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[Federal Register Volume 62, Number 23 (Tuesday, February 4, 1997)]
[Notices]
[Pages 5201-5213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2715]

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DEPARTMENT OF COMMERCE
[C-122-825]

Final Negative Countervailing Duty Determination and Final 
Negative Critical Circumstances Determination: Certain Laminated 
Hardwood Trailer Flooring (LHF) From Canada
AGENCY: Import Administration, International Trade Administration, 
Department of Commerce

EFFECTIVE DATE: February 4, 1997.

FOR FURTHER INFORMATION CONTACT: David Boyland or Daniel Lessard, AD/
CVD Enforcement, Office I, Import Administration, U.S. Department of 
Commerce, Room 3099, 14th Street and Constitution Avenue, NW., 
Washington, DC 20230; telephone (202) 482-4198 and 482-1778, 
respectively.

FINAL DETERMINATION: The Department determines that countervailable 
subsidies are not being provided to manufacturers, producers, or 
exporters of LHF in Canada.
Case History
    Since the publication of the preliminary negative determination 
(Preliminary Determination) in the Federal Register (61 FR 59079, 
November 20, 1996), the following events have occurred.
    Verification of the responses of the Government of Canada (GOC), 
the Government of Quebec (GOQ), Nilus Leclerc, Inc. and Industries 
Leclerc, Inc., Erie Flooring and Wood Products (Erie), Industrial 
Hardwoods Products, Ltd. (IHP), and Milner Rigsby Co., Ltd. (Milner) 
was conducted between November 13 and 27, 1996.
    Petitioner and respondents filed case and rebuttal briefs on 
December 17, 1996, and December 23, 1996, respectively. The hearing was 
held on January 7, 1997.
Scope of Investigation
    The scope of this investigation consists of certain edge-glued 
hardwood flooring made of oak, maple, or other hardwood lumber. Edge-
glued hardwood flooring is customized for specific dimensions and is 
provided to the consumer in ``kits,'' or pre-sorted bundles of 
component pieces generally ranging in size from 6'' to 14'' x 48' to 
57' x 1'' to 1(1/2)'' for trailer flooring, from 6'' to 13'' x 12' to 
28' x 1(1/8)'' to 1(1/2)'' for vans and truck bodies, from 9'' to 12(1/
2)'' x 8' to 10' x 1(7/8)'' to 2(1/2)'' for rail cars, and from 6'' to 
14'' x 19' to 48' x 1(1/8)'' to 1(3/8)'' for containers.
    The merchandise under investigation is currently classified, in 
addition to various other hardwood products, under subheading 
4421.90.98.40 of the Harmonized Tariff Schedule of the United States 
(HTSUS). Edge-glued hardwood flooring is commonly referred to as 
``laminated'' hardwood flooring by buyers and sellers of subject

[[Page 5202]]

merchandise. Edge-glued hardwood flooring, however, is not a hardwood 
laminate for purposes of classification under HTSUS 4412.14. Although 
the HTSUS subheading is provided for convenience and Customs purposes, 
our written description of the scope of this proceeding is dispositive.

The Applicable Statute and Regulations

    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). 
References to the Countervailing Duties: Notice of Proposed Rulemaking 
and Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed 
Regulations), which have been withdrawn, are provided solely for 
further explanation of the Department's countervailing duty practice.

Petitioner

    The petition in this investigation was filed by the Ad Hoc 
Committee on Laminated Hardwood Trailer Flooring, which is composed of 
the Anderson-Tully Company, Havco Wood Products Inc., Industrial 
Hardwoods Products Inc., Lewisohn Sales Company Inc., and Cloud 
Corporation.

Period of Investigation (POI)

    The period for which we are measuring subsidies is calendar year 
1995.

Ontario Companies

    We have determined that three producers of the subject merchandise 
have received zero or de minimis subsidies. Erie and IHP formally 
requested that they be excluded from any potential countervailing duty 
order. Milner responded to our questionnaire.
    IHP certified that the only subsidy it received during the POI was 
consulting services pursuant to the Industrial Research Assistance 
Program (IRAP). The GOC and Government of Ontario also certified and we 
verified that this was the only benefit IHP received. Even assuming 
this assistance constituted a countervailable subsidy, the benefit 
would be de minimis.
    Erie certified that it received no countervailable subsidies. The 
GOC and the Government of Ontario also certified this. We verified that 
Erie received no countervailable subsidies. Finally, we verified that 
Milner did not receive benefits during the POI.
    The remainder of this notice deals exclusively with Nilus Leclerc, 
Inc. and Industries Leclerc, Inc.

Related Parties

    In the present investigation, we have examined affiliated companies 
(within the meaning of section 771(33) of the Act) whose relationship 
may be sufficient to warrant treatment as a single company with a 
single, combined countervailing duty rate. In the countervailing duty 
questionnaire, consistent with our past practice, the Department 
defined companies as sufficiently related where one company owns 20 
percent or more of the other company, or where companies prepare 
consolidated financial statements. The Department also stated that 
companies may be considered sufficiently related where there are common 
directors or one company performs services for the other company. 
According to the questionnaire, where such companies produce the 
subject merchandise or where such companies have engaged in certain 
financial transactions with the company producing the subject 
merchandise, the affiliated parties are required to respond to our 
questionnaire.
    Nilus Leclerc Inc. was identified in the petition as an exporter of 
LHF from Canada. Nilus Leclerc Inc. is part of a consolidated group, 
Groupe Bois Leclerc (GBL). Nilus Leclerc, Inc. and Industries Leclerc, 
Inc. are the only companies in the group directly engaged in the 
production of LHF. Because of the extent of common ownership, we have 
found it appropriate to treat these two LHF producers as a single 
company (Leclerc). As a consequence, we are calculating a single 
countervailing duty rate for both companies by dividing their combined 
subsidies by their combined sales.
    In addition, certain separately incorporated companies in the group 
received subsidies. Where those subsidies were tied to the production 
of a corporation that is not directly involved in the production of 
LHF, we have not included those subsidies in our calculations. Where 
the subsidies benefitted the production of LHF and other merchandise, 
we included those subsidies in our calculations using the sales of the 
relevant products in the denominator of the ad valorem subsidy rate 
calculations.

Export Subsidy Issue

    Petitioner has alleged that the loans provided by the Canada-Quebec 
Subsidiary Agreement on Industrial Development (Subsidiary Agreement) 
and the Expansion and Modernization Program sponsored by the Societe de 
Developpement Industriel du Quebec (SDI) are de facto export subsidies. 
Petitioner argues that the programs should be deemed to be export 
subsidies because the approval of government financing was ``in fact 
contingent'' on exports to the United States. According to petitioner, 
Leclerc's project and the government approval of the project were 
entirely based on Leclerc's plan to export the vast majority of the 
anticipated increased production to the United States. Petitioner 
asserts that due to the limited growth potential of the LHF market in 
Canada, the U.S. export market was the only viable market for Leclerc's 
expanded capacity. Without the U.S. market, petitioner argues, there 
would have been no need for expansion or financing and thus, the 
government approval of Leclerc's project was, and could only have been, 
``contingent'' on exports.
    In rebuttal, respondents maintain that the approval of government 
financing was not ``contingent'' on exports and that Leclerc's export 
potential was merely one aspect of the government officials' overall 
assessment of the commercial viability of the expansion project. 
According to respondents, the absence of provisions in the loan 
agreements which condition the receipt of the loan on exports or 
consider the failure to achieve a particular level of export 
performance as a default of the loan demonstrate that the programs were 
not ``contingent'' upon export performance. Furthermore, respondents 
invoke the second sentence of note 4 of Article 3.1(a) of the SCM which 
states: ``The mere fact that a subsidy is accorded to enterprises which 
export shall not for that reason alone be considered to be an export 
subsidy within the meaning of (Article 3.1(a)).'' Respondents contend 
that this provision makes it clear that the mere fact that Leclerc 
exported to the United States or projected future exports should not 
transform the government financing into an export subsidy.
    While we have closely analyzed this issue, as discussed below, when 
we examine the programs as domestic subsidies, the rate for these 
programs is de minimis. Our analysis also shows that, even if we were 
to find these programs to be export subsidies, the total countervailing 
duty rate calculated for Leclerc during the POI would be de minimis. 
Therefore, we have not addressed the issue of whether these two 
programs are export subsidies.

Creditworthiness

    In our Preliminary Determination, we treated Leclerc as 
``creditworthy'' in 1993, 1994, and 1995. This decision was based on 
information provided by Leclerc indicating that it had received

[[Page 5203]]

commercial financing or that commercial banks had agreed to provide it 
with long-term financing in each of those years. For this final 
determination, we are continuing to treat Leclerc as creditworthy in 
1993 and 1994 because it received comparable loans from commercial 
banks in those years. (For a further discussion of the comparability 
issue, see ``Comparability'' of Commercial Loans Received section 
below.) However, based on further information gathered at verification 
regarding 1995, we have determined that the case-specific circumstances 
surrounding the commercial financing agreed to and actually received in 
that year indicate that this financing is not dispositive evidence of 
Leclerc's creditworthiness. Accordingly, we have analyzed Leclerc's 
financial condition and prospects in 1995 to determine whether the 
company was creditworthy in that year. Based on our analysis, we have 
determined that Leclerc was uncreditworthy in 1995 (see January 24, 
1997 memorandum from David R. Boyland, Import Compliance Specialist, 
AD/CVD Enforcement, Office 1, to Susan H. Kuhbach, Acting Deputy 
Assistant Secretary, AD/CVD Enforcement, Group 1).

