Court Opinion

ID: 818714
Source: CourtListenerOpinion
Date Created: 2013-02-03 08:27:36.288058+00
Date Added: 2024-06-11T09:02:51.969453
License: Public Domain

Slip Op. 04-114

                 UNITED STATES COURT OF INTERNATIONAL TRADE

________________________________________________
                                                             :
AL TECH SPECIALTY STEEL CORP., CARPENTER
TECHNOLOGY CORP., REPUBLIC ENGINEERED                        :
STEELS, TALLEY METALS TECHNOLOGY, INC.
and UNITED STEEL WORKERS OF AMERICA,                         :
AFL-CIO/CLC,
                                                             :
                             Plaintiffs,
                                                             :
                     v.
                                                             :
UNITED STATES OF AMERICA,
                                                :
                        Defendant.
________________________________________________:                Consol. Court No. 98-10-03061
ACCIAIERIE VALBRUNA S.R.L. and                               :
ACCIAIERIE DI BOLZANO S.P.A.,
                                                             :
                             Plaintiffs,
                                                             :
                     v.
                                                             :
UNITED STATES OF AMERICA,
                                                :
                        Defendant.
________________________________________________:

[U.S. Department of Commerce’s countervailing duty determination is remanded for further action
consistent with this opinion.]

                                                                     Decided: September 8, 2004

      Collier Shannon Scott, PLLC (David A. Hartquist, Laurence J. Lasoff, Robin H. Gilbert, R.
Alan Luberda, Lynn Duffy Maloney and John M. Herrmann), for Plaintiffs/Defendant-Intervenors
AL Tech Specialty Steel Corporation et al.
Court No. 98-10-03061                                                                           Page 2

       White & Case LLP (Walter J. Spak, Gregory J. Spak, Christopher M. Curran, Richard J.
Burke and Lynn H. Fabrizio), for Plaintiffs/Defendant-Intervenors Acciaierie Valbruna S.r.l. et al.

        Peter D. Keisler, Assistant Attorney General; David M. Cohen, Director, and Jeanne E.
Davidson, Deputy Director, Commercial Litigation Branch, Civil Division, U.S. Department of
Justice (Stephen C. Tosini and Aileen M. Bell); Peter G. Kirchgraber, Office of Chief Counsel for
Import Administration, U.S. Department of Commerce, Of Counsel; for Defendant United States.

                                              OPINION

RIDGWAY, Judge:

        In this consolidated action, the U.S. Department of Commerce (“Commerce”) is taking flak

from both sides. Both the domestic parties (hereinafter collectively “AL Tech”)1 and two Italian

producers and exporters of stainless steel wire rod are contesting various aspects of the agency’s

Final Determination which found that the Government of Italy, the Province of Bolzano, and the

European Union (“EU”) provided countervailable subsidies to the two Italian producers – Acciaierie

Valbruna S.r.l. (“Valbruna”) and Acciaierie di Bolzano S.p.A. (“Bolzano”) (hereinafter collectively

“Valbruna/Bolzano”),2 and which resulted in the imposition of a countervailing duty order.3 See

        1
       The domestic parties – AL Tech Specialty Steel Corp., Carpenter Technology Corp.,
Republic Engineered Steels, Talley Metals Technology, Inc., and the United Steelworkers of
America, AFL-CIO/CLC – are Plaintiffs in the first of the two consolidated actions, as well as
Defendant-Intervenors in the second.
        2
         Valbruna and Bolzano are Defendant-Intervenors in the first of the two consolidated actions,
as well as Plaintiffs in the second.
        3
         Commerce may impose countervailing duties where it determines that a government or
public entity within a country is providing a countervailable subsidy (i.e., a financial contribution
that confers a benefit on the recipient), which may take the form of, inter alia, grants, loans, goods
or services, as well as less tangible forms (such as the foregoing of revenue – e.g. rent or taxes – that
would otherwise be due. 19 U.S.C. § § 1671(a), 1677(5). In order for a subsidy to be
countervailable it must be “specific” – that is, it must not be generally available. A subsidy may be
Court No. 98-10-03061                                                                           Page 3

Certain Stainless Steel Wire Rod from Italy, 63 Fed. Reg. 40,474 (Dep’t Commerce July 29, 1998)

(“Final Determination”); Stainless Steel Wire Rod from Italy, 63 Fed. Reg. 49,334 (Dep’t Commerce

Sept.15, 1998) (countervailing duty order).

       Predictably, AL Tech challenges the subsidy rate in the countervailing duty order as too low,

while Valbruna/Bolzano challenges it as too high. Indeed, Valbruna/Bolzano observes that – under

U.S. law – Commerce can make an affirmative determination in a countervailing duty case (and issue

a countervailing duty order) only if the aggregate net countervailable subsidy equals or exceeds one

percent ad valorem. In this case, Commerce identified 10 types of government action considered

to confer “subsidies,” then summed up the asserted benefits of those actions and calculated a subsidy

rate of 1.28% – a rate only marginally above the statutory “de minimis” one percent threshold.4

       Valbruna/Bolzano emphasizes that it here challenges Commerce’s determinations as to six

of the 10 alleged subsidies – and that its success in even a single one of those six challenges5 may

deemed specific if its availability is limited to, for example, certain enterprises, certain industries,
or certain geographical regions. 19 U.S.C. § 1677(5A). Where the availability of a subsidy is
limited expressly by legislation or by the subsidy- granting authority, the subsidy may be considered
specific as a matter of law (de jure). Where, for example, the actual number of recipients is limited,
or where a particular enterprise or industry is a predominant user of a subsidy, the subsidy may be
considered specific as a matter of fact (de facto). 19 U.S.C. § 1677 (5A)(D).
       4
         That figure stands in stark contrast to the subsidy rate of 22.2% calculated by Commerce for
the third Italian steel producer under investigation, Cogne Accai Speciali. See Final Determination,
63 Fed. Reg. at 40,503. See also 63 Fed. Reg. at 49,334 (countervailing duty order).
       5
         Each of Valbruna/Bolzano’s six challenges concerns a different subsidy rate: (1) lease for
less than adequate remuneration (0.16%); (2) two-year rent abatement (0.38%); (3) Law 25/81 grants
to Bolzano (0.28%); (4) Law 193/84 capacity reduction payments to Falck (0.04%); (5) Law 193/84
capacity reduction payments to Valbruna (0.10%); and (6) European Social Fund (0.05%). Thus,
Valbruna/Bolzano’s success on as few as one of its challenges (e.g., the two-year rent abatement
subsidy or the unrounded calculations with the Law 25/81 grants subsidy), or on various
combinations of its challenges, could drop the subsidy rate below the one percent de minimis
Court No. 98-10-03061                                                                           Page 4

shave off enough so that the subsidy rate falls below the de minimis threshold, and the countervailing

duty order would be, in essence, void ab initio.6

       Valbruna/Bolzano further asserts that this case is not only an easy case (in the sense that

Valbruna/Bolzano need prevail on only a bare handful of its many arguments to achieve all the relief

that it seeks), but that it is a rare case as well – because, according to Valbruna/Bolzano, neither the

Italian Government nor the Province of Bolzano provided significant benefits that directly affected

Valbruna/Bolzano’s exports of stainless steel wire rod. Instead, “most of the subsidies found to exist

(0.86 percent of the total 1.28 percent) related either to benefits provided to a previous owner of

threshold. See Memorandum of Points and Authorities in Support of Valbruna/Bolzano’s Motion
for Judgment on the Agency Record (“Valbruna Brief”) at 3; Reply of Plaintiffs/Defendant-
Intervenors Valbruna/Bolzano in Support of Their Motion for Judgment on the Agency Record
Pursuant to Rule 56.2 (“Valbruna Reply Brief”) at 1, 36-37 (explaining that the unrounded total
subsidy is 1.263801% and that the unrounded portion of the total subsidy attributed to Law 25/81
grants is 0.275512%, and noting that a finding in Valbruna/Bolzano’s favor on the Law 25/81 issue
alone would make the subsidy de minimis).
       6
         Indeed, Commerce recently published notice of its revocation of the countervailing duty
order at issue, effective retroactively to September 15, 2003, based on the agency’s determination
that revocation of the order is not “likely to lead to continuation or recurrence of a countervailable
subsidy” – i.e., that any future “net countervailable subsidy likely to prevail is de minimis.” See
Stainless Steel Wire Rod from Italy, 69 Fed. Reg. 40,354 (Dep’t Commerce July 2, 2004). However,
Commerce’s recent action does not moot this case.

       Entries of the subject merchandise from Valbruna/Bolzano were subject to Commerce’s
countervailing duty order and the 1.28% countervailing duty deposit from the publication date of the
agency’s affirmative Preliminary Determination until October 15, 2002 (when Commerce calculated
the countervailing duty rate to be de minimis). See Stainless Steel Wire Rod from Italy, 67 Fed. Reg.
63,619 (Dep’t Commerce Oct. 15, 2002). Thus, at issue in this action is the rate at which
countervailing duties are to be finally assessed on those entries of merchandise for which
Valbruna/Bolzano was required to deposit duties. Valbruna/Bolzano here asserts that, because any
subsidy was de minimis, that rate should be zero, and that it is therefore entitled to recover its
deposits on those entries (with interest).
Court No. 98-10-03061                                                                            Page 5

Bolzano,7 or to a real estate agreement through which Valbruna leased the land and buildings

associated with the industrial facilities from the Province of Bolzano.” See Valbruna Brief at 4; see

also id. at 9 (“most of the 1.28 percent . . . related to two commercial transactions not directly related

to the production or sale of Italian stainless steel wire rod”).

        Like Valbruna/Bolzano, AL Tech too disputes various aspects of Commerce’s determination

concerning the adequacy of Valbruna’s rent under its lease with the Province of Bolzano. But,

unlike Valbruna/Bolzano, AL Tech contends that the overall calculated subsidy rate should be higher

number. AL Tech otherwise mounts a vigorous defense of Commerce’s Final Determination. For

its part, the Government maintains that both parties’ challenges are lacking in merit, and that

Commerce’s Final Determination should be sustained in all respects.

        7
         One of Valbruna/Bolzano’s arguments challenging Commerce’s determinations on
assistance provided under Laws 25/81 and 193/84 is not presently before the Court. That argument
concerns Commerce’s finding that certain subsidies to Falck and Bolzano passed through to
Valbruna/Bolzano when Valbruna purchased Bolzano from Falck. Specifically, Valbruna/Bolzano
contends that Commerce erred by applying its methodology for privatization transactions (i.e., sales
of public entities to private entities) to the purchase of a private company (Bolzano) by a private
entity (Valbruna) from another private entity (Falck). That privatization/change-in-ownership
subsidy pass-through issue has been previously remanded to Commerce, and – at the request of all
parties – is presently stayed.

        Commerce decided the subsidy pass-through issue in this case under its old “gamma”
methodology, now discredited. Since that time, in response to rulings by the U.S. Court of Appeals
for the Federal Circuit and the World Trade Organization, Commerce has changed its methodology
several times. See Notice of Final Modification of Agency Practice Under Section 123 of the
Uruguay Round Agreements Act, 68 Fed. Reg. 37,125 (Dep’t Commerce June 23, 2003). However,
Commerce has not yet re-analyzed the subsidy pass-through issue in this case. If Valbruna/Bolzano
prevails on other arguments it has raised in this action, the level of subsidy may fall below the
statutory de minimis level, obviating the need for Commerce to re-analyze the pass-through issue
here using a revised methodology.
Court No. 98-10-03061                                                                         Page 6

       Jurisdiction is predicated on 28 U.S.C. § 1581(c) (1994).8 In a matter such as this,

Commerce’s determination must be sustained, except to the extent that it is “unsupported by

substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C. §

1516a(b)(1)(B).

       Pending before the Court are two motions for judgment on the agency record, filed by AL

Tech and Valbruna/Bolzano, respectively. For the reasons set forth below, AL Tech’s motion is

denied, Valbruna/Bolzano’s motion is granted, and this action is remanded to Commerce for further

proceedings consistent with this opinion.9

                                          I. Background

       The picturesque northern-most region of Italy – the Province of Bolzano – provides the

backdrop for the three interrelated commercial transactions and the three government programs that

underlie this action.

       Most of the 1.28% subsidy rate calculated by Commerce relates to the three interrelated

commercial transactions involving the production facilities of Acciaierie di Bolzano S.p.A.

(“Bolzano”) – a manufacturer of stainless steel wire rod which was until 1995 a virtually wholly-

owned subsidiary of Falck (a private corporate group that historically had holdings in steel, real

estate, environmental technologies, and other sectors). See Prop. Doc. No. 6 at 8; Prop. Doc. No.

       8
         All statutory citations are to the 1994 version of the U.S. Code. However, the pertinent text
of the cited provisions remained the same at all times relevant herein.
       9
         However, a decision on Valbruna/Bolzano’s challenge to Commerce’s pass-through
methodology is expressly reserved. As explained in note 7 above, that issue is presently on remand
to the agency, and the remand is stayed.
Court No. 98-10-03061                                                                          Page 7

9, App. F-1; Prop. Doc. No. 9, App. F-3; Prop. Doc. No. 25, App. 9.10 Also participating in these

transactions were the Province of Bolzano and Acciaierie di Valbruna (“Valbruna”), another steel

manufacturer. See Pub. Doc. No. 98 at 4.

        Over a period of years Falck, Bolzano, and Valbruna received financial assistance under

several programs funded by the European Union, the Government of Italy, and the Province of

Bolzano, including (1) Provincial Law 25/81, which provided funds for restructuring; (2) Law

193/84, which provided funds for steel-capacity reduction; and (3) the European Social Fund, which

funded training for workers at risk of unemployment. See Prop. Doc. No. 9 at 10-11; Pub. Doc. No

220 at 5, 9; Pub. Doc. 221 at 6-8.

       In early 1994, Falck informed the Province of its intent to shut down Bolzano’s steel-making

operations and sell the site on which Bolzano was operating (the “Industrial Site”). See Prop. Doc.

No. 51 at 3-5; Pub. Doc. No. 65 at 15-16; Pub. Doc. No. 218 at 5-6. In recent years, the Province

had been acquiring industrial property within its borders, as part of an effort to preserve jobs within

the region. The Province began negotiating with Falck to purchase of the land and buildings

comprising the Industrial Site. See Pub. Doc. No. 218 at 5-6.

       The Provincial Cadastral Office undertook an appraisal of the Industrial Site, including the

two separate tracts that made up the Industrial Site – the Stabilimento Sede and the Stabilimento Erre

       10
         The administrative record in this case consists of two sections, designated “Public” and
“Proprietary,” respectively. The “Public” section consists of copies of all documents in the record
of this action, with all confidential information redacted. The “Business Proprietary” section
consists of complete, unredacted copies of only those documents that include confidential
information. Citations to documents in the “Public” section of the administrative record are noted
as “Pub. Doc. No.” Citations to documents in the “Proprietary” section are noted as “Prop. Doc.
No.” All page numbers refer to the original, internal pagination of the documents.
Court No. 98-10-03061                                                                          Page 8

(nominally owned, respectively, by Bolzano and another Falck subsidiary).11 Pub. Doc. No. 218 at

5-7; Cadastral Appraisal, Prop. Doc. No. 50, Ex. 6; Prop. Doc. No. 9 at 4. In their appraisal,

Cadastral officials considered the taxable value of the Industrial Site, and compared the prices paid

for other large industrial properties in the area. The appraisal also accounted for relevant factors

such as the demolition of existing structures, the need for environmental remediation, and the

availability of industrial property in the Province.      The appraisal expressly disclaimed any

consideration of “the economic and social importance” of the property. See generally Cadastral

Appraisal, Prop. Doc. No. 50, Ex. 6 at 4-7; Pub. Doc. No. 218 at 7.

       As it was negotiating an agreement (the “Site Purchase Agreement”) to sell the Industrial Site

to the Province, Falck interested Valbruna in buying Bolzano, Falck’s steelmaking subsidiary. See

Pub. Doc. No. 218 at 5. Valbruna wanted to increase its steel manufacturing operations and, in late

1994, began negotiations for an agreement to purchase Falck’s 99.99% equity holding in Bolzano

(the “Share Transfer Agreement”). See Prop. Doc. No. 9 at 15-16; Pub. Doc. No. 98 at 4. Knowing

of Falck’s negotiations with the Province for the sale of the Industrial Site, Valbruna conditioned its

       11
          As the Government notes, the Provincial Cadastral Office is the official authority
responsible for the assessment of property within the jurisdiction of the Province. See Defendant’s
Memorandum in Opposition to Plaintiffs’ Motions for Judgment on the Agency Record (“Gov’t
Response Brief”) at 39 & n.9 (“According to Webster’s II, New Riverside University Dictionary
(1988), ‘cadaster’ means ‘A public record, survey, or map of the value, extent, and ownership of land
as a basis of taxation,’ and lists ‘cadastral’ as the adjectival form.”).

        As the official governmental authority responsible for the appraisal of property within the
jurisdiction, the actions and determinations of the Cadastral Office are subject to administrative
checks and balances, including the appeal of its appraisals to the courts. See generally Memorandum
of Plaintiffs/Defendant-Intervenors Valbruna/Bolzano in Response to Brief in Support of Plaintiffs’
Motion for Judgment on the Agency Record Pursuant to Rule 56.2 (incorporating replacement pages
filed on August 30, 1999) (“Valbruna Response”) Brief at 13.
Court No. 98-10-03061                                                                        Page 9

proposed purchase of Bolzano on its ability to lease the Industrial Site from the Province. See Prop.

Doc. No. 22 at 5.

