[Federal Register Volume 66, Number 77 (Friday, April 20, 2001)]
[Notices]
[Pages 20261-20271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9862]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-791-810]


Notice of Preliminary Affirmative Countervailing Duty 
Determination and Alignment With Final Antidumping Duty Determinations: 
Certain Hot-Rolled Carbon Steel Flat Products From South Africa

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

EFFECTIVE DATE: April 20, 2001.

FOR FURTHER INFORMATION CONTACT: Sally C. Gannon at (202) 482-0162, 
Mark Hoadley at (202) 482-0666, or Julio Fernandez at (202) 482-0190, 
Office of AD/CVD Enforcement VII, Group III, Import Administration, 
International Trade Administration, U.S. Department of Commerce, Room 
7866, 14th Street and Constitution Avenue, N.W., Washington, D.C. 
20230.

Preliminary Determination

    The Department of Commerce (the Department) preliminarily 
determines that countervailable subsidies are being provided to certain 
producers and exporters of certain hot-rolled carbon steel flat 
products from South Africa. For information on the estimated 
countervailing duty rates, please see the ``Suspension of Liquidation'' 
section of this notice.

SUPPLEMENTARY INFORMATION:

Petitioners

    The petition in this investigation was filed by Bethlehem Steel 
Corporation, Gallatin Steel Company, IPSCO Steel Inc., LTV Steel 
Company, Inc., National Steel Corporation, Nucor Corporation, Steel 
Dynamics, Inc., U.S. Steel Group, a unit of USX Corporation, Weirton 
Steel Corporation, Independent Steelworkers Union, and the United 
Steelworkers of America (collectively, the petitioners).

Case History

    We initiated this investigation on December 4, 2000. See Notice of 
Initiation of Countervailing Duty Investigations: Certain Hot-Rolled 
Carbon Steel Flat Products From Argentina, India, Indonesia, South 
Africa, and Thailand, 65 FR 77580 (December 12, 2000) (Initiation 
Notice). Since the initiation, the following events have occurred. On 
December 8, 2000, we issued a questionnaire to the Government of South 
Africa (GOSA), requesting the GOSA to forward the questionnaire to the 
producers/exporters of the subject merchandise. The GOSA identified 
three producers which exported subject merchandise to the United States 
during the period of investigation: Highveld Steel and Vanadium 
Corporation Limited (Highveld); Iscor, Ltd. (Iscor); and Saldanha Steel 
(Pty.) Ltd. (Saldanha). We received a response from Highveld on January 
26, 2001, and from Iscor, Saldanha, and the GOSA on February 5, 2001.
    On January 18, 2001, we issued a partial extension of the due date 
for this preliminary determination from February 7, 2001 to March 26, 
2001. See Certain Hot-Rolled Carbon Steel Flat Products From India, 
Indonesia, South Africa, and Thailand: Extension of Time Limit for 
Preliminary Determinations in Countervailing Duty Investigations, 
(Extension Notice) 66 FR 8199 (January 30, 2001). On December 22, 2000, 
petitioners alleged that additional subsidies were conferred by the 
GOSA. On January 10, 2001, Saldanha objected to the new allegations. On 
January 29, 2001, the Department decided to investigate the newly 
alleged subsidies. See Memorandum from Barbara E. Tillman for Joseph A. 
Spetrini, dated January 29, 2001. On January 31, February 20, and 
February 27, 2001, we issued supplemental questionnaires to the GOSA 
and all three producers/exporters. We received responses from the three 
producers/exporters and the GOSA on February 16, February 20, March 5, 
March 6, March 8, and March

[[Page 20262]]

14, 2001. On March 26, 2001, we amended the Extension Notice to take 
the full amount of time to issue this preliminary determination. The 
extended due date is April 13, 2001. See Certain Hot-Rolled Carbon 
Steel Flat Products From India, Indonesia, South Africa, and Thailand: 
Extension of Time Limit for Preliminary Determinations in 
Countervailing Duty Investigations, 66 FR 17525 (April 2, 2001).

Scope of the Investigation

    The merchandise subject to this investigation is certain hot-rolled 
carbon steel flat products of a rectangular shape, of a width of 0.5 
inch or greater, neither clad, plated, nor coated with metal and 
whether or not painted, varnished, or coated with plastics or other 
non-metallic substances, in coils (whether or not in successively 
superimposed layers), regardless of thickness, and in straight lengths, 
of a thickness of less than 4.75 mm and of a width measuring at least 
10 times the thickness. Universal mill plate (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 thickness of not 
less than 4 mm, not in coils and without patterns in relief) of a 
thickness not less than 4.0 mm is not included within the scope of this 
investigation.
    Specifically included within the scope of this investigation are 
vacuum degassed, fully stabilized (commonly referred to as 
interstitial-free (IF)) steels, high strength low alloy (HSLA) steels, 
and the substrate for motor lamination steels. IF steels are recognized 
as low carbon steels with micro-alloying levels of elements such as 
titanium or niobium (also commonly referred to as columbium), or both, 
added to stabilize carbon and nitrogen elements. HSLA steels are 
recognized as steels with micro-alloying levels of elements such as 
chromium, copper, niobium, vanadium, and molybdenum. The substrate for 
motor lamination steels contains micro-alloying levels of elements such 
as silicon and aluminum.
    Steel products to be included in the scope of this investigation, 
regardless of definitions in the Harmonized Tariff Schedule of the 
United States (HTSUS), are products in which: (i) Iron predominates, by 
weight, over each of the other contained elements; (ii) the carbon 
content is 2 percent or less, by weight; and (iii) none of the elements 
listed below exceeds the quantity, by weight, respectively indicated:

1.80 percent of manganese, or
2.25 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
0.15 percent of vanadium, or
0.15 percent of zirconium.
    All products that meet the physical and chemical description 
provided above are within the scope of this investigation unless 
otherwise excluded. The following products, by way of example, are 
outside or specifically excluded from the scope of this investigation:
     Alloy hot-rolled steel products in which at least one of 
the chemical elements exceeds those listed above (including, e.g., 
American Society for Testing and Materials (ASTM) specifications A543, 
A387, A514, A517, A506).
     Society of Automotive Engineers (SAE)/American Iron & 
Steel Institute (AISI) grades of series 2300 and higher.
     Ball bearings steels, as defined in the HTSUS.
     Tool steels, as defined in the HTSUS.
     Silico-manganese (as defined in the HTSUS) or silicon 
electrical steel with a silicon level exceeding 2.25 percent.
     ASTM specifications A710 and A736.
     USS Abrasion-resistant steels (USS AR 400, USS AR 500).
     All products (proprietary or otherwise) based on an alloy 
ASTM specification (sample specifications: ASTM A506, A507).
     Non-rectangular shapes, not in coils, which are the result 
of having been processed by cutting or stamping and which have assumed 
the character of articles or products classified outside chapter 72 of 
the HTSUS.
    The merchandise subject to this investigation is classified in the 
HTSUS at subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00, 
7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60, 
7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60, 
7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30, 
7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90, 
7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00, 
7208.90.00.00, 7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 
7211.19.30.00, 7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 
7211.19.75.60, and 7211.19.75.90. Certain hot-rolled carbon steel flat 
products covered by this investigation, including vacuum degassed fully 
stabilized; high strength low alloy; and the substrate for motor 
lamination steel may also enter under the following tariff numbers: 
7225.11.00.00, 7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 
7225.40.70.00, 7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 
7226.11.90.60, 7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 
7226.91.70.00, 7226.91.80.00, and 7226.99.00.00. Subject merchandise 
may also enter under 7210.70.30.00, 7210.90.90.00, 7211.14.00.30, 
7212.40.10.00, 7212.40.50.00, and 7212.50.00.00. Although the HTSUS 
subheadings are provided for convenience and U.S. Customs purposes, the 
Department's written description of the merchandise under investigation 
is dispositive.
    In the scope section of the Initiation Notice for this 
investigation, the Department encouraged all parties to submit comments 
regarding product coverage by December 26, 2000. The Department is 
presently considering a request to amend the scope of these 
investigations to exclude a particular specialty steel product. We will 
issue our determination on this request prior to the final 
determination.

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, all citations to the 
Department's regulations are to the regulations codified at 19 CFR Part 
351 (2000).

