[Federal Register Volume 69, Number 4 (Wednesday, January 7, 2004)]
[Notices]
[Pages 907-915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-330]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-533-821]


Notice of Preliminary Results of Countervailing Duty 
Administrative Review: Certain Hot-Rolled Carbon Steel Flat Products 
from India

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

ACTION: Notice of Preliminary Results of Countervailing Duty 
Administrative Review.

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SUMMARY: The Department of Commerce (the Department) is conducting an 
administrative review of the countervailing duty (CVD) order on certain 
hot-rolled carbon steel flat products from India for the period April 
20, 2001, through December 31, 2002,\1\ the period of review (POR). For 
information on the net subsidy rate for the reviewed company, see the 
``Preliminary Results of Review'' section of this notice. If the final 
results remain the same as the preliminary results of this review, we 
will instruct the U.S. Customs and Border Protection (CBP) to assess 
countervailing duties as detailed in the ``Preliminary Results of 
Administrative Review'' section of this notice. Interested parties are 
invited to comment on these preliminary results. (See the ``Public 
Comment'' section of this notice).
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    \1\ For the purposes of these preliminary results, we have 
analyzed data for the period January 1, 2001 through December 31, 
2001 to determine the subsidy rate for exports of subject 
merchandise made during the period in 2001 when liquidation of 
entries was suspended. In addition, we have analyzed data for the 
period January 1, 2002 through December 31, 2002 to determine the 
subsidy rate for exports during that period. Further, we are using 
the 2002 subsidy rate to establish the cash deposit rate for exports 
of subject merchandise subsequent to the issuance of the final 
results of this administrative review.

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DATES: EFFECTIVE DATE: January 7, 2004.

FOR FURTHER INFORMATION CONTACT: Tipten Troidl at (202) 482-1767, Maura 
Jeffords at (202) 482-3146 or Cindy Robinson at (202) 482-3797, Office 
of AD/CVD Enforcement VI, Group II, Import Administration, 
International Trade Administration, U.S. Department of Commerce, Room 
4012, 14th Street and Constitution Avenue, NW, Washington, DC 20230.

SUPPLEMENTARY INFORMATION:

Background

    On December 3, 2001, the Department published in the Federal 
Register the CVD order on certain hot-rolled carbon steel flat products 
from India. See Notice of Amended Final Determination and Notice of 
Countervailing Duty Orders: Certain Hot-Rolled Carbon Steel Flat 
Products from India and Indonesia, 66 FR 60198 (December 3, 2001) (Hot-
Rolled Amended Final). On December 2, 2002, the Department published a 
notice of opportunity to request an administrative review of this CVD 
order. See Antidumping or Countervailing Duty Order, Finding, or 
Suspended Investigation; Opportunity to Request Administrative Review, 
67 FR 71533 (December 2, 2002). On December 30, 2002, we received a 
timely request for review from Essar Steel Ltd. (Essar), an Indian 
producer and exporter of subject merchandise. On January 15, 2003, the 
Department initiated an administrative review of the CVD order on 
certain hot-rolled carbon steel flat products from India, covering POR 
April 20, 2001 through December 31, 2002. See Initiation of Antidumping 
and Countervailing Duty Administrative Reviews and Requests for 
Revocation in Part, 68 FR 3009 (January 22, 2003).
    On February 11, 2003, the Department issued a questionnaire to the 
Government of India (GOI) and Essar. We received questionnaire 
responses from Essar on April 7, 2003, and from the GOI on April 17 and 
April 28, 2003. On June 3, 2003, we issued a supplemental questionnaire 
to the GOI; the response was received on August 5, 2003. On July 14 and 
September 5, 2003, we issued supplemental questionnaires to Essar, 
which submitted its responses on August 5, September 20, October 14, 
and October 16, 2003. On July 30, 2003, the Department published in the 
Federal Register an extension of the deadline for the preliminary 
results. See Certain Hot-Rolled Carbon Steel Flat Products from India: 
Extension of Preliminary Results of Countervailing Duty Administrative 
Review, 68 FR 44744 (July 30, 2003).
    On May 19, 2003, petitioners submitted new subsidy allegations. 
These allegations covered the following programs: unequityworthiness in 
2001 and 2002, uncreditworthiness in 2001 and 2002, forgiveness of debt 
obligations in 2002 restructuring, suspension and restructuring of 
interest payments, debt-to-equity conversions, preferential 
restructuring of loans and guarantee and repayment of debt. On 
September 12, 2003, the Department initiated a review of the new 
subsidy allegations. See Memorandum to Melissa G. Skinner regarding 
``Administrative Review of the Countervailing Duty Order on Certain 
Hot-Rolled Carbon Steel Flat Products from India, New Subsidy 
Allegations''

[[Page 908]]

(New Subsidy Allegation Memorandum). On September 15, 2003, additional 
supplemental questionnaires were issued to the GOI and Essar. The 
responses were received on October 14, 2003. On October 17, 2003, we 
issued a supplemental questionnaire to Essar. We received Essar's 
response on October 24, 2003. On October 29 through November 7, 2003, 
we conducted verification of the responses of Essar and the GOI.
    In accordance with 19 CFR 351.213(b), this review covers only those 
producers or exporters for which a review was specifically requested. 
The only company subject to this review is Essar. This review covers 
eleven programs.