``Comparability'' of Commercial Loans Received

    In 1993 and 1994, Leclerc obtained commercial loans. The receipt of 
such loans must be considered both in the context of the 
uncreditworthiness allegation and selection of the appropriate 
benchmark to use in measuring the countervailable benefit from the 
government loans received. In 1995, Leclerc reached an agreement with a 
commercial source to receive long-term financing. The circumstances 
surrounding the 1995 financing are such that we have disregarded this 
financing as dispositive evidence of creditworthiness or as a possible 
benchmark. We now turn to the receipt by Leclerc of commercial loans in 
1993 and 1994.
    Section 355.44(b)(6)(i) of the Proposed Regulations states that the 
receipt of comparable long-term financing is normally dispositive 
evidence that a company is creditworthy. Section 775(5)(E)(ii) of the 
Act--a new provision added by the URAA--requires that when selecting a 
benchmark loan to compare to the government loan for purposes of 
measuring the potential benefit, the Department must select a loan 
comparable to one the company could obtain commercially. We have 
determined that the commercial loans received by Leclerc are 
sufficiently comparable to the government loans to constitute 
dispositive evidence that the company was creditworthy in 1993 and 
1994. However, we have determined that the commercial loans received 
are not sufficiently comparable to measure accurately any 
countervailable benefits received from the government loans.
    When the Department examines whether a company is creditworthy, it 
is essentially attempting to determine if the company in question could 
obtain commercial financing. The analysis of whether a company is 
creditworthy examines whether the company received comparable 
commercial loans and, if necessary, the overall financial health and 
future prospects of the company. Such an analysis is ``often highly 
complex'' (see the preamble to the Proposed Regulations at 23370, 
citing the Subsidies Appendix at 18019.) The fundamental question 
however, is a general one; namely: was the company's financial health 
such that it did not have meaningful access to long-term commercial 
loans?
    Given the difficult question posed by a creditworthy inquiry and 
our policy of seeking guidance from the judgments of the commercial 
markets, the Department has historically relied heavily upon the 
receipt of comparable commercial loans as dispositive evidence that the 
company at issue is creditworthy. The ``comparability'' of any 
commercial loans received has essentially been determined by examining 
whether long-term loans (not guaranteed by the government) were 
received from commercial sources in the same year as the government 
loans. (See for example, Final Affirmative Countervailing Duty 
Determinations: Certain Steel Products from Italy 58 FR 37327, 37329 
(July 9, 1993) and Final Affirmative Countervailing Duty 
Determinations: Certain Carbon Steel Products from Austria 50 FR 33369, 
33372 (August 9, 1985).) If the commercial loans received were judged 
comparable on this basis, the receipt of such loans has been considered 
dispositive evidence that the company was creditworthy. Based on our 
traditional interpretation of ``comparable'' in the creditworthy 
context, the commercial loans received by Leclerc were comparable to 
the government loans it received.
    We see no reason to change the policy of relying on commercial 
loans or defining comparability as outlined above, because it answers 
the general question posed by an uncreditworthiness allegation. 
Specifically, it provides the most direct evidence that a company could 
obtain loans from commercial sources. If a company is able to obtain 
such financing, the marketplace has judged that the company at issue is 
creditworthy. As noted above, in such instances, the Department will 
normally defer to the decision of the market. The fact that the 
commercial loans received may differ from the government loans with 
respect to certain terms such as the level of security does not 
necessarily speak directly to the question of whether the company was 
creditworthy.
    Because of the facts of this particular case, specifically the 
presence of the private sector in the financing of Leclerc's expansion, 
and the otherwise general nature of the creditworthy analysis as 
outlined above, we do not believe that the differences in other terms 
between Leclerc's commercial loans and its government loans are great 
enough to warrant a departure from the Department's normal practice of 
finding the receipt of commercial loans to be dispositive evidence that 
a company is creditworthy. Therefore, we determine that Leclerc was 
creditworthy in 1993 and 1994.
    In contrast, we do not believe that Leclerc's commercial loans are 
appropriate for use as benchmarks for purposes of the more exacting 
exercise of measuring the benefit from the government loans received by 
Leclerc. As noted above, the statute, as recently amended by the URAA, 
requires that when selecting a benchmark interest rate to compare to 
the government interest rate for purposes of measuring the potential 
benefit, the Department must select a commercial loan comparable to one 
the company could actually obtain on the market. The selection of the 
benchmark interest rate under the new statute seeks to answer a very 
specific question; namely: what is the benefit provided by the specific 
government loans in question? In this context, the Department must take 
into account, to the extent possible, differences in terms between the 
government loans and the commercial loans offered for comparison 
purposes which may substantially affect the accuracy of the benefit 
calculated.
    When comparing the terms of the SDI and Subsidiary Agreement loans 
with Leclerc's commercial loans, differences emerge with respect to the 
level of security. Because we believe that the level of security can 
significantly affect the interest rate charged by a commercial lender, 
selection of benchmark financing with markedly different levels of 
security may distort the measurement of the countervailable benefit.
    Although the specific terms of Leclerc's loans are proprietary, we 
learned on verification that SDI takes on more risk than commercial 
banks and

[[Page 5204]]

that there are significant differences with respect to the extent to 
which commercial and SDI loan values could be recovered in the event of 
Leclerc's default. Because of the differences between the commercial 
loans and the SDI and Subsidiary Agreement loans, we have chosen a 
benchmark interest rate which generally reflects the level of security 
exhibited by the government loans.
    Although we have chosen a benchmark which generally reflects the 
significant terms of the government-provided loans, we have not 
adjusted for minor differences in terms or any differences which cannot 
be reasonably be quantified because such an analysis is not practicable 
and would not have a meaningful impact on our analysis. We consider 
such adjustments to be appropriate only to the extent that they reflect 
significant differences in terms and the record provides a reasonable, 
practicable basis for doing so.

Subsidies Valuation Information

    Benchmarks for Long-term Loans and Discount Rates: We have 
calculated the long-term benchmark interest and discount rate in 1993, 
1994, and 1995 based on company-specific debt received by Leclerc. We 
used this debt to estimate the appropriate benchmark interest rate in 
1993-1995. For 1995, we added a risk premium, as described in section 
355.44(b)(6)(D)(iv) of the Proposed Regulations to establish the 
uncreditworthy benchmark interest and discount rate.
    Allocation Period: In the past, the Department has relied upon 
information from the U.S. Internal Revenue Service on the industry-
specific average useful life of assets to determine the allocation 
period for nonrecurring subsidies (see General Issues Appendix (GIA) 
attached to the Final Affirmative 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 non-renewable physical assets. This remand 
determination was affirmed by the Court on June 4, 1996. See British 
Steel, 929 F. Supp. 426, 439 (CIT 1996).
    The Department has decided to acquiesce to the Court's decision 
and, as such, we intend to determine the allocation period for 
nonrecurring subsidies using company-specific AUL data where reasonable 
and practicable. In this case, the Department has determined that it is 
reasonable and practicable to allocate all nonrecurring subsidies 
received prior to, or during, the POI using Leclerc's AUL of 18 years.

FOB/CIF Adjustment

    The Department has deducted costs associated directly with the 
transportation of subject merchandise from Leclerc's U.S. sales to 
determine the correct FOB value for denominator purposes (see GIA at 
37236, 37237). While the majority of these costs were originally 
reported by respondents, additional information obtained at 
verification has been incorporated where appropriate.
    Based upon the responses to our questionnaires and the results of 
verification, we determine the following:

