Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Notices 41939

access to all privileged and business

proprietary information in our files,

provided the ITC confirms that it will

not disclose such information, either

publicly or under an administrative

protective order, without the written

consent of the Assistant Secretary for

Import Administration.

If our final determination is

affirmative, the ITC will make its final

determination within 45 days after the

Department makes its final

determination.

Public Comment

In accordance with 19 CFR 355.38, we

will hold a public hearing, if requested,

to afford interested parties an

opportunity to comment on this

preliminary determination. The hearing

will be held on September 22, 1997, at

the U.S. Department of Commerce,

Room 3708, 14th Street and

Constitution Avenue, N.W.,

Washington, D.C. 20230. Individuals

who wish to request a hearing must

submit a written request within 30 days

of the publication of this notice in the

Federal Register to the Assistant

Secretary for Import Administration,

U.S. Department of Commerce, Room

1874, 14th Street and Constitution

Avenue, N.W., Washington, DC 20230.

Parties should confirm by telephone the

time, date, and place of the hearing 48

hours before the scheduled time.

Requests for a public hearing should

contain: (1) The party’s name, address,

and telephone number; (2) the number

of participants; (3) the reason for

attending; and (4) a list of the issues to

be discussed. In addition, eight copies

of the business proprietary version and

three copies of the nonproprietary

version of the case briefs must be

submitted to the Assistant Secretary no

later than September 8, 1997. Eight

copies of the business proprietary

version and three copies of the

nonproprietary version of the rebuttal

briefs must be submitted to the

Assistant Secretary no later than

September 15, 1997. An interested party

may make an affirmative presentation

only on arguments included in that

party’s case or rebuttal briefs. Written

arguments should be submitted in

accordance with 19 CFR 355.38 and will

be considered if received within the

time limits specified above. Parties who

submit argument in this proceeding are

requested to submit with the argument

(1) a statement of the issue and (2) a

brief summary of the argument. If this

investigation proceeds normally, we

will make our final determination by

October 14, 1997.

This determination is published

pursuant to sections 703(f) and 777(i) of

the Act.

Date: July 28, 1997.

Jeffrey P. Bialos,

Acting Assistant Secretary for Import

Administration.

[FR Doc. 97–20490 Filed 8–1–97; 8:45 am]

BILLING CODE 3510–DS–P

DEPARTMENT OF COMMERCE

International Trade Administration

[C–307–814]

Preliminary Affirmative Countervailing

Duty Determination: Steel Wire Rod

From Venezuela

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: August 4, 1997.

FOR FURTHER INFORMATION CONTACT:

Christopher Cassel, Robert Copyak, or

Richard Herring, Office of CVD/AD

Enforcement VI, Import Administration,

U.S. Department of Commerce, Room

1874, 14th Street and Constitution

Avenue, N.W., Washington, D.C. 20230;

telephone (202) 482–2786.

Preliminary Determination

The Department preliminarily

determines that countervailable

subsidies are being provided to CVGSiderurgica del Orinoco (SIDOR), a

producer and exporter of steel wire rod

from Venezuela. For information on the

estimated countervailing duty rates,

please see the Suspension of

Liquidation section of this notice.

Case History

Since the publication of the notice of

initiation in the Federal Register (62 FR

13866, March 24, 1997), the following

events have occurred. On April 2, 1997,

we issued our initial countervailing

duty questionnaires concerning

petitioners’ allegations to the

Government of Venezuela (GOV) and

SIDOR. On May 2, 1997, we postponed

the preliminary determination of this

investigation until July 28, 1997 (62 FR

25172, May 8, 1997). We received

responses to our initial questionnaires

from the GOV and SIDOR on May 28,

1997. On June 18, 1997, we issued

supplemental questionnaires to the

parties. Responses to these

supplemental questionnaires were

submitted on July 3, 1997, from SIDOR

and on July 9, 1997, from the GOV.

Additional information was also

requested from SIDOR and the GOV on

July 15, 1997. On July 21, 1997, SIDOR

and the GOV submitted their response

to our July 15, 1997, request for

additional information. On July 25,

1997, we issued another supplemental

questionnaire to SIDOR and the GOV.

On June 17, 1997, we initiated an

examination of whether electricity was

provided to SIDOR for less than

adequate remuneration during the

period of investigation. See

Memorandum from The Team to Jeffrey

P. Bialos, dated June 17, 1997, Re:

Countervailing Duty Investigation of

Steel Wire Rod from Venezuela:

Initiation of New Subsidy Allegation,

which is in the public file of the Central

Records Unit, Room B–099 of the

Department of Commerce. Because of

the late date of this initiation, we are

still seeking additional information on

whether this program conferred a

countervailable subsidy on the

production/exportation of the subject

merchandise. Therefore, the

countervailability of this program will

be addressed in our final determination.

In addition, during our review of the

questionnaire responses, we discovered

that SIDOR may be receiving

countervailable subsidies under the

GOV’s Exporter Policy program (REFE).

However, additional information is still

being sought on this program.

Accordingly, the countervailability of

the REFE will be addressed in our final

determination.

Scope of Investigation

The products covered by this

investigation are certain hot-rolled

carbon steel and alloy steel products, in

coils, of approximately round cross

section, between 5.00 mm (0.20 inch)

and 19.0 mm (0.75 inch), inclusive, in

solid cross-sectional diameter.

