52 FR 5794
NOTICES
DEPARTMENT OF COMMERCE
[C-401-602]
Final Affirmative Countervailing Duty Determination: Certain Stainless Steel
Hollow Products From Sweden
Thursday, February 26, 1987
*5794
AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that certain benefits which constitute subsidies within the meaning of
the countervailing duty law are being provided to manufacturers,
producers, or exporters in Sweden of certain stainless steel hollow products (SSHP) as
described in the "Scope of Investigation" section of this notice. The estimated net subsidy for
Avesta Sandvik Tube AB (AST) and all other manufacturers, producers, or exporters in Sweden
of SSHP is 2.18 percent ad valorem. We are not including AB Sandvik Steel (Sandvik Steel) in this
determination because the estimated net subsidy on the subject merchandise produced by Sandvik
is 0.06, which is de minimis. Where a company receives de minimis benefits, we consider that to be
a "significant differential" warranting company-specific treatment under section 706 of the Tariff
Act of 1930, as amended by section 607 of the Trade and Tariff Act of 1984 (Pub.L. 98- 573).
We have notified the U.S. International Trade Commission (ITC) of our determination. We are
directing the U.S. Customs Service to continue to suspend liquidation of all entries of SSHP from
Sweden, except that produced and exported by Sandvik Steel, that are entered, or withdrawn
from warehouse, for consumption, on or after the date of publication of this notice, and to require a
cash deposit or bond on entries of these products in the amount equal to the estimated net subsidy
as described in the "Suspension of Liquidation" section of this notice. With respect to Sandvik Steel,
the suspension of liquidation ordered in our preliminary affirmative countervailing duty
determination shall be terminated. All cash deposits shall be refunded and all appropriate bonds
shall be released with respect to imports of the subject merchandise from Sandvik Steel.
Our notice of initiation in this proceeding indicated that we were investigating more than one class
or kind of merchandise. Thus, the notice referred to "investigations" of certain stainless steel hollow
products. Based on analysis by the Department's industry experts, we preliminarily determined
that SSHP constituted one class or kind of merchandise. After
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careful review of the relevant facts and further consultation with the Department's industry
experts, we determine that, in fact, the merchandise covered by this proceeding comprises a single
class or kind of merchandise.
EFFECTIVE DATE: February 25, 1987.
FOR FURTHER INFORMATION CONTACT: Jack Davies, Carole Showers, or Gary Taverman, Office
of Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230;
telephone: (202) 377-1785, 377-3217, or 377-0161.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that certain benefits which constitute subsidies within
the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to
manufacturers, producers, or exporters in Sweden of SSHP. For purposes of this investigation,
the following programs are found to confer subsidies:
- 1977-1979 Structural Reorganization Fund
- 1983-1984 Specialty Steel Restructuring Program
- Regional Development Incentives
We determine the estimated net subsidy for SSHP to be 2.18 percent ad valorem for all
manufacturers, producers, or exporters in Sweden except for Sandvik Steel. The estimated net
subsidy on the subject merchandise produced by Sandvik Steel is 0.06 percent, which is de
minimis.
Case History
On September 5, 1986, we received a petition in proper form from the Specialty Tubing Group
(STG) and its six member companies filed on behalf of the U.S.
industry producing SSHP. In compliance with the filing requirements of § 355.26 of the Commerce
Regulations (19 CFR 355.26), the petition alleged that manufacturers, producers, or exporters in
Sweden of SSHP directly or indirectly receive benefits which constitute subsidies within the
meaning of section 701 of the Act, and that these imports materially injure, or threaten material
injury to, a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate two
countervailing duty investigations. We initiated two investigations on SSHP because we
believed, at the time, that SSHP constituted two different classes or kinds of merchandise. On
September 25, 1986, we initiated these investigations (51 FR 35018, October 1, 1986). We stated
that we expected to issue preliminary determinations on or before December 1, 1986.
Since Sweden is a "country under the Agreement" within the meaning of section 701(b) of the
Act, the ITC is required to determine whether imports of the subject merchandise from Sweden
materially injure, or threaten material injury to, a U.S. industry. On October 20, 1986, the ITC
determined that there is a reasonable indication that an industry in the United States is materially
injured by reason of imports of the subject merchandise (51 FR 44841, December 12, 1986).
We presented a questionnaire concerning the allegations to the Government of Sweden in
Washington, DC on October 6, 1986. On November 5, 1986, we received
responses to our questionnaires from the Government of Sweden, Sandvik Steel, Sandvik AB
(Sandvik), AST, and Avesta AB (Avesta). There are two manufacturers, producers, and exporters of
SSHP in Sweden: Sandvik Steel and AST. Sandvik Steel, wholly-owned by Sandvik, produces
and exports seamless pipe and tube, hollow bars, and blanks. AST, owned 75 percent by Avesta
and 25 percent by Sandvik, produces and exports welded pipe and tube. Both Sandvik Steel and
AST exported SSHP to the United States during the review period.
On November 17, 1986, petitioners requested a full extension of the period within which a
preliminary countervailing duty determination must be made pursuant to section 703(c)(1)
of the Act, and 19 CFR 355.28(c) of our regulations. Because this request was not filed in a timely
manner, we were unable to extend the deadline for the preliminary determination.
On November 20 and 21, 1986, respondents submitted letters challenging the standing of the
Specialty Tubing Group and requesting dismissal of the petition. In response to respondents'
contentions, we stated in our preliminary determination:
[N]either the Act nor the Commerce Regulations requires a petitioner to establish affirmatively
that it has the support of a majority of a particular industry. The Department relies on petitioner's
representation that it has, in fact, filed on behalf of the domestic industry, until it is affirmatively
shown that this is not the case. Where domestic industry members opposing an
investigation provide a clear indication that there are grounds to doubt a petitioner's standing, the
Department will review whether the opposing parties do, in fact, represent a major proportion of
the domestic industry. In this case, we have not received any opposition from the domestic
industry.
(51 FR 43950, December 5, 1986 (emphasis added)). See also Final Affirmative Countervailing
Duty Determination: Certain Fresh Atlantic Groundfish from Canada (51 FR 10041, March 24,
1986).
On the basis of information contained in the responses to our questionnaires, we made a
preliminary affirmative countervailing duty determination on December 1, 1986 (51 FR
43949, December 5, 1986).
From December 8-10 and 19-20, 1986, we verified the response of the Government of Sweden.
From December 10-19, 1986, we verified the responses of Sandvik Steel, Sandvik, AST, and Avesta.
We received supplemental information from respondents on January 13 and 14, 1987.
On January 16, 1987, counsel for Sandvik sent the Department two letters from members of the
domestic seamless SSHP industry which were originally sent to the ITC. Sandvik characterized
these letters as demonstrating opposition to STG's petition. In fact, only one letter arguably
expressed opposition to this investigation. For our determination with respect to this issue, see the
Department's Position on Respondents' Comment 3.
At the request of petitioners and respondents, a public hearing was held on
January 23, 1987, to afford interested parties an opportunity to present views orally in accordance
with our regulations (19 CFR 355.35). Petitioners and respondents filed pre-hearing briefs on
January 16, 1987, post-hearing briefs on February 4 and 5, 1987, and comments on the
verification reports on February 10, 11 and 12, 1987.
On January 29, 1987, we received a letter from petitioners requesting that the petition be amended
to add the United Steelworkers of America (USWA) as co- petitioners. On February 9, 1987, we
received a letter directly from the USWA confirming its membership in the Specialty Tubing Group
and its wish to join petitioners as co-petitioners in this investigation. On February 13, 1987, we
denied this request based on the untimeliness of the proposed amendment to the petition.
Scope of Investigation
The products covered by this investigation are certain stainless steel hollow products including
pipes, tubes, hollow bars, and blanks therefor, of circular cross-section, containing over 11.5
percent chromium by weight, provided for in items 610.3701, 610.3727, 610.3731, 610.3741,
610.3742, 610.5130, 610.5202, 610.5229, 610.5230, and 610.5231 of the Tariff Schedules of the
United States Annotated.
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Analysis of Programs
Throughout this notice we refer to certain general principles applied to the facts of the current
investigation. These principles are described in the "Subsidies Appendix" attached to the notice of
Cold-Rolled Carbon Steel Flat- Rolled Products from Argentina: Final Affirmative
Countervailing Duty Determination and Countervailing Duty Order (49 FR 18006,
April 26, 1984).
