[Federal Register Volume 67, Number 27 (Friday, February 8, 2002)]
[Notices]
[Pages 5984-5991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3120]


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DEPARTMENT OF COMMERCE

International Trade Administration

C-122-841


Preliminary Affirmative Countervailing Duty Determination: Carbon 
and Certain Alloy Steel Wire Rod From Canada.

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

ACTION: Notice of preliminary affirmative countervailing duty 
determination.

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SUMMARY: The Department of Commerce preliminarily determines that 
countervailable subsidies are being provided to producers or exporters 
of carbon and certain alloy steel wire rod from Canada. For information 
on the estimated countervailing duty rates, see infra section on 
``Suspension of Liquidation.''

DATES: February 8, 2002.

FOR FURTHER INFORMATION CONTACT: Sally Hastings or Andrew Covington, 
Office of Antidumping/Countervailing Duty Enforcement, Group 1, Import 
Administration, U.S. Department of Commerce, Room 3099, 14th Street and 
Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-
3464 and (202) 482-3534, respectively.

The Applicable Statute

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995 
(``the Act''). In addition, unless otherwise indicated, all citations 
to the Department's regulations are to 19 CFR Part 351 (April 2001).

Petitioners

    The petitioners in this investigation are Co-Steel Raritan, Inc., 
GS Industries, Keystone Consolidated Industries, Inc., and North Star 
Steel Texas, Inc. (collectively, ``petitioners'').

Case History

    The following events have occurred since the publication of the 
notice of initiation in the Federal Register. See Notice of Initiation 
of Countervailing Duty Investigations: Carbon and Certain Alloy Steel 
Wire Rod from Brazil, Canada, Germany, Trinidad and Tobago, and Turkey, 
66 FR 49931 (October 1, 2001) (``Initiation Notice'').
    On October 9, the Department of Commerce (``the Department'') 
received a request from the petitioners to amend the scope of this 
investigation to exclude certain wire rod. The petitioners submitted 
further clarification with respect to their scope amendment request on 
November 28, 2001. Also on November 28, 2001, the five largest U.S. 
tire manufacturers and the industry trade association, the Rubber 
Manufacturers Association, submitted comments on the proposed 
exclusion. The tire manufacturers submitted additional comments on 
January 28, 2002.
    On October 11, 2001, the Department issued countervailing duty 
(``CVD'') questionnaires to the Government of Canada (``GOC'') and the 
producers/exporters of the subject merchandise. Due to the large number 
of producers and exporters of carbon and certain alloy steel wire rod 
(``wire rod'' or ``subject merchandise'') in Canada, we decided to 
limit the number of responding companies to the three producers/
exporters with the largest volumes of exports to the United States 
during the period of investigation: Ispat Sidbec Inc. (``Ispat 
Sidbec''), Ivaco Inc. (``Ivaco'') and Stelco Inc. (``Stelco''). See 
October 4, 2001 memorandum to Susan Kuhbach, Respondent Selection, 
which is on file in the Department's Central

[[Page 5985]]

Records Unit (``CRU'') in Room B-099 of the main Department building.
    On October 18, 2001, the petitioners filed letters raising several 
concerns with respect to the Department's initiation of this 
investigation and the concurrent countervailing duty investigations of 
wire rod from Brazil, Germany, and Trinidad and Tobago. The Department 
addressed these concerns in the December 4, 2001 memorandum from Susan 
Kuhbach to Richard Moreland, entitled ``Petitioners' Objections to 
Department's Initiation Determinations,'' which is on file in the 
Department's CRU. For Canada, the Department also initiated an 
investigation of two alleged subsidies raised in the petitioners' 
October 18, 2001 letter. Supplemental questionnaires on these alleged 
subsidies were sent to the GOC on December 6, 2001.
    On November 14, 2001, we published a postponement of the 
preliminary determination of this investigation until February 1, 2002. 
See Carbon and Certain Alloy Steel Wire Rod From Brazil, Canada, 
Germany, Trinidad and Tobago, and Turkey: Postponement of Preliminary 
Determinations of Countervailing Duty Investigations, 66 FR 57036 
(November 14, 2001).
    The Department received responses to its countervailing duty 
questionnaires from the GOC, the Government of Quebec (GOQ), and the 
companies from November 19 through December 4, 2001. The GOC and Stelco 
responded to the Department's December 6, 2001 questionnaires regarding 
the newly initiated subsidies allegations on December 19, 2001.
    Comments on these questionnaire responses were received from the 
petitioners between December 13, 2001, and January 7, 2002. Included in 
the petitioners' December 13, 2001 comments regarding Stelco was a 
request that the Department seek more information about ``other 
research'' initiatives undertaken by Stelco and, in particular, 
Stelco's relationship with the McMaster Steel Research Center. The 
petitioners alleged that this Center receives both federal and 
provincial funding for its research activities under the Ontario 
Research and Development Challenge Fund (``ORDCF'') and the Natural 
Sciences and Engineering Research Council of Canada (``NSERC''). Based 
on our review of the supporting documentation submitted by the 
petitioners regarding ORDCF and NSERC, there is no indication that 
funding provided by these organizations is limited to specific 
enterprises or industries in Ontario or Canada, respectively, as 
required by section 771(5)(A) of the Act. Therefore, we have not 
investigated Stelco's involvement with the McMaster Steel Research 
Center.
    In their December 20, 2001 comments regarding the GOQ's 
questionnaire response, the petitioners raised issues concerning the 
sale of Sidbec-Dosco to Ispat Sidbec. On January 17, 2002, the 
petitioners alleged that Ispat Sidbec received countervailable 
subsidies in conjunction with its purchase of Sidbec-Dosco. 
Specifically, the petitioners claimed that a subsidy was conferred in 
the amount of the difference between the fair market value of Sidbec-
Dosco and the amount paid for the company by Ispat. The petitioners 
alleged additional subsidies arising from the change in ownership that 
are proprietary and cannot be summarized in this notice.
    Regarding the petitioners' allegation that the price paid for 
Sidbec-Dosco did not reflect fair market value, it is the Department's 
practice not to conduct an analysis of whether a sales transaction 
reflects fair value when a change-in-ownership occurs and we find that 
the pre-sale and post-sale entities are the same ``person.'' (See 
``Final Results of Redetermination Pursuant to Court Remand'' Acciai 
Speciali Terni S.p.A. v. United States, Court No. 99-06-00364, Remand 
Order (CIT August 14, 2000).) Because we have determined that Sidbec-
Dosco and Ispat Sidbec were the same ``person'' (see ``Change in 
Ownership'' section, infra), we do not reach the issue identified by 
the petitioners and have no basis to investigate this transaction as a 
possible subsidy. The other issues raised by the petitioners are 
addressed in the February 1, 2002 memorandum to the file entitled 
``Petitioners' Allegations Regarding Ispat's Purchase of Sidbec 
Dosco,'' a public version of which is on file in the Department's CRU.
    Supplemental questionnaires were sent to the GOC, the GOQ and the 
companies between December 21, 2001 and January 4, 2002. Responses to 
these supplemental questionnaires were received between January 4 and 
January 15, 2002.
    On December 28, 2001, Stelco submitted a letter seeking sanctions 
against the petitioners for their alleged failure to serve the 
petitioners' October 18 letter on Stelco. On February 1, 2002, the 
Department responded to Stelco's complaint finding that the petitioners 
had not violated their service obligations.