Scope of Order

    The merchandise subject to this order is certain hot-rolled flat-
rolled carbon-quality steel 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 
order.
    Specifically included within the scope of this order 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 included in the scope of this order, regardless of 
definitions in the Harmonized Tariff Schedule of the United States 
(HTS), 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 order unless otherwise 
excluded. The following products, by way of example, are outside or 
specifically excluded from the scope of this order:
    [sbull] Alloy hot-rolled steel products in which at least one of 
the chemical elements exceeds those listed above (including, e.g., ASTM 
specifications A543, A387, A514, A517, A506).
    [sbull] SAE/AISI grades of series 2300 and higher.
    [sbull] Ball bearings steels, as defined in the HTS.
    [sbull] Tool steels, as defined in the HTS.
    [sbull] Silico-manganese (as defined in the HTS) or silicon 
electrical steel with a silicon level exceeding 2.25 percent.
    [sbull] ASTM specifications A710 and A736.
    [sbull] USS Abrasion-resistant steels (USS AR 400, USS AR 500).
    [sbull] All products (proprietary or otherwise) based on an alloy 
ASTM specification (sample specifications: ASTM A506, A507).
    [sbull] 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 HTS.
    The merchandise subject to this order is classified in the HTS 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 flat-rolled 
carbon-quality steel covered by this order, 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 HTS 
subheadings are provided for convenience and CBP purposes, the 
Department's written description of the merchandise subject to this 
order is dispositive.

Subsidies Valuation Information

Equityworthiness:

    As discussed above, petitioners alleged that Essar was 
unequityworthy in 2001 and 2002. On September 12, 2003, the Department 
initiated a review of Essar's equityworthiness for 2001 and 2002. See 
New Subsidy Allegation Memorandum. We preliminarily find that it is not 
necessary for the Department to conduct such an analysis, as Essar did 
not receive any equity infusion or conduct any debt-to-equity 
conversions during calendar years 2001 and 2002.

Creditworthiness:

    On May 19, 2003, petitioners alleged that Essar was uncreditworthy 
in 2001 and 2002.\2\ Based on an analysis of the information provided 
by petitioners, including detailed data regarding Essar's financial 
health in 2001 and 2002, we initiated a review of Essar's 
creditworthiness during calendar years 2001 and 2002. See New Subsidy 
Allegation Memorandum.
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    \2\ In our New Subsidy Allegations Memorandum, we erroneously 
stated 2000 and 2001 were the periods in which petitioners alleged 
that Essar was uncreditworthy. Petitioners actually alleged that 
Essar was uncreditworthy in 2001 and 2002.
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    Pursuant to section 351.505(a)(4)(I) of the Department's 
Regulations, the Department will generally consider a firm to be 
uncreditworthy if, based on information available at the time of the 
government-provided loan, the firm could not have obtained long-term 
loans from conventional commercial sources. To make this determination, 
the

[[Page 909]]

Department may examine, among other factors, the following:
    (A) The receipt by the firm of comparable commercial long-term 
loans;
    (B) The present and past financial health of the firm, as reflected 
in various financial indicators calculated from the firm's financial 
statements and accounts;
    (C) The firm's recent past and present ability to meet its costs 
and fixed financial obligations with its cash flow; and
    (D) Evidence of the firm's future financial position, such as 
market studies, country and industry economic forecasts, and project 
and loan appraisals prepared prior to the agreement between the lender 
and the firm on the terms of the loan.
    The Department found that Essar did not receive commercial loans 
during 2001 or 2002, as set forth in factor (A). See Memorandum to the 
File from the Team, Regarding: Creditworthiness Allegation 
(Creditworthiness Memorandum) dated December 31, 2003. In addition, we 
analyzed factors (B) and (C) and we compared Essar's financial ratios 
to those of the U.S. steel and iron industry, as reported in Standard & 
Poor's Industry Surveys, Metals: Industrial, dated July 3, 2003. We 
found that Essar's ratios do not appear to indicate any potential 
short-term problems with respect to the company's ability to meet its 
debt obligations in 2001. However, Essar's current and quick ratios 
show a decline in 2002 while its current liability/net worth ratio 
became negative as Essar's net worth fell below zero. Essar's debt/
equity, total liabilities/net worth and fixed assets/net worth ratios 
indicate that its financial health was declining in 2001 and the 
company moved into default status, which ultimately caused its net 
worth to fall below zero in 2002.
    Also, during 2001, Essar defaulted on a long-term loan to a group 
of noteholders. See Essar's October 2, 2003, submission at page 17. 
When the lenders threatened to take action against the company, Essar 
applied for protection under the Bombay Relief Undertaking (BRU) Act, 
which prevented Essar's creditors from taking action against the 
company. Id at 12. The BRU is important for this analysis, because this 
program is designed to assist companies in poor financial conditions 
whose failure would exacerbate the unemployment situation in the State 
of Gujarat. Part D of section 351.505(a)(4)(I) of the Department's 
Regulations also directs that we review Essar's future financial 
position. In 2001, Essar was in default status on interest and 
principal payments and the company confirmed this fact during 
verification (see the December 8, 2003, Memorandum to Melissa Skinner, 
Director, Office of AD/CVD Enforcement VI, from Tipten Troidl, Cindy 
Robinson, and Maura Jeffords, Case Analysts, Regarding: Countervailing 
Duty Administrative Review of Certain Hot-Rolled Carbon Steel Flat 
Products from India, at page 12 (Essar Verification Report). As a 
result in August 2001, the company entered into one-on-one negotiations 
with individual lenders, which led to a formalized restructuring plan 
drafted in 2002 and finalized in 2003.
    Based on our analysis of Essar's financial ratios, its financial 
statements, its history of missed principal and interest payments, 
Essar's negotiations of a restructuring package of its outstanding debt 
obligations, and its application for protection under the BRU, we 
preliminarily find that Essar was uncreditworthy during fiscal years 
2001 and 2002.

