64 FR 15508, March 31, 1999

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-823]

Final Affirmative Countervailing Duty Determination:
Stainless Steel Plate in Coils From Italy

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

EFFECTIVE DATE: March 31, 1999.

FOR FURTHER INFORMATION CONTACT: Cynthia Thirumalai, Craig W. Matney,
Gregory W. Campbell, or Alysia Wilson, AD/CVD Enforcement, Group I,
Office 1, Import Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW, Washington, DC 20230; telephone:
(202) 482-4087, 482-1778, 482-2239, or 482-0108, respectively.

Final Determination

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

The Petitioners

    The petition in this investigation was filed by Armco, Inc., J&L
Specialty Steels, Inc., Lukens Inc., AFL-CIO/CLC (USWA), Butler Armco
Independent Union and Zanesville Armco Independent Organization (the
petitioners).

Case History

    Since our preliminary determination on August 28, 1998 (Preliminary
Affirmative Countervailing Duty Determination and Alignment of Final
Countervailing Duty Determination with Final Antidumping Duty
Determination: Stainless Steel Plate in Coils from Italy, 63 FR 47246,
(September 4, 1998) (Preliminary Determination), the following events
have occurred:
    Between September 21 and October 16, 1998, we issued supplemental
questionnaires to the Government of Italy (GOI), the European
Commission (EC) and Acciai Speciali Terni (AST). We received responses
to these requests between October 9 and November 4, 1998. We conducted
verification in Belgium and Italy of the questionnaire responses of the
EC, GOI, and AST from November 11 through November 24, 1998. On January
5, 1999, we postponed the final determination of this investigation
until March 19, 1999 (see Countervailing Duty Investigations of
Stainless Steel Plate in Coils from Belgium, Italy, the Republic of
Korea, and the Republic of South Africa: Notice of Extension of Time
Limit for Final Determinations, 64 FR 2195 (January 13, 1999)). The
petitioners and AST filed case and rebuttal briefs on February 17 and
February 23, 1999. A public hearing was held on February 25, 1999.
After the hearing, at the Department's request, additional comments
were submitted by petitioners and respondents on March 2, 1999. On
March 12, 1999, the EC submitted additional comments.

Scope of Investigation

    For purposes of this investigation, the product covered is certain
stainless steel plate 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 plate
products are flat-rolled products, 254 mm or over in width and 4.75 mm
or more in thickness, in coils, and annealed or otherwise heat treated
and pickled or otherwise descaled. The subject plate may also be
further processed (e.g., cold-rolled, polished, etc.) provided that it
maintains the specified dimensions of plate following such processing.
Excluded from the scope of this investigation are the following: (1)
Plate not in coils, (2) plate that is not annealed or otherwise heat
treated and pickled or otherwise descaled, (3) sheet and strip, and (4)
flat bars.
    The merchandise subject to this investigation is currently
classifiable in the Harmonized Tariff Schedule of the United States
(HTSUS) at subheadings: 7219.11.00.30, 7219.11.00.60, 7219.12.00.05,
7219.12.00.20, 7219.12.00.25, 7219.12.00.50, 7219.12.00.55,
7219.12.00.65, 7219.12.00.70, 7219.12.00.80, 7219.31.00.10,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.11.00.00, 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, 7220.20.60.60, 7220.20.60.80, 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.

The Applicable Statute

    Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). In addition, unless otherwise indicated, all citations to the
Department's regulations are to the regulations codified at 19 CFR part
351 (1998).

Injury Test

    Because Italy 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 Italy materially injure, or threaten material
injury to, a U.S. industry. On May 28, 1998, the ITC published its
preliminary determination 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 Italy of the
subject merchandise (see Certain Stainless Steel Plate in Coils From
Belgium, Canada, Italy, Korea, South Africa, and Taiwan, 63 FR 29251
(May 28, 1998)).

Period of Investigation

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

Corporate History of AST

    Prior to 1987, Terni, S.p.A, (Terni), a main operating subsidiary
of Finsider, was the sole producer of stainless steel plate in coils in
Italy. Finsider was a holding company that controlled all state-owned
steel companies in Italy. Finsider, in turn, was wholly-owned by a
government holding company, Istituto per la Ricostruzione Industriale
(IRI). As part of a restructuring in 1987, Terni transferred its assets
to a new company, Terni Acciai Speciali (TAS).
    In 1988, another restructuring took place in which Finsider and its
main operating companies (TAS, Italsider, and Nuova Deltasider) entered
into liquidation and a new company, ILVA S.p.A., was formed. ILVA
S.p.A. took over some of the assets and liabilities of the liquidating
companies. With respect to TAS, part of its liabilities and the
majority of its viable assets, including

[[Page 15509]]

all the assets associated with the production of plate, transferred to
ILVA S.p.A. on January 1, 1989. ILVA S.p.A. became operational on the
same day. Part of TAS's remaining assets and liabilities were
transferred to ILVA S.p.A. on April 1, 1990. After that date, TAS no
longer possessed any operating assets. Only certain non-operating
assets remained in TAS.
    From 1989 to 1993, ILVA S.p.A. consisted of several operating
divisions. The Specialty Steels Division, located in Terni, produced
subject merchandise. ILVA S.p.A. was also the majority owner of a large
number of separately incorporated subsidiaries. Some of these
subsidiaries produced various types of steel products. Others
constituted service centers, trading companies, and an electric power
company, among others. ILVA S.p.A. together with its subsidiaries
constituted the ILVA Group (ILVA). ILVA was wholly-owned by IRI. All
subsidies received prior to 1994 were received by ILVA or its
predecessors.
    In October 1993, ILVA entered into liquidation and became known as
ILVA Residua. On December 31, 1993, two of ILVA's divisions were
removed and separately incorporated: AST and ILVA Laminati Piani (ILP).
ILVA's Specialty Steels Division was transferred to AST while its
carbon steel flat products operations were placed in ILP. The remainder
of ILVA's assets and liabilities, along with much of the redundant
workforce, was left in ILVA Residua.
    In December 1994, AST was sold to KAI Italia S.r.L. (KAI), a
privately-held holding company jointly owned by German steelmaker
Hoesch-Krupp (50 percent) and a consortium of private Italian companies
called FAR Acciai (50 percent). Between 1995 and the POI, there were
several restructurings/changes in ownership of AST and its parent
companies. As a result, at the end of the POI, AST was owned 75 percent
by Krupp Thyssen Stainless GmbH and 25 percent by Fintad Securities
S.A.

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)(Certain Steel from
Austria), we applied a new methodology with respect to the treatment of
subsidies received prior to the sale of a government-owned company to a
private entity (privatization), or the spinning-off (i.e., sale) of a
productive unit from a government-owned company to a private entity.
    Under this methodology, we estimate the portion of the purchase
price attributable to prior subsidies. We do this by first dividing the
sold 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 and ending one
year prior to the sale of the company. We then take the simple average
of these ratios. This averaged ratio serves as a reasonable estimate of
the percent that subsidies constitute of the overall value of the
company. Next, we multiply this ratio by the purchase price to derive
the portion of the purchase price attributable to the payment 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 the company is sold. For further
discussion of our methodology, see the Preliminary Determination, 63 FR
at 47247.
    With respect to the spin-off of a productive unit, consistent with
the Department's methodology set out above, we analyze the sales of a
productive unit to determine what portion of the sale price of the
productive unit 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. The result of this
calculation yields the amount of remaining subsidies attributable to
the spun off productive unit. We next estimate the portion of the
purchase price going towards repayment of prior subsidies in accordance
with the methodology set out above, and deduct it from the maximum
amount of subsidies that could be attributable to the spun off
productive unit. For further discussion of these issues, see Comment 1
below regarding the application of the methodology to an arm's-length
sale of a company, Comment 2 with respect to the calculation of the
ratio representing the percentage that subsidies constitute of the
overall value of a company, and Comment 3 on the calculation of the
purchase price used in the change-in-ownership methodology.
    After the 1994 privatization of AST, there were numerous changes in
the ownership structure of the parent companies of AST. Respondent
argues that the Department should apply its change-in-ownership
methodology to two of these transactions. Each of these sales involved
minority owners selling their interests in AST's parent companies. In
the Preliminary Affirmative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination with Final
Antidumping Duty Determination; Stainless Steel Sheet and Strip from
Italy, 63 FR 63900, 63902 (November 17, 1998) (Italian Sheet and
Strip), the Department applied its methodology to one transaction but
did not have the information with which to do so for the other.
    The petitioners oppose the application of the change-in-ownership
methodology. They argue that ownership transactions that fail to
transfer control of a company to an unrelated party do not warrant the
application of the change-in-ownership methodology. The petitioners
cite to Inland Bar Co. v. United States (Inland Bar), 155 F.3d 1370,
1374 (Fed. Cir. 1998) in which it is stated that a purchaser's
valuation of a company:

will depend not only on the intrinsic value of the unit, but also on
whether the purchaser opts to discharge the liability at purchase
time rather than continuing to pay countervailing duties until the
obligation expires. (Id. at 1374)

According to the petitioners, the Court's reasoning dictates that a
purchaser must be able to value a company's assets and liabilities,
assume the liabilities and opt to repay or reallocate the
countervailing duty liability. In order to do this, the petitioners
argue that a purchaser must take control of the company. In contrast,
Krupp has controlled AST since the 1994 privatization and only
strengthened its position by virtue of these post-privatization partial
changes in ownership, explain the petitioners.
    More specifically, AST's post-privatization partial changes in
ownership involved transfers of only minority stakes, according to the
petitioners. In such cases, argue the petitioners, the liability
remains with the current majority owners while the minority purchaser
simply buys into the subsidized company. As support, the petitioners
cite to the GIA, 58 FR at 37273, where the Department stated:

    A change in ownership position, whereby a company's percentage
of ownership fluctuates over time, is not a bona fide spin-off.
Therefore, we did not perform the spin-off calculation with regard
to change in ownership position.

The petitioners warn that application of the change-in-ownership
methodology

[[Page 15510]]

in such small share transactions that do not affect the control of a
company would create a loophole in the countervailing duty law whereby
each share transaction on the open market would constitute a change in
ownership. In effect, point out the petitioners, the privatization of a
company via stock issuance would result in extinguishment of subsidies
as each trade would result in a reallocation of those subsidies. The
petitioners also state that continued application of the change-in
ownership methodology involving minority transfers of ownership could
also provide an incentive for majority owners to manipulate share
transactions so as to eliminate countervailing duty liability.
    Finally, the petitioners argue that AST's partial changes in
ownership are distinguishable from those examined in Industrial
Phosphoric Acid from Israel: Final Results of Countervailing Duty
Administrative Review, 61 FR 53351, 53352 (October 11, 1996) (IPA from
Israel) where the Department applied its change-in-ownership
methodology to partial privatizations. Petitioner argues that AST's
private transactions do not warrant any repayment of subsidies as would
happen when a government sells a company (see Delverde I at 16-17). The
petitioners also note that in IPA from Israel the partial changes in
ownership for which the change-in-ownership methodology was applied
occurred on the same level of analysis that the subsidy analysis was
done. However, with AST, the petitioners argue that the partial changes
in ownership occurred at a higher level than the level at which the
subsidy analysis is properly done; thereby rendering the changes in
ownership irrelevant for purposes of a change-in-ownership analysis.
    AST argues that IPA from Israel clearly supports application of the
change-in-ownership methodology to all transactions including partial
changes in ownership unless application of the methodology would have
no affect on the final margin. While the case at hand involves private-
to-private partial changes in ownership and IPA from Israel involved a
public-to-private one, AST notes that the Department has found the
application of the change-in-ownership methodology to be appropriate in
private-to-private transfers of total ownership (see Final Affirmative
Countervailing Duty Determination: Certain Pasta (``Pasta'') From
Italy, 61 FR 30287, 30298 (June 14, 1996) (Pasta From Italy). Moreover,
AST points out that the application of the change-in-ownership
methodology in private-to-private transactions has been upheld by the
CIT (see Delverde, SrL. v. United States (Delverde II), 24 F. Supp. 2d
314 (CIT 1998).
    As for the petitioners' reliance upon Inland Bar to show that
control of the company must change in order for the change-in-ownership
methodology to be applicable, AST states that it is misplaced.
According to AST, the issue before the Court in Inland Bar was whether
Commerce's repayment methodology as articulated in the GIA, was
reasonable. AST also mentions that in IPA from Israel, there was no
change in control yet the Department applied the change-in-ownership
methodology. Because the change-in-ownership methodology seeks to
determine what portion of the purchase price of a company is
attributable to subsidy repayment, AST explains that its post-
privatization changes in ownership should be accounted for in that the
amount of money the owners of AST paid for the company was increased by
virtue of these transactions.
    For this final determination, we have determined that it is
inappropriate to apply our change in ownership methodology to AST's
post-privatization partial changes in ownership. While it is true that
the Department has applied its change in ownership methodology to
partial changes in ownership in the past, we agree with petitioners
that the facts presented here are unique and require a different
analysis. IPA from Israel involved the partial privatization of the
company for which we were measuring countervailable subsidies. The
transactions at issue in this case both involve the sale of a
relatively small amount of shares by minority owners of a holding
company two levels removed from the production of the subject
merchandise. Given the flexibility that the statute has conferred upon
the Department with respect to changes in ownership and the SAA's
guidance that we should examine changes in ownership on a case-by-case
basis, we have examined the unique facts of this case and find it
inappropriate to apply our change in ownership methodology. It would be
unreasonable and impracticable to reallocate subsidies every time a few
shares change hands; therefore, we must distinguish the circumstances
in which we will reallocate from those in which we will not. We need
not set forth the exact parameters under which we would but, rather, we
must examine the specific facts of each case. In this case, the
ownership interest transferred is relatively small and so remote from
the company upon which the subsidies were conferred that we do not
think it appropriate to reallocate the subsidies.
    We are not persuaded by petitioners' argument that a transaction
must involve a transfer of control in order for our methodology to be
applicable. However, we are deeply concerned that application of our
methodology to sales of private minority share interests such as these
could lead us toward the application of our methodology to daily
transactions on the open market for publicly traded companies--a
clearly absurd result that must be prevented. Moreover, for one of
these transactions, we have less than perfect source documentation
supporting the essential elements of the transaction. For these
reasons, we have not applied our change in ownership methodology to the
transactions at issue.

Subsidies Valuation Information

    Benchmarks for Long-term Loans and Discount Rates: Consistent with
the Department's finding in Final Affirmative Countervailing Duty
Determination: Certain Stainless Steel Wire Rod from Italy 63 FR at
40474, 40477 (October 22, 1997) (Wire Rod from Italy), we have based
our long-term benchmarks and discount rates on the Italian Bankers'
Association (ABI) rate. Because the ABI rate represents a long-term
interest rate provided to a bank's most preferred customers with
established low-risk credit histories, commercial banks typically add a
spread ranging from 0.55 percent to 4 percent onto the rate for other
customers, depending on their financial health.
    In years in which AST or its predecessor companies were
creditworthy, we added the average of that spread to the ABI rate to
calculate a nominal benchmark rate. In years in which AST or its
predecessor companies were uncreditworthy (see Creditworthiness section
below), we calculated the discount rates in accordance with our
methodology for constructing a long-term interest rate benchmark for
uncreditworthy companies. Specifically, we added to the ABI rate a
spread of four percent in order to reflect the highest commercial
interest rate available to companies in Italy. We added to this rate a
risk premium equal to 12 percent of the ABI, as described in
Sec. 355.44(b)(6)(iv) of the Department's 1989 Proposed Regulations,
(see Countervailing Duties; Notice of Proposed Rulemaking and Request
for Public Comment, 54 FR 23366, 23374 (May 31, 1989) (1989 Proposed
Regulations)). While the 1989 Proposed Regulations are not controlling,
they do represent the Department's practice for purposes of this
investigation.