Specifically excluded are steel products

possessing the above noted physical

characteristics and meeting the

Harmonized Tariff Schedule of the

United States (HTSUS) definitions for

(a) stainless steel; (b) tool steel; (c) high

nickel steel; (d) ball bearing steel; (e)

free machining steel that contains by

weight 0.03 percent or more of lead,

0.05 percent or more of bismuth, 0.08

percent or more of sulfur, more than 0.4

percent of phosphorus, more than 0.05

percent of selenium, and/or more than

0.01 percent of tellurium; or f) concrete

reinforcing bars and rods.

The following products are also

excluded from the scope of this

investigation:

Coiled products 5.50 mm or less in

true diameter with an average partial

decarburization per coil of no more than

70 microns in depth, no inclusions

greater than 20 microns, containing by

weight the following: carbon greater
41940 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Notices

than or equal to 0.68 percent; aluminum

less than or equal to 0.005 percent;

phosphorous plus sulfur less than or

equal to 0.040 percent; maximum

combined copper, nickel and chromium

content of 0.13 percent; and nitrogen

less than or equal to 0.006 percent. This

product is commonly referred to as

‘‘Tire Cord Wire Rod.’’

Coiled products 7.9 to 18 mm in

diameter, with a partial decarburization

of 75 microns or less in depth and

seams no more than 75 microns in

depth; containing 0.48 to 0.73 percent

carbon by weight. This product is

commonly referred to as ‘‘Valve Spring

Quality Wire Rod.’’

The products under investigation are

currently classifiable under subheadings

7213.91.3000, 7213.91.4500,

7213.91.6000, 7213.99.0030,

7213.99.0090, 7227.20.0000, and

7227.90.6050 of the HTSUS. Although

the HTSUS subheadings are provided

for convenience and customs purposes,

our written description of the scope of

this investigation is dispositive.

The Applicable Statute

Unless otherwise indicated, all

citations to the statute are references to

the provisions of the Tariff Act of 1930,

as amended by the Uruguay Round

Agreements Act effective January 1,

1995 (the ‘‘Act’’).

Injury Test

Because Venezuela is a ‘‘Subsidies

Agreement Country’’ within the

meaning of section 701(b) of the Act, the

ITC is required to determine whether

imports of steel wire rod from

Venezuela materially injure, or threaten

material injury to, a U.S. industry. On

April 30, 1997, the ITC published its

preliminary determination, finding that

there is a reasonable indication that an

industry in the United States is being

materially injured or threatened with

material injury by reason of imports

from Venezuela of the subject

merchandise (62 FR 23485).

Petitioners

The petition in this investigation was

filed by Connecticut Steel Corp., CoSteel Raritan, GS Industries, Inc.,

Keystone Steel & Wire Co., North Star

Steel Texas, Inc., and Northwestern

Steel and Wire (the petitioners), six U.S.

producers of wire rod.

Subsidies Valuation Information

Period of Investigation

The period for which we are

measuring subsidies (the ‘‘POI’’) is

calendar year 1996.

Allocation Period

In the past, the Department has relied

upon information from the U.S. Internal

Revenue Service on the industryspecific average useful life of assets in

determining the allocation period for

nonrecurring subsidies. See General

Issues Appendix (GIA), appended to

Final Countervailing Duty

Determination; Certain Steel Products

from Austria, 58 FR 37217, 37226 (July

9, 1993). However, in British Steel plc.

v. United States, 879 F. Supp. 1254 (CIT

1995) (British Steel), the U.S. Court of

International Trade (the Court) ruled

against this allocation methodology. In

accordance with the Court’s remand

order, the Department calculated a

company-specific allocation period for

nonrecurring subsidies based on the

average useful life (AUL) of nonrenewable physical assets. This remand

determination was affirmed by the Court

on June 4, 1996. British Steel, 929 F.

Supp. 426, 439 (CIT 1996).

In this investigation, the Department

has followed the Court’s decision in

British Steel. Therefore, for the purposes

of this preliminary determination, the

Department has calculated a companyspecific AUL. Based on information

provided by SIDOR regarding the

company’s depreciable assets, the

Department has preliminarily

determined that the appropriate

allocation period for SIDOR is 20 years.

Equityworthiness

In analyzing whether a company is

equityworthy, the Department considers

whether or not that company could have

attracted investment capital from a

reasonable, private investor in the year

of the government equity infusion based

on information available at that time. In

this regard, the Department has

consistently stated that a key factor for

a company in attracting investment

capital is its ability to generate a

reasonable return on investment within

a reasonable period of time.

In making an equityworthiness

determination, the Department

examines the following factors, among

others:

1. Current and past indicators of a

firm’s financial condition calculated

from that firm’s financial statements and

accounts;

2. Future financial prospects of the

firm including market studies, economic

forecasts, and projects or loan

appraisals;

3. Rates of return on equity in the

three years prior to the government

equity infusion;

4. Equity investment in the firm by

private investors; and

5. Prospects in the marketplace for the

product under consideration.

For a more detailed discussion of the

Department’s equityworthiness criteria,

see the GIA, 58 FR at 37244.

In this case, we initiated an

investigation of SIDOR’s

equityworthiness for the years 1977

through 1990 and for the year 1992. See

Memorandum from The Team to Jeffrey

P. Bialos, dated March 18, 1997, Re:

Initiation of Countervailing Duty

Investigation: Steel Wire Rod from

Venezuela (Initiation Memo), which is

in the public file of the Central Records

Unit, Room B–099 of the Department of

Commerce. In past investigations, the

Department preliminarily determined

that SIDOR was equityworthy in 1977,

and unequityworthy for the years 1978

through 1984. See Preliminary

Affirmative Countervailing Duty

Determination; Certain Steel Products

From Venezuela, 50 FR 11230 (March

20, 1985) (Steel Products from

Venezuela); and Preliminary Affirmative

Countervailing Duty Determination;

Carbon Steel Wire Rod From Venezuela,

50 FR 28234 (July 11, 1985) (1985 Wire

Rod from Venezuela). Moreover, the

Department initiated an investigation of

SIDOR’s equityworthiness for the period

1985 through 1990. See the Initiation

Memo and Final Affirmative

Countervailing Duty Determination:

Circular Welded Non-Alloy Pipe from

Venezuela, 57 FR 42964 (September 17,

1992) (Non-Alloy Pipe from Venezuela).

