[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30288-30309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14734]




[[Page 30287]]


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Part II





Department of Commerce





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International Trade Administration



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Final Affirmative Countervailing Duty Determination and Final 
Determination of Sales at Less Than Fair Value: Certain Pasta From 
Italy and Turkey; Notices

Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / 
Notices

[[Page 30288]]



DEPARTMENT OF COMMERCE

International Trade Administration
[C-475-819]


Final Affirmative Countervailing Duty Determination: Certain 
Pasta (``Pasta'') From Italy

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

EFFECTIVE DATE: June 14, 1996.

FOR FURTHER INFORMATION CONTACT: Jennifer Yeske, Vincent Kane, Todd 
Hansen, or Cynthia Thirumalai, Office of Countervailing Investigations, 
Import Administration, U.S. Department of Commerce, Room 3099, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone 
(202) 482-0189, 482-2815, 482-1276, or 482-4087, respectively.

FINAL DETERMINATION: The Department of Commerce (``the Department'') 
determines that countervailable subsidies are being provided to 
manufacturers, producers, or exporters of pasta in Italy. 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 October 17, 1995 (60 FR 53739), the following events 
have occurred:
    On October 21, 1995, we aligned the date of our final determination 
with the date of the final determination in the companion antidumping 
duty investigation of certain pasta from Italy (60 FR 54847, October 
26, 1995). Subsequently, the final determinations in the antidumping 
and countervailing duty investigations were postponed until June 3, 
1996 (61 FR 1346, January 13, 1996).
    We conducted verification of the countervailing duty questionnaire 
responses from October 26 through November 11, 1995.
    Three parties, Liguori Pastificio dal 1820, S.p.A, F.lli De Cecco 
di Filippo Fara S. Martino S.p.A. (``De Cecco''), and Pastificio 
Fratelli Pagani S.p.A (``Pagani''), made untimely submissions 
containing factual information. These submissions were returned on 
January 29, 1996, March 22, 1996, and April 12, 1996, respectively.
    On February 14, 1996, 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 (61 FR 3672, February 
1, 1996) (see, Suspension of Liquidation section, below).
    Petitioners and respondents filed case briefs on April 2-4 and 
rebuttal briefs on April 10-11, 1996. A public hearing was held on 
April 15, 1996.

Scope of Investigation

    The merchandise under investigation consists of certain non-egg dry 
pasta in packages of five pounds (or 2.27 kilograms) or less, whether 
or not enriched or fortified or containing milk or other optional 
ingredients such as chopped vegetables, vegetable purees, milk, gluten, 
diastases, vitamins, coloring and flavorings, and up to two percent egg 
white. The pasta covered by this scope is typically sold in the retail 
market, in fiberboard or cardboard cartons or polyethylene or 
polypropylene bags, of varying dimensions.
    Excluded from the scope of this investigation are refrigerated, 
frozen, or canned pastas, as well as all forms of egg pasta, with the 
exception of non-egg dry pasta containing up to two percent egg white. 
Also excluded are imports of organic pasta from Italy that are 
accompanied by the appropriate certificate issued by the Associazione 
Marchigiana Agricultura Biologica (``AMAB'').
    The merchandise under investigation is currently classifiable under 
items 1902.19.20 of the Harmonized Tariff Schedule of the United States 
(``HTSUS''). Although the HTSUS subheadings are provided for 
convenience and customs purposes, our written description of the scope 
of this investigation is dispositive.

Exclusion for Certain Organic Pasta

    On October 2, 1995, a U.S. importer of Italian pasta requested that 
the Department exclude from the scope of this investigation and the 
companion antidumping duty investigation pasta certified to be 
``organic pasta'' in compliance with European Economic Community 
(``EC'') Regulation No. 2092/91. This regulation sets forth a regime of 
standards for the cultivation, processing, storage, and transportation 
of organic foodstuffs with inspections of farms and processing plants 
by EC-approved national certification authorities. In addition to the 
description of the EC regime, the request included a copy of a sample 
certificate issued by the AMAB and a description, in English, of the 
AMAB organization.
    On November 9, 1995, petitioners stated that they were willing to 
modify the scope of the petition and the investigation to exclude 
certified organic pasta of Italian origin if U.S. imports of such pasta 
were accompanied by certificates issued pursuant to EC Regulation No. 
2092/91.
    On November 21, we requested additional data on the EC regulation 
from the Section of Agriculture of the Delegation of the European 
Commission of the European Union. On December 8, 1995, the European 
Commission submitted responses to our inquiries. The information 
included a list of seven Italian inspection and certification 
authorities (of which AMAB was one) and the statement that EC 
Regulation No. 2092/91 ``* * * does not provide for certification of 
products intended for export to third countries.'' Although the 
Department was not able to fashion an exclusion of organic pasta from 
the scope of these investigations in the preliminary determination of 
the companion antidumping duty investigation, the Department stated 
that if certification procedures similar to those under the EC 
regulation were established for exports to the United States, we would 
consider an exclusion for organic pasta at that time.
    On April 2, 1996, the importer that had originally requested the 
exclusion submitted a letter attaching a copy of a decree, with a 
translation into English, of the Italian Ministry of Agriculture and 
Forestry authorizing AMAB to certify foodstuffs as organic for the 
implementation of EC Regulation 2092/91. On April 30, 1996, this 
importer forwarded letters (with accompanying translations into 
English) from the Director General of the Italian Ministry of 
Agriculture and Forestry and from the Director of AMAB. The letter from 
the Ministry states that it has authorized AMAB to insure compliance 
with organic farming methods and to issue organic certificates since 
December of 1992. The letter from the Director of AMAB states that this 
organization will take responsibility for its organic pasta 
certificates and will supply any necessary documentation to U.S. 
authorities. On this basis, we are able to exclude--and do exclude--
imports of organic pasta from Italy that are accompanied by the 
appropriate certificate issued by AMAB from the scope of these 
investigations.

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act effective January 1, 1995 (the 
``Act''). References to Countervailing Duties: Notice of Proposed 
Rulemaking and Request for Public Comments, (54 FR 23366, May

[[Page 30289]]

31, 1989) (``Proposed Regulations''), which have been withdrawn, are 
provided solely for further explanation of the Department's 
countervailing duty practice.

Petitioners

    The petition in this investigation was filed by Borden, Inc., 
Hershey Foods Corp., and Gooch Foods, Inc.

Respondents

    Respondent companies in this investigation are Agritalia, S.r.l. 
(``Agritalia''); Arrighi S.p.A. Industrie Alimentari (``Arrighi''); 
Barilla G. e R. F.lli S.p.A. (``Barilla''); Pastificio Campano, S.p.A. 
(``Campano''); F.lli De Cecco di Filippo Fara S. Martino S.p.A.; Molino 
e Pastificio De Cecco S.p.A. Pescara (``Pescara''); De Matteis 
Agroalimentare S.p.A. (``De Matteis''); La Molisana Alimentari S.p.A. 
(``La Molisana''); Delverde, S.r.l. (``Delverde''); Gruppo Agricoltura 
Sana S.r.L. (``Gruppo''); Pastificio Guido Ferrara (``Guido Ferrara''); 
Industria Alimentare Colavita, S.p.A. (``Indalco''); Isola del Grano 
S.r.L. (``Isola''); Italpast S.p.A. (``Italpast''); Italpasta S.r.L. 
(``Italpasta''); Labor S.r.l. (``Labor''); Pastificio Riscossa F.lli 
Mastromauro S.r.l. (``Riscossa''); and Tamma Industrie Alimentari di 
Capitanata (``Tamma'') .

Period of Investigation

    The period for which we are measuring subsidies (the ``POI'') is 
calendar year 1994.

Subsidies Valuation Information

    Benchmarks for Long-term Loans and Discount Rates: With the 
exception of Barilla, the companies under investigation did not take 
out any long-term, fixed-rate, lira-denominated loans or other debt 
obligations which could be used as benchmarks in any of the years in 
which grants were received or government loans under investigation were 
given. Therefore, we used the Bank of Italy reference rate, adjusted 
upward to reflect the mark-up an Italian bank would charge a corporate 
customer, as the benchmark interest rate for long-term loans and as the 
discount rate. The methodology used to adjust the reference rate was 
described in our preliminary determination.
    In the case of Barilla, the company reported and we verified that 
it had secured fixed-rate obligations during two years of the relevant 
period. Therefore, in accordance with section 355.49(b)(2) of the 
Proposed Regulations, we used this company-specific benchmark as the 
discount rate for Barilla in those years.
    Allocation Period: Non-recurring benefits are being allocated over 
a 12-year period, the average useful life of physically renewable 
assets in the food processing industry (as reported in the Internal 
Revenue Service Asset Depreciation Range System).
    Benefits to Mills: Several companies under investigation produce 
pasta using semolina sourced either internally or from affiliated 
mills. In our preliminary determination, we concluded that subsidies to 
the production of semolina, a primary input in the manufacture of 
pasta, were properly analyzed under the upstream subsidy provision of 
the Act (Section 771A).
    Petitioners claim that the upstream subsidy provision is applicable 
only when the producer of the subject merchandise purchases the input 
product from an unrelated company. Petitioners assert that where the 
input producer is affiliated with the producer of the subject 
merchandise, production is sufficiently integrated that benefits 
bestowed upon the manufacture of the input product will necessarily 
flow down to the production of the subject merchandise. Petitioners 
have not made an upstream subsidy allegation.
    Respondents argue that because semolina is an ``input product,'' 
subsidies to the production of semolina are correctly examined under 
the upstream subsidy provision of the statute. Respondents contend that 
the language in the upstream subsidy provision of the statute expressly 
defines ``upstream subsidies'' in terms of input products and makes no 
distinction between purchases from related or unrelated suppliers.
    A thorough examination of the Department's past practice reveals a 
clear precedent for applying the upstream subsidy provision for 
subsidies to the input product where the producer of the input product 
is separately incorporated from the producer of the subject 
merchandise, regardless of whether the two companies are affiliated 
(see, e.g., Final Affirmative Countervailing Duty Determination: 
Certain Oil Country Tubular Goods from Austria (60 FR 33534) and 
Initiation of Countervailing Duty Investigation; Converted Paper-
related School and Office Supplies from Mexico (49 FR 58347, 58348)). 
However, in two cases where the input product and the subject 
merchandise are produced within a single corporate entity, the 
Department has found that subsidies to the input product benefit total 
sales of the corporation, including sales of the subject merchandise, 
without conducting an upstream subsidy analysis (see, e.g., Final 
Affirmative Countervailing Duty Determination: Certain Softwood Lumber 
Products from Canada (``Lumber'') (57 FR 22570) and Final Affirmative 
Countervailing Duty Determination: Industrial Phosphoric Acid from 
Israel (52 FR 25447)).
    Therefore, in accordance with our past practice, where the 
companies under investigation purchase their semolina from a separately 
incorporated company, whether or not they are affiliated, we have not 
included subsidies to the mill in our calculations. However, for those 
companies where the mill is not incorporated separately from the 
producer of the subject merchandise, we have included subsidies for the 
milling operations in our calculations. Where appropriate, we have also 
included sales of semolina in calculating the ad valorem rate.

Changes in Ownership

    We noted in our preliminary determination that one of the companies 
under investigation, Delverde, purchased an existing pasta factory from 
an unrelated party. Additionally, Indalco and De Matteis experienced 
changes in ownership, and Barilla purchased an existing pasta producer. 
With the exception of De Matteis, the previous owners of the purchased 
enterprises or factories had received non-recurring countervailable 
subsidies prior to the transfer of ownership and during the period 
1983-1994.
    For our preliminary determination, we calculated the amount of 
those prior subsidies that passed through to Delverde with the 
acquisition of the factory, following the methodology described in the 
Restructuring section of the General Issues Appendix in Final 
Affirmative Countervailing Duty Determination: Certain Steel Products 
from Austria (58 FR 37217, 37268-69) (``General Issues Appendix''). At 
the time of our preliminary determination, we did not have the 
information needed to perform this calculation with respect to Indalco 
and Barilla.
    We noted in our preliminary determination that aspects of the 
General Issues Appendix methodology were being reviewed by the Court of 
Appeals for the Federal Circuit (``CAFC''), and that we would re-
examine whether the General Issues Appendix methodology is appropriate 
for change of ownership transactions in light of facts developed in the 
final investigation, ongoing litigation, and section 771(5)(F) of the 
Act.
    Since the time of our preliminary determination, the CAFC has 
issued a ruling supporting our determination in those cases that 
subsidies were not

[[Page 30290]]

necessarily extinguished as a result of the sale of an enterprise in an 
arm's length transaction. Litigation, however, continues with regard to 
certain aspects of our methodology.
    For our final determination we have continued to follow the General 
Issues Appendix Methodology and applied it to each of the respondents 
involved in a change of ownership. We note that Barilla did not provide 
the information necessary to analyze Barilla's acquisition of an 
existing pasta producer. Without this information we cannot estimate 
the portion of the purchase price that can reasonably be attributed to 
prior subsidies. Therefore, we have treated all previously bestowed 
subsidies as having passed through to the purchaser.

Related Parties

    In the present investigation, we have examined several affiliated 
companies (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 sufficiently related 
where one company owns 20 percent or more of the other company, or 
where companies prepare consolidated financial statements. The 
Department also stated that companies may be considered sufficiently 
related where there are common directors or one company performs 
services for the other company. According to the questionnaire, such 
companies that produce the subject merchandise or that have engaged in 
certain financial transactions with the company under investigation are 
required to respond.
    In accordance with this practice, we have determined that the 
following companies warrant treatment as a single company with a 
combined rate: Delverde and Tamma, Arrighi and Italpasta, De Cecco and 
Pescara, and De Matteis and Demaservice S.r.L. (``Demaservice'').
    In our preliminary determination, we stated that Tamma held less 
than a 20 percent ownership interest in the Delverde group. However, 
upon reconsideration of the facts of their relationship, we have 
concluded that the relationship between Tamma and the Delverde group is 
substantially greater than 20 percent. We reach this conclusion by 
aggregating the ownership interests of Tamma and Tamma Service, S.r.L, 
which is appropriate given their relationship. In addition, the same 
individual is the president of Tamma, Delverde, and Delverde's parent 
company. Therefore, we have calculated a single countervailing duty 
rate for these companies by dividing their combined subsidy benefits by 
their combined sales.
    In the cases of Arrighi and its affiliated producer, Italpasta, and 
De Cecco and its affiliated producer, Pescara, we have found that the 
respondents and their respective affiliates should be treated as a 
single company based on the extent of common ownership. Therefore, we 
have calculated a combined rate for Arrighi and Italpasta using the 
methodology described above. For De Cecco and Pescara, because De Cecco 
failed to provide subsidy information regarding Pescara, we have 
calculated a combined rate using facts available, as described in the 
Facts Available section of this notice.
    As was noted in our preliminary determination, De Matteis is 
related to another company, Demaservice, through common ownership. 
Verification confirmed that while Demaservice does not produce the 
subject merchandise, it is deeply involved in the operations of De 
Matteis. Therefore, we have calculated a single countervailing duty 
rate for the two companies as described above.