       Soon after talks between Valbruna and Falck began, Valbruna commissioned an independent

appraisal of the Industrial Site and negotiated an agreement with the Province for the lease of the

property (the “Lease Agreement”). Under the Lease Agreement, Valbruna’s rent was specified as

a percentage of the purchase price negotiated under the Site Purchase Agreement between Falck and

the Province. The Lease Agreement, obligated Valbruna to purchase the Industrial Site from Falck

for the price in the Site Purchase Agreement if the Province did not complete the purchase. In

addition, the Lease Agreement gave Valbruna the option to buy the Industrial Site from the Province

within the first five years of the lease term. See Prop. Doc. No. 9, App. F-3 at Art. 8; Prop. Doc.

No. 51 at 10; Pub. Doc. No. 216 at 11; Prop. Fiche No. 274, Frame 21, Ex. 6.

       Three aspects of the Province’s Lease Agreement with Valbruna distinguished it from the

Province’s prior leasing experience. See Pub. Doc. No. 218 at 7. First, the Province leased the land

and buildings to Valbruna; previously, the Province had leased land only. See Pub. Doc. No. 218

at 9. Second, the Lease Agreement had a 30-year life – the maximum under Italian law – and was

the only 30-year lease in the Province. See Pub. Doc. No. 218 at 9; Prop. Doc. No. 9, App. F-3 at

Art. 1. Third, the Province granted Valbruna a two-year rent abatement in exchange for Valbruna’s

assumption of responsibility for certain urgent, initial extraordinary maintenance and environmental

remediation projects on the buildings located on the Industrial Site. See Pub. Doc. No. 218 at 7-9;

Prop. Doc. No. 9, App. F-3 at Art. 2. See Pub. Doc. No. 218 at 9.

       During the summer of 1995, Falck, Valbruna, and the Province concluded negotiations and

signed the three agreements memorializing the transactions – the Site Purchase Agreement (between
Court No. 98-10-03061                                                                        Page 10

Falck and the Province), the Share Transfer Agreement (between Falck and Valbruna), and the Lease

Agreement (between the Province and Valbruna). Pub. Doc. No. 218 at 6; Prop. Doc. No. 25, App.

9; Prop. Doc. No. 9, App. F-1 and App. F-3.

       All three agreements were subject to conditions. The Site Purchase Agreement (between

Falck and the Province) required the Province to deposit its payment for the Industrial Site with the

Provincial Treasury within five days after that agreement became binding on the Province. Prop.

Doc. No. 25, App. 9 at Art. 1. Further, the Site Purchase Agreement would become binding only

with, inter alia, a presidential decree of approval. See Prop. Doc. No. 25, App. 9 at Arts. 1, 9, 12.

The Share Transfer Agreement (between Falck and Valbruna) was conditioned on Valbruna’s

successfully entering a lease agreement with the Province for the Industrial Site. See Prop. Doc. No.

9, App. F-1 at Art. 3.01. Finally, the Lease Agreement (between the Province and Valbruna)

required Valbruna to purchase the Industrial Site from Falck for the same price agreed to by the

Province under the Site Purchase Agreement, if the Province did not complete the purchase. See

Prop. Doc. No. 9, App. F-1 at Art. 5.01; Prop. Doc. No. 9, App. F-3; Prop. Doc. No. 51 at 10.

                                           II. Analysis

       As discussed in greater detail below, AL Tech alleges that – contrary to Commerce’s findings

– the price that the Province paid for the Industrial Site under the Site Purchase Agreement was

excessive, and thus conferred a subsidy. And both AL Tech and Valbruna/Bolzano dispute aspects

of Commerce’s finding that the rental rate fixed in the Lease Agreement is below market and thus

conferred a subsidy. Specifically, AL Tech maintains that the base (“benchmark”) rental rate used

by Commerce was too low and, thus, that Commerce’s calculated subsidy rate is too low. In
Court No. 98-10-03061                                                                      Page 11

contrast, Valbruna/Bolzano contends that the calculated subsidy rate is too high.          Indeed,

Valbruna/Bolzano contends that there was no subsidy. In particular, Valbruna/Bolzano faults

Commerce because – in evaluating Valbruna’s rent under the Lease Agreement against market rates

– the agency refused to take into account depreciation on buildings, as well as certain contractual

obligations that Valbruna assumed under the lease (including responsibility for extraordinary

maintenance expenses, as well as expenditures for urgent initial extraordinary maintenance and

environmental remediation on the Province’s buildings, for which Valbruna received a two-year rent

abatement).

       Finally, although most of the 1.28% subsidy calculated by Commerce relates to the parties’

commercial transactions, Valbruna/Bolzano also challenges Commerce’s findings that

countervailable subsidies were conferred by assistance received under the three government

programs at issue – Law 25/81, Law 193/84, and the European Social Fund.

       Each of these issues is addressed in turn below.

               A. Commerce’s Determination That The Province’s Purchase
                     of the Industrial Site Did Not Confer a Subsidy

       AL Tech first disputes Commerce’s determination that – judged against prevailing market

conditions – the Province’s purchase of the Industrial Site was not for more than adequate

remuneration, and thus could not have conferred a countervailable subsidy on Valbruna/Bolzano.

See Final Determination, 63 Fed. Reg. at 40,483-84, 40,488-89; 19 U.S.C. § 1677(5)(E) (adequacy

of remuneration to be judged against market conditions). In essence, AL Tech contends that the

Province of Bolzano provided a subsidy to Valbruna by overpaying Falck for its purchase of the

Industrial Site – an overpayment that, according to AL Tech, was passed on to Valbruna when
Court No. 98-10-03061                                                                           Page 12

Valbruna purchased the Falck subsidiary, Bolzano. See generally Brief in Support of Plaintiffs’

Motion for Judgment on the Agency Record Pursuant to Rule 56.2 (“AL Tech Brief”) at 11-25;

Reply Brief in Support of Domestic Industry’s Motion for Judgment on the Agency Record (“AL

Tech Reply Brief”) at 6-24. But see Gov’t Response Brief at 34-42; Valbruna Response Brief at 15-

31.

       In support of its determination that Falck did not overpay for the Industrial Site, Commerce

relied on (1) the official Cadastral appraisal of the Industrial Site, (2) Valbruna’s commitment to

purchase the Industrial Site at the same price to be paid by Falck if its purchase of the site was not

completed, and (3) an inference that, due to certain provisions in its Lease Agreement with the

Province, Valbruna had “a strong commercial interest” in ensuring that the Province did not pay too

much for the Industrial Site.

       AL Tech challenges each of the three bases for Commerce’s determination, to no avail.

                                    1. The Cadastral Appraisal

       Significantly, AL Tech does not directly attack the accuracy of the actual valuation arrived

at in the official Cadastral appraisal – the first basis cited for Commerce’s determination that the

Province did not pay too much for the Industrial Site.12 Although AL Tech repeatedly insists that

       12
          AL Tech repeatedly seeks to minimize Commerce’s reliance on the Cadastral appraisal.
See, e.g., AL Tech Brief at 21. For example, AL Tech claims that Commerce’s Final Determination
“did not place great significance” on the Cadastral appraisal, and that Commerce “conce[ded] that
the appraisal . . . provides only marginal support for the conclusion that the Province paid adequate
remuneration for the Bolzano site.” AL Tech Brief at 21.

       However, as Valbruna/Bolzano correctly notes, Commerce in fact made no such concession.
Valbruna Response Brief at 20 n.15. Indeed, in its Final Determination, Commerce cited the
Cadastral appraisal first in its discussion of verified facts relied upon in its “adequate remuneration”
Court No. 98-10-03061                                                                           Page 13

the price paid was too high, nowhere does AL Tech affirmatively state what it contends to be the true

value of the property. Nor does AL Tech even point to any record evidence to substantiate its claim

that the Cadastral appraisal overstated the value of the property.

       Instead, AL Tech seeks to smear the Cadastral Office and to disparage both its expertise in

general and the appraisal it conducted in this case. Indeed, AL Tech dismisses the Cadastral

appraisal as “nothing more than a thinly-veiled effort to cover the Province’s payment of a higher

than market price to Falck in order to ensure its ability to acquire ownership of the Bolzano industrial

site as a means of maintaining employment in the region.” AL Tech Reply Brief at 16-17. AL Tech

apparently theorizes that the Cadastral Office colluded with Provincial officials who were involved

in purchasing the Industrial Site, so that the appraisal would overstate the value of the site and thus

discourage other potential buyers. See generally AL Tech Brief at 19-21; AL Tech Reply Brief at

7-18. As discussed below, however, there is no record evidence of wrongdoing whatsoever to

support AL Tech’s conspiracy theory – just as there is no record evidence to indicate that the

Cadastral appraisal is inaccurate in any way. Gov’t Response Brief at 38-39; Valbruna Response

Brief at 17-23.

       Presumably because it cannot directly challenge the substantive accuracy of the Cadastral

appraisal, AL Tech instead takes aim at its form. AL Tech argues, for example, that the Cadastral

appraisal “includes only the most basic and elementary analysis” of the Industrial Site. AL Tech

Reply Brief at 17; see also AL Tech Brief at 20. But the document speaks for itself, refuting that

determination. Final Determination, 63 Fed. Reg. at 40,489.
Court No. 98-10-03061                                                                            Page 14

claim. In short, the evidence of record decisively disproves AL Tech’s assertion that, in valuing the

Industrial Site, the Cadastral Office “did little more than pick a number out of thin air.” Compare

AL Tech Reply Brief at 18 with Valbruna Response Brief at 18, 20-21.

        The Cadastral appraisal includes substantial detail regarding the Industrial Site, including a

description of the land and a map of the site (in addition to separate maps of each of the two tracts

comprising the site), as well as information and data on matters such as the taxable value of the land,

and the overall and per-square-meter prices paid for similar industrial sites in the Province. In

addition, the appraisal expressly identifies and accounts for specific factors that affected the value

of the property (increasing it or decreasing it), such as the relative scarcity of industrial property in

the province and the large size of the Industrial Site, as well as the need to demolish existing

structures for any non-steel-producing tenant, and the need for environmental cleanup. See Pub.

Doc. No. 218 at 5-7; Cadastral Appraisal, Prop. Doc. No. 50, Ex. 6; Pub. Doc. No. 173 at 000056-

58.13

        Significantly, AL Tech conspicuously fails to specifically identify any particular information

that is missing from the Cadastral appraisal14 – with one exception. AL Tech does criticize the

        13
          In the course of conducting its verification, Commerce specifically confirmed much of the
information in the Cadastral appraisal. See generally Pub. Doc. No. 218 at 5-7; Valbruna Response
Brief at 18.
        14
          AL Tech attempts to leverage its quarrel with the level of detail in the Cadastral appraisal
into a larger point, in an effort to generally denigrate the Cadastral Office’s expertise in appraising
industrial properties within its jurisdiction. AL Tech asserts that the calibre of the Cadastral
appraisal pales in comparison to other property appraisals in the administrative record. However,
as discussed above, AL Tech has failed to identify any specific information that should have been
included in the Cadastral appraisal, but wasn’t – whether by reference to other property appraisals
in the record, or otherwise. See AL Tech Reply Brief at 18; but see Valbruna Response Brief at 18
(noting Commerce’s verification that Bolzano Cadastral Office followed standard methodology in
Court No. 98-10-03061                                                                             Page 15

appraisal because it specifies no precise value for the buildings on the Industrial Site. See AL Tech

Reply Brief at 17. But, in fact, it is clear from the record that the buildings had no real value to the

Province. Province officials explained that properties with the highest value were those clear of

structures, and that land encumbered with buildings had a lower value. Thus, as Commerce verified,

the buildings on the Industrial Site were essentially not an asset to be valued, but – rather – a

liability. See Pub. Doc. No. 218 at 5-7.15 Moreover, viewed differently, the Cadastral appraisal did

consider the value of the buildings: it reflected adjustments for the costs of demolishing existing

structures and the costs of necessary environmental cleanup. See Cadastral Appraisal, Prop. Doc.

conducting appraisals), 22 (discussing expertise of Bolzano Cadastral Office, as well as significance
of an “outside” appraisal of a property in another region of Italy to which AL Tech points with
approval).
        15
          AL Tech elsewhere contends that the Cadastral appraisal does not deserve the weight that
Commerce gave it, because (according to AL Tech) the appraisal included several sentences that
were not translated, which indicated that the value of the Industrial Site was diminished because of
title problems. AL Tech Brief at 20. However, the appraisal that AL Tech’s brief cites on this point
is not the Cadastral appraisal, but – rather – the untranslated independent appraisal of the Industrial
Site commissioned by Valbruna and prepared by architect Dr. Ezio Barberini. (AL Tech does cite
to the appendix to its brief as well, and the Cadastral appraisal is included there.)

        In any event, it is not enough simply to baldly assert that certain text in a document which
is not in English has a particular meaning. There is no record support for AL Tech’s claimed
translation. Nor is AL Tech clear as to the significance of its observation, if true. (It is not clear, for
example, whether AL Tech is suggesting that certain statements in the appraisal were deliberately
left untranslated, for some assertedly nefarious reason.)

        What is clear is that the Cadastral appraisal expressly stated the basis for its valuation (i.e.,
whether or not the Industrial Site had title problems), and that the basis specified in the appraisal was
consistent with the state in which the site was to be delivered to the Province, pursuant to the Site
Purchase Agreement. See Cadastral Appraisal, Prop. Doc. No. 50, Ex. 6 (describing basis for
valuation); Site Purchase Agreement, Prop. Doc. No. 25, App. 9 (requiring that property be delivered
in same state as that specified in the appraisal).
Court No. 98-10-03061                                                                           Page 16

No. 50, Ex. 6; Valbruna Response Brief at 6-7, 18.

       Inexplicably, AL Tech also asserts that the appraisal fails to identify other industrial

properties that the Cadastral Office used for comparison. AL Tech Reply Brief at 17. To the

contrary, the appraisal specifically identifies three major industrial properties that the Cadastral

Office considered – the Magnesia, Iveco, and Alluminia sites. Cadastral Appraisal, Prop. Doc. No.

50, Ex. 6 at 5. See generally Valbruna Response Brief at 6-7.16

       AL Tech next seeks to add insult to injury. After critiquing both the form of the Cadastral

appraisal and the expertise of the Cadastral Office in general, AL Tech attempts to impugn their

integrity as well. However, those arguments also fail.

       AL Tech intimates that the Cadastral appraisal was tainted by a conflict of interest,

emphasizing that “an arm of the same governmental entity that was purchasing the site [i.e., the

Province] was responsible for appraising the site.” AL Tech Brief at 20-21. On its face, the

appraisal expressly disclaims any political bias in valuing the Industrial Site. See Cadastral

Appraisal, Prop. Doc. No. 50, Ex. 6 at 7. But AL Tech discounts that disclaimer as “baseless in the

       16
          AL Tech emphasizes that the appraisal itself notes the difficulty of comparing sites in the
absence of an active industrial real estate market, as well as the inherent difficulty of comparing one
site to another. AL Tech Reply Brief at 17-18; Cadastral Appraisal, Prop. Doc. No. 50, Ex. 6 at 7.
However, the mere fact that something is difficult does not make it impossible or unreliable.
Further, many appraisals suffer from at least one (if not both) of the challenges confronted here; there
is no suggestion that the Cadastral appraisal is unique in that respect.

        Ultimately, this argument – like a number of AL Tech’s other arguments – goes, at most, to
the weight to be accorded the appraisal (a matter where Commerce’s experience and judgment are
entitled to great deference). Moreover, as discussed in greater detail below (and as even AL Tech
concedes), Commerce’s determination on the adequacy of remuneration was based on more than just
the appraisal alone. See, e.g., AL Tech Brief at 11-12 (listing the various bases cited by Commerce
as support for its determination).
Court No. 98-10-03061                                                                            Page 17

face of the clear motivation of the Province to purchase the site to maintain employment within the

region.” AL Tech Brief at 20.

         AL Tech’s case on this point is, at best, circumstantial. See generally Gov’t Response Brief

at 38-39. Unsubstantiated suspicions are simply insufficient to cast doubt on either the veracity of

the Cadastral officials or the validity of Commerce’s determination in reliance on the Cadastral

appraisal. See Consolo v. Fed. Mar. Comm'n, 383 U.S. 607, 620 (1966). And AL Tech points to

no specific evidence to support its conflict of interest claim; nor can it do so. There is simply

nothing in the record to suggest that – in the words of AL Tech – the Province’s “underlying

motivations” influenced the Cadastral appraisal. See AL Tech Brief at 20. Certainly there is nothing

to suggest that Commerce harbored any such concerns.

        AL Tech nevertheless pursues this line of argument even further, striving to spin an elaborate

web of collusion and deceit out of various facts and dates (particularly the date of the Cadastral

appraisal vis-a-vis the date of Falck’s notice to the Province of its intent to close the Bolzano

facility). See generally AL Tech Reply Brief at 7-11, 13-15. AL Tech brazenly alleges that “the

Cadastral’s Office, in conjunction with the Provincial government, over-valued the Bolzano

industrial site” in order to “discourage private parties from attempting to purchase the site,” so that

the Province could gain control of the property and “attract a new company that was committed to

maintain jobs.” AL Tech Reply Brief at 8, 10, 15.

