66 FR 65903, December 21, 2001
                                                            C-428-829
                                                            C-421-809 
                                                            C-412-821
                                                        Investigation
                                                      Public Document
                                                     DAS II/Office VI
December 13, 2001

MEMORANDUM TO: Faryar Shirzad
               Assistant Secretary
                 for Import Administration

FROM:          Bernard T. Carreau
               Deputy Assistant Secretary
                 for AD/CVD Enforcement II


SUBJECT: Issues and Decision Memorandum: Final Affirmative Countervailing
Duty Determinations: Low Enriched Uranium from Germany, the Netherlands,
and the United Kingdom - Calendar Year 1999

Summary

We have analyzed the comment and rebuttal briefs of interested parties
(1) in the final affirmative countervailing duty determinations on low
enriched uranium from Germany, the Netherlands, and the United Kingdom for
January 1, 1999, through December 31, 1999, the period of investigation
(POI). As a result of our analysis, we have made certain modifications to
the Preliminary Affirmative Countervailing Duty Determinations and
Alignment with Final Antidumping Duty Determinations: Low Enriched Uranium
from Germany, the Netherlands, and the United Kingdom, 66 FR 24329 (May
14, 2001) (Preliminary Determinations). Below are the "Methodology and
Background Information" and "Analysis of Programs" sections of this
memorandum that describe the decisions made in these investigations with
respect to Urenco Deutschland GmbH of Germany (UD), Urenco Nederland BV of
the Netherlands (UNL), and Urenco (Capenhurst) Limited (UCL), (the Urenco
Group), the producers/exporters of subject merchandise covered by these
proceedings. Also below is the "Analysis of Comments" section in which we
discuss the issues raised by interested parties. (2) We recommend that you
approve the positions we have developed below in this memorandum.

Urenco Group: Corporate History

Pre-Merger

Prior to the Treaty of Almelo (the Treaty), the production group of the
U.K. Atomic Energy Authority (UKAEA) was responsible for the U.K.
enrichment program. British Nuclear Fuels Limited (BNFL) was created from
the existing assets of UKAEA. The Capenhurst site assets and all of the
British centrifuge enrichment development work were transferred to BNFL.
In the Netherlands, Ultra Centrifuge Nederland N.V. (UCN) was incorporated
in November 1969, as a limited company, with the Dutch government holding
55 percent and the remaining 45 percent held by various industrial
interests. UCN was designated by the Dutch government to develop
ultracentrifuge technology for uranium enrichment in the Netherlands. By
the time the Treaty came into effect in 1971, Germany already had two
privately-owned centrifuge companies dedicated to the enriched uranium
industry. 

Treaty of Almelo

In March 1970, the Government of Germany (GOG), the Government of the
Netherlands (GON), and the Government of the United Kingdom (UKG) signed
the Treaty, which became effective in July 1971. The purpose of the Treaty
was for the three governments to collaborate in the development and
exploitation of the gas centrifuge process for producing enriched uranium.
Prior to 1971, the centrifuge R&D programs in each country were
independent. 

Urenco Ltd. was incorporated in September 1971, and its shareholders were
BNFL, UCN and Uranit. In addition, in 1971, the two partnerships were
established. The first was Urenco (U.K.), a partnership under English Law,
between BNFL (75 percent), UCN (12.5 percent) Uranit (12.5 percent), and
Urenco Ltd. with a nominal share. The second was the Dutch partnership,
Urenco Nederland v.o.f., which then consisted of UCN (43.75 percent),
Uranit (43.75 percent), BNFL (12.5 percent), and Urenco Ltd. with a
nominal share. In the late 1970s, a third partnership, Urenco Deutschland
was established under German law. The partners were Uranit (96 percent),
BNFL and UCN with two percent shares each, and Urenco Ltd. with a nominal
share. In 1980, ownership in Urenco Nederland v.o.f. changed; UNC and
Uranit increased their share in the company to 49 percent each, while BNFL
reduced its participation to 2 percent. Likewise, for Urenco (U.K.),
BNFL's share increased to 96 percent, while UCN and Uranit decreased their
participation to two percent each.

In preparation for the merger, each of the three operating partnerships
was combined and their assets transferred into a limited company, owned in
each case by the managing partner. Specifically, BNFL changed the name of
its subsidiary BNFL Enrichment Ltd. to UCL, and transferred to UCL the
relevant portion of the Capenhurst site, buildings and equipment related
to the enrichment business. The activities of the former Urenco Nederland
v.o.f. (enrichment) and of UCN (centrifuge manufacturing) were transferred
into a new company, UNL. At the request of Uranit, the German shareholder,
the enrichment plant was initially leased to UD on a basis comparable to
UCL and UCN. Each of these limited companies became the sole owner of the
relevant plants, including the sites, buildings, R&D facilities and
centrifuge manufacturing. 

1993 Merger

Subsequently, in September 1993, the Urenco operations in the three
countries were merged. (3) This was accomplished by a two-step process
whereby the partnerships in each country were collapsed and replaced by
newly created limited companies: UCL of the United Kingdom managed by
International Nuclear Fuels Limited (INFL), BNFL's wholly-owned
subsidiary, UD of Germany managed by Uranit, and UNL of the Netherlands
managed by UCN and Uranit. The limited companies became the sole owners of
the enrichment facilities. On September 1, 1993, the voting shares of the
limited companies were transferred to Urenco Ltd. in exchange for one-
third interest in Urenco Ltd. Therefore, Urenco Ltd., became the parent
company and, indirectly, ultimate owner of the plants, R&D facilities, and
centrifuge manufacturing facilities. 

Post Merger

Urenco Ltd. is a private limited company which wholly owns four
subsidiary companies: UCL, UD, UNL and Urenco Inc. (UI). Urenco Ltd. owns
100 percent of the voting shares and exercises control over the
subsidiaries. Urenco Ltd. functions as the "headquarters" for the Urenco
Group and is also the worldwide marketing arm of the Urenco Group. The
Board of Directors (Board) is made up of four Executive Directors, ten non-
Executive Directors, nine of which are appointed by the shareholders of
Urenco and one of which is elected by the board as an independent
Director. The Board meets four times a year, during which it sets major
policies, monitors financial performances, and monitors the performance of
the executive directors. The Board is further divided into three sub-
committees: The Executive Board, which is responsible for conducting day-
to-day management, the Remuneration Committee, which decides the terms of
employment and remuneration of the Executive Directors, and the Audit
Committee.

UCL, UD, UNL

While Urenco Ltd. is responsible for the marketing and contracting of the
Urenco Group, it is the responsibility of each of the subsidiaries to
produce and deliver the product based upon the contractual terms. The day-
to-day responsibilities of running the operations, meeting the agreed
targets and implementing the group strategies lies with each of the
companies. Each of the companies continues to provide the enrichment
products sold by Urenco Ltd. While the enrichment facilities were
transferred to the managing partnerships and then to Urenco's
subsidiaries, local business activities were not transferred to Urenco
Ltd. and are not shared across the group. Each company within the Urenco
Group is a separate legal entity, with its own directors and senior
management team; however, they work under the direction and in close co-
operation with the Executive Board. 

International Consortium

As discussed above, the Treaty was signed in 1970 by the GOG, the GON,
and the UKG in order to collaborate in the development and exploitation of
the gas centrifuge process for producing enriched uranium. Towards this
end, the three governments provided subsidies for the research and
development of gas centrifuge technology and for the construction and
support of enrichment production operations. For example, the GOG provided
grants specifically to help construct enrichment plants used by the Urenco
Group in the Netherlands and the United Kingdom. Further, as a result of
the 1993 merger, each of the respective participants in Germany, the
Netherlands, and the United Kingdom owns a one-third interest in Urenco
Ltd.

In the Preliminary Determinations, we found that, given that the Treaty
was specifically entered into by the three governments to produce and sell
the subject merchandise and that each of these participating companies
shares R&D, the production of subject merchandise, and the marketing of
the subject merchandise; such an arrangement constitutes an international
consortium. See 66 FR at 24331.

In the Preliminary Determinations, we explained that under section 701(d)
of the Act, if the international consortium engaged in the production of
the subject merchandise and the participating companies receive
countervailable subsidies from their respective home countries, then the
Department will cumulate all such countervailable subsidies, as well as
subsidies provided directly to the international consortium, in
determining any countervailing duty upon such merchandise. Id. Therefore,
we cumulated all countervailable subsidies received by the member
companies from the GOG, GON, and the UKG in order to calculate one
countervailing duty rate applicable to the production and exportation of
the subject merchandise from this consortium. Id. at 24332.

No new information, evidence of changed circumstances, or comments from
interested parties were presented since the Preliminary Determinations
that persuaded us to reconsider this conclusion. Therefore, we continue to
find that the Urenco Group of companies constitutes an international
consortium. Accordingly, we have continued to cumulate all countervailable
subsidies received by the member companies from the GOG, GON, and the UKG,
pursuant to section 701(d) of the Act. A more detailed explanation of the
Department's decision to apply section 701(d) of the Act is provided in
Comment 2: International Consortium Provision.

Petitioners's Additional Subsidy Allegations

On April 27 and April 30, 2001, petitioners made a subsidy allegation
with respect to the Netherlands and the United Kingdom involving an
additional asset write down that took place in 1993. Specifically,
petitioners alleged that the asset value of a certain business interest
held by BNFL and UCN was written down prior to the merger. (4) They
further alleged that the UKG and the GON, via BNFL and UCN respectively,
transferred their share of these business interests at the reduced values.
They claim that under the Department's past practice, (see, e.g., Cut-to-
Length Carbon-Quality Steel Plate from Italy, 64 FR 73244, 73251-52
(December 29, 1999) (CTL Plate from Italy)) the write-down of assets in a
corporate restructuring has been treated as a countervailable subsidy.

In its May 2, 2001, submission to the Department, respondents rebutted
petitioners' allegation regarding the asset write down. Respondents stated
that by the time of the merger, it was clear to the parties that the
business interest was not going to come to fruition as planned.
Respondents claim that the investment project consisted of expenses
incurred in connection with seeking the operating license which, in fact,
was never granted, and related to legal and consulting costs. Respondents
state that there were no tangible assets involved with the investment
project. Respondents argue that BNFL and UCN's treatment of the investment
project on their books was consistent with UK and Dutch GAAP. In addition,
they further argue that Uranit, as a private shareholder of the Urenco
Group, would not have consented to BNFL and UCN's treatment of the
investment project if it would have somehow reduced the value of its
holding in Urenco Ltd.

We did not address this allegation in the Preliminary Determinations due
to the lateness of the allegation. See 66 FR at 24330. We explained that
if we decided to initiate an investigation of the allegation, then, prior
to making our final determination, we would issue a preliminary analysis
memorandum regarding this allegation and allow parties to comment.

Upon review of petitioners' allegation, we have determined not to
initiate an investigation of the alleged program. As discussed below in
Comment 4: 1993 Equity Investment of the "Analysis of Comments" section of
this decision memorandum, we have found that Uranit constitutes a private
investor. See also Comment 8: Subordinated Shareholder Loan Provided to
Urenco Ltd. by INFL and UCN. Therefore, to the extent that Uranit, as a
shareholder of the newly formed Urenco Ltd., was amendable to BNFL and
UCN's accounting treatment of the investment project, we find that there
is no ground on which to initiate an investigation of petitioners'
allegation. We further note that because we have determined not to
initiate on this allegation, it was not necessary for the Department to
issue a separate decision memorandum and solicit comments from interested
parties on this matter prior to the issuance of this final determination. 

Methodology and Background Information

I. Subsidies Valuation Information

A. Allocation Period

Under section 351.524(d)(2) of the Department's CVD Regulations, we will
presume the allocation period for non-recurring subsidies to be the
average useful life (AUL) of renewable physical assets for the industry
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class
Life Asset Depreciation Range System (IRS Tables), as updated by the
Department of Treasury. The presumption will apply unless a party claims
and establishes that these tables do not reasonably reflect the AUL of the
renewable physical assets for the company or industry under investigation,
and the party can establish that the difference between the company-
specific or country-wide AUL for the industry under investigation is
significant.

In the Preliminary Determinations, we found that in the case of the
Urenco Group, the IRS Tables did not provide a specific asset guideline
class for the uranium enrichment industry. See 66 FR at 24332. We further
determined that in order to be consistent with our decision to cumulate
the subsidies provided by countries to an international consortium, we
also had to calculate a single AUL for the Urenco Group. Id. No new
information, evidence of changed circumstances, or comments from
interested parties were subsequently presented since the Preliminary
Determinations that persuaded us to reconsider this finding. (See Comment
3: Average Useful Life) Therefore, because we have found that there is no
class of IRS tables that correspond to subject merchandise, the Department
has continued to look beyond the IRS Tables when calculating a single AUL
for the Urenco Group.

In the Preliminary Determinations, we used company-specific data from
each of the three Urenco Group companies to calculate the AUL of the
Urenco Group. Id. at 24332. As explained below in Comment 3, we continue
to find that the use of company specific data is the most appropriate
method of calculating the Urenco Group's AUL. In the Preliminary
Determinations, we calculated a single AUL for the Urenco Group by weight-
averaging the company-specific AULs of the Urenco Group companies by their
respective total average gross book values. On this basis, we derived an
AUL of 12 years for the Urenco Group. Id. at 24332. However, comments from
interested parties have led us to revise the manner in which we have
calculated the AUL applied to the Urenco Group. Rather than using AUL data
obtained from the enrichment operations themselves, we have instead
decided to calculate the AUL for the Urenco Group using data from Urenco
Ltd.'s audited financial statements for the years 1994 through 1999. (5)
We note that by using data from Urenco Ltd.'s financials, all AUL
calculations are in the same currency for all years, thereby eliminating
the need for currency adjustments. Moreover, all of the relevant AUL
information contained in Urenco Ltd.'s audited financial statements was
reported on a uniform and consistent basis. (6) Therefore, we have
determined to calculate the AUL for the Urenco Group based on the relevant
asset and depreciation data as reported in Urenco Ltd.'s audited financial
statement for years 1994 through 1999. In accordance with the AUL
calculation methodology described in 19 CFR 351.524(d)(2)(iii), we derived
an AUL of 10 years for the Urenco Group. (7) For further discussion of the
AUL used in this determination, see Comment 3: Average Useful Life.

Benchmarks for Loans and Discount Rate

In accordance with section 351.524(d)(3)(i)(A) of the CVD Regulations, we
used, where available, discount rates that were based on the cost of long-
term, fixed-rate financing for commercial loans received by the Urenco
Group companies. Where the Urenco Group companies had no comparable
commercial loans, we used national average interest rates as provided by
the companies' corresponding government as specified by section
351.505(a)(3)(ii) of the CVD Regulations.

Treatment of the Ad Valorem Rate Calculation and the Denominator

In the Preliminary Determinations, lacking specific data from respondents
regarding the value for the natural uranium component of certain LEU
sales, we estimated a value for this component in order to determine more
accurately the level of subsidy applicable to the subject merchandise. See
66 FR at 24333. In the Preliminary Determinations, we increased the
reported sales value to include an estimated value for the natural uranium
component using petitioners' estimation that the enrichment component
accounts for 60 percent of the value of LEU. Id. We further explained that
we would seek additional information from respondents regarding this
ratio. Id.

We have determined to continue to make an adjustment to the ad valorem
net subsidy rate calculated in the final determinations. We find that an
adjustment is necessary in order to ensure that we are only collecting
duties equal to the amount of the countervailable subsidies. However, we
are revising the method used to make this adjustment.

During verification, we reviewed how the value of the Urenco Group's LEU
is reported to the Unites States Customs Service (Customs). See page 6 of
the UCL Verification Report. During this review of the Urenco Group sales
that entered through Customs, we collected a sales summary as well as
corresponding pro forma invoices for sales from the United Kingdom,
Germany, the Netherlands. Id. For purposes of calculating the ad valorem
net subsidy rate in these final determinations, we have chosen to rely on
the sales data collected at verification rather than on the ratio utilized
in the Preliminary Determinations on the grounds that it is more
appropriate to use company-specific sales data rather than an estimated
industry-wide standard. Thus, we have calculated the ad valorem program
rates using the following formula:

    B*C/D)
A = ------
      E

Where;

A = Ad Valorem Program Rate

B = Subsidy Benefit (in U.S. Dollars) (8)

C = Urenco Group's Sales of Subject Merchandise to the U.S. During the
    POI (in UK Pounds)

D = Urenco Group's Total Sales During the POI (in UK Pounds) (9) 

E = Urenco Group Sales That Entered U.S. Customs During the POI (in U.S.
    Dollars)


For further discussion of our calculation of the ad valorem program rate,
see Comment 13: Sales Denominator of the Urenco Group.

We further note that we have made certain revisions to the sales
denominators used in our subsidy calculations. Specifically, we have
divided benefits over specific sales denominators depending on whether the
subsidies were tied to research and development (R&D) subsidies or
expansion of uranium enrichment capacity subsidies. For a more detailed
discussion of the adjustments we made to the sales denominator as well as
a description of the criteria we used for tying subsidies to certain sales
denominators, see Comment 14: Sales Denominator of the Urenco Group.

Analysis of Programs

I. Programs Determined to Confer Subsidies From the Government of Germany

A. Enrichment Technology Research and Development Program

Under this program, the GOG promoted the R&D of uranium enrichment
technologies. The Federal Ministry for Research and Technology provided
Uranit a series of grant disbursements for the funding of R&D development
projects. The funds were provided to encourage continuous improvements of
centrifuge technologies and to fund the research of lasers and other
advanced technologies. The grant disbursements under this program were
made during the years 1980 through 1993. 

Assistance under this program was provided for in two agreements and two
sets of guidelines. They are the "Financing Agreement," the "Operating
Agreement," the "Terms and Conditions for Allocations on a Cost Basis to
Companies in Industry for Research and Development Projects" (BKFT75), and
the "Auxiliary Terms and Conditions for Grants on a Cost Basis from the
Federal Ministry for Research and Development to Companies in Industry for
Research and Development Projects" (NKFT88). According to Article 4,
Section 6, of the Financing Agreement, the funds provided to Uranit under
this agreement had contingent repayment obligations. The funds were
repayable within five years of disbursement, contingent upon the company's
earnings. If the funds were not repaid within five years, then the
repayment obligation lapsed. The funds provided under the Operating
Agreement were not repayable. Uranit also receive funds for laser R&D
pursuant to the terms and conditions of the BKFT75 and NKFT88. According
to the questionnaire responses of both the company and the government, no
portion of any of the disbursements received by Uranit was repaid.

In the Preliminary Determinations, we found that the assistance provided
under this program constitutes countervailable subsidies. See 66 FR at
24333. We determined that the assistance provided under this program
constitutes countervailable subsidies within the meaning of section 771(5)
of the Act. We determined that the grants disbursements constitute a
financial contribution and confer a benefit, as described in sections
771(5)(D)(i) and 771(5)(B) of the Act. Also, we preliminarily determined
that this program is specific under section 771(5A)(D)(i) of the Act
because the provision of assistance under this program was limited to one
company. In addition, we preliminarily determined that this program
provided non-recurring benefits to UD under section 351.524(c)(2) of the
CVD Regulations because the assistance provided to UD was made pursuant to
specific government agreements and was not provided under a program that
would provide assistance on an ongoing basis from year to year. No new
information, evidence of changed circumstances, or comments from
interested parties was presented in these investigations to warrant
reconsideration of these findings. Therefore, we have continued to use
this methodology in the final determinations.

We determine that the disbursements provided under the Financing
Agreement are countervailable under 19 CFR 351.505(d)(2) because there was
a waiver of a contingent liability. As explained in Comment 18: Enrichment
Technology R&D Subsidies, we determine that the disbursement made under
the Financing Agreement in 1985 are countervailable beginning in 1990, the
year the contingent repayment obligation lapsed. With regard to the
subsidies provided for laser R&D, the disbursements made between 1990 and
1993 under the NKFT88 are countervailable under 19 CFR 351.304 beginning
in the year of receipt because we determine that the repayment provisions
of the NKFT88 were not applicable for the grants ATT 22279/1, ATT 2279
A/2, ATT 2279/2, and ATT 2281/3.

In order to calculate the benefits received under this program, we
applied 19 CFR 351.505(d)(2) with regard to the 1985 disbursement made
under the Financing Agreement and the standard grant methodology set forth
in 19 CFR 351.304 with regard to the laser R&D grant disbursements made
under the NKFT88 in 1990 or later and allocated them over the AUL. See the
allocation period discussion under the "Subsidies Valuation Information"
section, above. We used as our discount rates the long-term corporate bond
rates in Germany because the grants were denominated in Deutschmarks.

We note that because we have used a shorter AUL, some of the grants found
countervailable in the Preliminary Determinations are no longer within the
allocation period. In addition, as a result of applying the 0.5 percent
test laser grants ATT 2279 A/2 and ATT 2281 /3 were expensed.

We then summed each of the benefits that were allocated to the POI. We
then calculated the ad valorem rate using the methodology described in the
"Treatment of the Ad Valorem Rate Calculation and the Denominator" section
of this decision memorandum. We note that because the benefits were
provided for the promotion of R&D, we have made adjustments to the sales
denominator in accordance with the methodology described in Comment 14.
(10) 

On this basis, we determine the net countervailable subsidy to be 0.15
percent ad valorem for the Urenco Group.

B. Forgiveness of Centrifuge Enrichment Capacity Subsidies

In accordance with the "Risk Sharing Agreement"(RSA) and the "Profit
Sharing Agreement" (PSA) signed between the GOG and Uranit, the GOG agreed
to provide funds to UD to support the promotion of an uranium enrichment
industry. These two agreements were signed on July 18, 1975, and the GOG
provided a total of DM 338.3 million from 1975 to 1993 to Uranit in
support of the Treaty's goal of creating and promoting the enrichment
industry. Under the terms of the agreements, repayment of the funds was
conditional and based upon the financial performance of the company.
However, in no case was the amount of the total repayments to exceed twice
the amount of the funds provided to UD by the GOG. 

In 1987, Uranit signed a new agreement with the GOG. This "Adjustment
Agreement" stipulated that Uranit would repay GOG for the DM 333.8 million
in centrifuge capacity assistance and an additional agreed-upon DM 31.7
million which is not related to the centrifuge subsidies. Prior to the
1993 merger of the Urenco Group, the GOG and Uranit negotiated a basis to
terminate the repayment obligations of the RSA and the PSA. Based upon
these negotiations, a "Termination Agreement" was signed on July 13, 1993,
and amended on October 27, 1993. Prior to the Termination Agreement,
Uranit had made repayments totaling DM 5.6 million. Under the terms of the
Termination Agreement, Uranit was to pay the GOG DM 101.1 million, thus
terminating the repayment obligations stipulated in the Adjustment
Agreement. Uranit made this DM 101.1 million payment on July 1, 1994.

In the Preliminary Determinations, we found that assistance provided
under this program to Uranit was specific under section 771(5A)(D)(i) of
the Act because the program was limited to one company. See 66 FR 24334.
In addition, we determined that a financial contribution was provided
under section 771(5)(D)(i) of the Act. Id. A benefit was also provided to
the company, within the meaning of section 771(5)(E) of the Act to the
extent that the repayments made to the GOG were less than the amount of
assistance provided to the company under this program. No 

new information, evidence of changed circumstances, or comments from
interested parties were subsequently presented in this investigation that
persuade us to reconsider this determination. We determine that this
program provided a grant under 19 CFR 351.505(d)(2) because there was a
waiver of a contingent liability. As explained in detail in Comment 17:
Centrifuge Enrichment Capacity Subsidies, we determine the adjusted grant
amount to be equal to the difference between the original amount of
centrifuge subsidies (DM 338.3 million) and the total amount of repayment
attributable to those centrifuge subsidies (DM 97.556 million), which we
calculated to be DM 240.744 million. (11) The first year of allocation is
1993, the year in which the repayment obligation stipulated in the
Adjustment Agreement was waived. 

To determine the benefit conferred by this program during the POI, we
applied the Department's standard grant methodology and allocated the
adjusted grant amount of DM 240.744 million over the AUL. See the
allocation period discussion under the "Subsidies Valuation Information"
section, above. We used as the discount rate the long-term corporate bond
rate in Germany for 1993. We then calculated the ad valorem rate using the
methodology described in the "Treatment of the Ad Valorem Rate Calculation
and the Denominator" section of this decision memorandum. We note that
because this subsidy was provided for the promotion of uranium enrichment,
we have made adjustments to the sales denominator in accordance with the
methodology described in Comment 14: Sales Denominator of the Urenco
Group. On this basis, we determine the net countervailable subsidy to be
2.08 percent ad valorem for the Urenco Group.

