SAARSTAHL AG, Plaintiff, v. UNITED STATES, Defendant, and
                  INLAND STEEL BAR CO., Defendant-Intervenor.
                         Consol. Court No. 93-04-00219
                   UNITED STATES COURT OF INTERNATIONAL TRADE
           967 F. Supp. 1311; 1997 Ct. Intl. Trade LEXIS 62; SLIP OP.
                                     97-67
 
                             May 29, 1997, Decided
SUBSEQUENT HISTORY:   [**1]   As Amended June 6, 1997.
SYLLABUS: Plaintiff moves for Judgment on the Agency Record pursuant to U.S. CIT
R. 56.2, arguing the Department of Commerce's Final Affirmative Countervailing
Duty Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel Products
From Germany, 58 Fed. Reg. 6,233 (Dep't Comm. 1993) as modified by Remand
Determination: Certain Hot Rolled Lead and Bismuth Steel Products From Germany
(dated Oct. 12, 1993) is not supported by substantial evidence on the record and
is not otherwise in accordance with law.
Plaintiff Saarstahl AG also moves for oral argument on the issues remaining
undecided after this Court's final judgment in Saarstahl AG v. United States,
939 F. Supp. 898 (CIT September 3, 1996). Plaintiff maintains oral argument is
necessary due to the amount of time that has elapsed since the issues in this
case were last briefed and due to the issuance of relevant decisions by this
Court and the United States Court of Appeals for the Federal Circuit.
Defendant-Intervenor also moves for Judgment on the Agency Record pursuant to
U.S. CIT R. 56.2, arguing the Department of Commerce's Final Affirmative and
Remand Determinations are  [**2]   contrary to departmental practice, are not
supported by substantial evidence on the record and are not otherwise in
accordance with law.
   Defendant argues the Department of Commerce's Final Affirmative and Remand
Determinations are supported by substantial evidence on the record and are
otherwise in accordance with law, except with respect to the calculation of an
uncreditworthy discount interest rate used to determine whether certain grants
received by Saarstahl are countervailable. Defendant seeks a remand for
reconsideration of this issue.
Held: Commerce's determination in Final Affirmative Countervailing Duty
Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel Products From
Germany, 58 Fed. Reg. 6,233 (Dep't Comm. 1993) as modified by Remand
Determination: Certain Hot Rolled Lead and Bismuth Steel Products From Germany
(dated Oct. 12, 1993) is sustained on all issues with the exception of
Commerce's calculation of an uncreditworthy discount rate for Saarstahl. The
Court remands this issue to Commerce for reconsideration. This Court denies
Saarstahl's Motion for Oral Argument.
COUNSEL: LeBoeuf, Lamb, Leiby & MacRae, Pierre F. de Ravel d'Esclapon  [**3]
(Mary Patricia Michel: on Saarstahl's Memorandum in Support of Plaintiff's
Motion for Judgment on the Agency Record and Response of Saarstahl AG to the
Motion for Judgment on the Agency Record of Inland Steel Bar Company),
Washington, D.C., Grunfeld, Desiderio, Lebowitz & Silverman (Max F. Schutzman,
David L. Simon, Jeffrey S. Grimson: on Reply Brief of Saarstahl AG), New York,
N.Y., deKieffer & Horgan (J. Kevin Horgan, Marc Montalbine: on Saarstahl's
Comments on Remand Determination), Washington, D.C., counsel for plaintiff.
Frank W. Hunger, Assistant Attorney General of the United States; David M.
Cohen, Director, Commercial Litigation Branch, Civil Division, United States
Department of Justice, A. David Lafer (Jeffrey M. Telep); Marguerite Trossevin,
Attorney-Advisor, Office of Chief Counsel for Import Administration, United
States Department of Commerce, counsel for defendant.
Wiley, Rein & Fielding (Charles Owen Verrill, Jr., Alan H. Price, Willis S.
Martin III, Brian E. Rosen), Washington, D.C., counsel for defendant-intervenor.
JUDGES: BEFORE: GREGORY W. CARMAN, CHIEF JUDGE
OPINIONBY: Gregory W. Carman
OPINION:   [*1312]
   OPINION
   CARMAN, CHIEF JUDGE:  [**4]   Before the Court are motions for Judgment on
the Agency Record made by plaintiff Saarstahl AG ("Saarstahl") and
defendant-intervenor Inland Steel Bar Company ("Inland") pursuant to U.S. CIT R.
56.2. Plaintiff argues the Department of Commerce's ("Department" or "Commerce")
decision in Final Affirmative Countervailing Duty Determination: Certain Hot
Rolled Lead and Bismuth Carbon Steel Products From Germany, 58 Fed. Reg. 6,233
(Dep't Comm. 1993) ("Final Affirmative Determination" or "Certain Hot Rolled
Lead") as modified by Remand Determination: Certain Hot Rolled Lead and Bismuth
Steel Products From Germany (dated Oct. 12, 1993) ("Remand Determination") is
unsupported by substantial evidence on the record and is not otherwise in
accordance with law.
   Saarstahl also previously moved for oral argument on the non-privatization
issues remaining undecided after the issuance of this Court's opinion in
Saarstahl AG v. United States, 939 F. Supp. 898 (CIT 1996) ("Saarstahl II"). n1
Saarstahl claimed oral argument is "vitally important because of the significant
amount of time which has transpired since the issues in the case were last
briefed" and because of the  [**5]   issuance of decisions relevant to this
proceeding by this Court and the United States Court of Appeals for the Federal
Circuit ("CAFC") during that time. (Pl.'s Mot. for Oral Arg. or Alt. for Supp.
