[Federal Register Volume 65, Number 131 (Friday, July 7, 2000)]
[Notices]
[Pages 41950-41957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17248]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-812]


Grain-Oriented Electrical Steel From Italy; Preliminary Results 
of Countervailing Duty Administrative Review and Extension of Time 
Limit for Final Results of Countervailing Duty Administrative Review

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

ACTION: Notice of preliminary results of countervailing duty 
administrative review.

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SUMMARY: The Department of Commerce (the Department) is conducting an 
administrative review of the countervailing duty order on grain-
oriented electrical steel from Italy for the period January 1, 1998 
through December 31, 1998. For information on the net subsidy for the 
reviewed company, as well as for all non-reviewed companies, see the 
Preliminary Results of Review section of this notice. If the final 
results remain the same as these preliminary results of administrative 
review, we will instruct the U.S. Customs Service to assess 
countervailing duties as detailed in the Preliminary Results of Review 
section of this notice. Interested parties are invited to comment on 
these preliminary results. (See Public Comment section of this notice.)

EFFECTIVE DATE: July 7, 2000.

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

SUPPLEMENTARY INFORMATION:

Background

    On June 7, 1994, the Department published in the Federal Register 
(59 FR 29414) the countervailing duty order on grain-oriented 
electrical steel from Italy. On June 9, 1999, the Department published 
a notice of ``Opportunity to Request Administrative Review of Grain-
Oriented Electrical Steel from Italy'' (64 FR 30962). We received a 
timely request to conduct a review from Acciai Speciali Terni S.p.A. 
(AST). We initiated the review covering the period January 1, 1998 
through December 31, 1998 on July 29, 1999 (64 FR 41075).
    In accordance with 19 CFR 351.213(b), this review covers only those 
producers or exporters of the subject merchandise for which a review 
was specifically requested. Accordingly, this review covers AST. This 
review also covers 21 programs.
    On January 20, 2000, the Department extended the period for 
completion of the preliminary results pursuant to section 751(a)(3)(A) 
of the Tariff Act of 1930, as amended (the Act). See Grain-Oriented 
Electrical Steel from Italy: Extension of Preliminary Results of 
Countervailing Duty Administrative Review, 65 FR 3206 (January 20, 
2000).

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Act of 1930, as amended by the 
Uruguay Round Agreements Act (URAA) effective January 1, 1995. In 
addition, unless otherwise indicated, all citations to the Department's 
regulations reference 19 CFR part 351 (1999).

Scope of the Review

    Imports covered by this review are shipments of grain-oriented 
electrical steel from Italy, which is a flat-rolled alloy steel product 
containing by weight at least 0.6 percent of silicon, not more than 
0.08 percent of carbon, not more than 1.0 percent of aluminum, and no 
other element in an amount that would give the steel the 
characteristics of another alloy steel, of a thickness of no more than 
0.56 millimeters, in coils of any width, or in straight lengths which 
are of a width measuring at least 10 times the thickness. The products 
covered by this review are provided for under the following item 
numbers of the Harmonized Tariff Schedule of the United States (HTSUS): 
7225.10.0030, 7226.10.1030, 7226.10.5015, and 7226.10.5065. Although 
the HTSUS subheadings are provided for convenience and customs 
purposes, the written description of the scope of this proceeding is 
dispositive.

Corporate History of AST

    Prior to 1987, Terni Societa' per l'Industria e l'Elettricita' 
S.p.A. (Terni), an operating company within the Finsider S.p.A. 
(Finsider) group, produced electrical steel. Finsider was a holding 
company that controlled all state-owned steel companies in Italy. 
Finsider, in turn, was wholly-owned by a government holding company, 
Instituto per la Ricostruzione Industriale (IRI). During 1987, Finsider 
was restructured into four main operating companies: Terni Acciai 
Speciali S.p.A. (TAS) (flat-rolled stainless steel, electrical steel); 
Italsider S.p.A. (carbon steel flat-rolled products); Nuova Deltasider 
S.p.A. (long products) and Dalmine S.p.A. (pipe and tube). During the 
restructuring, Terni's steel facilities, including electrical steel 
were transferred to the newly formed TAS.
    In 1988, the Government of Italy (GOI) submitted a new 
restructuring plan for the steel industry to the European Commission 
(EC) for approval. Under this plan, which was approved in December 
1988, Finsider and its main operating companies (TAS, Italsider S.p.A., 
and Nuova Deltasider S.p.A.) entered into liquidation and a new 
company, ILVA S.p.A. (ILVA) was created with some of the assets and 
liabilities of the liquidating companies. The plan also envisioned the 
closure of certain plants and the sale of others to private investors, 
which was carried out by ILVA between 1990 and 1992. With respect to 
TAS, some of its liabilities, as well as its manufacturing and other 
assets were transferred to ILVA on January 1, 1989, except for the 
production of forgings, round bars, and pressure vessels, which 
remained with TAS in liquidation until April 1, 1990. On April 1, 1990, 
these production units and certain additional liabilities were also 
transferred to ILVA. After that date, TAS no longer possessed any 
operating assets; only certain non-operating assets remained in TAS.
    From 1989 to 1993, ILVA S.p.A. consisted of several operating 
divisions: Carbon Steel Flat Products; Pipe Division; Long Products 
Division; and the Specialty Steel Division located in Terni, which 
produced electrical steel. In addition to these operating divisions, 
the ILVA S.p.A. was the majority owner of a large number of separately 
incorporated subsidiaries. Some of these subsidiaries produced various 
types of steel products. Others constituted service centers, trading 
companies, and an electric power company, among others. ILVA S.p.A. 
together with its subsidiaries constituted the ILVA Group, which was 
wholly-owned by IRI. All subsidies received prior to 1994 were received 
by ILVA or its predecessors.
    In September 1993, IRI endorsed a plan for the reorganization and 
privatization of the ILVA Group through the splitting of ILVA's core 
business into two new companies, and the rest of the ILVA Group was to 
be known as ILVA Residua (a.k.a., ILVA in

