54990 Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices

not exist, these proceedings will be

terminated and all estimated duties

deposited or securities posted as a result

of the suspension of liquidation will be

refunded or canceled. If, however, the

ITC determines that such injury does

exist, we will issue a countervailing

duty order directing Customs officers to

assess countervailing duties on steel

wire rod from Canada.

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: October 14, 1997.

Robert LaRussa,

Assistant Secretary for Import

Administration.

[FR Doc. 97–27986 Filed 10–21–97; 8:45 am]

BILLING CODE 3510–05–P

DEPARTMENT OF COMMERCE

International Trade Administration

[C–428–823]

Final Affirmative Countervailing Duty

Determination: Steel Wire Rod From

Germany

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT:

Cynthia Thirumalai or Daniel Lessard,

Office of Antidumping/Countervailing

Duty Enforcement, Group 1, Office 1,

Import Administration, U.S. Department

of Commerce, Room 1874, 14th Street

and Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone

(202) 482–4087 or 482–1778,

respectively.

Final Determination

The Department determines that

countervailable subsidies are being

provided to Saarstahl AG (‘‘Saarstahl’’)

and Ispat Hamburger Stahlwerke GmbH

(‘‘IHSW’’), producers and exporters of

steel wire rod from Germany. We also

determine that Walzdraht Hochfeld

GmbH (‘‘WHG’’) and Brandenburger

Elektrostahlwerke GmbH (‘‘BES’’)

received de minimis subsidies.

Case History

Since the publication of the

preliminary affirmative determination

(‘‘Preliminary Determination’’) in the

Federal Register, 62 FR 41945 (August

4, 1997), the following events have

occurred.

Verification of the responses of the

Government of the Federal Republic of

Germany (‘‘GOG’’), the Government of

the Free and Hanseatic City of Hamburg

(‘‘GOH’’), the Government of Saarland

(‘‘GOS’’), the European Union (‘‘EU’’),

Saarstahl, IHSW, WHG, and BES was

conducted between August 20 and

September 5, 1997.

Petitioners and respondents filed case

and rebuttal briefs on September 19,

1997, and September 23, 1997,

respectively. The hearing was held on

September 24, 1997. Per the

Department’s request, post-hearing

submissions were received from parties.

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 19.00 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

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’’).

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 (‘‘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: Since benefits from

nonrecurring subsidies are not confined

to a single period of time, the

Department must determine a

reasonable period over which to allocate

such benefits. 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 appended to

Final Affirmative Countervailing Duty

Determination; Certain Steel Products

from Austria, 58 FR 37217, 37226 (July

9, 1993) (‘‘GIA’’)). 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 renewable 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
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British Steel. Therefore, for the purposes

of this determination, the Department

has calculated a company-specific AUL

for IHSW. However, we did not rely on

Saarstahl or BES’s company-specific

AULs for purposes of this final

determination because the calculations

were significantly distorted by the asset

valuation methodologies employed by

the companies in 1989 and 1992,

respectively. This issue is addressed

with respect to Saarstahl in Comment

11, below.

Based on information provided by

IHSW regarding the company’s

depreciable assets, the Department has

determined that the appropriate

allocation period for IHSW is 10 years.

With respect Saarstahl and BES, we

based the companies’ AUL on the

depreciation schedule in Germany for

Technical Machinery and Equipment

(i.e., 11 years). The calculation of an

allocation period for WHG was

unnecessary.

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

methodology, see e.g., Final Affirmative

Countervailing Duty Determination:

Certain Steel Products from France, 58

FR 37304 (July 9, 1993) or Final

Affirmative Countervailing Duty

Determination: Certain Steel Products

from the United Kingdom, 58 FR 37393

(July 9, 1993).

Petitioners have alleged that Saarstahl

was uncreditworthy in 1989 and

between 1993 and 1996. They further

allege that HSW and IHSW were

uncreditworthy in 1984 and 1994,

respectively.

Because neither company received

long-term financing in the relevant

years, we examined other factors to

determine the firms’ creditworthiness.

In making our determinations, we

examined Saarstahl’s and IHSW’s

current, quick, and interest/debt

coverage ratios in addition to their net

profit/loss for the three preceding years.

Both Saarstahl and IHSW experienced

operating losses in those years (except

1988 for Saarstahl), and the financial

ratios demonstrate that both companies

were in poor financial health. The

current ratio (current assets divided by

current liabilities) measures the margin

of safety available to cover any drop in

the value of current assets, while the

quick ratio (current assets excluding

inventory and prepaids divided by

current liabilities) shows the company’s

ability to pay its short-term liabilities.

For both companies, these ratios were

very small, demonstrating the

companies’ difficulty in meeting their

short-term liabilities and interest

expenses. Furthermore, the interest/debt

coverage ratios (net income plus interest

expense plus taxes divided by interest

expense) highlighted the firms’ inability

to meet existing interest obligations. We

determine that Saarstahl was

uncreditworthy in 1989 and IHSW was

uncreditworthy in 1994.

Because Saarstahl did not receive any

countervailable benefits in the form of

loans, loan guarantees, or nonrecurring

grants from the GOG or the GOS

following its 1993 bankruptcy, we do

not reach the question of Saarstahl’s

creditworthiness for this period.

Moreover, because IHSW’s allocation

period is ten years, we are not

examining subsidies received prior to

1987. Therefore, we do not need to

analyze HSW’s creditworthiness for that

period.

Discount Rates: Information on the

record indicates that German banks set

interest rates for long-term, fixed rate

commercial loans in reference to the

yield earned on government bonds to

which they normally add a margin, or

spread, depending upon the borrower’s

creditworthiness. Because Saarstahl,

IHSW, and BES did not provide

company-specific discount rates, we

used the German government bond rate

plus a spread of 1.75 and 1.5 percent as

the discount rate for Saarstahl in 1989

and IHSW in 1994, respectively. This

rate represents the highest long-term

interest rate which we could locate. As

the discount rate for BES in 1994, we

used the German government bond rate

plus a spread of 1.15 percent (i.e., the

average of the spread between 0.8 and

1.5) because BES was not found to be

uncreditworthy. We added a risk

premium, as described in section

355.44(b)(6)(D)(iv) of the Countervailing

Duties; Notice of Proposed Rulemaking

and Request for Public Comment, 54 FR

23366, 23374 (May 31, 1989) (‘‘Proposed

Regulations’’), to establish the

uncreditworthy discount rate for

Saarstahl in 1989 and IHSW in 1994.

Privatization: In the GIA, we applied

a new methodology with respect to the

treatment of subsidies recestived prior

to the sale of a company (privatization)

or the spinning-off of a productive unit.

Under this methodology, we estimate

the portion of the purchase price

attributable to prior subsidies. We

compute this by first dividing the

privatized company’s subsidies by the

company’s net worth for each year

during the period beginning with the

earliest point at which nonrecurring

subsidies would be attributable to the

POI (i.e., in this case 1986 for Saarstahl

and 1987 for IHSW) and ending one

year prior to the privatization.

For Saarstahl, we modified this

methodology pursuant to the Remand

Determination: Certain Hot Rolled Lead

and Bismuth Carbon Steel Products

from Germany, p. 4–5 (October 12,

1993). Specifically, we calculated the

ratios in question by including in the

calculation the assistance that Saarstahl

received prior to privatization in the

year the assistance was received. We did

so even though we do not consider this

prior assistance, at the time it was

received, to be nonrecurring in nature

and, thus, allocable over time. We

followed a similar approach with

respect to assistance received by IHSW

in 1993.

We then take the simple average of

the ratios of subsidies to net worth. This

simple average of the ratios serves as a

reasonable surrogate for the percent that

subsidies constitute of the overall value

of the company. Next, we multiply the

average ratio by the purchase price to

derive the portion of the purchase price

attributable to repayment of prior

subsidies. Finally, we reduce the benefit

streams of the prior subsidies by the

ratio of the repayment amount to the net

present value of all remaining benefits

at the time of privatization.

With respect to spin-offs, consistent

with the Department’s position

regarding privatization, we analyze the

spin-off of productive units to assess

what portion of the sale price of the

productive unit can be attributable to

the repayment of prior subsidies. To

perform this calculation, we first

determine the amount of the seller’s

subsidies that the spun-off productive

unit could potentially take with it. To

calculate this amount, we divide the

value of the assets of the spun-off unit

by the value of the assets of the

company selling the unit. We then
54992 Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices

apply this ratio to the net present value

of the seller’s remaining subsidies. We

next estimate the portion of the

purchase price going towards repayment

of prior subsidies in accordance with

the privatization methodology outlined

above.

In the current investigation, we are

analyzing: (1) the privatization of

Saarstahl in 1989 and subsequent spinoff in 1994 and (2) the privatization of

IHSW in 1994. For BES we find it

unnecessary to conduct a spin-off

calculation because its potentially

countervailable subsidies were received

after BES was spun off.

Based upon our analysis of the

petition, the responses to our

questionnaires and the information

reviewed at verification, we determine

the following:

I. Programs Determined to Be

Countervailable

A. Saarstahl

1. Forgiveness of Saarstahl’s Debt in

1989

During the period 1978 to 1989,

Saarstahl and its predecessor companies

received massive amounts of assistance

from the GOS and GOG. Repayment of

these funds eventually became

contingent upon Saarstahl returning to

profitability and earning a profit above

and beyond the losses accumulated after

1978. This contingent repayment

obligation was known as a

Ru ̈ ckzahlungsverpflichtung (‘‘RZV’’).

In 1989, the GOS reached an

agreement with Usinor-Sacilor to

combine Saarstahl with AD der

Dillinger Huttenwerke (‘‘Dillinger’’)

under a holding company, DHSDillinger Hutte Saarstahl AG (‘‘DHS’’).

Pursuant to the combination agreement

and as a condition for sale, in 1989 the

GOG and GOS entered into a debt

forgiveness contract

(Entschuldungsvertrag, or ‘‘EV’’) which

effectively forgave all the outstanding

repayment obligations owed by

Saarstahl to the two Governments (i.e.,

a total of DM 3.945 billion in debt was

forgiven). The EV specified, however,

that if Saarstahl went bankrupt, the

GOG and GOS claims could be revived,

but their claims would be subordinated

to those of all other creditors.