        But, if the record is bereft of evidence to suggest that the Cadastral appraisal was tainted by

conflict of interest (as it is), it is even more true that the record is barren of any evidence whatsoever

to support AL Tech’s theory that the Cadastral Office actively conspired with the Province to
Court No. 98-10-03061                                                                          Page 18

overstate the value of the Industrial Site.17 AL Tech does not (and, indeed, cannot) point to even a

shred of evidence to substantiate the grave charges that it implicitly levels – not only that Province

authorities actively sought to influence the appraisal (and were thus guilty of official misconduct),

but also that they succeeded in doing so (i.e., that Cadastral officials succumbed to the hypothetical

pressure of the Province, and thus were themselves also guilty of dereliction of duty and breaches

of professional ethics).

       AL Tech’s conspiracy theory amounts to little more than compounded conjecture –

speculation heaped on more speculation. And mere speculation that the circumstances of a case

would have permitted improper influence or collusion does not constitute evidence of such

misconduct. See Asociacion Colombiana de Exportadores v. United States, 23 CIT 148, 154, 40 F.

Supp. 2d 466, 472 (1999); see also Novosteel SA v. United States, 294 F.3d 1261, 1276 (Dyk, J.,

dissenting) (Fed. Cir. 2002) (“It is well established that speculation does not constitute ‘substantial

evidence.’”) (citing Bowen v. American Hospital Ass’n, 476 U.S. 610, 626 (1989)).

        AL Tech’s argument boils down, in essence, to a claim that the Province had both “motive”

       17
          AL Tech’s theory that the Province and the Cadastral Office conspired to overstate the value
of the Industrial Site is at odds with at least one of its other arguments. Specifically, AL Tech
elsewhere rejects out of hand Valbruna/Bolzano’s observation that one indicator of the reliability of
the Cadastral appraisal of the Industrial Site is its consistency with other appraisals by that office.
AL Tech argues that that consistency may mean simply that the Cadastral Office overstates the value
of all properties that it appraises. See AL Tech Reply Brief at 11-12. But either AL Tech believes
that the Province manipulated the process to artificially inflate the appraised value of this property
in particular, or AL Tech believes that the Cadastral Office routinely overvalues all properties. AL
Tech cannot have it both ways.

       In any event, just as the record fails to substantiate AL Tech’s claim that the Cadastral
appraisal overstated the value of the Industrial Site here at issue, so too there is no record evidence
to support AL Tech’s suggestion that the Cadastral Office overvalues all properties (or even all
properties acquired by the Province) as a routine matter of course.
Court No. 98-10-03061                                                                           Page 19

and “opportunity” to “cook” the outcome of the Cadastral appraisal. But evidence of motive and

opportunity alone rarely suffice to prove murder. What AL Tech lacks here is a corpse. One simply

states the obvious to note that governments in general frequently have both motive and opportunity

to manipulate the agencies at their disposal. What AL Tech cannot point to is any evidence

whatsoever that, in this case, the Province acted on its motive and opportunity – assuming that it had

them.

        In short, AL Tech’s argument is not truly a challenge to this Cadastral appraisal in particular,

but – rather – an attempt to use a judicial forum to promulgate a regulation of general application

limiting Commerce to reliance on “outside” appraisals in certain specified circumstances. Indeed,

AL Tech implies that such a requirement already exists in the statute.

         AL Tech makes much of an assertedly “detailed, independent appraisal” of a different

industrial site prepared for the local government of a different region of Italy – the northwestern

region of Valle d’Aosta. See AL Tech Brief at 20. AL Tech argues that such an “outside” appraisal

is necessary to fulfill Commerce’s statutory obligation to evaluate the adequacy of the Province’s

payment for the Industrial Site in light of “prevailing market conditions,” and that Commerce’s

acceptance of the Cadastral appraisal in this case was “inconsistent” with the law. See AL Tech

Reply Brief at 15-16 (citing 19 U.S.C. § 1677(5)(E)).

        AL Tech misreads the statute. On its face, the statute does nothing more than list the factors

to be considered in evaluating market conditions.18 It does not speak to the means by which those

        18
          The statute specifies that “prevailing market conditions” are to be determined by evaluating
factors including “price, quality, availability, marketability, transportation, and other conditions of
purchase or sale.” 19 U.S.C. § 1677(5)(E).
Court No. 98-10-03061                                                                           Page 20

factors are to be evaluated. Nothing in the statute requires any particular type of appraisal –

“outside” or otherwise – in a situation such as that presented here. See Gov’t Response Brief at 39

n.10.

        Moreover, nothing about the Valle D’Aosta appraisal itself suggests that an “outside”

appraisal was needed in this case.19 The record does not disclose why the government of Valle

D’Aosta commissioned its appraisal. Perhaps, for example, the government of Valle D’Aosta lacked

some particular in-house expertise needed to evaluate the particular property in question. See

generally Valbruna Response Brief at 22. In any event, on this record, the Valle D’Aosta appraisal

proves nothing about either the adequacy or the reliability of the Cadastral appraisal here.

             2. Valbruna’s Standby Commitment to Purchase the Industrial Site

        Commerce based its determination that the price the Province paid for the Industrial Site

reflected market conditions (and thus did not exceed adequate remuneration) not only on the

Cadastral appraisal, but on other factors as well – including Valbruna’s commitment in the Share

Transfer Agreement to purchase the site at the same price, if Falck’s sale to the Province fell through.

See Final Determination, 63 Fed. Reg. at 40,483-84, 40,488-89; Encl. 3 to Share Transfer

Agreement, Prop. Fiche No. 274, Frame 18; Prop. Doc. No. 51 at 10. AL Tech contends that

Commerce erred in according any weight to that commitment, because – according to AL Tech – it

was entirely illusory, a “commitment Valbruna knew it would never have to uphold.” See generally

AL Tech Brief at 13-19; AL Tech Reply Brief at 19-24. But see Gov’t Response Brief at 40-42;

        19
        It is, however, worth noting that the administrative record in this case does include an
independent appraisal of the Industrial Site, commissioned by Valbruna. See Prop. Fiche No. 274,
Frame 21, Ex. 6.
Court No. 98-10-03061                                                                          Page 21

Valbruna Response Brief at 23-27.

       AL Tech demeans Commerce’s reliance on Valbruna’s commitment as “highly

questionable,” emphasizing “the simultaneous timing” of the three interrelated transactions between

Falck, the Province and Valbruna – the Share Transfer Agreement (between Falck and Valbruna),

the Site Purchase Agreement (between Falck and the Province), and the Lease Agreement (between

the Province and Valbruna), all of which were finalized on July 31, 1995. AL Tech Brief at 14.

Based on that timing and on its own analysis of the interrelated terms of the three agreements, AL

Tech asserts that “Valbruna was never exposed to the possibility of having to purchase the Bolzano

site.” Indeed, according to AL Tech, “[t]he deal was structured to preclude Valbruna from having

to purchase the site.” AL Tech Brief at 15.20

       The smoking gun, in AL Tech’s eyes, is a “null and void” clause in the Share Transfer

Agreement, conditioning that agreement on the fulfillment of certain requirements before September

30, 1995. See AL Tech Brief at 14-15; Share Transfer Agreement, Prop. Doc. No. 9, App. F-1 at

       20
         In an effort to bolster its argument, AL Tech further asserts that Valbruna’s behavior was
not consistent with that of “a serious potential purchaser of the site.” AL Tech Brief at 17.
Specifically, AL Tech alleges that “Valbruna never actually participated in the negotiations
concerning the sale of the land and buildings” (id.), and that AL Tech failed to commission an
independent valuation of the Industrial Site. AL Tech Brief at 15-17. These claims have no merit.

         Even if Valbruna’s conduct had not been commercially reasonable, the fact remains that –
as discussed above – Valbruna was contractually bound to purchase the Industrial Site if the Site
Purchase Agreement between Falck and the Province fell through. In any event, the record
documents Valbruna’s “due diligence.” Among other things, as Commerce verified, Valbruna
retained an independent architect to appraise the Industrial Site. See Barberini Appraisal, Prop. Fiche
No. 274, Frame 21, Ex. 6; Pub. Doc. No. 216 at 11. In addition, Commerce further verified that
Valbruna officials compared the price per square meter to be paid by the Province for the Industrial
Site to the prices paid for other such properties. Pub. Doc. No. 216 at 11.
Court No. 98-10-03061                                                                            Page 22

Art. 3.01. But AL Tech’s contractual analysis is flawed. It fails to distinguish between the date on

which the Site Purchase Agreement became “binding for the Province” and the dates by which the

parties had to have fulfilled the specified conditions subsequent so that Falck’s sale of the land to

the Province could be completed. See generally Valbruna Response Brief at 25-26.

        By its terms, the “null and void” clause cited by AL Tech operates only if the Site Purchase

Agreement does not become “binding for the Province” by a certain subsequent date. Share Transfer

Agreement, Prop. Doc. No. 9, App. F-1 at Art. 3.01. And, by its terms, the Site Purchase Agreement

“becomes binding for [the Province], once the presidential decree of approval of this agreement and

the undertaking for the related expense have been registered by the Court of Accounts.” Site

Purchase Agreement, Prop. Doc. No. 25, App. 9 at Art. 12. After those actions had been taken, the

purchase was “binding” on the Province, and the “null and void” clause would have no effect.

        In contrast, the Province was obligated to deposit its payment in the Provincial Treasury

within five days after the enforcement date of the presidential decree, and Bolzano and Falck were

required to provide a performance bond within 20 days of signing. See Site Purchase Agreement,

Prop. Doc. No. 25, App. 9 at Arts. 1, 6. Thus, the Site Purchase Agreement established conditions

subsequent to the formation of the contract that the parties were obligated to fulfill after the contract

became binding.

        In short, contrary to AL Tech’s assertions,21 it was entirely possible that – after the Site

        21
         Indeed, it appears that AL Tech has essentially abandoned its claim that “Valbruna was
never exposed to the possibility of having to purchase the Bolzano site.” On this point, AL Tech’s
Reply Brief is silent, apparently conceding the flaws in the contractual analysis in its opening brief,
and tacitly admitting that – under certain circumstances – Valbruna could have been required to
purchase the Industrial Site.
Court No. 98-10-03061                                                                        Page 23

Purchase Agreement was signed on July 31, 1995 – the purchase could have become “binding” on

the Province, but that the Province, Bolzano or Falck could have defaulted on their performance of

conditions subsequent. In that case, Falck’s land sale to the Province would not have been

completed, and Valbruna would have been obligated to honor its stand-by guarantee under the Share

Transfer Agreement by purchasing the Industrial Site.22

             3. Commerce’s Inference As to Valbruna’s “Commercial Interest”

       Just as AL Tech contests the first two bases for Commerce’s “adequate remuneration”

determination (i.e., the Cadastral appraisal and Valbruna’s standby commitment), so too AL Tech

challenges the agency’s third (and final) basis: Commerce’s inference that Valbruna had “a strong

commercial interest” in ensuring that the Province did not pay too much for the Industrial Site,

because both (a) Valbruna’s rent was to be determined as a percentage of the Province’s purchase

price, and (b) Valbruna’s Lease Agreement with the Province gives Valbruna an “option to buy” the

       22
         AL Tech tries to make much of Commerce’s recognition in its Final Determination that “it
was highly unlikely that Valbruna would have to perform on [its] obligation” under the Share
Transfer Agreement to purchase the Industrial Site. See AL Tech Brief at 18-19 (quoting Final
Determination, 63 Fed. Reg. at 40,489); AL Tech Reply Brief at 22-24. However, Commerce’s
statement is simply an acknowledgment that all parties to the three transactions fully expected that
the Province would purchase the Industrial Site. See Valbruna Response Brief at 26.

        Moreover, the mere fact that a particular significant event may have a low probability of
occurrence does not diminish in any way the consequences of that event if it does occur. As
discussed above, if a party had failed to perform as required by certain conditions subsequent in the
Site Purchase Agreement, Falck’s sale to the Province would not have been completed, and Valbruna
would have been obligated by the Share Transfer Agreement to purchase the Industrial Site.
Whether or not a party was likely to fail to fulfill those conditions subsequent (and thus to trigger
Valbruna’s obligation to purchase the Industrial Site) is of no moment.
Court No. 98-10-03061                                                                         Page 24

Industrial Site within five years of signing the lease.23 Final Determination, 63 Fed. Reg. at 40,489.

       Here again, AL Tech’s arguments fail to carry the day. See generally AL Tech Brief at 22-

25; AL Tech Reply Brief at 19-22. But see Valbruna Response Brief at 27-31; Gov’t Response Brief

at 41-42.

       Invoking the statute, AL Tech argues that inference is an inappropriate basis for a

determination by Commerce. See AL Tech Brief at 23-24 (citing 19 U.S.C. § 1677m(i)(1) (1998)).

But the statutory provision cited is simply inapposite. It requires only that Commerce verify all

factual information on which it relies. See AL Tech Specialty Steel Corp. v. United States, 22 CIT

941, 945(1998), 1998 WL 661461 ( Sept. 24, 1998) (“Under 19 U.S.C. § 1677m(i) . . . , Commerce

is required to verify all factual information relied upon in making a final determination”(emphasis

added)).

       Nothing in the statute (or elsewhere) prohibits the agency from interpreting the facts that it

       23
         AL Tech initially contends that – as a factual matter – Commerce did not rely on Valbruna’s
commercial interests as a basis for its determination. AL Tech points to language in the Final
Determination enumerating (1) the Cadastral appraisal, (2) Valbruna’s standby commitment, and (3)
the Province’s fulfillment of its contractual commitments in connection with the purchase of the
Industrial Site. AL Tech emphasizes that that list does not include any inference concerning
Valbruna’s commercial interests. See AL Tech Brief at 23 (quoting Final Determination, 63 Fed.
Reg. at 40,489).

        However, that reading of the Final Determination is artificially narrow, and strained. It
ignores other language just two paragraphs later, which amplifies the language that AL Tech cites
and which expressly states that Commerce is relying on Valbruna’s “strong commercial interest”
as “an indication that the price paid by the Province of Bolzano for the Bolzano industrial site was
reflective of market considerations.” Final Determination, 63 Fed. Reg. at 40, 489.

        In short, while perhaps it might have been drafted more artfully, the Final Determination
leaves no room for doubt that Commerce’s finding on the remuneration paid by the Province relied
in part on an inference as to Valbruna’s commercial interests. See generally Valbruna Response
Brief at 27-28.
Court No. 98-10-03061                                                                           Page 25

has verified, and drawing reasonable inferences and conclusions from that verified information. See

Bowe Passat Reinigungs-Und Waschereitechnik v. United States, 20 CIT 1426, 951 F. Supp. 231,

235 (1996) (Commerce entitled to “make justifiable inferences on the record before it”); see also

Matsushita Elec. Indus. Co. v. United States, 750 F.2d 927, 933 (Fed. Cir. 1984). That is precisely

what Commerce did in this case.

       AL Tech argues, in the alternative, that – even if Commerce is entitled to rely on inference

in reaching its determinations – the agency erred in doing so here, because (according to AL Tech)

“[t]here is no logical or business reason why Valbruna would have a ‘strong commercial interest’

in ensuring the lowest possible price when the record is clear that Valbruna never expected to have

to pay that price itself.” AL Tech Brief at 24. However, as discussed in section II.A.2 above, AL

Tech’s fundamental premise is wrong.          Contrary to AL Tech’s claims, Valbruna’s standby

commitment to purchase the Industrial Site was no mere “empty promise.”

       Not content simply to dispute Commerce’s inference that Valbruna had “a strong commercial

interest” in ensuring that the Province paid the lowest possible price for the Industrial Site, AL Tech

goes even further. AL Tech argues that Commerce got it exactly backwards. According to AL Tech,

“Valbruna stood to gain from the Province’s purchase . . . at the highest possible price because, as

a result of that transaction, Valbruna was able to reduce the debt of its simultaneously-acquired

subsidiary, Bolzano.”24 As AL Tech so graphically puts it, “[e]very extra lira paid by the Province,

       24
          Valbruna/Bolzano observes that AL Tech’s argument here “must be limited to that portion
of the purchase price paid directly to Bolzano. . . . [T]he Province purchased one of the two industrial
sites from Immobliarie Toce, the real estate subsidiary of Falck. Payments made to Falck could not
have affected the level of Bolzano’s debt, and therefore could not have benefitted Valbruna even
under [AL Tech’s] theory.” Valbruna Response Brief at 30 n.17.
Court No. 98-10-03061                                                                          Page 26

in effect, went into Valbruna’s bottom line.” See AL Tech Brief at 24-25.

       But, as in section II.A.2 above, yet again AL Tech misunderstands the provisions of the

various contracts. By the terms of the Share Transfer Agreement, any gain accruing to Bolzano as

a result of the sale of the Industrial Site was essentially added to Bolzano’s “net equity” at the time

of the transfer, and thus would increase the purchase price of the Bolzano shares to be paid by

Valbruna to Falck.25 And, contrary to AL Tech’s claims, Bolzano’s use of the funds received from

its portion of the Industrial Site sale had no effect on either the price Valbruna paid for Bolzano or

the value of the company it purchased. See generally Valbruna Response Brief at 30-31.