The petitioners alleged that SIDOR was

unequityworthy in 1977 and provided

an analysis of the company’s financial

information for the two years prior to

1977. Based on this information and the

fact that the 1977 equityworthy decision

was a preliminary finding, we initiated

an investigation of SIDOR’s

equityworthiness in 1977. See

Memorandum To Barbara E. Tillman,

dated March 18, 1997, Re: Initiation of

Creditworthy/Equityworthy Allegation

(Creditworthy/Equityworthy Memo),

which is in the public file of the Central

Records Unit, Room B–099 of the

Department of Commerce.

Based on our initiation, we requested

financial ratios from SIDOR for the

relevant years for each of the equity

infusions. However, in its questionnaire

response SIDOR provided financial

ratios only for 1989 through 1992,

stating that it could not access the data

that would lead to a reversal of the

unequityworthy finding for years prior

to 1990. Because SIDOR has not

provided any information in this

investigation that calls into question the

Department’s prior determinations that

the company was unequityworthy for

the years 1978 through 1990, we
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Notices 41941

preliminarily determine that the GOV

equity investments made in those years

were inconsistent with the usual

investment practice of private investors.

With respect to the 1977 equity

infusions, neither party has provided

any information beyond what the

Department examined in the prior

proceeding in which we found the

company to be equityworthy for that

year. Therefore, because no new

information has been submitted in this

proceeding to indicate that our prior

preliminary decision was incorrect, we

find that it is appropriate to follow that

earlier determination, and preliminarily

determine SIDOR to be equityworthy in

1977.

With respect to the 1992 debt to

equity conversion on which we

initiated, the agreement between SIDOR

and the GOV for this transaction was

signed on May 18, 1993, with the debt

conversion being made retroactive to

October 28, 1992. However, in the

questionnaire responses, the GOV stated

that the decision to convert 60 percent

of SIDOR’s debt into equity was made

in October 1991. Therefore, we consider

1991 to be the relevant year for purposes

of determining whether the conversion

of debt to equity was consistent with the

usual investment practices of private

investors. Respondents claim that this

conversion of SIDOR’s debt for equity

by the Ministry of Finance (Hacienda)

was consistent with the usual

investment practices of private

investors. SIDOR and the GOV indicate

that the company’s financial situation

was significantly improved by that time,

the result of a major restructuring

process begun in 1989 aimed at

improving profitability and

international competitiveness. Prior to

1992, SIDOR had reduced the number

and variety of products it produced by

10 percent, made new investments in

technology, lowered per unit costs by 20

percent in constant terms, decreased

personnel by 20 percent, and steadily

increased capacity utilization. SIDOR

claims that these pre-1992

improvements formed the basis for the

GOV’s decision in 1991 to convert 60

percent of SIDOR’s debt into equity.

According to the GOV, this transaction

was expected to complete the

turnaround of the company by

substantially increasing its cash flow

and profits necessary to support the

investment required for SIDOR’s

continued improvement.

Our analysis of SIDOR’s financial

information during the three years prior

to 1991 indicates that there was no

consistent trend during that period.

SIDOR showed small profits in 1988

and 1989, against a small loss in 1990.

While SIDOR’s return on equity also

turned negative in 1990, the company

experienced a positive return on equity

in 1988 and 1989. Moreover, in each of

these years, the operating margin of

profit was positive. Therefore, in light of

the steps taken by SIDOR to enhance its

competitiveness, and because the

company experienced a positive return

on equity for 1988 and 1989, we

preliminarily determine that SIDOR was

equityworthy in 1991. In reaching this

determination, we recognize that there

are significant issues which we must

continue to examine. Among these are

the effects of inflation on a company’s

financial picture, as well as the factors

affecting a reasonable investor’s

decision to invest in the company

during these years. Additional factors

that may affect potential investors

include liquidity issues and the ability

of the company to service its long-term

debt, especially in light of SIDOR’s debt

problems over these years. We will

continue to address these issues and

collect additional information during

the course of this proceeding.

In our review of SIDOR’s

questionnaire response, we found that

in 1993 and 1994, CVG transferred land

to SIDOR to cancel unpaid capital

subscriptions. Therefore, we analyzed

SIDOR’s financial performance for the

years 1990 through 1993 to determine

whether SIDOR was equityworthy in the

years 1993 and 1994. As stated above,

SIDOR experienced losses in 1990.

However, SIDOR’s financial

performance showed signs of

improvement after 1990—in 1991 and

1992 the company returned to

profitability, and the company’s

negative equity in 1990 turned positive

in 1991 and in 1992. Moreover, the

company’s cash flow to debt also

improved in these years, as did the

company’s current and quick ratios. In

light of SIDOR’s generally positive

financial performance over the 1990

through 1993 period, we preliminarily

determine that SIDOR was equityworthy

in 1993 and 1994.

Equity Methodology

In measuring the benefit from a

government equity infusion to an

unequityworthy company, the

Department compares the price paid by

the government for the equity to a

market benchmark, if such a benchmark

exists, i.e., the price of publicly traded

shares of the company’s stock or an

infusion by a private investor at the time

of the government’s infusion (the latter

may not always constitute a proper

benchmark based on the specific

circumstances in a particular case).