For purposes of this final determination, the period for which we are measuring subsidies (the
review period) is calendar year 1985. The denominator used for benefits conferred to Avesta
(Avesta's 1985 stainless steel sales) was calculated as follows: from Avesta's total sales for the
review period we subtracted, (1) the total sales of carbon steel forgings of Bjorneborgs Jernverks
(an Avesta subsidiary), (2) the net sales of Avesta, Inc., a U.S. subsidiary of Avesta which produces
steel in the United States, and (3) total sales of AST for 1985. We then added 75 percent of AST's
sales (the portion attributable to Avesta), adjusted for sales of SSHP produced in the Netherlands
plant of AST. Lastly, we added 50 percent of Fagersta Stainless' sales for 1985 (the portion
attributable to Avesta). The denominator used for benefits conferred to Sandvik Steel is total steel
sales of Sandvik, which includes all sales of Sandvik Steel.
In their pre-hearing brief of January 16, 1987, petitioners made a new allegation regarding the
creditworthiness of the Swedish SSHP producers. Due to the untimeliness of this new allegation and
due to the complexity of the creditworthiness issue itself, we have not analyzed this allegation. See
the Department's Position on Petitioners' Comment 2.
Based upon our analysis of the petition and the responses to our questionnaire, verification, and
written comments filed by petitioners and respondents, we determine the following:
1. Programs Determined to Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters in
Sweden of the subject merchandise under the following programs:
A. 1977-1979 Structural Reorganization Fund
Petitioners allege that in 1977 the Government of Sweden established the Structural
Reorganization Fund (SRF) to provide loans and loan guarantees to the SSHP industry. Petitioners
claim that the loans were made on terms inconsistent with commercial considerations. and that the
loan guarantees resulted in borrowing on open capital markets at below commercial market
rates. Petitioners further allege that the companies (or their successors) that received these loans
and loan guarantees restructured the industry by forming mergers and joint ventures to
manufacture the subject merchandise.
The SRF was established by and operated under Government Bill 1977/78:47 and the Swedish
Code of Statutes (SFS) 1977:1123. The purpose of the SRF program was to facilitate needed
structural change within the specialty steel industry. Assistance was given in the form of loans
(investment, conditional, and liquidity) and loan guarantees. At verification, we found that the
following loans and loan guarantees were given under this program: long-term investment loans to
Avesta, Sandvik, Fagersta, and Nyby Uddeholm (the latter two companies produced SSHP before
the restructuring in 1984); long-term conditional loans to Nyby Uddeholm; and government
guarantees for commercial loans to Avesta and Nyby Uddeholm. At verification we saw no
evidence that liquidity loans had been given under this program to the companies under
investigation.
As a part of the 1984 Specialty Steel Restructuring Program (discussed at length in section I.B of
this notice), two government actions concerning loans and loan guarantees given under the SRF
program occurred. First, certain investment loans provided to Avesta. Fagersta. and Nyby
Uddeholm were forgiven. Second, the conditional loans provided to Nyby Uddeholm under the
SRF program were transferred to its parent company, Uddeholm, and refinanced.
The forgiveness and transfer of these loans is discussed in section I.B. of this notice. The remainder
of loans and loan guarantees that were granted under the SRF program can be divided into two
groups: (1) those held by companies that continued to exist as stainless steel producers after the
1984 restructuring (i.e., Avesta and Sandvik), and (2) those held by Nyby Uddeholm, which was
purchased by Avesta in the 1984 restructuring. Sandvik had one investment loan and Avesta and
Nyby Uddeholm had several loan guarantees.
Because the loans and loan guarantees under this program were provided solely to the specialty
steel industry, we determine that the SRF program was limited to a specific enterprise or industry,
or group of enterprises or industries.
1. Loans: To determine whether the investment loan to Sandvik was given on terms inconsistent
with commercial considerations, we compared the amount of interest actually paid in 1985 to the
amount of interest the company otherwise would have paid. The investment loan was a long-term,
variable-rate loan. Since Sandvik did not have similar loans to use as a benchmark, we used the
1985 national average short-term interest rate to measure what the company otherwise would
have paid. This benchmark was compiled from data in the "Riksbank Statistical Yearbook for 1985"
(RSY 1985). Based on this comparison, we determine the investment loan to be on terms
inconsistent with commercial considerations.
To calculate the benefit conferred by this investment loan to Sandvik. we
divided the interest differential (i.e., the difference between interest that would have been paid
under our benchmark and the amount of interest Sandvik actually paid) by Sandvik Steel's total
sales of all products in 1985. On this basis, we calculate an estimated net subsidy of 0.012 percent
ad valorem for Sandvik.
2. Loan Guarantees: With respect to the loan guarantees received by Avesta, we were unable to
obtain documentation on loan guarantee fees charged by commercial banks from 1978 through
1979, the period in which loan guarantees were received under the SRF program. Therefore,
lacking information on a benchmark for loan guarantees, we compared the interest rates charged
on the guaranteed loans to an appropriate benchmark.
The loans for which Avesta received government guarantees included both fixed- rate and
variable-rate long-term loans. According to our methodology, we prefer to use a company-specific
benchmark. Since we do not have specific information on Avesta's long-term loans, either fixed- or
variable-rate, given in the same year as the guarantees, we used as a benchmark the effective base
rate for 15-year industrial bonds, as published in the RSY 1985. For the variable-rate loans, we
used the 1985 national average short-term benchmark, as described above. Based on these
comparisons, we find that only the guarantees for the variable-rate loans are on terms inconsistent
with commercial considerations.
To calculate the benefit conferred on Avesta by the loan guarantees, we divided the interest
differential by Avesta's 1985 stainless steel sales. On this basis, we calculate an estimated net
*5797
subsidy of 0.009 percent ad valorem for SSHP.
As noted above, Nyby Uddeholm received guarantees under the SRF program for commercial
loans taken out in 1978 and 1979. These guaranteed loans were assumed by Avesta when it
purchased Nyby Uddeholm in 1984. During verification, we discovered no evidence that the
government grant of these loan guarantees to Nyby Uddeholm resulted in Avesta purchasing Nyby
Uddeholm six years later for a lower price than Avesta otherwise would have paid. Absent
evidence that these guarantees resulted in a lower than arm's-length price, we presume that any
potential subsidy to the firm being acquired is reflected in a higher price paid and, hence, does not
confer a benefit on the purchaser. Therefore, we find the loan guarantees to Nyby Uddeholm not to
confer a benefit on SSHP produced by AST.
B. 1983-1984 Specialty Steel Restructuring Program
A second attempt by the Swedish government and industry to restructure the Swedish stainless
steel industry occurred during 1983 and 1984 as a result of the continued poor financial
performance of the industry. In 1983, the
government, the producers, and the owners in the Swedish stainless steel industry conducted a
series of negotiations which culminated in a comprehensive industry restructuring agreement in
January 1984.
The Government of Sweden, as a major creditor of the stainless steel producers, played a
critical role throughout these negotiations. The government's principal goal was to rationalize and
consolidate the Swedish stainless steel and SSHP industry into an entity with a majority
shareholder that would assume responsibility for the industry. To accomplish these objectives, the
government was willing to forgive some of its loans to the industry, but only if the owners of the
industry were willing to rationalize the industry and to consolidate and accept long-term majority
ownership of the industry. But for the government's offer of significant financial inducements, the
January 1984 industry restructuring agreement would not have occurred.
Under the January 1984 agreement, the Government of Sweden agreed to take two actions
which had the effect of relieving the Swedish stainless steel industry of substantial debt obligations.
These two actions were authorized by Parliament in May 1984 under Government Bill
1983/84:157. First, the government agreed to forgive Avesta of all repayment obligation for 450
million Swedish kronor (mSEK) of outstanding principal and accrued. but unpaid, interest on
long-term investment and localization loans which had been given originally by the government to
Nyby Uddeholm, Fagersta, and Avesta, and which subsequently were assumed by Avesta.