After several years of unprofitable

operation, Saarstahl filed for bankruptcy

in 1993 under the German Bankruptcy

Regulations (Konkursordnung). In 1994,

the GOS bought Saarstahl back from

Usinor Sacilor for DM 1. At the time of

its bankruptcy, Saarstahl’s liabilities

exceeded its assets by a factor of four,

not including its liabilities to the GOG

and GOS. Both Governments filed

claims against the Saarstahl bankruptcy

estate based on the RZV debt that was

conditionally forgiven in 1989. These

EV-related claims were rejected by the

bankruptcy trustee as invalid in 1995 on

the grounds that they were so

subordinated that the GOG and GOS

would never be repaid. The GOG and

GOS chose not to appeal the rejection of

their bankruptcy claims, on the grounds

that the subordination of their claims

made the likelihood of recovery very

small, and not worth the high cost of

litigating the matter.

In the Final Affirmative

Countervailing Duty Determination:

Certain Hot Rolled Lead and Bismuth

Carbon Steel Products from Germany,

58 FR 6233, 6234 (January 27, 1993)

(‘‘Lead and Bismuth’’) and the Final

Affirmative Countervailing Duty

Determination: Certain Steel Products

from Germany, 58 FR 37315 (July 9,

1993) (‘‘Certain Steel’’), we found that

Saarstahl’s RZVs and similar related

debt were forgiven by the 1989 EV, thus

conferring a countervailable benefit on

Saarstahl as of 1989. Respondents have

argued that the attempt to revive the

RZVs by the GOG and GOS disqualifies

the signing of the 1989 EV as the

countervailable event. However, as

noted above, the EV-related bankruptcy

claims of the GOG and GOS were

rejected as invalid by the bankruptcy

trustee. Thus, the 1993 bankruptcy

proceeding left completely undisturbed

the provisions of the 1989 EV

agreement. Respondents further argue

that the RZVs were worthless at the time

of the EV. However, this argument was

rejected in Lead and Bismuth at 6237,

Certain Steel at 37323 and the attendant

litigation (see Saarstahl AG v. United

States, 967 F. Supp. 1311 (CIT 1997),

and British Steel plc v. United States,

936 F. Supp. 1053, 1069–70 (CIT 1996).

Therefore, we determine that the debt

forgiveness constitutes a financial

contribution in 1989 within the

meaning of section 771(5) of the Act. It

is a direct transfer of funds from the

GOG and GOS providing a benefit in the

amount of the debt forgiveness, DM

3.945 billion. Because it was a one time

event, we consider it to be a

nonrecurring grant. Additionally, we

analyzed whether the debt forgiveness

provided to Saarstahl was specific ‘‘in

law or in fact,’’ within the meaning of

section 771(5A) of the Act. Consistent

with Lead and Bismuth at 6233 and

Certain Steel at 37315, we find that the

debt forgiveness provided to Saarstahl

was limited to a specific enterprise or

industry because it was provided to one

company.

To calculate the countervailable

subsidy, we used our standard declining

balance grant methodology. The amount

of the subsidy allocated to the POI was

adjusted in accordance with our

privatization methodology (described

above) to reflect the privatization of

Saarstahl in 1989 and the spin-off of

Saarstahl from DHS 1994. We then

divided the portion of the benefit

attributable to the POI by the total sales

of Saarstahl during the same period. On

this basis, we determine the

countervailable subsidy for this program

to be 16.62 percent ad valorem for

Saarstahl.

2. Assurance of Liquidity Provided to

Private Banks by the GOS

Toward the end of 1985, the GOS

presented a long-term restructuring plan

for Saarstahl to Saarstahl’s creditors and

requested that they forgive loans in the

amount of DM 350 million. In a

February 20, 1986 letter from the banks

to the GOS, the banks agreed to forgive

DM 217.33 million of debt owed to them

by Saarstahl (DM 216.82 of which was

forgiven in 1989), if the GOG and GOS

fulfilled certain prerequisites. Two of

the prerequisites were that the

Governments forgive all debt owed to

them by Saarstahl and that the GOS

secure the future liquidity of Saarstahl.

In an April 4, 1986 letter from the

Governor of Saarland responding to the

banks, the GOS agreed to forgive all

debts owed to it by Saarstahl and to

secure the liquidity of Saarstahl as it

had in the past.

We determine that in assuring the

future liquidity of Saarstahl the GOS

provided a financial contribution to

Saarstahl. Specifically, this assurance

granted a ‘‘potential direct transfer of

funds’’ within the meaning of section

771(5). By assuring the future liquidity

of Saarstahl, the GOS effectively

guaranteed that Saarstahl would have

the funds to satisfy its future

obligations, which included the

outstanding debt owed to the banks.

This assurance was consistent with the

GOS’s long history of supporting

Saarstahl. We also determine that the

assurance was provided to a specific

enterprise or industry, Saarstahl.

While the GOS’s assurance of future

liquidity resembled a loan guarantee, it

differed in certain important aspects

from loan guarantees typically

examined by the Department. First, the

GOS did not promise to take

responsibility for payment of the debt

owed to the banks if Saarstahl failed to

perform. Rather, the GOS reached an

agreement with the private banks

whereby the GOS would maintain

Saarstahl’s liquidity (i.e., Saarstahl’s

ability to service its outstanding debts).

Additionally, other characteristics of a
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typical loan guarantee which potentially

confer a benefit were not manifested in

the liquidity assurance (e.g., lower

borrowing costs in the form of fees and/

or reduced interest rates). Because there

is no information on the record of this

investigation indicating that the

liquidity assurance resulted in more

favorable terms on the remaining loans,

we do not find additional

countervailable benefits conferred by

this assurance. Rather, the consequence

of the assurance was that Saarstahl

received partial debt forgiveness from

the banks. Because of this, we are not

using our normal methodology with

respect to loan guarantees. Instead, we

are calculating the benefit conferred by

the liquidity assurance as the amount of

debt forgiven. (We note however, that

the assurance of future liquidity could

have led to a finding of additional

countervailable benefits, if it had

resulted in lowering Saarstahl’s

borrowing costs on the unforgiven

portion of the company’s debt.)

To calculate the countervailable

subsidy, we followed the methodology

described in the Forgiveness of

Saarstahl’s Debt in 1989 section, above.

We then divided the portion of the

benefit attributable to the POI by the

total sales of Saarstahl during the same

period. On this basis, we determine the

countervailable subsidy for this program

to be 0.91 percent ad valorem for

Saarstahl.

3. ECSC Redeployment Aid Under

Article 56(2)(b)

Under Article 56(2)(b) of the

European Coal and Steel Community

(‘‘ECSC’’) Treaty, persons employed in

the iron, steel, and coal industries who

lose their jobs may receive assistance for

social adjustment. This assistance is

provided to workers affected by

restructuring measures, particularly

workers withdrawing from the labor

market into early retirement and

workers forced into unemployment. The

ECSC disburses assistance under this

program on the condition that the

affected country make an equivalent

contribution. Payments were made to

Saarstahl, on behalf of its workers,

under Article 56(2)(b).

Since the ECSC portion of payments

under this program comes from the

operational budget, which is funded by

levies on the companies, we determine

that this portion (i.e., 50 percent of the

amount received) is not countervailable.

However, with respect to the portion

funded by the GOG, we must decide

whether the government payments have

relieved Saarstahl of an obligation it

would otherwise have.

In Germany, benefits for workers who

retire or are laid off are subject to

negotiations between labor and

management. Those negotiations result

in a social plan for each company.

Following the policy explained in the

Prepension Programs section of the GIA

at 37257, we have determined that

Saarstahl and its workers were aware

when they negotiated their social plans

that the German government would pay

a portion of the costs. Therefore, unless

it can be specifically documented that

benefits under this program did not

lower a company’s social plan

obligations, we have determined that

one half of the amount paid by the

government constitutes a

countervailable subsidy.

We consider the benefits provided

under this program to be recurring

because a company can expect to

receive the benefits on an ongoing basis.

Therefore, we limited our analysis to

funds received in the POI, 1996. In the

case of Saarstahl, funds received by the

company during the POI relate to five

social plans, the last of which relates to

Saarstahl’s 1993 bankruptcy. We

verified that this bankruptcy social plan

provides the maximum allowable

benefits to workers under German

bankruptcy law; therefore, we determine

that the knowledge of ECSC 56(2)(b)

benefits did not affect the company’s

social plan obligations. Consequently,

GOG payments that relate to this social

plan are not countervailable. For the

payments made pursuant to the prebankruptcy social plans, we first

calculated the GOG portion of assistance

by taking 50 percent of the funds

received by Saarstahl in 1996. As noted

above, half of this amount is

countervailable. We divided this

amount by Saarstahl’s total sales during

the POI. On this basis, we determine the

net subsidy to Saarstahl for this program

to be 0.14 percent ad valorem.

B. IHSW

1994 IHSW Debt Forgiveness

In 1984, Hamburgische Landesbank

Girozentrale (‘‘HLB’’), a bank wholly

owned by the GOH, provided HSW with

a line of credit in the amount of DM 130

million. The line of credit was granted

for a period of one year and was

renewed every year until 1994. Pursuant

to a Kreditauftrag between the GOH and

HLB, in the event that HSW failed to

service this debt, the GOH was obligated

to compensate the HLB for 60 percent of

the credit line (i.e., DM 78 million). In

1992 and 1993, HSW suffered

significant losses, and the HLB refused

to extend the credit line. At that point,

the GOH assumed responsibility for the

total amount loaned to HSW under the

line of credit pursuant to an agreement

between the GOH and HLB that

extended the Kreditauftrag. At the

beginning of 1994, the line of credit

totaled approximately DM 174 million

(see Comment 12 below).

In 1994, HSW was sold to Venuda

Investments B.V. (‘‘Venuda’’), IHSW’s

parent company. At the time of

privatization, the line of credit totaled

DM 154 million. Under the terms of the

sale, Venuda paid DM 10 million for

HSW. With respect to the line of credit,

DM 154 million of the total was sold to

Venuda for approximately DM 60

million according to a formula based on

the net current asset value of HSW in

1994 (i.e., the difference between

current assets and liabilities (less the

debt owed to HLB)). Although the sale

of HSW was structured to have two

components, the sale of shares for DM

10 million and the sale of debt for

approximately DM 60 million, we have

treated this as a single transaction and

we consider the payments made by

Venuda to represent the price paid for

HSW (see Comment 13 below).

