our

[[Page 73271]]

finding that the 1993-1994 Restructuring Plan is de facto specific, we 
note the EC's 94/259/ECSC decision of April 12, 1994, in which the 
Commission identified the restructuring of (old) ILVA as a single 
program, the basic objective of which was the privatization of the ILVA 
steel group by the end of 1994. See EC's 94/259/ECSC decision of April 
12, 1994, at 65. As set forth in the EC's approval decision, the 1993-
1994 Restructuring Plan was limited by its terms to (old) ILVA and the 
benefits of the plan were received by only (old) ILVA's successor 
companies.

Comment 14: The Extinguishing Versus Pass-Through of Subsidies During 
Privatization

    The GOI and ILVA/ILT argue that, based on the verified 
circumstances of the sale of ILP, the Department must conclude that 
privatization extinguished any prior subsidies to (old) ILVA. The 
respondents first posit that ILP's privatization, monitored by the EC, 
was an open and competitive process, and therefore, was conducted at 
``arm's-length.'' The privatization of ILP was accomplished through a 
public tender with negotiation of terms between IRI and competing 
bidders to establish an acceptable price. They equate the sale of ILP 
to that of British Steel. They note that a WTO dispute resolution panel 
recently determined that open and competitive bidding procedures which 
result in payment of a market price for a privatized company will 
extinguish prior subsidies to that company.
    They add that U.S. law recognizes that privatization can extinguish 
subsidies. See Section 771(5)(F) of the Act and Delverde S.r.l. v. 
United States, 989 F. Supp. 218, 228 (CIT 1997). They argue that based 
on the record of this investigation, U.S. law would support a 
determination that no subsidies passed through to the new owners of ILP 
upon its privatization in 1995. The sale of ILP occurred at a market 
price and therefore involved payment for the market value of the 
company, including the current value of any subsidies received by the 
company prior to privatization.
    Petitioners argue that the URAA confirms that subsidies remain 
fully countervailable following a change in ownership, referencing 
section 771(5)(F) of the Act. They add that record evidence indicates 
that none of the subsidies bestowed on ILP's predecessor companies 
should be treated as ``repaid'' as a result of the 1995 privatization 
of ILP. The purchase price of ILP was below fair market value, and 
therefore, no prior subsidies were extinguished in the sales 
transaction. In support of their position, they note that the GOI 
placed restrictions on the buyer of ILP such that the company could not 
be shut down and no employees could be terminated for a period of three 
years after the sales transaction. See GOI Verification Report, at 14-
15. Such restrictions undoubtedly caused many potential bidders not to 
participate in the privatization process and surely reduced the value 
of ILP to those bidders still willing to participate. Thus, the 
purchase price agreed to by RIVA was undoubtedly lower than a 
``negotiation process directed at obtaining the highest possible 
return.'' They add that the ``below-market'' price agreed upon by RIVA 
and the GOI has yet to be fully paid, as the sale is in arbitration. 
Therefore, it is not rational to conclude that any subsidies were 
repaid, much less extinguished in the purchase transaction.
    Department's Position: Under our existing methodology, we neither 
presume automatic extinguishment nor automatic pass through of prior 
subsidies in an arm's-length transaction. Instead, our methodology 
recognizes that a change in ownership has some impact on the allocation 
of previously bestowed subsidies and, through an analysis based on the 
facts of each transaction, determines the extent to which the subsidies 
are allocated to the privatized company. In the instant proceeding, the 
Department relied upon the pertinent facts of the case in determining 
the extent to which the countervailable benefits received by ILP's 
predecessor companies passed through to ILP.
    Following the GIA methodology, the Department subjected the level 
of previously bestowed subsidies and ILP's purchase price to a 
specific, detailed analysis. This analysis resulted in a particular 
``pass through ratio'' and a determination as to the extent of 
repayment of prior subsidies. On this basis, the Department determined 
that, when ILP was privatized, a portion of the benefits received by 
(old) ILVA, and other predecessor companies, passed through to the 
privatized company and a portion was repaid to the government. This is 
consistent with our past practice and has been upheld in the Court of 
Appeals for the Federal Circuit in Saarstahl AG v. United States, 78 
F.3d 1539 (Fed. Cir. 1996) (Saarstahl II), British Steel plc v. United 
States, 127 F.3d 1471 (Fed. Cir. Oct. 24, 1997) (British Steel II) and 
Delverde II.
    Furthermore, ILVA/ILT's contention that the sale of ILP was an 
arm's-length, market-valued transaction does not demonstrate that 
previous subsidies were extinguished. Section 771(5)(F) of the Act 
states that the change in ownership of the productive assets of a 
foreign enterprise does not require an automatic finding of no pass 
through even if accomplished through an arm's-length transaction. 
Section 771(5)(F) of the Act instead leaves the choice of methodology 
to the Department's discretion. Additionally, the SAA directs the 
Department to exercise its discretion in determining whether a 
privatization eliminates prior subsidies by considering the particular 
facts of each case. See SAA at 928.
    Lastly, with respect to the respondents' comments concerning the 
recent finding by a WTO Dispute Settlement Panel that an arm's-length 
privatization automatically extinguishes prior subsidies received by 
government-owned firms, the Department notes that this was an interim 
(i.e., preliminary) confidential report. As such, it is inappropriate 
for the parties or the Department to comment on it.