Second, the government agreed to transfer repayment responsibility on 668.1 mSEK of conditional
loans from Nyby Uddeholm to its parent, Uddeholm, and to adjust Uddeholm's repayment
obligations on these loans. The refinancing terms stipulate that Uddeholm's loan payments to the
government are to be tied to Avesta's convertible loan payment due Uddeholm for the sale to
Avesta of Nyby Uddeholm. According to information in Uddeholm's financial statements, the terms
of the refinancing require Uddeholm to repay the government a maximum of 135 mSEK on the
668.1 mSEK of transferred debt. As a consequence. the government forgave repayment of the
balance of 533.1 mSEK.
In addition to these government financial inducements, the January 1984 agreement brought
about the consolidation of the stainless steel assets of Fagersta and Nyby Uddeholm into Avesta.
Avesta purchased the stainless steel assets of Fagersta which consisted of Fagersta's 75 percent
ownership of its joint venture with Sandvik, Fagersta Sandvik Tube (FST), and Fagersta's stainless
steel plants in Fagersta, Sweden, and Langshyttan, Sweden. Avesta also purchased the
stainless steel facilities and assets of Uddeholm. which consisted of Uddeholm's 100 percent
ownership of its subsidiary. Nyby Uddeholm. Furthermore, Avesta's owners agreed in the January
1984 agreement to maintain their majority ownership in Avesta for at least 10 years. In June 1984,
after purchasing of Fagersta's shares in FST, Avesta changed the name of
that company to Avesta Sandvik Tube AB (AST).
Given these facts, the principal issue is whether the government's forgiveness of (1) Avesta's
obligations to repay the 450 mSEK in loans Avesta had incurred or assumed from Fagersta and
Nyby Uddeholm, and (2) Uddeholm's obligation to repay 533.1 mSEK in loans it had assumed from
Nyby Uddeholm, constitute countervailable benefits in the context of this investigation. To be
countervailable under the Act, a government's grant of a benefit must be to a "specific enterprise or
industry, or group of enterprises or industries." Since both government actions identified above
were undertaken to benefit the Swedish stainless steel industry, we find that the "specificity"
requirement of the Act has been satisfied.
The Act further requires that a domestic subsidy must fit within one of the four subsections of
section 771(5)(B) before benefits provided under the subsidy may be countervailed. We find that
the government's forgiveness of loan repayment obligations in the two contexts described above
falls within section 771(5)(B)(iv), "the assumption [by the government] of any costs or expenses of
manufacturing, production, or distribution."
As we stated in Final Affirmative Countervailing Duty Determination: Certain Steel Products
From Belgium (47 FR 39304, 39314, September 7, 1982): "Debt forgiveness by the government is
an assumption of a company's cost of doing business and, as such, is countervailable." The record
clearly shows
that, but for the government's willingness to relieve the industry of substantial indebtedness, the
restructuring would not have occurred. Specifically, the government's actions made possible the
purchase by Avesta of the Fagersta and Nyby Uddeholm assets, which, together with some of
Avesta's own assets, were later sold to, and now comprise, AST. Barring the transfer, refinancing,
and forgiveness of these loans, the primary long-term goal of the government's restructuring
program--rationalizing and consolidating the Swedish stainless steel and SSHP industry into one
company with a majority shareholder--could not have been achieved.
Respondents argue that the government's forgiveness of repayment obligations here should be
analyzed under section 771(5)(B)(i), which describes domestic subsidies that amount to "the
provision of capital, loans, or loan guarantees on terms inconsistent with commercial
considerations." Respondents argue that the government's forgiveness of loans was consistent with
commercial considerations, and thus are not countervailable. We determine, however, that even
were these actions properly analyzed under section 771(5)(B)(i), they were not consistent with
commercial considerations since the record makes clear that a commercial lender would not have
extended such forgiveness to the industry under similar circumstances.
We also must determine that benefits provided by the government's forgiveness of loans have
benefitted the products under investigation. The government's
forgiveness of Avesta's obligations to repay the 450 mSEK in loans clearly benefitted Avesta.
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However, Avesta has retained in its immediate corporate organization none of the welded SSHP
facilities it purchased in the 1983-1984 restructuring. As noted above, Avesta sold all of its welded
SSHP facilities to its joint venture with Sandvik, AST. The Swedish respondents maintain that
government benefits bestowed on Avesta cannot be attributed to AST because Avesta and AST are
separate entities and Avesta does not exclusively control AST. The respondents point to the fact
that Avesta and Sandvik must agree before many important actions can be taken that affect AST.
After careful review of the record, we find that Avesta exerts considerable control and influence
over AST. Under the terms of the Shareholders' Agreement between AST and its owners, AST s
shares are owned 75 percent by Avesta and 25 percent by Sandvik. Consequently, a majority of
AST's board members, including the board chairman, are appointed by Avesta. AST also is required
under its Shareholders' Agreement to purchase a large percentage of its raw materials from Avesta,
the sole supplier of these raw materials in Sweden after the restructuring. In November 1984,
AST purchased the welded SSHP facilities of Avesta, thereby becoming the sole producer of welded
SSHP in Sweden. Although the Shareholders' Agreement does stipulate that certain actions
undertaken by the company require a unanimous vote by the board, Avesta can exert significant
authority over AST as majority shareholder. More important than Avesta's
control over AST, is the fact that through the forgiveness of loans held by Avesta and the
transfer-refinancing of Nyby Uddeholm's debt (discussed below), the government enabled Avesta
to purchase Fagersta's shares in FST as part of the restructuring. Therefore, we conclude that any
benefit accruing to Avesta through the restructuring benefits all of Avesta's stainless steel
production, including SSHP produced by AST.
To determine the benefit conveyed by the government to the SSHP industry through its forgiveness
of Avesta's obligation to repay the 450 mSEK in loans, we treated this forgiveness, consistent with
our practice (see Certain Steel Products From Belgium, supra), as a grant. We allocated the 450
mSEK grant amount over 15 years (the average useful life of renewable physical assets for the steel
industry). Normally, we prefer to use a company-specific weighted- average cost of capital as the
discount rate for allocating such benefits. However, adequate information which would enable us
to do so is not on the record. Therefore, we used the effective base rate for 15-year industrial
bonds, as published in the RSY 1985.
As noted above, the government's forgiveness of Uddeholm's obligation to repay 533.1 mSEK of the
loans of its subsidiary, Nyby Uddeholm, was given in connection with Avesta's purchase of Nyby
Uddeholm from Uddeholm. Thus, our principal task with respect to this action is to determine (1)
whether the seller (Uddeholm), the buyer (Avesta), or both benefitted from the government's
forgiveness of Uddeholm's debt, and (2) the amount of benefit received by each.
The government's intervention clearly benefitted Uddeholm. It enabled Uddeholm to sell an
operation which had been losing money since its early years and which was burdened with debts,
including the 668.1 mSEK. The government's intervention also substantially reduced Uddeholm's
debt obligation. Thus, at least some portion of the benefit conveyed by the government's debt
forgiveness must be attributed to Uddeholm.
The crucial question, however, is whether Avesta also benefitted from the government's
intervention. If the government's intervention reduced the price Avesta would have otherwise paid
for Nyby Uddeholm (i.e., the arm's-length price), Avesta can be said to have directly received a
benefit equal to the difference between the actual purchase price and the arm's-length price.
Despite the extensive record we have gathered in this investigation, we do not know the exact
arm's-length price Avesta would have paid for Nyby Uddeholm had the government not intervened
as it did. We are reasonably certain, however, that the arm's-length price would have been more
than the actual price paid by Avesta. This is because Uddeholm and the Swedish government
eagerly sought the transaction's consummation with Avesta, for failure of that transaction would
have meant the failure of the restructuring plan. Avesta was thus in a position to force the
government to step in and forgive the loan and, thereby, force the sale at a discount below what
would have been the arm's-length
price. We accordingly conclude that Avesta, like Uddeholm, directly benefitted from the
government's intervention.
In addition, Avesta indirectly benefitted from the government's intervention, since that action
enabled Avesta to become, (1) the majority owner of AST, the only producer in Sweden of
welded SSHP, and (2) one of the two remaining producers of stainless steel products in Sweden.