Facts Available

    Section 776(a)(2)(A) of the Act requires the Department to use 
facts available if ``an interested party or any other person * * * 
withholds information that has been requested by the administering 
authority or the Commission under this title.'' Two of the companies 
selected to provide responses in this investigation, Italpast and 
Labor, did not respond to our countervailing duty questionnaire. 
Section 776(b) of the Act permits the administering authority to use an 
inference that is adverse to the interests of the non-responding party 
in selecting from among the facts otherwise available. Such adverse 
inference may include reliance on information derived from: (1) the 
petition, (2) a final determination in the investigation under this 
title, (3) any previous review under section 751 or determination under 
section 753 regarding the country under consideration, or (4) any other 
information placed on the record. Because the petition did not include 
subsidy rates, we were unable to use the petition as a source for facts 
available.
    In the absence of verified data concerning benefits received by 
Italpast and Labor during the POI, we have determined that rates based 
on record data obtained from similarly situated firms constitute the 
most appropriate data available. Therefore, we have used the sum of the 
highest rates calculated for each program used by any of the companies 
as the facts available for Italpast and Labor.
    In addition, we have determined that the final margin percentage 
for Isola and its affiliated producer, Alce Nero, should also be based 
on adverse facts available. At verification, Isola, a producer of 
organic pasta, was unable to support the completeness and accuracy of 
its response to our questionnaire. In particular, Isola did not 
demonstrate that all grants received during the period 1983-1991 were 
reported because it did not provide us with company records for that 
time. We also found unreported grants during 1992-1994, the period for 
which we were able to examine company records. In addition, Isola did 
not report receiving reduced-rate loans; however, at verification we 
found that during the POI it did have outstanding reduced-rate loans. 
Therefore, lacking verified data concerning benefits received by Isola, 
we have based its subsidy margin on adverse facts available, applying 
the sum of the highest rates calculated for each program for respondent 
companies.
    Finally, De Cecco failed to include in the related parties section 
of its questionnaire response information concerning Pescara, a related 
producer of subject merchandise. We have determined that the 
relationship between Pescara and De Cecco warrants treating them as one 
company, as described in the Related Parties section of this notice. 
After verification, De Cecco attempted to submit information into the 
record of this investigation concerning Pescara. This information was 
returned, however, as it was not filed in a timely manner. We retained 
information on the record concerning the relationship of the companies 
and the value and volume of sales made by Pescara during the POI.
    We have determined that De Cecco's failure to provide a complete 
response to the Department's countervailing duty questionnaire calls 
for the use of facts available under section 776(a)(2) and (b) of the 
Act. We have applied facts available with adverse inferences with 
respect to the sales of Pescara relative to the combined sales of 
Pescara and De Cecco, adjusted to eliminate intercompany transactions. 
Specifically, we calculated an amount of subsidies for each program by 
multiplying the highest calculated rate for any of the responding 
companies by Pescara's sales, and then adding this amount to De Cecco's 
subsidies under that program. This combined amount was

[[Page 30291]]

then divided by the companies' combined adjusted sales data to 
calculate the ad valorem rate for De Cecco and Pescara.
    Based upon our analysis of the petition and the responses to our 
questionnaire, we determine the following:

Claims for ``Green Light'' Subsidy Treatment

    Section 771(5B) of the Act describes subsidies that are non-
countervailable, the so-called ``green light'' subsidies. Among these 
are subsidies to disadvantaged regions. The GOI and the EC have 
requested that certain of their regional subsidies be considered non-
countervailable under the green light provisions of section 771(5B).
    In its initial response, the EC requested green light treatment for 
the regional aspects of the Structural Funds it administers (i.e., the 
European Regional Development Fund (``ERDF''), the European Social Fund 
(``ESF''), and the European Agricultural Guidance and Guarantee Fund 
(``EAGGF'')). However, the EC also claimed that no companies under 
investigation had received assistance under the ESF or the EAGGF 
programs, and for this reason, the EC only responded to the green light 
section of our questionnaire with respect to the ERDF program. We have 
since learned that two companies did, in fact, receive assistance under 
the ESF program.
    Each of the Structural Funds was established with a different 
purpose. The ERDF is tasked with helping to redress the main regional 
imbalances in the Community by assisting in the development and 
structural adjustment of underdeveloped regions and to help in the 
conversion of declining industrial regions. The ESF was set up to 
improve the employment opportunities for workers and to help raise 
their living standards. The EAGGF assists in financing national 
agricultural aid schemes and in developing and diversifying the EC's 
rural areas.
    The EC has established five priority objectives which govern the 
operation of the Structural Funds:
    Objective 1: To promote the development and structural adjustment 
of the regions whose development is lagging behind;
    Objective 2: To convert regions seriously affected by industrial 
decline;
    Objective 3: To combat long-term unemployment;
    Objective 4: To facilitate the occupational integration of young 
people;
    Objective 5(a): To speed up the adjustment of agricultural 
structures; and
    Objective 5(b): To promote the development of rural areas.
    In a submission made in connection with consultations held on March 
11, 1996, the EC restated its claim that all regional aspects of the 
Structural Funds merit green light treatment. In this submission, the 
EC argued that green light status should not be analyzed separately for 
each of the Structural Funds. Instead, the EC argued that each 
Structural Fund ``objective'' should be treated as a program for green 
light purposes. In other words, the EC focuses on the three regional 
objectives under the Structural Funds, i.e., Objective 1, Objective 2, 
and Objective 5(b). The EC considers the operation of Objective 1 under 
the ERDF, the ESF, and the EAGGF as a distinct and separate aid 
program, the operation of Objective 2 under the ERDF and the ESF as 
another distinct and separate aid program, and the operation of 
Objective 5 (b) under the ERDF, the ESF, and the EAGGF as yet another 
distinct and separate aid program.
    With respect to the ESF grants bestowed on the companies under 
investigation, we do not have the information necessary to make a 
determination on whether this assistance is entitled to green light 
status. The EC opted not to provide a response to the green light 
questionnaire for the ESF. Moreover, there is no evidence on the record 
of this case regarding the particular objectives under which the ESF 
aid in question was granted.
    The only ERDF assistance received by a company under investigation 
was granted under Objective 2 of the Structural Funds because the 
company was located in a declining industrial region. According to EC 
regulation, regions of a certain size which satisfy the following three 
criteria may be entitled to Objective 2 status:
    (a) the average rate of unemployment recorded over a period of 
three years must be above the Community average;
    (b) the percentage share of industrial employment to total 
employment must have equaled or exceeded the Community average; and
    (c) there must have been an observable fall in industrial 
employment.
In addition, other types of regions may be accorded Objective 2 status 
in certain circumstances. These include smaller, adjacent areas that 
satisfy the above three criteria, areas defined by sectoral problems, 
and urban areas with serious unemployment or certain other problems.
    According to section 771(5B)(C) of the Act, in order for a subsidy 
to be non-actionable it must have been provided pursuant to a general 
framework of regional development, within which regions must be 
considered disadvantaged on the basis of neutral and objective 
criteria. These neutral and objective criteria must contain a measure 
of economic development which is based on either a per capita income 
that does not exceed 85 percent of the national average (in this case 
the EC average) or an unemployment rate that is at least 110 percent of 
the national average (also the EC average).
    Regardless of whether we treat the ERDF itself as the relevant 
program or adopt the EC's objective-by-objective approach, we find that 
the assistance is not entitled to green light treatment. The Objective 
2 criteria, described above, do include the level of unemployment; 
however, by requiring unemployment only to exceed the Community 
average, the criteria do not satisfy the requirement in our statute (or 
the WTO Subsidies Agreement) that unemployment be at least 110 percent 
of the national average. Moreover, the information on the record is 
insufficient to indicate whether the region in which the sole recipient 
of ERDF assistance is located does meet the requirements laid out in 
section 771(5B)(C). Therefore, we need not decide whether such 
information would be relevant. Finally, several of the various other 
possible bases for according a region Objective 2 status do not include 
one of the requisite measures of economic development.
    For the foregoing reasons, we determine that subsidies received by 
the Italian pasta producers under the ERDF and the ESF are 
countervailable. Our treatment of these subsidies is discussed further 
in the program specific section of this notice.
    The GOI has requested that the Department find the following 
subsidies to disadvantaged regions to be non-countervailable under 
section 771(5B)(C):
    <bullet> ILOR and IRPEG Tax Exemptions under Decree 218 of 1978;
    <bullet> Industrial Development Grants under Law 64 of 1986;
    <bullet> Industrial Development Loans under Law 64 of 1986; and
    <bullet> VAT Reductions on Capital Goods under Law 675 of 1977.
    The GOI has maintained a system of ``extraordinary intervention'' 
in southern Italy since the 1950's. Over time, various laws were passed 
relating to the extraordinary intervention in the

[[Page 30292]]

South. Included in these laws were Law 64/86 and its predecessors, 
which provided for capital grants and interest contributions to 
productive investments in southern Italy, as well as the other programs 
for which green light treatment has been requested. In 1986, Law 64/86 
was passed in order to consolidate all laws relating to the 
extraordinary intervention in the south into one development policy. 
Each of the programs for which the GOI has requested green light 
treatment can be considered part of Law 64/86 for this reason.
    There is no indication that the GOI performed any analysis, using 
neutral and objective criteria, in order to select the regions which 
would be eligible for assistance. GOI officials admitted at 
verification that the first time that a systematic review of the 
regions eligible for assistance was applied in Italy was when Law 64/86 
was investigated by the EC.
    Subsequent to passage of Law 64/86, the EC initiated an 
investigation as to whether this law was consistent with the EC's 
competition policy rules. The EC competition policy rules contain a 
general prohibition against member state aid schemes, with certain 
exceptions which include two specific exceptions relating to regional 
development. In particular, member states are allowed to provide one 
level of aid intensity to regions with a per capita GDP that is less 
than or equal to 75 percent of the EC average and another, lower level 
of aid intensity to regions with a per capita GDP equal to 85 percent 
of the member state average or an unemployment rate equal to 110 
percent of the member state average.
    In its decision, dated March 2, 1988, the EC found that the 
majority of the Italian provinces eligible for assistance under Law 64/
86 met the criteria of the competition policy rules and were entitled 
to receive aid at the higher intensity level. However, the decision 
also called for a reduction of Law 64/86 benefits for one province and 
the elimination of assistance for four additional provinces. The EC 
allowed the GOI until 1992 for the complete reduction and elimination 
of assistance to these areas.
    The EC, the GOI, and certain respondents have argued that the 
Department's analysis should recognize that Law 64/86 is part of a 
community-wide framework of regional development. We need not reach the 
issue of whether the nature of Law 64/86 as a green light subsidy is 
governed by a community-wide framework of regional development because 
we find that Law 64/86 does not meet the criteria established in the 
community-wide framework. First, the EC itself concluded in 1988 that 
several regions were ineligible to receive assistance under the 
competition policy rules. In fact, Law 64/86 was not fully in 
compliance with the competition policy rules until the close of 1992. 
All of the Law 64/86 benefits included in this investigation were 
received or approved prior to the close of 1992. In addition, the 
Abruzzo region has continually been eligible to receive Law 64/86 
assistance even though it did not meet the EC criteria (or even the 
less stringent criteria in section 771(5B)(c)).
    For the foregoing reasons, we determine that benefits provided 
under Law 64/86 do not qualify as non-countervailable subsidies. Our 
treatment of the individual benefits is discussed below in the program 
specific section of this notice.

I. Programs Determined to be Countervailable

A. Local Income Tax (``ILOR'') Exemptions

    Companies located in the Mezzogiorno may receive a complete 
exemption for a period of 10 years from the ILOR on profits deriving 
from new plant and equipment or from plant expansion and improvement 
under Presidential Decree 218 of March 6, 1978. In addition, otherwise 
non-qualifying profits which are reinvested in plant or equipment may 
receive an exemption from the ILOR for the year of reinvestment. The 
provision for ILOR exemptions expired on December 31, 1993, but 
companies which were approved for the exemptions prior to this date may 
continue to benefit from the exemption until the expiration of the 10-
year benefit period approved for each company.
    We have determined that these tax exemptions are countervailable 
subsidies. They constitute subsidies within the meaning of section 
771(5) of the Act, as the tax exemptions represent revenue foregone by 
the GOI and confer tax savings on the companies. Also, they are 
regionally specific within the meaning of section 771(5A) because they 
are limited to companies located in the Mezzogiorno.
    Barilla, De Cecco/Pescara, and Delverde/Tamma claimed ILOR tax 
exemptions on tax returns filed during the POI.
    To calculate the countervailable subsidy for each company, we 
divided the tax savings during the POI by the company's sales during 
the POI. On this basis, we determine the countervailable subsidy from 
this program to be 0.06 percent ad valorem for Barilla, 1.00 percent ad 
valorem for De Cecco/Pescara, and 0.05 percent ad valorem for Delverde/
Tamma.

B. Industrial Development Grants Under Law 64/86

    Law 64/86 provided assistance to promote industrial development in 
the Mezzogiorno. Grants were awarded to companies constructing new 
plants or expanding or modernizing existing plants. Pasta companies 
were eligible for grants to expand existing plants but not to establish 
new plants, because the market for pasta was deemed to be close to 
saturated. Grants were made only after a private credit institution 
chosen by the applicant made a positive assessment of the project.
    In 1992, the Italian Parliament decided to abrogate Law 64/86. This 
decision became effective in 1993. Projects approved prior to 1993, 
however, were authorized to receive grant amounts after 1993.
    Barilla, De Cecco/Pescara, La Molisana, Delverde/Tamma, Indalco, 
and Riscossa received industrial development grants.
    We determine that these grants provide a countervailable subsidy 
within the meaning of section 771(5) of the Act. They are a direct 
transfer of funds from the GOI providing a benefit in the amount of the 
grant. Also, these grants are regionally specific, within the meaning 
of section 771(5A).
    We have treated these grants as ``non-recurring'' based on the 
analysis set forth in the Allocation section of the General Issues 
Appendix. In accordance with our past practice, we have allocated those 
grants, net of any taxes paid, which exceeded 0.5 percent of a 
company's sales in the year of receipt over time.
    To calculate the countervailable subsidy, we used our standard 
grant methodology. We divided the benefit attributable to the POI for 
each company by that company's sales in the POI. On this basis, we 
determine the countervailable subsidy for this program to be 0.00 
percent ad valorem for Barilla, 0.56 percent ad valorem for De Cecco/
Pescara, 0.36 percent ad valorem for La Molisana, 1.86 percent ad 
valorem for Delverde/Tamma, 0.58 percent ad valorem for Indalco, and 
2.51 percent ad valorem for Riscossa.

C. Industrial Development Loans Under Law 64/86

    Law 64/86 also provided reduced rate industrial development loans 
with interest contributions to companies constructing new plants or 
expanding or modernizing existing plants in the

[[Page 30293]]

Mezzogiorno. The interest rate on these loans was set at the reference 
rate, with the GOI's interest contributions serving to reduce this 
rate. For the reasons discussed above, pasta companies were eligible 
for interest contributions to expand existing plants but not to 
establish new plants.
    Barilla, De Cecco/Pescara, Delverde/Tamma, Indalco and La Molisana 
received industrial development loans with interest contributions from 
the GOI.
    We determine that these loans are countervailable subsidies within 
the meaning of section 771(5). They are a direct transfer of funds from 
the GOI providing a benefit in the amount of the difference between the 
benchmark interest rate and the interest rate paid by the companies 
after accounting for the GOI's interest contributions. Also, they are 
regionally specific within the meaning of section 771(5A).
    It is the Department's practice to measure the benefit conferred by 
interest rebates using our loan methodology if the company knew in 
advance that the government was likely to pay or rebate interest on the 
loan at the time the loan was taken out. (See, e.g., Final Affirmative 
Countervailing Duty Determinations: Certain Steel Products from Italy, 
(58 FR 37327) (``Certain Steel from Italy'').) Because, in this case, 
the recipients of the interest contributions knew, prior to taking out 
the loans, that the GOI likely would provide the interest 
contributions, we have allocated the benefit over the life of the loan 
for which the contribution was received. We divided the benefit 
attributable to the POI for each company by that company's sales. On 
this basis, we determine the countervailable subsidy for this program 
to be 0.09 percent ad valorem for Barilla, 0.42 percent ad valorem for 
De Cecco/Pescara, 0.80 percent ad valorem for Delverde/Tamma, 0.09 
percent ad valorem for Indalco, and 0.42 percent ad valorem for La 
Molisana.