Comment 16: Repayment Portion of Change-in-Ownership Analysis

    According to petitioners, Congress intended that countervailing 
duties be imposed to offset subsidies to production. Since changes in 
ownership do not affect production, the petitioners conclude that they 
should also not affect countervailing duty liability.
    The petitioners distinguish between the subsidies themselves and 
countervailing duty liabilities arising from those subsidies. Citing 
the GIA (58 FR at 37260) where it quotes British Steel Corp. v. United 
States, 605 F. Supp. 286, 294 (CIT 1985), the petitioners state that 
the Department is obligated, when injury exists, to impose duties when 
subsidies have been provided ``with respect to the manufacture, 
production or export * * * of a class or kind of merchandise'' imported 
into the United States. To show that the liability for such subsidies 
is attached to production, the petitioners cite to the same where it 
states, ``if a benefit or advantage is received in connection with the 
production of merchandise,'' that benefit or advantage is a ``bounty or 
grant on production.'' To further demonstrate the linking of 
countervailing duty liabilities to production in a post-URAA case, the 
petitioners cite the Final Results of Redetermination Pursuant to Court 
Remand, Delverde, SrL v. United States, Consol. Ct. No. 96-08-01997, 
aff'd, Delverde, SrL v. United States, 24 F. Supp.2d 314 (CIT 1998) 
where it states:

    Once the Department determines that a ``subsidy'' has been 
provided, it measures the amount of the subsidy, attributes the 
subsidy to the appropriate production * * *

[[Page 73272]]

Generally speaking, the practical results of this system is to link 
liability for, as an example, pasta subsidies to pasta production.''

    The petitioners maintain that after a change in ownership, a 
company will produce at the same cost, in the same volume and with the 
same artificial advantages born of subsidies. Petitioners claim that 
this happens because the profit-maximizing level of price and output 
are unchanged. According to petitioners, regardless of whether a buyer 
or seller captures the benefit of a subsidy after a change in 
ownership, the buyer still acquires the subsidy-augmented production 
facilities and uses them at the same profit-maximizing level, thus 
leaving the misallocation of resources arising from the subsidies and 
the threat to the companies' competitors unchanged.
    To show that the seller actually captures the benefit of previously 
bestowed subsidies, the petitioners cite a publication by the U.S. 
Department of Agriculture which states that subsidies to farmers have 
created inequities between existing and entering farmers by increasing 
the cost of acquiring land for entering farmers.11 The 
petitioners maintain that even though sellers gain the windfalls from 
subsidies during a change in ownership, the reallocation of 
countervailing duty liabilities back to the sellers is inappropriate. 
First of all, the price paid by a buyer is discounted for the risk 
associated with the countervailing duty liabilities, according to 
petitioners. In addition, since the seller no longer has control over 
production, the petitioners state that imposing duties on the seller 
would not have the effect of offsetting the artificial advantages on 
production arising from the subsidies.
---------------------------------------------------------------------------

    \11\ U.S. Farm Programs and Agricultural Resources, USDA 
Economic Research Service, Agricultural Information Bulletin No. 614 
(Sept. 1990).
---------------------------------------------------------------------------