Brief. at 1.) In Saarstahl AG v. United States, 949 F. Supp. 863 (CIT 1996)
("Saarstahl II"), this Court reserved decision on plaintiff's Motion for Oral
Argument as to issues remaining undecided after this Court's decision in
Saarstahl II. In this opinion, therefore, this Court will review Commerce's
Final Affirmative Determination as modified by the Remand Determination with
respect to issues not pertaining to privatization or allocation, because, as
explained below, this Court has addressed those issues in previous opinions. n2
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   n1 Saarstahl moved alternatively for supplemental briefing on the issues
remaining undecided after Saarstahl II, but this Court denied Saarstahl's motion
in Saarstahl v. United States, 949 F. Supp. 863 (CIT 1996) ("Saarstahl III"). In
that opinion, the Court indicated it would accept a timely application should
the parties wish to renew their application for supplemental briefing. Id. at
870. The parties have not done so.  [**6]
   n2 See infra, Section C and D for an overview of this Court's decisions
addressing the issue of privatization and allocation.
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   Plaintiff raises three challenges to the Final Affirmative Determination.
Plaintiff argues: (1) the contingent repayment obligations at issue were not
loans, (2) Commerce erred in calculating the value of the contingent repayment
obligations, and (3) Commerce's determination that the private banks' debt
forgiveness was a countervailable subsidy is not supported by substantial
evidence on the record and is otherwise not in accordance with law.
   Defendant-Intervenor also moves for Judgment on the Agency Record, arguing
Commerce's Final Affirmative Determination  [*1313]   and Remand Determination
are not supported by substantial evidence on the record. Defendant-Intervenor
argues Commerce erred when it allocated subsidies received by Saarstahl over the
total sales of DHS. Defendant-Intervenor also seeks a remand for a
redetermination (1) finding Saarstahl uncreditworthy in 1989, in accordance with
Certain Hot Rolled Lead and Bismuth Carbon Products   [**7]    From Brazil,
France, Germany and the United Kingdom, 57 Fed. Reg. 42,471 (Dep't Comm. 1992)
(prelim. determ.) ("Preliminary Determination"), and adding an
uncreditworthiness premium to the discount rate used to calculate the
countervailing duty margin.
   Defendant argues Commerce's Final Affirmative and Remand Determinations are
supported by substantial evidence on the record and are otherwise in accordance
with law, and requests this Court sustain Commerce's determinations except with
respect to calculation of the discount rate. Defendant requests this Court
remand this issue to Commerce with instructions to reconsider the discount rate
in light of Saarstahl SVK's creditworthiness.
   The Court has jurisdiction over the matter pursuant to 28 U.S.C. @ 1581(c)
(1988).
   BACKGROUND
   A. Factual Background
   From the mid-1970s through the mid-1980s, the European steel industries, in
general, and the Saarland steel industries in particular, suffered tremendously
as a result of the steel crisis caused by the decline in demand and reduced
prices for steel. Between 1978 and 1985, Saarstahl Volklingen GmbH ("Saarstahl
SVK"), a German steel company, n3 received various  [**8]   subsidies and
assistance from the German federal government ("GOG") and the Saarland state
government ("GOS") stemming from a Restructuring Plan adopted by the federal and
state governments in 1978 to restore competitiveness to Saarstahl SVK and to
create a viable steel industry in the Saarland. The subsidies took the form of
guaranteed loans, government funds, and the assumption of principal and interest
payments. The federal and state governments also guaranteed loans made to
Saarstahl by private banks which would not have made such loans without the
government guarantees. Assistance provided to Saarstahl was used to modernize
the company, make capital investments and cover operating and employee expenses
pursuant to a number of Saarstahl restructuring plans. All of the assistance
contained a repayment obligation known as "Ruckzahlungsverpflich" or "RZV,"
which obligated Saarstahl SVK to repay the governments if the company returned
to profitability. By 1989, Saarstahl SVK had accumulated DM 3.948 billion in
repayment obligations to both governments.
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   n3 Saarstahl is a producer of long products, such as steel bars and rods in
Germany's Saarland region.
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[**9]
   Until 1986, Saarstahl SVK was wholly owned by Arbed Luxembourg ("Arbed"), a
Luxembourg state-owned company. By 1985, Arbed was no longer able or willing to
function as the owner of Saarstahl. Because of the importance of Saarstahl to
the local economy, the GOS decided to search for a new owner to replace Arbed.
In 1986, in order to facilitate finding a new investor for Saarstahl, Arbed
transferred 76 percent of its ownership of Saarstahl SVK to the GOS for DM 1.
Usinor-Sacilor, a French company which owned German steel producer AG der
Dillinger Huttenwerke ("Dillinger"), also expressed interest in purchasing
Saarstahl SVK, but only on the condition Saarstahl was relieved of its debt
burden. At the time, Dillinger and Saarstahl SVK were already partners in a
joint venture company which produced pig iron.
   On April 20, 1989, the GOS reached an agreement with Usinor-Sacilor to merge
Saarstahl SVK with Dillinger. On June 15, 1989, Saarstahl SVK's name was changed
to DHS-Dillinger Hutte Saarstahl AG ("DHS") and all assets and liabilities of
Saarstahl SVK were transferred to DHS. Saarstahl SVK's legal form also changed
from "GmBH," a limited liability corporation, to "AG," a German stock  [**10]
company. In exchange for Saarstahl   [*1314]   SVK's assets and a capital
contribution of DM 145.1 million, the GOS received a 27.5 percent ownership
interest in Saarstahl AG. Arbed received a 2.5 percent ownership interest in
Saarstahl AG in exchange for a capital contribution of DM 8.9 million and its
shares of Saarstahl. Usinor-Sacilor's in-kind contribution of all of its shares
of Dillinger was valued at DM 417.3 million and resulted in a 70 percent
ownership interest in the newly-formed DHS. Usinor-Sacilor conditioned this
agreement upon the federal and Saarland state governments' forgiveness of all of
Saarstahl SVK's RZVs.