Where a market benchmark does not

exist, the Department has determined in

this investigation to continue to follow

the methodology described in the GIA,

58 FR at 37239. Following this

methodology, equity infusions made on

terms inconsistent with the usual

practice of a private investor are treated

as grants. Using the grant methodology

for equity infusions into an

unequityworthy company is based on

the premise that an unequityworthiness

finding by the Department is

tantamount to saying that the company

could not have attracted investment

capital from a reasonable investor in the

infusion year based on the available

information.

Creditworthiness

When the Department examines

whether a company is creditworthy, it is

essentially attempting to determine if

the company in question could obtain

commercial financing at commonly

available interest rates. If a company

receives comparable long-term financing

from commercial sources, that company

will normally be considered

creditworthy. In the absence of

comparable commercial borrowings, the

Department examines the following

factors, among others, to determine

whether or not a firm is creditworthy:

1. Current and past indicators of a

firm’s financial health calculated from

that firm’s financial statements and

accounts.

2. The firm’s recent past and present

ability to meet its costs and fixed

financial obligations with its cash flow.

3. Future financial prospects of the

firm including market studies, economic

forecasts, and projects or loan

appraisals.

For a more detailed discussion of the

Department’s creditworthiness criteria,

see, e.g., Final Affirmative

Countervailing Duty Determinations:

Certain Steel Products from France, 58

FR 37304 (July 9, 1993); and Final

Affirmative Countervailing Duty

Determinations: Certain Steel Products

from the United Kingdom, 58 FR 37393

(July 9, 1993).

Petitioners have alleged that SIDOR

was uncreditworthy in each of the years

the company received GOV equity

infusions, i.e., 1977 through 1992 (with

the exception of 1988). In Non-Alloy

Pipe from Venezuela, the Department

initiated an examination of SIDOR’s

creditworthiness for the years 1985

through 1990. For all other years, the

Department initiated an examination of

SIDOR’s creditworthiness based upon

an analysis of SIDOR’s cash flow and

financial ratios. See 57 FR at 42964, and

the Creditworthy/Equityworthy Memo.
41942 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Notices

As outlined above under the

‘‘Equityworthiness’’ section, for all the

years except 1989 through 1992, SIDOR

did not submit financial data beyond

what was examined in the initiation

stage, stating that such information was

inaccessible. Therefore, because SIDOR

has not provided any information that

rebuts the Department’s initiation

analysis, we preliminarily determine

that SIDOR was uncreditworthy in each

of the years for which we have

preliminarily determined SIDOR to be

unequityworthy, i.e., 1978 through

1990.

Discount Rates

For uncreditworthy companies, our

practice is to use as the discount rate the

highest long-term fixed interest rate

commonly available to firms in the

country plus an amount equal to 12

percent of the prime rate. See Final

Affirmative Countervailing Duty

Determination: Grain-Oriented

Electrical Steel From Italy, 59 FR 18357,

18358 (April 18, 1994). (GOES). SIDOR

did not provide company-specific longterm debt information because the

company has not received any long-term

loans in domestic currency since 1977.

However, in the countervailing duty

investigation of carbon steel products

from Venezuela, the Department used,

for benchmark purposes, data on longterm domestic corporate bond yields,

published in Morgan Guaranty Trust

Company’s World Financial Markets.

See Preliminary Affirmative

Countervailing Duty Determinations:

Certain Carbon Steel Products from

Venezuela, 54 FR 11227, 11229 (March

20, 1985). This data is available through

1987 and represents the highest longterm fixed interest rate for bolivar

financing we were able to locate. For the

period after 1987, the GOV explained

that the primary mechanism for

obtaining long-term domestic currency

financing in Venezuela has been

through short-term loans. Such a loan

would continually be rolled-over with a

new short-term interest rate applied

each year, thus becoming, in effect, a

long-term variable rate loan. We were

unable to locate any information on

long-term fixed interest rates in bolivars

for these years. Therefore, to calculate

the benefit from non-recurring

countervailable subsidies received by

SIDOR through 1987, we have used the

long-term corporate bond rates in

Venezuela as the discount rate,

published by Morgan Guaranty Trust

Company in World Financial Markets.

This conforms with our practice

followed in GOES, 59 FR at 18358. For

the years 1988 through 1990, we have

used as the discount rate the average

short-term interest rate, provided by the

GOV in the questionnaire response and

based on data from the leading

commercial banks in Venezuela.

Because we preliminarily determine

SIDOR to be uncreditworthy for the

years 1978 through 1990, we added to

the discount rates a risk premium of 12

percent. Moreover, we have adjusted the

discount rate to take into account

inflation because Venezuela has

experienced intermittent periods of high

inflation over the past twenty years, and

because SIDOR has adjusted its

financial statements to take into account

the effects of inflation since 1993. See,

e.g., Industrial Phosphoric Acid from

Israel: Final Results of Countervailing

Duty Administrative Review, 61 FR

53351 (October 11, 1996) (IPA from

Israel).

Based upon our analysis of the

petition and the responses to our

questionnaires, we preliminary

determine the following:

I. Programs Preliminarily Determined

to Be Countervailable

A. GOV Equity Infusions into SIDOR

SIDOR received GOV equity infusions

in every year from 1977 through 1991,

except 1988. SIDOR is a 100-percent

government-owned company. Its parent

company is Corporacion Venezolana de

Guayana (CVG), a holding company

owned by the GOV charged with

promoting industrial development in

the Guayana Region. The majority of the

equity infusions were made by the

Fondo de Inversiones de Venezuela

(FIV), a Venezuelan investment fund.

