63 FR 63876, November 17, 1998

DEPARTMENT OF COMMERCE

International Trade Administration

[C-427-815]
 
Preliminary Affirmative Countervailing Duty Determination and 
Alignment of Final Countervailing Duty Determination With Final 
Antidumping Duty Determination: Stainless Steel Sheet and Strip in 
Coils from France

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

EFFECTIVE DATE: November 17, 1998.

FOR FURTHER INFORMATION CONTACT: Rosa Jeong, Marian Wells or Annika 
O'Hara, Office of Antidumping/Countervailing Duty Enforcement, Group I, 
Import Administration, U.S. Department of Commerce, Room 3099, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone 
(202) 482-3853, 482-6309, or 482-3798, respectively.

SUPPLEMENTARY INFORMATION:

Preliminary Determination

    The Department of Commerce (the Department) preliminarily 
determines that countervailable subsidies are being provided to 
producers or exporters of stainless steel sheet and strip in coils from 
France. For information on the estimated countervailing duty rates, 
please see the ``Suspension of Liquidation'' section of this notice.

Petitioners

    The petition in this investigation was filed by the Allegheny 
Ludlum Corporation, Armco Inc., Washington Steel Division of Bethlehem 
Steel Corporation, United Steel Workers of America, AFL-CIO/CLC, Butler 
Armco Independent Union, and Zanesville Armco Independent Organization, 
Inc. (collectively referred to hereinafter as the ``petitioners'').

Case History

    Since the publication of the notice of initiation in the Federal 
Register (see Notice of Initiation of Countervailing Duty 
Investigations: Stainless Steel Sheet and Strip in Coils from France, 
Italy, and the Republic of Korea, 63 FR 37539 (July 13, 1998) 
(Initiation Notice)), the following events have occurred:
    On July 14, 1998, we issued countervailing duty questionnaires to 
the Government of France (GOF), the European Commission (EC), and the 
producers/exporters of the subject merchandise. On August 6, 1998, we 
postponed the preliminary determination of this investigation until 
November 9, 1998 (see Notice of Postponement of Preliminary 
Determination for Countervailing Duty Investigations: Stainless Steel 
Sheet and Strip in Coils from France, Italy and the Republic of Korea, 
63 FR 43140 (August 12, 1998)).
    On September 14, 1998, we received responses from the GOF, the EC, 
and Usinor (whose Ugine Division is the sole producer of the subject 
merchandise that exported to the United States during the period of 
investigation). On October 2, 1998, we issued supplemental 
questionnaires to the GOF, the EC, and Usinor. We received responses to 
the supplemental questionnaires from the EC on October 13, 1998 and 
from Usinor and the GOF on October 21, 1998.
    On August 19, 1998, the petitioners requested that the Department 
investigate three programs which the Department did not include in its 
initiation. After a review of the petitioners' submissions, we 
determined that they did not allege the elements necessary for 
imposition of a countervailing duty with respect to these programs. 
Accordingly, we declined to include the three programs in our 
investigation. See Memorandum to Richard W. Moreland, Deputy Assistant 
Secretary for AD/CVD Enforcement, ``Petitioners'' Supplemental 
Allegations,'' dated October 27, 1998, on file in the Central Records 
Unit of the Department of Commerce.

Scope of Investigation

    For purposes of these investigations, the products covered are 
certain stainless steel sheet and strip in coils. Stainless steel is an 
alloy steel containing, by weight, 1.2 percent or less of carbon and 
10.5 percent or more of chromium, with or without other elements. The 
subject sheet and strip is a flat-rolled product in coils that is 
greater than 9.5 mm in width and less than 4.75 mm in thickness, and 
that is annealed or otherwise heat treated and pickled or otherwise 
descaled. The subject sheet and strip may also be further processed 
(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that 
it maintains the specific dimensions of sheet and strip following such 
processing.
    The merchandise subject to this investigation is classified in the 
Harmonized Tariff Schedule of the United States (HTSUS) at subheadings: 
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80, 
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05, 
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36, 
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05, 
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36, 
7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05, 
7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35, 
7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35, 
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60, 
7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10, 
7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05, 
7220.20.60.10, 7220.20.60.15,

[[Page 63877]]

7220.20.60.60, 7220.20.60.80, 7220.20.70.05, 7220.20.70.10, 
7220.20.70.15, 7220.20.70.60, 7220.20.70.80, 7220.20.80.00, 
7220.20.90.30, 7220.20.90.60, 7220.90.00.10, 7220.90.00.15, 
7220.90.00.60, and 7220.90.00.80. Although the HTSUS subheadings are 
provided for convenience and Customs purposes, the written description 
of the merchandise under investigation is dispositive.
    Excluded from the scope of this petition are the following: (1) 
sheet and strip that is not annealed or otherwise heat treated and 
pickled or otherwise descaled, (2) sheet and strip that is cut to 
length, (3) plate (i.e., flat-rolled stainless steel products of a 
thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled 
sections, rectangular in shape, of a width of not more than 9.5 mm, and 
a thickness of not more than 6.35 mm), and (5) razor blade steel. Razor 
blade steel is a flat rolled product of stainless steel, not further 
worked than cold-rolled (cold-reduced), in coils, of a width of not 
more than 23 mm and a thickness of 0.266 mm or less, containing, by 
weight, 12.5 to 14.5 percent chromium, and certified at the time of 
entry to be used in the manufacture of razor blades. See Chapter 72 of 
the HTSUS, ``Additional U.S. Note'' 1(d).
    The Department has determined that certain specialty stainless 
steel products are also excluded from the scope of these 
investigations. These excluded products are described below: Flapper 
valve steel is defined as stainless steel strip in coils with a 
chemical composition similar to that of AISI 420F grade steel and 
containing, by weight, between 0.37 and 0.43 percent carbon, between 
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent 
manganese. This steel also contains, by weight, phosphorus of 0.025 
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur 
of 0.020 percent or less. The product is manufactured by means of 
vacuum arc remelting, with inclusion controls for sulphide of no more 
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper 
valve steel has a tensile strength of 185 kgf/mm\2\, plus or minus 10, 
yield strength of 150 kgf/mm\2\, plus or minus 8, and hardness (Hv) of 
540, plus or minus 30.
    Also excluded is suspension foil, a specialty steel product used, 
e.g., in the manufacture of suspension assemblies for computer disk 
drives. Suspension foil is described as 302/304 grade or 202 grade 
stainless steel of a thickness between 14 and 127 <greek-m>m, with a 
thickness tolerance of plus-or-minus 2.01 <greek-m>m, and surface 
glossiness of 200 to 700 percent Gs. Suspension foil must be supplied 
in coil widths of not more than 407 mm, and with a mass of 225 kg or 
less. Roll marks may only be visible on one side, with no scratches of 
measurable depth, and must exhibit residual stresses of 2 mm maximum 
deflection, and flatness of 1.6 mm over 685 mm length.
    Permanent magnet iron-chromium-cobalt alloy stainless strip is also 
excluded from the scope of these investigations. This ductile stainless 
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10 
percent cobalt, with the remainder of iron, in widths of 1.016 to 228.6 
mm, and a thickness between 0.0127 and 1.270 mm. It exhibits magnetic 
remanence between 9,000 and 12,000 gauss, and a coercivity of between 
50 and 300 oersteds. This product is most commonly used in electronic 
sensors and is currently available, e.g., under the trade name 
``Arnokrome III.'' <SUP>1</SUP>
---------------------------------------------------------------------------