I. Analysis of Direct Subsidies

A. Programs Determined to Be Countervailable

1. Canada-Quebec Subsidiary Agreement on Industrial Development
    This Subsidiary Agreement, which spans five years, was jointly 
funded by the GOC and GOQ on March 27, 1992. Under this agreement, the 
GOC and GOQ established a program to improve the competitiveness and 
vitality of the Quebec economy by providing financial assistance, 
through the initial joint funding of the agreement, to companies for 
major industrial projects. The following four types of activities are 
eligible for contributions: (1) capital investment projects, (2) 
product or process development projects involving a major investment or 
leading to a capital investment, (3) studies required to assess the 
feasibility of an investment project, and (4) municipal infrastructure 
required for a major capital investment project.
    Leclerc received a long-term interest-free loan under the 
Subsidiary Agreement. Although the Subsidiary Agreement was jointly 
funded, the loan received by Leclerc was provided by the GOC from its 
portion of the joint funding.
    We have determined that the loan received by Leclerc constitutes a 
countervailable subsidy within the meaning of section 771(5) of the 
Act. It is a direct transfer of funds from the GOC providing a benefit 
in the amount of the difference between the benchmark interest rate and 
the zero interest rate paid by Leclerc.
    We analyzed whether the Subsidiary Agreement is specific ``in law 
or in fact,'' within the meaning of section 771(5A) of the Act. Funds 
paid out by the GOC under this program are limited to companies in a 
particular region of Canada (i.e., the Province of Quebec) and, hence, 
regionally specific under section 771(5A)(D)(iv) of the Act.
    To calculate the countervailable benefit conferred on Leclerc, we 
used the 1995 uncreditworthy benchmark interest rate described above 
and followed our fixed-rate, long-term loan methodology (see January 
24, 1997, Memorandum from Team to Susan H. Kuhbach, Acting Deputy 
Assistant Secretary, AD/CVD Enforcement, Group 1). We then divided the 
benefit attributable to the POI by Leclerc's LHF sales in the POI. (See 
Comment 12.) On this basis, we determine the countervailable subsidy 
for this program to be 0.29 percent ad valorem for Leclerc.
2. Industrial and Regional Development Program (IRDP)
    The IRDP was created by the Industrial and Regional Development Act 
and Regulations in 1983 and was administered by the Canadian Department 
of Regional Industrial Expansion. It was terminated on June 30, 1988. 
No new applications for IRDP projects were accepted after that date.
    The goals of IRDP were to achieve economic development in all 
regions of Canada, promote economic development in those regions in 
which opportunities for productive employment are exceptionally 
inadequate, and improve the overall economy in Canada. To accomplish 
these objectives, financial support in the form of grants, 
contributions and loans were provided to companies for four major 
purposes: (1) establishing, expanding, modernizing production; (2) 
promoting the marketing of products or services; (3) developing new or 
improved products or production processes, or carrying on research in 
respect thereof; and (4) restructuring so as to continue on a 
commercially viable basis.
    Under this program, all of Canada's 260 census districts were 
classified into one of four tiers on the basis of the economic 
development of the region. The most economically disadvantaged regions 
comprised Tier IV; the most advanced regions were classified as Tier I.
    Those districts classified as Tiers III and IV were authorized to 
receive the highest share of assistance under IRDP (as a percentage of 
assistance per approved project); those in Tiers I and II received the 
lowest. For example, a grant toward the eligible costs of

[[Page 5205]]

modernizing or significantly increasing the production of companies in 
Tiers I and II could not exceed 17.5 percent of the capital costs of 
the project, while in Tiers III and IV grants could cover up to 25 
percent of eligible costs.
    Nilus Leclerc Inc. was located in a Tier III district when it 
received three grants under this program. We have determined that the 
grants received by Leclerc constitute a countervailable subsidy within 
the meaning of section 771(5) of the Act. The grants are direct 
transfers of funds from the GOC and confer a benefit in the amount of 
the portion of the grant that is in excess of the most favorable, 
nonspecific level of benefits (i.e., Tiers I and II). (See section 
355.44(n) of the Department's Proposed Regulations regarding programs 
with varying levels of benefits.) Also, IRDP grants are regionally 
specific within the meaning of section 771(5A) of the Act because the 
preferential levels of benefits (i.e., contributions to Tiers III and 
IV) are limited to companies in particular regions of Canada. This is 
consistent with our prior determination in the Final Affirmative 
Countervailing Duty Determination: Certain Fresh Atlantic Groundfish 
from Canada, 51 FR 10041, 10045 (March 24, 1986).
    We have treated these grants as ``non-recurring'' subsidies based 
on the analysis set forth in the Allocation section of the GIA at 
37226. In accordance with our past practice, we have allocated over 
time those grants which exceeded 0.5 percent of the company's sales in 
the year of receipt.
    To calculate the countervailable subsidy, we used our standard 
grant methodology. For those grants which were tied to the production 
of both LHF and residential flooring, we divided the benefit 
attributable to the POI by the total sales of Leclerc and Planchers 
Leclerc (the company in the Leclerc group that produces residential 
flooring) during the same period. Otherwise, for those grants which 
benefited only the production of LHF, we divided the benefit 
attributable to the POI by Leclerc's LHF sales during the same period. 
On this basis, we determine the countervailable subsidy for this 
program to be 0.04 percent ad valorem for Leclerc.
3. SDI: Expansion and Modernization Program
    Firms in Quebec can participate in the Expansion and Modernization 
Program by meeting a requirement that ``the project (for which 
financing is requested) is aimed at markets outside Quebec.'' An 
alternative requirement for receiving assistance is that the market in 
Quebec is inadequately served by businesses in Quebec and that the 
supported production is expected to replace imported goods into Quebec. 
Under either requirement, the market for the products to be supported 
must have an expected growth rate that is above the average for the 
manufacturing sector in Canada. In addition to these requirements, 
which are contained in the regulations governing Expansion and 
Modernization Program, the GOQ has stated that firms receiving SDI 
loans must also receive financing from commercial sources.
    Loans under this program can be provided to companies involved in: 
manufacturing, recycling, computer services, software or software 
package design and publishing, contaminated soils remediation, the 
operation of a research laboratory, and the production of technical 
services for clients outside of Quebec. The regulations for this 
program further indicate that businesses in other categories may be 
considered ``in exceptional cases.'' The assistance may be used to 
cover the following types of expenditures: (1) capital investments; (2) 
the purchase and introduction of a new technology; (3) the acquisition 
of information production or management equipment; (4) investments for 
project-related training; and (5) other training investments related to 
project start-up. Leclerc obtained loans under SDI's Expansion and 
Modernization Program in 1993, 1994, and 1995. (For further information 
regarding how we treated the 1995 loan, see Comment 17.) These loans 
were part of a larger package of commercial and government financing 
used to increase Leclerc's productive capacity.
    We have determined that the 1993 and 1994 loans received by Leclerc 
constitute countervailable subsidies within the meaning of section 
771(5) of the Act. They are a direct transfer of funds from the GOQ 
providing a benefit in the amount of the difference between the 
benchmark interest rate and the interest rate paid by Leclerc.
    Based on our review of the eligibility criteria, we determine that 
the program is not de jure specific. However, as in our Preliminary 
Determination, we have concluded that this program is in fact specific.
    Although loans were given to a large number and wide variety of 
users under this program, the level of financing obtained by the wood 
products industries group and by Leclerc was disproportionate. In 1993 
and 1994, the wood products industries group was consistently among the 
largest beneficiaries under the program. Leclerc's share of financing 
as a percentage of total authorized financing was also large relative 
to the shares received by other users. Taken together, these facts 
support a determination that the assistance received by Leclerc was 
disproportionate in 1993 and 1994.
    In order to calculate the benefit from long-term variable rate 
loans, the Department normally calculates the difference during the POI 
between the amount of interest paid on the subsidized loan and the 
amount of interest that would have been paid on a comparable commercial 
loan. However, in this case, the loans given under the Expansion and 
Modernization Program include premia payments by Leclerc and stock 
options for SDI. In addition, the SDI loans have variable repayment 
schedules. Therefore, our normal methodology for long-term loans which 
focuses only on differences in interest rates would not provide an 
accurate measure of the benefit received by Leclerc. In order to 
account for the value of the premia and the variable repayment 
schedule, we have estimated a repayment schedule for the SDI loan and 
compared the amount Leclerc would repay under that schedule with the 
amount Leclerc would repay under a comparable commercial loan. Because 
of the difficulty of assigning a value to the stock options, we have 
not included them in our calculations. We note that if we were to 
include the stock options, the amount of the benefit conferred by these 
loans would be even less. Given that we have reached a negative 
countervailing duty determination, it is not important that our subsidy 
calculation reflects the lower benefit amount.
    We next determined the grant equivalent of these loans, i.e., the 
present value of the difference between what would be paid under the 
commercial loan and the SDI loan, using the discount rates described in 
the Subsidies Valuation Information section above. We used the life of 
the SDI loan as the allocation period because of the variable repayment 
schedule on the SDI loans. The benefit allocated to the POI was then 
divided by Leclerc's total sales of subject merchandise during the POI. 
Using this methodology, we determine the countervailable subsidy from 
the Expansion and Modernization Program to be 0.24 percent ad valorem.
4. Export Promotion Assistance Program (APEX)
    Under the APEX program, the GOQ shares certain costs incurred by a 
Quebec company in the penetration of new foreign markets. Such costs 
include missions to develop new markets or negotiate ``industrial 
agreements,''

[[Page 5206]]

participate in trade fairs outside of Canada, adapt products to new 
export markets, prepare bids with the assistance of consultants, 
prepare marketing studies as well as strategies to enter foreign 
markets, and hire an international marketing expert to develop the 
firm's export sales (see Preliminary Countervailing Duty 
Determinations: Pure and Alloy Magnesium From Canada 56 FR 63927, 63931 
(December 6, 1991)).
    At the Preliminary Determination, the Department considered APEX to 
be a non-used program based on the questionnaire responses received. 
Prior to the start of verification, however, the GOQ stated, and we 
confirmed, that Leclerc in fact used this program (see December 10, 
1996 GOQ Verification Report at 12.)
    Because receipt of benefits under this program is contingent upon 
export performance, we determine that it is an export subsidy within 
the meaning of 771(5A)(B) of the Act. We have also determined that the 
grants received by Leclerc constitute a countervailable subsidy within 
the meaning of section 771(5) of the Act because they are direct 
transfers of funds from the GOQ and confer a benefit to Leclerc in the 
amount of the face value of the grant. We have treated the grant as a 
``non-recurring'' subsidy based on the analysis set forth in the 
Allocation section of the GIA at 37226. We have allocated the benefit 
over the AUL of Leclerc's non-renewable physical assets using the grant 
allocation formula outlined in section 355.49 (b)(4)(3) of the 
Department's Proposed Regulations. The benefit allocated to the POI was 
then divided by Leclerc's total export sales during the POI. Using this 
methodology, we determine the countervailable subsidy from the APEX 
program to be 0.00 percent ad valorem.