The remaining funds were provided by

the Ministry of Finance (Hacienda),

primarily as interest payments on loans.

According to the response of the GOV,

the government equity infusions into

SIDOR were provided pursuant to

specific laws adopted with respect to

government-approved expansion

projects of SIDOR. Thus, these equity

infusions were specific under section

771(5A)(D) of the Act.

Equity funds disbursed to SIDOR by

the FIV were made pursuant to special

laws passed by the Venezuelan Congress

and were not part of any government

program. The first law, published in the

Gaceta Oficial No. 30,587 on January 2,

1975, authorized SIDOR’s 1974–79

‘‘Plan IV’’ expansion. This expansion

was aimed at increasing SIDOR’s steel

production by 3.6 million tons as well

as increasing the company’s rolling

capacity for flat and non-flat products.

The government equity infusions under

Plan IV were not disbursed in the

amounts or at the time originally

projected in this plan. However, the

amounts received by SIDOR were

recorded in the company’s annual

financial statements in the year they

were received. Equity funds also were

provided to SIDOR in accordance with

a 1987 law passed by the Venezuelan

Congress. This law was published in the

Gaceta Oficial No. 33,771 on December

21, 1987. The FIV received both

preferred and common shares for these

equity investments into SIDOR.

As noted above, funds were also

provided to SIDOR by the Hacienda.

Funds provided by the Hacienda

between 1977 and 1981 were authorized

under Article 11 of a 1976 Special Law

for Public Credit and were also made

pursuant to a June 26, 1977, agreement

between the Hacienda, FIV, CVG and

SIDOR. Under this agreement, the

Hacienda agreed to pay SIDOR’s interest

on loans from the FIV in return for

shares in the company. Equity payments

made between 1984 and 1986 were

provided pursuant to government

Decree 390 of December 1984,

authorizing the Haicenda to help SIDOR

service its foreign debt. Finally, a 1987

loan from the Hacienda to SIDOR was

converted into equity, but recorded as

an advance for future capital increase.

SIDOR records all Hacienda equity

funds in the years the funds were

received. However, the capital

investments appeared in SIDOR’s

annual financial statements as

‘‘Advances for Future Capital Increase.’’

In 1989, all advances were converted

into shares issued to Hacienda, the

delay stemming from a disagreement

between the Hacienda and CVG as to

who should take ownership of the

shares. The issue was resolved in 1989,

and on the same day the shares were

issued to Hacienda, they were

transferred to CVG, SIDOR’s parent

company. We have treated these

Hacienda funds as capital investments

in each year in which they were

received by SIDOR. According to the

agreement under which the Hacienda

funds were provided, the funds are to be

treated as capital infusions.

In 1991, following several years of

restructuring by SIDOR, the GOV agreed

to convert 60 percent of SIDOR’s debt

and the interest accrued on the debt into

equity which was converted into shares

provided to Hacienda. This debt related

to SIDOR’s pre-1986 foreign currency

loans that had been restructured in

accordance with government Decree

1261 of November 15, 1990. As a result

of this conversion, the Hacienda now

holds 39.68 percent of SIDOR’s shares.

As of December 31, 1996, the remaining

60.32 percent were held by SIDOR’s

parent company, CVG.
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Notices 41943

In 1993 and 1994, also in connection

with SIDOR’s Plan IV expansion project,

CVG transferred some of the land on

which the company constructed the

Plan IV expansion. The land was used

as payment for unpaid capital

subscriptions from CVG. At the time,

CVG purchased only about half of the

1,860,000 shares in SIDOR it had

subscribed to. We consider the land

transfers to be capital investments in

each year in which they were received

by SIDOR.

We have preliminarily determined

that the equity infusions into SIDOR in

the years 1978 through 1990 constitute

countervailable subsidies in accordance

with section 771(5)(E)(i) of the Act

because the GOV investments were not

consistent with the usual investment

practice of private investors. We have

also preliminarily determined SIDOR to

be equityworthy in 1991, 1993 and

1994, and therefore are not calculating

any benefit from the infusions made in

these years. See the discussion on

‘‘Equityworthiness’’ above. As

explained in the ‘‘Subsidies Valuation

Information’’ section, we have treated

equity infusions in unequityworthy

companies as grants given in the year

the capital was received. We have

further determined these infusions to be

non-recurring subsidies. Therefore, for

the reasons outlined in the ‘‘Subsidies

Valuation Information’’ section above,

we have allocated the benefits over 20

years.

Because Venezuela experienced

periods of high inflation during the

period 1978 through 1996 (the rates

ranged from 7 percent to 103 percent,

with an average rate of 34 percent), we

must take into account the effects of

inflation to accurately value the benefit

from GOV equity infusions. See, e.g.,

IPA from Israel 61 FR 53351, and Final

Affirmative Countervailing Duty

Determination; Certain Steel Products

from Mexico, 58 FR 37352, 37355 (July

9, 1993). Therefore, we consider that it

is appropriate to adjust the principal

and interest amount in each year for

inflation. This approach is also

supported by the fact that Venezuelan

companies over the past several years

have been adjusting their financial

statements to reflect inflation (including

asset and equity accounts). This

methodology is discussed in the

‘‘Calculation Memorandum to the File,’’

dated July 28, 1997 (public version on

file in the Central Records Unit of the

Department of Commerce, Room B–

099). Information on the discount rates

we are using to calculate the benefit

from these equity infusions is discussed

in the ‘‘Discount Rates’’ section above.