    \1\ ``Arnokrome III'' is a trademark of the Arnold Engineering 
Company.
---------------------------------------------------------------------------

    Electrical resistance alloy steel is also not included in the scope 
of these investigations. This product is defined as a non-magnetic 
stainless steel manufactured to American Society of Testing and 
Materials (ASTM) specification B344 and containing, by weight, 36 
percent nickel, 18 percent chromium, and 46 percent iron, and is most 
notable for its resistance to high temperature corrosion. It has a 
melting point of 1390 degrees Celsius and displays a creep rupture 
limit of 4 kilograms per square millimeter at 1000 degrees Celsius. 
This steel is most commonly used in the production of heating ribbons 
for circuit breakers and industrial furnaces, and in rheostats for 
railway locomotives. The product is currently available, e.g., under 
the trade name ``Gilphy 36.'' <SUP>2</SUP>
---------------------------------------------------------------------------

    \2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
---------------------------------------------------------------------------

    Finally, certain stainless steel strip in coils used in the 
production of textile cutting tools (e.g., carpet knives) is also 
excluded. This steel is similar to ASTM grade 440F, but containing 
higher levels of molybdenum. This steel contains, by weight, carbon of 
between 1.0 and 1.1 percent, sulphur of 0.020 percent or less, and 
includes between 0.20 and 0.30 percent copper and cobalt. This steel is 
sold under, e.g., the proprietary name GIN4Mo.<SUP>3</SUP>
---------------------------------------------------------------------------

    \3\ ``Gin4Mo'' is the proprietary grade of Hitachi Metals 
America, Ltd.
---------------------------------------------------------------------------

    All interested parties are advised that additional issues 
pertaining to the scope of these investigations are still pending. 
Furthermore, the exclusions outlined above are subject to further 
revision and refinement. The Department plans on notifying interested 
parties of its determinations on all scope issues in sufficient time 
for parties to comment before the final determination.

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 effective January 1, 1995 (the Act). 
In addition, unless otherwise indicated, all citations to the 
Department's regulations are to the current regulations as codified at 
19 CFR Part 351 (1998).

Injury Test

    Because France 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 France materially injure, or threaten material 
injury to, a U.S. industry. On August 9, 1998, the ITC published its 
preliminary determination finding that there is a reasonable indication 
that an industry in the United States is being materially injured or 
threatened with material injury by reason of imports from France of the 
subject merchandise (see Certain Stainless Steel Sheet and Strip From 
France, Germany, Italy, Japan, the Republic of Korea, Mexico, Taiwan, 
and the United Kingdom, 63 FR 41864 (August 9, 1998)).

Alignment with Final Antidumping Duty Determination

    On July 22, 1998, the petitioners submitted a letter requesting 
alignment of the final determination in this investigation with the 
final determination in the companion antidumping duty investigation. 
See Initiation of Antidumping Investigations: Stainless Steel Sheet and 
Strip in Coils From France, Germany, Italy, Japan, Mexico, South Korea, 
Taiwan, and the United Kingdom, 63 FR 37521 (July 13, 1998). Therefore, 
in accordance with section 705(a)(1) of the Act, we are aligning the 
final determination in this investigation with the final determinations 
in the antidumping investigations of stainless steel sheet and strip in 
coils.

Period of Investigation

    The period for which we are measuring subsidies (the POI) is 
calendar year 1997.

[[Page 63878]]

