(65 FR 10766, February 29, 2000)
                                                       C-122-815 (alloy)
                                                       C-122-815 (pure)
                                                       Sunset Review
                                                       Public Document

MEMORANDUM TO: Robert S. LaRussa
               Assistant Secretary
                for Import Administration

FROM:          Jeffrey A. May
               Director
               Office of Policy

SUBJECT:       Issues and Decision Memo for the Sunset Reviews of Alloy
               Magnesium and Pure Magnesium from Canada; Preliminary Results

Summary

We have analyzed the substantive responses and rebuttals of interested parties
in the sunset review of the countervailing duty orders covering alloy magnesium
and pure magnesium from Canada. We recommend that for our preliminary results
you approve the positions we have developed in the Discussion of the Issues
section of this memorandum. Below is the complete list of the issues in this
sunset review for which we received substantive responses and rebuttals by
parties:

1. Likelihood of continuation or recurrence of a countervailable subsidy
   A. Continuation of subsidy programs
   B. Elimination of subsidy programs
   C. Other factors

2. Net countervailable subsidy likely to prevail
   A. Rates from investigation
   B. Use of a more recent rate

3. Nature of the subsidy

History of the Orders

On July 13, 1992, the Department issued its final affirmative countervailing
duty determinations with respect to imports of alloy magnesium and pure
magnesium from Canada.(1) In the final determinations, the Department
calculated an estimated net subsidy of 21.61 percent ad valorem for Norsk Hydro
Canada Inc. ("NHCI") and "all other" producers/exporters, except for Timminco
Limited, which was excluded from the orders because it was found to have an
estimated net subsidy of zero in the original investigations.(2)

The Department determined that countervailable benefits were conferred under
three programs: Exemption from Payment of Water Bills, Article 7 ("SDI") Grants
from the Quebec Industrial Development Corporation, and Preferential Electric
Rates. In addition, Federal Funding for a Feasibility Study under the Canada-
Quebec Subsidiary Agreement on Industrial Development ("Federal Funding for a
Feasibility Study") was determined to convey countervailable subsidies but was
not included in the calculation of the net subsidy rate because in 1990 NHCI
reimbursed the Government of Quebec for the funds received and NHCI will not
receive any more assistance under this particular Subsidiary Agreement.

The Department issued its countervailing duty orders on alloy magnesium and
pure magnesium from Canada on August 31, 1992, including the net subsidy rate
of 21.61 percent ad valorem.(3)

Since the issuance of the orders, the Department has conducted six
administrative reviews and one changed circumstances review of these orders.(4)
On November 16, 1992, the Department issued the final results of its changed
circumstances review, in which the net subsidy rate was reduced to 7.61 percent
ad valorem for NHCI, after the Preferential Electric Rates program was found
not to confer a countervailable subsidy and was therefore subtracted from the
net subsidy rate. In the next six administrative reviews, the Department again
adjusted the net subsidy rate for NHCI to take into account programs that had
been terminated and the changing rate of amortization for the Article 7 SDI
grants.

Background

On August 2, 1999, the Department initiated sunset reviews of the
countervailing duty orders on alloy magnesium and pure magnesium from Canada
(64 FR 41915), pursuant to section 751(c) of the Act. The Department received a
notice of intent to participate on behalf of the Magnesium Corporation of
America ("Magcorp") on August 13, 1999, within the deadline specified in
section 351.218(d)(1)(i) of the Sunset Regulations. Pursuant to 19 U.S.C. 
1677(9)(C), Magcorp claimed interested party status as a domestic producer of
the subject merchandise. Moreover, Magcorp stated that it was a petitioner in
the original countervailing duty investigations and has participated in all of
the administrative reviews conducted by the Department. The Department received
a complete substantive response from Magcorp on September 1, 1999, within the
30-day deadline specified in the Sunset Regulations under section
351.218(d)(3)(i).

The Department also received a complete substantive response on behalf of NHCI
on September 1, 1999, within the deadline specified in the Sunset Regulations
under section 351.218(d)(3)(i). NHCI claimed interested party status under 19
U.S.C.  1677(9)(A) as a manufacturer and exporter of the subject merchandise
to the United States. In its substantive response, NHCI stated that it
participated in the original investigation and all of the subsequent
administrative reviews.