Benchmarks for Loans and Discount Rate

Benchmark for Short-Term loans

    In accordance with section 351.505(a)(3)(I) of the Department's 
Regulations, for those programs requiring the application of a short-
term benchmark interest rate, we used company-specific, short-term 
interest rates on commercial loans as reported by Essar. With respect 
to the rupee-denominated, short-term benchmark used in calculating the 
benefit for pre-shipment export financing, we used the weighted-average 
rate of the company's cash credit loans. Cash credit loans are the most 
comparable type of short-term loan to use as a benchmark because, like 
the pre- shipment export financing, cash credit loans are denominated 
in rupees and take the form of a line of credit which can be drawn down 
by the recipient. See Notice of Final Affirmative Countervailing Duty 
Determination: Certain Hot-Rolled Carbon Steel Flat Products from 
India, 66 FR 49635 (September 28, 2001) (HRC Final) and the 
accompanying Decision Memorandum, at Section II.C. ``Benchmark for 
Loans and Discount Rates'' and Notice of Final Affirmative 
Countervailing Duty Determination: Polyethylene Terephthalate Film, 
Sheet, and Strip from India, 67 FR 34905 (May 16, 2002) (PET Film) and 
accompanying Decision Memorandum, at section II.A.2. ``Benchmark for 
Loans and Discount Rates'' (PET Film Decision Memorandum).

Benchmark for Loans issued up to 2000

    For those programs requiring a rupee-denominated discount rate or 
the application of a rupee-denominated, long-term benchmark interest 
rate, we used, where available, company-specific, weighted-average 
interest rates on commercial long-term, rupee-denominated loans. We 
note, however, that Essar did not have rupee-denominated, long-term 
loans from commercial banks for all required years. Therefore, for 
those years for which we did not have company- specific information, we 
relied on a rupee-denominated, long-term benchmark interest rate from 
the immediately preceding year as directed by section 
351.505(a)(2)(iii) of the Department's regulations.

Benchmark for loans issued in 2001 and 2002

    As discussed in the ``Creditworthiness'' section of this 
preliminary results, we have preliminarily determined that Essar was 
uncreditworthy during 2001 and 2002. In these preliminary results for 
years 2001 and 2002, where Essar received benefits that were treated as 
fixed, long-term loans, we used as our long-term benchmark interest 
rate India's Prime Lending Rate (PLR), as published by the Reserve Bank 
of India (RBI). See GOI Verification Exhibit 1. We note that we 
converted the PLR into a benchmark interest rate for uncreditworthy 
companies using the formula set forth in section 351.505(a)(3)(iii) of 
the Department's Regulations.

Programs Preliminarily Determined To Confer Subsidies

1. Pre-shipment Export Financing

    The RBI, through commercial banks, provides short-term pre-shipment 
financing to exporters. Upon presentation of a confirmed export order 
or letter of credit to a bank, companies may receive pre-shipment loans 
for working capital purposes. Exporters may also establish pre-shipment 
credit lines upon which they may draw as needed.
    We determined in HRC Final that the pre-shipment export financing 
program constitutes a financial contribution pursuant to section 
771(5)(D)(I) of the Tariff Act of 1930, as amended (the Act), as a 
direct transfer of funds. See HRC Decision Memorandum at Section III. 
I.A. ``Pre-Shipment and Post-Shipment Export Financing.'' This program 
also confers a benefit to the company under section 771(5)(E)(ii) of 
the Act, to the extent that interest payments under the program are 
less than the amount the

[[Page 910]]

company would pay on a comparable commercial loan that the company 
could actually obtain on the market. This program is also contingent on 
export performance and is therefore specific under section 771(5A) of 
the Act. No new information or evidence of changed circumstances have 
been presented to warrant reconsideration of this finding; therefore, 
for the purpose of these preliminary results we continue to find this 
program countervailable.
    Essar did not use this program in 2001. To calculate the benefit 
conferred by these pre-shipment loans taken out by Essar in 2002, we 
compared the actual interest paid on the loans with the amount of 
interest that would have been paid at the benchmark interest rate. 
Where the benchmark interest exceeds the actual interest paid, the 
difference constitutes the benefit. We then divided the total amount of 
benefit by Essar's 2002 total exports. On this basis, we preliminarily 
determine the net countervailable subsidy under the pre-shipment export 
financing program in 2002 to be less than 0.005 percent ad valorem for 
Essar.