Period of Investigation (``POI'')

    The period for which we are measuring subsidies is calendar year 
2000.

Scope of Investigation

    The merchandise covered by this investigation is certain hot-rolled 
products of carbon steel and alloy steel, in coils, of approximately 
round cross section, 5.00 mm or more, but less than 19.0 mm, in solid 
cross-sectional diameter.
    Specifically excluded are steel products possessing the above-noted 
physical characteristics and meeting the Harmonized Tariff Schedule of 
the United States (``HTSUS'') definitions for (a) stainless steel; (b) 
tool steel; (c) high nickel steel; (d) ball bearing steel; and (e) 
concrete reinforcing bars and rods. Also excluded are (f) free 
machining steel products (i.e., products that contain by weight one or 
more of the following elements: 0.03 percent or more of lead, 0.05 
percent or more of bismuth, 0.08 percent or more of sulfur, more than 
0.04 percent of phosphorus, more than 0.05 percent of selenium, or more 
than 0.01 percent of tellurium). All products meeting the physical 
description of subject merchandise that are not specifically excluded 
are included in this scope.
    The products under investigation are currently classifiable under 
subheadings 7213.91.3010, 7213.91.3090, 7213.91.4510, 7213.91.4590, 
7213.91.6010, 7213.91.6090, 7213.99.0031, 7213.99.0038, 7213.99.0090, 
7227.20.0010, 7227.20.0090, 7227.90.6051 and 7227.90.6058 of the HTSUS. 
Although the HTSUS subheadings are provided for convenience and customs 
purposes, the written description of the scope of these investigations 
is dispositive.

Scope Comments

    In the Initiation Notice, we invited comments on the scope of this 
proceeding. As noted above, on October 9, 2001, we received a request 
from the petitioners to amend the scope of this investigation and the 
companion CVD and antidumping duty (``AD'') wire rod investigations. 
Specifically, the petitioners requested that the scope be amended to 
exclude high carbon, high tensile 1080 grade tire cord and tire bead 
quality wire rod actually used in the production of tire cord and bead, 
as defined by specific dimensional characteristics and specifications.
    On November 28, 2001, the petitioners further clarified and 
modified their October 9, request The petitioners suggested the 
following five

[[Page 5986]]