   On June 30, 1989, DHS transferred the former Saarstahl SVK's lead-bar assets
and liabilities to a newly formed subsidiary, Saarstahl AG ("Saarstahl"). As a
result of these events, DHS became a holding company with two operating
subsidiaries, Saarstahl AG and Dillinger, and was owned 70 percent by Usinor
Sacilor, 27.5 percent by the GOS and 2.5 percent by Arbed. n4 The result of the
combination for Saarstahl was that it had been privatized in an arm's-length
market transaction which involved a change from ownership and control by the GOS
to majority ownership  [**11]   by private interests. See Remand Determination
at 2.
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   n4 DHS owned 100 percent of Saarstahl AG and 95 percent of Dillinger. Both
Saarstahl AG and Dillinger had profit and loss agreements with DHS under which
they were to transfer any profits to DHS and DHS was required to assume any
losses incurred by Dillinger and Saarstahl AG.
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   Pursuant to the merger agreement and as a condition for sale, the GOG and GOS
entered into an agreement concerning the previous assistance received by
Saarstahl SVK. Under this agreement, all outstanding repayment obligations for
the funds provided to Saarstahl SVK, as well as the additional rights held by
both governments for the repayment of the principal on the guaranteed loans,
were forgiven and relinquished. At the request of the governments, private banks
also forgave a portion of the debt owed to them by Saarstahl SVK.
   B. Countervailing Duty Investigation
   Commerce initiated a countervailing duty investigation of Saarstahl on May 8,
1992, based on a petition filed by  [**12]   Inland Steel Bar Company and
Bethlehem Steel Corporation against imports of certain hot-rolled lead and
bismuth carbon steel products from Germany. Commerce issued its Preliminary
Determination on September 17, 1992. On January 27, 1993, in its Final
Affirmative Determination, Commerce determined "benefits which constitute
subsidies within the meaning of the countervailing duty (CVD) law n5 are being
provided to manufacturers, producers, or exporters in Germany of certain hot
rolled lead and bismuth carbon steel products." Final Affirmative Determination,
58 Fed. Reg. at 6,233. The Final Affirmative Determination continued on to note
"because the debt forgiveness . . . was only provided to one company," it fell
within 19 U.S.C. @ 1677(5)(A)(ii) (1988) as "limited to a specific enterprise or
industry or group of enterprises or industries" and was, as a result,
countervailable. Id. at 6,234. Additionally, Commerce determined because the
German governments' forgiveness of Saarstahl's debts was necessary to effect the
sale or privatization of Saarstahl, the entire amount of debt-forgiveness
directly benefitted Saarstahl's new parent, the then newly-formed DHS, and
[**13]   therefore was a countervailable subsidy to DHS. Commerce stated
"because the debt forgiveness was part of the deal negotiated to effect the
merger, we consider the forgiveness to benefit the newly-formed company, not the
predecessor to DHS. Therefore, pass through of subsidies received by the
predecessor company is not at issue here." Id. at 6,236-37.
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   n5 The statute provides a countervailable domestic subsidy is a benefit
"provided or required by government action to a specific enterprise or industry,
or group of enterprises or industries, whether publicly or privately owned and
whether paid or bestowed directly or indirectly on the manufacture, production,
or export of any class or kind of merchandise." 19 U.S.C. @
1677(5)(A)(ii)(1988).
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-
   Commerce also determined the debt forgiveness by private banks was
countervailable, because "it was required by the governments as part of a
government-led debt reduction package for Saarstahl and because   [*1315]   the
two governments guaranteed the future liquidity  [**14]   of Saarstahl, thereby,
implicitly assuring the private banks that the remaining portion of Saarstahl's
outstanding loans would be repaid." Id. at 6,235. Following the ITC's
affirmative injury determination, Commerce issued a countervailing duty order
for the relevant products under investigation. See Countervailing Duty Order:
Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Germany, 58 Fed.
Reg. 15,325 (Dep't Comm. 1993).
   C. Privatization
   In a subsequent countervailing duty investigation entitled Final Affirmative
Countervailing Duty Determination; Certain Steel Products From Germany, 58 Fed.
Reg. 37,315 (Dep't Comm. 1993) ("German Certain Steel"), based upon a review of
the identical facts presented in the Final Affirmative Determination in Certain
Hot Rolled Lead, Commerce reconsidered the effect of privatization on the
benefits conferred on Saarstahl by private sources and modified the position it
took in the Certain Hot Rolled Lead Final Affirmative Determination. In the new
investigations, Commerce determined "the debt forgiveness . . . provided
benefits to Saarstahl which were then passed through to DHS." German Certain
Steel,  [**15]   58 Fed. Reg. at 37,320. Commerce determined the benefit from
the forgiveness of Saarstahl's debt was "allocable to DHS because the
restructuring would not have occurred but for the government's intervention."
General Issues Appendix to Final Affirmative Countervailing Duty Determination:
Certain Steel Products From Austria, 58 Fed. Reg. 37,225, 37,272 (Dep't Comm.
1993) ("General Issues Appendix"). Commerce further determined although the
privatization of a public company through an arm's length sale did not
automatically extinguish the countervailability of the prior subsidies, the
price paid for the company could constitute a partial repayment of the prior
subsidies and the portion of the subsidy deemed to be repaid was not
countervailable. See German Certain Steel, 58 Fed. Reg. at 37,320. Commerce
explained,
a private party purchasing all or part of a government-owned company (e.g. a
productive unit) can repay prior subsidies on behalf of the company as part or
all of the sales price. Therefore, to the extent that a portion of the price
paid for a privatized company can reasonably be attributed to prior subsidies,
that portion of those subsidies will be  [**16]   extinguished.
General Issues Appendix, 58 Fed. Reg. at 37,262-63. n6
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   n6 Commerce's new approach is explained in the sections entitled
"Privatization" and "Restructuring" contained in the General Issues Appendix.
The General Issues Appendix addresses issues that were common to several
countervailing duty investigations of steel products from various countries. The
section of the Appendix addressing the privatization methodology is found at 58
Fed. Reg. at 37,259-65. The section of the Appendix addressing restructuring
is found at 58 Fed. Reg. at 37,265-73.