In addition, the Department received a substantive response on behalf of the
Government of Quebec ("GOQ") on September 1, 1999, within the deadline
specified in the Sunset Regulations under section 351.218(d)(3)(i). The GOQ
claimed interested party status under 19 U.S.C.  1677(9)(B) as a provincial
government of the country in which the subject merchandise is produced and from
which it is exported. The GOQ also claimed interested party status under 19
U.S.C.  1677(3), as a political subdivision of Canada and, therefore, the
"country" of Canada, where the subject merchandise is produced and from which
it is exported.

The Department determined that NHCI's and the GOQ's responses constituted an
adequate response to the notice of initiation. As a result, the Department
determined, in accordance with section 351.218(e)(2) of the Sunset Regulations,
to conduct a full (240 day) reviews.(5)

On September 13, 1999, the Department received rebuttal comments from Magcorp
NHCI, and the GOQ.(6)

In accordance with section 751(c)(5)(C)(v) of the Act, the Department may
treat a sunset review as extraordinarily complicated if it is a review of a
transition order (i.e., an order in effect on January 1, 1995). On November 30,
1999, the Department determined that the sunset reviews of the countervailing
duty orders on alloy magnesium and pure magnesium from Canada are
extraordinarily complicated pursuant to section 751(c)(5)(C)(v) of the Act, and
extended the time limit for completion of the preliminary results of these
reviews until not later than February 18, 2000, in accordance with section
751(c)(5)(B) of the Act.(7)

Discussion of the Issues

In accordance with section 751(c)(1) of the Act, the Department is conducting
these reviews to determine whether revocation of the countervailing duty orders
would be likely to lead to continuation or recurrence of a countervailable
subsidy. Section 752(b) of the Act provides that, in making this determination,
the Department shall consider the net countervailable subsidy determined in the
investigation and subsequent reviews, and whether any change in the program
which gave rise to the net countervailable subsidy has occurred that is likely
to affect that net countervailable subsidy. Pursuant to section 752(b)(3) of
the Act, the Department shall provide to the International Trade Commission
("the Commission") the net countervailable subsidy likely to prevail if the
order is revoked. In addition, consistent with section 752(a)(6), the
Department shall provide the Commission information concerning the nature of
the subsidy and whether the subsidy is a subsidy described in Article 3 or
Article 6.1 of the 1994 WTO Agreement on Subsidies and Countervailing Measures
("Subsidies Agreement").

Below we address the following issues contained in the substantive reponsese
and rebuttals of interested parties.

1. Likelihood of continuation or recurrence of a countervailable subsidy
   A. Continuation of subsidy programs
   B. Elimination of subsidy programs
   C. Other factors

2. Net countervailable subsidy likely to prevail
   A. Rates from investigation
   B. Use of a more recent rate

Continuation or Recurrence of a Countervailable Subsidy

Drawing on the guidance provided in the legislative history accompanying the
Uruguay Round Agreements Act ("URAA"), specifically the Statement of
Administrative Action ("the SAA"), H.R. Doc. No. 103-316, vol. 1 (1994), the
House Report, H.R. Rep. No. 103-826, pt.1 (1994), and the Senate Report, S.
Rep. No. 103-412 (1994), the Department issued its Sunset

Policy Bulletin providing guidance on methodological and analytical issues,
including the basis for likelihood determinations. The Department clarified
that determinations of likelihood will be made on an order-wide basis (see
section III.A.2 of the Sunset Policy Bulletin). Additionally, the Department
normally will determine that revocation of a countervailing duty order is
likely to lead to continuation or recurrence of a countervailable subsidy where
(a) a subsidy program continues, (b) a subsidy program has been only
temporarily suspended, or (c) a subsidy program has been only partially
terminated (see section III.A.3.a of the Sunset Policy Bulletin). Exceptions to
this policy are provided where a company has a long record of not using a
program (see section III.A.3.b of the Sunset Policy Bulletin).