2. Export Promotion Capital Goods Scheme (EPCGS)

    The EPCGS provides for a reduction or exemption of customs duties 
and an exemption from excise taxes on imports of capital goods. Under 
this program, producers may import capital equipment at reduced rates 
of duty by undertaking to earn convertible foreign exchange equal to
    five times the CIF value of capital goods to be fulfilled over a 
period of eight years (12 years in the case where the CIF value is Rs. 
100 Crore \3\ or more). For failure to meet the export obligation, a 
company is subject to payment of all or part of the duty reduction, 
depending on the extent of the export shortfall, plus penalty interest. 
During verification, we found that in April 2003, after the POR, there 
was a change to the EPCGS with respect to export obligation commitment. 
The export earning commitment, which was five times the CIF value of 
the imported capital goods, was changed to eight times the CIF value of 
the imported capital good.
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    \3\ A crore is equal to 10,000,000 rupees.
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    In PET Film, we determined that import duty reductions provided 
under the EPCGS constituted a countervailable export subsidy. See PET 
Film Decision Memorandum, at section II.A.4. ``EPCGS.'' Specifically, 
the Department found that under the EPCGS program, the GOI provides a 
financial contribution under section 771(5)(D)(ii) of the Act in the 
form of revenue foregone that otherwise would be due, that a benefit is 
thereby conferred, as defined by section 771(5)(E) of the Act, and that 
this program is specific under section 771(5A)(B) of the Act because it 
is contingent upon export performance. No new information or evidence 
of changed circumstances has been provided to warrant a reconsideration 
of this determination. Therefore, we continue to find that import duty 
reductions provided under the EPCGS are countervailable export 
subsidies.
    We have determined the benefit under this program in accordance 
with our findings and treatment of benefit in HRC Final and PET Film. 
See HRC Decision Memorandum, at Analysis of Programs I.E. ``Export 
Promotion of Capital Goods Scheme (EPCGS)'' and PET Film Decision 
Memorandum, at section II.A.4. ``EPCGS'', and Pet Film, 66 FR at 53394. 
Specifically, there are two potential benefits under the EPCGS program. 
The first benefit is the amount of unpaid duties that would have to be 
paid to the GOI if the export requirements are not met. The repayment 
of this liability is contingent on subsequent events, and in such 
instances it is the Department's practice to treat any balance on an 
unpaid liability as an interest-free loan. See section 351.505(d)(1) of 
the Department's regulations. Because Essar had not yet met its export 
obligation, we preliminarily determine that the company has an 
outstanding contingent liability during the POR. We further determine 
that the amount of the contingent liability to be treated as an 
interest-free loan is the amount of the import duty reduction or 
exemption for those EPCGS licenses which Essar applied but, as of the 
end of the POR, had not received a waiver of its obligation to repay 
the duties from the GOI.
    Accordingly, for those unpaid duties for which Essar has yet to 
fulfill its export obligations, we determine the benefit to be the 
interest that Essar would have paid during the POR had they borrowed 
the full amount of the duty reduction at the time of import. Pursuant 
to section 351.505(d)(1) of the Department's regulations, we used a 
long-term interest rate as our benchmark to calculate the benefit of a 
contingent liability interest-free loan because the event upon which 
repayment of the duties depends (i.e., the date of expiration of the 
time period for Essar to fulfill its export commitments) occurs at a 
point in time more than one year after the date the capital goods were 
imported. Specifically, we used the calculated long-term benchmark 
interest rate for Essar, as described in the ``Subsidies Valuation'' 
section above. The rate used corresponded to the year in which Essar 
imported the item under the program.
    The second potential benefit is the waiver of import duty on 
imports of capital equipment covered by those EPCGS licenses for which 
export requirements have been met. Essar reported that it imported 
machinery under the EPCGS in the years prior to the POR and during the 
POR. Upon importation under these licenses Essar received reduced 
import duty liabilities and agreed to the export obligations prescribed 
under the program, as noted above. For some of its licenses, Essar 
reported to the GOI that it met its export requirements and requested 
waiver of the obligation to repay the duties otherwise due for 
importation of the equipment. However, Essar did not provide evidence 
that the GOI has granted these waivers during the POR. Consistent with 
our policy, absent acknowledgment from the GOI that the liability has 
been eliminated, we continue to treat benefits of these licenses as 
contingent liabilities. See ``Export Promotion of Capital Goods Scheme 
(EPCGS)'' section from the HRC Final Decision Memoradnum.
    Essar reported that it paid application fees in order to obtain its 
EPCGS license. We preliminarily determine that the application fees 
paid by Essar qualify as an ``application fee, deposit, or similar 
payment paid in order to qualify for, or to receive, the benefit of the 
countervailable subsidy.'' See section 771(6)(A) of the Act. As a 
result, we have offset the benefit in an amount equal to the fees paid.
    To calculate the subsidy rate, we summed the benefits conferred on 
Essar in the form of contingent liability loans. We note, that for some 
licenses related to imports of capital goods during 2001 and 2002, we 
prorated the contingent liability by the actual number of days. We then 
divided Essar's total benefit under the program by its respective total 
export sales during years 2001 and 2002. On this basis, we 
preliminarily determine the net countervailable subsidy from this 
program to be 1.69 percent ad valorem for 2001 and 1.16 percent ad 
valorem for 2002.
    In addition, we found that Essar had taken out EPCGS licenses for 
the importation of capital goods equipment used for making iron ore 
pellets. At the time that Essar took out these licenses, it wholly-
owned Hy-Grade Pallets Ltd. (Hy-Grade), an iron ore pellet 
manufacturer. In September 2000, subsequent to the issuance of the EPCG 
licenses, Essar divested itself of its

[[Page 911]]

majority ownership in Hy-Grade. At that time, Essar also transferred 
the EPCGS licenses connected to the iron ore pellet equipment to Hy-
Grade. During Essar's verification, we reviewed certain selected EPCG 
licenses and noted that the licenses specify the name of the company 
and the product. See Essar's Verification Report at 15. Thus, in order 
for Hy-Grade to receive a permanent waiver on the import duties 
incurred on the importation of the iron ore pellet equipment, Hy-Grade 
must export a certain amount of pellets within a given period of time.
    With respect to the EPCGS licenses that were transferred from Essar 
to Hy-Grade, we preliminarily determine that 1) the license can be tied 
to Hy-Grade, the transferee, and 2) the license is tied to a product, 
which in this case are iron ore pellets (i.e., pellets must be exported 
by Hy-Grade in order for the duties to be permanently waived). By 
legally transferring the licence to Hy-Grade, Essar is relieved of its 
potential obligation to repay the import duties. That obligation now 
lies with Hy-Grade. Therefore, we preliminarily find that the EPCGS 
licenses are the liability of Hy-Grade and are tied to iron ore 
pellets.