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   In light of its determination in German Certain Steel, Commerce concluded its
prior Final Affirmative Determination in Certain Hot Rolled Lead was not
supported by substantial evidence on the record and was not otherwise in
accordance with law. As a result of its decision in German Certain Steel,
Commerce requested and was granted a remand on September 21, 1993, to reconsider
the Final Affirmative Determination in  [**17]   Certain Hot Rolled Lead because
the new privatization methodology developed in German Certain Steel markedly
differed from the methodology utilized by Commerce in the Certain Hot Rolled
Lead Final Affirmative Determination. On remand, Commerce explained "we have
reconsidered our original determination regarding the effects of privatization
on subsidies previously received by Saarstahl and have concluded that it is not
supported by substantial evidence and otherwise in accordance with law." Remand
Determination at 2. Commerce re-analyzed the privatization of Saarstahl and
applied the methodology articulated in the privatization section of the General
Issues Appendix. Commerce determined the forgiveness of Saarstahl SVK's debt
amounted to a grant, the benefit of which passed to Saarstahl AG after
privatization. Commerce also determined part of the Saarstahl sales price
contributed to repaying the prior subsidies to   [*1316]   the same extent that
the subsidies comprised Saarstahl SVK's net worth and adjusted the
countervailing duty margins accordingly. This finding lowered the countervailing
duty from 17.28 percent to 16.85 percent.
   As a result of the actions  [**18]   filed appealing Commerce's Final
Affirmative Determination as modified by Commerce's Remand Determination, in
Saarstahl AG v. United States, 18 C.I.T. 525, 858 F. Supp. 187 (CIT 1994), the
Court of International Trade ("CIT") upheld Commerce's finding Saarstahl was
privatized as based on substantial evidence and as otherwise in accordance with
law. This Court also held, however, Commerce's privatization methodology, to the
extent it stated previously bestowed subsidies are passed through to a successor
company sold in an arm's-length transaction, was unlawful.
   In Saarstahl AG v. United States, 78 F.3d 1539 (Fed. Cir. 1996), the CAFC
reversed and remanded this Court's decision in Saarstahl, AG v. United States,
18 C.I.T. 525, 858 F. Supp. 187 (CIT 1994). See also Inland Steel Bar Co. v.
United States, 86 F.3d 1174 (Fed. Cir. 1996), rev'g and remanding, 18 C.I.T.
536, 858 F. Supp. 179 (CIT 1994). The Federal Circuit held this Court "erred in
holding that as a matter  of law a subsidy cannot be passed through during an
arm's length transaction." Saarstahl, 78 F.3d at 1544 (emphasis in original).
The Federal Circuit remanded the case to this Court, concluding this Court did
not address all  [**19]   of the parties' arguments, including Commerce's
request for a remand to review the agency's allocation of Saarstahl's purchase
price to repayment of prior subsidies and to assess Saarstahl's creditworthiness
in 1989. As a result, this Court subsequently remanded the action to Commerce in
Saarstahl AG v. United States, 933 F. Supp. 1106 (CIT 1996) ("Saarstahl I").
   Following the CAFC's decision in Saarstahl AG v. United States, 78 F.3d 1539
(Fed. Cir. 1996), this Court ruled on the Department's privatization remand in
British Steel plc v. United States, 924 F. Supp. 139 (CIT 1996) (CIT 1996)
("British Steel II"), appeals docketed, Nos. 96-1401 to -06 (Fed. Cir. June 21,
1996). While affirming the Department's determinations regarding several
countries, this Court stayed its consideration of the privatization remand as it
pertained German Certain Steel. In an order dated April 30, 1996, this Court
vacated that stay, instructing the Department to address and make findings
regarding seven additional issues in light of the Court's decisions in British
Steel plc. v. United States, 879 F. Supp. 1254 (CIT 1995) ("British Steel I"),
appeals docketed, Nos. 96-1401  [**20]   to-06 (Fed. Cir. June 21, 1996) and
British Steel II. Commerce did so in Final Results of Redetermination Pursuant
to Court Remand On Certain Factual Issues Regarding the Privatization in Germany
Saarstahl AG v. United States (August 19, 1996) ("Final Results").
   In Final Results, Commerce referred to this Court's order of April 30, 1996
instructing Commerce to address and make findings regarding seven issues
concerning the privatization at issue in light of the Court's decisions in the
British Steel cases. Commerce followed the Court's order and made findings in
response to the seven issues. Commerce determined "the Department may properly
countervail the exports of Saarstahl AG . . . in the full amount of the
subsidies received prior to privatization which are attributable to Saarstahl."
Final Results at 4 (footnote omitted).
   In addressing the question of whether the pre-privatization entity had
received subsidies which survived privatization, Commerce held while the
identity of the shareholders with ownership interests differed after
privatization, the corporate identity of Saarstahl remained unaltered. Commerce
stated it was, therefore, the same entity  [**21]   that had formerly received
subsidies. See Final Results at 10-11. The Department determined
DHS/Dillinger [post privatization DHS] does not cease to be for all intents and
purposes the same entity which received the subsidies simply because most of
SVK/Dillinger's [pre-privatization DHS] assets were transferred to the
newly-created subsidiary [Saarstahl AG] two weeks after privatization. The
privatized DHS/Dillinger continued to benefit from those assets and to be
responsible for the remaining liabilities after the transfer to [Saarstahl AG]
just as it had after the   [*1317]   combination with Dillinger but prior to the
creation of [Saarstahl AG].
Final Results at 11. Thus, Commerce concluded, DHS/Dillinger--the
post-privatization entity--remained for all intents and purposes the same entity
as SVK/Dillinger--the pre-privatization entity which received the subsidy. Id.
at 12.
   On September 3, 1996, this Court found those aspects of the Final Results
pertaining to the issue of privatization were supported by substantial evidence
on the record and otherwise in accordance with law and entered final judgment
with respect to the issue of  [**22]   privatization pursuant to U.S. CIT R.