       In its Reply Brief, AL Tech largely retreats from the arguments advanced in its opening brief

and instead debuts a new plan of attack on Commerce’s inference, seeking to pit that inference

against Commerce’s finding that the rental rate specified in the Lease Agreement constituted less

than adequate remuneration – a determination discussed in greater detail in section II.B, below. In

essence, AL Tech’s Reply Brief argues that Commerce’s finding that the rental rate specified in the

Lease Agreement was less than adequate remuneration logically undercuts any claim that the linkage

between Valbruna’s rent and the purchase price that the Province was to pay for the Industrial Site

– as well as Valbruna’s “option to buy” – gave Valbruna “a strong commercial interest” in ensuring

that the Province did not pay too much for the Industrial Site. See generally AL Tech Reply Brief

at 19-22.26

       25
         See Share Transfer Agreement, Prop. Doc. No. 9, App. F-1 at Art. 2.01, 5.01; Prop. Doc.
No. 22 at 3-4.
       26
         Although AL Tech characterizes this line of argument as a “reply” to arguments raised in
the response briefs filed by the Government and Valbruna/Bolzano (see AL Tech Reply Brief at 21),
in fact AL Tech’s argument clearly could (and should) have been raised in its opening brief. AL
Court No. 98-10-03061                                                                          Page 27

       AL Tech emphasizes that, before signing the Lease Agreement, Valbruna knew that its rent

for the Industrial Site would be calculated as four percent of the purchase price agreed to by the

Province and Falck – a rental rate AL Tech characterizes as “significantly below the prevailing

market rate.” AL Tech further asserts that, in light of that rental rate, “Valbruna had significantly

less incentive to monitor closely the ultimate price paid by the Province.” AL Tech Reply Brief at

20.

       To the contrary, even assuming that the rental rate was below market (see section II.B, infra),

Valbruna still had ample incentive to ensure that the Province paid the lowest possible price for the

Industrial Site. The rental rate was, at most, half of the equation; the purchase price to be paid by

the Province was just as significant (if not more). Indeed, to paraphrase AL Tech itself (on a related

point), part of “[e]very extra lira [saved] by the Province, in effect, went into Valbruna’s bottom

line.” See AL Tech Brief at 24-25.

       In sum, AL Tech’s attacks cast no doubt on the fundamental merits of Commerce’s

determination that the Province’s purchase of the Industrial Site did not confer a subsidy.

Commerce’s determination to that effect is supported by substantial evidence and otherwise in

accordance with law, and is, therefore, sustained.

            B. Commerce’s Determination That The Province’s Lease Agreement
                          With Valbruna Conferred a Subsidy

       Concurrent with Falck’s sale of the Industrial Site to the Province, the Province in turn leased

the Industrial Site to Valbruna. See Final Determination, 63 Fed. Reg. at 40,483; Lease Agreement,

Tech’s unfortunate timing deprived the other parties of the opportunity to respond to its contentions,
and deprived the Court of the benefit of complete briefing.
Court No. 98-10-03061                                                                        Page 28

Prop. Doc. No. 9, App. F-3. In its Final Determination, Commerce concluded that the Lease

Agreement between the Province and Valbruna conferred a countervailable subsidy, based on the

agency’s finding that Valbruna’s rent does not constitute adequate remuneration to the Province.

See Final Determination, 63 Fed. Reg. at 40,484-85, 40,489-90. Commerce reached that finding by

comparing the rent to be paid under the Lease Agreement with the 5.7% “benchmark rate of return”

which it found to be “the average rate of return on leased commercial property in Italy.” See Final

Determination, 63 Fed. Reg. at 40,484.

        AL Tech challenges Commerce’s adoption of the 5.7% benchmark rate, asserting that it is

too low. See AL Tech Brief at 25-30; AL Tech Reply Brief at 25-33. Valbruna/Bolzano, in turn,

contests Commerce’s overall determination that its rent under the Lease Agreement does not

constitute adequate remuneration to the Province, asserting that Commerce improperly failed to

factor into its calculations (1) a two-year rent abatement granted in the Lease Agreement in exchange

for Valbruna’s assumption of responsibility for certain initial extraordinary maintenance and

environmental remediation projects at the Industrial Site, (2) the Lease Agreement’s assignment of

responsibility for ongoing extraordinary maintenance over the life of the lease to Valbruna; and (3)

depreciation on the buildings at the Industrial Site. See Valbruna Brief at 17-38; Valbruna Reply

Brief at 1-24.

        As discussed in greater detail below, AL Tech’s challenge to the 5.7% benchmark rate is in

vain.   Valbruna/Bolzano’s arguments, on the other hand, call into question Commerce’s

determination that Valbruna’s rent under the Lease Agreement does not constitute adequate

remuneration.
Court No. 98-10-03061                                                                        Page 29

                         1. Commerce’s “Benchmark” Rate of Return

       AL Tech argues first that – in reaching its determination that Valbruna’s rent under its Lease

Agreement with the Province did not constitute adequate remuneration – Commerce failed to explain

why it chose as its benchmark an Italian national average rate of 5.7%, when the record includes a

region-specific rate (the “REAG rate”),27 which is – at least, without adjustments – higher than the

5.7% rate. In addition, AL Tech argues that Commerce’s selection of the 5.7% rate was inconsistent

with then-applicable law. Neither claim is compelling.

       AL Tech alleges generally that Commerce failed to articulate the basis for its decision to

choose the 5.7% rate as its benchmark. But AL Tech’s real complaint – notwithstanding the fact that

it did not advocate use of the REAG rate in the administrative proceedings before Commerce28 – is

       27
        The Real Estate Advisory Group – “REAG” – is a private Italian real estate appraisal firm
which prepared an analysis of the Industrial Site and the Lease Agreement, which was filed with
Commerce in the course of the administrative proceeding. See Valbruna Response Brief at 32; see
also Pub. Doc. No. 44, Att. 1.
       28
          AL Tech devotes a significant portion of its Reply Brief to arguing that its challenge to
Commerce’s determination of the benchmark rate should not be dismissed based on the doctrine of
exhaustion of administrative remedies. See AL Tech Reply Brief at 26-30. However,
Valbruna/Bolzano does not advance an exhaustion argument; and the Government’s argument is a
mere two sentences, supported by a single citation to the relevant statute. See Valbruna Response
Brief at 32-46; Gov’t Response Brief at 49 (citing 28 U.S.C. § 2637(d)).

       However, both the Government and Valbruna/Bolzano highlight AL Tech’s hypocrisy: In the
administrative proceeding before Commerce, AL Tech criticized the very REAG rate that it now
advocates. See Gov’t Response Brief at 47-48; Valbruna Response Brief at 36-37. In the
administrative proceeding before Commerce, AL Tech first urged Commerce to visit a non-
governmental institution with the requisite expertise to obtain an appropriate benchmark rate – which
is how Commerce obtained the 5.7% rate on which the agency ultimately relied. See Gov’t
Response Brief at 47 (citing AL Tech’s April 10, 1998 Submission, Prop. Doc. No. 45 at 10). AL
Tech next argued for a bank loan-based rate, rather than the bond-based rate used in the Preliminary
Determination. See Gov’t Response Brief at 48 (citing AL Tech’s June 11, 1998 case brief, Prop.
Doc. No. 58 at 21). AL Tech argued at the time that Commerce should reject the REAG rate –
Court No. 98-10-03061                                                                          Page 30

that Commerce failed to explain why it chose the 5.7% rate over the REAG rate. See AL Tech Brief

at 26-28; AL Tech Reply Brief at 30-31.

       Contrary to AL Tech’s assertions, Commerce not only adequately articulated the basis for

its reliance on the 5.7% rate, it also explained the basis for its determination that the 5.7% rate was

more reliable and better reflective of the market than other proposed rates. Moreover, the basis for

which Valbruna/Bolzano had proposed – because, according to AL Tech, it was based on unverified
information. Gov’t Response Brief at 48 (citing AL Tech June 16, 1998 rebuttal brief, Prop. Doc.
No. 60 at 33). Now, here, however, AL Tech has decided to embrace the REAG rate – at least, the
REAG rate without adjustments.

         AL Tech claims that its argument in this forum is consistent with its arguments before
Commerce, which, it says, implicitly recognized the REAG rate as the alternative. See AL Tech
Reply Brief at 29. Further, AL Tech asserts that it should not be penalized for Commerce’s “last
minute and unanticipated reliance” on the 5.7% rate. AL Tech Reply Brief at 29-30. But, contrary
to AL Tech’s implication, all parties had the opportunity to address the 5.7% rate in their case briefs
filed with the agency. See Valbruna Case Brief, Pub. Doc. No. 225 at 13 n.39. In short, AL Tech’s
attempts to reconcile its position in this forum with its position before Commerce are not persuasive.
But it is AL Tech’s exhaustion defense that matters here.

        AL Tech invokes a well-established exception to the doctrine of exhaustion, arguing that –
because Commerce had ample opportunity to address the issue – AL Tech should not be precluded
from challenging the benchmark rate here (even though its position in this forum may be inconsistent
with its position before the agency). See AL Tech Reply Brief at 26-27 (citing McKart v. United
States, 395 U.S. 185, 194 (1969) (the purpose of the doctrine of exhaustion is to allow an agency the
opportunity to address an issue); Mitsubishi Heavy Indus. v. United States, 22 CIT 541, 555 n.6, 15
F. Supp. 2d 807, 820-21 n.6 (1998) (excusing a party’s failure to exhaust where a third party raised
the argument in a related proceeding); Asociacion Colombiana de Exportadores de Flores v. United
States, 22 CIT 173, 178 n. 9, 6 F. Supp. 2d 865, 874 (1998) (excusing failure to exhaust, even
though party advocated different adjustments on appeal). Here, the REAG rate was argued – and
contested – before Commerce. See AL Tech Reply Brief at 28-30; Valbruna Response Brief at 36-
37; Gov’t Response Brief at 47-48. And Commerce’s Final Determination reflects its consideration
of those arguments. See Final Determination, 63 Fed. Reg. at 40,484.

       See also Consol. Bearings Co. v. United States, 348 F.3d 997, 1003 (Fed. Cir. 2003)
(recognizing an exception to the doctrine of exhaustion for purely legal questions); Timken Co. v.
United States, 26 CIT ___, 240 F. Supp. 2d 1228, 1238 (2002) (quoting FAG Kugelfischer Georg
Schafer AG v. United States, 25 CIT, 82, 131 F. Supp. 2d 104, 114 (2001)).
Court No. 98-10-03061                                                                       Page 31

Commerce’s selection of the 5.7% rate over the REAG rate in particular is clear on the record as

well.

        The administrative record evidences Commerce’s painstaking approach to the selection of

a benchmark rate. In its Preliminary Determination, the agency used a rate based on the return on

treasury bonds. Certain Stainless Steel Wire Rod from Italy, 63 Fed. Reg. 809, 822 (Dep’t

Commerce Jan. 7, 1998) (prelim. determination) (“Preliminary Determination”).            However,

Commerce fine-tuned its methodology for the Final Determination.

        In reaching its Final Determination, Commerce specifically considered, inter alia, whether

a non-governmental rate – like the REAG rate, suggested by Valbruna/Bolzano – would provide a

more appropriate benchmark. Further, before reaching a decision, Commerce carefully weighed the

parties’ views. Final Determination, 63 Fed. Reg. at 40,484.

        As the Government notes, AL Tech initially urged Commerce to obtain a benchmark rate

from a commercial, non-governmental institution in Italy with expertise in commercial and industrial

leasing.29 See n. 28, supra. In response to AL Tech’s recommendation, Commerce consulted the

leading Italian-owned real estate firm, Gabetti per L’impresa, with more than 20 years of experience

in commercial and industrial leasing throughout that country to its credit. See Gov’t Response Brief

at 46-47. Gabetti per L’impresa provided Commerce with the 5.7% rate, based on a long-term lease

of industrial property in Rome, assuring Commerce that it was an average rate that could be applied

throughout Italy. See Pub. Doc. No. 223 at 2.

        29
        Commerce had previously used a rate provided by a third party. See Extruded Rubber
Thread from Malyasia, 60 Fed. Reg. 51,982, 51,984 (Dep’t Commerce Oct. 4, 1994) (final
determination).
Court No. 98-10-03061                                                                          Page 32

       On the strength of, inter alia, those consultations, Commerce determined that the 5.7% rate

appropriately reflected “different terms, lengths, and locations of lease contracts throughout Italy.”

Moreover, as explained in its Final Determination, Commerce concluded that the 5.7% rate was

preferable to the rate the agency used in its Preliminary Determination, which required “a number

of complicated and highly speculative adjustments.” Similarly, because the 5.7% rate provided “a

reliable average rate of return on commercial leased property,” Commerce concluded that the 5.7%

rate “better reflect[ed] commercial practices in Italy” than the adjusted bank loan rate that AL Tech

proposed. Overall, Commerce determined that, compared to the other rates considered, the 5.7% rate

was “a more reliable and representative rate to use in examining whether the [Industrial Site] is being

leased for less than adequate remuneration.” See Final Determination, 63 Fed. Reg. at 40,484,

40,490.

       The Final Determination does not specifically detail the basis for Commerce’s selection of

the 5.7% rate over the REAG rate that Valbruna/Bolzano advocated. However, it expressly states

that the agency considered the REAG rate and weighed its merits against the other proposed rates

on the record, including the 5.7% rate. See Final Determination, 63 Fed. Reg. at 40,484 (“We have

reconsidered [inter alia, the various proposed rates] in light of the information gathered at

verification and comments from the interested parties.”). Moreover, Commerce’s selection of the

5.7% rate was an implicit rejection of, inter alia, the REAG rate. And, although the Final

Determination did not discuss the REAG rate specifically, Commerce adequately articulated its

rationale, alerting the careful reader to the reasons it decided against the REAG rate.

       For example, one major concern documented in the record was that the rate of return
Court No. 98-10-03061                                                                          Page 33

discussed in the REAG study was not an average rate for all types of industrial leases throughout the

Province. Rather, it was specific to a certain type of lease, which was unlike the Lease Agreement

here.30 Tailoring the REAG rate to determine the appropriate rate of return for this Lease Agreement

– which is unique in several respects – would have required multiple adjustments. See generally

Valbruna Response Brief at 32 n.18, 41-46; Gov’t Response Brief at 49-50. And the need to make

such extensive adjustments is exactly why Commerce’s Final Determination shied away from the

rate used in its Preliminary Determination. See Final Determination, 63 Fed. Reg. at 40,484, 40,490.

       In sum, where – as here – “the agency’s decisional path is discernible” from the record, the

type of “explicit explanation” that AL Tech seeks is not necessary. See Wheatland Tube Co. v.

United States, 161 F.3d 1365, 1369-70 (Fed. Cir. 1998).

       AL Tech also alleges that Commerce’s use of the 5.7% rate was inconsistent with the

applicable law. According to AL Tech, the agency should have selected a region-specific rate

(rather than a national average rate), because the applicable law required that benchmarks be based

on information from “the same political jurisdiction.” See AL Tech Brief at 29-30. But AL Tech

cited outdated law.31

       30
          The rates set forth in the study of the Real Estate Advisory Group (“REAG”) – 8.24%/8.8%
– are not for 30-year industrial leases, like the Lease Agreement here at issue. Rather, those rates
are for six-year leases that include a right to renew for an additional six years, and which reflect an
allocation of responsibilities between lessor and lessee that differs from that in the Lease Agreement
here. See Valbruna Response Brief at 44-46 (citing Prop. Doc. No. 44, Att. 1).
       31
        See AL Tech Brief at 29-30 (citing Notice of Proposed Rulemaking, 54 Fed. Reg. 23,366,
23,381 (Dep’t Commerce May 31, 1989) (to have been codified at 19 C.F.R. § 355.4(f)(2)(ii)). The
proposed regulations that AL Tech cites were superseded by amendments in the Uruguay Round
Agreements Act, codified at 19 U.S.C. § 1677(5)(E)(iv).
Court No. 98-10-03061                                                                          Page 34

       In substance, however, the controlling law reflects essentially the same concern – ensuring

that Commerce’s methodology accurately reflects any benefit conferred. The applicable statute, 19

U.S. C. § 1677(5)(E)(iv), grants Commerce wide latitude to choose from among several levels of

political jurisdiction in identifying an appropriate benchmark rate.32 The statute conspicuously does

not dictate any particular order of preference that the agency must follow. Here, Commerce

considered rates at both the “foreign country” and “political subdivision” levels. See U.S.C. 19

U.S.C. § 1677(3). And, after considering the regional REAG rate and others, Commerce determined

that the national average 5.7 % rate was “a reliable average rate of return on commercial leased

property,” appropriate under the specific circumstances of this case. See Final Determination, 63

Fed. Reg. at 40,490.

       Counsel for AL Tech conceded at oral argument that both the REAG rate and the 5.7% rate

are problematic,33 but he maintained that the REAG rate was more accurate than the 5.7% rate

selected by Commerce. Tr. at 95-96. As detailed above, however, Commerce considered at least

       32
          The provision cited by AL Tech referred to “the price charged by other sellers to buyers
within the same political jurisdiction.” By comparison, the operative language in the controlling
statute refers to “prevailing market conditions in the country.” See Valbruna Response Brief at 38-
40 (quoting 19 U.S.C. § 1677(5)(E) (1994)); AL Tech Brief at 29-30 (citing Notice of Proposed
Rulemaking, 54 Fed. Reg. 23,366, 23,381 (Dep’t Commerce May 31, 1989) (to have been codified
at 19 C.F.R. § 355.4(f)(2)(ii)); AL Tech Reply Brief at 32-33. The meaning of “political
jurisdiction” was retained in the existing statute’s reference to “country,” which lists several levels
of political jurisdiction – including “foreign country” and “political subdivision” – to which
Commerce can look in identifying an appropriate benchmark. See 19 U.S.C. § 1677(3).
       33
         Indeed, given the particular circumstances of this case, no proposed benchmark rate could
be problem-free – that is, none could directly apply to this Lease Agreement. For example, this
Lease Agreement was the first (and only) 30-year lease in the Province. Pub. Doc. No. 218 at 9.
Thus, it would be impossible for Commerce to obtain a directly-applicable, region-specific
benchmark rate.
Court No. 98-10-03061                                                                       Page 35

four different rates as possible benchmarks in this case. From among those four, Commerce selected

the rate that it determined best reflected commercial leasing practices in Italy – which,

coincidentally, happened to be the rate developed pursuant to the methodology AL Tech initially

proposed.