[[Page 15511]]

    Additionally, information on the record of this case indicates that
published ABI rates do not include amounts for fees, commissions and
other borrowing expenses. Because such expenses raise the effective
interest rate that a company would experience, and because it is the
Department's practice to use effective interest rates, where possible,
we are including an amount for these expenses in the calculation of our
effective benchmark rates (see section 355.44(b)(8) of the 1989
Proposed Regulations and Final Affirmative Countervailing Duty
Determination: Certain Pasta from Turkey, 61 FR 30366, 30373 (June 14,
1996)). While we do not have information on the expenses that would be
applied to long-term commercial loans, the GOI supplied information on
the borrowing expenses on overdraft loans as an approximation of
expenses on long-term commercial loans. This information shows that
expenses on overdraft loans range from 6 to 11 percent of interest
charged. Accordingly, we increased the nominal benchmark rate by 8.5
percent, which represents the average reported level of borrowing
expenses, to arrive at an effective benchmark rate.
    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, 58 FR at
37227. In British Steel plc v. United States, 879 F. Supp. 1254 (CIT
1995) (British Steel I), the U.S. Court of International Trade (CIT)
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 CIT's remand order,
the Department calculated a company-specific allocation period for non-
recurring subsidies based on the average useful life (AUL) of non-
renewable physical assets. This remand determination was affirmed by
the court in British Steel plc v. United States, 929 F. Supp. 426, 439
(CIT 1996) (British Steel II). In recent countervailing duty
investigations, it has been our practice to follow the court's decision
in British Steel II, and to calculate a company-specific allocation
period for all countervailable non-recurring subsidies.
    After considering parties' comments and based upon our analysis of
the data submitted by AST regarding the AUL of its assets, we are using
a 12-year AUL for AST. This 12-year AUL is based on information in Wire
Rod from Italy, 63 FR at 40477, and Italian Sheet and Strip, 63 FR at
63903, which we find to be a good estimate of the AUL of the Italian
stainless steel industry. For an explanation of why we are rejecting
AST's company-specific AUL, see Comment 6.

Equityworthiness

    In measuring the benefit from a government equity infusion, the
Department compares the price paid by the government for the equity to
a market benchmark, if such a benchmark exists. In this case, a market
benchmark does not exist. We therefore examined whether AST's
predecessors were equityworthy in the years they received infusions.
See, Final Affirmative Countervailing Duty Determination: Steel Wire
Rod From Trinidad and Tobago, 62 FR 50003, 50004 (October 22, 1997)
(Wire Rod from Trinidad and Tobago). In analyzing whether a company is
equityworthy, the Department considers whether that company could have
attracted investment capital from a reasonable private investor in the
year of the government equity infusion, based on information available
at that time. See GIA, 58 FR at 37244. Our review of the record has not
led us to change our finding from that in Wire Rod from Italy, in which
we found AST's predecessors unequityworthy from 1986 through 1988, and
from 1991 through 1992, 63 FR 40474 at 40477.
    Consistent with our equity methodology described in the GIA, 58 FR
at 37239, we consider equity infusions into unequityworthy companies as
infusions made on terms inconsistent with the usual practice of a
private investor and, therefore, we have treated these infusions as
grants. This methodology is based on the premise that a finding by the
Department that a company is not equityworthy is tantamount to saying
that the company could not have attracted investment capital from a
reasonable investor in the year of the infusion. This determination is
based on the information available at the time of the investment.

Creditworthiness

    When the Department examines whether a company is creditworthy, it
is essentially attempting to determine if the company in question could
obtain commercial financing at commonly available interest rates. See,
e.g., Final Affirmative Countervailing Duty Determinations: Certain
Steel Products from France, 58 FR 37304 (July 9, 1993) (Certain Steel
from France); Final Affirmative Countervailing Duty Determination:
Steel Wire Rod from Venezuela, 62 FR 55014 (Oct. 21, 1997).
    Terni, TAS and ILVA were found to be uncreditworthy from 1986
through 1993 in Final Affirmative Countervailing Duty Determination:
Grain-Oriented Electrical Steel From Italy, 59 FR 18357, 18358 (April
18, 1994) (Electrical Steel from Italy) and in Wire Rod from Italy, 63
FR at 40477. No new information has been presented in this
investigation that would lead us to reconsider these findings. (See
Comment 13 below regarding the issue of AST's creditworthiness in
1993.) Therefore, consistent with our past practice, we continue to
find Terni, TAS and ILVA uncreditworthy from 1986 through 1993. See,
e.g., Final Affirmative Countervailing Duty Determinations: Certain
Steel Products from Brazil, 58 FR 37295, 37297 (July 9, 1993). We did
not analyze AST's creditworthiness in 1994 through 1997 because AST did
not negotiate new loans with the GOI or EC during these years.

I. Programs Determined To Be Countervailable

GOI Programs

A. Equity Infusions to Terni, TAS and ILVA

    The GOI, through IRI, provided new equity capital to Terni, TAS or
ILVA in every year from 1986 through 1992, except in 1989 and 1990. We
determine that these equity infusions constitute countervailable
subsidies within the meaning of section 771(5) of the Act. These equity
infusions constitute financial contributions, as described in section
771(5)(D)(i) of the Act, and because they were not consistent with the
usual investment practices of private investors (see Equityworthiness
section above) they confer a benefit within the meaning of section
771(5)(E)(i) of the Act. Because these equity infusions were limited to
Finsider and its operating companies, TAS and ILVA, we determine that
they are specific within the meaning of section 771(5A)(D) of the Act.
    We have treated these equity infusions as non-recurring allocable
benefits given in the year the infusion was received because each
required a separate authorization. Because Terni, TAS and ILVA were
uncreditworthy in the years of receipt, we used discount rates that
include a risk premium to allocate the benefits over time.
    For equity infusions originally provided to Terni and TAS, the
predecessor companies that produced stainless steel, we examined these
equity infusions as though they had

[[Page 15512]]

flowed directly through ILVA to AST when AST took all of the stainless
steel assets out of ILVA. Accordingly, we did not apportion to the
other operations of ILVA any part of the equity infusions originally
provided directly to Terni or TAS. While we acknowledge that it would
be our preference to look at equity infusions into ILVA as a whole and
then apportion an amount to AST when it was spun-off from ILVA, we find
our approach in this case to be the most feasible since information on
equity infusions provided to the non-stainless operations of ILVA is
not available. For the equity infusions to ILVA, however, we did
apportion these by asset value to all ILVA operations in determining
the amount applicable to AST because they were not tied to any specific
product.
    We applied the repayment portion of our change-in-ownership
methodology to all of the equity infusions described above to determine
the subsidy allocable to AST after it was sold. We divided this amount
by AST's total consolidated sales during the POI. Accordingly, we
determine the estimated net benefit to be 1.03 percent ad valorem for
AST.

B. Benefits From the 1988-90 Restructuring of Finsider <SUP>1</SUP>
---------------------------------------------------------------------------

    \1\ This program was referred to as Debt Forgiveness: Finsider-
to-ILVA Restructuring in Initiation of Countervailing Duty
Investigations: Stainless Steel Plate in Coils from Belgium, Italy,
the Republic of Korea, and the Republic of South Africa, 63 FR 23272
(April 28, 1998) (Initiation Notice)
---------------------------------------------------------------------------

    As discussed above in the Corporate History of AST section of this
notice, the GOI liquidated Finsider and its main operating companies in
1988 and assembled the group's most productive assets into a new
operating company, ILVA S.p.A. In 1990, additional assets and
liabilities of TAS, Italsider and Finsider went to ILVA.
    Not all of TAS's liabilities were transferred to ILVA S.p.A.;
rather, many remained with TAS and had to be repaid, assumed or
forgiven. In 1989, Finsider forgave 99,886 million lire of debt owed to
it by TAS. Even with this debt forgiveness, a substantial amount of
liabilities left over from the 1990 transfer of assets and liabilities
to ILVA S.p.A. remained with TAS. In addition, losses associated with
the transfer of assets to ILVA S.p.A. were left behind in TAS. These
losses occurred because the value of the transferred assets was written
down. As TAS gave up assets whose book values were higher than their
appraised values, it was forced to absorb the losses. These losses were
generated during two transfers as reflected in: (1) An extraordinary
loss in TAS's 1988 Annual Report and (2) a reserve against anticipated
losses posted in TAS's 1989 Annual Report with respect to the 1990
transfer.
    Consistent with our treatment of the 1988-90 restructuring in the
preliminary determination of this case and Electrical Steel from Italy,
59 FR at 18359, we determine that the debt and loss coverage provided
to ILVA constitutes a countervailable subsidy within the meaning of
section 771(5) of the Act. The debt and loss coverage provided a
financial contribution as described in section 771(5)(D)(ii) of the Act
and provided a benefit to the recipient in the amount of the debt and
loss coverage. Because this debt and loss coverage was limited to TAS,
AST's predecessor, we determine that it is specific within the meaning
of section 771(5A)(D) of the Act.
    In calculating the benefit from this program, we followed our
methodology in Electrical Steel from Italy, except for the correction
of a calculation error which had the effect of double-counting the
write-down from the first transfer of assets in 1988 by including it in
the calculation of losses generated upon the second transfer of assets
in 1990. We have treated Finsider's 1989 forgiveness of TAS' debt and
the loss resulting from the 1989 write-down as grants received in 1989.
The second asset write down and the debt outstanding after the 1990
transfer were treated as grants received in 1990. We treated these as
non-recurring grants because they were one-time, extraordinary events.
Because ILVA was uncreditworthy in these years, we used discount rates
that include a risk premium to allocate the benefits over time. As with
the equity infusions made into Terni and TAS, we have treated this debt
and loss coverage as though they flowed directly through ILVA to AST,
because we have no information on the debt and loss coverage provided
to the non-stainless operations of ILVA. We applied the repayment
portion of our change-in-ownership methodology to the debt and loss
coverage to determine the amount of the subsidy allocable to AST after
its privatization. We divided this amount by AST's total consolidated
sales during the POI. Accordingly, we determine the estimated net
benefit to be 2.81 percent ad valorem for AST.

C. Debt Forgiveness: ILVA-to-AST <SUP>2</SUP>
---------------------------------------------------------------------------

    \2\ Includes the following programs from the Initiation Notice:
Working Capital Grants to ILVA, 1994 Debt Payment Assistance by IRI,
and ILVA Restructuring and Liquidation Grant.
---------------------------------------------------------------------------

    As of December 31, 1993, the majority of ILVA's viable
manufacturing activities had been separately incorporated (or
``demerged'') into either AST or ILP; ILVA Residua was primarily a
shell company with liabilities far exceeding assets, although it did
contain some operating assets later spun-off. In contrast, AST and ILP,
now ready for sale, had operating assets and relatively modest debt
loads.
    We determine that AST (and consequently the subject merchandise)
received a countervailable subsidy in 1993 when the bulk of ILVA's debt
was placed in ILVA Residua, rather than being proportionately allocated
to AST and ILP. The amount of debt that should have been attributable
to AST but was instead placed with ILVA Residua was equivalent to debt
forgiveness for AST at the time of its demerger. In accordance with our
past practice, debt forgiveness is treated as a grant which constitutes
a financial contribution under section 771(5)(D)(i) of the ACT and
provides a benefit in the amount of the debt forgiveness. Because the
debt forgiveness was received only by privatized ILVA operations, we
determine that it is specific under section 771(5A)(D) of the Act.
    In the preliminary determination of Italian Sheet and Strip, 63 FR
at 63904, the amount of liabilities that we attributed to AST was based
on the EC's 9th Monitoring Report of the total cost of the liquidation
process to the GOI. However, for this final determination, we have re-
examined our methodology and determined that it is more appropriate to
base our calculation on the gross liabilities left behind in ILVA
Residua. See Comment 9 and the March 19, 1999 Memorandum on the 1993
Debt Forgiveness to Richard W. Moreland.
    In calculating the amount of debt forgiveness attributable to AST,
we started with the gross liabilities appearing on ILVA Residua's
consolidated December 31, 1993 balance sheet. This balance sheet
represents ILVA after the demergers of and associated debt transfers to
AST and ILP. From these gross liabilities, we subtracted amounts for
ILVA Residua's liquid assets (cash, bank accounts, etc.) and
liabilities eventually transferred to the companies sold from ILVA
Residua. We then subtracted the amount of the asset write-downs
specifically attributable to AST, ILP and other companies, and
attributed AST's portion of these write-downs to AST. Finally, we
subtracted the amount of liabilities (i.e., 253 billion lire) that was
attributed to Cogne Acciai Speciali

[[Page 15513]]

(CAS), an ILVA subsidiary that was left behind in ILVA Residua and
spun-off. This amount was countervailed in Wire Rod from Italy, 63 FR
at 40478. See Comments 10-14 below for further information on our
calculation methodology.
    The amount of liabilities remaining represents the pool of
liabilities that are not individually attributable to specific ILVA
assets. We apportioned this debt to AST, ILP and operations sold from
ILVA Residua based on their relative asset values. We used the total
consolidated asset values reported in AST and ILP's December 31, 1993
financial results, and used the sum of purchase price plus debts
transferred as a surrogate for the asset value of the operations sold
from ILVA Residua. Because we subtracted a specific amount of ILVA's
gross liabilities attributed to CAS in Wire Rod from Italy, we did not
include its assets in the amount of ILVA Residua's privatized assets.
Also, consistent with Italian Sheet and Strip, we did not include in
ILVA Residua's viable assets the assets of the one ILVA Residua company
sold to IRI, because this sale does not represent a sale to a non-
governmental entity.
    We treated the debt forgiveness to AST as a non-recurring grant
because it was a one-time, extraordinary event. The discount rate we
used in our grant formula included a risk premium based on our
determination that ILVA was uncreditworthy in 1993 (see Comment 13
below and March 19, 1999 Memorandum on the Appropriate basis for 1993
Creditworthiness Analysis of AST). We followed the methodology
described in the Change in Ownership section above to determine the
amount appropriately allocated to AST after its privatization. We
divided this amount by AST's total consolidated sales during the POI.
Accordingly, we determine the estimated net benefit to be 9.58 percent
ad valorem for AST.

D. Law 796/76: Exchange Rate Guarantees

    Law 796/76 established a program to minimize the risk of exchange
rate fluctuations on foreign currency loans. All firms that contract
foreign currency loans from the European Coal and Steel Community
(ECSC) or the Council of Europe Resettlement Fund (CERF) could apply to
the Ministry of the Treasury (MOT) to obtain an exchange rate
guarantee. The MOT, through the Ufficio Italiano di Cambi (UIC),
calculates loan payments based on the lira-foreign currency exchange
rate in effect at the time the loan is disbursed (i.e., the base rate).
The program establishes a floor and ceiling for exchange rate
fluctuations, limiting the maximum fluctuation a borrower would face to
two percent above or below the base rate. If the lira depreciates more
than two percent against the foreign currency, a borrower is still able
to purchase foreign currency at the established (guaranteed) ceiling
rate. The MOT absorbs the loss in the amount of the difference between
the guaranteed rate and the actual rate. If the lira appreciates
against the foreign currency, the MOT realizes a gain in the amount of
the difference between the floor rate and the actual rate.
    This program was terminated effective July 10, 1992, by Decree Law
333/92. However, the pre-existing exchange rate guarantees continue on
any loans outstanding after that date. AST had two outstanding ECSC
loans during the POI that benefitted from these guarantees.
    We determine that this program constitutes a countervailable
subsidy within the meaning of section 771(5) of the Act. This program
provides a financial contribution, as described in section 771(5)(D)(i)
of the Act, to the extent that the lira depreciates against the foreign
currency beyond the two percent limit. When this occurs, the borrower
receives a benefit in the amount of the difference between the
guaranteed rate and the actual exchange rate.
    In its responses to the Department's questionnaires, the GOI did
not provide information regarding the types of enterprises that have
used this program. However, during verification of the GOI, GOI
officials explained that over the last decade, roughly half of all
guarantees made under this program were given to coal and steel
companies. This is consistent with the Department's finding in a
previous proceeding that the Italian steel industry has been a dominant
user of the exchange rate guarantees provided under Law 796/76.
Therefore, we determine that the program is specific under section
771(5A)(D)(iii)(II) of the Act. See Final Affirmative Countervailing
Duty Determination: Small Diameter Circular Seamless Carbon and Alloy
Steel Standard, Line and Pressure Pipe From Italy, 60 FR 31996 (June
19, 1995).
    Once a loan is approved for exchange rate guarantees, access to
foreign exchange at the established rate is automatic and occurs at
regular intervals throughout the life of the loan. Therefore, we are
treating the benefits under this program as recurring grants. At
verification, we found that AST paid a foreign exchange commission fee
to the UIC for each payment made. We determine that this fee qualifies
as an ``* * * application fee, deposit, or similar payment paid in
order to qualify for, or to receive, the benefit of the countervailable
subsidy.'' See section 771(6)(A) of the Act. Thus, for the purposes of
calculating the countervailable benefit, we have added the foreign
exchange commission to the total amount AST paid under this program
during the POI. See Wire Rod from Italy, 63 FR at 40479.
    We have calculated the total countervailable benefit as the
difference between the total loan payment due in foreign currency,
converted at the current exchange rate, minus the sum of the total loan
payment due in foreign currency converted at the guaranteed rate and
the exchange rate commission. We divided this amount by AST's total
consolidated sales during the POI. Accordingly, we determine the
estimated net benefit to AST for this program to be 0.82 percent ad
valorem.