modifications and clarifications: (1) Expand the end-use language of 
the scope exclusion request to exclude 1080 grade tire cord and tire 
bead quality that is used in the production of tire cord, tire bead, 
and rubber reinforcement applications; (2) clarify that the scope 
exclusion requires a carbon segregation per heat average of 3.0 or 
better to comport with recognized industry standards; (3) replace the 
surface quality requirement for tire cord and tire bead with simplified 
language specifying maximum surface defect length; (4) modify the 
maximum soluble aluminum from 0.03 to 0.01 for tire bead wire rod; and 
(5) reduce the maximum residual element requirements to 0.15 percent 
from 0.18 percent for both tire bead and tire cord wire rod and add an 
exception for chromium-added tire bead wire rod to allow a residual of 
0.10 percent for copper and nickel and a chromium content of 0.24 to 
0.30 percent.
    Also on November 28, 2001, the five largest U.S. tire manufacturers 
and the industry trade association, the Rubber Manufacturers 
Association, (``the tire manufacturers'') submitted a letter to the 
Department in response to petitioners' October 9, 2001 submission 
regarding the scope exclusion. In this letter, the tire manufacturers 
supported the petitioners' request to exclude certain 1080 grade tire 
cord and tire bead wire rod used in the production of tire cord and 
bead.
    Additionally, the tire manufacturers requested clarification from 
the Department of whether 1090 grade was covered by the petitioners' 
exclusion request. The tire manufacturers further requested an 
exclusion from the scope of this investigation for 1070 grade wire rod 
and related grades (0.69 percent or more of carbon) because, according 
to the tire manufacturers, domestic production cannot meet the 
requirements of the tire industry.
    The tire manufacturers stated their opposition to defining scope 
exclusions on the basis of actual end use of the product. Instead, the 
tire manufacturers support excluding the product if it is imported 
pursuant to a purchase order from a tire manufacturer or a tire cord 
wire manufacturer in the Untied States. Finally, the tire manufacturers 
urged the Department to adopt the following specifications to define 
the excluded product: A maximum nitrogen content of 0.0008 percent for 
tire cord and 0.0004 percent for tire bead; maximum weight for copper, 
nickel, and chromium, in the aggregate, of 0.0005 percent for both 
types of wire rod. In their view, there should be no additional 
specifications and tests, as proposed by the petitioners.
    On January 28, 2002, the tire manufacturers responded to the 
petitioners' November 28, 2001 letter. The tire manufacturers continue 
to have three major concerns about the product exclusion requested by 
the petitioners. First, the tire manufacturers urge that 1070 grade 
tire cord quality wire rod be excluded (as it was in the 1999 Section 
201 investigation). Second, they continue to object to defining the 
exclusion by actual end use. Finally, they reiterate their ealier 
position on the chemical specifications for the excluded product.
    At this point in the proceeding, we recognize that the interested 
parties have both advocated excluding tire rod and tire core quality 
wire rod. However, the Department continues to examine this issue. 
Therefore, for this preliminary determination we have not amended the 
scope, and this preliminary determination applies to the scope as 
described in the Initiation Notice.
    We plan to reach a decision as early as possible in this 
proceeding. Interested parties will be advised of our intentions prior 
to the final determination and will have the opportunity to comment.

Injury Test

    Because Canada 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 Canada materially injure, or threaten material 
injury to, a U.S. industry. On October 15, 2001, the ITC transmitted to 
the Department its preliminary determination finding that there is a 
reasonable indication that an industry in the United States is being 
materially injured by reason of imports from Canada of the subject 
merchandise. See Carbon and Certain Alloy Steel Wire Rod From Brazil, 
Canada, Egypt, Germany, Indonesia, Mexico, Moldova, South Africa, 
Trinidad and Tobago, Turkey, Ukraine, and Venezuela, 66 FR 54539 
(October 29, 2001).

Changes in Ownership

    On February 2, 2000, the U.S. Court of Appeals for the Federal 
Circuit (``CAFC'') in Delverde Srl v. United States, 202 F.3d 1360, 
1365 (Fed. Cir. 2000), reh'g en banc denied (June 20, 2000) (``Delverde 
III''), rejected the Department's change-in-ownership methodology as 
explained in the General Issues Appendix of the Final Affirmative 
Countervailing Duty Determination: Certain Steel Products from Austria, 
58 FR 37217, 37225 (July 9, 1993). The CAFC held that ``the Tariff Act, 
as amended, does not allow Commerce to presume conclusively that the 
subsidies granted to the former owner of Delverde's corporate assets 
automatically 'passed through' to Delverde following the sale. Rather, 
the Tariff Act requires that Commerce make such a determination by 
examining the particular facts and circumstances of the sale and 
determining whether Delverde directly or indirectly received both a 
financial contribution and benefit from the government.'' Delverde III, 
202 F.3d at 1364.
    Pursuant to the CAFC finding, the Department developed a new 
change-in-ownership methodology following the CAFC's decision in 
Delverde III. This new methodology was first announced in a remand 
determination on December 4, 2000, and was also applied in Grain-
Oriented Electrical Steel from Italy; Final Results of Countervailing 
Duty Administrative Review, 66 FR 2885 (January 12, 2001). Likewise, we 
have applied this new methodology in analyzing the changes in ownership 
in this preliminary determination.
    The first step under this new methodology is to determine whether 
the legal person (entity) to which the subsidies were given is, in 
fact, distinct from the legal person that produced the subject 
merchandise exported to the United States. If we determine the two 
persons are distinct, we then analyze whether a subsidy has been 
provided to the purchasing entity as a result of the change-in-
ownership transaction. If we find, however, that the original subsidy 
recipient and the current producer/exporter are the same person, then 
that person benefits from the original subsidies, and its exports are 
subject to countervailing duties to offset those subsidies. In other 
words, we will determine that a ``financial contribution'' and a 
``benefit'' have been received by the ``person'' under investigation. 
Assuming that the original subsidy has not been fully amortized under 
the Department's normal allocation methodology as of the POI, the 
Department would then continue to countervail the remaining benefits of 
that subsidy.
    In making the ``person'' determination, where appropriate and 
applicable, we analyze factors such as: (1) continuity of general 
business operations, including whether the successor holds itself out 
as the continuation of the previous enterprise, as may be indicated, 
for example, by use of the same name, (2) continuity of production 
facilities, (3) continuity of assets and liabilities, and (4) retention 
of