3. Bombay Relief Undertaking Act

    In their May 19, 2003 submission, petitioners alleged that the 
State Government of Gujarat conferred a countervailable benefit upon 
Essar under the Bombay Relief Undertaking Act (BRU). As explained in 
our New Subsidy Allegation Memorandum, we initiated an investigation of 
this program.
    Enacted in 1958 and later amended in 1974, the BRU is a provincial 
law enacted by the State of Gujarat that is intended to safeguard 
employment. Under the BRU, companies designated as a relief 
undertakings have all litigation against them stayed for a period of 
one year. In disputes between companies and their creditors, the effect 
is that principal and interest payments are also put on hold, as a 
creditor is unable to sue for collection. During the time in which 
litigation is stayed, the company has the opportunity to become current 
on its financial debts. Subsequent BRU declarations are allowable after 
the initial declaration. A company can be protected under the BRU for 
up to ten years. To be designated as a relief undertaking, a company 
must submit an application. The State Government of Gujarat evaluates 
applications according to three criteria: (1) whether the company's 
balance sheet indicates a loss, (2) whether there is an allegation that 
unemployment will occur if the applicant is not declared a relief 
undertaking, and (3) whether there is information demonstrating that 
the company has the potential to turn itself around. While the BRU is 
specific to Gujarat, most other states in India have similar 
legislation.
    Essar applied for BRU protection in late 2001. Essar stated that 
its application was prompted by a group of foreign lenders that refused 
to agree to the terms of the company's debt restructuring package.\4\ 
The foreign lenders' share of Essar's total debt was sufficient to 
block the company's corporate restructuring from going forward. 
According to Essar, the corporate restructuring was essential to its 
financial well-being. Essar further claimed that without a declaration 
under the BRU, the company's lenders would file a petition declaring 
that the company was insolvent, an action that Essar claimed would 
cause it to eliminate jobs.
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    \4\ The company proposed corporate debt restructuring is 
discussed in further detail below in the ``Corporate Debt 
Restructuring (CDR)'' section of these preliminary results.
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    Upon review of Essar's application, the State Government of Gujarat 
granted Essar protection under the BRU in order to ``serve as a measure 
of preveningt unemployment.'' See Exhibit 11 of the GOI's October 14, 
2003, questionnaire response. The State Government of Gujarat further 
promulgated that, rights, privileges, obligations, and liabilities 
incurred by Essar would be suspended and that proceedings relating 
thereto pending before any court, Tribunal or Authority would be stayed 
for one year beginning on March 19, 2002. Id. Upon receiving protection 
under the BRU, Essar ceased making principal and interest payments on 
some of its loans. During this time, which included the period covered 
by the POR, Essar's creditors were prohibited from taking any legal 
action against the company.
    In determining whether a program is countervailable, the Department 
must conclude that the program constitutes a financial contribution by 
the government, confers a benefit, and is specific pursuant to the 
criteria enumerated under the Act. For purposes of these preliminary 
results, we find that the State Government of Gujarat's protection of 
Essar from litigation under the BRU constitutes a financial 
contribution under section 771(5)(B)(iii) of the Act. Specifically, we 
find that by granting Essar protection under the BRU, the State 
Government of Gujarat, by prohibiting Essar's creditors from pursuing 
any pending litigation against the company, directed the creditors to 
not collect principal and interest payments on loans that otherwise 
would be due. For purposes of these preliminary results, we further 
determine that the limitations imposed on the creditors by the State 
Government of Gujarat conferred a benefit upon Essar, under section 
771(E)(ii) of the Act, in an amount equal to the principal and interest 
it would have had to pay absent the legal protection afforded under the 
BRU.
    Regarding the criterion of specificity, as defined by section 
771(5A) of the Act, in our new subsidies allegations questionnaire, we 
asked the GOI and the State Government of Gujarat to provide 
information regarding how companies are granted BRU status. See the 
``Bombay Relief Undertakings (Special Act) 1956 (BRU)'' section of the 
September 15, 2003, questionnaire. In particular, we asked the 
governments to discuss the application/petition process companies 
undergo when they seek treatment under the BRU as well as a description 
of the types of documents that applicants are required to submit. In 
addition, we asked the GOI and the State Government of Gujarat to 
provide information concerning the distribution of the recipients of 
BRU protection (i.e., specificity information). Id.
    In its response, the GOI provided the legislation for the BRU 
program. See Exhibit 10 of the GOI's October 14, 2003, questionnaire 
response. However, regarding the Department's other questions, the GOI 
explained that, ``a response from the State Government of Gujarat is 
still awaited and will be sent as soon as received. . .. The Government 
of India will assist the investigating authorities in verifying the 
facts submitted by Essar Steel Limited, if need be.'' \5\ A response 
from the State Government of Gujarat was never received.
---------------------------------------------------------------------------

    \5\ We note that the GOI's incomplete response was submitted in 
spite of the fact that the Department granted the GOI and the State 
Government of Gujarat a 15-day extension to response to the 
questionnaire.
---------------------------------------------------------------------------

    In our October 21, 2003, verification outline issued to the GOI and 
the State Government of Gujarat, we informed the two governments that 
they should prepared to discuss the BRU. Namely, we instructed them to 
be ready to discuss how the program was administered, including the 
eligibility requirements. See ``State of Gujarat'' section of the GOI 
Verification Outline. We further instructed them to be prepared to 
discuss Essar's participation under the BRU and to have available any 
documents or reports that pertained to Essar's protection under the 
BRU. Id.

[[Page 912]]

