40474 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

European Union and Regional Affairs,

Room 3036, U.S. Department of

Commerce, Washington, DC 20230;

telephone: 202/482–2178.

Authority: Act of February 14, 1903, c. 552,

as amended, 15 U.S.C. 1501 et seq, 32 Stat.

825; Reorganization Plan No. 3 of 1979, 19

U.S.C. 2171 Note, 93 Stat. 1381.

Dated: July 23, 1998.

Patrick A. Mulloy,

Assistant Secretary, Market Access and

Compliance, International Trade

Administration.

[FR Doc. 98–20230 Filed 7–28–98; 8:45 am]

BILLING CODE 3510–DA–P

DEPARTMENT OF COMMERCE

International Trade Administration

[C–475–821]

Final Affirmative Countervailing Duty

Determination: Certain Stainless Steel

Wire Rod From Italy

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT:

Kathleen Lockard or Eric B. Greynolds,

Office of CVD/AD Enforcement VI,

Import Administration, International

Trade Administration, U.S. Department

of Commerce, 14th Street and

Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone:

(202) 482–2786.

Final Determination

The Department of Commerce (the

Department) determines that

countervailable subsidies are being

provided to producers and exporters of

certain stainless steel wire rod from

Italy: Cogne Acciai Speciali S.r.l.,

Acciaierie Valbruna S.r.l., and

Acciaierie di Bolzano S.p.A. For

information on the estimated

countervailing duty rates, please see the

‘‘Suspension of Liquidation’’ section of

this notice.

Case History

Since the publication of our

preliminary determination in this

investigation on January 7, 1998 (63 FR

809), the following events have

occurred:

On January 21, 1998, and March 4,

1998, we issued supplemental

questionnaires to the Commission of the

European Union (EU), Government of

Italy (GOI), Cogne Acciai Speciali S.r.l.

(CAS), and Acciaierie Valbruna S.r.l.

(Valbruna) and Acciaierie di Bolzano

S.p.A. (Bolzano), (collectively referred

to as Valbruna/Bolzano). We received

responses to these supplemental

questionnaires between February 9,

1998, and March 27, 1998. Respondents

submitted additional information on

April 9, 1998.

On March 5, 1998, the final

determinations in the antidumping and

countervailing duty investigations were

postponed until July 20, 1998 (63 FR

10831). We conducted verification of

the countervailing duty questionnaire

responses from April 15 through May

13, 1998. On May 7, 1998, we

terminated the suspension of

liquidation of all entries of the subject

merchandise entered or withdrawn from

warehouse for consumption on or after

that date. Petitioners and Respondents

filed case briefs on June 11, 1998, and

rebuttal briefs on June 16, 1998.

The Applicable Statute and Regulations

Unless otherwise indicated, all

citations to the statute are references to

the provisions of the Tariff Act of 1930,

as amended by the Uruguay Round

Agreements Act effective January 1,

1995 (the Act). In addition, unless

otherwise indicated, all citations to the

Department’s regulations are to the

current regulations codified at 19 CFR

351 and published in the Federal

Register on May 19, 1997 (62 FR 27295).

Petitioners

The petition in this investigation was

filed by AL Tech Specialty Steel Corp.;

Carpenter Technology Corp.; Republic

Engineered Steels; Talley Metals

Technology, Inc.; and, United

Steelworkers of America, AFL-CIO/CLC

(the Petitioners).

Scope of Investigation

For purposes of this investigation,

certain stainless steel wire rod (SSWR or

subject merchandise) comprises

products that are hot-rolled or hot-rolled

annealed and/or pickled and/or

descaled rounds, squares, octagons,

hexagons or other shapes, in coils, that

may also be coated with a lubricant

containing copper, lime or oxalate.

SSWR is made of alloy steels

containing, by weight, 1.2 percent or

less of carbon and 10.5 percent or more

of chromium, with or without other

elements. These products are

manufactured only by hot-rolling or hotrolling, annealing, and/or pickling and/

or descaling, and are normally sold in

coiled form, and are of solid crosssection. The majority of SSWR sold in

the United States is round in crosssectional shape, annealed and pickled,

and later cold-finished into stainless

steel wire or small-diameter bar.

The most common size for such

products is 5.5 millimeters or 0.217

inches in diameter, which represents

the smallest size that normally is

produced on a rolling mill and is the

size that most wire drawing machines

are set up to draw. The range of SSWR

sizes normally sold in the United States

is between 0.20 inches and 1.312 inches

in diameter. Two stainless steel grades

SF20T and K–M35FL are excluded from

the scope of the investigation. The

percentages of chemical makeup for the

excluded grades are as follows:

SF20T

Carbon ....................... 0.05 max

Manganese ................ 2.00 max

Phosphorous ............. 0.05 max

Sulfur ......................... 0.15 max

Silicon ........................ 1.00 max

Chromium .................. 19.00/21.00

Molybdenum .............. 1.50/2.50

Lead .......................... added (0.10/0.30)

Tellurium .................... added (0.03 min)

K–M35FL

Carbon ....................... 0.015 max

Silicon ........................ 0.70/1.00

Manganese ................ 0.40 max

Phosphorous ............. 0.04 max

Sulfur ......................... 0.03 max

Nickel ......................... 0.30 max

Chromium .................. 12.50/14.00

Lead .......................... 0.10/0.30

Aluminum .................. 0.20/0.35

The products under investigation are

currently classifiable under subheadings

7221.00.0005, 7221.00.0015,

7221.00.0030, 7221.00.0045, and

7221.00.0075 of the Harmonized Tariff

Schedule of the United States (HTSUS).

Although the HTSUS subheadings are

provided for convenience and customs

purposes, the written description of the

scope of this investigation is dispositive.

Injury Test

Because Italy is a ‘‘Subsidies

Agreement Country’’ within the

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

International Trade Commission (ITC) is

required to determine whether imports

of the subject merchandise from Italy

materially injure, or threaten material

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

24, 1997, the ITC published its

preliminary determination finding that

there is a reasonable indication that an

industry in the United States is being

materially injured, or threatened with

material injury, by reason of imports

from Italy of the subject merchandise

(62 FR 49994).

Period of Investigation

The period for which we are

measuring subsidies (the ‘‘POI’’) is

calendar year 1996.
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40475

Corporate Histories

CAS

From 1984 to 1987, the subject

merchandise was produced at the Aosta

facilities operating under Deltasider, a

wholly-owned subsidiary of Finsider

S.p.A. (Finsider), the GOI-owned

holding company for steel producers.

Finsider was, in turn, wholly-owned by

Instituto per la Ricostruzione Industriale

(IRI) an agency of the GOI. In 1987, the

GOI reorganized the Finsider corporate

groupings and created Deltacogne

S.p.A., as a subsidiary to Deltasider. The

Aosta operations were transferred to

Deltacogne S.p.A.

In 1988, IRI created ILVA S.p.A. as

the successor to Finsider; ILVA was also

wholly-owned by the IRI of the GOI, and

was created to act as both an operating

company and a holding company for the

government-owned steel production

operations. In 1989, Deltacogne S.p.A.,

the producer of SSWR, was merged into

ILVA S.p.A. In December 1989, the GOI

again reorganized its steel producing

subsidiaries and created Cogne S.r.l., a

wholly-owned subsidiary of the ILVA

Group, which held the Aosta operations.

Cogne S.r.l. was later named Cogne

Acciai Speciali S.p.A. (Cogne S.p.A.).

From 1990 to 1992, Gruppo Falck S.p.A.

(Falck), a private company with

holdings in steel and real estate, held

22.4 percent of Cogne S.p.A.’’s stock

(with the remaining and controlling

interest held by ILVA). Falck acquired

the shares of Cogne S.p.A. by

exchanging an equal value of shares of

its own subsidiary, Bolzano. By the end

of 1992, Falck’s interest in Cogne S.p.A.

was dissolved by losses and Cogne

S.p.A. was again wholly-owned by the

ILVA Group.

In 1991, Robles S.r.l., a subsidiary of

ILVA Gestioni Patrimoniali (ILVA GP),

another ILVA subsidiary, acquired the

land and buildings, i.e., the nonproductive assets, of the Aosta facilities

from Cogne S.p.A. Robles S.r.l. was then

acquired by Compagnie Monegasque de

Banque S.A. at the end of 1991. In 1992,

Robles was reacquired by ILVA GP

according to the terms of its original

sales contract (which required ILVA GP

to repurchase Robles if at the end of one

year the new owners had failed to sell

the Aosta land and buildings). Cogne

S.p.A. then acquired the shares of

Robles from ILVA GP. The name of

Robles S.r.l. was then changed to Cogne

Acciai Speciali S.r.l. (CAS).

At this time, the GOI decided to

privatize the Cogne operations. At the

end of 1992, the assets and some of the

liabilities of Cogne S.p.A. were assessed

and contributed to CAS on December

31, 1992, in exchange for shares equal

to the net value of the capital

contribution, 40 billion lire. From that

date, CAS assumed the on-going

operations of the Cogne facility and

Cogne S.p.A. entered into liquidation

and became Cogne S.p.A. in

Liquidazione. The GOI offered CAS for

sale through an open bidding process.

Three parties submitted complete offers

for CAS. The bid of GE. VAL. S.r.l., a

privately-owned holding company, was

accepted by Cogne S.p.A. in

Liquidazione. The CAS shares were

transferred to GE. VAL. based on two

installment payments, one on the date

of the agreement (December 31, 1993)

and one 18 months later. At the end of

1995, Cogne S.p.A. in Liquidazione was

merged into ILVA S.p.A. in

Liquidazione, which was subsequently

merged into IRITECNA, another IRI

company in liquidation. In 1995, GE.

VAL. S.r.l. was merged into MEG S.A.,

another holding company of the same

corporate family. Since that time, CAS

has been owned and controlled by MEG

S.A.

Bolzano and Valbruna

From 1985 through 1990, Bolzano was

a wholly-owned subsidiary of Acciaierie

e Ferriere Lomarde Falck, the main

industrial company of Falck which was

a private corporate group with holdings

in steel, real estate, environmental

technologies, and other sectors. In 1990,

ILVA acquired 44.8 percent of the stock

in Bolzano. ILVA acquired the shares of

Bolzano by exchanging an equal value

of shares of its own subsidiary Cogne

S.p.A. ILVA also acquired shares in

other Gruppo Falck steel companies. In

1993, ILVA’s interest in Bolzano was

completely dissolved because of losses,

and Falck again held virtually all of the

shares in Bolzano. Falck decided to sell

Bolzano based on its company-wide

strategic decision to withdraw from the

steel sector. Falck contacted Valbruna as

a potential buyer in late 1994.

Subsequently, the parties entered into

negotiations for the transfer of Bolzano.

Each party had an independent

evaluation done of the value of the firm.

A third study was done to reconcile the

points of the first valuations that were

in dispute relating to the final net equity

and cash flow of Bolzano for purposes

of finalizing the purchase price.

Valbruna acquired 99.99 percent of the

shares of Bolzano for this final price on

August 31, 1995. Since then, the two

companies have issued consolidated

financial statements.

Affiliated Parties

In the present investigation, there are

affiliated parties (within the meaning of

section 771(33) of the Act) whose

relationship may be sufficient to

warrant treatment as a single company.

In the countervailing duty

questionnaire, consistent with our past

practice, the Department defined

companies as related where one

company owns 20 percent or more of

the other company, or where companies

prepare consolidated financial

statements. See Final Affirmative

Countervailing Duty Determination:

Certain Pasta (‘‘Pasta’’) From Italy, 61

FR 30287 (June 14, 1996) (Pasta from

Italy). Valbruna owns 99.99 percent of

Bolzano. In the preliminary

determination, we treated Valbruna and

Bolzano as a single company. Our

review of the record and our findings at

verification have not led us to

reconsider this determination.

Therefore, we have calculated a single

countervailing duty rate for these

companies by dividing their combined

subsidy benefits by their consolidated

total sales, or consolidated export sales,

as appropriate.

Change in Ownership

In the 1993 investigations of Certain

Steel Products, we developed a

methodology with respect to the

treatment of non-recurring subsidies

received prior to the sale of a company.

See Final Countervailing Duty

Determination; Certain Steel Products

from Austria, et. al., 58 FR 37217 (July

9, 1993) (Certain Steel from Austria).

This methodology was set forth in the

General Issues Appendix (GIA),

attached to that notice. The

methodology was subsequently upheld

by the Court of Appeals for the Federal

Circuit. See Saarstahl AG versus United

States, 78 F.3d 1539 (Fed. Cir. 1996);

British Steel plc versus United States,

127 F.3d 1471 (Fed. Cir. 1997).

Under the GIA methodology, we

estimate the portion of the company’s

purchase price which is attributable to

prior subsidies. To make this estimate,

we divide the face value of the

company’s subsidies by the company’s

net worth for each of the years

corresponding to the company’s

allocation period. We then take the

simple average of these ratios, which

serves as a reasonable surrogate for the

percentage that subsidies constitute of

the overall value, i.e., net worth, of the

company. Next, we multiply this

average ratio by the purchase price of

the company to derive the portion of the

purchase price that we estimate to be a

repayment of prior subsidies. Then, the

benefit streams of the prior subsidies are

reduced by the ratio of the repayment

amount to the net present value of all

remaining benefits at the time of the

change in ownership.
40476 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

The methodology does not

automatically treat all previously

bestowed subsidies as passing through

to the purchaser, nor does it

automatically treat the subsidies as

remaining with the seller or as being

extinguished as a result of the

transaction. Instead the methodology

recognizes that a change in ownership

has some impact on previously

bestowed subsidies and, through an

analysis based on the facts of each

transaction, determines the extent to

which the subsidies pass through.

In the URAA, Congress clarified how

the Department should approach

changes in ownership. Section 771(5)(F)

of the Act states that:

A change in ownership of all or part of a

foreign enterprise or the productive assets of

a foreign enterprise does not by itself require

a determination by the administrating

authority that a past countervailable subsidy

received by the enterprise no longer

continues to be countervailable, even if the

change in ownership is accomplished

through an arm’s length transaction.

The Statement of Administrative

Action accompanying the URAA,

reprinted in H.R. Doc. No. 103–316

(1994) (SAA) explains why Section

771(5)(F) was added to the statute. The

SAA at page 928 states:

Section 771(5)(F) is being added to clarify

that the sale of a firm at arm’s length does

not automatically, and in all cases,

extinguish any prior subsidies conferred.

Absent this clarification, some might argue

that all that would be required to eliminate

any countervailing duty liability would be to

sell subsidized productive assets to an

unrelated party. Consequently, it is

imperative that the implementing bill correct

such an extreme interpretation.

Consistent with the URAA and the

SAA, the Department continues to

examine whether non-recurring

subsidies benefit a company’s

production after a change in ownership,

even one accomplished at arm’s length.

Accordingly, we continue to follow the

methodology developed in the GIA

based on our determination that this

methodology does not conflict with the

change in ownership provision of the

URAA. As stated by the Department,

‘‘[t]he URAA is not inconsistent with

and does not overturn the Department’s

General Issues Appendix

Methodology. * * *’’ Certain HotRolled Lead and Bismuth Carbon Steel

Products from the United Kingdom;

Final Results of Countervailing Duty

Administrative Review, 61 FR 58377,

58379 (Nov. 14, 1996) (UK Lead Bar 94).

We further clarified in UK Lead Bar 94

that, ‘‘[t]he language of Sec. 771(5)(F) of

the Act purposely leaves discretion to

the Department with regard to the

impact of a change in ownership on the

countervailability of past subsidies.’’ Id.

at 58379. The Department has been

applying the methodology set forth in

the GIA. See, e.g., Final Affirmative

Countervailing Duty Determination:

Steel Wire Rod From Trinidad and

Tobago, 62 FR 55003 (October 22, 1997)

(Steel Wire Rod from Trinidad and

Tobago) and Final Affirmative

Countervailing Duty Determination:

Steel Wire Rod from Canada, 62 FR

54972 (October 22, 1997) (Steel Wire

Rod from Canada). CAS and Valbruna/

Bolzano claim that, because the changes

in ownership occurred through arm’s

length transactions, the previously

bestowed subsidies were extinguished.

However, for reasons discussed below

(see the Department’s Position on

Comments 5 and 9 through 13), we find

that application of the GIA methodology

is appropriate.

CAS

To calculate the amount of the

previously bestowed subsidies that

passed through to CAS, we followed the

GIA methodology described above. We

were unable to calculate the subsidiesto-net worth ratios used in the

privatization calculation for 1985 and

1986, because the net worth information

was not available for the Aosta

operations alone. Therefore, in

accordance with section 776 of the Act,

as facts available, we used an average of

the years available (1987 through 1992)

in the privatization calculation. As

described in the ‘‘Corporate Histories’’

section above, ILVA ceased operations

following the privatization and/or

liquidation of all of its subsidiaries,

operating units, and divisions. For

untied non-recurring subsidies provided

to ILVA (and prior to 1989, ILVA’s

predecessor, Finsider), Cogne’s former

parent company, we calculated the

amount of these untied subsidies

attributable to Cogne by applying a ratio

of the Aosta operation’s assets to its

parent company’s assets in the year of

receipt of the subsidy. When calculating

the subsidies to net worth ratios used in

the privatization methodology described

above, we included Cogne’s share of the

untied subsidies in the calculation.

As discussed in the ‘‘Corporate

Histories’’ section above, from 1990–

1993, ILVA held a minority interest in

Bolzano and Falck held a minority

interest in Cogne. However, as

examined previously by the

Department, the exchange of shares

involved no cash transactions. See Final

Affirmative Countervailing Duty

Determinations: Certain Steel Products

from Italy, 58 FR 37327 (July 9, 1993)

(Certain Steel from Italy). Moreover, the

Cogne and Bolzano share exchange

involved an equal value of shares in

each company. At verification we were

able to confirm this finding with respect

to Cogne and Bolzano. See Verification

Report of Cogne Acciai Speciali S.r.l.

(CAS), dated June 1, 1998, public

version on file in the Central Records

Unit (CRU), room B–099 of the main

Commerce building (CAS Verification

Report) and Verification Report of

Acciaierie di Bolzano Sp.A. and

Acciaierie Valbruna S.r.l., dated June 1,

1998, public version on file in the CRU

(Valbruna/Bolzano Verification Report).

There were no cash or other asset

contributions involved in this stock

swap. Therefore, we did not attribute

any portion of ILVA’s untied subsidies

to Bolzano or Falck’s untied subsidies to

CAS.

Bolzano

To calculate the amount of the

previously bestowed subsidies that

passed through to Bolzano from Falck,

we followed the GIA methodology

which the Department has previously

determined is applicable to private-toprivate changes in ownership to

examine the reallocation of subsidies.

See, e.g., Pasta from Italy. When Falck

sold Bolzano to Valbruna in 1995, Falck

was in the process of transferring or

closing all of its steel operations. For

untied non-recurring subsidies provided

to Falck in the years prior to Bolzano’s

sale to Valbruna, we calculated the

amount of these untied subsidies

attributable to Bolzano by applying a

ratio of Bolzano’s assets to Falck’s assets

in the year of receipt of the subsidy.

When calculating the subsidy to net

worth ratios used in the methodology

described above, we included Bolzano’s

share of the untied subsidies in the

calculation. Also, as described above,

we have not attributed any portion of

ILVA’s untied subsidies to Bolzano

during the period in which ILVA held

a minority interest in Bolzano.

Subsidies Valuation Information

Benchmarks for Long-term Loans and

Discount Rates: In our preliminary

determination, we used as our

benchmark the average long-term

interest rate available in Italy based

upon a survey of 114 Italian banks

reported by the Banca D’Italia, the

Central Bank of Italy. However, during

verification, we learned that the Italian

Interbank Rate (ABI) is the most suitable

benchmark for long-term financing to

Italian companies. Because the ABI

represents a long-term interest rate

provided to a bank’s most preferred

customers with established low-risk

credit histories, for other customers
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40477

commercial banks typically add a

spread ranging from 0.55 percent to 4

percent onto the rate depending on the

company’s financial health. In years in

which the companies under

investigation were creditworthy, we

added the average of that spread onto

the ABI to calculate a benchmark. In

years in which the companies under

investigation were uncreditworthy, we

calculated the discount rates according

to the methodology described in the

GIA. Specifically, we added to the ABI

a spread of 4 percent in order to reflect

the highest commercial interest rate

available to companies in Italy. We then

added to this rate a risk premium equal

to 12 percent of the ABI, the equivalent

of a prime rate.

Allocation Period: In the past, the

Department has relied upon information

from the U.S. Internal Revenue Service

on the industry-specific average useful

life of assets in determining the

allocation period for non-recurring

subsidies. See GIA, 58 FR at 37227.

However, in British Steel plc v. United

States, 879 F. Supp. 1254 (CIT 1995)

(British Steel I), 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

non-recurring subsidies based on the

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

determination was affirmed by the Court

on June 4, 1996. See British Steel plc v.

United States, 929 F. Supp. 426, 439

(CIT 1996) (British Steel II). Thus, we

intend to determine the allocation

period for non-recurring subsidies using

company-specific AUL data where

reasonable and practicable. See, e.g.,

Certain Cut-to-Length Carbon Steel Plate

from Sweden; Final Results of

Countervailing Duty Administrative

Review, 62 FR 16551 (April 7, 1997).

In this investigation, the Department

has followed the Court’s decision in

British Steel, and examined information

submitted by the Respondent companies

as to their average useful life of assets.

Valbruna/Bolzano: In the preliminary

determination, we calculated a single

weighted-average AUL for Valbruna and

Bolzano. We received no comments on

this calculation and our review of the

record has not led us to reconsider this

finding. Therefore, the AUL for

Valbruna/Bolzano is 12 years.

CAS: In the preliminary

determination, we did not calculate an

AUL based on CAS’s financial

information because the calculation

provided by the company included

several distortions related to the asset

valuation methodologies employed by

the company and its use of accelerated

depreciation. Instead, in the preliminary

determination, we used the AUL

calculated for Valbruna/Bolzano as the

most appropriate surrogate for CAS’s

AUL. CAS did not present any

additional information on its AUL

calculation for our consideration for the

final determination.

In the preliminary determination, we

discussed the GOI’s tax depreciation

schedule for the steel sector in Italy as

a possible surrogate AUL for CAS.

According to the GOI, the depreciation

schedule was based on information

acquired from an industry survey

conducted in 1988. We asked the GOI to

provide the survey so we could

determine whether the depreciation

schedule reflected the average useful

life of assets in the Italian steel industry.

The GOI did not submit this survey.

Therefore, we are unable to determine

whether the schedule represents the

AUL of assets in the Italian steel

industry. As such, we are continuing to

use the Valbruna/Bolzano AUL of 12

years as a surrogate for a CAS AUL for

this final determination.

Equityworthiness

In analyzing whether a company is

equityworthy, the Department considers

whether that company could have

attracted investment capital from a

reasonable private investor in the year

of the government equity infusions,

based on information available at that

time. See GIA, 58 FR at 37244.

Our review of the record and our

analysis of the comments submitted (see

Comment Section below) have not led

us to change our finding in the

preliminary determination. Based on the

Department’s determination in Final

Affirmative Countervailing Duty

Determination: Grain-Oriented

Electrical Steel from Italy, 59 FR 18357

(April 18, 1994), (Electrical Steel from

Italy), we continue to find ILVA’s

predecessors and ILVA unequityworthy

from 1985 through 1988 and from 1991

through 1992.

In measuring the benefit from a

government equity infusion into an

unequityworthy company, the

Department compares the price paid by

the government for the equity to a

market benchmark, if such a benchmark

exists. In this case, a market benchmark

does not exist so we used the

methodology described in the GIA, 58

FR at 37239. See also Steel Wire Rod

from Trinidad and Tobago, 62 FR at

55004. Following this methodology,

equity infusions made on terms

inconsistent with the usual practice of

a private investor are treated as grants.

Use of this methodology is based on the

premise that an unequityworthiness

finding by the Department is

tantamount to saying that the company

could not have attracted investment

capital from a reasonable investor in the

infusion year based on the information

available in that year.