54(b). See Saarstahl AG v. United States, 939 F. Supp. 898 (CIT 1996)
("Saarstahl II"), appeal docketed, No. 97-1122 (Fed. Cir. Nov. 25, 1996),
consolidated with No. 97-1135 (Fed. Cir. Dec. 5, 1996). In Saarstahl II, the
Court also denied Saarstahl's Motion for Oral Argument with respect to
privatization, but indicated the non-privatization issues would be decided in a
future, separate opinion and oral argument might be appropriate to assist the
Court in resolving those non-privatization issues. See Saarstahl II, 939 F.
Supp. at 901 n.3. It is these non-privatization issues which the Court addresses
in this opinion.
   D. Allocation
   In Saarstahl AG v. United States, 949 F. Supp. 863 (CIT 1996) ("Saarstahl
III"), Saarstahl moved for leave to amend its Complaint to include a Count VII
challenging Commerce's use of the fifteen-year average useful life found in the
Internal Revenue Service ("IRS") tax tables to allocate the benefit of
nonrecurring subsidies as unsupported by substantial evidence on the record and
as not otherwise in accordance with law. Saarstahl argued use of the new
allocation methodology was required  [**23]   by this Court's recent decisions
in British Steel plc. v. United States, 929 F. Supp. 426 (CIT 1996) ("British
Steel III") and British Steel I, where the Court struck down Commerce's use of
the fifteen-year average useful life from the IRS tax tables to allocate the
benefit of nonrecurring subsidies and affirmed a methodology which allocated
nonrecurring subsidies based upon actual average useful life of the physical
assets for each respondent. Saarstahl also requested oral argument on the issue
of allocation. In Saarstahl III, this Court denied Saarstahl's Motion for Leave
to Amend its Complaint and for Oral Argument on the issue of allocation. This
Court held allowing Saarstahl to raise the allocation issue would unfairly
prejudice both defendant-intervenor Inland Steel Bar Company as well as the
Commerce Department. As a result, this issue regarding Commerce's use of the
fifteen-year average useful life from the IRS tax tables to allocate the benefit
of nonrecurring subsidies is not before the Court in this decision.
   CONTENTIONS OF THE PARTIES
   E. Saarstahl AG v. United States & Inland Steel Bar Company
   Plaintiff raises three challenges to Commerce's  [**24]   Final Affirmative
and Remand Determinations. First, Saarstahl asserts Commerce "erroneously found
that the abandonment of contingent repayment obligations at the time Saarstahl
was privatized constituted a new countervailable event in 1989, in the form of
the forgiveness of long-term, interest-free, contingent-liability loans." (Pl.'s
Mem. in Supp. of Mot. for J. on the Agency R. (Pl.'s Mem.") at 11.) Second,
Saarstahl argues Commerce's determination that the value of the abandoned RZVs
in 1989 was their "face value," that is, the value of the assistance given in
the late 1970s and 1980s, is contrary to record evidence. Third, Saarstahl
argues the ITA's determination that the private banks' debt forgiveness provided
a countervailable subsidy is unsupported by substantial evidence on the record
and is otherwise not in accordance with law.
   Defendant argues Commerce properly determined the German governments'
forgiveness of Saarstahl's contingent repayment obligations constituted a
countervailable subsidy in 1989. Defendant additionally argues Commerce's
determination the governments' forgiveness of the RZVs constituted a
countervailable benefit in an amount equal to the face  [**25]   value of the
RZVs is reasonable and is supported by substantial evidence on the   [*1318]
record. Defendant also argues the forgiveness of Saarstahl's debt held by
private banks constitutes a countervailable subsidy.
   Inland argues Saarstahl did not successfully demonstrate the RZVs were not
repayment obligations which were forgiven, and therefore, Commerce's
determination should be sustained. Inland additionally asserts Commerce's
valuation of the RZVs was reasonable and supported by record evidence. Finally,
Inland contends Commerce's findings with regard to the private banks'
forgiveness of Saarstahl's debt should not be disturbed.
   B. Inland Steel Bar Company v. United States
   Defendant-Intervenor Inland Steel Bar Company also moves for Judgment on the
Agency Record, arguing the Final Affirmative and Remand Determinations of
Commerce are unlawful, void and of no effect. Inland argues Saarstahl has
"ignored basic principles of administrative law and procedure in an attempt to
reargue its case de novo." (Opp'n to Pl.'s Mot. for J. on Agency R.
("Def.-Int.'s Opp'n") at 2.) Defendant-Intervenor further argues the
Department's errors "resulted in a determination  [**26]   that is arbitrary,
capricious and an abuse of discretion." (Def.-Int.'s Mot. for J. on Agency R. at
2.)
   First, Inland argues Commerce erred when it "treated subsidies received only
by Saarstahl as benefitting products produced by DHS's other subsidiary,
Dillinger." (Br. in Supp. of Def.-Int.'s Mot. for J. on Agency R. ("Def.-Int.'s
Br.") at 2.) Inland argues Commerce should allocate subsidies granted to
Saarstahl only over the products made by Saarstahl, excluding merchandise
produced by Dillinger.
   Second, Inland maintains Commerce erred when, "without explanation, the Final
Determination apparently found Saarstahl as creditworthy in 1989, in spite of
finding the company uncreditworthy in the Preliminary Determination." (Id.)
Inland concludes, "because of [these errors]." this Court should remand the
determination to Commerce to correct [these errors]." (Id.) Defendant requests a
remand so Commerce can reconsider the discount rate in light of the findings in
Commerce's Remand Determination. Saarstahl, however, objects to a remand for
Commerce to include a risk premium in the discount rate.
   STANDARD OF REVIEW
   The appropriate standard for the Court's review  [**27]   of a final
determination by Commerce is whether the agency's determination is "unsupported
by substantial evidence on the record, or otherwise not in accordance with law."