    During verification, the officials from the State Government of 
Gujarat claimed that eight companies were granted protection in 2001 
while six were granted BRU status in 2002. State government officials 
further claimed that there are between 25 and 30 applicants per year. 
However, the State Government of Gujarat presented no documentation to 
support these contentions. See the ``Bombay Relief Undertaking Act 
(BRU)'' section of the GOI's Verification Report. Further, state 
government officials failed to provide the Department with the 
requested documentation regarding Essar's application and declaration 
under the BRU.
    Regarding specificity, we find that there is nothing in the BRU 
legislation indicating that the program is de jure specific under 
section 771(5A)(D)(I) of the Act. See Exhibit 10 of the GOI's October 
14, 2003, questionnaire response. Thus, we turn to issue of whether the 
program is de facto specific under section 771(5A)(D)(iii) of the Act. 
According this subsection of the Act, a program is de facto specific 
where one or more of the following factors exist:
    (I). The actual recipients of the subsidy, whether considered on an 
enterprise or industry basis, are limited in number;
    (II). An enterprise or industry is a predominant user of the 
subsidy;
    (III). An enterprise or industry receives a disproportionately 
large amount of the subsidy;
    (IV). The manner in which the authority providing the subsidy has 
exercised discretion in the decision to grant the subsidy indicates 
that an enterprise or industry is favored over others.
The Preamble to the CVD Regulations states that:
    As indicated in the SAA at 931, the discretion factor is generally 
more valuable as an analytical tool that enhances the analysis of the 
other de facto specificity factors and criteria. . . .
    Discretion can also come into play where the evidence relating to 
the first three factors is inconclusive.
See 63 FR 65348, 65356.
    Record evidence indicates that the State Government of Gujarat 
granted eight companies protection in 2001 while in 2002, the year in 
which Essar received protection under the program, the State Government 
of Gujarat approved only six companies. Record evidence further 
indicates that the State Government of Gujarat reviewed between 25 and 
30 applicants during these years. In 2002, Essar received protection 
under the BRU, while some 19 or so other applicants were rejected. The 
fact that only six companies were approved under this program during 
2002 demonstrates that the actual recipients of the subsidy are limited 
in number. While this, by itself, may be inconclusive, we preliminarily 
find that the State Government of Gujarat's exercise of discretion in 
approving applicants, supports a finding of specificity. Although the 
three criteria for designation as a relief undertaking would make the 
program appear broadly available, we note that the State Government of 
Gujarat has established a set of generic criteria under which it 
analyzes applications. For example, the State Government of Gujarat has 
not established the amount of financial losses that a company must be 
experiencing, the level of anticipated unemployment, or the factors 
upon which the company's proposed turn-around should be based. On this 
basis, at least 19 other applicants were rejected during 2002. 
Therefore, we find that the State Government of Gujarat exercises 
discretion in the manner in which grants approval under the program to 
a limited number of users, as provided for under section 
771(5A)(D)(iii)(I) of the Act. Thus, for purposes of these preliminary 
results, we find that the BRU is countervailable.
    To calculate the benefit to Essar, we summed the amount of the 
principal and interest payments that Essar would have otherwise been 
required to make had it not been under the protection of the BRU. We 
treated these payments as interest-free short-term loans using the 
short-term interest benchmark, as discussed in the ``Benchmarks for 
Loans and discount Rate'' section above. We then took this amount and 
divided it by Essar's total sales for 2002. As the protection under the 
BRU did not take affect until March 19, 2002, we are not calculating a 
net subsidy rate for this program for 2001. On this basis, we 
preliminarily find that Essar received a countervailable subsidy of 
1.43 percent ad valorem.

4. Duty Entitlement Passbook Scheme (DEPS)

    The DEPS enables exporting companies to earn import duty exemptions 
in the form of passbook credits rather than cash. All exporters are 
eligible to earn DEPS credits on a post-export basis, provided that the 
GOI has established a standard input-output norm (SION) for the 
exported product. DEPS credits can be used for any subsequent imports, 
regardless of whether they are consumed in the production of an export 
product. DEPS credits are valid for twelve months and are transferable 
after the foreign exchange is realized from the export sales on which 
the DEPS credits are earned. With respect to subject merchandise, 
exporters were eligible to earn credits equal to 14 percent of the FOB 
value of their export shipments during the fiscal year ending January 
31, 2003. During the POR, Essar earned a DEPS credit on a sale of 
subject merchandise to the United States.
    In PET Film, the Department determined that DEPS conferred 
countervailable subsidies on the respondents: 1) because a financial 
contribution, as defined under section 771(5)(D)(ii) of the Act, is 
provided under the program, as the GOI provides the respondents with 
credits for the future payment of import duties; 2) since the GOI does 
not have in place and does not apply a system to confirm which inputs, 
and in what amounts, are consumed in the production of the exported 
products that is reasonable and effective for the purposes intended, 
under section 351.519(a)(4) of the Department's regulations and section 
771(5)(E) of the Act, the entire amount of import duty exemption earned 
by the respondents during the POI constitutes a benefit; and 3) this 
program can only be used by exporters and, therefore, is specific under 
section 771(5A)(B) of the Act. See the ``DEPS'' section of the PET Film 
Decision Memorandum. No new information or evidence of changed 
circumstances have been presented in this review to warrant 
reconsideration of this findings. Therefore, we continue to find that 
the DEPS program is countervailable.
    In October 2003, Essar switched the license it earned under the 
DEPS program to a license under the Duty Free Remission Certificate 
Scheme (DFRCS). Essar claims that the DFRCS program is similar to the 
Advance License program, a program under which duty exemptions are not 
countervailable provided that the input imported under the program is 
physically incorporated into the re-exported product. Essar further 
claims that it switched the license (after the POR) in order to avoid 
any countervailable duties associated with the DEPS program. Essar also 
claims that, as it did not use the DEPS license during the POR to 
receive duty exemption on imported inputs, the Department should not 
find that it received any benefits during the POR.
    We disagree with Essar. We note that in CTL Plate from India, we 
stated that, ``benefits from the DEPS program are conferred as of the 
date of exportation of the shipment for which the pertinent DEPS 
credits are earned rather than the

[[Page 913]]

date the DEPS credits are used. At that time, the amount of the benefit 
is known by the exporter.'' See CTL Plate at 64 FR 73134. See also 
Comment 4 of CTL Plate, ``Timing and Calculation of DEPS Benefits,'' 64 
FR 73140. Moreover, Essar has not provided any new evidence that would 
lead us to reconsider our finding that the GOI does not have in place 
and does not apply a system that is reasonable and effective to confirm 
which inputs, and in what amounts, are consumed in the production of 
the exported products for the purposes intended. Thus, consistent with 
our approach in CTL Plate, we find that the DEPS credit earned by Essar 
during the POR is countervailable.
    To derive the DEPS program rate, we first calculated the value of 
the credits that Essar earned for its export shipments of subject 
merchandise to the United States during the POR by multiplying the 
f.o.b. value of each export shipment by 14 percent, the percentage of 
DEPS credit allowed under the program for exports of subject 
merchandise. We then subtracted as an allowable offset the actual 
amount of application fees paid for each license in accordance with 
section 771(6) of the Act. Finally, we took this sum (the total value 
of the licenses net of application fees paid) and divided it by Essar's 
total exports of subject merchandise to the United States during the 
POR. On this basis, we determine the net countervailable subsidy from 
this program to be 14.06 percent ad valorem.