D. Export Marketing Grants Under Law 304/90

    To increase market share in non-EU markets, Law 304/90 provides 
grants to encourage enterprises operating in the food and agricultural 
sectors to carry out pilot projects aimed at developing links between 
Italian producers and foreign distributors and improving the quality of 
services in those markets. Emphasis is placed on assisting small- and 
medium-sized producers.
    We have determined that the export marketing grants under Law 304 
provide countervailable subsidies within the meaning of section 771(5) 
of the Act. The grants are a direct transfer of funds from the GOI 
providing a benefit in the amount of the grant. The grants are also 
specific because their receipt is contingent upon anticipated 
exportation.
    Delverde/Tamma received a grant under this program for a market 
development project in the United States.
    Each project funded by a grant requires a separate application and 
approval, and the projects represent one-time events in that they 
involve an effort to establish warehouses, sales offices, and a selling 
network in new overseas markets. Therefore, we have treated the grant 
received under this program as ``non-recurring'' based on the analysis 
set forth in the Allocation section of the General Issues Appendix. 
Further, we have determined that the grant exceeded 0.5 percent of 
Delverde/Tamma's exports to the United States in the year it was 
received. Therefore, in accordance our past practice, we allocated the 
benefits of this grant over time.
    To calculate the countervailable subsidy, we used our standard 
grant methodology. We divided the benefits attributable to the POI by 
the total value of Delverde/Tamma's exports to the United States. On 
this basis, we determine the countervailable subsidy to be 0.18 percent 
ad valorem for Delverde/Tamma and 0.00 percent ad valorem for De Cecco/
Pescara.

E. Social Security Reductions and Exemptions

1. Sgravi Benefits
    Pursuant to Law 1089 of October 25, 1968, companies located in the 
Mezzogiorno were granted a 10 percent reduction in social security 
contributions for all employees on the payroll as of September 1, 1968, 
as well as those hired thereafter. Subsequent laws authorized companies 
located in the Mezzogiorno to take additional reductions in social 
security contributions for employees hired during later periods, 
provided that the new hires represented a net increase in the 
employment level of the company. The additional reductions ranged from 
10 to 20 percentage points. Further, for employees hired during the 
period July 1, 1976 to November 30, 1991, companies located in the 
Mezzogiorno were granted a full exemption from social security 
contributions for a period of 10 years, provided that employment levels 
showed an increase over a base period.
    We determine that the social security reductions and exemptions are 
countervailable subsidies within the meaning of section 771(5). They 
represent revenue foregone by the GOI and they confer a benefit in the 
amount of the savings received by the companies. Also, they are 
specific within the meaning of section 771(5A) because they are limited 
to companies located in the Mezzogiorno.
    Barilla, De Cecco/Pescara, Delverde/Tamma, La Molisana, Guido 
Ferrara, Campano, De Matteis, Riscossa, and Indalco received social 
security reductions and exemptions during the POI.
    To calculate the countervailable subsidy, we have divided the total 
savings in social security contributions realized by each company 
during the POI by that company's sales during the same period. On this 
basis, we calculated the countervailable subsidy from this program to 
be 0.38 percent ad valorem for Barilla, 0.94 percent ad valorem for De 
Cecco/Pescara, 1.40 percent ad valorem for Delverde/Tamma, 2.57 percent 
ad valorem for La Molisana, 0.93 percent ad valorem for Guido Ferrara, 
1.85 percent ad valorem for Campano, 2.03 percent ad valorem for De 
Matteis, 0.95 percent ad valorem for Riscossa, and 1.06 percent ad 
valorem for Indalco.
2. Fiscalizzazione Benefits
    In addition to the sgravi deductions described above, the GOI 
provides Social Security benefits of another type, called 
``fiscalizzazione.'' Fiscalizzazione is a nationwide measure which 
provides a deduction of certain social security payments related to 
health care or insurance. The program provides an equivalent level of 
deductions throughout Italy for contributions related to tuberculosis, 
orphans, and pensions. However, the program also provides a deduction 
from companies' contributions to the National Health Insurance system 
which is equal to 3.44 percent of salaries paid in northern Italy and 
9.60 percent of salaries paid in southern Italy.
    We determine that the fiscalizzazione reductions are 
countervailable subsidies within the meaning of section 771(5) for 
companies with operations in southern Italy. They represent revenue 
foregone by the GOI and confer a benefit in the amount of the greater 
savings accruing to the companies in southern Italy. In addition, they 
are regionally specific within the meaning of section 771(5A).
    Barilla, De Cecco/Pescara, Delverde/Tamma, La Molisana, Guido 
Ferrara, Campano, De Matteis, Riscossa, and Indalco received the higher 
levels of fiscalizzazione deductions available to

[[Page 30294]]

companies located in the Mezzogiorno during the POI.
    To calculate the countervailable subsidy, we have divided the 
amount of the excessive fiscalizzazione deductions realized by each 
company in the POI by that company's sales during the same period. On 
this basis, we calculated the countervailable subsidy from this program 
to be 0.11 percent ad valorem for Barilla, 0.53 percent ad valorem for 
Campano, 0.38 percent ad valorem for De Cecco/Pescara, 0.40 percent ad 
valorem for De Matteis, 0.32 percent ad valorem for Delverde/Tamma, 
0.28 percent ad valorem for Guido Ferrara, 0.44 percent ad valorem for 
Indalco, 0.71 percent ad valorem for La Molisana, and 0.51 percent ad 
valorem for Riscossa.
3. Law 407/90 Benefits
    Prior to verification, one of the respondent companies, Agritalia, 
informed the Department that it had received benefits under Law 407/90. 
Agritalia officials explained that this program grants a two-year 
exemption from social security taxes when a company hires a worker who 
has been previously unemployed for a period of two years. According to 
Agritalia, a 100 percent exemption was allowed for companies in 
southern Italy. However, companies located in northern Italy received 
only a 50 percent exemption. During verification, two other companies, 
Campano and De Matteis, also indicated that they had received benefits 
under this program, and a review of documents related to Indalco's 
social security payments indicated that Indalco had also received 
benefits under this program.
    We determine that the 100 percent exemptions provided to companies 
with operations in southern Italy under Law 407 are countervailable 
subsidies within the meaning of section 771(5). They represent revenue 
foregone by the GOI and confer a benefit in the amount of the greater 
savings accruing to the companies in southern Italy. In addition, they 
are regionally specific within the meaning of section 771(5A).
    To calculate the countervailable subsidy, we have divided the 
amount of the Law 407 exemption which exceeds the amount available in 
northern Italy realized by each company during the POI by that 
company's sales during the same period. On this basis, we calculated 
the countervailable subsidy from this program to be 0.03 percent ad 
valorem for Agritalia, 0.21 percent ad valorem for Campano, 0.02 
percent ad valorem for De Cecco/Pescara, 0.04 percent ad valorem for De 
Matteis, and 0.01percent ad valorem for Indalco.
4. Law 863 Benefits
    One of the respondents, Barilla, reported receiving Law 863 
training benefits. According to Barilla, this law provides companies in 
northern Italy a 25 percent reduction in social security payments for 
employees who are participating in a training program. Companies in 
southern Italy receive a 100 percent reduction in social security 
payments for such employees.
    None of the other responding companies reported receiving benefits 
under this program. Additionally, we reviewed the social security 
documentation for other responding companies and noted nothing to 
indicate that any of the other respondents had claimed benefits under 
this program.
    We determine that the Law 863 reductions are countervailable 
subsidies within the meaning of section 771(5) for companies with 
operations in southern Italy. They represent revenue foregone by the 
GOI and confer a benefit in the amount of the greater savings accruing 
to the companies in southern Italy. In addition, they are regionally 
specific within the meaning of section 771(5A).
    To calculate the countervailable subsidy, we have divided the 
amount of the Law 863 reductions which exceeds the amount available in 
northern Italy realized by Barilla during the POI by that company's 
sales during the same period. On this basis, we calculated the 
countervailable subsidy from this program to be 0.01 percent ad valorem 
for Barilla and 0.00 percent ad valorem for De Cecco/Pescara.

F. European Regional Development Fund

    The ERDF is one of three Structural Funds operated by the EC. The 
ERDF was created pursuant to the authority in Article 130 of the Treaty 
of Rome in order to reduce regional disparities in socio-economic 
performance within the Community. The ERDF program provides grants to 
companies located within regions which meet the criteria of Objective 1 
(underdeveloped regions), Objective 2 (declining industrial regions) or 
Objective 5(b) (declining agricultural regions) under the Structural 
Funds.
    Arrighi/Italpasta received an ERDF grant.
    We determine that the ERDF grant received by Arrighi/Italpasta 
constitutes a countervailable subsidy within the meaning of section 
771(5) of the Act. The grant is a direct transfer of funds providing a 
benefit in the amount of the grant. Also, ERDF grants are regionally 
specific within the meaning of section 771(5A) of the Act.
    We view this as a ``non-recurring'' grant based on the analysis set 
forth in the Allocation section of the General Issues Appendix. The 
grant was received in two disbursements. The first disbursement was 
received in 1993 and was less than 0.5 percent of Arrighi/Italpasta's 
total sales in that year. Accordingly, this disbursement was expensed 
in 1993. The second disbursement was received in 1994 (the POI) and was 
also less than 0.5 percent of Arrighi/Italpasta's total sales in that 
year. Therefore, in accordance with our past practice, we are 
allocating the full amount of this disbursement to the POI.
    To calculate the countervailable subsidy, we divided the full 
amount of the grant by Arrighi/Italpasta's total sales. On this basis, 
we calculated the countervailable subsidy from this program to be 0.19 
percent ad valorem for Arrighi/Italpasta and 0.02 percent ad valorem 
for De Cecco/Pescara.

G. European Social Fund

    The ESF is also one of the Structural Funds operated by the EC. The 
ESF was created under Article 123 of the Treaty of Rome in order to 
improve employment opportunities for workers and to help raise their 
living standards. The ESF principally provides vocational training and 
employment aids. At the EC verification, we learned that ESF aid is 
generally provided directly to public institutions or non-commercial 
enterprises. However, it can also be provided directly to a company, 
provided that it is located in an Objective 1, Objective 2, or 
Objective 5(b) region. The ESF provides grants to such companies in 
order to train current employees for new jobs or to hire new employees.
    Barilla and Delverde/Tamma received ESF grants.
    As stated in section 355.44(j) of the Proposed Regulations, the 
Department considers worker assistance programs to be countervailable 
when a company is relieved of an obligation it would otherwise have 
incurred. We verified at the EC that in addition to providing funds for 
training programs which may or may not relieve companies of an 
obligation, ESF funds are available to aid companies in hiring new 
employees. Because a company is normally obligated to meet its hiring 
needs without assistance from the government, we determine that ESF 
funds relieve companies of an obligation. Therefore, we determine that 
ESF grants constitute countervailable subsidies within the meaning of 
section 771(5) of the Act. The grants are a direct transfer of funds 
providing a benefit in the amount of the grant. Also, because ESF 
assistance to

[[Page 30295]]

individual companies is limited to companies located in Objective 1, 
Objective 2, and Objective 5(b) regions, we have determined that ESF 
grants are regionally specific within the meaning of section 771(5A) of 
the Act.
    In our preliminary determination, we treated ESF grants as 
``recurring'' because worker training grants are among the types of 
benefits the Department normally expenses in the year of receipt. 
However, in light of the GOI verification and comments received by 
interested parties, we have determined that ESF grants are ``non-
recurring'' (see Comment 20, below). We also have determined that the 
grants received by Barilla and Delverde/Tamma were less than 0.5 
percent of each company's respective sales in the year of receipt. 
Therefore, in accordance with our past practice, we expensed these non-
recurring grants in the year of receipt. On this basis, we calculated 
the countervailable subsidy from this program to be 0.00 percent ad 
valorem for Barilla, 0.00 percent ad valorem for Delverde/Tamma, and 
0.00 percent ad valorem for De Cecco/Pescara.

H. Export Restitution Payments

    Since 1962, the EC has operated a subsidy program which provides 
restitution payments to EU pasta exporters based on the durum wheat 
content of their exported pasta products.
    Generally, under this program, a restitution payment is available 
to any EC exporter of pasta products, regardless of whether the pasta 
was made with imported wheat or wheat grown within the EC. The amount 
of the restitution payment is calculated by multiplying the prevailing 
restitution payment rate on the date of exportation by the weight of 
the unmilled durum wheat used to produce the exported pasta. The weight 
of the unmilled durum wheat is calculated by applying a conversion 
factor to the weight of the pasta. The EC calculates the restitution 
payment rate, on a monthly basis, by first computing the difference 
between the world market price of durum wheat and an internal EC price 
and then adding a monthly increment (in all months except June and 
July, which are harvest months). The EC normally will not allow the 
restitution payment rate to be higher than the levy that the EC imposes 
on imported durum wheat, as it would lead to circular trade.
    Additionally, under this program, the EC permits a pasta exporter 
to purchase a certificate that locks in a restitution payment rate if 
the pasta exporter promises to export a certain amount of pasta by a 
certain date. The promised export date can be as much as six months 
later. Moreover, the pasta exporter is free to sell this certificate to 
another pasta exporter. The selling price is determined through 
negotiations between the seller and the purchaser and typically will be 
dependent on such factors as the amount of time left until the 
certificate expires, the purchaser's projected volume of exports, the 
restitution payment rate under the certificate, and the current and 
expected future restitution payment rates set by the EC. A pasta 
exporter that fails to use a certificate by the date set forth in the 
certificate must pay a penalty.
    In 1987, the nature of this program changed with regard to exports 
to the United States as a result of a settlement reached by the United 
States and the EC. This settlement arose out of a GATT panel 
proceeding, brought by the United States, in which the panel ruled (in 
1983) that the restitution program violated the EC's GATT obligations 
and did not fall within the exception under Item (d) of the 
Illustrative List of Export Subsidies.
    Under the settlement, the EC agreed to allow the importation of 
durum wheat from any non-EU country free of any levy under a system 
described in the settlement as ``Inward Processing Relief'' (``IPR''). 
Under this system, the EC pasta exporter would not receive a 
restitution payment when exporting to the United States pasta products 
containing durum wheat imported with IPR. Essentially, a restitution 
payment no longer was necessary because no levy had been paid upon 
importation of durum wheat in the first place.
    As to pasta products containing EC durum wheat or durum wheat that 
had been imported without IPR, a restitution payment remained available 
for exports to the United States, except that the restitution rate was 
reduced, originally by 27.5 percent and later by approximately 35 
percent, from the normal level available for exports to all other 
countries.
    As a further condition of the settlement, the EC agreed to attempt 
to balance its exports to the United States equally between pasta 
products containing durum wheat imported with IPR, on the one hand, and 
pasta products containing EC durum wheat or durum wheat imported 
without IPR, on the other hand. The goal was for 50 percent of the EC's 
pasta exports to the United States to contain durum wheat imported with 
IPR (for which the exporter had paid world market price, free of any 
levy, and had received no restitution payments), while the remaining 50 
percent of the EC's pasta exports to the United States would contain EC 
durum wheat or durum wheat imported without IPR (for which the exporter 
could receive reduced restitution payments). In all other respects, the 
program remained unchanged.
    We have concluded that the restitution payments made are 
countervailable subsidies within the meaning of section 771(5) of the 
Act. Each payment represents a direct transfer of funds from the EC 
providing a benefit in the amount of the payment. The restitution 
payments are specific because their receipt is contingent upon export 
performance.
    In our preliminary determination, we calculated export restitution 
benefits on an earned basis, following the methodology set forth in 
Final Affirmative Countervailing Duty Determination and Countervailing 
Duty Order; Certain Steel Wire Nails from New Zealand (52 FR 37196, 
37197). Based on information available at the time of our preliminary 
determination, it appeared that the restitution rate was known at the 
time of export and the respondents were confident of receiving 
benefits.
    In accordance with our normal practice of recognizing subsidy 
benefits when there is a cash-flow effect, we have calculated the 
subsidy rate for export restitution benefits based on the amount 
actually received during the POI for purposes of our final 
determination. We learned during verification that export restitution 
benefits are not ``automatic'' in that their receipt is not certain 
until an application has been filed, at the earliest. Applying for 
restitution is voluntary, and not all parties eligible for restitution 
always apply for benefits (see, e.g., verification report for the 
European Union). We also noted that the amounts received, while 
generally quite close to the amounts requested, did not always equal 
the amount indicated by the company on its request form. We have 
calculated the subsidy rate for export restitution benefits based on 
the amount actually received during the POI.
    Agritalia, Arrighi/Italpasta, Delverde/Tamma, and Riscossa received 
export restitution payments during the POI on shipments to the United 
States.
    To calculate the countervailable subsidy, we divided the export 
restitution payments received during the POI on shipments to the United 
States by the company's total export sales to the United States during 
the POI. We calculated a countervailable subsidy under this program of 
0.42 percent ad valorem for Agritalia, 2.25 percent ad valorem for 
Arrighi/Italpasta, 0.02 percent ad valorem for De Cecco/Pescara, 0.94 
percent ad valorem for

[[Page 30296]]

Delverde/Tamma, and 2.94 percent ad valorem for Riscossa.