[[Page 41951]]

Liquidation). In accordance with the plan, on December 31, 1993, the 
Terni division of ILVA was separately incorporated by a demerger of 
ILVA into Acciai Speciali Terni S.r.l. (AST S.r.l.) (specialty steel), 
and ILVA Laminati Piani S.R.l. (ILP) (carbon steel flat products). The 
remainder of ILVA's assets and existing liabilities, as well as much of 
the redundant workforce, were transferred to ILVA Residua.
    On December 31, 1993, AST S.r.l. was established as a separate 
corporation, with all shares initially owned by IRI. At approximately 
the same time, a public offering for the sale of AST S.r.l. was made. 
In preparation for the sale of AST, IRI converted AST S.r.l. from a 
limited liability company (S.r.l.) to a stock company (S.p.A.) on 
February 11, 1994. On July 14, 1994, a purchase agreement was signed by 
IRI and KAI Italia S.r.l. (KAI), a privately-held holding company 
jointly owned by German steelmaker Krupp AG Hoesch-Krupp and a 
consortium of private Italian companies called FAR Acciai S.r.l., 
subject to approval by the EC. The EC's approval was granted on 
December 21, 1994 , with shares formally changing hands effective 
December 23, 1994. As of that date, the GOI no longer maintained any 
ownership interest in AST or its new owners.
    In December 1994, AST was sold to KAI. Between 1995 and 1998, there 
were several restructurings/changes in ownership of AST and its parent 
companies. As a result, at the end of the POR, AST was owned 90 percent 
by Krupp Thyssen Stainless GmbH (part of the Krupp AG Hoesch-Krupp 
group) and 10 percent by Fintad Securities S.A., a private Italian 
company.

Change in Ownership

    The Department is aware that on June 20, 2000, the Court of Appeals 
for the Federal Circuit (CAFC) denied the Department's petition for 
rehearing and suggestion for rehearing en banc in Delverde, SRL v. 
United States, 202 F.3d 1360 (Fed. Cir. 2000) (Delverde). Although this 
decision addressed a purely private change in ownership, it appears 
that it may impact the Department's privatization methodology. However, 
because the CAFC's decision denying a rehearing was only issued one 
week before these preliminary results, the Department has not had a 
sufficient opportunity to determine how Delverde may affect this 
proceeding. Accordingly, for purposes of these preliminary results, we 
will continue to determine that a portion of subsidies bestowed on a 
government-owned company prior to privatization continues to benefit 
the production of the privatized company, as set forth below.
    The Department invites interested parties to comment in their case 
briefs on the implications of this proceeding, if any, of the Delverde 
decision.
    In the General Issues Appendix (GIA), appended to the Final 
Affirmative Countervailing Duty Determination: Certain Steel Products 
from Austria, 58 FR 37217, 37225 (July 9, 1993) (Certain Steel from 
Austria), we set forth the methodology applied to the treatment of 
subsidies received prior to the sale of a government-owned company to a 
private entity (i.e., privatization), or the spin-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 period of review (POR) 
and ending one year prior to the sale of the company. We then take the 
simple average of these ratios. This average 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. See id. at 
37263.
    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. Id. at 37269.

Extension of Final Results

    Section 751(a)(3)(A) of the Act requires the Department to make a 
final determination within 120 days after the date on which the 
preliminary results are published. However, if it is not practicable to 
complete the review within this time period, section 751(a)(3)(A) of 
the Act allows the Department to extend the time period for the final 
results to 180 days. Due to the complex nature of the issues in this 
case, we have determined that it is not practicable to complete the 
final results for this review within the original time limit. 
Therefore, the Department is extending the time limit for the final 
results to 180 days from the date of publication of the preliminary 
results.

Subsidies Valuation Information

Allocation Period

    AST was investigated in two recent countervailing duty 
investigations. See Final Affirmative Countervailing Duty 
Determination: Stainless Steel Sheet and Strip in Coils from Italy, 64 
FR 30624, 30627 (June 8, 1999) (Stainless Sheet and Strip); Final 
Affirmative Countervailing Duty Determination: Stainless Steel Plate in 
Coils from Italy, 64 FR 15508, 15511, 15520 (March 31, 1999) (Stainless 
Plate in Coils). In those investigations, the Department allocated 
subsidies received by AST using a 12-year average useful life (AUL). 
The same subsidies being investigated in this current review of AST 
were also investigated in Stainless Sheet and Strip and Stainless Plate 
in Coils. Therefore, we preliminarily determine that it is reasonable 
to maintain the same 12-year allocation period for the identical 
subsidies received by AST.