Program Preliminarily Determined Not To Be Used

1. Corporate Debt Restructuring

    On September 12, 2003, the Department initiated separate 
investigations of the following programs: forgiveness of debt 
obligations, suspension and restructuring of interest payments, debt-
to-equity conversions, preferential restructuring of loans, and 
guarantee and ultimate payment of certain debt. See New Subsidy 
Allegation Memorandum. While we initiated on each program separately, 
we preliminary find that it is more appropriate to discuss and analyze 
these programs under the single program of the corporate debt 
restructuring. During the course of this proceeding, the Department has 
found that these programs are all related to the Corporate Debt 
Restructuring (CDR) and therefore should be treated as a single 
program.
    The RBI and a group of lenders introduced the CDR Mechanism to 
restructure corporations' debt in August 2001. The Inter-Creditor 
Agreement (ICA) was signed in February 2002 to deal with the increasing 
amount of non-performing assets (NPAs) that banks where holding. The 
RBI and the CDR Standing Forum, which consisted of members from various 
banks in India reviewed other countries' restructuring programs, and 
ultimately based the CDR framework on the London Approach. The CDR is a 
non-statutory and voluntary organization whose members are bound by the 
ICA. Lender participation in the CDR is voluntary. However, when a 
restructuring package is accepted by at least 75 percent of the 
lenders, determined by value of their outstanding loans, the remaining 
25 percent must either comply with the terms of the agreement, or, if 
they decide to opt out, must transfer their debts to another lender on 
terms set by the agreement.
    The CDR has three levels; the CDR Core Group, the Empowered Group 
and the CDR Cell. During the POR, state banks, private banks and other 
financial institutions had representation on the CDR Core Group. 
Foreign banks did not. The Core Group is responsible for overseeing the 
CDR as a whole, while the Empowered Group is responsible for making the 
decision on the individual restructuring packages. The CDR Cell works 
with the company and oversees the restructuring package. The RBI is a 
party to the CDR Core Group; however, it does not have representation 
on the other two levels.
    The objective of the CDR is to restructure a company's debt. The 
guidelines for the CDR are set forth in the RBI's circulars dated 
August 23, 2001 and February 5, 2003. The CDR began restructuring 
companies' debts in March 2002. See GOI Verification Report at 5. While 
CDR packages are created on a case-by-case basis, most CDR packages 
include a change (lowering) of the company's interest rates and an 
extension of the time period for repayment of outstanding debt.
    With respect to Essar, in October 2002, the IDBI proposed a CDR 
package for Essar under the CDR. See Essar's Verification Report at 9. 
On January 21, 2003, the Empowered Group approved the proposed 
restructuring package. Id. at 10. On February 24, 2003, the CDR Cell 
sent a letter to the IDBI, stating that the package had been approved 
and that the IDBI was selected as the monitoring agency for 
implementation of the plan and Essar's Board of Directors approved the 
CDR package on March 31, 2003. See Essar's October 2, 2003 submission 
at Exhibit 3 and Essar's Verification Exhibit 14.
    Essar's restructuring package included the extension of loan due 
dates until 2017, and a lowering of interest rates for all lenders who 
had not yet changed the interest rates that they were charging. If a 
lender did not want to extend the loan, it could accept a one-time 
settlement, in which Essar would pay out its obligation at a discount. 
Another option presented to the lenders would be to convert debt to 
rupees and extend the due date to 2017.
    Based on the record evidence provided by the GOI and Essar as well 
as information obtained during verification, we preliminarily determine 
that the restructuring plan for Essar under the CDR did not take effect 
until after the POR. As a result, we preliminarily determine that Essar 
did not use this program during the POR.

2.Duty Free Remission Certificate Scheme (DFRCS)

    The Duty Free Remission Certificate (DFRC) scheme was introduced by 
the GOI in 2001. The DFRC is administered by the Director-General for 
Foreign Trade (DGFT), and is applicable to manufacturing exporters. 
Eligibility is not conditioned on any sector or region, but is 
conditioned on export. The GOI characterizes the DFRC as an extension 
of the Advance License scheme. The DFRC also uses the same Standard 
Input Output Norms (SION) as the Advance License program. See Essar's 
Verification Report at 5. The DFRC differs from the Advance License 
scheme in that the Advance License program requires only positive 
addition and the DFRC requires a minimum value addition of 25 percent. 
DFRC licenses are only issued after export has occurred. Manufacturers 
are required to provide all shipping documents and invoices to 
demonstrate they imported only the allowable input.
    In October 2003, Essar switched from a DEPS to a DFRC. Id. Since 
the company switched from a DEPS to a DFRC in 2003, we find that this 
occurred after the POR and therefore, Essar did not use this program 
during the POR.

3. Sick Industrial Companies Act and Board for Industrial and Financial 
Reconstruction

    Passed in 1987, the Sick Industrial Company Act (SICA) is 
administered by the Board for Industrial and Financial Reconstruction 
(BIFR). It was designed for companies whose accumulated losses surpass 
the net equity of share capital. Companies in such a financial 
situation must refer themselves to the BIFR within sixty days of 
finalizing their audited financial statements. The

[[Page 914]]

referral of a company triggers a judicial process which brings 
companies under the oversight of the BIFR. Then the BIFR supervises the 
process through which the companies restructure their debts and 
financial obligations. While under the BIFR, companies are shielded 
from any litigation.
    On September 30, 2002, Essar's accumulated losses exceeded its net 
worth of equity capital. However, these results were not officially 
adopted until March 2003 by Essar's shareholders. Between September 
2002 and March 2003, Essar's net worth exceeded its losses. The company 
had also entered its restructuring process under the CDR. As the 
company was in the process of rehabilitating its financial condition, 
the company sought an opinion as to whether it was necessary to refer 
itself, as a sick company, to the BIFR. The BIFR concluded that 
referral was not necessary, since the company's net worth became 
positive before the required notification period. Thus, Essar was never 
officially declared to be a ``sick company'' by the BIFR.
    Consequently, we conclude that Essar never invoked protection under 
the BIFR, and therefore, we preliminarily find that Essar did not use 
this program during the POR.
    Furthermore, we preliminarily find that Essar did not use the 
following programs during the POR.\6\
---------------------------------------------------------------------------