B. Program Determined To Be Not Countervailable, But Which Was Not 
Considered At The Preliminary Determination

Program for the Development of Human Resources (PDHR) of the Societe 
Quebecoise de Developpement de la Main-d'Oeuvre (SQDM)
    Prior to the start of verification, the GOQ reported that Leclerc 
received assistance under the Program for the Development of Human 
Resources (PDHR) which is administered by SQDM. PDHR was created in 
1992 for the purpose of assisting businesses to develop or adapt their 
human resource programs to protect and maintain existing jobs and to 
support the creation of new jobs. The program is available to all 
commercial enterprises, workers' unions, other groups of workers and 
nonprofit organizations located in Quebec. The only eligibility 
criterion is that a company is conducting business, or in the process 
of establishing a business, in Quebec or is in the process of doing so. 
The program focuses on assisting small and medium-size businesses: (1) 
with human resources management and development needs; (2) facing a 
difficult employment situation; and (3) active in priority economic 
sectors at the local, regional and provincial levels.
    The financial assistance generally covers 50 percent of the costs 
of the company's human resource projects with a maximum cap of $200,000 
per year for up to three years. In general, funds may be used for: 
``hiring an expert responsible for analyzing the manpower situation at 
the company; paying the wages of employees involved in human resource 
activities; other expenses related to training activities for human 
resource development and/or hiring a training coordinator or a human 
resource manager.'' We verified that Leclerc received a grant under 
this program during the POI.
    We analyzed whether the program is specific ``in law or in fact,'' 
within the meaning of section 771(5A)(D)(i) and (iii) of the Act. Based 
upon our review of the eligibility criteria for the program, we 
determine that this program is not de jure specific.
    We next examined whether the program is de facto specific. During 
the POI, we verified that assistance under the program was distributed 
over a large number and wide variety of users representing virtually 
every industry and commercial sector found in Quebec. Based on this 
information, we have determined that the program is not specific based 
on the number of users. We also examined evidence regarding the usage 
of the program and found that neither Leclerc nor the wood products 
industry was a dominant user or received a disproportionate share of 
benefits distributed under this program. Because the number of users is 
large and there is no dominant or disproportionate use of the program 
by Leclerc, we do not reach the issue of whether administrators of the 
program exercised discretion in awarding benefits. Thus, we conclude 
that this program is not specific and has not conferred a 
countervailable subsidy on Leclerc.

C. Programs Determined To Be Not Countervailable Which Were Considered 
At The Preliminary Determination

    Based on verification, we continue to find these programs not 
countervailable for the same reasons identified in the preliminarily 
determination.

1. ``Programme d'appui a la reprise'' (PREP) program
2.Decentralized Fund for Job Creation Program of SQDM
3. Export Development Corporation (EDC)
4. Hydro-Quebec Electrotechnology Implementation Program
5. Societe de placement dans l'enterprise quebecoise (SPEQ)

D. Programs Determined to Be Not Used

    Based on the information provided in the responses and the results 
of verification, we determine that the following programs were not 
used:

1. Capital Gains Exemptions
2. Regional Investment Tax Credits
3. Performance Security Services through the Export Development 
Corporation
4. Working Capital for Growth from the Business Development Bank of 
Canada (BDC)
5. St. Lawrence Environmental Technology Development Program (ETDP)
6. Program for Export Market Development
7. Canada-Quebec Subsidiary Agreement on the Economic Development of 
Quebec
8. Quebec Stumpage Program
9. Programs Provided by the Industrial Development Corporation (SDI)
    Article 7 Assistance
    Export Assistance Program
    Business Financing Program
    Research and Innovation Activities Program
10. Private Forest Development Program (PFDP)

II. Analysis of Upstream Subsidies

    The petitioner alleged that Leclerc receives upstream subsidies 
through its purchase of lumber from suppliers which harvest stumpage 
from Quebec's public forest (``allegedly subsidized'' suppliers). 
Section 771A(a) of the Act, defines upstream subsidies as follows:

    The term ``upstream subsidy'' means any subsidy * * * by the 
government of a country that:
    (1) Is paid or bestowed by that government with respect to a 
product (hereinafter referred to as an ``input product'') that is 
used in the manufacture or production in that country of merchandise 
which is the subject of a countervailing duty proceeding;
    (2) In the judgment of the administering authority bestows a 
competitive benefit on the merchandise; and

[[Page 5207]]

    (3) Has a significant effect on the cost of manufacturing or 
producing the merchandise.

    Each of the three elements listed above must be satisfied in order 
for the Department to find that an upstream subsidy exists. The absence 
of any one element precludes the finding of an upstream subsidy. As 
discussed below, we determine that a competitive benefit is not 
bestowed on Leclerc through its purchases of allegedly subsidized 
lumber. Therefore, we have not addressed the first and third criteria.

Competitive Benefit

    In determining whether subsidies to the upstream supplier(s) confer 
a competitive benefit within the meaning of section 771A(a)(2) on the 
producer of the subject merchandise, section 771A(b) directs that:

    * * * a competitive benefit has been bestowed when the price for 
the input product * * * is lower than the price that the 
manufacturer or producer of merchandise which is the subject of a 
countervailing duty proceeding would otherwise pay for the product 
in obtaining it from another seller in an arms-length transaction.

    The Department's Proposed Regulations offer the following hierarchy 
of benchmarks for determining whether a competitive benefit exists:

    * * * In evaluating whether a competitive benefit exists 
pursuant to paragraph (a)(2) of this section, the Secretary will 
determine whether the price for the input product is lower than:
    (1) The price which the producer of the merchandise otherwise 
would pay for the input product, produced in the same country, in 
obtaining it from another unsubsidized seller in an arm's length 
transaction; or
    (2) a world market price for the input product.

    In this instance, Leclerc purchases the input product, lumber, from 
numerous unsubsidized (i.e., suppliers which do not harvest stumpage 
from Quebec's public forest), unrelated suppliers in Canada. Therefore, 
we have used the prices charged to Leclerc by these suppliers as the 
benchmark.
    We compared the prices paid by Leclerc to its ``allegedly 
subsidized'' suppliers with the prices paid to unsubsidized suppliers 
on a product-by-product and aggregate basis (see October 10, 1996, 
November 6, 1996 and January 24, 1997, Memoranda from Team to Susan H. 
Kuhbach, Acting Deputy Assistant Secretary, Group 1, AD/CVD 
Enforcement). Based on our comparison of these prices, we found that 
the price of ``allegedly subsidized'' lumber was generally equal to or 
exceeded the price of unsubsidized lumber. Therefore, we have 
determined that Leclerc did not receive an upstream subsidy.

Critical Circumstances

    The petitioner alleged that critical circumstances exist with 
respect to imports of subject merchandise. Because we have reached a 
negative final determination, this issue is moot.

Interested Party Comments

Comment 1 (1995 Commercial Financing)
    Petitioner disagrees with the Department's use of a 1995 financing 
arrangement between Leclerc and a commercial entity as a benchmark, as 
well as dispositive evidence of Leclerc's creditworthiness. Petitioner 
bases its claim on the fact that Leclerc did not actually receive the 
loan in 1995, nor did it meet the preconditions for receiving financing 
under the arrangement. Petitioner points out that section 
355.44(b)(6)(i) of the Department's Proposed Regulations requires the 
receipt of a comparable long-term commercial loan for dispositive 
evidence of creditworthiness.
    Leclerc states that it received and accepted a loan offer from a 
commercial source in 1995 and that the agreement was binding on both 
parties. Leclerc notes that the Department's November 13, 1996 
Creditworthy Analysis Memorandum emphasized the fact that the 
Department's primary interest in considering the presence of commercial 
financing in the context of a creditworthiness inquiry is whether a 
company had access to such financing. According to Leclerc, the 1995 
financing arrangement shows that the company had access to long-term 
funds from commercial sources.
    Finally, regarding use of the 1995 financing arrangement as a 
benchmark, Leclerc and the GOQ state that the statute focuses on a 
``comparable commercial loan that the recipient could actually obtain 
on the market'' (emphasis added). Because the 1995 financing 
arrangement reflects financing that Leclerc could have obtained, the 
circumstances surrounding the agreement should not disqualify it as a 
benchmark.