I. Lump-Sum Interest Payment Under the Sabatini Law for Companies in 
Southern Italy

    The Sabatini Law was enacted in 1965 to encourage the purchase of 
machine tools and production machinery. It provides for a deferral of 
up to five years of payments due on installment contracts for the 
purchase of such equipment and for a one-time, lump-sum interest 
contribution from Mediocredito Centrale toward the interest owed on 
these contracts. The amount of the interest contribution is equal to 
the present value of the difference between the payment stream over the 
life of the contract based on the reference rate and the payment stream 
over the life of the contract based on a concessionary rate. The 
concessionary rate for companies located in the Mezzogiorno is the 
reference rate less eight percentage points. The concessionary rate for 
companies located outside the Mezzogiorno is the reference rate less 
five percentage points.
    Two companies in northern Italy received interest contributions 
under the Sabatini Law for loans which were outstanding during the POI. 
In addition, La Molisana received an interest contribution at the 
concessionary rate available in the Mezzogiorno for a loan which was 
still outstanding during the POI.
    With respect to the benefits provided in northern Italy, we 
analyzed whether the program is specific ``in law or in fact,'' within 
the meaning of section 771(5A)(D)(i) and (iii). Section 771(5A)(D)(iii) 
of the Act provides the following four factors to be examined with 
respect to de facto specificity: 1) the number of enterprises, 
industries or groups thereof which use a subsidy; 2) predominant use of 
a subsidy by an enterprise, industry, or group; 3) the receipt of 
disproportionately large amounts of a subsidy by an enterprise, 
industry, or group; and 4) the manner in which the authority providing 
a subsidy has exercised discretion in its decision to grant the 
subsidy.
    The Sabatini Law, which created the program, contains no 
limitations on the types of industries that can apply for assistance. 
Further, during the years 1988 through 1993, assistance under the 
program was distributed over 19 sectors, representing a wide cross-
section of the economy. On this basis, we concluded that the subsidy 
recipients were not limited to a specific industry or group of 
industries. We also examined evidence regarding the usage of this 
program and found no predominant use by the pasta industry. We next 
examined whether a disproportionately large share of benefits was 
granted to the pasta industry. We found that on average, benefits to 
the food processing industry, which includes the pasta industry, 
amounted to 4.9 percent of all benefits granted. Considering the number 
and variety of sectors receiving benefits and the range of benefits 
over the various sectors, we do not consider the benefits received by 
the food processing sector to constitute a disproportionate share of 
the benefits distributed under this program. Given our findings that 
the number of users is large and that there is no dominant or 
disproportionate use of the program by the pasta producers, we do not 
reach the issue of whether administrators of the program exercised 
discretion in awarding benefits. Thus, for companies located outside 
the Mezzogiorno, we determine that interest contributions under the 
Sabatini Law are not specific, and not countervailable.
    However, because the concessionary rate for companies in southern 
Italy is lower than the benchmark interest rate, we determine that the 
Sabatini Law interest contributions to companies in southern Italy are 
countervailable subsidies within the meaning of section 771(5). They 
are a direct transfer of funds from the GOI providing a benefit in the 
amount of the difference between the benchmark interest rate and the 
interest rate paid by the companies. In addition, they are regionally 
specific within the meaning of section 771(5A).
    As stated earlier (see, Industrial Development Loans section, 
above), when a company knows in advance that the government is likely 
to pay or rebate interest on a loan, the Department will measure the 
benefit conferred by that rebate using our loan methodology. Because La 
Molisana knew, prior to taking out the loan, that it would receive the 
interest contribution, we have allocated the benefit over the life of 
the loan for which the contribution was received. We divided the 
benefit attributable to the POI by La Molisana's total sales in the 
POI. On this basis, we determine the countervailable subsidy for this 
program to be 0.06 percent ad valorem for La Molisana and 0.01 percent 
ad valorem for De Cecco/Pescara.

J. Remission of Taxes on Export Credit Insurance Under Article 33 of 
Law 227/77

    The Special Section for Export Credit Insurance (``SACE'') was 
created under Article 2 of Law 227/77 as the branch of the GOI 
responsible for the administration of government export credit 
insurance and guarantee programs. Pursuant to Article 3 of Law 227/77, 
SACE insures and reinsures political, catastrophic, economic, 
commercial and exchange-rate risks which Italian operators are exposed 
to in their foreign activities.
    During the POI, only one private insurance company, Societa 
Italiana Crediti S.p.A. (``SIAC''), had a reinsurance agreement with 
SACE. Under the reinsurance agreement, SIAC passed along a fixed 
percentage (i.e., 45 percent) of its export credit insurance premia to 
SACE. In return, SACE assumed that same percentage of risk on export 
credit insurance policies sold by SIAC (i.e., SACE would pay 45 percent 
of any claim for which SIAC would become liable).
    Article 33 of Law 227/77 provides for the remission of insurance 
taxes on policies directly insured or reinsured with SACE. For 
reinsurance policies, this remission of insurance taxes applied not 
only to the portion of the risk covered by SACE, but also the remaining 
portion covered by the private insurance company. As a result, export 
credit insurance policies sold by SIAC during the POI were totally 
exempt from the insurance tax by virtue of its reinsurance agreement 
with SACE. Export credit insurance policies sold by other private 
insurance companies, however, were not exempt from the insurance tax. 
The insurance tax rate was 12.5 percent of premia paid.
    We determine that the exemption from the insurance tax for policies 
directly insured or reinsured with SACE is a countervailable subsidy 
within the meaning of section 771(5) of the Act. The exemption 
represents revenue foregone by the GOI and confer tax savings on the 
companies. Also, because export credit insurance is available only to 
exporters and is by its nature contingent upon export performance, we 
find the remission of taxes on export credit insurance to be specific 
within the meaning of section 771(5A) of the Act.
    La Molisana obtained export credit insurance from SIAC for its 
exports to the United States. We saw no evidence at verification to 
indicate that other responding companies purchased export credit 
insurance from SIAC. To calculate the benefit received by La Molisana, 
we multiplied the amount of premia paid during the POI for exports to 
the United States by the insurance tax rate and divided the amount by 
total exports to the United States. We calculated a countervailable 
subsidy rate of 0.05 percent ad valorem for La

[[Page 30297]]

Molisana and 0.00 percent ad valorem for De Cecco/Pescara.

II. Program Found To Be Not Countervailable

A. Disaster Relief

    Four respondent companies, Barilla, Campano, De Matteis, and Guido 
Ferrara, reported receiving disaster relief assistance between the 
period 1983-1994 under Law 219/81. Law 219 was enacted following one of 
the worst earthquakes to strike Italy in 50 years. Under Law 219, aid 
was granted for the repair and reconstruction of residential buildings, 
public locations, schools, churches and industries damaged in the 
earthquakes of November 1980 and February 1981. Aid to industries was 
provided to repair and rebuild facilities, such that the rebuilt 
facility would employ the same number of workers as prior to the 
disaster. The eligibility criteria for a facility to receive aid under 
Law 219 consisted of the following:
    <bullet> It had to be a productive unit (e.g., shopkeepers were 
ineligible);
    <bullet> It had to be extant at the time of the earthquake;
    <bullet> It had to have experienced actual damage (i.e., being 
located in the applicable area was not sufficient);
    <bullet> The damage had to be more than minor in nature.

The amount of assistance provided was capped by a formula based on the 
number of employees at the time of the earthquake and by a set 
percentage of project cost.
    In the past, the Department has found that disaster relief does not 
confer countervailable subsidies where it constituted general 
assistance to anyone in affected areas. In Final Affirmative 
Countervailing Duty Determinations: Certain Steel Products from Italy 
(47 FR 39360 (1982)), in reviewing a similar disaster relief program, 
we stated:

    Although not all areas would be eligible at any one time, 
disaster relief is not selective in the same manner as other 
regional programs since there is no predetermination of eligible 
areas and no part of the country, and no industry, is excluded in 
principle, from participation.

Accordingly, we have determined that, on a de jure basis, the disaster 
relief provided under Law 219 was general in nature and available to 
all who were affected. Moreover, at verification, we confirmed that aid 
under Law 219 was granted to numerous companies in a variety of 
industries. Therefore, we have determined this program to be not 
countervailable.

III. Programs Determined To Be Not Used

A. VAT Reductions

    The responses indicated that certain companies received VAT 
reductions under Law 675/77. We have determined that any payments 
received under this program are ``recurring,'' as they are not 
exceptional and companies can expect to receive them on an ongoing 
basis. Moreover, receipt of the VAT reductions is automatic provided 
the company is eligible and the proper forms are filed. Such benefits 
are among the types of benefits the Department has identified as 
normally being expensed in the year of receipt. (See, Allocation 
section of the General Issues Appendix.)
    Since no payments were received by any investigated companies under 
this program during the POI, we are treating the program as ``not 
used'' and, consequently, have not analyzed whether it confers a 
countervailable subsidy.

B. Export Credits Under Law 227/77

C. Capital Grants Under Law 675/77

D. Retraining Grants Under Law 675/77

E. Interest Contributions on Bank Loans Under Law 675/77

F. Interest Grants Financed by IRI Bonds

G. Preferential Financing for Export Promotion Under Law 394/81

H. Corporate Income Tax (``IRPEG'') Exemptions

I. European Agricultural Guidance and Guarantee Fund

J. Urban Redevelopment Under Law 181

Interested Party Comments

    Comment 1: Subsidies bestowed under previous ownership: Respondents 
Barilla, Indalco and Delverde argue generally that grants received by 
the companies located in the Mezzogiorno (under Law 64/86) were used to 
invest in new plant and equipment, and that the investment in new plant 
and equipment increased the value of the enterprise. Respondents argue 
that this increase in value was fully reflected in the sales price of 
the acquired enterprise or its assets because, where a change of 
ownership occurred, the sale was a private transaction at arm's length. 
Thus, respondents argue, any competitive benefit would have been 
included in the sales price of the enterprise, benefiting the previous 
owner but not the new owner.
    Barilla argues that neither Cagliari (a pasta producer acquired by 
Barilla) nor Barilla was a state-owned enterprise and, accordingly, 
Barilla's acquisition of Cagliari involved an arms-length transaction 
resulting from fair and open negotiations between two purely private 
parties. Barilla argues that it paid a market price for Cagliari, and 
that this price reflected any remaining economic benefit from any pre-
acquisition grants that Cagliari received. Barilla further argues that 
the grants received by Cagliari were received many years ago, and can 
have no distortive impact on competition today.
    Indalco argues that the assistance the company received under Law 
64 was modest and that the company was not being rescued or bailed-out 
by the government. Indalco argues that while the language of section 
771(5)(F) may indicate that the provision applies both to privatization 
of state-owned enterprises and to changes in ownership of private 
firms, the legislative history makes it clear that the Congress 
intended the provision to address privatization. In support of this 
argument, Indalco cites to the Statement of Administrative Action 
(``SAA'') at 258 where, referring to section 771(5)(F), the SAA reads: 
``The issue of privatization of a state-owned firm can be extremely 
complex and multifaceted.''
    Delverde cites to Final Affirmative Countervailing Duty 
Determination: Oil Country Tubular Goods from Canada (51 FR 15037, 
15042) (``OCTG from Canada'') where the assets of a responding company 
had been purchased in an arm's length transaction in bankruptcy 
liquidation and the Department stated: ``In an arm's length 
transaction, such as this one, subsidies, if there are any, are not 
passed through.'' Delverde also argues that newly added amendments to 
the Act clearly do not compel the Department to reach the conclusion 
that subsidies to MI.BA (the previous owner of the pasta factory 
purchased by Delverde) passed through to Delverde. Delverde cites 
section 771(5)(F) of the Act and emphasizes that the statute indicates 
that a change in ownership ``does not by itself require'' a 
determination by the Department that subsidies do not pass through. 
Delverde argues that the language in the statute indicates that it is 
possible for subsidies to not pass through to a new owner when there is 
an arm's length transaction.
    Delverde further argues that MI.BA and Delverde are both private 
entities, and that there has never been any government ownership of the 
pasta factories. Delverde argues that, from an economic perspective, it 
paid a market price for MI.BA, purchasing the assets of MI.BA at a 
price determined by an

[[Page 30298]]

independent appraiser, so it should be irrelevant whether MI.BA had 
received any subsidies.
    Petitioners first point out that in Saarstahl AG v. United States 
(Nos. 94-1457, -1475, Slip Op. (Fed. Cir. Mar. 12, 1996)) 
(``Saarstahl''), the CAFC sanctioned the Department's position that 
``the subsidy survives unless there is evidence that it went elsewhere 
or was repaid.'' Petitioners then argue that there is no evidence on 
the record that would allow the Department to measure the precise 
amount of the benefit that passed through to the current owner or that 
remained with the previous owner, and as a result the Department must 
countervail the entire amount of the prior subsidies. Petitioners 
further argue that since the government was not involved in any of the 
transactions, no repayment to the government of any previously bestowed 
subsidies could have resulted from the changes in ownership. Finally, 
petitioners argue that the type of subsidies bestowed on pasta 
production under previous ownership is, for the most part, identical to 
the subsidies bestowed on the production of pasta under the current 
ownership. Therefore, it would be inconsistent and illogical to 
countervail only the subsidies that benefited pasta production received 
under current ownership while leaving the remaining portion of the 
subsidies received by a facility under its previous owner 
uncountervailed.
    Petitioners argue that respondents are claiming that asset sales at 
arm's length and for fair-market value, by themselves, insulate 
previously bestowed subsidies from countervailability. Petitioners 
argue that current law clearly establishes that subsidies received 
under prior ownership are actionable. With regard to change of 
ownership, petitioners point to the SAA, at page 258, which reads:

    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.

    Petitioners contend further that the Department has been careful to 
distinguish its findings in OCTG from Canada from other cases where 
there have been changes in ownership. Petitioners cite to the General 
Issues Appendix, at 37236, where the Department stated:

    OCTG from Canada involved a situation where a company had become 
defunct and non-operational. Its assets were disposed of through a 
bankruptcy proceeding. This is a unique situation not involving the 
sale of an ongoing operating company exporting subsidized 
merchandise to the United States.

Petitioners additionally argue that the respondent company in OCTG from 
Canada was engaged in the manufacture of a different product from the 
predecessor company.
    Petitioners next argue that the Department's own grant allocation 
methodology recognizes that the value of a grant should be spread out 
over several years. Petitioners cite to the General Issues Appendix at 
37261:

    The Department allocates non-recurring subsidies over time in 
recognition of the fact that the statutory goal of providing a 
remedy against subsidies would be defeated by allocating the 
subsidies to a single moment or year. The statutory presumption that 
subsidies benefit goods produced by their recipients must, in order 
to have the intended effect, be applied over a reasonable period of 
time * * *.

Petitioners contend that considering these subsides to be extinguished 
when there is a change of ownership is tantamount to circumscribing all 
of the subsidies to a single moment in time, a result that is 
inconsistent with the Department's practice of allocating non-recurring 
subsidies.
    DOC Position: We have determined that a portion of the subsidies 
bestowed while the enterprise was under previous ownership pass 
through, as described in the Change of Ownership section of this 
notice.
    In Saarstahl, the CAFC stated that ``the statute does not limit 
Commerce to countervailing only subsidies that confer a competitive 
advantage on merchandise exported to the United States. Nor does the 
legislative history say that Commerce was expected to perform any 
calculations of competitive advantage.'' (Saarstahl at 245.) The CAFC 
then cited to S. Rep. No. 1298, 93d Cong., 2d Sess. 184 (1974), which 
states, ``Whenever the Secretary * * * has sufficient evidence to 
determine the existence of a bounty or grant, he can and should make 
his final determination and impose countervailing duties.''
    Respondents argue that a purchaser is indifferent between buying a 
previously subsidized enterprise and an enterprise that has not been 
subsidized. As noted above, the CAFC in Saarstahl specifically stated 
that the Department does not need to demonstrate competitive benefit. 
The Department calculates a subsidy rate based upon the countervailable 
subsidies to the merchandise. These subsidies do not necessarily lose 
their countervailable nature by simple virtue of an arm's length 
transaction, as the CAFC in Saarstahl and section 771(5)(F) confirm.
    With Saarstahl, the CAFC upheld the Department's position that 
subsidies were not necessarily extinguished as a result of the 
privatization of a state-owned enterprise through an arm's length 
transaction. In so doing, the CAFC rejected the position of the Court 
of International Trade (``CIT'') that an arm's length sale 
automatically extinguished prior subsidies. It was the CIT's ``extreme 
position'' that led to the addition of section 771(5)(F) to the Act 
(see, SAA at 258).
    Respondents attempt to distinguish the changes in ownership in the 
instant investigation from Saarstahl by arguing that in addition to an 
arm's length transaction at fair market value, the respondent parties 
are privately held entities and there was no government ownership, nor 
involvement in the sales of the companies'' shares or assets. 
Accordingly, respondents argue, this lack of involvement by the state 
in the transaction means that the previous owners retain the benefit 
from the subsidies.
    Respondents' argument conflicts with section 771(5)(F), which 
reads:

    Change in ownership.--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 administering 
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.