[[Page 5987]]

personnel. No single factor will necessarily provide a dispositive 
indication of any change in the entity under analysis. Instead, the 
Department will generally consider the post-sale person to be the same 
person as the pre-sale person if, based on the totality of the factors 
considered, we determine the entity in question can be considered a 
continuous business entity because it was operated in substantially the 
same manner before and after the change in ownership.
    We have preliminarily determined that Ispat Sidbec is the only 
respondent to have undergone a change in ownership and, therefore, have 
limited our analysis to this company.
    In 1994, Sidbec, a corporation wholly owned by the GOQ, sold all 
the shares of its subsidiary, Sidbec-Dosco, to Ispat Mexicana S.A. de 
C.V. The company that was purchased is known today as Ispat-Sidbec.
    After applying our ``person'' analysis to the facts and 
circumstances of the privatization of Sidbec-Dosco, we preliminarily 
determine that the pre-sale and post-sale entities are not distinct 
persons. Specifically, Ispat Sidbec is still in the same general 
business as Sidbec-Dosco, the manufacture of steel products including 
steel wire rod. Although Ispat Sidbec has to some extent refocused and 
shifted its product line since the privatization, the products are 
essentially the same. The Sidbec name has been retained and used 
continually since the privatization. After its sale, Sidbec-Dosco Inc. 
became Sidbec-Dosco (Ispat) and later, Ispat Sidbec, Inc.
    As to the second factor, continuity of production facilities, 
although Ispat Sidbec has closed one facility since it purchased 
Sidbec-Dosco, it has maintained the facilities at Contrecoeur, 
Longueill, and Montreal, Quebec. The volume of steel produced 
immediately before and after the privatization has changed only 
minimally.
    Next, we compared the assets and liabilities of Sidbec-Dosco to 
those of Sidbec-Dosco (Ispat), and found them to be approximately the 
same. Last, we reviewed information about workforce retention and 
concluded that the post-privatization Sidbec-Dosco (Ispat) retained 
personnel, including management.
    Therefore, we preliminarily determine that the subsidies provided 
to Sidbec prior to the privatization of its wholly owned subsidiary 
Sidbec-Dosco continued to benefit Sidbec-Dosco (Ispat), later Ispat 
Sidbec, during the POI.

Subsidies Valuation Information

Allocation Period

    Pursuant to 19 CFR 351.524(b), non-recurring subsidies are 
allocated over a period corresponding to the average useful life 
(``AUL'') of the renewable physical assets used to produce the subject 
merchandise. 19 CFR section 351.524(d)(2) creates a rebuttable 
presumption that the AUL will be taken from the U.S. Internal Revenue 
Service's 1977 Class Life Asset Depreciation Range System (the ``IRS 
Tables''). For wire rod, the IRS Tables prescribe an AUL of 15 years.
    In order to rebut the presumption in favor of the IRS tables, the 
Department must find that the IRS tables do not reasonably reflect the 
company-specific AUL or the country-wide AUL for the industry in 
question, and that the difference between the company-specific or 
country-wide AUL and the IRS tables is significant. (See 19 CFR 
351.524(d)(2)(i).) For this difference to be considered significant, it 
must be one year or greater. (See 19 CFR 351.524(d)(2)(ii).)
    In this proceeding, the petitioners have claimed that the AULs for 
Ispat Sidbec and Ivaco should differ from the presumed 15-year AUL, 
based on information from these companies' recent financial statements. 
The responding companies do not address this allegation, pointing out 
that use of the alternative periods proposed by the petitioners would 
make no difference in this investigation because the companies received 
no non-recurring subsidies in the period proposed by the petitioners 
(Ivaco) or because they received no non-recurring subsidies that are 
not captured in the 15-year AUL period from the IRS Tables (Ispat 
Sidbec). Regarding Ivaco, we agree and have not addressed the 
petitioners' allegation further.
    However, regarding Ispat Sidbec, the two non-recurring subsidies 
which we have preliminarily determined to be countervailable were 
previously allocated in Final Affirmative Countervailing Duty 
Determination: Steel Wire Rod from Canada, 62 FR 54972, 54975-76 
(October 22, 1997) (``1997 Wire Rod''). The allocation period 
calculated for Ispat Sidbec in 1997 Wire Rod was a company-specific 
period. The length of the period is proprietary.
    For the reasons discussed in the proprietary February 1, 2002 
memorandum to the file entitled ``Ispat Sidbec's AUL,'' (to be written) 
we have preliminarily determined that the petitioners have not rebutted 
the presumption in favor of the IRS tables. (A public version of this 
memorandum is available in the Department's CRU.) Therefore, we have 
used the 15-year period to allocate Ispat Sidbec's subsidies.