To calculate the total benefit from the

infusions to SIDOR, we summed the

benefit allocated to the POI from each

equity infusion. We then divided that

total benefit by SIDOR’s total sales of all

products during the POI. On this basis,

we preliminarily determine the net

subsidy for this program to be 10.72

percent ad valorem for SIDOR.

B. Dividend Advances from the

Hacienda

Between 1977 and 1981, pursuant to

a June 26, 1977 agreement among the

Hacienda, FIV, CVG and SIDOR, the

Hacienda paid dividends on behalf of

SIDOR on the preferred shares held by

FIV. These were recorded in SIDOR’s

accounting records as ‘‘Dividend

Advances.’’ These dividend advances

are still reported in SIDOR’s 1996

financial statement. According to the

1996 financial statement, the final

treatment of these dividend advances

has not been decided. Because the

payment by the Hacienda of dividends

on behalf of SIDOR is based on an

agreement signed among the Hacienda,

FIV, CVG and SIDOR, the payment of

dividends by the Hacienda, a

Government agency, is limited to one

company, SIDOR, and is, thus, specific

under section 771(5A)(D) of the Act. To

determine whether a benefit has been

provided, the Department must

determine whether SIDOR was obligated

to pay dividends to FIV on the preferred

shares. If the Hacienda relieved SIDOR

of a payment obligation, then the

payment of dividends by the Hacienda

on behalf of SIDOR constitutes a

countervailable subsidy.

According to its supplemental

questionnaire response, SIDOR had

fiscal losses in the years the dividend

payments were made. Therefore, SIDOR

stated that it was not obligated to pay

any dividends. To determine whether

SIDOR was obligated to pay the

dividends to FIV on the preferred

shares, we also reviewed the 1977

agreement among the Hacienda, FIV,

CVG and SIDOR. According to this

agreement, the preferred shares yielded

a fixed yearly dividend equivalent to

seven percent of their nominal value

and, therefore, SIDOR was obligated to

pay fixed yearly dividends to FIV.

Because the payment of dividends by

the Hacienda to FIV relieved SIDOR of

a financial obligation, we preliminarily

determine that the outstanding balance

of the ‘‘Dividend Advances’’ provides a

countervailable subsidy to SIDOR.

In order to calculate the benefit from

this program, we have preliminarily

determined to treat the dividend

advances as interest-free short-term

loans because the advances appear to be

liabilities of SIDOR. The 1977

agreement, under which these

dividends were paid, does not state that

these are capital infusions into SIDOR

by the Hacienda. In addition, neither the

GOV or SIDOR have treated these

dividend advances as capital infusions.

Thus, it appears, that SIDOR is still

liable for repayment of the dividend

advances.

To calculate the benefit in the POI, we

took the amount of the dividend

advances reported in SIDOR’s 1996

financial statement and calculated the

amount of interest the company would

have paid in 1996 if it had received an

interest-free loan equal to the amount of

the dividend advances. We used as our

benchmark interest rate the annual

average short-term interest rate reported

by the GOV in its supplemental

response. (If available, we intend to use

the company’s actual short-term interest

rates, in the final determination, and we

are seeking information from SIDOR on

the actual interest rates it paid in 1996

on comparable short-term commercial

loans.) The calculated interest savings

was then divided by SIDOR’s total sales

in the POI. On this basis, we

preliminarily determine the net subsidy

for this program to be less than 0.005

percent ad valorem for SIDOR.

C. Government Provision of Iron Ore

Petitioners have alleged that

Ferrominera, a government-owned

company, provided iron ore to SIDOR

for less than adequate remuneration.

Iron ore is a bulky, low-priced

commodity that is traded on

international markets and is used in the

production of steel. SIDOR purchases all

of its iron ore from Ferrominera, the

only Venezuelan producer of iron ore.

Like SIDOR, Ferrominera is owned by

the government and is one of the 37

companies in the CVG Group.

SIDOR has a multi-year supply

contract with Ferrominera, under which

Ferrominera sets SIDOR’s iron ore

prices on an annual basis. According to

SIDOR’s questionnaire response, no

contract existed between SIDOR and

Ferrominera for 1996 because the

parties were unable to agree on the

price. When Ferrominera announced a

new price for 1996, SIDOR objected and

tried to renegotiate the price. Because of

this objection, Ferrominera did not

apply SIDOR’s new price immediately.

Rather, it began invoicing at the new

price in June 1996. After negotiations

failed, SIDOR and Ferrominera entered

into an arbitration process. Ultimately,

the 1996 price originally proposed by

Ferrominera was agreed upon

retroactive to January 1, 1996. The unit

price (i.e., the price per ‘‘metric ton
41944 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Notices

natural iron unit’’) is set in U.S. dollars,

and the terms of sale are FOB, place of

loading. SIDOR is invoiced for its iron

ore purchases at the end of each month,

and the price in bolivars on the invoice

is based on the exchange rate in effect

on the last working day of the month.

According to the GOV, iron ore is an

internationally traded commodity, and

Ferrominera sets its prices in the

domestic market based on prices in the

international market. In Venezuela,

Ferrominera is the only producer of iron

ore in the country, and 99 percent of its

domestic sales are to the steel industry.

Because the steel industry is virtually

the only user of iron ore, we

preliminarily determine that the

provision of iron ore by Ferrominera is

specific under section 771(5A)(D) of the

Act.

According to section 771(5)(E) of the

Act, the adequacy of remuneration (with

respect to a government’s provision of a

good) ‘‘shall be determined in relation

to prevailing market conditions for the

good or service being provided or the

goods being purchased in the country

which is subject to the investigation or

review. Prevailing market conditions

include price, quality, availability,

marketability, transportation, and other

conditions or purchase or sale.’’