In light of this analysis, we have concluded that we cannot reasonably attribute all the benefit of
the debt forgiveness and refinancing to Uddeholm because Avesta itself gained from the purchase
of Nyby Uddeholm. Similarly, we cannot attribute all the benefit to Avesta because Uddeholm also
gained as a result of government actions. Because we cannot precisely dissect the complex package
of transactions to quantify the benefits that accrued individually to Avesta and to Uddeholm, we
have attributed half of the 533.1 mSEK loan forgiveness to Avesta and half to Uddeholm. We have
treated the 266.55 mSEK loan forgiveness to Avesta in accordance with our grant methodology
described above.
To calculate the ad valorem benefit conferred on AST by the 450 mSEK loan forgiveness and the
266.55 mSEK loan refinancing, we divided the 1985 benefit by Avesta's total 1985 stainless steel
sales of all products. On this basis, we determine the estimated net subsidy to be 2.165 percent ad
valorem.
C. Regional Development Incentives
The regional development assistance programs provide assistance to promote new employment in
regions with high unemployment or retarded development. Asslstance is provided in the form of
grants and loans. These are received for location of industry, freight relief, regional investment
projects, health care facilities, building and construction, and various employment schemes. The
size of the localization grant or loan is determined by several factors, including the number of new
jobs created by the investment, the size of the investment, and the area in which it is made.
Based upon our findings at verification, only the following assistance was provided under this
program to producers of SSHP: Sandvik received a localization loan for its stainless steel facilities in
Sandviken and a localization grant for its saw and tool facilities in Sveg, which do not produce
SSHP; Avesta received freight relief and two localization loans, all of which was for its stainless steel
facilities in Avesta; Fagersta received several localization loans for its stainless steel facilities
located in various designated areas in Sweden; and Nyby Uddeholm received several
localization loans for its stainless steel facilities located in various designated areas throughout
Sweden.
The localization loans held by Fagersta and Nyby Uddeholm were
*5799
transferred to Avesta under the 1984 Specialty Steel Restructuring Program, described in section
I.B. above. Some of these were forgiven, along with localization loans taken out by Avesta, as part
of the Restructuring Program. We have included the benefits to Avesta from this forgiveness in the
subsidy calculations for that program.
Other localization loans held by Fagersta and Nyby Uddeholm that were transferred to Avesta were
not forgiven. We have not included these loans in calculating the benefit to Avesta for the reasons
stated in section I.A. pertaining to guaranteed loans to Nyby Uddeholm that were transferred to
Avesta.
The remaining localization loans are to Avesta and Sandvik. A portion of Avesta's localization loans
was forgiven in 1985. Sandvik's loan is still outstanding.
We determine that Sandvik's loan was provided to a specific enterprise or industry, or group of
enterprises or industries because receipt of this loan was conditional upon regional location. We
further determine that forgiveness of Avesta's loan in 1985 is countervailable because we find that
the government's forgiveness of loan repayment obligations falls within section 771(5)(B)(iv), "the
assumption [by the government] of any costs or expenses of manufacturing, production, or
distribution."
We compared the terms of Sandvik's regional loan with our benchmark interest
rate. The localization loan was a long-term, variable-rate loan. Since Sandvik did not have similar
loans to use as a benchmark, we used the 1985 national average short-term interest rate to
measure what the company otherwise would have paid. This benchmark was compiled from data in
the RSY 1985. On the basis of this comparison, we found that this loan was on terms inconsistent
with commercial considerations.
To calculate the benefit conferred by the localization loan to Sandvik, we divided the interest
differential (i.e., the difference between our benchmark interest rate and the amount of interest
Sandvik actually paid) by Sandvik Steel's total sales of all products in 1985. On this basis, we
calculate an estimated net subsidy of 0.05 percent ad valorem for Sandvik.
Based upon our findings at verification, freight relief is provided in the form of a grant and is
contingent upon the location of facilities in designated areas. Because this program is limited to
specific regions within Sweden, we determine that it is countervailable. Since freight relief
benefits are received yearly by Avesta and are based on the level of its shipments, we consider
these benefits to be a recurring grant and expensed the 1985 benefits during the review period.
We divided the sum of the benefits from the forgiveness of the conditional localization loan and
freight relief to Avesta by Avesta's total sales in 1985 of all products to arrive at an estimated net
subsidy of 0.009 percent ad valorem.
II. PROGRAMS DETERMINED NOT TO CONFER SUBSIDIES
We determine that subsidies are not being provided to manufacturers, producers, or exporters in
Sweden of the subject merchandise under the following programs:
A. 1977-1979 Employment Promotion Grants
The Government of Sweden initially provided employment support benefits under the
provisions of Government Bill 1976/77:95. These benefits were later extended through a series of
overlapping bills which eventually covered the period 1977 through 1979. This was a temporary
employment stabilization program designed to give work and education grants to companies with a
dominant employment position in a community. A basic condition for the employment and
training grants was that the employees facing dismissal continued to be employed by the company
in non-productive activities and that the notice of lay-off was to be withdrawn. The employment
grants amounted to either (1) 75 percent of the wages of workers who had been designated for
lay-off, but who were kept on the job working on projects unconnected with direct production,
or (2) a portion of the costs incurred for training and education classes for affected employees. This
program was terminated as of December 1979.
At verification, we found that Avesta and Fagersta were the only producers of SSHP that received
grants under this program. We found that the companies were required to contribute either 25
percent of the affected employees' salaries, or a portion of the costs related to the
training/education courses. But for this government program, neither of these companies would
have been liable for expenses related to these employees who otherwise would have been
dismissed. Because we saw no evidence that: (1) The classes were for jobs related to stainless steel
production; or (2) that either of these companies was relieved of any expenses it otherwise would
have incurred absent this program, we determine that no countervailable benefit was bestowed
under this program.
B. Bank Guarantee on 1984 Stock Issuance by Avesta
Petitioners allege that in 1984, as part of the structural reorganization of the specialty steel
industry, described in section I.B. of this notice, the government provided guarantees on stock
issued by Avesta in 1984. Petitioners assert that the capital raised by this stock issuance was used
by Avesta to support its stainless steel operations.
During verification, we found that Avesta's stock issue in 1984 was underwritten and guaranteed by
Skandinaviska Enskilda Banken, a commercial bank that is not owned or controlled hy the
government. We also found that under Swedish law, a commercial bank is allowed to underwrite a
stock issuance for a company. Because we found that a commercial bank guaranteed Avesta's 1984
stock issuance based on its own commercial interests, we determine that no countervailable
benefit was bestowed under this program.
C. 1972 and 1976-1978 Inventory Grants
Petitioners allege that the Government of Sweden has provided funding for increases in
stainless steel inventories in order to keep surplus personnel employed.
Inventory grants were provided pursuant to the Swedish Code of Statutes (SFS) 1971:1249, ss 1 and
2. The purpose of the program was to maintain existing levels of employment. To receive a grant
under this program, the company was required to have at least 20 employees and inventories of
finished or semifinished goods increasing from the previous year. If a grant was received, the
company had to maintain its current level of employment.
During verification, we found that this program was available to, and used by, a wide variety of
Swedish manufacturers. Because this program was not limited
to producers of stainless steel products, or otherwise limited to a specific enterprise or industry, or
group of enterprises or industries, or to specific regions within Sweden, we determine that no
countervailable benefit was bestowed under this program.
D. Government Funding to Companies and Research Organizations for Research and Development
The Swedish Government provides research and development grants to Swedish industries either
directly or indirectly through various research and development (R&D) agencies. The Swedish
Board of Technical
*5800
Development (STU) is Sweden's central agency for funding of R&D grants.
During verification, we found that conditional grants are given for R&D. Upon completion of a
project, the results must be reported to STU and thereafter are made publicly available by STU.
However, under certain circumstances, a grant recipient may find the results from a research
project to be exploitable and decide to have them patented, at which time STU is requested not to
release any results arising from the project. In this situation, STU requires that the conditional
grant be converted to a loan and be repaid with interest to STU.
We also found during verification that Sandvik received four grants for projects related to SSHP,
the results of which have been made publicly available. Avesta received two grants for projects
pertaining to SSHP. One of the projects has not yet been completed.
Upon completion of the other project, Avesta decided to patent the project results. Therefore, the
grant was converted to a loan which was repaid with interest by 1981. According to the
government's response, Nyby Uddeholm received three grants for projects related to SSHP.
Because Nyby Uddeholm no longer exists as a company and because we saw no evidence at
verification of any R&D grants transferred to Avesta's books after it purchased Nyby Uddeholm in
1984, we assume that these grants were either converted to loans and repaid with interest prior to
the review period or the results of the research were made publicly available.