Equityworthiness

    In prior investigations and reviews, we found ILVA/AST's 
predecessor companies unequityworthy from 1984 through 1988, and from 
1991 through 1992. See, e.g., Final Affirmative Countervailing Duty 
Determination: Grain-Oriented Electrical Steel from Italy, 59 FR 18357, 
18358 (April 18, 1994) (Electrical Steel); Final Affirmative 
Countervailing Duty Determinations: Certain Steel Products from Italy, 
58 FR 37327, 37328 (July 9, 1993) (Certain Steel), Stainless Plate in 
Coils, 64 FR at 15511, and Final Affirmative Countervailing Duty 
Determination: Certain Stainless Steel Wire Rod from Italy, 63 FR 
40474, 40477 (July 29, 1998) (Wire Rod). No new

[[Page 41952]]

information or evidence of changed circumstances have been submitted in 
this review that would lead us to reconsider these findings.
    Section 351.507(a)(3) of the Department's regulations provides that 
a determination that a firm is unequityworthy constitutes a 
determination that the equity infusion was inconsistent with usual 
investment practices of private investors. In such cases, the 
Department will then apply the methodology described in section 
351.507(a)(6) of the regulations, and treat the equity infusion as a 
grant. Use of the grant methodology for equity infusions into an 
unequityworthy company is based on the premise that an 
unequityworthiness finding by the Department is tantamount to saying 
that the company could not have attracted investment capital from a 
reasonable investor in the infusion year based on the available 
information.

Creditworthiness

    When the Department examines whether a company is creditworthy, it 
is essentially attempting to determine if the company in question could 
obtain commercial financing at commonly available interest rates. 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, 55018 (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 19 CFR 351.505(a)(4)(i).
    TAS and ILVA were found to be uncreditworthy from 1986 through 
1993. See Electrical Steel, 59 FR at 18358; Stainless Plate in Coils, 
64 FR at 15511; Wire Rod, 63 FR at 40477. No new information has been 
presented in this review that would lead us to reconsider these 
findings. Therefore, consistent with our past practice, we continue to 
find TAS and ILVA uncreditworthy from 1986 through 1993. See, e.g., 
Final Affirmative Countervailing Duty Determinations: Certain Steel 
Products from Brazil, 58 FR 37295, 37297 (July 9, 1993). We did not 
analyze AST's creditworthiness in the years 1994 through 1998, because 
the company did not negotiate new loans with the GOI or the EC during 
these years, nor did it receive any new subsidies that were allocated 
over time.

Benchmarks for Long-Term Loans and Discount Rates

    Consistent with the Department's finding in Wire Rod, 63 FR at 
40476-77, Stainless Plate in Coils, 64 FR at 15510, and Final 
Affirmative Countervailing Duty Determination: Certain Cut-to-Length 
Carbon-Quality Steel Plate from Italy, 64 FR 73244, 73247-48 (December 
29, 1999) (CTL Plate), we have based our discount rates on the Italian 
Bankers' Association (ABI) rates. The ABI rate is the average of the 
short-term interest rates on overdraft facilities commercial banks 
charge to the segment of high quality borrowers. In calculating the 
interest rate applicable to a borrower, commercial banks typically add 
a spread ranging from 0.55 percent to 4.0 percent onto the ABI rate, 
which is determined by the company's financial health.
    In CTL Plate, we found that the published ABI rates do not include 
amounts for fees, commissions, and other borrowing expenses. However, 
information on the borrowing expenses on overdraft loans for 1998, 
which was placed on that record, was used as an approximation of 
expenses on long-term commercial loans. That 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. CTL Plate, 64 FR at 
73248. 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 19 
CFR 351.505(a)(1). 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 AST or its 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 Department's 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).\1\ 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. For non-recurring 
subsidies, we based the average cumulative default rates for both 
uncreditworthy and creditworthy companies on a 12-year term, since all 
of AST's allocable subsidies were based on this allocation period.
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    \1\ We note that since publication of the regulations, Moody's 
Investors Service no longer reports default rates for Caa to C-rated 
category of companies. Therefore for the calculation of 
uncreditworthy interest rates, we will continue to rely on the 
default rates as reported in Moody Investor Service's publication 
dated February 1998.
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    In addition, AST had one long-term, fixed-rate loan under ECSC 
Article 54 outstanding during the POR, denominated in U.S. dollars. 
Therefore, we have selected a U.S. dollar-based interest rate as our 
benchmark. See 19 CFR 351.505(a)(2)(i). Consistent with Wire Rod, 63 FR 
at 40486, and CTL Plate, 64 FR at 73248, 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 the loan was denominated in 
U.S. dollars. We used these rates since we were unable to find a long-
term borrowing rate for loans denominated in U.S. dollars in Italy. 
Because ILVA was uncreditworthy in the year the loan was contracted, we 
calculated the uncreditworthy benchmark rate pursuant to section 
351.505(a)(3)(iii) of the Department's regulations.
I. Programs Preliminarily Determined To Be Countervailable Government 
of Italy Programs
    A. Equity Infusions to TAS and ILVA.--The GOI, through IRI, 
provided new equity capital to TAS or ILVA between 1987 and 1992 
(although there were no allegations of equity infusions in 1989 and 
1990). These equity infusions were found countervailable in Electrical 
Steel and Stainless Plate in Coils. No new information or evidence of 
changed circumstances has been submitted in this proceeding to warrant 
reconsideration of this finding. For equity infusions originally 
provided to TAS, the predecessor company to ILVA that produced 
electrical steel, we treated these equity infusions as though they had 
flowed directly through ILVA to AST when the specialty steel (including 
subject merchandise) assets were transferred from ILVA to AST. See 
Electrical Steel, 59 FR at 18360; Stainless Plate in Coils, 64 FR at 
15511-12.