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. See, e.g., Final

Affirmative Countervailing Duty

Determinations: Certain Steel Products

from France, 58 FR 37304 (July 9, 1993)

(Certain Steel from France); Final

Affirmative Countervailing Duty

Determination: Steel Wire Rod from

Venezuela, 62 FR 55014 (Oct. 21, 1997).

ILVA’s predecessors and ILVA were

found to be uncreditworthy from 1985

through 1992 in Electrical Steel from

Italy; no new information has been

presented in this investigation that

would lead us to reconsider this finding.

Therefore, consistent with our past

practice, we continue to find ILVA’s

predecessors and ILVA uncreditworthy

from 1985 through 1992. See, e.g., Final

Affirmative Countervailing Duty

Determinations: Certain Steel Products

from Brazil, 58 FR 37295, 37297 (July 9,

1993). Our examination of the financial

data and ratios from 1990, 1991, and

1992 has led us to determine that ILVA

was also uncreditworthy in 1993. We

did not examine CAS’s creditworthiness

in 1994 and 1995 because the company

did not receive equity infusions, grants,

long-term loans, or loan guarantees in

the years. Based on our examination of

the financial performance of CAS in

1993, 1994, and 1995, and our analysis

of its financial ratios, we continue to

find CAS creditworthy in 1996.

With respect to Falck and Bolzano, we

have examined the creditworthiness of

Falck in 1992 since one of the loans was

renegotiated in that year. To determine

Falck’s creditworthiness in 1992, we

examined financial statistics for the

prior three years. Falck’s financial ratios

showed that the company was able to

cover its obligations. Further, Falck’s

debt-to-equity position was strong.

Therefore, we determine that Falck was

creditworthy in 1992.

Neither Falck nor Bolzano received

any equity infusions, long-term loans, or

loan guarantees in the other years in

which the companies were alleged to be

uncreditworthy. Therefore, we have not

examined the creditworthiness of Falck

in the years 1993–1994 nor of Bolzano

in the years 1995–1996.
40478 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

I. Programs Determined To Be

Countervailable

Programs of the Government of Italy

A. Equity Infusions to Finsider and

ILVA

The GOI, through IRI, provided equity

infusions to Finsider in 1985 and 1986.

IRI also provided equity infusions to

ILVA in 1991 and 1992. We determine

that these equity infusions provide a

financial contribution that confer a

benefit under section 771(5)(E)(i) of the

Act, in the amount of each infusion

because the GOI investments were not

consistent with the usual investment

practices of private investors (see

discussion of ‘‘Equityworthiness’’

above). These equity infusions are

specific within the meaning of section

771(5A)(D) of the Act because they were

limited to Finsider and ILVA.

Accordingly, we find that the equity

infusions to Finsider and ILVA are

countervailable subsidies within the

meaning of section 771(5) of the Act.

We have treated these equity

infusions as non-recurring grants given

in the year the infusion was received

because each required a separate

authorization. As discussed below in

the Department’s Position on Comment

10, consistent with the Department’s

past practice, we consider these equity

infusions to be untied subsidies, which

benefit all the production of Finsider

and ILVA, respectively, including the

production of their subsidiaries. See,

e.g., Steel Wire Rod from Canada 62 FR

at 54977–79. Because both Finsider and

ILVA were uncreditworthy in the year

of receipt, we applied a discount rate

that included a risk premium. Since

CAS has been privatized, we followed

the methodology described in the

‘‘Change in Ownership’’ section above

to determine the amount of each equity

infusion appropriately allocated to CAS

after the privatization. We then divided

the benefit allocated to the POI by CAS’s

total sales. Accordingly, we determine

the countervailable subsidy to be 6.97

percent ad valorem for CAS.

B. Pre-Privatization Assistance and Debt

Forgiveness

As explained in the ‘‘Corporate

Histories’’ section above, Cogne S.p.A.

acquired the shares of Robles S.r.l. and

changed the company’s name to Cogne

Acciai Speciali S.r.l. (CAS), in 1992.

The purpose of acquiring the company

was to prepare for the privatization of

the Aosta factory. In the preliminary

determination, we countervailed debt

forgiveness provided in connection with

the privatization of CAS. Based on the

information collected after the

preliminary determination, and

comments submitted by the parties, we

have modified our approach to this

program, in part.

At the end of 1992, Cogne S.p.A.

transferred most of the productive assets

of the Aosta facility to CAS through the

capital contribution procedure under

Italian law. Under this procedure, Cogne

S.p.A. had assets (and liabilities)

assessed under the oversight of the

Italian Court and contributed them to

CAS in exchange for shares in CAS

worth exactly the net value of the

contribution. CAS officials explained

that pursuant to the capital

contribution, CAS received the

liabilities associated with the

production process, while Cogne S.p.A.

retained the other liabilities which were

mostly long-term. From that point, CAS

became the operating company and

Cogne S.p.A. entered into liquidation.

Cogne S.p.A. retained some of the

inventories, and minor productive

assets. CAS acquired the retained

inventories and assets that Cogne S.p.A.

did not sell to third parties for their

book value of 122 billion lire. Cogne

S.p.A. also retained part of the

workforce on its payroll. On December

30, 1993, Cogne S.p.A. bought the land

and buildings from CAS for the book

value of 79.6 billion lire. Cogne S.p.A.

then sold the land and buildings to the

Regional Government in 1994 (see

‘‘Valle d’Aosta Regional Assistance

Associated with the Sale of CAS’’

below).

CAS was offered for sale pursuant to

an open bidding process designed to

obtain the best purchase price for the

company. Negotiations for the sale

progressed through 1993; GE. VAL.

S.r.l.’s final offer was accepted, and CAS

was privatized effective January 1, 1994.

As of December 31, 1993, ILVA S.p.A.

issued a guarantee on behalf of Cogne

S.p.A. for the uncovered liabilities of

the firm, and the anticipated costs of the

liquidation process, for 380 billion lire.

CAS was the first of the ILVA Group

companies to be privatized. The plans

for the privatization preceded the formal

liquidation plans approved by the EU in

the Commission’s Decision of April 12,

1994, 94/259/ECSC. That plan divided

ILVA into three companies: ILVA

Laminati Piani, Acciai Speciali Terni,

and ILVA in Liquidazione. The first two

companies, which included the primary

production activities of ILVA S.p.A.,

were eventually privatized. The latter

company, ILVA in Liquidazione,

retained responsibility for all of the

ILVA entities which could not be sold

to private parties. The EU approved

some 10 trillion lire of state aid

connected with the liquidation of ILVA

in Liquidazione and its subsidiaries.

The estimated costs of the liquidation,

10 trillion lire, covered all of the ILVA

companies including the subsidiaries.

The costs associated with the

liquidation of Cogne S.p.A. were

included in that total. See Verification

Report of the Government of Italy dated

June 1, 1998, public document on file in

the CRU (GOI Verification Report).

In the preliminary determination, we

examined the individual costs

associated with the liquidation of Cogne

S.p.A., instead of focusing on the total

costs associated with privatization of

the entire ILVA Group, because of the

complexity of this series of transactions.

Thus, we calculated the benefit of the

debt coverage by subtracting the book

value of the land and buildings (that

were sold to the Region within the next

year) from the total liabilities on Cogne

S.p.A.’s books on December 31, 1993.

We followed this methodology in the

preliminary determination because it

was clear that the company was able to

recover the value of the land and

buildings, and we were unsure as to

what other assets on Cogne S.p.A.’s

books could be recovered. CAS argued

that this methodology overstated the

true amount of any debt coverage

because other assets were, in fact, used

to offset liabilities (see Comment 11,

below). At verification, it was

established that the amount of Cogne

S.p.A. debt for which ILVA bore

responsibility as of December 31, 1993,

was 253 billion lire, as evidenced by

ILVA in Liquidazione’s 1993 balance

sheet. That figure includes the total net

liabilities of Cogne S.p.A. as of

December 31, 1993, plus the provisions

for risks, and other costs associated with

the liquidation of the company. Thus,

we determine that CAS received 253

billion lire of debt coverage and

assumption of losses in conjunction

with its privatization.

The pre-privatization benefits are

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

Act because they were provided to CAS,

in connection with the full package

provided exclusively to the state-owned

steel industry. With these preprivatization benefits, the GOI through

ILVA, made a financial contribution

under section 771(5)(D) that benefits the

recipient in the amount of the total

liabilities and losses assumed. To

calculate the benefit, we treated the debt

assumption as a grant to CAS received

in 1993. The grant is non-recurring

because the pre-privatization assistance

was a one-time, extraordinary event. We

allocated the benefit over twelve years,

applied a risk premium because the

company was uncreditworthy in the
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40479

year of receipt, and followed the

methodology described in the ‘‘Change

in Ownership’’ section above. We then

divided the benefit in the POI by CAS’s

total sales. On this basis, we determine

the countervailable subsidy to be 14.77

percent ad valorem for CAS.

C. Capacity Reduction Payments Under

Law 193/1984

Among the benefits provided by Law

193/1984 were payments to companies

in the private steel sector which

achieved capacity reductions consistent

with an agreement by the European Coal

and Steel Community (ECSC). The

Department previously found that this

program provides countervailable

subsidies in the form of non-recurring

grants to the private steel sector. See

Certain Steel from Italy, 58 FR at 37332–

33. No new information or evidence of

changed circumstances has been

submitted in this proceeding to warrant

reconsideration of this finding.

Valbruna and Falck received payments

for capacity reduction in 1985 and 1986

under Articles 2 and 4 of Law 193/1984.

Article 2 grants covered ECSC steel

production while Article 4 grants

covered non-ECSC pipe and tube

production.

In our preliminary determination, we

countervailed all closure aid received by

Valbruna. In the case of Falck, we did

not countervail assistance the company

received under Article 4 in connection

with its pipe facility because in Certain

Steel from Italy, the Department

determined that these grants were for

restructuring of the pipe facility.

However, at verification, GOI officials

explained that the grants Falck received

under Article 4 were for the closure of

its pipe facility. As explained in the

GIA, the Department considers grants

provided to shutdown part of a

company’s operations to benefit all

remaining production. GIA, 58 FR at

37270, citing British Steel Corp. v.

United States, 605 F. Supp. 286 (CIT

1985). See also Steel Wire Rod from

Canada, 62 FR at 54980. Therefore, we

find all closure assistance provided to

Valbruna and Falck under Articles 2

and 4 of Law 193/1984 to be

countervailable subsidies under section

771(5) of the Act.

To calculate the benefit attributable to

Valbruna/Bolzano during the POI from

the grants to Falck, we first determined

the amount of Falck’s grants attributable

to Bolzano at the time the grants were

given, using the ratio of Bolzano’s assets

to Falck’s assets. We then allocated this

amount over Valbruna/Bolzano’s AUL

to determine the benefit in each year.

Next, we determined the amount of the

benefit which remained with Bolzano

after Bolzano was acquired by Valbruna

in 1995, consistent with the

methodology described in the ‘‘Change

in Ownership’’ section above. To

calculate the benefit attributed to

Valbruna/Bolzano from the grants

Valbruna received, we allocated the

grants over Valbruna/Bolzano’s AUL to

determine the benefit in each year. We

then summed the benefit amounts

attributable to the POI from Falck’s and

Valbruna’s grants and divided the total

benefit by Valbruna/Bolzano’s total

sales. On this basis, we determine the

countervailable subsidy to be 0.14

percent ad valorem for Valbruna/

Bolzano.

D. Law 796/76 Exchange Rate

Guarantees

Law 796/76 established a program to

minimize the risk of exchange rate

fluctuations on foreign currency loans.

All firms that had contracted foreign

currency loans from the ECSC or the

Council of Europe Resettlement Fund

(CER) could apply to the Ministry of the

Treasury (MOT) to obtain an exchange

rate guarantee. The MOT, through the

Ufficio Italiano di Cambi (UIC),

calculated loan payments based on the

lira-foreign currency exchange rate in

effect at the time the loan was approved.

The program established a floor and

ceiling for exchange rate fluctuations,

limiting the maximum fluctuation a

borrower would face to two percent. If

the lira depreciated against the foreign

currency, the UIC paid the difference

between the ceiling rate and the actual

rate. If the lira appreciated against the

foreign currency, the UIC collected the

difference between the floor rate and the

actual rate.

The Department previously found the

steel industry to be a dominant user of

the exchange rate guarantees provided

under Law 796/76, and on this basis,

determined that the program was

specific, and therefore, countervailable.

See Seamless Pipe from Italy, 60 FR at

31996. No new information or evidence

of changed circumstances has been

submitted in this proceeding to warrant

reconsideration of this finding. This

program provides a financial

contribution that benefits the recipient

to the extent that the lira depreciates

against the foreign currency beyond the

two percent band and provides a benefit

in the amount of the difference between

the two percent ceiling rate and the

actual exchange rate.

We note that the program was

terminated effective July 10, 1991, by

Decree Law 333/91. However, payments

continue on loans that were outstanding

after that date. Bolzano was the only

producer who used this program, and it

received payments in 1996 on loans

outstanding during the POI.

Once a loan is approved for exchange

rate guarantees, payments are automatic

and made on a yearly basis throughout

the life of the loan. Therefore, we treat

the payments as recurring grants. To

calculate the countervailable subsidy,

we used our standard grant

methodology for recurring grants and

expensed the benefits in the year of

receipt. At verification, we found that

Bolzano paid a foreign exchange

commission fee to the UIC on each

payment it received. We determine that

this fee qualifies as an ‘‘. . . application

fee, deposit, or similar payment paid in

order to qualify for, or to receive, the

benefit of the countervailable subsidy.’’

See section 771(6)(A) of the Act. Thus,

for purposes of deriving the

countervailable subsidy, we have added

the additional foreign exchange

commission to the total amount Bolzano

paid under the Exchange Rate Guarantee

program. We then divided the total

payments received in 1996 on the two

loans by the value of Valbruna/

Bolzano’s total sales in 1996. On this

basis, we determine the countervailable

subsidy to be 0.08 percent ad valorem

for Valbruna/Bolzano.

E. Export Credit Financing Under Law

227/77

Under Law 227/77, the Mediocredito

Centrale S.p.A. (Mediocredito), a GOIowned development bank, provides

interest subsidies on export credit

financing. Under the program, the

Mediocredito makes an interest

contribution to offset the cost of a

supplier’s or buyer’s credit financed by

a commercial bank. The holder of the

loan contract pays a fixed, low-interest

rate on export credits taken out through

the program with a commercial bank.

The Mediocredito guarantees a specified

variable market rate, and pays the

lender any shortfall between the

guaranteed market rate and the fixed

rate provided to the borrower. If the

market rate falls below the rate provided

to the borrower, the Mediocredito

receives the difference.

Valbruna used this program for a

supply contract with its affiliated U.S.

subsidiary, Valmix Corporation, which

entered into a loan contract for purposes

of importing merchandise manufactured

by Valbruna. The term of the loan was

18 months and during the course of this

financing arrangement, the

Mediocredito made interest

contributions to Valmix’s commercial

lender.

In the preliminary determination, we

found that this program provides

countervailable subsidies within the
40480 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

meaning of section 771(5) of the Act.

Our review of the record, our findings

at verification, and our analysis of the

comments submitted by the interested

parties have led us to change, in part,

our finding in the preliminary

determination. We stated that we would

examine the Respondents’ claim that,

because the interest contributions are

consistent with the OECD Arrangement

on Guidelines for Officially Supported

Export Credits (OECD Guidelines), the

program qualifies for an exemption

under Item (k) of the Illustrative List of

Prohibited Export Subsidies under

Annex 1 of the WTO Agreement on

Subsidies and Countervailing Measures.

Based on the record evidence, however,

we find that the OECD Guidelines do

not apply to the Valmix loan because

the repayment terms of this loan are for

18 months and the OECD Guidelines

cover financing arrangements with

repayment terms of a minimum of 24

months. Therefore, we need not

consider Valbruna/Bolzano’s arguments

with respect to Item (k). See, e.g., Final

Affirmative Countervailing Duty

Determinations; Certain Carbon Steel

Products from Austria, 50 FR 33369

(Aug. 19, 1985) (Carbon Steel Products

from Austria). We continue to find that

the interest contributions provided on

the Valmix loan constitute a

countervailable export subsidy under

section 771(5) of the Act.

In accordance with the Department’s

practice, we treat interest contributions

as reduced-interest rate loans if the

borrower is aware at the time the loans

are undertaken that the interest

contributions will be received. See, e.g.,

Certain Steel from Italy, 58 FR at 37332.

In the preliminary determination, we

treated the interest contributions as

grants because Valmix did not know at

the time that the loan was undertaken

that it would receive the contributions.

However, we learned at verification that

all parties were aware at the time that

the loan was contracted that Valmix

would receive these contributions.

Therefore, we have changed our

calculation of the benefit and have

instead treated the Law 227/77 export

credit financing as a reduced-interest

rate loan. To calculate the benefit

provided by this program, we compared

the amount that Valmix paid under the

loan and the amount Valmix would

have paid on a commercial loan absent

the interest contributions. We divided

the benefit during the POI by Valbruna/

Bolzano’s total exports to the United

States. On this basis, we determine the

countervailable subsidy to be 0.15

percent ad valorem for Valbruna/

Bolzano.

F. Law 451/94 Early Retirement Benefits

Law 451/94 authorized early

retirement packages for steel workers for

the years 1994 through 1996. The law

entitled men of 50 years of age and

women of 47 years of age with at least

15 years of pension contributions to

retire early. Employees of Bolzano used

the measures in all three years of the

program. Bolzano is the only company

subject to this investigation that had

workers retire under Law 451/94 during

or before the POI. In the preliminary

determination, we found this program to

be not countervailable. Our review of

the record, our findings at verification,

and our analysis of the comments

submitted by the interested parties have

led us to change our finding from the

preliminary determination.

In the preliminary determination, we

found early retirement benefits under

Law 451/94 non-countervailable

because the program did not relieve

Bolzano of a normal obligation to its

workers. Further, to the extent that the

company did have costs associated with

employees leaving through other means,

those costs were lower than the ones

faced by the company under this early

retirement measure. At verification,

information about this program was

clarified. We learned that large

companies in Italy cannot simply layoff

workers without using one of the

specially-designated programs for that

purpose. The most comparable program

to Law 451/94 is the extraordinary Cassa

Integrazione Guadagni (CIG), which is

used by companies in a wide variety of

industries. The CIG program was found

non-countervailable in Electrical Steel

from Italy.

During verification, we found that

under the extraordinary CIG, companies

must continue to pay a small percentage

of the employee’s salary and set aside

the mandatory severance contributions

under Article 2120 of the Italian Civil

Code. Under Law 451/94, the company

incurs no additional costs. Thus, when

we compared the costs associated with

Law 451/94 to the costs associated with

the extraordinary CIG, we found that

companies would incur higher costs

under the extraordinary CIG.

On this basis, we determine that Law

451/94 provides a financial contribution

to the steel industry under Section

771(5)(D)(i) of the Act, and it confers a

benefit to the recipient in the amount of

costs covered by the GOI that the

company would normally incur. Law

451/94 is specific under 771(5A)(D)

because early retirement benefits under

this program are limited, by law, to the

steel industry. Accordingly, we find

early retirement benefits provided under

Law 451/94 to be countervailable

subsidies under 771(5) of the Act.

Consistent with the Department’s

practice, we have treated payments

under Law 451/94 as recurring grants

expensed in the year of receipt. See GIA,

58 FR at 37226. To calculate the benefit

conferred to Bolzano, we calculated the

costs Valbruna/Bolzano would have

incurred during the POI under the

extraordinary CIG program and

compared that to what the company

paid under the Law 451/94 early

retirement program. We divided this

amount by Valbruna/Bolzano’s total

sales. On this basis, we determine the

countervailable subsidy for this program

to be 0.04 percent ad valorem for

Valbruna/Bolzano.

Programs of the Regional Governments

A. Valle d’Aosta Regional Assistance

Associated with the Sale of CAS

As discussed in the preliminary

determination, when CAS was

privatized, the land and buildings were

sold to the Autonomous Region of Valle

d’Aosta which now leases back the

facility to the new owners of CAS. The

framework for this triangular transaction

among ILVA, CAS, and the Region was

established through the protocols of

agreement signed November 19, 1993.

The Region, through its wholly-owned

financing corporation, Finaosta S.p.A.,

agreed to (1) purchase the land,

including the hydroelectric facilities

owned by ILVA Centrali Elettriche

S.p.A. (ICE) for 150 billion lire, in five

annual installments, (2) to construct a

waste plant, (3) to cover the costs of

environmental reclamation on the land,

up to 32 billion lire, and (4) to supply

electricity directly to CAS from the ICE

plants. In exchange, ILVA agreed to

transfer CAS to a private party by

December 31, 1993, with a restructuring

fund. The purchaser of CAS’s shares

agreed to (1) vacate and abandon areas

of the property not used in production

activity; and, (2) to guarantee positions

for 800 employees after the

privatization.

Because of the complex nature of

these transactions, which included

different elements that were alleged to

provide subsidies to CAS, we have

analyzed each element separately as

detailed below.

1. Purchase of the Cogne Industrial Site

Under section 771(5) of the Act, in

order for a subsidy to be

countervailable, it must, inter alia,

confer a benefit. In the case of the

government acquisition of goods, in this

case land and buildings, a benefit is

conferred if the goods are purchased for
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40481

more than adequate remuneration.

Problems can arise in applying this

standard when the government is the

sole purchaser of the good 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.

Hence, we must examine other options

when determining whether the good has

been purchased for more 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 purchased at a

price which reflects adequate

remuneration. See, e.g., Final

Affirmative Countervailing Duty

Determination: Steel Wire Rod from

Germany, 62 FR 54990, 54994 (Oct. 22,

1997) (German Wire Rod).

As discussed in the preliminary

determination, because there were no

comparable sales of commercial real

estate or other appropriate benchmark

prices, we examined the purchase price

to determine whether it was marketbased. We found that the Region based

its price upon a detailed, independent

appraisal of the value of the site, but

further discounted the price from the

appraisal based on the fact that the land

was occupied and that it had some

environmental problems. Based on this

analysis, we concluded that the Region

did not purchase the Cogne industrial

site for more than adequate

remuneration. No evidence has been

presented to warrant a change from this

finding from the preliminary

determination. Therefore, we find that

the Region of Valle d’Aosta’s purchase

of the Cogne industrial site does not

constitute a subsidy within the meaning

of section 771(5) of the Act.

2. Lease of Cogne Industrial Site

Under section 771(5) of the Act, in

order for a subsidy to be countervailable

it must, inter alia confer a benefit. In the

case of government provision of goods

or services, a benefit is normally

conferred if the goods or services are

provided for less than adequate

remuneration. The adequacy of

remuneration is normally determined in

relation to local prevailing market

conditions as defined by section

771(5)(E) of the Act to include, ‘‘* * *

price, quality, availability,

marketability, transportation, and other

conditions of purchase or sale.’’

Problems can arise in applying this

standard when the government is the

sole supplier of the good or service in

the area, in which case there may be no

alternative market prices. In this case,

we must examine other options for

determining whether the good has been

provided for less than adequate

remuneration. Where the government

leases land, the Department has

recognized several options for

examining whether a countervailable

benefit is provided through the relevant

leasing arrangement. These options

include examining, ‘‘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.’’ German Wire

Rod, 62 FR at 54994. This consideration

of other options in no way indicates a

departure from our preference for

relying on market conditions in the

relevant country, when determining

whether a good or service is being

provided at a price which reflects

adequate remuneration.

After the purchase of the land and

buildings, Struttura Valle d’Aosta S.r.l.

(Structure), a company wholly-owned

by the Region, assumed the lease that

had been between Cogne S.p.A. and

CAS for the use of the site until a new

lease could be negotiated. In 1996,

Structure and CAS entered into a thirtyyear lease for the facility which

produces subject merchandise. The new

lease implements the commitments set

forth in the protocols of agreement: the

facility is leased to CAS; CAS

undertakes all maintenance on the

facility (including extraordinary

maintenance); and CAS commits to

vacate approximately 50 percent of the

property in favor of the Region. The

lease was also designed to provide for

the stable employment of 800

employees at the facility.