If Congress had intended that this section apply only to privatizations 
of state-owned enterprises, the language would have been more explicit 
in that regard. It is apparent that Congress intended that this 
provision be applicable to all changes of ownership. Moreover, the 
language of this provision purposely leaves much discretion to the 
Department. As the SAA explains, ``Commerce must exercise its 
discretion carefully through its consideration of the facts of each 
case and its determination of the appropriate methodology to be 
applied.'' (SAA at 258.)
    Finally, we have rejected petitioners' arguments for countervailing 
the entire amount of the prior subsidies, as these arguments are 
contrary to the methodology described in the General Issues Appendix.
    Comment 2: Expensing of subsidies bestowed on companies under 
previous ownership: Barilla argues that in the

[[Page 30299]]

event the Department concludes it is appropriate to include in its 
calculations the non-recurring subsidies received by Cagliari prior to 
the company's purchase by Barilla, the amount of the grants is less 
than Barilla's sales in the years of receipt, so the subsidies should 
be allocated entirely to the years of receipt.
    DOC Position: We disagree with respondent. To determine whether or 
not a grant should be allocated over several years or entirely to the 
year of receipt, the Department compares the amount of the grant to the 
revenues of the grant recipient (in this instance, Cagliari) in the 
year the grant is received. Barilla did not provide us with information 
concerning the revenues of Cagliari in the year of receipt of the 
grant. Lacking this information, we have assumed that the grant 
exceeded 0.5 percent of Cagliari's sales in that year and have 
allocated this grant using our standard allocation formula.
    Comment 3: Expensing test for non-recurring subsidies: Respondents 
La Molisana and Barilla argue that the Department should raise the 
threshold used to decide whether a non-recurring countervailable 
subsidy should be allocated to future periods or allocated entirely to 
the year of receipt from 0.5 percent to one percent. Respondents cite 
to Final Affirmative Countervailing Duty Determinations: Certain Steel 
Products from Belgium (47 FR 39304, 39317) where the Department 
established its current methodology for allocating grants over time and 
instituted the practice of expensing small grants which were recognized 
by the Department at the time to be generally less than one percent of 
the appropriate denominator in the year of receipt. Respondents state 
that the Department lowered this expensing threshold to 0.5 percent in 
Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina: Final 
Affirmative Countervailing Duty Determination and Countervailing Duty 
Order (49 FR 18016, 18018) (``Steel from Argentina'') to accord with 
the then newly instituted de minimis level of 0.5 percent. Respondents 
contend that the Department aligned the expensing and de minimis rates 
because the application of an expensing rate different from the de 
minimis rate could lead to anomalous results. Respondents cite to the 
hypothetical example given in Steel from Argentina where a respondent 
receiving a single countervailable grant slightly above the de minimis 
rate, but below the expensing threshold, is subject to an order; 
whereas another firm receiving a larger grant that is above the 
expensing threshold and is, therefore, allocated over time receives a 
de minimis rate and is excluded from any order. Respondents argue that 
having an expense rate that is below the de minimis rate is equally 
undesirable because such a policy would require application of the 
allocation process for a subsidy the Department considers too small to 
be countervailed.
    Petitioners assert that there is no statutory or regulatory 
requirement that compels the Department to align the expensing rate and 
the de minimis rate. Petitioners argue that in Steel from Argentina the 
Department did not consider a hypothetical circumstance where the 
expense rate is lower than the de minimis rate, since such an exercise 
was not required. Petitioners contend that raising the expensing rate 
to one percent would enable foreign governments to subsidize companies 
through numerous small grants. Additionally, petitioners argue, if the 
Department were to carry respondents' logic further, and align the 
expensing rate with the de minimis rate of two percent for developing 
countries set by section 703(b)(4)(B), a government could obtain a 
subsidization level of immense proportions while avoiding 
countervailable duties by awarding numerous grants, each below a two 
percent threshold.
    DOC Position: Although the Department normally will allocate 
nonrecurring grants over time, under the so-called 0.5 percent test, 
the Department will generally allocate nonrecurring grants received 
under a particular subsidy program entirely to the year of receipt if 
the total amount of such grants is less than 0.5 percent of a firm's 
sales in that year.
    Respondents are correct in their assertion that the floor amount 
was decreased from one percent to 0.5 percent when the de minimis rate 
of 0.5 percent was instituted. However, the recent statutory increase 
in the de minimis rate for investigations does not require an 
equivalent increase in the rate used to determine whether a non-
recurring countervailable subsidy will be allocated over time or 
entirely to the year of receipt. The use of an expensing rate that is 
below the de minimis rate does not produce the ``anomalous results'' 
described by the Department in Steel from Argentina where the expensing 
rate was above the de minimis rate.
    Additionally, a one percent de minimis rate is being applied only 
to certain investigations; investigations in certain developing 
countries have higher de minimis rates of two percent and three 
percent, and the de minimis rate will remain 0.5 percent for all 
administrative reviews (SAA at 269). We believe retaining a consistent 
expensing rate of 0.5 percent across all investigations and reviews is 
desirable.
    Comment 4: Northern Italy all-others rate: Pagani, an Italian pasta 
producer, contends that a single all-others rate, applicable throughout 
Italy, is unfairly prejudicial to Pagani. Pagani claims that the 
inclusion of programs available exclusively to producers located in the 
Mezzogiorno in the calculation of the all-others rate is unfair to 
pasta producers located in northern Italy.
    Pagani argues further that statutory changes resulting from the 
URAA require the Department to assign Pagani an individual rate. To 
support this position, Pagani cites to section 777A(e)(1) of the Act 
which reads: ``[T]he administering authority shall determine an 
individual countervailable subsidy rate for each known exporter or 
producer of the subject merchandise.''
    In the event the Department declines to assign it an individual 
countervailing duty deposit rate, Pagani proposes that the Department 
calculate a separate all-others rate applicable only to producers 
located in northern Italy, and that programs for which companies 
located in northern Italy were ineligible to participate be excluded in 
calculating this rate. Pagani argues that the Act recognizes the 
independent nature of regions of a subject country in particular 
situations. Pagani argues that the statute's treatment of 
``disadvantaged regions'' under the green light provisions permits 
Commerce to treat a region as a separate country for purposes of the 
specificity test. Pagani proposes that the Department recognize the 
distinction between the Mezzogiorno and northern Italy and determine an 
all-others rate for companies located in the north of Italy.
    Petitioners argue that Pagani's assertion that the Act entitles it 
to an individual rate is erroneous. Petitioners point to the SAA which 
states that the amendment cited by Pagani ``eliminates the presumption 
in favor of a single country-wide CVD rate and amends section 777A of 
the Act to establish a general rule in favor of individual CVD rates 
for each exporter or producer individually investigated'' (SAA at 271) 
(emphasis added).
    Petitioners state that Pagani's reliance on the regional green 
light provisions in the statute is misplaced. Petitioners contend that 
the green light amendments were enacted only to determine whether or 
not a subsidy was countervailable, and have no bearing on how a subsidy 
should be calculated.
    DOC Position: We agree with petitioners that Pagani is not entitled 
to

[[Page 30300]]

an individual rate. While section 777A calls for the application of 
individual rates, section 705(c)(1)(B)(i) of the Act, which describes 
the all-others rate, states the Department shall determine ``an 
estimated all-others rate for all exporters and producers not 
individually investigated * * *'' Pagani was not individually 
investigated in this proceeding; it was not selected to respond, nor 
did it submit a voluntary response to our questionnaire. Therefore, we 
see no statutory basis for Pagani's argument.
    Moreover, such a proposal is contrary to past practice (see, e.g., 
Lumber, 22578) and would be unadministrable. While there are regional 
programs in the instant investigation that are available only to 
producers in the Mezzogiorno, the Department hypothetically could 
perform an investigation where there are dozens of regional programs, 
each covering different regions, which would result in dozens of 
different regional countervailable subsidy rates if we were to follow 
the methodology proposed by Pagani. Therefore, we have not calculated 
separate all-other rates for northern and southern Italy.
    Comment 5: Trading company deposit rate: Agritalia claims that it 
should be assigned an individual countervailing duty deposit rate based 
only on countervailable subsidies it received, and its rate should not 
include any subsidies received by its suppliers. At the same time, 
Agritalia states that it does not object to the imposition of duties on 
its exports to the United States based on any rates assigned to its 
suppliers.
    Agritalia argues that information in the record of this 
investigation demonstrates that Agritalia received de minimis 
countervailable subsidies, so it should be excluded from any order 
resulting from this investigation. Agritalia cites to section 
705(c)(1)(B)(i)(I) of the Act, which states that the Department will 
determine an ``individual countervailable subsidy rate for each 
exporter or producer individually investigated.'' Agritalia argues that 
a rate based on a weighted average of the rates of its suppliers which 
produced the pasta it sold during the POI is not the same as an 
individual rate for each exporter or producer as prescribed in the 
statute.
    Petitioners argue that, contrary to Agritalia's assertions, section 
705(c)(1)(B)(i)(I) does not mean that a company's ``individual'' rate 
must be calculated based solely on subsidies ``individually'' received. 
Petitioners state that Agritalia should receive a rate based on an 
aggregation of the countervailable subsidies received by Agritalia and 
the subsidies received by its producers attributable to the merchandise 
sold by Agritalia during the POI. Petitioners cite to Certain Carbon 
Steel Products from Brazil; Preliminary Results of Countervailing Duty 
Administrative Review (51 FR 39774, 39777) (``Steel from Brazil''), 
where the Department stated that subsidies to suppliers benefit the 
merchandise exported by trading companies. Petitioners request that the 
Department follow the calculation methodology laid out in Steel from 
Brazil where subsidies to the producers of merchandise sold by export 
trading companies are included in the margin calculation.
    DOC Position: We agree that the Department must calculate a 
countervailable subsidy rate for each exporter or producer of the 
subject merchandise which is individually investigated. However, 
certain subsidies to producers also benefit the merchandise exported by 
the trading companies. Therefore, we have included all of the 
countervailable subsidies which benefit the subject merchandise in the 
countervailing duty rate assigned to Agritalia. A detailed explanation 
of our calculation methodology for Agritalia's rate is provided in the 
Suspension of Liquidation section of this notice.
    Comment 6: Exclusion of de minimis companies: Petitioners assert 
that the Department should not exclude any de minimis companies from 
any countervailing duty order that is issued as a result of this 
investigation. Petitioners cite to Final Affirmative Countervailing 
Duty Determinations; Certain Steel Products from the Federal Republic 
of Germany (47 FR 39345) (``Steel from the FRG''), where the Department 
did not exclude a de minimis company from the order due to likelihood 
that company would continue to receive benefits under investigated 
subsidy programs. Petitioners argue that the Department applies strict 
standards to companies that request individual, company-specific rates 
in administrative reviews. Further, petitioners argue that the 
standards for termination or revocation of an order require affirmative 
evidence that a government has eliminated all subsidies on the 
merchandise, and that there is an absence of likelihood that the 
subsidies will be reinstated in the future.
    Petitioners assert that the export restitution program has existed 
for more than 20 years, and there is no indication that this program 
will be terminated or revoked. Petitioners emphasize that export 
restitution payments were only available during two months of the POI; 
accordingly, petitioners contend, it is likely that respondent 
companies will receive higher levels of countervailable subsidies in 
the future.
    Petitioners further argue that the possibility for circumvention is 
very real, and that the record of this investigation has demonstrated 
that pasta producers in Italy maintain an interrelated web of 
relationships which could allow companies to funnel exports through 
low-margin, or excluded, respondents. Petitioners think an exception to 
the Department's general practice of excluding de minimis companies is 
in order in light of these circumstances.
    Respondents Arrighi and Barilla argue that any respondent receiving 
a de minimis rate, should be excluded, as a matter of law, from any 
countervailing duty order the Department might issue in connection with 
this investigation. Respondents point to section 705(c)(1)(B)(i)(I) of 
the Act which states that the Department will determine an ``individual 
countervailable subsidy rate for each exporter or producer individually 
investigated.'' Respondents then point to section 705(a)(3) of the Act 
which states: ``In making a determination under this subsection, the 
administering authority shall disregard any countervailable subsidy 
that is de minimis * * *'' Respondents argue that since the statute 
requires the Department to disregard any de minimis countervailable 
subsidy, the Department must exclude respondents which are found to 
have de minimis countervailable subsidy rates.
    Respondents further argue that the Department has a long 
established practice of excluding de minimis companies from the order. 
Respondents point out that Steel from the FRG, cited by petitioners, is 
more than ten years old, and is not reflective of current Department 
practice.
    DOC Position: We disagree that the circumstances surrounding this 
investigation merit a departure from our usual practice of excluding de 
minimis respondents from an order, even if the law permitted this. The 
facts in this case differ from those in Steel from the FRG. In that 
case, the Department did not exclude from the order a respondent that 
had experienced a loss during the POI because there was a pattern of 
prior subsidization through coverage of losses. Hence, the Department 
had evidence that countervailable benefits associated with the coverage 
of losses were likely to be received after the POI. In this case, we 
have no evidence that the pattern of subsidization will change in such 
a way that benefits to firms