C. Investment Allowance Act

UD and Uranit received grants from the GOG under the Investment Allowance
Act. This program is administered by the Federal Ministry of Economics and
Technology. Under this program, grants are provided by the GOG to
companies located in identified regional development areas within the
country. UD and Uranit received grants under this program for the
enrichment plant in Gronau and for the R&D facility in Julich. Under the
Investment Allowance Act, both Gronau and Julich qualified as regional
development areas. The GOG provided a total of DM 51.403 million in grant
disbursements during the years 1982 through 1990. UD received DM 49.301
million, and Uranit received DM 2.102 million.

In the Preliminary Determinations, we found this program to be specific
under section 771(5A)(D)(iv) of the Act because grants provided under this
program are limited to companies located in designated regions within
Germany. See 66 FR 24334. We further determined that a financial
contribution was also provided by this program under section 771(5)(D)(i)
of the Act and that a benefit was provided within the meaning of section
771(5)(E) of the Act in the amount of grant disbursements received under
this program. Id. On this basis, we determined this program to be
countervailable. We also preliminarily determined that this program
provided non-recurring benefits under 19 CFR 351.524(c)(2) of the
Department's Regulations because the assistance was tied to the capital
assets of the companies and was not provided on an ongoing basis from year
to year. No new information, evidence of changed circumstances, or
comments from interested parties were subsequently presented in this
investigation that persuade us to reconsider this determination.

To determine the benefit during the POI, we applied the Department's
standard grant methodology and allocated the grant disbursement received
in 1990 over the AUL. See the allocation period discussion under the
"Subsidies Valuation Information" section, above. Because we have used a
shorter AUL, some of the grants found countervailable in the Preliminary
Determinations are no longer within the allocation period. We used as our
discount rate the long-term corporate bond rate in Germany during 1980,
the year the provision of the Investment Allowance Act grants was
approved. We then calculated the ad valorem rate using the methodology
described in the "Treatment of the Ad Valorem Rate Calculation and the
Denominator" section of this decision memorandum. We note that because
this subsidy was provided for the promotion of uranium enrichment, we have
adjusted the sales denominator in accordance with the methodology
described in Comment 14: Sales Denominator of the Urenco Group. On this
basis, we determine the net countervailable subsidy to be less than 0.005
percent ad valorem for the Urenco Group.

II. Program Determined to Confer Subsidies From the Government of the
Netherlands

A. Regional Investment Premium

Under the Regional Investment Premium (IPR) program, the GON provided UCN
grants for the expansion of its centrifuge manufacturing facilities. Grants
under this program are only available to companies located in certain
regions of the Netherlands. UCN received four grants under this program.
The disbursement of the grants occurred during the years 1982 through 1993
under this program.

In the Preliminary Determination, the Department determined that this
program was specific under section 771(5A)(D)(iv) of the Act, the GON
provided a financial contribution under section 771(5)(D)(i) of the Act,
and UCN received a benefit under section 771(5)(E) of the Act in the
amount of grants it received under this program. See 66 FR at 24335. We
also preliminarily determined that this program provided non-recurring
benefits to UCN under section 351.524(c)(2) of the CVD Regulations because
the assistance provided to UCN was tied to the capital assets of the
company and the assistance under this program was not provided on an
ongoing basis from year to year. Id. No new information was provided since
the Preliminary Determinations to change this determination. However, the
Department has corrected the data used to calculate the benefit for the
final determination. For further information see Comment 10: Regional
Investment Premiums (IPR).

To determine the benefit received during the POI, we applied the
Department's standard grant methodology and allocated the grants UCN
received over the AUL. See the allocation period discussion under the
"Subsidies Valuation Information" section, above. We used as our discount
rate the long-term government bond rate in the Netherlands, in 1985, at
the time of this grant approval. The Department next calculated the
allocated benefits received during the POI for the grant disbursements. We
then calculated the ad valorem rate using the methodology described in the
"Treatment of the Ad Valorem Rate Calculation and the Denominator" section
of this decision memorandum. We note that because this subsidy was a grant
provided for expansion of capacity, we have made adjustments to the sales
denominator in accordance with the methodology described in Comment 14:
Sales Denominator of the Urenco Group. On this basis, we determine the net
countervailable subsidy to be 0.03 percent ad valorem for the Urenco Group.

III. Programs Determined Not to Confer a Benefit from the Government of
Germany

The programs listed below meet the requirements for specificity and
provision of a financial contribution under the Act. (12) However, based
upon a 10 year AUL, we determine that no benefit was received under these
programs during the POI.

A. Regional Government Provision of Industrial Site

B. Regional Development Grants

IV. Programs Determined Not to Confer a Benefit from the Government of
the Netherlands

The programs listed below meet the requirements for specificity and
provision of a financial contribution under the Act. (13) However, based
upon a 10 year AUL, we determine that no benefits were received under the
following programs during the POI.

A. Centrifuge Enrichment Technology Research and Development

1981 Equity Conversion 

V. Programs Determined Not to Confer a Benefit from the Government of the
United Kingdom

A. Regional Development Grants

This program meets the requirements for specificity and provision of a
financial contribution under the Act. (14) 

However, based upon a 10 year AUL, we determine that no benefit was
received under this program during the POI.

B. Centrifuge Development Grant


Petitioners alleged that BNFL/E received a grant of 47.8 million from
the UKG to fund the development work and plant construction of a
tripartite gas centrifuge project. According to UCL's questionnaire
response, the Centrifuge Development Grant received by BNFL in 1973 was
repaid in 1987 as a lump sum. Supporting documentation confirms that in
1987 a payment of 47.5 million was made to the UKG in full and final
settlement of the grant.

We note that information submitted by UCL indicates that it paid back
47.5 million of the original grant amount of 47.8 million, leaving
300,000 unpaid. Although this 300,000 could be considered a subsidy to
UCL, the amount is so small that, pursuant to section 351.524(b)(2) of the
CVD Regulations, it would be expensed in the year of receipt, 1987. 

In the Preliminary Determinations, we found that no benefits were
provided under this program during the POI. See 66 FR 24336. No new
information, evidence of changed circumstances, or comments from
interested parties were subsequently presented since the Preliminary
Determinations that persuaded us to reconsider this finding. (See Comment
7: Centrifuge Development Grant (CDG)).

C. Fossil Fuel Levy

Pursuant to the Electricity Act of 1989, the UKG established a
governmental levy known as the Fossil Fuel Levy (FFL) that was in place
from 1990 until the late 1990s. This tax was placed on electricity sales
to make up the difference between the price of fossil-fuel fired
electricity and the cost of nuclear-generated electricity. Petitioners
allege that the portion of the levy received by the nuclear power
companies was dedicated, in principle, to fund the future decommissioning
of the United Kingdom's nuclear electrical power plants.

In the Preliminary Determinations, we found that no benefits were
provided under this program during the POI. See 66 FR at 24336. No new
information, evidence of changed circumstances, or comments from
interested parties were subsequently presented in this investigation that
persuaded us to reconsider this determination.

D. Forgiveness of Decommissioning Debt

In 1983, BNFL's high enriched uranium (HEU) plant ceased operations. The
year after the facility ceased operations, and continuing to the present
day, BNFL decommissioned its gaseous diffusion plant which was located at
the Capenhurst enrichment plant. Petitioners allege that the retention by
BNFL of responsibility for decommissioning the older gaseous diffusion
enrichment plant was a liability that should have been borne by Urenco
Ltd. and UCL, and, therefore, the Urenco Group received a financial
contribution in the form of debt forgiveness.

The decommissioning liabilities of BNFL relating to its gaseous diffusion
plant were not transferred to UCL because that plant was built to produce
HEU for defense purposes, and, therefore, is not related to the business
and asset base of the Urenco organization. BNFL's gaseous diffusion plant
was never used to produce subject merchandise, LEU, and neither Urenco nor
any of the predecessor entities within BNFL had any involvement in its
operation. 

In the Preliminary Determinations, we found that no benefits were
provided under this program during the POI. See 66 FR at 24336. No new
information, evidence of changed circumstances, or comments from
interested parties were subsequently presented since the Preliminary
Determinations that persuaded us to reconsider this finding.

VI. Programs Determined Not Countervailable from the Government of the
Netherlands

A. Subordinated Shareholder Loan Provided to Urenco Ltd. by UCN 

Petitioners allege that the Dutch government directly subsidized the
Urenco Group through a 1993 shareholder loan made by UCN on non-commercial
terms. As part of the 1993 restructuring arrangements a loan was made by
the shareholders of Urenco Ltd. UCN, as one-third shareholder in Urenco
Ltd., granted one-third of the loan.

We verified that the shareholders of the Urenco Group, INFL, UCN, and
Uranit), advanced subordinated shareholder loans to the company. Each
shareholder contributed equal principal amounts and each charged the same
interest rate. In the event of the liquidation of the Urenco Group the
subordinated loans would be repaid only after all other creditors had been
repaid, but before share capital would be returned to investors. The
repayment terms (principal, interest rates charged, repayment periods) are
set by reference to a number of factors, including likely period of the
loans, the risks attached to the loans, and interest rates charged by
commercial banks.

There are three shareholders of Urenco Ltd., with each shareholder owning
one-third interest in the company. Two of the shareholders are government-
owned, one by the UKG and one owned by the GON. The third shareholder,
Uranit, is a privately-owned company in Germany.

Section 771(5)(E)(ii) of the Act and 19 CFR 351.505(a)(1) stipulate that
in the case of a loan, a benefit exists to the extent that the amount a
firm pays on the government-provided loan is less than the amount the firm
would pay on a comparable commercial loan that the firm could actually
obtain on the market. Under 19 CFR 351.505(a)(2), a comparable commercial
loan is defined as a loan that is comparable to the government-provided
loan. The provision goes on to state that the Department will place
primary emphasis on similarities in the structure of the loans.

In the Preliminary Determinations, we explained that according to
information on the record, Uranit, the private shareholder, also extended
a loan to the Urenco Group, in the same amount, at the same terms and on
the same date as the UCN loan to the Urenco Group. See 66 FR 34329 at
24336. In the Preliminary Determinations, we found that the loan from
Uranit, a private source, constituted a comparable benchmark. Id. We
further found that because the two government loans were on the same terms
as the Uranit loans, the shareholder loan was made on a commercial basis
and was not countervailable. Id.

As explained in Comment 8: Subordinated Shareholder Loan Provided to
Urenco Ltd. by INFL and UNC of the "Analysis of Comments" section of this
decision memorandum, the information collected at verification supports
our finding in the Preliminary Determinations that the loan from Uranit, a
private source, constituted a comparable commercial loan to use as the
benchmark. Therefore, we continue to find that the shareholder loan was
made on a commercial basis and is not countervailable.

B. 1998 Shareholder Loan

Petitioners alleged that a loan on Urenco Ltd.'s annual report may be a
shareholders loan made by UCN. Petitioners further alleged that the loan
may be non-commercial and not consistent with the usual practices of
private investors. We verified that the 1998 loan is not a shareholder
loan; it was provided from a commercial bank and did not carry a
government guarantee.

In the Preliminary Determinations, we found that this loan did not
constitute a countervailable subsidy. See 66 FR 24329 at 24337. No new
information, evidence of changed circumstances or comments from interested
parties were subsequently present since the Preliminary Determinations to
warrant any reconsideration of these findings. 

VII. Programs Determined Not Countervailable from the Government of the
United Kingdom

A. Assumption of Debt: European Investment Bank Loans

Beginning in 1978, BNFL received four long-term loans from the European
Investment Bank (EIB) that were guaranteed by the UKG under the Nuclear
Industry Finance Act (NIFA). According to UCL's questionnaire response,
the loans were extended to finance the construction of two enrichment
plants at the Capenhurst facility.

In the Preliminary Determinations, we found that because the UKG-owned
BNFL transferred the enrichment operations without also transferring the
EIB liabilities, the retention of the liabilities conferred a
countervailable benefit upon the Urenco Group, the recipient of the
enrichment operations, in the form of debt forgiveness. See 66 FR at 24335

However, information collected at verification and comments from
interested parties have led us to revise this finding. As explained in
greater detail in Comment 5: EIB Loans, during verification we learned
that the balance on the EIB loans was repaid by BNFL. Moreover,
information collected at verification indicates that the funds received by
BNFL at the time of the merger were sufficient to cover the balances on
the EIB loans that it retained. Thus, we find that BNFL's retention of the
EIB loan balances did not confer a countervailable benefit in the form of
debt forgiveness.

B. Loan-Stock Debt Forgiveness Program

Petitioners allege that UCL received countervailable benefits when its
obligation to repay loan stock issued to BNFL was nullified in the 1993
corporate restructuring of the Urenco Group.

All loans from BNFL to UCL were repaid with the exception of a 16.2
million "loan waiver." (15) With respect to the 16.2 million "loan
waiver," which is referred to in Urenco's 1994 Annual report, the figure
reflects the loss incurred by BNFL in connection with the merger.
Specifically, the 16.2 million represents the difference between the
total sum owed to BNFL at the time of the merger, as listed in UCL's
financials and the agreed merger valuation of UCL. The 16.2 million
appears on its financials as a "loan waiver" because, according to UCL's
accounting practices, the amount had to be accounted for either as a loss
on a disposal of assets or a failure to recover money advanced.

In the Preliminary Determinations, we found that based on information
submitted by UCL, it appeared that the 16.2 million at issue was the
result of a difference in the manner in which the assets that were
transferred from BNFL to Urenco Ltd. were valued rather than the result of
a loan waiver. See 66 FR at 24337. Therefore, we preliminarily determined
that there was no debt forgiveness under this program.

In the Preliminary Determinations, we also stated that we would examine
all aspects of the restructuring and subsequent merger of the Urenco Group
during verification. Id. Having reviewed the information concerning the
merger during verification, we find that no new information, evidence of
changed circumstances, or comments from interested parties were
subsequently presented in this investigation that persuaded us to
reconsider this determination. (See Comment 9: Loan Stock Debt
Forgiveness). 

C. Subordinated Shareholder Loan Provided to Urenco Ltd. by INFL

Petitioners allege that the UKG directly subsidized the Urenco Group
through a 1993 shareholder loan made on non-commercial terms by INFL. We
continue to find that this program did not confer a countervailable
subsidy for the same reasons discussed above as well as in Section VI,
Programs Determined Not Countervailable from the Government of the
Netherlands and Comment 6: Subordinated Shareholders Loan Provided to
Urenco Ltd. by INFL and UNC.

D. Extraordinary Asset Write Downs Prior to Transfer of BNFL Enrichment
Facilities

Petitioners explain that the 1992 - 1993 Annual Report of UCL indicates
that the value of the physical assets of the Capenhurst enrichment
operations decreased to 196 million as of March 31, 1993, due in large
part to a extraordinary depreciation charge of 20 million. Petitioners
allege that this extraordinary depreciation charge could have conferred a
benefit upon UCL.

However, that extraordinary depreciation relates to the value of the E23
building, which was constructed in the mid-1980s for the purpose of
housing centrifuge operations. Due to a downturn in market conditions, the
centrifuge machines were never installed in the E23 building. Because it
was estimated during the merger that there was little chance that
production of LEU would ever take place in the E23 building, the parties
to the merger agreed to write down the value of the building.

In the Preliminary Determinations, we stated that the write down of the
E23 plant was required by law. See 66 FR at 24338. We further explained
that the extraordinary write downs taken by BNFL on the E23 building did
not give rise to any changes in the corporation tax computation or any
benefits on the tax returns filed in fiscal years 1992 - 1993 or 1993 -
1994 for UCL. Id. Thus, we preliminarily concluded that, according to
information on the record and pursuant to UKG corporate law, BNFL was
apparently required to write down the value of the E23 building in order
to more accurately reflect its true value. Id. On this basis, we
preliminarily determined that the program was not countervailable. No new
information, evidence of changed circumstances, or comments from
interested parties were subsequently presented in this investigation that
persuaded us to reconsider this determination.

VIII. Programs Determined Not Used in the Netherlands

No new information, evidence of changed circumstances or comments from
interested parties were presented since the Preliminary Determinations to
warrant any reconsideration of our decision to find these programs not
used.

A. Wet Investeringsrekening Law (WIR)

B. Subsidized Loan Forgiveness (See Comment 11: Loan Forgiveness).

Program Determined Not Used in the United Kingdom 


No new information, evidence of changed circumstances or comments from
interested parties were presented since the Preliminary Determinations to
warrant any reconsideration of our decision to find this program not used.

A. Financial Assistance Under the Electricity Act of 1989


Total Ad Valorem Rate 
--------------------------------------------------------------
Producer/Exporter                   Net Subsidy Rate 
--------------------------------------------------------------
Urenco Nederland BV                 0.03 percent ad valorem 
Urenco Deutschland GmbH             2.23 percent ad valorem 
Total Ad Valorem Rate               2.26 percent ad valorem 
All Others Rate                     2.26 percent ad valorem 
--------------------------------------------------------------


XI. Analysis of Comments

Comment 1: Scope Clarification

On August 17, 2001, petitioners (16) filed a request that the Department
clarify the scope of these investigations to exclude low enriched uranium
imported solely for further processing and consumption outside the United
States. Petitioners argue that USEC never intended to subject sales of LEU
outside of the United States to U.S. trade law disciplines simply because
foreign purchasers elect to have their LEU converted or fabricated in the
United States prior to use in a foreign reactor. Additionally, they state
that discussions with Customs have led parties to believe that in order to
address Customs' concerns over the use of temporary import bonds (TIBs)
for such imports, parties would be required to make adjustments to normal
business practices that will increase the cost of U.S.
conversion/fabrication for foreign utilities - an unintended result.

In order to resolve this issue, petitioners requested that the following
paragraph be added to the scope of these investigations:

     Also excluded from these investigations is LEU owned by a foreign 
     utility end-user and imported into the United States by or for 
     such end-user solely for purposes of conversion by a U.S. fabricator 
     into uranium dioxide (UO2) and/or fabrication into fuel assemblies 
     so long as the uranium dioxide and/or fuel assemblies deemed to 
     incorporate such imported LEU (i) remain in the possession and 
     control of the U.S. fabricator, the foreign end-user, or their 
     designed transporter(s) while in U.S. customs territory, and (ii) 
     are re-exported within eighteen (18) months of entry of the LEU 
     for consumption by the end-user in a nuclear reactor outside the 
     United States.

In addition, petitioners assert that the proposed scope clarification can
be easily administered by the Department and Customs through the use of
certifications submitted with each entry of LEU for conversion/fabrication
and re-export. Petitioners submitted proposed certification forms that
they indicate would be appropriate for importers, and end users, to use to
comply with this exclusion which include, among other terms, that the
fabricated material be exported within 18 months. 

Respondents agree that implementing an exclusion for imports that are
entering the U.S. market only for fabrication prior to being shipped to
third countries is proper and appropriate. Respondents note that
subjecting such imports to AD and countervailing duties ("CVD") would only
serve to shift fabrication offshore, thus causing harm to both fabricators
and customers of both respondents and petitioners. However, respondents do
not agree with the petitioners' proposed certifications. According to
respondents, the proposed certificates are both unnecessary and burdensome.

Respondents argued that the Court of International Trade has emphatically
rejected the notion that TIB procedures cannot be used in this industry
(citing to USEC, Inc. and the United States Enrichment Corp. v. United
States, LEXIS 62 at * 18, Slip Op., 2001-58 (Ct. Int'l Trade May 17,
2001). Respondents assert that because TIB procedures are applicable to
imports of uranium, petitioners, by requesting this scope clarification
and certification requirements, are inventing a problem that does not
exist in a bid to have the Department adopt extreme and burdensome
certification requirements. Respondents assert that the certifications
proposed by petitioners impose restrictions that would not only apply to
the subject LEU even long after the LEU is not within the United States
(i.e., that they require use in nuclear reactors outside the United
States) but would also reduce the flexibility of foreign entities to use
book transfers and swaps that are commonly employed within the industry to
minimize transportation costs. In the alternative, respondents propose
certifications that do not place what they consider to be unnecessary and
burdensome requirements on the importer and end user. 

Two importers affected by this exclusion request, General Electric
Company and Framatome ANP, Inc., submitted letters supporting the proposed
exclusion. In addition, petitioners cited to the Department's experience
with administering the suspension agreement in the antidumping
investigation of uranium from the Russian Federation in support of their
assertion that the language of the certificates needs to be as proposed. 

Department's Position: We agree with both petitioners and respondents
that LEU imported solely for further processing and consumption outside
the United States is not within the scope of these investigations. The
difficult question involves the appropriate method to implement such
exclusion in light of the fact that all LEU entering the United States has
the physical characteristics of the subject merchandise. We agree with
respondents that the fungible nature of the product does not preclude the
application of TIB procedures; nor does it alter the fact that the
Department does not have the authority to apply duties to TIB entries or
include such entries within the scope of an AD or CVD investigation.
However, having heard from the industry that such procedures will have the
unintended effect of requiring adjustments to normal business practices
that will increase the cost of U.S. conversion/fabrication for foreign
utilities, we determine that it is appropriate to develop an alternative
procedure for effectuating the exclusion. We have carefully considered the
comments of petitioners and respondents with respect to the need for and
the extent of importer and end user certifications. We agree with
petitioners that because of the fungibility of the subject merchandise,
such certifications need to be explicit in their language. We find that
because the scope exclusion is only intended to apply to LEU imports for
further processing and consumption outside the United States, it is
appropriate for the importers and end users to make such certifications at
the time of importation. Therefore, we are excluding from the
investigations and orders low enriched uranium imported solely for further
processing and consumption outside the United States and we have adopted
the language of the certifications as proposed by petitioners. In order to
ensure the effectiveness of such certification system, we intend to work
closely with Customs to implement these procedures.

Comment 2: International Consortium Provision

Petitioners agree with the Department's preliminary finding that the
Urenco Group is an international consortium. They also agree with the
Department's application of section 701(d) of the Act to cumulate
countervailable subsidies provided to participating companies in the
Urenco Group by the GON, UKG, and GOG. Therefore, petitioners assert that
the Department should maintain its position in the final determination.

Petitioners point out that Article I of the Almelo Treaty states that the
governments agreed to promote the integration of their research and
development efforts in order to achieve and maintain a competitive
position. Thus, petitioners argue that the subsidies provided by each of
the member governments benefits production of subject merchandise in all
three countries.

Respondents rebut the Department's preliminary finding that the Urenco
Group is an international consortium. They claim that Congress intended
section 701(d) of the Act to have specific and limited use to particular
circumstances and challenges of applying the countervailing duty law to
international production involving cascading subsidies for components from
countries other than the country of export to the United States. 

According to respondents, the record shows that Urenco does not engage in
international production within the meaning of the international
consortium provision. There are no transnational components or inputs of
LEU and no cascading subsidies. Also, there are no vertically integrated
levels of production or enrichment. Each of the Urenco Group companies
provides complete enrichment services and each exports LEU to the United
States. Thus, they claim that the Urenco Group does not qualify as an
international consortium. Moreover, respondents claim that the
Department's application of section 701(d) of the Act, and the resulting
attribution of subsidies across national boundaries, is inappropriate in
this investigation.

Respondents also counter that petitioners' argument that the fact that
the Urenco Group shares R&D indicates that the Group is an international
consortium is misplaced. Respondents state that if the sharing of R&D
within a multinational company were a relevant indicator in applying the
international consortium provision, then there would hardly be any
multinational company with technology that would not qualify for this
extraordinary treatment. 

Respondents argue that the Department has never issued a regulation
defining an international consortium nor has the Department provided
guidance about the scope and meaning. They state that the legislative
history of section 701(d) of the Act establishes that Congress was
concerned about the particular threat posed by vertically-integrated
international organizations benefitting from subsidies bestowed at
differing stages of production as in the Airbus Industrie (Airbus) case. 

According to respondents, the allegation that Airbus was receiving
subsidies from different governments was not a sufficient reason for
Congress to have enacted the international consortium provision in 1988.
Subsidies provided by foreign governments, even multiple foreign
governments, have always been countervailable. Respondents claim that
Congress was concerned that the alleged national subsidies cascaded from
one level of input in one country to another level in a different country,
ultimately benefitting the finished product imported from a third country
that did not grant subsidies. Respondents posit that the only way for the
Department to countervail the subsidized inputs was by means of the
complicated upstream subsidies regulations. Therefore, respondents deduce
that the international consortium provision was enacted to ensure that
subsidies under the highly specific Airbus set of facts could be
effectively countervailed. 