       Accordingly, like AL Tech’s first challenge to the 5.7% benchmark rate, this argument too

must be rejected. AL Tech’s attacks on Commerce’s adoption of the 5.7% rate fail to carry the day.34

            2. Valbruna’s Proposed Adjustments To Commerce’s Calculation of Rent

       Although – unlike AL Tech – Valbruna/Bolzano does not directly dispute Commerce’s 5.7%

benchmark rate per se, it does so more or less implicitly, by challenging Commerce’s refusal to

factor into its “adequate remuneration” analysis of the Lease Agreement (1) the two-year rent

abatement that Valbruna received under the Lease Agreement in exchange for its assumption of

responsibility for certain initial extraordinary maintenance and environmental remediation projects

at the Industrial Site, (2) Valbruna’s assumption under the Lease Agreement of responsibility for

ongoing extraordinary maintenance over the life of the 30-year lease, and (3) depreciation on the

buildings at the Industrial Site.    Valbruna/Bolzano asserts that these three adjustments to

Commerce’s calculations are necessary to ensure that its rent can be compared to the agency’s 5.7%

benchmark rate on an “apples-to-apples” basis. See generally Valbruna Brief at 17-38; Valbruna

Reply Brief at 1-24.

       Each of Valbruna/Bolzano’s three challenges is considered in turn below. As discussed in

       34
          Because Commerce’s use of the 5.7% benchmark rate is sustained, there is no need to reach
the parties’ arguments concerning adjustments to the REAG rate. See Valbruna Response Brief at
41-46; AL Tech Reply Brief at 33.
Court No. 98-10-03061                                                                         Page 36

greater detail there, Valbruna/Bolzano’s arguments are compelling.

       Commerce calculated the subsidy rate associated with Valbruna’s two-year rent abatement

at 0.38%. The subsidy rate associated with other aspects of the asserted rent shortfall was calculated

at 0.16%. Together, these factors constitute the single largest component of the 1.28% overall

subsidy rate calculated by Commerce – 0.54 % in total.

                 a. Valbruna’s Two-Year Rent Abatement in Exchange for
            Initial Extraordinary Maintenance and Environmental Remediation

       Valbruna/Bolzano first assails Commerce’s decision to treat as a subsidy the two-year rent

abatement granted to Valbruna under its Lease Agreement with the Province. According to

Valbruna/Bolzano, the rent abatement was part of a “bargained-for exchange” in which Valbruna

agreed, in turn, to assume the Province’s responsibility for certain specific, urgent, initial

extraordinary maintenance and environmental remediation projects related to the buildings that it

leased from the Province.35 See Lease Agreement, Prop. Doc. No. 9, App. F-3 at Fwd. Para. (e), Art.

       35
         In this action, Valbruna/Bolzano raises two separate issues concerning Valbruna’s Lease
Agreement with the Province and “bargained-for” allocations of responsibility for two different
types of extraordinary maintenance.

        This section addresses Valbruna/Bolzano’s claims concerning expenditures for urgent, initial
extraordinary maintenance and environmental remediation projects that Valbruna undertook in
exchange for a two-year rent abatement – essentially a “punchlist” of certain major maintenance and
remediation projects that the parties knew about at the time of their negotiations, and on which they
reached specific agreement. See Valbruna Brief at 18-30; Valbruna Reply Brief at 1-15. In contrast,
section II.B.2.b below relates to Valbruna’s assumption of responsibility for future (or ongoing)
extraordinary maintenance – i.e., the responsibility for all future extraordinary maintenance over the
30-year life of the Lease Agreement. See Valbruna Brief at 31-37; Valbruna Reply Brief at 16-21.
Court No. 98-10-03061                                                                            Page 37

2.36 See generally Valbruna Brief at 17-31; Valbruna Reply Brief at 1-15.

       However, based on its analysis of the two main projects that Valbruna completed, Commerce

concluded – in essence – that the bargain struck between the Province and Valbruna was

meaningless, because (according to Commerce) the measures that Valbruna undertook were not

obligations of the Province, and thus could not have constituted “consideration” for the rent

abatement granted to Valbruna. See Final Determination, 63 Fed. Reg. at 40,484-85.37 See also

       36
           As Commerce’s Final Determination noted, when the Province purchased the Industrial
Site, it had “a number of environmental problems that required costly repairs.” Final Determination,
63 Fed. Reg. at 40,485. The Province’s Lease Agreement with Valbruna indicates on its face that
the two-year rent abatement is a bargained-for exchange, with Valbruna assuming responsibility for
certain critical initial extraordinary maintenance and environmental remediation projects in lieu of
paying rent.

       [The rent to be paid every six months] for the renting of the industrial premises shall
       amount to [       ] lira, plus VAT, to be paid starting after two years from the first
       day of the following month, once the approval resolution of this agreement has
       become effective, in consideration of the expenditure and the time required for the
       restoration of the existing productive premises [by Valbruna].

Lease Agreement, Prop. Doc. No. 9, App. F-3, Fwd. Para. (e) (emphasis added). A list of the initial
extraordinary maintenance and environmental issues that Valbruna agreed to remedy was included
as an attachment to the Lease Agreement. Final Determination, 63 Fed. Reg. at 40,485.

        Commerce independently confirmed the terms of the Lease Agreement itself and the parties’
intent in the course of the agency’s verification process. Indeed, Commerce’s verification report
expressly found that “The Province provided Valbruna with a two year exemption on [rent]
payments to account for costs incurred by the company” on initial extraordinary maintenance and
environmental remediation projects. Pub. Doc. No. 218 at 9.
       37
          The Government and AL Tech emphasize that Commerce’s Final Determination found that
rent abatements such as those granted to Valbruna were “extremely unusual.” See Gov’t Response
Brief at 56; Response Brief [of AL Tech] in Opposition to Italian Producers’ Motion for Judgment
on the Agency Record (“AL Tech Response Brief”) at 15-16. However, the Final Determination
further stated that “a commercial landlord may very well have given a similar exemption” in
exchange for a tenant’s agreement to undertake critical extraordinary maintenance and environmental
remediation measures such as those at issue here. Final Determination, 63 Fed. Reg. at 40,485. See
Court No. 98-10-03061                                                                            Page 38

Gov’t Response Brief at 55-60; AL Tech Response Brief at 7-18.

        Based on the rent that Valbruna would have owed the Province absent the two-year

abatement, Commerce calculated a subsidy of 0.38% – the single largest component of the overall

subsidy at issue in this action. Indeed, as Valbruna/Bolzano pointedly observes, if Commerce had

not deemed the rent abatement to be a subsidy, the overall subsidy would have been calculated at

0.90% – below the statutory one percent de minimis level – and Commerce would not have issued

a countervailing duty order. See Valbruna Reply Brief at 1.

        The first project analyzed in Commerce’s Final Determination concerned measures taken to

also Valbruna Brief at 19; Valbruna Reply Brief at 30-31.

        AL Tech tries to make much of the fact that Valbruna is the only lessee ever granted such a
rent abatement by the Province in exchange for its agreement to undertake initial extraordinary
maintenance and environmental remediation measures. See AL Tech Response Brief at 16. But AL
Tech omitted the very next paragraph of the verification report that it quotes, which takes the wind
out of AL Tech’s sails:

        Province officials stated that this lease is an exception because this was the first lease
        where the Province leased both land and buildings. Other agreements involving the
        Province were limited to the lease of land. The official stated that this arrangement
        poses a burden on the Province because it requires them to spend time dealing with
        issues relating to the maintenance and oversight of the buildings on the land.

                                             *   *    *    *

        [U]nder the lease, Valbruna is responsible for extraordinary maintenance because its
        lease is the only one that includes land and buildings, and because the Province does
        not have the personnel or time to oversee and supervise extraordinary maintenance
        activities.

Pub. Doc. No. 218 at 9 (emphasis added). See also Valbruna Reply Brief at 13 (noting that, “while
the Province normally protected itself through an indemnification clause in its transactions involving
land only (as it did also in this case), it had no prior experience in transactions involving buildings”).
Court No. 98-10-03061                                                                        Page 39

“encapsulate” the melting furnace to abate noise and air pollution. Commerce emphasized that the

need for some measure “had been identified several years prior to the [Province’s] purchase of [the

Industrial Site],” after local residents complained. According to the Final Determination, “[t]he

Province asked Bolzano to develop a proposal to solve the problem,” and “[i]n 1992, the Province

agreed to Bolzano’s proposal to encapsulate the melting furnace.” The Final Determination further

states, “[b]y 1995 [when the Province purchased the Industrial Site, and then leased it to Valbruna],

Bolzano still had not undertaken the encapsulation project. Instead, it was included in the round of

environmental work covered by the lease payment exemption.” Final Determination, 63 Fed. Reg.

at 40,485.

       Commerce concluded that the Province was not obligated to undertake the furnace

encapsulation project, “because the obligation was incurred before the lease [with Valbruna].”38 As

Commerce summed up its rationale:

       [T]he Province imposed an obligation on Bolzano to undertake environmental
       measures several years before the signing of the lease. Then, the Province agreed to
       forgo revenue in order to see that the obligation was fulfilled.

Final Determination, 63 Fed. Reg. at 40,485.

       Although Commerce’s rationale is so terse that it is difficult to follow (and its summary so

       38
         It seems likely that what Commerce actually meant to say here was not that the Province
was not obligated to undertake the furnace encapsulation project “because the obligation was
incurred before the lease [with Valbruna],” but – rather – because the obligation was incurred before
the Province’s purchase of the property.

        In any event, the overall point that Commerce seeks to make is that the Province (as a new
property owner/landlord/lessor) was absolved of all responsibility for events, hazards and conditions
that pre-dated its ownership. But that point is not consistent with either the record here, or with
common sense.
Court No. 98-10-03061                                                                         Page 40

clever that it seems compelling, at first blush), closer scrutiny suggests a fundamental flaw in the

agency’s logic. In essence, Commerce appears to conflate the dual roles of the Province – as a

sovereign on the one hand, and as a commercial actor on the other – and thus to confuse the rights

and responsibilities of the Province qua sovereign with those of the Province qua property

owner/lessor. In other words, even assuming that the Province (acting in its sovereign capacity)

“imposed an obligation on Bolzano to undertake environmental measures” several years before the

Province (acting in its commercial capacity) purchased the Industrial Site and entered into a lease

with Valbruna,39 the fact remains that – as Commerce found in its Final Determination – “[u]nder

Italian law, the landlord would normally bear the responsibility for pre-existing environmental costs

under a normal lease agreement.” Final Determination, 63 Fed. Reg. at 40,485.

       Thus, when the Province (acting in its commercial capacity) purchased the Industrial Site,

it essentially inherited – as the new property owner/lessor – the environmental hazard that it (acting

in its sovereign capacity) had sought to have remedied some years before. At least vis-a-vis its new

lessee, Valbruna, Italian law obligated the Province (in its commercial capacity, as landlord/lessor)

       39
         As Valbruna/Bolzano aptly observes, Commerce seeks to make too much of the
significance of the discussions between the Province and Bolzano as to the complaints of local
residents and the Province’s request that Bolzano develop a proposal to address those complaints.
See, e.g., Valbruna Brief at 29 n.63. For example, neither the Final Determination nor the
Government’s brief cites to any record evidence to support the implication that Bolzano was
somehow legally obligated to undertake remedial measures to respond to the concerns of local
residents and the Province. (Moreover, even if Commerce had in fact established that Bolzano did
have such a legal obligation before the Site Purchase Agreement and the related transactions, there
is no record evidence to establish that the Province – which purchased both the land and the
buildings – would have been absolved of responsibility for the problem after the transactions.)
Court No. 98-10-03061                                                                         Page 41

to “bear the responsibility for pre-existing environmental costs.” In a “bargained-for exchange,”

Valbruna agreed to undertake the encapsulation project (among others), in return for the Province’s

grant of a two-year rent abatement. Viewed from this perspective, contrary to Commerce’s

contention, there was no failure of consideration for the rent abatement.

       Commerce’s analysis on the second project is, if anything, even worse than the first. The

second project concerned the “clean up and removal of asbestos from the buildings” that the

Province leased to Valbruna. Commerce explained, in its Final Determination, that – under Italian

law – where an employer leases (rather than owns) a facility with an asbestos hazard, “the company

could, as the tenant, request [i.e., require] that the landlord undertake the asbestos removal.” Final

Determination, 63 Fed. Reg. at 40,485.

       Commerce nevertheless concluded that, in this case, the Province (i.e., the landlord/lessor)

had no responsibility for the removal of asbestos from the buildings it leased to Valbruna, “because

[Valbruna] had assumed the obligation under the lease.” As Commerce summed up its rationale:

       [S]ince Valbruna agreed to assume the obligation for extraordinary maintenance
       under the lease, the company would have no means of requiring the owner to do the
       repairs [i.e., the asbestos removal]. Thus, the Province agreed to forgo revenue in
       order to have the asbestos problem addressed even though it would not have been its
       responsibility to pay for [the work].

Final Determination, 63 Fed. Reg. at 40,485.

       On its face, that logic seems utterly circular.40 Commerce seemingly points to the result of

       40
          Commerce’s verification report includes the same circular logic. See Pub. Doc. No. 218
at 9; Valbruna Brief at 27-28. The Government’s brief simply recites that same logic, and made no
attempt to refute the characterization of Commerce’s reasoning as “circular.” See Gov’t Response
Brief at 59; Valbruna Reply Brief at 3-4.
Court No. 98-10-03061                                                                          Page 42

the negotiations between the Province and Valbruna – i.e., the Lease Agreement itself (including the

provision under which Valbruna assumes the Province’s responsibility for certain initial

extraordinary maintenance projects) – as proof that the Province never had responsibility for those

projects in the first place. See Valbruna Brief at 26-28; Valbruna Reply Brief at 3-5.

       It is perhaps telling that the Government’s brief makes no attempt to respond to the claim that

Commerce’s rationale is circular. For its part, AL Tech makes a valiant effort to dress up the

agency’s reasoning.41 But you can’t put lipstick on a pig.

       41
        AL Tech and the Government both attempt to “backfill” Commerce’s determination with
impermissible post hoc rationale.

        For example, AL Tech points to statements in the record suggesting that the asbestos levels
in the buildings on the Industrial Site were within legal limits. See AL Tech Response Brief at 9-10;
but see Valbruna Reply Brief at 11-13. Even if true, Commerce plainly did not rely on the relative
levels of asbestos contamination as a basis for its Final Determination.

        AL Tech also attempts to argue that Valbruna was responsible for the furnace encapsulation
project as “successor-in-interest” to Bolzano. See AL Tech Response Brief at 13-15. However, that
theory too was not relied on by Commerce as a basis for its Final Determination; nor does it find any
evidentiary basis in the record. (Moreover, although the record is silent on the matter, it seems likely
that Valbruna would (at most) have become successor-in-interest to Bolzano the steelmaker, and that
the Province would have been deemed “successor-in-interest” to Bolzano the property owner.)

         Similarly, both AL Tech and the Government make the claim that – as the Government puts
it – in granting the two-year rent abatement, “commercial considerations were eclipsed by other
social and political factors” (i.e., the Province’s concern with ensuring the continued employment
of workers). See Gov’t Response Brief at 56-57; AL Tech Response Brief at 17-18. But, yet again,
Commerce made no mention of that factor in its Final Determination. See generally Valbruna Reply
Brief at 7-8.

       Finally, in its brief, the Government makes the claim that “it was highly unlikely that a
commercial landlord would have entered into the lease with Valbruna at all, much less granted a
two-year rent exemption for environmental remediation projects that related mainly to the
modification of buildings on the Bolzano site – buildings that an ordinary commercial landlord, and
even the Province itself, would have demolished, but for the Province’s desire to maintain
employment at the steel works, and to have steel-related environmental reclamation projects
Court No. 98-10-03061                                                                         Page 43

       If the logic of Commerce’s determination on Valbruna’s two-year rent abatement is as

fundamentally flawed as it appears to be, that determination is both unsupported by the evidence

and not in accordance with law. However, there remains at least a remote possibility that the

problem lies not in the logic of the agency’s determination but, rather, in its expression.

       Given these unusual circumstances, it is appropriate to remand this issue, to accord

Commerce an opportunity to reconsider its determination and to fully articulate the rationale for that

determination, taking into consideration the record evidence as well as all parties’ arguments, both

at the administrative level and in this forum.

                   b. Valbruna’s Proposed Adjustment for Its Assumption
                       of Future Extraordinary Maintenance Expenses

       In addition to challenging Commerce’s treatment of the rent abatement it negotiated in

exchange for its assumption of the Province’s responsibility for initial extraordinary maintenance

and environmental remediation, Valbruna/Bolzano also contests the agency’s refusal to make an

adjustment for Valbruna’s assumption of responsibility for ongoing extraordinary maintenance under

the Lease Agreement. See Final Determination, 63 Fed. Reg. at 40,484; Valbruna Brief at 31-37;

Valbruna Reply Brief at 16-21. But see Gov’t Response Brief at 53-55; AL Tech Response Brief

at 19-22.

undertaken.” Gov’t Response Brief at 58. In essence, the Government attempts to argue that the
Province’s decision to lease the Industrial Site to Valbruna was unreasonable. But, clearly,
Commerce made no such finding in its Final Determination. Indeed, Commerce implicitly found
that the Province acted reasonably in deciding to rent the land and buildings to Valbruna (although
Commerce also found that the rent to be paid was insufficient). See generally Valbruna Reply Brief
at 7-8.
Court No. 98-10-03061                                                                            Page 44

        Valbruna/Bolzano asserts that the 5.7% benchmark rate used in Commerce’s “adequate

remuneration” analysis assumes that the landlord/lessor bears responsibility for extraordinary

maintenance, in accordance with Italian law. However, under the specific terms of the Lease

Agreement here, Valbruna assumed that responsibility. Thus, according to Valbruna/Bolzano,

Commerce’s failure to make an appropriate adjustment effectively ignores the bargained-for

reallocation of responsibility for extraordinary maintenance negotiated between the Province and

Valbruna.42 See Valbruna Brief at 31-37; Valbruna Reply Brief at 16-21.