In the preliminary determination, we

found that there was no appropriate

transaction benchmark for evaluating

the adequacy of remuneration in the

lease. Therefore, we compared the

Region’s rate of return in the lease to

that which would be provided in a

private transaction for the long-term use

of assets, using the average interest rate

on treasury bonds as reported by the

Banca d’Italia. However, we stated that

for the final determination we would

revisit this methodology: (1) to gather

the information necessary in order to

amortize the depreciation of the

buildings subject to the lease; (2) to

determine whether payments for

extraordinary maintenance should be

considered part of the lease; (3) to make

an adjustment to the benchmark to

account for extraordinary maintenance

if appropriate; and (4) to determine

whether there was a non-governmental

interest rate that would be a more

appropriate benchmark.

We have reconsidered these issues in

light of the information gathered at

verification and comments from the

interested parties, summarized below.

The record evidence indicates that the

average rate of return on leased

commercial property in Italy is 5.7

percent. See ‘‘Discussions with

company officials from Gabetti per

L’impressa, Banca di Roma and Reconta

Ernst & Young,’’ dated June 3, 1998, on

file in the CRU (Commercial Experts

Report). We have used this rate of return

as the benchmark in evaluating the

adequacy of remuneration in the lease.

As an average, this rate reflects different

terms, lengths, and locations of lease

contracts throughout Italy. This rate

better reflects commercial practices in

Italy than does the rate used in the

preliminary determination. That rate

was based on treasury bonds and would

require a number of complicated and

highly speculative adjustments to reflect

a representative rate for leasing

commercial property. Thus, in our view,

the 5.7 percent rate is a more reliable

and representative rate to use in

examining whether the facility is being

leased for less than adequate

remuneration.

In applying the 5.7 percent rate, we

have determined that no adjustments to

this rate are warranted for either

depreciation or extraordinary

maintenance payments. First, we

verified that the buildings covered by

the lease are very old. Given the age of

the structures, we have not adjusted the

rate upward to reflect the depreciation

of the structures because the likely

useful life remaining would be

relatively short.

Second, the record evidence

demonstrates that although the Italian

Civil Code obliges the landlord to pay

for extraordinary maintenance, this

obligation may be borne by the lessee if

specified in the lease. In particular, we

learned at verification that long-term

leases often oblige the lessee to bear

responsibility for these costs because of

the long-term costs involved. The CAS

lease is for a period of 30 years, the

maximum allowed under Italian law.

Thus, the terms of this particular

contract are such that a commercial

landlord would most likely have

assigned this obligation to the tenant.

Further, the obligation would be

factored into the negotiation for the

lease rate. To the extent that CAS may

face an additional financial obligation

not incurred by other parties because of

extraordinary maintenance, it is

balanced by the fact that CAS’s lease

term is much longer than the norm.
40482 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

Therefore, the average rate of return is

an appropriate benchmark without any

adjustments for these terms.

In order to determine whether the

Regional government receives adequate

remuneration under the CAS lease, we

compared the amount paid by CAS

during the POI to the amount that

would have been paid using 5.7 percent

as the average rate of return. Based on

this comparison, we found that the

Region is not receiving an adequate rate

of return on the lease, and therefore, we

determine that the facility has been

leased for less than adequate

remuneration. Through this lease, the

Autonomous Region of Valle d’Aosta

made a financial contribution to CAS

within the meaning of section

771(5)(D)(iii) of the Act, equal to the

difference between what would have

been paid annually in a lease

established in accordance with market

conditions and what CAS actually paid.

The lease is specific within the meaning

of section 771(5)(D) of the Act, because

the lease is limited to CAS. Therefore,

we determine that the CAS industrial

lease provides a countervailable subsidy

within the meaning of section 771(5) of

the Act.

To calculate the benefit, we

determined the difference between the

amount that would have been paid

during the POI if the lease rate had been

determined with reference to market

conditions and the amount actually

paid. We divided the amount by CAS’s

total sales in 1996. On this basis, we

determine the countervailable subsidy

to be 0.23 percent ad valorem for CAS.

3. Provision of Electricity

In the preliminary determination, we

found that this program does not exist

because the Region is not permitted to

supply electricity directly to CAS

through the planned electricity

consortium and because CAS purchases

electricity from ENEL, the state

monopoly, in accordance with standard

provisions applied to other commercial

electricity users in Italy. Our review of

the record, our findings at verification,

and our analysis of the comments

submitted by the interested parties have

not led us to modify our finding from

the preliminary determination.

Therefore, we continue to find that this

program does not exist. However, in the

event this investigation results in a

countervailing duty order, we will

continue to review this allegation in any

subsequent administrative review to

determine whether changes in the

Italian law allow for direct purchase of

electricity from entities other than

ENEL. Continued examination of this

program in subsequent reviews is

necessary because the protocol

agreements specify that the Region will

supply electricity to CAS.

4. Waste Plant

In the preliminary determination, we

found that this program does not yet

exist because the Region has not yet

started construction of the waste plant.

Thus, CAS is not benefitting from the

provision of waste disposal services that

the Region will provide once the plant

is in operation. Our review of the

record, our findings at verification, and

our analysis of the comments submitted

by the interested parties have not led us

to modify our finding from the

preliminary determination. However, in

the event this investigation results in a

countervailing duty order we will

continue to review this allegation in any

subsequent administrative review to

determine whether a benefit will have

been provided to CAS through the

provision of waste disposal services for

less than adequate remuneration.

5. Loans Provided to CAS to Transfer Its

Property

In the protocols of agreement of

November 1993, the Region agreed to

provide financing through Finaosta

S.p.A. for the costs involved with the

transfer of the CAS property off the

portion of the site not subject to the

lease. The Region plans to develop

facilities for small and medium-sized

enterprises on this portion of the site

after the environmental reclamation of

the land is complete. The provision of

up to 25 billion lire in reduced interest

rate financing to CAS was authorized

under Regional Law 37 of August 30,

1995.

The provision of these loans was

evaluated by the EU under its state aid

rules. In a June 15, 1995, decision, the

EU determined that the loan was not

aid, but instead an indemnity to CAS.

The EU concluded that because the

Region had unilaterally terminated part

of CAS’s lease (the Cogne S.p.A.-CAS

lease which included the property to be

vacated), the loans represented

compensation for the costs associated

with the termination. However, as

detailed in the preliminary

determination, our analysis revealed

other important facts related to this

deal. CAS and the Region agreed in the

protocols of agreement that CAS would

vacate 50 percent of the land. The

protocols of agreement predate the

Cogne S.p.A.-CAS lease. As such, we

found in the preliminary determination

that the loans provide countervailable

subsidies to CAS within the meaning of

section 771(5) of the Act. Our review of

the record and comments summarized

below have not led us to change this

finding. See Department’s Position on

Comment 16.

The Region’s financing company,

Finaosta, provided this financing in

three separate loan agreements over

1996 and 1997 with the interest rate set

at 50 percent of the Rendistato rate, a

variable rate. Under the terms of each

loan contract, a deferred six-month

payback schedule was established. In

the preliminary determination, we

stated that these loans had an eighteenmonth interest-free grace period. At

verification, we discovered that, in fact,

interest payments were required during

the first eighteen months of each loan.

We have modified our calculation

accordingly. We compared the interest

payments made by CAS during the POI

to the interest that would have been

paid under the benchmark loan during

the POI, using the benchmark rate

discussed in the ‘‘Subsidies Valuation

Information’’ section above. We divided

the benefit by the 1996 total sales of

CAS. On this basis, we determine the

countervailable subsidy to be 0.19

percent ad valorem for CAS.

B. Valle d’Aosta Regional Law 64/92

Law 64/92 of the Autonomous Region

of Valle d’Aosta provides funding to

cover up to 30 percent of the cost of

installing environmentally-friendly

industrial plants in the province. Any

firm in Valle d’Aosta may apply to the

Regional Industry, Craft, and Energy

Department (ICED) to have part of its

costs covered for a specific

environmentally-friendly project. Each

project requires a separate application

which is evaluated by a technical

committee appointed by the ICED for

this purpose. Each project must be

approved by the technical committee in

order to be funded, up to 30 percent of

the total costs. These grants provide a

financial contribution within the

meaning of section 771(5)(D)(i) of the

Act and provide a benefit to the

recipient in the amount of the grant.

Law 64/92 is not de jure specific

because the enacting legislation does

not explicitly limit eligibility to an

enterprise or industry or group thereof.

We examined data on the provision of

assistance under this program to

determine whether the law meets the

criteria for de facto specificity under

section 771(5A)(D)(iii) of the Act. Since

the inception of the program only nine

companies have been approved for

benefits. While this alone would be

sufficient for a finding of de facto

specificity because there are only a few

companies in a few industries that have

received assistance under this program,

we also examined data on the value of
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40483

grants given to these firms. CAS and one

other firm received close to two-thirds

of the total assistance awarded, with

each firm receiving approximately onethird of the total. Thus, CAS received a

disproportionate share of the total

assistance under this program.

Accordingly, we find Law 64/92 to be

de facto specific within the meaning of

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

Therefore, we determine that Law 64/92

provides a countervailable subsidy

within the meaning of section 771(5) of

the Act.

Since applicants must submit a

separate application for each project, we

are treating the grants received under

the program as non-recurring. See GIA,

58 FR at 37226. CAS received three

grants under the program, two in 1995

and one in 1996. The total of the grants

received in each year did not exceed 0.5

percent of sales in the relevant year so

we have expensed the full amount of

each grant in the year of receipt. To

calculate the countervailable subsidy,

we divided the total amount of the 1996

grant by the value of CAS’s total sales.

On this basis, we determine the

countervailable subsidy to be 0.02

percent ad valorem for CAS.

C. Valle d’Aosta Regional Law 12/87

Law 12/87 of the Autonomous Region

of Valle d’Aosta funds the promotion of

commercial activities of local firms in

other regions of Italy, and abroad.

Companies apply to ICED for funding

up to 30 percent of the costs of

promotional activities in Italy (up to 10

million lire) and 40 percent of the costs

of promotional activities abroad (up to

15 million lire). CAS submitted three

applications for funding under this

program. The region approved and

funded two of the proposals, both in

1996: a grant of 15 million lire for

participation in the Singapore Wire and

Cable Fair and a grant of 12.7 million

lire for participation in the Dusseldorf

Wire Fair. Law 12/87 provides a

financial contribution within the

meaning of section 771(5)(D)(i) of the

Act, and provides a benefit to the

recipient in the amount of the grant.

The Department has recognized that

general export promotion programs,

programs which provide only general

information services including ‘‘image’’

events do not constitute countervailable

subsidies. See, e.g., Fresh Cut Flowers

from Mexico, 49 FR 15007, 15008 (April

16, 1984) and Final Negative

Countervailing Duty Determination:

Fresh Atlantic Salmon from Chile, 63

FR 31437, 31441 (June 9, 1998) (Chilean

Salmon). However, where such

activities promoted a specific product,

or provided financial assistance to a

firm for transportation and/or marketing

expenses, we have found the programs

to constitute countervailable subsidies.

See, e.g., Final Affirmative

Countervailing Duty Determination;

Certain Fresh Atlantic Groundfish from

Canada, 51 FR 10041, 10067 (March 24,

1986) (Groundfish from Canada);

Chilean Salmon, 63 FR at 31440. CAS

received direct contributions from the

Region of Valle d’Aosta to cover costs

associated with participation in these

trade shows including transportation,

lodging, and marketing expenses.

Because the financial assistance under

this law was provided to CAS for the

promotion of its exports, we find that

the assistance to CAS constitutes an

export subsidy within the meaning of

section 771(5A)(B) of the Act.

We find that the grants received under

this program are non-recurring because

they are exceptional rather than ongoing and require separate applications

and approvals. See GIA, 58 FR at 37226.

However, because the grants did not

exceed 0.5 percent of CAS’s total

exports in the year provided (i.e., the

POI), we allocated the entire amount of

the grants to the year of receipt. We

divided the total amount of the two

grants by the value of CAS’s total

exports during the POI. On this basis,

we determine the countervailable

subsidy to be 0.01 percent ad valorem

for CAS.

D. Province of Bolzano Assistance:

Purchase and Leaseback of Bolzano

Industrial Site

As discussed in the preliminary

determination, when Falck sold Bolzano

to Valbruna, it sold the Bolzano land

and buildings to the Autonomous

Province of Bolzano which now leases

the facility back to Valbruna/Bolzano.

The Province bought two pieces of

property, the ‘‘Stabilimento Sede,’’

which was owned by Bolzano, and the

‘‘Stabilimento Erre,’’ owned by

Immobiliare Toce S.r.l., a subsidiary of

Falck with real estate holdings. The

purchase price for both portions was

established by the Provincial Cadastral

Office. The purchase was authorized

under Provincial Council Resolution

850 of February 20, 1995, and was made

on July 31, 1995. Valbruna entered into

concurrent negotiations with the

Province for a long-term lease of the

Bolzano industrial site.

Because of the complex nature of

these transactions, which included

different elements that were alleged to

provide subsidies to Bolzano, we have

analyzed each element separately as

detailed below.

1. Purchase of Bolzano Industrial Site

Where the government purchases a

good, the Department analyzes whether

the good was purchased for more than

adequate remuneration and therefore

confers a benefit. Our standard with

respect to the government’s purchase of

goods is discussed in the ‘‘Purchase of

the Cogne Industrial Site’’ above. As

with our analysis of the Cogne land

transaction, there are no private

purchases of industrial sites comparable

to the Bolzano property that are

representative of the prevailing market

conditions by which to assess the

adequacy of remuneration for the

purchase of the Bolzano industrial site.

However, there is information on the

record of this investigation that can be

used to determine the adequacy of

remuneration of the Bolzano industrial

site.

In order to analyze whether the

purchase of the Bolzano industrial site

was made for more than adequate

remuneration, it is important to

understand the transactions underlying

the purchase, and subsequent leasing, of

the Bolzano industrial site. The

purchase of the industrial site was part

of a complicated process of transactions

conducted by three parties: The

Province of Bolzano, Falck, and

Valbruna. The Province of Bolzano was

interested in purchasing industrial land

within its borders and in maintaining

employment. Falck was seeking to exit

the steel industry and was considering

closing the Bolzano site. Valbruna was

interested in increasing its steel

operations. Therefore, while Falck was

negotiating with the Province for the

sale of the Bolzano industrial site, Falck

was negotiating with Valbruna for the

purchase of the Bolzano company.

Concurrently, the Province and Bolzano

were negotiating for the lease of the land

and buildings of the industrial site. As

a result of these negotiations, a share

purchase agreement, land sale

agreement, and lease agreement

finalized these transactions on July 31,

1995. The transactions among the three

parties are interrelated. The purchase of

the industrial site by the Province of

Bolzano is closely linked to the leasing

arrangement between Valbruna and the

Province.

The price paid by the Province of

Bolzano for the land was based upon the

estimate undertaken by the Provincial

Cadastral Office. As stated above, there

were no purchases of industrial sites

comparable to the Bolzano site that

could be used to assess the adequacy of

remuneration of that purchase price.

However, we verified that Valbruna had

agreed to pay the same price as that
40484 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

negotiated between Falck and the

Province if those negotiations for the

sale of the land fell through. In the

preliminary determination, we

concluded that Valbruna’s agreement to

purchase the site for the same price

indicated that the price paid by the

Province was determined in reference to

market conditions. Therefore, we

concluded that the purchase of the land

by the Province of Bolzano was not

made for more than adequate

remuneration. Our review of the record,

findings at verification and review of

comments summarized below (see the

Department’s Position on Comment 1)

have not led us to reconsider our

finding. Therefore, we find that this

program does not constitute a subsidy

within the meaning of section 771(5) of

the Act.

2. Lease of Bolzano Industrial Site

In the case of government provision of

goods or services, the Department

analyzes whether the good or service

was provided for less than adequate

remuneration and therefore confers a

benefit. Our standard with respect to the

government’s sale of goods is discussed

in the ‘‘Lease of the Cogne Industrial

Site’’ section above. When the

government is the sole supplier of the

good or service in the area and there

may be no alternative market price, it

becomes necessary to examine other

options for determining whether the

good has been provided for less than

adequate remuneration. The Department

has recognized several options with

respect to the leasing of land, ‘‘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.’’

See, e.g., German Wire Rod at 54994.

This consideration of other options in

no way indicates a departure from our

preference for relying on market

conditions in the relevant country,

when determining whether a good or

service is being provided at a price

which reflects adequate remuneration.

The terms of the Province of BolzanoValbruna lease are as follows. The lease

contract signed July 31, 1995, provides

for a thirty year term. Valbruna pays the

Province of Bolzano rent in six-month

installments. Valbruna undertakes all

maintenance on the facility (including

extraordinary maintenance). The lease

was also designed to provide for the

stable employment of 650 employees at

the facility.

In the preliminary determination, we

found that there was no transaction that

could be used as an appropriate

benchmark for evaluating the adequacy

of remuneration in the lease. Therefore,

we compared the Region’s rate of return

on the lease to that which would be

provided in a private transaction for the

long-term use of assets, using the

average interest rate on treasury bonds

as reported by the Banca d’Italia.

However, we stated that for the final

determination we would revisit this

methodology: (1) to gather the

information necessary in order to

amortize the depreciation of the

buildings subject to the lease; (2) to

determine whether payments for

extraordinary maintenance should be

considered part of the lease; (3) to make

an adjustment to the benchmark to

account for extraordinary maintenance

if appropriate; and (4) to determine

whether there was a non-governmental

interest rate that would be a more

appropriate benchmark.

We have reconsidered these issues in

light of the information gathered at

verification and comments from the

interested parties, summarized below.

The record evidence indicates that the

average rate of return on leased

commercial property in Italy is 5.7

percent. See Commercial Experts

Report. We have used this rate of return

as the benchmark in evaluating the

adequacy of remuneration in the lease.

As an average, this rate reflects different

terms, lengths, and locations of lease

contracts throughout Italy. This rate

better reflects commercial practices in

Italy than does the rate used in the

preliminary determination. That rate

was based on treasury bonds and would

require a number of complicated and

highly speculative adjustments to reflect

a representative rate for leasing

commercial property. Thus, in our view

the 5.7 percent rate is a more reliable

and representative rate to use in

examining whether the facility is being

leased for less than adequate

remuneration.

In applying the 5.7 percent rate, we

have determined that no adjustments to

this rate are warranted for either

depreciation or extraordinary

maintenance. First, we verified that the

buildings covered by the lease are very

old. Given the age of the structures, we

have not adjusted the rate upward to

reflect the depreciation of the structures

because the likely useful life remaining

would be relatively short.

Second, the record evidence

demonstrates that although the Italian

Civil Code obliges the landlord to pay

for extraordinary maintenance, this

obligation may be borne by the lessee if

specified in the lease. In particular, we

learned at verification that long-term

leases often oblige the lessee to bear

responsibility for these costs because of

the long-term costs involved. The

Bolzano lease is for a period of 30 years,

the maximum allowed under Italian

law. Thus, the terms of this particular

contract are such, that a commercial

landlord would most likely have

assigned this obligation to the tenant.

Further, the obligation would be

factored into the negotiation for the

lease rate. To the extent that Bolzano

may face an additional financial

obligation than other parties because of

extraordinary maintenance, that is

balanced by the fact that CAS’s lease

term is much longer than the norm.

Therefore, the average rate of return is

an appropriate benchmark without any

adjustments for these terms.

In order to determine whether the

Provincial government receives

adequate remuneration under the

Bolzano lease, we compared the rent

under the Bolzano lease to the amount

that would have been paid using 5.7

percent as the average rate of return.

Based on this comparison, we found

that the Province is not receiving an

adequate rate of return on the lease, and

therefore, we determine that the facility

has been leased for less than adequate

remuneration. Through this lease, the

Autonomous Province of Bolzano made

a financial contribution to Bolzano

within the meaning of section

771(5)(D)(iii) of the Act, equal to the

difference between the Bolzano rent and

what would have been paid annually in

a lease established in accordance with

market conditions. The lease is specific

within the meaning of section 771(5)(D)

of the Act, because the lease is limited

to Valbruna/Bolzano. Therefore, we

determine the Bolzano industrial lease

provides a countervailable subsidy

within the meaning of section 771(5) of

the Act.

To calculate the benefit, we found the

difference between the amount that

would have been paid during the POI if

the lease rate had been determined with

reference to market conditions and the

actual rent. We divided the amount by

Valbruna/Bolzano’s total sales in 1996.

On this basis, we determine the

countervailable subsidy to be 0.16

percent ad valorem for Valbruna/

Bolzano.

3. Lease Exemption

Under the Province of BolzanoValbruna/Bolzano lease, Valbruna/

Bolzano agreed to assume certain

environmental reclamation costs instead

of paying rent for the first two years of

the lease. In the preliminary

determination, we found that this

program conferred a countervailable

subsidy to Valbruna/Bolzano. Based on

our review of the record, our findings at
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40485

verification, and our analysis of the

comments submitted by the interested

parties, summarized below, we continue

to find this lease exemption to be a

countervailable subsidy, but the basis

for the determination has changed, in

part.

To determine whether the program

provides a countervailable subsidy to

Valbruna/Bolzano, we examined

whether the Province’s actions in

granting the lease exemption were

consistent with the usual practices of

private landlords. When the Province

purchased the land and buildings, there

were a number of environmental

problems that required costly repairs.

While such a situation would be

extremely unusual, a commercial

landlord may very well have given a

similar exemption to a tenant in order

to have these problems addressed.

However, a private landlord would

ensure that the amount of repairs met or

exceeded the cost of the rent, the tenant

actually did the work, and the landlord

legally had the responsibility to

undertake the projects. At verification,

Valbruna presented evidence that the

costs incurred exceeded the amount of

rent due. In addition, a list of

environmental issues that Valbruna

agreed to remedy was included as an

enclosure to the lease. Valbruna

documented that these projects, as well

as other measures related to asbestos

clean-up, had been undertaken.

Thus, in order to determine whether

the nonpayment of rent for the first two

years constitutes a countervailable

subsidy to Valbruna/Bolzano, we

examined whether or not the Province

of Bolzano would have been responsible

for these environmental reclamation

costs. Under Italian law, the landlord

would normally bear the responsibility

for pre-existing environmental costs

under a normal lease agreement. In the

preliminary determination, we

countervailed this lease exemption as a

grant because we found that the projects

undertaken related to the plant and

equipment which was owned by the

company instead of the buildings which

were owned by the Province. However,

upon further examination during

verification, we found that most of the

projects undertaken related to

modifications of the buildings in order

to permit the installation of new or

alteration of existing equipment.

During verification, we received

clarification as to when the need to

undertake some of these environmental

reclamation projects had been

identified. In particular, we noted that

one of the principal measures which

related to noise and air pollution, had

been identified several years prior to the

purchase of the land. The Province

explained that local residents had

complained in the past regarding air and

noise pollution originating from the

Bolzano site. The Province asked

Bolzano to develop a proposal to solve

the problem. In 1992, the Province

agreed to Bolzano’s proposal to

encapsulate the melting furnace in order

to reduce air and noise pollution. By

1995, Bolzano still had not undertaken

the encapsulation project. Instead, it

was included in the round of

environmental work covered by the

lease payment exemption. This project

accounted for a substantial portion of

the costs undertaken by Valbruna in

exchange for the period of free rent.

Thus, the Province imposed an

obligation on Bolzano to undertake

environmental measures several years

before the signing of the lease. Then, the

Province agreed to forgo revenue in

order to see that the obligation was

fulfilled.

Valbruna also reported costs related to

the clean up and removal of asbestos

from the buildings. According to the

Province, regulations regarding the

removal of asbestos are designed to

protect the health and safety of workers.

Thus, normally the employer has

primary responsibility for these efforts.

When the employer rents the facility,

the company could, as the tenant,

request that the landlord undertake the

asbestos removal on the buildings.

