[Federal Register Volume 63, Number 145 (Wednesday, July 29, 1998)]
[Notices]
[Pages 40474-40504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20015]


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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subject merchandise entered or withdrawn from warehouse for consumption 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 hot-
rolling, annealing, and/or pickling and/or descaling, and are normally 
sold in coiled form, and are of solid cross-section. The majority of 
SSWR sold in the United States is round in cross-sectional 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.

[[Page 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 non-productive 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.

[[Page 40476]]

    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 
Hot-Rolled 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 subsidies-to-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-to-private 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

[[Page 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 non-renewable 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.

[[Page 40478]]

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 pre-privatization 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

[[Page 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 GOI-owned 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

[[Page 40480]]

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

[[Page 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 market-based. 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 thirty-year 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.

[[Page 40482]]

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 eighteen-month 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

[[Page 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 one-third 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 on-going 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

[[Page 40484]]

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 Bolzano-Valbruna 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 Bolzano-Valbruna/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

[[Page 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

[[Page 40486]]

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 semi-annual 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

[[Page 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

[[Page 40488]]

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 Non-Countervailable

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-to-ILVA 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

[[Page 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 per-square 
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

[[Page 40490]]

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 market-based 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 two-year 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 clean-up 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

[[Page 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

[[Page 40492]]

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-to-private 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

[[Page 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

[[Page 40494]]

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

[[Page 40495]]

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

[[Page 40496]]

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 government-owned 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

[[Page 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.

[[Page 40498]]

    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 pre-existing 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 pre-
receivership 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 pre-1993 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

[[Page 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 government-owned steel companies in Italy.
    Further, OCTG from Canada involved the sale of physical assets at 
an appraised value, not the sale of an on-going 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 
long-term 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 pre-privatization 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 pre-privatization 
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

[[Page 40500]]

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 on-
going 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:

[[Page 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 pre-
privatization 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

[[Page 40502]]

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 long-term 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

[[Page 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                            
------------------------------------------------------------------------
                                                             Net subsidy
                     Producer/exporter                           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 non-privileged 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

[[Page 40504]]

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