Attribution of Subsidies

    19 CFR 351.525(b)(6)(ii)-(v) directs that the Department will 
attribute subsidies received by certain affiliated companies to the 
combined sales of those companies. Based on our review of the 
responses, we find that ``cross-ownership'' exists with respect to 
certain companies, as described below, and have attributed the 
subsidies received by these companies accordingly.
    Ispat Sidbec: Ispat Sidbec has responded on behalf of Ispat Sidbec 
Inc. and two of its subsidiaries, Sidbec-Feruni (Ispat) Inc. (100 
percent owned) and Deitcher Brothers (1992) Inc. (50 percent owned). 
Both of these subsidiaries provide processed scrap to Ispat Sidbec Inc. 
for use in the production of slabs and billets which, in turn, are used 
in the production of the subject merchandise.
    Although Ispat Sidbec has responded on behalf of Deitcher Brothers 
(1992) Inc. (Deitcher Brothers), Ispat Sidbec argues that cross-
ownership does not exist between these two companies because Ispat 
Sidbec Inc. does not have majority voting ownership and does not direct 
the operations of Deitcher Brothers. Based on Ispat Sidbec's 
description of the voting rights of the owners (which is proprietary), 
we preliminarily determine that cross-ownership does not exist between 
Ispat Sidbec Inc. and Deitcher Brothers (see 19 CFR 351.525(b)(6)(vi)). 
Thus, according to 19 CFR 351.525(b)(6)(i), we should not include 
Deitcher Brothers' sales in the denominator used to calculate the ad 
valorem subsidy rate for Ispat Sidbec. However, for purposes of this 
preliminary determination, we do not have sufficient information to 
remove these sales.
    Also, based on Ispat Sidbec's supplemental questionnaire response, 
it appears that Ispat Sidbec should also have responded on behalf of 
the Canadian holding company that owns all the outstanding shares of 
Ispat Sidbec Inc., Ispat Canada.
    For our final determination, we intend to gather information 
regarding the value of Deitcher Brothers' sales that are included in 
the financial results for Ispat Sidbec Inc. and to investigate any 
subsidies received by Ispat Canada.
    For this preliminary determination, we find that cross-ownership 
within the meaning of 19 CFR 351.525(b)(6)(vi) exists between Ispat 
Sidbec Inc. and

[[Page 5988]]

Sidbec-Feruni (Ispat) Inc., and the subsidies received by them have 
been attributed to their combined sales.
    Ivaco: Ivaco has responded on behalf of Ivaco, Inc. (including its 
divisions) and Ivaco Rolling Mills Limited Partnership (``IRM''). IRM 
is virtually 100 percent owned by Ivaco, Inc. and produces unprocessed 
wire rod which it sells in processed and unprocessed forms. For sales 
of processed wire rod, the processing is done by Sivaco Ontario 
Processing Division (``Sivaco Ontario'') or Sivaco Quebec, both 
divisions of Ivaco, Inc. Sivaco Ontario also sells processed wire rod 
using inputs supplied by IRM and others. Sivaco Quebec occasionally 
sells the subject merchandise. Based on the extent of the relationship 
between Ivaco, Inc. and IRM, we preliminarily determine that cross-
ownership within the meaning of 19 CFR 351.525(b)(6)(vi) exists.
    Ivaco also reported that Bakermet, Inc., a company that was 50 
percent owned by Ivaco, Inc. until November 23, 2000, supplied IRM with 
a small amount of scrap that was used by IRM to produce billets, an 
input into the subject merchandise. Ivaco claims that it cannot report 
more information about Bakermet, beyond the 1998 and 1999 financial 
statements it has submitted, pointing to the fact that Bakermet's 
financial results were never combined with those of Ivaco, Inc.
    Based on the record of this proceeding, we find no evidence that 
Bakermet received any subsidies. Thus, even if we were to combine 
Bakermet with Ivaco due to cross-ownership during a portion of the POI, 
it would not change our preliminary results. Therefore, we are not 
addressing the issue of whether cross-ownership existed between these 
companies through November 2000.
    Stelco: Stelco has responded on behalf of Stelco Inc., Stelco-
McMaster Ltee. Quebec (Stelco-McMaster), Wabush Mines Nfld and Quebec 
(Wabush Mines), Fers et Metaux Recycles Ltee. (Fers et Metaux), and 
Stelwire Ltd. (Stelwire). Stelco Inc. produces the subject merchandise, 
using inputs from Stelco-McMaster (billets) and Wabush Mines (iron 
ore). Additionally, Fers et Metaux supplies recycled scrap to Stelco-
McMaster. Stelwire sold some subject merchandise to the United States 
and Canada. Stelco-McMaster and Stelwire are 100 percent owned by 
Stelco Inc. Stelco-McMaster owns 50 percent of Fers et Metaux. Stelco 
Inc. owns 37. 87 percent of Wabush Mines.
    Although Stelco has responded on behalf of Wabush Mines and Fers et 
Metaux, saying that neither received the subsidies being investigated 
in this proceeding, it disputes that cross- ownership exists between 
these companies and Stelco Inc. Regarding Wabush Mines, Stelco points 
to the fact that another shareholder of that company also owns 37.87 
percent of Wabush Mines' shares. Hence, Stelco claims that it does not 
control Wabush mines. Regarding Fers at Metaux, Stelco claims that 
because it has no direct ownership interest in Fers et Metaux, cross-
ownership cannot be considered to exist.
    For purposes of the preliminary determination, we agree that cross-
ownership does not exist between Stelco Inc. and Wabush Mines because 
of the lack of majority voting ownership. (See 19 CFR 351.525(b)(6)(vi) 
and February 1, 2001 memorandum to the file entitled ``Stelco's 
Affiliation with Wabush Lake Railway Company, Ltd. and Arnaud Railway 
Company,'' a public version of which is on file in the Department's 
CRU. ). However, we disagree with Stelco that we cannot find cross-
ownership with Fers et Metaux because the ownership is indirect. 
Nothing in 19 CFR 351.525(b)(6)(vi) indicates that the ownership must 
be direct in order for cross-ownership to exist. Moreover, we note that 
Fers et Metaux is 100 percent owned by Stelco-McMaster, whose subsidies 
and sales are properly combined with those of Stelco Inc. under our 
cross ownership rules. Therefore, lacking other evidence to indicate 
that Stelco Inc.'s 50 percent ownership does not confer majority voting 
ownership, we find that cross-ownership exists between Stelco Inc. and 
Fers et Metaux.
    Consequently, for these preliminary results, we are combining 
Stelco Inc., Stelco-McMaster, Fers et Metaux, and Stelwire for 
attribution purposes. However, we do not have sufficient information to 
include 100 percent of Fers et Metaux sales; nor do we have the 
information to exclude Wabush Mines' sales. We intend to seek this 
information for our final determination.