In circumstances like those presented

in this case (i.e., where the government

is the sole provider of a commodity and

the commodity is sold on a noncompetitive basis to a limited number of

users), the adequacy of remuneration

cannot be determined through an

examination of prices charged by the

government provider. In such

circumstances, it is necessary to use

another benchmark to determine

whether the good is being provided for

less than adequate remuneration. As

noted above, the government is the sole

domestic source of iron ore in

Venezuela. Therefore, absent

restrictions on imports, the choice to the

consumer of iron ore is the price of the

good charged by the government or the

imported price of that good.

We preliminarily determine that the

appropriate benchmark is the alternative

price that SIDOR would face in

Venezuela if it could not purchase iron

ore from Ferrominera, that is, the price

SIDOR would pay to import iron ore.

Although the GOV placed general

customs data on the record which

indicates that very small quantities of

iron ore were imported into Venezuela

during the POI, we do not have any

specific information about these imports

to determine whether they could be

used to determine the benchmark price.

We do not know the prices per metric

ton paid because we cannot discern the

‘‘metric ton natural iron unit’’ prices,

and we do not know whether these

imports involved iron ore that is

comparable to the iron ore SIDOR

purchased from Ferrominera. Although

the information regarding the imports of

iron ore into Venezuela during the POI

cannot be used to determine the

benchmark price, we consider it

appropriate to use prices that SIDOR

would pay to import the same type of

iron ore that it purchased from

Ferrominera during the POI. Absent

prices for actual imports, we consider it

appropriate to calculate a benchmark

price based on import prices that would

be available in Venezuela for the same

type of iron ore. Accordingly, we

calculated the benchmark price using

published price information on the

record for pellet feed, the type of iron

ore SIDOR purchases from Ferrominera.

In order to determine whether iron

ore is provided to SIDOR for less than

adequate remuneration, we need to have

complete information on both the prices

and delivery terms of the iron ore. This

is because comparison of delivered

prices reflects the price alternatives a

company would face in the marketplace.

The price of iron ore charged to

SIDOR by Ferrominera is based upon

two separate contracts. The first contract

sets the price for the iron ore, while the

second contract establishes the delivery

charges for the iron ore. We have

information on the record regarding the

price of iron ore set in the first contract,

however, we are lacking complete

information on the terms of the delivery

contract. The prices charged to SIDOR

under the first contract by Ferrominera

are FOB, place of loading. According to

the GOV’s supplemental response, the

iron ore is loaded at Ferrominera’s

processing facility in Puerto Ordaz and

transported by train directly to SIDOR’s

factory. SIDOR owns the rail equipment

but Ferrominera provides the

transportation service and maintenance

for a fee. Because we did not become

aware of this transportation arrangement

until we received the supplemental

questionnaire responses, we were

unable to solicit additional information

on this transportation arrangement

between Ferrominera and SIDOR for use

in this preliminary determination. We

are seeking additional information on

this transportation arrangement which

will be considered in our final

determination.

Because we are unable to analyze this

transportation arrangement, we are

basing our determination of whether

SIDOR has been provided with iron ore

for less than adequate remuneration

solely on the FOB, place of loading

prices for iron ore charged to it by

Ferrominera rather than a delivered

price to SIDOR. As noted above, the

FOB, place of loading price charged to

SIDOR by Ferrominera is based upon

SIDOR taking delivery of the iron ore at

Ferrominera’s processing facility in

Puerta Ordaz. We have included in the

benchmark iron ore price the cost of

ocean freight to Puerta Ordaz. Thus,

both the price to SIDOR from

Ferrominera and the benchmark price

are on the same basis. To determine the

costs of ocean freight for the import

price, we used the information provided

in the questionnaire response from

SIDOR. We compared the prices that

SIDOR paid for iron ore from

Ferrominera to the benchmark price and

found that the Ferrorminera price was

lower than the benchmark price.

Therefore, we preliminarily determine

that Ferrominera’s sales of iron ore to

SIDOR during the POI were made for

less than adequate remuneration. As

noted above, we are still seeking

information on the delivery contract

between SIDOR and Ferrominera, and

we are see seeking additional

information on delivery costs to use in

our benchmark price. We invited

interest parties to comment on this

methodology.

To calculate the benefit, we first

multiplied the quantity of iron ore that

SIDOR purchased during the POI by the

benchmark price. We then subtracted

from this total the amount SIDOR

actually paid in order to derive the

aggregate amount of benefit. Because

iron ore is an input used for all of

SIDOR’s production, we divided this

amount by the company’s total sales. On

this basis, we preliminarily determine

the net subsidy for this program to be

2.34 percent ad valorem for SIDOR.

II. Programs Preliminarily Determined

To Be Not Countervailable

A. GOV Loan to SIDOR in 1990

We initiated on this program based

upon petitioners’ allegation that the

GOV replaced a $1,507 million

commercial loan to SIDOR with a 15-

year loan from the government. In its

response to our questionnaire, the GOV

submitted information demonstrating

that this 1990 GOV loan to SIDOR was

part of a debt restructuring program

which was examined and found not

countervailable in the Final Affirmative

Countervailing Duty Determination:

Ferrosilicon From Venezuela; and

Countervailing Duty Order for

Ferrosilicon From Venezuela, 58 FR

27539 (May 10, 1993). Because

petitioners have provided no new

information or evidence of changed

circumstances to warrant a
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Notices 41945

reconsideration of that determination,

we continue to find this GOV debt

restructuring program, under which this

1990 loan was received, not

countervailable.