[[Page 30301]]

which are currently below de minimis level will increase.
    Comment 7: Export Restitution Payments: Respondents Delverde and 
Tamma argue that, due to amendments effected by the URAA, the 
Department cannot recognize the benefits from export restitution 
payments on an ``earned'' basis. Delverde and Tamma assert that the new 
statute requires a ``financial contribution'' before a subsidy can be 
found and that ``earning'' a payment does not amount to a financial 
contribution.
    Agritalia and Arrighi argue that the Department should use the date 
export restitution is recorded in company books as the basis upon which 
to calculate any potentially countervailable subsidies. Agritalia and 
Arrighi claim that accrual in the company records is an indication that 
the company has reached a commercial and legal conclusion that the 
receipt of the benefit is certain, thereby signifying that there has 
been an economic effect on the company. Agritalia further claims that 
the complex documentation process required to receive restitution 
payments results in the company being uncertain it will receive 
benefits until it receives confirmation from the GOI.
    The EC argues that export restitution benefits should be calculated 
at the time of the event giving rise to the benefit, i.e., the 
exportation of the merchandise. The EC argues that the timing of the 
payment can vary for reasons external to the objective of the subsidy, 
such as delays in the administrative mechanism paying out the 
restitution. The EC argues that the objective of the subsidy is a 
payment for exportation, so restitution should be calculated based on 
date of exportation.
    Petitioners argue that the record in this investigation provides 
evidence of substantial delays between the date of exportation, the 
date a request is filed, and the date funds are eventually received. In 
addition, petitioners contend that the various permutations associated 
with the export restitution program, such as pre-fixing of the 
restitution rate and the ability to sell and buy pre-fixing rights, 
should lead the Department to the conclusion that the best method for 
measuring restitution benefits is to calculate the benefit rates on a 
received basis.
    DOC Position: We agree with petitioners that various permutations 
associated with the export restitution program create a level of 
uncertainty that the amount of restitution expected at the time of 
export will equal the amount received. Moreover, as stated in the 
Export Restitution section of this notice, we found at verification 
that companies do not always receive the amount of restitution expected 
at the time of receipt. Therefore, we have calculated the benefits 
under this program on a received basis.
    Comment 8: Purchased Restitution Benefits: Arrighi argues that any 
export restitution payments received as a result of using an advance-
fixing certificate it purchased are non-countervailable, as Arrighi 
purchased the certificate from an unrelated party and paid adequate 
remuneration for the certificate.
    Petitioners argue that export restitution benefits, regardless of 
whether they result from a purchased certificate, represent a direct 
transfer of funds from the EC to the recipient, and that the Department 
must countervail at least the net amount received by Arrighi.
    DOC Position: We have calculated the benefits of export restitution 
payments on a received, rather than earned, basis for our final 
determination. As Arrighi did not receive any payments resulting from 
purchased export restitution certificates during the POI, this issue is 
moot.
    Comment 9: Fee Received by Agritalia: Petitioners argue that 
Agritalia was potentially eligible for export restitution on a sale of 
pasta to the United States, but instead claimed IPR as a service to 
another party. Petitioners claim that Agritalia would not have been 
able to receive fees for this service absent the export restitution 
subsidy program so, in effect, Agritalia indirectly benefited from the 
export restitution program, and the fees received by Agritalia should 
be countervailed. Petitioners argue that the fees received by Agritalia 
represent a benefit provided indirectly by the GOI in that their very 
existence stems from the design of the export restitution/IPR system in 
Italy.
    Agritalia responds that the fees it received were related to inward 
processing relief and not to export restitution. Agritalia argues that 
the Department has not found IPR countervailable, so any fees related 
to IPR should not be countervailable. Agritalia argues that neither the 
EU nor the GOI were involved in the transactions associated with the 
fees, and that there is no more relationship between the fees received 
by Agritalia and restitution than there is between IPR and restitution. 
Since the IPR scheme is not a countervailable benefit, the fees 
received by Agritalia are not a countervailable benefit.
    DOC Position: When Agritalia accepted the fees, it surrendered its 
eligibility to receive any restitution payments on those exports. The 
fees were payment to Agritalia to give up its export restitution rights 
with respect to those shipments where it was paid to claim IPR.
    Accordingly, we have determined that the fees received by Agritalia 
should be included in our calculation of countervailable export 
restitution benefits for Agritalia.
    Comment 10: VAT Reductions: Petitioners argue that VAT reductions 
under Law 675/77 are grants associated with the purchase of capital 
equipment and should be treated as non-recurring subsidies. Petitioners 
refer to the verification report in support of their argument that the 
GOI uses the VAT rebates to distribute these grants as a matter of 
convenience, and that the method of distribution should not outweigh 
the consideration that these are grants for capital equipment.
    Respondents Delverde and Tamma cite to the General Issues Appendix 
at 37226 where the Department indicates that its practice is to find 
benefits to be non-recurring when:

the benefits are exceptional, the recipient cannot expect to receive 
the benefits on an ongoing basis from review period to review period 
and/or the provision of funds by the government must be approved 
every year.

    Delverde and Tamma argue that there is no lengthy application or 
approval process to receive VAT reductions under Law 675; benefits are 
claimed as a line item directly on a company's VAT return. Further, 
recipients can expect to receive benefits on an ongoing basis. 
Respondents further argue that because this provision of Law 675/77 
provides a refund of VAT, it is a simple tax program and should be 
found recurring.
    Respondent De Matteis cites to Preliminary Affirmative 
Countervailing Duty Determinations: Certain Steel Products from Italy 
(57 FR 57739, 57744) where the Department determined that VAT 
reductions under Law 675/77 were recurring benefits. De Matteis argues 
that the Department should follow the precedent set in Certain Steel 
from Italy and in the preliminary determination for this investigation, 
and continue to treat VAT reductions under Law 675/77 as recurring 
benefits.
    DOC Position: We agree with respondents. In determining whether 
subsidy benefits are recurring or nonrecurring, the Department 
considers whether or not the benefits are exceptional, expected to be 
received on an ongoing basis from review period to review period, and/
or require approval every year.
    Although no new VAT reductions under Law 675 have been offered 
since

[[Page 30302]]

1991, until that time the program had been longstanding, and pasta 
manufacturers expected to receive benefits under the program on a 
recurring basis, without any special approval. Therefore, we have 
continued to treat these benefits as recurring in our final 
determination.
    Comment 11: Disaster Relief: Petitioners argue that assistance 
provided under Law 219 for disaster relief should be countervailed in 
the final determination. Petitioners acknowledge Float Glass from 
Italy; Preliminary Results of Administrative Review of Countervailing 
Duty Order (47 FR 56160) and Final Affirmative Countervailing Duty 
Determinations; Certain Steel Products from Italy (47 FR 39360 (1982)) 
as two cases where disaster relief was found to be non-specific because 
there was no predetermination of eligible areas and because no industry 
was excluded from eligibility. Petitioners contrast this with the 1993 
determination in Certain Steel from Italy, where the Department found 
disaster relief to be countervailable because the government had not 
provided information on specificity. Petitioners conclude that disaster 
relief is countervailable when the government has failed to establish 
its non-countervailable status, or where the assistance appears to be 
de facto specific. Petitioners claim that this is the case in this 
investigation.
    According to petitioners, the Italian government used Law 219 
assistance as a mechanism for expanding and modernizing production in 
the Mezzogiorno region. As such, Law 219 assistance is a regionally 
specific, industrial development subsidy whose ``[g]eneral financial 
benefit to the production is sufficient to support a determination of 
subsidy * * *'' (British Steel Corp v. United States, 605 F.Supp. 286, 
295 (C.I.T 1984). Petitioners maintain that the assistance does not 
appear to be limited to areas in need of assistance. In addition, 
petitioners point out that only slightly more than half of submitted 
applications were ultimately approved, indicating that benefits were 
distributed selectively. Petitioners also argue that respondents' 
failure to report Law 219 benefits in their original responses to the 
questionnaire warrants adverse inferences and, therefore, the 
Department should assume that these companies benefited from Law 219 to 
the maximum extent possible.
    Guido Ferrara states that Disaster Relief benefits under Law 219 
are not countervailable. According to Guido Ferrara, benefits pursuant 
to Law 219 went to build structures, businesses and churches destroyed 
during the 1980 earthquake. Guido Ferrara points out that the amount of 
assistance it received only helped to rebuild the factory, and not to 
expand beyond the original number of production lines. Guido Ferrara 
adds that the disaster relief assistance did not make up for several 
years worth of lost sales and lost customers. Guido Ferrara maintains 
that countervailing benefits received pursuant to Law 219 would create 
a bad precedent in that the United States has provided similar 
assistance during far less serious disasters.
    Barilla, De Matteis and Campano argue that assistance under Law 219 
was generally available to a wide range of facilities destroyed by the 
earthquake, i.e., industries, residential buildings, public locations, 
schools, and churches within an objectively defined geographic area. 
These respondents also point out that the GOI used objective criteria 
to select damaged eligible industries and that all companies that met 
the criteria could participate. These respondents also point out that 
only 5 of 598 companies eligible for assistance under Law 219 were 
pasta producers.
    DOC Position: We agree with respondents that assistance under Law 
219 is non-specific within the meaning of section 771(5A) of the Act 
and, as such, is not countervailable. Verification showed that all 
companies that met the prescribed criteria were automatically eligible 
for assistance. The criteria are neutral and do not favor one 
enterprise or industry over another. Adherence to the criteria is 
monitored by the GOI beginning with the application and approval stages 
(e.g., by requiring proof/documentation of actual damage and the extent 
of damage) and all the way through completion of the project by 
requiring proof of costs incurred (e.g., receipts) and on-site 
verification by government-appointed inspectors to ensure completion of 
the approved plans.
    As for petitioners' concern that the GOI is using Law 219 as 
another mechanism for expanding and modernizing production in the 
Mezzogiorno region, we saw no evidence that this program did anything 
more than assist in the rebuilding of facilities damaged by a natural 
disaster. Under the provisions of Law 219, the rebuilt facilities are 
required to produce the same product as the predecessor factory. In 
addition, eligibility for Law 219 assistance is strictly limited to 
facilities that suffered more than minor damage. If Law 219 had been 
designed to function as a mechanism for funneling more money into the 
Mezzogiorno region for expansion and modernization of production 
facilities, then one would expect to see looser eligibility 
requirements. While it is true that companies are not restricted to 
simple restoration of the damaged facilities, Law 219 assistance is 
capped by a formula based on the number of employees at the time of the 
earthquake and by a set percentage of project cost. To require that 
companies restrict themselves to mere restoration of the previous 
facility would be unreasonable and inefficient. This is especially true 
in the presence of technological advances achieved subsequent to the 
original capital purchases that would allow for cost effective building 
of plants and for the acquisition of advanced machinery.
    Contrary to petitioners'' assertion that the assistance does not 
appear to be contained to areas in need of it, we found at verification 
that assistance was limited to facilities damaged by the earthquake 
within a defined geographic area centered about the area hardest hit by 
the earthquake.
    Our findings at verification also showed that assistance granted to 
industries was non-specific in fact. First of all, there are numerous 
users of this program. As respondents pointed out above, the pasta 
industry is not a predominant user of this program. Also, we saw at 
verification that in addition to assistance for industries involved in 
production, all types of facilities (e.g., schools, public facilities, 
residential structures) are eligible for assistance under other 
articles of Law 219. Petitioners point to a high application rejection 
rate as an indication that GOI discretion is being exercised in the 
distribution of Law 219 assistance for industries. At verification, GOI 
officials explained that many who sought approval were rejected for a 
number of reasons such as damage was not significant enough, or the 
company seeking assistance frequently was a retailer not involved in 
production activities who properly had to apply for assistance under 
another Article of Law 219. Hence, the rejections reflect application 
of the eligibility criteria, and provide no evidence that benefits 
under Law 219 were specific.
    Comment 12: Treatment of Interest Contributions: Petitioners state 
that interest contributions on Law 64/86 loans received as lump-sum 
payments should be treated as non-recurring grants.
    DOC Position: We disagree with petitioners that the lump-sum 
interest contributions should be treated as grants. Where the borrower 
can reasonably expect to receive interest subsidies at the time the 
loan is taken out, our practice has been to use our

[[Page 30303]]

loan methodology to measure the benefit. (See, e.g., Certain Steel from 
Italy, 37331, 37339). In this case, companies applied for the interest 
subsidies at the same time they applied for the loan and in all but one 
case, the interest subsidy was granted. Hence we have followed our 
practice as articulated in Certain Steel from Italy.
    Comment 13: Tamma's Industrial Development Loans: Delverde argues 
that no benefits were received pursuant to Tamma's warehouse loan under 
Law 64/86. According to Delverde, Tamma was paying the commercial rate 
during the entire POI. Delverde points out that it was not until after 
the POI that approval for Law 64/86 assistance was granted for this 
loan.
    DOC Position: We disagree with Delverde that Tamma paid a 
commercial rate during the POI. We have compared the rate paid by Tamma 
(the reference rate) to our benchmark and determined that Industrial 
Development Loans conferred a benefit, in addition to the interest 
contributions, because the loan recipients paid less than they would 
pay for a comparable commercial loan (see section 771(5)(E)(ii)).
    For the reasons stated above in the Industrial Development Loans 
section, we are treating Law 64/86 loans as reduced-rate loans 
throughout the life of the loans. Therefore, if a loan is outstanding 
during the POI, benefits are accrued whether or not official 
notification of approval of Law 64/86 benefits has been received; this 
is due to the nearly automatic nature of the assistance.
    Comment 14: Fees for Loan Guarantees: Delverde argues that the 
benefit from its Law 64/86 loans should be calculated net of the 
guarantee fees it paid on these loans. To support its argument, 
Delverde cites section 701(a) of the Act where it states that the ``net 
countervailable subsidy'' should be used to calculate countervailing 
duties. ``Net countervailable subsidy,'' in turn is defined in section 
771(6)(A), as follows:

    For the purpose of determining the net countervailable subsidy, 
[the Department] may subtract from the gross countervailable subsidy 
the amount of * * * any application fee, deposit, or similar payment 
paid in order to qualify for, or to receive, the benefit of the 
countervailable subsidy.

    Petitioners state that there is no evidence on the record showing 
that guarantee fees were required by the GOI in order to receive Law 
64/86 interest subsidies. Instead, petitioners point out that the fees 
were required by the lending institution upon the transfer of the pasta 
factory from the previous owners to Delverde. As such, petitioners 
argue that the guarantee fees are related to the transfer of assets 
between the two companies, but not to the existence of the benefits on 
the applicable Law 64/86 loans. Petitioners also allude to potential 
future refunds of these fees as evidence of the speculative nature of 
these fees.
    DOC Position: We agree with Delverde that the loan guarantee fees 
it paid on certain Law 64/86 loans should be deducted. These fees are 
part of the effective cost of the loan. It is Departmental practice to 
compare the effective cost of the government loan to the benchmark loan 
(see, section 355.44(b)(8) of the Proposed Regulations). In order to 
determine the interest rate differential between the benchmark interest 
rate and the interest rate on the loans provided pursuant to this 
program, we have deducted the loan guarantee fee from the loan interest 
rate.
    Concerning petitioners' suggestion that these fees may be refunded 
in the future, we note that, as stated in the verification report, the 
agreement between Delverde and the lending institution speaks only of 
the possibility of reviewing the agreement in the future upon the 
reduction of the loan balances to a certain point--it does not mention 
the possibility of refunding the fees.
    Comment 15: Other Subsidies: Petitioners argue that the Department 
should countervail all funds received from entities that appear to be 
administering bodies for Law 64/86 contributions. These entities 
include the Cassa per il Mezzogiorno (``CASMEZ''), the Institute for 
the Economic Development of Southern Italy (``ISVEIMER''), and Istituto 
Mobiliare Italiano S.p.A. (``IMI'').
    DOC Position: We disagree with petitioners that all transactions 
via these institutions should be presumed to entail some form of 
government assistance. At verification we saw that some of these 
institutions acted as agents for Law 64/86 assistance while also 
engaging in commercial financial transactions (extension of loans, 
etc.). Payment schedules and other documents pertaining to the loans 
from these institutions outside of Law 64/86 did not contain any 
indication that government assistance was involved. Therefore, 
consistent with past practice (see Proposed Regulations at 
355.44(b)(9)), we have not included these loans in our investigation.
    Comment 16: Law 64/86 Grants: Petitioners urge the Department to 
capture all Law 64/86 assistance that was either reported to or found 
by the Department during the course of verification. In particular, 
they urge the Department to include unreported grants received by the 
previous owners of Delverde's pasta factory and by Delverde's related 
companies, grants received by Tamma pursuant to a predecessor law, and 
loans received by De Cecco and Indalco.
    Delverde counters by stating that it did report Law 64/86 
assistance pertaining to the pasta factory while under prior ownership. 
Delverde points out that the ``unreported'' grants under Law 64 
pertained to other unrelated operations of the prior owners of 
Delverde's pasta factory. As for the grant disbursements received by 
Tamma under the predecessor law, Delverde comments that the proper 
denominators can be found in Tamma's financial statements provided to 
Department officials during verification and attached to Delverde's 
case brief.
    DOC Position: We agree with Delverde that the ``unreported'' Law 
64/86 grants referred to by petitioners pertained to unrelated 
operations (e.g., a box factory, an olive oil producer) belonging to 
the prior owners of Delverde's pasta factory. As such, these grants 
were properly tied to operations other than the pasta factory presently 
owned by Delverde.
    Likewise, we verified that the ``unreported'' Law 64/86 loans 
received by De Cecco pertained to the separately incorporated milling 
operations and olive oil company. Therefore, they do not provide a 
benefit to the production of the subject merchandise.
    With respect to Indalco, we note that prior to verification the 
company reported two loans and two grants which were received under Law 
64/86 while Indalco was under previous ownership. In addition, at 
verification we discovered three grants which were also provided under 
Law 64/86 while the company was under previous ownership. Each of these 
loans and grants related to the production of subject merchandise. 
Therefore, they have been included in our calculations.
    Comment 17: Riscossa: According to petitioners, the Department 
should draw an adverse inference from Riscossa's inability to document 
the source of amounts recorded as ``Other Debt'' in its 1994 balance 
sheet and, as a result, should classify these amounts as Law 64/86 
assistance.
    DOC Position: We disagree with petitioners that the use of adverse 
facts available is warranted with respect to the portion of ``Other 
Debt'' for which company officials were not able to produce identifying 
documentation. Riscossa's accounting system has other accounts into 
which benefits received pursuant Law 64/86 and other programs would 
more properly be recorded.