Because the results of the government-funded corporate R&D projects are publicly available, we
determine the R&D funds provided under this program are not countervailable.
III. Programs Determined Not to Exist
A. Government Loan to Sandvik for Working Capital
Petitioners allege that an increase in "Interest-Free Trading Debts" shown in Sandvik's 1983 Annual
Report was the result of a government transfer of interest-free loans to the company. At
verification, we found that this increase was the result of a sale by Sandvik of one of its assets, with
no participation on the part of the government. Because this was a commercial transaction,
unrelated to any government program or action, we determine that there is no program by which
the Swedish government provided interest-free loans to Sandvik.
B. Government Convertible Loan to Avesta for Purchase of Nyby Uddeholm
Petitioners allege that the Government of Sweden provided convertible loans on terms
inconsistent with commercial considerations to Avesta for the purpose of financing the acquisition
of Nyby Uddeholm's and Fagersta's stainless steel operations.
During verification, we found that the government did not issue convertible loans to Avesta, or any
of its subsidiaries, for the purchase of Nyby Uddeholm and Fagersta. Rather, Avesta issued
convertible loans in 1984 to Fagersta and Uddeholm as payment for the facilities and assets
purchased. Because the Government of Sweden had no involvement in this part of the
structural reorganization of the specialty steel industry, we determine that there was no
program by which the government provided convertible loans to Avesta.
Petitioners' Comments
Comment 1. Petitioners contend that the Department should countervail the additional benefits
that have flowed to the SSHP industry from the forgiven localization loans to Avesta and Fagersta
resulting from interest holidays and below-market interest rates. They argue that the amount of
interest that should have been paid during the interest holidays should be added as an additional
grant to the loan amount forgiven in 1984, and the total amount of additional benefits attributable
to the below-market interest rates should be added to the 1984 grant amount.
DOC Position. We disagree. We have treated the amounts forgiven in 1984 as grants and
have.allocated the benefits over 15 years. Under our standard methodology, any savings that
might have occurred in the form of interest holidays or low interest rates prior to 1984 would be
attributable to years prior to the forgiveness.
Comment 2. Petitioners contend that a major portion of the SSHP industry was uncreditworthy
between the years 1976 and 1983. Therefore, in evaluating and measuring benefits bestowed, the
Department should adopt benchmarks and discount rates that reflect the uncreditworthiness of
much of the Swedish SSHP industry.
DOC Position. Petitioners' allegation of uncreditworthiness was received by the Department on
January 16, 1987, approximately one month before the final determination. Petitioners had access
to respondents' annual reports and financial statements as of November 6, 1986, almost two
months before any allegation was received by the Department. Given the complexity of the
analysis necessary to investigate this allegation, we consider it to be too late to be considered in
this investigation. This decision is consistent with past Department practice regarding allegations
of uncreditworthiness. See e.g., Final Affirmative Countervailing Duty Determination and
Countervailinq Duty Order: Lime Oil from Mexico (49 FR 35627, 35677, September 11, 1984).
Comment 3. Regarding the calculation of the benefit from employment grants made after July 1978
to Avesta, petitioners contend that the Department should use as the cost of capital to Avesta the
rate derived by adding a 4.7 spread to the industrial bond rate in 1978, for an estimated cost of
capital of 15.03 percent. Petitioners maintain that this rate reflects the relative cost experienced
by Avesta in view of its uncreditworthiness in 1978.
DOC Position. We determine that employment grants are not countervailable. See section II.A. of
this notice. We have not considered the allegation of uncreditworthiness because of the
untimeliness of its filing. See DOC Position on Petitioners' Comment 2.
Comment 4. Petitioners contend that, if the Department finds the inventory grants were limited in
Sweden, then it should also find that countervailable benefits have flowed to Avesta and
Sandvik under this program.
DOC Position. We determine that inventory grants are not limited to a specific enterprise or
industry, or group of enterprises or industries and, thus, are not countervailable. See section II.C.
of this notice.
Comment 5. Petitioners contend that the localization loans that had previously provided
countervailable benefits to Fagersta and Nyby Uddeholm continue to provide countervailable
benefits to Avesta after its acquisition of the loans. Petitioners further contend that benefits from
below-market interest rates and interest holidays on these loans have flowed to Avesta and should
be countervailed.
DOC Position. We disagree. See section I.C. of the notice and DOC Position on Petitioners' Comment
19.
Comment 6. Petitioners contend that subsidies for the production of the flat- rolled products used
to manufacture SSHP have continued to benefit the production of SSHP regardless of the corporate
maneuverings in 1984. As an integral part of the Avesta Group, AST has derived a significant
benefit from enhanced production of stainless steel plate, sheet, and strip made possible by
government preferential loans designed
*5801
to improve Avesta's continuous casting facilities.
DOC Position.We agree. See section 1.B. of this notice.
Comment 7. Petitioners contend that, contrary to Sandvik's assertions, the Department properly
applied a country-wide rate for purposes of the preliminary determination and should continue to
do so in the final determination. In support of this position, petitioners assert that the 1977-78
Structural Reorganization Fund and the government-directed and subsidized 1984 industry
reorganization were intended not to benefit a particular company or companies, but, rather, the
entire stainless steel industry.
DOC Position. It is our general practice to publish a country-wide countervailing duty rate
applicable to all imports of the subject merchandise. However, where a company receives de
minimis benefits, we consider that to be a "significant differential" warranting company-specific
treatment under section 706 of the Act, as amended by section 607 of the Trade and Tariff Act of
1984. Because Sandvik Steel received de minimis benefits, we are not including it in this
determination.
Comment 8. Petitioners disagree with Sandvik's assertion that it should be given a separate rate
because it had de minimis margins. Petitioners contend that the benefits from Sandvik's loans
under the SRF are substantial. Petitioners further contend that Sandvik and its subsidiary
companies benefitted from the government-directed and subsidized reorganization through
insured viability and increased competitiveness.
DOC Position. We disagree. See DOC Position on Petitioners' Comment 7 and section 1.B. of this
notice.
Comment 9. Petitioners contend that the request for exclusion from any countervailing duty
order that may be issued in this investigation. which appeared in the prehearing brief of Sandvik
and Sandvik Steel is inappropriate because these companies have not fulfilled the procedural or
substantive prerequisites for exclusion from a countervailing duty order. Petitioners
contend that given respondents' failure to request exclusion within 30 days"of the notice of
initiation, as required by § 355.38 of the Department's regulations, and the evidence of subsidies
provided to Sandvik, the Department should not grant respondents' exclusion request.
DOC Position. We agree. However, as we state in response to Petitioners' Comment 7, our
investigation of Sandvik revealed that it receives de minimis benefits and, therefore, Sandvik is not
included within this determination.
Comment 10. Petitioners allege that Avesta benefitted from below-market interest rates on
guaranteed loans from the Swedish government. They argue that such benefits are distinct from the
benefits conferred by preferential guarantee fees. In view of Avesta's uncreditworthiness, the
benefits to Avesta from its variable-rate loan should be calculated using the highest short-term
interest rate in Sweden as a benchmark.
DOC Position. Where the government provides guarantees for loans, a countervailable benefit can
arise if the fee paid for the government guarantee is less than what the borrower would otherwise
pay for a guarantee. If we have a benchmark guarantee fee, we would not generally examine the
interest rate on the guaranteed loan because any benefit to the borrower would be reflected in the
difference in the guarantee fees.
Because we lacked a benchmark guarantee fee in this case, we compared the interest rate on the
government guaranteed loan to the interest rate the firm would otherwise have paid. This is the
best measure of any benefit conferred in the absence of a benchmark guarantee fee.
With respect to Avesta's creditworthiness, see DOC Position on Petitioners' Comment 2.
Comment 11. Petitioners argue that the Department should use Avesta's cost of long-term debt as
the basis for the discount rate in calculating benefits from Avesta's guaranteed loans. Petitioners
contend that Avesta's weighted-average cost of capital cannot be reliably determined due to the
absence of capital infusions into the company from 1979-84.