E. Law 675/77

    Law 675/77 was designed to provide GOI assistance in the
restructuring and reconversion of Italian industries. There are six
types of assistance available under this law: (1) Grants to pay
interest on bank loans; (2) mortgage loans provided by the Ministry of
Industry (MOI) at subsidized interest rates; (3) grants effectively to
reduce interest payments on loans financed by IRI bond issues; (4)
capital grants for the South; (5) value-added tax reductions on capital
good purchases for companies in the South; and (6) personnel retraining
grants.
    Under Law 675/77, IRI issued bonds to finance restructuring
measures of companies within the IRI group. The proceeds from the sale
of the bonds were then re-lent to IRI companies. During the POI, AST
had two outstanding loans financed by IRI bond issues. AST was
responsible for making semi-annual interest payments and annual
principal payments on these bond issues. In turn, AST applied for and
received reimbursements from the GOI for interest and expenses that,
when combined, exceed 5.275 percent semi-annually.
    We determine that these loans constitute a countervailable subsidy
within the meaning of section 771(5) of the Act. These loans provided a
financial contribution as described in section 771(5)(D)(i) of the Act,
and conferred a benefit to AST to the extent that the net interest rate
was lower than the benchmark rate. With regard to specificity, a number
of different industrial sectors have received benefits under Law 675/
77. However, in Electrical Steel from Italy, the

[[Page 15514]]

Department determined that assistance under this law was specific
because the steel industry was a dominant user of the program (the
steel industry received 34 percent of the benefits). See Electrical
Steel from Italy, 59 FR at 18361. In the instant proceeding, the GOI
submitted similar information regarding the distribution of benefits
under this program. At verification, the GOI stated that this program
bestowed benefits on a limited number of industries, one of which was
the steel industry. The new information submitted by the GOI is
consistent with the information submitted in Electrical Steel from
Italy. Therefore, consistent with our finding in Electrical Steel from
Italy, we find the program to be specific within the meaning of section
771(5A)(D) of the Act.
    To measure the benefit from these loans, we compared the benchmark
interest rate to the amounts paid by AST, less the reimbursements
applied for, on these loans during the POI. We divided the resulting
difference by AST's total consolidated sales during the POI. In our
calculations for the Preliminary Determination, we erred by applying
the change-in-ownership methodology to these loans. The loans at issue
here are variable-rate loans whose benefits are recurring/non-allocable
in nature. Since recurring benefits are not affected by our change-in-
ownership calculations, we have corrected our error by not reducing the
benefits from Law 675/77 loans (see GIA, 58 FR at 37263).
    We determine the estimated net benefit from this program to be 0.07
percent ad valorem for AST.

F. Law 10/91

    The GOI provided funds to AST under Law 10/91 for the development
of energy conserving technology. Law 10/91 authorized grants based on
applications submitted in 1991 and 1992, and was intended to fund
projects whose purpose was to save energy or promote the use of
renewable energy sources.
    This program was not included in the petition and, thus, not
addressed in the Department's initial questionnaire. Rather, in
response to a supplemental questionnaire issued after the preliminary
determination, AST stated that it had received grants under Law 10/91
both prior to and after the POI. In Italian Sheet and Strip, 63 FR at
63907, we did not determine the specificity of the program given the
limited information available on the record at the time. Since the
preliminary determinations in Italian Sheet and Strip and the instant
proceeding, we have collected and verified information regarding this
program.
    The aid AST received under Law 10/91, which constitutes a financial
contribution under section 771(5)(D)(i) of the Act, provides a benefit
in the amount of the grants received. Furthermore, we determine that
Law 10/91 is specific within the meaning of section 771(5A)(D)(iii) of
the Act. There is no indication that this program is de jure specific.
However, based on an examination of all the grants approved at the same
time as AST's project was approved, we find that both the steel
industry and AST's predecessor, ILVA, received a predominate and
disproportionate share of the benefits (see Memorandum to Susan H.
Kuhbach from Team, dated February 19, 1999.) Therefore, we determine
Law 10/91 grants to be countervailable.
    We treated these grants to AST as non-recurring because they
required separate approvals. Because the amount of grant AST received
prior to the POI was less than 0.5 percent of its sales in the year of
receipt, the benefit was expensed in that year. Section 355.44(b)(8) of
the 1989 Proposed Regulations and Wire Rod from Canada 62 FR at 54977.
Accordingly, we determine the estimated net benefit in the POI to be
0.00 percent ad valorem.

G. Pre-Privatization Employment Benefits (Law 451/94)

    Law 451/94 was created to conform with EC requirements of
restructuring and capacity reduction of the Italian steel industry. Law
451/94 was passed in 1994 and enabled the Italian steel industry to
implement workforce reductions by allowing steel workers to retire
early. During the 1994-1996 period, Law 451/94 provided for the early
retirement of up to 17,100 Italian steel workers. Benefits applied for
during the 1994-1996 period continue until the employee reaches his/her
natural retirement age, up to a maximum of ten years.
    In the Preliminary Determination, the Department determined that
the early retirement benefits provided under Law 451/94 are a
countervailable subsidy under section 771(5) of the Act. Law 451/94
provides a financial contribution, as described in section 771(5)(D)(i)
of the Act, because Law 451/94 relieves the company of costs it would
have normally incurred. Also, because Law 451/94 was developed for and
exclusively used by the steel industry, we determine that Law 451/94 is
specific within the meaning of section 771 (5A)(D) of the Act. No new
information has been submitted to warrant a reconsideration of this
finding.
    In the Preliminary Determination, we used the Cassa Integrazione
Guadagni-Extraordinario (``CIG-E'') program as our benchmark to
determine what the obligations of Italian steel producers would have
been when laying off workers. We compared the costs the steel companies
would incur to lay off workers under the CIG-E program to the costs
they incurred in laying off workers under Law 451/94. We found that the
steel companies received a benefit by virtue of paying less under Law
451/94 than what they would have paid under CIG-E.
    In Italian Sheet and Strip, 63 FR at 63908, we changed our
benchmark because we learned that the CIG-E program applied in
situations where the laid off workers were expected to return to their
jobs after the layoff period. Since the workers retiring early under
Law 451/94 were permanently separated from their company, we adopted
the so-called ``Mobility'' provision as our benchmark. Like Law 451/94,
the Mobility provision addressed permanent separations from a company.
    Since then, we have learned more about the GOI's unemployment
programs under Law 223 (including CIG-E and Mobility) and the early
retirement program under Law 451/94. Based on this information, we do
not believe that any of the alternatives described under Law 223
provides a benchmark per se for the costs that AST would incur in the
absence of Law 451/94. As noted above, the CIG-E program addresses
temporary lay offs. The Mobility provision serves merely to identify
the minimum payment the company would incur when laying workers off
permanently. Under the Mobility provision, the company is first
directed to attempt to negotiate a settlement with the unions prior to
laying-off workers permanently. Only if the negotiations fail will the
company face the minimum payment required under Mobility.
    Recognizing that AST would be required to enter into negotiations
with the unions before laying off workers, the difficult issue for the
Department is to determine what the outcome of those negotiations might
have been absent Law 451/94. At one extreme, the unions might have
succeeded in preventing any lay offs. If so, the benefit to AST would
be the difference between what it would have cost to keep those workers
on the payroll and what AST actually paid under Law 451/94. At the
other extreme, the negotiations might have failed and AST would have
incurred only the minimal costs described under Mobility.

[[Page 15515]]

Then the benefit to AST would have been the difference between what it
would have paid under Mobility and what it actually paid under Law 451/
94.
    We have no basis for believing either of these extreme outcomes
would have occurred. It is clear, given the EC regulations, that AST
would have laid off workers. However, we do not believe that AST would
simply have fired the workers without reaching accommodation with the
unions. Statements by GOI officials at verification indicated that
failure to negotiate a separation package with the union would lead to
labor unrest, strikes, and lawsuits. Therefore, we have proceeded on
the basis that AST's early retirees would have received some support
from AST.
    In attempting to determine the level of post employment support
that AST would have negotiated with its unions, we looked to AST's own
experience. As we learned at verification, by the end of 1993, the
company had established a plan for the termination of redundant workers
(as part of an overall ILVA plan). Under this plan, the early retirees
would first be placed on CIG-E as a temporary measure and then they
would receive benefits under Law 451/94. According to AST officials,
the temporary measure was needed because ``they were waiting for the
passage of the early retirement program under Law 451/94, which at the
time had not been implemented by the GOI.''
    This statement indicates that at the time an agreement was reached
with the unions on the terms of the lay offs, AST and its workers were
aware that benefits would be made available under Law 451/94. In such
situations, i.e., where the company and its workers are aware at the
time of their negotiations that the government will be making
contributions to the workers' benefits, the Department's practice is to
treat half of the amount paid by the government as benefitting the
company. See, GIA, 58 FR at 37225. In the GIA, the Department stated
that when the government's willingness to provide assistance is known
at the time the contract is being negotiated, this assistance is likely
to have an effect on the outcome of the negotiations. In these
situations, the Department will assume that the difference between what
the workers would have demanded and what the company would have
preferred to have paid would have been split between the parties, with
the result that one-half of the government payment goes to relieving
the company of an obligation that would exist otherwise. See, GIA, 58
FR at 37256. This methodology was upheld in LTV Steel Co. v. United
States, 985 F. Supp. 95, 116 (CIT 1997) (LTV Steel).
    Therefore, with respect to AST and its workers, we determine that:
(1) Under Italian Law 223, AST would have been required to negotiate
with its unions about the level of benefits that would be made to
workers permanently separated from the company, and (2) since AST and
its unions were aware at the time of their negotiations that the GOI
would be making payments to those workers under Law 451/94, the benefit
to AST is one half of the amount paid to the workers by the GOI under
Law 451/94. See Memorandum to Susan H. Kuhbach on Law 451/94-Early
Retirement Benefits dated March 19, 1999.
    Consistent with the Department's practice, we have treated benefits
to AST under Law 451/94 as recurring grants expensed in the year of
receipt. See GIA, 58 FR at 37226. To calculate the benefit received by
AST during the POI, we multiplied the number of employees by employee
type who retired early by the average salary by employee type. Since
the GOI was making payments to these workers equaling 80 percent of
their salary, and one-half of that amount was attributable to AST, we
multiplied the total wages of the early retirees by 40 percent. We then
divided this total amount by total consolidated sales during the POI.
On this basis, we determine the estimated net benefit to AST during the
POI to be 0.69 percent ad valorem.

H. Law 181/89: Worker Adjustment and Redevelopment Assistance
<SUP>3</SUP>
---------------------------------------------------------------------------

    \3\ Includes the Decree Law 120/89: Recovery Plan for Steel
Industry program contained in Initiation Notice.
---------------------------------------------------------------------------

    Law 181/89 was implemented to ease the impact of employment
reductions in the steel crisis areas of Naples, Taranto, Terni, and
Genoa. The law targeted four activities: (1) Promotion of investment in
reindustrialization, (2) promotion of employment, (3) promotion of
worker retraining, and (4) early retirement. One of AST's subsidiaries
received a grant under the reindustrialization component of Law 181/89
as partial compensation for acquiring equipment used in the processing
of subject merchandise.
    We determine that this program constitutes a countervailable
subsidy within the meaning of section 771(5) of the Act. This grant
under Law 181/89 constitutes a financial contribution under section
771(5)(D)(i) of the Act and provides a benefit in the amount of the
grant received. Because assistance is limited to steel-related
enterprises located in specified regions of Italy, we determine that
the program is specific under section 771(5A)(D) of the Act.
    The grant received by AST's subsidiary was disbursed in several
tranches prior to the POI. We treated each of the tranche as non-
recurring because they were all included in a single government grant
approval which was exceptional. Consistent with the Department's
methodology in the GIA, because the amount of each tranche, separately,
was less than 0.5 percent of AST's sales in the corresponding year, we
expensed the benefit of each tranche in that year. Consequently, we
determine the estimated net benefit to AST in the POI for this program
to be 0.00 percent ad valorem

J. Law 488/92

    Law 488/92 provides grants for industrial projects in depressed
regions of Italy. the subsidy amount is based on the location of the
investment and the size of the enterprise. The funds used to pay
benefits under this program are derived in part from the GOI and in
part from the Structural Funds of the European Union (EU). to be
eligible for benefits under this program, the enterprise must be
located in one of the regions in Italy identified as EU Structural
Funds Objective 1, 2 or 5b.
    We determine that this program constitutes a countervailable
subsidy within the meaning of section 771(5) of the Act. The grants are
a financial contribution under section 771(5)(D)(i) of the Act
providing a benefit in the amount of the grant. Because assistance is
limited to enterprises located in certain regions, we determine that
the program is specific under section 771(5A)(D) of the Act.
    According to AST officials, although the company has applied for
aid under this program, no approval has yet been granted and no funds
have yet been disbursed. Accordingly, we determine the estimated net
benefit to AST in the POI for this program to be 0.00 percent ad
valorem.

EU Programs

A. ECSC Article 54 Loans

    Article 54 of the 1951 ECSC Treaty established a program to provide
industrial investment loans directly to the member iron and steel
industries to finance modernization and purchase new equipment.
Eligible companies apply directly to the European Commission (EC)
(which administers the ECSC) for up to 50 percent of the cost of an
industrial investment project.
    The Article 54 loans are generally financed on a ``back-to-back''
basis. In other words, upon granting loan

[[Page 15516]]

approval, the ECSC borrows funds (through loans or bond issues) at
commercial rates in financial markets which it then immediately lends
back out to steel companies at a slightly higher interest rate. The
mark-up is sufficient to cover the costs of administering the Article
54 program.
    We determine that these loans constitute a countervailable subsidy
within the meaning of section 771(5) of the Act. This program provides
a financial contribution, as described in section 771(5)(D)(i) of the
Act, which confers a benefit to the extent the interest rate is less
than the benchmark interest rate. The Department has found Article 54
loans to be specific in several proceedings, including Electrical Steel
from Italy, 59 FR at 18362, and Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from Italy, 58 FR 37327, 37335
(July 9, 1993), (Certain Steel from Italy) because loans under this
program are provided only to iron and steel companies. The EC has also
indicated on the record of this investigation that Article 54 loans are
for steel undertakings. Therefore, we determine that this program is
specific pursuant to section 771(5A)(D) of the Act.
    AST had two long-term, fixed-rate loans outstanding during the POI,
each one denominated in a foreign currency. Consistent with Electrical
Steel from Italy, 59 FR at 18362, we have used the lira-denominated
interest rate discussed in the Subsidies Valuation Information section
of this notice as our benchmark interest rate because these loans
effectively had fixed exchange rates. The interest rate charged on one
of AST's two Article 54 loans was lowered part way through the life of
the loan. Therefore, for the purpose of calculating the benefit, we
have treated this loan as if it were contracted on the date of this
rate adjustment. We used the outstanding principal as of that date as
the new principal amount, to which the new, lower interest rate
applied. As our interest rate benchmark for both loans, we used the
long-term, lira-based rate in effect on the date the loan was
contracted. Because ILVA was uncreditworthy in the year these loans
were approved, the benchmark rate includes a risk premium.
    To calculate the benefit under this program, pursuant to section
771(5)(E)(ii) of the Act, we employed the Department's standard long-
term loan methodology. We calculated the grant equivalent and allocated
it over the life of each loan. As with the equity infusions made into
Terni and TAS, we have treated the benefits from these loans as though
they flowed directly through ILVA to AST, because we have no
information on such loans provided to the non-stainless operations of
ILVA. We followed the methodology described in the Change in Ownership
section above to determine the amount appropriately allocated to AST
after its spin-off from ILVA. We divided this benefit by AST's total
sales during the POI. Accordingly, we determine the estimated net
benefit to AST for these two loans together to be 0.12 percent ad
valorem.