[[Page 30304]]

During verification, we examined these other accounts and saw no 
indication that there were unreported loans granted under Law 64/86 or 
any other program.
    Comment 18: Publicita Grants: Delverde argues that the publicita 
grants under Law 64/86 should not be countervailed since the assistance 
related solely to advertising and publicity expenses for selling 
products in Italy and not to the ``manufacture, production, or export'' 
functions enumerated in the Act.
    Petitioners counter that the production and sale of merchandise are 
``inextricably intertwined.'' According to petitioners, companies 
produce only with the expectation of selling that production. 
Petitioners also point out that the aim of governments in providing 
subsidies is to stimulate production and sales.
    DOC Position: We agree with petitioners that benefits received in 
relation to selling activities do pertain to the manufacture, 
production and export of merchandise. Both grants pertaining to 
manufacturing activities and those to selling activities are given by 
governments with the intention of jointly benefitting production and 
sales. Hence, these subsidies are properly countervailed.
    Comment 19: Publicita Grants: Petitioners argue that the publicita 
grants to Tamma under Law 64/86 should be tied only to pasta since 
Tamma was not able to distinguish between grants related to pasta and 
those related to other products at verification.
    Delverde counters that for the one publicita grant to Tamma that 
applied to pasta and other products, company officials were able to 
provide supporting documentation at verification showing the allocation 
of those funds between pasta and the other products.
    DOC Position: We agree with Delverde that Tamma was able at 
verification to support the allocation of funds between pasta and other 
products for one of its publicita grants. Accordingly, we considered 
only the portion applicable to pasta for the one grant and used as our 
denominator sales of all pasta products by Tamma. Since the other 
publicita grants to Tamma were tied to pasta, we applied the entire 
amounts received to sales of pasta by Tamma.
    Comment 20: European Social Fund: Petitioners argue that the 
Department should find that ESF grants received by Barilla, Delverde, 
and De Matteis confer countervailable, non-recurring benefits to 
companies under investigation. According to petitioners, the GOI 
verification report clearly indicates that ESF grants are exceptional, 
one-time measures, and that each project requires separate application 
and government approval. Citing the Allocation section of the General 
Issues Appendix, petitioners argue that it is the Department's practice 
to treat this type of grant as non-recurring.
    Petitioners also argue that the failure of the GOI and the EC to 
provide accurate and timely information regarding the receipt of ESF 
grants requires the Department to countervail the grants using adverse 
inferences. They urge the Department to countervail all assistance 
received during the period 1983 through 1994 as if it were received in 
1994 (i.e., expensed during the POI). Petitioners also argue that the 
Department should include in its calculations the ESF grant received by 
De Matteis in 1995 (after the POI) because De Matteis applied for the 
grant in 1993 and recorded the amount in its books in the same year.
    The EC states that ESF grants should be considered non-recurring 
because the grants relate to specific and individual projects and each 
project requires separate government approval.
    Barilla argues that the Department should continue to find ESF 
benefits to be recurring because they are a type of benefit the 
Department has traditionally considered recurring (i.e., worker 
assistance). In the event that they are found to be non-recurring, 
Barilla argues that each of its grants are below 0.5 percent of sales 
in the year of receipt. Accordingly, Barilla urges the Department to 
expense the ESF grants in the year of receipt.
    Delverde argues that there is no basis for making any adverse 
inference regarding the receipt of ESF benefits by its predecessor 
company, MI.BA. Delverde claims that it has fully cooperated with the 
Department and the use of facts available against Delverde would be 
unlawful. Moreover, Delverde claims the Department was able to verify 
that Delverde provided all available information regarding MI.BA's use 
of the ESF program.
    De Matteis argues that the Department's practice is to countervail 
benefits when they are received; therefore, because De Matteis did not 
receive its ESF grant until after the POI, there is no benefit to De 
Matteis during the POI. Moreover, De Matteis argues that if the 
Department were to change its methodology and measure the benefit from 
the date that De Matteis accrued or applied for the benefit, the 
benefit would not exceed 0.5 percent of sales and would be expensed 
prior to the POI.
    DOC Position: We agree with petitioners and the EC that benefits 
under the ESF program are non-recurring. While worker benefits were 
identified in the General Issues Appendix in a list of benefits which 
are typically recurring, we note that the list was provided for 
illustrative purposes only. The General Issues Appendix states that 
``[t]he unique factual circumstances of a particular case may indicate 
that a program listed generally as recurring be found nonrecurring or 
vice versa.'' It is clear from the GOI verification that ESF grants 
provide one-time assistance and should be considered non-recurring.
    We do not agree, however, that an adverse inference of the type 
proposed by petitioners is warranted. Under section 776(b) of the Act, 
the Department is allowed to make an inference that is adverse to the 
interests of a party only if that party has ``failed to cooperate by 
not acting to the best of its ability to comply with a request for 
information.'' There is no evidence that Barilla, Delverde, or De 
Matteis did not act to the best of their abilities to supply 
information regarding this program. Therefore, we have calculated the 
benefits from the ESF grants using the appropriate years in which they 
were received, as reported by the companies.
    With respect to the ESF grant received by De Matteis, we agree with 
the respondent that De Matteis received no benefit from this grant 
during the POI. It is the Department's normal practice to recognize a 
subsidy benefit when there is a cash-flow effect. In this instance, the 
cash-flow effect takes place after the POI; therefore, there is no 
benefit during the POI.
    Comment 21: Benefits to Mills: Petitioners argue that the purpose 
of the upstream subsidy provision, as reflected in the legislative 
history, is to broaden the scope of subsidy practices that can be 
captured under U.S. countervailing duty law. Petitioners argue that 
using the upstream subsidy provision as a basis for excluding subsidies 
from the investigation would contravene the intended purpose of the 
provision.
    Petitioners claim that the upstream subsidy provision is applicable 
only when the producer of the subject merchandise purchases the input 
product from an unaffiliated company. Petitioners point to Live Swine 
from Canada; Final Results of Countervailing Duty Adminstrative Review 
(59 FR 12243) (``Live Swine''), in which the Department has 
consistently countervailed the Alberta Crow Benefit Offset Program, 
which offsets the costs of feed grain fed to hogs, as precedent for 
this position. Petitioners claim that this program was a subsidy for 
the production of an input product and that

[[Page 30305]]

it was found to benefit the subject merchandise--without an upstream 
subsidy allegation--due to the integrated nature of hog production.
    Petitioners also argue that even if the Department determines that 
subsidies to mills constitute upstream subsidies, they are 
countervailable on other grounds. Petitioner asserts that they are 
countervailable as subsidies to related parties and as subsidies 
discovered during the course of the investigation.
    Respondents argue that because semolina is an ``input product,'' 
subsidies to the production of semolina are correctly examined under 
the upstream subsidy provision of the statute. To support their 
position respondents cite Canadian Meat Council v. United States (661 
F. Supp. 622 (CIT 1987)), wherein the Court determined that subsidies 
to live swine could be found to benefit pork packers only within the 
context of the upstream subsidy provision.
    Respondents maintain that there is no exception to the upstream 
subsidy provision for input products produced by related parties. 
According to respondents, the only exception to the upstream subsidy 
provision, falls under section 771B of the Act, which allows the 
Department to dispense with the upstream subsidy analysis for processed 
agricultural products if certain conditions are met. Respondents argue 
that these conditions are not met with respect to pasta production for 
several reasons. Respondents contend that semolina is not a raw 
agricultural product and that the value added in converting semolina 
into unfinished pasta is substantial.
    Finally, respondents refute petitioners' claim that subsidies to 
semolina mills are subsidies ``discovered during the course of'' a 
countervailing duty investigation. Respondents point out that 
information regarding these subsidies was on the record from the start 
of the investigation.
    DOC Position: As discussed above, in the Subsidies Valuation 
section of this notice, the Department's past practice has been to 
apply the upstream subsidy provision for subsidies to the input product 
where the product is purchased from a separately incorporated company, 
whether affiliated or not. Petitioners'' reliance on Live Swine is 
misplaced. The subsidy program in question in that case was provided 
directly to the producers of the subject merchandise to offset the 
higher costs of the input product. Moreover, we agree with respondents 
that the processed agricultural products exception to the upstream 
subsidy provision (section 771B) is not met in the case of pasta. 
Therefore, where the companies under investigation purchase their 
semolina from separately incorporated companies, whether or not they 
are affiliated, we have determined that the upstream subsidy provision 
applies.
    We disagree with petitioners that such subsidies are 
countervailable as subsidies to related companies or as subsidies 
discovered during the course of an investigation. We agree with 
respondents that there is no exception from the upstream subsidy 
provision for related input producers. Therefore, subsidies to 
separately incorporated input producers can only be examined in an 
upstream subsidy investigation. Moreover, we agree with respondents 
that these subsidies were not discovered during the course of the 
investigation.
    Comment 22: Termination of certain Social Security benefits for 
Molise and Abruzzo: La Molisana claims that the Department should 
assign a ``zero'' duty deposit rate to La Molisana for certain social 
security benefits because companies in the Molise region became 
ineligible to receive these benefits at the end of 1994. La Molisana 
argues that because the benefits were terminated prior to the 
preliminary determination, setting the cash deposit rate at zero for 
these benefits will accurately reflect the level of subsidization on 
any entries which have been suspended from liquidation. Moreover, La 
Molisana claims that any countervailing duty deposits for these 
benefits will simply be refunded upon review.
    Petitioners argue that the Department should reject La Molisana's 
claims regarding the termination of social security benefits for 
several reasons. Petitioners claim that La Molisana has not shown that 
the termination has affected any company other than La Molisana itself. 
In addition, petitioners point out that the basis of the change is the 
Molise region's increased level of economic development. Petitioners 
claim that neither La Molisana nor the government has given any 
indication that the program will not be reinstated in the event that 
the Molise region's level of development declines. Moreover, 
petitioners claim there is no evidence on the record that benefits for 
the Molise region were terminated by an official act. Finally, 
petitioners claim that none of La Molisana's allegations were verified 
at the GOI.
    DOC Position: We have determined that the facts of the record do 
not support a finding that the social security benefits in question 
were terminated. While the GOI response indicated that benefits in the 
Molise and Abruzzo regions were terminated pursuant to an August 5, 
1994, decree of the Italian Ministry of Labor, record evidence 
indicates that at least one company located in the Abruzzo region 
continued to receive benefits after the supposed termination. This 
indicates that residual benefits may be available under the program. 
According to section 355.50(d), of the Proposed Regulations, the 
Department will not adjust the cash deposit rate where residual 
benefits may continue to be bestowed under a terminated program. 
Therefore, we have not adjusted the cash deposit rate for companies 
located in the Abruzzo or Molise regions.
    Comment 23: La Molisana Fiscalizzazione: La Molisana argues that 
there is no evidence on the record that La Molisana received 
fiscalizzazione deductions at the higher rate available in the 
Mezzogiorno. La Molisana claims that its 1994 DM-10S forms indicate 
that different rates were paid by La Molisana from region to region, 
but that the rates paid for employees in the south were not 
systematically lower than those paid for employees in the north.
    Petitioners argue that La Molisana's claims regarding its use of 
the fiscalizzazione program directly contradict the verified 
information regarding the operation of this program, which is that the 
rate of deduction in southern Italy is greater than that in northern 
Italy.
    DOC Position: We disagree that there is no evidence on the record 
that La Molisana received fiscalizzazione deductions at the higher rate 
available in the Mezzogiorno. The company's DM-10S forms reflect 
National Health Service payments equal to one percent for wages 
eligible for fiscalizzazione deductions, indicating that deductions 
were taken at the higher rate available in southern Italy. Therefore, 
we have calculated the resulting benefit to La Molisana according to 
the methodology described in the Social Security section of this 
notice.
    Comment 24: De Matteis Fiscalizzazione: De Matteis argues that the 
greater fiscalizzazione deductions taken by De Matteis do not confer 
any financial benefit. De Matteis claims that in order to receive the 
greater fiscalizzazione deductions, companies located in the 
Mezzogiorno must agree to abide by a collective labor bargaining 
agreement. The company argues that the greater fiscalizzazione 
deduction is intended to offset the increased cost associated with the 
collective bargaining agreement and, for this reason, does not confer a 
benefit.
    Petitioners claim that there is no record evidence to support De 
Matteis'

[[Page 30306]]

claims. Petitioners assert that there is no official document 
establishing a connection between the additional fiscalizzazione 
benefits and labor agreement compliance. In addition, petitioners argue 
that neither De Matteis nor any other respondent has provided 
information regarding any obligations that arise from participating in 
a collective labor bargaining agreement. In addition, even if there was 
information on the record regarding potentially increased costs 
associated with a collective labor agreement, these costs do not fall 
within the carefully circumscribed list of allowable offsets under the 
statute.
    DOC Position: We agree with petitioners. In order to claim any of 
the numerous allowable social security deductions in Italy, companies 
must be in compliance with the labor agreements. However, there is no 
record evidence that any social security deduction, including 
fiscalizzazione, is intended to offset any costs associated with labor 
agreements.
    Comment 25: Treatment of De Cecco: De Cecco argues that it 
misinterpreted the Department's request for information regarding 
related parties and, hence, should not be penalized for its failure to 
provide information regarding its affiliate, Pescara. De Cecco claims 
that it interpreted the term ``related parties'' in the context of 
Italian tax law, and that because De Cecco and Pescara are not related 
for Italian tax purposes, De Cecco believed the two companies to be 
unrelated for purposes of this investigation. De Cecco argues that when 
it came to De Cecco's attention that their questionnaire response may 
have been deficient, De Cecco submitted a questionnaire response on 
behalf of Pescara to correct the error. De Cecco argues that in making 
this submission, the company was acting to the best of its ability to 
comply with the investigation and, therefore, adverse inferences may 
not be used against De Cecco.
    De Cecco also argues that if the Department uses facts available 
for Pescara, the appropriate facts available should be based on De 
Cecco's verified submissions. According to De Cecco, its own 
information would be much more representative of Pescara than simply 
assigning Pescara the highest ``facts available'' rate for each 
program. In addition, De Cecco argues that De Cecco's own 
countervailing duty rates should remain unchanged in the event that the 
Department uses facts available to determine Pescara's countervailing 
duty rate. De Cecco argues that its responses have been verified and 
all possible subsidies that De Cecco was alleged to have received were 
fully investigated.
    Finally, De Cecco argues that the Department's decision that 
adverse facts available is justified in the companion antidumping duty 
investigation is not relevant to this proceeding. De Cecco argues that 
the main distinction between the antidumping case and the 
countervailing duty case is that there was a complete verification of 
De Cecco in the countervailing duty investigation, during which the 
Department found no evidence that De Cecco withheld or attempted to 
withhold information. In addition, De Cecco argues that in the 
antidumping case, the Department sent a deficiency questionnaire 
requesting information on related parties from De Cecco, whereas none 
was sent in the countervailing duty case. De Cecco claims that it 
submitted information on Pescara before it was even requested by the 
Department.
    Petitioners argue that De Cecco and Pescara are affiliated parties 
and that De Cecco's failure to respond to the Department's 
questionnaire on behalf of Pescara merits the use of facts available. 
Petitioners argue that the legal standard and the facts on which the 
Department based its affiliated party determination in the antidumping 
case are identical to those in the present case, and hence, an 
identical outcome is justified. Petitioners argue that in its 
responses, De Cecco deliberately withheld information regarding its 
relationship with Pescara. They argue that De Cecco provided a detailed 
list of related parties and yet continually declined to include 
Pescara. Petitioners argue that De Cecco's claim that it misinterpreted 
the Department's request for information regarding related parties, is 
without merit for several reasons. They point out that the Department's 
questionnaire contained explicit definitions regarding the terms used 
in its questionnaire and that De Cecco was represented by experienced 
trade counsel that presumably was aware that the relationship between 
two companies for purposes of foreign tax laws is irrelevant in the 
context of a countervailing duty investigation.
    Petitioners assert that De Cecco's conduct represents consistent 
non-compliance with an information request, thereby justifying the use 
of adverse facts available. Petitioner's also argue that the facts 
available rate should be applied to both De Cecco and Pescara, pointing 
out that the purpose of facts available is to provide the Department 
with a necessary tool to encourage cooperation by respondents. In this 
case, the reporting obligation lay with De Cecco, not Pescara, such 
that any repercussions for non-cooperation should inure directly to De 
Cecco.
    DOC Position: We agree with petitioners that De Cecco's failure to 
provide information regarding Pescara warrants the use of facts 
available with adverse inferences. We are not persuaded by De Cecco's 
argument that it misinterpreted the related party question because of 
its understanding of Italian tax law. The Department's questionnaire 
contained a detailed explanation of the definition of related parties 
to be used in this investigation; it did not reference foreign tax 
laws. In response to this and a supplemental questionnaire De Cecco 
reported several related parties, including two companies, Desemark 
S.r.L and Prodotti Mediterranei Inc. (``PMI''), which are related to De 
Cecco through similar circumstances as Pescara. (Presumably these two 
companies are also not considered related parties for Italian tax 
purposes, and yet De Cecco chose to include information regarding these 
companies in its responses.) Furthermore, contrary to De Cecco's 
assertions, the Department requested information in a supplemental 
questionnaire regarding whether there were other companies related to 
De Cecco that were previously not reported but that are involved in the 
production, distribution, or sale of pasta. In response, De Cecco 
identified only PMI. For these reasons, we have determined that De 
Cecco was not acting to the best of its ability to respond to the 
related party section of the questionnaire. Therefore, the use of facts 
available with adverse inferences regarding subsidies provided to 
Pescara is warranted. However, we agree with De Cecco that the company 
accurately reported and the Department verified, information regarding 
subsidies received by De Cecco itself. Therefore, we have calculated a 
combined rate using adverse inferences for Pescara's portion and De 
Cecco's own verified information for De Cecco's portion.
    Comment 26: Export Promotion Assistance: Petitioners allege that 
information uncovered at verification indicates that Barilla is 
currently operating a project using export promotion loans under Law 
394, which was found to be not used in the preliminary determination. 
Petitioners argue that while GOI officials stated at verification that 
no amounts had been disbursed to Barilla under this program, there is 
no evidence on the record to support this statement. In addition, 
petitioners argue that the export promotion grant received by Barilla 
under Law 304 in relation to an export promotion project in South 
America in