Injury Test

    Because South Africa is a ``Subsidies Agreement Country'' within 
the meaning of section 701(b) of the Act, the International Trade 
Commission (ITC) is required to determine whether imports of the 
subject merchandise from South Africa materially injure, or threaten 
material injury, to a U.S. industry. On January 4, 2001, the ITC 
published its preliminary determination finding that there is a 
reasonable indication that an industry in the United States is being 
materially injured, or threatened with material injury, by reason of 
imports from South Africa of subject merchandise (66 FR 805). The views 
of the Commission are contained in USITC Publication 3381 (December 
2000), Hot-Rolled Steel Products from Argentina, China, India, 
Indonesia, Kazakhstan, Netherlands, Romania, South Africa, Taiwan, 
Thailand, and Ukraine; Investigation Nos. 701-TA-404-408

[[Page 20263]]

(Preliminary) and 731-TA-898-908 (Preliminary).

Alignment with Final Antidumping Duty Determinations

    On March 23, 2001, petitioners submitted a letter requesting 
alignment of the final determination in this investigation with the 
final determinations of the antidumping duty investigations of certain 
hot-rolled carbon steel flat products from Argentina, India, Indonesia, 
Kazakhstan, the Netherlands, the People's Republic of China, Romania, 
South Africa, Taiwan, Thailand, and Ukraine. See Initiation of 
Antidumping Duty Investigations: Certain Hot-Rolled Carbon Steel Flat 
Products from Argentina, India, Indonesia, Kazakhstan, the Netherlands, 
the People's Republic of China, Romania, South Africa, Taiwan, 
Thailand, and Ukraine, 65 FR 77568 (December 12, 2000). In accordance 
with section 705(a)(1) of the Act, we are aligning the final 
determination in this investigation with the final determinations in 
the companion antidumping investigations of certain hot-rolled flat 
products from Argentina, India, Indonesia, Kazakhstan, the Netherlands, 
the People's Republic of China, Romania, South Africa, Taiwan, 
Thailand, and Ukraine.

Period of Investigation

    The period for which we are measuring subsidization (the period of 
investigation or POI) is the companies' most recently completed fiscal 
year.

Industrial Development Corporation

    The Industrial Development Corporation (IDC) is an investment and 
financing entity which is wholly-owned by the GOSA. In its 
questionnaire responses, the GOSA has stated that the IDC, along with 
its operating units, functions independently of government action, and 
has independent budget and decision-making powers. In order to assess 
whether an entity like the IDC should be considered to be the 
government for purposes of countervailing duty investigations, the 
Department has in the past considered facts such as the following 
significant: (1) government ownership, (2) the government's presence on 
the entity's board of directors, (3) the government's control over the 
entity's activities, (4) the entity's pursuit of governmental policies 
or interests, and (5) whether the entity is created by statute. See, 
e.g., Final Affirmative Countervailing Duty Determinations: Pure 
Magnesium and Alloy Magnesium from Canada, 57 FR 30946, 30954 (July 13, 
1992); Final Affirmative Countervailing Duty Determination: Certain 
Fresh Cut Flowers from the Netherlands, 52 FR 3301, 3302, 3310 (Feb. 3, 
1987); Final Affirmative Countervailing Duty Determination: Stainless 
Steel Sheet and Strip in Coils from the Republic of Korea, 64 FR 30636, 
30642-43 (June 8, 1999) (Korean Sheet and Strip).
    Regarding point (1), the IDC's annual reports indicate that ``The 
IDC is a wholly owned State Corporation established by Act No. 22 of 
1940.'' Regarding point (2), the GOSA has the right to appoint the 
majority of IDC's board of directors, pursuant to the IDC's Act of 
Incorporation. The GOSA's Minister of Trade and Finance appoints the 
board's chairman and managing director. See the GOSA's February 5th 
response, at Annexure F. Regarding points (3) and (4), besides 
controlling the IDC's activities through board appointments, the IDC's 
annual reports acknowledge it operates under GOSA constraints, at least 
to a certain degree. For example, the 1998 Annual Report, at page 64, 
states that the IDC's ``mandate, policy framework and objectives are in 
accordance with the guidelines put forth by its shareholder, the South 
African Government.'' Additionally, the IDC pursued GOSA interests and 
policies by performing tasks on behalf of the GOSA, such as serving on 
the Technical Committee that granted Section 37E benefits. See the 
GOSA's February 5th response, at 49. Regarding point (5), the 
Industrial Development Act provides for the IDC's incorporation and 
continued operation. See the GOSA's February 5th response, at Annexure 
F. Moreover, as stated in the preamble to the regulations, ``* * * we 
intend to continue our long standing practice of treating most 
government-owned corporations as the government itself,'' and we have 
done so in cases like Korean Sheet and Strip. See Countervailing 
Duties; Final Rule, 63 FR at 65402 (Nov. 25, 1998) (CVD Final Rule). 
The information on the record provides no basis for departing from this 
long-standing practice.
    While the GOSA emphasizes the fact that the IDC is self-funding, 
theoretically, an entire government is self-funding and the statute 
does not direct us to consider how the government funds the assistance 
provided by the government action; rather it directs us to determine 
whether there is a financial contribution by the government and a 
benefit is thereby conferred. We note that we have treated the IDC's 
actions as constituting the conferral of financial contributions by a 
governmental authority in the past. See Final Affirmative 
Countervailing Duty Determination: Stainless Steel Plate in Coils from 
South Africa, 64 FR 15553 (March 31, 1999) (SSPC Final).

Subsidies Valuation Information

Allocation Period

    Section 351.524(d)(2) of the Department's 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, as updated by the 
Department of Treasury. The presumption will apply unless a party 
claims and establishes that these tables do not reasonably reflect the 
AUL of the renewable physical assets for the company or industry under 
investigation, and the party can establish that the difference between 
the company-specific or country-wide AUL for the industry under 
investigation is significant.
    The applicable AUL listed in the IRS tables for the steel industry, 
and used in the most recently completed investigation for South African 
steel companies, is 15 years. See SSPC Final, 64 FR at 15555. While 
Highveld did not argue for anything other than the IRS tables' AUL of 
15 years, Iscor and Saldanha did. Both claim that 15 years does not 
reasonably reflect the AUL of their assets, and both companies 
submitted information regarding their annual depreciation and book 
values. We have not found Iscor to be the direct recipient of non-
recurring subsidies and, therefore, have made no determination as to 
the applicable AUL for its assets. However, because we have 
preliminarily determined that Saldanha has received non-recurring 
subsidies, we have examined the information provided by Saldanha for 
purposes of establishing a company-specific AUL. To calculate its 
company-specific AUL, Saldanha submitted its opening and closing book 
values, and depreciation expense, for fiscal year 2000.
    Section 351.524(d)(2)(iii) of our regulations states that a 
company-specific AUL is ``calculated by dividing the aggregate of the 
annual average gross book values of the firm's depreciable productive 
fixed assets by the firm's aggregated annual charge to accumulated 
depreciation, for a period considered appropriate by the Secretary.'' 
The Department's practice has been to use a ten-year period. While a 
ten-year period is not required by statute or our regulations, one year 
cannot reasonably serve as a basis for calculating a company-specific 
AUL. Moreover, we note that Saldanha

[[Page 20264]]

reduces its depreciation to account for less than full production, and 
that its plant was not at full production during the year for which 
information was submitted; thus, even this one year's worth of 
information is not representative. Therefore, we preliminarily 
determine that Saldanha has not satisfied the requirements of section 
351.524(d)(2)(iii) of our regulations. Thus, the Department is using, 
in accordance with section 351.524(d)(2)(i), the IRS tables to 
determine the AUL period. We note that Saldanha did not submit other 
information to substantiate its claim of an AUL longer than 15 years, 
except for its annual report and financial statement for fiscal year 
2000, which state that plant and equipment have an estimated maximum 
useful life of 25 years; however, for the reasons stated above, this 
does not serve as a sufficient basis for determining a company-specific 
AUL.