19 U.S.C. @ 1516a(b)(1)(B) (1988). Substantial evidence is that which "'a
reasonable mind might accept as adequate to support a conclusion.'" Universal
Camera Corp. v. NLRB, 340 U.S. 474, 477, 71 S. Ct. 456, 459, 95 L. Ed. 456
(1951) (citation omitted), quoted in Matsushita Elec. Indus. Co., Ltd. v. United
States, 3 Fed. Cir. (T) 44, 51, 750 F.2d 927, 933 (1984).
   The Court must accord substantial weight to the agency's interpretation of
the statute it administers. See American Lamb Co. v. United States, 4 Fed. Cir.
(T) 47, 54, 785 F.2d 994, 1001 (1986). While Commerce has discretion in choosing
one interpretation over another, "the traditional deference courts pay to agency
interpretation is not to be applied to alter the clearly expressed intent of
Congress." Board of Governors of the Fed. Reserve Sys. v. Dimension Fin. Corp.,
474 U.S. 361, 368, 106 S. Ct. 681, 686, 88 L. Ed. 2d 691 (1986), cited in
Ceramica Regiomontana, S.A. v. United States, 10 C.I.T. 399, 405, 636 F. Supp.
961, 966 (1986)  [**28]   ("This Court will not allow an agency, under the guise
of lawful discretion, to contravene or ignore the intent of the legislature or
the guiding purpose of the statute."), aff'd, 5 Fed. Cir. (T) 77, 810 F.2d 1137
(1987). The Court is not to substitute its own determination for the agency's
but rather is to determine whether Commerce's determination is supported by
substantial evidence on the record and is otherwise in accordance with law. See,
e.g., Consolo v. Federal Maritime Comm'n, 383 U.S. 607, 620, 86 S. Ct. 1018,
1026, 16 L. Ed. 2d 131 (1966) (noting "the possibility of drawing two
inconsistent conclusions   [*1319]   from the evidence does not permit an
administrative agency's finding from being supported by substantial evidence");
Universal Camera Corp., 340 U.S. at 488, 71 S. Ct. at 465, 95 L. Ed. at 467-68
(1951) (the reviewing court may not "even as to matters not requiring expertise
. . . displace the [agency's] choice between two fairly conflicting views, even
though the court would justifiably have made a different choice had the matter
been before it de novo").
   DISCUSSION
   In accordance with a February 18, 1994 scheduling order, and after  [**29]
extensive consultation with the parties and upon their consent, the parties were
directed to brief five general issues regarding determinations by the
International Trade Administration ("ITA") addressing steel products from
various countries. n7 The order also set forth a schedule for the parties to
submit individual briefs on a country-specific basis addressing other issues
raised by the ITA's determinations. In prior opinions, this Court has disposed
of all challenges to the five general issues and they are presently on appeal
before the Court of Appeals for the Federal Circuit. See British Steel plc v.
United States, 936 F. Supp. 1053 (CIT 1996) ("British Steel IV"); British Steel
III, 929 F. Supp. 426; British Steel II, 924 F. Supp. 139; British Steel I, 879
F. Supp. 1254 (collectively the "British Steel cases" or the "general issues
opinions"). What remains before this Court are the parties' country-specific
challenges to Commerce's steel determinations. As a result, this opinion will
not address the challenges raised in the parties' papers regarding the propriety
of Commerce's privatization methodology nor its choice of the fifteen-year
allocation period  [**30]   to determine the benefit from each of the
nonrecurring countervailable subsidies because those issues have been decided
conclusively in the general issues opinions. This opinion will address only
country-specific issues involving Saarstahl which remain undecided following the
general issues decisions. While the Court believes this opinion is in no way
inconsistent with its prior opinions addressing the general issues, to the
extent this opinion is seen to conflict in any way with the Court's general
issues decisions, this Court's findings in the general issues opinions will
prevail.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
   n7 The five general issues were: (1) Commerce's use of a 15-year allocation
period to determine the benefit from each of the nonrecurring countervailable
grants; (2) Commerce's use of a grant methodology to countervail equity
infusions into an uncreditworthy company whose shares are not publicly traded;
(3) Commerce's treatment of privatization and restructuring regarding previously
received subsidies, including Commerce's use of a repayment methodology; (4)
Commerce's determination of the appropriate sales denominator to be used in
subsidy calculations when a respondent's total sales include not only sales of
domestically produced merchandise, but also sales of merchandise produced in one
or more foreign countries; and (5) Commerce's treatment of disproportionality
for the purposes of evaluating the specificity of a potentially countervailable
program.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[**31]
   A. Saarstahl AG v. United States & Inland Steel Bar Company
   This Court notes the three arguments raised by plaintiff as challenges to the
Final Affirmative and Remand Determinations. Plaintiff argues: (1) the
contingent repayment obligations at issue were not loans, (2) Commerce erred in
calculating the value of the contingent repayment obligations, and (3)
Commerce's determination that the private banks' debt forgiveness was a
countervailable subsidy is not supported by substantial evidence on the record
and is otherwise not in accordance with law. While the issues raised by
plaintiff's challenges would be properly before the Court in this opinion
because they do not relate to general issues of privatization or allocation, the
Court notes these three issues have been addressed conclusively in British Steel
IV. n8 In British Steel IV, this   [*1320]   Court indicated its opinion would
"result in the final resolution of all issues presented." British Steel IV, 936
F. Supp. at 1057. As a result, the Court supports the determinations made
regarding these country-specific issues in British Steel IV and will not
reexamine those issues again in this opinion.   [**32]
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
   n8 In British Steel IV, Dillinger set forth six arguments, three of which
were identical to plaintiff's challenges in this opinion and one of which was
identical to an argument presented by Inland in this opinion. Dillinger argued:
(1) Commerce improperly allocated the subsidies at issue over total DHS sales,
including Dillinger's sales of flat-rolled steel plate products; (2) Commerce's
finding the abandonment of contingent repayment obligations (RZVs) constituted
forgiveness of long-term, contingent-liability, interest-free loans was not
supported by evidence on the record; (3) assuming the 1989 abandonment of the
RZVs was a countervailable event, Commerce erred in determining that the value
of the abandoned RZVs in 1989 was their "face" value; and (4) Commerce erred in
finding forgiveness of principal and interest by private banks constituted a
countervailable subsidy.