    The petitioners further argue that the reallocation/repayment 
aspects of the Department's change-in-ownership methodology amount to 
measuring the effects of subsidies and taking account of events 
subsequent to the bestowal of the same. According to 19 CFR 351.504-
511, the Department should not take into account the effects of 
subsidies and, instead, should measure benefits at the time of 
bestowal.
    Finally, the petitioners take issue with the Department's practice 
of automatically conducting a repayment/reallocation analysis as part 
of its change-in-ownership methodology. According to the petitioners, 
the URAA legislative history makes it clear that such automatically was 
not intended by Congress where it says that the Department must 
continue to countervail subsidies following a normal (i.e., fairly 
priced) ownership change without lessening or reallocating unamortized 
subsidy benefits unless something else occurs during the transaction 
that ``actually serve[s] to eliminate * * * subsidies.'' See S. Rep. 
No. 103-412 at 92 (1994).
    Department's Position: The petitioners' main argument is that 
subsidy liabilities are attached to production; therefore, subsidy 
amounts cannot change when production remains unchanged. While we agree 
that subsidies benefit production, that does not require the conclusion 
that subsidies cannot change without changes in production. Our 
rationale for applying repayment calculations as part of our change-in-
ownership methodology does not pre-suppose that production has changed. 
Rather, our methodology is based on the idea that a portion of the 
purchase price for ownership rights may remunerate the seller for prior 
subsidies.
    To the extent we countervail the portion of the subsidy existing 
after repayment or reallocation, we are executing our mandate ``to 
impose duties with respect to the manufacture, production or export of 
a class or kind of merchandise.'' Not reducing the subsidy by the 
amount of repayment or reallocation for a seller would amount to over-
imposing duties. Our repayment/reallocation methodology, as part of our 
change-in-ownership methodology, has been litigated and upheld by the 
Courts (see Saarstahl AG v. United States, 78 F.3d 1539 (Fed. Cir. 
1996), British Steel plc v. United States, 127 F.3d 1471 (Fed. Cir. 
Oct. 24, 1997) British Steel plc v. United States, 929 F. Supp. 426, 
439 (CIT 1996) and Delverde, SrL. v. United States, 24 F. Supp. 2d 314 
(CIT 1998).
    Regarding the petitioners' argument that the risk of countervailing 
duty liabilities will be taken into account by a buyer, we agree that 
this might occur and result in a discounted price for the company being 
sold. However, at the time the changes in ownership relevant to the 
investigation occurred, the Department's change-in-ownership 
methodology was being challenged in court. Therefore, while there might 
have been some risk, there was no certainty of a countervailing duty 
liability. Any attempt to account for the risk would be purely 
speculative.
    We disagree with the petitioners' assertion that the ``automatic'' 
nature of the repayment/reallocation analysis is contrary to the URAA 
legislative history. The legislative history simply says that a change 
in ownership ``does not by itself require the Commerce Department to 
determine that a countervailable subsidy * * * continues to be 
countervailable, even if the change in ownership occurs through an 
`arm's length transaction ' ''and that ``the sale of a firm at `arm's 
length' does not automatically extinguish any previously-conferred 
(sic) subsidies.'' See S. Rep No. 103-412 at 92 (1994). To the extent 
our repayment/reallocation methodology does not make any presumptions 
as to whether there will be any repayment/reallocation as a result of a 
change in ownership, there is nothing inherently automatic in its 
nature. Nowhere does the legislative history require that ``something 
else'' must happen, as was argued by the petitioners, before subsidies 
can be extinguished.
    Finally, regarding the petitioners' argument that the repayment/
reallocation calculation amounts to measuring to the effects of 
subsidies, we disagree. Our calculation does not look at the effects of 
a subsidy, but instead looks at the effects of changes in ownership on 
the subsidy.

Comment 16: Discount Rate for Net Present Value Calculations

    Respondents argue that in the Preliminary Determination, the 
Department used an uncreditworthy discount rate to calculate the 
benefit stream from non-recurring subsidies over the entire AUL period, 
while using a creditworthy discount rate to discount these same 
benefits in 1998, back to 1995, the year of ILP's privatization. It is 
respondents' view that under 19 CFR 351.524(d)(3) and 351.505(a)(4), 
the Department must, in selecting a discount rate for any allocation of 
benefits, determine creditworthiness ``in the year in which the 
government agreed to provide the subsidy.'' Respondents argue that 
since the Department has to use the subsidy approval year, and since 
the Department regards (old) ILVA's predecessors as uncreditworthy 
during that period, the Department must assign an uncreditworthy 
interest rate to (old) ILVA for all of its net present value (NPV) 
calculations.
    Petitioners state that if the Department chooses to apply its 
repayment methodology in this case, they do not disagree with the 
concept that the Department should use consistent discount rates for 
all NPV calculations for its final determination and that discount 
rates are properly determined at the time of subsidy bestowal.

[[Page 73273]]

    Department's Position: We disagree with both respondents and 
petitioners concerning our use of discount rates. Consistent with our 
past practice, we have used the discount rate prevailing at the time of 
privatization. This issue was discussed in the GIA: ``Finally, we 
reduced the benefit streams of the prior subsidies by the ratio of the 
repayment amount to the net present value of all remaining benefits at 
the time of privatization.'' (emphasis added) See GIA, 58 FR at 37263. 
This is the same approach taken by the Department in Plate in Coils 
from Italy, and Sheet and Strip from Italy. Given the Department's past 
practice and the language of the GIA, it is inappropriate to use the 
original discount rates from the subsidy allocation formula to 
calculate the net present value of remaining benefits at the time of 
privatization.