Issue Pertaining to the Realignment of the Benefit Stream from Non-
Recurring Subsidies

    The Department's normal practice is to begin the benefit stream for 
non-recurring subsidies in the year of receipt of the subsidy. See CVD 
Final Rule, 63 FR at 65397. Petitioners argue that, for non-recurring 
subsidies in this case, we should begin the benefit stream for Saldanha 
in the year in which production commences, fiscal year 1999, rather 
than in the year of receipt as allowed under section 351.524(d)(2)(iv) 
of our regulations. Petitioners emphasize our commentary in the 
Preamble to this regulation in which we stated that such a realignment 
of the benefit stream would be considered for subsidies provided ``* * 
* to develop certain new technologies, or to fund extraordinarily large 
development projects that require extensive research and development * 
* *'' CVD Final Rule, 63 FR at 65397. Petitioners contend that 
Saldanha's Corex smelting process, Midrex direct iron reduction shaft, 
and Cornac steel furnace are innovative technologies and that the 
project was indisputably large. They rely on statements by the GOSA and 
Iscor placed on the record of this investigation and SSPC to 
demonstrate the belief of those parties in the extraordinarily large 
size and innovative quality of the Saldanha project. Petitioners point 
out, for example, that in its SSPC case brief the GOSA stated: ``The 
Department's finding of de facto specificity rests solely on the value 
of the financing provided to the fabricated metal products and basic 
metal manufacture industries. But this value includes three mega 
projects in the basic metal manufacture industry, concerning basic iron 
and steel, stainless steel and aluminum. These mega projects are both 
huge and extraordinary.'' As another example, petitioners point to 
Iscor's 2000 Annual report which refers to the use of surplus Corex 
off-gas as a reducing agent in the Midrex direct iron reduction shaft 
as a ``world first.''
    After reviewing all of the information on the record, we 
preliminarily determine that a change in the starting date for the 
benefit stream is not warranted, and we are following our normal 
practice of beginning the benefit stream for all non-recurring 
subsidies in the year in which they are first conferred. Section 
351.524(d)(2)(iv) states that the Secretary will consider starting the 
benefit stream at a date other than the date on which the subsidy is 
bestowed only in ``certain extraordinary circumstances.'' The 
information on the record does not demonstrate that extraordinary 
circumstances exist in this case. In our commentary discussing the type 
of situation to which subsection 351.524(d)(2)(iv) might apply, we 
stated: ``The assets needed to develop new technologies, or to produce 
a new product may not even have been designed yet, and certainly the 
product is not yet developed.'' CVD Final Rule, 63 FR at 65397. The 
steel produced by Saldanha is not a new product, and, although the 
production technology may be relatively new, it had already been 
developed and was simply being transferred to a new company in South 
Africa. Petitioners have not demonstrated that there was more of a lag 
time between R&D and production in Saldanha's case than that which 
would occur in the construction of any greenfield mill using more 
conventional technologies. In addition, petitioners did not claim that 
the size of the Saldanha mill is unusual for a greenfield project. Even 
though the GOSA considers it ``huge'' in terms of development projects 
within South Africa, the language in the Preamble concerning funding of 
development projects cites, in relevant part, subsidies ``* * * to fund 
extraordinarily large development projects that require extensive 
research and development * * *'' The Saldanha project may be quite 
large in South Africa, but it did not entail, as discussed above, 
extensive research and development. Accordingly, we preliminarily 
determine that the benefit stream for non-recurring subsidies should 
not be realigned.

Calculation of Discount Rates and Benchmark Loan Rates

    Saldanha is the only respondent to have received IDC (i.e., GOSA) 
long-term loans and other non-recurring subsidies. Saldanha proposed 
two loans to be used as benchmark loans in evaluating the IDC loans and 
in calculating discount rates. As discussed in the ``Creditworthiness'' 
section below, we find that neither loan proposed by Saldanha meets the 
requirements for comparable commercial loans in section 351.505(a)(2). 
No other long-term commercial interest rates were submitted. Section 
351.505(a)(3)(ii) states that, if there are no comparable commercial 
loans, then the Department ``may use a national average interest rate 
for comparable commercial loans.''
    Therefore, for the years 1996 through the POI, we calculated the 
discount rates and benchmark loan rates by averaging the ``Lending'' 
rate and ``Government Bond Yield'' rate for each year as found in the 
International Financial Statistics published by the International 
Monetary Fund. This is the same methodology employed in the last CVD 
investigation of the South African steel industry. See SSPC Final, 64 
FR at 15554.
    Saldanha objects to the use of the Lending rate, and argues that 
the Department should use the RSA 150 government bond rate, plus a risk 
premium of between 1.8 and 2 percent, as the benchmark rate. The 
proposed risk premium is the result of a study undertaken by Saldanha 
concerning the rate at which it might issue commercial paper. Saldanha 
argues that the RSA 150 government bond rate is superior to the Lending 
rate because the South African central bank increased the prime rate in 
response to a 1998 currency crisis, and because the commercial paper 
study concluded Saldanha could sell commercial paper at the RSA 150 
rate plus the 1.8 to 2 percent risk premium.
    We rejected the government bond rate in SSPC Final, which we had 
used in the preliminary determination of that case, and adopted the 
blended rate described above. We stated:

    Although we discussed commercial interest rates at length during 
our meetings with the IDC, the South African Reserve Bank, and 
commercial bankers, no information was provided that would enable us 
to determine a commercial long-term interest rate that could be used 
as the discount rate. As such, because the government bond rate does 
not represent a commercial rate, for purposes of this final 
determination, we have constructed a discount rate which we believe 
is more

[[Page 20265]]

appropriate. For each of the years 1993 through 1997, we have 
averaged the government bond rate as reported by respondents with 
the ``Lending Rate'' reported in International Financial Statistics, 
December 1998, published by the International Monetary Fund. This 
publication indicates that the ``Lending Rate'' represents financing 
that ``meets the short-and medium-term needs of the private 
sector.'' By averaging these two rates, we believe that we have 
identified a rate more appropriate than the rate used for the 
purposes of the preliminary determination, a rate which includes the 
necessary characteristics of both long-term borrowing and 
commercially-available interest rates.

SSPC Final, 64 FR at 15554. We see no reason to change our stance on 
the proper benchmark for long-term South African loans in this case. 
Saldanha did not explain why the currency crisis and ensuing rate hike 
would have affected lending rates differently than government bond 
rates. Regarding the commercial paper study, we note that the 
commercial paper apparently was never issued, and, therefore, that the 
study does not appear to be relevant.

Creditworthiness

    We investigated whether Saldanha has been uncreditworthy since its 
inception in 1996. As discussed in ``The IDC's Equity Infusions in 
Saldanha'' and the ``Industrial Loan Financing Provided by the IDC and 
Findevco Ltd.'' sections below, the years for which we are analyzing 
the benefits from equity infusions and the IDC loans are fiscal years 
1998, 1999, and 2000. Therefore, we have limited our creditworthiness 
analysis to those years.
    We preliminarily have determined that Saldanha was uncreditworthy 
during fiscal years 1998 through 2000. The primary bases for this 
determination are: (1) an absence of long-term commercial loans, 
provided by commercial lending institutions, that were not guaranteed 
by the IDC; and (2) our examination of Saldanha's ability to meet its 
costs and fixed financial obligations with its cash flow.
    In its questionnaire response, Saldanha stated that it had 
``significant credit exposure'' provided by local banks which were 
unaffiliated with the GOSA. See Saldanha's February 5, 2001 response, 
at 51. Saldanha confirmed in its supplemental questionnaire response 
that all of this credit was short-term. See Saldanha's March 6, 2001 
response, at 36. Saldanha also noted an amount provided on an open 
account basis by trade creditors. Section 351.505(a)(4)(i) of the 
Department's regulations, however, specifies that a creditworthiness 
determination must be based on the receipt of long-term commercial 
loans.
    Saldanha points to two long-term loans, unguaranteed by the IDC, as 
proof that it has been creditworthy. However, as explained in our 
discussion of the Findevco and IDC loans below, we have determined that 
one of these loans was from a foreign, state-controlled development 
bank, and the other was credit provided by a supplier. Section 
351.505(a)(2)(ii) of the regulations defines ``commercial'' loans, 
which are the focus of this analysis, as loans ``* * * taken out by the 
firm from a commercial lending institution or a debt instrument issued 
by the firm in a commercial market,'' and states that we will not ``* * 
* consider a loan provided under a government program, or a loan 
provided by a government-owned special purpose bank to be a commercial 
loan * * *'' Thus, neither the supplier credit nor a loan provided by a 
foreign development bank meets our definition of a commercial loan.
    In addition to an absence of long-term commercial loans which could 
provide evidence of Saldanha's creditworthiness, Saldanha does not 
appear able to meet its financial obligations without difficulty. While 
it would not be unexpected for a greenfield mill to experience some 
difficulty in meeting its debt obligations in its initial years, 
Saldanha was still unable to meet its interest obligations by 1998 and 
beyond. Saldanha states in its questionnaire response that ``there was 
never at any time any instance whatsoever that the company was not able 
to meet its financial obligations such as interest and capital 
redemption.'' See Saldanha's February 5, 2001 response, at 54. While 
there is no indication that Saldanha ever defaulted on its obligations, 
the IDC did restructure the Findevco loan in 1998 (see section on 
``Industrial Loan Financing Provided by the IDC and Findevco Ltd.'' 
below), giving it a new loan repayment schedule and a different 
interest rate structure. The Department, after examining the 
proprietary details of the transaction, considers the restructuring to 
amount to a deferral. Proprietary information also indicates that 
Saldanha had obtained additional GOSA financing through a later loan in 
order to meet its debt obligations. See Memorandum from Mark Hoadley 
through Sally Gannon to Barbara E. Tillman Regarding Business-
Proprietary Analysis of Saldanha Steel Ltd. (April 13, 2001) (Saldanha 
Analysis Memo) (public version on file in the Department's Central 
Records Unit).
    Finally, we note that, while Saldanha is a greenfield mill, and 
thus there is not a significant history of financial data to examine, 
financial statements from fiscal years 1999 and 2000 indicate that 
Saldanha has been highly leveraged over the period examined. Saldanha's 
financial statements and history are discussed in the Saldanha Analysis 
Memo.
    Because we have preliminarily determined that Saldanha has been 
uncreditworthy from fiscal year 1998 onward, we adjusted both the loan 
benchmark rate and the discount rate by adding a risk premium, 
calculated according to the methodology described in section 
351.505(a)(3)(iii) of our regulations, for those subsidies conferred 
during fiscal years 1998 through 2000.