Based on our view of the sale of HSW,

i.e., that the proceeds from both the

share and debt purchase comprise the

sale price, we determine that in the year

that HSW was sold the DM 154 million

owed by HSW under the line of credit

was forgiven. This debt forgiveness

constitutes a financial contribution in

the form of a direct transfer of funds

from the GOH providing a benefit in the

amount of DM 154 million in 1994.

While the Department will not consider

a loan provided by a government-owned

bank to be a loan provided by the

government, per se, the actions taken by

the GOH during the period 1984

through 1994 regarding the provision of

the credit line clearly demonstrate that

although the debt was owed to HLB,

HLB was acting on behalf of the GOH

in this instance (see Comment 16

below). Moreover, we analyzed whether

the program is specific ‘‘in law or in

fact,’’ within the meaning of section

771(5)(A) of the Act. Since the debt

forgiveness was only provided to one

company, we determine that it is

limited to a specific enterprise.

To calculate the countervailable

subsidy, we used our standard grant

methodology. The amount of the

subsidy allocated to the POI was

adjusted in accordance with our

privatization methodology (described

above) to reflect the privatization of

IHSW in 1994. We then divided the

portion of the benefit attributable to the

POI by the total sales of IHSW during

the same period. On this basis, we

determine the countervailable subsidy
54994 Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices

for this program to be 5.61 percent ad

valorem for IHSW.

II. Programs Determined to Be Not

Countervailable

A. IHSW

Provision of Land Lease

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

Act, the adequacy of remuneration with

respect to a government’s provision of a

good or service ‘‘* * * 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 of purchase or sale.’’

Particular problems can arise in

applying this standard when the

government is the sole supplier of the

good or service in the country or within

the area where the respondent is

located. In these situations, there may

be no alternative market prices available

in the country (e.g., private prices,

competitively-bid prices, import prices,

or other types of market reference

prices). Hence, it becomes necessary to

examine other options for determining

whether the good has been provided for

less than adequate remuneration. This

consideration of other options in no way

indicates a departure from our

preference for relying on market

conditions in the relevant country,

specifically market prices, when

determining whether a good or service

is being provided at a price which

reflects adequate remuneration.

With respect to the leasing of land,

some of the options may be to examine

whether the government has covered its

costs, whether it has earned a

reasonable rate of return in setting its

rates and whether it applied market

principles in determining its prices. In

the instant case, we have found no

alternative market reference prices to

use in determining whether the

government has leased the land for less

than adequate remuneration. As such,

we have examined whether the

government’s price was determined

according to the same market factors

that a private lessor would use in

determining whether to lease land to a

company.

Pursuant to a 1986 lease agreement

between HSW and the GOH, IHSW

leases land located in the port of

Hamburg from the GOH. The GOH owns

approximately one-third of the

commercial and industrial land in the

port area and leases that land under

approximately 450 different lease

agreements. The GOH lease rates in the

port area are established by the GOH

Finance Deputation, an administrative

authority established by the City

Parliament of Hamburg consisting of

government officials and civic members.

The Finance Deputation sets the lease

rates according to such factors as: (1)

market value of property, (2) potential

for use and facilities available in

specific areas, (3) rentals for comparable

areas being used, and (4) terms and

conditions being paid in other Northern

ports.

The GOH uses a standard lease for all

enterprises in the port area. The lease

has four rate categories which are based

on the location of the property and other

attributes (e.g., land-locked, direct water

access, railway access). Thus, IHSW’s

lease contains the same terms as all

other similar lease agreements signed

with enterprises in the port area.

We verified that there are a very large

number of enterprises currently leasing

land in the port from the GOH. These

enterprises cover a wide variety of

industries, such as container storage and

shipping, oil tanks and refineries,

shipyards, car importers, and coffee and

grain mills and storage facilities. There

are no special provisions made for

different industries.

Because IHSW pays a standard rate

charged by the GOH to all enterprises

leasing land similar to IHSW’s and

because these prices are set in reference

to market conditions, we determine that

IHSW’s lease rate is not countervailable.

Adequacy of remuneration is a new

statutory provision which replaced

‘‘preferentiality’’ as the standard for

determining whether the government’s

provision of a good or service

constitutes a countervailable subsidy.

The Department has had no experience

administering section 771(5)(E) and

Congress has provided no guidance as to

how the Department should interpret

this provision. This case and the other

concurrent wire rod cases, mark the first

instances in which we are applying the

new standard. We anticipate that our

policy in this area will continue to be

refined as we address similar issues in

the future.

B. BES

FRG Backing of THA Loan Guarantees

The German Democratic Republic

(‘‘GDR’’) created the Treuhandanstalt

(‘‘THA’’) via the Trusteeship Act of June

17, 1990. THA became the owner and

administrator of all non-private GDR

enterprises. THA’s long-term goal was to

privatize these enterprises. Following

the monetary union of the Federal

Republic of Germany (‘‘FRG’’) and the

GDR on July 1, 1990, THA issued a

global loan guarantee to ensure the

liquidity of GDR enterprises. THA

guarantees were available to all GDR

enterprises in need of them and were

backed up by the FRG’s commitment to

fund THA’s activities, pursuant to

Article 17 of the Treaty Between the

Federal Republic of Germany and the

German Democratic Republic

Establishing a Monetary, Economic and

Social Union effective July 1, 1990.

Since THA had no independent

sources of funds and the GDR economy

was in disarray, the THA loan

guarantees standing alone would have

been worthless and, as such, would not

have motivated private banks to lend to

GDR enterprises. Rather, it was the

secondary backing of the guarantees by

the FRG that led private banks to lend

to GDR enterprises. It follows that any

financial benefit to GDR enterprises in

the form of guaranteed loans flowed

from the provision of the FRG

guarantee.

BES’s predecessor, Stahl- und

Walzwerk Brandenburg (‘‘SWB’’) took

out three THA-guaranteed loans before

unification and one shortly after

unification. A little over a year after

unification, THA assumed SWB’s

guaranteed loans.

Prior to German Unification on

October 3, 1990, the GDR was

recognized by the United States as a

sovereign country—separate from the

FRG. Therefore, any provision of

assistance by the FRG to former GDR

enterprises is transnational assistance—

assistance not provided by the

government having jurisdiction over the

enterprises. The preamble to the

Proposed Regulations summarizes our

practice with respect to transnational

assistance:

Occasionally, the Department has

encountered programs which are funded

through foreign aid, either on a bilateral or

multilateral basis. In such instances, the

Department (and Treasury before it) has

determined such programs to be

noncountervailable, to the extent that funds

for the program are not provided by the

government of the country in question.

Section 355.44(o)(1) of the Proposed

Regulations elaborates on the above:

[A] countervailable benefit does not exist

to the extent the Secretary determines that

funding for a benefit is provided by a

government other than the government of the

country in which the merchandise is

produced or from which the merchandise is

exported, or by an international lending or

development institution.

Based on the foregoing, we find that

the secondary backing by the FRG of

THA loan guarantees on borrowings

prior to Unification is transnational

assistance and, therefore, not
Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices 54995

countervailable. Moreover, when THA

assumed the debt it was merely

fulfilling the obligations it had taken on

as guarantor prior to Unification. Since

the guarantees upon which THA acted

were non-countervailable in nature, the

subsequent debt assumption did not

give rise to a countervailable benefit.

As noted above, SWB took one loan

under the THA global guarantee after

Unification. However, even if we were

to treat the entire amount of the loan

principal as a grant, the amount of the

benefit would be expensed in the year

of receipt, which was prior to the POI.

Since there is no benefit allocable to the

POI, we have not analyzed whether FRG

backing of THA loan guarantees postUnification gives rise to a

countervailable subsidy.

III. 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:

A. Saarstahl

Saarstahl’s Bankruptcy Social Plan

In 1993, Saarstahl negotiated a new

social plan in accordance with German

bankruptcy law. This new plan

provided two and one-half months

salary to laid-off workers, the maximum

allowable benefit under bankruptcy law.

To ensure that laid-off workers did not

have to wait for the bankruptcy

proceeding to be settled before receiving

their money, the GOS purchased the

workers’ claims against Saarstahl, paid

off the workers and then filed a claim

under its own name against Saarstahl in

the bankruptcy proceeding. The claim

filed by the GOS was in the same

amount as a claim filed directly by the

workers would have been and was

accepted by the bankruptcy court in its

full amount. Therefore, the potential

liability against Saarstahl in respect of

social plan benefits was unchanged by

virtue of the GOS filing the claim

instead of the workers. Since the action

by the GOS in pre-paying the

bankruptcy social plan benefits did not

alter Saarstahl’s potential liabilities

under bankruptcy, the GOS has not

assumed a legal obligation of Saarstahl.

As a result, GOS payments to workers

under Saarstahl’s bankruptcy social

plan do not confer a countervailable

benefit.

B. IHSW

1984 Equity Infusion

In 1984, HSW emerged from

bankruptcy proceedings and was taken

over by a limited partnership called

Protei Produktionsbeteiligungen GmbH

& Co. KG (‘‘Protei’’). The vast majority

of the equity Protei invested in the new

HSW was provided via a DM 20 million

loan by HLB. This DM 20 million

financing was provided to HLB by the

GOH. HSW used this capital to purchase

the assets and business of Old HSW

from its receiver.

According to the terms of the contract

which provided these funds, repayment

became due from the profits of Protei

which, in turn, were derived from

HSW’s profits. The contract also

provided that Protei could not liquidate

HSW without the approval of HLB, and

HLB reserved rights regarding the

appointment of management and

members of the supervisory committee.

Between 1987 and 1988, DM 2.8 million

in ‘‘principal’’ payments and DM 2.7

million in ‘‘interest’’ were paid by HSW,

leaving an unpaid balance of DM 17.2

million.

We have determined that the DM 20

million ‘‘loan’’ to Protei should be

treated as equity received in 1984 in

light of the terms of the financing.

Although the money was given in the

form of a loan to Protei, the

circumstances of the loan indicate that

the funds were more in the nature of

equity.

First, as noted above, payments on the

loan were contingent on HSW being

profitable: so, if the company never

became profitable, there was no

obligation for the loan to be repaid.

Second, under the terms of the loan,

Protei relinquished pro rata its share of

profits from HSW based on the ratio

between the DM 20 million loan and the

total share capital of HSW. Hence,

HLB’s share of any future profits

generated by HSW would be calculated

as if the loan were paid-in capital.