Respondents argue that the Department should refrain from construing
section 701(d) of the Act so broadly to encompass the Urenco Group. They
contend that application of the provision to the Urenco Group would
violate Article 1.1(a)(1) of the Agreement on Subsidies and Countervailing
Measures (SCM), which states that a subsidy shall be deemed to exist if,
"there is a financial contribution by a government or any public body
within the territory of a Member." Therefore, respondents assert that any
benefit provided by a Member government outside of that Member's borders,
as contemplated by the Act's international consortium provision, could not
be a subsidy as so defined in the SCM. Similarly, they argue that applying
a Urenco-wide countervailing duty rate results in over-countervailing
imports from the Netherlands and the United Kingdom by penalizing those
imports for subsidies allegedly granted by Germany, resulting in a
violation of Article 19.4 of the SCM.

Respondents also argue that the Urenco Group is a multinational
corporation. As such, in accordance with 19 CFR 351.525(b)(7) of the
Department's regulations, which addresses the calculation of an ad valorem
subsidy rate in cases of multinational corporations, the subsidy should be
attributed to products produced by the firm within the country of the
government that granted the subsidy. Therefore, consistent with the
Department's regulations and with the United States' obligations under the
SCM, the Department should not attribute benefits received by the Urenco
Group companies to production outside of the providing government's
territory.

Moreover, respondents state that since 1988, when the Act was amended to
include section 701(d), the Department has investigated trade cases
involving multinational companies, without invoking the international
consortium provision. They contend that there is nothing so unique about
the Urenco Group as to distinguish it from those other multinational
companies. They argue that the fact that the Urenco companies were the
vehicle for implementing the Treaty of Almelo does not make them an
international consortium. Thus the Department should continue to construe
section 701(d) of the Act strictly, so as not to conflict with the SCM.

Furthermore, respondents state that there is no precedent for the use of
the international consortium provision in U.S. law. They claim that in the
Antifriction Bearings countervailing duty investigations, the Department
confronted a situation analogous to that of Urenco. In Antifriction
Bearings, respondents claim that two companies had production facilities
in, and exported from, both Singapore and Thailand. Likewise, the Urenco
enrichment subsidiaries in this investigation produce LEU in, and export
it from, Germany, the Netherlands, and the United Kingdom. Respondents
claim that the Department did not apply the international consortium
provision nor did it aggregate countervailing duty margins in Antifriction
Bearings. Thus, respondents argue that the Department's treatment of
Urenco is inconsistent with its determination in Antifriction Bearings.
See Final Affirmative Determination: Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof from Singapore, 54 FR 19125
(May 3, 1989) and Final Affirmative Determination: Antifriction Bearings
(Other Than Tapered Roller Bearings) and Parts Thereof from Thailand, 54
FR 19130 (May 3, 1989) (Antifriction Bearings). Respondents therefore
assert that the Department should not take the unprecedented action of
applying the international consortium provision in the current
investigation.

Petitioners counter that there is no statutory basis for respondents'
restrictive reading of the statute. The legislative history provides no
evidence that Congress intended to limit the application to situations
where components are produced in several countries and then assembled.
Therefore, the fact that the legislative history identifies a particular
example of an international consortium cannot be taken as limiting the
statute to that situation. Petitioners state that the general language in
the legislative history encompasses situations like Urenco that involve
governmental intent and actions to benefit, in part, the foreign
production of entities that are closely integrated with an in-country
firm. 

Petitioners also counter that the record clearly demonstrates that the
Almelo governments provided subsidies to their national enrichment
companies to fund R&D activities, with the understanding that these R&D
results would be shared with the other partners. The benefit from the
German R&D subsidies could not be adequately offset if the Department did
not take into account the fact that they also benefitted Dutch and U.K.
production. Further, petitioners respond that the fact that the inputs in
this case take the form primarily of R&D, rather than physical inputs, is
irrelevant. 

Petitioners respond that the Preliminary Determinations do not violate
Article 1.1(a)(1) of the SCM. Petitioners contend that respondents
mistakenly argue that this language limits the Department to
countervailing duties against production "within the territory" of the
entity providing the subsidy. Petitioners claim that the reference to
"territory of a Member" merely clarifies that sub-national governments, or
"public bodies" located in the country but not formally part of a
government, are also included in the definition of government. Thus, the
phrase was added to ensure that neither "public bodies" of a Member nor
regional governments could be used to sidestep the SCM's constraints on
subsidization.

Likewise, according to petitioners, the Department's Preliminary
Determinations that the Urenco Group is an international consortium is not
in violation of Article 19.4 of the SCM. Petitioners state that Article
19.4 simply requires that countervailing duties be limited to the amount
of the subsidy found to exist. The Department found that production in
each Urenco partner country benefitted from a subsidy in the POI, and
established a preliminary margin in the same amount. Therefore, the
Department's application of the international consortium provision is
consistent with the requirement in Article 19.4.

Petitioners counter that in considering respondents' argument that the
international consortium provision is inconsistent with the SCM, the
Department should note that the legislative history demonstrates
Congressional intention to conform to the GATT subsidy disciplines in
place at the time. Therefore, the Department should proceed on the basis
that the international consortium provision fully conforms to the SCM.

Petitioners also counter that respondents' claim that the existence of
the multinational corporation regulation, 19 C.F.R. 351.525(b)(7), is a
reason for the Department not to apply the international consortium
provision to the Urenco Group's integrated operations is incorrect for
several reasons: First, it is inappropriate for the Department to
interpret the statute in light of a regulatory provision that does not
purport to address the international consortium provision. If the
statutory provision applies, then the regulation is irrelevant. Second,
the multinational corporation regulation merely establishes a rebuttable
presumption that the Department will attribute subsidies to products
produced within the territory of the granting government. Third, the
multinational regulation, like the international consortium provision,
recognizes that in particular circumstances, foreign governments seek to
benefit production outside their borders.

Petitioners refute respondents' argument that there is nothing so unique
about the Urenco Group as to distinguish it from many other multinational
companies, and that sharing R&D is common among multinational
corporations. Petitioners counter that not many multinational corporations
are formed pursuant to an international treaty. The signatories to the
Treaty of Almelo specifically intended to subsidize the integrated
production of enriched uranium in their three countries, as evidenced by
the agreement to fund and share R&D. 

Finally, petitioners counter that the Antifriction Bearings cases do not
support respondents' argument that the Urenco Group is like other
companies having multinational production. Petitioners state that the
international consortium provision was not discussed in those cases,
making them of no use for interpreting the provision. Moreover, according
to petitioners, in the Antifriction Bearings cases there was no evidence
that any government intended to benefit production in another country, nor
any evidence that any subsidy provided actually benefitted production in
another country. Therefore, these cases are not analogous to the situation
in the current investigation.

Department's Position: We disagree with respondents' assertions that
section 701(d) of the Act is not applicable to the activities of the
Urenco Group. Section 701(d) of the Act mandates that the Department
cumulate countervailable subsidies provided directly or indirectly to an
international consortium engaged in the production of subject merchandise.
Under this provision, the Department must cumulate subsidies if it
determines that "the members (or other participating entities) of an
international consortium that is engaged in production of subject
merchandise receive countervailable subsidies from their respective home
countries to assist, permit, or otherwise enable their participation
through production or manufacturing operations in their respective home
countries . . ."

We have determined that the Urenco Group is acting as an international
consortium within the meaning of section 701(d) of the Act. The individual
companies received subsidies that benefit the Urenco Group, and the
companies and the governments "collaborate . . . with a view to the
enrichment of uranium by the gas centrifuge process and to the manufacture
of gas centrifuges." Treaty of Almelo at Article I.1. Of particular note,
the three Urenco companies and their respective governments entered into
the Treaty in 1970 to share in the production and marketing of the subject
merchandise. (17) Article I of the Treaty states that the Contracting
Parties shall collaborate with one another, and promote the integration of
their R&D efforts in this field with a view to creating an integrated
program. Article I also states that the Contracting Parties shall promote
the establishment and operation of joint industrial enterprises in order
to achieve and maintain a competitive position in relation to other
sources of enriched uranium. In order to provide for effective supervision
by the contracting parties in the collaboration, a Joint Committee was
established, pursuant to Article II of the Treaty. Therefore, the purpose
of the Treaty was for the three governments and the Urenco Group to work
together as an international unit, sharing R&D, marketing, and producing
and selling the subject merchandise. 

Accordingly, the activities of the three governments and the Urenco Group
undertaken pursuant to the Treaty to coordinate their production and
marketing of subject merchandise, as well as to share R&D and other
production functions, clearly amount to the type of activities that
"assist, permit, or otherwise enable their participation in that
consortium," as specified in section 701(d) the statute. Therefore, we
determine that the Urenco Group operates as an international consortium
within the meaning of section 701(d) of the Act, and that we are therefore
required to cumulate all countervailable subsidies received by the Urenco
Group from the GOG, GON, and the UKG and calculate one countervailing duty
rate applicable to the production and exportation of the subject
merchandise from this consortium.

We disagree with respondents' argument that Congress intended that
section 701(d) of the Act have specific and limited use only to the
international production activities of "vertically-integrated" companies
involving "cascading" subsidies. Nothing in the language of section 701(d)
of the Act restricts application of the international consortium provision
solely to these types of entities. While it is true that the legislative
history uses the example of Airbus and its cascading subsidies, the
provision is not limited to those facts. Indeed, the legislative history
goes on to discuss the concerns and intent of Congress. The legislative
history makes clear that Congress intended a broad application of this
provision to situations "in which foreign governments provide subsidized
assistance for participation in international marketing ventures both
within and beyond traditional customs union frameworks." Given our factual
findings with respect to the nature and operation of the Urenco Group, the
cumulation provision of section 701(d) of the Act must be applied to the
activities of the Urenco Group.

Moreover, we note that our decision to cumulate the subsidies provided to
the Urenco Group is consistent with the underlying policies and
obligations of the U.S. CVD law as well as our rights under international
agreements to countervail the amount of the subsidy found to exist. In
this regard, we determined that the subsidies provided separately by each
of the governments to the individual members of the Urenco Group were
specifically intended to benefit total production and exportation of LEU
by all of the consortium companies, and not just the company located
within the jurisdiction of the government providing the subsidy. Thus, by
cumulating the subsidies provided by all governments and calculating one
single average subsidy rate applicable to the combined sales of the
consortium, we have appropriately calculated the amount of the financial
contribution provided to, and benefit conferred on, each individual member
of the consortium, as well as the consortium itself.

The Department's attribution regulation at 19 CFR 351.525(b)(7) does not
change our analysis. The primary purpose behind 19 CFR 351.525(b)(7)
involves the attribution of a subsidy provided to a multinational
corporation with production facilities in two or more countries. Under 19
CFR 351.525(b)(7), the Department's normal practice is to attribute such a
subsidy only to the products produced by the firm within the country of
the government that granted the subsidy. However, as noted in the Preamble
to this regulation, this practice is based on a presumption that a
government normally provides subsidies in order to promote the economic
and social health "of that country and its own people." See 63 FR at
65403. As further noted in the Preamble, this presumption can be overcome,
and we will attribute a subsidy to multinational sales under 19 CFR
351.525(b)(7) where it can be shown that the purpose of the subsidy was to
benefit more than domestic production. Thus, there is nothing inconsistent
between 19 CFR 351.525(b)(7) and the application of the international
consortium provision. In fact, the logic underlying 19 CFR 351.525(b)(7)
is entirely consistent with the international consortium provision. Under
section 701(d), cumulation is required when participating governments
"assist, permit, or otherwise enable" participants in the consortium by
subsidizing production in countries that are members of the consortium. 

Finally, respondents' reliance on the Department's decisions in the
Antifriction Bearings cases is misplaced. Although the Antifriction
Bearings investigations involved subsidies provided to related companies
that maintained separate facilities producing subject merchandise, there
is no evidence in the decisions cited by respondents that any government
providing a subsidy intended to benefit production outside of its borders,
or that any subsidy actually benefitted production in another country. In
addition, there is no evidence of the existence of an "international
consortium" or any efforts by the governments or companies involved to
assist, permit, or otherwise enable their participation in an
international consortium. In contrast, the Urenco Group operates as an
"international consortium" pursuant to a Treaty signed by the GOG, the
GON, and the UKG, the stated purpose of which was to collaborate in the
development and exploitation of the gas centrifuge process for producing
enriched uranium at all three locations. Pursuant to the terms of the
Treaty, the three companies shared R&D, and the production and marketing
of subject merchandise. Accordingly, the underlying facts of the
Antifriction Bearings decisions cases are distinguishable, and these
decisions are not relevant here.

Comment 3: Average Useful Life

Respondents contend that the Department should determine that the IRS
CLADRS category applicable to uranium enrichment facilities is section
28.0, and that the presumptive AUL of the renewable physical assets of the
each of the Urenco enrichment entities is 9.5 years. They claim that while
section 28.0 of the CLADRS does not expressly refer to uranium enrichment
plants, its scope plainly encompasses these facilities. Respondents claim
that Congressional testimony, placed on the record of this investigation,
regarding the uranium enrichment industry as well as information submitted
by petitioners supports their contention that uranium enrichment plants
are chemical processing plants and, therefore, are covered by the language
in section 28.0 of the CLADRS.

Petitioners claim that respondents' arguments regarding the CLADRS are
irrelevant to the question of the proper AUL. Rather, they claim that 19
CFR 351.524(d)(2)(iv), which states that the Department will consider
whether an allocation period other than AUL is appropriate or whether the
benefit stream begins at a date other than the date the subsidy was
bestowed. Petitioners claim that the Preamble's discussion of section of
19 CFR 351.524(d)(2) makes clear that the provision was designed to
address circumstances "when a government provides a subsidy to fund the
development of certain new technologies" because there is often
"significant lead time between receipt of the subsidy and development of
the product between development of the product between development of the
product and the product's commercialization." See Preamble 63 FR at 65396.
Petitioners contend that the centrifuge technology of Urenco Ltd.
constitutes the "new technologies" discussed in the Preamble.

Petitioners also contest respondents' reliance on the CLADRS tables.
Petitioners claim that the CLADRS tables are not relevant because there is
no CLADRS class specifically addressing the enrichment industry. They also
argue that section 28.0 includes chemical industries that have no relation
to uranium enrichment.

Respondents counter that petitioners argue now for the first time that
the Department's AUL methodology cannot be applied if there is no
applicable asset guideline class under the CLADRS. Respondents assert that
petitioners' argument contradicts petitioners' earlier arguments (see the
December 7, 2000 petition) that the Department ought to apply the 20-year
life in the CLADRS table for electric utility nuclear power plants as the
most relevant category in the CLADRS. Respondents point out that
petitioners made this argument in the petition in spite of fact that the
CLADRS did not, by petitioners' own admission, expressly list uranium
enrichment assets in any of its categories. Respondents contend that now
that the facts of the case clearly demonstrate that section 28.0 of the
CLADRS, which has an AUL of 9.5 years, applies to the uranium enrichment
industry, petitioners have changed ground and are now urging the
Department to reject the use of the CLADRS tables for purposes of
determining the AUL. 

Respondents claim that the notion that the "unique situation" (i.e., the
absence of an applicable CLADRS-based presumption), makes it impossible to
use the Department's AUL methodology is at odds with the Department's CVD
Regulations. Respondents note that 19 CFR 351.524(d)(2) provides that the
presumption based on the CLADRS table may be rebutted, if the company-
specific or country-wide AUL varies from the presumptive AUL by more than
a year. Respondents argue that, pursuant to the Department's CVD
Regulations, even if the CLADRS presumption can be rebutted by such
company-specific evidence, there is no reason why company-specific data
should not be used. They further argue that if the Department chooses to
base the AUL not on the CLARDS nor on company-specific data, it would, for
the first time be making an independent determination of the "actual"
useful life of the Urenco Group's renewable physical assets. 

Respondents argue that if the Department continues to treat the Urenco
Group as an international consortium, it should calculate the AUL using
financial data from Urenco Ltd.'s annual reports. Respondents believe that
using Urenco Ltd.'s consolidated financial statements for 1993 through
2000 is the most accurate, comprehensive, and consistent method of
calculating a group AUL based on the gross book value and straight-line
depreciation data for plant and machinery (excluding buildings and other
non-renewable assets). They claim that the data in Urenco Ltd.'s annual
reports yields an AUL of 9.5 years. Based on the 9.5 year AUL, respondents
assert that the presumption that section 28.0 of the CLADRS is reflective
of the AUL of the enrichment industry would not be rebutted.

Petitioners discount the use of a 9.5 year based on Urenco Ltd.'s
financial statements because the data is distorted as a result of the way
in which depreciation charges were handled during the merger. (18)
Petitioners further contend that an AUL based on Urenco Ltd's consolidated
financial statements is not appropriate for use by the Department because
it only covers a period of seven years, which they claim is not a
sufficient amount of time to calculate a representative AUL of the company.

Respondents take issue with petitioners' remarks regarding the way in
which Urenco Ltd. handled the depreciation of its assets during the 1993
merger. Respondents argue that as part of the merger, it was necessary to
establish a standard depreciation policy to allow for benchmarking of
costs and general consistency across the Urenco Group in consolidated
reporting. They point out that the data used in the consolidated financial
statements were compiled on a uniform basis, a basis reviewed and approved
by Coopers & Lybrand, an outside accounting firm. They further claim that
this standard depreciation policy, in turn, required the establishment of
a starting point for each of the three companies founded on a common base.
They argue that the depreciation policy was part of that common base. They
further note that the purportedly distorted proprietary depreciation data
cited by petitioners were used for a separate financial calculation that
was not related to the depreciation of assets. Regarding the number of
years in which Urenco Ltd.'s AUL data are available, respondents point out
that there is no regulation that requires the use of 10 years worth of AUL
data.

Alternatively, respondents suggest that if the Department does not want
to rely on Urenco Ltd.'s financial reports for its AUL calculation, the
next most accurate method, albeit with several adjustments, would be to
weight-average the AULs of the three enrichment companies. Respondents
argue that when using the proper gross book value, depreciation data, and
exchange rates, as detailed in their case briefs, the weight-average
Urenco-wide AUL would be 11 years.

Petitioners rebut, stating that the 11-year weighted-average company-
specific period should also be rejected because, in the case of UD, the
calculation relies on only 7 years of depreciation data and utilizes
German depreciation tables that do not specifically address enrichment
production. On the contrary, petitioners claim that in accordance with
section 351.524(d)(2)(iv), the Department should recognize that for the
type of subsidies received by the Urenco Group, the AUL of assets may not
represent the best reflection of the duration of benefit. 

Respondents object to petitioners' criticism of their company-specific
AUL data. Regarding the depreciation data for UD, respondents maintain
that the Department obtained verified alternative data that are suitable
for use in the calculation of UD's AUL. They note that the use of this
alternative data yields an even lower AUL for UD. In addition, they state
that it is possible to determine UD's AUL on the basis of the country-wide
tax tables issued by the GOG. Respondents contend that, contrary to
petitioners' assertions, the GOG maintains tax tables for the chemical and
centrifuge industry and that these tables indicate a 10-year AUL.
Respondents' claim that the fact that the GOG continues to use this tax
table further demonstrates its validity.

Petitioners argue that case precedent directs the Department to reject
all of Urenco Ltd.'s consolidated and individual company-specific AUL
data. They claim that the flaws described above regarding Urenco Ltd.'s
consolidated and individual company AUL data are ones which the Department
has previously recognized may establish that company-specific AUL data is
distortive or otherwise unusable. See Preliminary Affirmative
Administrative Review: Certain Cut-to-Length Carbon Steel Plate from
Mexico, 64 FR 48796, 48797-98 (September 8, 2001) (CTL Plate from Mexico).
They claim that the Department has determined such flaws may include
indications that "the company revised the useful life of property, plant
and equipment using differing annual depreciation rations other than a
straight line depreciation methodology." Id. They further claim that in
Final Affirmative Countervailing Duty Determination: Certain Hot-Rolled
Flat-Rolled Carbon-Quality Steel Products from Brazil, 64 FR 38742, 38746
(July 19, 1999) (Steel Products from Brazil) the Department also
recognized "problems" with relying on calculations of AULs when there have
been "changes in investment patterns, asset revaluations, and . . .
changed amortization periods." Petitioners claim that based on such
"problems" the Department has on occasion concluded that depreciation
schedules used by a company may not provide a reasonable estimation of
AUL. See Final Affirmative Countervailing Duty Determination: Stainless
Steel Plate in Coils from the Republic of Korea, 64 FR 15530, 15546 (March
31, 1999) (Stainless Steel from Korea) and also CTL Plate from Italy, 64
FR at 73259.

Respondents argue that Urenco Ltd.'s AUL data have nothing in common with
the distorted and unreliable data in the cases cited by petitioners. They
point out that in CTL Plate from Italy, the Department rejected the
company-specific AUL data because the company had been through "numerous
changes in ownership, a massive asset write-down, and bankruptcy." See 64
FR at 73260. Regarding petitioners' reference to Steel Products from
Brazil, respondents argue that the Department rejected the company-
specific AUL because the respondent companies had undergone multi-staged
privatizations in the years relevant to the investigation and, as a
result, had changed investment patterns and altered asset valuation
methodologies. See 64 FR 38746. Respondents also take issue with
petitioners' citations to Stainless Steel from Korea. Respondents argue
that the Department declined to use Pohang Iron and Steel Company's
(POSCO) AUL data because it found that they were based on Korean tax
depreciation tables derived from out-of-date Japanese depreciation tables
in existence in the 1950s when the useful lives of the relevant assets had
been determined. See 64 FR at 73259. Respondents argue that each of these
three cases involve serious shortcomings, unlike anything presented by the
Urenco Group, which justified disregarding the company-specific data.
Respondents further argue that the Department, when faced with these
shortcomings concerning AUL data, did not, as petitioners have advocated,
attempt to independently calculate alternative AULs. Respondents argue
that in those three cases the Department instead relied on the AULs listed
in the CLARDS tables.

Regarding petitioners' reference to CTL Plate from Mexico, respondents
argue that the facts of that case are clearly distinct from those of the
current investigation. They claim that the Department used CLARDS AUL data
instead of company-specific AUL data when Altos Hornos de Mexico S.A.
(AHMSA), the respondent, had not only failed to use straight-line
depreciation methods but also had submitted AUL data that produced an AUL
calculation with "aberrational results" which the Department stated were
"possibly due to the effect of intermittent periods of high inflation."
See CTL Plate from Mexico, 64 FR at 48797.

Respondents further argue that if the Department determines that Urenco
Ltd. is not an international consortium, it should calculate individual
AULs for each of the three subsidiaries. In addition, they argue that even
if the Department applies the international consortium provision, there is
no reason why the Department should not be guided by its normal allocation
practices and calculate individual AULs for the three companies of Urenco
Ltd.

Petitioners claim that such an approach would be inappropriate, as it
would undermine the goal of treating the Urenco Group as a consortium
because the subsidy rate for the consortium would be distorted by the
different allocation periods used in the three countries.

Petitioners contend that proprietary production data concerning the
Urenco Group's latest generation of cascades submitted on the record of
this investigation supports their claim that the Urenco Group's AUL is at
least 19 years. Petitioners also contest the analysis that the Urenco
Group previously submitted on the record regarding this same proprietary
production data. Petitioners claim that respondents' analysis takes into
account all cascade closures to date, thus allowing their results to be
skewed by older facilities. Petitioners claim that the production data
suggests an AUL that is significantly longer than 12 years when one
isolates the analysis on the latest generation of cascades.

Respondents contend that petitioners have mischaracterized the
proprietary production data that is on record of this investigation.
Respondents argue that generation-to-generation centrifuge improvements
are measured in increased SWU output and lower costs, not in longevity.
They also claim that because each generation is pushed to its limits,
there is a unifying characteristic which tends to keep the useful life of
each generation in the same general range as its predecessors.

Petitioners further argue that an AUL of more than 12 years is consistent
with other producers' centrifuge lifetimes. They claim that the Joint
Stock Company Techsnabexport (Tenex), a Russian enrichment producer that
also uses centrifuges, stated in 1993 that its latest generation of
machines can operate over 15 years with minimal failure rates. In
addition, petitioners argue that information from the Urenco companies'
annual reports further supports their contention that 20 years is the
appropriate AUL period. They cite to a note in UCN's 1990 Annual Report
which states that "the two oldest plants, SP2 and SP3 started their 17th
and 15th, respectively, business year. . . .It is expected that these
installations will stay operational until at least the middle of the
nineties." Petitioners also contend that statements in a press report from
Nuclear Fuel as well as excerpts from a paper presented by USEC's
president, a paper written by Urenco scientists, and statements made by
Coopers & Lybrand, the accounting that conducted a Fairness Review of the
merger (C&L Review), demonstrate that the Urenco Group's AUL is longer
than 12 years.