Comment 17: Early Retirement Benefits

    Petitioners contend the appropriate benefit to ILVA/ILT from Law 
451/94 is the full amount of the payments made by the GOI to workers 
attributable to ILVA/ILT under Law 451/94. They state it is now clear 
that, absent a government early retirement program, ILVA/ILT would not 
have been in a position to lay-off a substantial number of workers. 
Therefore, the workers were in a position to insist on the benefits 
received and, absent Law 451/94, the obligation would have fallen fully 
on ILVA/ILT.
    Petitioners also contend that, since the GOI still owned (old) ILVA 
when the negotiations took place, before the adoption of Law 451, it 
was the GOI that negotiated the lay-offs and the early retirement 
program with the unions. ILP, which was bought the next year by Riva, 
was the beneficiary of the GOI's efforts to pay off the unions so as to 
avoid social strife while still creating a viable ILP that could be 
sold to a private investor.
    Also, petitioners argue that since the proposed industrial plan was 
a critical factor for determining which bidder could purchase ILP, it 
is reasonable to assume that the GOI would have had extreme difficulty 
selling ILP to anyone, had it not established Law 451/94 and ensured a 
negotiated settlement with the unions on the necessary early retirement 
program for (old) ILVA. Indeed, the Riva Group was forced to agree as a 
condition of its purchase of ILP that no lay-offs of employees (beyond 
those previously agreed to by the unions in March 1994) could happen 
for a period of three years.
    Respondents counter that the sales contract mandated the continued 
operation of production lines (``with the purpose of ensuring 
continuity of production'') as well as the continued employment of 
workers. They state that, contrary to petitioners' assertion that the 
contract demonstrates ILP would have kept all early retirees on its 
payroll in the absence of Law 451/94, the contract actually confirms 
that it was the production cut-backs and restructuring requirements 
that resulted in the adoption of Law 451 in 1994. As noted in the 
contract, without production cutbacks, no layoffs would have been 
needed. The choice between mass firings and Law 451/94 was not and has 
never been the choice that ILVA actually faced.
    Regarding whether the program is countervailable, respondents argue 
Law 451/94 provided no countervailable benefit to ILVA because the 
government required the steel industry to restructure, based on the 
requirements set forth by the EC. In recognition of the costs imposed, 
the EC authorized member governments to provide early retirement and 
other ``social rehabilitation'' benefits. The restructuring and 
production cut-backs ordered by the EC and the GOI provided the legal 
basis for the early retirement benefits. Respondents argue that the 
Department does not consider worker assistance to benefit a company if 
the government provides the assistance for the specific purpose of 
offsetting costs imposed on that company by an industry-specific 
government program, as outlined in the General Issues Appendix.
    Respondents further state that ILVA would not ``normally'' have 
incurred an early retirement burden, because it would not ``normally'' 
have needed to shutter capacity and shed workers under an EC and GOI 
restructuring plan. Absent the costs of restructuring, there would have 
been no Law 451/94 and no early retirement benefits. Under 19 CFR 
351.513 and the GIA, Law 451/94 is not countervailable because it did 
not relieve ILVA of an obligation that it would normally have incurred.
    Respondents also state that absent Law 451/94, ILVA's workers would 
have used the Mobility provision. ILVA had the legal right to lay off 
redundant workers without paying them annual compensation. In the 
absence of Law 451/94, ILVA would not have kept these workers on the 
payroll. Instead, ILVA would have negotiated with the unions under Law 
223 and the non-specific provisions for early retirement under that 
law.
    Petitioners contend that ILVA was not mandated to lay-off workers 
and therefore any early retirement benefits received under Law 451/94 
provided a countervailable benefit. While ILVA/ILT claims Law 451/94 
was adopted to offset the burden of EC requirements imposed on the 
Italian steel industry, petitioners argue that it was the EC's 
intention to provide an additional subsidy to the European steel 
industry, not some additional legal obligation on the industry. While 
it is true that the EC did mandate some reductions in production 
capacity for ILVA, petitioners state this was not done in the form of a 
legal directive, but rather, as a condition for receiving EC approval 
of the 1993-94 Restructuring Plan for ILVA and the massive subsidy 
program inherent in the Plan that had been proposed by the GOI. 
Moreover, even if one considered this a legal requirement, there is 
still no indication on the record in this investigation that ILVA was 
legally required to lay-off employees. Rather, the obligation, if any, 
was on ILVA to reduce production capacity. Petitioners contend Law 451/
94 was not a device that ILVA could use to lay off workers, but only to 
grant early retirement to those that volunteered. Given these facts, 
petitioners argue the costs ILVA would have borne under Mobility are 
irrelevant to the Department's analysis of this program.
    Department's Position: According to section 351.513(a) of the CVD 
Regulations, worker related subsidies provide a benefit to the extent 
that the assistance relieves a firm of an obligation that it would 
normally incur. We disagree with respondents' argument that the 
Department does not consider worker assistance to benefit a company if 
the government provides the assistance for offsetting costs imposed on 
that company by a government program. The industry restructuring, in 
and of itself, was not mandated by the GOI. Rather, the resulting 
capacity reductions, and corresponding layoffs associated with those 
reductions, were a condition for the receipt of additional subsidies. 
Thus, the capacity reductions in the Italian steel industry were a 
condition for receiving EC approval of the 1993-94 Restructuring Plan 
for ILVA, and its inherent subsidies. These capacity reductions would 
necessitate the layoffs. Further, since negotiations with the unions 
took place while the GOI still owned (old) ILVA, the GOI, in effect, 
negotiated the early retirements with the unions. Therefore, early 
retirement under Law 451 can be considered as another benefit to ILP, 
as an attempt to make it more attractive to a potential buyer in 
advance of its privatization.
    As to whether the company could have used the ``Mobility'' 
provision of Law 223 in the absence of Law 451, we disagree with 
respondents' claims that