Cross-Ownership and Attribution of Subsidies

    Because Iscor owns 50 percent of Saldanha, we have examined whether 
cross-ownership exists between the two companies within the meaning of 
section 351.525(b)(6) of our regulations. Section 351.525(b)(6)(vi) of 
the regulations defines cross-ownership as existing ``* * * where one 
corporation can use or direct the individual assets of the other 
corporation(s) in essentially the same ways it can use its own assets. 
Normally, this standard will be met where there is a majority voting 
ownership interest between two corporations or through common ownership 
of two (or more) corporations.'' The preamble to the CVD Regulations 
identifies situations where cross-ownership may exist even though there 
is less than a majority voting interest between two corporations: ``in 
certain circumstances, a large minority interest (for example, 40 
percent) or a `golden share' may also result in cross-ownership.'' CVD 
Final Rule, 63 FR at 65401; See also Final Affirmative Countervailing 
Duty Determination: Certain Cold Rolled Flat-Rolled Carbon-Quality 
Steel Products from Brazil, 65 FR 5536, 5544 (Feb. 4, 2000).
    Iscor controls 50 percent of the voting ownership in Saldanha. 
There is only one other shareholder, the IDC, which owns the other 50 
percent. Thus, there is no ``majority ownership'' per se. However, the 
Department's regulation uses the term ``normally,'' meaning that cross-
ownership may be found even where majority voting ownership is not 
present if other factors demonstrate control by one corporation of the 
other corporation's assets. Because much of the information pertaining 
to Iscor's relationship with Saldanha is business proprietary, we have 
analyzed the cross-ownership issue in a business proprietary Memorandum 
to the File

[[Page 20266]]

From Julio A. Fernandez through Sally Gannon to Barbara E. Tillman 
Regarding Cross-Ownership of Iscor, Ltd., in Saldanha Steel Ltd. (April 
13, 2001) (Cross-Ownership Memo) (public version on file in the 
Department's Central Records Unit).
    Facts outlined in the Cross-Ownership Memo demonstrate that, in 
addition to owning 50 percent of the voting rights in Saldanha, Iscor 
is in a position to exercise control over Saldanha's assets. Given this 
evidence of cross-ownership, and the fact that both companies produce 
the subject merchandise, we preliminarily determine that cross-
ownership exists and that subsidies received by either or both 
corporations will be attributed to the products sold by both 
corporations in accordance with section 351.525(b)(6)(ii) of the 
Department's regulations. Thus, for purposes of this preliminary 
determination, we have calculated one subsidy rate for Saldanha/Iscor 
for each program by adding together their countervailable subsidies 
during the POI under each program and dividing that amount by the sum 
of the two companies' total sales (domestic subsidies), or appropriate 
export sales (export subsidies) during the POI.

Trading Companies

    Section 351.525(c) of the regulations requires that the benefits 
from subsidies provided to a trading company which exports subject 
merchandise be cumulated with the benefits from subsidies provided to 
the firm which is producing the subject merchandise that is sold 
through the trading company, regardless of their affiliation. In their 
questionnaire responses, Highveld and Iscor indicated that they sell 
subject merchandise through trading companies. Based on information 
provided in the questionnaire responses, the South African trading 
companies, through which Iscor and Highveld exported subject 
merchandise during the POI, did not receive benefits under the programs 
subject to investigation. Therefore, we have determined that the 
subsidy rates calculated for each producer will be attributable to the 
merchandise exported either directly or through a trading company by 
that producer.

Programs Preliminarily Determined to be Countervailable

1. Section 37E Tax Allowances
    The GOSA enacted Section 37E of the Income Tax Act in 1991. The 
program was limited to investments approved between September 1991 and 
September 1993. For projects approved as valued-added processes, 
Section 37E allows for depreciation of capital assets and the deduction 
of pre-production interest and finance charges in advance, that is, in 
the year the costs are incurred rather than the year the assets go on 
line. The program also allows taxpayers in loss positions to receive 
``negotiable tax credit certificates'' (NTCCs) in the amount of the 
cash value of the Section 37E tax deduction (i.e., deduction multiplied 
by the tax rate). The NTCCs can be sold (normally at a small discount, 
which Saldanha reports as 0.5 percent) to any other taxpayer, who can 
use them to pay taxes. The program does not provide for accelerated 
depreciation, nor does it provide for additional finance charge-related 
deductions beyond those available under other provisions of the South 
African tax code. The advantage to users of this program is the receipt 
of these tax deductions in advance, i.e., when the expenses are 
incurred rather than when the equipment is put into use.
    According to the GOSA's questionnaire response, eligibility for 
Section 37E benefits was determined on a project-by-project basis by a 
committee appointed by the Minister of Finance, in concurrence with the 
Minister of Trade and Industry, and of which the IDC is a member 
charged with investigating and evaluating applications. (See the GOSA's 
February 5, 2001 response, at 49.) To demonstrate that their projects 
qualified under Section 37E, applicants were required to show: (1) That 
investments were made in new machinery, plant, or building to be used 
in the value-added process; (2) that the value-added process must have 
added at least 35% to the value of the raw material or intermediate 
product that underwent the processing; and, (3) that the investment 
must have been approved by a governmental committee between September 
12, 1991 and September 11, 1993. (See the GOSA's February 5, 2001 
response, at 47.) In this case, although construction at Saldanha did 
not begin until early 1996, an application for the Saldanha project was 
submitted, and approval was granted, prior to the September 11, 1993 
deadline. Saldanha received all of its Section 37E benefits in the form 
of NTCCs. Highveld and Iscor reported that they did not receive Section 
37E benefits during the POI.
    When determining whether the government has provided a 
countervailable subsidy, we must examine whether the government has 
provided a financial contribution to a person and a benefit is thereby 
conferred. See Section 771(5)(B)(iii) of the Act. In addition, we must 
determine whether the subsidy is specific. See Section 771(5A) of the 
Act.
    We find that Section 37E constitutes a financial contribution by 
the GOSA because the GOSA has foregone revenue in allowing for these 
tax deductions sooner rather than later within the meaning of Section 
771(5)(D)(ii) of the Act. We further find that Saldanha received a 
benefit by receiving the NTCCs up to four years earlier than it could 
have received deductions under the standard provisions of the income 
tax code, which allow for the deductions to be made only after the 
relevant assets have been put into use.
    With respect to specificity, we have examined whether Section 37E 
benefits are specific under section 771(5A) of the Act. Based upon our 
analysis of the approval package, we preliminarily determine that the 
approval for Section 37E benefits was contingent upon export 
performance, and, as such, that the Section 37E benefits to Saldanha 
are specific as an export subsidy under sections 771(5A)(A) and (B) of 
the Act. Because much of the information analyzed to determine 
specificity with respect to this program is business proprietary, a 
complete discussion of the documentation and the bases for our 
conclusions are set forth in the Memorandum Regarding Section 37E of 
the South African Income Tax Act (April 13, 2001) (37E Memo) (public 
version on file in the Department's Central Records Unit).
    Since the Section 37E program reduces a company's capital 
requirements, and because the receipt of Section 37E benefits required 
express government approval, we determine that it is more appropriate 
to treat the benefits provided under Section 37E as a non-recurring 
subsidy. See 19 CFR 351.524(c)(2); see also, SSPC Final, 64 FR at 
15556.
    To determine the benefit, we calculated the time value of obtaining 
the certificates in advance of the allowance, in this case by up to 
four years, by discounting the cash value of each allowance. The 
difference between the value of the certificates and the discounted 
value of the allowances is the benefit to Saldanha. Finally, because we 
consider that these Section 37E benefits should be allocated over time 
as a non-recurring subsidy, we treated each year's benefit as a non-
recurring grant using our standard grant methodology. See 19 CFR 
351.524(d). Since we have determined that Saldanha's Section 37E 
benefits constitute an export subsidy contingent upon exportation of 
hot-rolled steel, we have divided the benefits allocable to the POI 
from this program by the combined total exports