Interested Parties' Comments

In its substantive response, Magcorp maintains that revocation of the
countervailing duty orders would likely lead to recurrence or continuation of
countervailable subsidies. Magcorp argues that the history of the proceeding
clearly shows that in the six years following the issuance of the orders, NHCI
continued to receive benefits from the various subsidy programs (see September
1, 1999, substantive response of Magcorp at 10). Specifically, Magcorp
maintains that the Article 7 SDI program, the Preferential Electric Rates
program, the Water Bill Exemption program, and the Federal Funding for a
Feasibility Study program all continue to exist.

Concerning the Article 7 SDI subsidy program, Magcorp maintains that it
continues to exist and has been incorporated into a new organization called
Investissement-Quebec ("I-Q") (see id. at 11). Moreover, Magcorp argues that
benefits under the SDI program will continue for at least another four years.

As for the Preferential Electric Rates subsidy program, Magcorp argues that
Hydro-Quebec (the electric power provider) has never renounced its policy of
providing preferential rates to favored customers, indicating that such rates
are still available (see id. at 14). Moreover, Magcorp asserts that Hydro-
Quebec continues to provide electric power to NHCI under Risk and Profit-
Sharing Contracts, where a portion of the electricity charge is based either on
the price of the customer's products or the customer's profitability (see id.
at 13-14). In addition, Magcorp argues that although in the changed
circumstances review the Department found that the electric power contract
between Hydro-Quebec and NHCI had been modified to eliminate the original
countervailable benefit, the Department did not find that the electric power
subsidy program had been modified in any way (see id. at 15). Magcorp argues
that the issue is whether a program has been changed, and, according to 19 CFR
 351.526(b), a program-wide change is one which (1) is not limited to an
individual firm or firms; and (2) is effectuated by an official act. In these
cases, argues Magcorp, the change was limited to an individual firm and was not
effectuated by an official act (see id. at 16). Therefore, argues Magcorp,
there has been no program-wide change since Hydro-Quebec and NHCI simply
changed an electric power contract to eliminate a countervailable benefit (see
id. at 16).

As for the Exemption of Payment of Water Bills, Magcorp states that it has no
information regarding the program's termination (see id. at 19).

Magcorp also maintains that the Federal Funding for a Feasibility Study
subsidy program continues to exist. Magcorp argues that the fact that program
continues to exist is demonstrated by the benefits recently made available to
Magnola Metallurgy Inc. ("Magnola"), a possible new Canadian producer of the
subject merchandise (see id. at 20).

NHCI argues in its substantive response that revocation of the countervailing
duty orders would not likely result in the recurrence or continuation of
countervailable subsidies. In fact, NHCI argues that the subsidy rate
established by the Department in the most recent administrative review was
minimal and entirely the result of an amortized non-recurring subsidy, which
will expire in 2004 (see September 1, 1999, substantive response of NHCI at 2).
Moreover, NHCI maintains that the programs under which subsidies were found in
the original investigation either have been terminated, have been found by the
Department not to confer a subsidy, have a long track record of non-use, or
will expire within "a reasonably foreseeable time" (see id. at 3).

NHCI maintains that the Exemption of Payment of Water Bills is not likely to
continue or recur since the Department already determined that this program was
terminated in the sixth administrative review with no residual benefits (see
id. at 4). In fact, NHCI argues that the exemption expired in June 1997 (see
id. at 4).

NHCI also argues that a subsidy based on preferential electric rates is not
likely to continue or recur since the Department found that the amended
electric contract did not confer a subsidy (see id. at 5). NHCI points out that
after it amended this contract, the Department found in a 1992 changed
circumstances review that the amended contract did not confer a subsidy.

As for the Article 7 SDI grant, NHCI maintains that it is not likely to
continue or recur because the Department already found that this grant was non-
recurring, based on a one-time authorization of funds. NHCI asserts that it has
not requested or received any additional funds under this program (see id. at
5). NHCI maintains that the benefits which were allocated over time are at a
minimal level and will expire completely within a reasonably foreseeable time
(see id. at 5-6).