[[Page 73274]]

laying off a significant number of employees would not have caused 
social unrest because those employees would have been compensated under 
Mobility. We have no way of knowing what the social implications would 
have been had there been a massive layoff in the steel industry. 
However, we note that benefits available under Mobility are far less 
generous than the benefits provided under Law 451. We also note that 
the GOI officials explained to us at verification that there would 
likely be social strife associated with such a large number of layoffs. 
Because of these factors, it is not unreasonable to assume that 
negative social implications would have occurred had the steel industry 
simply laid off a large number of employees.
    Respondents point out that, as stated by the Department in Plate in 
Coils from Italy and Sheet and Strip from Italy, the benefit to ILP 
would have been the difference between what it would have paid under 
Mobility and what the company actually paid under Law 451/94. However, 
as explained by the Department, this is relevant only if we knew that 
the outcome of the negotiations between the Ministry of Labor, the 
company and the unions would have resulted in the union's failure to 
prevent any layoffs. The fact is that, under Law 223, the company would 
have had to enter into negotiations with the unions before laying off 
such a large number of workers, and we have no way of knowing what the 
outcome of those negotiations would have been, absent Law 451.
    With regard to ILVA Residua early retirees, we find asset value 
apportioned to ILP, as a percentage of total viable assets of (old) 
ILVA immediately prior to ILP's separate incorporation, to be the most 
appropriate method to apportion the correct number of ILVA Residua 
early retirees to ILP. This is consistent with our findings for the 
1993-94 Restructuring Plan. We disagree with respondents' argument that 
we should only apportion those ILVA Residua early retirees who worked 
at facilities connected to the operations of ILP. To the extent Law 451 
provides a benefit to the entire entity of (old) ILVA by relieving it 
of costs it would otherwise have had to bear, the benefits flow to the 
entire entity, regardless of which facilities employed the workers.
    In addition, we disagree with respondents' characterization that 
the Department verified all of the other ILVA Residua retirees came 
from facilities that ``were never connected to any of the activities of 
ILP.'' The Department's ILVA/ILT Verification Report states:

    We were able to verify that the following facilities were not 
involved in the production or sale of carbon steel plate products: 
Aosta; Bagnoli; Campi; Levate; Miniere dell'Elba; Piombino; Sesto 
S.G. + ex Uve/MI; Terni; Torino; and Torre Annunziata. For the 
remaining facilities, we verified that carbon steel plate production 
or sales either did, or could have, taken place there. The total 
number of those employees is 893, as calculated on page 10 of 
Verification Exhibit L451-5.12
---------------------------------------------------------------------------

    \12\ See ILVA/ILT Verification Report, at page 21.

    Lastly, 26 early retirees attributable to ILVA Pali Dalmine, a 
former ILVA subsidiary that was sold prior to the POI, were not 
included in our calculation of the benefit to ILVA/ILT resulting from 
Law 451, since they would not have been employed by the company during 
the POI, absent Law 451.

Comment 18: Exemptions From Taxes

    Petitioners contend that, in the Preliminary Determination, the 
Department failed to countervail the ILOR tax exemption that ILT 
benefitted from during the POI. At verification, the Department 
confirmed ILT benefitted from an exemption of both IRPEG and ILOR on 
its 1997 tax return, filed during the POI.
    ILVA/ILT states that, at verification, the Department confirmed the 
repeal of the ILOR tax in 1997. ILOR no longer applied during the 
period of investigation. ILT received no exemption from ILOR in the 
1998 tax year because the tax itself no longer existed. Under 19 CFR 
351.526(b), repeal of ILOR constitutes a program-wide change because it 
``(1) is not limited to an individual firm or firms; and (2) is 
effectuated by an official act, such as the enactment of a statute, 
regulation, or decree.'' As provided in 19 CFR 351.526(a), the 
Department should take this program-wide change into account in 
establishing the estimated countervailing duty cash deposit rate.
    Petitioners counter by stating that the benefits available under 
ILOR are completely unaffected by its repeal. Petitioners contend that 
the repeal of ILOR does not constitute a program-wide change since it 
was accompanied with the implementation of a new tax, IRAP, which is a 
substitute for ILOR. ILVA/ILT's argument also ignores subsection (d) of 
19 CFR 351.526, which provides that:

    The Secretary will not adjust the cash deposit under paragraph 
(a) of this section if the program-wide change constitutes the 
termination of a program and * * *. The Secretary determines that a 
substitute program for the terminated program has been introduced 
and the Secretary is not able to measure the amount of 
countervailable subsidies provided under the substitute program.

    ILVA/ILT also states the Department should use the verified benefit 
calculations for the ILT tax exemptions from IRPEG. At verification, 
the Department confirmed that IRPEG tax without the exemption would 
have applied only partially at the 37% rate, because a small portion of 
income would have qualified for a 19% rate. By reviewing ILT's tax 
return, the Department verified that the value of the IRPEG exemption 
for the 1997 tax year was smaller than that which was used in 
determining the benefit in the Preliminary Determination.
    Department's Position: We agree with petitioners that ILT's 
exemption of the ILOR tax provides a countervailable benefit during the 
POI. While respondents are correct that the ILOR tax was repealed 
beginning in the tax year 1998, ILT received an exemption of the ILOR 
tax on its 1997 tax return, which was filed in 1998, the POI. According 
to the Department's long-standing practice, a benefit takes place at 
the time of receipt, which, in this case is 1998, the year in which the 
tax return was filed. See section 351.509(b)(1) of the CVD Regulations. 
It is also clear to the Department that IRAP, for which eligibility for 
an exemption is similar to that of ILOR, is essentially a successor tax 
to ILOR; therefore, in accordance with section 351.526(d)(2), the cash 
deposit rate should not be adjusted in this instance.
    After examining evidence at verification, we agree with ILVA/ILT 
that a portion of the profit to which the IRPEG tax applies should be 
calculated at the rate of 19%, with the remainder calculated at the 
rate of 37%.