B. European Social Fund

    The European Social Fund (ESF), one of the Structural Funds
operated by the EU, was established to improve workers' opportunities
through training and to raise workers' standards of living throughout
the European Community by increasing their employability. There are six
different objectives identified by the Structural Funds: Objective 1
covers projects located in underdeveloped regions, Objective 2
addresses areas in industrial decline, Objective 3 relates to the
employment of persons under 25, Objective 4 funds training for
employees in companies undergoing restructuring, Objective 5 pertains
to agricultural areas, and Objective 6 pertains to regions with very
low population (i.e., the far north).
    During the POI, AST received ESF assistance for projects falling
under Objectives 2 and 4. The Objective 2 funding was to retrain
production, mechanical, electrical maintenance, and technical workers,
and the Objective 4 funding was to train AST's workers to increase
their productivity.
    The Department considers worker training programs to provide a
countervailable benefit to a company when the company is relieved of an
obligation it would have otherwise incurred. See Pasta From Italy, 61
FR at 30294. Since companies normally incur the costs of training to
enhance the job-related skills of their own employees, we determine
that this ESF funding relieves AST of obligations it would have
otherwise incurred.
    Therefore, we determine that the ESF grants received by AST are
countervailable within the meaning of section 771(5) of the Act. The
ESF grants are a financial contribution as described in section
771(5)(D)(i) of the Act which provide a benefit to the recipient in the
amount of the grants.
    Consistent with prior cases, we have examined the specificity of
the funding under each Objective separately. See Wire Rod from Italy,
63 FR at 40487. In this case, the Objective 2 grants received by AST
were funded by the EU, the GOI, and the regional government of Umbria
acting through the provincial government of Terni. In Pasta From Italy,
61 FR at 30291, the Department determined that Objective 2 funds
provided by the EU and the GOI were regionally specific because they
were limited to areas within Italy which are in industrial decline. No
new information or evidence of changed circumstances has been submitted
in this proceeding to warrant reconsideration of this finding. The
provincial government of Terni did not provide information on the
distribution of its grants under Objective 2. Therefore, since the
regional government failed to cooperate to the best of its ability by
not supplying the requested information on the distribution of grants
under Objective 2, we are assuming, as adverse facts available under
section 776(b) of the Act, that the funds provided by the provincial
government of Terni are specific.
    In the case of Objective 4 funding, the Department has determined
in past cases that the EU portion is de jure specific because its
availability is limited on a regional basis within the EU. The GOI
funding was also determined to be de jure specific because eligibility
is limited to the center and north of Italy (non-Objective 1 regions).
See Wire Rod from Italy, 63 FR at 40487. AST has argued that this
decision is not reflective of the fact that ESF Objective 4 projects
are funded throughout Italy and all Member States, albeit under the
auspices of separate, regionally-limited documents (see Comment 15). We
agree with AST that it may be appropriate for the Department to revisit
its previous decision regarding the de jure specificity of assistance
distributed under the ESF Objective 4 Single Programming Document (SPD)
in Italy. Our decision in Wire Rod was premised upon our determination
in the Final Affirmative Countervailing Duty Determination; Certain
Fresh Atlantic Groundfish from Canada 51 FR 10055 (March 24, 1986),
(Groundfish from Canada). In that case, respondents argued that
benefits provided under the General Development Agreement (GDA) and
Economic and Regional Development Agreements (ERDA) were not specific
because the federal government had negotiated these agreements with
every province. We did not accept this argument because the GDAs and
ERDAs ``do not establish government programs, nor do they provide for
the administration and funding of government programs.'' Instead, the
Department analyzed the

[[Page 15517]]

specificity of the ``subsidiary agreements'' negotiated individually
under the framework of the GDA and ERDA agreements.
    In contrast to Groundfish from Canada, 51 FR at 10066, the
agreements negotiated between the EU and the Member States (i.e.,
Single Programming Documents and Community Support Frameworks) both
establish government programs and provide for the administration and
funding of such programs throughout the entirety of the European Union.
Therefore, if we were to consider all the EU-Member State agreements
together, we would arguably be unable to determine that the program is
de jure specific.
    Notwithstanding this argument, given the lack of information on the
use of Objective 4 funds by either the EC or GOI, we must, as adverse
facts available in the instant case, find the aid to be de facto
specific. Both the EC and GOI stated that they were unable to provide
the Department with the industry and region distribution information
for each Objective 4 grant in Italy despite requests in our
questionnaires and at verification. While the GOI, at verification,
provided a list of grantees that received funds under the multiregional
operating programs in non-Objective 1 regions, it declined the
opportunity to identify the industry and region of such grantees (see
February 3, 1999 memorandum on the Results of Verification of the GOI
at 16). Furthermore, the regional governments have refused to cooperate
to the best of their ability in this investigation despite Department
requests. Therefore, we continue to find that the aid received by AST
is specific.
    The Department normally considers the benefits from worker training
programs to be recurring. See GIA, 58 FR at 37255. However, consistent
with the Department's determination in Wire Rod from Italy, 63 FR at
40488, that these grants relate to specific, individual projects, we
have treated these grants as non-recurring grants because each required
separate government approval. Because the amount of funding for each of
AST's projects was less than 0.5 percent of AST's sales in the year of
receipt, we have expensed these grants received in the year of receipt.
Two of AST's grants were received during the POI. For these grants, we
divided this benefit by AST's total sales during the POI and calculated
an estimated net benefit of 0.01 percent ad valorem for ESF Objective 2
funds and 0.03 percent ad valorem for ESF Objective 4 funds.

II. Programs Determined To Be Not Countervailable

A. AST Participation in the THERMIE Program

    The EU provided funds to AST for the development of a pilot plant
through an EU program promoting research and development in the field
of non-nuclear energy (THERMIE). The objective of the THERMIE program
is to encourage the development of more efficient, cleaner, and safer
technologies for energy production and use. The THERMIE program is part
of a larger program categorized under the EU's Fourth Framework
Programme which covers activities in research and technological
development from 1994-1998.
    The objective of AST's demonstration plant is to reduce energy
consumption in the production of stainless steel by eliminating some of
the traditional production steps through the adoption of ``strip
casting'' technology. In Italian Sheet and Strip, as well as in the
instant proceeding, the EU has requested noncountervailable (green
light) treatment for this project as a research subsidy under section
771(5B)(B)(ii)(II) of the Act regarding precompetitive development
activities.
    In the instant proceeding and in Italian Sheet and Strip, the
Department preliminarily determined that the THERMIE program did not
merit green light treatment because it did not meet the statutory
requirement that ``the instruments, equipment, land or buildings be
used exclusively and permanently (except when disposed on a commercial
basis) for the research activity'' (see section 771(5B)(B)(i) (II) of
the Act). No new information has been submitted on the record in the
instant proceeding to warrant a reconsideration of this finding.
    However, in the preliminary determination we did not have
sufficient information to determine if the technology and the
demonstration plant provided a benefit to subject merchandise, nor did
we have information on the distribution of project funds by industry or
by company for the year in which AST's project was approved.
    Since the preliminary determination, the EU has submitted
information on the distribution of assistance under the THERMIE program
for 1995 and 1996. Based on the information on the record, there is no
indication that this program is de jure specific because eligibility is
not limited to certain industries or groups thereof. Additionally,
based on an examination of the distribution information, the program
benefitted a large number of users in different industries, and neither
AST nor the steel industry received a disproportionate share of the
benefits (see Memorandum to Susan Kuhbach from Team, dated February 19,
1999.) Therefore, we determine that the THERMIE program is not specific
within the meaning of section 771(5A)(D) of the Act and, consequently,
not countervailable.

IV. Other Programs Examined

A. Loan to KAI for Purchase of AST

    The government holding company, IRI, granted a loan to KAI for the
purchase of AST. The loan had two basic components: an installment loan
based on the up-front purchase price, and subsequent price adjustments.
While the installment loan functioned as a long-term loan, the price
adjustments were more akin to short-term extensions of credit. In
addition, the terms of the price adjustments were independent of the
terms of the installment loan. Accordingly, we regarded the price
adjustments to be distinct from the installment loan.
    We are not making a determination as to the countervailability of
either the installment loan or the price adjustments since they
separately yield no benefit. With respect to the installment loan, the
full amount was paid off prior to the POI; hence there was no benefit
during the POI. As for the short-term extensions of credit on the price
adjustments, the benefit potentially attributable to AST during the
POI, even using the most adverse of assumptions (e.g., no grace
period), is 0.00 percent ad valorem, when rounded.

B. Brite-EuRam

    At verification it was discovered that AST received a grant during
the POI under the Brite-EuRam program administered by the EC. This
program was not alleged in the petition. This program has been looked
at by the Department once before in Certain Hot-Rolled Lead and Bismuth
Carbon Steel Products From the United Kingdom; Final Results of
Countervailing Duty Administrative Review, 63 FR 18367, 18370 (April
15, 1998) (1996 UK Lead and Bismuth). However, in 1996 UK Lead and
Bismuth, the Department did not make a specificity determination with
respect to Brite-EuRam assistance because the amount received by the
respondent in that review was so small that it would not have impacted
the ad valorem rate.
    In this case, we have no information upon which to make a
specificity determination. In addition, because the use of the Brite-
EuRam program had not

[[Page 15518]]

been alleged or discovered in time to solicit adequate information from
all of the necessary respondents, we have no basis upon which to use
facts available with respect to this program. Accordingly, we are not
making a determination on the countervailability of the Brite-EuRam
program in this proceeding. Should an order be put in place, however,
we will solicit information on the Brite-EuRam program in a future
administrative review, if one is requested. See 19 CFR 351.311(c)(2).

V. Programs Determined To Be Not Used

GOI Programs
    A. Benefits from the 1982 Transfer of Lovere and Trieste to Terni
(called ``Benefits Associated With the 1988-90 Restructuring'' in the
Initiation Notice)
    B. Law 345/92: Benefits for Early Retirement
    C. Law 706/85: Grants for Capacity Reduction
    D. Law 46/82: Assistance for Capacity Reduction
    E. Debt Forgiveness: 1981 Restructuring Plan
    F. Law 675/77: Mortgage Loans, Personnel Retraining Aid and VAT
Reductions
    G. Law 193/84: Interest Payments, Closure Assistance and Early
Retirement Benefits
    H. Law 394/81: Export Marketing Grants and Loans
    I. Law 341/95 and Circolare 50175/95
    J. Law 227/77: Export Financing and Remission of Taxes

EU Programs
    A. ECSC Article 56 Conversion Loans, Interest Rebates and
Redeployment Aid
    B. European Regional Development Fund
    C. Resider II Program and Successors
    D. 1993 EU Funds

Interested Party Comments

    Comment 1. The Extinguishing v. Pass-Through of Subsidies during
Privatization. AST emphasizes that section 771(5)(F) of the Act directs
the Department to consider the facts of each change in ownership and
permits the Department to find that subsidies may be extinguished in
privatization transactions. In particular, AST argues that the Act does
not allow the Department to ignore events subsequent to the receipt of
a subsidy in the context of privatization. AST postures that the
Department's present privatization methodology does not adequately
address the question of whether subsidies are passed through to the
purchaser of a privatized firm. Instead, the privatization methodology
merely reduces the amount of subsidies that are attributed to the
purchaser.
    AST cites to section 771(5)(B) of the Act to show that for a
subsidy to exist, a benefit must be conferred. In order to determine
whether a benefit has been conferred, AST states the measure is that of
benefit to recipient (section 771(5)(E) of the Act). While
acknowledging that the Department's new regulations are not applicable
in this case, AST looks to them as potentially instructive to the
extent that they restate prior policy where they state that the
Department normally will consider a benefit to be conferred where a
firm pays less for its inputs than it otherwise would pay (19 CFR
Section 351.503(b)). AST argues that if the normal benefit conferred by
a subsidy is the artificially reduced cost to the company of an input,
then the benefit no longer exists after a market-value privatization.
AST points to the open bidding process used to select the ultimate
buyer of AST as evidence that full market value was paid and argues
accordingly, that prior subsidies were extinguished upon privatization.
    The petitioners cite to section 771(5)(F) of the Act where it
states that a change in ownership does not require an automatic finding
of no pass through of subsidies, even if accomplished by an arm's-
length transaction. In addition, the petitioners cite to the Statement
of Administrative Action (SAA) which notes that the statutory provision
is intended to ``correct and prevent such an extreme interpretation''
as the idea that subsidies are automatically eliminated in an arm's-
length sale see SAA H.R. Rep. No. 103-316, at 928 (1994). Contrary to
AST's claim that the Department has never really faced the issue of
whether an arm's-length sale extinguishes subsidies under the URAA, the
petitioners mention Wire Rod from Italy in which the Department
rejected the assertion that an arm's-length privatization at market
value extinguished prior subsidies. The petitioners also point out that
the Department's repayment calculation was upheld by the CIT (see
Delverde II and British Steel PLC v. United States (British Steel IV),
27 F. Supp 2d 209 (CIT 1998)). In particular, the petitioners quote
British Steel IV where the court says at page 216:

As the equations developed by Commerce satisfy the statutory goal of
identifying the value of the net subsidies initially provided and as
the equations identify a relationship between the net subsidies over
time and the value of the corporation at privatization, this Court
finds the equations developed by Commerce to apply its repayment
methodology are a reasonable interpretation of the statute and are
otherwise in accordance with law.

    Department's Position. Under our existing methodology, we neither
presume automatic extinguishment nor automatic pass through of prior
subsidies in an arm's-length transaction. Instead, our methodology
recognizes that a change in ownership has some impact on the allocation
of previously bestowed subsidies and, through an analysis based on the
facts of each transaction, determines the extent to which the subsidies
pass through to the buyer. In the instant proceeding, the Department
relied upon the pertinent facts of the case in determining whether the
countervailable benefits received by AST predecessor companies passed
through to AST. Following the GIA methodology, the Department subjected
the level of previously bestowed subsidies and AST's purchase price to
a specific, detailed analysis. This analysis resulted in a particular
``pass through ratio'' and a determination as to the extent of
repayment of prior subsidies. On this basis, the Department determined
that when AST was privatized a portion of the benefits received by ILVA
passed through to AST and a portion were repaid to the government. This
is consistent with our past practice and has been upheld in the Federal
Circuit in Saarstahl AG v. United States, 78 F.3d 1539 (Fed. Cir. 1996)
(Saarstahl II), British Steel plc v. United States, 127 F.3d 1471 (Fed.
Cir. Oct. 24, 1997) (British Steel II) and Delverde II.
    The Department rejects AST's argument that an arm's-length
transaction at fair market value extinguishes any previously bestowed
subsidies because no benefit was conferred. As explained in the Remand
Determination Pursuant to Delverde. SrL v. United States, 989 F. Supp.
218 (CIT 1997), (Delverde Remand), the countervailable subsidy amount
is fixed at the time that the government bestows the subsidy. The sale
of a company, per se, does not and cannot eliminate this potential
countervailability because the countervailing duty statute ``does not
permit the amount of the subsidy, including the allocated subsidy
stream, to be revalued based upon subsequent events in the market
place.'' GIA, 58 FR at 37263. The Federal Circuit Saarstahl II
addressed the Department's privatization methodology and ``specifically
stated that the Department does not need to demonstrate competitive
benefit.''
    Furthermore, AST's contention that the sale of AST was an arm's-
length,

[[Page 15519]]

market-valued transaction does not demonstrate that previous subsidies
were extinguished. <SUP>4</SUP> Section 771(5)(F) of the Act states
that the change in ownership of the productive assets of a foreign
enterprise does not require an automatic finding of no pass through
even if accomplished through an arm's-length transaction. Section
771(5)(F) of the Act instead leaves the choice of methodology to the
Department's discretion. Additionally, the SAA directs the Department
to exercise its discretion in determining whether a privatization
eliminates prior subsidies by considering the particular facts of each
case. SAA at 928.
---------------------------------------------------------------------------

    \4\  For example, the precise selection criteria used by the GOI
in selecting a buyer apparently were never made clear. Company
officials at verification, for example, could not explain the basis
upon which their bid was selected over other bids. Moreover, based
on the questionnaire responses and verification, it is clear that
the GOI required potential purchasers to make certain commitments
with respect to the operations of the company after privatization.
Additionally, based on statements made by company officials at
verification, the GOI may have required that any potential bidder
include some degree of participation by Italian companies. Given
these circumstances, it could be argued that the price received by
the GOI did not reflect the full market value of the company.
---------------------------------------------------------------------------