The GOQ argues in its substantive response that revocation of the orders would
not likely lead to continuation or recurrence of subsidization because the
programs initially alleged or found to confer benefits either have been
terminated or are not used (see September 1, 1999, substantive response of the
GOQ at 4). Specifically, the GOQ maintains that the Department has determined
in the changed circumstances administrative review that the Federal Funding for
a Feasibility Study was terminated. Additionally, the GOQ argues that the
Department determined in the sixth administrative review that the Exemption of
Payment of Water Bills program had been terminated with no residual benefits.
As for the Preferential Electric Rates, the GOQ maintains that the Department
determined that the amended contract between NHCI and Hydro Quebec did not
confer a countervailable subsidy (see id. at 5-6).

Concerning the Article 7 SDI grants, the GOQ argues that because NHCI's SDI
grant was found to be non-recurring, by its very nature that grant will not
continue or recur if the orders are revoked (see id. at 6). The GOQ further
maintains that the fact that the Department elected to allocate the benefits
from the grant over a fourteen-year period in calculating the countervailing
duty rate cannot by itself justify the continued existence of these orders (see
id. at 6). In addition, the GOQ states that the Department specifically found
that the SDI program itself was not countervailable; instead, the Department
ruled that one particular grant to NHCI alone was specific and, therefore,
countervailable (see id. at 7). Furthermore, the GOQ maintains that no further
monies are available under the grant and renewal, depending on the amount of
the grant, would require legislative action. Therefore, the GOQ asserts that
the grant should be treated as terminated (see id. at 7). Moreover, the GOQ
argues that Article 21 of the Subsidies Agreement requires analysis of whether
continued subsidization will occur if the orders are revoked, and that the
Agreement does not permit the Department to continue the orders solely on the
basis of continued payment of unallocated benefits (see id. at 8).

In its rebuttal, Magcorp argues that the Government of Canada ("GOC") has
participated in all prior reviews of the orders and its failure to participate
in these reviews undermines the adequacy of respondents' response as a whole
(see September 13, 1999, rebuttal of Magcorp at 5-6). In addition, Magcorp
argues that the Federal Funding for a Feasibility Study has not been
terminated. Magcorp asserts that although the Department found in the original
investigation that the original Subsidiary Agreement was terminated, this does
not imply that the federal feasibility study subsidy program itself was
terminated. In fact, argues Magcorp, the original Subsidiary Agreement has been
replaced or renewed by other Subsidiary Agreements which provide funding for
the program.

Magcorp rebuts NHCI's and the GOQ's argument that the non-recurring nature of
the SDI Article 7 grant indicates that the normal sunset review treatment of
allocated subsidies does not apply. Magcorp states that the exception advocated
by NHCI and the GOQ would eliminate the general rule that allocated subsidies
extending beyond the end of the sunset review are dispositive of a likelihood
of continuation or recurrence of countervailable subsidies (see id. at 10-11).
Additionally, Magcorp rebuts the GOQ's claim that the SDI subsidy program
itself is not countervailable. Magcorp argues that in the original
investigation the Department explained that NHCI received a disproportionately
large share of assistance under the program and concluded that the program,
with respect to the assistance provided to NHCI, to be countervailable (see id.
at 11-12). Magcorp also argues that the GOQ does not and cannot assert that the
SDI program has been terminated; instead, Magcorp states, the GOQ only argues
that the grant has been terminated (see id. at 13). Magcorp maintains that
neither NHCI nor the GOQ has offered the Department any basis for departing
from its normal policy on allocated subsides (see id. at 15). Therefore,
Magcorp concludes that the undisputed fact that the benefit stream of the
allocated SDI subsidy will expire in the year 2004 demonstrates that there will
continue to be countervailable benefits after the completion of these reviews.

Magcorp also rebuts the Department's finding in the sixth (1997)
administrative review that the Exemption from Payment of Water Bills subsidy
program had been terminated, arguing that the Department's determination on
this issue is inconsistent with the preliminary results issued by the
Department. In fact, Magcorp maintains that exhaustion of a credit is not
evidence of an official act to modify or terminate a program and, therefore,
the Department should find in these reviews that the program continues to exist
and is likely to confer countervailable benefits should the orders be revoked
(see id. at 17).