[[Page 20267]]

of hot-rolled steel by Saldanha/Iscor during the POI. (See ``Cross-
Ownership and Attribution of Subsidies'' section above.) On this basis, 
we preliminarily determine the countervailable subsidy to be 5.80 
percent ad valorem for Saldanha/Iscor.
2. The IDC's Equity Infusions in Saldanha
    In 1988, the IDC and Iscor together began to examine the 
possibility of using the Corex process to take advantage of South 
Africa's iron ore supply, particularly ore from Iscor's Sishen mine, 
without incurring the costs of a blast furnace. The environmental 
benefits of the Corex process were also a consideration. The IDC's 
feasibility studies culminated in reports to the IDC's and Iscor's 
boards of directors in the fall of 1994. Each partner's board agreed to 
the project in November 1994 and Saldanha was incorporated on January 
25, 1995.
    Environmental concerns and site location resulted in a one-year 
deferral of the project's start date. As a result of these delays, the 
feasibility studies were revised in the fall of 1995, revealing 
increased costs. In response to these changed circumstances, Iscor 
withdrew from the project. According to the IDC's 1995 annual report:

    As a consequence of the inordinate delay in the commencement of 
construction and the placing of orders with suppliers of equipment, 
the anticipated peak funding requirements of the project has 
increased substantially and the project return has decreased.
    Subsequent to the financial year end, Iscor has withdrawn from 
the project in its present form and the IDC is evaluating 
alternative processes and financial structures in order to 
facilitate the implementation of the project.

Saldanha's questionnaire response offers the following description of 
the IDC's reaction to Iscor's withdrawal:

    All of the environmental concerns were fully addressed and 
revised investment proposals were submitted to IDC's Board and 
approved in September 1995 and revised again in November 1995. These 
proposals confirmed the economic viability of the project with an 
acceptable real return (i.e. inflation adjusted) on IDC's and 
Iscor's investment.

    As a result of the revised investment proposals and the November 
1995 feasibility study, which incorporated the revised financial 
structure, Iscor returned to the project a short time after its 
withdrawal. The IDC and Iscor concluded a shareholders' agreement in 
1996, including the terms of the revised financial structure agreed to 
in the fall of 1995. Construction began in early 1996.
    The shareholders' agreement committed each of the two partners to 
provide half of the initial equity investment. IDC and Iscor agreed to 
provide another equity investment in fiscal year 1999. Both of the 
IDC's equity investments were through conversion of a portion of 
earlier loans made by the IDC to Saldanha. See the Saldanha Analysis 
Memo for details on the dates and manner of the equity investments, 
loan conversions, and the feasibility studies. Almost the entire amount 
of the equity contributions is classified as ``shareholders' loans'' in 
Saldanha's financial statements, except for a nominal amount exchanged 
for share certificates. The IDC and Iscor, the only two shareholders, 
each hold 1000 share certificates with a par value of one rand each. 
While the infusions are characterized as ``shareholders' loans'' in 
Saldanha's financial statements, we preliminarily determine that these 
contributions constitute equity investments (see CVD Final Rule, 63 FR 
at 65349; see also General Issues Appendix: Certain Steel Products from 
Austria (GIA), 58 FR 37062, 37254 (July 9, 1993)). The first criteria 
in the hierarchy set out in the GIA is ``Expiration/Maturity Date/
Repayment Obligation.'' The appendix states that once a criteria is 
clearly indicative of debt or equity, we will stop our analysis. These 
``shareholders' loans'' carry no repayment terms nor is interest 
charged on them. They are reported in Saldanha's financial statements 
as equity and not as liabilities. None of the parties describes them as 
loans; rather they are described as equity by the owners. Based on this 
analysis, we conclude that these contributions should be considered 
equity infusions by the IDC.
    To determine whether a benefit exists from equity infusions, the 
Department must examine whether ``* * * the investment decision is 
inconsistent with the usual investment practices of private investors * 
* *'' (see section 771(5)(E)(i) of the Act). However, even if private 
investors exist, they may not always provide appropriate benchmarks. As 
we stated in Final Affirmative Countervailing Duty Determination: 
Certain Corrosion-Resistant Carbon Steel Flat Products from New 
Zealand, 58 FR 37366, 37368 (July 9, 1993) (CORE from New Zealand):

    The Department has in the past considered the presence of 
private investment made at the same time as the government's 
investment indicative of the commercial reasonableness of the 
government investment. However, the facts of each case must be 
carefully examined in order to make such a determination. Although 
NZS was a private investor in this joint venture project, it is 
clear from the record that NZS could not have undertaken this 
project without outside investors, and that, absent the government's 
commitments in the Formation Agreement and Planning Memorandum, no 
reasonable outside private investor would have undertaken this 
project. Thus, the participation of NZS is not dispositive that the 
GONZ's investment was consistent with commercial considerations.

    Our analysis of the feasibility studies, the shareholders' 
agreement, and various internal memoranda generated by the IDC and 
Iscor indicates that the economic viability of the Saldanha project was 
predicated on the expected receipt of subsidies from the GOSA. The 
Saldanha project, like the joint venture project in CORE from New 
Zealand, was a greenfield mill project, and based on our analysis as 
well as certain statements in the feasibility studies themselves, no 
reasonable private investor would have undertaken this project absent 
the projected receipt of government subsidies.
    The fact that the feasibility studies submitted by the IDC predict 
positive rates of return does not change our conclusion. As we stated 
in CORE from New Zealand, 58 FR at 37368:

    Our analysis of the feasibility studies shows that the studies 
relied on the implementation of specific commitments by the GONZ, 
such as the assurance of certain financing, domestic market share, 
supply of raw materials and favorable tax treatment, in their 
projection of the revenues of the project. Therefore, we find that 
the studies did not provide an objective assessment of the viability 
of the project, based on market conditions.