        In its Final Determination, Commerce set forth the bases for its refusal to make an adjustment

for Valbruna’s assumption of responsibility for ongoing extraordinary maintenance over the life of

its 30-year lease:43

        [T]he record evidence demonstrates that although the Italian Civil Code obliges the
        landlord to pay for extraordinary maintenance, this obligation may be borne by the
        lessee if specified in the lease. In particular, we learned at verification that long-term
        leases often oblige the lessee to bear responsibility for these costs because of the
        long-term costs involved. The [lease for the Industrial Site] is for a period of 30
        years, the maximum allowed under Italian law. Thus, the terms of this particular
        contract are such that a commercial landlord most likely would have assigned this
        obligation to the tenant. Further, the obligation would be factored into the lease rate.
        To the extent that [Valbruna] may face an additional financial obligation than other

        42
         All parties agree (1) that, under Italian law, the landlord/lessor bears the responsibility for
extraordinary maintenance; (2) that, under Italian law, the parties may reallocate that responsibility;
and (3) that, in the Lease Agreement, Valbruna and the Province did so here. See Prop. Doc. No.
50, Ex.9; Pub. Doc. No. 223 at 3; Valbruna Brief at 34; Valbruna Reply Brief at 16-17; Gov’t
Response Brief at 53-55; AL Tech Response Brief at 19-22.
        43
         As with depreciation (discussed in section II.B.2.c below), the record suggests that
Commerce initially intended to make an adjustment for Valbruna’s assumption of responsibility for
ongoing extraordinary maintenance. In its Preliminary Determination, Commerce stated that it “did
not have the information to calculate an adjustment to [its] benchmark for the cost of extraordinary
maintenance,” but that it planned to examine the issue for its Final Determination. See Preliminary
Determination, 63 Fed. Reg. at 822.
Court No. 98-10-03061                                                                           Page 45

       parties because of extraordinary maintenance, that is balanced by the fact that
       [Valbruna’s] lease term is much longer than the norm. Therefore, the [5.7%] average
       rate of return is an appropriate benchmark without any adjustments . . . .

Final Determination, 63 Fed. Reg. at 40,484.

       Implicit in Commerce’s reasoning are at least two findings: (1) a finding that the 5.7%

benchmark rate reflects an allocation of responsibility for extraordinary maintenance to the lessee;

and (2) a finding that the 5.7% rate would remain unaffected even if the lessee’s liability for

extraordinary maintenance was for a term of 30 years (rather than the 10-year term on which the

5.7% rate is apparently based). See Commercial Experts Report, Pub. Doc. No. 223 at 2 (Gabetti

officials explain that “typical rate of return [is] 5.7 percent” and that “leasing of industrial land is

normally for ten years”). Neither of these two “findings” finds support in the record.

       As Valbruna/Bolzano observes, the REAG study expressly states that its “average” rate is

based on standard contract terms, before any reallocation of rights and responsibilities by the lessor

and the lessee on matters such as liability for ongoing extraordinary maintenance. Because the

REAG basic rate reflects the lessor’s retention of liability for such maintenance, the REAG study

makes an adjustment for Valbruna’s assumption of that responsibility under its Lease Agreement

with the Province.44 See Prop. Doc. No. 44, Att. 1, Letter 2. See generally Valbruna Response Brief

at 32 n.18, 42; Valbruna Reply Brief at 20-21.

       44
          One of Commerce’s key reasons for deciding against the REAG rate as its benchmark was
that the basic REAG rate reflected lease terms different than those of Valbruna’s Lease Agreement
with the Province – including, inter alia, Valbruna’s assumption of responsibility for ongoing
extraordinary maintenance. See generally Gov’t Response Brief at 49. If that lease term was
significant enough to serve as a basis for rejecting the REAG rate, it logically stands to reason that
it may have a significant impact on rent (the lease rate).
Court No. 98-10-03061                                                                          Page 46

        In contrast, the evidentiary record here is, at best, ambiguous as to the contract terms that

underpin Commerce’s 5.7% benchmark rate. The Final Determination states merely that the 5.7%

rate “reflects different terms, lengths, and locations of lease contracts throughout Italy.” Final

Determination, 63 Fed. Reg. at 40,484. And the Commercial Experts Report on which the Final

Determination relies states simply that the 5.7% rate is “typical” for industrial sites near Rome but

is “an average that could be applied throughout Italy,” and that “leasing of industrial land is normally

for ten years.”45 Unlike the REAG study, the Commercial Experts Report fails to specify whether

the 5.7% rate assumes that responsibility for extraordinary maintenance is borne by the lessor or by

the lessee.46

        45
         The Commercial Experts Report includes a brief discussion of the allocation of
responsibility for extraordinary maintenance between lessors and lessees. However, it is a general
discussion of typical practices, rather than a description of the specific assumptions underpinning
the 5.7% rate. See Commercial Experts Report, Pub. Doc. No. 223 at 2-3. Indeed, the report’s
discussions of the two topics are separated by a paragraph summarizing purchase-leaseback
transactions in Italy.
        46
         Valbruna/Bolzano contends that “[t]he only reasonable inference to draw on the basis of
the record developed by [Commerce] is that the 5.7% benchmark rate, like the REAG rate, reflects
the standard allocation of rights and responsibilities between landlord and tenant” – i.e., that the
5.7% rate assumes that the lessor bears responsibility for ongoing extraordinary maintenance, so that
Valbruna/Bolzano is entitled to an adjustment. See Valbruna Reply Brief at 21; see also id. at 18-19.

        On this record, however, nothing can be ruled out. It is thus also possible that the 5.7%
benchmark rate assumes that the lessee bears responsibility for extraordinary maintenance – in which
case Valbruna/Bolzano concedes that no adjustment would be necessary. See Valbruna Reply Brief
at 17. And there is at least one other possibility. The Commercial Experts Report refers to the 5.7%
rate as an “average.” See Commercial Experts Report, Pub. Doc. No. 223 at 2. It is at least
conceivable that the 5.7% rate reflects an “average” of rates for both leases in which the lessee
assumes responsibility for extraordinary maintenance and leases in which the lessor retains it.

       As an aside, it is also worth noting that – although the Final Determination asserts that, “[a]s
an average,” the 5.7% benchmark rate “reflects different [contract] terms, lengths, and locations of
lease contracts throughout Italy” – that statement is not clearly supported by the record. Final
Court No. 98-10-03061                                                                           Page 47

        Moreover, even if one were inclined to strain to read the two separate sections of the

Commercial Experts Report (addressing the 5.7% rate on the one hand, and typical practices

concerning extraordinary maintenance on the other) as indicating – however inartfully – that the

5.7% rate reflects an allocation of responsibility for extraordinary maintenance to the lessee, the

report would nevertheless fail to address the effect – if any – on the 5.7% rate if the lessee were to

assume that responsibility for a term of 30 years (rather than the 10-year term that the 5.7% rate

apparently contemplates). The record is simply silent on the subject.47

Determination, 63 Fed. Reg. at 40,484. Parsing the relevant language of the Commercial Experts
Report, it is unclear which particular variables are reflected in Gabetti’s “average” – specific contract
terms, lengths of leases, locations of property throughout the country, etc. Property location seems
the most straightforward; that is, it seems relatively clear from the language of the report that Gabetti
believes that the 5.7% rate can fairly be used for locations across the country. In this sense, perhaps,
the rate reflects an “average” of “locations of lease contracts throughout Italy” (although, even so,
it is not clear that the 5.7% rate was truly calculated as a nationwide “average” of varying rates from
across the country). The basis for Commerce’s representations in the Final Determination as to the
relationship between the 5.7% rate and the length of the lease is less clear. As discussed elsewhere,
it seems as though the 5.7% rate proffered by Gabetti assumes a 10-year lease, and is thus not an
“average” of “different . . . lengths” of leases. But there may be room for doubt. On the other hand,
the report’s discussion of the 5.7% rate as an “average” is entirely silent on specific contract terms
(such as the allocation of responsibility for extraordinary maintenance). It is therefore difficult to
fathom – at least from the record – the basis for Commerce’s statement in the Final Determination
that the 5.7% rate reflects an “average” of “different [contract] terms.”
        47
          As the Final Determination emphasizes, a 30-year lease is “the maximum allowed under
Italian law.” Final Determination, 63 Fed. Reg. at 40,484. According to the Commercial Experts
Report, a typical industrial lease in Italy has a term of only ten years. A 30-year lease is apparently
very unusual – “more like a bank loan than a lease.” See Commercial Experts Report, Pub. Doc. No.
223 at 2.

        The parties speculated wildly – in their briefs and in oral argument – about the effect of the
30-year term of the Lease Agreement here, and whether such a long lease benefits the lessor or the
lessee. See, e.g., Valbruna Brief at 37; AL Tech Response Brief at 22. But that debate is largely post
hoc rationalization, unsupported by the record. See generally Burlington Truck Lines, Inc., 371 U.S.
at 168-69.
Court No. 98-10-03061                                                                          Page 48

       In short, the bottom line is that, unless Commerce’s 5.7% benchmark rate reflects essentially

the same basic terms as the Lease Agreement between Valbruna and the Province, appropriate

adjustments are required. Accordingly, this issue must be remanded to Commerce as well, to permit

the agency to clarify the assumptions on which its 5.7% benchmark rate is based, and – if necessary

– to make the appropriate adjustments.

        Vis-a-vis liability for extraordinary maintenance, Commerce’s Final Determination implicitly
concedes that the 30-year term imposes on Valbruna “an additional financial obligation” above and
beyond that borne by the typical lessee. However, the Final Determination asserts that Valbruna’s
additional financial burden “is balanced by the fact that [its] lease term is much longer than the
norm.” See Final Determination, 63 Fed. Reg. at 40,484. In essence, Commerce concludes that any
atypical extraordinary maintenance expense attributable to the 30-year term of the lease is fully offset
by some unstated benefit to Valbruna that flows from the extended term of the lease. There is no
record support whatsoever for that conclusion. See generally Valbruna Reply Brief at 19-20.

       The record here is utterly devoid of evidence on the implications of the exceptional term of
the Lease Agreement at bar, for issues such as the reasonableness of the 5.7% benchmark rate and
Valbruna’s assumption of responsibility for ongoing extraordinary maintenance over the life of the
30-year lease. On remand, Commerce will have the opportunity to clarify – and, if appropriate,
supplement – the record on this point.

        Indeed, considerations such as those discussed above implicitly cast doubt on Commerce’s
use of the “typical” Italian 5.7% rate (which is based on a 10-year lease) as the benchmark for a lease
that is three times longer – definitely “not a normal leasing term,” according to Gabetti. See
Commercial Experts Report, Pub. Doc. No. 223 at 2. Accordingly, on remand, Commerce may even
choose to fundamentally reconsider the wisdom of its use of the 5.7% rate as the benchmark for the
Lease Agreement here at issue. See, e.g., Valbruna Brief at 36-37 (querying whether Commerce’s
use of 5.7% rate based on a normal lease term of 10 years as a benchmark for a 30-year lease is
supported by “substantial evidence on the record”); Valbruna Reply Brief at 18-19 (“There is nothing
on the record to suggest that [Commerce’s] 5.7% benchmark took into consideration the exceptional
30-year lease.”).
Court No. 98-10-03061                                                                            Page 49

             c. Valbruna’s Proposed Adjustment for the Depreciation of Buildings

        Just as Valbruna/Bolzano contends that Commerce should have factored in its assumption

of extraordinary maintenance expenses in determining the adequacy of remuneration under

Valbruna’s Lease Agreement with the Province, so too Valbruna/Bolzano faults Commerce’s failure

to take into account the depreciation of the buildings covered by the Lease Agreement. See Final

Determination, 63 Fed. Reg. at 40,484; Valbruna Brief at 38-39; Valbruna Reply Brief at 22-24.48

But see Gov’t Response Brief at 50-53; AL Tech Response Brief at 22-24.

        As set forth in its Final Determination, Commerce’s rationale for refusing to make an

adjustment for depreciation spans but two sentences: “First, we verified that the buildings covered

by the lease are very old. Given the age of the structures, we have not adjusted the rate . . . to reflect

the depreciation of the structures because the likely useful life remaining would be relatively short.”49

        48
         The Government makes a half-hearted, one-sentence argument that Valbruna/Bolzano’s
challenge on this point is barred because it assertedly failed to exhaust its administrative remedies.
See Gov’t Response Brief at 50. However, as explained in note 28 above, a party’s failure to exhaust
its administrative remedies is excused as to issues that “Commerce in fact considered.” Timken Co.
v. United States, 26 CIT ___, 240 F. Supp. 2d 1228, 1238 (2002), quoting FAG Kugelfischer Georg
Schafer AG v. United States, 25 CIT 74, 82, 131 F. Supp. 2d 104, 114 (2001). That exception
applies here.

        Valbruna/Bolzano raised the depreciation issue at the administrative level in the context of
its argument urging Commerce to adopt the REAG rate (with adjustments) as the benchmark rate
for the agency’s evaluation of the Lease Agreement. Specifically, Valbruna/Bolzano advocated
adjustment of the REAG rate to reflect, inter alia, the remaining depreciable life of the buildings on
the Industrial Site. See Valbruna Reply Brief at 22 (citing Prop. Doc. No. 44, Att. 1, Letter 1 at 6-8);
Case Brief of Acciaierie Valbruna SRL, Pub. Doc. No. 225 at 12-14. In its Final Determination,
Commerce stated that it had considered Valbruna/Bolzano’s depreciation argument. See Final
Determination, 63 Fed. Reg. at 40,484 (stating that Commerce reconsidered, inter alia, the
benchmark rate issue and the depreciation issue in light of “comments submitted by the parties”).
        49
         In this quoted excerpt from the Final Determination, Commerce actually states that it “has
not adjusted the rate upward to reflect depreciation.” (Emphasis added.) However, read in the
Court No. 98-10-03061                                                                            Page 50

Final Determination, 63 Fed. Reg. at 40,484.

        To be sure, the record supports Commerce’s finding that the buildings on the Industrial Site

are old. Record evidence indicates that most of the buildings were constructed between 1935 and

1940. See Prop. Doc. No. 44, Att. 1, Letter 1 at 6-7; Pub. Doc. No. 168 at 6. But the age of the

buildings alone does not – in and of itself – establish that they have no remaining depreciable life.

As Valbruna/Bolzano argues, the depreciable life of even an old building can be extended by

measures such as renovation, re-roofing, or other improvements. See Tr. at 21.

        In any event, for whatever reason, Commerce here failed to complete an analysis of the

buildings’ depreciable life.50 Indeed, Commerce actually did not even conclude that the buildings

had no remaining depreciable life. To the contrary, as noted above, in declining to consider an

adjustment for depreciation, Commerce simply asserted that the buildings’ “likely useful life

remaining would be relatively short.” Final Determination, 63 Fed. Reg. at 40,484 (emphasis

added). Viewed in the light most favorable to Valbruna/Bolzano, that conclusory statement

effectively concedes both that the buildings probably had some remaining useful life (albeit

“relatively short,” in Commerce’s view), and that the buildings’ future useful life potentially could

context of the rest of that section of the agency’s analysis, it seems clear that the excerpt is referring
to the benchmark rate – in which case Commerce actually meant to say “downward.” Alternatively,
Commerce conceivably could have been referring to the lease rate – in which case “upward” would
make sense.
        50
          As with ongoing extraordinary maintenance (discussed in section II.B.2.b above), the record
reflects that Commerce initially intended to make an adjustment for depreciation. In its Preliminary
Determination, Commerce stated that it “would have made an adjustment to account for the
depreciation of the buildings,” but that it did not yet have all the information required for the
analysis. See Preliminary Determination, 63 Fed. Reg. at 822.
Court No. 98-10-03061                                                                         Page 51

be much longer.

         Seizing on the age of these buildings and other record evidence indicating that the normal

useful life of buildings is 40 to 50 years, the Government argues that it was reasonable for

Commerce to refuse to make the requested adjustment, because any depreciable value was

extinguished sometime between 1975 and 1990. The Government further asserts that any remaining

depreciation would have been insignificant over the 30-year term of Valbruna’s Lease Agreement.51

See Gov’t Response Brief at 51-52; Prop. Doc. No. 51 at 12.

         However, post hoc rationalization by litigation counsel is no substitute for an agency’s

reasoned analysis on the record. See Burlington Truck Lines, Inc. v. United States, 371 U.S. 156,

168-69 (1962) (agency action “[to] be upheld, if at all, on the same basis articulated by the agency

itself”) (citation omitted). Moreover, the Government’s argument is directly contravened by record

evidence that Valbruna/Bolzano cites, which suggests that the buildings in fact may have significant

useful life remaining. See Prop. Doc. No. 44, Att. 1, Letter 1 at 6-7; Prop. Doc. No. 6, App. 6c;

Prop. Doc. No. 14 at 000097. But see Gov’t Response Brief at 51-53; AL Tech Response Brief at

23-24.