Third, although the loan was made to

Protei, the particular structure of the

partnership suggests that Protei served

as a mechanism for the GOH to invest

in HSW. Fourth, as noted above, the

lender, HLB, imposed numerous

conditions on Protei which served to

insert HLB into important ownership/

management decisions affecting HSW.

Finally, when this loan was examined

by the Commission of the European

Communities (the ‘‘Commission’’) to

determine whether it constituted state

aid, the Commission determined that

the loan should be considered as risk

capital. Among the data developed by

the Commission was a statement by the

GOG that the GOH ‘‘was exposed to

financial risk fully comparable to the

risk a shareholder injecting risk capital

has to bear without becoming owner of

the company.’’ (The Commission’s

decision is printed in the Official

Journal of the European Communities,

No L 78, Vol 39, March 28, 1996, at pp.

31 ff.) While the Commission’s

characterization of this loan as equity is

not dispositive, their reasoning in this

instance is consistent with our analysis.

Given our determination that the DM

20 million financing in 1984 should be

treated as equity and in light of HSW’s

AUL of 10 years, this 1984 equity

infusion would not give rise to benefits

in the POI even if the infusion were a

countervailable subsidy. Therefore, we

are treating this equity as well as two

other programs as ‘‘not used’:

1. 1984 Steel Investment Allowance

Grant

2. 1984 Federal Ministry for Research

and Technology (BMFT) Grant

We have determined that subsidies

received by IHSW under the following

programs were also not used because

they were repaid prior to the POI:

3. Structural Improvement Assistance

Grant

4. Loan Guarantee to HSW

C. BES

Special Depreciation

The special depreciation program

described in Section 4 of the Assisted

Areas Act is the current manifestation of

a 1990 GDR directive that allowed

investors to claim special depreciation

at an accelerated rate. This program was

implemented in tandem with the

Investment Allowance Act by the GDR

to provide investment incentives to help

enterprises in the former GDR (New

States) transition into a market-based

economy. After Unification, FRG

lawmakers included an amended

special depreciation provision, along

with the Investment Allowance Act, in

the June 24, 1991 Tax Modification Law

(StAendG 1991). A 1996 FRG law

forbids the special depreciation

provision from being extended beyond

the end of 1998.

The GOG has claimed that this

program is not countervailable because

it is a ‘‘green light subsidy.’’ We have

not determined whether, in fact, this

program meets the green light criteria

within the meaning of section

771(5B)(C), of the Act, because any

benefit would arise at the time of filing

a tax return. Because BES did not file a

tax return during the POI, we are

treating this program as not used.

IV. Other BES Programs Examined

BES received assistance under two

other programs for which the GOG has

requested green light treatment: (1)

Investment Grants Under the Regional

Economies Act and (2) Investment

Allowance Act Grants. BES received
54996 Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices

grants under these programs in the years

1994 through 1996. However, regardless

of whether we found the program to be

countervailable, the combined net

subsidy to BES does not rise above the

de minimis level. Accordingly, we do

not consider it necessary to address the

issue of whether these programs are

non-actionable as regional green light

subsidies.

Interested Party Comments

Saarstahl

Comment 1: Effect of Bankruptcy on

Saarstahl’s 1989 Debt Forgiveness:

Saarstahl argues that because the GOG

and the GOS filed claims against it in

the German bankruptcy court with

respect to the RZVs, the 1989 debt

forgiveness should be disregarded.

Specifically, Saarstahl contends that the

GOG and GOS did not forego revenue

due to them under the RZVs in 1989,

because the debts were revived in 1993.

Moreover, when the bankruptcy claims

were rejected from 1993 through 1996,

Saarstahl’s debt was forgiven under the

non-specific German bankruptcy law

and not under a specific relief action

take by the Governments. Saarstahl

claims that the Department may not

disregard the revival of the

Governments’ rights to repayment just

because the claim was later rejected by

the bankruptcy trustees.

Petitioners state that the bankruptcy

was an irrelevant subsequent event that

does not affect the benefit stream from

the countervailable 1989 forgiveness.

Petitioners argue that the RZVs were not

eliminated or restructured by the

bankruptcy proceeding because the

claims themselves were invalid. The

revival contingency contained in the EV

with respect to bankruptcy, according to

petitioners, was structured in such a

way as to make it meaningless. Because

the claims were to be subordinated

below all others, the EV made it

impossible to collect on the RZVs. Thus,

the EV effectively forgave the RZVs in

1989 because the revival contingency

was structured not to be a real

contingency at all.

Department’s Position: We have

continued to treat Saarstahl’s RZVs and

similar government debt as having been

forgiven by the 1989 EV. We believe that

the information in this case clearly

supports this position. First, in its

questionnaire response of June 30, 1997,

Saarstahl states that if bankruptcy is

initiated on grounds of insolvency, then

subordinated claims do not have any

asset value and, thus, cannot be

considered a valid bankruptcy claim.

Hence, as noted by petitioners, the

revival contingency contained in the EV

was structured in such a way as to make

its possible application meaningless.

Second, Usinor Sacilor required that

the RZVs be forgiven by the GOG and

GOS prior to the combination of

Saarstahl and Dillinger. This clear

precondition to the combination of the

two companies, which was accepted

and fulfilled by the two Governments,

demonstrates that from a commercial

actor’s perspective, the RVZs were a real

liability. Moreover, the fact that Usinor

Sacilor accepted the EV as the legal

instrument by which Saarstahl’s RZV

debt was forgiven demonstrates the

validity of the debt forgiveness element

of the EV from a commercial

perspective. Finally, information

obtained at verification indicates that

the GOG realized, prior to the filing of

its claims, that the bankruptcy

proceeding would not result in the

reinstatement of the RZV debt

obligation. Indeed, the GOG actions

appeared to be largely perfunctory in

nature reflecting other concerns, none of

which included the realistic expectation

that the claims would be recognized by

the bankruptcy court (see GOG

verification report at page 12).

Therefore, we conclude that the debt

obligations contained in the RZVs were

relieved in 1989 and that the

bankruptcy proceedings had no

meaningful impact on the 1989 debt

forgiveness agreement.

Comment 2: The Nature and Timing

of Saarstahl’s Subsidies: Saarstahl states

that the Department erred by not

allocating any portion of the assistance

received by Saarstahl to the company’s

production in the years 1978 to 1988.

Saarstahl asserts that the government

assistance was a subsidy when it was

first received because it did not comport

with commercial considerations. In

Saarstahl’s view, the Department cannot

delay the countervailable event until

1989 (when the debt forgiveness was

agreed to), but rather must countervail

the subsidies when they were first

received.

Petitioners note that the Department

has rejected most of these allocation

arguments in the past, with the approval

of the CIT. Petitioners argue that the

Department should use the same

analysis of the 1989 EV debt forgiveness

as reflected in Lead and Bismuth,

Certain Steel, and the Preliminary

Determination. For petitioners, a

contingent liability is different from the

benefits allocated or capped by the

Department’s grant allocation formula.

The recipient is able to use the full

value of the subsidy upon receipt, but

must repay all or part of the payment if

the contingency occurs. Because of this

repayment obligation, the face value of

the contingent obligation is only treated

as a benefit when forgiven, as occurred

in 1989.

Department’s Position: We verified

that prior to 1989 Saarstahl did have a

financial obligation to repay the RZVs.

If the Department had examined

Saarstahl’s RZVs prior to 1989, it would

have countervailed them as contingent

liabilities and calculated the benefit by

treating the outstanding face amount as

an interest-free loan. This is consistent

with the Department’s long-standing

policy with respect to contingent

liabilities (see e.g., Certain Steel from

Sweden, 58 FR 37385, 37388 (July 9,

1993)). Upon the forgiveness of such

contingent liabilities, it is the

Department’s policy to treat the amount

forgiven as a grant in the year of

forgiveness (see e.g., Certain Steel from

Sweden at 37392). We are not persuaded

by Saarstahl that we should not apply

our traditional methodology to the facts

of this case.

Comment 3: RZVs as Equity: Saarstahl

claims that the Department’s decision to

treat the 1989 forgiveness as the

countervailable event rather than the

receipt of the funds in 1978–1988 is

inconsistent with the Department’s

treatment in this case of government

assistance made to the owners of HSW.

Saarstahl states that in the preliminary

determination the Department treated a

DM 20 million government loan to HSW

as equity received in 1984. Saarstahl

quotes the Department as saying, ‘‘if the

company never became profitable, there

was no obligation for the loan to be

repaid.’’ (Preliminary Determination at

41950). Saarstahl states that the same

situation is true for the monies received

by Saarstahl; the economic effect of the

RZVs was no different than equity.

Saarstahl argues that the subsidies

should be treated as equity capital

because they served to offset massive

losses that threatened the company’s

solvency. For Saarstahl, the equity

capital nature of the assistance is even

more clear in light of the fact that the

GOG and GOS held a majority interest

in Saarstahl during some of the time

when the RZVs were in effect. Saarstahl

asks that the Department treat the

contingently repayable loans given to

both Saarstahl and HSW in the same

manner.

Petitioners state that the methodology

used for IHSW’s DM 20 million capital

replacing loan is not an appropriate

comparison to Saarstahl’s situation.

Petitioners argue that the forgiveness of

the credit line in 1994 is a more

appropriate comparison. While the

credit line was first granted in 1984,

petitioners note that the Department did

not treat the principal as a benefit until
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the loan was forgiven in 1994. Based on

this comparison, petitioners find a

consistent treatment of the two

companies. Petitioners counter the

RZVs-as-equity argument by referring to

the hybrid instruments analysis from

the GIA. Petitioners note that the hybrid

instruments analysis’ first test defines

an instrument as debt if a repayment

obligation exists when the payment is

provided. Thus for petitioners, because

the RZVs had a repayment obligation

they cannot be treated as equity.

Department’s Position: The terms of

the assistance given to both IHSW and

Saarstahl differ. Of particular note are

the managerial and ownership rights

conferred upon IHSW at the time the

financing was provided. The terms of

the RZVs did not confer similar rights

to the GOS or GOG. While the GOS and

GOG did become Saarstahl’s majority

shareholder in 1986, this was after an

overwhelming majority of assistance

had been disbursed and after all

dispensation agreements had been put

in place. While it is true that repayment

in both agreements was contingent upon

profitability, this contingency alone is

not enough to transform a debt

instrument to equity. As noted above in

the program description, the repayment

contingency for IHSW was just one of

many terms that lead us to determine

the assistance was equity.