    The Department's methodology requires it to consider and rely upon
several facts particular to the change of ownership at issue. In this
investigation, these facts included the nature of the previously
bestowed subsidies, the amounts of those subsidies, the time when those
subsidies were bestowed, the appropriate period for allocating the
subsidies, the net worth over time of the company sold, and the amount
of the purchase price. On the basis of these facts, the Department
determined the ultimate repayment of the prior subsidies to the GOI. In
sum, the Department considered all of the factual evidence presented by
AST, and then properly followed its existing methodology. Furthermore,
this methodology was upheld by the Federal Circuit in Saarstahl II,
British Steel II and (Delverde II).
    Comment 2. Calculation of ``Gamma''. Should the Department continue
to find that subsidies were not extinguished during the arm's-length
purchase of AST, AST argues that the Department should revise its
calculation of ``gamma,'' the measure of the percentage that prior
subsidies constitute of the overall value of the company. Presently,
gamma is calculated by taking the ratio of the nominal value of
subsidies received each year over the company's net worth for every
year in the AUL prior to privatization, and then taking a simple
average of those ratios. AST argues that this calculation is distortive
as evidenced by the fact that if gamma were multiplied by a firm's
equity at any given date, the result would not equal the present value
of the subsidy stream. Instead, AST proposes calculating gamma by
taking the ratio of the present value of remaining subsidies to assets
in the year of privatization. This asset-based calculation of gamma,
argues AST, would result in a more reasonable standard upon which to
measure the level of subsidization by more accurately measuring the
amount of subsidies ``imbedded'' in the assets. According to AST, a
buyer acquires assets, not the seller's equity, and the buyer's equity
position is independent of the seller's. In addition, AST notes that
equity as a percentage of assets can change drastically over time due
to many factors, some of which are beyond the control of the company,
as opposed to assets which are more constant. In addition to using
assets as a reasonable basis upon which to measure subsidization, AST
states that its proposed method for calculating gamma would be more
consistent with the Department's grant amortization methodology which
also assumes that benefits from grants extend over time as opposed to
just the year of receipt.
    The petitioners take issue with using the present value of subsides
in the year of privatization as opposed to the nominal values received
in the years preceding the same. According to the petitioners, using
the present value in the year of privatization would be tantamount to
``revaluing'' the subsidies in a year other than that in which they
were received. The petitioners argue that such a revaluation would be
contrary to Department practice as articulated in the GIA, 58 FR at
37263, in which it is stated that the countervailable subsidy and the
amount of it to be allocated over time are fixed at the time of
bestowal. The petitioners also imply that performing such a revaluation
would be equivalent to looking at the effects of the subsidies which is
prohibited by section 771(5)(C)) of the Act. The petitioners emphasize
that the Department's present methodology has been upheld by CIT. In
addition, the petitioners point out that the Department rejected the
use of the present value of remaining subsidies in Wire Rod from
Trinidad and Tobago, 62 FR at 55011. In any event, the petitioners add
that the Department's current methodology does, in effect, take into
account the amortization of subsidies at the point when gamma is
applied to determine the amount of repayment.
    The petitioners claim that AST has not explained how assets, as
opposed to net worth, would be a better measure of a company's value
with respect to calculating the portion of the value attributable to
subsidies. The petitioners state that a company's value depends upon
both its assets and its liabilities. As for AST's concern about net
worth being variable over time, the petitioners assert that variation
in the nominal value of net worth is irrelevant in that it is the ratio
of subsidies received to net worth that matters. The petitioners add
that asset values, too, vary over time and can depend upon factors not
necessarily related to the true value of that asset, such as the method
of depreciation. Also, the petitioners state that assets are carried in
a company's accounting records at historical cost which does not
reflect current market value.
    Department's Position:  For this final determination, we have
continued to calculate gamma using historical subsidy and net worth
data. In considering parties arguments, we had to keep in mind that
gamma is the measure of the level of past subsidies in a selling
company and that it is ultimately applied to the purchase price.
    Our current methodology for calculating gamma reasonably measures
the level of subsides in the selling company by examining a range of
years and has been upheld by the courts in Saarstahl II, British Steel
II and Delverde II. AST has proposed using the net present value of the
remaining benefit stream in the numerator mainly out of a concern that
the application of gamma to the company's net worth should render the
present value of the remaining benefits. In response, we note that
while gamma itself is not a construction of the present value of the
remaining benefits, the results of the gamma calculation are, however,
applied to the present value. In this sense, our calculations, as a
whole, do take into account the present value of remaining benefits.
    Comment 3. Calculation of the Purchase Price. AST argues that the
Department undervalued the subsidies repaid in the Preliminary
Determination by basing the purchase price only on the cash paid for
the company. Instead, AST suggests that the purchase price should also
include the debt assumed by the purchasers as part of the sales
transaction.
    AST maintains that including assumed debt in the purchase price is
appropriate because buyers and sellers are indifferent as to the mix of
cash paid and debt assumed; a dollar of debt assumed, AST argues, is
equivalent to a dollar of cash paid. If the buyers of ILVA's stainless
division had offered

[[Page 15520]]

only the cash portion of their offer, and had not agreed to assume the
debt, AST contends that their bid would not have been accepted.
    To support its argument, AST offers the example of purchasing a
house with an assumable mortgage. A person wanting to buy the house,
according to AST, has several financing options: (1) Paying cash for
the total sales price, (2) paying a down payment for some portion of
the sales price and obtaining a new mortgage on the balance, or (3)
assuming the existing mortgage and paying cash for the balance. AST
states that in all cases, the purchase price of the home remains the
same.
    Moreover, by not including assumed debt in the purchase price the
Department's privatization methodology for determining the amount of
subsidies repaid will render different results depending upon the mix
of assumed debt and cash required in a particular purchase.
    The petitioners counter by stating that the cash price paid for a
company already reflects the liabilities in that the price paid is the
valuation by the buyer of the company as a whole, including assumed
liabilities. In addition, the petitioners claim that it is the
Department's well-established practice not to add assumed liabilities
to the purchase price citing Final Affirmative Countervailing Duty
Determination: Steel Wire Rod from Germany, 62 FR 55490, 55001 (October
22, 1997) (Wire Rod from Germany), and Final Affirmative Countervailing
Duty Determination: Steel Wire Rod from Canada, 62 FR 54972, 54986
(October 22, 1997) (Wire Rod from Canada), as two cases in which the
Department expressly declined to make an upwards adjustment to price to
account for assumed liabilities/obligations. In looking at AST's
example of a home purchased with an assumable mortgage, the petitioners
point out that the value of that home to the buyer is the net equity
position--the difference between the value of the home and the
mortgage. Additionally, the petitioners point out that the seller of
the home only receives the amount of equity in the home and not the
full market value.
    Department's Position: We agree with the petitioners that the
purchase price should include only the cash paid in the sales
transaction. First, as noted by the petitioners, it has been the
Department's normal practice not to include assumed debts in the
purchase price. Second, the purchase price is multiplied by gamma to
determine the amount of the purchase price which represents repayment
or reallocation of remaining benefits. Given that, under the
Department's current methodology, the gamma denominator is net worth
(equity) which, in the case of the privatization of AST, equals the
amount of cash that was transferred in the sales transaction, it would
be incongruous to multiply gamma by a purchase price amount which
includes cash and debt. Third, adding debt to the cash price would
imply that some portion (depending on the gamma) of that debt can go
towards repayment of subsidy benefits. However, debt assumption by the
purchaser, particularly where the creditors are third parties, is not a
means through which repayment or reallocation of subsidy benefits back
to the seller can occur. Therefore, for the final determination, we
have included only cash paid in the purchase price of the units sold in
the 1990 and 1992 spin-offs and in the 1994 AST privatization.
    Comment 4. Repayment in Spin-Off Transactions. AST suggests that
the proper way to apportion untied grants between a company and spun-
off division is simply on the basis of the percentage of assets.
However, in the Preliminary Determination the Department did not simply
stop there, explains AST, but further performed a ``pass-through''
analysis on the amount apportioned to the spun-off unit via assets to
determine an even smaller portion of prior subsidies that would be
ultimately attributable to the spun-off company. The difference between
the amount apportioned by assets to the spun-off unit and the amount
ultimately attributable to it was inexplicably not extinguished, claims
AST. Instead of being taken out of the benefit stream as they should
have been, states AST, the extinguished subsidies remained in the
benefit stream of the selling company--AST.
    The petitioners claim that AST does not understand the difference
between a privatization transaction and a spin-off transaction. Only in
a privatization context wherein the seller is the government can
subsidies be repaid to the government, according to the petitioners. In
spin-off transactions, claim the petitioners, subsidies are simply
reallocated between the seller and the purchaser.
    Department's Position. The Department's calculations in the
Preliminary Determination properly accounted for all prior subsidies by
means of our standard spin-off calculation. In spin-off transactions,
such as those at issue, the benefits from prior subsidies are
reallocated between buyers and sellers. Our spin-off calculation is not
premised solely upon the value of assets spun-off. Rather, we use the
ratio of the value of assets spun-off to the value of the selling
company's total assets to derive the maximum amount of prior subsidies
that can pass through to the purchaser. From this maximum amount, we
subtract the amount of subsidies which remain with the seller based on
our ``gamma'' calculation and the purchase price of the spun-off unit.
    Comment 5: Sale of a Unit to a Government Agency. In the
Preliminary Determination, explains AST, the Department failed to
attribute a portion of prior subsidies to Verres when it was spun off
from ILVA. Since subsidies travel with assets, the sale of Verres to a
government agency is irrelevant and should not prohibit the attribution
of subsidies to that productive unit, argues AST. In any event, AST
states that ILVA eventually sold its share in Verres to a private
company.
    With respect to AST's claim that the spin-off methodology should be
applied to the sale of Verres because there is no basis for treating a
sale to a government agency differently from a sale to a private
investor, the petitioners counter that the Department's practice has
been not to consider transfers among related parties to constitute
legitimate sales (see GIA, 58 FR at 37266).
    Department's Position. We agree with petitioners that ILVA's sale
of some of its shares in Verres to a government entity does not warrant
the application of our spin-off methodology. Regarding the government-
to-government aspect of the first transfer, the Department stated in
the GIA, 58 FR at 37266:

    [T]he Department has not considered internal corporate
restructurings that transfer or shuffle assets among related parties
to constitute a ``sale'' for purposes of evaluating the extent to
which subsidies pass through from one party to another. Legitimate
``sales,'' for purposes of evaluating the pass-through of subsidies,
must involve unrelated parties, one of which must be privately-
owned.

ILVA was a wholly owned government entity. Therefore, the transfer of
Verres shares from one government-owned entity to another is not a
``sale'' recognized under the criteria of the GIA.
    With respect to the sale of ILVA's remaining shares in Verres to a
private company, there is insufficient verified information on the
record regarding the ultimate sale of Verres on which to base a spin-
off calculation. We also note that, based on the limited information
that is available for Verres, it appears that any application of our
spin-off methodology in this case would probably have a minimal, if
any, effect on the final estimated countervailing duty rate due to the
relatively small size of the sale.

[[Page 15521]]

    Comment 6: Use of Company-Specific AUL. The petitioners argue that
AST has not fully accounted for and corrected all the data concerns
raised by the Department in its preliminary determination.
Specifically, argue the petitioners, the effects on financial reporting
of the various changes in ownership of the stainless steel assets that
now comprise AST cast doubt on the reliability of the data provided by
AST. A clear indication of actual distortion from these restructurings,
the petitioners assert, is that the largest fluctuations in AST's
calculated annual AUL occur in the years surrounding the 1989 and 1993
restructurings. Moreover, the petitioners continue, AST's failure to
include all of its depreciable assets (e.g., industrial buildings) in
its initial AUL calculation, its unwillingness to provide the tenth
year of data, its (and its predecessors') use of certain accelerated
depreciation methods, and its various practices regarding write-downs,
render AST's company-specific AUL unusable.
    AST, however, claims that it has sufficiently addressed the
purported deficiencies in its company-specific AUL calculation, as
cited by the Department in its preliminary determination and raised at
verification. To support this contention, AST states the following:
First, the Department verified that AST had not included accelerated
depreciation in calculating its AUL. Second, the Department verified
that the asset write-down undertaken in 1993 does not significantly
impact the AUL calculation. Third, though the company-specific AUL is
based on only 9 years of historical data, the Department has in the
past acknowledged that an AUL based on fewer years would not
necessarily be incorrect or inaccurate. Fourth, although the Department
has noted that there was a significant variation in the annual gross
asset-to-depreciation ratio, this fact alone is not a basis for
rejecting the company-specific AUL. Finally, in the end the Department
was able to completely verify the AUL asset and depreciation data
submitted by AST. For these reasons, according to AST, the Department
should use the revised AUL calculated by AST and verified by the
Department.
    AST further argues, however, that if the Department does reject
AST's company-specific AUL as deficient, the Department should use a
12-year AUL rather than the 15 years indicated in the IRS tables. AST
argues that given that the AUL of the other respondent in Italian Sheet
and Strip, Arinox, is 12 years, and the AUL for all the respondents in
Wire Rod from Italy was 12 years, this allocation period appears to
represent an average for the Italian stainless steel industry in
general. As such, this would be a more appropriate allocation period
than the 15 years from the IRS tables.
    In response, the petitioners, citing the Countervailing Duties;
Final Rule 63 FR 65348 (November 25, 1998) (New Regulations), pre-1995
practice, and certain countervailing cases since 1995, argue that the
Department's preference is to use the 15-year industry-wide AUL derived
from the IRS tables, and claim that the Department should continue to
do so in the instant proceeding. Though recognizing that these are not
binding in the instant proceeding, the petitioner notes that according
to the New Regulations at 65395 ``the IRS tables method offers
consistency and predictability and * * * it is simple to administer.''
Furthermore, the petitioners continue, the Countervailing Duties;
Proposed Rule, 62 FR 8817, 8827 (February 26, 1997), (1997 Proposed
Regulations) makes clear that the Department intends to reserve the
option to use the IRS tables in determining AUL, if appropriate. See 62
FR at 8828. Finally, the petitioners note, in Wire Rod from Italy the
Department stated that it would only use a company-specific AUL ``where
reasonable and practicable.'' See 63 FR at 40474.
    Regarding subsidies that have been countervailed in prior
proceedings, the petitioners argue that it is inappropriate to allocate
the same subsidy over different periods in different proceedings. Given
that some of the subsidies to AST were previously allocated over a 15-
year period in Electrical Steel, petitioners state that allocating
AST's subsidies over a 15-year AUL would be is consistent with the
Department's practice of not altering the allocation period during the
administrative review process under a countervailing duty order.
    AST states that since the Electrical Steel decision, the courts
have rejected the use of the IRS tables in favor of a company-specific
approach for determining AUL (see, e.g., British Steel I). Accordingly,
AST claims that it would be inappropriate to use the 15-year AUL from
Electrical Steel since that was based on the IRS tables.
    Department's Position. The Department has not used, in its final
determination, AST's calculated, company-specific AUL. Though some of
the other concerns noted in the Preliminary Determination regarding
AST's AUL calculation remain, our decision not to use the company-
specific AUL is primarily based on the large discontinuity over time in
the annual ratios of asset value to depreciation amounts. Such
discontinuity, apparently correlated with the changes in ownership,
strongly indicates a disparity between the basis on which the AULs of
ILVA and AST are based.
    For our final determination, in lieu of an adequate company-
specific AUL, we have used an allocation period of 12 years for AST as
facts available. Twelve years represents a reasonable estimate of a
general AUL for the Italian stainless steel industry, as supported by
evidence in another case (Wire Rod from Italy) and by the company-
specific verified data provided by another respondent, Arinox, in
Italian Sheet and Strip.
    With respect to the use of allocation periods from prior
proceedings for subsidies previously countervailed, we find it
unnecessary to resolve the issue in this case. The allocation period we
find appropriate for AST is based on facts available. We believe that,
as facts available, 12 years is more appropriate for AST than 15 years
because the 15-year period is based upon the IRS tables and not the
experience of Italian companies.
    Comment 7: Revision of AST's Volume and Value Data. The petitioners
object to AST's attempts to revise its volume and value data after the
start of verification. Emphasizing that the purpose of verification is
to ``verify the accuracy and completeness of submitted factual
information (19 CFR 351.307(d)(1998)), the petitioners argue that AST's
revised numbers should be rejected. The petitioners take particular
issue with AST's revisions which report volume and value data on a
consolidated level when AST refused to provide full information on
subsidies provided to AST's consolidated subsidiaries. According to the
petitioners, the Department should not allow AST to dilute its margins
via the use of consolidated volume and value data when the subsidiary
companies are not included in the investigation by virtue of AST's
withholding of information. To do so, object the petitioners, would
provide respondents with an incentive to withhold information as was
done here.
    AST counters by saying that it provided its consolidated volume and
value data during verification at the behest of the Department's
verifiers. According to AST, the Department's regulations permit it to
request factual information from parties at any time during the
proceeding (see 19 CFR 351.303(b)(5)). AST adds that the information
was verified and served on