Comment 19: European Social Fund (ESF)

    Petitioners argue that, at verification, it was determined that at 
least some ILP employees participated in ESF training programs that 
took place in Taranto in 1994 and 1995. Since ILVA/ILT officials could 
not confirm how many of the total participants were ILP employees, the 
Department must countervail the full amount of the ESF payments as 
benefitting ILP since companies normally incur the costs of training to 
enhance the job-related skills of their own employees. The Department 
has previously countervailed ESF training funding to Italian steel 
producers.

[[Page 73275]]

    ILVA/ILT states that the Department verified that these payments 
were not grants but were instead payments earned by ILP ``for services 
provided'' in connection with training and tutoring of workers in the 
Taranto area under an ESF grant administered by IRI. The Department 
noted that 11 of 64 workers that received training were from ILP, 
according to the explanation and partial documentation presented at 
verification. None of the training programs covered skills specific to 
the steel industry, and most of the workers attending had no connection 
to ILP. This general training course attended by workers of many firms 
did not relieve ILP of the obligation to provide steel-specific 
training to its workers and therefore is not countervailable under 
section 351.513 of the CVD Regulations.
    Department's Position: Certain Stainless Steel Hollow Products From 
Sweden, 52 FR at 5799, states that ``because we saw no evidence that: 
(1) the classes were for jobs related to stainless steel production; or 
(2) that either of these companies was relieved of any expenses it 
otherwise would have incurred absent this program, we determine that no 
countervailable benefit was bestowed under this program.'' Based on our 
findings at verification, and the overall record of this investigation, 
there is nothing to suggest that the training programs in which ILP and 
ILVA/ILT received payment for services provided (DUSID, DUTEM, and 
DUMES) were related to the steel industry in general, let alone 
production of subject merchandise, or that the company was relieved of 
expenses it otherwise would have incurred.

Comment 20: Grants to ILVA

    Petitioners argue that, while ILVA/ILT had claimed that the amounts 
listed in its annual reports for 1989-1992 as ``Grants and Aid for 
Operations'' were totals of grants provided under various programs 
being separately investigated, at verification, ILVA/ILT officials 
could not reconcile the figures from 1989-92 annual reports with the 
amounts the company received under the various separate programs. 
Petitioners claim that these discrepancies, together with the fact that 
the Department found such grants to be countervailable subsidies in 
Certain Steel from Italy, the Department should countervail these 
grants in the final determination.
    Respondents counter that, legally, Certain Steel from Italy has no 
probative value and that the current investigation of ILVA is not an 
administrative review of Certain Steel from Italy, therefore the 
Department has no legal authority to use information from Certain Steel 
from Italy for any purpose whatsoever in the current, unrelated 
investigation. ILVA/ILT states that the Department investigated and 
verified the benefits that (old) ILVA received under all of the 
programs that might potentially have applied to ILVA between 1989-1992. 
In its June 21, 1999 questionnaire response, and again at verification, 
ILVA provided worksheets and supporting documentation that accounted 
for the sum total of ``Grants and Aid for Operations'' recorded on 
(old) ILVA's financial statements. The company noted that the majority 
of the benefits to (old) ILVA during those years came from interest 
contributions under Law 675/77. However, because the ILVA that now 
exists is not the same company or under the same ownership as the (old) 
ILVA, it has no access to records of the actual receipt or amount of 
interest contribution payments to (old) ILVA between 1989-1992. 
Respondents further state that ILVA did demonstrate in its June 21 
response and at verification that: (1) the interest contribution 
obligations of the GOI would have resulted in actual interest 
contribution payments over this period; and (2) these payments could 
have fully offset the difference between the sum total of ``Grants and 
Aid for Operations'' recorded on old ILVA's financial statements and 
the amounts verified by the Department under the specific programs 
applicable at that time. Respondents argue that ILVA has, therefore, 
satisfied the burden of accounting for the benefits in question.
    Department's Position: We agree with respondents that the company 
has satisfied the burden of accounting for any discrepancy between the 
amounts recorded in the financial statement and the amounts verified. 
We concluded from our verification that benefits received as interest 
contributions under Law 675 are listed in the ``Grants and Aid for 
Operations'' account in the company's financial statements. Although we 
could not completely tie these contributions directly to the financial 
statement, this is due to the difference in the recording of interest 
contributions for financial statement purposes and the recording of the 
actual receipt of the contributions in the company's internal accounts.