Creditworthiness

    In the Initiation Notice, we stated that the Department had found 
Ispat Sidbec's predecessor company, Sidbec Dosco, to be uncreditworthy 
between 1983 and 1992 in 1997 Wire Rod. Ispat Sidbec and the GOQ have 
correctly noted that the Department found Sidbec, Sidbec-Dosco's owner, 
and not Sidbec-Dosco to be uncreditworthy. It was Sidbec that received 
grants from the GOQ during the period 1984 - 1992, and it was Sidbec's 
debt that was converted to equity in 1988.
    In the instant investigation, the GOQ has provided financial 
information regarding Sidbec-Dosco's creditworthiness. However, we have 
not analyzed that information. Instead, following the approach adopted 
by the Department in 1997 Wire Rod, we believe that Sidbec is the 
proper focus of our creditworthiness analysis. (See 62 FR 54972, 
54987).
    Because we have received no new information regarding Sidbec's 
creditworthiness, we preliminarily determine that Sidbec was 
uncreditworthy from 1983 - 1992.

Equityworthiness

    In 1997 Wire Rod, we determined that Sidbec was unequityworthy in 
1988 and that the 1988 conversion of Sidbec's debt to equity was a 
countervailable subsidy. In the instant investigation, the GOQ has 
provided financial information regarding Sidbec-Dosco's 
equityworthiness. However, we have not analyzed that information. 
Instead, following the approach adopted by the Department in 1997 Wire 
Rod, we believe that Sidbec is the proper focus of our equityworthiness 
analysis. (See 62 FR 54972, 54983 - 84).
    Because we have received no new information regarding Sidbec's 
equityworthiness, we preliminarily determine that Sidbec was 
unequityworthy at the time of the 1988 debt-to-equity conversion.

Discount Rates

    The only non-recurring, allocable subsidies in this preliminary 
determination are the 1988 conversion of Sidbec's debt to equity and 
grants received by Sidbec between 1984 and 1992. As discussed above, we 
have preliminarily found Sidbec to be uncreditworthy in those years.
    In accordance with 19 CFR 351.524(d)(3)(ii), the discount rate for 
companies considered uncreditworthy is the rate described in 19 CFR 
351.505(a)(3)(iii). To calculate that rate, the Department must specify 
values for four variables: (1) the probability of default by an 
uncreditworthy company; (2) the probability of default by a 
creditworthy company; (3) the long-term interest rate for creditworthy 
borrowers; and (4) the term of the debt.
    For the probability of default by an uncreditworthy company, we 
have used the 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). For the probability of default by a 
creditworthy company, we used the cumulative

[[Page 5989]]

default rates for investment grade bonds as published in Moody's 
Investor Services: ``Statistical Tables of Default Rates and Recovery 
Rates'' (February 1998). For the commercial interest rate charged to 
creditworthy borrowers, we used the ``Average Weighted Yield 
(ScotiaMcLeod ) - All Corporate Long-Term'' from the Bank of Canada's 
website. For the term of the debt, we used the AUL period for Ispat 
Sidbec, as the grants and equity benefits are being allocated over that 
period.

Denominator

    Ispat Sidbec reported two values for total sales. The first 
includes merchandise produced in whole or in part in Canada, while the 
second excludes merchandise that undergoes substantial transformation 
outside of Canada. For purposes of this preliminary determination, we 
have used the second amount. Given that this merchandise is 
substantially transformed outside of Canada, we are assuming that much 
of its value is non-Canadian. Therefore, use of this sales value better 
reflects the Department's policy of attributing subsidies only to 
merchandise produced in the jurisdiction of the subsidizing country. 
See 19 CFR 351.525(b)(7).
    We intend to seek clarification of two sales values for our final 
determination.