         Particularly in light of the evidence to which Valbruno/Bolzano points, Commerce’s finding

that the buildings are “very old” cannot be linked to a conclusion that an adjustment for depreciation

is not warranted, absent further analysis by the agency. See Final Determination, 63 Fed. Reg. at

         51
         As discussed above, the overall subsidy rate at issue here is 1.28% – a rate only marginally
above the statutory de minimis threshold of one percent. Particularly given the number of challenges
to various aspects of Commerce’s Final Determination in this case, it is therefore dangerous to
cavalierly dismiss out of hand as “insignificant” any consideration that might have the effect of
lowering the overall subsidy rate, because a handful of otherwise arguably “insignificant” factors
could – cumulatively – reduce the subsidy rate below the de minimis threshold.
Court No. 98-10-03061                                                                         Page 52

40,484. And, without the benefit of further analysis, Commerce’s reasoning cannot be upheld as

supported by substantial evidence.

       Accordingly, this issue too must be remanded to Commerce, to permit the agency to reach

and explain a conclusion consistent with the evidentiary record.

             C. Commerce’s Determination That Various Government Programs
                                 Conferred Subsidies

       Valbruna/Bolzano’s final assault is on Commerce’s findings that countervailable subsidies

were conferred by assistance received under three government programs – Law 25/81, Law 193/84,

and the European Social Fund. According to Commerce, aid under these three programs benefitted

Valbruna/Bolzano at subsidy rates totaling 0.47%. See Final Determination, 63 Fed. Reg. at 40,479,

40,485-88.

       In essence, Valbruna/Bolzano contends that the government assistance provided under the

three programs at issue was either (1) repaid, (2) not allocable to the merchandise at issue here, or

(3) generally available – that is, not “specific” – and therefore not countervailable.52 See generally

Valbruna Brief at 40-60; Valbruna Reply Brief at 24-46. But see Gov’t Response Brief at 19-21, 60-

78; AL Tech Response Brief at 25-45.

       In each instance, Valbruna/Bolzano’s arguments warrant remand.

       52
          In addition, Valbruna/Bolzano challenges Commerce’s “pass-through” determinations as
to assistance provided under Law 25/81 and Law 193/84. However, that issue is presently on
remand to Commerce, and has been stayed.
Court No. 98-10-03061                                                                          Page 53

                                         1. Law 25/81 Aid

       Valbruna/Bolzano challenges Commerce’s determination that – even though the aid had been

repaid in full by Falck – certain restructuring assistance and long-term, low interest loans made under

Provincial Law 25/8153 to Bolzano between 1983 and 1992 (while it was a subsidiary of Falck)

conferred a countervailable subsidy. See Valbruna Brief at 40-50; Valbruna Reply Brief at 24-27;

Final Determination, 63 Fed. Reg. at 40,485-86. Commerce assessed a countervailing duty rate of

0.28 %. Final Determination, 63 Fed. Reg. at 40,486.

       In its Final Determination, Commerce acknowledged a 1996 determination by the European

Commission (“EC”) that the Law 25/81 aid to Bolzano was illegal. Commerce even conceded that

Falck had “effectively repaid” the aid, as the EC had ordered.54 See Final Determination, 63 Fed.

Reg. at 40,486. Commerce nevertheless ignored that repayment in its countervailing duty analysis,

asserting that – because Falck was appealing the EC’s order before the Court of First Instance of the

European Communities – the repayment was not legally “final” and was “likely [to] remain

unresolved for a number of years.” Final Determination, 63 Fed. Reg. at 40,491.55

       53
        Law 25/81 provides for financial assistance from the Province to companies to support
advanced technology, environmental investment, and restructuring projects.
       54
         As explained in section I above, Falck sold Bolzano to Valbruna in 1995. As part of the
Share Transfer Agreement, Falck retained both liability for repayment and the right to challenge any
decision requiring repayment. See Final Determination, 63 Fed. Reg. at 40,486; Share Transfer
Agreement, Prop. Doc. No. 9, App. F-1 at Art. 8.01.

        The EC’s decision required repayment of all Law 25/81 restructuring assistance and loans
received by Bolzano, except aid approved before January 1, 1986. See Final Determination, 63 Fed.
Reg. at 40,486.
       55
        Commerce stated that, once a final judgment was rendered in Falck’s appeal, the issue could
be reconsidered in an administrative review, if appropriate. Final Determination, 63 Fed. Reg. at
Court No. 98-10-03061                                                                          Page 54

       Valbruna/Bolzano argues, in a nutshell, that Commerce’s treatment of the Law 25/81 aid to

Bolzano (including Falck’s repayment) is inconsistent with the countervailing duty statute, prior case

law, and agency practice. See generally Valbruna Brief at 38-45; Valbruna Reply Brief at 31-34.

For their part, the Government and AL Tech maintain that Commerce properly refused to consider

the effect of Falck’s repayment, in light of Falck’s then-pending appeal. See generally Gov’t

Response Brief at 60-65; AL Tech Response Brief at 28-30.

       Whatever the merits of the parties’ positions, much of their argument has been rendered

academic. A final, non-appealable judgment affirming the decision of the Court of First Instance

and denying Falck’s appeal of the EC’s repayment order has been issued by the European Court of

Justice (“ECJ”). See Letter to Court from counsel for Valbruna/Bolzano (filed March 21, 2003)

(enclosing Attachment 1, analyzing the ECJ decision). The matter is now conclusively settled. The

repayment stands.

       Indeed, in a determination that Commerce issued in a related administrative proceeding, the

agency found – based on the denial of Falck’s initial appeal by the Court of First Instance, even

before the judgment in Falck’s second and final appeal (i.e., its appeal to the ECJ) – that, “given the

diminished prospects for Falck to recover the amount it had repaid, there was no benefit to Bolzano

or Valbruna from the grants and loans received under [Law 25/81] after January 1, 1986.”

Accordingly, Commerce there concluded that only the aid provided to Bolzano prior to January 1986

is countervailable. See Stainless Steel Wire Rod from Italy, 67 Fed. Reg. 39,357, 39,360 (June 7,

40,491.
Court No. 98-10-03061                                                                           Page 55

2002); Stainless Steel Wire Rod from Italy, 67 Fed. Reg. 63,619 (Oct. 15, 2002). See also n. 6,

supra.

         The Government nevertheless continues to oppose remanding the issue to allow the agency

to reconsider its position in light of these developments. The Government invokes the general

principle that the scope of the administrative record for purposes of judicial review is limited to that

information which was before the agency at the time it rendered its decision. See Defendant’s

Response to the Court’s Questions of March 6, 2003 (filed March 20, 2003) (quoting Kerr-Mcgee

Chem. Corp. v. United States, 21 CIT 11, 18, 955 F. Supp. 1466, 1472 (1977)).

         However, the Government’s proposed course of action would amount to turning a blind eye

to the now certain fact that the aid at issue has been – as Commerce itself found in its Final

Determination here – “effectively repaid.” Final Determination, 63 Fed. Reg. at 40,486. True, many

agency decisions are inherently predictive. But to require the judiciary to categorically ignore all

events that occur after an agency determination (no matter how direct their bearing on the agency’s

predictions) would be to risk “convert[ing] the reviewing process into an artificial game.”56 Amoco

         56
         Attempting to characterize this issue for analytical purposes rapidly becomes an exercise
in metaphysics. It is not clear, for example, that the issuance of a decision by a legal tribunal
constitutes an “event” – at least not in the same sense that the term is typically used to refer to
“subsequent events” (i.e., factual developments that post-date an agency’s action).

        Nor is it even clear that what is at issue here was, in fact, “subsequent.” In other words, there
was nothing “subsequent” about either the law that necessitated repayment of the Law 25/81 aid, or
Falck’s repayment of that aid. Specifically, the law on which the EC relied to require repayment of
the Law 25/81 aid was itself already in existence at the time of Commerce’s Final Determination –
even if there had not yet been a final, non-appealable judicial determination on its application to
Falck. And, as discussed above, Commerce itself conceded in its Final Determination that Falck in
fact had already made repayment.
Court No. 98-10-03061                                                                        Page 56

Oil Co. v. E.P.A, 501 F.2d 722, 730 (D.C. Cir. 1974). Thus, while the Government points to an

important principle guiding judicial review of agency decisions, it is no ironclad rule.

       As the courts have recognized over the years, it is necessary in certain circumstances to

supplement the administrative record “to preserve . . . meaningful judicial review.”            Rust

Constructors Inc. v. United States, 49 Fed. Cl. 490, 496 (2001) (quotations omitted). That is

particularly true where – as here – evidence coming to light after an agency’s decision shows

whether that decision was correct or not. See Esch v. Yeutter, 876 F.2d 976, 991 (D.C.Cir. 1989)

(listing circumstances when it is appropriate to supplement the administrative record); Leboeuf,

Lamb, Greene & Macrae, LLP v. Abraham, 215 F. Supp. 2d 73, 82 (D.D.C. 2002) (admitting

evidence arising after agency action that showed the correctness of the agency’s decision).57

       Moreover, to ignore the ECJ ruling in this case would undermine an important policy of the

antidumping and countervailing duty laws – calculating antidumping and countervailing duties

accurately. Cf. Rhone Poulenc, Inc. v. United States, 899 F.2d 1185, 1191 (Fed. Cir. 1990) (the

“basic purpose” of the antidumping statute is to calculate duties “as accurately as possible”). If

Falck’s repayment of the Law 25/81 aid means that no benefit was conferred, to countervail that aid

would violate both the spirit and the letter of the law. See 19 U.S.C. § 1677(5)(A)-(B) (defining a

countervailable subsidy as one that confers a benefit on the recipient). In other words, it is now

certain that failure to consider Falck’s repayment could result in countervailing duties being levied

against a company that did not benefit from a legally cognizable subsidy – a clearly unlawful result.

       57
         See also, e.g., Welch v. U.S. Air Force, 249 F. Supp. 2d 797, 810 (N.D. Tex. 2003); ITT
Fed. Servs. Corp. v. United States, 45 Fed. Cl. 174, 185 (1999).
Court No. 98-10-03061                                                                         Page 57

        Accordingly, this matter must be remanded to Commerce so that the agency may reconsider

its treatment of the Law 25/81 aid in light of the repayment of that aid, as well as any other related

issues.58

                                       2. Law 193/84 Aid

        Valbruna/Bolzano mounts two distinct attacks on Commerce’s determination that certain

“capacity reduction” grants received by Falck and Valbruna under Law 193/84 conferred a

countervailable subsidy. Valbruna/Bolzano first asserts that the agency erred in attributing those

grants to the merchandise subject to the investigation at issue here. See Valbruna Brief at 50-53.

But see Gov’t Response Brief at 15-19; AL Tech Response Brief at 35-38. In the alternative,

Valbruna/Bolzano argues that Commerce erred in combining benefits received under two programs

under Law 193/84 before performing its “small grants test,” with the result that the benefits were not

expensed in year of receipt (contrary to applicable regulations). See Valbruna Brief at 50-53;

Valbruna Reply Brief at 37-41. But see Gov’t Response Brief at 19-21; AL Tech Response Brief

        58
          In addition to its repayment argument, Valbruna/Bolzano advances a second challenge to
Commerce’s determination on the treatment of the Law 25/81 aid to Bolzano. According to
Valbruna/Bolzano, Commerce erred in determining that any subsidy under Law 25/81 was de facto
“specific” (and thus countervailable) within the meaning of the statute. See Valbruna Brief at 39-40,
45-50; Valbruna Reply Brief at 24-31; 19 U.S.C. § 1677(5A)(D). However, the issue of de facto
specificity depends on whether the Law 25/81 aid conferred a subsidy. Because remand of the
repayment issue necessarily reopens the question of whether the Law 25/81 aid conferred a subsidy,
de facto specificity is not now ripe for review.

         On remand, Commerce will have the opportunity to reconsider its specificity determination,
in light of its redetermination on the repayment issue (as well as any other relevant considerations).
Court No. 98-10-03061                                                                         Page 58

at 38-40. For the Law 193/84 grants, Commerce calculated a subsidy rate of 0.14 %. See generally

Final Determination, 63 Fed. Reg. at 40,479, 40,492.

       As Commerce’s Final Determination explains, Law 193/84 provides for grants to reduce steel

output pursuant to Italy’s obligations under the European Coal and Steel Community (“ECSC”).

Both Falck and Valbruna received grants in 1985 and 1986 under Article 2 (covering ECSC steel

production) and Article 4 (covering non-ECSC pipe and tube production) of that law. See Final

Determination 63 Fed. Reg. at 40,479.

       In a prior proceeding, Commerce determined that Law 193/84 “provides countervailable

subsidies in the form of non-recurring grants to the private steel sector.” Finding that “[n]o new

information or evidence of changed circumstances [was] submitted in this proceeding,” Commerce

here declined to reconsider that earlier determination. See Final Determination, 63 Fed. Reg. at

40,479 (citing Certain Steel from Italy, 58 Fed. Reg. 37,327, 37,332-33 (Dep’t Commerce, July 9,

1993) (final determination); see also Preliminary Determination, 63 Fed. Reg. at 816; Valbruna Brief

at 50-51 & nn.118-19; Gov’t Response Brief at 15.

       Valbruna/Bolzano maintains that, in this case, Commerce violated its longstanding “tying”

practice. Under that practice, if a subsidy is tied to the production or sale of a particular product,

Commerce generally attributes the subsidy only to that product. See 19 C.F.R. § 351.525(b)(5).

Valbruna/Bolzano emphasizes that Falck’s production facilities that received the grants at issue

never produced subject merchandise. See Valbruna Brief at 50-51.

       But Commerce’s “tying” practice does not apply in this case, because plant closure

assistance is at issue. See Final Determination, 63 Fed. Reg. at 40,479. As explained in the Final
Court No. 98-10-03061                                                                           Page 59

Determination, Commerce has found that – where plant closure assistance is involved – that aid

benefits all of the subject company’s operations.59 Commerce reasons that, as one inefficient facility

is closed, resources are freed up to benefit the production facilities that remain. Final Determination,

63 Fed. Reg. at 40,479 (citing Certain Steel Products from Austria (GIA), 58 Fed. Reg. at 37,269-70

(citing British Steel Corp. v. United States, 9 CIT 85, 605 F.Supp. 286 (1985) (“British Steel”))).

Thus, Commerce’s practice has been to treat all plant closure aid as countervailable – even if that

aid is, ostensibly, aimed at non-subject merchandise. Final Determination, 63 Fed. Reg. at 40,479.60

        Commerce’s “tying” rationale in this case is consistent with its established practice of

considering plant closure aid to be “untied” from particular merchandise; and Valbruna/Bolzano

advances no compelling reason here to depart from prior case law upholding that practice.

        Valbruna/Bolzano has somewhat greater success on its challenge to Commerce’s

determination to treat the grants provided to Falck under Article 2 and Article 4 of Law 193/84 as

part of the same program for purposes of the agency’s “small grants test.”61 The small grants test

        59
           Valbruna/Bolzano also argues that Commerce only deviates from its tying practice in cases,
unlike this one, where the closure aid is received after the plant has already closed. Valbruna Brief
at 52-53 & n.124(citing Steel Wire Rod from Canada, 62 Fed. Reg. 54,972, 54,981 (Dep’t
Commerce Oct. 22, 1997) (final determination)). To the contrary, Commerce has found that grants
received both before and after closure of the facilities in question benefit the remaining production
facilities. See Steel Wire Rod From Canada, 62 Fed. Reg. at 54,980.
        60
           Indeed, the Court of International Trade upheld Commerce’s rationale in British Steel,
where it found that “[a]s a company becomes more cost efficient and thereby more price competitive,
there is a direct benefit to the manufacture, production, or export of all the firm’s products.” British
Steel, 9 CIT at 95, 605 F. Supp. at 293 (emphasis added).
        61
         The Government raises two procedural objections to Valbruna/Bolzano’s small grants
argument. First, the Government criticizes Valbruna/Bolzano because it failed to raise the issue in
briefing during the administrative proceedings. See Gov’t Response Brief at 19 n.6. The short
answer to the Government’s point is that Valbruna/Bolzano had no reason to raise the issue earlier,
Court No. 98-10-03061                                                                          Page 60

carves out an exception to Commerce’s general practice of allocating non-recurring aid to a firm over

the number of years corresponding to the average useful life of renewable physical assets. 19 C.F.R.

§ 351.524(b)(1). Rather than allocating non-recurring benefits over a number of years, the exception

allows Commerce to allocate the aid in the year it is received if the “total amount approved under

the subsidy program is less than 0.5 percent of relevant sales.” 19 C.F.R. § 351.524(b)(2).

       If Commerce treats Article 2 and Article 4 as separate programs, the aid that Falck received

will be allocated to the year in which it was received, rendering it – in this case – non-

countervailable. But, because Commerce here combined aid from Articles 2 and 4, the funds

distributed to Falck exceeded the 0.5% threshold of the small grants test. The aid was therefore

allocated over a number of years, and found to be countervailable. See generally Valbruna Brief at

54; Valbruna Reply Brief at 39.

       Commerce’s treatment of Article 2 and Article 4 aid as part of a single program may reflect

a reasonable agency interpretation of the governing statute, the relevant regulations, and the evidence

of record in this matter. However, there is no simply no way of knowing. Commerce has failed to

articulate the reasoning behind its decision. See Final Determination, 63 Fed. Reg. at 40,479.

because Commerce had not combined the grants under the two articles in its Preliminary
Determination. See Preliminary Determination, 63 Fed. Reg. at 825-26. The doctrine of exhaustion
requires only that parties be timely, not clairvoyant.