    The feasibility studies conducted by the IDC, in combination with 
the other documentation mentioned above, have led us to conclude that, 
absent the receipt of expected government subsidies, all of the 
projected rates of return would have fallen well below the benchmark 
set by the private investor for participation in the project. Because 
most of the information upon which our determination relies is business 
proprietary, our more detailed analysis is set forth in the Saldanha 
Analysis Memo. Therefore, we preliminarily determine that the IDC's 
equity investments into Saldanha were inconsistent with the usual 
investment practice of private investors in South Africa.
    Because we have found that these equity infusions were inconsistent 
with the usual investment practice of private investors in South 
Africa, we find that benefits were provided to Saldanha in the amount 
of the two equity infusions, and that these infusions should be

[[Page 20268]]

treated as grants, in accordance with sections 351.507(a)(6) and (7)(b) 
of our regulations. We also determine that these equity infusions are 
specific in accordance with section 771(5A)(D) of the Act because they 
were provided to a specific enterprise, Saldanha.
    We allocated the amount of the grants over the AUL in accordance 
with section 351.507 (7)(c) of our regulations using the discount rate 
discussed above in the section ``Calculation of Discount Rates and 
Benchmark Loan Rates.'' Because we have preliminarily determined that 
Saldanha was uncreditworthy in the years in which these infusions were 
made (see ``Creditworthiness'' section above), we added a risk premium 
to the discount rate in accordance with section 351.505(a)(3)(iii) of 
the regulations. We then divided the combined amounts allocated to the 
POI by Saldanha/Iscor's total sales during the POI. (See ``Cross-
Ownership and Attribution of Subsidies'' section above.) Accordingly, 
we preliminarily determine the countervailable subsidy to be 3.97 
percent ad valorem for Saldanha/Iscor.
3. Industrial Loan Financing Provided by the IDC and Findevco Ltd.
    The IDC and its wholly-owned subsidiary, Findevco, Ltd., provide 
industrial loan financing geared towards the establishment of new 
industrial facilities, or the expansion or modernization of existing 
facilities. The IDC has been providing such financing since its 
inception in 1940, and any South African company interested in 
obtaining loan financing through this program may apply through the 
IDC.
    According to its questionnaire responses, Saldanha received a loan 
under the Findevco program (``the Findevco Loan'') in accordance with 
the shareholder agreement between the IDC and Iscor. The terms of this 
loan in the original agreement involved a lag between disbursement and 
payment, with interest capitalized. Part of the loan amount was later 
offset through a separate IDC-Saldanha transaction in a manner 
consistent with the original loan agreement. The remaining portion of 
the Findevco loan was restructured in a manner the Department considers 
to constitute a new loan, including new payment terms, and a later 
deferral of principal and interest as mentioned above in the 
``Creditworthiness'' section. (Further details of the provision of this 
loan, the ``deferral,'' and the feasibility studies are mainly of a 
business proprietary nature and can be found in the Saldanha Analysis 
Memo). The IDC provided Saldanha with a second loan (``the IDC Loan''), 
without the involvement of Findevco. See the Saldanha Analysis Memo. 
Highveld and Iscor did not receive any Findevco or IDC loans that were 
outstanding during the POI.
    Loans provide a financial contribution under section 771(5)(D)(i) 
of the Act in the form of a direct transfer of funds from the IDC, or 
its subsidiary Findevco, to Saldanha. To determine whether there is a 
benefit, we compared the interest rates charged on the Findevco/IDC 
loans provided to Saldanha to the benchmark rate described in the 
``Subsidies Valuation Information'' section above. Based on this 
comparison, there is a difference between the amount paid by Saldanha 
on these loans and the amount Saldanha would have paid on a comparable 
commercial loan obtained on the South African market. Thus, the loans 
provided by Findevco and the IDC provide a benefit under section 
771(5)(E)(ii) of the Act.
    In addition to determining the existence of a financial 
contribution and a benefit, when determining whether a program is 
countervailable, we must examine whether it is specifically provided 
under section 771(5A) of the Act. There is no law explicitly limiting 
eligibility for IDC loans, or loans from the IDC subsidiary Findevco, 
to exporters or to an enterprise, industry, or group thereof. Thus, 
these loans are not de jure specific, and we must analyze whether the 
program meets the de facto criteria defined under section 
771(5A)(D)(iii) of the Act. We examined IDC annual reports provided by 
the GOSA and found that, since 1993, the steel and metals industries 
have been predominant recipients of loans and loan guarantees provided 
by the IDC and Findevco. Information regarding Findevco's loans is 
consolidated with information on the IDC's loans in the IDC's annual 
reports. Specifically, since 1993, as much as 84 percent of IDC/
Findevco financing has gone to the basic iron and non-ferrous metals 
industries. In addition, Findevco's financial statements indicate that 
the Saldanha loan constituted a disproportionate amount of its lending 
in the year of its disbursement. Likewise, the IDC's financial 
statements indicate that its financing disproportionately favored 
Saldanha. Therefore, we preliminarily find that these loans are de 
facto specific, within the meaning of section 771(5A)(D)(iii) of the 
Act, because a disproportionate share of the financing is provided to a 
group of industries, the basic iron and non-ferrous metals industries. 
Accordingly, we preliminarily determine that IDC/Findevco loan 
financing constitutes a countervailable subsidy within the meaning of 
section 771(5) of the Act.
    To calculate the benefit, we used the Long-Term Benchmark rate 
discussed in the section ``Calculation of Discount Rates and Benchmark 
Rates'' above. Saldanha provided information regarding two commercial 
loans as potential benchmarks for its Findevco loan. One of these loans 
was obtained from a foreign government-owned development bank. The 
second loan is a supplier finance loan for services provided to 
Saldanha. Neither of these, however, is acceptable under our 
regulations. (See the ``Creditworthiness'' subsection of the 
``Subsidies Valuation Information'' section above for a more detailed 
discussion.) Because we have preliminarily determined that Saldanha was 
uncreditworthy in the years in which it received these loans, we added 
a risk premium to the benchmark in accordance with section 
351.505(a)(3)(iii) of the regulations.
    For the Findevco Loan, because we have determined that Saldanha 
received a deferral, we applied the allocation methodology of section 
351.505(c)(3) of our regulations for the comparison of loans with 
different repayment schedules. Section 351.505(c)(3)(i) of our 
regulations requires that we take the difference between the net 
present value of payments under the deferred schedule with the IDC 
interest rate and the net present value of payments under a normal 
repayment schedule for a commercial loan with the benchmark interest 
rate and uncreditworthiness risk premium. We then assigned a portion of 
this difference to the POI in accordance with section 351.505(c)(3)(ii) 
of the regulations. For the IDC Loan, we followed the standard benefit 
calculation methodology of 351.505(c)(2) for long-term variable-rate 
loans. We summed the benefits allocable to the POI from this program 
and divided this amount by the combined total sales of Saldanha/Iscor 
during the POI, as discussed in the ``Cross-Ownership and Attribution 
of Subsidies'' section above. On this basis, we preliminarily determine 
the countervailable subsidy to be 3.20 percent ad valorem for Saldanha/
Iscor.
4. Loan Guarantees Provided by the IDC
    The IDC facilitates and guarantees foreign credits for the 
importation of capital goods into South Africa. The program was 
established in 1989 and was designed to facilitate foreign lending to 
South African firms; the availability of foreign credit in South Africa 
was extremely limited at that time. The IDC establishes blanket credit 
lines with specific foreign banks which

[[Page 20269]]