[[Page 41953]]

    We have treated these equity infusions as non-recurring grants 
given in the year the infusion was received because each required a 
separate authorization. We allocated the equity infusions over a 12-
year AUL. Because TAS and 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 applied the repayment portion of our change in ownership 
methodology to all of the equity infusions described above to determine 
the subsidy allocable to AST after its privatization. We divided this 
amount by AST's total consolidated sales during the POR. On this basis, 
we preliminarily determine the net countervailable subsidy to be 0.97 
percent ad valorem for AST.
    B. Debt Forgiveness: 1988-90 Restructuring Plan.--As discussed 
above in the ``Corporate History'' section of this notice, the GOI 
liquidated Finsider and its main operating companies, including TAS, in 
1988 and assembled the group's most productive assets into a new 
operating company, ILVA. Although most of TAS's productive assets were 
transferred to ILVA, not all of its liabilities were transferred; 
rather, many liabilities remained with TAS which had to be repaid, 
assumed or forgiven. In 1990, additional assets and liabilities of TAS, 
Italsider and Finsider were transferred to ILVA. See Electrical Steel, 
59 FR at 18359; Stainless Plate in Coils, 64 FR at 15508-09; CTL Plate, 
64 FR at 73249.
    In 1989, IRI forgave 99,886 million lire owed to Finsider by TAS. 
See Electrical Steel, 59 FR at 18359. Even with this debt forgiveness, 
a substantial amount of liabilities remained with TAS. In addition, 
losses associated with the transfer of assets to ILVA were left behind 
in TAS. These losses occurred because the value of the transferred 
assets had to be written down. As TAS gave up assets whose book value 
was higher than their appraised value, it was forced to absorb the 
losses. These losses were generated during two transfers as reflected 
in: (1) An extraordinary loss in TAS's 1988 Annual Report and (2) a 
reserve account created in 1989 for anticipated losses with respect to 
the 1990 transfer.
    In Electrical Steel, Stainless Plate in Coils, and CTL Plate, we 
determined that the debt and loss coverage provided to ILVA in 1989 and 
1990, constituted countervailable subsidies within the meaning of 
section 771(5)(B)(i) of the Act. No new information or evidence of 
changed circumstances has been submitted in this proceeding to warrant 
reconsideration of this finding.
    To determine the benefit from these subsidies, we have treated 
IRI's forgiveness of TAS's 1989 debt owed to Finsider and the loss 
resulting from the 1989 write-down as grants received in 1989. The 
second asset write-down and the debt outstanding after the 1990 
transfer were treated as grants received in 1990. We treated these as 
non-recurring grants because the company did not receive them on an on-
going basis. Because 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 coverage provided in 1989 and 1990, over a 12-year 
AUL. See the ``Subsidies Valuation Information'' section, above.
    We applied the repayment portion of our change in ownership 
methodology to the debt forgiveness and loss coverage to determine the 
amount of the subsidy allocable to AST after its privatization. We 
divided this amount by AST's total consolidated sales during the POR. 
On this basis, we preliminarily determine the net countervailable 
subsidy to be 2.66 percent ad valorem for AST.
    C. Debt Forgiveness: 1993-1994 Restructuring Plan.--As mentioned in 
the ``Corporate History'' section above, in September 1993, IRI 
endorsed a plan for the reorganization and privatization of the ILVA 
Group, which was submitted to the EC for its approval. The 
reorganization provided for splitting ILVA's core business into two new 
companies, AST and ILP, and placing the remaining assets, as well as 
liabilities and redundant workers in ILVA Residua. Under the 
restructuring plan, ILVA Residua would sell the productive units, use 
the proceeds to reduce ILVA's debt prior to liquidation, and IRI (i.e., 
the Italian government) would absorb any remaining debt.
    As of December 31, 1993, the majority of ILVA's viable 
manufacturing activities had been separately incorporated (or 
``demerged'') into either AST or ILP, thus, ILVA Residua became 
essentially a shell company with liabilities far exceeding assets. In 
contrast, AST and ILP, now ready for privatization, had operating 
assets and relatively modest debt loads. The EC approved the GOI's 
restructuring and privatization plan for ILVA in its Commission 
Decision 94/259/ECSC, dated April 12, 1994. This EC decision states 
that IRI would take over ILVA Residua's residual indebtedness, cover 
expenditures of 1,197 billion lira, and continue to be involved in ILVA 
Residua's activities until its liquidation. It further states that if 
the privatization and reorganization program was strictly implemented, 
the ILVA group, namely AST and ILP would have a reasonable chance of 
being viable by the end of 1994. See Stainless Plate in Coils, 64 FR at 
15512; CTL Plate, 64 FR at 73251.
    In Stainless Plate in Coils and Stainless Sheet and Strip, we 
determined that AST received a countervailable subsidy in 1993, when 
the majority of ILVA's debt was placed in ILVA Residua, rather than 
being proportionately allocated to AST and ILP. See Stainless Plate in 
Coils, 64 FR at 15512; Stainless Sheet and Strip, 64 FR at 30628. In 
addition to the debt that was placed in ILVA Residua, we determined 
that the asset write-downs which ILVA took in 1993, as part of the 
restructuring/privatization plan, were countervailable subsidies under 
section 771(5)(B)(i) of the Act. The write-down of the assets in 1993 
increased the losses to be covered in liquidation. It is the 
Department's position that when losses, which are later covered by a 
government, can be tied to specific assets, those assets bear the 
liability for the losses that resulted from the write-downs. No new 
information or evidence of changed circumstances has been submitted in 
this review that would warrant reconsideration of these findings. See 
also, CTL Plate, 64 FR at 73251.
    The amount of debt and losses resulting from the asset write-downs 
that should have been attributable to AST, but were instead placed with 
ILVA Residua, was equivalent to debt forgiveness for AST at the time of 
the ILVA demerger. 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 forgiveness.
    In CTL Plate, we determined that the liquidation process of 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. See CTL Plate, 64 FR at 73252. 
As stated above, the liquidation of 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 
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 ILVA operations, we 
determined that the assistance provided under the 1993-