Comment 4: Forgiveness of

Saarstahl’s Debt by the Private Banks;

Saarstahl contends that the Department

should treat the private bank loan

forgiveness as non-countervailable.

Saarstahl notes that for assistance to

constitute a countervailable subsidy it

must be provided, directly or indirectly,

by a government or other public entity.

According to Saarstahl, when the

private banks forgave debt owed to them

by Saarstahl the banks acted in their

own economic self-interests and their

actions cannot be attributed to the GOG

and GOS.

Saarstahl notes that one of the lead

negotiators on behalf of the banks

confirmed at verification that the

decision to forgive a portion of their

loans to SVK was based entirely upon

commercial considerations. The bank

representative stated that the statement

made by the GOS regarding the

assurance of SVK’s future liquidity had

no effect upon the banks’ decision to

forgive the debt.

Saarstahl adds that if the Department

were to treat the private bank loan

forgiveness as a countervailable subsidy,

the economic benefit accrued to SVK in

1986, not 1989. Saarstahl claims that

while the bank loans were not legally

forgiven until 1989, the banks treated

the loans as if they were forgiven on

January 1, 1986, as evidenced by the fact

that they did not require SVK to make

any principal or interest payments with

respect to the portion of debt being

forgiven after that date.

Petitioners argue that the evidence

demonstrates that the assurance of

liquidity played a crucial role with

respect to the debt forgiveness by the

private banks. Petitioners note that in

the banks’ February 20, 1986 letter to

the GOS, the banks clearly set forth as

a prerequisite for their debt forgiveness

that the GOS secure the liquidity of

Saarstahl. Petitioners state that in its

April 4, 1986 response to that letter, the

GOS stated that it would, as in the past,

secure the liquidity of Saarstahl.

Petitioners further note that the

Department has already determined that

the banks acted on the GOS’s assurance

of liquidity and that this determination

was sustained by the CIT.

Department’s Position: We agree with

petitioners. The exchange of letters

between the GOS and the banks

demonstrates that the banks agreed to

forgive a portion of SVK’s (Saarstahl’s

predecessor) debt only on the condition

that the GOS guarantee the liquidity of

the company. In fact, the banks referred

to the liquidity assurance as a

‘‘prerequisite’’ for their action. While

the banks may have been acting in their

own economic self-interests when they

forgave the debt, the GOS’s liquidity

guarantee was a factor that made the

debt forgiveness more commercially

reasonable because the banks were

assured that the GOS would maintain

SVK’s ability to service its remaining

debts. Thus, the liquidity assurance

provided the incentive necessary to

ensure the banks’ debt forgiveness.

With respect to the statements made

by one of the banks’ negotiators at

verification, we have weighed the

negotiator’s claims against the written

correspondence exchanged between the

banks and the GOS. We have accorded

greater weight to the written

correspondence because it was

contemporaneous with the events in

question and reflects the position of all

of the lenders as opposed to the views

of a single official from a single bank.

Lastly, although SVK was not

required to make principal or interest

payments with respect to the portion of

debt forgiven after January 1986, the

loans were still recognized by the

company as liabilities until they were

forgiven in 1989. In accordance with the

Department’s standard practice for

calculating the benefit from debt

forgiveness, the benefit does not accrue

to the company until the debt is actually

forgiven. While Saarstahl may have

enjoyed a benefit from not paying

interest and principal as of 1986, the

banks’ decision not to collect interest

and principal during that period

represented a moratorium on debt

payments until the forgiveness occurred

in 1989.

Comment 5: Effect of Saarstahl

Privatization; Saarstahl states that

Congress revised the definition of

subsidy, bringing countervailing duty

law in accordance with the Uruguay

Round, to say that a subsidy would only

exist if a financial contribution is given

to a person and that person thereby

receives a countervailable benefit. With

respect to this definition, Saarstahl

argues that neither it, nor its parent

company, DHS, received any

countervailable benefit from the aid

given to SVK (Saarstahl’s predecessor

company). Saarstahl notes that the

government assistance to SVK was

provided prior to privatization and that

the buyers of SVK made a fair market

payment in an arm’s length transaction.

Saarstahl further argues that the price

paid for SVK constituted adequate

remuneration and, thus, did not result

in a subsidy being received. Hence

Saarstahl concludes, assistance received

by SVK prior to privatization should not

be countervailed with respect to

Saarstahl.

Petitioners cite the decision of the

Court of Appeals for the Federal Circuit

in Saarstahl AG v. United States, (78

F.3d 1539, 1544 (Fed. Cir. 1996)) to

counter respondent’s argument.

Petitioners claim that the issue is

whether the subsidies paid to Saarstahl

survived the privatization and that the

Department’s decision in its preliminary

determination, that the subsidies did

survive the privatization, is in

accordance with the deference given to

the Department by the courts in such

matters.

Department’s Position: Section

771(5)(F) of the Act makes clear that the

sale of a company at arm’s length does

not automatically extinguish prior

subsidies. As we stated in the Final

Affirmative Countervailing Duty

Determination; Certain Pasta from Italy

Pasta 61 FR 30287, 30289 (June 14,

1996), the methodology applied by the

Department in Certain Steel is

consistent with the new law. In this

investigation we have applied this

methodology to the sale of Saarstahl to

DHS and to the sale of Saarstahl to the

GOS.

Comment 6: Treatment of 1989

Repayment Amount; Petitioners argue

that because the GOS repurchased

Saarstahl in 1994, the repayment of

subsidies that occurred in 1989 with the

privatization should be reversed.

Petitioners argue that the Department
54998 Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices

should add the subsidy repayment back

to Saarstahl’s total benefit. Petitioners

cite Certain Hot-Rolled Lead and

Bismuth Carbon Steel Products from the

United Kingdom, 61 FR 20238 (May 6,

1996) (‘‘UK Lead and Bismuth’’) to

support their argument. Petitioners

claim that in that case, the Department

decided to aggregate the benefits of a

company and its previously spun-off

subsidiary when the two were reunited.

Petitioners state that the Department

should follow the same methodology

here because the GOS’s purchase of

Saarstahl in 1994 placed the company

in the same position it occupied prior to

the 1989 privatization. Petitioners fear

that if the Department does not

aggregate the subsidies, it will establish

a precedent whereby governments can

eliminate subsidies by privatizing an

entity and then reacquiring it and, thus,

avoid the application of the

countervailing duty statute.

Saarstahl argues that the GOS’s

purchase of it in 1994 did not reverse

the 1989 privatization and

corresponding subsidy repayment.

When Saarstahl was privatized in 1989,

the GOS received stock in Saarstahl’s

holding company, DHS. The GOS still

holds stock in DHS and, thus, it has

retained the repayment received in the

privatization transaction.

Department’s Position: Petitioners’

citing of UK Lead and Bismuth is

misplaced. With respect to the ‘‘spinoff’’ and ‘‘spin-in’’ issues in UK Lead

and Bismuth, the Department faced an

issue of allocation of prior subsidies

between business entities, not the

repayment of prior subsidies to a

government. In UK Lead and Bismuth,

a subsidiary of one company was spun

off, taking a portion of the benefit of

subsidies with it. There is no repayment

of subsidies under our methodology in

such a transaction, but rather an

allocation of the benefit from prior

subsidies between a productive unit and

a corporate entity. When the productive

unit was reunited with the parent

company, the formerly apportioned

subsidies were reunited as well. The

privatization and corresponding

repayment to the GOS with respect to

Saarstahl does not involve an issue of

allocation. When the GOS privatized

Saarstahl in 1989 it received stock in

DHS, which represents partial

repayment and, therefore,

extinguishment of prior subsidies. Thus,

we are not adding back the amount

considered to be repaid in 1989.

Comment 7: Creditworthiness of

Saarstahl in 1989; Saarstahl argues that

the Department should consider

financial information pertaining to 1989

when evaluating the creditworthiness of

the firm in that year. Specifically,

Saarstahl is interested in the

Department taking into account the

effects of privatization on its financial

health and its increase in net worth.

Petitioners state that a creditworthy

analysis does consider a company’s

future prospects, but only in the form of

market studies, country and industry

economic forecasts, and project and

loan appraisals prepared prior to the

loan agreement. The information

present with respect to the privatization

of Saarstahl is not sufficient for either

the Department, or a commercial lender,

to determine a company’s

creditworthiness.

Department’s Position: While a

company’s future financial prospects

can be a factor in a creditworthiness

determination, we do not have on

record any market studies, country or

industry economic forecasts or any

other information regarding the

company’s prospects after privatization.

Although we do have an excerpt from

an asset appraisal, the purpose of this

appraisal was to value the assets of

Dillinger and Saarstahl prior to their

combination. The appraisal does not

meaningfully address the future

financial prospects of either Saarstahl or

DHS.

Furthermore, the mere fact that the

net worth of the company rose after

privatization does not make the

company creditworthy. Standing alone

it does not provide sufficient evidence

that Saarstahl was creditworthy,

especially in light of the company’s

poor economic performance in previous

years.

Comment 8: Maximum Spread on

Commercial Financing: Saarstahl argues

that the Department should use a spread

of 1.75 percentage points above the

yield on government bonds as opposed

to a spread of two to construct the

uncreditworthy discount rate. The 1.75

point spread is based on the

Department’s conversation with a

German private bank official, as

outlined in the Department’s GOS

verification report.

Petitioners state that the Department

should reject any request to lower the

discount rate. However, if the

Department does use the information

provided by the private bank, it should

still add a risk premium.

Department’s Position: In its May 27,

1997 response, Saarstahl reported that

German banks base interest rates for

long-term commercial loans on the

government bonds yield, adding a

spread of zero to two percent to account

for the creditworthiness of the borrower.

The bank representative we spoke to at

verification confirmed this mechanism,

but noted that in the years prior to 1990,

the spread was from 0.8 to 1.75 percent.

When determining a discount rate for

uncreditworthy firms, the Department

will use the highest long-term

commercial loan rate commonly

available and then add a risk premium

in order to reflect the inability of a

company to obtain commercial credit. In

this case then, we are using the yield on

government bonds, and adding the 1.75

percentage least-creditworthy margin

and a risk premium.

Comment 9: Purchase Price for

Saarstahl: Petitioners argue that the

creation of DHS was a merger of

Saarstahl and Dillinger. Each owner

contributed its company and in return

got an amount of shares in DHS that

reflected the value of its contribution.