Respondents rebut the evidence cited by petitioners. Respondents point
out that Tenex's AUL data were not verified by the Department. They also
point out that differences in capacity levels may also cause the AULs to
vary between the two companies. Regarding petitioners' claims that Urenco
Ltd.'s data indicate an AUL that is longer than 12 years, respondents
contend that for each example in which USEC points to a cascade which has
remained in operation for more than 12 years, there other examples of
cascades which lasted less than 12 years.

Finally, petitioners argue that once the Department has established an
allocation period of 20 years, the Department should then allocate the
subsidies received before 1985 over a period beginning in 1985, when the
TC-11 centrifuge entered commercial production. Petitioners claim that
these subsidies fall within the Department's regulatory exception under 19
CFR 351.524(d)(2)(iv) allowing deferral of the benefit stream from a
subsidy in "extraordinary circumstances" such as the development of a new
technology.

Respondents argue that petitioners claims do not reach the level of
"extraordinary circumstances." However, respondents contend that even if
the "extraordinary circumstances" provision was applied, the Department
should adopt the approach taken in the Preliminary Determinations and
commence the allocation period with the first commercial production,
rather than defer it to some later date.

Department's Position: We disagree with respondents' contention regarding
the applicability of the CLADRS tables. As we stated in the Preliminary
Determinations, the CLADRS tables do not provide a specific asset
guideline class for the uranium enrichment industry. Though respondents
claim that section 28.0 of the CLADRS is appropriate for use as the AUL
because uranium enrichment is a chemical process and section 28.0 provides
for "chemical products to be used in further manufacture," we note that
the complete citation from section 28.0 indicates otherwise. The complete
phrase cited in section 28.0 of the CLARDS is "chemical products to be
used in further manufacture, such as synthetic fibers and plastic
materials." The product produced by the uranium enrichment industry is not
related to synthetic fibers and plastic materials and, thus, we find that
section 28.0 of CLARDS is not appropriate for use as the AUL. 

In the absence of a CLADRS table that corresponds to subject merchandise,
19 CFR 351.524(d)(2)(iii) directs the Department to use a company-specific
AUL or the country-wide AUL for the industry under investigation.

Based on the information submitted by the UKG, GOG, and GON, we find that
the government depreciation tables do no not reasonably reflect the useful
life of enrichment assets. For example, the UKG and the GON stated in
their March 22, 2001 questionnaire responses that they do not have
separate depreciation schedules for individual industries. Regarding
Germany, the GOG maintains industry-specific depreciation tables. However,
the depreciation class used by the GOG pertains to industrial centrifuges
and not to centrifuges specifically designated for the uranium enrichment
industry. See page 3 of the August 19, 2001 UD Verification Report. The
GOG has also advocated using the country-wide depreciation table for the
chemical industry, but the table, once again, does not specifically
address the uranium enrichment industry. Id.

Therefore, the Department must determine whether company-specific data
can serve as a basis on which to calculate the AUL. As stated above in the
"Allocation Period" section of this decision memorandum, in the
Preliminary Determinations, we found that company-specific data were
suitable for purposes of calculating an AUL for the Urenco Group. See 66
FR at 24332. After reviewing the AUL data of UCL, UD, and UCN at
verification, we continue to find that the use of company-specific data is
the most appropriate method of calculating the Urenco Ltd. AUL. 

In the Preliminary Determinations, we calculated a single AUL for Urenco
Ltd. by weight-averaging the company-specific AULs of the Urenco Group
companies by their respective total average gross book values. On this
basis, we derived an AUL of 12 years for Urenco Ltd. Based on information
on the record of these investigations and information collected at
verification, we have decided to revise this approach by calculating an
AUL for the Urenco Group based on Urenco Ltd.'s consolidated financial
statements for years 1994 through 1999. We note that this approach offers
advantages over the method used in the Preliminary Determinations. First,
the AUL data in Urenco Ltd.'s consolidated financial statements are
reported in a single currency, thereby eliminating the need to convert
UCL, UD, and UCN's data into a common currency. Secondly, all three
companies of the consortium had to conform to a common methodology when
submitting their asset and depreciation figures. For example, during the
UD verification, we learned that UD, unlike the other two Urenco
companies, depreciated its assets using the declining balance method. In
contrast, all three companies used the straight-line depreciation method
for purposes of Urenco Ltd.'s consolidated financial statements. 

We disagree with petitioners' assertion that the Department must use at
least 10 years worth of data when calculating the AUL. While 10 years has
been the number of years used in past cases, we note that the Department's
regulations do not specify a particular number of years. Rather, the
Preamble to the CVD Regulations states that the "annual average gross book
value of the firm's depreciable fixed assets (which is usually based on
acquisition costs) is cumulated, for a period considered appropriate by
the Department." See 63 FR at 65397. As noted above, using AUL data from
before the merger would require several adjustments, namely due to the
different depreciation methods utilized by the three companies. Using AUL
data from after the merger does not require these adjustments and results
in an AUL that is based on more uniform and consistent data. Thus, for
purposes of this final determination, we find that basing our AUL
calculation on data from Urenco Ltd. for years 1994 through 1999 is
reasonable.

We also disagree with petitioners' assertion that the Urenco Group's
accounting treatment of depreciation during the merger renders the
consolidated AUL data inappropriate for use in the AUL calculations.
Petitioners base their arguments on proprietary remarks made by the
accounting firm Coopers & Lybrand in the C&L Review. See page 12, Tab C of
the Merger Annex that was submitted as part of UCL, UD, and UCN's March
22, 2001 questionnaire response. However, contrary to petitioners'
assertions, these data in the Fairness Review refer to a financial
analysis unrelated to the depreciation of the Urenco Group's individual
assets.

Furthermore, we disagree that the cases cited by petitioners should
compel the Department to reject Urenco Ltd.'s company-specific AUL data.
In both CTL Plate from Italy and Steel Products from Brazil the Department
made clear that its decision to reject the company-specific AUL data was
due to the way the companies' numerous changes in ownership and/or
financial restructurings associated with bankruptcy affected their
respective asset valuations. (19) We also find that the facts in Stainless
Steel from Korea are distinct from those concerning Urenco Ltd. In
Stainless Steel from Korea, the Department rejected POSCO's company-
specific AUL calculations because they were not based on company-specific
data. (20) In addition, we find that the situation referenced by
petitioners in CTL Plate in Mexico is distinct from the current
investigation. In CTL Plate from Mexico, the Department found that AHMSA's
company-specific AUL calculations were not based on straight-line
depreciation data. See 64 FR at 48797. As noted above, the depreciation
data in Urenco Ltd.'s consolidated financial statements utilized a
straight-line deprecation method. In addition, the Department found in CTL
Plate from Mexico that the use of AHMSA's company-specific data produced
aberrant results which were possibly related to the intermittent periods
of high inflation that Mexico experienced during the POI. Id. We note that
the Urenco Group has never experienced periods of high inflation.

Regarding our decision to use company-specific AUL data, we disagree with
petitioners' assertion that proprietary production data concerning Urenco
Ltd.'s latest generation of centrifuges should compel the Department to
calculate an AUL of 19 years or more. (21) We note that pursuant to 19 CFR
351.524(d)(2)(iii), the Department will calculate a company-specific AUL
by "dividing the aggregate of the annual average gross book value of the
firm's depreciable productive fixed assets by the firm's aggregated annual
charge to accumulated depreciation . . . ." Thus, the regulations direct
the Department to use AUL information as reported on the firm's balance
sheet. The regulation also says that the Department will not accept such
information from the firm's balance sheet if the firm's depreciation
figures are not reflective of the actual useful lives of the firm's
assets. Based on our review of the failure rates and production curves of
Urenco Ltd.'s centrifuges during verification, we find no basis to believe
that the depreciation reported for these assets do not reflect their
actual useful lives. (22) In addition, we find that the shape of Urenco
Ltd.'s production curve does not provide sufficient evidence to compel the
Department to apply an AUL of 19 years or more. 

Furthermore, because we have determined that Urenco Ltd.'s consolidated
depreciation data accurately reflect the average useful lives of its
assets, we find no need to adopt an AUL based on data from Tenex, a
competing uranium enrichment firm.

We disagree with respondents assertion that even if the Department finds
that the Urenco Group constitutes an international consortium, the
Department can still calculate and apply separate AULs to each of the
Urenco Group companies. As explained in the Preliminary Determinations,
our decision to apply the international consortium provision affects the
manner in which we must calculate the AUL in this investigation. See 66 FR
at 24332. In particular, we noted that the legislative history concerning
the international consortium provision explicitly authorized the
Department to cumulate the amounts of subsidies from all participating
countries in an international consortium in determining the relevant
countervailing duty to be applied to the product subject to investigation.
Id. Thus, we continue to find that in order to be consistent with
Congressional intent, which directed the Department to cumulate the
subsidies received by an international consortium, we must calculate a
single AUL for the Urenco Group.

Finally, regarding petitioners' assertion that the subsidies received by
Urenco Ltd. are covered by the "extraordinary circumstances" provision
under 19 CFR 351.524(d)(2)(iv), we note that in using a 10-year AUL, 1990
marks the last year in which one of the Urenco Group companies could have
received a non-recurring grant and still have those subsidies be allocable
to the POI. With respect to R&D subsidies received by the Urenco Group
companies, namely those of UNL and UD, in which the application of the
"extraordinary circumstances" provision of the CVD Regulations might have
been an issue, we note that all of the production plants for which the R&D
subsidies were received began commercial production prior to 1988. In
other words, even if the Department were to apply the "extraordinary
circumstances" provision under section 351.524(d)(2)(iv) of the CVD
Regulations to the R&D subsidies received by the Urenco Group companies,
the use of a 10-year AUL would result in the benefit streams of the
respective subsidies being fully allocated prior to the POI. Accordingly,
we determine that 19 CFR 351.524(d)(2)(iv) is not relevant to this case.

Comment 4: 1993 Equity Investment

Petitioners disagree with the Department's preliminary decision not to
initiate an investigation on this program. See 66 FR at 24329. They also
disagree with the Preliminary Determinations where the Department found
that the 1993 transaction represented a restructuring of the Urenco Group,
as opposed to an equity infusion. They argue that the transaction was not
an internal corporate restructuring, given the very significant ownership
changes that occurred. Petitioners contend that the fact that the
resources contributed to Urenco Ltd. by the UKG and the GON were in the
form of productive assets rather than cash does not change the analysis.
Petitioners further contend that the Department has an obligation to
evaluate whether the governments' decisions were in accordance with the
practice of reasonable private investors.

Petitioners argue that in 1993 when the UKG, through BNFL, and the GON,
through UCN, contributed their enrichment assets to Urenco Ltd., in
exchange for one-third interest in the Urenco Group, the transaction
constituted equity investments into an unequityworthy company. Petitioners
assert that the Urenco partners made an investment decision to exchange
their control over the individual national partnerships in exchange for an
equity interest in a different set of assets. Furthermore, petitioners
claim that rather than simply exchanging direct for indirect ownership of
productive assets within their national borders, the GON and UKG exchanged
a total equity interest in one limited set of productive assets for
partial equity interests in a much larger set of productive assets in
three countries. Petitioners assert that it is the Department's practice
to find an equity investment on similar facts. They cite to the Final
Affirmative Countervailing Duty Determination: Certain Carbon Steel
Products from Sweden, 50 FR 33375, 33378 (August 19, 1985) and Final
Affirmative Countervailing Duty Determinations: Certain Steel Products
from Sweden, 58 FR 37385, 37387 (July 9, 1993) (Swedish Steel cases), in
which a joint venture was formed between two private companies, a state-
owned steel company, and the Government of Sweden. Petitioners state that
the Department determined in those cases that the joint venture received
equity investment from the Swedish government and the state-owned steel
company. Petitioners argue that the facts are similar as those in the
instant investigation. 

Additionally, petitioners argue that their position is supported by the
Lead and Bismuth, 58 FR at 6240-41, in which they claim the Department
treated contributions of productive assets as an investment. They state
that the Department considered a transaction in which the state-owned
British Steel Corporation (BSC) and a private company contributed assets
to a joint venture. They further state that in analyzing the transaction,
the Department concluded that BSC's investment was on terms consistent
with commercial considerations. Thus, petitioners argue that the
Department treated BSC's contribution of productive assets as an
investment. Id.

However, petitioners contend that the 1993 transaction in the instant
investigation is very different from cases in which assets were simply
redistributed without any change in beneficial ownership. They point out
that in the Final Affirmative Countervailing Duty Determination: Grain-
Oriented Electrical Steel from Italy, 59 FR 18357 at 18359 (April 28,
1994) GOES from Italy, the Government of Italy liquidated the state
holding company, and formed a new company to take over most of the
productive assets. The Department concluded that the transfer of assets
was a redistribution of assets. However, petitioners argue that the facts
in GOES from Italy are distinguishable from the facts in the current
investigation in that while the UKG and GON had previously been part of
the Urenco consortium it does not change the fact that in 1993 they
acquired an ownership interest in facilities that they previously had not
owned. 

Petitioners also argue that at the time of the 1993 investment the
company was unequityworthy. Petitioners assert that the market outlook for
LEU was grim, and no reasonable objective investor would have invested in
the Urenco Group, a venture exclusively focused upon production of LEU.
Therefore, petitioners maintain that the Urenco Group could not
demonstrate that it would be able to generate a reasonable return within a
reasonable period of time.

Petitioners also argue that the GON and UKG failed to seek objective
external analysis of Urenco's equityworthiness or future financial
prospects. Petitioners assert that reasonable private investors would have
sought objective analysis prior to making the equity infusions. Similarly,
petitioners argue that the C&L Review did not evaluate the potential risk
versus the expected return of the proposed equity infusions. Thus,
petitioners contend that the Department should apply its consistent
practice of determining that the equity infusion provides a
countervailable benefit in the absence of objective analysis and studies
of the types of factors that a private investor would consider. See
Comment 5: Feasibility Study and Equityworthiness of the Issues and
Decision Memorandum that accompanied the Final Affirmative Countervailing
Duty Determination: Certain Hot-Rolled Carbon Steel from Indonesia, 66 FR
49637 (September 28, 2001) (HRC from Indonesia), Preliminary Results of
Countervailing Duty Administrative Review: Stainless Steel Plate in Coils
from Belgium, 66 FR 20425, 20424 (April 23, 2001) (Stainless Steel from
Belgium), and CTL Plate from Italy, 64 FR at 73264.

Petitioners contend that although internal analyses prepared by the
Urenco partners projected that the proposed Urenco Group would be
profitable, these projections were significantly distorted because the
rate of return depended upon manipulating the asset values of the equity
contributions to be made by the partners.

Petitioners' argue that even though Uranit, a private company,
participated in 1993 transaction, such participation did not transform the
transaction into an equityworthy investment. They contend that the
presence of a private investment is not dispositive that a government
investment was consistent with commercial considerations. In support of
their contention, petitioners cite to the Final Results of Countervailing
Duty Administrative Review: Certain Carbon Steel Products from Sweden, 54
FR 31714 at 31715 (August 1, 1989) (Carbon Steel Products from Sweden),
where the Department determined that a joint venture between private
companies and the government involved a non-commercial equity investment
by the government, because the private companies were not disinterested
investors who objectively evaluated the potential return on their
investment. See also the General Issues Appendix to Certain Steel Products
from Austria, 58 FR 37217, 37225 (July 9, 1993) (GIA). Thus, petitioners
argue that the Department should conclude that Uranit's participation is
not dispositive that the governments' investments were consistent with
commercial considerations. Also, see Preliminary Affirmative
Countervailing Duty Determination: Certain Hot-Rolled Carbon Steel
Products from South Africa, 66 FR 20261 (April 20, 2001) (South African
Steel), quoting from Final Affirmative Countervailing Duty Determination:
Certain Corrosion-Resistant Carbon Steel Flat Products from New Zealand,
58 FR 37366, 37368 (New Zealand Steel).

Petitioners also rebut the notion that because Uranit determined the
merger was the best course, it is therefore reasonable for the governments
to make the same determination. Petitioners claim that the Department has
rejected the argument that it should evaluate equityworthiness by
measuring the government's action against the standard of a reasonable
private investor faced with the same choices as the government under the
same circumstances. See Final Affirmative Countervailing Duty
Determination: Steel Wire Rod from Canada, 62 FR 54972 at 54984 (October
22, 1997) (Canadian Wire Rod). Petitioners also claim that the Department
has found in other, similar circumstances that a government investment is
countervailable if no reasonable outside private investor would have
participated without governmental investors' participation. Furthermore,
petitioners argue that Uranit's behavior was influenced by the desire to
receive additional subsidization from the GOG. 

Finally, petitioners contend that BNFL exchanged its outstanding debt
interest in BNFL Enrichment (in the form of the outstanding loan stock)
for an equity interest in the Urenco Group. Thus, petitioners maintain,
that aspect of the transaction can be analyzed as a debt-equity
conversion. According to petitioners, the Department routinely
countervails debt-equity conversions when the company involved is
unequityworthy. See e.g., Final Affirmative Countervailing Duty
Determination: Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel
Products from Brazil, 64 FR 38742 (July 19, 1999) (Flat Products from
Brazil). 

Respondents agree with the Department's decision in the Preliminary
Determinations not to initiate an investigation on this allegation. As
such, respondents argue that this allegation issue is not properly before
the Department. Furthermore, they assert that petitioners have not
presented any new facts or offered a justification for the Department to
reconsider this closed matter. Respondents also argue that if the
Department decides to examine this issue at this late stage in the
investigation, then respondents will be denied administrative due process.

Respondents state that the Urenco Group has existed since its creation
following the Treaty of Almelo in 1971. Although the structure of the
group and the holdings of its members changed over the years, respondents
claim the Urenco Group has functioned as a group for all those years. They
further claim that the merger involved the exchange of each partner's
interest in the enrichment, centrifuge manufacturing and R&D enterprises
of the companies for an equivalent, one-third interest in the
multinational entity, the Urenco Group. Thus, respondents maintain that
there were no infusions of cash or new assets contributed. 

Respondents counter that petitioners' reliance on certain cases issued
prior to GOES from Italy and Delverde cases is misplaced. They point out
that in the Swedish Steel cases, prior to the formation of the joint
venture, the parties had no pre-existing relationship. Likewise, in U.K.
Lead Bar, no pre-existing relationship existed between BSC and GKN, the
privately owned company. Respondents argue that in those cases, the assets
of the participants had been held completely separate from each other. In
contrast, each of the participants in the Urenco Group held an interest,
prior to the 1993 merger, in the operations of the other participants. 

Respondents find that the Department's Preliminary Determinations in
these investigations is consistent with its determination in GOES from
Italy. Respondents counter that petitioners' argument, that the facts in
GOES from Italy are different from the facts in this case because BNFL and
GON acquired an interest in assets they had not previously held, is true,
but irrelevant. According to respondents, the essential point is that the
new Urenco Group was a continuation of the old Urenco, with each of the
shareholders owning an interest in the whole entity exactly equal to its
interest in the contributed part. 

Respondents contend that treating the merger as a restructuring is also
supported by the Department's methodology set forth in the Final Results
of Redetermination Pursuant to Court Remand, Delverde, Srl v. United
States, Consol. Court No. 96-08-01997, Remand Order (CIT September 27,
2000) (Delverde). They argue that the test developed in that remand
focused on whether the firm under investigation is the same entity as the
one that received the subsidies. Therefore, respondents argue that since
the new Urenco is a continuation of the old Urenco that operated in
substantially the same manner before and after the change in ownership,
nothing material has changed since the original bestowal of the subsidy.

Respondents counter that petitioners' unequityworthiness allegations are
lacking in merit. Respondents claim that the Department inquires into
equityworthiness only if no private investors are involved. In this case,
Uranit, a private investor, acquired newly-issued shares of Urenco Ltd. at
the same price, and at the same time as INFL, the wholly-owned subsidiary
of BNFL, and UCN. Therefore, respondents argue, it follows that the
transaction was consistent with usual investment practice of private
investors.

Moreover, respondents state that the Urenco Group was equityworthy in
1993. They claim a review of the data taken from the relevant reports in
the record shows that the performance of the merging entities in the three
years preceding the merger was positive. They state these results were
characterized by steady growth in turnover, stable net income, steadily
increasing dividends and stable R&D spending.

Respondents also object to petitioners' argument that the UKG and the GON
failed to seek objective analyses of the Urenco Group's future financial
prospects. Respondents claim that the 1992 C&L Review confirmed that
valuing the assets on the balance sheet of the Urenco Group on the basis
of the valuation model which targeted a certain percentage return was
reasonable. In addition to the C&L Review, respondents claim the
transaction was preceded by four objective internal studies which
objectively analyzed the need for the transaction and expected benefits.
Respondents claim that the transaction was consistent with commercial
considerations and that there was no governmental impetus, direction or
influence. Respondents state that many of the market-driven write downs of
assets were recommended by Coopers & Lybrand.

Respondents argue that the instant investigation has nothing in common
with the circumstances considered by the Department in HRC from Indonesia
and Stainless Steel from Belgium. In HRC from Indonesia, they claim that
the only study offered was done by a company official after the investment
in question took place. In Stainless Steel from the Belgium, they claim
that there were no comparable objective studies. However, as respondents
point out, the Urenco partners had studies conducted prior to the 1993
transaction.

Respondents also counter that petitioners' citation to the Swedish Steel
cases and the GIA. Respondents contend that the cases that petitioners
cite to for the purpose of discrediting Uranit's status as a private
investor are easily distinguished from the instant case. Respondents claim
that the South African Steel and New Zealand Steel cases involved private
investments induced by the promise of future government subsidies. They
state that no such promise was alleged to have been made, by the UKG, the
GOG or the GON. Furthermore, they point out that the standard set forth in
New Zealand Steel and applied in the South African Steel Preliminary
Determination was rejected in the final determination.

Respondents contend that petitioners' citation of Canadian Wire Rod is
also inappropriate in the instant investigations; as Canadian Wire Rod was
issued before the private investor standard at 19 CFR 351.507(a)(2), which
makes no distinction between private investors who are already invested in
the business and new investors. Furthermore, respondents claim that no
private investors were involved in the Canadian Wire Rod case.

Moreover, respondents disagree with petitioners' assertion that Uranit's
behavior was influenced by the desire to receive additional subsidization
from the GOG. Respondents argue that the company participated in the
merger for compelling commercial reasons of achieving a reasonable
commercial return. In addition, respondents claim that the Department's
determination in the South African Steel case that the government entity
had invested in a joint venture on the same basis as a privately held-
company, and that the investment constituted an appropriate investor
benchmark is supportive of Uranit's private investor benchmark status.

Additionally, respondents object to petitioners' contention that BNFL
exchanged its outstanding debt interest in BNFL Enrichment (in the form of
the outstanding loan stock) for an equity interest in Urenco Ltd.
Respondents counter that petitioners' claim is irrelevant, and that there
was no such conversion. 

Department's Position: As stated in the Preliminary Determinations, on
April 23, 2001, petitioners alleged that the one-third ownership obtained
by BNFL and UCN along with the shareholder loans made by the two
government-owned companies constituted equity infusions into the Urenco
Group, which they assert was unequityworthy at the time the alleged
infusions were made. In support of their allegation, petitioners cited to
various annual reports of BNFL, UCN, and Uranit, as well as several
corporate studies, which they claim indicated a bleak outlook for the LEU
industry in the years preceding the impending merger. In addition,
petitioners claimed that prior to the merger there was no objective
evidence before BNFL or UCN, indicating that the planned restructuring and
merger would improve the efficiency and financial prospects of the
companies involved. 

We determined not to initiate an investigation of this allegation in the
Preliminary Determinations. See 66 FR 24329. Based on the information
submitted by respondents, we found that the 1993 merger did not constitute
an equity infusion, but rather a restructuring of the Urenco Group in
which the three companies, BNFL, UCN, and Uranit, contributed their
respective assets in return for one-third ownership of the Urenco Group.

Prior to 1971, the centrifuge R&D programs in each country were carried
out separately.