[[Page 41954]]

1994 Restructuring Plan was de facto specific. See CTL Plate, 64 FR at 
73252.
    Consistent with the methodology that we employed in Stainless Plate 
in Coils, 64 FR at 15513, Stainless Sheet and Strip, 64 FR at 30628, 
and CTL Plate, 64 FR at 73252, the amount of liabilities that we 
attributed to AST is based on the gross liabilities left behind in ILVA 
Residua, as reported in the EC's 10th Monitoring Report.\2\ In 
calculating the amount of unattributable liabilities remaining after 
the demerger of AST, 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 ILVA. In order to calculate the total 
amount of unattributed liabilities which amounted to countervailable 
debt forgiveness, we made adjustments (additions/subtractions) to this 
figure for the following: the residual assets that had not actually 
been liquidated as of the 10th and final Monitoring Report; assets that 
comprised SOFINPAR, a real estate company (because these assets were 
sold prior to the demergers of AST and ILP); the liabilities 
transferred to AST and ILP; income received from the privatization of 
ILVA Residua's operations; the amount of the asset write-downs 
specifically attributable to AST, ILP, and ILVA Residua companies; and 
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 ILVA's debt attributed to CAS and countervailed 
in Wire Rod, 63 FR at 40478.
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    \2\ In CTL Plate, 64 FR at 73252, we stated that we would prefer 
to base our calculation on information at the time the relevant 
portion of ILVA's assets were demerged. However, the information 
contained in ILVA's financial statement was found to be unreliable 
by the company's auditors. Therefore, as facts otherwise available, 
we used the information contained in the EC's 10th Monitoring Report 
which provides the most reliable data for determining the benefit 
conferred by this program.
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    The amount of liabilities remaining represents the pool of 
liabilities that were not individually attributable to specific ILVA 
assets. We apportioned this debt to AST, ILP, and operations sold from 
ILVA Residua based on their relative asset values. We used the total 
consolidated asset values reported in AST's and ILP's financial 
statements for the year ending December 31, 1993. 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, 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 the assets of the one ILVA 
Residua company sold to IRI, because this sale does not represent sales 
to a non-governmental entity.
    We have treated the debt forgiveness to AST 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 ILVA was uncreditworthy 
in 1993. 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 appropriately allocated to AST after its privatization. We 
divided this amount by AST's total consolidated sales during the POR. 
On this basis, we preliminarily determine the net countervailable 
subsidy to be 7.74 percent ad valorem for AST.
    D. Interest Contributions on IRI Loans/Bond Issues Under Law 675/
77.--Law 675/77 was designed to provide GOI assistance in the 
restructuring and reconversion of Italian industries. There are six 
types of assistance available under this law: (1) Grants to offset 
interest payable on bank loans; (2) mortgage loans provided by the 
Ministry of Industry (MOI) at subsidized interest rates; (3) grants to 
reduce interest payments on loans financed by IRI bond issues; (4) 
capital grants for the South; (5) value-added taxed (VAT) reductions on 
capital good purchases for companies in the South; and (6) personnel 
retraining grants.
    Under Law 675/77, IRI issued bonds to finance restructuring 
measures of companies within the IRI group. The proceeds from the sale 
of the bonds were lent to IRI companies. During the POR, AST had long-
term variable interest rate loans outstanding that were financed by IRI 
bond issues for which the effective interest rate was reduced by 
interest contributions made by the GOI.
    The Department previously found this program to be countervailable 
in Electrical Steel, 59 FR at 18361 and Stainless Plate in Coils, 64 FR 
at 15513. No new information or evidence of changed circumstances has 
been submitted in this proceeding to warrant reconsideration of this 
finding.
    To measure the benefit from these loans, we compared the amount of 
interest that should have been paid at the benchmark interest rate to 
the amounts paid by AST, less the interest rebates claimed during the 
POR. We divided the resulting difference by AST's total consolidated 
sales during the POR. On this basis, we preliminarily determine the net 
countervailable subsidy from this program to be 0.09 percent ad 
valorem.
    E. Pre-Privatization Retirement Benefits Under Law 451/94.--Law 
451/94 authorized early retirement packages for steel workers for the 
years 1994 through 1996. The law entitled men of at least 50 years of 
age and women of 47 years of age with at least 15 years of pension 
contributions to retire early. Benefits applied for during the 1994-
1996 period continue until the employee reaches his/her natural 
retirement age, up to a maximum of ten years.
    In Wire Rod, 64 FR at 40480, Stainless Plate in Coils, 64 FR at 
15514, and CTL Plate, 64 FR at 73253, we found this program to be 
specific, and thus countervailable. In CTL Plate and Stainless Plate in 
Coils, the Department stated that at the time the agreement was being 
reached with the unions and the labor ministry on the terms of the lay 
offs, 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 practice is to treat half of the 
amount paid by the government as benefitting the company. See 
Countervailing Duties; Final Rule, 63 FR 65348, 65380 (November 25, 
1998). No new information or evidence of changed circumstances has been 
submitted in this proceeding to warrant reconsideration of this 
finding.
    Consistent with the Department's practice with regard to allocation 
of worker-related subsidies, we have treated benefits to AST under Law 
451/94 as recurring grants expensed in the year of receipt. See 
Stainless Plate in Coils, 64 FR at 15515; Wire Rod, 64 FR at 40480. To 
calculate the benefit received by AST during the POR, we multiplied the 
number of AST 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 AST. Therefore, we multiplied the total wages of the early 
retirees by 40 percent. We then divided this total amount by AST's 
total consolidated sales during the POR. On