    \6\ For descriptions of these previously examined programs, see, 
e.g., CTL Plate from India.
---------------------------------------------------------------------------

4. Advance Licenses

5. Exemption of Export Credit from Interest Taxes

6. Income Tax Deductions Under Section 80 HHC

7. Post-Shipment Export Financing

Preliminary Results of Review

    In accordance with 19 CFR 351.221(b)(4)(i), we calculated an 
individual subsidy rate for Essar subject to this administrative 
review, for 2001 and 2002. We preliminarily determine the total 
estimated net countervailable subsidy rate is 1.69 percent ad valorem 
for 2001 and 17.10 percent ad valorem for 2002.
    If the final results of this review remain the same as these 
preliminary results, the Department intends to instruct the CBP, within 
15 days of publication, to liquidate shipments of hot rolled steel from 
India entered, or withdrawn from warehouse, for consummption from April 
20, 2001 through August 18, 2001 as well as from December 3, 2001 
through December 31, 2001 at 1.69 percent ad valorem and and shipments 
of hot rolled steel from India entered, or withdrawn from warehouse, 
for consumption from January 1, 2002 through December 31, 2002 at 17.10 
percent ad valorem of the f.o.b. invoice price on all shipments of the 
subject merchandise from Essar. Also, the rate of cash deposits of 
estimated countervailing duties will be set at 17.10 percent ad valorem 
for all shipments of hot rolled steel made by Essar from India entered 
or withdrawn from warehouse, for consumption on or after the 
publication of the final results of this administrative review. The 
Department will issue appropriate instructions directly to the CBP 
within 15 days of the final results of this review.
    Because the Uruguay Round Agreements Act (URAA) replaced the 
general rule in favor of a country-wide rate with a general rule in 
favor of individual rates for investigated and reviewed companies, the 
procedures for establishing countervailing duty rates, including those 
for non-reviewed companies, are now essentially the same as those in 
antidumping cases, except as provided for in section 777A(e)(2)(B) of 
the Act. A requested review will normally cover only those companies 
specifically named. See 19 CFR 351.213(b). Pursuant to 19 CFR 
351.212(c), for all companies for which a review was not requested, 
duties must be assessed at the cash deposit rate, and cash deposits 
must continue to be collected at the rate previously ordered. As such, 
the countervailing duty cash deposit rate applicable to a company can 
no longer change, except pursuant to a request for a review of that 
company. See Federal-Mogul Corporation and The Torrington Company v. 
United States, 822 F. Supp. 782 (CIT 1993) and Floral Trade Council v. 
United States, 822 F. Supp. 766 (CIT 1993) (interpreting 19 CFR 
353.22(e), the pre-URA antidumping regulation on automatic assessment, 
which was identical to 19 CFR 355.22(g)). Therefore, the cash deposit 
rates for all companies except those covered by this review will be 
unchanged by the results of this review.
    We will instruct the CBP to continue to collect cash deposits for 
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit 
rates that will be applied to non-reviewed companies covered by this 
order are those established in the most recently completed 
administrative proceeding conducted under the URAA. See HRC Amended 
Final, 66 FR 60200. These rates shall apply to all non-reviewed 
companies until a review of a company assigned these rates is 
requested. In addition, for the period April 20, 2001 through December 
31, 2002, the assessment rates applicable to all non-reviewed companies 
covered by this order are the cash deposit rates in effect at the time 
of entry.

Public Comment

    Pursuant to 19 CFR 351.224(b), the Department will disclose to 
parties to the proceeding any calculations performed in connection with 
these preliminary results within five days after the date of the public 
announcement of this notice. Pursuant to 19 CFR 351.309, interested 
parties may submit written comments in response to these preliminary 
results. Unless otherwise indicated by the Department, case briefs must 
be submitted within 30 days after the date of publication of this 
notice, and rebuttal briefs, limited to arguments raised in case 
briefs, must be submitted no later than five days after the time limit 
for filing case briefs, unless otherwise specified by the Department. 
Parties who submit argument in this proceeding are requested to submit 
with the argument: (1) a statement of the issue, and (2) a brief 
summary of the argument. Parties submitting case and/or rebuttal briefs 
are requested to provide the Department copies of the public version on 
disk. Case and rebuttal briefs must be served on interested parties in 
accordance with 19 CFR 351.303(f). Also, pursuant to 19 CFR 351.310, 
within 30 days of the date of publication of this notice, interested 
parties may request a public hearing on arguments to be raised in the 
case and rebuttal briefs. Unless the Secretary specifies otherwise, the 
hearing, if requested, will be held two days after the date for 
submission of rebuttal briefs, that is, thirty-seven days after the 
date of publication of these preliminary results.
    Representatives of parties to the proceeding may request disclosure 
of proprietary information under administrative protective order no 
later than 10 days after the representative's client or employer 
becomes a party to the proceeding, but in no event later than the date 
the case briefs, under 19 CFR 351.309(c)(ii), are due. The Department 
will publish the final results of this administrative review, including 
the results of its analysis of arguments made in any case or rebuttal 
briefs.
    This administrative review is issued and published in accordance 
with sections 751(a)(1) and 777(I)(1) of the

[[Page 915]]

Act (19 U.S.C. 1675(a)(1) and 19 U.S.C. 1677f(I)(1)).

    Dated: December 30, 2003.
James J. Jochum,
Assistant Secretary for Import Administration.
[FR Doc. 04-330 Filed 1-6-04; 8:45 am]
BILLING CODE 3510-DS-S