Petitioners note that the GOS

contributed shares and cash in the

creation of DHS and received back

shares worth an equal amount. Because

of this, petitioners argue that the GOS

did not receive any compensation in the

1989 transaction. Instead, it held on to

what it already had and then bought a

greater share of DHS. Based on this,

petitioners see the real purchase price

for Saarstahl as zero with the result that

there should be no repayment of

subsidies.

Saarstahl argues that the Department

did not overstate its purchase price.

Rather the Department properly

established the price for the GOS’s

interest in Saarstahl as the appraised

value of the DHS stock that it received

in exchange for its cash and share

contribution. Saarstahl states that it is

the nature of any commercial

transaction to give up a valuable in

return for another valuable of equal or

greater value. In this instance, the GOS

gave stock and cash and in return

received DHS stock. Thus, the value of

the DHS stock was an appropriate

mechanism to establish the purchase

price.

Department’s Position: We agree with

Saarstahl. With the privatization of

Saarstahl in 1989, the GOS did not

retain what it already had (shares in

Saarstahl) and then buy a little more

(shares in DHS). The GOS held a

majority interest in Saarstahl before the

privatization and after the privatization

held a minority share in DHS. While

there is no denying that Saarstahl was

a part of DHS, the GOS’s interest in the

company had changed. The value of

DHS was determined by an independent

auditor and the GOS’s share in this

company reflects the value it received

and thus the value it paid for the

company. Thus, the transaction serves

as the basis for calculating the purchase

price of Saarstahl.
Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices 54999

Comment 10: Penalizing Saarstahl

Under Countervailing Duty Law and

VRA. Saarstahl argues that because its

exports were limited under a voluntary

restraint agreement (‘‘VRA’’) from

November 1, 1982, to March 31, 1992,

the Department’s actions in this case are

unjust. According to Saarstahl, under

the VRA, the United States did not

initiate any antidumping or

countervailing duty investigations

during the period of the agreement.

Saarstahl argues that going after such

subsidies now penalizes Saarstahl after

already facing export restrictions.

Petitioners state that Saarstahl

received benefits from 1978 to 1989 in

the form of interest-free contingent

liabilities and these benefits were not

countervailed by the Department,

regardless of the export restraints.

Petitioners find the Department’s

treatment of the RZVs as contingent

obligations, which were forgiven in

1989, to be reasonable.

Department’s Position: The VRA

agreements neither permitted the

provision of countervailable subsidies

during the time in which the agreements

were in effect, nor provided recipients

of countervailable subsidies immunity

from the imposition of countervailing

duties after their expiration.

Comment 11: Asset Revaluations and

Extraordinary Depreciation in

Saarstahl’s AUL: Petitioners contend

that Saarstahl’s changes to its fixed asset

valuation and depreciation practices in

1989 and 1993 distort the AUL

calculation. With respect to the 1989

privatization, petitioners argue that the

new owner valued the transferred assets

at their net book value (i.e., the gross

value minus accumulated depreciation).

The company then treated the 1989 net

value as the gross value in subsequent

years. Petitioners argue that consistent

with its position in the Final Results of

Redetermination Pursuant to Court

Remand on General Issue of Allocation,

British Steel plc v. United States,

Consol. Ct. No. 93–09–00550–CVD at 48

(June 30, 1995) (‘‘British Steel

Remand’’), the Department should reject

net book values in the AUL calculation

because their use results in a calculation

of the average remaining life of the

assets, not the average useful life.

With respect to the extraordinary

depreciation claimed by Saarstahl in

1993, petitioners note that the

Department has stated in the Notice of

Proposed Rulemaking and Request for

Public Comment, 62 FR 8818, 8828

(February 26, 1997) that it may be

necessary to make normalizing

adjustments for factors that may distort

the AUL calculation. The Department

goes on to list extraordinary writedowns, as one situation that would

require such an adjustment.

Further, petitioners dispute

Saarstahl’s claim that the value of the

transferred assets should be viewed as

the cost of acquiring those assets and,

hence, treated as the gross book value of

those assets after privatization. First,

petitioners contend that the value of the

assets transferred to Saarstahl from DHS

(i.e., at net book value) differed from the

value of the same assets in the context

of the privatization (i.e., at ‘‘modified

book value’’). Second, petitioners claim

that the transfer of assets in this

privatization was in the nature of a

corporate restructuring and that the

Department has determined that such

restructuring does not constitute a

‘‘sale.’’ Lastly, petitioners contend that

Saarstahl’s compliance with Generally

Accepted Accounting Principles should

not affect the determination as to

whether the company’s AUL is valid.

Because the calculation yields the

average remaining useful life of the

assets rather than an average useful life,

it is distortive.

Saarstahl contends that the additional

depreciation expenses taken by the

company in 1989 and 1993 did not

distort the AUL because these

adjustments were necessary to bring the

asset values reported in the company’s

financial records in line with the actual

economic value of those assets. Citing

the British Steel Remand, respondent

claims that the Department routinely

includes extraordinary depreciation

expenses in its calculation of AUL

because the inclusion of such expenses

results in a calculation that better

approximates a company’s actual

experience.

Saarstahl disagrees with petitioners’

claim that the company used net book

values in its AUL calculation. Instead,

with the privatization in 1989, it used

the cost of acquisition for the assets. In

Saarstahl’s view, this accounting

treatment comports with the economic

and commercial realities of the transfer.

Saarstahl further argues that the 1989

privatization was not simply an internal

corporate transfer as alleged by

petitioners. In this privatization, the

productive assets were transferred to a

new owner.

Saarstahl adds that while the asset

values listed in Saarstahl’s balance sheet

are different from those in the appraisal

report related to the privatization

transaction, this is explained by the fact

that the values listed in the appraisal

report and in the companies’ financial

statements were prepared for different

purposes and include different items.

Saarstahl notes, however, that these

differences in no way led to an artificial

suppression of Saarstahl’s AUL. To the

contrary, the amount recorded in the

company’s financial statements is

actually higher than that suggested in

the appraisal report.

Department’s Position: We agree with

petitioners’ argument that Saarstahl’s

AUL calculation is distorted. In

particular, given the change in the gross

book value of Saarstahl’s assets, the

methodology employed in our

preliminary determination yields what

is essentially a mixture of the average

useful life of the assets and the average

remaining useful life in 1989. This is

evident when we compare the AUL

amounts calculated on an annual basis

for years prior to 1989 and the amounts

after the privatization and before

Saarstahl’s bankruptcy in 1993. This

change in the gross book value had a

significant impact upon the cumulative

AUL calculated by the Department over

a ten-year period (i.e., 1987 through

1996). In this case, the impact was

significant enough that the AUL could

not be calculated from Saarstahl’s own

records. Thus, to approximate

Saarstahl’s AUL, we have used the

depreciation schedule in Germany.

IHSW

Comment 12: Forgiveness of the DM

154 million Credit Line Owed to HLB by

HSW: IHSW contends that the

Department erred in preliminarily

determining that the alleged forgiveness

of the DM 154 million credit line owed

to HLB by HSW constituted a

countervailable subsidy. IHSW asserts

that, pursuant to section 355.44(b)(9) of

the Proposed Regulations, the

Department will not consider a loan

provided by a government-owned bank,

per se, to be a loan from the government

unless the government-owned bank: (1)

Provided the loan at the direction of the

government or with funds provided by

the government, and (2) the terms of the

loan were inconsistent with commercial

considerations. IHSW argues that the

HLB made prudent business decisions

when it increased the credit line at the

end of 1992 and 1993, because if the

line of credit had not been extended, the

company would have gone bankrupt,

and the HLB’s claims would have been

worthless. Thus, according to IHSW, the

increases were based on legitimate

business considerations and were not at

the direction of the GOH. With respect

to the second factor considered by the

Department, IHSW contends that the

line of credit contained commercial loan

terms (e.g., interest rate, security) which

were not inconsistent with commercial

considerations.

Petitioners claim that IHSW’s

justification, or lack of justification, for
55000 Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices

extension of the line of credit is by no

means dispositive of whether the

subsequent forgiveness of the debt

under the line of credit was

countervailable. Nonetheless,

petitioners provide several arguments as

to why the HLB acted under GOH

compulsion and not in a commercially

reasonable manner when it initially

provided and subsequently increased

the credit line to HSW. First, petitioners

note that at the time of Old HSW’s

bankruptcy in 1983, the company owed

DM 181 million to the GOH and the

HLB. Petitioners argue that, given the

history between HSW and the HLB as of

1984, it is completely illogical to suggest

that a lender, after losing a significant

amount of money on a debtor, would

respond by loaning more funds to the

same bad debtor.

Second, petitioners note that the line

of credit was extended to HSW by the

HLB pursuant to a 1984 Kreditauftrag,

according to which the GOH was to

compensate the HLB for 60 percent of

the line of credit if HSW failed to

service its debt. Petitioners state that

GOH officials confirmed at verification

that the Kreditauftrag was an

exceptional occurrence.

Third, petitioners note that HSW’s

financial condition deteriorated in 1992

and 1993. Citing the EU decision

concerning state aid granted by the GOH

to HSW, petitioners contend that at the

end of 1993 the HLB refused to prolong

the credit line. At that point, according

to petitioners, the GOH was forced to

provide a Kreditauftrag covering 100

percent of the line of credit. Petitioners

argue that the GOH’s willingness to give

a blanket guarantee to a company whose

situation was steadily worsening

eliminated any pretense that the

extension of the line of credit was

commercially reasonable.

Fourth, petitioners note that the EU

concluded that ‘‘no private investor, in

the situation prevailing in December

1993, would have been prepared to

inject new risk capital * * * {T}he

behaviour of the {the city of Hamburg}

could not be deemed to be behaviour of

a normal investor in a market

economy.’’ Petitioners assert that the

law on kapitalersetzende Darlehen

(‘‘KSD’s’’), a legal term that translates as

‘‘capital-replacing loans,’’ buttresses this

conclusion. KSD’s are treated as risk

capital and are only repaid in

insolvency proceedings if all other

creditors receive full compensation. By

the end of 1993, it was recognized that

loans from the HLB or GOH would be

subordinated to the claims of all other

creditors in the case of bankruptcy.

Thus, petitioners argue that no

reasonable lender or investor would put

further money in the company knowing

that it would go to the pockets of other

lenders who were less subordinated.