However, since Valbruna agreed to

assume the obligation for extraordinary

maintenance under the lease, the

company would have no means of

requiring the owner to do the repairs.

Thus, the Province agreed to forgo

revenue in order to have the asbestos

problem addressed even though it

would not have been its responsibility

to pay for the damages.

In both of these instances, the

Province did not have an obligation to

undertake the work in question. Thus,

since it was the obligation of Valbruna/

Bolzano to pay for these projects, which

accounted for virtually all of the costs

incurred, either because the obligation

was incurred before the lease or because

the company had assumed the

obligation under the lease, there is no

basis for Valbruna/Bolzano’s claim that

the rent exemption is not

countervailable because it only covered

costs for which the Province was

responsible. Therefore, we find that the

relief from rent payment for the first two

years of the Valbruna/Bolzano industrial

lease provides a financial contribution

within the meaning of section

771(5)(D)(ii) of the Act, in the form of

revenue forgone, which provides a

benefit in the amount of rent that would

normally have been collected. The lease

exemption is specific under section

771(5)(D) of the Act because it was

limited to Valbruna/Bolzano.

Accordingly, we determine that the

exemption from payment of rent under

the lease of the Bolzano industrial site

provides a countervailable subsidy

under section 771(5) of the Act. The

lease exemption provides non-recurring

subsidies because its provision is

limited, by the terms of the lease, to the

first two years. However, because the

benefit from the exemption did not

exceed 0.5 percent of Valbruna/

Bolzano’s total sales in the years

provided, we allocated the entire

amount to the year of receipt. We

divided the amount of the rent

exemption for the POI by Valbruna/

Bolzano’s total sales. On this basis, we

determine the countervailable subsidy

to be 0.38 percent ad valorem for

Valbruna/Bolzano.

E. Province of Bolzano Law 25/81

The Province of Bolzano Law 25/81 is

a general aid measure that provides

grants to companies with limited

investments in technical fixed assets. It

targets advanced technology,

environmental investment, or

restructuring projects. Restructuring

assistance is provided to companies

under Articles 13 through 15. Articles

13 through 15 establish different

eligibility requirements, different

application procedures, different levels

of available aid, and different types of

aid (grants and loans) than assistance

provided under other Articles of Law

25/81. Therefore, we find it appropriate

to examine Articles 13 through 15 of

Law 25/81 as a separate program. See,

e.g., Live Swine from Canada; Final

Results of Countervailing Duty

Administrative Review, 62 FR 18087,

18091 (April 14, 1997) (Live Swine from

Canada). Bolzano received a total of

18.6 billion lire in restructuring grants

from 1983 through 1992. It also had a

small amount from restructuring loans

outstanding during the POI, which were

provided at concessionary, long-term

fixed rates.

In our preliminary determination, we

did not make a countervailability

finding on Articles 13 through 15

because we did not have the

information to analyze the de facto

specificity of assistance provided solely

under the restructuring program, i.e.,

Articles 13 through 15. As discussed

above, we have determined it is

appropriate to examine the restructuring

aid provided through these articles as a

separate program. During verification,

we obtained Provincial budget records

which listed the total amount from
40486 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

loans and grants provided through the

restructuring program in the years 1982

through 1992, because these were the

years during which Bolzano was

provided assistance. In each of the years

in which Bolzano received funds under

this program Bolzano received a

significant percentage of total assistance

awarded. While assistance was provided

to a number of firms during this period,

Bolzano received a much larger share in

comparison to the total aid awarded. In

fact, Bolzano was the largest single

recipient of restructuring assistance.

Bolzano received far more than the

average recipient over this period. Thus,

we conclude that the restructuring

assistance granted to Bolzano under

Articles 13 through 15 of Law 25/81 is

de facto specific within the meaning of

section 771(5A)(D)(iii) of the Act

because Bolzano received a

disproportionate share of benefits. The

restructuring aid provides a financial

contribution which confers a benefit in

the amount of grants, and interest

savings on reduced-rate long-term loans.

Therefore, we determine that Articles 13

through 15 of Provincial Law 25/81

provide a countervailable subsidy

within the meaning of section 771(5) of

the Act.

We note that on July 17, 1996, the EU

found in its decision number 96/617/

ECSC that the aid granted to Bolzano

under Law 25/81 was illegal because it

was not notified to the EU, and was

‘‘incompatible with the common market

pursuant to Article 4(c) of the ECSC

treaty.’’ See October 27, 1997, response

of the EU, public version on file in the

CRU. As a result, the EU ordered the

repayment of all grants and loans made

to Bolzano which were approved after

January 1, 1986. The EU decision did

not require the repayment of Bolzano

assistance approved prior to January 1,

1986.

As discussed in the ‘‘Corporate

Histories’’ section above, Falck sold

Bolzano to Valbruna in 1995. According

to the terms of the sale, Falck retained

the liability for repayment of these

benefits should the EU rule against

Bolzano. Pursuant to the EU’s 1996

ruling, Falck effectively repaid the

assistance under Law 25/81 approved

and granted to Bolzano after 1986.

Repayment was effected through Falck

receiving a lower payment from the GOI

under an assistance program and the

GOI transferring that amount to the

budget of the Province of Bolzano. Falck

is appealing the EU’s decision. For the

reasons set forth in the Department’s

Position on Comment 3 below, we do

not consider the payment by Falck to

affect our analysis of the benefit to

Bolzano.

Bolzano received grants for four

restructuring projects under this law:

one was approved in 1983, another was

approved in 1985, and two were

approved in 1988. Because Bolzano

submitted a separate application to the

regional authority for each project, we

are treating the grants received under

Articles 13 through 15 of Provincial Law

25/81 as non-recurring. See GIA, 58 FR

at 37226. Pursuant to the Department’s

non-recurring grant methodology, to

calculate the benefit from the

restructuring grants we allocated the

grants over Valbruna/Bolzano’s AUL to

determine the benefit in each year. To

determine the benefit from the

restructuring loans that were still

outstanding during the POI, we

compared the long-term fixed-rate

provided under the program to the

benchmark rate described in the

‘‘Subsidies Valuation Information’’

section above since the company did

not have long-term fixed rate loans from

the same period. We then applied the

Department’s standard long-term loan

methodology and calculated the grant

equivalent for the loans. Next, we

applied the methodology discussed in

the ‘‘Change in Ownership’’ section

above to the grants and loans. We then

summed the benefit amounts

attributable to the POI from Bolzano’s

grants and loans and divided the total

benefit by Valbruna/Bolzano’s total

sales. On this basis, we determine the

countervailable subsidy to be 0.28

percent ad valorem for Valbruna/

Bolzano.

Programs of the European Union

A. ECSC Article 54 Loans

Article 54 of the 1951 ECSC Treaty

established a program to provide

industrial investment loans directly to

the iron and steel industries to finance

modernization and the purchase of new

equipment. Eligible companies apply

directly to the EU for up to 50 percent

of the cost of an industrial investment

project. The Article 54 loan program is

financed by loans taken out by the EU,

which are then refinanced at slightly

higher interest rates than those at which

the EU obtained them.

The Department has found Article 54

loans to be specific in several

proceedings, including Electrical Steel

from Italy, Certain Steel from Italy, and

UK Lead Bar 94, because loans under

this program are provided only to iron

and steel companies. No new

information or evidence of changed

circumstances has been submitted in

this proceeding to warrant

reconsideration of this finding. This

program provides a financial

contribution within the meaning of

section 771(5)(D)(i) of the Act that

provides a benefit to the recipient in the

difference between the amount paid on

the loan and the amount which would

be paid on a comparable commercial

loan that the recipient could actually

obtain.

Valbruna did not use this program.

Bolzano and CAS received Article 54

loans. Bolzano had two loans

outstanding during the POI, one

denominated in U.S. Dollars, the other

in Dutch Guilders. CAS received one

Article 54 loan in 1996 with a variable

interest rate on which no interest or

principal payments were due during the

POI. Since these payments would not

have been due on a comparable

commercial loan, there is no benefit

received during the POI, and thus, we

find that the program is not used with

respect to CAS.

With respect to the loans to Bolzano,

we would have used as a benchmark

interest rate a long-term borrowing rate

for loans denominated in the

appropriate foreign currency in Italy.

However, we were unable to find such

rates. Therefore, we used the average

yield to maturity on selected long-term

corporate bonds as reported by the U.S.

Federal Reserve for the loan

denominated in U.S. dollars, and the

long-term bond rate in the Netherlands

as reported by the International

Monetary Fund for the loan

denominated in guilders. (We note that

Bolzano entered into the loan contract

for the loan denominated in U.S. dollars

in 1979. However, the interest rate for

that loan was renegotiated in 1992.

Therefore we have treated it as a new

loan from that point and used a 1992

benchmark).

At verification, we found that Bolzano

paid foreign exchange fees and semiannual guarantee fees on the Article 54

loans. Thus, we added these additional

expenses into the total amount that

Bolzano paid under the program. We

also added an amount equal to the

foreign exchange fees Valbruna/Bolzano

pays on commercial loans to the

benchmark loan. We then compared the

cost of the benchmark financing for each

loan to the financing Bolzano received

under the program and found that both

loans provided a financial contribution.

To calculate the benefit in the POI, we

employed the Department’s standard

long-term loan methodology. We

calculated the grant equivalent and

allocated it over the life of each loan.

We then applied the methodology

discussed in the ‘‘Change in

Ownership’’ section above. We divided

the benefit allocated to the POI by the

1996 sales of Valbruna/Bolzano. On this
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40487

basis, we determine the countervailable

subsidy to be less than 0.005 percent ad

valorem for Valbruna/Bolzano.

B. European Social Fund

The European Social Fund (ESF) is

one of the Structural Funds operated by

the EU. The ESF was established in

1957 to improve workers’ opportunities

and raise their standards of living. The

ESF principally provides vocational

training and employment aids. There

are five objectives identified under the

ESF for funding: Objective 1 covers

projects located in underdeveloped

regions, Objective 2 covers areas in

industrial decline, Objective 3 relates to

the employment of persons under 25,

Objective 4 relates to vocational training

for employees in companies undergoing

restructuring, and Objective 5 relates to

agricultural areas. CAS, Valbruna, and

Bolzano received ESF assistance under

Objective 4 during the POI.

In the preliminary determination,

there was insufficient evidence on the

record to determine whether Objectives

3 and 4 provide countervailable

subsidies. We noted, however, that the

Department had previously found

certain benefits under Objectives 1, 2, or

5(b) countervailable because assistance

was limited to companies in specific

regions. See, e.g., Pasta from Italy, 61 FR

at 30294. Nevertheless, based on the

record evidence, we were unable to

determine whether the companies in

this proceeding received ESF funding

based on their location. In light of this

insufficient record evidence, we

explained that we would continue to

examine the specificity of this program

for the final determination.

During verification, we clarified

several critical facts related to the ESF

program. First, we clarified that

companies may receive ESF funding

directly even if they are not located in

Objective 1, 2, or 5 regions. Neither

Valbruna nor Bolzano is located in an

Objective 2 region. Second, we

discovered that funding was provided to

companies subject to this investigation

only under Objective 4 of the ESF.

Objective 4 is aimed at vocational

training, in particular anticipating labor

market trends, training employees of

small and medium-sized enterprise, and

training workers at risk for

unemployment. Officials explained that

for Objective 4, there are 13 regional and

three multiregional operational

programs in Italy.

At the beginning of each multi-year

programming period, the Regional

authorities, GOI, and the EU negotiate

the framework and the budget for

projects to be funded and administered

pursuant to Objective 4. This

negotiation establishes the Single

Programming Document, which

includes broad goals for the Objective 4

projects throughout Italy and sets the

budget and more specific goals for each

of the operational programs. The most

recent Single Programming Document

for Italy covers the years 1994 through

1999. For the regional operational

programs, normally 45 percent is

funded by the EU, 44 percent by the

GOI, and 11 percent by the Region. The

regional operational programs are

administered by the regions, which each

publicly announce opportunities to

receive funding for projects consistent

with Objective 4 objectives. The

multiregional operational programs are

funded only by the EU and the GOI with

approximately 55 percent of the

program funding from the EU and 45

percent from the GOI. See GOI

Verification Report. The GOI

administers these multiregional

programs. Although the EU and the GOI

monitor the overall implementation of

Objective 4 regional operational

programs, and the EU monitors the

overall implementation of Objective 4

multiregional operational programs,

neither entity participates in the project

approval process.

The ESF programs under Objectives 1,

2 and 5b are similar to the projects

provided under Objective 4 but identify

broader goals and target different

segments. Under Objectives 1, 2, and 5b,

the unemployed, and workers in science

and technology are also eligible for

training projects including post graduate

training. In Objective 1, teachers, pupils,

and civil servants may also benefit from

training programs that are aimed at

strengthening education and training

programs. Thus, even at the broadest

level, the Objectives have different aims.

Based on the fact that the projects

funded pursuant to each ESF Objective

are administered by different authorities

at the EU, the GOI, and regional levels,

the budgets are set for each separate

objective with no transferability

between the objectives, and there is a

separate approval process for projects

under different objectives, we find that

Objective 4 of the ESF in Italy should be

examined as a separate program for the

purpose of determining whether

funding provided under Objective 4 is

specific within the meaning of the Act.

See, e.g., Live Swine from Canada, 62

FR at 18091.

The Department normally examines

funding provided from jurisdictional

levels separately to determine whether

each level of funding is specific within

the meaning of the Act. Since funding

for Objective 4 projects is provided at

three different levels for the regional

operational programs, we have

examined each separately to determine

specificity. The Single Programming

Document negotiated among the EU, the

GOI, and the regional authorities sets

the program goals and budgets for the

Objective 4 projects funded throughout

Italy. Although Objective 4 funding is

available throughout the Member States,

the EU negotiates a separate

programming document to govern the

implementation and administration of

the program with each Member State.

See ‘‘Verification Report of the

Responses of the European Commission

of the European Union,’’ dated June 1,

1998, public version on file in the CRU.

We find that the EU funding under

Objective 4 in Italy is de jure specific

within the meaning of section

771(5A)(D)(iv) of the Act because it is

limited on a regional basis to Italy. See,

e.g., Groundfish from Canada, 51 FR at

10048. GOI funding of Objective 4

projects is available in all areas of Italy

except the Objective 1 areas, thus,

eligibility is limited on a regional basis

to the center and north of Italy. See GOI

Verification Report. On this basis, we

also find the GOI funding to be de jure

specific within the meaning of section

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

We then examined the funding

provided by the Region of Valle d’Aosta

and the Province of Bolzano in the

regional operational programs. We

found that the operational programs in

both Valle d’Aosta and the Province of

Bolzano are not de jure specific. We also

examined each of the regional

authorities’ funding pursuant to the de

facto specificity criteria under section

771(5A)(D)(iii) of the Act. In each case,

we found that benefits were distributed

to many firms within each region and

that the firms represented a wide variety

of the industries within each region.

Further, the steel industry in each

region received a small amount of the

total benefits awarded in comparison to

other industries in the region. We

determine that the funding provided by

Valle d’Aosta and the Province of

Bolzano under their respective regional

operational programs (11 percent) is not

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

Act, and is therefore, not

countervailable.

The Department considers training

programs to benefit a company when

the company is relieved of an obligation

it would otherwise have incurred. See

Electrical Steel from Italy, 59 FR at

7255. All three companies subject to

this investigation applied for grants to

conduct training programs to increase

the production-related skills of their

own employees. Since companies

normally fund training to enhance the
40488 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

job-related skills of their own

employees, we determine that ESF

Objective 4 funds relieve companies of

an obligation. The ESF Objective 4

grants are a financial contribution under

section 771(5)(D)(i) of the Act which

provide a benefit to the recipient in the

amount of the grant. Therefore, we

determine that the ESF grants constitute

countervailable subsidies within the

meaning of section 771(5) of the Act.

The Department normally considers

worker training programs to be

recurring. See GIA, 58 FR at 37255.

However, ESF Objective 4 grants relate

to specific and individual projects and

each project requires separate

government approval. Therefore, we

determine that ESF Objective 4 grants

are non-recurring; however, because the

Objective 4 grants provided to CAS in

1994 through 1996 and Valbruna/

Bolzano in 1996 were less than 0.5

percent of the company’s sales, we

allocated the full amount of the

Objective 4 non-recurring grants to the

years of receipt.

To calculate the benefit from the

regional operational programs, we used

89 percent of each grant awarded to

CAS and Bolzano during the POI. This

percentage represents the amount of

funding from the GOI and EU under the

regional operational programs. To

calculate the benefit from the

multiregional program, we used 100

percent of the grant awarded to

Valbruna, because only the GOI and EU

funded grants provided under the

multiregional operational programs. For

Valbruna/Bolzano, we summed the

benefits from the grants and divided by

the company’s total sales. For CAS, we

divided the benefit by the company’s

total sales. On this basis, we determine

the countervailable subsidy to be 0.03

percent ad valorem for CAS and 0.05

percent ad valorem for Valbruna/

Bolzano.

II. Programs Determined to be NonCountervailable

A. Law 46: Technological Innovation

Fund

Under the Technological Innovation

Fund (FIT) of Law 46/82, the GOI

provides grants to companies for

projects that contain a high degree of

technological innovation. In the

preliminary determination, we found

that this program was not

countervailable because it was not

specific within the meaning of section

771(5A) of the Act. However, we stated

that for the final determination, we

would continue to examine whether the

provision of FIT assistance was

contingent upon export performance.

We verified that FIT assistance has been

awarded to non-exporters, companies

with low-levels of export sales, and

companies with high-levels of export

sales and that export performance is not

a factor in the evaluation process. We

reviewed applications which were both

accepted and rejected and found that in

no case was an application accepted

because of high levels of exports or

potential high levels of exports, and in

no case was an application rejected

because of a low level of exports. In all

cases, the applications were evaluated

based solely on the degree of

technological innovation contained in

the proposal. Thus, we verified that

export performance was not a criterion

used in the approval of grants under this

program. Therefore, we determine that

the Law 46 FIT program does not meet

the definition of an export subsidy

within the meaning of section

771(5A)(B) of the Act, and we continue

to find the program not countervailable.

B. Law 308/82

In response to our request for

information on ‘‘other subsidies’’ in the

questionnaire, the GOI reported that

Valbruna received grants for energy

conservation under Law 308/82.

However, this program was found to be

non-countervailable in Certain Steel

from Italy because it provided benefits

to a wide variety of industries, with no

sector receiving a disproportionate

amount. No new information or

evidence of changed circumstances has

been submitted in this proceeding to

warrant reconsideration of this

determination.

III. Programs Not Used

Based on the information provided in

the responses and the results of

verification, we determine that CAS and

Valbruna/Bolzano did not apply for or

receive benefits under the following

programs during the POI:

A. Benefits Associated with Finsider-toILVA Restructuring

In the preliminary determination, we

countervailed the GOI’s coverage of

Deltacogne S.p.A.’s losses in

conjunction with the restructuring of

Finsider into ILVA. We followed the

methodology used in Electrical Steel

from Italy in examining the

restructuring of Deltacogne into Cogne

S.r.l. Electrical Steel from Italy, 59 FR at

18366. This approach resulted in a

calculation of 120 billion lire in losses

that we assumed remained with

Finsider and were covered by IRI.

At verification, we discovered new

information relevant to the

Department’s treatment of the

Deltacogne-to-Cogne S.r.l. restructuring.

Deltacogne was merged into ILVA

S.p.A. with ILVA receiving all of the

assets and liabilities of Deltacogne. No

liabilities or losses remained in a shell

company that were folded into Finsider

and assumed by the GOI. We were able

to confirm this by examining the merger

contract and examining information in

the 1989 ILVA financial statement. To

the extent there was a difference in the

financial condition of Deltacogne and

Cogne S.r.l., it reflects that the

companies had different holdings.

Therefore, we find that the ‘‘Benefits

Associated with the Finsider-to-ILVA

Restructuring Program’’ is not used.

B. Grants for Interest Payments Under

Law 193/1984

C. Law 46 and 706 Grants for Capacity

Reduction

D. ECSC Article 56(2)(b) Retraining

Grants

E. Resider Program

F. Law 675

1. IRI Bonds

2. Mortgage Loans

3. Personnel Retraining Aid

4. Interest Grants on Bank Loans

G. Debt Forgiveness: 1981 Restructuring

Plan

H. Law 481/94

I. Decree Law 120/89

J. Law 394/81 Export Marketing Grants

and Loans

K. Law 488/92 and Legislative Decree

96/93

L. Law 341/95 and Circolare 50175/95

M. Valle d’Aosta Regional Law 16/88

N. Valle d’Aosta Regional Law 3/92

O. Bolzano Regional Law 44/92

P. Interest Rebates on ECSC Article 54

Loans

Q. ECSC Article 56 Loans

R. European Regional Development

Fund

IV. Programs Determined Not to Exist

Based on information provided in the

responses and the results of verification,

we determine that the following

programs do not exist:

A. R&D Grants to Valbruna

B. Subsidies for Operating Expenses and

‘‘Easy Term’’ Funds

C. 1993 European Commission Funds

Interest Party Comments

Comment 1: Province of Bolzano’s

Purchase of the Bolzano Industrial Site:

Valbruna/Bolzano asserts that the

Department properly determined that

the Province of Bolzano did not

purchase the Bolzano industrial site for

more than adequate remuneration.

Respondent argues that Valbruna’s

willingness to purchase the Bolzano

industrial site at the purchase price
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40489

agreed to by the Province and Falck, in

the event that the sale was not

consummated, and the fact that the

purchase price paid by the Province was

in line with the estimates in an

independent appraisal done by an

architect hired by Valbruna,

demonstrate that the industrial site was

not purchased for more than adequate

remuneration. Valbruna states that the

Province’s own estimate of the price of

the land, which was comparable to that

paid for neighboring properties on a persquare meter basis, demonstrates that

the purchase was in accordance with

market conditions and could not be for

more than adequate remuneration. The

architect’s appraisal corroborates this

conclusion. Finally, Valbruna argues

that the information about other land

transactions in the Province of Bolzano

is an appropriate benchmark to evaluate

the adequacy of remuneration, and this

information demonstrates that Bolzano

received no countervailable benefit from

the sale of the land.

Petitioners argue that Valbruna cannot

be considered an uninterested party in

the land deal. Petitioners state that

although Valbruna claimed it was

willing to pay the same price for the

property as the Province in the event

that arrangements with Falck fell

through, the chronology of the deal

demonstrates that Valbruna knew it

would never have to purchase the site.

Petitioners contend that the Share

Purchase Agreement provides evidence

that Valbruna would not have been

required to purchase the site. Petitioners

further argue that Valbruna never has

provided an adequate appraisal of the

property and that the architect’s

appraisal is based on a number of

inaccurate assumptions. Petitioners

compare the facts related to the Bolzano

land sale to the Cogne land sale, and

contend that this comparison reveals

that the Bolzano transaction was not in

accordance with market conditions

because unlike Valle d’Aosta, Bolzano’s

appraisal of the property is

insufficiently detailed. Petitioners

contend that other information also

indicates that other parties were not

interested in purchasing the land.

Petitioners also argue that the

Department should use the amount of

debt reduction that Bolzano experienced

contemporaneously with the sale of its

industrial property as a proxy for the

benefit derived from this transaction

since Respondents failed to provide

sufficient information to establish an

appropriate benchmark to measure the

adequacy of remuneration in the land

deal. Petitioners state that the other sites

—Magnesio, Aluminia, and IVECO—are

not comparable to the Bolzano site.

Petitioners argue that the Department

should select a benchmark in order to

evaluate whether the site was purchased

for more than adequate remuneration

which reflects that the site had minimal

commercial value because of the

environmental problems. Petitioners

state that the purchase price for the land

was used to improve the financial

health of Bolzano by reducing its

financial burdens, and thus Valbruna

received a benefit from the transaction.

Petitioners argue that the primary goal

of the land deal was improving

Bolzano’s balance sheet.

Respondent replies that Falck’s use of

the money is irrelevant and that the

reduction of debt resulting from the sale

of the land cannot be demonstrated to

be a countervailable benefit.