[[Page 15522]]

the petitioners. Noting that under 19 CFR 351.301(c)(1), the
petitioners were afforded ten days in which to rebut the information,
AST points out that the petitioners failed to do so. AST additionally
notes that the petitioners do not argue that using consolidated sales
data is methodologically incorrect. As for the petitioners argument
that AST should have reported information on subsidies received by its
affiliates, AST explains that such information would be useless in this
proceeding as these affiliates neither produce nor sell subject
merchandise. Furthermore, AST states that it has reported all of its
financial transactions with its related parties. Any information on
programs utilized by AST and its affiliates that could conceivably
benefit subject merchandise has already been provided, evaluated and
verified, according to AST. Based on the foregoing, AST maintains that
there is no basis upon which to apply facts available with respect to
its volume and value information.
    Department's Position: For purposes of this final determination, we
are not rejecting AST's consolidated volume and value data. At
verification, Department officials requested this data from AST
recognizing that the use of consolidated data would be consistent with
the Department's practice in certain circumstances. As for the
petitioners' concerns regarding the dilution of the ad valorem rate due
to the use of a consolidated sales value as the denominator in cases
where only unconsolidated benefit information is being used in the
numerator, we disagree that such dilution is occurring. With respect to
all the subsidies received prior to AST's privatization, we believe
that those subsidies should be allocated to AST on a consolidated
basis. The only benefits relevant to this proceeding that AST received
subsequent to its privatization are under Law 10/91, Law 451/94 and
ESF. Regardless of whether the consolidated or unconsolidated data is
used, Law 10/91 benefits are expensed prior to the POI. With respect to
Law 451/94 and ESF benefits, AST provided information pertaining to
benefits received by its consolidated operations.
    Comment 8: Ratio Adjusting the Benefit Stream for the Sale of AST.
AST claims that the Department erred in the Preliminary Determination
in adjusting the future benefit stream for the sale of AST. In
particular, AST states that instead of adjusting the benefit stream by
the ratio of prior subsidies repaid to the present value of the benefit
stream applicable to AST in the year of sale in accordance with
Departmental practice, the Department mistakenly used the present value
of the predecessor company's benefit stream in the denominator.
    The petitioners counter that the Department's calculations in the
Preliminary Determination did account for the fact that only a portion
of ILVA's assets were spun-off with AST. Unlike the methodology
proposed by AST, the Department followed the GIA by multiplying the net
present value of the seller's remaining subsidies by the ratio of the
assets of the spun-off unit to the assets of the selling company.
Making AST's proposed change, claim the petitioners, would amount to
reducing the subsidies attributable to AST's assets twice.
    Department's Position: AST's proposed adjustment to our
calculations would amount to reducing the subsidy benefit stream twice
to account for the portion of assets taken by AST. We first apportioned
the remaining benefit stream (not including the Terni/TAS equity
infusions, benefits associated with the 1989/1990 restructuring and
ECSC loans) between AST and ILVA, the seller, by multiplying the
benefit stream by the ratio of AST's assets to ILVA's. Second, we
reduced the benefit stream assigned to AST (inclusive of Terni/TAS
equity infusions, benefits associated with the 1989/1990 restructuring
and ECSC loans) to reflect any repayment of those subsidies via the
purchase price. In addition to apportioning the remaining benefit
stream by the AST asset ratio in the first step, AST's proposed
adjustment would amount to apportioning the remaining benefit stream by
the asset ratio an extra time in the second step. Accordingly, we have
not made the adjustment requested by AST.
    We note that in our Preliminary Determination, we erred in
multiplying the AST asset ratio against all subsidies in ILVA,
including benefits to Terni and TAS which are being attributed to AST
in their entirety. (For further discussion, see the Equity Infusions to
Terni, TAS and ILVA; Benefits from the 1988-90 Restructuring of
Finsider; and ECSC Article 54 Loans sections of this notice.)
    Comment 9: Use of Gross versus Net Debt in 1993 Debt Forgiveness
Calculation. AST argues that the record of this case establishes a
precise amount that represents the ``actual cost to the GOI'' for the
liquidation of ILVA, based on the EC's strict monitoring. Assuming that
the Department countervails these costs, AST argues that the Department
cannot consider the benefit to the recipients to be larger than the
amount calculated by the EC as the actual cost to the GOI.
    AST states that in past cases, such as Al Tech Specialty Steel
Corp. v. United States, 661 F. Supp. 1206, 1213 (CIT, 1987), the
Department has concluded that it would be inappropriate to look behind
the action of a tribunal charged with the administration of a
liquidation process. AST states that the GOI would have been subject to
significant legal penalty had it failed to abide by the requirements of
the EC supervised liquidation. Thus, AST implicitly is arguing that the
Department should accept the amount of remaining debt calculated by the
EC, without examining the underlying calculation of this remaining debt
figure.
    Furthermore, AST asserts that, because buyers should be indifferent
to the mix of cash paid and debts assumed in purchasing a company, the
Department's methodology inappropriately attributes a greater amount of
debt forgiveness to a company whose buyers assume less debt but pay a
higher cash price. In fact, claims AST, if the GOI had paid down the
same amount of ILVA's liabilities calculated as uncovered in the EC's
Monitoring Reports prior to the liquidation process, each of the
companies could have been ``sold'' entirely for a transfer of debt
(i.e., no cash transfer) in the amount of transferred assets. In this
event, AST argues, there would be no residual debt, and the
Department's methodology would lead it to countervail only the grant
given prior to the liquidation process.
    The petitioners state that the Department, consistent with its
practice, should consider the total amount of ILVA's liabilities and
losses forgiven on behalf of AST at the time of its spin-off as the
benefit to AST. See, e.g., Electrical Steel from Italy, 59 FR at 18365,
and Certain Steel from Austria, 58 FR at 37221. The petitioners assert
that the income received as a result of the sales of ILVA's productive
units should not be deducted from the gross amount of ILVA's losses and
liabilities for three reasons. First, the petitioners argue, the debt
forgiveness occurred prior to the actual sales of ILVA's productive
units and, thus, should be treated separately. Second, the amount of
income at the time of the sales was greater than it would have been
without the debt reduction. Third, the Department's change-in-ownership
methodology separately accounts for repayment of prior subsidies
associated with the purchase price of the company sold.
    Department's Position: We do not dispute AST's contention that the
liquidation of ILVA Residua proceeded

[[Page 15523]]

as detailed in the EC monitoring reports, and that the final cost,
after subtracting income earned from the sale of productive units, to
the GOI for the liquidation was as reported in the EC monitoring
reports. However, section 771(5)(E) of the Act directs the Department
to calculate subsidies as the benefit to the recipient, rather than the
cost to the government. (See Memorandum to Richard W. Moreland on 1993
Debt Forgiveness dated March 19, 1999). At the time of the demerger,
AST clearly benefitted to the extent that it did not assume a
proportional share of ILVA's liabilities. In fact, the cash transfer
did not take place at the time of the demerger, but nearly a year later
when AST was privatized. Furthermore, we note that the liquidation
process did not proceed as in AST's hypothetical example. Rather, AST
was left with a substantial positive equity position as a result of
ILVA Residua's assumption of the vast majority of ILVA's liabilities,
unlike the firm in AST's hypothetical.
    We agree with the petitioners that it is the Department's practice
to determine the size of the benefit to a respondent as the amount of
liabilities that are not directly associated with any given assets and
that the respondent should have taken. If such a firm is later sold,
such as was the case with AST, the Department applies its change-in-
ownership methodology to determine the portion of the purchase price
attributable to the repayment of prior subsidies.
    However, we disagree with the petitioners that the Department
should countervail both the liabilities and accumulated losses on
ILVA's balance sheet in 1993 because ILVA's gross liabilities already
reflect such losses. While we agree it is the Department's practice to
countervail grants to cover losses as well as grants to cover
liabilities, ILVA did not receive a separate grant in 1993 to cover
operating losses. However, if it had received such a grant, ILVA's
gross liabilities would have been reduced or its liquid assets would
have increased. Because such a grant was not received, ILVA's gross
liabilities, after netting out its liquid assets, were higher than they
would have been if such a grant had been received and, thus, the total
debt forgiveness calculated by the Department already captures such
losses.
    Comment 10: 1993 Debt Forgiveness Apportionment. According to AST,
the Department improperly apportioned ILVA's residual debt after the
1993 demergers based on total viable assets taken by AST and other ILVA
operations. AST argues that because there is no record evidence
attributing any of this residual debt to the operations assumed by AST,
none of that debt should be attributed to it. For example, AST posits,
if a government-owned company that consisted of two divisions of equal
assets, one healthy and one unhealthy, were split into two, the
Department's methodology would illogically allocate the old debts
equally, thereby punishing the heathy company for the afflictions of
the unhealthy one.
    The petitioners state that AST did not provide any information to
allow the Department to attribute specific ILVA liabilities to specific
ILVA assets despite numerous requests for information such as the
financial records of ILVA's specialty stainless steel division.
Additionally, the petitioners assert that in various cases, the
Department has attributed otherwise untied liabilities left behind in
shell corporations to the operations that had been demerged. See
Certain Steel From Austria at 37221 and Wire Rod from Trinidad and
Tobago at 55006.
    Department's Position: It is the Department's practice to allocate
otherwise untied liabilities remaining in a shell corporation to the
new, viable operations that had been removed from the predecessor
company. In Certain Steel from Austria, the Department stated that it
treated as debt forgiveness liabilities left behind in the predecessor
company, even though there was no indication that these liabilities
were specifically related to the operations taken by the new entity
(see 58 FR at 37221). Therefore, consistent with our past practice, we
have assigned a portion of these liabilities to AST based on its
proportion of assets taken to the total viable assets of ILVA.
    We note, however, that because losses attributable to the write
down of AST's assets can be specifically identified, we have assigned
those losses to AST. We have not assigned losses attributable to the
write down of ILP or Residua's viable assets to AST.
    Comment 11: ILVA Residua Asset Value. The petitioners argue that
the Department misallocated the amount of debt forgiveness attributable
to AST in 1993 in its most recent calculation of the benefit from this
program in Italian Sheet and Strip by using an incorrect asset amount
for ILVA Residua. The petitioners assert that by using the cash price
plus the liabilities transferred as a surrogate for asset values in
ILVA Residua the Department was inconsistent with its normal practice
of excluding liabilities in the determination of the asset value of a
company (see Wire Rod from Trinidad and Tobago 62 FR at 55012). Thus,
the petitioners argue that the Department should only use the cash paid
as a surrogate for the viable asset value of the operations sold from
ILVA Residua.
    AST responds that record evidence contradicts the petitioners'
assertion that the value of the viable assets privatized from ILVA
Residua is better represented only by the cash price of those assets
rather than by the cash price plus debts transferred. Specifically, the
asset value of Dalmine, the largest privatization from ILVA Residua, is
approximately equal to the value used by the Department. Furthermore,
AST argues that relying on only the cash price, in effect the net worth
of each privatized unit, to value ILVA Residua's assets is inconsistent
with the petitioners' assertion that the Department should use the
total consolidated assets, rather than net worth, in compiling the
remainder of ILVA's total viable assets. Finally, AST claims that the
petitioners reach an erroneous conclusion that Wire Rod from Trinidad
and Tobago requires the Department to estimate the asset value of a
company solely based on its purchase price. AST states that in that
case, the issue at hand was not raised because the purchase price did
not include any assumption of debt.
    Department's Position: For operations sold from ILVA Residua, the
Department did not have the necessary asset values. Therefore, as a
surrogate for the asset values of these companies, the Department used
the cash price plus liabilities transferred. We believe this approach
provides a reasonable surrogate asset value because the newly sold
company's books will, by the basic accounting equation of ``assets
equal liabilities plus owners' equity,'' reflect an asset value that is
equal to the debts transferred plus the cash purchase price. The debts
transferred become the liabilities in the new company's books, while
the cash purchase price becomes the owners' equity. If the assets
transferred do not have a book value equal to the cash purchase price
plus debts transferred, the new company will, in effect, write-up its
asset value by crediting the difference as a goodwill asset. Thus, we
have continued to use the cash price plus liabilities transferred as a
surrogate for the asset values of the units sold from ILVA Residua.
    Comment 12: Use of Consolidated Asset Values for 1993 Debt
Forgiveness Calculation. AST argues that the Department improperly
calculated the total viable assets of ILVA by using the unconsolidated
financial statements of AST and ILP. This error led to an incorrect
calculation of the proportion of total viable assets assumed by AST

[[Page 15524]]

and, thus, an incorrect assignment of debt forgiveness bestowed on AST,
according to the company. AST notes that it provided the Department
with the consolidated financial statements of AST and ILP during
verification, and that the Department should correct its calculation
based on the consolidated asset figures provided therein.
    The petitioners agree with AST that the Department should use
consolidated asset values in determining total viable ILVA assets.
However, they argue that the Department should exclude the asset values
for the companies sold out of ILVA Residua to ILP from ILP's
consolidated assets in order to avoid double-counting. AST asserts,
however, that these assets are not double-counted because they had not
yet been sold to ILP by 1993. Therefore, they are not included in ILP's
December 31, 1993 consolidated assets.
    Department's Position: Consistent with our position in Comment 7,
we have altered the calculation allocating the debt forgiveness to
account for AST's and ILP's consolidated asset values. Furthermore, we
agree with AST that because the companies purchased by ILP from ILVA
Residua were purchased after 1993, they are not included in its 1993
consolidated assets. Therefore, our methodology does not double-count
these assets.
    Comment 13: 1993 Creditworthiness. AST notes that the Department
used an uncreditworthy benchmark discount rate to allocate the benefit
from the debt forgiveness imputed by the Department to AST as a result
of its 1993 demerger from ILVA. AST points out that the Department
stated in the Preliminary Determination that it would determine whether
it would be more appropriate to analyze the creditworthiness of AST,
rather than ILVA, in the final determination. Citing the preamble of
the Department's new regulations (at 65366), AST states that it is the
Department's practice to consider the creditworthiness of the firm
receiving the aid, rather than the entity granting the aid.
    The petitioners state that the Department should continue to
consider the creditworthiness of ILVA, rather than AST, in determining
the discount rate used to allocate the 1993 debt forgiveness
attributable to AST. The petitioners state that because the GOI
provided the debt forgiveness to ILVA Residua, it is appropriate to
analyze the creditworthiness of ILVA. Additionally, the petitioners
assert that it is illogical to evaluate AST's prospects after ILVA's
debt had been lifted from its shoulders.
    Department's Position: For the final determination, in allocating
the benefit of the 1993 debt forgiveness, we have continued to base our
creditworthiness analysis on ILVA as a whole. Our reasons are as
follows: Contrary to AST's assertions, ILVA was not the provider of the
debt forgiveness to AST. Rather, it was the GOI which ultimately
assumed the losses involved in the privatization and liquidation of
those units which originally comprised ILVA. All of ILVA, of which AST
was but a part, directly benefitted from this GOI assumption of losses.
Therefore, focusing on ILVA is in accordance with the Department's
practice of focusing on the receiver of the benefit.
    It would, moreover, be illogical for the Department to base, as AST
argues, its creditworthiness analysis on AST's future financial data
(i.e., AST's future prospects after the debt forgiveness had been
granted) given the fact that these data were likely considerably
impacted by the very program for which the creditworthiness analysis is
necessary in the first place. Clearly, the shedding of billions of lire
of debt would impact private, commercial lenders' views in deciding
whether to loan funds to AST. However, it would be impracticable (if
not impossible), based on the information available on the record, to
construct what AST's future financial situation would have been absent
the debt forgiveness.
    Under its normal methodology for analyzing creditworthiness, the
Department could, in theory, rely largely on AST's financial data prior
to and contemporaneous with the granting of the debt forgiveness.
However, this too would be impossible in this instance. AST's debt
forgiveness occurred at the moment of the demerger, i.e., at the point
when ILVA's stainless steel operating unit was carved out and
separately incorporated as AST. There is insufficient AST-specific
financial data for the period prior to the demerger on which to base a
creditworthiness analysis.
    Therefore, because the appropriate level of creditworthiness
analysis is the receiver of the debt forgiveness, and because there is
insufficient ``untainted'' AST financial data both prior and subsequent
to the debt forgiveness on which to base an AST-specific
creditworthiness analysis, we have continued to base our 1993
creditworthiness determination on ILVA as a whole.
    Comment 14: ILVA Asset Write-Downs. AST argues that the Department
improperly countervailed asset write-downs in the calculation of the
1993 debt forgiveness because the write-downs are not countervailable.
The company states that the write-downs did not provide a benefit to
AST because the company is simply restating the value of the assets to
reflect their market values. AST also asserts that even if one
considered there to be a benefit associated with the write-downs, such
write downs are generally available because all companies must restate
the value of their assets when they are sold. Additionally, AST argues
that even if the write-down of assets is treated as a subsidy, the
Department must deduct the write-down from the loss incurred in the
liquidation of ILVA to ensure that it is not double-counted.
    The petitioners rebut AST's argument that write-downs should not be
countervailable because they are routinely performed during asset
sales. The petitioners argue that AST's focus on the write-downs is
misplaced, because the Department's actual concern is not the write-
down, but rather the additional loss generated by the write-down which
had to be eventually covered by the GOI. Furthermore, the petitioners
dispute AST's claim that the write-downs are double-counted in the
Department's methodology. The petitioners state that this allegation is
based on the fact that the Department excluded the amount of write-
downs in its calculation of the debt forgiveness associated with the
transfer of TAS's assets to ILVA in 1989 and 1990. The petitioners
assert that the Department excluded these write-downs from the
remaining liabilities because it captured them separately in the
calculations of the loss coverage. However, in the case of the 1993
restructuring, the petitioners note, the Department has not
countervailed the write-downs separately and is appropriately measuring
the benefit by examining the debt assumed by the GOI.
    AST also states that even if the Department finds the write-downs
countervailable, the Department should separate all the ILVA write-
downs from the other debt forgiveness and instead countervail only the
portion of total write-downs attributable to AST assets. AST states
that this suggested methodology is consistent with the Department's
methodology in countervailing write-downs associated with TAS when it
was merged into ILVA in 1989 and that the Department has the
appropriate information on the record. Furthermore, AST reasons that
for other liquidation losses, the Department should, where possible,
attribute the losses to specific assets, only distributing losses that
cannot be tied based on relative viable assets.
    The petitioners counter that, according to generally accepted
accounting principles, losses associated