[[Page 41955]]

this basis, we preliminarily determine a net countervailable subsidy of 
0.69 percent ad valorem.
    As mentioned in the ``Corporate History'' section of this notice, 
in September 1993, IRI endorsed a plan for the reorganization and 
privatization of the ILVA Group. In December 1993, IRI initiated the 
splitting of ILVA's main productive assets into two new companies, ILP 
and AST. On December 31, 1993, ILP and AST became separately 
incorporated firms. The remainder of ILVA's productive assets and 
existing liabilities, along with much of the redundant workforce, was 
placed in ILVA Residua. The GOI issued two decrees under Law 451 to 
place the early retirees from ILVA into ILVA Residua. In CTL Plate, the 
Department found that by the GOI placing much of the 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 portions of those redundant workers that were placed 
in ILVA Residua and received early retirement benefits under Law 451/
94. See CTL Plate, 64 FR at 73254. No new information or evidence of 
changed circumstances has been submitted in this proceeding to warrant 
reconsideration of this finding. Therefore, we preliminarily determine 
that AST has received a countervailable benefit since the company was 
relieved of a financial obligation that would otherwise have been due.
    To calculate the benefit received by AST during the POR, for 
retired employees that were placed with ILVA Residua under the first 
decree dated December 7, 1994, we first multiplied the number of 
employees according to worker type (i.e., blue collar) times the 
average salary for each employee type, using the same average salaries 
for AST employees. Since the GOI was making payments to these workers 
equaling 80 percent of their salary, we attributed one-half of that 
amount to AST. Therefore, we multiplied the total wages of the early 
retirees by 40 percent. We then divided this total amount by AST's 
total consolidated sales during the POR.
    The GOI allocated additional slots to workers in ILVA Residua under 
a second decree dated December 30, 1996. However, the number of workers 
attributable to AST or the worker types were not submitted in the 
questionnaire responses. Therefore, we first needed to determine the 
appropriate number of early retirees placed in ILVA Residua that should 
have been apportioned to AST. To determine this number, we took the 
asset value of AST in relation to the asset value of ILVA at the time 
of the spin-off of AST. Next, we multiplied this percentage by the 
total number of ILVA Residua early retirees, pursuant to the second 
decree. It was then necessary to estimate the number of employees 
according to worker types. To do this, we calculated the ratio of 
employees according to worker types under the first decree. We then 
multiplied the number of employees according to worker type (i.e., blue 
collar) times the average salary for each employee type, and multiplied 
the result by 40 percent. We then divided this total amount by AST's 
total consolidated sales during the POR. On this basis, we 
preliminarily determine a net countervailable subsidy attributable to 
AST for the retirees placed with ILVA Residua under both decrees to be 
0.13 percent ad valorem. Therefore, we preliminarily determine the 
combined rate for retired employees placed directly with AST and those 
placed with ILVA Residua to be 0.82 percent ad valorem.
    F. Exchange Rate Guarantees under Law 796/76.--Law 796/76 
established the exchange risk guarantee on foreign currency loans 
program to minimize the risk of exchange rate fluctuations on loans 
contracted in foreign currency. 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. AST had outstanding ECSC loans 
during the POR that benefitted from these guarantees. The Department 
found this program to be countervailable in Stainless Plate in Coils, 
64 FR at 15513, and CTL Plate, 64 FR at 73254. No new information or 
evidence of changed circumstances has been submitted in this proceeding 
to warrant reconsideration of this finding.
    Once a loan is approved for exchange rate guarantees, access to 
foreign exchange at the established rate is automatic and occurs at 
regular intervals throughout the life of the loan. Therefore, we are 
treating the benefits under this program as recurring grants. AST 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 AST paid under this program during the POR. See 
Wire Rod, 63 FR at 40479; Stainless Plate in Coils, 64 FR at 15513; CTL 
Plate, 64 FR at 73255.
    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 AST's 
total consolidated sales during the POR. On this basis, we 
preliminarily determine the net countervailable subsidy to be 0.12 
percent ad valorem.