Lastly, petitioners contend that

because the GOH refused to provide the

Department with a report that explained

the rationale for extending the line of

credit, the Department should make an

adverse inference that the HLB indeed

refused to extend the line of credit and

that it was acting under government

compulsion. Petitioners add, however,

that even without the use of adverse

inferences, the evidence on the record

shows that the HLB agreed to extend the

credit line only if the GOH assumed full

responsibility for the line of credit.

Department’s Position: While we

agree with IHSW’s assertion that the

Department will not consider a loan

provided by a government-owned bank,

per se, to be a loan from the

government, the history of interaction

among the GOH, the HLB, and HSW

demonstrates that the HLB did not act

in a commercially reasonable manner,

but rather at the direction of the GOH,

when it provided and subsequently

extended the line of credit to HSW.

Moreover, the credit line ceased to be

consistent with commercial

considerations when the HLB refused to

extend the credit line in 1993.

The history of interaction among the

GOH, HLB, and HSW demonstrates that

the line of credit was clearly a loan

provided at the direction of the GOH. In

1983, at the time of HSW’s insolvency,

the HLB held 49 percent of the

company’s shares and had claims

totaling DM 181 million (DM 129

million of the claims was covered by the

GOH). Also at that time, the bankruptcy

trustee determined under German law

that the funds loaned by the HLB did

not qualify as claims against the

insolvent estate because they were

considered KSD’s. Since the GOH

(which had guaranteed a portion of the

loans provided by the HLB) and the

HLB had no chance of recovering their

money if HSW was liquidated in

insolvency, they jointly decided to

restructure HSW to continue operations

under a new company.

Also in 1984, the GOH provided HSW

with DM 20 million in equity, through

the HLB and Protei, so that the company

could continue operations. This

contribution contained strict contractual

obligations, such that the EU

determined that HSW was now a de

facto public steel company. The EU

noted that the ‘‘entire contractual

situation created in 1984 provided for

the control of (GOH), through HLB, over

HSW.’’

It is against this background that the

HLB opened a revolving credit line in

the amount of DM 130 million in favor

of HSW. However, even at that early

date the HLB required that the GOH

provide a guarantee (Kreditauftrag) for

60 percent of the credit line. In 1993,

when the HLB refused to extend the

credit line, the GOH was forced to

provide an additional Kreditauftrag

covering 100 percent of the credit line.

With respect to whether the loan was

consistent with commercial

considerations, the GOG, in response to

the EC’s investigation, indicated that the

GOH and the HLB were aware that, in

the event of HSW’s bankruptcy, they

would receive repayment from HSW

only in a subordinated position in view

of recent KSD precedent. Moreover, the

HLB was not willing to extend the credit

line absent the additional Kreditauftrag

from the GOH covering 100 percent of

the credit line. At that point, the

provision of the credit line ceased to be

consistent with commercial

considerations. Rather, the HLB, acting

as a reasonable commercial actor,

refused to extend the line of credit, and

the GOH was forced to accept full

economic risk connected with the line

of credit.

Comment 13: Line of Credit

Purchased for Full Commercial Value:

IHSW asserts that the line of credit was

purchased from HLB by Venuda for

commercial value in an arm’s length

transaction. Moreover, IHSW contends

that the purchase of the loan was a

separate and distinct transaction from

the purchase of HSW’s shares.

Therefore, according to IHSW, there was

no loan forgiveness and no

countervailable benefit arising from

Venuda’s purchase of the loan. IHSW

further claims that numerous forms of

consideration given by Venuda for the

assignment of the loan, and the fact that

HSW may have been on the verge of

bankruptcy, clearly show that Venuda

purchased the loan in an arm’s length

transaction for commercial

consideration. IHSW adds that

numerous other factors (e.g., restrictions

from the GOH and lack of property

ownership) further reduce the value of

the company’s assets significantly below

the purchase price paid by Venuda.

Thus, IHSW argues there was no loan

forgiveness in the sale of HSW, and

IHSW did not receive a financial

contribution. IHSW adds that, even if

the purchase of the line of credit is

considered to be a part of the purchase

of HSW, this would not change the fact

that the loan to HSW was not forgiven

because HLB received full commercial

value for the loan.

IHSW further argues that if the credit

line purchase by Venuda is viewed as a

‘‘forgiveness,’’ then the Department
Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices 55001

should credit all payments and

obligations assumed by IHSW pursuant

to the loan purchase agreement against

any alleged or implied benefit. IHSW

adds that, at the very least, the DM 60

million paid by Venuda to HLB for the

loan must be recognized as a repayment

of part of the loan and any possible

countervailable benefit curtailed by that

amount.

Petitioners assert that the purchase of

HSW’s shares and the purchase of the

credit line were clearly part of a single

agreement by Venuda to purchase all of

the government’s interest in HSW, and

cannot be separated. Petitioners note

that during verification IHSW officials

admitted that the purchase price of

HSW included the approximately DM

60 million paid for the HLB loan.

Petitioners add that large transactions,

such as the sale of HSW, typically are

complex and involve multiple parties

and agreements. Thus, according to

petitioners, treating the two transactions

as the purchase price paid for HSW is

consistent with commercial reality.

Petitioners further argue that IHSW’s

post-purchase investments and

commitments do not constitute part of

the purchase price. Petitioners contend

that the payment for any good, service,

or asset is the amount that is exchanged

between the buyer and seller in

exchange for the good, service, or asset.

Petitioners assert that the only exchange

between the buyer and seller in this case

is the DM 10 million and DM 60 million

that was paid to purchase the company.

Petitioners add that IHSW’s subsequent

investments in the company, whether or

not required by the purchase agreement,

do not go to the seller. Therefore,

according to petitioners, these payments

do not warrant treatment as part of the

purchase price for HSW or as a

repayment of subsidies.

With respect to IHSW’s claim that

HSW owned too few of its assets and

was encumbered with too many

restrictions from the GOH to warrant the

purchase price paid by Venuda,

petitioners contend that there is

absolutely no evidence that would

permit the Department to evaluate

IHSW’s claim. Therefore, according to

petitioners, IHSW’s argument must fail.

Department’s Position: We continue

to view Venuda’s purchase of HSW’s

loan and HSW’s shares as a single

transaction. At verification, IHSW

officials explained that the purchase

price paid for HSW’s shares (i.e., the DM

10 million) represented their valuation

of HSW’s non-current assets taking into

consideration HSW’s negative equity

position, the company’s remaining

liabilities, and the obligations that the

company was required to fulfill

pursuant to various articles in the loan

purchase agreement between HLB and

Venuda. The DM 60 million payment

represented Venuda’s valuation and

payment for HSW’s net current assets at

December 31, 1994 (i.e., the difference

between current assets and liabilities

(less the debt owed to HLB)).

These verified facts demonstrate that

it was not the HLB debt that was

purchased for commercial value in an

arm’s length transaction—it was the

company. Venuda valued and

purchased a company that was free of

all HLB debt. While part of the purchase

price was structured to resemble a debt

purchase, Venuda paid DM 60 million

to purchase HSW’s net current assets.

Thus, forgiveness of the debt owed to

HLB occurred separate and apart from

the purchase of the company. Moreover,

the debt forgiveness constitutes a

financial contribution to HSW.

We also disagree with IHSW’s

argument that the Department should

credit the post-purchase investments

and commitments against any benefit

from the alleged debt forgiveness. At

verification, officials explained that the

DM 10 million paid for the shares of

HSW incorporated their valuation of

HSW’s remaining assets taking into

consideration, inter alia, the obligations

in question. Thus, the obligations in

question related to the purchase of the

company and not to the loan.

Additionally, because we have

determined that the debt forgiveness

occurred separate from the sale of the

company, the post-purchase

investments and commitments do not

affect the amount of debt forgiven.

Comment 14: The Loan Payments to

a Related Party: IHSW contends that, in

fact, the liability for the ‘‘forgiven’’ loan

is still outstanding and payments on

that loan are currently being made by

IHSW’s sister company, DSG, to an

affiliated company, Picaro Limited.

Thus, according to IHSW, inasmuch as

the loan continues to be paid at the full

amount there is no loan forgiveness and

no countervailable benefit.

Petitioners argue that a loan cannot be

said to have been repaid by the device

of simply shifting funds around within

a group of related companies.

Petitioners add that the verification

shows that the loan ‘‘repayment’’

actually returns to IHSW in the form of

a shareholder contribution from

Venuda.

Department’s Position: The company

under investigation, IHSW, does not

carry the loan liability to Picaro Limited

on its books. The debt in question is

recorded in the books of an affiliated

company, DSG. Thus, from the

perspective of IHSW, the loan has been

totally forgiven. The company is under

no obligation to make payments on the

loan—all loan payments are made by

DSG.

Furthermore, we agree with

petitioners that this loan cannot be

considered outstanding with payments

still occurring simply by shifting the

liabilities within a group of related

companies. Even if we were to examine

this issue at the larger, corporate level,

the loan payments are being made by

DSG, a company which has no income

other than the lease payments it receives

from IHSW. These lease payments,

which then become loan payments from

DSG, are eventually reinvested into

IHSW as shareholder contributions.

Thus, even at this level of analysis the

subject merchandise still benefits from

the loan forgiveness because any

payments that are made against the loan

are reinvested to benefit production.

Comment 15: IHSW’s AUL

calculation: Petitioners contend that

there is an error in IHSW’s AUL

calculation because the ending gross

book value of productive assets in 1995

does not match the beginning gross book

value in 1996. Petitioners argue that

absent a change in methodology at the

end of 1995, which IHSW has not

reported, the closing asset value for one

year should equal the opening asset

value for the next.

IHSW asserts that its AUL calculation

was correct and based on verified facts.

IHSW notes that, as set forth in the 1996

annual audit reports for IHSW and

HSW/DSG, a transfer of assets and

liabilities occurred between DSG and

IHSW. Moreover, respondents claims

that the 1996 beginning gross book

value was examined by the Department

at verification in DSG’s 1996

development of fixed assets.

Department’s Position: We agree with

IHSW that there is not an error in the

company’s AUL calculation. As noted

by respondent, there was a transfer of

assets between IHSW and HSW/DSG at

the beginning of 1996. The transfer is

documented on the record of this

investigation (see e.g., IHSW

supplemental questionnaire response,

July 3, 1997).