NHCI rebuts Magcorp's statement that it is not aware of any information to the
effect that the Exemption of Payment of Water Bills program had been
terminated. NHCI points out that the Department determined in the sixth
administrative review that the program had in fact been terminated with no
residual benefit. NHCI also rebuts Magcorp's claim that the Preferential
Electric Rates program has not been terminated. NHCI argues that the amended
contract between Hydro-Quebec and NHCI eliminated any countervailable subsidy
and, thus, the program was created and terminated by administrative action (see
September 13, 1999, rebuttal of NHCI at 4). NHCI also adds that it is clear
that the Department carefully considered the provisions of the amended electric
power contract, including the Risk and Profit Sharing provisions, and made its
final determination that the amended contract did not confer a countervailable
benefit (see id. at 5).

NHCI also rebuts Magcorp's assertion that the SDI grants continue to confer
countervailable benefits. NHCI maintains that it received the full amount of
funds authorized and is not eligible for additional funds under this
authorization. Moreover, NHCI asserts that it has not received additional
funding from SDI or its successor, I-Q, since the 1991 disbursement and
contents that this non-use, in addition to the fact that the Department has
already found the original subsidy to constitute a one-time, non-recurring
authorization of funds, indicates that the subsidy is not likely to continue or
recur (see id. at 6). Furthermore, NHCI rebuts Magcorp's assertion that Magnola
should be subject to these reviews. NHCI maintains that Magcorp has provided no
evidence that Magnola is currently in commercial production or has sold the
subject merchandise in the United States, and in absence of such evidence
Magnola cannot be considered an exporter or producer subject to these sunset
reviews (see id. at 6-7).

The GOQ rebuts Magcorp's argument that the Article 7 SDI program continues to
exist. The GOQ maintains that the Department did not find the program to be
countervailable, but instead found only that the particular grant provided to
NHCI under the authority of Article 7 was disproportionate to others provided
in the same period. Therefore, argues the GOQ, where the original subsidy
finding was based on such a disproportionality determination rather than a
finding that the program itself was countervailable, the Department cannot make
a sunset finding that the subsidy action is likely to continue or recur on the
simple basis that the program remains alive (see September 13, 1999, rebuttal
of the GOQ at 3-4). In addition, the GOQ argues that in cases like this one,
where the program itself has not been found countervailable and where no
additional use of the program has occurred, the Department should readily find
that the "long track record" language of the Sunset Policy Bulletin and the SAA
is satisfied (see id. at 4). In addition, the GOQ asserts that the benefits
under the SDI program are the result of the Department's amortization approach
and are not the equivalent of continued subsidization (see id. at 4).

Moreover, the GOQ rebuts Magcorp's reference to the NHCI contract for
preferential electric rates as a "program," asserting that in the original
investigation, the Department investigated a single contract between NHCI and
Hydro-Quebec and the Department never made any finding that the Hydro-Quebec
rates to industrial users were a countervailable subsidy program. The GOQ
further maintains that the contract was later amended to eliminate the discount
provided to NHCI, and the Department found, in the changed circumstances
review, that no subsidization is occurring with respect to the electric rates
charged to NHCI (see id. at 5-7). Additionally, the GOQ asserts that Risk and
Profit Sharing agreement between Hydro-Quebec and NHCI was also found by the
Department in the changed circumstances review to not confer a countervailable
subsidy (see id. at 7).

Moreover, the GOQ also maintains that to the extent that the Exemption of
Payment of Water Bills could be considered a program, the Department determined
that the program expired in June 1997 (see id. at 8). The GOQ also asserts that
there is nothing to suggest that NHCI would attempt to renegotiate new
favorable water rates since the purpose of the original water concession has
been served and the concession has expired (see id. at 8-9). Furthermore, the
GOQ also argues that good cause does not exist for consideration of allegations
concerning Magnola, which is neither a producer nor an exporter of the subject
merchandise at this time, in these sunset reviews. The GOQ argues that the
Department's regulations do not require nor permit it to conduct a full
investigation into a potential new shipper as part of a sunset review. In
addition, argues the GOQ, the allegations concerning Magnola concentrate on
alleged subsidies which have never been investigated by the Department (see id.
at 10).