Department’s Position: Regarding the

Province’s purchase of the Bolzano

industrial site, we agree with

Respondent’s arguments that the

purchase was not made for more than

adequate remuneration. Our findings at

verification on this matter confirmed

that: (1) the Cadastral Office of the

Province of Bolzano conducted an

appraisal of the land and buildings prior

to purchasing the site from Falck; (2)

Valbruna agreed to purchase the site at

the price determined by Bolzano in the

event that the arrangement between the

Province and Falck did not come to

fruition; and (3) the Province had

fulfilled all of its contractual agreements

to Falck regarding the purchase of the

site. On this basis, we find that the price

paid by the Province for the Bolzano

industrial site was in accordance with

market conditions.

Regarding Petitioners’ argument that

the Department should use the amount

of debt reduction that Bolzano

experienced contemporaneously with

the sale of its industrial property as a

proxy for the benefit derived from this

transaction, the Department disagrees.

Because the Department has determined

that the Province did not purchase the

site from Falck for more than adequate

remuneration, the Department finds that

Falck and its subsidiaries did not derive

a countervailable benefit from the sale,

within the meaning of section

771(5)(E)(iv) of the Act.

In addition, we also disagree with

Petitioners’ argument that Valbruna’s

agreement to purchase the land from

Falck is inappropriate to consider in

determining whether the Province of

Bolzano paid more than adequate

remuneration for the industrial site. We

recognize that it was highly unlikely

that Valbruna would have to perform on

this obligation. However, given that the

Province used the acquisition price in

determining the lease rate, we infer that

Valbruna had a strong commercial

interest in ensuring that Falck did not

pay more than adequate remuneration

for the site. In addition, under the

leasing agreement between the Province

of Bolzano and Valbruna, Valbruna has

the option to purchase the industrial

site from the Province within five years

of the signing of the lease. For these

reasons, we consider Valbruna’s

guarantee to Falck that it would acquire

the property for the price agreed to

between Falck and the Province of

Bolzano is an indication that the price

paid by the Province of Bolzano for the

Bolzano industrial site was reflective of

market considerations. Therefore, the

purchase of the industrial site by the

Province of Bolzano does not constitute

a subsidy within the meaning of section

771(5) of the Act.

Comment 2: Bolzano Lease: Valbruna/

Bolzano argues that the Province of

Bolzano’s lease of the Bolzano industrial

site to Valbruna provided adequate

remuneration to the Province and thus

did not confer a benefit. Respondent

claims that because the lease covered

the Province’s costs, earned a reasonable

rate of return based on what was

charged in other provinces, and

reflected market-based pricing, it is

provided for adequate remuneration.

Regarding the two-year rent exemption,

Respondent argues that the exemption

reflected an exchange between the

parties in accordance with market

principles in which Valbruna

reciprocated by assuming responsibility

for environmental reclamation and

extraordinary maintenance costs usually

attributed to the lessor. Respondent

further argues that the Department

should combine Valbruna’s annual rent

charges with its environmental and

extraordinary maintenance expenses in

determining whether the company paid

adequate remuneration to the Province

under the lease.

Petitioners argue that the provisional

lease agreement with Valbruna did not

reflect normal market conditions and

therefore provides a countervailable

subsidy. In calculating the benefit,

Petitioners argue that the Department

should not offset rent payments with

any extraordinary maintenance or

environmental reclamation payments by

the company. In addition, Petitioners

argue that, due to the length of the lease,

the Department should treat the lease as

a long-term loan and use the adjusted

Bank of Italy Reference Rate as a

benchmark. Petitioners further argue

that Valbruna has failed to undertake

environmental clean-up costs as

required under the lease. Petitioners

contend that the Department should

treat these unpaid costs as revenue
40490 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

foregone within the meaning of the

statute in its final analysis.

Department’s Position: Section

771(5)(E) of the Act states that the

adequacy of remuneration with respect

to a government’s provision of goods or

services shall be determined in relation

to prevailing market conditions for the

goods or services provided. When the

government leases land, the Department

has determined that examining the rate

of return is a reasonable approach in

determining the adequacy of

remuneration in the absence of

alternative market reference prices. See,

e.g., German Wire Rod, 62 FR at 54994.

As explained above, the record evidence

demonstrates that the average rate of

return in Italy on leased commercial

property is 5.7 percent. See Commercial

Experts Report. Based on our

comparison of the Province’s rate of

return under the Bolzano lease with this

benchmark, we determine that the

Province did not receive adequate

remuneration. As Valbruna/Bolzano

acknowledges in its case brief, the

Province earned less than a 5.7 percent

rate of return on the lease.

Based on our analysis of the

Province’s rate of return under the lease,

a further examination of whether the

Province covered its costs and whether

the terms of the lease reflected marketbased pricing is unnecessary. As we

noted in German Wire Rod, the

Department identified the factors of

covering costs, earning a reasonable rate

of return, and reflecting market-based

pricing as several reasonable options,

and not a three-prong analysis as

Valbruna suggests. Because we were

able to obtain a reliable rate of return to

serve as the appropriate benchmark, we

have not relied upon additional factors

in this final determination.

The record evidence also supports our

determination to countervail the twoyear rent exemption Valbruna/Bolzano

received under the lease. The Province

agreed to offset Valbruna/Bolzano’s rent

payments for the first two years of its

lease in exchange for the company’s

agreement to pay for extraordinary

maintenance and environmental cleanup costs at the Bolzano plant site.

However, the record evidence

demonstrates that in situations

involving long-term leases, the lessee

often bears responsibility for

extraordinary maintenance costs. See

Commercial Experts Report. While the

Italian Civil Code does provide for

extraordinary maintenance to be paid by

the landlord in instances where it is

otherwise not specified in the contract,

the terms of Valbruna’s contract, in

particular the company’s thirty-year

lease term, lead us to conclude that a

commercial landlord would have

assigned the extraordinary maintenance

costs to the tenant, with no special rent

abatement. Thus, we do not consider

this arrangement to constitute a sid pro

quo exchange between Valbruna and the

Province.

Moreover, the record evidence

demonstrates that the Province’s normal

practice is to require lessees to pay for

environmental clean up costs.

Provincial government officials

explained that the Province normally

requires companies to pay for

environmental costs and investments

without any kind of rent exemption

from the Province. As an example,

Provincial officials described a situation

involving Falck, the former parent

company of Bolzano. In 1992, the

Province issued a decision requesting

that Falck proceed, at its own expense,

with a noise reduction project. See

Province of Bolzano Verification Report,

dated June 1, 1998, public version on

file in the CRU. Although Falck never

proceeded with the plan, the Province’s

request for Falck to assume

responsibility for the costs of the

environmental project provides a

concrete example of how companies in

the Province are normally responsible

for costs associated with environmental

reclamation projects. This record

evidence supports our determination

that the two-year rent exemption

provided a financial contribution in the

form of foregone government revenue.

On this basis, we also find it

inappropriate to make any adjustments

for Valbruna’s extraordinary

maintenance or environmental costs.

As discussed above, because we were

able to obtain a reliable average rate of

return on commercial leased property,

we have not adopted the Petitioners’

proposal that we use the adjusted Bank

of Italy Reference Rate as a benchmark.

Although this 5.7 percent rate of return

reflects rates that include different

terms, lengths, and locations in Italy, we

consider this benchmark to be a better

reflection of commercial practices than

the methodology described in the

preliminary determination and that put

forth by Petitioners. Moreover, the rate

used in the preliminary determination

was based on treasury bonds and would

require a number of complicated and

highly speculative adjustments to reflect

a representative rate for leasing

commercial property.

Petitioners’ argument that we should

not make an adjustment for the costs of

environmental clean-up because

Valbruna failed to undertake such

activity is not supported by the record

evidence. We verified that Valbruna did

incur many expenses related to the

environmental projects on the Bolzano

site. However, as explained above, we

have not made any adjustments to the

rate, and therefore the issue is moot.

Comment 3: Province of Bolzano Law

25/81: Valbruna/Bolzano argues that for

a subsidy to exist, there must be a

financial contribution which confers a

benefit. Valbruna/Bolzano contends that

the Department verified that the

financial contribution under this

program was repaid and therefore, the

subsidy ceases to exist. Respondent

argues that the Department has applied

this rationale in cases where

Respondents have repaid grants, citing

Certain Fresh Cut Flowers from Peru, 52

FR 6837 (March 5, 1987) and Certain

Steel Products from South Africa, 58 FR

62100 (Nov. 24, 1993), as case precedent

for treating repaid subsidies as

noncountervailable. Further, Valbruna/

Bolzano argues that Falck’s decision to

appeal the matter is irrelevant citing

Certain Steel Products from Germany,

58 FR 37315 (July 9, 1993).

Alternatively, to the extent the

Department determines that some or all

of the Law 25/81 assistance constitutes

a countervailable subsidy, Respondent

contends that the subsidy is not de facto

specific. First, Respondent argues that

the Department should assess the

specificity of the program across Law

25/81 as a whole as opposed to treating

the restructuring assistance granted

under Articles 13 through 15 as a

separate program. Valbruna argues that

under this analysis, Law 25/81 provides

aid to a wide variety of industries and

enterprises. Respondent also argues that

Bolzano did not receive a

disproportionate share of benefits.

Finally, Respondent argues that, in the

event that the Department limits its

specificity analysis to Articles 13

through 15, it should examine the aid

Bolzano received in the context of the

entire life of the program.

Petitioners take issue with

Respondent’s arguments regarding the

de facto specificity analysis of the

restructuring assistance granted to

Bolzano under Law 25/81. Petitioners

argue that the Department should

uphold the decision reached in its

preliminary determination and treat the

restructuring assistance granted under

Articles 13 through 15 of Law 25/81 as

a separate program. Petitioners contend

that under this analysis, Bolzano

received a disproportionate share of

benefits in each award year. Petitioners

also argue that the Department should

examine the de facto specificity of the

restructuring assistance granted to

Bolzano on a year-by-year basis. With

respect to Respondent’s repayment

argument, Petitioners counter that
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40491

because Falck has appealed the EU’s

decision that part of the assistance

provided under the program was illegal

and had to be repaid, the final

disposition of the matter has not been

settled so the Department may not

consider the funds as being repaid.

Department’s Position: We disagree

with Respondent’s argument that we

should find no benefits from assistance

approved after 1986 under Law 25/81

because part of the subsidy has been

repaid. As discussed above, Falck has

appealed the EU’s decision, and

therefore, we are not considering this

issue. Contrary to Respondent’s

assertion, this appeal is relevant to this

inquiry because the final disposition of

the repayment has not been settled. In

Certain Steel from Germany, the

Department treated grants that would be

repaid after the POI as a contingent

liability. During verification in that case,

the Department met with the tax

authority that controlled the matter, and

found that a repayment schedule was

imminent. Thus, the Department was

satisfied that the decision of the tax

authority was final. See Certain Steel

from Germany, 58 FR at 37324. Falck

has appealed the EU’s decision to the

Court and the matter will likely remain

unresolved for a number of years.

Therefore, we are not considering the

repayment at this time and need not

address Respondent’s arguments

pertaining to this issue. We have

appropriately treated this assistance as

countervailable and have allocated to

Valbruna/Bolzano the benefit derived

from these subsidies using the

Department’s standard methodology

described in the ‘‘Change in

Ownership’’ section above. Should this

investigation result in a countervailing

duty order and should an administrative

review be requested, once there is a

final judgement concerning Falck’s

appeal, we will reconsider this issue at

that time.

We also disagree with the

Respondent’s argument that the aid

given to Bolzano under Articles 13

through 15 of Law 25/81 is not de facto

specific. In our preliminary

determination, we found that there were

separate and distinct eligibility

requirements, levels of funding,

application procedures, and types of

benefits provided under Articles 13

through 15. At verification, we

confirmed these facts. Therefore,

consistent with the Department’s

practice, we have examined the

restructuring assistance under Articles

13 through 15 as a separate program.

See, e.g., Live Swine from Canada, 62

FR at 18091. Respondent has presented

no arguments to counter this finding,

but argues that Law 25/81 assistance is

not de facto specific using data based on

benefits provided under the entire aid

program rather than aid provided solely

under Articles 13 through 15, the

restructuring program. However, when

the level of benefits is examined under

Articles 13 through 15, the record

evidence supports our finding that

Bolzano received a disproportionate

share of assistance in each year in

which Bolzano was provided assistance.

Bolzano was the largest single recipient

of aid from the inception of the program

through the POI and received a far

higher level of assistance when

compared to the other firms that also

received aid.

The Respondent’s cite to Certain Steel

Products From Belgium 58 FR 37280

(July 9, 1993) as support for its claim

that the Department examines dominant

use across the entire life of the program

is misplaced. In that case, we examined

disproportionate use of the Societe

Nationale de Credit a l’Industrie (SNCI)

program on a year-by-year basis. We

stated, ‘‘[f]or each of the years for which

we have data during this period, the

steel industry was the largest single

recipient of SNCI investment lending.’’

Steel from Belgium, 58 FR at 37280. The

Department listed the percentage of

benefits the steel industry received in

each year the Belgian steel producers

used the program. Id. Thus, the case

cited by Respondent does not support

the argument presented. However, as we

stated in that case, we normally do not

rely on a single year’s worth of data to

determine dominance or

disproportionality as that might yield

anomalous results. Thus, we examine

all the years in which a company

received benefits and additional years, if

warranted, prior to each year assistance

was provided. Whether we examine

assistance under Articles 13 through 15

on a year-by-year basis, or for the span

of years during which Bolzano received

assistance, 1982 through 1992, we find

that Bolzano received a disproportionate

share of funds awarded.

Comment 4: Early Retirement Benefits

under Law 451/94: Valbruna/Bolzano

argues that the Department should

affirm its preliminary determination

that Law 451/94 is not countervailable.

Valbruna states the Department

correctly found that companies face the

same, if not greater, financial

commitments to their workers under

Law 451/94 as under other early

retirement programs that are available to

non-steel workers in Italy, such as the

extraordinary CIG program. Therefore,

Respondent argues that Law 451/94

does not confer a benefit to Bolzano. To

the extent that Law 451/94 did relieve

Bolzano of an obligation, Respondent

argues that it was an additional

financial burden imposed by the GOI

exclusively on the Italian steel industry

that was over and above the obligations

imposed upon other industries.

Respondent states that under these

circumstances the Department’s policy

is to treat worker assistance as

noncountervailable, citing Certain Steel

Products from Belgium, 58 FR at 37276.

Alternatively, Respondent contends

that, should the Department determine

that Law 451/94 does provide a

countervailable subsidy, the Department

should measure the benefit as no higher

than the difference between the

expenses Bolzano would have incurred

during the POI under the extraordinary

CIG program and the expenses the

company incurred under Law 451/94.

Petitioners argue that the Department

should reverse its preliminary

determination that Law 451/94 early

retirement benefits are not

countervailable because information

submitted to the record subsequent to

the Preliminary Determination

demonstrates that the program relieves

companies of obligations that they

would otherwise incur. Petitioners

contend that the verified record

demonstrates that Law 451/94 imposes

fewer early retirement costs on

companies than the extraordinary CIG

program. Petitioners agree with

Respondent’s assertion that the benefit

under Law 451/94 should be calculated

as the difference between the expenses

Bolzano would have incurred during the

POI under the provisions of the

extraordinary CIG program and the

expenses the company incurred under

Law 451/94.

Department’s Position: The

Department’s practice is to treat early

retirement benefits as countervailable

when the company is relieved of an

obligation it would otherwise incur and

that relief is specific. See GIA, 58 FR at

37255. During verification, GOI officials

confirmed that Italian companies are not

free to layoff workers at will. See GOI

Verification Report. We also learned

that, absent the Early Retirement

Program under Law 451/94, steel

companies would incur the costs

associated with the extraordinary CIG

program, including the contribution of a

percentage of the worker’s salary and

the mandatory severance contributions

under Article 2120. GOI officials also

explained that the Early Retirement

Program under Law 451/94 is less costly

from the employer’s perspective than

the extraordinary CIG requirements

because the company would not be

required to contribute a percentage of

salary or continue to set aside Article
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2120 contributions. See GOI Verification

Report, dated June 1, 1998, on file in the

CRU. On this basis, we determined that

Law 451/94 relieves steel companies

from the obligation to pay the higher

costs associated with the alternative CIG

program. Therefore, we have

countervailed the benefits Bolzano

received under Law 451/94 in this final

determination by calculating the costs

Bolzano would have incurred under the

extraordinary CIG program including

the severance contributions that the

company did not face under Law 451/

94.

In claiming that Law 451/94 provides

a benefit to the workers and not the steel

companies, Valbruna has misconstrued

the Department’s practice. As explained

in the GIA, where governments simply

reimburse companies for additional

payments imposed by special worker

assistance programs, the governments

have not relieved the companies of any

obligation. GIA, 58 FR at 37256. In these

situations, the Department considers the

workers and not the companies as the

recipient of the benefit. Id. Thus, in

Steel from Belgium, the Department did

not countervail the portion of benefits

provided to the companies that were

reimbursements for the additional

payments imposed by the special steel

program because those payments were

never an obligation of the companies.

See Steel from Belgium, 58 FR at 37276.

Here, however, the record evidence

demonstrates that because Italian

companies are unable to layoff workers

at will, companies are obligated to pay

for severance and pension programs

mandated under Italian law. Law 451/94

relieves the steel companies from the

higher costs associated with these other

severance and pension programs, such

as the extraordinary CIG, and therefore

is countervailable.

Comment 5: Plant Closure Grants

under Law 193/84: Valbruna/Bolzano

argues that the grants Falck received

under Articles 2 and 4 of Law 193/84

were tied to the production of tubular

and flat steel products, goods outside

the scope of this investigation and,

therefore, provided no benefit to

Bolzano’s exportation or production of

subject merchandise. Consistent with

the Department’s practice for ‘‘tied’’

subsidies, the grants cannot be said to

benefit the subject merchandise. Citing

to Steel Wire Rod from Canada,

Respondent also claims that the

Department has refused to accept the

‘‘tied’’ nature of closure benefits only

when the assistance is received after the

plant has ceased production.

Respondent further argues that the

grants under Law 193/84 are not

countervailable because the Department

has not properly determined that the

grants received by Falck passed through

to Valbruna upon its purchase of

Bolzano. Respondent contends that

under the CIT’s ruling in Delverde S.r.l.

v. United States, 989 F. Supp. 218 (CIT

1997), because this is a private-toprivate arm’s length transaction, the

Department must explain how the

benefits received by the previous owner

are not reflected in the purchase price

and how the new owner received a

benefit.

Petitioners respond that it is the

Department’s practice to attribute grants

provided for the specific purpose of

closing plants to all merchandise

produced by the recipient, noting that

the CIT upheld this practice in British

Steel Corp. v. United States, 605 F.

Supp. 286 (CIT 1985). Petitioners also

argue that, pursuant to its practice, the

Department is not obligated to explain

whether or not Falck’s benefits under

Law 193/84 were reflected in the market

value paid by Valbruna for the purchase

of Bolzano’s shares. Petitioners contend

that the Delverde decision is not a

binding final and conclusive judgment

reversing Commerce’s practice.

Therefore, Petitioners argue that the

Department should affirm its finding

that the benefits attributable to Bolzano

from Falck’s use of Law 193/84 ‘‘passed

through’’ to Valbruna when it bought

Bolzano from Falck.

Department’s Position: The

Department disagrees with

Respondent’s assertion that the plant

closure assistance Falck received under

Law 193/84 did not benefit the export

or production of the subject

merchandise. The Department’s practice

with respect to corporate restructuring

through the closure of plants is

articulated in the GIA, 58 FR at 37270:

* * * It has been argued that because plant

closure results in the reduction of capacity,

subsidies that promote such reduction cannot

fall into the category of benefitting the

manufacture, production or export of subject

merchandise. However, * * * the

Department’s determination reflects the fact

that once inefficient facilities are closed, the

company can dedicate its resources to the

efficient production of the remaining

facilities. Therefore, closure payments for

plants producing subject and non-subject

merchandise alike are countervailable.

Moreover, contrary to Respondent’s

claim, this practice applies regardless of

whether the assistance is received prior

to the plant closure. See e.g., Steel Wire

Rod from Canada, 62 FR at 54981. In

British Steel, the CIT upheld the

Department’s practice ruling that, ‘‘[a]s

a company becomes more cost efficient

and thereby more price competitive,

there is a direct benefit to the

manufacture, production, and export of

all the firm’s products.’’ British Steel,

605 F. Supp. at 293. The Department’s

‘‘tying’’ practice is inapplicable to

closure payments because the assistance

provided confers a benefit on all of the

company’s operations.

We also disagree with Respondent’s

argument that the Delverde decision

overturns the Department’s

methodology with respect to analyzing

private-to-private change in ownership

transactions. The CIT only directed the

Department, on remand, to provide a

fuller explanation of its methodology,

and has not ruled on the Department’s

final remand determination. As

explained in UK lead Bar 96, the

Department continues to follow its

existing methodology. UK Lead Bar 96,

63 FR at 18371. Under our existing

methodology, we neither presume

automatic extinguishment nor automatic

pass through of prior subsidies in an

arm’s length transaction. Contrary to the

Respondent’s contention on this matter,

the Department utilized the pertinent

facts of the case in determining whether

the grants received by Falck passed

through to Valbruna. Following the GIA

methodology, the Department subjected

the level of previously bestowed

subsidies and the purchase price paid

by Valbruna to a series of tests and

analyses. These analyses resulted in the

‘‘pass through ratio’’ used in this

investigation. Under this methodology,

some of the benefit passes through and

some remains with the seller. On this

basis, the Department determined that a

portion of the benefits associated with

Falck’s closure assistance which were

allocated to Bolzano was not

extinguished when Falck sold Bolzano

to Valbruna.

Comment 6: European Social Fund:

Valbruna/Bolzano argues that worker

training grants received by Valbruna

and Bolzano under the ESF program did

not relieve the company of obligations

that they would otherwise incur.

Respondent states that there is no

evidence on the record to suggest that

either company had incurred an

obligation to provide training, therefore,

the funding did not provide a

countervailable subsidy. Respondent

cites the preliminary determination

from Electrical Steel from Italy, 59 FR

4682 at 4690, as evidence that the

Department has agreed in other cases

that ‘‘Italian companies have no legal

obligation to retrain their workers.’’

Should the Department determine that

funds under the ESF program constitute

a subsidy, Respondent maintains that

the subsidy is not de facto specific.

Respondent further argues that should

the Department determine that the ESF
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40493

program confers a countervailable

subsidy, it should deduct the amount of

service fees Valbruna paid to

Riconversider for processing its

application from the total amount of the

grant awarded to Valbruna. Petitioners argue that the Department,

based on verified record evidence,

should find the ESF countervailable on

the basis of regional specificity.

Petitioners argue that there are no clear

dividing lines between the Objectives

under the ESF as Cogne received

funding under multiple Objectives since

1984. Further, Petitioners point out that

the Province of Bolzano uses the same

commission to evaluate applications

under Objectives 3, 4, and 5(b).

Petitioners argue that the ESF assistance

is specific because the steel industry

was a dominant user of the program

since Riconversider received more than

50 percent of the funding under the

Multiregional operational program

during the POI. Citing Electrical Steel

from Italy, 59 FR at 18368, Petitioners

argue that the Department has a

consistent policy of countervailing

training benefits intended to train a

company’s own workers. Department’s Position: We disagree

with Respondent that the training grants

under the ESF program do not relieve

Valbruna and Bolzano of obligations. In

the final determination of Electrical

Steel from Italy, we reversed the

preliminary determination cited by

Respondents, finding that funds used to

upgrade the skills of workers are

countervailable because these costs are

normally borne by the company to

improve the efficiency of its workforce.

See Electrical Steel from Italy, 59 FR at

18368. In this investigation, we verified

that the training assistance provided to

Respondents under ESF Objective 4

funded training programs to enhance

the skills of workers to improve the

production process. See CAS and

Valbruna/Bolzano Verification Reports.