DOC Position

    We disagree with respondents. As described in the December 10, 1996 
Leclerc Verification Report, the circumstances surrounding the 1995 
financing arrangement do not support the argument that this financing 
arrangement should be considered dispositive evidence of Leclerc's 
creditworthiness. These circumstances also indicate that the 1995 
financing arrangement does not reflect an appropriate benchmark 
interest rate. (Note: The details of the 1995 financing arrangement are 
business proprietary (see January 24, 1997 memorandum from David R. 
Boyland, Import Compliance Specialist, AD/CVD Enforcement, Office 1, to 
Susan H. Kuhbach, Acting Deputy Assistant Secretary, Group 1, AD/CVD 
Enforcement).)
Comment 2 (Creditworthiness)
    In addition to arguing that the commercial and government loans are 
not comparable for purposes of determining Leclerc's creditworthiness, 
petitioner asserts that other evidence indicates that Leclerc was not 
creditworthy when it received the government financing under 
investigation. Petitioner argues that Leclerc's financial ratios during 
1993, 1994, and 1995 would have been clearly unacceptable to a private 
lender. Petitioner further asserts that the Department must consider 
the expanded repayment obligations of the enlarged Leclerc operation, 
as opposed to simply determining whether the company historically met 
its financial obligations. Petitioner argues that, in addition to being 
unable to meet its future financing costs with its cash flow, specific 
aspects of Leclerc's financial position in 1995 indicate that the 
company was not meeting its financial obligations in that year. 
According to petitioner, other factors such as Leclerc's decision to 
abandon several of its LHF production lines in 1995 also indicate that 
the company was not in a position to cover its financial obligations.
    Citing the Final Affirmative Countervailing Duty Determination: 
Fresh and Chilled Atlantic Salmon from Norway, 51 FR 10041 (March 24, 
1986) and section 355.44(b)(6)(i) of the Department's Proposed 
Regulations, Leclerc argues that creditworthiness cannot be judged 
retrospectively and that the Department can only consider 
creditworthiness at the time the loans were actually made. Leclerc 
cites positive information from its balance sheet and income 
statements, the ITC preliminary determination in this case (Certain 
Laminated Hardwood Flooring from Canada, Inv. No. 701-TA-367), and a 
study of Leclerc's 1995 business plan by an outside consulting firm, to 
support its position that lenders in Canada had every reason to loan it 
money throughout the 1993-1995 period.
    Leclerc states that the approach in the Department's October 9, 
1996

[[Page 5208]]

creditworthiness memorandum (i.e., in which a company can only be 
considered uncreditworthy if it did not have sufficient revenues or 
resources in the past to meet its costs and fixed financial 
obligations) is consistent with the preamble to the Department's 
Proposed Regulations and past cases. Because it did have sufficient 
resources to meet its costs and fixed financial obligations, Leclerc 
asserts that no creditworthiness inquiry should be conducted.
    With respect to petitioner's criticism of the company's financial 
ratios, Leclerc argues that the Department must examine the individual 
circumstances of the company. According to Leclerc, when the financial 
ratios are considered in context, they do not reflect financial 
instability nor do they indicate that the company was unable to cover 
its costs and fixed financial obligations out of its revenue.

DOC Position

    As noted above, we believe that the commercial loans received by 
Leclerc in 1993 and 1994 are comparable to the government-provided 
loans in those years. Hence, we have determined that the company was 
creditworthy in those years.
    We agree with petitioner that a number of aspects related to 
Leclerc's financial position in 1995 would have troubled a commercial 
lender and that Leclerc's financial position in 1995 reflected certain 
imbalances (see January 24, 1997 memorandum from David R. Boyland, 
Import Compliance Specialist, AD/CVD Enforcement, Office 1, to Susan H. 
Kuhbach, Acting Deputy Assistant Secretary, Group 1, AD/CVD 
Enforcement). Additionally, circumstances surrounding Leclerc's 1995 
financing arrangements strongly suggest that Leclerc would not have 
been able to obtain long-term commercial financing in that year (see 
December 10, 1996 Leclerc Verification Report). It is on this basis 
that we have determined Leclerc to be uncreditworthy in 1995.
    Regarding Leclerc's argument that the Department should not have 
investigated the company's creditworthiness since it had sufficient 
resources in the past to cover its costs and fixed financial 
obligations, we disagree. As noted in our Preliminary Determination (61 
FR 59080, 59079 (November 20, 1996)), while past indicators can provide 
useful information about a company's future prospects, they should not 
cause the Department to disregard information contemporaneous with the 
granting of the loan that is relevant to the company's ability to meet 
its future financial obligations.
Comment 3 (Disproportionality--Determining Specificity Based on POI 
Benefits.)
    The GOQ argues that the Department incorrectly found that SDI loans 
were de facto specific on the grounds that there was disproportionate 
use. The GOQ maintains that the amount of benefits approved in any one 
year should not be the basis upon which the Department makes a 
disproportionality determination. Instead, the GOQ argues that the 
Department should make its disproportionality determination for the POI 
based on the SDI benefits allocated to the POI. In other words, all 
benefits bestowed over the life of the SDI program should be allocated 
over time, and the Department's specificity analysis should be based on 
the distribution of allocated benefits in the POI. To support this 
argument, the GOQ cites the Final Results of Countervailing Duty 
Administrative Review; Live Swine from Canada (Live Swine from Canada) 
56 FR 28531, 28534 (June 21, 1991) which states ``[i]n analyzing de 
facto specificity, the Department looks at the actual number of 
commodities covered during the particular period under review.''
    Petitioner argues that the GOQ has offered no support in the law or 
in past case precedent showing that a disproportionality finding 
requires a specificity analysis based on a POI-allocated benefit 
analysis. Furthermore, according to petitioner, the GOQ approach is not 
feasible.

DOC Position

    We disagree with the GOQ's assertion that the Department's 
disproportionality analysis must focus solely on the benefits allocated 
to the POI. Such an approach confuses the initial specificity 
determination, which is based on the action of the granting authority 
at the time of bestowal, with the allocation of the benefit over time. 
Because these are two separate processes, the portions of grants 
allocated to further periods of time using the Department's standard 
allocation methodology is not relevant in determining the actual 
distribution of assistance at the time of bestowal.
    As regards Live Swine from Canada cited by Leclerc, the benefits 
analyzed in that proceeding are recurring subsidies. Hence, in 
performing its review period-by-review period analysis, the Department 
is looking at separate and distinct disbursals each year, and not at 
subsidies which have been allocated over time.
Comment 4 (Disproportionality--Aggregation)
    The GOQ argues that the Department's reference to the wood products 
industries is inconsistent with the law because the Department should 
first consider whether the enterprise itself has received a 
disproportionate share, and then whether the industry similarly 
benefitted. The GOQ also argues that the Department should compare the 
benefit received by the hardwood trailer flooring industry--of which 
Leclerc is the sole member--to the total value of SDI loans.
    Petitioner argues that requiring the Department to compare benefits 
received by the hardwood trailer flooring industry to other such 
industries at the same level of aggregation is impractical and is 
directly contrary to section 771(5A) of the Act and section 355.43(b) 
of the Proposed Regulations which allows the Department to choose from 
various levels of aggregation for comparison purposes.

DOC Position

    We disagree with the GOQ that the Department considered the wrong 
industry level when analyzing disproportionality. In its May 20, 1996 
questionnaire, the Department requested that the GOQ provide the annual 
``industry distribution'' of authorized benefits under the Investment 
Assistance Program for both Expansion and Modernization Program and 
PREP. Our determination of disproportionality was based, in part, on an 
analysis of the industry distribution maintained by the GOQ and 
reported in their questionnaire response. Although other GOQ 
organizations such as SQDM provided information at a more detailed 
level, the Department presumed that the information provided for SDI's 
Investment Assistance Program represented the most detailed information 
available to the GOQ. Moreover, we did not perceive the information to 
be incorrect.
    In our disproportionality analysis, we determined, for both Leclerc 
and the wood products industry, the percentage of total annual 
authorized financing. We examined how these percentages compared to the 
average transaction by industry, as well as the percentage of total 
assistance accounted for by the other industry participants identified 
by the GOQ. While the ``wood products industry'', as originally 
reported by the GOQ in its supplemental questionnaire response, can be 
broken down into more discrete units, we do not agree that we are 
precluded from examining

[[Page 5209]]

disproportionality at the level of detail originally provided by the 
GOQ. As the GOQ acknowledged in the hearing, ``the statute * * * 
confers upon [the Department] discretion to determine what is the 
appropriate level of aggregation'' (see page 70 of January 7, 1996 
hearing transcript). In this case, the Department relied on information 
provided by the GOQ to compare the distribution of benefits to Leclerc 
and the group of wood product industries to other groups of industries 
that received assistance under this program. Based on this comparison, 
we determined that Leclerc received a disproportionate amount of 
assistance under this program.
Comment 5 (Disproportionality--Considering Only Disbursed Financing)
    The GOQ asserts that for purposes of determining disproportionality 
the Department should look at loans that were actually disbursed rather 
than loans that were authorized. According to the GOQ, if the 
Department considers the amount actually disbursed in 1995, the share 
of SDI financing accounted for by the wood products industries in that 
year is less than that received by the plastics and rubber industries 
and is ``on par'' with disbursements to the chemical and metal products 
industries.
    Petitioner disagrees with the GOQ's argument that the Department 
should base its disproportionality analysis on loans actually 
disbursed, as opposed to loans authorized. According to petitioner, the 
level of authorized financing reflects the GOQ's intent during a 
particular period and is, therefore, an appropriate measure for 
determining disproportionality. Petitioner also notes that the only 
record evidence in this case regarding industry-by-industry assistance 
under the Expansion and Modernization Program is based on SDI 
authorized loans.