As a result of the Treaty, which became effective in 1971, the three
governments agreed that there should be two "joint industrial enterprises"
to carry out the centrifuge collaboration: one to conduct R&D and to
design and build centrifuge equipment, and the other, an enrichment
organization to own and operate the enrichment plants and market the
output. Urenco Ltd. was established in the UK in 1971 to serve as the
exclusive marketing agent for the enrichment companies in the UK, the
Netherlands, and in Germany. Since 1971, BNFL, UCN, and Uranit has had
cross-ownership interests in the enrichment facilities. 

In accordance with the 1993 restructuring, operations at Capenhurst (UK)
were implemented in two steps. First, BNFL transferred its control of
commercial enrichment production at Capenhurst to UCL. BNFL then
transferred its shares in UCL to Urenco Ltd. in exchange for one-third
ownership in the Urenco Group. In the Netherlands, UCN first created UNL
to handle the enrichment operation at Almelo. Then, UCN transferred UNL to
Urenco Ltd. in exchange for a one-third ownership in the Urenco Group. In
Germany, Uranit transferred its enrichment production at Gronau to UD. In
return, Uranit became a one-third owner of the Urenco Group. In the first
step of the merger, the limited companies became the sole owners of the
enrichment facilities in their respective countries. Subsequently, in
September 1993, the voting shares of the limited companies were
transferred to Urenco Ltd. in exchange for one-third interest in the
Urenco Group. Based on the facts, we continue to find that there were no
new equity investments or new assets contributed during the restructuring.
For further discussion, see the Urenco Group: Corporate History, above.

Petitioners' citations to the Swedish Steel cases, U.K. Lead Bar, and New
Zealand Steel are not applicable to the instant investigation. The fact
patterns in those cases are different from the fact pattern in this
investigation. For example, in the Swedish Steel cases and in U.K. Lead
Bar, there was no existing cross-ownership of the assets among the
investors. Petitioners distinguish the transfer of productive assets in
GOES from Italy from the instant investigation. However, in the instant
investigation the existing enrichment assets owned by the companies were
pooled and redistributed among the same owners, albeit resulting in a
different proportion of ownership. Therefore, the Department's position is
consistent in both instances. 

Regarding petitioners' citations to Certain Steel Products from Sweden
and the GIA, which petitioners claim support their position that the
existence of a private investment is not "dispositive" of commercial
consideration, we find that these cases are not applicable because they
preceded the adoption of 19 CFR 351.507. In addition, petitioners'
citations to Carbon Steel Products from Sweden, South African Steel, and
New Zealand Steel, which they claim supports their contention that
Uranit's participation cannot serve as dispositive evidence that the
governments investments were consistent with commercial considerations, is
also not applicable. Our finding is based on the fact that, contrary to
the fact pattern involving the Urenco Group, these cases included the
promise of future government subsidies.

In cases where the Department initiates an investigation of an allegation
that an equity infusion was provided by a government to an unequityworthy
company, the Department must conduct an equityworthy analysis to determine
whether the investment decision was inconsistent with usual investment
practice of private investors, in accordance with 19 CFR 351.507. Pursuant
to 19 CFR 351.507, the first step in analyzing whether a government's
purchase of equity confers a subsidy is to determine whether the
government paid a higher price for its shares than the price paid by
private investors for the same or similar shares. Absent such a benchmark,
e.g., if actual private investor prices are not available, the Department
will determine whether the firm funded by the government-provided
investment was equityworthy or unequityworthy. 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 the information
available at that time.

In the instant investigations, based on information on the record, the
Department has determined that the analysis described above is not
necessary because the 1993 transaction represents a restructuring of the
assets within the Urenco Group. Therefore, petitioners' citations to HRC
from Indonesia, Stainless Steel from Belgium and CTL Plate from Italy are
not applicable because we did not reach an analysis as to whether Urenco
Ltd. was equityworthy in this investigation.

Comment 5: EIB Loans

In the Preliminary Determinations, the Department determined that BNFL's
retention of four EIB loans constituted a government assumption of debt.
We treated the benefit attributable to UCL under this program as a non-
recurring subsidy equal to the principal payments made by BNFL after the
merger. 

Respondents argue that neither UCL nor Urenco Ltd. received any benefit
from BNFL's retention and repayment of the EIB loans. Specifically,
respondents maintain that the four loans were made to BNFL for the purpose
of assisting the development of the gas centrifuge enrichment plant at
Capenhurst. That plant, argue the respondents, was developed by the
predecessor of UCL, BNFL Enrichment Operations UK Ltd. ("Operations"),
which was funded entirely by internal loans from BNFL/E (renamed INFL in
April 1991), a wholly-owned subsidiary of BNFL. Respondents explain that
since neither UCL nor Operations was a party to the four EIB loans, the
EIB loan funds were to be forwarded to UCL in exchange for loan stock of
UCL issued to BNFL/E, which was repaid. Respondents maintain, and the
Department verified, that the EIB loans were never on UCL's books.

Respondents argue that UCL could not have received any benefit from
BNFL's retention of the EIB loans because in 1992, UCL repaid to INFL the
outstanding loan underlying the loan stock, except for the write-off of
16.2 million, and, accordingly, UCL fully discharged any obligation to
BNFL related to the EIB loans. Because BNFL received fair value for its
interests in UCL in connection with the merger, respondents argue, its
retention of the loans could not constitute a countervailable subsidy.

Additionally, respondents argue that the EIB loans could not have been
transferred, as the loans contain no provision for transfer and assumption
of the debt by a third party. Respondents state that the EIB requires that
any and all loans it makes be guaranteed. Respondents argue that the UKG's
guarantee of these loans could not have been transferred, even if the
loans themselves had been transferable. They point out that, as verified
by the Department, the sole authority for the UKG loan guarantees is the
Nuclear Industry Finance Act (NIFA) of 1977, which authorizes such
guarantees only for BNFL and The Radiochemical Centre Limited. Respondents
also assert that the UKG has no statutory power to guarantee loans to
Urenco. As further evidence, respondents refer to a presentation BNFL made
to the UKG regarding the merger, in which BNFL explains that existing
loans were to BNFL and could not be transferred because there were no
powers for the government guarantee to apply to loans made to the Urenco
Group.

Moreover, respondents maintain that even if the loans could have been
transferred, neither UCL nor Urenco Ltd. received any benefit from their
retention by BNFL. Respondents argue that the instant cases differs
significantly from the Final Affirmative Countervailing Duty
Determination: Stainless Steel Sheet and Strip in Coils from Italy, 64 FR
30624 at 30628 (June 8, 1999) (Stainless Steel from Italy) in which the
Department determined that the assumption or retention of debt is a
countervailable subsidy. Namely, respondents argue that if the Urenco
Group had assumed these loans, the consideration paid to INFL would have
been reduced by an amount equal to the assumed indebtedness to the EIB.
Respondents further argue that the terms of the merger, including the cash
payouts to the shareholders, were commercial, negotiated on an arm's-
length basis, and BNFL received fair value for UCL. In addition,
respondents maintain that the UKG did not play a role in the decisions
leading up to nor in negotiating the merger. Furthermore, respondents
state that for the merger, the borrower received from Urenco more than
enough cash to repay the loans to the EIB, which it did. For these
reasons, respondents conclude that no Urenco party received any benefit
from BNFL's retention of the EIB loans.

Respondents also argue that in its Preliminary Determinations
calculations of the benefits from the retention of the EIB loans, the
Department inadvertently used the wrong exchange rate. Respondents argue
that the exchange rates used to convert the currencies of the loans (DM,
DFL and Yen) into pounds sterling were actually the U.S. dollar rates.
Respondents urge the Department to correct this alleged error should it
continue to find this program countervailable.

Petitioners state that the Department correctly determined that the EIB
loan liabilities retained by BNFL constitute a countervailable subsidy
that confers a benefit during the POI. Petitioners argue that the evidence
demonstrates that the loans were transferrable, as long as the parties
were willing to bear the transaction costs. Moreover, petitioners argue
that if the NIFA did in fact prevent the transfer of the EIB loan
obligation, it simply meant that the UKG had no choice under UK law but to
transfer the enrichment assets free of their associated EIB debt
obligation. In addition, petitioners contend that any payments made on the
EIB loans by BNFL, prior to the merger, were also subsidies by BNFL to its
subsidiary, BNFL/E. They argue that such payments amount to BNFL funding
enrichment projects that benefitted BNFL/E, and, in essence, the
enrichment operations received the benefit of the EIB borrowing at no cost.

Furthermore, petitioners counter respondents' claim that to the extent
that the Urenco Group benefitted from BNFL's retention of the EIB loan
obligations, the Urenco Group paid for that benefit by repaying loan stock
that attributed to the EIB loans. Petitioners argue that there is no
evidence linking the EIB loans to the loan stock issued by UCL to BNFL/E.
Moreover, petitioners argue that even if the loan stock did reflect BNFL's
transfer to UCL of the proceeds of the EIB loans, it does not necessarily
follow that Urenco did not benefit from BNFL's retention of the loans.
Petitioners point out that the Department has often determined that the
transfer of assets without the accompanying debt is a subsidy, regardless
of the proceeds received by the government in the transaction. They
maintain that because UCL had outstanding liabilities and transferred its
enrichment assets to the Urenco Group without the accompanying
liabilities, the transaction conferred a countervailable benefit to the
Urenco Group.

Petitioners further argue that the Stainless Steel from Italy case
remains applicable in the instant case because the Department's practice
does not depend on whether the transaction at issue occurred at arm's
length or not. Instead, petitioners argue, the Department's practice is
not to reduce the benefit by the amounts received by the government in the
sale.

Furthermore, petitioners discredit respondents' argument that if Urenco
had assumed the EIB loans, the consideration paid by Urenco to BNFL in
1993 would have been reduced by an amount equal to the assumed
indebtedness to the EIB. Petitioners urge the Department not to base its
determination on what would have happened but instead on what did happen,
which they claim constitutes debt forgiveness. In addition, petitioners
rebut respondents' claim that the EIB loans were not transferrable,
arguing that the decision not to transfer the loans was cost-driven rather
than legally-driven.

Department's Position: We have reexamined our decision in the Preliminary
Determinations and, as explained below, now agree with respondents that
the Department should not countervail the EIB loans that remained on
BNFL's books.

As explained in the Preliminary Determinations, in preparation for the
1993 merger, BNFL changed the name of its subsidiary BNFL Enrichment Ltd.
to UCL, and transferred to UCL the relevant portion of the Capenhurst site
(the buildings and enrichment equipment related to the enrichment
business), which included the buildings that were constructed with the EIB
financing. See 66 FR at 24335. In the Preliminary Determinations, we found
that because the UKG-owned BNFL transferred the enrichment operations
without also transferring the EIB liabilities, the retention of the
liabilities conferred a countervailable benefit upon the Urenco Group, the
recipient of the enrichment operations, in the form of debt forgiveness.
Id.

However, information collected at verification has led us to alter this
finding. At verification, we learned that although the EIB loan agreements
specified that their purpose was for the construction of the enrichment
facilities at Capenhurst, BNFL was the entity that actually received and
repaid the funds from the EIB. See UCL Verification Exhibit 15, which
contains the source documents detailing BNFL's repayment of the EIB loans.
The funds then made their way to the Capenhurst enrichment facilities
through BNFL's subsidiary BNFL/E in the form of loan stock issued by the
Capenhurst enrichment facilities to BNFL/E. During verification we
compared the amount of total loan stock carried on the books of the
enrichment facilities at Capenhurst at the time of the merger to the
amount of cash that BNFL/E received in return for transferring the
enrichment facilities at Capenhurst to the Urenco Group. (23) The
information collected at verification shows that the amount of cash BNFL/E
(a.k.a. INFL) received in the merger is more than the amount of loan stock
carried on the books of the Capenhurst enrichment facilities at the time
of the merger. See UCL Verification Exhibits 15 and 16. Based on this
information, we find that the EIB loans outstanding at the time of the
merger were effectively repaid.

Regarding petitioners' citations to Stainless Steel from Italy, we agree
with respondents that the facts of this investigation are distinct from
those of the Italian proceeding. In Stainless Steel from Italy, the
Government of Italy (GOI) placed the viable assets of ILVA, its government-
owned steel company, into AST and ILP. The GOI then proceeded to privatize
AST and ILP. Meanwhile, it created ILVA Residua, or ILVA Residual, to
serve as a shell-company that housed the liabilities which remained with
the GOI. See 64 FR 30628. In Stainless Steel from Italy, the liabilities
retained by ILVA Residual were never repaid by AST or ILP. Id. Rather,
they were completely absorbed by ILVA Residual, a company wholly-owned by
the GOI. Id. In contrast, in the instant investigation, BNFL/E, later
renamed INFL, was repaid for the funds it provided to the enrichment
facilities at Capenhurst. Thus, the fact that BNFL/E was repaid sets the
instant investigation apart from Stainless Steel from Italy.

Regarding petitioners' assertion that there must be a link between the
EIB loans and the loan stock issued by UCL to BNFL/E (a.k.a. INFL), we
disagree. As explained above, BNFL/E funded the enrichment facilities
through loan stock. At verification, we confirmed that the funds provided
to BNFL/E during the merger were large enough to cover the remaining
balance of loan stock. Furthermore, we confirmed that the balance of the
loan stock that was repaid was larger than the amount of outstanding EIB
loans that were retained by BNFL. We find that based on these facts, there
is a reasonable basis to conclude that BNFL's retention of the EIB loans
did not confer a countervailable benefit in the form of debt forgiveness.

Regarding respondents' argument that the Department used incorrect
exchange rates when calculating the benefit under this program in the
Preliminary Determinations, we note that because we have found this
program to be not countervailable, this point is moot.

Comment 6: Regional Development Grants

In the Preliminary Determinations, the Department found that although
this program met the requirements for specificity and provision of a
financial contribution, based on the 12-year AUL used in the Preliminary
Determinations, no benefits were received under this program during the
POI. 

Petitioners argue that the Department should determine that regional
development grants (RDGs) were received in 1985/86 based upon statements
by UCL that the last year it was eligible to receive grants under the
program was 1985/86 and upon eligibility determinations made by the UKG in
prior years. Petitioners also argue that if the Department finds that the
allocation period is 20 years, the RDG program will be found to confer a
benefit during the POI and should therefore be countervailed. Further,
petitioners remind us that the Department has previously found the RDG
program countervailable.

Respondents counter that the RDGs did not provide a benefit to UCL during
the POI and that the benefit stream expired before 1999. Respondents
maintain that 1985/86 was the last financial year in which BNFL received
any funds under the RDG program.

Department's Position: As discussed in the Allocation Period section
above, we are using an AUL of 10 years, based on the Urenco Group's
consolidated financial statements, for purposes of allocated all non-
recurring subsidies in this final determination. Therefore, any subsidies
received before the year 1990 fall outside of the POI. Thus, for the
purposes of this final determination, we continue to find that the RDG
program did not confer a benefit during the POI.

Comment 7: Centrifuge Development Grant (CDG)

Petitioners alleged that BNFL/E received a grant of 47.8 million from
the UKG to fund the development and construction of a gas centrifuge
project. In the Preliminary Determinations, the Department found that all
but 300,000 of the original grant was repaid by UCL. If countervailed,
the remaining 300,000 would be expensed in the year of receipt, 1987.
Therefore, we preliminarily determined that no benefits were provided
under this program during the POI.

Petitioners assert that BNFL, not BNFL/E, repaid the grant, which they
argue was paid almost entirely to BNFL/E for enrichment-related
activities. Petitioners argue that the issue is whether the actual
recipient of the grant assistance, i.e., the enrichment operations
originally in BNFL/E and then transferred to Urenco, repaid the
assistance. Petitioners maintain that the UKG effectively forgave the
repayment obligation because BNFL repaid the grant. Petitioners further
assert that when BNFL repaid the grant in a lump sum, it used money from
sources other than the enrichment operations of BNFL, thus subsidizing the
enrichment operations at BNFL/E, which were later transferred to Urenco.
For these reasons, petitioners conclude that the UKG's failure to require
such repayment by the recipient constitutes a countervailable subsidy.

Moreover, petitioners argue that there is no evidence that the lump-sum
repayment in 1987 adequately compensated the UKG. Petitioners state that,
absent such evidence, the Department should rely on the facts available
and find that a subsidy exists in the amount of the CDG grant. Finally,
petitioners assert that the alleged forgiveness of the grant obligation in
1987 confers a benefit in the POI, if an AUL of 20 years is applied.
Petitioners maintain that BNFL continues to charge a portion of the grant
payment against profit, and, therefore, the Department should assume that
BNFL/E is benefitting in that it does not have to incur this cost.

Respondents counter that, as the Department preliminarily determined and
subsequently verified, the grant was repaid fully in 1987. In addition,
respondents argue that it is irrelevant whether BNFL or BNFL/E repaid the
grant, as the two are essentially the same. Moreover, respondents point
out that BNFL was the original recipient of the grant. Additionally,
respondents argue that although BNFL made the lump-sum repayment to the
UKG, BNFL recovered that amount from BNFL/E through the inter-company
current accounts maintained between the two. Respondents assert that
BNFL/E's 1986/87 balance sheet and accompanying notes 6 and 10 demonstrate
that BNFL debited BNFL/E for the 47.5 million payment. Respondents point
out that note 10 indicates a large reduction in the amount owed to BNFL by
BNFL/E, confirming that BNFL/E had settled this debt with BNFL.

Respondents also counter petitioners' allegation that the UKG was not
adequately compensated. Respondents state that the UKG and BNFL negotiated
an arm's length settlement of the UKG's contingent claim for an amount
virtually equal to the amount of the grant. Moreover, respondents contend
that the use of facts available would be wholly unwarranted and
impermissible, as they fully cooperated in all aspects of the instant
investigation and provided all documents asked for by the Department. 

Additionally, respondents rebut petitioners' contention that BNFL's 1993
write-off of an intangible asset representing the remaining amortization
of the repayment constitutes a subsidy. Respondents explain that in order
to amortize this payment over a number of years, it was charged against
profit at an annual rate of 2.8 million. Respondents counter that the
26.8 million petitioners claim is countervailable represented the amount
that had not been charged against profit by the date of the merger.
Respondents argue that this amount had no value to Uranit and UCN and
provided no benefit to UCL.

Department's Position: We agree with respondents. Record evidence
indicates that the CDG was repaid to the UKG. Source documents included in
UCL's March 22, 2001 questionnaire response, which include the original
agreement between the UKG and BNFL, indicate that BNFL was the original
recipient of the centrifuge development grant (see Tab 18). In addition,
we confirmed at verification that BNFL made a lump-sum repayment of the
grant, less 300,000, in February 1987 (see UKG Verification Report at 6
and UKG Verification Exhibit 2). 

Furthermore, record evidence indicates BNFL recovered its 47.5 million
repayment from BNFL/E. Notes 6 and 10 of BNFL/E's 1986/1987 balance sheet
show that BNFL debited BNFL/E 47.5 million for the CDG repayment. See
BNFL/E's 1986/1987 Financial Statements which are included in Exhibit 81
of the December 7, 2000 petition. Note 10 from BNFL/E's 1987/1988 balance
sheet indicates that funds owed to BNFL in that year were reduced by
approximately 44 million pounds, thus indicating a substantial repayment
to BNFL in that year. See BNFL/E's 1987/1988 Financial Statements which
are included in Exhibit 82 of the December 7, 2000 petition. Moreover,
even if BNFL/E had failed to compensate BNFL for CDG repayment, the date
of receipt of any subsidy attributable to BNFL/E would be 1987. Because we
have calculated an AUL of 10 years, such a subsidy would be fully expensed
prior to the POI. Therefore, for the purposes of this final determination,
we continue to find that the centrifuge development grant program does not
confer a benefit during the POI.

Comment 8: Subordinated Shareholder Loan Provided to Urenco Ltd. by INFL
and UCN

In the Preliminary Determinations, the Department found that the
shareholder loans provided to Urenco Ltd. by INFL and UCN were made on a
commercial basis and are not countervailable. The Department also
determined that the shareholder loan made by Uranit, a privately-owned
company in Germany, to Urenco Ltd. constitutes a comparable commercial
loan to use as the benchmark. 

Petitioners note that these loans are subordinated to all other creditors
and have no fixed repayment date. Petitioners assert that although these
loans have certain equity-like characteristics, such as the lack of any
set repayment terms, the loans also carry repayment obligations and a set
schedule of interest payments. Petitioners state that whether the
Department treats this program as a loan or equity, it should be found
countervailable. 

Petitioners argue that the subordinated shareholder loans bestowed
countervailable benefits as they were provided by UNL and BNFL, both
wholly-owned government entities, on terms no commercial lender would have
agreed to. Specifically, petitioners maintain that the loans were provided
an interest rates below the commercial rate for long-term loans in 1993.
In addition, petitioners assert that the interest rate obtained by Urenco
was less than the 8.5 percent rate simultaneously given to the Louisiana
Energy Services (LES) consortium, as financing for the operation of a
centrifuge enrichment enterprise. (24) Petitioners suggest that since one-
third of UCN's loan was denominated in pounds sterling and was lent to
Urenco Ltd., a UK entity, the Department should compare the interest rate
paid to commercial rates available in the UK during 1993. 

Moreover, petitioners state that indefinite subordination of the loans, a
condition they argue no commercial lender would agree to, allowed the
Urenco Group a principal repayment moratorium and is not consistent with
the granting of a low interest rate. Petitioners maintain that since the
time the subordinated loans were granted, the Urenco Group has continued
to accrue new debt while extending the repayment period indefinitely.
Petitioners also point to the fact that the Urenco Group only made a
single principal repayment in 1995 as further evidence of non-commercial
loan activity. 

Furthermore, petitioners assert that the loan made by Uranit does not
constitute a comparable commercial benchmark because Uranit was not a
commercial lender, but was a shareholder of Urenco Ltd., and did not
solicit the loan on the commercial market. Petitioners maintain that the
use of the Uranit loan as a benchmark loan is inconsistent with the
Department's application of section 351.505(a)(2)(ii). Petitioners add
that the Department has never used a loan from a related party or an
entity that is not a commercial bank as a benchmark, as the Department did
in the Preliminary Determinations. Petitioners maintain that Uranit's
financing is not sufficient evidence that a commercial lender would have
provide financing on similar terms. Petitioners argue that Uranit,
although a private company, should not be considered the same as a lender
providing a loan at commercial market rates. As evidence, they cite to the
Preliminary Determinations of Certain Hot-Rolled Carbon Steel Flat
Products from Thailand, 66 FR 20251, 20258 (April 20, 2001) (HRC from
Thailand), where the Department determined that the interest rate provided
by a private creditor should not be used as a benchmark interest rate
because the loans were provided as part of the companies' restructuring
packages, which included government financial contributions and,
therefore, should not be viewed as commercial market loans. Petitioners
cite to the Preamble of the Department's Regulations, where the Department
states that, "where a firm receives a financing package including loans
from both commercial banks and from the government, we intend to examine
the package closely to determine whether the commercial bank loans should
in fact be viewed as 'commercial' for benchmark purposes" (see 63 FR at
65363-64). Petitioners also claim that the Final Affirmative
Countervailing Duty Determination: Certain Hot-Rolled Carbon Steel Flat
Products from South Africa, 66 FR 50412 (October 3, 2001) (HRC from South
Africa) further supports their contention that Uranit's loan cannot serve
as a viable benchmark.

Moreover, petitioners assert that Uranit's decision to contribute its
enrichment assets to the Urenco Group was influenced by the GOG's
subsidization. Therefore, petitioners maintain that the loan made by
Uranit does not represent an appropriate commercial benchmark for the
actions of the government investor or as a commercial benchmark for the
government financing.

Respondents counter that petitioners have ignored the record with respect
to the interest rate, stating that the Department verified that every five
years the interest payments were readjusted to match the market rate. In
this way, respondents argue, the interest rate was based on external
benchmarks and was verified to match the current market rates. Moreover,
respondents counter petitioners' argument that the interest rate obtained
by the LES consortium for financing the operation of a centrifuge
enrichment facility constitutes evidence that the Urenco Group expected a
higher rate would have been required by commercial lenders. First,
respondents argue that petitioners citation to the LES loan is not
appropriate because the source and currency of the LES loan was never
determined. Also, respondents claim that LES is not comparable to the
Urenco Group's situation. Respondents assert that the LES enterprise was
substantially more speculative than the Urenco Group's existing
operations. Therefore, respondents conclude that it is logical that the
LES enterprise would require a higher interest rate than the interest rate
for the subordinated shareholder loan.

With respect to subordination of the loan, respondents argue that
subordinated shareholder loans of indefinite duration are a common
commercial practice in Europe. In addition, respondents assert that the
loan was repayable on request. 