Companies have an implicit

responsibility to train their workers on

the manufacturing process for their own

production. Therefore, we find that the

training programs under Objective 4 of

the ESF relieved the companies of an

obligation they otherwise would have

incurred.

We agree with Petitioners, in part,

that the Objective 4 program in Italy is

regionally specific. In the case of

regional operational programs, funding

for this program is divided between the

EU, GOI, and regional authorities.

Funding for multiregional operational

programs is divided equally between the

EU and the GOI. The EU portions of the

grants are de jure specific because they

are limited to a designated geographical

region within the jurisdiction of the

European Union. The GOI portions of

the grants are de jure specific because

they are limited to non-Objective 1

areas, i.e., the center and north of the

country. Because the funds provided by

the Authority of the Region of Valle

d’Aosta and the Authority of the

Province of Bolzano are not limited on

this basis, the Department analyzed

whether the regional operational

programs for Valle d’Aosta and the

Province of Bolzano are provided on a

de facto specific basis. The record

evidence demonstrates that within each

region grants are awarded to a wide

variety of industries. Also, the steel

industry’s share of the grants was not

disproportionate to other industries’

shares. Therefore, we find that in the

case of the regional operational

programs, 89 percent of the funds are

countervailable (45 percent from the EU,

44 percent from the GOI), and in the

case of the multiregional operational

funds, 100 percent of the funds are

countervailable because these were

funded solely by the GOI and the EU. Finally, the Department agrees with

Respondent that the expenses Valbruna

paid to Riconversider should be

deducted from the net amount the

company received under Objective 4 of

the ESF program. We verified that

Valbruna had to pay service and

commission fees in order to receive the

ESF assistance. See Valbruna/Bolzano

Verification Report. We determine that

these fees qualify as an ‘‘* * *

application fee, deposit, or similar

payment paid in order to qualify for, or

to receive, the benefit of the

countervailable subsidy.’’ See section

771(6)(A) of the Act. Thus, in

determining the benefit from the grants

disbursed to Valbruna under Objective 4

of the ESF program, the Department

subtracted the amount of money the

company paid to Riconversider to

derive the net amount of grants it

received under the program. Comment 7: ECSC Article 54 Loans:

Respondent states that Bolzano repaid

the Dutch Guilder loan it received under

the ECSC Article 54 loan program and,

since the program was discontinued in

1994, there is no possibility that

Bolzano can receive any additional

funding under the program. Thus,

Respondent argues that this loan should

not be included in any cash deposit rate

established for Valbruna/Bolzano in the

event of an affirmative final

determination, citing Pure and Alloy

Magnesium from Canada, 57 FR 30946

(July 13, 1992) in support of its position. Petitioners argue that the Department

understated the value of the benefit

accruing to Bolzano as a result of its

U.S. Dollar ECSC Article 54 loan. The

interest rate for this loan was

renegotiated in 1992. For the purposes

of deriving a grant equivalent, the

Department based its calculations from

the time when the new interest rate was

established. Petitioners argue that

Bolzano was uncreditworthy in 1992

and, therefore, the Department should

have used as a commercial benchmark,

the highest long-term fixed interest rate

available in the United States, plus a

risk premium equal to 12 percent of the

U.S. prime interest rate. Petitioners

further argue that benefits Bolzano

received under the Article 54 loan

should be included in the cash deposit

rate established for Valbruna/Bolzano in

the event of an affirmative final

determination.

Department’s Position: We disagree

with the Respondent’s argument that the

countervailable benefit from the Dutch

Guilder loan Bolzano received under the

ECSC Article 54 loan program, should

not be included in any cash deposit rate.

The Department’s practice is to adjust

the cash deposit rate to zero for

countervailable subsidies only when

there is a program-wide change, such as

termination, and there are no residual

benefits. See Final Affirmative

Countervailing Duty Determination:

Certain Pasta from Turkey, 61 FR 30366,

30370 (June 14, 1996). The Department

deems a countervailable benefit to be

received at the time when the firm

experiences a difference in cash flows,

either in the payments it receives or the

outlays it makes. In the case of loans,

the Department measures the receipt of

the benefit at the time a firm is due to

make a payment on the loan. In this

instance, Bolzano repaid the Dutch

Guilder loan it received after the POI.

Moreover, repayment of a loan does not

constitute a program-wide change.

Therefore, consistent with the

Department’s practice, no change to the

cash deposit rate is warranted.

These circumstances are

distinguishable from those in

Magnesium from Canada, where the

Respondent repaid the grant in full

during the POI. Thus, the Department

did not include the subsidy in the cash

deposit rate because the company’s

repayment of the grant during the POI

extinguished the possibility of any

future benefit. Therefore, should this

investigation result in a countervailing

duty order, the Department will include

the net subsidy from this program in

Valbruna/Bolzano’s cash deposit rate.

We also disagree with Petitioners’

claims that the Department understated

the value of the benefit accruing to

Bolzano as a result of its U.S. Dollar

ECSC Article 54 loan. As stated above,

in determining the benefit under this
40494 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

program, we derived our grant

equivalent based on the year in which

the interest rate was renegotiated. We

agree that the renegotiation of the

interest rate on the loan in 1992 can be

viewed as the bestowal date of the loan

and have calculated a new grant

equivalent based on the renegotiated

terms. However, contrary to Petitioners’

claim, we do not find Falck to have been

uncreditworthy in 1992 and, therefore,

we have not added a risk premium to

the benchmark rate.

Comment 8: Effective Interest Rates:

Petitioners argue that the Department

should add to the benchmark interest

rate for long-term loans used in the

preliminary determination, an

additional spread that is representative

of what Italian banks normally charge in

bank fees to corporate clients.

Petitioners also argue that the

Department, in making this upward

adjustment, should rely on the average

interest rate spread on the ABI verified

during its discussion with an official

from a private Italian Bank.

Department’s Position: We agree with

Petitioners’ argument that the

Department should add a spread onto

the benchmark in order to determine an

effective long-term interest rate. As

stated earlier in the ‘‘Subsidies

Valuation Information’’ section, for

purposes of this final determination, our

long-term lira-denominated benchmark

is based on the Italian Interbank Rate

(ABI) because we verified that

commercial banks in Italy consider the

ABI rate the most suitable benchmark

for long-term financing available to

Italian companies. Commercial banks

add a spread ranging from 0.55 percent

to 4 percent onto that rate depending on

the financial health of the recipient.

Therefore, in years in which companies

under investigation were creditworthy,

we added the average of that spread (i.e.,

2.275 percent) onto the ABI rate to

calculate a benchmark.

During verification, a commercial

banker informed us that the interest rate

charged to their clients is all inclusive

and covers all fees, commissions, and

other charges associated with the loan.

See Commercial Experts Report.

Therefore, by including the spread

provided to us by an Italian commercial

bank, we have calculated the effective

cost of the loan because the benchmark

interest rate includes all other charges

associated with the loan.

Comment 9: Assumption of Losses:

CAS argues that the Department erred in

attributing any pre-1993 subsidies to

CAS that were provided to its

predecessors and its predecessor’s

parent companies. Specifically, CAS

states that, because Deltacogne’s

accumulated losses were not

‘‘distributed’’ to Cogne during the

Finsider-to-ILVA Restructuring, neither

Cogne nor any other party that

subsequently owned the Aosta facility

received a countervailable benefit.

Respondent states that there is no need

for the losses of a predecessor company

to be distributed to a successor

company. CAS argues that the

Department erred in calculating a

benefit to CAS from this program

because the ‘‘losses’’ involved no

governmental transfers. CAS cites other

cases (Seamless Pipe from Italy and

OCTG from Italy) where the Department

refused to investigate alleged

assumptions on behalf of Dalmine

(another subsidiary of Finsider/ILVA)

because there was no record evidence

demonstrating that the company’s

liabilities were forgiven by the GOI.

Further, CAS argues that the facts

discovered at verification confirm that

ILVA’s possible responsibility for a part

of Deltacogne’s liabilities did not

represent debt-forgiveness on the part of

the government. CAS states that no

Deltacogne liabilities were assumed by

IRI through the restructuring process

because Deltacogne was not placed into

liquidation, but was merged into ILVA.

Petitioners argue that the

Department’s preliminary analysis with

respect to the 1989 restructuring

program understated the actual benefit

to CAS by focusing solely on losses

instead of losses and liabilities.

Petitioners argue that the Department’s

practice supports countervailing both

the coverage of losses and the

assumption/forgiveness of liabilities as

separate subsidy events. In support of

their position, Petitioners cite Electrical

Steel from Italy which involved the

same circumstances, but a different

Finsider subsidiary, Terni Acciai

Speciali S.r.l. (TAS), where the

Department countervailed both

liabilities and losses that were not

distributed to ILVA as a result of the

restructuring. Petitioners argue that the

facts discovered at verification regarding

the method through which Deltacogne

was transferred to ILVA do not change

the countervailability of Deltacogne’s

losses and liabilities that were not

distributed to Cogne S.r.l., and to do so

would elevate form over substance.

Debts left in ILVA are part of the same

program. Petitioners assert that when

assets are redistributed and liabilities/

losses are left in a shell company, there

need not be a separate government

action to show a benefit to the

continuing entity. Petitioners state that

it is the Department’s well-established

practice to find that relieving the

continuing entity of the burden of

liabilities and/or losses is a

countervailable event citing Certain

Steel from Austria, Electrical Steel from

Italy, and Steel Wire Rod from Trinidad

and Tobago. Thus, Petitioners argue that

the Department should countervail all

undistributed liabilities and losses with

respect to the 1989 restructuring and

creation of Cogne S.r.l. Petitioners state

that the transformation in corporate

form from Cogne S.r.l. to Cogne S.p.A.

shortly after the creation of the company

is important because it shows that

liabilities remained with ILVA through

this restructuring.

CAS responds that the statute requires

a determination that the government

provided a financial contribution to the

entity, which is not demonstrable in this

case. CAS also states that losses are not

countervailable subsidies.

Department’s Position: Based on the

facts discovered at verification, the

situation described in the preliminary

determination does not accurately

describe the events related to the

restructuring of Deltacogne into ILVA

and the creation of Cogne S.r.l. Thus, we

have modified our approach to this

program. As described in the ‘‘Benefits

Associated with the Restructuring of

Finsider’’ program above, our review of

the record indicates that no liabilities/

losses remained in Finsider as a result

of the restructuring of Deltacogne into

ILVA and subsequently, Cogne S.r.l.

Because of the manner in which the

operations of the Aosta facility were

transferred from Deltacogne to ILVA and

from ILVA to Cogne S.r.l., the record

evidence does not demonstrate the

extent to which all the liabilities and

losses were distributed to Cogne S.r.l.

that belonged to those operations.

Several operations were included in

Deltacogne (Aosta factory, hydroelectric

plants, Verres steel works) which were

merged into ILVA and then spun-off

into separate entities. Information

contained in the financial statements

does not demonstrate that liabilities and

losses that properly belonged to the

Aosta operations were not distributed to

Cogne S.r.l.

As the Petitioners point out, if

liabilities or losses remained in ILVA

that should have transferred to Cogne

S.r.l., we would treat that as a separate

subsidy event from the one originally

alleged and examined, which involved

the assumption of liabilities and losses

left in Deltacogne S.p.A. by the GOI

through Finsider S.p.A. See, e.g.,

Certain Steel from Austria, 58 FR at

37217.

In this respect, CAS is mistaken that

assumption of losses by the government

is not countervailable. The Department’s
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long-standing practice has been to treat

the assumption of losses as a

countervailable event because such

governmental action confers a benefit.

See e.g., Certain Steel from Austria, 58

FR at 37217 and Electrical Steel from

Italy. 59 FR at 18359. If losses are not

distributed to the new company through

a restructuring process, a benefit is

conferred upon the productive assets of

the new entity. Under Italian law, losses

must eventually be accounted for—

either offset by future profits or by a

reduction in share capital. If, however,

losses are assumed by the government

that the company otherwise would bear

responsibility for, then there is a benefit

to the new company which receives the

productive assets free of the losses

associated with previous years of

inefficient production.

Further, we disagree with CAS’s

interpretation of the statutory

requirements regarding financial

contributions. CAS apparently presumes

that the URAA reversed the

Department’s practice in this regard.

However, the SAA specifically states

that ‘‘practices countervailable under

the current law [the pre-URAA statute]

will be countervailable under the

revised statute.’’ SAA at 925. Moreover,

the definition of ‘‘financial

contribution’’ contained in section

771(5)(D) of the Act is ‘‘not intended to

be exhaustive’’ but sufficiently broad to

encompass the same types of

government actions countervailed under

the pre-URAA statute. Id. at 927. Thus,

as with the assumption of liabilities, the

assumption of losses by the government

provides the equivalent of a direct

transfer of funds that confers a benefit

which is countervailable under section

771(5) of the Act. See, e.g., Steel Wire

Rod from Trinidad and Tobago, 62 FR

at 55012.

Respondent’s reference to the

initiations of OCTG from Italy and

Seamless Pipe from Italy is without

merit because the Department’s legal

standard in initiations is fundamentally

different than that in preliminary and

final determinations. At the initiation

stage, the Department evaluates whether

the information contained in the

petition is sufficient to warrant

investigation of alleged subsidies. See

section 702(c) of the Act. Thus, a

determination at the initiation stage that

the petition contains insufficient

evidence to warrant investigation is

qualitatively different than a

determination based upon the record

evidence that there is no countervailable

benefit from a program. Nevertheless,

Respondent seems to be arguing that the

Department should determine, based on

the record evidence, that there is no

benefit to CAS from this program.

However, as discussed above, we have

examined the record evidence in this

case and determined that CAS did not

receive countervailable benefits.

Therefore, while we agree with

Petitioners that liabilities and losses left

in ILVA that were not properly

distributed to Cogne S.r.l. would

constitute countervailable benefits that

do not require a separate government

action, we cannot reasonably conclude

from the record evidence that liabilities

and losses were not distributed to Cogne

S.r.l. As such, we have found this

program to be ‘‘not used.’’

Comment 10: CAS Does Not Benefit

from Equity Infusions: CAS argues that

the equity infusions to Deltasider and

ILVA conferred no countervailable

benefit on Deltasider, Cogne, or any

other owner of the Aosta facility. CAS

states the Department’s proposed

regulations and policy establish a

rebuttable presumption that a subsidy

received by one entity will be attributed

to products only manufactured by that

entity. Countervailing Duties, Proposed

Rule, 62 FR 8818 (Feb. 26,1997) (1997

Proposed Regulations). CAS states that

any subsidies ILVA received from the

1991–1992 equity infusions should be

allocated exclusively to its

unconsolidated operations because

ILVA transferred none of that equity to

Cogne (or other subsidiaries). CAS

argues that in OCTG from Italy and

Seamless Pipe from Italy, the

Department declined to investigate

subsidies provided to ILVA S.p.A. as a

benefit to the subject merchandise in

those cases because there was no

evidence that subsidies were being

channeled through to the production of

the subject merchandise.

CAS argues further that Finsider’s

equity infusions in 1985–1986 provided

no countervailable benefits to

Deltasider, the Finsider operating

company that held the Aosta operations

during those years. CAS states that the

Department’s ‘‘holding company’’ rule,

whereby subsidies received by a holding

company are attributed to that

company’s consolidated sales, does not

apply to government-owned holding

companies such as Finsider. CAS cites

UK Lead Bar 96 and Brass Sheet and

Strip from France to support its position

that in order for a subsidy provided to

a government-owned holding company

to be attributed to the sales of its

subsidiaries, there must be a

demonstrated transfer. Further, CAS

states that Finsider transferred none of

its 1985–1986 equity infusions to

Deltasider. CAS argues that, as a general

principle, attributing a recipient’s

subsidy to an affiliated party absent

evidence of an actual financial transfer

violates standards established by

Generally Accepted Accounting

Principles that the Department must, in

general, follow. CAS further argues that

the existence of a consolidated financial

statement is irrelevant to whether a

subsidiary benefitted from a subsidy

provided to the parent company. CAS

contends that this method of attribution

could present different results to

similarly-situated subsidiary companies

if one is consolidated and one is not.

Petitioners argue that the Department

properly countervailed all instances of

equity infusions in this case. Petitioners

argue that Respondents overstate the

Department’s practice with respect to

holding companies. Petitioners state

that the Department’s rule with respect

to holding companies calls for the

attribution of the untied subsidy to the

consolidated sales, not any requirement

to demonstrate pass-through to a

particular subsidiary entity. Petitioners

state the corporate relationship between

ILVA and Cogne by itself is sufficient to

attribute a portion of the equity

infusions to Cogne. Petitioners cite the

GIA and UK Lead Bar as support that,

‘‘the Department often treats the parent

entity and its subsidiaries as one when

determining who ultimately benefits

from the subsidy.’’ GIA at 37262.

Department’s Position: In the

preliminary determination, the

Department appropriately attributed the

benefits from non-recurring untied

subsidies received by ILVA and Finsider

to the consolidated operations of the

ILVA and Finsider Groups which

included Cogne, the producer of subject

merchandise. This is consistent with the

Department’s practice that attributes

untied subsidies to the company’s total

domestically-produced sales. GIA, 58

FR at 37267. When the parent company

of a consolidated group receives untied

subsidies, such as equity infusions,

these domestic subsidies are normally

attributed to the consolidated group. See

UK Lead Bar 95, 62 FR at 53311.

We disagree that OCTG from Italy and

Seamless Pipe from Italy establish

controlling precedent for the treatment

of these equity infusions. In those cases,

the Department decided not to initiate

on alleged indirect equity infusions.

This decision not to initiate cannot be

construed as precedent for how the

Department treats untied subsidies to

parent or holding companies. Moreover,

the particular subsidies at issue in this

case, equity infusions provided to

Finsider and ILVA, were not alleged in

OCTG from Italy and Seamless Pipe

from Italy. See OCTG from Italy, 59 FR

at 37965 and Seamless Pipe from Italy,

59 FR at 37028. Respondent’s quotation
40496 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

from the initiation notices in those cases

fails to include the primary reason the

Department decided not to initiate on an

alleged ‘‘indirect’’ equity infusion into

Dalmine which involved the sale of

shares of a partially-owned Dalmine

subsidiary company to Dalmine’s

parent, ILVA. The Department found

that there was no basis for the allegation

that this acquisition of the subsidiary’s

shares constituted an ‘‘indirect’’ equity

infusion. Thus, the allegations in those

cases were substantively different than

the program under examination in this

case which involves the direct purchase

of equity by the GOI.

OCTG from Italy and Seamless Pipe

from Italy also drew a distinction

between ILVA as an operating company

and Finsider as a holding company,

which was somewhat artificial. ILVA

was both a holding company and an

operating company. The Department has

recognized that where a holding/

operating company exercises

considerable control over its

consolidated subsidiaries, the two may

be treated as one for purposes of

attributing subsidies. See, e.g., UK Lead

Bar 95, 62 FR at 53316. In these

instances, the Department has found

that a subsidy provided to one corporate

entity can bestow a countervailable

benefit upon another entity within the

corporate group. See, e.g., Steel Wire

Rod from Canada, 62 FR at 54978;

Seamless Stainless Steel Hollow

Products from Sweden, 52 FR 5794 (Feb.

26, 1987). In such circumstances, where

the parent and its subsidiaries are

treated as a single entity, and we

determine that the parent has received

subsidies not tied to production or sale

of a particular product or to sales of

products in a particular market (i.e.,

untied subsidies such as equity

infusions), the Department allocates the

benefit from such untied subsidies over

the total consolidated sales from

domestic production. See GIA, 58 FR at

37267; Final Affirmative Countervailing

Duty Determination: Certain Hot Rolled

Lead and Bismuth Carbon Steel

Products from France, 56 FR 6221,

6224–25 (Jan. 27, 1993) (France

Bismuth). Where the parent and

subsidiary are essentially one entity, it

is unnecessary to analyze whether the

parent has ‘‘passed’’ the subsidy to the

subsidiary because ‘‘a parent company

exercises control over the capital

structure and commercial activities of

its consolidated subsidiaries.’’ UK Lead

Bar 95, 62 FR at 53311.

Only in the limited circumstances

where we determined that there is an

insufficient identity of interests between

the parent and the subsidiary to warrant

treating the entities as one, do we not

follow this general practice concerning

attribution of untied subsidies. See, e.g.,

Ferrosilicon from Venezuela, 58 FR at

27542. In this case, however, Finsider

was a government-owned holding

company that held steel producing

companies. An equity infusion into

Finsider, a holding company with no

operations of its own, clearly benefitted

the steel production of its subsidiaries.

Finsider existed solely to manage the

government-owned steel production

companies. Thus, there is a clear

identity of interest between Finsider

and its subsidiaries, including the CAS

predecessor companies, which makes it

appropriate to attribute the equity

infusions to the consolidated holdings

of the Finsider Group. See, e.g., Steel

Wire Rod from Canada, 62 FR at 54978.

The same identity of interest existed

between ILVA and its consolidated

subsidiaries. Thus, the record evidence

supports attributing benefits received

from equity infusions to the

consolidated group holdings of the

Finsider Group and the ILVA Group,

and no demonstration that untied

benefits passed through to the

consolidated subsidiaries is required.

CAS also misconstrues the

Department’s practice with respect to

government-owned holding companies.

As Petitioners correctly point out, the

Department has often attributed untied

subsidies provided to a holding

company to the consolidated holdings

of the company even where the holding

company is government-owned. See,

e.g., Steel Wire Rod from Canada, 62 FR

at 54978; France Bismuth, 58 FR at

6224–25. One exception to this rule is

if the holding company was found to be

merely a conduit for channeling the

subsidy to a particular subsidiary, in

which case the entire subsidy would be

attributed to the subsidiary. See, e.g.,

Final Affirmative Countervailing Duty

Investigation: Certain Carbon Steel

Products from Austria, 50 FR 33369

(Aug. 19, 1985). Thus, the Department

normally presumes that the untied

subsidy benefits the consolidated

operations. The Department does not

draw a distinction between private and

government-owned holding companies

that share an identity or commonality of

interest (e.g., are steel producers). On

this point, we note that our statements

in UK Lead Bar 96 concerning

attribution of subsidies between

government-owned holding companies

and their related subsidiaries do not

require a separate analysis for

government-owned holding companies,

as CAS advocates. UK Lead Bar 96

should not be construed as establishing

a separate test for determining how

subsidies provided to governmentowned holding companies should be

attributed, but rather as a response to a

distinction drawn by the Respondent in

UK Lead Bar 96 concerning our analysis

in Ferrosilicon from Venezuela, which

involves the ‘‘identity of interests’’

concept outlined above. See UK Lead

Bar 96, 63 FR at 18373. As the case law

discussed above demonstrates, the

Department’s past attribution practice

has made no distinction based solely on

the government ownership of the

holding company.

We also disagree with CAS that this

policy violates GAAP. As discussed in

the Accounting Research Bulletin,

provided by CAS in support of its

argument, a single enterprise may be

organized either as one corporation with

branches and divisions, or as a parent

company and subsidiaries. The

Accounting Research Bulletin goes on to

explain that consolidated financial

statements recognize that ‘‘* * *

boundaries between separate corporate

entities must be ignored to report the

business carried on by a group of

affiliated corporations as the economic

and financial whole that it is.’’ See CAS

April 9, 1998 submission at A3. If a

subsidiary is consolidated with the

parent company for financial reporting

purposes, normally it is because the

parent holds more than 50 percent of

the shares in that company and

exercises control over its operations.

There are legitimate business reasons

why certain subsidiaries are

consolidated and certain others are not.

The examination of consolidated

operations is appropriate in the

Department’s attribution practice,

because it is at this level that a private

investor (in the case of an equity

infusion) or private lender (in the case

of a loan) would normally conduct its

analysis of whether an investment in the

holding/parent company is a viable risk.

As stated in the Accounting Research

Bulletin, ‘‘[t]hose who invest in the

parent company * * * invest in the

whole group, which constitutes the

enterprise that is a potential source of

cash flow to them as a result of their

investment.’’ Id. In this way, the

consolidated companies are tied

together and may be appropriately

treated as one for purposes of attributing

untied subsidies provided to the

holding company, including a parent

company with its own operations.