[[Page 30307]]

fact promoted Barilla's pasta exports to the United States.
    Barilla argues that export promotion benefits are countervailable 
only if they promote exports to the United States. Barilla asserts that 
nothing in the record demonstrates that Barilla received export 
promotion grants or loans for export to the United States. According to 
Barilla, the Department verified that the export promotion grant 
received by Barilla related solely to the Argentine and Brazilian 
markets and that the only export promotion loan for which Barilla 
applied had not even been approved as of the GOI verification.
    DOC Response: We agree with Barilla. Verification at the GOI and at 
Barilla confirmed that Barilla accurately reported its receipt, or non-
receipt, of export promotion grants and loans for export to the United 
States. We found no evidence at verification that Barilla received 
export promotion grants which benefit exports to the United States, nor 
that Barilla had any outstanding export promotion loans under this 
program.
    Comment 27: Green Light Treatment for Law 64/86: The EC, GOI, and 
Delverde argue that, because of the superior nature of EC law, certain 
of the necessary conditions for qualifying for green light treatment 
are met at the Community level rather than at the national level. 
According to respondents, the Department should not limit its analysis 
to an examination of the Italian regional aid laws. Rather, the 
Department should examine the Italian laws in the context of EC 
competition policy rules which, respondents argue, form the basis of an 
EC-wide general framework of regional development pursuant to which all 
national regional aid programs must be granted.
    The EC argues that within this general framework, the GOI performed 
an initial socio-economic analysis using specific criteria and 
identified all regions that were in need of regional aid. The GOI then 
notified the EC of its proposed aid scheme and the scheme was found to 
be compatible with the EC general framework of regional development 
with the exception of certain regions which were found not to meet the 
specific criteria of the competition policy rules. According to 
respondents, the fact that Law 64/86 was notified, modified, and 
ultimately approved according to the requirements of the competition 
policy rules demonstrates that Law 64/86 assistance was provided within 
a general framework of regional development. Respondents also argue 
that all of the remaining green light criteria were met by Law 64/86.
    Petitioners argue that the programs in question were not provided 
pursuant to a generally applicable regional development policy in 
Italy. In support of this argument, they point to verification findings 
that, historically, the GOI has not maintained any statistical criteria 
for determining which regions were in need of assistance and that a 
systematic method of selection of the areas eligible for assistance was 
not applied until 1988 when the EC investigated Law 64. In addition, 
petitioners argue that it is inappropriate to consider Italy's regional 
development programs in the context of the EC's competition policy 
rules because there is no evidence linking the EC competition policy 
rules to the Italian programs under investigation at the time of their 
enactment. Petitioners also claim that the EC argument fails in light 
of its own determination that Law 64/86 was not fully compatible with 
the competition policy rules until the end of 1992.
    Petitioners argue that regardless of whether the Italian regional 
aid programs are examined within the EC framework, the remaining green 
light criteria are not met. They argue that the GOI failed to establish 
that regional development assistance contains ceilings on the amount of 
assistance and that the GOI failed to establish that regional 
distribution of aid is not specific.
    DOC Position: We disagree with the EC statement that the GOI 
performed a systematic analysis in order to identify the regions which 
would receive regional development assistance. There is no evidence on 
the record that such an analysis was undertaken and, moreover, 
statements from the GOI verification directly contradict such an 
assertion. Petitioners correctly note that the GOI verification 
confirmed that the first time that a systematic review of the regions 
eligible for assistance was applied in Italy was in 1988, when the EC 
examined Law 64/86.
    Moreover, as discussed in the Green Light section of this notice, 
we need not reach the issue of whether the nature of Law 64/86 as a 
green light subsidy is governed by a community-wide framework of 
regional development because we find that Law 64/86 does not meet the 
criteria established in the community-wide framework. Therefore, we 
conclude that Law 64/86 programs do not qualify as non-countervailable 
subsidies.
    Comment 28: Initiation of Research and Development and European 
Investment Bank (``EIB'') Loan Assistance: Petitioners argue that the 
Department improperly rejected petitioners' request to initiate a 
countervailing duty investigation of assistance provided through the 
EIB and of research and development assistance provided under Law 46 
because the programs were found to be non-specific in previous 
investigations. According to petitioners, the fact that the Department 
found EIB loans and research and development assistance to be de facto 
non-specific in previous investigations is an insufficient basis for 
rejecting petitioners' allegations. They argue that the previous 
findings were fact-based, and thus, did not amount to a finding of non-
countervailability as a matter of law.
    Respondents Barilla and La Molisana argue that the Department 
correctly decided not to investigate EIB loans or research and 
development assistance because the programs had been previously found 
to be non-specific and, in the case of EIB loans, the Department has 
chosen several times not to investigate the programs. Respondents also 
argue that petitioners have provided no new evidence warranting a re-
examination of these issues.
    DOC Position: Our decision not to investigate these programs was 
based on the fact that petitioners had not provided a sufficient basis 
to believe that the programs had changed since the previous findings of 
noncountervailability. With respect to the EIB loan program, 
petitioners never addressed the fact that the program had been found 
not countervailable in a previous investigation and, therefore, made no 
effort to allege that the program had changed or that pasta producers 
may have received a disproportionate share of the benefits under the 
program. With respect to the research and development program, 
petitioners alleged that the Department's previous findings that the 
program was non-specific had not taken into account an amendment which 
made the program available to pasta producers. However, we noted in our 
notice of initiation that the amendment was made seven years prior to 
the finding that the program was non-specific. Therefore, we determined 
that this amendment did not constitute a change in the program and was 
not a sufficient basis for believing that pasta had received a 
disproportionate share of the benefits under the program.
    Comment 29: Affiliated Parties: Petitioners assert that the 
relationships between several respondent companies and their affiliated 
parties contain mechanisms through which subsidies can be transmitted 
and/or exhibit the potential for channeling exports through the company 
with the lowest margin. Petitioners distinguish between two types of 
affiliated parties--those that

[[Page 30308]]

produce the subject merchandise (i.e., Delverde/Tamma and Arrighi/
Italpasta) and those that do not produce the subject merchandise and 
yet still play a meaningful role in the production process (i.e., De 
Matteis/Demaservice and Campano/Chirico).
    With respect to Delverde and Tamma, petitioners argue that their 
common board member plays an integral role in the most important 
strategic decisions made by both companies, making it likely for 
subsidies to be transmitted between the two companies. Petitioners 
further argue that the day-to-day transactions between the companies 
provide a vehicle for the transmittal of subsidies and the potential 
for export-shifting. Petitioners claim that, for Arrighi and Italpasta, 
the level of common ownership, the shared board members, and the day-
to-day transactions between the companies leads to a similar 
conclusion. For these relationships, petitioners propose assigning one 
rate to the affiliated companies, based on a weighted-average of their 
individually calculated rates using exports to the United States.
    Petitioners also argue that the Department should include in its 
calculations subsidies to certain affiliated companies of Campano and 
De Matteis. Petitioners support the Department's preliminary 
determination that De Matteis' affiliated service company, Demaservice, 
plays an integral role in De Matteis' production and that subsidies to 
Demaservice are likely to benefit such production. In addition, 
petitioners allege that certain transactions between Campano and its 
affiliate exhibit the potential for transmitting subsidies between the 
two companies. For these types of relationships, petitioners argue that 
the Department should calculate a combined subsidy rate using subsidies 
received by both companies and their combined sales.
    Delverde argues that the single weighted-average margin applied to 
Delverde and Tamma in the preliminary determination is an inappropriate 
and unfounded anti-circumvention measure. According to Delverde, the 
Department's preliminary finding that the relationship between Delverde 
and Tamma is not a likely vehicle for transmitting subsidies was 
confirmed at verification. Delverde asserts that Tamma holds less than 
a 20 percent ownership interest in Sangralimenti, the holding company 
that owns Delverde, and that while the companies share one common 
director they operate as separate commercial entities. Moreover, 
Delverde argues that there is no evidence on the record which suggests 
that the companies would (or even could) shift exports in response to 
differing subsidy rates. Therefore, Delverde claims, the imposition of 
anti-circumvention measures is unreasonable and unlawful.
    Arrighi argues that the methodology proposed by petitioners of 
assigning a single margin for Arrighi and Italpasta based on a 
weighted-average of their individual rates is inconsistent with the 
Department's past practice and is unreasonable. According to Arrighi, 
the purpose of combining two companies is to treat them as if they were 
a single entity subsidized at the same rate. In the past, the 
Department has accomplished this by combining the subsidy information 
of the two companies and allocating them over their combined sales. 
Arrighi contends that petitioners' proposed methodology results in the 
Department not treating the combined companies as a single entity, but 
rather as two separate entities.
    DOC Position: We agree with petitioners that the relationships 
between Delverde and its affiliate and Arrighi and its affiliate are 
sufficient that the companies should be treated as a single company. We 
disagree with Delverde that the ownership interest of Tamma does not 
meet the 20 percent threshold. As discussed in the Related Parties 
section of this notice, when the ownership interests of Tamma and its 
affiliate, Tamma Service, are aggregated, the ownership interest is 
above the 20 percent threshold. Therefore, we have calculated a single 
rate for the two companies.
    However, we agree with Arrighi that the appropriate method for 
calculating a combined rate is to divide the total subsidy benefits of 
the two companies by their combined sales. The methodology used in our 
preliminary determination does not result in the two companies being 
treated as a single entity and does not accurately measure the level of 
subsidization of the subject merchandise.
    With respect to the treatment of De Matteis and its affiliate, we 
agree with petitioners and have calculated a combined subsidy rate for 
the two companies accordingly. With respect to Campano, we note that 
Chirico does not produce the subject merchandise and therefore Chirico 
and Campano would only be treated as a single company if there were 
evidence of the transmittal of subsidies between the companies. While 
we agree with petitioners that certain transactions between the two 
companies may exhibit the potential for the transmittal of subsidies, 
through no fault of Campano's we do not have the information necessary 
to determine whether transmittal of subsidies was likely. Therefore, we 
have calculated a rate for Campano using only subsidies received by 
Campano divided by Campano's sales.

Verification

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

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, if available, or pasta 
exports to the United States. The all-others rate does not include zero 
or de minimis rates, or any rates based solely on the facts available.
    In accordance with our affirmative preliminary determination, we 
instructed the U.S. Customs Service to suspend liquidation of all 
entries of pasta from Italy which were entered, or withdrawn from 
warehouse, for consumption on or after October 17, 1995, the date of 
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 February 14, 1996, but to continue the 
suspension of liquidation of entries made between October 17, 1995, and 
February 13, 1996. 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.

[[Page 30309]]



------------------------------------------------------------------------
                                                                   Ad   
                           Company                              valorem 
                                                                  rate  
------------------------------------------------------------------------
Agritalia, S.r.l.............................................       2.55
Arrighi S.p.A. Industrie Alimentari..........................       2.44
Barilla G. e R. F.lli S.p.A..................................       0.65
De Matteis Agroalimentare S.p.A..............................       2.47
Delverde, S.r.l..............................................       5.55
F.lli De Cecco di Filippo Fara S. Martino S.p.A..............       3.37
Gruppo Agricoltura Sana S.r.L................................       0.00
Industria Alimentare Colavita, S.p.A.........................       2.18
Isola del Grano S.r.L........................................      11.23
Italpast S.p.A...............................................      11.23
Italpasta S.r.L..............................................       2.44
La Molisana Alimentari S.p.A.,...............................       4.17
Labor S.r.L..................................................      11.23
Molino e Pastificio De Cecco S.p.A. Pescara..................       3.37
Pastificio Guido Ferrara.....................................       1.21
Pastificio Campano, S.p.A....................................       2.59
Pastificio Riscossa F.lli Mastromauro S.r.L..................       6.91
Tamma Industrie Alementari di Capitanata.....................       5.55
All Others...................................................       3.78
------------------------------------------------------------------------

    We calculated the ad valorem rate for Agritalia, an export trading 
company, by weight averaging, based on the value of exports to the 
United States represented by each of Agritalia's suppliers, the 
adjusted subsidy rate for each supplier and adding to this rate the 
subsidy rate calculated for Agritalia based on subsidies it received 
directly. In performing this calculation, we adjusted the suppliers' 
rates to account for any mark-up or mark-down by Agritalia, to adjust 
prices to reflect Agritalia's f.o.b. export prices, and to exclude any 
export restitution benefits received by Agritalia's suppliers on export 
sales to the United States which were earned on sales made by the 
producer independently of Agritalia. We note that at the time of our 
preliminary determination, we lacked information to adjust the 
producers' subsidy rates for any mark-up or mark-down taken by 
Agritalia on sales. The methodology we have used in our final 
determination effectively calculates the f.o.b. subsidy rate for 
merchandise sold by Agritalia during the POI.
    Since the estimated net countervailable subsidy rate for Barilla 
and Gruppo is either zero or de minimis, these companies will be 
excluded from the suspension of liquidation.

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 nonproprietary information relating to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under an administrative protective order, without the written consent 
of the Deputy Assistant Secretary for Investigations, Import 
Administration.
    If the ITC determines that material injury, or threat of material 
injury, does not exist, these proceedings will be terminated and all 
estimated duties deposited or securities posted as a result of the 
suspension of liquidation will be refunded or canceled. If, however, 
the ITC determines that such injury does exist, we will issue a 
countervailing duty order directing Customs officers to assess 
countervailing duties on pasta from Italy.

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: June 3, 1996.
Paul L. Joffe,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-14734 Filed 6-13-96; 8:45 am]
BILLING CODE 3510-DS-P