With respect to using the Uranit loan as a benchmark, respondents argue
that although most benchmark loans are provided by commercial lending
institutions, there is nothing in the Department's regulations impeding
consideration of a shareholder loan. Respondents also argue that under the
Department's regulations, the borrower is not required to solicit the loan
from the commercial market, only be able to obtain a comparable commercial
loan on the market. Moreover, respondents argue that the UKG and the GON
were not involved in the financing and that the decision to extend the
shareholder loans was a commercial matter determined by the parties to the
merger and not the home country governments of those parties. In addition,
respondents argue that Uranit received no government support, direction,
or influence, and it was motivated entirely by commercial, profit seeking
objectives. Respondents also note that UNL provided information in its
submissions demonstrating that it had received comparable terms on bank
loans during the same period and in the same currency. These loans,
according to respondents, demonstrate that this loan was not made on more
favorable terms than other comparable commercial loans. Furthermore,
respondents rebut the allegation made by petitioners that the Uranit loan
was subsidized by the GOG. Respondents argue that the GOG was not
subsidizing the Urenco Group through Uranit. Respondents conclude that
without government ownership or subsidization, there is no basis to
challenge Uranit's status in terms of providing a commercial benchmark. 

Department's Position: As noted above, petitioners make three main
arguments against using Uranit's shareholder loan as a benchmark to
compare UCL and UNL's shareholder loan: (1) it was not commercial, as it
is not from a commercial lending institution; (2) it was part of a
financial package which includes government entities; and (3) it was given
in connection with GOG subsidization. 

Section 351.505(a)(2)(ii) of the CVD regulations states that "In
selecting a 'commercial' loan, the Secretary normally will use a loan
taken out by the firm from a commercial lending institution or a debt
instrument issued by the firm in a commercial market." (Emphasis added).
Section 351.505(a)(1) of the CVD regulations, states that a benefit exists
to the extent that the amount a firm pays on the government-provided loan
is less than the amount the firm would pay on a comparable commercial loan
that the firm could actually obtain on the market. 

Regarding petitioners first argument that Uranit's shareholder loan is
not an appropriate benchmark because it is not commercial, the Department
disagrees. While it is likely that Uranit, as a shareholder, may have had
a greater nexus to the lender than most commercial lending institutions,
the Department finds sufficient evidence on the record to find that the
Uranit shareholder loan is commercial enough in nature to meet the
requirements of a benchmark under 19 C.F.R. 351.505. Specifically, the
Department verified that the interest charged on Uranit's shareholder loan
was ". . . based on a survey of commercial banks." See UCL Verification
Report at 19. Furthermore, information provided by UCL and UNL indicates
that they obtained loans from commercial banks at interest rates that were
lower than those offered on the shareholder loan. (25) 

See, e.g., Attachments 23 and 24 of UNL's March 22, 2001 questionnaire
response. As the interest rate charged for Uranit's shareholder loan was
based on a survey of commercial banks, and UCL and UNL were able to obtain
commercial loans at rates lower than what Uranit provided, the Department
finds that Uranit's shareholder loan is an appropriate commercial
benchmark. 

Concerning petitioners' claim that HRC from South Africa, in which the
Department chose not to use a credit from a private supplier as a
benchmark loan, supports their contention that Uranit cannot be used as a
benchmark, we disagree. In HRC from South Africa, the Department rejected
the use of the supplier credit because it determined that the loan in
question was effectively a short-term loan and, therefore, could not be
used as evidence of the firm's ability to obtain commercial long-term
financing as specified under 19 C.F.R. 351.505(a)(4)(i). Thus, the facts
of the instant investigation are distinct from the facts encountered in
HRC from South Africa and thus, inapplicable to the instant investigation. 

With respect to petitioners second argument that Uranit's shareholder
loan is not an appropriate benchmark because it was given as part of a
financial package which included loans from the UKG and the GON, the
Department disagrees. As stated in the Preamble to the CVD Regulations in
"Selection of Benchmark Loans and Interest Rates,"

     . . . where a firm receives a financing package including loans 
     from both commercial banks and from the government, we intend to
     examine the package closely to determine whether the commercial 
     bank loans should in fact be viewed as commercial for benchmark 
     purposes. In particular, we will look to whether there are any 
     special features of the package that would lead the commercial 
     lender to offer lower, more favorable terms that would be offered 
     absent the government/commercial bank package.

See 63 FR at 65362. At verification, we reviewed the terms of the
shareholder loan that was issued by INFL, UCN, and Uranit in order to
determine whether there was any feature of Uranit's participation in the
shareholder loan that would render its portion of the loan inappropriate
for use as a benchmark. During verification, we confirmed that all three
shareholders offered the same loan terms and that the interest rate on the
shareholder loans was based on a survey of commercial banks. See page 19
of the UCL Verification Report. In addition, we confirmed that Urenco Ltd.
made timely interest payments to the shareholders pursuant to the terms of
the shareholder loan agreement. Id. In addition, the Department also
confirmed during verification that subordinated shareholder loan
arrangements are a common and cost saving method of funding wholly-owned
subsidiaries in the United Kingdom. (26)

In light of the fact that record evidence and information reviewed at
verification indicates that: (1) the government-owned shareholders offered
the same terms as Uranit, (2) the interest rate charged on the shareholder
loans was based on a survey of commercial banks, (3) the shareholders
charged an interest rate that was higher than those charged on comparable
loans from commercial banks to UCL and UNL, and (4) subordinated
shareholder loan arrangements are a common and cost saving method of
funding wholly-owned subsidiaries in the United Kingdom, we find that
there were no special features of the shareholder loans that lead Uranit
to offer a lower, more favorable interest rate that would be offered
absent the involvement of UKG and GON. Therefore, we continue to find that
the shareholder loan from Uranit constitutes a comparable commercial loan
to use as the benchmark. 

With respect to petitioners' citation to HRC from Thailand, in which they
claim that the Department determined that the interest rate provided by a
private creditor should not be used as a benchmark interest rate because
the loans were provided as part of the companies' restructuring packages,
we disagree. We note that HRC from Thailand was a Preliminary
Determination. In the final determination of HRC from Thailand, the
decision to countervail the debt restructuring at issue in that
investigation was reversed, and, thus, the Department never reached a
final determination regarding whether interest rates provided by private
creditors during a restructuring could serve as viable commercial
benchmarks. See, e.g., Comment 20: Benefit from Restructured Loans from
Private Creditors and Comment 21: Benefit from Private Creditors' Loans
and Equity Infusions of the September 21, 2001, Issues and Decision
Memorandum that accompanied the Final Affirmative Countervailing Duty
Determination: Certain Hot-Rolled Carbon Steel Flat Products from
Thailand, 66 FR 50410 (October 3, 2001). Therefore, petitioners' reference
to this case is not applicable.

The Department also disagrees with petitioners' third argument that
Uranit's shareholder loan is not an appropriate benchmark because of the
possible influence of GOG subsidization. As noted above, Uranit made the
loan to Urenco at a rate higher than what UCL and UNL received on other
commercial loans. Moreover, as discussed above, the Department verified
that the shareholder loan was a relatively common debt instrument.
Therefore, the Department concludes that the record evidence does not
support petitioners' supposition that Uranit made the loan to Urenco in
connection with GOG subsidization.

We also disagree with petitioners' contention that the interest rates for
BNFL and LES should be used as the benchmark interest rate when
determining whether a benefit was provided by the shareholder loans. We
note that 19 C.F.R. 351.505(a)(3)(i) states that in selecting a comparable
commercial loan that the recipient could actually obtain on the market,
the Department will rely on the actual experience of the firm in question
in obtaining comparable commercial loans for both short-term and long-term
loans. Regarding the interest rate for BNFL that is cited by petitioners,
this rate pertains to a weighted-average rate derived from the financial
records of the BNFL Group PLC, not the records of Urenco Ltd. Similarly,
regarding the interest rate obtained by LES, we note that LES is a
consortium, an entity that includes Urenco Ltd. as well as other
companies. Thus, neither the BNFL Group pLC benchmark interest rate nor
the rate for the LES consortium represent an appropriate benchmark for
Urenco Ltd.

For the reasons discussed above, the Department finds that the Uranit
shareholder loan continues to be an appropriate benchmark under 19 CFR
351.505. Record evidence and information collected at verification
indicates that the terms offered by Uranit were substantially the same as
those offered by the other two government-owned shareholders. See page 19
of the UCL Verification Report; and Tab G-17 of the March 22, 2001
questionnaire response for UCL and UNL. As the INFL and UCN loans were
made on substantially the same terms as the benchmark loan, the Department
finds that these loans did not provide a countervailable benefit.

Comment 9: Loan Stock Debt Forgiveness

In the Preliminary Determinations, the Department found that this program
was not countervailable as there was no evidence on the record indicating
that the assets sold to the Urenco Group were sold for less than adequate
remuneration.

Petitioners assert that the write off of 16.2 million constitutes debt
forgiveness and should be countervailed, as BNFL failed to transfer this
liability from BNFL/E to the Urenco Group. Petitioners argue that this
16.2 million should be considered a loan, and as a lender to BNFL, the
UKG had no reason to agree to write off any portion of its outstanding
loan. Petitioners also argue that to the extent that the full amount of
the loan was not repaid, BNFL conferred a benefit on BNFL/E and thereby on
Urenco. 

Petitioners further argue that in the 1993 merger, BNFL reduced the
amount of the loan stock balance, which petitioners assert resulted in a
countervailable subsidy. Petitioners maintain that through this reduction,
BNFL lowered the amount of the outstanding debt it was owed by UCL without
receiving anything in return. Therefore, petitioners argue, the Department
should determine that the UKG, through BNFL, forgave this amount.

Respondents counter that the Department correctly found in its
Preliminary Determinations that the 16.2 million represents the
difference between the total sum owed to BNFL in the books of UCL on the
merger date and the agreed merger valuation of UCL. Respondents argue
that, as the Department verified, the 16.2 million was not debt
forgiveness, but simply represented the difference between BNFL's book
value of the net assets disposed of and the proceeds received representing
the actual value of the assets. Respondents conclude that there is no
evidence to suggest that UCL's assets were sold for less than adequate
remuneration and the 16.2 million was simply a loss on disposal of the
assets for BNFL, which provided no benefit to Urenco.

Department's Position: We agree with respondents. During verification, we
examined the Urenco Group's audited financial statements, which indicated
that the shortfall of 16.2 million was the result of the book value of
the enrichment assets being less than the valuation of the enrichment
assets as established by the parties prior to the merger (see UCL
Verification Exhibit 16). We note that book value, which is the value at
which an asset is carried on a balance sheet and is at any time cost minus
accumulated depreciation, will, by definition, be different than market
value. Thus, the mere fact that the book value differs from the market
value does not, on its face, indicate that a subsidy has been conferred. 

Because no new information or evidence has been presented since the
Preliminary Determinations to change our ruling that there is no evidence
on the record to indicate that these assets were sold for less than
adequate remuneration, we continue to determine that this program is not
countervailable.

Comment 10: Regional Investment Premiums (IPR) 

Petitioners assert that the Department properly found the four IPR grants
to be regionally specific under 771(5A)(D)(iv) of the Act, as grants under
this program are based on a company being located in a specific region.
Petitioners also agree with the Department's finding in the Preliminary
Determinations that this program provided a financial contribution to UCN
from the GON under 771(5) of the Act. Petitioners, however, disagree with
the 12 year AUL period that the Department used in calculating the benefit
for the Preliminary Determinations. See Comment 3 for further discussion.
Petitioners also assert that the Department should find that these grants
were responsible for technology occurring at a later date and are
therefore extraordinary. Petitioners argue that under section
351.524(d)(iv) of the CVD regulations the benefit stream should begin at a
date other than the date the subsidy was bestowed. See Comment 3.

Petitioners refute respondents' statement that the Department verified
the May 23, 2001 corrected information, because the UNL Verification
Report at 7 states that the Department confirmed the data supplied in the
March 23, 2001 response. Petitioners are unsure if the Department meant
March 22 or May 23. 

Respondents state that the Department should have calculated the benefit
to UNL from grants under the IPR program for the expansion of centrifuge
facilities based on UNL's revised data submitted on May 23, 2001, instead
of the data in UNL's March 22, 2001 questionnaire response. Respondents
maintain that the revised data shows that the grants that were received in
1992 and 1993 originated from the DFL 4.5 million grant approved in 1985.
Therefore, they maintain that the discount rate for 1985 should be used in
calculating the benefit. Respondents further state that the Department
should use a discount rate of 7.34 percent. In addition, respondents state
that the Department used an incorrect denominator in conducting the 0.5
percent test. 

Respondents also argue that the Department used an incorrect exchange
rate to convert the benefit to UNL in the POI. They argue this error
increased the ad valorem consortium wide rate. Respondents contend that
the Department should use the correct exchange rate in the final
determination.

Department's Position: The Department found this program to be specific
in the Preliminary Determinations, 66 FR at 24335, and continues to do so
for the final determination. UNL received the grant on December 31, 1985
and fully disbursed the amounts in 1992 and 1993. In the Preliminary
Determinations, the Department incorrectly applied an amount received in
1983 as being disbursed in 1992 and an amount used in 1985 as being
disbursed in 1993. As stated in 19 CFR 351. 504(b) the Department, "will
consider a benefit as having been received on the date on which the firm
received the grant." In this case, the year of receipt is 1985 and not
1983; therefore, the correct year for performing the 0.5 percent test and
for calculating the benefit should be 1985. The Department verified the
data from the May 23, 2001 response that corrected the amount disbursed in
1992 and 1993, and, therefore, we will use this data in the benefit
calculation. The Department used the 10-year AUL to calculate the benefit
conferred during the POI, based on the consolidated financial statements
of Urenco Ltd. As the Department concluded in Comment 3: Average Useful
Life, the "extraordinary circumstance" provision of the CVD Regulations is
irrelevant here.

Comment 11: Loan Forgiveness

Petitioners argue that the GON, through UCN provided a subsidy to Urenco
when UCN, transferred its enrichment assets to the Urenco Group while
failing to transfer the related enrichment- loan obligations. Petitioners
disagree with the Department's Preliminary Determinations that this
program was not used. See 66 FR at 24338. They state that this program was
used and that evidence on the record prior to the Preliminary
Determinations supports this claim. Petitioners also cite to UNL's
verification report as confirming that some of UCN's loan obligations were
not transferred to Urenco Ltd. Petitioners assert that in the final
determination the Department should find this program countervailable as
debt forgiveness. They recommend treating this program as the EIB loans
were treated in the Preliminary Determinations. The Department found that
the EIB loans obtained for BNFL's enrichment operations constituted debt
forgiveness, and therefore, provided a countervailable subsidy. See 66 FR
at 24,335, also See Comment 5: EIB Loans.

Petitioners further maintain that repayment of the loans to the GON out
of the proceeds from the merger is irrelevant. Urenco Ltd. received a
benefit when it did not have to pay back the GON loan which was used to
improve the assets which were transferred. Petitioners cite to CTL Plate
from Italy where (old) ILVA had outstanding debt to creditors, when the
government transferred (old) ILVA's assets but did not transfer all of
(old) ILVA's liabilities. The Department held that it is the benefit to
the recipient and not the cost to the government that is countervailable.
Petitioners claim that the facts in this case are similar to those in CTL
Plate from Italy and that the Department should apply this decision to the
current investigation and find the repayment irrelevant and find for the
final determination that this program is countervailable. Petitioners also
dispute UNL's explanation that the transfer of the debt obligation to the
Urenco Group would have reduced the cash amount of proceeds to UCN for the
merger rather than having UCN pay off the debt with the proceeds.
Petitioners further contend that the Department should base its decision
on what actually happened; UCN retained the loan obligations that were
tied to the enrichment assets transferred to Urenco. 

Respondents agree with the Department's preliminary position that this
program was not used. Respondents disagree with petitioners claim that the
GON through UCN failed to transfer five loans to UNL and thus conferred a
benefit to UNL. Respondents state that these loan were all repaid by UCN
by January 1994 with the proceeds from the merger, except for one which
was repaid in accordance with the terms of the loan. They argue that if
UCN had transferred the loan obligations to UNL the proceeds to UCN would
have been reduced by the amount needed to offset the loan obligation;
therefore, the end result would be the same. 

Respondents disagree with petitioners' use and characterization of CTL
Plate from Italy. Respondents argue that the GOI moved debt from (old)
ILVA to ILVA Residua, and then forgave this debt. Then (old) ILVA's assets
were moved into ILP and AST, which were sold to private-sector buyers.
They argue that the Department found that the proceeds of the sale of ILP
did not remove all of the subsidies involved in the debt forgiveness.
Respondents also argue that ILP received the benefit when it was first
incorporated without the debt, not when it was sold. In this case, the
respondents argue that the fact pattern is different from CTL Plate from
Italy. In the current investigation, UNL did not exist before the merger,
and ; simultaneously, when it came into existence and received the
enrichment assets, UCN received cash from Urenco Ltd. to pay off the
outstanding loans.

Department's Position: We Department disagree with petitioners'
contention that we should find this program was used and countervailable
in the final determination. We continue to find that no loans were
forgiven during the 1993 merger. Specifically, the Department verified
UNL's submissions which report all UNL loans were repaid either during or
after the 1993 merger. See October 18, 2001 Verification Report for Urenco
Netherlands B.V. in the Countervailing Duty Investigation of Low Enriched
Uranium from the Netherlands at page 8; See Urenco's April 23, 2001
Supplemental Questionnaire Response at 19-22; 23-24.

Concerning petitioners' claim that this case follows CTL Plate from
Italy, in which the Department found that it is the benefit to the
recipient and not the cost to the government that is countervailable (64
FR 73244), we disagree. In CTL Plate from Italy, the Department determined
that the retention of liabilities by (old) ILVA, which should have been
transferred to the company which was created, constitutes a financial
contribution in accordance with 771(5)(D)(i) of the Act. In this
investigation, UCN paid off liabilities tied to assets transferred to UNL
during the time of the merger with proceeds from the merger. Thus, the
facts in this case distinguish it from the facts in CTL Plate from Italy,
as no debt obligations were forgiven.

Comment 12: 1981 Equity Conversion

Petitioners disagree with the Department's preliminary finding that this
program does not confer a benefit. However, they agree with the
Department's finding that the 1981 Equity Conversion program is specific
to UCN under 771(5)(D)(i) of the Act, and provided a financial
contribution under 771(5)(D)(i) of the Act, as no objective study of the
company had been prepared prior to the GON's 1981 equity conversion as
required under 19 CFR 351.707(a)(4)(ii). Petitioners also purport that UCN
was unequityworthy, because at the time that the GON was increasing its
equity interest, UCN's private investors were refusing to acquire
additional equity interest. Petitioners note that the private investors
had not made any new equity investments in UCN since the company was
incorporated in 1969. 

Petitioners argue that the Department should use a 20-year AUL in the
final determination. Petitioners claim that by using a 20-year AUL, the
Department would find that the 1981 equity conversion confers a benefit
and provides a countervailable subsidy. See Comment 3: Average Useful
Life. Petitioners also maintain that the Department should find that any
financial contributions granted to UCN should fall under the extraordinary
circumstance regulation, and therefore the benefit stream should begin in
1985 when the German plant began operation using the TC-11 centrifuge. See
Comment 3: Average Useful Life.

Respondents agree with the Department's finding that this program does
not confer a benefit. Respondents maintain that not investing is not the
same as the investors liquidating their investments. Respondents also note
that in the GON's response they gave reasons why the investor opted not to
further invest, and the reasons are distinct from petitioners' assertion
that UCN was financially unsound.

Respondents also disagree with the Department's conclusion that no
objective studies were prepared prior to the 1981 equity infusion from the
GON. Respondents point to numerous financial studies in which the risk and
return of UCN was reviewed. (See March 22, 2001 questionnaire response at
II-44 and Exhibit B4). Respondents also refer to the National Investment
Bank (NIB) study as an objective study which reviewed potential future
risks and returns for investing in UNC prior to the 1981 equity
conversion. The NIB often conducts independent studies for prospective
investment possibilities for the Dutch Government. The NIB attested to the
positive financial prospects of UCN at that time.

Respondents also stress that this was not to be a debt-to-equity
conversion. From 1974 until 1980 the funding was not meant to be in the
form of debt. Rather, the funding was informal capital, often described as
advanced payment or investment contributions; because of this
characterization UCN's financial records do not carry any repayment
obligation. Respondents argue that if the Department determines that this
funding was not informal capital, it should allocate the grant in the year
of receipt.

Department's Position: The Department disagrees with petitioners'
contention that this program conferred a benefit during the POI. As this
program was granted in 1981, any benefit conferred is not applicable to
UNL during the POI under the Department's AUL determination. See Comment
3: Average Useful Life.

Comment 13: Centrifuge Enrichment Technology Research and Development
Programs (R&D)

Petitioners disagree with the Department's finding that the R&D programs
did not confer a benefit. However, petitioners support the Department's
finding that the GON provided a financial contribution and that the
benefits were specific under section 771(5A) of the Act. See 66 FR at
24335. Petitioners disagree with the Department's AUL determination and
recommend altering the AUL so that a benefit under this program is
conferred to UNL from the GON during the POI. See Comment 2: Average
Useful Life. 

Respondents agree with the Department's finding that the R&D program did
not confer a benefit during the POI. 

Department's Position: In the Preliminary Determinations, the Department
found that the GON provided a financial contribution and that this program
was specific, but that it did not confer a benefit to UNL during the POI.
See 66 FR at 24335. As noted in the AUL section above, the Department is
applying a 10 year AUL; therefore, this program does not confer a benefit
during the POI. 

Comment 14: Sales Denominator of the Urenco Group

In the Preliminary Determinations, the Department estimated enrichment as
60 percent of the value of LEU. The Department then "increased the
reported sales value to include an estimated value for the natural uranium
component." This value of total sales (e.g., estimated equivalent LEU
value) served as the denominator used in the Department's ad valorem rate
calculations. See Preliminary Determinations 66 FR at 24333.

Petitioners claim that the Urenco sales invoices reviewed during
verification demonstrate the accuracy of this estimate. However,
petitioners argue that this adjustment may be inappropriate for the Urenco
companies. They contend that the sales adjustment was based on the premise
that the enrichment component of LEU, i.e., SWU, is imported into the
United States as part of LEU and, thus, applying a countervailing duty
margin based solely on the value of the SWU component could result in the
unfair application of duties to the "non-SWU" component of LEU.
Petitioners now claim that, based on information contained in Urenco's
August 27, 2001 questionnaire response, which was submitted after the
Department's Preliminary Determinations, this adjustment is not necessary
and, if applied, would seriously understate the countervailing duty margin
by unfairly inflating the sales denominator. (27)

In the Preliminary Determinations, the Department divided the Urenco
Group's countervailable benefits by the Urenco Group's total sales.
Petitioners argue that the Department should allocate many, if not all, of
the Urenco Group's subsidies over its sales of subject merchandise rather
than total sales. They argue that the Urenco Group's sales of non-subject
merchandise (i.e., print rollers, printing machines, feed, inter-company
sales, etc.), which they claim is significant, unfairly dilutes the net
subsidy rate as many, if not all, of the subsidies received by Urenco Ltd.
were provided for the development and production of the subject
merchandise and, therefore, must be considered "tied" to sales of this
merchandise pursuant to 19 CFR 351.525(b)(5). They further argue that the
Preamble to the CVD Regulations expressly states that the product-tying
rule is applicable to "subsidies provided to develop a specific model of a
product (or to modernize a particular production facility." See Preamble
to CVD Regulations at 63 FR at 65400. Petitioners claim that many of the
subsidies granted to the Urenco Group, such as the research and
development subsidies provided to UD by the GOG, clearly constitute
subsidies tied to the Urenco Group's uranium enrichment facilities.

Petitioners also claim that even the debt-forgiveness and equity
investments in this case are reasonably determined to be tied to the
subject merchandise because the loans that were forgiven were related to
the subject merchandise (e.g., the EIB loans that were provided for the
enrichment operations at Capenhurst).

Petitioners also argue that the Department should make any necessary
adjustments to Urenco Ltd.'s sales value to eliminate any value-added tax
included in Urenco Ltd.'s SWU sales value.