         The Government also claims that Valbruna/Bolzano improperly raised this issue in a letter
alleging a ministerial error. See Gov’t Response Brief at 19 n.6. That argument fails as well.
Raising such an issue in a letter within five days after the Final Determination, as Valbruna/Bolzano
did, is the appropriate mechanism to address ministerial error, pursuant to 19 C.F.R. § 351.224. And
Commerce has considered similar issues to be ministerial in the past. See, e.g., Fabrique de Fer de
Charleroi, SA v. United States, 25 CIT 567, 581, 166 F. Supp. 2d 593, 607 (2001).
Court No. 98-10-03061                                                                           Page 61

        AL Tech tries to bridge the gap by arguing that Commerce has consistently treated all aid

under Law 193/84 as part of a single program. See AL Tech Response Brief at 39 (citing Certain

Steel Products From Italy, 58 Fed. Reg. at 37,327, 37,332-33 (Dep’t Commerce July 9, 1993) (final

determination); Small Diameter Circular Seamless Carbon and Alloy Steel Standard, Line and

Pressure Pipe (“Seamless Pipe”) From Italy, 60 Fed. Reg. 31,992, 31,996 (Dep’t Commerce June

19, 1995) (final determination); Oil Country Tubular Goods From Italy, 60 Fed. Reg. 33,577, 33,580

(Dep’t Commerce June 28, 1995) (final determination)). The Government chimes in that the

language of the applicable regulation indicates that the small grants test is to be applied to all

benefits associated with Law 193/84, not just each individual benefit. See Gov’t Response Brief at

20.

        However persuasive these arguments may be, they find no anchor in the agency’s

determination, and thus constitute impermissible post-hoc rationalization. See Burlington Truck

Lines, Inc., 371 U.S. at 168-69. The explanations of counsel are no substitute for a reasoned and

transparent agency determination.

        Moreover, if Commerce’s reasoning is opaque, its action is also somewhat inconsistent.

While Commerce may have consistently treated all aid under Law 193/84 as a single program in the

past, it does not appear to have done so here. Cf. AL Tech Response Brief at 39 & n.20 (and

determinations cited there). Commerce treated aid under Article 3 of Law 193/84 as separate from

aid under Articles 2 and 4 for purposes of the small grants test.62 See Preliminary Determination,

        62
         Commerce found that Valbruna’s Article 3 aid amounted to less than 0.5 percent of total
sales and therefore, “in accordance with its practice [i.e. the small grants test],” it allocated the aid
to the year it was received. See Preliminary Determination, 63 Fed. Reg. at 825-26.
Court No. 98-10-03061                                                                          Page 62

63 Fed. Reg. at 816, 825-26; Final Determination 63 Fed. Reg. at 40,479, 40,492. Further,

Commerce’s treatment of Article 2 and Article 4 aid as part of a single program under Law 193/84

differs – at least on its face – from its treatment of aid under Article 13 and Article 15 of Law 25/81.

See section II.C.1, supra. There, finding that Articles 13 and 15 had, inter alia, different eligibility

requirements and different application procedures, Commerce treated the aid received under Articles

13 and 15 as separate from the rest of Law 25/81 aid. See Final Determination, 63 Fed. Reg. at

40,485. Valbruna/Bolzano maintains that the separate eligibility requirements and application

procedures for aid under Articles 2 and 4 suggest that Commerce should have reached the same

conclusion here. See Valbruna Reply Brief at 37-41. Unfortunately, it is not possible to discern the

agency’s reasoning.

       Accordingly, this matter must be remanded to Commerce, to permit it to reexamine and

explain its application of the small grants test to the aid provided under Article 2 and Article 4 of

Law 193/84.

                               3. European Social Fund Assistance

       Valbruna/Bolzano’s final volley targets Commerce’s determination that certain benefits

received by Valbruna and Bolzano under the European Social Fund (“ESF”) are de jure specific, and

thus constitute countervailable subsidies. At stake is Commerce’s calculated subsidy rate of 0.05%.

See Final Determination, 63 Fed. Reg. at 40,487-88, 40,492-93. See generally Valbruna Brief at 55-

60; Valbruna Reply Brief at 41-46. But see Gov’t Response Brief at 73-78; AL Tech Response Brief

at 41-45.
Court No. 98-10-03061                                                                         Page 63

       As Commerce explained in its Final Determination, the ESF provides funding primarily for

vocational training and employment assistance throughout the European Union (“EU”). At issue

here is ESF Objective 4 (one of ESF objectives), which funds vocational training for employed

workers in companies undergoing restructuring.63 Final Determination, 63 Fed. Reg. at 40,487.

       The framework and budget for ESF Objective 4 projects are established in negotiations

between the EU, the national governments, and regional authorities. Final Determination, 63 Fed.

Reg. at 40,487. The negotiations result in a “Single Programming Document” (“SPD”) for each

country, setting forth broad goals for the ESF Objective 4 projects throughout the country, as well

as the budget and specific goals for projects slated to be funded. Final Determination, 63 Fed. Reg.

at 40,487. In addition to the funding for ESF Objective 4 projects provided by the EU, funds are also

provided by national and regional governments. This action concerns ESF Objective 4 funding at

the EU and national (Italian) levels.64

       Commerce determined that the EU funding provided under ESF Objective 4 in Italy is de jure

specific within the meaning of the statute (as explained in greater detail below), finding that “it is

limited on a regional basis to Italy.” See Final Determination, 63 Fed. Reg. at 40,487. Similarly,

Commerce determined that the Italian funding is de jure specific as well, finding that “it is limited

       63
           Commerce determined that, for purposes of its specificity analysis, ESF Objective 4 funding
in Italy should be examined as a separate program, because of separate approval processes and a lack
of budget transferability between Objectives. Final Determination, 63 Fed. Reg. at 40,487.
       64
         Where, as here, funding is provided at different jurisdictional levels, Commerce examines
each level separately for purposes of determining whether the funding at that jurisdictional level is
specific within the meaning of the statute. See Final Determination, 63 Fed. Reg. at 40,487.
Court No. 98-10-03061                                                                          Page 64

on a regional basis to the center and north of Italy.” See Final Determination, 63 Fed. Reg. at 40,487.

Valbruna/Bolzano contests both specificity determinations.

       Commerce found that EU funding under ESF Objective 4 is “available throughout the

Member States.” Final Determination, 63 Fed. Reg. at 40,487. However, notwithstanding its

finding that the EU provides ESF Objective 4 funds to all countries in the EU, Commerce concludes

that EU ESF Objective 4 funding for Italy is “limited on a regional basis to Italy.” Final

Determination, 63 Fed. Reg. at 40,487.

       Commerce’s determination is marred by inadequate explanation and inconsistent reasoning.

Although it is far from clear, it appears that Commerce predicated its conclusion that EU Objective

4 funding is “limited on a regional basis to Italy” on its finding that the EU negotiates with each

individual country separate programming documents (i.e., the SPDs) detailing the use of funds.

However, Commerce fails to explain how negotiation of the SPDs effectively converts funds that

are generally available throughout the EU into funds specific to individual countries.

       Negotiation of the SPDs appears to be simply a means by which the EU ensures that the ESF

funds are used to foster the EU’s policy objectives. Indeed, the EU monitors the programs created

pursuant to the SPDs throughout the EU once they are implemented. See Pub. Doc. No. 221 at 6.

It is not obvious how funds that are available throughout the EU, for use in pursuing EU-wide policy

objectives, become “limited on a regional basis” simply because the EU and a national government

sit down to iron out details.

       In support of its determination that EU funds are limited on a regional basis to Italy,

Commerce – without explanation – relies on its determination in Groundfish.                 See Final

Determination, 63 Fed. Reg. at 40,487 (citing Certain Fresh Atlantic Groundfish From Canada, 51
Court No. 98-10-03061                                                                           Page 65

Fed. Reg. 10,041, 10,048 (Dep’t Commerce March 24, 1986) (final determination) (“Groundfish”)).

But Groundfish appears to be inapposite. The “programs” there at issue were not generally available

(i.e. throughout Canada), government-funded programs but, rather, only loose agreements between

the Canadian government and the provincial governments to cooperate in establishing and

administering joint programs in a variety of areas. Commerce there found that the individual

programs created under the agreements were de jure specific. See Groundfish, 51 Fed. Reg. at

10,066. Commerce’s decision was based on the fact the Canadian government did not provide

funding for programs on a nation-wide basis.

        In contrast, under ESF Objective 4, the EU provides funding for programs on a Europe-wide

basis. Indeed, Commerce itself drew this critical distinction in a determination in another proceeding

issued after its determination here. See Stainless Steel Plate in Coils From Italy, 64 Fed. Reg.

15,508, 15,516-17 (Dep’t Commerce March 31, 1999) (“Steel Plate”). In Steel Plate, Commerce

observed that – unlike the programs in Groundfish – ESF Objective 4 funding is available throughout

the entirety of the EU. See Steel Plate, 64 Fed. Reg. at 15,516-17. Commerce even confessed in

Steel Plate that it erred in this very proceeding, candidly conceding that the agency might

appropriately “revisit its previous decision [i.e., its determination in this case] regarding the de jure

specificity of assistance distributed under . . . ESF Objective 4 [funding] in Italy.” Steel Plate, 64

Fed. Reg. at 15,516-17.

        In sum, Commerce’s determination that the EU Objective 4 funding is de jure specific is not

supported by adequate reasoned explanation. Moreover, what reasoning can be divined from the

Final Determination is at odds with record evidence, unsupported by the cited authority, and

inconsistent with the agency’s own subsequent reasoning. Accordingly, this matter must be
Court No. 98-10-03061                                                                       Page 66

remanded to Commerce to permit the agency to reconsider its analysis on the specificity of EU

funding, and to clearly articulate the rationale for its determination.

           Just as Commerce found that EU funding for ESF Objective 4 funding was de jure specific,

so too it found Italian funding to be de jure specific. In particular, the agency found that Italian

funding for ESF Objective 4 projects is “available in all areas of Italy except the ESF Objective 1

areas.” Commerce concluded on that basis that Italian funding is de jure specific within the meaning

of the statute, because it is “limited on a regional basis to the center and north of Italy.” Final

Determination, 63 Fed. Reg. at 40,487

           Valbruna/Bolzano disputes that determination, arguing that Commerce ignored evidence that

funding to carry out ESF Objective 4 goals is generally available throughout Italy, and that ESF

Objective 4 funds are excluded only where ESF Objective 1 funding is already being used to

implement the same goals. See Valbruna Brief at 59-60. AL Tech and the Government counter that

ESF Objective 1 has broader goals than ESF Objective 4 and is administered by different authorities

with separate approval processes and no budget transferability. See Gov’t Response Brief at 77-78;

AL Tech Response Brief at 44-45 & nn.32-34. Because Commerce analyzed ESF Objectives 1 and

4 separately, the agency’s determination does not speak to whether, as a practical matter, some

overlap exists between ESF Objective 4 and ESF Objective 1 projects.

           In any event, Commerce’s determination is undermined by the language of the specificity

statute and the record before the agency, as well as the policy underlying the countervailing duty

statute.
Court No. 98-10-03061                                                                           Page 67

         Commerce relies on a subsection of the statute defining as de jure specific “a subsidy [that]

is limited to an enterprise or industry within a designated geographical region within the jurisdiction

of the authority providing the subsidy.”        19 U.S.C. § 1677(5A)(D)(iv) (emphasis added).

“Designated” is defined as “to indicate or specify, point out.” The American Heritage Dictionary

of the English Language (4th Ed. 2000). Thus, the statute’s placement of the qualifier “designated”

before “geographic region” would seem to require some sort of an affirmative indication of a

limitation to a specified geographical region, if a subsidy is to be considered de jure specific on that

basis.

         Commerce’s analysis appears to ignore the adjective “designated,” concluding that – since

ESF Objective 4 funding is not provided in the south of the country – it is limited to the center and

the north. But that reasoning is insufficient. Commerce fails to adequately explain how ESF

Objective 4 funding is limited “within a designated geographical region” and therefore de jure

specific.65

         Commerce points to nothing in the record to indicate that ESF Objective 4 funding in Italy

was subject to any designated geographical limitations. For example, it does not appear that the

SPD negotiated between Italian officials and the EU reflected any such limitation. See Pub. Doc.

         65
          Numerous agency determinations reflect Commerce’s practice of finding de jure specificity
under section 1677(5A)(D)(iv) when a geographic region is specifically designated. See, e.g.,
Certain Hot-Rolled Carbon Steel Flat Products from Thailand, 66 Fed. Reg. 50,410 (Dep’t
Commerce Oct. 3, 2001) (final determination) (adopting Decision Memorandum) (assistance limited
to outside the Bangkok metropolitan area); Fresh Atlantic Salmon from Chile, 62 Fed. Reg. 61,803,
61,806 (Dep’t Commerce Nov. 19, 1997) (prelim. negative determination) (assistance limited to
“remote regions” of Chile); Certain Welded Carbon Steel Pipes and Tubes and Welded Carbon Steel
Line Pipe from Turkey, 62 Fed. Reg. 16,782, 16,786 (Dep’t Commerce April 8, 1997) (prelim.
results) (assistance limited to “normal regions”); Live Swine from Canada, 61 Fed. Reg. 52,426,
52,433-34 (Dep’t Commerce Oct. 7, 1996) (prelim. review) (assistance limited to Quebec).
Court No. 98-10-03061                                                                            Page 68

No. 220 at 5-7; Pub. Doc. No. 221 at 6-8. AL Tech and the Government highlight Commerce’s

finding that ESF Objective 4 funds are not available where ESF Objective 1 funds are already

available. However, record evidence suggests that limitation is based on a hierarchy of Italian ESF

Objectives; in other words, Objective 4 funds are not used where ESF Objective 1 projects are in

place. That differs from a designated geographical limitation. Thus, for example, if there are no

ESF Objective 1 projects in southern Italy, Italian ESF Objective 4 funds are available. In contrast,

a designated geographical limitation on ESF Objective 4 funding would exclude ESF Objective 4

funds from southern Italy, even if there were no ESF Objective 1 projects there.

        Moreover, contrary to Commerce’s determination, the record suggests that ESF Objective

4 in fact is not excluded from southern Italy. As Commerce itself determined in the course of its

verification of the Government of Italy, “the goals of Objective . . . 4 [are] also implemented [where

Objective 1 projects are in place,] but with Objective 1 money.”66 Pub. Doc. No. 220 at 5; see also

Pub. Doc. No. 221 at 7. In other words, record evidence suggests that the benefits provided pursuant

to ESF Objective 4 goals are available throughout Italy – even where Objective 1 projects are in

place – including southern Italy.

        Commerce’s specificity finding in this case is also difficult to square with the policy

underlying the specificity statute. The purpose of the specificity provision is to distinguish between

subsidies that provide generally available benefits to society (which have little trade distorting effect)

from those subsidies that are aimed at specific companies, industries or sectors, and thus distort

        66
          This fact would seem to undermine Commerce’s finding that there is “no transferability
between the objectives.” Final Determination, 63 Fed. Reg. at 40,487. The use of ESF Objective 1
funds to fulfill ESF Objective 4 goals would arguably constitute, in effect, a “transfer” of funds from
ESF Objective 1 to ESF Objective 4.
Court No. 98-10-03061                                                                          Page 69

trade significantly. See generally John Jackson, The World Trading System: Law and Policy of

International Economic Relations, at 296-97 (2nd ed. 1998). Cf. Statement of Administrative Action

Accompanying the Uruguay Round Agreements Act, H.R. Doc. No. 103-316, at 913 (1994),

reprinted in 1994 U.S.C.C.A.N. 4040, 4230 (“Consistent with longstanding U.S. practice,

government assistance that is both generally available and widely and evenly distributed throughout

the jurisdiction of the subsidizing authority is not an actionable subsidy.”). Thus, a country should

be able to confer a generally available benefit “without running the risk that such a benefit will be

countervailable . . . .” Inland Steel Indus. v. United States, 188 F.3d 1349, 1355 (Fed. Cir. 1999).

       Accordingly, if – as the record here appears to suggest – ESF Objective 4 goals are

implemented throughout Italy, then countervailing the benefits received under those programs would

be unlawful. While funding may be, for administrative purposes, jurisdictionally segregated, policy

initiatives that are broadly available should not be countervailed. The agency’s duty is to countervail

trade-distorting subsidy practices, not multi-jurisdictional budgetary practices.

       This issue too is therefore remanded, so that Commerce may reconsider and fully explain its

rationale on the specificity of Italian funding, analyzing, inter alia, whether ESF Objective 4 goals

are implemented throughout Italy and whether ESF Objective 4 is limited to a “designated

geographical region” within the meaning of the statute.

                                          III. Conclusion

       For the reasons set forth above, AL Tech’s Motion for Judgment on the Agency Record is

denied, and Valbruna/Bolzano’s Motion for Judgment on the Agency Record is granted. This action
Court No. 98-10-03061                                                                  Page 70

is remanded to the Department of Commerce for further proceedings in accordance with this

opinion.67

       A separate order will enter accordingly.

                                                  /s/ Delissa A. Ridgway
                                                             Judge

Decided:     September 8, 2004
             New York, New York

       67
         As indicated in note 7 above, however, a decision on Valbruna/Bolzano’s challenge to
Commerce’s pass-through methodology is expressly reserved. That issue is presently on remand to
the agency, and the remand is stayed.