   The Court rejected Dillinger's arguments and sustained Commerce, holding
Commerce's allocation of the subsidies at issue over total DHS sales, including
Dillinger's sales of flat-rolled steel plate products was supported by
substantial evidence on the record and was otherwise in accordance with law. The
Court also rejected Dillinger's arguments regarding the countervailability of
the abandoned RZVs, as well as Dillinger's arguments about Commerce's
determination of the RZVs' value. Finally, the Court sustained Commerce's
finding the private banks' debt forgiveness was a countervailable subsidy as
supported by substantial evidence on the record and as otherwise in accordance
with law.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[**33]
   B. Inland Steel Bar Company v. United States
   This Court additionally finds Inland's argument regarding the allocation of
subsidies over total sales of DHS n9 was decided conclusively in British Steel
IV and therefore will not be reexamined in this opinion. See British Steel IV,
936 F. Supp. at 1067-68 (noting "Commerce's attribution of the subsidies
received by DHS to the production of Dillinger as a subsidiary of DHS is
supported by substantial evidence and is otherwise in accordance with law"). n10
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
   n9 The Court notes the specific issue of the allocation of subsidies over the
total sales of DHS is distinct from the general issue of Commerce's use of a
15-year allocation period to determine the benefit from each of the nonrecurring
countervailable grants.
   n10 In Saarstahl's original brief, Saarstahl also argued Commerce incorrectly
determined to allocate subsidy benefits found to Saarstahl over the total sales
of both DHS subsidiaries, Saarstahl and Dillinger, when it should have "tied"
those benefits entirely to Saarstahl's long products production. (See Pl.'s Mem.
at 13-26). Saarstahl withdrew this argument in its Reply Brief. See Saarstahl
AG's Reply Br. at 2 (stating "Saarstahl hereby withdraws its argument that ITA's
allocation of subsidies over the sales of both Saarstahl and its related
companies was unlawful.")
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[**34]
   Inland's additional argument that Commerce should reconsider the discount
rate in light of Saarstahl's creditworthiness is before the Court in this
opinion. Commerce treated the debt forgiveness by the governments and the
private banks as grants and calculated the benefit from the forgiveness in
accordance with its grant methodology, which requires the selection of a
discount rate to allocate the benefits over time. See Proposed Regulations, 54
Fed. Reg. at 23,384 (to be codified at 19 C.F.R. @ 355.49(b)(1)(ii)). n11 When
the recipient of a grant is found to be uncreditworthy, Commerce adds a "risk
premium" to the discount rate to reflect the increased costs such a company
faces and the extra risk of lending to an uncreditworthy company. While the
Proposed Regulations provide for Commerce's utilization of uncreditworthy
benchmark rates and do not specifically provide for uncreditworthy discount
rates, Commerce has consistently followed its practice of using uncreditworthy
discount rates both before and after issuance of the Proposed Regulations. See
e.g., Final Affirmative Countervailing Duty Determination: Certain Hot Rolled
Lead and Bismuth Carbon Steel Products From   [**35]    France, 58 Fed. Reg.
6,221, 6,224 (Dep't Comm. 1993) (final   [*1321]   determ.) (benchmark interest
rate used as discount rate); Final Affirmative Countervailing Duty
Determinations: Certain Steel Products From Spain, 58 Fed. Reg. 37,374,
37,384-85 (Dep't Comm. 1993) (final determ.) (same); Final Affirmative
Countervailing Duty Determination: New Steel Rail, Except Light Rail, From
Canada, 54 Fed. Reg. 31,991, 31,994 (Dep't Comm. 1989) (final determ.) (same);
Certain Carbon Steel Products From Brazil; Final Results of Countervailing Duty
Administrative Review, 52 Fed. Reg. 829, 831 (Dep't Comm. 1987) (final results
of admin. review) (same).
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
   n11 The proposed regulation provides
@ 355.49 Allocation of countervailable benefits over time.
. . .
   (b)(1) Process for allocating grants and certain equity infusions over time.
In allocating over time the benefit from a nonrecurring grant or an equity
infusion described in @ 355.44(e)(1)(i), the Secretary will use the following
three-step process:
(i) Determine the amount of the countervailable benefit pursuant to @ 355.44;
(ii) Assign a discount rate; and
(iii) Construct a benefit stream.
(2) For purposes of paragraph (b)(1)(ii) of this section, the Secretary will use
as a discount rate the following, in order of preference:
(i) The cost of long-term, fixed-rate debt of the firm in question, excluding
loans found to confer a countervailable subsidy;
(ii) The average cost of long-term, fixed-rate debt in the country in question;
or
(iii) A rate which the Secretary considers to be most appropriate.
Proposed Regulations, 54 Fed. Reg. at 23,384 (to be codified at 19 C.F.R. @
355.49).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[**36]
   Inland argues Commerce erred when it omitted an uncreditworthiness risk
premium from its calculation of the discount rate after finding Saarstahl
uncreditworthy in the Preliminary Determination n12 and reaching no conclusion
about the company's creditworthiness in the Final Affirmative Determination.
Inland argues Commerce's failure to add a risk premium to the discount rate
implies Saarstahl was creditworthy in 1989, "a finding completely without
support on the administrative record." (Def.-Int.'s Br. at 21-22.)
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
   n12 The Preliminary Determination included a finding Saarstahl was
uncreditworthy when the government forgave its debt in 1989. In the Preliminary
Determination, Commerce based its discount rate on the highest long-term
interest rate applicable to firms in Germany and added to that figure an amount
equal to 12 percent of the country's prime rate. Preliminary Determination, 57
Fed. Reg. at 42,972. See Proposed Regulations, 54 Fed. Reg. at 23,381 (to be
codified at 19 C.F.R. @ 355.44(b)(6)(iv) ("If the Secretary deems a firm to be
uncreditworthy . . ., the Secretary will calculate the benchmark interest rate
for a long-term government loan by taking the sum of 12 percent of the prime
rate in the country in question and: [other relevant actors] . . . .f")).