Comment 21: Additional Subsidies Discovered at Verification

    Petitioners state that, at verification, the Department discovered 
that Sidercomit, which merged with ILVA in 1997, received a loan under 
Law 64 of March 1, 1986, in 1996, and in 1998, received interest 
contributions against that loan. Petitioners argue that these interest 
contributions on behalf of ILVA/ILT constitute a countervailable 
subsidy. Petitioners further claim that, as outlined in the ILVA/ILT 
Verification Report, these interest grants were provided to Sidercomit 
``for the processing of quarto plate (i.e., cleaning, painting, and 
packaging of quarto plate) at the Taranto facility,'' therefore, 
pursuant to 19 CFR 351.525(b)(5) of the Department's regulations, 
should be attributed only to ILVA/ILT's cut-to-length plate sales. 
Therefore, the Department should use ILVA/ILT's 1998 sales of subject 
merchandise as the denominator in its calculation of the ad valorem 
rate attributable to this benefit.
    ILVA/ILT does not contest the countervailability of the interest 
contribution, but does challenge petitioners' proposed allocation 
method. Sidercomit was created in 1992 as a subsidiary of IDI S.p.A., 
which was in turn a subsidiary of (old) ILVA. Thus, at the time 
Sidercomit received the loans, it was a separate subsidiary of ILVA. 
However, in 1997, Sidercomit became an operating unit within ILVA and 
remained a unit within ILVA during the POI. As a result, respondents 
argue the interest contribution received during the POI benefitted all 
of ILVA, not just Sidercomit. This is confirmed by the fact that ILVA, 
not Sidercomit, is the recipient of the interest contribution. ILVA/ILT 
further states that the record establishes that Sidercomit operates 
service centers for the distribution in Italy of quarto plate and other 
products produced by ILVA/ILT. Therefore, respondents claim, the 
Department should determine that the interest contribution benefitted 
all of ILVA's production, not just the subject merchandise.
    Petitioners also contend that the Department, during verification, 
obtained additional information regarding grants to ILVA/ILT under 
Decree 218 and Law 64. As noted above, Decree 218 and Law 64 were found 
to provide specific benefits in Certain Steel Products from Italy. 
Therefore, petitioners argue, these grants are countervailable 
subsidies. Respondents counter that, as their only justification for 
this request, petitioners cite the 1993 Certain Steel from Italy 
determination. Certain Steel from Italy was a best information 
available (BIA) determination which has no probative value and no 
connection to this investigation. Since petitioners have provided no 
information to support their request, and since the record demonstrates 
that ILVA received no benefits during the POI under these programs, 
ILVA/ILT argues that no

[[Page 73276]]

countervailing duties should be imposed in connection with these 
programs.
    Department's Position: The interest contributions received against 
the loan to Sidercomit represent a countervailable benefit to ILVA/ILT. 
We agree with petitioners that these interest contributions were tied 
to the production of plate and, as such, should be attributed to all of 
ILVA's plate sales, not just the plate produced by ILT. However, it is 
not clear from the record that we have total sales (both domestic and 
export) of plate over which to attribute these interest contributions. 
While we do have sales of subject merchandise produced by ILT and sold 
by ILVA, it is not clear that this figure reflects total sales of all 
plate by ILVA. Therefore, we have attributed the interest contributions 
to ILVA's total sales. We note that, even if we were to attribute the 
interest contributions to the sales figure for subject merchandise, the 
subsidy rate would be negligible.
    With regard to Capital Grants under Decree 218 and Law 64, since 
the total amounts of the benefits received by ILVA/ILT and its 
predecessor companies would be expensed in the years of receipt, and 
since no grants were provided during the POI, we find it unnecessary to 
reach the issue of whether this program is countervailable.

Comment 22: ``Green Light'' Treatment of Subsidies

    Petitioners state that, in the Preliminary Determination, the 
Department properly rejected the requests made by the GOI and ILVA/ILT 
that certain regional subsidies be considered non-countervailable under 
the green light provisions of section 771(5B) of the Act. Petitioners 
further point out that the GOI waived its green light claims at 
verification.
    ILVA/ILT does not contest petitioners' argument that the GOI waived 
its prior request for green light treatment of certain programs in the 
context of this investigation.
    Department's Position: At verification, GOI officials stated that 
they did not wish to further pursue the issue of green light treatment 
of certain subsidies, and that they were waiving their prior green 
light claim. Therefore, the Department will not grant green light 
treatment to any program in this investigation, and does not rule on 
the validity of the GOI's prior green light claim.

Comment 23: Imports Under Temporary Bond (TIB)