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.

[[Page 41956]]

    The Department has found Article 54 loans to be specific 
countervailable subsidies in several proceedings, including Electrical 
Steel, 59 FR at 18362, CTL Plate, 64 FR at 73256, and Stainless Plate 
in Coils, 64 FR at 15515, because loans under this program are provided 
only to iron and steel companies. No new information or evidence of 
changed circumstances has been submitted in this proceeding to warrant 
reconsideration of this finding.
    AST had one long-term, fixed-rate U.S. dollar denominated loan 
outstanding during the POR. Consistent with Wire Rod, 63 FR at 40486 
and CTL Plate, 64 FR at 73256, 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 this loan was denominated 
in U.S. dollars. We used this rate because we were unable to find a 
long-term borrowing rate for loans denominated in U.S. dollars in 
Italy. The interest rate charged on AST's Article 54 loan, which was 
contracted in 1978 was reduced in 1987. Therefore, for the purpose of 
calculating the benefit, we have treated this loan as if it was 
contracted on the date of the rate adjustment. Because ILVA was 
uncreditworthy in the year this loan was contracted, 1987, we 
calculated the uncreditworthy benchmark rate as pursuant to section 
351.505(a)(3)(iii) of the Department's 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 regulations, we employed the Department's long-
term fixed-rate loan methodology. We compared the amount of interest 
that should have been paid at the benchmark interest rate for 
uncreditworthy companies to the amount paid by AST during the POR. We 
then divided the benefit by AST's total consolidated sales during the 
POR. On this basis, we preliminarily determine the net countervailable 
subsidy to be 0.01 percent ad valorem.
    B. European Social Fund (ESF).--The ESF, one of the Structural 
Funds operated by the EC, was established to improve workers' 
opportunities through training and to raise their standards of living 
throughout the community by increasing their employability. Like other 
EC structural funds, there are six different Objectives (sub-programs) 
identified under ESF: Objective 1 covers projects located in 
underdeveloped regions; Objective 2 addresses areas in industrial 
decline; Objective 3 relates to the employment of persons under 25; 
Objective 4 funds training for employees in companies undergoing 
restructuring; Objective 5 pertains to agricultural areas; and 
Objective 6 pertains to regions with very low population (i.e., the far 
north).
    During the POR, AST received ESF assistance under Objective 4. To 
qualify for Objective 4 funding, AST had to propose programs designed 
to re-train its workers to increase their productivity. The Department 
considers training programs to provide a countervailable benefit to a 
company when the company is relieved of an obligation it would have 
otherwise incurred. In Stainless Plate in Coils and Stainless Sheet and 
Strip, the Department found this program to be countervailable. See 
Stainless Plate in Coils, 64 FR at 15516; Stainless Sheet and Strip, 64 
FR at 30630. No new information or evidence of changed circumstances 
has been submitted in this review to warrant reconsideration of this 
finding.
    The Department normally considers the benefits from worker training 
programs to be recurring. However, as determined in Stainless Plate in 
Coils, these grants relate to specific, individual projects which 
require separate government approval, therefore, the benefits under 
this program are treated as non-recurring grants. See Stainless Plate 
in Coils, 64 FR at 15517; Wire Rod, 63 FR at 40488; see also Final 
Affirmative Countervailing Duty Determination: Certain Pasta 
(``Pasta'') From Italy, 61 FR 30288, 30295 (June 14, 1996) (Pasta). 
However, because the benefit received under this program is less than 
0.5 percent of AST's sales during the relevant year, we have expensed 
these grants in the year of receipt. We divided the benefit by AST's 
total consolidated sales during the POR. On this basis, we 
preliminarily determine the net countervailable subsidy to be 0.03 
percent ad valorem.
III. Programs Preliminarily Determined To Be Not Used
1. Rotation Fund
2. Grants Under Law 10/81--Energy Conservation
3. Brite-EuRam Project Grants
4. Loan from IRI to KAI for the Purchase of AST
5. Lending from the Ministry of Industry under Law 675/77
6. Mortgage Loans from the Ministry of Industry Under Law 675/77
7. Personnel Retraining Grants under Law 675/77
8. Capital Grants under Law 675/77
9. Reductions of the VAT under Law 675/77
10. Worker Training under Law 181/89 (Early Retirement Provision)
11. Reindustrialization under Law 181/89
12. Law 488/92 Investment Grants
13. Subsidized Export Financing Under Law 227/77
14. Finsider Loans
15. Interest Subsidies under Law 617/81
16. Financing under Law 464/7
17. Interest Contributions under the Sabatini Law (Law 1329/65)
18. Social Security Exemptions
19. ILOR and IRPEG Exemptions
20. Law 345/92: Benefits for Early Retirement