Department's Determination

Section 752(b) of the Act provides that, in making its determination, the
Department shall consider the net countervailable subsidy determined in the
investigation and subsequent reviews, and whether any change in the program
which gave rise to the net countervailable subsidy has occurred that is likely
to affect that net countervailable subsidy. In these cases, the Department
ruled that the Exemption from Payment of Water Bills has been terminated with
no residual benefits(8) and the Department also determined, in the changed
circumstances review, that the electricity contract between Hydro-Quebec and
NHCI does not provide a countervailable subsidy.(9) Additionally, the
Department determined in the original investigation that the funds provided by
the GOQ under the Federal Funding for a Feasibility Study program were not
countervailable.(10)

The only remaining program which confers a countervailable benefit is the
Article 7 SDI grants. The Department disagrees with NHCI and the GOQ that the
countervailable benefit from the SDI grant will not continue if the orders are
revoked. As we noted in the Sunset Policy Bulletin, the SAA at 889 provides
that with respect to subsidies for which benefits are allocated over time, the
Department will consider whether the fully allocated benefit stream is likely
to continue after the end of the review, without regard to whether the program
that gave rise to the long-term benefit continues to exist. Further, we stated
that we normally will determine that a countervailable subsidy will continue to
exist when the benefit stream, as defined by the Department, will continue
beyond the end of the sunset review (see section III.A.4 of the Sunset Policy
Bulletin). Even if NHCI's and the GOQ's assertions that the grant was a one-
time subsidy are true, the fact remains that based on amortization, NHCI will
continue to receive benefits until the year 2004, well after these sunset
reviews are completed. Therefore, consistent with the SAA and the Sunset Policy
Bulletin, we preliminarily determine that a countervailable subsidy is likely
to continue or recur if these orders were revoked.

We agree with NHCI and the GOQ that consideration of Magnola and potential
subsidies to Magnola in the course of these sunset reviews is not appropriate.
Magnola is neither a producer nor exporter of the subject merchandise and,
therefore, is not an interested party as defined in section 771(9) of the Act;
nor is Magnola subject to this order.

Net Countervailable Subsidy

Interested Parties' Comments

In its substantive response, Magcorp maintains that although the Department
can adjust the net countervailable subsidy rate from the original
investigation, where an administrative review of the order has been conducted
and the Department found that a program was terminated with no residual
benefits and no likelihood of reinstatement, there is no legal or factual
support for such a modification (see September 1, 1999, substantive response of
Magcorp at 22). Indeed, Magcorp argues that the post-investigation modification
of the electric power contract between Hydro-Quebec and NHCI was a company-
specific renunciation of subsidy benefits that cannot be considered for the
purposes of a sunset review (see id. at 23). Magcorp therefore concludes that
the net countervailable subsidy rate should include the Preferential Electric
Rates subsidy rate from the original investigation. In addition, Magcorp argues
that there is good cause to consider other programs which it claims are
currently being used by Magnola: the equity infusions made by the Societe
Generale de Financement du Quebec ("SGF") and the Workforce Development and
Training grants made by the Quebec Government ("Emploi-Quebec"). Magcorp argues
that good cause exists for considering these newly-alleged programs because
information regarding subsidies being conferred on Magnola was not available
during the most recent administrative review (see id. at 31-32). Magcorp also
maintains that neither SGF nor Emploi-Quebec has been investigated in other
investigations or reviews conducted by the Department (see id. at 25). Magcorp,
quoting the Sunset Policy Bulletin, states that the Department will consider
new subsidy allegations in the context of a sunset review where (1) information
on such a program was not reasonably available to domestic interested parties
during the most recently completed administrative review; and (2) the alleged
countervailable subsidy program came into existence after that administrative
review. Magcorp maintains that both of these criteria apply in these instant
reviews (see id. at 33). In conclusion, Magcorp argues that the net
countervailable subsidy rate likely to prevail if the orders were to be revoked
would be 21.61 percent ad valorem (see id. at 37).