Company History

    The GOF identified the Ugine Division of Usinor as the only 
producer of the subject merchandise that exported to the United States 
during the POI.
    In the early 1980s, Ugine (then called Ugine Aciers) was one of 
several producers of stainless steel in France. In 1982, the French 
steel company Sacilor acquired a controlling interest in Ugine. In the 
following year, Sacilor bought a majority of the shares in another 
stainless steel producer, Forges de Gueugnon, which was merged with one 
part of Ugine and renamed Ugine-Gueugnon. During the same time, Usinor 
was a separate steel company with one division called Usinor Chatillon 
producing stainless steel. In 1987, the GOF placed Usinor and Sacilor 
in a holding company named Usinor Sacilor. At the same time, Ugine-
Gueugnon and Usinor Chatillon were combined into one company called 
Ugine Aciers de Chatillon et Gueugnon (Ugine ACG).
    In 1991, Ugine ACG merged with Sacilor and became Ugine s.a., a 
subsidiary of the Usinor Sacilor holding company. In 1994, Ugine s.a. 
was partially privatized when Usinor Sacilor sold approximately 40 
percent of its equity in the company to the general public. However, in 
1995, Usinor Sacilor bought back the shares in Ugine s.a. and obtained 
a near 100 percent control of the company. In late 1995, Ugine s.a. was 
converted into a division of Usinor Sacilor and became ``the Ugine 
Division,'' producing stainless steel and alloys. Finally, in 1997, 
Usinor Sacilor was renamed Usinor.
    The GOF was the majority owner of both Usinor and Sacilor until the 
mid-1980s. In 1986, the GOF emerged as the sole owner of both companies 
after a capital restructuring. In 1987, the GOF created the Usinor 
Sacilor holding company which continued to be wholly owned by the GOF 
until 1991 when Credit Lyonnais, a government-owned bank, bought 20 
percent of the equity in the company.
    In July 1995, the first partial privatization of Usinor Sacilor, 
combined with a capital increase, took place. The shares were sold 
through a public offering of shares which consisted of a French public 
offering, an international public offering, and an employee offering. 
In accordance with the French privatization law, a certain portion of 
the shares were also sold to a group of so-called ``stable 
shareholders,'' some of which were government-owned banks and other 
entities. After this privatization, the stable shareholders held 
approximately 15 percent of Usinor's total shares, 10 percent of which 
were held by government-owned or controlled entities. The GOF continued 
to own 9.8 percent of the shares directly. A second offering of shares 
to employees took place in June 1996.
    In early 1997, the GOF transferred (without remuneration) a small 
part of its stake in Usinor to individual French shareholders and 
company employees who had held on to their shares for 18 months 
following the July 1995 privatization. In October 1997, the GOF sold 
most of its remaining shares on the market, leaving it with 
approximately one percent of the shares. These shares were to be given 
away for free in August 1998.

Change in Ownership

    In the General Issues Appendix (GIA), attached to the Final 
Affirmative Countervailing Duty Determination: Certain Steel Products 
from Austria, 58 FR 37217, 37226 (July 9, 1993), we applied a new 
methodology with respect to the treatment of subsidies received prior 
to the sale of the company (privatization) or the spinning-off of a 
productive unit.
    Under this methodology, we estimate the portion of the purchase 
price attributable to prior subsidies. We compute this by first 
dividing the privatized company's subsidies by the company's net worth 
for each year during the period beginning with the earliest point at 
which nonrecurring subsidies would be attributable to the POI (i.e., in 
this case, 1984 for Usinor) and ending one year prior to the 
privatization. We then take the simple average of the ratios. The 
simple average of these ratios of subsidies to net worth serves as a 
reasonable surrogate for the percent that subsidies constitute of the 
overall value of the company. Next, we multiply the average ratio by 
the purchase price to derive the portion of the purchase price 
attributable to repayment of prior subsidies. Finally, we reduce the 
benefit streams of the prior subsidies by the ratio of the repayment 
amount to the net present value of all remaining benefits at the time 
of privatization. For further discussion of our privatization 
methodology, see, e.g., Preliminary Affirmative Countervailing Duty 
Determination and Alignment of Final Countervailing Duty Determination: 
Stainless Steel Plate in Coils From Italy, 63 FR 47246 (September 4, 
1998).
    With respect to spin-offs, consistent with the Department's 
position regarding privatization, we analyze the spin-off of productive 
units to assess what portion of the sale price of the productive units 
can be attributable to the repayment of prior subsidies. To perform 
this calculation, we first determine the amount of the seller's 
subsidies that the spun-off productive unit could potentially take with 
it. To calculate this amount, we divide the value of the assets of the 
spun-off unit by the value of the assets of the company selling the 
unit. We then apply this ratio to the net present value of the seller's 
remaining subsidies. We next estimate the portion of the purchase price 
going towards repayment of prior subsidies in accordance with the 
privatization methodology outlined above.
    In the current investigation, we are analyzing: (1) the 
privatization of Ugine in 1994 and the subsequent buy-back of Ugine's 
shares by Usinor (1995); (2) the 1994 sale of Centrale Siderurgique de 
Richemont (CSR); and (3) the privatization of Usinor in 1995, 1996 and 
1997.

Subsidies Valuation Information

Benchmarks for Loans and Discount Rates
    To calculate the countervailable benefit from loans and non-
recurring grants in 1997, we used Usinor's company-specific cost of 
long-term, fixed rate loans as reported by Usinor. For other years, we 
used the rates for average yields on long-term private sector bonds in 
France as published by the OECD. For years in which Usinor was 
determined to be uncreditworthy, we added a risk premium to the 
benchmark interest rate in accordance with the methodology consistent 
with our practice in Final Affirmative Countervailing Duty 
Determination: Certain Steel Products from France, 58 FR 37304 (July 9, 
1993) (Certain Steel from France).
Allocation Period
    In the past, the Department has relied upon information from the 
U.S. Internal Revenue Service (IRS) for the industry-specific average 
useful life of assets in determining the allocation period for non-
recurring subsidies. See the GIA. In British Steel plc v. United 
States, 879 F. Supp. 1254 (CIT 1995) (British Steel I), the U.S. Court 
of International Trade (the Court) held that the IRS information did 
not necessarily reflect a reasonable period based on the actual 
commercial and competitive benefit of the subsidies to the recipients. 
In accordance with the Court's remand order, the Department calculated 
a company-specific allocation period for non-recurring subsidies for 
Usinor Sacilor based on the average useful life (AUL) of its non-