Attributing untied subsidies provided

to the parent/holding company to the

consolidated holdings does not imply a

determination of which corporate entity

in a group owns specific assets.

Attributing untied subsidies provided to

the parent/holding company to the
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40497

consolidated holdings of the corporate

group merely assigns the benefit on a

pro rata basis across all operations.

We agree that the existence of

consolidated financial statements is not

the only factor to be considered in

determining the proper attribution of an

untied subsidy provided to the parent

company of a corporate group. For

instance, we discussed above instances

where a subsidy is channeled through a

holding company to a particular

subsidiary entity, in which case the

subsidy would not automatically be

attributed to the entire group. In

addition, if there is an insufficient

identity of interest among the corporate

group, the Department will consider

these facts and determine whether it is

appropriate to attribute subsidies to the

consolidated group holdings, such as in

Ferrosilicon from Venezuela. The

Department will consider other facts

relevant to our determination including

whether there have been massive and

complicated restructurings, in which

case we may attribute untied subsidies

on an alternative basis other than

consolidated sales where appropriate.

However, absent that type of fact

pattern, it is appropriate to find that the

untied subsidy to the holding/parent

company benefitted all of its operations

including its consolidated operations.

CAS’s concern that this policy results in

inequitable results for consolidated and

non-consolidated subsidiaries is

misplaced because the appropriate

attribution of subsidies is based on the

specific facts in a particular case. UK

Lead Bar 96, 63 FR at 18372.

In this investigation, the Cogne

subsidiary companies (the predecessor

companies of CAS) were always

consolidated with the parent and there

are no facts to demonstrate that the

equity infusions were channeled to a

particular subsidiary (including a Cogne

company). Thus, we find that the equity

infusions to ILVA and Finsider

benefitted all of their consolidated

production including, on a pro rata

basis, production of subject

merchandise. To determine the benefit

to CAS, we used the methodology

described in the ‘‘Change in

Ownership’’ section above.

Comment 11: Assumption of Cogne’s

Liabilities: CAS argues that the

assumption of Cogne’s liabilities at the

time CAS was privatized provided no

financial contribution or other

countervailable benefit to CAS. CAS

argues that Cogne and CAS were

separately incorporated entities that

maintained separate financial records

and did not exchange assets ‘‘without

restriction.’’ Further, CAS argues that

the GOI’s ultimate responsibility for any

portion of Cogne’s liabilities arose by

operation of a generally applicable

provision of Italian law and not as a

result of a Governmental decision. CAS

argues that Italian law makes all parent

companies responsible for the debts of

their wholly-owned subsidiaries. CAS

argues that since this provision of

Italian law governs all companies, any

debt coverage provided to Cogne in

connection with the liquidation is not

specific.

CAS also argues that the Department’s

methodology in the preliminary

determination overstated any benefit by

failing to account for the value of

several substantial and bona fide assets

including inventories, current assets,

and bank deposits that remained on

Cogne S.p.A. in Liquidazione’s books as

of CAS’s privatization. Respondent

argues that there is no reason to subtract

some, but not all of the assets from the

calculation of net liabilities, citing Steel

Wire Rod from Trinidad and Tobago.

Further, CAS argues that losses are not

countervailable benefits.

Petitioners argue that the

Department’s preliminary determination

with respect to this program understated

the actual benefit to CAS by focusing

solely on losses instead of losses and

liabilities. Petitioners argue that the

Department’s practice supports

countervailing both the coverage of

losses and the assumption/forgiveness

of liabilities as separate subsidy events.

Petitioners argue that, if the Department

adjusts the liabilities and losses for the

assets that remained in the books of

Cogne S.p.A., certain assets including

the receivables from CAS should not be

counted.

Department’s Position: The

Department properly countervailed

benefits provided in connection with

the privatization of CAS in the

preliminary determination. Before CAS

was privatized, its holdings and those of

its parent company, Cogne S.p.A., were

reorganized, so that Cogne S.p.A.

contributed most of the assets and the

responsibility for continued operations

to CAS, while retaining most of the

liabilities. Cogne S.p.A. was placed into

liquidation, and was eventually

absorbed into ILVA in Liquidazione.

However, we have revised our

methodology with respect to the

calculation of this benefit for this final

determination based upon facts

discovered at verification. In the

preliminary determination, we

subtracted the book value of the land

and buildings from Cogne S.p.A.’s total

liabilities and treated the difference,

approximately 411 billion lire, as the

amount of liabilities ILVA assumed

through this process. However, former

ILVA officials reported at verification

that the most appropriate figure

reflecting the cost of the liabilities/

losses remaining in Cogne S.p.A. at the

time of CAS’s privatization was reported

on ILVA S.p.A. in Liquidazione’s 1993

financial statement. This figure, a 253

billion lire fund established to cover

liabilities and losses associated with

Cogne S.p.A.’s liquidation, represents

the total cost incurred by ILVA at that

time. The cost to ILVA reflects the value

of the liabilities and losses which were

assumed by the GOI as part of the

privatization process, and as such,

constitute the benefit to CAS in

connection with its privatization, and

the liquidation of Cogne S.p.A. as of

year-end 1993. The assumption of the

liabilities/losses by ILVA and the GOI

through this process constitutes a

benefit to CAS because it was relieved

of financial obligations for which it

would otherwise have been liable. Using

this figure also removes the problem of

which assets and liabilities should be

included in the calculation of the net

liability as of year-end 1993, and

whether losses should also be included

in the calculation. Accordingly, the

interested parties’ arguments concerning

the specific assets and liabilities that

should be included in the calculation of

the benefit are moot. Notwithstanding

this change in our calculation, we

continue to find that the assumption

and/or coverage of liabilities and losses

are countervailable subsidies. As we

explained in the Department’s Position

on Comment 9 above, the assumption of

losses provides the equivalent of a

direct transfer of funds that confers a

benefit, which is countervailable under

section 771(5) of the Act.

We agree with CAS’s statement that

assets and liabilities did not flow

without restriction between Cogne and

CAS. The companies were separately

incorporated. Once the capital

contribution was made at the end of

1992, nearly all of the productive assets

of Cogne were transferred to CAS in

exchange for shares and CAS assumed

the production activities from that date.

The transfers between the two

companies after that date were made at

book value. By the end, CAS held all

assets with value. However, we note

that this fact is not particularly relevant

to whether or not a subsidy was

provided in connection with the

privatization of CAS and liquidation of

Cogne because our finding is based on

the total amount that ILVA and the GOI

was forced to cover as of the time of

privatization and is not connected to

individual transfers between the two

companies.
40498 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

We do not find CAS’s argument

pertaining to the sole shareholder

provision of Italian law persuasive. The

liquidation of Cogne S.p.A., including

the debt forgiveness/coverage that was

provided, was done in the context of a

massive restructuring/privatization plan

undertaken by the GOI and approved

and monitored by the EU. The costs of

the liquidation of Cogne S.p.A. were

included in the total aid package

approved, for some 10 trillion lire.

Thus, the benefits were provided in the

context of a massive state-aid package

designed to allow the GOI to rationalize

and privatize its steel holdings. CAS

mischaracterizes the liquidation of

Cogne S.p.A. as the normal application

of a provision of Italian law. As Cogne

S.p.A.’s liquidation was part of this

extensive state-aid package, the record

evidence demonstrates that the

liquidation is not a normal occurrence.

Finally, CAS’s argument assumes that if

a private company owned Cogne S.p.A.,

it would have allowed the company’s

financial condition to deteriorate to the

level it did. This argument is without

merit. There is no basis for concluding

that a private owner would have

allowed such an unprofitable

operation—one that the EU recognized

as uneconomical in 1989—to continue

operating for so long. See GOI December

2, 1997, questionnaire response, public

version on file in the CRU. This

determination is consistent with our

past practice, see, e.g., Steel Wire Rod

from Trinidad and Tobago.

Comment 12: Cogne’s Liquidation

Extinguishes Prior Subsidies: CAS

argues that Cogne’s liquidation

extinguished all pre-1993 subsidies

otherwise attributable to CAS. CAS

states that its shares were sold to private

investors in the course of the liquidation

proceeding, and it is the Department’s

long-established practice to consider

that any bankruptcy-type proceeding

extinguishes all pre-bankruptcy

subsidies, citing Certain Stainless Steel

Products from Spain 47 FR 51453 (Nov.

15, 1982) (Stainless Steel Products from

Spain) in which benefits provided prior

to a receivership plan were found to be

extinguished; Certain Textile Mill

Products and Apparel from Colombia,

52 FR 13272 (April 22, 1987) (Apparel

from Colombia) in which the

suspension of interest payment

obligations on loans was found not to be

a subsidy because it was done through

bankruptcy laws; Salmon from Norway,

56 FR 7675 (Feb. 25, 1991) in which

principal/interest suspensions and loan

write offs occurred through bankruptcy

proceedings and were not found to be

subsidies; Pads for Woodwind

Instrument Keys from Italy, 49 FR 17791

(April 25, 1984) (Instrument Key Pads

from Italy) in which a provincial

program that allowed companies to

recover from bankruptcy was found not

to be specific. CAS also cites OCTG

from Canada, 51 FR 15037 (April 22,

1986) where the Department found that

subsidies that were provided to one

company did not pass through to the

purchaser of that company’s assets. CAS

argues that the Department’s practice

with respect to bankruptcy-type

proceedings does not require that the

operation be closed in order for the preexisting subsidies to be extinguished.

CAS argues that this position would be

inconsistent with commercial

considerations and contrary to the

intent of the countervailing duty law

because it would require operations to

be closed in order for subsidies to be

extinguished when an on-going

operation can normally obtain a higher

return on its sale.

Petitioners argue that the liquidation

of Cogne S.p.A. is not relevant to the

Department’s determination of whether

or not there is a subsidy. Petitioners

argue that the sale of the CAS shares did

not arise out of the liquidation

proceeding, but was a premeditated

decision by the GOI to continue the

operation of the facility. Petitioners

argue that the GOI did not try to get the

best possible price for the shares as the

real price was the net value of the

company minus the restructuring fund,

and that the GOI actually paid the new

owners to purchase the company.

Petitioners further argue that the

analysis provided by Respondents

related to bankruptcy proceedings

relates solely to subsidies provided in

the context of a bankruptcy proceeding.

Petitioners state that to find no subsidy

benefits to the new company would

invite circumvention of the

countervailing duty law because

governments could simply create new

entities and leave the debts in the old

companies. Petitioners cite German

Wire Rod to support their position that

the Department has determined that

bankruptcy proceedings do not impact

previously bestowed subsidies if

unaffected through the bankruptcy

process.

Department’s Position: We agree with

Petitioners that the facts related to the

liquidation of Cogne S.p.A. are not

relevant to our determination as to the

existence and continuation of benefits

from previously bestowed subsidies. As

discussed below, we find no factual

distinctions which render our standard

privatization methodology

inappropriate. Moreover, the cases

which CAS cites are distinguishable

from the facts surrounding CAS’s

privatization and do not reflect a policy

with respect to the forgiveness of debt

provided to a government-owned

company.

In Apparel from Colombia, Stainless

Steel Products from Spain and Salmon

from Norway, the Department found

that the forgiveness of obligations or

beneficial repayment terms were not

countervailable because the forgiveness

was done through a bankruptcy

proceeding in which the government

acted in a manner consistent with

commercial banks. In those cases, the

benefit at issue was provided through

the bankruptcy proceeding itself. See

Apparel from Colombia, 52 FR at 13277;

Stainless Steel Products from Spain, 47

FR at 51442, and Salmon from Norway,

56 FR at 7685. In Instrument Key Pads

from Italy, the issue before the

Department was the specificity of a

government program which provided

financing to firms facing financial

difficulties. The existence of the

bankruptcy proceeding did not lead to

the noncountervailability finding, but

rather the Department determined that

the law in question was not limited to

an enterprise or industry or group of

enterprises or industries. Instrument

Key Pads from Italy, 49 FR at 17793–94.

Despite these factual distinctions, to

the extent that the Department’s

analysis in these cases may be

interpreted as finding the bankruptcy

proceedings as extinguishing prior

subsidies, that interpretation is

inapplicable to this investigation. In

OCTG from Canada, the Department

noted the arm’s length nature of the

change in ownership transaction. OCTG

from Canada, 51 FR at 15042. In Certain

Steel Products from Spain, the

Department suggested that prereceivership benefits were extinguished

when these debts became consolidated

in the bankruptcy proceeding. Certain

Steel Products from Spain, 47 FR at

51443. However, in adopting the current

privatization methodology, the

Department specifically disavowed any

prior decisions in conflict with its

revised approach. The Department

stated: ‘‘[t]o the extent that the approach

adopted here arguably is inconsistent

with prior decisions, such decisions are

superseded by our conclusions here.’’

GIA, 58 FR at 47263. Thus, these pre1993 cases are not controlling precedent

on the Department’s current

privatization methodology, which does

not find extinguishment based upon

bankruptcy proceedings. See, e.g.,

German Wire Rod, 62 FR at 54992.

None of these case precedents require

a determination by the Department that

the liquidation proceeding extinguished
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40499

subsidies or prevented subsidies from

being passed through to CAS. In this

investigation we are not examining an

instance of bankruptcy laws providing

beneficial repayment terms to the

company or whether the government

was acting as a commercial entity as

was the case in the first three cases.

Although Cogne S.p.A. could not have

covered its obligations on its own, the

company was not placed into

bankruptcy, but into liquidation.

Further, none of the payment terms/

obligations were reduced as a result of

the liquidation process—they were

simply assumed by ILVA and later the

GOI. In addition, specificity, which was

the issue in Instrument Key Pads from

Italy, is not an issue in the instant

investigation. The debt forgiveness

provided to CAS was part of a 10 trillion

lire state aid package for the liquidation

and privatization of the governmentowned steel companies in Italy.

Further, OCTG from Canada involved

the sale of physical assets at an

appraised value, not the sale of an ongoing concern. CAS argues that the

purchasers of CAS bought only assets

from Cogne S.p.A., not Cogne S.p.A.

itself. While it is true that they did not

purchase Cogne S.p.A. itself, what they

got was even better—all of the

productive assets of Cogne S.p.A.

(which had been transferred to CAS),

and very little of the company’s

extensive debt and loss burden. At no

time did operations cease, they were

simply transferred from one company to

another. Thus, this is not the case of

pieces of equipment being auctioned to

the highest bidder—CAS was sold as an

on-going concern with all of the

productive assets and few of the

liabilities and losses associated with

that operation.

In addition, the other cases cited by

CAS involved whether the actions of the

government provided a countervailable

subsidy. In Certain Stainless Products

from Spain, one Respondent went into

bankruptcy, a receivership plan was

agreed to by the court, and the

company’s creditors established

payment terms for the company’s debt.

The company’s debt was comprised of

loans from suppliers, short- and longterm debt from commercial banks and

short-term loans provided by the

government. Thus, in agreeing to the

court approved debt restructuring plan,

the government was acting in the same

manner as commercial bankers and

suppliers. We further noted in that case

that the short-term loans provided to the

company by the government would

have been paid off within a year of their

issuance but for the declaration of

bankruptcy. Similarly in Salmon from

Norway, the issue was the actions taken

by the government with respect to

outstanding loan payments due them

from commercial fish farmers. For fish

farmers facing financial difficulties, the

government deferred interest and

principal payments. When it became

apparent that the loans would never be

repaid, the government initiated a legal

proceeding to declare the company

bankrupt and to seize the company’s

assets. These assets were sold at a

public auction and losses which could

not be recovered were then written off.

We found that these actions by the

government were not countervailable

because the government did not act ‘‘in

a manner inconsistent with commercial

considerations.’’

Thus, the cases cited by CAS fail to

support CAS’s argument that Cogne’s

liquidation extinguished its pre-1993

subsidies. We further note that the cases

cited by CAS address government

actions with respect to private not

government-owned companies. Facts

which may be present with respect to

bankruptcies of government-owned

companies raise issues that are not

present in the bankruptcies of private

companies. For example, in the instant

investigation, an Italian commercial

banker stated that in the event that a

government-owned company is unable

to service its loan payments, it is

assumed that the government will

intervene and make the remaining

payments. See Commercial Experts

Report at 3. In addition, during our

verification of the CAS response, we

asked the bankruptcy consultant hired

by CAS whether he was aware of any

actual bankruptcy or liquidation of a

state-owned company where creditors

were left without full repayment by the

government. The consultant stated that

he was not aware of any such instances.

See CAS Verification Report at 9. Thus,

the record evidence in this case

indicates that the treatment of bankrupt

private companies does not provide an

appropriate basis for the treatment of

bankrupt government-owned companies

or for bankruptcies where the

government has interfered. Therefore,

even if the cases cited by CAS were

relevant to its debt forgiveness and

privatization, those cases would not

govern the Department’s analysis of the

issues present in this investigation

because those cases failed to address the

unique circumstances of a bankrupt

government-owned company or a

company operating in an environment

where a government has interfered in

normal commercial banking operations.

Comment 13: Privatization

Extinguishes Subsidies: CAS argues that

its 1993 privatization also extinguished

all pre-privatization subsidies. CAS

states that the Department must

consider the specific circumstances of

CAS’s privatization in determinating

whether pre-existing subsidies survived

the privatization. CAS states that the

transfer of a productive unit to CAS by

Cogne at its full appraised value

extinguished pre-existing subsidies.

CAS argues that the Court’s rationale in

Inland Steel Bar Co. v. United States,

960 F. Supp. 307 (CIT 1997) (Inland

Steel) requires a finding that there is no

pass through in this case, when a

company transfers a productive unit

because a subsidy may only be received

by a legal entity. CAS further states that

Cogne achieved not only an arm’s length

price in the privatization of CAS, but

the best possible price, as required by

the EU rules on privatization. CAS

states that it was sold for the best

possible price and, thus, received no

competitive benefit from the

transaction.

CAS argues that the attribution of preprivatization subsidies to CAS would

violate the Department’s obligation to

allocate non-recurring subsidies over a

‘‘reasonable period’’ based on the

‘‘subsidy’s commercial and competitive

benefit.’’ CAS states that the only

‘‘reasonable period’’ for allocation

would end in 1993 because of the

privatization of the company. CAS

states that by allocating through the

AUL method, the Department

recognizes that allocation is like

depreciation, and thus must be

discontinued when an operation is

closed or abandoned. CAS further

argues that Congress imposed no single,

inflexible formula on the Department’s

allocation of non-recurring subsidies,

and that it would be unreasonable and

arbitrary to allocate benefits over the

average useful life of CAS’s assets

because it receives no commercial or

competitive benefit from preprivatization subsidies.

CAS claims that a policy mandating

no extinguishment of pre-privatization

subsidies would produce inconsistent

and absurd results and compares the

Department’s practice with respect to

upstream subsidies to privatization to

demonstrate this point. CAS

hypothesizes two scenarios, one in

which an input is purchased for the best

possible price from a third party in

which an upstream analysis would find

no subsidy and one in which the input

is purchased from a privatization, in

which the subsidy would pass through.

CAS states that for that reason, the

conclusions of the privatization analysis

are absurd.

Petitioners argue that CAS’s

arguments merely demonstrate that the
40500 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

company was sold at arms-length,

which does not require the Department

to find that no subsidies passed through

the privatization.

Department’s Position: We agree with

Petitioners. CAS’s argument merely

attempts to demonstrate that the sale of

the company was done at arm’s length,

which does not demonstrate that

previous subsidies were extinguished.

Section 771(5)(F) of the Act states that

the change in ownership of the

productive assets of a foreign enterprise

does not require an automatic finding of

no pass through even if accomplished

through an arm’s length transaction. The

SAA directs the Department to exercise

its discretion in determining whether a

privatization eliminates prior subsidies

by considering the particular facts of

each case. SAA at 928. In this instance,

consistent with the statute and SAA, we

have examined the facts of this case and

determined it is appropriate to allocate

subsidies to CAS using the Department’s

standard privatization formula.

First, CAS draws an artificial

distinction between the ‘‘best possible

price’’ and the ‘‘arm’s length’’ price. The

commercial nature of an arm’s length

transaction would almost always require

that the best possible price be paid

because the seller has no incentive to

accept anything less. Nonetheless, the

record evidence does not support CAS’s

statement that it was sold for ‘‘the best

possible price.’’ Although CAS was sold

pursuant to an open bidding procedure

that involved several bidders and

multiple rounds of offers, the record

demonstrates that the purchase price

was not the focus of negotiations; all

bidders agreed to pay the net worth of

the firm. The actual linchpin of the sale

was the value of the restructuring fund

the purchaser would receive upon

buying CAS’s productive assets. (Given

the proprietary nature of the bidding

documents, the specific details

surrounding the negotiations for the sale

of CAS cannot be addressed in this

public notice). The restructuring fund

was necessary because of the company’s

history of poor performance. Thus, we

find no distinguishing facts surrounding

CAS’s purchase price to render

application of the Department’s

standard methodology inappropriate.

We also note that we have appealed the

decision to the Federal Circuit.

Therefore, Inland Steel does not

mandate a finding of no pass through in

this investigation. Rather, we continue

to follow the methodology upheld by

the Federal Circuit in Saarstahl and

British Steel.

Second, we disagree with CAS’s

arguments concerning the AUL period

and privatization for several reasons.

There is no inconsistency between the

AUL period and the allocation of

subsidies that passed through to CAS.

The AUL represents a reasonable period

of years over which a non-recurring

subsidy benefits production. As we

explained in the GIA, ‘‘the length of the

benefit stream is not determined by how

the subsidy is used.’’ GIA, 58 FR at

37229. Altering the AUL period based

on either use or change in ownership of

the productive assets would be

tantamount to tracing the effect of the

non-recurring subsidy which is clearly

not required by the CVD law. See

section 771(5)(C) of the Act. Altering the

AUL period to account for a change in

ownership would result in an automatic

finding of no pass through contrary to

section 771(5)(F) of the Act, the SAA,

and practice.

Third, CAS argues that the use of an

allocation period is similar to

depreciation and thus must end when

enterprises are discontinued or

abandoned. CAS never permanently

ceased operations. The sale of an ongoing concern is not similar to

discarding a piece of equipment. CAS

attempts to draw a parallel between

depreciating an asset that is abandoned

and the allocation of a subsidy through

a change in ownership where a parallel

simply does not exist. We note that

there are no facts on the record of this

case that would demonstrate that the

allocation period we have chosen is

unreasonable.

Finally, CAS’s argument comparing

the Department’s privatization and

upstream subsidy practices disregards

the distinct analyses performed under

these methodologies. An upstream

subsidy analysis concerns subsidies

provided to an input which is

incorporated into a downstream

product. The Department is seeking to

determine whether the subsidy

provided to the input can be attributable

to the production of the subject

merchandise. See 771A of the Act. In

the privatization analysis, the

Department has already made a

determination that the subject

merchandise itself has benefitted from

countervailable subsidies, and the

Department is seeking to determine

whether subsidies previously bestowed

to the production of the subject

merchandise pass through to the new

owner.

The Department does not trace the

competitive benefit of subsidies

provided to subject merchandise. See

771(C) of the Act, GIA 58 FR at 37260–

61. However, the competitive benefit

analysis performed under the upstream

subsidy analysis is a narrow exception

mandated by the statute, which codifies

the Department’s chosen methodology

to address the particular factual

circumstances of subsidized inputs used

in the production of the subject

merchandise. Given the distinct factual

circumstances addressed by the

privatization and upstream subsidy

analyses, we see no reason to change

our established privatization practice

which is consistent with the statute, the

We also disagree with CAS that this

policy violates GAAP. As discussed in

the Accounting Research Bulletin,

provided by CAS in support of its

argument, a single enterprise may be

organized either as one corporation with

branches and divisions, or as a parent

company and subsidiaries. The

Accounting Research Bulletin goes on to

explain that consolidated financial

statements recognize that ‘‘* * *

boundaries between separate corporate

entities must be ignored to report the

business carried on by a group of

affiliated corporations as the economic

and financial whole that it is.’’ See CAS

April 9, 1998 submission at A3. If a

subsidiary is consolidated with the

parent company for financial reporting

purposes, normally it is because the

parent holds more than 50 percent of

the shares in that company and

exercises control over its operations. If

a parent company prepares consolidated

financial statements, there are legitimate

reasons why certain subsidiaries are

consolidated and certain are not—i.e.,

level of participation and control in the

subsidiary. The examination of

consolidated operations is appropriate

in the Department’s attribution practice,

because it is at this level that a private

investor (in the case of an equity

infusion) or private lender (in the case

of a loan) would normally conduct its

analysis of whether an investment in the

holding/parent company is a viable risk.

