WORLD TRADE
ORGANIZATIONWT/DS212/1/Add.1
G/L/415/Add.1
G/SCM/D37/1/Add.1
6 February 2001
(01-0566)
Original:  English
UNITED STATES – COUNTERVAILING MEASURES CONCERNING
CERTAIN PRODUCTS FROM THE EUROPEAN COMMUNITIES
Request for Further Consultations by the European Communities
Addendum
The following communication, dated 1 February 2001, from the Permanent Delegation of the
European Commission to the Permanent Mission of the United States and to the Chairman of the
Dispute Settlement Body, is circulated in accordance with Article 4.4 of the DSU.
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The European Communities refers to the consultations held on 7-8 December 2000
concerning the change in ownership methodology applied by the United States Department of
Commerce ("DOC") in a number of countervailing measures as set out in the European Communities'request for consultations dated 27 November 2000 (WT/DS212/1, G/L/415, G/SCM/D37/1).  The
European Communities hereby request further consultations with the Government of the United States
of America.  The European Communities consider that the application by the US of a new
1 "change in
ownership" methodology ("the DOC's new change in owne rship methodology"), and the imposition of
countervailing duties based on it, are in breach of Articles 10, 14, 19 and 21 of the SCM Agreement,
for the same reasons as the previous methodology, since,  inter alia,  there is no proper determination
of a benefit to the producer of the goods under investigation, as required by Article 1.1(b) of the SCMAgreement.  This new methodology was set out in several remand determinations that resulted from
DOC's request for court remands following the deci sion of the US Court of Appeals for the Federal
Circuit in Delverde S.r.l. vs. United States, 202 F. 3d 1360 – Fed. Cir. 2000 ), inter alia,  Final Results
of Redetermination Pursuant to Court Remand, Acciai  Speciali Terni S.p.A. v. United States - Court
No. 99-06-00364 (December 19, 2000) ("the AST remand redetermination").  The methodology is,
the European Communities understand, based on § 771(5)(F) of the Tariff Act of 1930 (19 USC
§ 1167(5)(F)).
The European Communities wish to discuss, in particular, the definitive results of an
administrative review which led to the continued imposition of countervailing duties on imports ofGrain-Oriented Electrical Steel from Italy ("the GOES  case"), produced and exported by Acciai
Speciali Terni S.p.A. (AST) 
2, on 12 January 2001.  The US case number is C-475-812; (66 FR 2885
of 12 January 2001).  The rate of countervailing duty assigned by the US Department of Commerce
                                                     
1 Although the Communities, as a matter of convenience, use the term "new" to describe this
methodology, we note that it is remarkably similar to the methodology used by the DOC prior to its adoption ofthe "gamma" methodology in 1993.  See Paragraphs 9-11 of the EC's first submission to the panel in the UK
lead and bismuth case (WT/DS138/R).
2 ILVA S.p.A. (old, state-owned) was demerged on 31 October 1993. Two new companies were
created: ILVA Laminati Piani S.r.l. (ILP) and Acciai Speciali Terni S.r.l. (AST). In December 1994, AST wassold at arm's length for fair market value to KAI Italia S.r.l.WT/DS212/1/Add.1
G/L/415/Add.1
G/SCM/D37/1/Add.1
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("DOC") for AST was 14.25 % ad valorem 3.  DOC's final determination in this countervailing duty
case uses the DOC's new change in ownership methodology.
The above countervailing duty was determined on the basis of alleged subsidies which
derived from financial contributions made by the It alian Government to the state-owned Italian steel
industry prior to the fair market value privatization of AST in December 1994.  The DOC, in
conducting this investigation, has never properly examined whether these financial contributions
conferred a benefit to the privatized AST, the producer and exporter of the subject goods during the
investigation period (1998).  Instead, it simply presumed, on the basis of criteria set out in the AST
remand  redetermination referred to above, that the current producer of the subject merchandise and
the state-owned company which received the subsidies are the "same person".
Under the new change in ownership methodology, once this "same person" condition is
satisfied, the DOC assumes that 100% of pre-privatization subsidies automatically pass through to the
privatized firm. This approach continues to be based on the presumption that pre-privatisationfinancial contributions somehow live in assets, automatically travelling with them wherever they may
be sold, which is inconsistent with the conclusions of the WTO Appellate Body in " United States –
Imposition of Countervailing duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
Originating in the United Kingdom" (AB-2000-1) ("UK Lead and Bismuth") , adopted by the DSB on
7 June 2000. This finding lays down the conditions in which the DOC must find that a change ofownership eliminates any benefit to the private producer from past financial contributions to a state-
owned entity.
In the GOES  case, the DOC has never examined whether the privatized AST itself has
received a benefit. Under its new methodology, it has simply concluded that the privatized AST andthe state-owned firm are the "same person".  The UK Lead and Bismuth findings preclude this
approach, since they direct the DOC, in the case of a change of ownership, to re-examine the
existence of a benefit once payment of consideration has been made.  Furthermore, the evidence on
the record demonstrates that AST was privatized for fair market value.  The European Communities
therefore consider that DOC's failure to demonstrate that any benefit, and therefore any subsidy, was
conferred to the privatized AST from the previous financial contributions made by the Italian
Government to its state-owned steel industry, should have led to the immediate revocation of thecountervailing duty order imposed on the subject merchandise.
Without prejudice to the above, even if the privatization were not to have occurred for fair
market value, the European Communities submit that  the DOC has still erroneously calculated the
amount of any outstanding subsidy.  The DOC, in stead of assuming 100% pass through of previous
financial contributions and benefits to a state-owned producer, should have made its calculation on the
basis of Article 14(d) of the SCM Agreement i.e. on the basis of the amount by which the price paid
for the producer and exporter of the subject merchandise constituted "less than adequate
remuneration".
Given that DOC has stated that the its new change-in-ownership  methodology will apply to
all the outstanding cases involving a change of ownership, the European Communities request
consultations on the above methodology itself, together with the controlling statute, § 771(5)(F) of the
Tariff Act of 1930 (19 USC § 1677(5)(F)), as well as its specific applications in the GOES case.
                                                     
3 These consultations relate to the countervailing by the US of alleged financial contributions made
prior to AST's privatization such as (1) Equity infusions to TAS and ILVA;  (2) Debt forgiveness: 1988-90
Restructuring Plan;  (3) Debt forgiveness: 1993-94 Restructuring Plan;  (4) Pre-Privatization RetirementBenefits Under Law 451/94 for ILVA Residua.  These amount to at least 13.31 % of the 14.25% countervailingduty.WT/DS212/1/Add.1
G/L/415/Add.1
G/SCM/D37/1/Add.1
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This request is without prejudice to the issue of the countervailability of certain government
measures which have been subjected to countervailing duties by the DOC in the current case.
We look forward to receiving your reply to this request and to fixing a mutually acceptable
date for consultations.
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