[[Page 63879]]

renewable physical assets as 14 years. This remand determination was 
affirmed by the Court in British Steel plc v. United States, 929 F. 
Supp. 426 (CIT June 6, 1996) (British Steel II).
    As discussed below, the current investigation includes untied, non-
recurring subsidies that were found to be countervailable in Certain 
Steel from France--i.e., PACS, FIS, and Shareholders' Advances. Because 
we have already assigned a company-specific allocation period of 14 
years to those previously investigated subsidies, we preliminarily 
determine that it is more appropriate to continue to allocating those 
subsidies over 14 years.
    In the concurrent investigations of stainless steel sheet and strip 
from Italy and Korea, we invited parties to comment on whether an 
alternative approach may be more appropriate. One option identified is 
to determine an individual AUL for each year in which a non-recurring 
subsidy is provided to a company, rather than to determine a company-
specific AUL for non-recurring subsidies that could change with each 
investigation and result in different allocation periods for the same 
subsidy. We also welcome any additional comments on this issue not 
raised above.
    This investigation includes no other non-recurring subsidies that 
have been preliminarily determined to be countervailable. Accordingly, 
we have not calculated a new company-specific allocation period for 
subsidies not previously investigated. If it becomes necessary for the 
purposes of the final determination, we will calculate a new company-
specific allocation period for Usinor based on information provided in 
the current proceeding.
    Based upon our analysis of the petition and the responses to our 
questionnaires, we determine the following:

I. Programs Preliminarily Determined To Be Countervailable GOF 
Programs

A. Loans with Special Characteristics (PACS)

    A plan was agreed upon in 1978 to help the principal steel 
companies, Usinor, Sacilor, Chatillon-Neuves-Maisons, and their 
subsidiaries, restructure their massive debt. This plan entailed the 
creation of a steel amortization fund, called the Caisse 
d'Amortissement pour l'Acier (CAPA), for the purpose of ensuring 
repayment of funds borrowed by these companies prior to June 1, 1978. 
In accordance with the restructuring plan of 1978, bonds previously 
issued on behalf of the steel companies and pre-1978 loans from Credit 
National and Fonds de Developpement Economique et Social (FDES) were 
converted into ``loans with special characteristics,'' or PACS. As a 
result of this process, the steel companies were no longer liable for 
the loans and bonds, but did take on PACS obligations.
    In 1978, Usinor and Sacilor converted 21.1 billion French francs 
(FF) of debt into PACS. From 1980 to 1981, Usinor and Sacilor issued 
FF8.1 billion of new PACS. PACS in the amount of FF13.8 billion, FF12.6 
billion and FF2.8 billion were converted into common stock in 1981, 
1986 and 1991, respectively.
    In Certain Steel from France and Final Affirmative Countervailing 
Duty Determinations: Certain Hot Rolled Lead and Bismuth Carbon Steel 
Products from France, 58 FR 6221 (January 27, 1993) (Lead and Bismuth), 
the Department determined that the conversion of PACS to common stock 
in 1981 and 1986 constituted equity infusions on terms inconsistent 
with commercial considerations because Usinor Sacilor was found to be 
unequityworthy during those years. No new information or evidence of 
changed circumstances has been submitted in this proceeding to warrant 
a reconsideration of our earlier finding. Therefore, we continue to 
find that these equity infusions constitute countervailable subsidies 
within the meaning of section 771(5) of the Act. Using the allocation 
period of 14 years, the 1986 conversion of PACS continues to yield a 
countervailable benefit during our POI.
    Consistent with our practice in Certain Steel from France, we have 
treated the 1986 equity infusion as a non-recurring grant received in 
the year PACS were converted to common stock. Because Usinor was 
uncreditworthy in the year of receipt, we used discount rates that 
include a risk premium to allocate the benefits over time. 
Additionally, we followed the methodology described in the ``Change in 
Ownership'' section above to determine the amount of each equity 
infusion appropriately allocated to Usinor after its privatization. We 
divided this amount by Usinor's total sales during the POI. 
Accordingly, we preliminarily determine the countervailable subsidy to 
be 0.63 percent ad valorem.

B. Shareholders' advances

    The GOF provided Usinor and Sacilor grants in the form of 
shareholders' advances during the period 1982 to 1986. The purpose of 
these advances was to finance the revenue shortfall needs of Usinor and 
Sacilor while the GOF planned for the next major restructuring of the 
French steel industry. These shareholders' advances carried no interest 
and there was no precondition for receipt of these funds. These 
advances were converted to common stock in 1986.
    In Certain Steel from France and Lead and Bismuth, the Department 
determined that the shareholders' advances constituted countervailable 
grants because no shares were received for them. No new information or 
evidence of changed circumstances has been submitted in this proceeding 
to warrant a reconsideration of our earlier finding. Therefore, we 
continue to find that these grants constitute countervailable subsidies 
within the meaning of section 771(5) of the Act. Using the allocation 
period of 14 years, subsidies dating back to 1984 continue to provide 
countervailable benefits during the POI of this case.
    Consistent with our practice in Certain Steel from France, we have 
treated these advances as non-recurring grants. Because Usinor was 
uncreditworthy in the years of receipt, we used a discount rate that 
includes a risk premium to allocate the benefits over time. 
Additionally, we followed the methodology described in the ``Change in 
Ownership'' section above to determine the amount of each grant 
appropriately allocated to Usinor after its privatization. We divided 
this amount by Usinor's total sales during the POI. Accordingly, we 
preliminarily determine the countervailable subsidy to be 0.50 percent 
ad valorem.

C. Steel Intervention Fund (FIS)

    The 1981 Corrected Finance Law granted Usinor and Sacilor the 
authority to issue convertible bonds. In 1983, the Fonds d'Intervention 
Siderurgique (FIS), or steel intervention fund, was created to 
implement that authority. In 1983, 1984, and 1985, Usinor and Sacilor 
issued convertible bonds to the FIS, which in turn, with the GOF's 
guarantee, floated the bonds to the public and to institutional 
investors. These bonds were converted to common stock in 1986 and 1988.
    In Certain Steel from France and Lead and Bismuth, the Department 
determined that the conversion of FIS bonds to common stock in 1986 and 
1988 constituted equity infusions on terms inconsistent with commercial 
considerations because Usinor Sacilor was found to be unequityworthy 
during those years. No new information or evidence of changed 
circumstances has been submitted in this proceeding to warrant a 
reconsideration of our earlier finding. Therefore, we continue to find

[[Page 63880]]

that these equity infusions constitute countervailable subsidies within 
the meaning of section 771(5) of the Act. Using the allocation period 
of 14 years, the 1986 and 1988 conversions of FIS bonds yield a benefit 
during our POI.
    We have treated the 1986 and 1988 equity infusions as non-recurring 
grants given in the years the FIS bonds were converted to common stock. 
Because Usinor was uncreditworthy in the years of receipt, we used 
discount rates that include a risk premium to allocate the benefits 
over time. Additionally, we followed the methodology described in the 
``Change in Ownership'' section above to determine the amount of each 
equity infusion appropriately allocated to Usinor after its 
privatization. Dividing this amount by Usinor's total sales during the 
POI, we preliminarily determine the countervailable subsidy to be 1.60 
percent ad valorem.