Analysis of Programs

    Based upon our analysis of the petition and the responses to our 
questionnaires, we determine the following:

I. Programs Preliminarily Determined To Be Countervailable

A. 1988 Debt-to-Equity Conversion

    In 1988, the GOQ began exploring options for increasing the value 
of its investment in Sidbec. To improve the company's debt-to-equity 
ratio, the GOQ decided to convert four Sidbec debt instruments it held 
into equity. According to the GOQ, converting Sidbec's debt allowed 
Sidbec to invest in Sidbec-Dosco, thereby increasing the value of that 
company and the likelihood that Sidbec-Dosco could be successfully 
privatized. The amount of debt converted totaled Cdn$81,559,630, 
reflecting the principal and interest outstanding on the debt as of 
December 23, 1988.
    We preliminarily determine that this debt-to-equity conversion is a 
countervailable subsidy. The investment was a direct transfer of funds 
from the GOQ to Sidbec within the meaning of section 771(5)(D)(i) of 
the Act. As discussed above, we have determined that Sidbec was 
unequityworthy. Consequently, the debt-to-equity conversion was 
inconsistent with the usual investment practice of private investors, 
including the practice regarding the provision of risk capital, in 
Quebec and conferred a benefit in the amount of the conversion. See 
section 771(5)(E)(i) of the Act and 19 CFR 351.507(a)(6). Finally, the 
debt-to-equity conversion was limited to Sidbec and, hence, specific 
within the meaning of 771(5A).
    To calculate the benefit, we have allocated the amount of debt and 
accumulated interest that was converted over Ispat-Sidbec's AUL (as 
computed in 1997 Wire Rod). We divided the amount attributed to the POI 
by Ispat Sidbec's total sales (excluding goods which undergo 
substantial transformation outside Canada). On this basis, we 
preliminarily determine the net countervailable subsidy during the POI 
to be 0.78 percent ad valorem.

B. GOQ Grants to Sidbec Between 1986 and 1992

    In 1976, Sidbec entered into a joint venture, Normines JV, to mine 
iron ore. By 1983, the losses of the Normines JV were such that Sidbec 
was forced to borrow money to finance the JV's operations. Sidbec 
borrowed additional funds in 1984 in connection with the Normines JV. 
Between 1984 and 1992, the GOQ reimbursed Sidbec for all payments of 
principal and interest on these loans.
    We preliminarily determine that these grants reimbursing Sidbec for 
the loan costs associated with the Normines JV are countervailable 
subsidies. The grants were a direct transfer of funds from the GOQ to 
Sidbec within the meaning of section 771(5)(D)(i) of the Act, providing 
a benefit in the amount of the grants (see 19 CFR 351.504(a)). Also, 
the grants were limited to Sidbec and, hence, specific within the 
meaning of 771(5A).
    To calculate the benefit, we have allocated the grants over Ispat-
Sidbec's AUL (as computed in 1997 Wire Rod). We divided the amount for 
the POI by Ispat Sidbec's total sales (excluding goods which undergo 
substantial transformation outside Canada). On this basis, we 
preliminarily determine the net countervailable subsidy during the POI 
to be 5.59 percent ad valorem.

II. Programs Preliminarily Determined to Be Not Countervailable

A. Tax Credit for Mining Incentives for Stelco

    Under Canada's federal corporate income tax, companies are 
permitted to take a resource allowance. This allowance is provided in 
lieu of deductions for Crown royalties, provincial mining taxes and 
other charges related to oil and gas or mining production. The 
allowance equals 25 percent of a taxpayer's annual resource profits, 
computed after operating costs, but before the deduction of exploration 
expenses, development expense, earned depletion and interest expenses. 
Resource allowances are also deductible from income for purposes of 
calculating income taxes owed in certain provinces.
    According to Stelco, the resource allowance represents the 
reduction in the mineral contents of the reserves from which the 
mineral is taken. Therefore, Stelco claims, the resource allowance is 
equivalent to a depletion allowance.
    Stelco points to Final Affirmative Countervailing Duty 
Determination; Iron Ore Pellets from Brazil, 51 FR 21961 (June 17, 
1986) (Iron Ore Pellets), arguing that the resource allowance in not 
countervailable. Stelco also states that even if the resource allowance 
were found to be countervailable, the benefit to Stelco from the 
federal and provincial tax savings would be a de minimis 0.07 percent. 
(See Stelco's December 3, 2001 Questionnaire Response, at page IV-28)
    In Iron Ore Pellets, the Department stated, ``In the past, we have 
found that depreciation allowances, per se, are not countervailable. 
Because the depletion allowance, which is comparable to a depreciation 
allowance on minerals, is part of the normal tax practice in Brazil and 
because there is no indication that it favors exports over domestic 
products, we determine the program not to be countervailable.'' Id at 
21963. In the instant proceeding, we find that the federal resource 
allowance is a normal tax practice in Canada because: (1) it is 
available to all resource-based companies in Canada; (2) the method for 
claiming the allowance is a standard schedule to the federal corporate 
tax form, Schedule 51; and (3) the allowance has been in place since 
1976 (when it replaced an earlier resource tax abatement). Also, the 
resource tax allowance does not favor export over domestic sales.
    Consequently, consistent with our determination in Iron Ore 
Pellets, we preliminarily determine that the resource allowance taken 
by Stelco on its federal corporate income tax does not confer a 
countervailable subsidy.
    Regarding the resource allowances taken on provincial corporate 
income taxes, Stelco has shown that the same allowance taken on its 
federal tax return is apportioned between the three provinces with tax 
authority over the

[[Page 5990]]

company based on Stelco's allocation of business activity between the 
three provinces. Stelco has also submitted its tax returns for two of 
these three provinces, Ontario and Quebec. Those returns indicate that 
the resource allowance is a standard deduction, i.e., may be claimed on 
the standard corporate tax return for the province.
    Therefore, we preliminarily determine that the resource allowances 
offered by Ontario and Quebec do not confer countervailable subsidies 
because they are part of the normal tax practice of these provinces and 
do not favor export over domestic sales.