DOC Position

    We disagree with the GOQ that authorized SDI financing cannot be 
used in the Department's disproportionality analysis. The only data we 
have on shares received by industries/enterprises other than Leclerc is 
derived from authorized amounts. To use the amount disbursed for 
Leclerc and the amounts authorized for other industries/enterprises to 
calculate their relative shares would be inappropriate given the 
inconsistency inherent in comparing such data. (See also Comment 17.)
Comment 6 (Disproportionality--Magnitude)
    The GOQ argues that the Department has never found 
disproportionality in a case with facts resembling the facts here. In 
the Final Affirmative Countervailing Duty Determinations: Certain Steel 
Products from Brazil 58 FR 37295 (July 9, 1993)), the steel producers 
received more than 50 percent of the ``benefits'' under the examined 
program, two-and-a-half times more than the second largest recipient 
industry. The GOQ also cites Final Affirmative Countervailing Duty 
Determination: Grain-Oriented Electrical Steel from Italy 59 FR 18357 
(April 18, 1994) and Final Results of Countervailing Duty 
Administrative Review: Live Swine from Canada 59 FR 12243 (March 16, 
1994) as examples in which the Department found disproportionality 
based on large industry usage of a program. While the Department 
determined 16.9 percent to be disproportionate in Final Affirmative 
Countervailing Duty Determinations: Certain Steel Products From Belgium 
(Certain Steel Products From Belgium) 58 FR 37273 (July 9, 1993)), the 
GOQ alleges that the Department was examining a single industry (the 
steel industry), as opposed to a group of industries. The GOQ also 
cites Final Results of Countervailing Duty Administrative Reviews: 
Antifriction Bearings (Other Than Tapered Roller Bearing) (AFBs) from 
Singapore 60 FR 52377 (October 6, 1995) in which the group of 
industries in which AFBs belongs received a large percentage of 
assistance, while AFBs themselves received a small percentage.
    Petitioner states that the Department analyzed specificity at both 
an industry and company-specific level and reasonably found that there 
was disproportionate use. Although petitioner agrees that the cases 
cited by the GOQ indicate that greater levels of usage have been the 
basis for a finding of disproportionality in some instances, petitioner 
asserts that this does not mean the Department's disproportionality 
analysis in the instant case is unreasonable or faulty.

DOC Position

    We agree with petitioners. Disproportionality is fact-specific and 
determined on a case-by-case basis. The shares found to be 
disproportionate in previous cases do not represent a floor below which 
the Department cannot determine disproportionality to exist. Our 
determination in this case was based both on usage by the group of 
industries to which Leclerc belongs and usage by Leclerc. As discussed 
above, the wood products industries were among the top of users of the 
Expansion and Modernization Program and Leclerc, as an individual 
enterprise within this group, also received a relatively large 
percentage of financing under this program. On this basis, we 
determined that Leclerc received disproportionate amounts under this 
program.
Comment 7 (Disproportionality--Addressing GDP)
    The GOQ argues that the CIT has determined that the Department 
cannot rely on a mechanical, per se test for disproportionality and 
that it has a further obligation to address the reasons that may 
explain why an industry has received a relatively large share (see 
British Steel at 1326). In addition to comparing the industry's share 
of government benefits over time to the industry's share of gross 
domestic product (GDP), the GOQ also argues that the CIT has stated 
that the receipt of large benefits may also be explained by the fact 
that the industry was expanding, or that there was an increased demand 
for capital investment. According to the GOQ, when the Department 
considers GDP, it must request and consider other evidence which the 
Department did not do in this case.
    The GOQ states that information provided to the Department at 
verification demonstrated that the share of loans received by the wood 
products industries is virtually identical to their share of total 
shipments of manufactured goods in Quebec. Additionally, the GOQ notes 
that during the 1993-1995 period, North America was emerging from a 
recession. In this economic environment, the laminated hardwood trailer 
flooring industry, along with other wood products industries, was 
experiencing sustained growth and, thus, was in need of capital.
    Petitioner disagrees that the Department should use a GDP analysis 
in this case because the GDP figures relied upon by the GOQ are based 
on manufacturing GDP. Therefore, they do not represent Canada's GDP and 
they do not match the scope of SDI's lending authority which goes 
beyond the manufacturing sector. Petitioner also rejects the GOQ's 
argument that the CIT decision in British Steel stands for the 
proposition that the Department must perform a GDP analysis and examine 
factors explaining why an industry received a relatively large share of 
assistance under a particular program. According to petitioner, British 
Steel requires the Department to examine the above-referenced 
information only when it relies on indirect factors to determine 
disproportionality. Since the indicators used in the instant case were 
directly related, as opposed to indirectly

[[Page 5210]]

related, petitioner argues that the CIT's finding in British Steel is 
irrelevant.

DOC Position

    We disagree with the GOQ that a finding of disproportionality 
requires the Department to examine reasons that may explain why the 
industry at issue received a disproportionate share of the benefits. 
The statute does not require the Department to determine the cause of 
any de facto specificity that occurs as a result of the government 
action. To the contrary, the statute provides that the Department may 
impose a countervailing duty if it determines that a benefit provided 
by a government action is conferred upon a specific industry. No intent 
or purposeful government action is required to show that a specific 
industry is receiving the benefit, as acknowledged by the Court in 
British Steel. See also, Final Affirmative Countervailing Duty 
Determination: Certain Softwood Lumber Products from Canada, 57 FR 
22570, 22580-81 (1992).
    In response to the Court's remand instructions in British Steel, 
the Department stated that it is not required to analyze the causal 
relationship between the benefit conferred and the specificity of the 
benefit. Furthermore, ``imposing the requirement of an affirmative 
showing that de facto specificity is the result of particular 
government actions is contrary to the statute, the intent of Congress, 
and past judicial precedent.'' See Final Results of Redetermination 
Pursuant to Remand British Steel Plc. v. United States (February 9, 
1995) at 12. The Department's redetermination was upheld by the Court 
(see British Steel PLC v. United States 941 F. Supp. 119, 128, (CIT 
1996)).
    The same point is made in the Uruguay Round Trade Agreements 
Statement of Administrative Action (SAA) at 262. The SAA states that 
evidence of government intent to target or otherwise limit benefits is 
irrelevant in de facto specificity analysis.
Comment 8 (Disproportionality--Considering SDI as Only One Program)
    The GOQ argues that the Department incorrectly limited its 
examination of funds received by Leclerc and the wood products 
industries to the Expansion and Modernization Program, as opposed to 
total loans received under all SDI programs. The GOQ states that the 
latter approach is correct because all SDI loans come from the same 
pool of monies, they are disbursed under different ``programs'' only 
for administrative purposes, and that program distinctions make no 
difference in the loan criteria, terms, essential eligibility, or 
participation. Also, they are administered by the same loan officers 
and the customized terms for all SDI loans and loan guarantees are 
essentially the same. This information indicates that the hardwood 
trailer flooring industry received only a fraction of all SDI loans 
between 1993 and 1995.

DOC Position

    We do not agree that all SDI programs should, in effect, be 
considered integrally linked and, therefore, a single program for 
purposes of determining specificity. Section 355.43(b)(6) of the 
Department's Proposed Regulations states that in determining whether 
two or more programs are integrally linked ``the Secretary will 
examine, among other factors, the administration of the programs, 
evidence of a government policy to treat industries equally, the 
purposes of the programs as stated in their enabling legislation, and 
the manner of funding the programs.'' In the Final Affirmative 
Countervailing Duty Determination: Pure Magnesium and Alloy Magnesium 
From Canada 57 FR 30946 (July 13, 1992) (Magnesium from Canada), the 
Department applied this standard when it found that SDI Article 7 
assistance was not integrally linked to ``general SDI programs.'' In 
making this determination, the Department noted that ``[t]he * * * 
programs offer different types of assistance and have been established 
for different purposes.'
    Each SDI program under investigation in this case (e.g., Expansion 
and Modernization Program and PREP) operates under separate regulations 
and directives. Each program is also different with respect to 
objective and level of benefit. For example, PREP was a temporary 
program established to alleviate cash flow problems experienced by 
Quebec companies during the recession of the early 1990s. Under PREP, 
SDI guaranteed a percentage of loans that could range between 
CD$100,000 and CD$1,000,000. The Expansion and Modernization Program, 
on the other hand, was a long-term program which provided businesses 
with loans for the establishment or expansion of facilities. Although 
the floor for assistance under Expansion and Modernization Program is 
also CD$100,000, there is no stated cap.
    While we acknowledge the overlap that the GOQ refers to with 
respect to the administration of its programs, these programs are not 
integrally linked because they are separated for legal purposes by 
different regulations. They also have different objectives and benefit 
levels. For these reasons, we have continued to examine these programs 
individually for the final determination.
Comment 9 (Subsidiary Agreement: Including Amount not Disbursed in POI 
to Determine Benefit)
    Petitioner claims that the Department's preliminary ad valorem 
calculation regarding the Subsidiary Agreement was understated because 
the Department failed to include funds disbursed to Leclerc after the 
POI.
    The GOQ contends that petitioner's argument ignores the legal 
requirement that the Department determine whether countervailable 
benefits were provided during the POI. According to the GOQ, events 
occurring after the POI can have no relevance to the Department's 
determination of whether benefits were received during the POI.
    Leclerc notes that the Department correctly treated the Subsidiary 
Agreement assistance as a variable rate, long-term loan. Thus, in 
accordance with section 355.49(d)(1) of the Proposed Regulations, 
Leclerc argues that the Department must determine the amount of the 
benefit attributable to a particular year under a variable rate, long-
term loan by calculating the difference between what the firm paid 
during the year under the government loan and what the firm would have 
paid during the year under the benchmark loan.