D. Investment/Operating subsidies

    During the period 1991 to 1997, Usinor received investment and 
operating subsidies through a variety of government programs. The 
subsidies were provided by the following sources: 1) the European Coal 
and Steel Community (ECSC) for research and development; 2) health 
insurance offices for investments to reduce work-related illnesses and 
accidents, 3) water agencies for projects in the public interest, such 
as water protection, pollution control and water rehabilitation. The 
subsidies are classified as investment, equipment or operating 
subsidies depending on how the funds are used.
    Pursuant to section 771(5)(D)(i) of the Act, we preliminarily 
determine that these grants provide a financial contribution in the 
form of a direct transfer of funds from the ECSC and the GOF to Usinor, 
providing benefit in the amount of the grants.
    With the exception of ECSC grants, the GOF claims that these grants 
are not countervailable because they are not specific. Citing to the 
extreme burden of providing all pertinent details of each subsidy, 
however, the GOF has not provided any information to demonstrate that 
any of these grants are not specific. Therefore, as facts available, we 
preliminarily determine that these subsidies are specific under section 
771(5A)(D) of the Act.
    Because the investment/operating subsidies received during the 
period 1991-1997 are less than 0.5 percent of Usinor's sales during the 
respective years of receipt, we have expensed these grants in the years 
of receipt. To calculate the ad valorem rate of the subsidy, we divided 
the 1997 benefit by Usinor's total sales during the POI. Accordingly, 
we determine the countervailable subsidy to be 0.11 percent ad valorem.

E. Myosotis project

    Since 1988, Usinor has been developing an innovative continuous 
thin-strip casting process called ``Myosotis,'' in a joint venture with 
the German steelmaker Thyssen. The Myosotis project is intended to 
eliminate the separate hot-rolling stage of Usinor's steelmaking 
process by transforming liquid metal directly into a coil between two 
to five millimeters' thick.
    To assist this project, the GOF, through the Ministry of Industry 
and Regional Planning and L'Agence pour la Maitrise de L'Energie 
(AFME), entered into three agreements with Usinor Sacilor (in 1989) and 
Ugine (in 1991 and 1995). The first agreement, dated December 27, 1989, 
covered a three-year period and established schedules for the initial 
and subsequent payments to Usinor. These payments were contingent upon 
the submission of progress reports including a statement of investment 
outlays. The final payment was contingent upon the submission of a 
final program report and a statement of total expenses. The three 
installments were paid in 1989, 1991, and 1993. The 1991 Agreement 
between Ugine and the AFME covered the cost of some equipment for the 
project. This agreement resulted in two disbursements to Ugine from the 
AFME in 1991 and 1992. The 1995 agreement with Ugine provided interest-
free reimbursable advances for the final two-year stage of the project, 
with the goal of casting molten steel from ladles to produce thin 
strips. The first reimbursable advance was made in 1997. Repayment of 
one-third of the reimbursable advance is due July 31, 1999. The 
remaining two-thirds are due for repayment on July 31, 2001.
    We preliminarily determine that the assistance under this program 
constitutes a countervailable subsidy within the meaning of section 
771(5) of the Act. They provide financial contributions in the form of 
a direct transfer of funds from the GOF to Usinor. Pursuant to section 
771(5A)(D) of the Act, the reimbursable advance provides a benefit in 
the difference between the amount of the benchmark interest due and the 
zero interest paid by Usinor.
    With respect to specificity, the GOF has claimed that this program 
is available to all industrial sectors in France. However, the GOF has 
not supported its claim with documentation demonstrating that the 
program was used by other industries. Accordingly, we preliminarily 
determine that this program is specific within the meaning of section 
771(5A)(D) of the Act because the grants and the advance were provided 
exclusively to Usinor (and Thyssen).
    We preliminarily determine the subsidies provided between 1989 and 
1993 to be non-recurring grants based on the analysis set forth in the 
Allocation section of the GIA. Because the amounts received during 
these years were less than 0.5 percent of Usinor or Ugine's sales 
during their respective year of receipt, we expensed these grants in 
the years of receipt.
    With respect to the reimbursable advance received in 1997, we are 
treating this advance as a long-term interest-free loan. Pursuant to 
the Department's general practice regarding fixed-rate, long-term 
loans, we have assumed that a payment on a comparable commercial loan 
taken out at the same time would not be due until 1998. Because there 
would be no effect on Usinor's cash flow during the POI (i.e, no 
payment would have been made on a benchmark loan during the POI), we 
preliminarily determine that there is no benefit attributable to the 
POI. See GIA at 37228-29.
    Accordingly, we preliminarily determine the countervailable subsidy 
rate for this program to be 0.00 percent ad valorem.
    The GOF and Usinor have claimed that this program constitutes a 
noncountervailable (i.e., ``green-light'') research subsidy pursuant to 
section 771(5B)(B) of the Act. The GOF and Usinor note that in November 
1996, the EC approved the Myosotis assistance under Article 2 of the 
State Aids Code, which permits certain research and development 
assistance provided it does not exceed 25 percent of the total cost of 
the project. The GOF and Usinor argue that the Department likewise 
should find this program not countervailable because the project meets 
the requirements for ``green-light'' treatment as established under 
section 771(5B)(B) of the Act.
    We have not addressed this claim because the subsidy rate of 0.00 
percent as calculated above for this program, even treated as 
countervailable, has no impact on the net countervailable subsidy rate 
of this investigation.