B. Government Support for Projet Bessemer

    In 1989, Stelco and Sidbec-Dosco (among other Canadian steel 
producers) entered into a joint venture to develop a commercial scale 
strip caster. Co-financing for this R&D initiative was sought from 
several federal and provincial government sources, and initial approval 
was given by the governments. However, the original approach to the 
project was abandoned and the funding agencies suspended, then withdrew 
their support.
    Therefore, we preliminarily determine that there was no financial 
contribution by the GOC or the provincial governments in Projet 
Bessemer and, consequently, no subsidy. See section 771(5)(B)(i) of the 
Act.
    We further note that Stelco responded that direct casting for the 
manufacture of hot-rolled strip was not related to the production of 
the subject merchandise (which is produced from billets). Thus, had any 
subsidies been received for R&D on direct casting those subsidies would 
not be attributed to the products covered by this proceeding. (See 19 
CFR 351.525(b)(5).)

C. Government Support for Stelco's Energy Projects

    In a 1999 report issued by Stelco, Industrial Energy Innovators 
Action Plan Report, the company stated that it had used incentives 
provided by the government for many of its energy projects. In response 
to our questionnaires, Stelco has explained that the ``incentive'' it 
was describing was its honorary designation as an ``Industrial Energy 
Innovator.'' It received this designation because it was successful in 
lowering its energy usage and increasing its efficiency.
    Therefore, we preliminarily determine that there was no financial 
contribution by the GOC in support of Stelco's energy projects and, 
consequently, no subsidy. See section 771(5)(B)(i) of the Act.

III. Programs Preliminarily Determined to Be Not Used During the POI

A. Resource Allowance for Newfoundland

    As discussed above under ``Tax Credits for Mining Incentives,'' 
Stelco was subject to taxes in three provinces during the POI. For the 
third province, Newfoundland, the amount of tax savings generated by 
the resource allowance is so small that it yields no measurable 
benefit. Given the insignificance of any benefit under this program, we 
are not planning to seek further information to determine whether the 
resource allowance in Newfoundland is a countervailable subsidy.

Verification

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

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we 
calculated an individual rate for each manufacturer of the subject 
merchandise. We preliminarily determine the total estimated net 
countervailable subsidy rates to be:

------------------------------------------------------------------------
                  Producer/Exporter                     Net Subsidy Rate
------------------------------------------------------------------------
Ispat Sidbec Inc.....................................             6.37 %
Ivaco Inc............................................                0 %
Stelco Inc...........................................                0 %
All Others...........................................             6.37 %
------------------------------------------------------------------------

    In accordance with sections 777A(e)(2)(B) and 705(c)(5)(A), we have 
set the ``all others'' rate as Ispat Sidbec's rate because the rates 
for all other investigated companies are zero.
    In accordance with section 703(d) of the Act, we are directing the 
Customs Service to suspend liquidation of all entries of wire rod from 
Canada 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, except for entries from 
Ivaco Inc. and Stelco Inc. This suspension will remain in effect until 
further notice. Entries from Ivaco Inc. and Stelco Inc. are not subject 
to this suspension of liquidation because we have preliminarily 
determined their rates to be zero.

ITC Notification

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

Public Comment

    Case briefs for this investigation must be submitted no later than 
one week after the issuance of the last verification report. Rebuttal 
briefs must be filed within five days after the deadline for submission 
of case briefs. A list of authorities relied upon, a table of contents, 
and an executive summary of issues should accompany any briefs 
submitted to the Department. Executive summaries should be limited to 
five pages total, including footnotes.
    Section 774 of the Act provides that the Department will hold a 
public hearing to afford interested parties an opportunity to comment 
on arguments raised in case or rebuttal briefs, provided that such a 
hearing is requested by an interested party. If a request for a hearing 
is made in this investigation, the hearing will tentatively be held two 
days after the deadline for submission of the rebuttal briefs at the 
U.S. Department of Commerce, 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.
    Interested parties who wish to request a hearing, or to participate 
if one is requested, must submit a written request to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, within 30 days of the publication of this notice. Requests should 
contain: (1) the party's name, address, and telephone number; (2) the 
number of participants; and
    (3) a list of the issues to be discussed. Oral presentations will 
be limited to issues raised in the briefs.
    This determination is published pursuant to sections 703(f) and 
777(i) of the Act.


[[Page 5991]]


    February 2, 2002
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 02-3120 Filed 2-7-02; 8:45 am]
BILLING CODE 3510-DS-S