DOC Position

    We disagree with petitioner. In accordance with section 355.48 of 
the Proposed Regulations, a countervailable benefit is deemed to have 
been received at the time that there is a cash flow effect on the firm 
receiving the benefit. In the case of a loan, the cash flow effect is 
normally deemed to have occurred at the time a firm is due to make a 
payment on the benchmark loan. Therefore, because Leclerc would not 
have been required to make a payment during the POI on the benchmark 
loan for the disbursement in question, that disbursement could not have 
conferred a benefit on the firm during the POI.
Comment 10 (Benchmark Interest Rate Based on Adverse Facts Available)
    Petitioner argues that the benchmark interest rate for the loan 
under the Subsidiary Agreement should be 20 percent, based on adverse 
facts available. Petitioner contends that the use of adverse facts 
available is warranted because the GOC did not provide the verification 
team with certain documents.

[[Page 5211]]

    The GOC argues that the requested analysis/approval documents were 
provided to the verification team (see GOC Verification Report at page 
2). Accordingly, no grounds exist for the Department to consider the 
punitive measures petitioner proposes.

DOC Position

    We agree with the GOC that application of adverse facts available 
is not warranted with respect to the Subsidiary Agreement loan. As 
noted in the GOC verification report, while the GOC initially could not 
provide the analysis/approval documents because of concerns regarding 
the proprietary nature of the documents, the GOC made available certain 
approval documents to the verification team on November 28, 1996. Thus, 
no grounds exist for the Department to consider the use of adverse 
facts available.
Comment 11 (Upstream Subsidy)
    Petitioner states that the Department's verification of Leclerc's 
lumber purchasing records incidentally confirmed that Leclerc paid 
widely varying prices for the same species and grade purchased at the 
same time, that it paid higher prices for lower quality lumber 
purchased at the same time, and that it was able to buy lumber, a 
commodity product, at prices below what other buyers were willing to 
pay. Thus, petitioner contends that because the Department failed to 
address the issues regarding the credibility of Leclerc's lumber 
purchasing records, the Department must disregard Leclerc's prices.
    Both the GOQ and Leclerc note that the factual record in this case 
fully supports the Department's Preliminary Determination that no 
competitive benefit was bestowed on Leclerc through its purchases of 
allegedly subsidized lumber. Respondents note that the Department twice 
verified the actual prices paid by Leclerc for purchases of lumber and 
the sources of Leclerc's lumber. Moreover, respondents state that the 
Department's verification reports confirm that Leclerc and the GOQ 
accurately reported all the relevant competitive benefit data. 
Respondents add that the Department analyzed the verified data and 
correctly concluded that no competitive benefit was bestowed upon 
Leclerc.

DOC Position

    We agree with respondents. We thoroughly examined and verified 
Leclerc's lumber purchasing records for the POI, as well as GOQ records 
which confirmed the sources from which Leclerc's suppliers obtained 
timber (see August 26, 1996 Verification Reports of Leclerc and the GOQ 
and December 10, 1996 Verification Reports of Leclerc and the GOQ). 
Moreover, many concerns raised by petitioner prior to verification were 
addressed at verification. This verified record information was then 
analyzed using several approaches. Based on our analysis, we have 
determined that the company did not receive a competitive benefit 
through its lumber purchases from allegedly subsidized suppliers.
    Comment 12 (Denominator Issue: Subsidiary Agreement and SDI)
    Leclerc contends that the financing received under the Subsidiary 
Agreement and SDI benefited the company's total production and, 
therefore, the denominator used to calculate the ad valorem subsidy 
rate should be total sales. Leclerc adds that the Department's 
verification reports of Leclerc and the GOC further confirm that the 
assistance benefited total sales, not just subject merchandise.
    Petitioner contends that Leclerc's argument is misplaced because 
the GOC and GOQ provided the assistance solely to support the 
production of LHF. Petitioner notes that the financing received through 
SDI and the Subsidiary Agreement was received by the two companies in 
the Leclerc group of companies which produce LHF, and that other 
members of the group which produce other items did not receive this 
financing. Finally, petitioner claims that Leclerc has failed to 
produce documentation showing that the governments intended their 
financing to go beyond LHF production at the time it was granted.

DOC Position

    We agree with petitioner that the assistance provided to Leclerc 
under these programs was ``tied'' to the production of subject 
merchandise. Consistent with the Department's traditional tying 
analysis, we have determined that our inquiry should focus on the 
subsidy givers'' (i.e., the GOC and GOQ) intended use for the subsidies 
prior to or at the point of bestowal. Namely, a subsidy is considered 
to be tied to a particular product when the intended use is 
acknowledged prior to or concurrent with the bestowal of the subsidy 
(see GIA at 37232). With respect to the financing in question, all 
available documentary record evidence generated by the GOC, GOQ and 
Leclerc prior to the point of bestowal (e.g., applications, analysis 
reports, recommendation documents, and contracts) demonstrate that the 
governments only considered the expansion and/or creation of LHF 
facilities as the project for which the assistance was provided.
    Additionally, as noted by petitioner, the Department verified that 
the financing in question was provided to Nilus Leclerc, Inc. and 
Industries Leclerc, Inc., the LHF producers in the Leclerc group of 
companies. Members of the Leclerc group of companies which produce non-
subject merchandise were not considered in the above-referenced 
government documents as beneficiaries of the financing in question. 
Therefore, we have determined that the financing received under the 
Subsidiary Agreement and SDI solely benefited the production of LHF.
Comment 13 (SDI: Calculation Errors)
    The GOQ and Leclerc contend that the Department erred in 
calculating the net present value of the 1995 and 1994 SDI loans by 
incorrectly calculating the present value of some cash flows. The GOQ 
and Leclerc assert that when these errors are corrected, there is no 
benefit from the SDI loans during the POI.

DOC Position

    We agree with the GOQ and Leclerc that errors were made in 
calculating the present value interest factor for the SDI loans. These 
errors have been corrected.
Comment 14 (The Department Must First Find a Benefit)
    According to the GOQ, the statute requires the Department to find 
first that a payment is a subsidy, and only subsequently can it analyze 
whether the subsidy is countervailable. The GOQ and Leclerc assert that 
if the Department had not erred when it determined that the SDI loans 
conferred a benefit, it would never have analyzed the specificity of 
the SDI loans.

DOC Position

    We disagree with the assertion that the Department first must find 
a benefit from a particular program that is used in order to analyze 
the specificity of such program. Programs can be found to be specific 
on different grounds, which in turn dictate the method for calculating 
the benefit. For example, if a program is found to be an export 
subsidy, rather than a specific domestic subsidy, the denominator used 
to calculate the benefit is export sales rather than total sales, which 
can affect the finding of a benefit. Additionally, because the 
Department cumulates the benefit from all countervailable programs in 
order to determine if the aggregate benefit is greater than de minimis, 
the Department must assess the countervailability of any program

[[Page 5212]]

where the benefit may be greater than zero.
Comment 15 (Using 1996 Information to Calculate the Benefit)
    According to the GOQ, were we to consider events subsequent to the 
POI, there would be no benefit to Leclerc from any of the loans. 
However, both the GOQ and Leclerc also argue that information 
concerning events subsequent to the POI cannot be used retrospectively 
to determine a countervailable benefit.
    Petitioner claims that the Department did not verify important 
elements of these events and, therefore, cannot rely on them to 
calculate a benefit. In rebuttal, Leclerc argues that the events are on 
the record and verified.

DOC Position

    We disagree with respondents that our calculation of the benefit 
conferred by a long-term loan during the POI cannot reflect events 
subsequent to the POI. For example, if we learn during verification 
that scheduled payments on the loan were missed during the year 
following the POI, it is appropriate to reflect those missed payments 
in our calculation. This is because when we are calculating the grant 
equivalent of a long-term loan we necessarily include information about 
expected payments under the loan. Where actual payments differ from 
expected payments, we reflect the actual payments to increase the 
accuracy of our calculation.
    Our examination of the post-POI information was sufficient to 
determine that the information provided is generally consistent with 
information submitted in Leclerc's questionnaire, as well as other 
information provided by the GOQ, which was fully verified. Therefore, 
as facts available, we have decided to use the post-POI information to 
achieve accurate calculations of the benefits conferred by these loans.
Comment 16 (The Department Should Use its Long-term, Variable-rate 
Methodology for SDI Loans)
    Leclerc maintains that the Department's approach to calculating the 
benefit under the SDI and Subsidiary Agreement programs is internally 
inconsistent, and that the variable rate methodology could be used for 
the SDI loans. While Leclerc notes that we changed our methodology in 
order to account for the premia, they state that the underlying loans 
are actually variable rate loans. Furthermore, Leclerc notes that the 
first option in the Department's long-term, variable-rate benchmark 
hierarchy is to use the interest rate on a variable-rate, long-term 
benchmark loan.
    The GOQ notes that the Department prudently deviated from its 
traditional methodology to account for the full costs to the borrower. 
However, the GOQ notes that the Department might choose to revert to 
its traditional methodology.
    Petitioner contends that the SDI loans cannot be treated as 
variable rate loans because of events subsequent to the POI that 
preclude the use of the Department's long-term, variable-rate 
methodology.