F. Related party grants

    Usinor's financial statements identify ``grants from related 
parties'' in the years 1992-1995. Information provided by Usinor 
demonstrates that these grants do not constitute a separate program

[[Page 63881]]

from the Myosotis program and investment/operating subsidies discussed 
above. Specifically, a yearly breakdown of these grants shows that the 
amount of each grant corresponds to the amounts provided under the 
Myosotis program or investment/operating subsidies. Therefore, we have 
determined that this program will not be investigated as a separate 
program. See ``Myosotis'' and ``Investment/Operating Subsidies'' 
sections of this notice.

G. Ugine 1991 Grant

    Ugine's 1991 financial statements indicate that Ugine received FF 
26,318 thousand in subsidies and also note that FF 16,295 thousand of 
``share'' in subsidies were posted to income. Information provided by 
Usinor indicates that these amounts reflect the funds received under 
the Myosotis project as well as investment and operating subsidies. 
Specifically, a breakdown of these grants shows that the amount of each 
grant corresponds to the amounts provided under the Myosotis program or 
investment/operating subsidies. Because Myosotis and investment/
operating subsidies are being investigated separately in this 
proceeding, we have determined that this program will not be 
investigated as a separate program. See ``Myosotis'' and ``Investment/
Operating Subsidies'' sections of this notice.
EC Programs
    European Social Fund. The European Social Fund (ESF), one of the 
Structural Funds operated by the EC, was established in 1957 to improve 
workers' employment opportunities and raise their living standards. The 
main purpose of the Fund is to render the employment of workers easier 
and to increase their geographical and occupational mobility within the 
European Union. It provides support for vocational training, 
employment, and self-employment.
    The member states are responsible for identifying and implementing 
the individual projects that are selected to receive ESF financing. The 
member states must also contribute to the financing of the projects. In 
general, the maximum benefit provided by the ESF is 50 percent of the 
project's total cost for projects geared toward Objectives 2, 3, 4, and 
5b (see below). For Objective 1 projects, the ESF contributes a maximum 
of 75 percent of the project's total cost.
    Like the other EC Structural Funds, the ESF contributes to the 
attainment of the five different objectives identified in the EC's 
framework regulations for Structural Funds: Objective 1 is to promote 
development and structural adjustment in underdeveloped regions, 
Objective 2 addresses areas in industrial decline, Objective 3 relates 
to combating long-term unemployment and creating jobs for young people 
and people excluded from the labor market, Objective 4 focuses on the 
adaptation of workers to industrial changes and changes in production 
systems, and Objective 5 pertains to rural development. Recently, the 
EC added a sixth objective under which assistance is provided to 
sparsely populated areas in northern Europe.
    Ugine s.a. received an ESF grant for worker readaptation training 
in 1995. In the same year, the company also received an approximately 
equivalent amount from the GOF as cofinancing for the project. In 1997, 
the Ugine Division of Usinor received an ESF grant for training workers 
in a new production process at its cold-rolling mill in Isbergues. No 
GOF cofinancing of this project was received during the POI.
    The Department considers worker assistance programs to provide a 
countervailable benefit to a company when the company is relieved of a 
contractual or legal obligation it would otherwise have incurred. See 
Final Affirmative Countervailing Duty Determination: Certain Pasta From 
Italy, 61 FR 30287, 30294 (June 14, 1996) (Pasta From Italy). Usinor 
has stated that the ESF grants did not relieve the company of any 
contractual or legal obligations. The GOF has not provided any 
information as to whether the grants relieved the company of any such 
obligations and we have no information about the exact purpose or use 
of the 1995 grant. However, as discussed further below, its small size 
resulted in the grant being expensed in the year of receipt. We have, 
therefore, decided not to seek further information about the exact 
purpose of this grant or whether it relieved Ugine of any legal or 
contractual obligations.
    The 1997 grant was provided to train Ugine's workers in a new 
production process. Since companies normally incur the costs of 
training to enhance the job-related skills of their employees, we 
preliminarily determine that the 1997 ESF grant relieved Ugine of an 
obligation it would have otherwise incurred.
    We preliminarily determine that the 1997 ESF grant is 
countervailable within the meaning of section 771(5) of the Act. The 
grant is a financial contribution as described in section 771(5)(D)(i) 
of the Act which provides a benefit to the recipient in the amount of 
the grant.
    Consistent with prior cases, we have examined the specificity of 
the funding. Because the EC has not provided any information about the 
distribution of ESF grants, we are assuming for purposes of this 
preliminary determination, as facts available under section 776(b) of 
the Act, that the funds provided by the EC are specific.
    The Department normally considers the benefits from worker training 
programs to be recurring. See GIA at 37255. However, consistent with 
the Department's past practice and our understanding that ESF grants 
relate to specific, individual projects which require separate 
government approval, we are treating the benefit as a non-recurring 
grant. See Stainless Steel Wire Rod from Italy, 63 FR 40474, 40488 
(July 29, 1998) and Pasta from Italy at 30295. As stated above, the 
value of the 1995 ESF grant and the accompanying GOF contributions were 
less than 0.5 percent of Ugine's total sales in that year. Similarly, 
the 1997 ESF grant was less than 0.5 percent of Ugine's 1997 sales. 
Therefore, that grant was expensed in the year of receipt. Dividing the 
amount of the ESF grant by the Ugine Division's 1997 total sales, we 
preliminarily determine the countervailable subsidy to be 0.00 percent 
ad valorem for this program.