NHCI, in its substantive response, states that if the Department declines to
revoke the orders, it should refer to the Commission a net subsidy rate of 1.22
percent ad valorem for the year 2000, based on the calculation methodology
already established for calculating amortized benefits under the SDI program,
since the only remaining subsidy allegedly benefitting NHCI is the one-time
grant received in 1990 and 1991 under the SDI program (see September 1, 1999,
substantive response of NHCI at 7-9). NHCI states that prior Department
practice and the Sunset Policy Bulletin provide no guidance as to the subsidy
rate to forward to the Commission for amortized subsidies. However, NHCI argues
that the rate calculated in the original investigation is not appropriate
because the Department has already established the amortized subsidy rate for
the year 2000 and for each year until 2004, when the amortization expires. NHCI
also argues that if the Department does not forward the 1.22 percent subsidy
rate, then it should forward to the Commission the rate of 1.84 percent
calculated in the sixth (1997) administrative review since it is the only
calculated rate which reflects the termination of programs, the results of the
changed circumstances review, and the amortization of the SDI subsidy through
the year 1997 (see id. at 11-12).

The GOQ argues that if the Department continues the orders on the basis that
continuation of the orders is necessary to capture the unallocated benefits
resulting from the countervailable SDI grant to NHCI, it follows that the
Department cannot refer a rate that represents anything other than the
unallocated portion of that specific grant, and, therefore, the rate determined
in the most recent administrative review is the most appropriate rate to
forward to the Commission (see September 1, 1999, substantive response of the
GOQ at 8). The GOQ also argues that given the unique nature of the grant and
the fact the NHCI is the only recipient of the grant and the only producer of
the subject merchandise, imposition of an "all others" rate would exaggerate
the level of injury that would be caused by the expiry of the orders. Thus, the
GOQ argues that an adjustment to the "all others" rate is necessary to account
for various changes that have occurred since the original investigation and
recommends a net subsidy rate of 1.21 percent be forwarded to the Commission
(see id. at 9).

Magcorp rebuts NHCI's and the GOQ's recommendation that the Department forward
to the Commission a net subsidy rate adjusted to take into account changes
which have taken place since the original investigation. Magcorp argues that
the respondents fail to cite any specific exception to the Department's normal
policy and the respondents' adjustment approach seems to be premised on the
assumption that the discipline of the countervailing duty orders has no impact
on the conferral of countervailable subsidies (see September 13, 1999, rebuttal
of Magcorp at 19). In conclusion, Magcorp again recommends the use of a net
countervailable subsidy rate of 21.61 percent ad valorem likely to prevail in
the event of revocation.

NHCI and the GOQ argue in their rebuttals that the rate Magcorp proposes to
use ignores the declining value of amortized benefits and the Department's
prior findings regarding the termination of certain programs. Therefore, NHCI
and the GOQ again recommend that the Department use a net subsidy rate of 1.22
percent (see September 13, 1999, rebuttal of NHCI at 7-8 and rebuttal of GOQ at
13-14).

Department's Determination

As discussed in the Sunset Policy Bulletin, the Department normally will
report to the Commission an original subsidy rate as adjusted to take into
account program-wide changes. Since the Department has determined that the
Exemption of Payment for Water Bills, the Preferential Electric Rates, and the
Federal Funding for a Feasibility Study have been terminated or are not
countervailable, we have subtracted the benefits arising from these programs
from the original net subsidy. The Department agrees with the respondents in
their argument that the amount of the amortized benefit for the Article 7 SDI
grants should be taken into account when determining the net subsidy. However,
we disagree that the subsidy rate of 1.22 percent, based on the calculation for
the year 2000, as recommended by NHCI and the GOQ, should be used. The rate of
1.84 percent is the most recently calculated rate available to the Department,
from the final results of the sixth (1997) administrative review. Therefore,
given that the only remaining program is the Article 7 SDI grants, the
Department preliminarily determines the net subsidy to NHCI of the subject
merchandise from Canada if the orders were revoked is 1.84 percent ad valorem.
The "all others" rate continues to be 4.48 percent ad valorem. Timminco is
excluded from the orders.

Nature of the Subsidy

In the Sunset Policy Bulletin, the Department stated that, consistent with
section 752(a)(6) of the Act, the Department will provide information to the
Commission concerning the nature of the subsidy and whether the subsidy is a
subsidy described in Article 3 or Article 6.1 of the Subsidies Agreement.