Preliminary Results of Review

    In accordance with section 777A(e)(1) of the Act, we calculated an 
individual ad valorem subsidy rate for the producer/exporter subject to 
this administrative review. For the period January 1, 1998 through 
December 31, 1998, we preliminarily determine the net subsidy for AST 
to be 12.44 percent ad valorem.
    If the final results of this review remain the same as these 
preliminary results, the Department intends to instruct the U.S. 
Customs Service (Customs) to assess countervailing duties as indicated 
above. The Department also intends to instruct Customs to collect cash 
deposits of estimated countervailing duties of 12.44 percent of the 
f.o.b. invoice price on all shipments of the subject merchandise from 
reviewed companies, entered, or withdrawn from warehouse, for 
consumption on or after the date of publication of the final results of 
this review.
    Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for 
investigated and reviewed companies, the procedures for establishing 
countervailing duty rates, including those for non-reviewed companies, 
are now essentially the same as those in antidumping cases, except as 
provided for in section 777A(e)(2)(B) of the Act. The requested review 
will normally cover only those companies specifically named. See 19 CFR 
351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which 
a review was not requested, duties must be assessed at the cash deposit 
rate, and cash deposits must continue to be collected, at the rate 
previously ordered. As such, the countervailing duty cash deposit rate 
applicable to a company can no longer change, except pursuant to a 
request for a review of that company. See Federal-Mogul Corporation and 
the Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and 
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT

[[Page 41957]]

1993) (interpreting 19 CFR 353.22(e) (now 19 CFR 351.212(c)), the 
antidumping regulation on automatic assessment, which is identical to 
19 CFR section 355.22(g). Therefore, the cash deposit rates for all 
companies, except those covered by this review, will be unchanged by 
the results of this review.
    We will instruct Customs to continue to collect cash deposits for 
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit 
rates that will be applied to non-reviewed companies covered by this 
order will be the rate for that company established in the most 
recently completed segment of this administrative proceeding under the 
Act, as amended by the URAA. If such a review has not been conducted, 
the rate established in the most recently completed administrative 
proceeding conducted pursuant to the statutory provisions that were in 
effect prior to the URAA amendments is applicable. See Electrical 
Steel, 59 FR at 18357. These rates shall apply to all non-reviewed 
companies until a review is requested. In addition, for the period 
January 1, 1998 through December 31, 1998, the assessment rates 
applicable to all non-reviewed companies covered by this order are the 
cash deposit rates in effect at the time of entry.

Public Comment

    Pursuant to 19 CFR 351.224(b), the Department will disclose to 
parties to the proceeding any calculations performed in connection with 
these preliminary results within five days after the date of 
publication of this notice. Pursuant to 19 CFR 351.309, interested 
parties may submit written comments in response to these preliminary 
results. Case briefs must be submitted within 30 days after the date of 
publication of this notice, and rebuttal briefs, limited to arguments 
raised in case briefs, must be submitted no later than five days after 
the time limit for filing case briefs. Parties who submit argument in 
this proceeding are requested to submit with the argument: (1) A 
statement of the issues, and (2) a brief summary of the argument. 
Further, we would appreciate it if parties submitting written comments 
would provide the Department with an additional copy of the public 
version of any such comments on diskette. Case and rebuttal briefs must 
be served on interested parties in accordance with 19 CFR 351.303(f). 
Also, pursuant to 19 CFR 351.310, within 30 days of the date of 
publication of this notice, interested parties may request a public 
hearing on arguments to be raised in the case and rebuttal briefs. 
Unless the Secretary specifies otherwise, the hearing, if requested, 
will be held two days after the date for submission of rebuttal briefs. 
The Department will publish the final results of this administrative 
review, including the results of its analysis of issues raised in any 
case or rebuttal brief or at a hearing.
    This notice serves as a preliminary reminder to importers of their 
responsibility to file a certificate regarding the reimbursement of 
countervailing duties prior to liquidation of the relevant entries 
during this review period. Failure to comply with this requirement 
could result in the Secretary's presumption that reimbursement of 
countervailing duties occurred and the subsequent assessment of double 
countervailing duties.
    This administrative review is issued and published in accordance 
with section 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1) 
and 19 U.S.C. 1677f(i)(1)).

    Dated: June 29, 2000.
Troy H. Cribb,
Acting Assistant Secretary for Import Administration.
[FR Doc. 00-17248 Filed 7-6-00; 8:45 am]
BILLING CODE 3510-DS-P