II. Programs Preliminarily Determined Not To Be Countervailable GOF 
Programs

A. Purchase of power plant

    In 1994, Usinor sold the shares of Centrale Siderurgique de 
Richemont (CSR) to Electricite de France (EDF), a government-owned 
entity. CSR was set up to convert gas generated by steel plants in the 
Lorraine region into electricity for sale to l'Union Siderurgique de 
L'Energie (USE). USE, in turn, sold the electricity to steel producers 
in the region. At the time of the transaction, both CSR and USE were 
owned by Usinor and Usinor factories purchased their electricity from 
USE.
    In addition to the physical assets of CSR (i.e., land, buildings, 
plant and equipment), the 1994 transaction also provided EDF the 
exclusive right to supply electricity to USE for a 15-year period. 
Prior to the transaction, Usinor and EDF conducted independent 
valuations of the transaction based on detailed projections of future 
costs and revenues associated with the operation of CSR and sales of 
electricity to USE. The projected revenues were calculated using 
detailed estimates of yearly outputs, consumption and rates. Similarly, 
projected costs were based on estimated costs for purchasing gas,

[[Page 63882]]

operating expenses, as well as costs for developing an electric power 
system. After negotiations, Usinor and EDF agreed on a purchase price 
of FF 1 billion, which represented a compromise between the independent 
valuations of the transaction by Usinor and EDF.
    We examined whether Usinor received more than a reasonable market 
price from the EDF in this transaction. We preliminarily determine that 
although FF 1 billion represented a large gain over the book value of 
CSR's physical assets, the purchase price was based on a reasonable 
valuation of the future sales of electricity by EDF to Usinor. The 
valuation is supported by reasonable estimates of projected costs and 
revenues. There is no evidence to indicate that the transaction was 
anything other than an arm's length transaction for full market value. 
Accordingly, we preliminarily determine that this program does not 
constitute a countervailable subsidy within the meaning of section 
771(5) of the Act.

B. Related party loans

    Usinor's 1992 and 1993 financial statements identify ``interest 
free loans to related parties'' in the amounts of FF 622 million in 
1993 and FF 455 million in 1992. According to Usinor, these loans 
consist of interest-free advances by Usinor and other Usinor Group 
entities to non-consolidated entities within the Usinor Group. 
Information provided by Usinor indicates that the funds for these loans 
were provided out of Usinor's self-generated cash flow. Because there 
is no financial contribution as defined under section 771(5)(D) of the 
Act, we preliminarily determine that these loans do not constitute a 
countervailable subsidy.

C. Work/training contracts

    Employers who hire young people (16-25 years of age) through 
various government-administered work/training or apprenticeship 
contracts may receive grants and an exemption from social security 
contributions. The contracts also impose training requirements for 
those employees and establish minimum compensation set in proportion to 
the SMIC (the indexed minimum wage) according to the age of the young 
person and the duration of the contract. This program is administered 
by Delegation Generale a l'Emploi et a la Formation Professionnelle of 
Ministere de l'Emploi et de la Solidarite at the national level, and 
locally by Directions Departementales du Travail, de l'Emploi et de la 
Formation Professionnelle (DDTEFP) (Departmental Labor, Employment and 
Professional Training Head Offices). The purpose of this program is to 
encourage the permanent employment of young people.
    Usinor has entered into two types of such contracts: (1) 
apprenticeship contracts and (2) contracts of specific duration 
(including qualification agreements and adaptation agreements). Any 
employer can hire an apprentice and enter into an apprenticeship 
contract providing training for the apprentice. Qualification and 
adaptation agreements require approval by the DDTEFP. Approval is 
dependent upon (1) adoption of an agreement with an educational 
institution or training entity; and (2) the company's approval of a 
standard agreement adopted by the GOF and an occupational organization. 
Usinor received lump-sum payments and exemptions from social security 
contributions as a result of these contracts.
    We analyzed whether the benefits provided under this program are 
specific ``in law or fact'' within the meaning of section 771(5A) of 
the Act. We preliminarily determine that the program is not de jure 
specific because the receipt of the benefits, in law, is not contingent 
on export performance or on the use of domestically sourced goods over 
imported goods; nor are the benefits limited to an enterprise, industry 
or region.
    Pursuant to section 771(5A)(D)(iii) of the Act, a subsidy is de 
facto specific if one or more of the following factors exists: (1) the 
number of enterprises, industries or groups thereof, which use a 
subsidy is limited; (2) there is predominant use of a subsidy by an 
enterprise, industry, or group; (3) there is disproportionate use of a 
subsidy by an enterprise, industry, or group; or (4) the manner in 
which the authority providing a subsidy has exercised discretion 
indicates that an enterprise or industry is favored over others. As 
explained in the Statement of Administrative Action (SAA) (H.R. Doc. 
No. 316, Vol. I, 103d Cong., 2d Session (1994) at 931), the fourth 
criterion normally serves to support the analysis of other de facto 
specificity criteria.
    Assistance under this program was distributed to a wide variety of 
industries in the majority of the regions of France. Therefore, the 
program is not limited based on the number of users. The evidence also 
indicates that the steel industry did not receive a predominant or a 
disproportionate share of the total funding. Given our findings that 
the number of users is large and that there is no predominant or 
disproportionate use of the program by the steel industry, we do not 
reach the issue of whether administrators of the program exercised 
discretion in awarding benefits. Accordingly, we preliminarily 
determine that this program is not specific and has not conferred 
countervailable subsidies within the meaning of section 771(5) of the 
Act.

D. Electric arc furnaces

    In 1996, the GOF agreed to provide assistance in the form of 
reimbursable advances to benefit Usinor's research and development 
efforts to improve and increase the efficiency of the melting process--
the first stage in steel production. The first disbursement of funds 
occurred on July 17, 1998.
    The Department deems benefits to have been received at the time 
that there is an effect on the recipient's cash flow. See GIA at 37228-
29. Because Usinor did not receive any payments until 1998, there is no 
benefit during the POI of this investigation. On this basis, we 
preliminarily determine that this program did not provide any 
countervailable benefits within the meaning of section 771(5) of the 
Act.