can be used in two ways. First, the IDC may act as an intermediary 
lending authority, borrowing funds through these credit lines from the 
foreign bank and lending them to the South African firm. Second, based 
on these credit lines, the South African firm may negotiate its own 
supply contract loan with the foreign lender which is then guaranteed 
by the IDC. Any company seeking financing for the purchase of foreign 
capital equipment may apply to the IDC to use the program. Whether the 
financing is arranged through the IDC, or directly with the foreign 
lender, it is guaranteed through the IDC program. The IDC charges a fee 
for its guaranteeing and facilitating services.
    According to its questionnaire responses, Saldanha began receiving 
IDC loan guarantees under this program in 1996, to finance purchases of 
foreign capital equipment. The GOSA has reported that these export 
credits are provided under the OECD guidelines for export credits in 
the relevant countries. Highveld did not receive guarantees under this 
program. Iscor received several IDC guarantees under this program which 
were tied to production facilities that are not involved in any part of 
the production process for subject merchandise. (See 19 CFR 
351.525(b)(5).) Therefore, there are no countervailable loan guarantees 
attributable to subject merchandise for Highveld or Iscor.
    The IDC guaranteed import financing for capital equipment purchased 
by Saldanha. These guarantees represent a financial contribution by the 
GOSA. We are measuring the benefit of the loan guarantee as the 
difference between the GOSA loan guarantee fee and a commercial 
guarantee fee as we did in SSPC Final. However, for purposes of the 
final determination, we intend to examine whether the loan guarantees 
provided by the IDC were required in order for Saldanha to receive this 
financing, and whether the provision of these guarantees affects 
interest rates charged on this import financing.
    In SSPC Final, we found the amount a South African firm would pay 
for similar guarantee facilities would range between 0.25 and 0.50 
percent, and chose to use the middle of the range, 0.375, as the 
benchmark rate. See SSPC Final, 64 FR at 15557. We also stated that the 
price paid for the fees would vary depending on the quality of the 
borrower and the size of the credit. In this case, as in SSPC, the 
amount of the guaranteed loans is large, as they are used to purchase 
start-up facilities. However, while we have not determined that 
Saldanha was uncreditworthy during all of the years in which the 
guarantees were provided, we find that it is not a ``high-quality'' 
borrower because it had no loans that were not guaranteed by the IDC. 
Therefore, we have determined that 0.50 percent is a more appropriate 
benchmark. According to questionnaire responses, the amount paid by 
Saldanha to the IDC for these guarantee facilities was 0.25 percent. 
Therefore, we have determined that the amount paid by Saldanha for the 
IDC guarantee was less than what it would have paid for a guarantee in 
the commercial market in South Africa.
    In addition to determining the existence of a financial 
contribution and benefit, when determining whether a program is 
countervailable, we must examine whether it is specifically provided 
under section 771(5A) of the Act. The enacting legislation for the IDC 
does not explicitly limit eligibility for this import financing 
guarantee program to exporters or to an enterprise, industry, or group 
thereof. Thus, these guarantees are not de jure specific, and we must 
analyze whether the program meets the de facto criteria defined under 
section 771(5A)(D)(iii) of the Act. We examined IDC annual reports 
provided by the GOSA and found that, since 1993, the steel and metals 
industries have been predominant recipients of loans and loan 
guarantees provided by the IDC. Specifically, since Saldanha began 
receiving these guarantees in 1996, as much as 44 percent of IDC 
financing has gone to the basic iron and non-ferrous metals industries 
(84 percent in 1995). We note that no other industry group has received 
benefits near this amount. On this basis, we find IDC import financing 
guarantees provided to Saldanha to be de facto specific within the 
meaning of section 771(5A)(D)(iii) of the Act. We note that we found 
IDC guarantees to be specific on these same grounds in SSPC Final. 64 
FR at 15557. Therefore, we preliminarily determine that the IDC 
guarantees constitute a countervailable subsidy within the meaning of 
section 771(5) of the Act.
    We note that the GOSA and Saldanha have argued that the commercial 
guarantee rate chosen by the Department in SSPC Final is not a valid 
comparison with the IDC guarantees because Saldanha's loans were cross-
guaranteed by Iscor, while the rate quoted in SSPC Final was, 
apparently, for a single guarantor. Therefore, according to the GOSA 
and Saldanha, the IDC was only liable for half the value of the 
guaranteed loans, while the benchmark guarantor would be liable in 
full. Iscor's role as a guarantor, however, is unclear. Furthermore, 
regardless of Iscor's role, the IDC's liability does not appear to be 
limited. Nothing on the record indicates that Saldanha's debtors are 
obligated to seek only half of their repayment from the IDC, and half 
from Iscor. Moreover, the standard for determining whether a benefit 
exists is not the net cost to the guarantor, but rather the benefit to 
the recipient that can only be determined by examining what Saldanha 
would have to pay for a commercial loan guarantee.
    To determine the benefit, we used the following methodology. Since 
the guarantee fees are paid every year on the loan balance that is 
outstanding, we multiplied the outstanding balance during the POI for 
each guaranteed loan by the rate of 0.25 percent to calculate the fee 
paid by Saldanha to the IDC. We then multiplied the outstanding balance 
by 0.5 percent to calculate the fee Saldanha would have paid to a 
commercial guarantor. We then subtracted what Saldanha paid the IDC 
under this program from what it would have paid on a comparable 
commercial guarantee for each loan. We summed the benefits allocable to 
the POI from this program and divided this amount by the combined total 
sales of Saldanha/Iscor during the POI, as discussed in the ``Cross-
Ownership and Attribution of Subsidies'' section above. On this basis, 
we preliminarily determine the countervailable subsidy to be 0.12 
percent ad valorem for Saldanha/Iscor.
5. Wharfage Fees for Exports
    The GOSA charges lower wharfage fees for exports than for imports 
through all ports in South Africa. The export rate is an ad valorem 
rate of 0.89 percent of FAS value, and the import rate is an ad valorem 
rate of 1.78 percent of entered value. We asked the GOSA to explain the 
difference. The GOSA responded that the cost of provision and 
maintenance of infrastructure primarily determines wharfage charges, 
but did not explain how the costs of providing and maintaining the 
infrastructure differ for imports than for exports.
    Section 351.514(a) of the Department's regulations states that a 
subsidy is an export subsidy if its provision is contingent upon export 
performance. We preliminarily determine that the GOSA's lower wharfage 
fees for exports constitute a countervailable export subsidy under 
section 351.514(a).
    In order to calculate the benefit, we calculated what each 
respondent would have paid in export wharfage fees if the export rate 
had been equal to an average of the export rate and the import rate, 
and then subtracted what was actually paid for export wharfage fees. 
Because we have preliminarily determined that

[[Page 20270]]

this difference in rates is an export subsidy, we divided the benefit 
amount by the value of total exports for the POI, in accordance with 
section 351.525(b)(2) of our regulations, to calculate the ad valorem 
subsidy rate. Accordingly, we preliminarily determine the 
countervailable subsidy to be 0.45 percent for Highveld and 0.44 
percent for Saldanha/Iscor, ad valorem. For Highveld, we based our 
calculation on the FOB value of its exports, because it did not provide 
any information on the amount of wharfage fees it paid during the POI, 
as requested in our February 27, 2001 questionnaire.