As stated in the Accounting Research

Bulletin, ‘‘[t]hose who invest in the

parent company * * * invest in the

whole group which constitutes the

enterprise that is a potential source of

cash flow to them as a result of their

investment.’’ Id. In this way, the

consolidated companies are tied

together and may be appropriately

treated as one for purposes of attributing

untied subsidies provided to the

holding company, including a parent

company with its own operations. SAA,

and has been upheld by the Federal

Circuit on two occasions. See, e.g.,

Saarstahl AG v. United States, 78 F.3d

1539 (Fed. Cir. 1996); British Steel plc

v. United States, 127 F.3d 1471 (Fed.

Cir. 1997).

Comment 14: Restructuring Fund

Provided to CAS is a Subsidy:
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40501

Petitioners argue that the restructuring

fund given to CAS as part of the 1993

pre-privatization aid program provided

an additional countervailable benefit

that should be reflected in the final

analysis. Petitioners contend that the

fact that the negotiations for the sale of

the company centered on how large the

restructuring fund would be shows that

it was necessary to ‘‘sweeten the pot’’ in

order to sell the company. Further,

Petitioners contend that even if

commercial companies may sometimes

provide this type of restructuring fund

in order to sell a subsidiary company,

the provision of such a fund by a

government entity remains a

countervailable subsidy. Petitioners

state that the purpose of the fund was

to sell the newly-created company by

covering bad will, not to reduce the

liabilities left in Cogne S.p.A., and is

therefore, a separate subsidy event.

CAS states that the restructuring fund

conferred no separate, countervailable

benefit to the new company. CAS cites

OCTG from Canada where the

Department decided that special

financing arrangements were consistent

with commercial considerations because

it allowed the government to recover

some of the owed funds. CAS states that

the restructuring fund is similar to a

special financing arrangement and that

private companies might provide this

type of fund because it would be

cheaper than the costs that would be

incurred closing the facility. CAS states

that the restructuring fund allowed for

the best possible price for the sale of the

shares, and thus was consistent with

commercial considerations.

Department’s Position: We are not

countervailing the restructuring fund as

a separate subsidy event because the

amount of the restructuring fund was

included in the benefit from the preprivatization assistance and debt

forgiveness program discussed above.

While our calculation of the benefit

from that program has changed slightly

from what was used in the preliminary

determination, it represents the total

cost associated with the liquidation of

Cogne as of year-end 1993. That cost

was made up, in large part, of the

liabilities in Cogne S.p.A. in

Liquidazione as of that date, which

included the cost of the restructuring

fund. If Cogne S.p.A. had not given CAS

a restructuring fund, the costs

associated with its liquidation would

have been approximately 148 billion

lire, instead of the 253 billion that

included the restructuring fund. Thus,

the restructuring fund has been

appropriately captured in calculating

the benefit provided at the time of the

privatization of CAS. Because the

benefit from the pre-privatization

assistance and debt forgiveness program

includes any benefit provided by the

restructuring fund, there is no need to

examine the restructuring fund

separately.

Comment 15: Price Paid for CAS

Should be Adjusted: Petitioners argue

that the price paid for CAS in 1993

should be reduced by the amount

deducted from the purchase price for

environmental damage when factored

into the privatization calculation.

CAS argues that the deduction was

the result of an obligation Cogne S.p.A.

had with respect to clean up of the site

that it did not carry out. This obligation

was spelled out in the March 17, 1994,

contract which also specified that CAS

would receive a 2 billion lire payment

to cover these costs in the event that

Cogne S.p.A. did not undertake the

clean up. Thus, the amount was

deducted from the subsequent payments

of the purchase price.

Department’s Position: We disagree

with Petitioners. We do not consider

this post-sale agreement between CAS

and ILVA relevant to the determination

of the actual purchase price paid for the

company, which was agreed upon in the

March 7, 1994 contract and is the price

factored into the privatization

calculation. The information on the

record indicates that this 2 billion lire

payment was for an obligation not

related to the purchase price. This

obligation and payment were agreed to

March 17, 1994, after the date of the

sales contract. Therefore, we have not

made an adjustment for purposes of this

final determination.

Comment 16: Specificity of CAS Lease

and Adjustment for Extraordinary

Maintenance: CAS argues that the Aosta

lease is not specific within the meaning

of the law. CAS states that the Region’s

rental terms are generally available and

have been used by numerous other

entities. Further, CAS argues that the

rental terms provided to other entities

are the same or better than those

provided to CAS.

CAS also argues that the Department

overstated the benefit to CAS from the

lease. CAS argues that in determining

whether CAS received a countervailable

benefit, the Department should consider

the lease and provincial loans to be one

program, and compare the benchmark

rates to the sum of CAS’s base rent,

interest, and payments, plus its cost of

extraordinary maintenance expenses

and the extraordinary cost of moving its

plant to the premises subject to the

lease. CAS further states that there is no

evidence on the record that would

support a finding that the lease confers

a countervailable benefit on CAS.

Petitioners argue that verification

confirms the Department’s preliminary

finding that the CAS lease provides a

countervailable benefit. Petitioners

further argue that the Department’s

benchmark for evaluating the rate of

return on the investment understates the

actual benefit to CAS and that the

Department, instead, should use the

interest rate for a long-term loan in

calculating the benefit. Petitioners argue

that the Department should not make an

adjustment for extraordinary

maintenance costs in measuring the

benefit from the lease. Petitioners also

argue that the transfer loans and lease

should be treated as separate programs

as they were provided under separate

laws. Petitioners also state that the 30-

year length of the lease is unusual based

on the facts of the record.

CAS counters that the size of the

property is irrelevant to the

determination of whether the lease

provides a subsidy. Further, CAS argues

that the 30-year term of the lease is also

irrelevant in the determination of

whether the lease provides a subsidy.

CAS states that the fact that the regional

government is interested in promoting

employment has no relevance in the

determination of whether the lease

provides a countervailable benefit. CAS

further argues that the maximum rate of

return benchmark that the Department

may use in evaluating whether the lease

provides a benefit is the 5.7 percent

figure suggested by the real estate

analysts. Respondent argues that the 5.7

percent rate is lower than that of

commercial lending rates because of the

effect of inflation on property values.

CAS also states that Petitioners’

statement that the facts demonstrate that

it would be ‘‘unusual’’ for a landlord to

pay for extraordinary maintenance is

inaccurate because this assignment of

obligation is required by law.

Department’s Position: We agree with

Respondent, in part, and Petitioners, in

part. The Department has recognized

that where the government holds many

leases with different parties, the terms

of the lease must be analyzed to

determine whether the lease is specific

within the meaning of the Act. See

German Wire Rod, 62 FR at 54994 and

Steel Wire Rod from Trinidad and

Tobago, 62 FR at 55008. The CAS lease

has a different length, different terms,

and the property is of a much larger size

than other leases with the Region.

Further, the CAS lease is contractually

different than the other leases because it

is between Structure and CAS instead of

being held directly by the Region. The

lease was the subject of almost year-long

negotiations between the two parties

and reflects the individual needs of each
40502 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

party in this particular landlord-tenant

relationship. These specific

circumstances demonstrate that the CAS

lease is distinguishable from other

leases negotiated and entered into by

the Region. Contrary to CAS’s

arguments otherwise, the size of the

property and the length of the lease are

significant factors in determining

whether the lease was selectively

provided to CAS. On this basis, we

determine that the terms of this lease are

unique to CAS, which makes the

provision of the CAS lease specific

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

We agree with Petitioners that it is

inappropriate to consider the lease and

loans as a single program, because the

measures were authorized under

separate laws. Thus, CAS’s suggested

methodology of comparing the

benchmark to the sum of CAS’s rent,

interest and payments for the loan, cost

of extraordinary maintenance, and cost

of moving the plant is inappropriate.

Thus, we have examined the lease and

loan programs separately.

As discussed above, we do not

consider the loan to be an indemnity.

The Region and CAS agreed from the

beginning, as evidenced by the

Protocols of Agreement, that CAS would

move its property. Thus, we must only

consider whether the provision of the

loan is specific and whether it provides

a benefit within the meaning of the Act.

Accounting for CAS’s moving expenses

would contravene the Department’s

long-standing policy of not examining

the subsequent use or effect of

subsidies. This policy is articulated at

the GIA at 37261, ‘‘[i]n practice this

means, for example, if a government

were to provide a specific producer with

a smokestack scrubber in order to

reduce air pollution, the Department

would countervail the amount that the

company would have had to pay on the

market, notwithstanding that the

scrubber may actually reduce the

company’s output or raise its cost of

production.’’ Thus, we also have not

included the expenses incurred from

relocating the plant in the calculation of

the benefit from the loan.

We have not included the cost of

extraordinary maintenance in the

calculation of the benefit from the lease.

Petitioners and Respondent have both

provided arguments as to whether the

record evidence shows that the

assignment of the extraordinary

maintenance obligation to the tenant is

unusual or usual, respectively.

However, the record evidence

demonstrates that the assignment of

terms such as extraordinary

maintenance is negotiable under Italian

law. In a commercial transaction, the

long-term cost of extraordinary

maintenance would be factored into the

negotiated rate. The selected

benchmark, the average rate of return,

accounts for such particularities in the

negotiated rate.

As discussed in the lease section

above, we have modified our calculation

of the benchmark from the preliminary

determination. Based on information

collected at verification from a

commercial real estate company, we

believe that the appropriate rate of

return is 5.7 percent. We consider this

rate to reflect an average rate of return

for leases of different sizes, lengths,

terms, and locations in Italy. As such, it

is a fair reflection of the normal

commercial value and does not require

highly complex and speculative

adjustments for maintenance,

depreciation, or increased land values

over time. Thus, we disagree with

Petitioners that we should use a longterm commercial loan rate to calculate

the benefit.

We agree with Respondents that the

5.7 percent figure is the maximum rate

of return benchmark appropriate for this

calculation without undertaking

complex and speculative adjustments.

However, we disagree that the record

contains no evidence that would

support a finding that the lease confers

a countervailable benefit to CAS. We

verified that in Italy the commercial

practice with respect to maintenance

terms is negotiable and that the average

rate of return is 5.7 percent. We

compared the rate of return on the CAS

lease (3.5 percent) to the average rate of

return in Italy and calculated the benefit

based on the difference.

In sum, in our review of the terms of

the lease, we found that the Region’s

interest is different from that of

commercial landlords. We compared the

rate of return under the lease to the

average rate of return on commercial

leased property and found that the

Region of Valle d’Aosta leases the

property for less than adequate

remuneration. We also found that the

lease is specific within the meaning of

the Act. Therefore, we found that the

lease provides a countervailable subsidy

to CAS.

Comment 17: Benefit from Waste

Plant: Petitioners argue that CAS is

receiving a benefit from the waste plant.

Petitioners contend that the waste plant

will be completed in a matter of months.

Petitioners state that CAS is incurring

costs for waste disposal and there is no

evidence that CAS is actually paying

them. Thus, a service is being provided

by the regional government free of

charge. CAS states that the waste plant

provides no benefit to CAS because

construction has not even begun and the

plant is not operational. Further, CAS

states that it pays for its own waste

storage in the interim, and has received

no funds from the Region to date for that

purpose.

Department’s Position: We agree with

CAS. The Department verified that this

program does not yet exist because the

Region has not yet started construction

of the waste plant, and therefore, CAS

is not benefitting from the provision of

waste disposal services. CAS has not

received any payments from the Region

for waste disposal. Therefore, there is no

benefit during the POI. However, in the

event this investigation results in a

countervailing duty order we will

continue to review this allegation in any

subsequent administrative review to

determine whether a benefit is provided

to CAS through the provision of waste

disposal services for less than adequate

remuneration.

Comment 18: Program Discovered at

Verification: Petitioners argue that the

Department should countervail

assistance received by CAS under law

10/91 because CAS did not report the

receipt of benefits under this law in the

questionnaire responses and the

Department should use ‘‘facts

available.’’ Petitioners also argue that

even if the Department does not rely on

‘‘facts available’’ to make a

determination, the law is specific

because it limits assistance to large

consumers of electricity who are few in

number.

CAS argues that the law is available

to companies in many different

industries and that the company did not

report the program because it did not

meet the definition of countervailable

subsidy.

Department’s Position: The

Department discovered the existence of

this program during verification and

determined that there was insufficient

time to consider the countervailability

of the program for this final

determination. Therefore, pursuant to

section 351.311(c) of the Department’s

regulations, we are deferring

examination of Law 10/91. If the

Commission’s injury determination is

affirmative and this investigation

becomes an order and an administrative

review is requested, we will examine

this law during the course of that

segment of the proceeding to determine

whether the program is countervailable.

Comment 19: Countervailability of

Law 227/77: Valbruna/Bolzano argues

that export loans given under Law 227/

77 are covered by an OECD agreement

which requires that export credits be

provided at market conditions. Further,

Valbruna/Bolzano states that the
Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices 40503

European Council expanded the

applicability of the OECD guidelines to

export credits with terms between 18

and 24 months. Thus, Respondent

argues that the fixed interest rate

provided under the program does not

represent a countervailable subsidy.

Valbruna/Bolzano states that the

allowable rate under the program is a

monthly average interbank interest rate

published by the GOI and is thus a

market rate. If the Department finds a

countervailable benefit, the calculation

of the benefit should be based on the

spread above the interbank rate.

Valbruna/Bolzano states that it normally

pays LIBOR plus a spread for short term

loans and we should compare the rate

provided under the program to the rate

plus the normal spread in order to

calculate the benefit. Further

Respondent argues that there is no other

benefit besides the lack of a commercial

spread and that the details of the

agreement between the Mediocredito

and San Paolo Bank do not benefit

Valbruna.

Petitioners argue that the

Department’s preliminary determination

correctly determined that the program is

countervailable and correctly

determined the benefit. Petitioners state

that the Department’s finding was based

on the fact that the applicant must have

obtained the loan before applying to the

Mediocredito for the interest

contribution which was confirmed at

verification. Thus, the Department must

continue to treat the interest

contributions as grants.

Department’s Response: We agree, in

part, with Petitioners. The OECD

Guidelines apply to export credits with

terms of two years or more. The Valmix

loan under which the Mediocredito

made interest contributions has a term

of 18 months and thus, does not fall

under the OECD Guidelines. Therefore,

we need not examine the applicability

of the item (k) exemption. See Carbon

Steel Products from Austria, 50 FR at

33374. Our review of the European

Council’s decision cited by CAS

indicates that this decision

implemented the OECD Guidelines in

1992 but does not support the

Respondent’s claim that the decision

extended the Guidelines’ applicability

to 18-month loans. On this basis, we

continue to find that interest

contributions made under Law 227/77

are countervailable.

At verification, we learned that it was

understood by all parties that the

Valmix application for assistance under

the program would be approved at the

time that the contract between Valmix

and the commercial bank was signed.

Therefore, in accordance with the

Department’s practice, we consider the

interest contributions to provide

reduced-rate loans. See, e.g., Certain

Steel from Italy, 58 FR at 37332.

However, the GOI explained that in the

event that the application was rejected,

then the company would become

responsible for the full rate guaranteed

to the commercial bank. Valbruna’s

claim that the contract does not specify

these terms is not persuasive. The

payment arrangement between the

lending bank and the Mediocredito

provided a benefit to Valmix because,

absent approval of the application,

Valmix would be responsible for the full

rate guaranteed to the commercial bank.

See GOI Questionnaire Response dated

February 13, 1998, public version on file

in the CRU. Respondent’s claim that this

arrangement is merely a management

decision by the Mediocredito is

unpersuasive because these interest

contributions are the incentives

provided under Law 227/77 to offset the

buyer’s cost of credit in export financing

arrangements. Thus, Valmix receives the

benefit of a fixed, low-interest rate loan

because the commercial lender is

guaranteed payments for any shortfall

between the fixed rate and the variable

market rate.

We agree with Respondent that the

interest contributions should be treated

as loans. However, we disagree with

Respondent’s proposal that this benefit

should be measured based upon the

difference between Valbruna’s payments

under the loan and the spread above the

interbank rate. In the absence of the

Mediocredito’s intervention, Valbruna

would be responsible for the full

variable rate to the commercial bank.

Thus, we compared what Valmix paid

under the fixed program rate and what

it would have paid for the loan absent

the interest contributions and found that

the program provided a countervailable

benefit.

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 the

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

public version form in the CRU.

Suspension of Liquidation

In accordance with section

705(c)(1)(B)(i) of the Act, we have

calculated an 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.

In accordance with our affirmative

preliminary determination, we

instructed the U.S. Customs Service to

suspend liquidation of all entries of

SSWR which were entered, or

withdrawn from warehouse, for

consumption on or after January 7,

1998, the date of the publication of our

preliminary determination in the

Federal Register. In accordance with

section 703(d) of the Act, we instructed

the U.S. Customs Service to terminate

the suspension of liquidation for

merchandise entered on or after May 7,

1998, but to continue the suspension of

liquidation of entries made between

January 7, 1998, and May 6, 1998. We

will reinstate suspension of liquidation

under section 706(a) of the Act if the

ITC issues a final affirmative injury

determination, and will require a cash

deposit of estimated countervailing

duties for such entries of merchandise

in the amounts indicated below. If the

ITC determines that material injury, or

threat of material injury, does not exist,

this proceeding will be terminated and

all estimated duties deposited or

securities posted as a result of the

suspension of liquidation will be

refunded or canceled:

AD VALOREM RATE

Producer/exporter

Net subsidy

rate (percent)

CAS ........................................... 22.2

Valbruna/Bolzano ...................... 1.28

All Others .................................. 13.85

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 non-proprietary

information related to this investigation.

We will allow the ITC access to all

privileged and business proprietary

information in our field 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

Deputy Assistant Secretary for AD/CVD

Enforcement, Group II. If the ITC

determines that material injury, or

threat of material injury, does not exists,

these proceedings will be terminated

and all estimated duties deposited or

securities posted as a result of the
40504 Federal Register / Vol. 63, No. 145 /Wednesday, July 29, 1998 / Notices

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.

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: July 20, 1998.

Joseph A. Spetrini,

Acting Assistant Secretary for Import

Administration.

[FR Doc. 98–20015 Filed 7–28–98; 8:45 am]

BILLING CODE 3510–DS–P

DEPARTMENT OF COMMERCE

National Institute of Standards and

Technology

Judges Panel of the Malcolm Baldrige

National Quality Award

AGENCY: National Institute of Standards

and Technology, Department of

Commerce.

ACTION: Notice of closed meeting.

SUMMARY: Pursuant to the Federal

Advisory Committee Act, 5 U.S.C. app.

2, notice is hereby given that there will

be a closed meeting of the Judges Panel

of the Malcolm Baldrige National

Quality Award on Tuesday, August 11,

1998. The Judges Panel is composed of

nine members prominent in the field of

quality management and appointed by

the Secretary of Commerce. The purpose

of this meeting is to review the stage I

process and selection of applicants for

the consensus stage of the evaluation.

The applications under review contain

trade secrets and proprietary

commercial information submitted to

the Government in confidence.

DATES: The meeting will convene

August 11, 1998, at 8:00 a.m. and

adjourn at 5:00 p.m. on August 11, 1998.

The entire meeting will be closed.

ADDRESSES: The meeting will be held at

the National Institute of Standards and

Technology, Administrative Building,

Gaithersburg, Maryland 20899.

FOR FURTHER INFORMATION CONTACT:

Dr. Harry Hertz, Director, National

Quality Program, National Institute of

Standards and Technology,

Gaithersburg, Maryland 20899,

telephone number (301) 975–2361.

SUPPLEMENTARY INFORMATION: The

Assistant Secretary for Administration,

with the concurrence of the General

Counsel, formally determined on May

22, 1998, that the meeting of the Judges

Panel will be closed pursuant to Section

10(d) of the Federal Advisory

Committee Act, 5 U.S.C. app. 2, as

amended by Section 5(c) of the

Government in the Sunshine Act, Pub.

L. 94–409. The meeting which involves

examination of records and discussion

of Award applicant data, may be closed

to the public in accordance with Section

552(c)(4) of Title 5, United States Code,

since the meeting is likely to disclose

trade secrets and commercial or

financial information obtained from a

person and privileged or confidential.

Dated: July 23, 1998.

Robert E. Hebner,

Acting Deputy Director.

[FR Doc. 98–20252 Filed 7–28–98; 8:45 am]

BILLING CODE 3510–13–M

DEPARTMENT OF COMMERCE

National Institute of Standards and

Technology

Announcement of a Meeting to

Discuss an Opportunity To Join a

Cooperative Research and

Development Consortium on Sprinkler

System Performance Prediction

AGENCY: National Institute of Standards

and Technology, Commerce.

ACTION: Notice of public meeting.

SUMMARY: The National Institute of

Standards and Technology (NIST)

invites interested parties to attend a

meeting on September 1, 1998 to

discuss the possibility of setting up a

cooperative research consortium on

Sprinkler System Performance

Prediction. The goal of the consortium

is to produce with industrial partners a

fire simulation system capable of

quantifying the performance of existing

and planned fire sprinkler systems in

industrial spaces.

DATES: The meeting will take place on

September 1, 1998 at 9:00 a.m.

Interested parties should contact NIST

to confirm their interest at the address,

telephone number or FAX number

shown below.

ADDRESSES: The meeting will take place

in Polymers Building (224), Room B245,

National Institute of Standards and

Technology, Gaithersburg, MD 20899–

0001.

FOR FURTHER INFORMATION CONTACT:

Dr. Glenn P. Forney, Chemistry Building

(222), Room A255, National Institute of

Standards and Technology,

Gaithersburg, MD 20899–0001.

Telephone: 301–975–2313; FAX: 301–

975–4052; e-mail: gforney@nist.gov.

SUPPLEMENTARY INFORMATION: Any

program undertaken will be within the

scope and confines of The Federal

Technology Transfer Act of 1986 (Public

Law 99–502, 15 U.S.C. 3710a), which

provides federal laboratories including

NIST, with the authority to enter into

cooperative research agreements with

qualified parties. Under this law, NIST

may contribute personnel, equipment,

and facilities but no funds to the

cooperative research program. This is

not a grant program.

The R&D staff of each industrial

partner in the Consortium will be able

to interact with NIST researchers to

produce with industrial partners a fire

simulation system capable of

quantifying the performance of existing

and planned fire sprinkler systems in

industrial spaces. The system consists of

a computational firm model, sprinkler

hardware measurements, and methods

to exchange input data and calculated

results to facilitate its use by industry.

Dated: July 23, 1998.

Robert E. Hebner,

Acting Deputy Director.

[FR Doc. 98–20251 Filed 7–28–98; 8:45 am]

BILLING CODE 3510–13–M

DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric

Administration

[I.D. 041598A]

Taking and Importing of Marine

Mammals; Offshore Seismic Activities

in the Beaufort Sea

AGENCY: National Marine Fisheries

Service (NMFS), National Oceanic and

Atmospheric Administration (NOAA),

Commerce.

ACTION: Notice of withdrawal of an

application for an incidental harassment

authorization.

SUMMARY: On July 6, 1998, NMFS was

notified by BP Exploration (Alaska)

(BPXA) that BPXA would not be

conducting seismic surveys for oil and

gas exploration in the U.S. Beaufort Sea

during the 1998 open-water season. As

a result, BPXA has requested NMFS to

withdraw its application for an

incidental harassment authorization

under the Marine Mammal Protection

Act (MMPA) and, by this document,

NMFS is noting that withdrawal.