III. Programs Preliminarily Determined To Be Not Used

    Based on the information provided in the responses, we determine 
that Usinor did not apply for or receive benefits under the following 
programs during the POI:

GOF Programs

A. Export Financing under Natexis Banque Programs
B. DATAR Regional Development Grants (PATs)
C. DATAR 50 Percent Taxing Scheme
D. DATAR Tax Exemption for Industrial Expansion
E. DATAR Tax Credit for Companies Located in Special Investment Zone
F. DATAR Tax Credits for Research
G. GOF Guarantees
H. Long-Term Loans from CFDI

EC Programs

A. Resider II Program
B. Youthstart
C. ECSC Article 54 Loans
D. ECSC Article 56(2)(b) Redeployment/Readaptation Aid

E. Grants from the European Regional Development Fund (ERDF)

IV. Programs Preliminarily Determined Not To Exist

Forgiveness of shareholders' loans

    Usinor's 1994 and 1995 financial statements indicate that the 
balance in the account identified as ``loans granted

[[Page 63883]]

by the shareholders'' or ``borrowings granted by the shareholders'' was 
reduced from FF 2.161 billion in 1993 to FF 1.92 billion in 1994 (i.e., 
a reduction in the amount of FF 241 million). At the end of 1995, the 
balance in the same account was zero. The petitioners alleged that the 
reduction in the loan balance represented a debt forgiveness by the GOF 
in order to make the company more attractive to investors prior to its 
privatization.
    Information provided by Usinor and the GOF indicates that there was 
no loan forgiveness. Rather, the decreases of the loan balances in the 
financial statements represent a combination of loan payments by the 
company and the elimination of any disclosure requirement in accordance 
with GAAP, due to a reduction in shareholdings. Specifically, the 1995 
reduction reflects the elimination of disclosure requirements 
applicable to loans from Credit Lyonnais, as the result of the 
reduction in Credit Lyonnais' ownership interest in Usinor from 20 
percent to less than 10 percent at the time of Usinor's privatization. 
There were no disclosed shareholder loans at the end of 1995 because 
there were no shareholders with an interest of 10 percent or greater. 
International accounting standards require disclosure of transactions 
between a business entity and owners of more than 10 percent of shares. 
For 1994, the reduction is accounted for by repayments of certain 
outstanding loans during that year as supported by repayment 
documentation. On this basis, we preliminarily determine that this 
program does not exist.

V. Programs for Which We Need More Information

Resider I

    The EC's September 14, 1998 questionnaire response on Resider II 
included information about a predecessor program, Resider I, which was 
in effect between 1988 and 1992. The purpose of both Resider programs, 
which are financed by the EC's structural funds, is to diversify 
economic activities in steel-producing areas that are adversely 
affected by the restructuring of the steel industry.
    In its September 15, 1998 response, Usinor stated that it had not 
applied for, used, or benefitted from subsidies under Resider II during 
the POI. As indicated above, we have, therefore, preliminarily 
determined that Resider II was not used during the POI. However, with 
respect to Resider I, we asked Usinor in our October 2, 1998 
supplemental questionnaire if the company had received any form of aid 
under this program. In its October 22, 1998 supplemental response, the 
company stated that it had been unable to locate information to respond 
to this question but that it would try to do so for verification.
    The EC's response indicated that both Resider I and II are 
administered by government agencies in the member states and that these 
agencies maintain files on the individual companies that receive 
benefits under these programs. Therefore, in our October 2 supplemental 
questionnaire to the GOF, we requested information regarding Usinor's 
use of the Resider programs. In its October 22, 1998 response, the GOF 
stated that it had been unable to obtain this information but that it 
would try to do so for verification.
    Because we do not have sufficient information to make a preliminary 
determination with respect to Resider I, we have decided to seek more 
information on this program before our final determination.

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 have 
calculated an individual rate for Usinor, the sole manufacturer of the 
subject merchandise. We preliminarily determine that the total 
estimated net countervailable subsidy rate is 2.84 percent ad valorem. 
Because we only investigated one producer/exporter, Usinor's rate will 
also serve as the ``all others'' rate. Therefore, the ``all others'' 
rate is 2.84 percent ad valorem. In accordance with section 703(d) of 
the Act, we are directing the U.S. Customs Service to suspend 
liquidation of all entries of stainless steel sheet and strip in coils 
from France which are entered, or withdrawn from warehouse, for 
consumption on or after the date of the publication of this notice in 
the Federal Register, and to require a cash deposit or bond for such 
entries of the merchandise in the amounts indicated above. This 
suspension will remain in effect until further notice.

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all 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, Import Administration.
    In accordance with section 705(b)(2) of the Act, if our final 
determination is affirmative, the ITC will make its final determination 
within 45 days after the Department makes its final determination.

Public Comment

    In accordance with 19 CFR 351.310, we will hold a public hearing, 
if requested, to afford interested parties an opportunity to comment on 
this preliminary determination. The hearing is tentatively scheduled to 
be held 57 days from the date of publication of this preliminary 
determination, at the U.S. Department of Commerce, 14th Street and 
Constitution Avenue N.W., Washington, DC 20230. Individuals who wish to 
request a hearing must submit a written request within 30 days of the 
publication of this notice in the Federal Register to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, 14th Street and Constitution Avenue, NW., Washington, DC 20230. 
Requests for a public hearing should contain: (1) the party's name, 
address, and telephone number; (2) the number of participants; (3) the 
reason for attending; and (4) a list of the issues to be discussed. An 
interested party may make an affirmative presentation only on arguments 
included in that party's case brief and may make a rebuttal 
presentation only on arguments included in that party's rebuttal brief. 
Parties should confirm by telephone the time, date, and place of the 
hearing 48 hours before the scheduled time.
    In addition, six copies of the business proprietary version and six 
copies of the nonproprietary version of the case briefs must be 
submitted to the Assistant Secretary no later than 50 days from the 
publication of this notice. As part of the case brief, parties are 
encouraged to provide a summary of the arguments not to exceed five 
pages and a table of statutes, regulations, and cases cited. Six copies 
of the business proprietary version and six copies of the 
nonproprietary version of the rebuttal briefs must be submitted to the 
Assistant Secretary no later than 55 days from the publication of this 
notice. Written arguments should be submitted in accordance with 19 CFR 
351.309 and will be considered if received within the time limits 
specified above.

[[Page 63884]]

    This determination is published pursuant to sections 703(f) and 
777(i) of the Act.

    Dated: November 9, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-30736 Filed 11-16-98; 8:45 am]
BILLING CODE 3510-DS-P