Neither Magcorp nor the respondents specifically mentioned the nature of the
subsidy in their responses.

Given that receipt of benefits under the Article 7 SDI program is not
contingent upon export, it does not fall within the definition of an export
subsidy under Article 3.1(a) of the Subsidies Agreement. The Article 7 SDI
grants may be a subsidy described in Article 6, if the net countervailable
subsidy exceeds 5 percent, as measured in accordance with Annex IV of the
Subsidies Agreement. The Department, however, has no information with which to
make such a calculation, nor do we believe it appropriate to attempt such a
calculation in the course of a sunset review.(11) Rather, we are providing the
Commission the following program description.

Article 7 ("SDI") Grants from the Quebec Industrial Development Corporation

Acting on special mandates from the GOQ, the SDI provides assistance under
Article 7 in the form of loans, loan guarantees, grants, assumptions of costs
on loans, and equity investments.

Recommendation

Based on our analysis of the comments received, we recommend adopting all of
the above positions. If these recommendations are accepted, we will publish the
preliminary results of review in the Federal Register.

AGREE____

DISAGREE____

Robert S. LaRussa
Assistant Secretary
 for Import Administration

(Date)

1. See Final Affirmative Countervailing Duty Determinations: Pure Magnesium
and Alloy Magnesium from Canada, 57 FR 30946 (July 13, 1992).

2. See Final Affirmative Countervailing Duty Determinations: Pure Magnesium
and Alloy Magnesium from Canada, 57 FR 30946 (July 13, 1992).

3. See Countervailing Duty Orders: Pure Magnesium and Alloy Magnesium from
Canada, 57 FR 39392 (August 31, 1992).

4. See Final Results of Changed Circumstances Administrative Reviews: Pure
Magnesium and Alloy Magnesium from Canada, 57 FR 54047 (November 16, 1992);
Pure and Alloy Magnesium from Canada: Final Results of the First (1992)
Countervailing Duty Administrative Reviews, 62 FR 13857 (March 24, 1997); Pure
and Alloy Magnesium from Canada: Final Results of the Third (1994)
Countervailing Duty Administrative Reviews, 62 FR 18749 (April 17, 1997); Pure
and Alloy Magnesium from Canada: Final Results of the Second (1993)
Countervailing Duty Administrative Reviews, 62 FR 48607 (September 16, 1997);
Pure and Alloy Magnesium from Canada: Final Results of the Fourth (1995)
Countervailing Duty Administrative Reviews, 62 FR 48812 (September 17, 1997);
Pure and Alloy Magnesium from Canada: Final Results of the Fifth (1996)
Countervailing Duty Administrative Reviews, 63 FR 45045 (August 24, 1998); Pure
and Alloy Magnesium from Canada: Final Results of Countervailing Duty
Administrative Reviews, 64 FR 48805 (September 8, 1999).

5. See Memorandum to Jeffrey A. May, RE: Sunset Reviews of Alloy Magnesium and
Pure Magnesium from Canada: Adequacy of Respondent Interested Party Response to
the Notice of Initiation, September 21, 1999.

6. On September 3, 1999, the Department received and granted a request from
Magcorp for a five working-day extension of the deadline for filing rebuttal
comments in this sunset review. This extension was granted for all participants
eligible to file rebuttal comments in this review. The deadline for filing
rebuttals to the substantive comments therefore became September 13, 1999.

7. See Extension of Time Limit for Preliminary Results of Full Five-Year
Reviews, 64 FR 66879 (November 30, 1999).

8. See Pure Magnesium and Alloy Magnesium from Canada: Final Results of
Countervailing Duty Administrative Reviews, 64 FR 48805 (September 8, 1999).

9. See Final Results of Changed Circumstances Administrative Reviews: Pure
Magnesium and Alloy Magnesium from Canada, 57 FR 54047 (November 16, 1992).

10. See Final Affirmative Countervailing Duty Determinations: Pure Magnesium
and Alloy Magnesium from Canada, 57 FR 30946 (July 13, 1992).

11. Moreover, we note that as of January 1, 2000, Article 6.1 has ceased to
apply (see Article 31 of the Subsidies Agreement).