DOC Position. As discussed above, we examined the interest rates on Avesta's government
guaranteed loans because we lacked a benchmark guarantee fee. The guaranteed loans had fixed
and variable interest rates. We found that the interest rates on the fixed rate guaranteed loans were
not lower than Avesta
would otherwise have paid. Therefore, we determined that the guarantees for these loans were not
provided on terms inconsistent with commercial considerations.
With regard to the guaranteed variable rate loans, we found that the interest rate paid by Avesta
was less than the benchmark rate. Therefore, we found the government guarantees for variable rate
loans were provided on terms inconsistent with commercial considerations. To measure the
benefit arising from these guarantees, we compared the interest paid in 1985 to the interest that
would have been paid under the short-term benchmark. Because of this, there was no need for a
discount rate because no benefits were allocated over time.
Comment 12. Petitioners allege that the Government of Sweden provided preferential loans to
Bjorneborgs Jernverks (BJ), a subsidiary of Avesta Jernverks, which have directly benefitted the
SSHP industry. Petitioners contend that an investment loan and a localization loan, both
transferred to Avesta in 1985, conferred two benefits on Avesta: (1) A preferential interest rate,
and (2) a three-year interest holiday.
DOC Position. We disagree. BJ produces forged steel products primarily from carbon steel. We did
not attribute any benefits accruing to BJ to the SSHP industry and we did not include BJ's sales in
Avesta's total steel sales for purposes of calculating a denominator.
Comment 13. Petitioners argue that, in addition to the benefits conferred by the Swedish
government's forgiveness of a 52.5 mSEK investment loan to Avesta in connection with the 1984
restructuring, Avesta benefitted by not paying the interest that would have accrued prior to the
forgiveness if the loan had been at market rates. Petitioners further argue that Avesta's interest
savings should be treated as a grant in the amount of the annual interest saved by Avesta between
the year the loan was bestowed and the year it was forgiven. The 1985 benefits from this loan
should be calculated by adding the interest that would have accrued over the life of the loan to the
amount of the loan principal forgiven, and then treating the sum as a grant.
DOC Position. We disagree. Any benefit from interest savings prior to forgiveness would be
attributable to the period before the forgiveness. See also DOC Position on Petitioners' Comment 1.
Comment 14. Petitioners allege that a 35 mSEK government loan to Sandvik was inconsistent with
commercial considerations. Petitioners argue that (1) the loan had an interest holiday, (2) Sandvik
apparently paid no loan fees, and (3) because the loan has a variable interest rate, the correct
benchmark is the 1985 short-term interest rate. If a long-term loan interest rate is used as a
benchmark, petitioners argue that the 15-year industrial bond rate is not an appropriate
benchmark because it does not reflect long-term loans to the SSHP industry.
DOC Position. We agree that the loan was made on terms inconsistent with
*5802
commercial considerations. However, because the loan had variable interest rates, we were not
able to apply our .methodology for fixed rate, long-term loans, which would have resulted in
allocating any benefits from an interest holiday or lack of loan fees over the life of the loan. Instead,
because the loan has a variable interest rate, we calculate the benefit that arises in each year and
allocate that entire amount to that year. As petitioners suggest, we have used the 1985 short-term
interest rate to measure the benefit accruing to Avesta in 1985.
Comment 15. Petitioners allege that the transfer of Nyby Uddeholm's conditional loans to
Uddeholm in 1984 provided countervailable benefits to the SSHP industry. By relieving Nyby
Uddeholm and Avesta, its successor corporation, of a substantial liability, the Government of
Sweden effectively bestowed a grant on Avesta. Petitioners further argue that the loans' below-
market interest rate also conferred benefits on Nyby Uddeholm and Avesta.
DOC Position. We disagree that the loan transfer, in itself, conferred benefits on the SSHP industry.
However. the government refinancing and partial forgiveness of the loans did provide certain
benefits to Avesta. We did not analyze whether the original terms of these loans were inconsistent
with commercial considerations because the loans were forgiven or refinanced. Therefore, the
original terms of the loans are not relevant to our determination. See section I.B. of this notice.
Comment 16. Petitioners allege that the Swedish government forgiveness of loans to Nyby
Uddeholm and Fagersta provided a direct benefit to the SSHP industry. They argue that the loan
forgiveness enabled the SSHP industry to restructure and become more competitive, and that this
restructuring would have been impossible absent government intervention. The loan forgiveness,
recorded in Avesta's 1984 annual report, allowed Avesta to write down the value of its fixed assets.
Petitioners further argue that, because neither Avesta nor Sandvik provided any payment or other
consideration for the loan forgiveness, the forgiveness cannot be characterized as an arm's-length
transaction between the SSHP industry and the Government of Sweden. In addition,
petitioners contend that the loans' below-market interest rates and interest holidays directly
benefitted the SSHP industry.
DOC Position. We agree that the loan forgiveness cannot be characterized as an arm's-length
transaction between any company in the SSHP industry and the government. Debt forgiveness by a
government is an assumption of a company's cost of doing business and, as such, constitutes a
benefit to the production of the subject merchandise. We do not agree that any interest savings
which might have occurred prior to the forgiveness yield a benefit during the review period. See
DOC Position to Petitioners' Comment 1.
Comment 17. Petitioners allege that certain Swedish government loans to Nyby
Uddeholm and Fagersta carried preferential guarantee fees, below-market interest rates,
conditional repayment terms; and interest holidays. Petitioners argue that these benefits flowed to
Avesta when Avesta acquired the loans in the 1984 restructuring.
DOC Position. We disagree. See sections 1.A. through and I.C. of this notice.
Comment 18. Petitioners allege that the Swedish government's loan forgiveness, as the impetus for
the 1984 restructuring, benefitted the entire stainless steel industry, including SSHP. They argue
that AST came into existence only because of the government-directed reorganization of the
industry. Petitioners cite Final Affirmative Countervailing Duty Determination: Certain Steel
Products from France (47 FR 39332, September 7, 1982) in which the Department found
government restructuring efforts in the French steel industry to be countervailable, as directly
analogous to Swedish government actions in this investigation.
DOC Position. We disagree. The government's loan forgiveness provided certain countervailable
benefits to Avesta, but not to the SSHP industry as a whole. For example, we did not attribute any
benefits to Sandvik from the 1984 loan forgiveness. See section I.B. of the notice.
Comment 19. Petitioners argue that none of the inter- and intra-corporate transfers of assets and
debts which occurred during the 1984 steel restructuring were arm's-length transactions. Further,
petitioners argue that
the creation of FST and AST cannot be considered "commercial" due to the existence of government
direction in the form of preferential loan terms, loan forgiveness, and below-market asset purchase
agreements.
DOC Position. We disagree. Some of the above-mentioned debt and asset transfers were
arm's-length transactions. Only certain portions of the 1984 restructuring were non-commercial:
namely, the government's loan forgiveness and loan refinancing. These government actions
ultimately allowed the restructuring to occur, but they did not undermine the commercial nature
of certain key aspects of the restructuring. The complex set of agreements which comprise the
restructuring contain both commercial and non-commercial elements. In section I.B. of the notice,
we have identified those elements which conferred countervailable benefits. We have not found a
"pass through" of benefits from preferential loan terms when those loans were transferred because
the transfers can be considered "commercial" once the government's role in the agreement is
accounted for.
We consider that, absent government loan forgiveness and refinancing, any preferential loans sold
at arm's-length would cease to be preferential to the new purchaser. In effect, the purchase price of
the loan package would reflect the preferential terms of the loan. As such, the loan transfers are not
inconsistent with commercial considerations. We have countervailed only those government
actions, loan forgiveness and refinancing, which were
contemporaneous with the restructuring and which clearly enabled a transaction to take place that
otherwise would not have occurred on the same terms.
Comment 20. Petitioners argue that the Swedish government's loan forgiveness and the transfer of
debt from Nyby Uddeholm to Uddeholm should be treated as a grant and allocated over total sales
of stainless steel. Petitioners cite Certain Steel Products from France, supra, Comment 18, in
support of their argument.
DOC Position. We disagree. See section 1.B. of this notice.
Comment 21. Petitioners dispute Avesta's contention that any benefits from the Swedish
government's loan forgiveness and debt transfers accrued to Fagersta and Uddeholm and did not
pass on to Avesta or AST. Petitioners' claim that Avesta was relieved of significant liabilities as a
result of government- directed restructuring.