While respondents agree with petitioners that the 60/40 value ratio
between the value of the SWU and natural uranium component in LEU is
accurate, they contend that petitioners' comments regarding the
overinflation of the denominator are misguided. They argue that
implementing petitioners' recommendations would result in the Department
imposing a countervailing duty on the SWU component of LEU. Respondents
claim that petitioners have already conceded that the Department should
not calculate a subsidy on the SWU component of LEU. In support of this
contention, respondents cite to the December 7, 2001, petition filed with
the Department in which petitioners requested an adjustment to the
denominator with respect to the natural uranium component of the subject
merchandise. Respondents argue that the Department must continue to adjust
the Urenco Group's reported SWU sales values, which were verified by the
Department, to include an estimated value for the natural uranium
component of LEU.

Concerning Petitioners' comments on the information in the Urenco Group's
August 27, 2001 questionnaire response, respondents claim that the points
raised by petitioners, which are of a proprietary nature, are matters to
be addressed between the Urenco Group and the U.S. Customs Service and,
thus, are outside the scope of this investigation.

Respondents also disagree with petitioners' contention that the
Department should allocate the Urenco Group's subsidies using a sales of
subject merchandise denominator. Respondents argue that petitioners'
proposed allocation methodology is contradicted by the Department's
regulations and past practice. They point out that the CVD Regulations
state that the Department considers, ". . .certain subsidies, such as
payments for plant closures, equity infusions, debt forgiveness, and debt-
to-equity conversions, to be untied because they benefit all production."
See Preamble to the CVD Regulations at 63 FR at 65400. Thus, they assert
that any debt forgiveness subsidy or countervailable equity infusion must,
pursuant to the Department's regulations, use a total sales denominator.

Respondents further argue that even those alleged subsidies that were
tied to enrichment production should be allocated over the Urenco Group's
total sales. Respondents assert that subsidies must be attributed to all
sales for which costs are reduced (or revenues increased). In support of
this contention, they cite to the Department's Preamble of the CVD
Regulations which states, "a subsidy provided by a government for a
specific product is attributed to sales of that product for which the
subsidy was provided (and any downstream products produced from that
product), as it reduces the costs of a firm's sales of those products."
Id. They claim that in this investigation, the total sales of all of
Urenco Ltd.'s outputs, including uranium feed material, ancillary
enrichment services, etc., are properly included in the sales denominator,
because any subsidies benefitting Urenco in the POI reduced the cost of
producing these products.

Respondents also argue that in calculating the total sales denominator,
the Department should add the following items to the estimated equivalent
LEU value total sales denominator: SWU and feed in joint SWU/feed sales,
enriched uranium product sales, feed sales not sold with SWU, ancillary
enrichment services from UNL, UK and UCL, non-enrichment sales of
diversified products, and intragroup sales.

Regarding petitioners' comment that the Department should deduct any VAT
that was included in Urenco Ltd.'s reported sales value, respondents
contend that no VAT was included in the sales figures submitted to the
Department. Respondents assert that note 2 of Urenco Ltd.'s Annual report
for 1999 makes clear that turnover is stated net of VAT. 

Department's Position: Concerning petitioners' contention that the 60/40
ratio between the value of the SWU and natural uranium component in LEU is
no longer appropriate due to information contained in Urenco Ltd.'s August
27, 2001 questionnaire response, we agree, but not for the reasons put
forth by petitioners. As explained in the "Treatment of the Ad Valorem
Rate and Sales Denominator" section of this decision memorandum, we are no
longer using the 60/40 ration to calculate the ad valorem rate. Instead,
we are using company-specific data that contain the value of LEU that
entered Customs during the POI. As stated above, we find that this method
will ensure that we only collect duties equal to the amount of the
countervailable subsidy.

With respect to the product tying arguments presented by interested
parties, we refer to 19 CFR 351.525, which addresses the attribution of
subsidies to particular products. Paragraph (b)(5)(i), states that if a
subsidy is tied to the production or sale of particular products, the
Secretary will attribute the subsidy only to those products. Research
development subsidies benefitted centrifuge production and certain
production of other products (i.e., aerospace and print rollers). Pursuant
to 19 CFR 351.525(b)(i), we are attributing the research and development
subsidies provided to Urenco Ltd. over the company's sales of subject
merchandise as well as those products that were produced using the same
technology that came about as a result of the research and development
subsidies.

Regarding the countervailable enrichment capacity subsidies as well as
subsidies that were provided for uranium enrichment in general, we note
that the expansion and/or improvement of an existing production line does
not benefit other products outside of that production line. Therefore, we
find that these subsidies are tied to only those products that are
produced using the centrifuge enrichment process. Accordingly, we are
attributing such subsidies to sales from enrichment activities (i.e., SWU
sales and the implied feed value, SWU and feed in joint SWU/feed sales,
enriched uranium product sales, and feed sales). However, we are not
including in this denominator ancillary enrichment services; which,
according to respondents, relate to cylinders used for transport, (28) non-
enrichment sales of diversified products (i.e., aerospace and print roller
sales), and intragroup sales. With respect to intragroup sales, we note
our decision not to include these sales in the denominator is consistent
with our past practice. See, e.g., Certain Pasta From Italy: Final Results
of Second Countervailing Duty Administrative Review, 64 FR 44489, 44495
(August 16, 1999) and Ball Bearings and Parts Thereof From Thailand:
Preliminary Results of Countervailing Duty Administrative Review, 61 FR
34794, 34795 (July 3, 1996).

Concerning interested parties' comments regarding VAT, Urenco Ltd.'s
audited annual report for the POI indicates that its sales were reported
net of VAT. Therefore, based on the information Urenco Ltd.'s annual
report, we find that the sales it reported were exclusive of VAT.

Comment 15: Investment Allowance Act

Petitioners argue that the Department should countervail all of the
Investment Allowance Act grants provided from 1982 onward. They argue that
the Department should apply a 20-year allocation period and the
"extraordinary circumstances" provision.

Petitioners argue that over 90 percent of the total value of the grants
was provided under sections of the Investment Allowance Act pertaining to
specific regions in Germany. Petitioners also contend that it has not been
established on the record that grants provided under other sections are
generally available. They argue that, although GOG officials appear to
have stated at verification that under Section 4 grants were broadly
available, there is no evidence on the record regarding the actual
distribution of the grants provided under Section 4. Petitioners also
argue that, although Section 4a does not appear to be expressly limited to
specific regions in Germany, there is no evidence on the record regarding
the actual distribution of benefits provided under Section 4a. Therefore,
they argue that the Department should apply a "facts available" approach
to find grants provided under Section 4 and Section 4a to be specific and
countervailable.

In addition, petitioners argue that the Department should capture all of
the grants provided by applying a 20-year allocation period. They also
argue that the Department should apply the "extraordinary circumstances"
provision. They contend that the grants were provided for the
"commercialization and implementation of integrated centrifuge technology
resulting from a major research and development effort" and therefore
propose that the benefits received prior to 1985 should be allocated
beginning in 1985, when commercial production began. For these reasons,
Petitioners argue that the Department should determine that all of the
grants provided under the Investment Allowance Act are countervailable.

Respondents argue that, at verification, the GOG officials clearly
conveyed that grants provided under Section 4 of the Investment Allowance
Act were generally available to all companies engaged in research and
development activities and therefore are not countervailable. Respondents
also claim that, should the Department determine that the Urenco Group is
an international consortium, any countervailable grants received in 1989
and 1990 should be expensed in the years received because the values were
less than 0.5% of the total sales of the Urenco Group in those respective
years. Finally, respondents argue that, in the Preliminary Determinations,
the Department incorrectly calculated the program rate because it divided
the total benefit in the POI (expressed in DM) by the total sales in the
POI (expressed in Sterling Pounds). They argue the calculation should be
corrected using an exchange rate of 2.9719 DM per Sterling Pound.

Department's Position: The GOG made numerous grant disbursements to UD
and Uranit between 1982 and 1990. Over 90 percent of the total value of
these disbursements was provided under Section 1 of the Investment
Allowance Act. The rest was disbursed under Section 4, Section 4a, and
Section 4b. As explained above, the grant allocation period for this
investigation is 10 years. The vast majority of the Investment Allowance
Act funding was disbursed prior to 1990, which is the first year of the 10-
year allocation period. Because only funds disbursed in 1990 are
potentially allocable to the POI, we are only considering the
disbursements made in or after 1990 in our benefit calculation for this
program.

UD's financial statements show that the company received DM 426,077 in
Investment Allowance Act grants during 1990. At verification, the
Department found that this entire amount UD received in 1990 was provided
under Section 1 of the Investment Allowance Act. Because Section 1 grants
are limited to enterprises located in certain areas which are in need of
assistance, we determine that the program is specific and that the full
amount received in 1990 is countervailable.

With regard to the calculation of the benefit, we agree with respondents
and have corrected the calculations. For purposes of the 0.5 percent test,
we used as the denominator the combined total sales of the Urenco Group
companies in 1980, the year of approval.

Comment 16: City and State Government Development Grants

Petitioners argue that the Department should apply a 20-year allocation
period, and, in doing so, countervail the grants provided by the City of
Gronau and the State of North Rhine Westphalia for development of the
enrichment site in Gronau.

Petitioners argue that, under the longer allocation period, the
Department would capture DM 36.5 million in grants provided by the City of
Gronau between 1979 and 1987, to cover site development costs, land
acquisition costs, and the costs of an electrical transformer. They also
argue that the Department should capture DM 28.125 million in grants,
provided by the State of North Rhine Westphalia between 1982 and 1987,
under Section 5.12 of the "Guidelines for the granting of investment aid
for the improvement of the regional economic structure of the state of
North Rhine Westphalia." They argue that both of these programs are
regionally specific and that the "extraordinary circumstances" provision
should be applied and that the allocation period for the grant should
begin in 1985, the year commercial production began.

Respondents disagree with petitioners' position that 20 years is the
correct allocation period. They argue any benefits under these programs
cannot be allocated to the POI.

Department's Position: As explained above, we determine that the
allocation period for these investigations is 10 years. The record clearly
shows that the City of Gronau and the State of North Rhine Westphalia
provided the development grants over ten years prior to the POI. Even if
the Department were to determine that the grants are countervailable, no
benefits would be allocable to the POI. 

Comment 17: Centrifuge Enrichment Capacity Subsidies

Respondents argue that the Department should calculate the benefits from
centrifuge enrichment capacity subsidies using the standard grant
methodology rather than the methodology used in the Preliminary
Determinations. They explain that Uranit and the GOG agreed to settle
Uranit's contingent payment obligation for an amount substantially in
excess of its value, as determined by a well-known independent accounting
firm. They contend that the GOG's claim for contingent payment was for
more than its fair value, was at arm's length, and provided no benefit to
Uranit. Therefore, they contend that the allocation period should begin in
the year the grants were received, as provided in 19 CFR 351.504. 

Respondents argue that the Department should treat the enrichment
capacity funding provided between 1975 and 1983 by the GOG under the Risk
Sharing Agreement and the Profit Sharing Agreement (RSA and PSA) as grants
rather than forgiveness of debt because the GOG did not expect to recover
the funds it provided. They explain that, under the provisions of the RSA
and PSA, Uranit was required to make payments to the GOG only under
conditions of high profitability, over and above the funding of special
reserves. They also explain that the GOG's expectations of repayment were
low because Uranit was in start-up mode. Furthermore, they argue that the
GOG's potential for short-term return was limited by provisions of the RSA
and PSA under which Uranit had the option within the first five years to
satisfy potential repayment obligations by repaying just the original
amount of funding.

Respondents also contend the funding under this program should be treated
as grants at the time of the receipt of the funds because the likelihood
of the GOG recovering the value of the original disbursement over the long
term was dramatically reduced by the fact that, initially, the potential
amount of repayment was capped at double the original amount provided.
They argue that, due to the time value of money, a payment of double the
original amount within seven years would have had less value than the
original amount at the time of receipt. They further explain that, for
purposes of a settlement proposal made by Uranit in 1992, Uranit
calculated the nominal value of a payment stream the GOG could reasonably
expect for a ten-year period (paid in equal installments) to be DM 47
million. They state that, using an eight percent discount rate, the
present value of such a payment stream would have been DM 26.5 million.
They also explain that, in January 1993 Coopers & Lybrand Treuarbeit
Deutsche Revision (C&L/D), acting on behalf of the GOG, determined a
present value of such a payment stream to be DM 61.1 million.

Respondents explain that, in 1987, the GOG and Uranit renegotiated the
terms of the RSA and PSA because the GOG, which had not received any
repayments, wished to alter the repayment formula and be relieved of
having to make further grant disbursements. They explain that the 1987
Adjustment Agreement reduced the GOG's commitment to the DM 338.3 million
that it originally disbursed and revised the payment provision by
replacing the complex repayment formula with a straightforward obligation
to pay 50 percent of the profits after payment of a 15 percent dividend to
Uranit shareholders. Respondents argue that no grant was provided in 1987,
as this was only an arm's length renegotiation of the terms of the
RSA/PSA. They also argue that 19 CFR 351.505(d) is applicable only to
debt, and no debt was involved. Finally, they argue that, even if the
Department were to apply 19 CFR 351.505(d)(2), the most that could be
countervailed would be DM 338.3 million, the amount that had actually been
advanced to Uranit by the GOG. In its case brief, the GOG stated that
these changes were made "in light of lower build up of reactors than
expected in the FRG as well as the commercial successes already achieved
by the Urenco Group."

Respondents argue that the Adjustment Agreement stipulates that DM 370
million in contingent repayment obligations was the maximum amount of
potential repayment, not a fixed amount of repayment. Respondents argue
that, although the repayment terms were renegotiated and the repayment
amount was "capped" at DM 370 million, the probability that DM 370 million
would be repaid remained small.

Respondents further argue that the Department should not apply its
methodology for countervailing the forgiveness of debt because the GOG did
not make any loans to Uranit and Uranit's potential payment obligations
had none of the characteristics of debt. They argue that the repayment
obligations were never fixed, but wholly contingent on circumstances
unlikely to arise, leaving the GOG without a reasonable expectation of
repayment. They contend that, in Uranit's audited annual reports, these
contingent obligations are treated as extraordinary items, as they were
consistently placed "below the line" in a note regarding "other financial
obligations" and described as "dependent upon result." Respondents further
argue that, in contrast to loans, there is a presumption that grants are
countervailable per se at the time they are disbursed. They argue that the
contingent payment feature does not alter this presumption, because the
benefit of the grant is immediate, given a low expectation of repayment.
Thus, they argue that the funding provided under this program should be
treated as grants and benefits should calculated as based on the year of
receipt.

In reaching this conclusion, respondents emphasize that there is no
precedent for applying 19 CFR 351.508 on debt forgiveness to a situation
in which potential payment obligations associated with a grant program -
and contingent upon circumstances unlikely to arise - have been settled
through a payment to the grantor of a sum greater that the present value
of the potential stream of such payments. They argue that the cases cited
by the Department in the Preliminary Determinations are not relevant
because they do not involve contingent payment obligations attached to the
receipt of a grant. They argue that Uranit never owed DM 370 million; it
had a contingent obligation to pay up to that amount. They argue that,
since the last payment from the GOG was received in 1983, all benefits
from this funding (based on the 12-year allocation period used in the
Preliminary Determinations) were fully exhausted before the POI.

Respondents argue that deferring the date of countervailing contingent
grants until the contingency is removed would open a massive loophole in
the countervailing duty law. They contend that the Department would invite
governments to subsidize industries with grants that are not
countervailable until the contingent repayment obligation is removed. They
contend that, in LTV Steel Co. 21 CIT 838, 853 (1997), the Department
correctly distinguished a grant that was likely to be repaid as a
contingent liability and one that was not as a grant.

In any event, respondents also argue that the majority of the funds
provided under this program are not countervailable because the funds were
used to support centrifuge development projects in the Netherlands and the
United Kingdom, not Germany. Respondents contend that 95 percent of the DM
179.5 million provided to Uranit prior to 1980 was used for construction
of enrichment facilities in Almelo, the Netherlands and in Capenhurst, the
United Kingdom. They also argue that over 70 percent of the funds provided
by the GOG to Uranit from 1980 to 1983 were applied to the build-up to
2000 tonnes/year at the SWU plant in Amelo, the Netherlands. They argue
that, pursuant to 19 CFR 351.527, the provision regarding transnational
subsidies, the amounts used for projects in the Netherlands and the United
Kingdom are not countervailable. They then contend that, if the Department
does countervail these amounts, 19 CFR 351.524 requires the allocation of
the benefit over Uranit's share of the economic production of the Almelo
and Capenhurst plants.

The European Commission argues that the Department appears to have
imposed countervailing duties without demonstrating that there is a
benefit because it ignores the normal market benchmark. They argue that,
on the basis of a normal market benchmark, the "unpaid" portion of the
liability conferred no benefit because the commercial value of the
outstanding liability was repaid to the Government.

Petitioners argue that the Department should determine, as it did in the
Preliminary Determinations, that the termination of these repayment
obligations constituted debt forgiveness. They argue that this was a one-
time government action and should be countervailed as a grant received in
1993, the year in which the repayment obligation terminated. They argue
that 19 CFR 351.508 is applicable because, in 1987, it was reasonable to
expect repayment of the funds. They argue that a decision to apply 19 CFR
351.508 is supported by the General Issues Appendix, 58 FR 27239, in which
the Department stated "even if the instrument has no pre-set repayment
date, but a repayment obligation exists when the instrument is provided,
the instrument has characteristics more in line with loans than equity."

Petitioners argue that the Department should countervail the partial
forgiveness of repayment obligations stemming from the 1987 Adjustment
Agreement. They argue that, prior to the 1987 Adjustment Agreement, the
repayment obligation was equal to twice the amount it actually received
from the GOG, that is, DM 676.6 million. (29) They argue that the 1987
Adjustment Agreement represented a recognition that the contingency
attached to the obligation (profitability) would not occur. They argue
that the parties themselves determined in 1987 that the event upon which
repayment depended - UD's financial performance- was not a viable
contingency. They argue that the fact that the pre-1987 obligation was
contingent upon certain preconditions, such as UD's financial performance,
does not mean that the obligation was not binding.

In their rebuttal brief, petitioners argue that, in deciding whether the
forgiveness of funding in 1993 conferred a countervailable subsidy, the
issue is not whether the conditions upon repayment were likely to be met
in 1993. Rather, they argue that the relevant issues are whether the
conditions were unrealistic in 1987, when they were established under the
Adjustment Agreement, and whether the GOG and Uranit intended, at the time
the contingent repayments were agreed, that repayment would in fact occur.
They argue that, in 1993, the GOG's expectation as to the repayment is
irrelevant. They contend that, even if the GOG got more in the settlement
than it would have gotten as of 1993 in future repayment, this in no way
shows that there was no debt forgiveness. They contend that it merely
demonstrates that the contingent event, i.e., Uranit's profitability
levels, had become non-viable at some point between 1987 and 1993.

Petitioners further argue that the only evidence cited by respondents
regarding the likelihood of DM 370 million being repaid is based on
experiences subsequent to 1987 and thus respondents' claims are merely
unsupported assertions as to what the GOG and Uranit expected in 1987.
Petitioners contend that the object of the Agreement was to increase the
likelihood of repayments. They argue that the Agreement puts into place a
formal audit basis for yearly examination of Uranit's books to determine
repayment each year. In addition, they contend that, because SWU prices
had fallen, Uranit's prospects in 1987 were brighter than in 1993. Thus,
any evaluation of the prospects of repayment in 1993 were more pessimistic
than such an evaluation in 1987.

Petitioners also argue that respondents' position on this issue is
inconsistent with their equityworthiness arguments. They argue that
respondents' position that the Urenco Group was equityworthy in 1993 based
on its performance prior to 1993 is not consistent with their statements
that Uranit was unable to provide payments to the GOG based on its
profitability.

Petitioners take issue with respondents' assertions that the DM 370
million stipulated in the Adjustment Agreement represents a "cap" rather
than a fixed obligation. They argue that Article 2 of the Adjustment
Agreement states that there is an obligation "fixed to an amount of DM 370
million." They maintain that, given that the Adjustment Agreement was
specifically designed to make payment more likely, it is reasonable to
conclude that the GOG and Uranit contemplated that Uranit would repay DM
370 million.

Petitioners argue that the cases cited by the Department in the
Preliminary Determinations are relevant because they involved contingent
obligations that were expected to be paid. With regard to the LTV Steel
decision, petitioners contend that the Court of International Trade
affirmed the Department's determination that where repayment was required
on a portion of grants received, that portion was a contingent liability.
They claim that LTV Steel directs the Department to countervail such
contingent liabilities regardless of whether the repayment was certain.
Petitioners rebut respondents' contention that applying 19 CFR 351.508 in
this case opens a massive loophole in the countervailing duty law.
Petitioners argue that applying this section would be fully consistent
with the Department's past precedent and its past analysis of the
distinction between loans and grants in the GIA. They argue that, if the
case had been brought in 1988, respondents likely would have argued that
the past funding should not be countervailed as a grant, because it would
be repaid.

In response to the EC's argument regarding the use of a normal market
benchmark, petitioners argue that the EC's position implies that whether
the forgiveness of a debt with a contingent repayment provision is a
subsidy should be determined at the time the assistance is provided, as
opposed to the time the government recognized the contingency has not
occurred and forgives the debt. Petitioners argue that this position is
inconsistent with the EC's longstanding view that the subsidy nature of
contingent funding can only be evaluated once the contingency has occurred
or has failed to occur.


Department's Position: We determine that the enrichment capacity funding
provided by the GOG to Uranit is countervailable and provides a benefit
during the POI. Contrary to the arguments set forth by respondents and
petitioners, we did not apply the debt forgiveness provisions of 19 CFR
351.508 in the Preliminary Determinations. The facts of this case warrant
the application of 19 CFR 351.505(d)(2), the provision for treating a
liability as a grant if the Department determines that the event upon
which repayment depends is not a viable contingency. We, therefore,
determine that 19 CFR 351.505(d)(2) is applicable with regard to those
disbursements provided to Uranit by the GOG which had repayment
obligations that we determined were waived by the GOG. As explained above,
we determine that all countervailable subsidies in this investigation are
attributable to the Urenco Group, as we determine it is an international
consortium pursuant to section 701(d) of the Act. We further determine
that, for allocation purposes, the year in which the repayment obligation
was waived (via an agreement between Uranit and the GOG for a partial cash
payment) is the year of receipt of the subsidy and that, for purposes of
the 0.5 percent test, it is also the year of approval.

Pursuant to the RSA and PSA, the GOG provided Uranit (UD's predecessor)
DM 338.3 million between 1975 and 1983 for the construction and expansion
of enrichment facilities. Most of the funding provided prior to 1980 was
used for the construction of enrichment facilities in Almelo, in the
Netherlands, and Capenhurst, in the United Kingdom. Most of the funding
provided between 1980 and 1983 was applied to the build-up of a total of
2000 tonnes/year SWU capacity at the enrichment plant in Almelo and
Capenhurst, and some of it was applied toward the creation of the
enrichment facility in Gronau, Germany.

Under Article 2 (1) of the RSA, the GOG originally agreed to provide DM
360 million in enrichment capacity funding and perhaps up to DM 180
million to cover "additional costs caused by an increase investment
costs." Article 5 of the RSA contains the provisions regarding the use of
an operating surplus. It stipulates that any operating surplus will first
be used to (1) offset operating deficits, (2) provide a 15 percent return
to Uranit's shareholders, and (3) provide Uranit an interest payment of up
to 7 percent for years in which Uranit did not receive a 15 percent
return. Then, according to Article 5, any remaining operating surplus was
to be placed in a special reserve that, after 18 months, would be
dissolved. The funds from that reserve were then to be used for repaying
the GOG in accordance with the PSA.

According to Article 2(1) of the PSA, "{p}rofit-sharing by the Federal
Government shall end as soon as the sums paid over to the Federal
Government pursuant to Art. 1 (b) amount to twice its investment funds."
Article 2(2) of PSA also states that, "profit-sharing by the Federal
Government can be replaced by extraordinary repayment of the simple amount
of the investment funds in each case after five years from receipt of the
Federal Government's investment funds at the latest."

In 1987, by signing an agreement entitled Adjustment Agreement, the GOG
and Uranit renegotiated the new repayment and agreed that no further
enrichment capacity funding would be provided by the GOG. In addition,
Article 2 of the agreement states that the "{r}epayment under the Profit-
Sharing Agreement is fixed to an amount of DM 370 million" and that apart
from the investment grants specified in Art. 1 (the DM 338.3 million),
this sum contains the Federal Government's lump-sum share in the Dutch and
British aids, the book value of the GKT property and the lump-sum
compensation for possible income from licenses pursuant to Art. 5. Article
6 states that {t}he repayment pursuant to Art. 2 shall be effected from
the result of Uranit. Article 7 states that {p}rior to repayment pursuant
to Art. 6, the partners shall receive dividend of 15% on the nominal
capital of Uranit." Article 8 then stipulates that the "result remaining
after payment of the dividend pursuant to Article 7 shall be used in equal
shares for repayment to the Federal Government pursuant to Art. 2 and the
creation of a free reserve."