[[Page 15525]]

with write-downs typically are assumed by the company as a whole,
rather than tied to specific assets. Additionally, the petitioners note
that in AST's calculation, most of the write-downs are left in ILVA
Residua, rather than tied to specific assets and, therefore, should be
attributed based on relative asset values consistent with the
Department's standard debt forgiveness methodology.
    Department's Position: We disagree with AST that the write-downs in
question are not countervailable. Because the write-downs in question
generated a loss that eventually was covered by the GOI through its
debt forgiveness to ILVA, we find the write-downs countervailable. This
approach is consistent with the treatment of write-downs in the 1988-90
restructuring in the instant case and in Electrical Steel from Italy.
    However, we agree with AST that the Department should attribute the
portion of ILVA's losses associated with the write down of assets to
the specific written down assets and, thus, to the company who took
those assets. This issue is addressed in more detail in the March 19,
1999 Memorandum on the 1993 Debt Forgiveness to Susan H. Kuhbach. We
have modified our calculations accordingly.
    Comment 15: ESF Objective 4 Specificity. AST states that the
Department found ESF Objective 4 funding countervailable based on its
erroneous conclusion that this aid is de jure limited to certain
regions. AST asserts that Objective 4 funding is available throughout
the EU Member States, and that the Department has acknowledged this in
the instant case and in previous cases (see Wire Rod from Italy, 63 FR
at 40487). Despite this acknowledgment, the Department has based its
specificity finding on the fact that the EU has decided to detail its
Objective 4 funding in separate documents for each Member State as well
as two separate documents within Italy itself, one covering Objective 1
regions, and one covering non-Objective 1 regions. AST asserts that
this ``documentary distinction'' does not alter the fact that Objective
4 aid is available to all regions for the same basic goal of reducing
unemployment. Regardless of these documentary distinctions, AST claims
that all Objective 4 aid is ``integrally linked'' and, thus, the
Department must analyze its specificity on this basis.
    AST states that in order to find a domestic subsidy de jure
specific, section 771(5A)(D) of the Act requires that the granting
authority ``expressly limit access to the subsidy to an enterprise or
industry'' or that the subsidy be expressly limited to ``an enterprise
or industry located within a designated geographical region within the
jurisdiction of the authority providing the subsidy.'' AST argues that
neither of these criteria has been met for ESF Objective 4 funding
because the ESF Objective 4 funds available to firms in non-Objective 1
regions are also available to firms in Objective 1 regions. Lastly, AST
argues that there is no basis to find the Objective 4 funding de facto
specific given that it is distributed to a wide variety of industries
throughout Italy and the EU.
    The petitioners argue that the Department should affirm its
decision in Preliminary Determination that the funding that AST
received under ESF Objective 4 is de jure specific. The petitioners
assert that this finding is consistent with the Department's decision
in Wire Rod from Italy which found that this funding was specific
because the ``EU negotiates a separate programming document to govern
the implementation of the program with each Member State'' and that
different programming documents govern the distribution of aid in
Objective 1 and non-Objective 1 regions. The petitioners assert that EC
officials admitted at verification that aid approved under the
programming document for Objective 1 regions has separate purposes,
administration, and distribution requirements than aid approved under
the programming document for non-Objective 1 regions. Lastly, the
petitioners assert that because the aid in question was received by AST
through Riconversider, a steel industry group, the aid is also specific
because it was disbursed by a organization that by its nature limited
its grants to the steel industry.
    Department's Position: We agree with AST that it may be appropriate
for the Department to revisit its previous decision regarding the de
jure specificity of assistance distributed under the ESF Objective 4
SPD in Italy. Notwithstanding this argument, the facts of the instant
case lead us to find that the Objective 4 funding received by AST was
de facto specific, as facts available (see European Social Fund section
above). For this reason, we have continued to countervail the aid in
question. As discussed above, while there are separate agreements for
different regions in the EC and within Italy, these agreements can be
distinguished from the agreements discussed in Groundfish from Canada,
51 FR at 10066. Moreover, the statements by EC officials are taken out
of context and would need to be examined against all the information
before concluding that Objective 4 financing is de jure specific.
Because we have considered this aid to be de facto specific, the
petitioners last point is moot.
    Comment 16: ESF Objective 3. The petitioners state that the
Department should countervail the amount spent by AST on an ESF
Objective 3 project for which it claimed reimbursement. The petitioners
claim that AST was unable to provide any documentation showing that it
did not, in fact, receive any reimbursement for the amount spent on the
project.
    In response, AST argues that it would be inappropriate for the
Department to countervail assistance that AST did not receive. While
AST does not dispute that it was unable to provide the Department with
any specific document showing that it did not receive the Objective 3
assistance that it applied for, AST states that the Department, in its
review of the company's financial statements, did not encounter any
previously ``unidentified governmental financial assistance.''
    Department's Position: We agree with AST that the Department should
not countervail the amount of AST's request for ESF Objective 3 funds.
While company officials were not able to provide direct documentation
showing that AST's relatively small claim shown in its records for ESF
Objective 3 funds was disapproved, we found no indication that this aid
was received by AST during verification.
    Comment 17: Law 10/91. AST states that funding under Law 10/91 is
not limited to any industry or enterprise and, thus, should not be
found countervailable. Furthermore, according to AST, Law 10/91 is the
successor to Law 308/82 which the Department found not countervailable
in Pasta from Italy, 63 FR at 30299, Wire Rod from Italy, 63 FR at
40488, and (Certain Steel from Italy).
    The petitioners argue that, whether or not AST received benefits
during the POI, the Department should find Law 10/91 de facto specific
and, thus, countervailable consistent with the finding in its February
19, 1999 analysis memorandum that the steel industry received over half
of all aid approvals in 1991 under this program and ILVA companies
received over 40 percent of such approvals.
    Department's Position: Consistent with the Department's February
19, 1999 analysis memorandum, we find that the funding received by AST
under Law 10/91 is de facto specific based on the predominant and
disproportionate use of this program by the steel industry and AST's
predecessor, ILVA. In the

[[Page 15526]]

year that the aid in question was approved, the steel industry was
approved for 50.52 percent and ILVA was approved for 43.52 percent.
Just because a program may replace or succeed a non-specific program,
the finding of non-specificity for the earlier program does not carry
over to the replacement or successor program.
    Comment 18: Specificity of THERMIE. AST argues that the Department
should maintain its previous finding in the instant case that the
THERMIE program is neither de jure nor de facto specific and, thus,
find the program not countervailable for this final determination. The
Department should reaffirm its previous finding, reinforced by a
successful verification, that the THERMIE program has not been
disproportionately or predominantly used by the steel industry or AST.
    The petitioners argue that the Department should find the THERMIE
sub-program, ``Rational Use of Energy (RUE) in Industry,''
countervailable because AST's receipt of nearly a third of the funding
under this subprogram constitutes disproportionate use. The petitioners
state that the Department, in Wire Rod from Italy, recently found an
Italian subsidy program de facto specific when a firm received about
one-third of the total assistance (see 63 FR at 40483.) The petitioners
add that AST's project was one of the three largest projects funded
under the RUE in Industry program. Lastly, the petitioners note that
the Department found at verification that several of the projects
reported as approved by the EC, had in fact, not been funded; thereby
increasing the concentration of AST's share of the reported funding.
    AST does not dispute the usage figures presented by the
petitioners, but states that they are incorrectly based on the usage of
only one portion of the THERMIE program (RUE in Industry) and, thus,
are legally irrelevant. AST argues that the THERMIE sub-programs are
integrally linked and, therefore, the Department must view the usage
data of the sub-programs collectively when considering its de facto
specificity.
    The petitioners note that the team recommended finding the RUE in
Industry sub-program de facto specific in its Italian Sheet and Strip
concurrence memorandum for the preliminary determination based on the
same usage data cited by the petitioners. The petitioners suggest that
the Department reverse its preliminary decision to analyze the usage
data of the program as a whole, and return to analyzing the specificity
based on RUE in Industry.
    If the Department finds this program countervailable, the
petitioners argue that the Department should consider AST, rather than
AST and its partners, as the sole beneficiary of the EU assistance for
the project funded because AST will retain the entire value of the
project, including licensing rights, after its completion. However, AST
argues that the petitioners' claim that AST will have the sole right to
retain and exploit equipment and technology is completely false, and
contradicted by the Department's verification report. AST notes that
the verification report specifically states that ``AST and its
partners'' will retain the equipment and technology from the project.
Given this, should it find the assistance countervailable, the
Department should only countervail the assistance actually attributable
to AST.
    Lastly, the petitioners state that the Department should find the
grant to be tied to sheet and strip because the company admitted at
verification that the technology would primarily benefit that product.
    Department's Position: Consistent with our finding in Italian Sheet
and Strip, 63 FR at 63907, and our February 19, 1999 Memorandum on the
EC THERMIE Program, we continue to find that the THERMIE program is
neither de jure nor de facto specific. We analyzed the usage data for
the THERMIE program at verification, and found no discrepancies within
the database of projects reported as approved by the EC. While we did
note that a small number of the projects approved were not funded for a
variety of reasons, this fact does not substantially alter the usage
data reported.
    We disagree with the petitioners that we should analyze the
specificity of the aid received based on one of THERMIE's sub-programs,
RUE in Industry. At verification with the EC, we found that the goals,
project selection, and general administration of the programs did not
vary significantly between the sub-programs, and that the
classification into sub-programs was primarily for administrative
convenience. According to the EC, while the technical evaluation of
each project is handled by different individuals, this is a result of
the need to have evaluators with highly technical specialties in order
to evaluate the projects submitted. We also verified that the same
level of funding and eligible expense restrictions applied across all
three sub-programs, and that each sub-program was subject to the same
EC regulations and application procedures (see Annex 12, 13, and 14 of
the EC's initial questionnaire response).
    Comment 19: Law 675 Bond Issues. AST requests that the Department
change the methodology used for calculating the benefit for the loans
it received under Law 675. Specifically, AST states that the Department
should not include the interest accrued for the first semi-annual
payment in the principal amount used to calculate the interest due on
the second semi-annual payment, because, as verified, AST actually
makes semi-annual payments.
    Additionally, AST states that the Department, consistent with
accrual accounting, should only account for the interest and fee
reimbursements from the GOI accrued by AST for its repayments made in
the POI, not for reimbursements actually received in the POI for
previous year's accruals.
    With regard to AST's second point, the petitioners argue that in
determining the benefit from this program, the Department should
countervail the amount of reimbursements actually received in the POI,
rather than those accrued but not received.
    Department's Position: We agree with AST's first point and have
altered our calculations accordingly. With regard to AST's second
point, it is the Department's practice to calculate the benefit from an
interest rebate program using its loan methodology if the recipient
knows at the time the loan is received that it will receive interest
rebates (see Certain Steel from Italy, 58 FR at 37331, and Pasta from
Italy, 61 FR at 30293). Because AST knew at the time it assumed
repayment of these bond issues from ILVA that it would receive
reimbursements from the GOI for any payments above a certain interest
rate, it is appropriate to treat this aid simply as a below benchmark
interest rate loan.
    Comment 20: 1988 Equity Infusion. According to AST, the Department
incorrectly countervailed the September 1988 equity infusion received
by ILVA because the infusion was received prior to ILVA becoming a
steel company at the beginning of 1989. AST argues that the payment is
instead tied to real estate management services because these services
were ILVA's only activities at the time of the infusion.
    The petitioners argue that the 1988 infusion should be
countervailed by the Department because the Department typically treats
equity infusions as untied subsidies, benefitting the company as a
whole (see 1989 Proposed CVD Regulations, 54 FR at 23366, and
Countervailing Duties, Final Rule, 63 FR 65348, 65400 (November 25,
1998)). Additionally, the petitioners state that the Department has
countervailed this same infusion in Electrical Steel from

[[Page 15527]]