DOC Position. We agree that certain benefits from the government's loan forgiveness and
refinancing accrued directly to Avesta and indirectly to AST. See section 1.B. of this notice.
Comment 22. Petitioners argue that Sandvik benefitted from the 1984 restructuring and from
preferential localization and investment loans, both as a producer of seamless SSHP and as a joint
owner of AST and Fagersta Stainless.
DOC Position. We found Sandvik's localization loan and investment loan to be countervailable, but
the benefits received are de minimis (see sections I.A.
and I.C. of this notice). We disagree that Sandvik received countervailable benefits from the 1984
restructuring.
*5803
Those benefits accrued solely to Avesta, AST and their production of stainless steel products.
Comment 23. Petitioners argue that Avesta and AST are not separate entities in any meaningful
respect, in view of the highly integrated supply relationships between AST and Avesta and the
common ownership responsibility for Avesta, AST and the entire Avesta Group. Petitioners
conclude that government benefits to Avesta have also benefitted AST.
DOC Position. We agree. See section I.B. of this notice.
Comment 24. Petitioners argue that the revised figures for Avesta's total steel sales in the
Department's verification report are overstated because (1) they include steel products not
produced in Sweden, (2) they include sales by marketing entities of products that are not made
by Avesta, and (3) they include sales of a variety of fabricated products that are not normally
considered part of the steel industry.
DOC Position. We disagree. For an explanation of those Avesta sales included in our denominator,
see the "Analysis of Programs" section of this notice.
Comment 25. Petitioners contend that information relating to the government's loan forgiveness
remains unverified. Specifically, petitioners note that the Swedish government failed to provide the
Department with financial calculations regarding the amount of the loan forgiveness and how that
amount was reached.
Further, petitioners recommend that the Department conclude, as best information available, that
the full amount of the loan forgiveness and debt transfer was intended to benefit the stainless steel
and SSHP industry.
DOC Position. We disagree. We are satisfied that all information relied upon in making our final
determination has been sufficiently verified. Our calculation methodology for the loan forgiveness
and debt transfer is set out in section I.B. of this notice.
Comment 26. Petitioners argue that Avesta's purchase of Fagersta's and Nyby Uddeholm's stainless
steel and SSHP operations was not made on commercial terms. Petitioners claim that, when
payment for these operations is ultimately made, it will be through convertible debentures with a
present value at the time of purchase well below the nominal asset valuation.
DOC Position. We disagree. See section I.B. of this notice.
Respondents' Comments
Comment 1. Sandvik contends that it should be excluded from any final subsidy determination
because there is a significant differential, within the meaning of section 706 of the Act between
Sandvik Steel and the other companies subject to this investigation and because any benefits
received by Sandvik Steel are de minimis. Sandvik further contends that, during the initial 30-day
period for an
exclusion request under § 355.38 of the Department's regulations [19 CFR 355.38], it was not able
to make such a request for exclusion because they had participated in certain programs alleged by
petitioners to be countervailable. Sandvik, therefore, requests that it be excluded from any
countervailing duty order issued in this investigation if the Department finds that this
company received no subsidies with respect to SSHP, or if the Department finds that the only
subsidy provided to Sandvik Steel arose from the investment loan and that the benefit from such
subsidy was de minimis.
DOC Position. Because Sandvik Steel failed to request an exclusion within 30 days of the notice of
initiation, we did not grant it an exclusion under section 355.38 of our regulations. However,
because we found that Sandvik Steel received de minimis benefits we are not including it in
this-final determination. See DOC Position on Petitioners' Comments 7 and 8.
Comment 2. Sandvik contends that petitioners do not represent a majority of the stainless steel
pipe and tube industry, that the countervailing duty law expressly requires that a petitioner
must represent the affected industry, and that the Department's position that a petitioner need not
establish its standing to bring a petition is without basis.
DOC Position. See the "Case History" section of this notice. Furthermore, the only opposition we
received from the entire domestic SSHP industry was one letter from one producer. This letter did
not express outright opposition to
the Department's investigation, but rather, opposition to any interference with its continued
reliance upon foreign sources of SSHP. Therefore, we have determined that this one expression of
questionable opposition to an investigation does not present us with a clear indication that we
should doubt petitioners' standing.
Comment 3. Sandvik argues that petitioners' request to include the United Steelworkers of America
(USWA) as co-petitioner should be rejected by the Department. Sandvik contends that petitioners'
attempt at this late stage in the investigation to cure a defect with respect to petitioners' standing to
cause this investigation to be initiated is untimely, improper, and has no support in statute or
regulation.
DOC Position. We have determined that there is no defect in petitioners' standing. As for petitioners'
attempt to amend the petition in order to add the USWA as a co-petitioner, we have sent a letter to
petitioners informing them that their request has been denied. In order for a petition to be
amended, adequate time must exist for any opposing parties to submit comments and for the
Department to consider the relevant arguments.
Given that the Department received no information with regard to the USWA until February 4,
1987, and more fully on February 9, 1987, we have determined that we are unable, at such a late
stage in the investigation, to recognize the USWA as a co-petitioner. This determination is
consistent with section §
355.26 of the Department's regulations, which permits the Department to reject a proposed
amendment if it is submitted in an untimely manner.
Comment 4. Sandvik argues that, in developing a benchmark to compare to long- term government
loans to Sandvik, the Department should not derive a benchmark from short-term commercial
loans. Sandvik adds that, even if the Department chooses to use short-term rates as benchmarks,
the rates reported by the RSY 1985 are inappropriate because they reflect borrowing to all classes
of borrowers and exceed those available to a blue chip company like Sandvik. Sandvik also believes
that a long-term, floating interest rate loan. with interest tied to the Swedish discount rate
(discount plus 4.25 percent) is the appropriate benchmark.
DOC Position. When the loan in question is a long-term variable-rate loan, we will derive a
company-specific benchmark if the company has similar variable- rate loans taken out at
approximately the same time. Sandvik did not have such loans. Therefore, we used that short-term
interest rate reported in the RSY 1985.
Comment 5. Avesta argues that the 450 mSEK loan write-off by the Swedish government did not
bestow any countervailable benefits on the production or exportation of any stainless steel
product because it was consistent with commercial considerations. Avesta supports this argument
by asserting that the loan forgiveness was matched by comparable private interest
financial commitments, and that it was the best option available
*5804
to the Swedish government for ensuring maximum repayment on outstanding loans and avoiding
greater losses.
DOC Position. We disagree. See section I.B. of this notice.
Comment 6. Avesta contends that the amount of loans forgiven 450 mSEK is "commercially
negligible" when compared to the value of sales made by the major Swedish stainless steel
producers (in 1983).
DOC Position. We disagree. According to our methodology, we treat loan forgiveness as a grant and
allocate the benefit to the "grant" recipients. Under this methodology, the benefit of loan
forgiveness conferred on the subject merchandise was not negligible. See section I.B. of this notice.
Comment 7. Avesta submits that none of the 450 mSEK loan write-off was tied to the production or
exportation of the subject merchandise; rather, it was for the entire stainless steel industry.
DOC Position. We disagree. The 1984 restructuring was directed specifically at improving the
Swedish stainless steel industry. SSHP was a beneficiary of the restructuring. Therefore, at a
minimum. the restructuring indirectly benefitted the production and exportation of the subject
merchandise. See section I.B. of this notice.
Comment 8. Avesta contends that it incurred substantial costs to revitalize the assets it acquired,
and that these costs are separate from the write-down
in the value of certain worthless assets against the 450 mSEK loan forgiveness.
DOC Position. Any "additional" costs incurred by Avesta do not diminish the benefits conferred by
the government through its loan forgiveness.
Comment 9. Avesta argues that the reduction of Nyby Uddeholm's 668.1 mSEK in liabilities
conferred a commercial benefit on the seller, Uddeholm AB, not on Avesta. Avesta claims that its
purchase of Nyby Uddeholm shares came only after Uddeholm agreed to assume Nyby Uddeholm's
liability to the Swedish government. Avesta asserts that the 200 mSEK it paid for Nyby Uddeholm
stock was the fair market value and it never would have paid that amount had Nyby Uddeholm
retained the liability to the Swedish government.
DOC Position. We disagree. We determine that the benefit arising from the transfer and refinancing
of the 668.1 mSEK liability accrued to both Uddeholm and Avesta. See section 1.B. of this notice.