We do not agree with petitioners that Uranit was relieved of repayment
obligations of DM 676.6 million as the result of the negotiation of the
Adjustment Agreement. The record shows that, as of 1987, the GOG did not
receive any repayments under the terms provided under the RSA and PSA. As
noted by respondents, the terms of repayment originally agreed upon under
the RSA and the PSA were not as rigid as portrayed by petitioners. The RSA
and PSA do not stipulate that Uranit was obligated to repay double the
amount it received. Rather, the RSA set out circumstances which would
trigger repayment, a key difference. This fact is borne out by the
provisions of Article 5 of the RSA, which indicate that repayments were to
be made to the GOG only when the operating surplus was large enough to
first pay dividends to shareholders and interest to Uranit. 

We do agree with petitioners, however, that, as a result of the
Termination Agreement, Uranit benefitted from the forgiveness of debt. We
determine that the amount of the debt forgiveness is equal to the
difference in the amount of enrichment capacity subsidies that was agreed
to be repaid under the Adjustment Agreement and the amount that Uranit
actually repaid. We also agree with respondents that DM 31.7 million of
the DM 370 million repayment amount stipulated in the Adjustment Agreement
should not be included in the calculations. Under Article 2 of the
Adjustment Agreement, the GOG and Uranit agreed that the amount that
Uranit agreed to pay the GOG over time was "fixed" at DM 370 million.
There is also no question that the DM 31.7 million was agreed upon by the
two parties to be a portion the DM 370 million, as the sources of this DM
31.7 million are explicitly described in Article 2. This amount is not
related to the enrichment capacity funding provided by the GOG, as it was
agreed to represent the GOG's imputed share of grants provided by the GON
and UKG for construction at Almelo and Capenhurst.

As explained in the verification report, the auditor's notes of UD's 1988
through 1992 financial statements listed contingent liabilities of DM
364.6 million, i.e., DM 370 million (the amount overall agreed-upon in the
Adjustment Agreement) minus DM 5.6 million (the combined amount paid from
1987 to 1993). In the 1993 financial statements, the notes did not list
any contingent liabilities but did list the DM 101.124 million in actual
liabilities. Therefore, we first calculated the proportion of the DM
106.724 million in repayments that is attributable to the DM 338.3 million
in enrichment capacity subsidies. We then calculated the amount of
countervailable subsidy by subtracting DM 97.58 million (91.43%*DM 106.724
million) from DM 338.3 million to get DM 240.72 million. We then allocated
this amount over ten years, beginning in 1993, the year the GOG waived the
contingent liability.

Finally, we do not agree with respondents' contention that, pursuant to
19 CFR 351.527, the provision regarding transnational subsidies, amounts
used for projects in the Netherlands and the United Kingdom are not
countervailable. As explained above, we determine that the Urenco Group is
an international consortium and that all countervailable benefits in this
investigation are attributable to the Urenco Group as a whole.

Comment 18: Enrichment Technology R&D Subsidies

Petitioners argue that the enrichment technology R&D funding provided by
the GOG between 1980 and 1993 is countervailable. They argue that the
majority of the DM 244.3 million provided under this program was subject
to repayment obligations that were waived before being met. Petitioners
also argue that the allocation period for countervailing subsidies under
this program should be twenty years.

Petitioners argue that the funding provided by the GOG under the
Financing Agreement was subject to repayment within five years. They argue
that, because the repayment obligations expired and no repayments were
made, the Department should treat the funding provided under the Financing
Agreement as debt forgiveness with the allocation period beginning in the
fifth year after the original date of receipt. Petitioners also argue that
some of the funding provided under the BKFT appeared to qualify as
repayable under the BKFT program terms and therefore should be
countervailed in a manner consistent with the Department's treatment of
centrifuge enrichment technology grants provided under the Financing
Agreement.

With regard to funding provided for laser R&D under the BKFT and NKFT,
petitioners argue that it is not clear from the verification reports and
exhibits which grants have repayment obligations. They argue that, if the
Department determines that repayment obligations existed for any of the
assistance under BKFT and NKFT terms, then the Department should treat the
funding as grants received in 1993.

Petitioners also argue that the Department should determine that
assistance provided under the Operating Agreement provided a benefit
during the POI. Petitioners argue that the presence or absence of a
repayment obligation for these subsidies does not appear to be specified
under the terms of the Operating Agreement. They argue that the benefit
stream from the non-recurring research and development subsidies received
under the Operating Agreement, prior to 1985, was for the development and
commercialization of tripartite enrichment technology and therefore should
be deferred until 1985. 

Finally petitioners argue that the GOG provided significant R&D subsidies
prior to 1980. They contend that the Department should determine that
these subsidies provided a benefit in the POI. Petitioners argue that the
nature and amount of these subsidies are described in the Coopers &
Lybrand report of January 1993. They argue that large subsidies were
provided for Uranit's development and commercialization of an integrated
centrifuge technology that entered into commercial production in the 1980s
-- the TC-11 centrifuge. They argue that the Department should apply the
"extraordinary circumstances" provision and determine that the benefit
stream from these subsidies began when the Urenco Group's goal of
producing commercial enrichment from a centrifuge based on integrated
centrifuge technology was realized in 1985 with the TC-11 centrifuge.

Respondents argue that none of the enrichment technology and research
development subsidies were repayable and so the Department should treat
them as grants, not forgiven debts. They argue that the benefits from
these subsidies should be allocated beginning in the years they were
received. 

Respondents argue that the Operating Agreement, which provided the basis
for the construction and operation of the centrifuge enrichment plants and
associated R&D, does not provide for repayment under any circumstances.
They contend that the funding provided under the Operating Agreement was
not contingently repayable and therefore could only confer benefits
beginning in the year of receipt. Respondents explain that four of the
centrifuge R&D grants made under the Operating Agreement were also subject
to the general terms and conditions of the BKFT. They argue that,
according to the preliminary remark to the BKFT, the provisions for
repayment specified in the BKFT apply only if the GOG provided up to 50
percent of the total cost of the project, and, in such instances, section
25 of the BKFT is applicable. They argue that, under section 25, repayment
is required after three years in five installments, but only if the
project is designated as marketable. They argue that package ATT 9181/0
and package ATT 9182/1 exceeded the 50 percent threshold and therefore
were not repayable. They also contend that none of the projects for which
funding under the Operation Agreement was given the "marketable project"
designation.

Respondents argue that three grants made under the Financing Agreement
(ATT 9170, ATT 9190, and ATT 9191) should not be treated as forgiven debts
because the basis of the repayment contingency was not viable at the time
the disbursements were made. They explain that the Financing Agreement
contains a provision for repayment contingent on returns to Uranit from
the Enrichment Organization (EO) within a period of five years from
receipt of the grant. They explain that the EO consisted of Urenco Ltd.
and the operating enrichment companies and was created for the purpose of
integrating these companies into a single management unit. They explain
that the EO was replaced by the federal structure in 1974 and the
Financing Agreement was never amended to provided for repayment under this
new structure. They then argue that the contingent payment obligation
under Article 4(6) of the Financing Agreement became non-viable with the
termination of the EO. Next, respondents argue that, according to the
letter collected at verification as GOG Exhibit 7, the Financing Agreement
itself was terminated in 1983.

Respondents argue that, if the Department treats the Urenco Group as an
international consortium and applies 19 CFR 351.524(b)(2), its group sales
are the relevant sales for purposes of the 0.5 percent test. They argue
that grants ATT 9184/3, ATT 9274/2, and ATT 9275/3 should be expensed in
the years they were received because they were less than 0.5 percent of
the total sales of the Urenco Group in the respective years of approval. 

Respondents argue that the Department should not countervail any of the
R&D funding for laser technology as forgiven debt. Respondents explain
that none of the grants provided for laser R&D under the BKFT (ATT 2089/6,
ATT 2094A/0, ATT 2104A/3, and ATT 2118A/5) was repayable because each
accounted for the more than 50 percent of the project's cost and none of
the projects was designated as marketable. With respect to the four
provided under the NKFT (ATT 2229/1, ATT 2279A/2, ATT 2279/2, and ATT
2281/3), they argue grants under the NKFT are repayable only if stipulated
in the grant letter. They argue that none of the grant letters stipulate
repayment.

Respondents further argue that grants ATT 2229/1, ATT 2279A/2, and
ATT2281/3 should be expensed in the year of receipt because they were less
than 0.5 percent of the total sales in their respective years of approval.

In their rebuttal brief, petitioners take issue with respondents' claim
that the repayment obligations stipulated in the Financing Agreement were
rendered void by the replacement of the EO structure with the federal
structure and by a December 1983 letter from the GOG's Ministry of
Research and Technology. They argue that the verification reports and a
February 1984 letter from the Federal Ministry of Research and Technology
to a Gronau environmental group (provided as Exhibit 59 in the December 7,
2001 Petition) indicate that repayment obligations for the funding
provided under the Financing Agreement were not eliminated as early as
1983.

Petitioners next reiterate their argument that there is insufficient
evidence on the record to confirm that the funding provided under the
BKFT, NKFT, and the Operating Agreement was repayable or not. They
complain that UD has never provided complete copies of all of the relevant
grant letters, and that it is unclear from the information on the record
was marketable.

Petitioners argue that the 0.5 percent "expensing" test should be applied
based on the year when the debt forgiveness was effectively approved,
i.e., either when the 5-year repayment contingency lapsed or in 1993. In
addition, they contend that Urenco's total sales are not the proper
denominator for this test. The contend that the proper denominator is UD's
sales rather than the sales of the Urenco Group.

Department's Position: As explained above, the allocation period for this
investigation is 10 years. Therefore, only the disbursements which fall
within this period are potentially allocable to the POI. We disagree with
petitioners that the information on the record is insufficient for
determining the countervailability of some of the enrichment technology
R&D subsidies. At verification, we discussed with the GOG officials and
the Urenco Group officials the various types of funding provided under
this program and specifically the circumstances under which the funding
was repayable and the circumstances under which the funding was not
repayable. We discussed the various provisions of the Financing Agreement,
the Operating Agreement, the BKFT, and the NKFT, and these discussions are
summarized in the verification reports. We also collected a breakdown of
the disbursements made under this program as UD Verification Exhibit 1.
The breakdown lists whether each grant was repayable or not and whether it
was provided under the Financing Agreement, the Operating Agreement, the
BKFT, or the NKFT. 

After carefully reviewing the information on the record and thoroughly
considering the comments submitted by the parties, we determine that the
grant disbursements provided in 1985 under the Financing Agreement are
countervailable as waived contingent liabilities under section
351.505(d)(2). As explained in the UD verification report and the GOG
verification report, all grant disbursements provided under the Financing
Agreement were repayable within five years. See Attachment 6 of UD's
supplemental questionnaire response. Because disbursements made under the
Financing Agreement in 1985 were subject to repayment up until 1990, when
the repayment obligations lapsed, we determine that they are allocable to
the POI.

For purposes of the calculations, there was only one disbursement
provided under the Financing Agreement which is allocable to the POI. This
disbursement, in the amount of DM 9,742,059.75, was provided as part of
package ATT 9170/1. We reviewed the grant letter for this package at
verification. As explained in the UD Verification Report, the grant letter
clearly indicates that the disbursements of package 9170/1 were made
pursuant to the Financing Agreement.

As explained in the verification reports, the Operating Agreement does
not contain any repayment provisions, and, therefore, any grant
disbursement received under the Operating Agreement is allocable beginning
in the year of receipt. As UD Verification Exhibit 1 indicates, all of the
grants made under the Operation Agreement were disbursed in full as of
1984. Therefore, we determine that none of grants provided under the
Operating Agreement are allocable to the POI.

With respect to package ATT 9279/0, ATT9274/2, and ATT 9275/3, the Urenco
Group officials explained at verification that they did not have the
approval letters for these packages. Therefore, they were not able to
specify the agreement under which they were provided. However, in a chart
provided by the GOG official at verification (see GOG Verification Exhibit
6), these packages were listed as having been provided under the terms of
the Operating Agreement. Therefore, we also determine that all of the
disbursements made pursuant to the Operating Agreement were made in 1985
or before, which was well before the allocation period.

We determine the disbursements made under the BKFT75 were allocable
beginning in the year of receipt. Disbursements provided under the BKFT75
are repayable if the grant amount is less that 50 percent of the project's
total cost and the project is designated as being marketable (see section
25, Appendix 11 of the GOG's March 21, 2001, questionnaire response). At
verification, the Urenco Group officials explained that the BKFT75 grants
provided to Uranit were not subject to these conditions and therefore were
not repayable. This explanation is corroborated by the information
contained in GOG Verification Exhibit 6, which indicates that all of the
BKFT75 grants exceed the 50 percent threshold with respect to the cost of
the respective projects. On this basis, we determine that none of the
BKFT75 grants disbursements was repayable. Because all of the
disbursements pursuant to the BKFT75 were made well before the allocation
period, they are not allocable to the POI.

Finally, with regard to grants provided under the NKFT88, we determine
that the majority of the value of the grant disbursements provided
pursuant to the NKFT88 is allocable to the POI. The repayment provision
for NKFT88 grants are set forth in Section 16 of the NKFT88. Section 16.2
indicates that whether an NKFT88 grant is repayable is stipulated in the
grant approval letter. Because none of the NKFT88 grant letters stipulated
that repayment was required, the NKFT88 grant disbursements are allocable
beginning in the year they were received. As a result, NKFT88
disbursements received from 1990 through 1993 fall within the allocation
period.

Comment 19: Additional Subsidy Under the WIR Program

Petitioners argue that Uranit received subsidies from the GON, pointing
out that the UD Verification Report indicates that Uranit received a
combination of WIR and IPR benefits in 1990. They assert that IPR benefits
received by Uranit should be treated as countervailable subsidies tied to
the Urenco Group's investment in production assets in the Netherlands.
They argue that these benefits should be countervailed on the same basis
as the IPR benefits countervailed in the Netherlands.

Respondents argue that petitioners' comments on this matter are based on
a false premise. They argue that the amount mentioned in the UD
Verification Report consists of benefits provided under the WIR tax
program only. They argue that the narrative of the UD Verification Report
incorrectly states that Uranit received subsidies under both the IPR and
WIR programs. 

Respondents contend that information provided in UD's March 22, 2001
response to the Netherlands' questionnaire shows that the amount received
was solely attributable to the WIR program.



Department's Position: We agree with respondents that the UD Verification
Report incorrectly states that Uranit received both IPR and WIR grants in
1990. UD's March 22, 2001 questionnaire response to the Netherlands'
questionnaire indicates that Uranit only received benefits under the WIR
program in 1990. In addition, Exhibit 7 of the UD Verification Report
shows that Uranit received a grant from the GON in an amount that is equal
to the amount of WIR benefit listed in UD's March 22, 2001 response to the
Netherlands' questionnaire. Therefore, the amount at issue was funding
that Uranit received from the GON exclusively under the WIR program.

The WIR program offers tax benefits. Under 19 CFR 524(c)(1), benefits
from tax programs are recurring, and, thus, are expensed in the year of
receipt. Uranit last received benefits under this program in 1990.
Therefore, we determine that the benefits Uranit received under the WIR
program were expensed prior to the POI.

XII. Recommendation:


Based on our analysis of the comments received, we recommend adopting all
of the above positions and adjusting all related subsidy calculations
accordingly. If these recommendations are accepted, we will publish the
final determination of the investigation.



_________ _________

Agree Disagree





______________________

Faryar Shirzad

Assistant Secretary

for Import Administration

______________________

Date



______________________________________________________________________
footnotes:

1. The Ad Hoc Utilities Group (AHUG), although not an interested party
within the meaning of section 771(a) of the Act, submitted comments in
accordance with section 782(h) of the Act, which provides industrial
users/consumers an opportunity to comment. 

2. On or about September 28, 2001, and November 22, 2001, we received
letters from the EC regarding certain issues in these investigations. On
November 7, 2001, Grant Aldonas, Under-Secretary for International Trade,
replied to the first letter. We invited comments on these letters, which
we received on November 15, 2001, and November 29, 2001. We note that the
points raised in the letters as well as the comments regarding the letters
cover topics already addressed in interested parties' case and rebuttal
briefs. 

3. Respondents have argued that this merger constituted a "change in
ownership" under section 771(5)(F) of the Tariff Act of 1930 (the Act) as
amended by the Uruguay Round Agreements Act (URAA), effective January 1,
1995. However, in both the Netherlands and the UK, the assets at the
enrichment operations were directly owned by their respective governments
before the merger and indirectly after the merger. In the Preliminary
Determinations, we found that there was no change in ownership in 1993,
rather merely a merging and restructuring of assets by the three Urenco
Group partners, i.e., the GON, the UKG, and Uranit, the private German
shareholder of the Group, each of whom remained as owners in Urenco Ltd.
See 66 FR 24331. No new information, evidence of changed circumstances, or
comments from interested parties were subsequently presented since the
Preliminary Determinations to warrant any reconsideration of these
findings. 

4. The identity of the business interest is of a business proprietary
nature and, therefore, can only be discussed in general terms. 

5. We did not include data for 1993 in the AUL calculation because there
were only 4 months of depreciation data available for this year. 

6. For example, during verification, we learned that UD, unlike the other
two Urenco Group companies, depreciated its assets using the declining
balance method. See, e.g., page 6 of the UD Verification Report. For the
purposes of the Urenco Ltd. financial statements, all three companies
reported their AUL information on the same basis. 

7. Based on the methodology, the calculation was 9.27 years. This AUL
corresponds to assets depreciated over 10 separate fiscal years.
Therefore, the AUL is 10 years. 

8. The subsidy benefit allocable to the POI for each program originally
is calculated in the currency in which it was provided. In calculating the
program rate, we converted the value of the subsidy benefit from the
original currency to U.S. dollars. 

9. As discussed below, the total sales figure used in this equation has
been adjusted depending on whether the subsidy was tied to R&D or capacity
expansion sales. 

10. Because we have determined that the Urenco Group constitutes an
international consortium as defined by section 701(d) of the Act, the ad
valorem rate for this program is a function of sales made by the Urenco
Group.

11. We prorated the DM 106.724 million in repayments according to the
proportion of the DM 370 million that is attributable to the DM 338.3
million in enrichment capacity subsidies We then calculated the amount of
countervailable subsidy by subtracting DM 97.58 million (91.43%*DM 106.724
million) from DM 338.3 million to get DM 240.744 million. 

12. The Regional Government Provision of Industrial Site program is
specific under section 771(5A)(D)(i) of the Act because the program was
limited to one company. A financial contribution was also provided under
section 771(5)(D)(iii) of the Act. The Regional Development Grant program
is specific under section 771(5A)(D)(iv) of the Act because grants under
this program are issued to companies located in designated regions. A
financial contribution is also provided under section 771(5)(D)(i) of the
Act. 

13. The Centrifuge Enrichment Technology Research and Development Program
(R&D Program), funding given from 1969 through 1981, and the 1981 Equity
Conversion are specific under section 771(5A)(D)(i) of the Act because
these programs are limited to one company. The R&D program provided a
financial contribution under section 771(5)(D)(i) and the 1981 Equity
Conversion Program provided a financial contribution under section
771(5)(D)(i) of the Act because we determine that no objective studies of
the company had been prepared prior to the GON's 1981 equity infusion as
required under section 351.5079(a)(4)(ii) of the CVD Regulations. 

14. The Department found this program countervailable in Final
Affirmative Countervailing Duty Determination: Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products from the United Kingdom, 58 FR 6242, 6243
(January 27, 1993) (Lead and Bismuth).

15. In the Initiation Notice, we also initiated an investigation of the
1993 Debt Forgiveness of 16.2 million as a separate program. See 66 FR at
1087. According to information in UCL's questionnaire response, this loan
is the same loan that was involved in the Loan Stock Debt Forgiveness
program. 

16. The petitioners in this investigation are USEC, Inc. and its wholly-
owned subsidiary, United States Enrichment Corporation (collectively
"USEC"), and the Paper, Allied-Industrial, Chemical and Energy Workers
International Union, AFL-CIO, CLC, Local 5-550 and Local 5-689
(collectively "PACE") ("the petitioners"). 

17. The Treaty became effective in 1971. We note that prior to 1971, the
centrifuge enrichment R&D programs of the U.K., the Netherlands and
Germany were independent. The Governments of the United Kingdom, the
Netherlands, and Germany ("the Almelo governments") sought an organization
that would allow them to combine their individual centrifuge enrichment
technology development efforts, and, eventually, result in commercial
uranium enrichment production. 

18. Petitioners' argument on this matter describes business proprietary
information. Therefore, it can only be summarized in general terms. 

19. See Steel Products from Brazil, in which the Department stated that
it found no reason to overturn its preliminary finding that "problems
related to the companies' changes in ownership which resulted in changes
in investment patterns, asset revaluations, and in some cases, changed
amortization periods" made it appropriate to reject company-specific data
in favor of the CLARDS tables. See 64 FR at 38746. See also CTL Plate from
Italy in which the Department stated that, ". . .{i}t is clear from the
preamble to the CVD Regulations that, based on the Department's
experience, using a company-specific AUL in situations where there have
been major asset revaluations in connection with bankruptcy poses
significant problems." See 64 FR at 73261. 

20. See 64 FR at 73259 in which the Department found at verification that
the depreciation tables used by POSCO were based on Japanese depreciation
tables that dated back to the 1950s. Furthermore, the Department found
that, upon review of POSCO's asset ledgers, these depreciation tables had
no relation to the actual useful life of the company's assets. 

21. Details concerning the production data (i.e. failure rates and
production curves) are of a proprietary nature; thus, they can only be
described in general terms. 

22. Regarding the information cited by petitioners which they claim
should compel the Department to reject Urenco Ltd.'s AUL data (i.e., the
press reports, remarks made by Urenco scientists, statements made during
the Fairness Review, etc.), we do not find that this information is
sufficient to overturn our finding that the company-specific AUL data
submitted by Urenco Ltd. is based on a reasonable estimate of the actual
useful life of its assets. 

23. During the merger, BNFL/E changed its name to INFL. Thus, the entity
that received the repayment was named INFL. 

24. LES refers to a consortium of companies that included Urenco Ltd. 

25. These loans would have been considered as potentional benchmarks,
however, these loans had principal amounts that were considerably lower
than the principal amounts of BNFL's and UCN's shareholder loans. See the
Preamble to 19 CFR 351.505, 63 FR at 65363, which states that when
examining the characteristics that could factor into a decision of whether
a loan should be considered comparable to the government provided loan . .
. the amounts of principal might differ so greatly that the two loans
should not be compared.

26. Officials from Urenco Ltd. explained that the shareholder loan
arrangement was more advantageous to the company than the other available
option, which involved the shareholders taking the shareholder loan in the
form of additional shares. See, UCL Verification Report at 19. They
explained that the shareholder loan arrangement allowed Urenco Ltd. to
avoid the stamp tax, which is a tax on the issuance of shares. We note
that a letter from Nigel Macdonald, Partner, Ernst & Young, to D. Bryning,
Head of Finance, UCL, supports respondents' contention on this matter: 

     It is our experience as auditors in the United Kingdom that it 
     is normal commercial practice for wholly owned companies to be 
     capitalized using a combination of nominal share capital and 
     substantial loan notes. This structure minimizes the stamp duty 
     payable on issuance of share capital (stamp duty is not payable 
     on loan notes) and as a consequence is a far cheaper method of 
     financing. . . . Typically, loan notes from a parent company will 
     not have a defined term or schedule for repayment, features that 
     make them a particularly flexible way of financing wholly owned
    subsidiaries.

See Attachment 14 of UCL's March 22, 2001 questionnaire response. 

27. Petitioners' argument on this matter involves business proprietary
information, and, thus, can only be summarized in general terms. 

28. See line 21, page 46 of November 15, 2001 Hearing transcript. 

29. In their rebuttal brief, respondents take issue with petitioners'
argument that the difference between the contingent liability of DM 676.6
million under the RSA/PSA and the DM 370 million stipulated under the 1987
Adjustment Agreement (i.e., DM 306.6 million) should be treated as a
grant. They argue that the actual contingency under the RSA/PSA was DM
610.6 million. They argue that there was no doubling with regard to DM 48
million received in 1982 and DM 18 million received in 1993.