Programs Preliminarily Determined to be Not Countervailable

1. Improvements to Saldanha Bay Port
    We initiated an investigation of a program to improve the Saldanha 
Bay port, alleged to provide countervailable benefits to Saldanha. The 
program was undertaken by Portnet, a company wholly-owned by the GOSA 
and charged with managing and constructing South Africa's ports. 
Portnet is a subsidiary of Transnet, an organization also wholly-owned 
by the GOSA, which supervises a number of transportation-related 
organizations. The program involved the expansion of the multipurpose 
cargo quay at Saldanha Bay port from 250 to 870 meters. Construction 
began in 1995 and was completed in 1998. In our initiation memorandum, 
we found that petitioners had provided sufficient evidence to warrant 
an investigation that the quay expansion was specific to an enterprise 
or industry or group thereof and was not general infrastructure. We 
noted that petitioners, after an ``exhaustive search,'' were unable to 
find evidence that the GOSA had received adequate remuneration for this 
program.
    After reviewing the GOSA's questionnaire responses, we 
preliminarily determine that the GOSA received adequate remuneration 
for this provision of infrastructure. Provision of infrastructure is 
incorporated in our regulations under section 351.511, ``Provision of 
goods or services.'' (See section 351.511(d) of our regulations which 
provides an exception for general infrastructure.) Section 351.511(1) 
of our regulations provides that, in the provision of goods and 
services, ``a benefit exists to the extent that such goods or services 
are provided for less than adequate remuneration.'' Section 351.511(2) 
of our regulations directs us to judge adequate remuneration by 
comparing the government price to a market-determined price. In this 
case, there are no other operators, besides Portnet, of ports in South 
Africa. There is also no world market price available to ``purchasers 
in the country in question,'' which is the next alternative under 
section 351.511 of the regulations. Thus, we have to assess ``whether 
the government price is consistent with market principles.'' 19 CFR 
351.511(a)(2)(iii).
    The GOSA reported that Portnet charges country-wide wharfage fees, 
which it stated are used for port capital. The GOSA provided a business 
proprietary feasibility study and budgets for the project, 
demonstrating that Portnet sets its fees at a level designed to ensure 
that it covers operating costs and future capital expenditures. The 
documents calculate internal rates of return and profit indices based 
on planned spending and existing fees. While these fees have not 
changed in several years, they are ad valorem rates, and, thus, 
increase with the total value of shipments. Portnet expected an 
increase in the volume of shipments, and correspondingly the total 
value of shipments, the accommodation of which was one of the aims of 
the improvement.
    Furthermore, the annual reports for Transnet, Portnet's parent, 
provide separate descriptions of its subsidiaries' operations, which 
describe Portnet as a profit-making operation. Financial statements for 
each subsidiary are also included, which indicate that Portnet had a 
positive income during fiscal years 1999 and 2000. Appendix A to the 
GOSA's March 14th response provides a summary of Portnet's financial 
statements going back to fiscal year 1996, which also shows a positive 
income for each year. This information, in combination with the study 
and budgets mentioned above, supports the conclusion that Portnet sets 
its fees in a manner designed to recover its operating and capital 
costs and that its fees are set to ensure its future operations. 
Therefore, we preliminarily find that the GOSA set prices for this 
infrastructure consistently with market principles, i.e., that it 
planned to recover the costs of its investments plus an amount for 
profit, in accordance with section 351.511(a)(2)(iii) of our 
regulations.
2. Improvements to the Sishen-Saldanha Rail Line
    We initiated an investigation of a program to upgrade the Sishen-
Saldanha rail line, alleged to provide countervailable benefits to the 
production of subject merchandise. The program was undertaken by 
Spoornet, a company wholly-owned by the GOSA and charged with managing 
and constructing South Africa's railroads, through its subsidiary Orex, 
an entity created specifically for management of the Sishen-Saldanha 
line. Spoornet is a subsidiary of Transnet. The program involved two 
projects to improve a rail line from iron ore mines in the Sishen 
region to Saldanha Bay. Orex began planning the first project in 
November 1999 and completion of the project is expected by July 2002. 
It involves the construction of additional crossing loops first 
envisioned, but not built, when the line was built between 1973 and 
1976. The GOSA states that construction of these additional loops 
became necessary with increased volumes of iron ore. The second project 
involves the upgrading of locomotives and wagons, and was also 
undertaken for the purpose of increasing iron ore transport capacity. 
The iron ore transported on this line was mined by Iscor, and either 
exported, sold to Saldanha, or sold to other local mills not involved 
in the production of subject merchandise. The GOSA's response states 
that the improvements were planned in order to accommodate increased 
iron ore exports. The ore was transported from Saldanha Bay to 
Saldanha's mill by means of a conveyor belt.
    In our initiation memorandum, we found that petitioners had 
provided sufficient evidence to warrant an investigation that the rail 
upgrade was specific to an enterprise or industry or group thereof and 
was not general infrastructure. We noted that petitioners, after an 
``exhaustive search,'' were unable to find evidence that the GOSA had 
received adequate remuneration for this program.
    After reviewing the GOSA's questionnaire responses, we 
preliminarily determine that the GOSA received adequate remuneration 
for this program. Provision of infrastructure is incorporated in our 
regulations under section 351.511, ``Provision of goods or services.'' 
(See section 351.511(d) of our regulations which provides an exception 
for general infrastructure.) Section 351.511(1) of the regulations 
provides that, in the provision of goods and services, ``a benefit 
exists to the extent that such goods or services are provided for less 
than adequate remuneration.'' Section 351.511(2) of the regulations 
directs us to judge adequate remuneration by comparing the government 
price to a market-determined price. In this case, there are no other 
operators, besides the GOSA-owned subsidiaries, of rail lines in South 
Africa. There is also no world market price available to ``purchasers 
in the country in question,'' which is the

[[Page 20271]]

next alternative under section 351.511 of the regulations. Thus, we 
have to assess ``whether the government price is consistent with market 
principles.'' 19 CFR 351.511(a)(2)(iii).
    The GOSA reported that Spoornet charges Iscor a negotiated fee for 
use of the Sishen-Saldanha line. The GOSA provided plans and proposals 
for the project, demonstrating that Spoornet negotiated its fee at a 
level designed to ensure that it covers operating costs and future 
capital expenditures. The documents calculate internal rates of return 
and profit indices based on planned spending and existing fees. While 
the fee has not changed in several years, it is an ad valorem rate, 
and, thus, increases with the total value of shipments. As stated 
above, the project was designed to accommodate increased exports which 
was accomplished by an increase in the line's tonnage capacity per 
year.
    Furthermore, the annual reports for Transnet, Spoornet's parent, 
provide separate descriptions of its subsidiaries' operations, which 
describe Spoornet as a profit-making operation. Financial statements 
for each subsidiary are also included, which indicate that Spoornet had 
a positive income during fiscal years 1999 and 2000. This information, 
in combination with the plans and proposals mentioned above, supports 
the conclusion that Spoornet sets its fees in a manner designed to 
recover its operating and capital costs and that its fees are set to 
ensure its future operations. Therefore, we preliminarily find that the 
GOSA set prices for this infrastructure consistently with market 
principles, i.e., that it planned to recover the costs of its 
investments plus an amount for profit, in accordance with section 
351.511(a)(2)(iii) of the regulations.

Verification

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

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we have 
calculated an individual rate for the companies under investigation, 
Highveld, Iscor, and Saldanha. We have preliminarily determined that 
the total estimated countervailable subsidy rate is 0.45 percent ad 
valorem for Highveld, which is de minimis, in accordance with section 
703(b)(4)(B) of the Act. Therefore, we preliminarily determine that no 
countervailable subsidies are being provided to the production or 
exportation of subject merchandise by Highveld. As discussed in the 
``Cross-Ownership and Attribution of Subsidies'' section above, we are 
treating Saldanha and Iscor as a single entity and, therefore, have 
calculated a single rate to be applied to these companies. With respect 
to the ``all others'' rate, section 705(c)(5)(A)(i) of the Act requires 
that the ``all others'' rate equal the weighted average countervailable 
subsidy rates established for exporters and producers individually 
investigated, excluding any zero and de minimis countervailable subsidy 
rates. Therefore, because Highveld's rate is de minimis, we are using 
the Saldanha/Iscor rate as the ``all others'' rate.

------------------------------------------------------------------------
          Producer/Exporter                    Net subsidy rate
------------------------------------------------------------------------
Highveld Steel and Vanadium Corp....  0.45% Ad Valorem
Saldanha Steel (Pty.) Corp./Iscor     13.53% Ad Valorem
 Ltd.
All Others..........................  13.53% Ad Valorem
------------------------------------------------------------------------

    In accordance with section 703(d) of the Act, we are directing the 
U.S. Customs Service to suspend liquidation of all entries of the 
subject merchandise from South Africa produced or exported by any 
company, other than Highveld, which are entered or withdrawn from 
warehouse, for consumption on or after the date of the publication of 
this notice in the Federal Register, and to require a cash deposit or 
bond for such entries of the merchandise in the amounts indicated 
above. This suspension will remain in effect until further notice.

ITC Notification

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

Public Comment

    In accordance with section 351.310 of our regulations, we will hold 
a public hearing, if requested, to afford interested parties an 
opportunity to comment on this preliminary determination. The hearing 
is tentatively scheduled to be held 57 days from the date of 
publication of the preliminary determination at the U.S. Department of 
Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 
20230. Individuals who wish to request a hearing must submit a written 
request within 30 days of the publication of this notice in the Federal 
Register to the Assistant Secretary for Import Administration, U.S. 
Department of Commerce, Room 1870, 14th Street and Constitution Avenue, 
NW., Washington, DC 20230. Parties should confirm by telephone the 
time, date, and place of the hearing 48 hours before the scheduled 
time.
    Requests for a public hearing should contain: (1) The party's name, 
address, and telephone number; (2) the number of participants; and, (3) 
to the extent practicable, an identification of the arguments to be 
raised at the hearing. In addition, unless otherwise informed by the 
Department, six copies of the business proprietary version and six 
copies of the non-proprietary version of the case briefs must be 
submitted to the Assistant Secretary no later than 50 days from the 
date of publication of the preliminary determination. As part of the 
case brief, parties are encouraged to provide a summary of the 
arguments not to exceed five pages and a table of statutes, 
regulations, and cases cited. Six copies of the business proprietary 
version and six copies of the non-proprietary version of the rebuttal 
briefs must be submitted to the Assistant Secretary no later than 5 
days from the date of filing of the case briefs. An interested party 
may make an affirmative presentation only on arguments included in that 
party's case or rebuttal briefs. Written arguments should be submitted 
in accordance with section 351.309 of our regulations and will be 
considered if received within the time limits specified above.
    This determination is published pursuant to sections 703(f) and 
777(i) of the Act. Effective January 20, 2001, Bernard T. Carreau is 
fulfilling the duties of the Assistant Secretary for Import 
Administration.

    Dated: April 13, 2001.
Bernard T. Carreau,
Deputy Assistant Secretary, Import Administration.
[FR Doc. 01-9862 Filed 4-19-01; 8:45 am]
BILLING CODE 3510-DS-P