Italy and Certain Steel from Italy, and that in Electrical Steel from
Italy the Department found in that ILVA was more than a real estate
company in 1988, owning land, buildings, a plant and machinery.
    Department's Position: We have continued to countervail the 1988
equity infusion to ILVA. As noted by petitioners, we consider equity
infusions to be untied subsidies benefitting the total consolidated
sales of the recipient company. In this case, AST has not provided any
information indicating that the benefits of this equity infusion should
be tied to non-steel activities.
    Comment 21: Law 451/94. The petitioners argue that the Department
must countervail early retirement benefits AST received under Law 451/
94 because the program relieved AST of an obligation it would otherwise
incur during the POI. The petitioners state that an affirmative finding
of countervailable benefits under Law 451/94 is consistent with the
Department's determination in Wire Rod from Italy and in the
preliminary determination of this proceeding.
    The petitioners note that in the preliminary determination for
Italian Sheet and Strip, the Department inappropriately found that the
Mobility program provided the most accurate benefit benchmark for this
program. The petitioners maintain that verification confirms that the
Mobility is an inappropriate benchmark by which to measure the benefit
of Law 451/94 and a more appropriate benchmark is CIG-E. The
petitioners point out that Law 451/94 and CIG-E have similar
characteristics in that both are designed for companies which are
undergoing structural, long-term problems. Additionally, the
petitioners note that at verification an AST official confirmed that
the company has placed redundant workers in the CIG-E program while
waiting for the passage of Law 451/94.
    Lastly, the petitioners object to AST's claims that it was under no
legal obligation to retain its workers. First, the petitioners point
out that the Department has determined in Certain Steel from Italy and
Wire Rod from Italy that large Italian companies cannot simply lay-off
workers. Second, the petitioners maintain that AST's argument misses
the point because the obligation refers to the payment that a company
would have to make absent government payments. The petitioners argue
that record evidence confirms that in the normal course of business,
Italian companies are obligated to make severance payments to laid-off
workers and the fact that Law 451/94 reduced the financial obligation
AST would incur is a countervailable benefit.
    AST argues that Law 451/94 early retirement benefits to former AST
employees are not countervailable because AST did not receive Law 451/
94 benefits during the POI. AST points out that the Department
correctly determined in Italian Sheet and Strip that since employees
were eligible to apply for Law 451/94 only through 1996, AST could not
have received benefits during the POI because the Department's practice
is to treat employment benefits as recurring grants that are expensed
in the year of receipt. AST further argues that as specified by the
terms of the Law and AST's own records, all of AST's employees who
chose to leave the company under Law 451/94 did so prior to the POI.
    AST argues that its use of Law 451/94 did not benefit the company
because AST's overall costs under Law 451/94 were greater than those
the company would have incurred had it followed the normally applicable
Mobility provisions under Law 223. Lastly, the respondents argue that
Law 451/94 is not countervailable because AST was under no de jure or
de facto obligation to retain workers. The respondents point out that
in the past, the Department has concluded that Italian firms cannot
simply fire workers. However, in the instant proceeding, the
respondents note that the GOI has informed the Department that Italian
companies are under no legal obligation to participate in the GOI's
early retirement programs, and if an Italian company is unable to reach
an agreement with worker unions and if there are no better means, then
the company can fire employees. AST also argues that countervailing the
Italian social safety net based on the vague perception that social or
political conditions make it impossible to fire workers is
inappropriate and unreasonable. Furthermore, AST states that the
Department should not assume that it was impossible for AST to fire its
workers had it chosen to do so. In fact, the Mobility program would
have no purpose if, as a legal or practical matter, employees in Italy
could not be fired.
    Department's Position: As set forth in the program description for
Law 451/94 above, the Department has determined that Law 451/94
provided a countervailable benefit to AST during the POI. Although AST
employees applied for Law 451/94 from 1994 to 1996, AST has indicated
that all of these employees received pre-pension payments from the GOI
during the POI.
    We do not dispute AST's argument that it can fire workers. However,
as mandated by Law 223, AST was required to negotiate with the labor
unions before it fired more than five employees in 120 days. As we
stated in the program description above, the outcome of these
negotiations is uncertain, and we have no basis for expecting either
that AST would have been able to fire the total number of workers
without additional payments over and above the standard Mobility costs
or that the unions would have successfully negotiated no lay-offs.
Since AST's own experience in laying-off employees indicated that its
workers were aware beforehand of the GOI's forthcoming early retirement
plan and the amount of the GOI's contribution to them, we applied our
standard methodology as set forth in the GIA, 58 FR at 37256. See also
Certain Steel from Germany, 58 FR at 32320-21. Furthermore, this
methodology was upheld by the CIT in LTV Steel. For more information on
this program see Memorandum to Richard Moreland regarding Law 451/94--
Early Retirement Benefits dated March 19, 1999.
    Comment 22: Law 675/77--Worker Training Program. The petitioners
argue that, at verification, the Department confirmed that AST received
grants under Law 675/77 between 1984 and 1987 for worker retraining.
The petitioners allege that AST failed to document this assistance in
its response to the Department's original and supplemental
questionnaires. Because AST failed to supply information regarding
these grants, the Department should resort to facts available for this
program. Furthermore, the petitioners maintain that since several
Departmental determinations indicate that benefits received under Law
675/77 are countervailable, the Department should countervail the
worker retraining portion of Law 675/77 in the final determination and
treat those benefits as a non-recurring grant.
    AST argues that it has made available both in its submissions and
at verification all factual information available to the company
regarding the personnel retraining component of law 675/77. AST points
out that these benefits were applied for and received by a predecessor
to AST which ceased to exist years ago. Additionally, AST maintains
that it is the Department's long-standing policy to treat worker
retraining programs as recurring benefits and there is no support in
law or Department practice for the treatment of this program as a non-
recurring grant as suggested by the petitioners.
    Department's Position: We agree with AST. At verification, AST
officials indicated that an AST predecessor

[[Page 15528]]

company, Terni, received personnel retraining grants between 1984 and
1987. As pointed out by the respondent, it is the Department's practice
to treat training benefits as recurring grants and expense the benefit
in the year of receipt (see GIA at 37226). Furthermore, personnel
retraining grants under Law 675/77 were countervailed in Certain Steel
from Italy, 58 FR at 37331. In Certain Steel from Italy, the Department
used best information available to determine the benefit provided by
this program. However, in Certain Steel from Italy, the Department also
determined that the treatment of benefits under this program as non-
recurring was not appropriate. In the instant proceeding, there is no
new information to warrant a reconsideration of this finding.
Therefore, since the training grants in question were provided before
the POI, there is no countervailable benefit derived from this program
during the POI.
    Comment 23: Law 796 Benefit Calculation. AST argues that the
Department should revise its methodology for allocating the benefit AST
received under the Law 796 exchange rate guarantees covering certain
ECSC loans. AST notes that in the Preliminary Determination, the
Department calculated the benefit from these exchange rate guarantees
by multiplying the difference between the guaranteed and benchmark
exchange rates by the sum of principal and interest paid during the
POI. This, AST argues, is a reasonable approach where the loan
repayment is structured such that there are regular installment
payments of principal and interest. AST notes, however, at least one of
its ECSC loans has a balloon payment, i.e., the principal comes due in
one lump payment at the end of the loan term. In the cases of balloon-
payment loans, AST argues, the Department should treat exchange rate
guarantee benefits as non-recurring and allocate these benefits over
the full term of the loan.
    The petitioners respond that the benefits provided under Law 796 do
not stem from the nature of the loans themselves but, rather, from the
exchange rate guarantees on those loans. The structure of the
underlying loan, argue the petitioners, is not relevant to the analysis
of the benefit from the guarantees. Therefore, the petitioners
conclude, for its final determination the Department should continue to
use the same methodology as that used in the Preliminary Determination
for calculating the Law 796 benefits.
    Department's Position: We agree with the petitioners that no change
to the methodology used in the Preliminary Determination is warranted.
As stated in the Preliminary Determination, once an ECSC loan is
approved for an exchange rate guarantee, access to foreign exchange at
the established rate is automatic and occurs at regular intervals
throughout the life of the loan. Longstanding Department practice is to
treat non-exceptional, automatically-approved benefits as recurring
grants (see the Preamble to the 1989 Proposed Regulations, 54 FR at
23376). Consistent with the Department's regulations, recurring
benefits are expensed in the year in which the benefit is received.
Accordingly, no change has been made to the Law 796 benefit
calculation.
    Comment 24: AST's Brite-EuRam Grant. The petitioners argue that the
Department should countervail the grant received by AST under the EU's
Brite-EuRam program that was discovered at verification. According to
the petitioners, AST failed to submit information on this grant in its
questionnaire responses and was unable at verification to provide
information on the use of the aid and other materials relating to it.
    In response, AST notes that the petitioners never requested the
Department to investigate the Brite-EuRam program. Since it was not
asked a single question regarding the Brite-EuRam program, AST
maintains that it cannot be found to be uncooperative by not providing
information on assistance received under this program. AST argues that
any determination of countervailability of Brite-EuRam assistance
should properly be done in the context of an administrative review,
should one occur.
    Department's Position: We agree with AST that any determination
regarding the countervailability of assistance under the Brite-EuRam
program cannot be done in the context of this investigation. During the
course of this proceeding, the Department did not request information
on this program from either the relevant government bodies or AST.
Therefore, a finding that respondents were ``uncooperative'' would be
inappropriate as would the application of facts available. We will,
however, request information on the Brite-EuRam program in a future
administrative review in the event one occurs.
    Comment 25: ECSC Article 56 Aid. The petitioners argue that, based
on information collected by the Department at the verification of the
EC, its appears that Law 451/94 benefits were still being provided to
AST during the POI. The information further suggests, the petitioners
contend, that the GOI made additional severance payments related to
ECSC Article 56(2)(b) on AST's behalf. All payments made by the GOI or
the EC, the petitioners conclude, should be countervailed.
    AST responds that the results of verification make clear that no
additional Article 56 assistance, beyond that already countervailed
under Law 451/94, has been given to AST. The petitioners' claims to the
contrary, AST contends, merely represent a mis-reading of the
verification report.
    Department's Position: In the course of verifying both the EC and
AST, we found no evidence suggesting that additional Article 56(2)(b)
assistance has been given to AST beyond that already found
countervailable under Law 451/94. At verification we learned that the
Article 56(2)(b) program partially compensates the GOI for benefits the
GOI has already paid out to workers under its Law 451/94 early
retirement program. Moreover, the severance payments, referred to by
the petitioners, are benefits stipulated under Law 451/94 and,
therefore, have already been incorporated into our analysis of the Law
451/94 benefits.
    Comment 26: ECSC Article 54 Loans. AST points out that a subsidy
exists only where ``a government of a country or any public entity''
provides a ``financial contribution'' or ``makes a payment to a funding
mechanism to provide a financial contribution or entrusts or directs a
private entity to make a financial contribution. * * *'' AST then
argues that ECSC Article 54 loans do not convey government funds to
borrowers and that no financial contribution is provided from the
treasury of any public or quasi-public entity. Rather, Article 54 loans
are commercially obtained funds re-lent on a private, fully commercial
basis. (The European Commission made a similar argument in a submission
made prior to the briefing schedule.) Citing to the Department's prior
treatment of the ECSC Article 56(2)(b) program (see, e.g., Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products from Germany, 58 FR 6233,
6236 (January 27, 1993)), AST maintains that if the program operates
without government funds, it is the Department's practice to find no
countervailable benefit. Finally, respondents argue that no public
entity has ``entrusted or directed'' the ECSC to make Article 54 loans
to AST.
    Petitioners maintain that the Department has previously found that
the ECSC met the definition of an ``authority'' capable of granting
subsidy benefits (see section 771(5)(B) of the Act) and that the ECSC
is, in fact, a public entity. Pointing out that the Department's
verification found that

[[Page 15529]]

ECSC and European Community administrative functions are merged,
petitioners argue that it is inconceivable that a purely private entity
would be run by Commission officials as claimed by AST. Finally,
petitioners argue that the new reference to ``financial contribution''
was not intended by Congress ``to become a loophole when unfairly
traded imports enter the United States and injure a U.S. industry.''
SAA at 926.
    Department's Position: We determine that the ECSC is a public
entity under sections 701(a)(1) and 771(5)(B) of the Act. It is part of
the European Union, which undeniably is a particular form of
governmental body. Neither AST nor the EC have contested this position.
Rather, the issue raised is whether the ECSC has made a ``financial
contribution'' to AST. Under the Act and the WTO Subsidies Agreement, a
financial contribution includes the direct transfer of funds, such as
the provision of loans. While AST and the EC have acknowledged that
ECSC loans were provided to AST, they both attempt to make the case
that because the loans were not financed directly from ``the treasury
of any public or quasi-public entity'' they cannot be considered
``financial contributions.'' However, we see no requirement in the WTO
Subsidies Agreement nor the Act that the financial contribution must be
funded in a particular manner. In fact, it is common practice for
governments and other public entities to finance at least some of their
operations via the issuance of bonds or other debt instruments, the
proceeds of which are commonly used to fund normal government
operations, including subsidy programs.
    While this position may arguably conflict with the approach we have
previously taken with respect to Article 56(2)(b), there are
differences between the two programs. For example, the Article 56(2)(b)
program has been funded directly by producer levies, while Article 54
loans, as noted above, are generally financed by means of ``back-to-
back loans.'' To the extent this fact fails to adequately distinguish
the two programs, we may re-visit our prior reasoning with respect to
the Article 56(2)(b) program in light of the new provisions of the WTO
Subsidies Agreement and the changes to the Act made pursuant to the
Uruguay Round Agreements Act.
    Comment 27: Exclusion of Floor Plate from the Scope of the
Investigation. AST requests that the Department exclude floor plate
from the scope of the instant proceeding and the Italian Sheet
investigation. AST argues that floor plate should not be included in
the scope of these investigations because floor plate is not
manufactured in the United States, it does not compete with any product
manufactured in the United States or with imports of other covered
products, and it is materially different from the other products
subject to this investigation. Furthermore, AST argues that floor plate
has only one end-use, which is as flooring material and cannot be used
for any other application that requires a smooth surface, as is a
common requirement of end-uses of stainless steel. Lastly, AST argues
that the Department has the inherent authority to exclude products from
the scope of an investigation that are not properly included therein.
    The petitioners object to AST's request to exclude floor plate from
the scope of both investigations. The petitioners argue that floor
plate clearly falls within the scope of this case. Furthermore, the
petitioners cite Melamine Institutional Dinnerware Products from the
People's Republic of China, 62 FR 1708 (January 13, 1997), as evidence
of the Department's clear and consistent practice of examining the
interests of the domestic industry in defining the scope of a case. The
petitioners point out that numerous requests to exclude certain
products from the scope have been considered and, where there was no
interest on the part of the domestic industry, petitioners have
excluded such products from the scope as evidenced in the revisions to
the initial scope definition set forth in Italian Sheet and Strip. The
petitioners object to AST's argument that in order for a product to
remain within the scope, the domestic industry must be currently
producing it. The petitioners state that often products are included in
the scope because they are similar to and competitive with the domestic
like product. Furthermore, the petitioners point out that the
International Trade Commission has preliminarily determined that
stainless steel plate in coils produced by the domestic industry is a
single domestic like product with all imported stainless steel coiled
plate, including floor plate, Certain Stainless Steel Plate From
Belgium, Canada, Italy, Korea, South Africa, and Taiwan, International
Trade Administration, Investigations Nos. 701-TA-376-379 (Preliminary)
and Investigations Nos. 731-TA-788-793 (Preliminary) (Publication 3107;
May 1998).
    Department's position: We disagree with AST. Despite AST's
arguments, the scope as set forth in the preliminary determination
covers merchandise described as floor plate if it is more than 4.75 in
thickness. The scope specifically describes the subject merchandise as
``flat-rolled products, 254 mm or over in width and 4.75 mm or more in
thickness, in coils, and annealed or otherwise heat treated and pickled
or otherwise descaled.'' Additionally, the petitioners have objected to
the exclusion of floor plate from the scope of the investigation.
Therefore, the Department is not amending the scope of the
investigation to exclude stainless steel floor plate.

Verification

    In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with government and
company officials, and examining relevant accounting records and
original source documents. Our verification results are detailed in the
public versions of the verification reports, which are on file in the
Central Records Unit.

Suspension of Liquidation

    In accordance with section 705(c)(1)(B)(i) of the Act, we have
calculated an individual rate for AST. Because AST is the only
respondent in this case, its rate serves as the all-others rate. We
determine that the total estimated net countervailable subsidy rate is
15.16 percent ad valorem for AST and for all others.
    In accordance with our Preliminary Determination, we instructed the
U.S. Customs Service to suspend liquidation of all entries of stainless
steel plate in coils from Italy, which were entered or withdrawn from
warehouse, for consumption on or after September 4, 1998, the date of
the publication of our Preliminary Determination in the Federal
Register. In accordance with section 703(d) of the Act, we instructed
the U.S. Customs Service to discontinue the suspension of liquidation
for merchandise entered on or after January 2, 1999, but to continue
the suspension of liquidation of entries made between September 4, 1998
and January 1, 1999. We will reinstate suspension of liquidation under
section 706(a) of the Act if the ITC issues a final affirmative injury
determination, and will require a cash deposit of estimated
countervailing duties for such entries of merchandise in the amounts
indicated above. If the ITC determines that material injury, or threat
of material injury, does not exist, this proceeding will be terminated
and all estimated duties deposited or securities posted as a result of
the suspension of liquidation will be refunded or canceled.

[[Page 15530]]

ITC Notification

    In accordance with section 705(d) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and non-proprietary information related to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Assistant Secretary for Import Administration.
    If the ITC determines that material injury, or threat of material
injury, does not exist, these proceedings will be terminated and all
estimated duties deposited or securities posted as a result of the
suspension of liquidation will be refunded or canceled. If, however,
the ITC determines that such injury does exist, we will issue a
countervailing duty order.

Return or Destruction of Proprietary Information

    In the event that the ITC issues a final negative injury
determination, this notice will serve as the only reminder to parties
subject to Administrative Protective Order (APO) of their
responsibility concerning the return or destruction of proprietary
information disclosed under APO in accordance with 19 CFR 355.34(d).
Failure to comply is a violation of the APO.
    This determination is published pursuant to sections 705(d) and
777(i) of the Act.

    Dated: March 19, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-7528 Filed 3-30-99; 8:45 am]
BILLING CODE 3510-DS-P