Commerce noted that according to the response of the GOG, there were no official
statistics on long-term interest rates or interest rates comparable to the U.S.
prime rate in Germany and "therefore, [Commerce] reviewed the interest rates
published in the International Monetary Fund's International Financial Statistic
and used the average annual interest rate reported in that publication for 1989,
the year in which Saarstahl's debt was forgiven." Preliminary Determination at
42,372. Commerce calculated a discount rate of 11.13 percent.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[**37]
   Inland argues Commerce's failure to add an uncreditworthiness risk premium to
the discount rate "is reversible error because Commerce implicitly reversed the
Preliminary Determination's uncreditworthiness premium without explanation. This
action violates the principle that Commerce must set forth 'grounds for [any]
departure from prior norms . . . so that the reviewing court may understand the
basis of the agency's action." (Id. at 12-13 (citation omitted).) Inland
explains "[a] finding of uncreditworthiness can substantially increase the
countervailing duty rate," (id. at 21), and concludes "Commerce had to add an
uncreditworthiness premium to the discount rate because there is not any
evidence on the administrative record to support a finding that Saarstahl was
creditworthy." (Id. at 13.) As a result, Inland argues this Court should remand
this issue to Commerce with instructions to find Saarstahl uncreditworthy in
1989 and to add an uncreditworthiness risk premium to the discount rate.
   Defendant explains Commerce made a preliminary determination Saarstahl SVK
was uncreditworthy in 1989, but did not finalize that determination and include
a risk premium because  [**38]   DHS was deemed to be the direct beneficiary of
the debt forgiveness in the Final Affirmative Determination. Defendant continues
to note when the Final Affirmative Determination was modified on remand,
however, Commerce concluded the debt forgiveness was a benefit to Saarstahl SVK
that passed through to DHS. See Remand Determination at 6, 9. Defendant
maintains since Commerce measures a subsidy at the time of receipt, "if
Saarstahl SVK, the initial recipient of the benefit from the debt forgiveness,
was uncreditworthy in 1989, a risk premium should be included." (Def.'s Mem. at
58.) As a result, defendant requests this Court remand the determination so
Commerce may reconsider the discount rate in light of the findings in Commerce's
Remand Determination.
   Saarstahl objects to a remand in order to include a risk premium. In
addressing Commerce's change in characterizing the beneficiary of the debt
forgiveness, Saarstahl argues Commerce "asserts a distinction without a
difference" and "simply makes a false distinction between 'direct' benefits to
DHS and benefits which 'subsequently passed through' to DHS. There was no time
[*1322]   lag which would justify imposing  [**39]   a risk premium in this
case." (Pl.'s Reply Br. at 23-24 (citation omitted).) Saarstahl additionally
argues if the creditworthiness of the recipient is the test for whether a risk
premium should be imposed, Commerce should examine the creditworthiness of DHS,
"which was created under, and benefitted by, the same transaction in which the
debt was forgiven." (Id. at 24.) If Commerce looked to DHS, Saarstahl maintains,
there would be no basis for a risk premium because DHS was not determined to be
uncreditworthy. As a result, Saarstahl argues, whether Saarstahl SVK was
creditworthy at the time of the 1989 transaction is immaterial and the Court
should deny Commerce's request for a remand on this issue.
   This Court finds defendant's arguments advocating a remand on this issue are
reasonable and grants defendant's request to remand this issue. Commerce will
reconsider the issue of Saarstahl's creditworthiness and make a finding as to
whether a risk premium should be included in the calculation of the discount
rate. Commerce shall reconsider the discount rate in light of Saarstahl's
creditworthiness and recalculate the countervailing duties due, if any, as a
result of the discount rate  [**40]   determination.
   CONCLUSION
   After carefully considering the arguments of all parties, this Court denies
plaintiff's Motion for Judgment on the Agency Record, as well as plaintiff's
Motion for Oral Argument. This Court denies in part and grants in part
defendant-intervenor's Motion for Judgment on the Agency Record. This Court
sustains Commerce's Final Affirmative Determination as modified by the Remand
Determination with respect to issues not relating to privatization or allocation
except with respect to the calculation of the discount rate in light of
Saarstahl's creditworthiness. This Court remands this issue to Commerce for it
to reconsider the discount rate in light of Saarstahl's creditworthiness.
   Gregory W. Carman, Chief Judge
Date: May 29, 1997
   New York, New York
   JUDGMENT ORDER
   This case having been duly submitted for decision and this Court, after due
deliberation, having rendered a decision herein; now, in conformity with said
decision it is hereby
   ORDERED that plaintiff's Motion for Oral Argument is denied; and it is
further
   ORDERED that plaintiffs' Motion for Judgment on the Agency Record is denied;
and it is further   [**41]
   ORDERED that defendant-intervenor's Motion for Judgment on the Agency Record
is denied in part and granted in part; and it is further
   ORDERED that Commerce's Final Affirmative Determination as modified by
Commerce's Remand Determination with respect to issues not relating to
privatization is sustained except with respect to (1) the calculation of an
uncreditworthy discount rate for Saarstahl, and it is further
   ORDERED that this action is remanded to Commerce with instructions to (1)
reconsider the discount rate in light of Saarstahl's creditworthiness and (2)
recalculate the countervailing duties, if any, due as a result of the discount
rate determination, and it is further
   ORDERED that (1) Commerce shall file its remand determination with this Court
no later than June 16, 1997. Any comments by the parties are due on June 25,
1997 and shall be limited to 10 pages.
   Gregory W. Carman, Chief Judge
Date: May 29, 1997
   New York, New York
   SCHEDULE OF CONSOLIDATED CASES
Inland Steel v. United States, 93-04-00233