DOC Position

    We disagree with Leclerc that the Department should revert to using 
its long-term, variable-rate methodology. As we explained in our 
Preliminary Determination, there are several features of these loans 
that lead us to conclude that our variable-rate loan methodology is not 
capable of measuring the benefits conferred by these loans. Therefore, 
we have continued to apply our long-term, fixed-rate loan methodology.
Comment 17 (Extent to Which the 1995 SDI Loan Provided a 1995 Benefit 
to Leclerc)
    The GOQ and Leclerc argue that the authorized portion of the 1995 
SDI loan disbursed during the POI should not have been countervailed 
because no payments were due or would have been due under comparable 
financing during the POI. The GOQ and Leclerc state that the 
Department's Proposed Regulations and prior practice dictate that it 
countervail a benefit ``at the time a firm is due to make a payment on 
the loan.'' (See Proposed Regulations, 355.48(a), (b)(3)). Leclerc 
cites, among others, Final Results of Countervailing Duty 
Administrative Review: Certain Iron-Metal Casings From India, 61 FR 
64687 (December 6, 1996) in which the Department calculated the benefit 
as having been received when the first interest payment was made, 
despite the fact that interest had accrued in the prior year.
    If the Department continues to assign a benefit to 1995 from the 
1995 SDI loan, the GOQ and Leclerc argue that the Department should not 
include amounts that were authorized, but not disbursed during 1995. 
Including the amounts that were not disbursed would violate Article 19 
of the Uruguay Round Agreement on Subsidies and Countervailing Measures 
because, Leclerc argues, it could not have benefited during the POI 
from funds that were not disbursed.
    Petitioner claims that the Department was consistent with its 
regulations in finding a benefit from the 1995 SDI loan because it 
calculated the loan's grant equivalent. Petitioner notes that section 
355.48(b) of the Department's Proposed Regulations state that ``{the 
benefit} occur{s} in the case of a grant * * * at the time a firm 
receives the grant or equity infusion.'' Thus the benefit on the 1995 
loan occurred at the time of receipt (i.e., during the POI). Petitioner 
further argues that the cases cited by the GOQ and Leclerc do not apply 
to the loan in question because in all the cited cases the loans in 
question are short-term loans, in which the Department does not 
calculate a grant equivalent. Moreover, Petitioner contends that the 
methodology proposed by the GOQ and Leclerc is not consistent with 
economic logic because it would preclude the Department from finding a 
benefit on a loan with lengthy payment deferrals if the recipient could 
show that it obtained a similar loan from commercial lenders.

DOC Position

    We agree with respondents. While we have calculated a grant 
equivalent for the SDI loans, the underlying instrument continues to be 
a loan. If there is no effect on the recipient's cash flow during the 
POI (i.e., no payment would have been made on the benchmark loan during 
the POI), there is no benefit attributable to the POI. (See Final 
Affirmative Countervailing Duty Determinations: Certain Steel Products 
from France, 58 FR 37304 (July 9, 1993) and Final Affirmative 
Countervailing Duty Determination: Brass Sheet and Strip from France, 
52 FR 1218, 1221 (January 12, 1987).)
    Furthermore, based on the Department's practice of calculating a 
benefit at the time a payment is due on the benchmark loan, we have 
found, in this instance, that the benefit conferred by the SDI loans 
should be attributed to the year subsequent to disbursement because no 
payments were due on the benchmark loans until that time.
    Because we have decided that a benefit should not be calculated for 
the 1995 SDI loan, we do not reach the countervailability of the 
undisbursed amount.
Comment 18 (SDI Loans Should be Treated as Grants or the Methodology 
Should be Revised)
    As adverse facts available, petitioner asserts that the SDI loans 
should be treated as grants offset only by verified payments. If the 
Department does not treat the SDI loans as grants, it should: (1) use 
only verified payments in the repayment stream; (2) consider principal 
outstanding at the end of the

[[Page 5213]]

loan term to be forgiven; (3) use a benchmark interest rate of 20 
percent; (4) assume there will be no extension of due dates; (5) assume 
any shares of Leclerc that SDI might acquire will have no value; and 
(6) treat the SDI loans as export subsidies.
    Such measures are justified, according to petitioner, because 
Leclerc failed to provide the Department with pertinent information 
about the SDI loans prior to verification. This omission constitutes a 
serious material misrepresentation, in petitioner's view. Despite being 
requested by the Department in the questionnaire to provide such 
information, Leclerc failed to do so. Petitioner asserts that it is 
Department practice to use facts available when a party ``withholds 
information that has been requested'' (see 776(a) of the Act). 
Additionally, because the SDI regulations state that it can enter into 
agreements with distressed borrowers, any SDI loan terms are suspect 
and, thus, cannot be used for benefit calculations.
    Leclerc argues that petitioner's insistence on the use of adverse 
facts available is without merit because Leclerc has cooperated fully 
with the Department. The Department has conducted two successful 
verifications with the GOQ, the GOC and Leclerc. Leclerc claims that 
its voluntary submission of minor additional information discovered 
during the course of preparing for verification substantiates its 
cooperation. Specifically, Leclerc states that the Department's 
standard questionnaire simply asks that parties report differences 
between what the loan agreement requires and what a party actually 
paid.
    Additionally, Leclerc claims that there is no legal precedent or 
argument that would justify treating the SDI loans as grants, and that 
there is no evidence on the record that the loans are grants. Thus, the 
Department should continue to analyze the SDI financing as loans. 
Leclerc and the GOQ argue that Leclerc continues to have a legal 
obligation to repay its SDI loans, thus no forgiveness has occurred. 
Moreover, section 355.44(k) of the Proposed Regulations requires the 
Department to recognize loan forgiveness as a grant ``at the time of 
the assumption or forgiveness.'' Leclerc asserts that petitioner's 
other methodological suggestions are groundless. The events subsequent 
to the POI affecting the SDI loans are indeed on the record and 
verified, but these events are irrelevant because they occurred after 
the POI.

DOC Position

    In this instance, we do not believe that Leclerc's late submission 
of information concerning events subsequent to the POI requires that 
the Department use adverse facts available. While we have included the 
post-POI information in our calculations to make them more accurate, 
our investigation has clearly focussed on information from years prior 
to and including the POI.
    Further, we agree with Leclerc and the GOQ that the Proposed 
Regulations state that a benefit from loan forgiveness usually occurs 
when the loan is forgiven. We disagree with petitioner that the loans 
should be treated as grants simply because SDI can renegotiate loan 
terms with its clients. Commercial lenders also typically have the 
freedom to change the terms when dealing with a distressed borrower.
    Regarding treating the SDI financing as a grant, the Department's 
GIA at 37255 sets out the standard for determining whether an 
instrument should be considered a grant:

    We have distinguished grants from both debt and equity by 
defining grants as funds provided without expectation of a: (1) 
Repayment of the grant amount, (2) payment of any kind stemming 
directly from the receipt of the grant, or (3) claim on any funds in 
case of company liquidation. (parenthesis omitted)

    Based on the above, the SDI loans should not be considered grants 
because the SDI financing does not meet any of the three criteria. 
Moreover, in distinguishing between equity and loans, the GIA at 37255 
states:

    Loans typically have a specified date on which the last 
remaining payments will be made and the obligation of the company to 
the creditor is fulfilled. 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.

    While certain aspects of repayment under the SDI loans are more 
flexible than that of a standard commercial bank loan, as reflected in 
its financial statements, Leclerc had a repayment obligation to SDI 
during the POI. Thus, we find no basis on which to consider the SDI 
loans to be a grant.

Summary

    Based on the four countervailable programs described above, the 
aggregate ad valorem rate is 0.57 percent. This rate is de minimis, 
pursuant to 703(b)(4) of the Act. Therefore, we determine that no 
benefits which constitute bounties or grants within the meaning of the 
countervailing duty law are being provided to manufacturers, producers 
or exporters of LHF in Canada.

Verification

    In accordance with section 782(i) of the Act, we verified the 
information used in making our final determination. We followed 
standard verification procedures, including meeting with government and 
company officials, and examination of relevant accounting records and 
original source documents. Our verification results are outlined in 
detail in the public versions of the verification reports, which are on 
file in the Central Records Unit (Room B-099 of the Main Commerce 
Building).

Return or Destruction of Proprietary Information

    This notice serves as the only reminder to parties subject to 
Administrative Protective Order (APO) of their responsibility 
concerning the return or destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to 
comply is a violation of the APO.
    This determination is published pursuant to section 705(d) of the 
Act.

    Dated: January 27, 1997.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-2715 Filed 2-3-97; 8:45 am]
BILLING CODE 3510-DS-P
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