    Respondents state that in response to the Department's preliminary 
countervailing duty determination, ILVA submitted to the Department a 
formal request that the Department harmonize its treatment of ILVA's 
temporary importation bond entries that were subsequently exported to 
Canada in the countervailing duty phase of this proceeding with its 
approach in the antidumping proceeding. In that request, ILVA informed 
the Department that, in the antidumping investigation, the Department 
excluded ILVA's TIB entries from its margin calculation because such 
entries were not ``entries for consumption.'' ILVA also argued that 
exclusion of ILVA's TIB entries from the antidumping investigation 
required that the Department exclude those same entries, for suspension 
of liquidation and cash deposit purposes, from the corresponding 
countervailing duty investigation. Respondents maintain that, to date, 
the Department has not responded to this request.
    Respondents reaffirm their position that U.S. law requires that TIB 
entries be included in the Department's dumping margin calculation, 
because the TIB entries are ``entered for consumption.'' Respondents 
argue the statute thereby requires the Department to include TIB 
entries in its margin calculations, suspend liquidation on those 
entries, and collect estimated antidumping and countervailing duties. 
If, however, in the final determination of the antidumping 
investigation, the Department continues to treat ILVA's TIB entries as 
not being ``entries for consumption,'' respondents request that the 
Department harmonize both the antidumping and countervailing duty 
investigations. Specifically, ILVA requests that the Department issue 
instructions to Customs specifying that Customs not suspend liquidation 
of TIB entries and not collect estimated cash deposits of estimated 
countervailing duties on those entries.
    Petitioners state that none of ILVA/ILT's arguments are relevant to 
the Department's final determination in this countervailing duty 
investigation. Any issues regarding the dumping margin calculations, 
according to petitioners, should be addressed in the separate 
antidumping investigation of carbon-quality steel plate from Italy and 
for purposes of this countervailing duty investigation, the Department 
should issue its standard instructions to the Customs Service regarding 
suspension of liquidation and assessment of duties.
    Department's Position: We agree with petitioners that none of 
respondents' comments concerning the treatment of the TIB entries in 
question with respect to the dumping margin calculation is relevant to 
this proceeding. Further, respondents agree with the approach taken by 
the Department at the Preliminary Determination with respect to the 
suspension of liquidation of entries and collection of estimated 
countervailing duties since the Department directed Customs to suspend 
liquidation of all imports of subject merchandise from ILVA/ILT. With 
respect to entries subject to suspension of liquidation and collection 
of duties, we have continued to follow the approach to the TIB entries 
in question taken in the companion antidumping duty investigation for 
cut-to-length carbon steel plate from Italy. (See that notice for 
further discussion of how these entries will be treated in terms of 
assessment of duties.)

Comment 24: Mid-Year Convention

    Petitioners discuss that the Department, in amortizing grants over 
time, continues to use a methodology which assumes that subsidies are 
received on the first day of the year. They argue that the Department's 
methodology is unreasonable and biased against a full subsidy offset, 
and is in violation of the law.
    ILVA/ILT counters stating that it is the Department's long-standing 
policy to allocate benefits as if the subsidy was received at the 
beginning of the year of receipt. They discuss that in the final CVD 
regulations, the Department rejected the ``mid-year convention''; i.e., 
the proposition that it should assume grants are received in the middle 
of the year. Respondents conclude that nothing in the petitioners' 
presentation merits a reconsideration of the Department's position 
against the mid-year convention.
    Department's Position: The petitioners' approach to allocating 
subsidies was presented to the Department during the comment period of 
the CVD Regulations. See CVD Regulations, 63 FR at 65399. In finalizing 
its CVD Regulations, the Department considered and chose not to adopt 
the methodology proposed by petitioners. We continue to follow our 
policy as explained in the preamble to the CVD Regulations.

Verification

    In accordance with section 782(i) of the Act, except where noted, 
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 of

[[Page 73277]]

the Department of Commerce (Room B-099).

Suspension of Liquidation

    In accordance with section 705(c)(1)(B)(i) of the Act, we have 
calculated an individual rate for each company investigated. We 
determine that the total estimated net countervailable subsidy is 26.12 
percent ad valorem for ILVA/ILT. We determine that the total estimated 
net countervailable subsidy is 0.12 percent ad valorem for Palini & 
Bertoli, which is de minimis. Therefore, we determine that no 
countervailable subsidies are being provided to Palini & Bertoli for 
its production or exportation of certain cut-to-length carbon-quality 
steel plate.
    In accordance with section 705(c)(5)(A)(i) of the Act, we have 
calculated an all-others rate which 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.'' On this basis, we determine that the all-
others rate is 26.12 percent ad valorem, which is the rate calculated 
for ILVA/ILT.

------------------------------------------------------------------------
                  Company                         Net subsidy rate
------------------------------------------------------------------------
ILVA/ILT..................................  26.12% ad valorem.
Palini & Bertoli..........................  0.12% ad valorem.
All others................................  26.12% ad valorem
------------------------------------------------------------------------

    In accordance with our preliminary affirmative determination, we 
instructed the U.S. Customs Service to suspend liquidation of all 
entries of certain cut-to-length carbon-quality from Italy, which were 
entered or withdrawn from warehouse, for consumption on or after July 
26, 1999, the date of the publication of our preliminary determination 
in the Federal Register, with the exception of Palini & Bertoli, which 
was de minimis in the Preliminary Determination. 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 November 23, 1999, but to continue the suspension of liquidation 
of entries made between July 26, 1999 and November 22, 1999.
    We will reinstate suspension of liquidation under section 706(a) of 
the Act for all entries except for Palini & Bertoli 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, these proceedings 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 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 destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 351.305(a)(3). 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: December 13, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-33237 Filed 12-28-99; 8:45 am]
BILLING CODE 3510-DS-P