III. Programs Preliminarily Determined

To Be Not Used

A. Government Guarantees of SIDOR’s

Private Debt in 1987 and 1988

In 1987 and 1988, the GOV

guaranteed loans provided to SIDOR by

Credito Italiano and Kreditanstalt Fuer

Wiederaufbau (KfW), respectively. Both

of these loans were Deutschmark (DM)

denominated loans linked to the

London Interbank Offering Rate

(LIBOR).

According to SIDOR’s and the GOV

responses, the 1987 and 1988 loans

were specifically applied for and

authorized as part of a program to

finance the expansion of SIDOR’s pipe

mill. The approval documents specify

that the loans were for the expansion of

SIDOR’s pipe mill, in particular for

purchasing equipment. These were

authorized under the December 10,

1987, ‘‘Law for the Contracting and

Financing of the First Stage of the

Project to Expand and Modernize

SIDOR’s Pipe Mill.’’ Because the

information submitted in the company

and government responses states that

the KfW and Credito Italiano loans were

tied to financing the expansion of

SIDOR’s pipe mill, we preliminarily

determine that the loans and the

government guarantees of the loans are

tied to non-subject merchandise and,

thus, do not provide a benefit to wire

rod. Therefore, we preliminarily

determine that the GOV loan guarantees

did not confer countervailable benefits

on the production and/or exportation of

subject merchandise, and that this

program was not used during the POI.

B. Preferential Tax Incentives Under

Decree 1477

Petitioners alleged that Decree 1477

provides partial or total income tax

exemptions and other tax credits to

companies in disadvantaged regions,

including Bolivar, where SIDOR is

located. According to petitioners,

companies that relocated or commenced

an expansion after March 23, 1976,

qualify for tax incentives. In its response

to our questionnaire, SIDOR stated that

the company never applied for or

received benefits under this program.

Therefore, we preliminarily determine

that this program was not used by

SIDOR during the POI.

Verification

In accordance with section 782(i) of

the Act, we will verify the information

submitted by respondents prior to

making a final determination.

Suspension of Liquidation

In accordance with section

703(d)(1)(A)(i) of the Act, we have

calculated a subsidy rate for SIDOR, the

one company under investigation. We

also are applying SIDOR’s rate to any

companies not investigated or any new

companies exporting the subject

merchandise.

In accordance with section 703(d) of

the Act, we are directing the U.S.

Customs Service to suspend liquidation

of all entries of steel wire rod from

Venezuela which are entered, or

withdrawn from warehouse, for

consumption on or after the date of the

publication of this notice in the Federal

Register, and to require a cash deposit

or bond for such entries of the

merchandise in the amounts indicated

below. This suspension will remain in

effect until further notice.

Company Ad valorem rate

SIDOR ........................................... 13.06

All Others ...................................... 13.06

ITC Notification

In accordance with section 703(f) of

the Act, we will notify the ITC of our

determination. In addition, we are

making available to the ITC all

nonprivileged and nonproprietary

information relating to this

investigation. We will allow the ITC

access to all privileged and business

proprietary information in our files,

provided the ITC confirms that it will

not disclose such information, either

publicly or under an administrative

protective order, without the written

consent of the Assistant Secretary for

Import Administration.

If our final determination is

affirmative, the ITC will make its final

determination within 45 days after the

Department makes its final

determination.

Public Comment

In accordance with 19 CFR 355.38, we

will hold a public hearing, if requested,

to afford interested parties an

opportunity to comment on this

preliminary determination. The hearing

will be held on September 22, 1997, at

the U.S. Department of Commerce,

Room 3708, 14th Street and

Constitution Avenue, N.W.,

Washington, D.C. 20230. Individuals

who wish to request a hearing must

submit a written request within 30 days

of the publication of this notice in the

Federal Register to the Assistant

Secretary for Import Administration,

U.S. Department of Commerce, Room

1874, 14th Street and Constitution

Avenue, N.W., Washington, DC 20230.

Parties should confirm by telephone the

time, date, and place of the hearing, 48

hours before the scheduled time.

Requests for a public hearing should

contain: (1) The party’s name, address,

and telephone number; (2) the number

of participants; (3) the reason for

attending; and (4) a list of the issues to

be discussed. In addition, eight copies

of the business proprietary version and

three copies of the nonproprietary

version of the case briefs must be

submitted to the Assistant Secretary no

later than September 8, 1997. Eight

copies of the business proprietary

version and three copies of the

nonproprietary version of the rebuttal

briefs must be submitted to the

Assistant Secretary no later than

September 15, 1997. An interested party

may make an affirmative presentation

only on arguments included in that

party’s case or rebuttal briefs. Written

arguments should be submitted in

accordance with 19 CFR 355.38 and will

be considered if received within the

time limits specified above. Parties who

submit argument in this proceeding are

requested to submit with the argument

(1) a statement of the issue and (2) a

brief summary of the argument. If this

investigation proceeds normally, we

will make our final determination by

October 14, 1997.

This determination is published

pursuant to sections 703(f) and 777(i) of

the Act.

Dated: July 28, 1997.

Jeffrey P. Bialos,

Acting Assistant Secretary for Import

Administration.

[FR Doc. 97–20491 Filed 8–1–97; 8:45 am]

BILLING CODE 3510–DS–P

DEPARTMENT OF COMMERCE

International Trade Administration

[C–428–823]

Preliminary Affirmative Countervailing

Duty Determination: Steel Wire Rod

From Germany

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: August 4, 1997.

FOR FURTHER INFORMATION CONTACT:

Cindy Thirumalai or Daniel Lessard,

Office of Antidumping/Countervailing