Comment 16: F.O.B. Sales Value:

IHSW contends that basing the ad

valorem subsidy rate calculation on an

F.O.B. sales value is not in accordance

with the universal commercial fact that

freight costs, if born by the foreign

producer, are included in the value of

the merchandise supposedly benefitting

from a subsidy or grant. IHSW further

disputes the Department’s rationale for

this policy, i.e., that customs valuation

is performed on an F.O.B. basis.

According to IHSW, most countries use
55002 Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices

C.I.F. as the basis for customs valuation.

Finally, respondent argues that the

customs treatment has no relationship

to the fact that the value of commercial

transactions is the sum of all those

factors embodied in the sale and

evidenced by the sales price.

Petitioners contend that IHSW’s

argument that the denominator in the ad

valorem calculation should be based on

the C.I.F. value or ‘‘sale price’’ is

mathematically invalid. Petitioners note

that the Department allocates the

countervailing duty margin over the

customs value of sales because the U.S.

Customs Service (‘‘U.S. Customs’’) will

later multiply the resulting margin by

the customs value to determine the total

duty per entry. Petitioners assert that if

the denominator uses any other measure

of value, the duty calculation will be

incorrect.

Department’s Position: We agree with

petitioners. Pursuant to section

402(2)(A) of the Act, U.S. Customs is

directed to exclude from the customs

value any expenses incident to the

international shipment of the

merchandise from the country of

exportation to the place of importation

in the United States. Thus, the

Department requests sales data on an

F.O.B basis so that the Department and

Customs are consistent in the

calculation and assessment of

countervailing duties, respectively. BES

Comment 17: Countervailability of

Pre-Unification Assistance to the New

States: The GOG argues that loan

guarantees issued by THA prior to

Unification are not countervailable

because they were available to all THA

companies and hence, not specific to

SWB. Both the GOG and BES point out

that these guarantees were transnational

in nature and are, therefore, not subject

to the countervailing duty law (see

Georgetown Steel Corp. v. United States,

801 F.2d 1308 (Fed. Cir. 1987)).

Petitioners argue that because the

GDR eventually became part of the

unified Germany and the ultimate

beneficiary (i.e., SWB/BES) likewise

became a citizen of the same, any

assistance provided to SWB/BES was

not transnational in nature. In

particular, petitioners point out that at

the time that assistance was granted to

SWB, both the FRG and the GDR had

taken major steps in the direction of

unification.

Department’s Position: We agree with

the GOG and BES that any financial

benefit, received directly by SWB and/

or indirectly by BES, through secondary

FRG loan guarantees issued prior to

Unification is not countervailable (see

the section on FRG Backing of THA

Loan Guarantees under Programs

Determined Not To Be Countervailable

above). As previously discussed, the

GDR and the FRG were separate

sovereign countries prior to Unification;

therefore, the provision of FRG backing

of THA loan guarantees to GDR

enterprises constituted transnational

assistance, notwithstanding the steps

already taken toward Unification. That

the two countries eventually were

joined is not relevant because our

analysis is focused on the nature of the

benefit at the time it was bestowed.

Comment 18: Non-Use of Special

Depreciation by BES: Petitioners

acknowledge that the Department’s

normal practice is to recognize tax

benefits when tax returns are filed.

According to petitioners, this practice is

justified in the context of recurring tax

benefits (see Final Affirmative

Countervailing Duty Determination:

Brass Sheet and Strip from Brazil, 51 FR

40837, 40841 (November 10, 1986)) .

Petitioners argue, however, that the

Department should deviate from this

practice here since BES did not file a tax

return during the POI. By allowing BES

to record no benefits in one year and

then benefits from two tax years in

another would result in changing two

recurring benefits into a single

nonrecurring benefit in the year of

filing. In order to ensure continued

treatment of Special Depreciation as a

recurring benefit, petitioners argue that

the Department should countervail the

amount of Special Depreciation

recorded in BES’s books, regardless of

the date of filing.

BES and the GOG argue that since

BES did not file a tax return during the

POI, it did not receive a financial benefit

in the form of Special Depreciation.

Department’s Position: We agree that

with BES and the GOG that BES did not

receive a financial benefit from Special

Depreciation during the POI. This

program provides a tax benefit.

Therefore, under the Department’s

current practice, any financial

contribution arising from Special

Depreciation is realized when the ‘‘cash

flow’’ effect occurs, i.e., when the tax

return is filed (see Proposed

Regulations). In past cases where

respondents did not file tax returns

during the period in question, or had an

operating loss or were otherwise unable

to benefit from a tax concession, the

Department has not altered its

methodology to compensate for any

unevenness of benefits over time (see

e.g., Certain Steel at 37315 and

Ferrochrome From South Africa:

Preliminary Results of the 1992 Review,

61 FR 65546, 65547 (December 13,

1996)). A major reason for waiting until

the tax return is filed is that only then

can we be certain of the level of the

benefit. In this case, we found at

verification that BES did not file a tax

return during the POI; accordingly, BES

did not receive a benefit from the

Special Depreciation program during

the POI.

Comment 19: Other Arguments

Regarding Countervailability: Interested

parties made other arguments regarding

the countervailability of assistance to

BES. These arguments are now moot

since we have found benefits pertaining

to the FRG backing of THA loan

guarantees to be not countervailable,

special depreciation to be not used, and

benefits from all other programs to be de

minimis, assuming, arguendo, they are

countervailable.

Comment 20: Improper Inclusion of

BES: BES alleges that the Department

did not have authority to initiate an

investigation against it because

petitioners did not allege that BES was

receiving any countervailable subsidies

and did not provide evidence of

regional assistance programs targeted at

the New States.

Department’s position: The statute

does not require company-specific

allegations to initiate an investigation. A

petitioner must only allege that the

government of a country is providing

countervailable subsidies with respect

to the manufacture, production or

export of a class or kind of merchandise

imported or sold for exportation into the

United States, and that such subsidies

are causing injury to the U.S. industry.

See section 701(a) and 702(a)(b)(1) of

the Tariff Act. The petition met these

requirements.

If sufficient allegations are made, the

Department initiates a proceeding to

determine whether the government of

the country in question is providing

subsidies to the subject industry. As an

initial matter, the Department asks a

petitioner to identify all the

manufacturers or exporters of the

subject merchandise. Normally, the

Department sends all identified

companies questionnaires, in addition

to sending a complete set of

questionnaires to the government

involved. The Act requires the

Department to attempt to determine an

individual countervailable subsidy rate

for each known exporter or producer of

the subject merchandise. See section

777(e)(1). There is no authority to

exclude a respondent from an

investigation except through the

determination that the company had an

ad valorem subsidy rate of zero or de

minimis. See 19 CFR Section 355.14.

Suspension of Liquidation: In

accordance with section 705(c)(1)(B)(i)

of the Act, we have calculated an
Federal Register / Vol. 62, No. 204 / Wednesday, October 22, 1997 / Notices 55003

individual subsidy rate for each

company investigated. For companies

not investigated, we have determined an

all-others rate by weighting individual

company subsidy rates by each

company’s exports of the subject

merchandise to the United States. The

all-others rate does not include zero or

de minimis rates.

In accordance with section 703(d)(5)

of the Act, we are directing the U.S.

Customs Service to continue to suspend

liquidation of all entries of steel wire

rod from Germany, except those of BES

and WHG, which are entered, or

withdrawn from warehouse for

consumption, on or after the date of

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

Saarstahl ....................................... 17.67

IHSW ............................................. 5.61

All others ....................................... 11.08

Since the estimated net subsidy rate

for BES and WHG is de minimis, these

companies are not subject to the

suspension of liquidation and will be

excluded from any countervailing duty

order.

ITC Notification

In accordance with section 705(d) 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 Acting Deputy Assistant

Secretary for AD/CVD Enforcement,

Import Administration.

If the ITC determines that material

injury, or threat of material injury, does

not exist, these proceedings will be

terminated and all estimated duties

deposited or securities posted as a result

of the suspension of liquidation will be

refunded or canceled. If, however, the

ITC determines that such injury does

exist, we will issue a countervailing

duty order directing Customs officers to

assess countervailing duties on steel

wire rod from Germany.

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: October 14, 1997.

Robert S. LaRussa,

Assistant Secretary for Import

Administration.

[FR Doc. 97–27985 Filed 10–21–97; 8:45 am]

BILLING CODE 350–DS–P

DEPARTMENT OF COMMERCE

International Trade Administration

[C–274–803]

Final Affirmative Countervailing Duty

Determination: Steel Wire Rod From

Trinidad and Tobago

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT:

Todd Hansen, Vincent Kane, or Sally

Hastings, Office of Antidumping/

Countervailing Duty Enforcement,

Group I, Office 1, Import

Administration, U.S. Department of

Commerce, Room 1874, 14th Street and

Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone

(202) 482–1276, 482–2815, or 482–3464,

respectively.

Final Determination

The Department of Commerce (‘‘the

Department’’) determines that

countervailable subsidies are being

provided to Caribbean Ispat Limited

(‘‘CIL’’), a producer and exporter of steel

wire rod from Trinidad and Tobago. For

information on the estimated

countervailing duty rates, please see the

Suspension of Liquidation section of

this notice.

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.

Case History

Since our preliminary determination

on July 28, 1997 (62 FR 41927, August

4, 1997), the following events have

occurred:

We conducted verification in

Trinidad and Tobago of the

questionnaire responses of the

Government of Trinidad and Tobago

(‘‘GOTT’’) and of CIL from August 18

through August 26, 1997. Petitioners

and respondents filed case and rebuttal

briefs on September 12 and September

17, 1997, respectively. A public hearing

was held on September 19, 1997. On

September 16, 1997, the GOTT and the

U.S. Government initialed a proposed

suspension agreement, whereby the

GOTT agreed not to provide any new or

additional export subsidies on the

subject merchandise and to restrict the

volume of direct and indirect exports of

subject merchandise to the United

States. On October 14, 1997, the U.S.

Government and the GOTT signed a

suspension agreement (see, Notice of

Suspension of Countervailing Duty

Investigation: Steel Wire Rod from

Trinidad and Tobago which is being

published concurrently with this

notice). Based on a request from

petitioners on October 14, 1997, the

Department and the International Trade

Commission (‘‘ITC’’) are continuing this

investigation in accordance with section

704(g) of the Act. As such, this final

determination is being issued pursuant

to section 704(g) of the Act.

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