Comment 10. Avesta asserts that it has always been creditworthy and that petitioners' allegation of
uncreditworthiness is wrong.
DOC Position. We determined that petitioners' allegation of uncreditworthiness was untimely and,
therefore, we have not made a determination regarding the creditworthiness of Avesta.
Comment 11. AST argues that the formation of its precursor, FST, and the acquisition of the mills at
Fagersta and in West Germany in 1983 did not result in the bestowal of countervailable benefits to
AST because the
transactions were made at commercially reasonable prices and entirely without the assistance of
the Swedish government.
DOC Position. We agree. We saw no-evidence that the Government of Sweden participated in
any way in the formation of FST nor in the purchases of the Fagersta and West German mills. We
believe that these were arm's-length transactions at commercially reasonable prices.
Comment 12. AST argues that Avesta's purchase of Fagersta's interest in FST did not confer
countervailable benefits because the price which Avesta paid was a realistic commercial price and
because Avesta was financially able to purchase the shares without government assistance. AST
adds that, even if the Department concludes that Avesta's purchase of Fagersta's stock was made
possible through government assistance or that the price was not commercially reasonable, there
was no benefit that flowed to AST. AST argues that the Department has expressly recognized the
difference between the purchase of pre- existing stock, which benefits the seller, and the purchase
of newly issued stock, which benefits the issuing company.
DOC Position. We disagree. See section I.B. of this notice.
Comment 13. AST argues that, as a corporation wholly responsible for its own taxes and other
debts and liabilities, it is a legal entity separate and distinct from its corporate stockholders. AST
argues that its business transactions with Avesta, specifically, the purchases of raw materials and
the
Storfors and Torshalla plants from Avesta, did not confer countervailable benefits to AST because
the Department does not countervail transactions between related companies where there is no
government direction or assistance. AST also contends that petitioners' reliance on British Steel
Corporation v. United States, 9 CIT, 605 F. Supp. 286 (1985) and on Certain Steel Products from
France (47 FR 39332, September 7, 1982) is misplaced because petitioners have confused the
ITA's method for allocating subsidies with the ITA's method for determining whether subsidies
exist.
DOC Position. We found that the forgiveness of loans to Avesta, and the transfer and refinancing of
Nyby Uddeholm's debt to Uddeholm benefitted Avesta's production of stainless steel. including
SSHP produced by AST, which is 75 percent owned by Avesta. We disagree that we need to trace a
flow of benefits to AST through its purchase of raw materials or through its purchase of Nyby
Uddeholm's welded SSHP plants. As described at length in section I.B., we found these government
actions to be a necessary element of the restructuring, and the reconstitution of AST in 1984 was a
direct result of that restructuring. Therefore, AST's production, like Avesta's other stainless steel
production, benefitted.
Comment 14. AST argues that, even if Avesta received a countervailable benefit, it was not passed
through to AST because all transactions conducted between AST and Avesta were on a commercial
basis. AST argues that the
Department recognizes that funds transferred on a commercial basis between a parent and a
subsidiary, even if the parent received its funds in the form of government subsidies, do not confer
a countervailable benefit on the subsidiary.
DOC Position. We disagree. See section I.B. of this notice and DOC Position on Respondents'
Comment 13.
Comment 15. AST contends that, contrary to statements made in the verification reports, AST
made a profit in 1984 and that it had an overall negative result only because it took an
extraordinary write-down for the permanent closing of certain productive facilities.
DOC Position. In our verification report we stated that "AST recorded a loss in 1984 for its
operations in Sweden (AST Parent) and for its overall operations (AST Group)." We derived this
information from the "result before tax" data in the profit and loss statements of the 1984 AST
Annual Report. Since the AST 1984 Annual Report is publicly available, we did not attempt to
provide an analysis of the 1984 financial data in the verification report.
Comment 16. AST argues that the liabilities of Nyby Uddeholm were not forgiven, but were
assumed by Uddeholm in order for it to be able to sell Nyby Uddeholm. AST contends that this was
a commercially reasonable act because in the absence of such a transfer, the subsidiary could not
have been sold.
*5805
DOC Position. We agree that the liabilities were transferred from
Nyby Uddeholm to Uddeholm so that Nyby Uddeholm could be sold, but disagree that liabilities
were not forgiven and that the government's action was a commercially reasonable one. See
section I.B. of this notice.
Comment 17. AST contends that the investment by Avesta and Sandvik in newly- issued equity of
AST in late 1984 was consistent in every way with normal commercial considerations and cites as
support the Final Administrative Review: Certain Refrigeration Compressors from Singapore (51
FR 37055, October 17, 1986), which characterizes increases in equity as normal commercial
transactions between a parent company and a subsidiary.
DOC. Position. We agree. Investments in equity by private shareholders typically do not confer
benefits on the issuing company unless the government intervenes to provide government funds
for such purposes. We determine that Avesta's and Sandvik's investment in AST was independent of
the series of transactions facilitated by the government in January 1984, and was not directed or
facilitated by government action and provision of benefits.
Comment 18. Sandvik and AST argue that seamless and welded SSHP constitute two separate
"classes or kinds" of merchandise within the scope of the countervailing duty law. They
contend that the difference in the physical characteristics of the product (i.e:, the presence or
absence of a weld) reflects a completely different method of manufacture. Furthermore, they
contend that this difference in physical characteristics results in separate
ultimate uses, channels of trade, cost and expectations of the ultimate user.
DOC Position. We disagree. For purposes of this final determination, we have found that seamless
and welded SSHP constitute one "class or kind" of merchandise. Although the Department
recognizes that there may be physical differences between seamless and welded SSHP (i.e., the
presence or absence of a weld), the physical properties with regard to steel grade and ASTI
specifications between seamless and welded SSHP can be identical. Therefore, we have determined
that seamless and welded tubing manufactured to identical specifications are interchangeable.
Because both seamless and welded SSHP can meet identical technical characteristics, the choice of
one over the other is based more on individual customer preference and past experience, rather
than the inability of one type of product to fulfill certain specifications. Furthermore, with regard
to the remaining criteria, we found that ultimate use and expectations of the ultimate user are
directly related to the arguments concerning physical characteristics, and that ultimate use and
expectations are based on individual preference, rather than technical criteria. With regard to
channels of trade, we found that, contrary to respondents' arguments, both seamless and welded
SSHP flow through pipe and tube distributors and that both seamless and welded SSHP are stocked
in standard sizes, as well as custom order availability. Lastly, although cost is not a factor that the
Department considers in making its class
or kind determination, this is not a basis on which to distinguish the two products. Although
historically welded tube has been found to have a price differential of perhaps 10 to 20 percent,
recent developments in SSHP production (e.g., x-ray inspection), which enable the product to meet
the stringent standards previously held for certain types of seamless SSHP, have decreased the
price differential so as to render the difference insignificant.
Comment 19. AST contends that the failure of the Department to find two separate "classes or kinds"
of merchandise in this investigation would make it virtually impossible for the ITC to fulfill the
statutory requirement of linking injury from imports of a "class or kind" of merchandise to
subsidization of such merchandise.
DOC Position. We disagree. In its preliminary determination (51 FR-44841, December 12, 1986),
the ITC found two "like" products and two domestic industries: seamless and welded SSHP. Should
the ITC maintain this distinction in its final determination we see no circumstance which would
prevent us from linking injury from imports of the class or kind of merchandise under investigation
to subsidization of the merchandise.
It is our practice when the ITC finds more than one industry to exist within a single class or kind of
merchandise, to publish a final countervailing duty or antidumping duty order conforming
to and coterminous with the ITC's injury and industry determinations. For example, in the Final
Affirmative Countervailing
Duty Determination: Live Swine and Fresh, Chilled and Frozen Pork Products from Canada (50
FR 25097, June 17, 1985), the Department found that the products under investigation constituted
one "class or kind" of merchandise. However, the ITC, in its final determination (50 FR 31931,
August 7, 1985), found injury on live swine, and found no injury with regard to fresh, chilled and
frozen pork products. The Department issued one order which covered only live swine.
The correctness of this approach has been specifically endorsed by the United States Court of
International Trade. In Badger-Powhatan v. United States. 6 ITRD 2324 (April 29, 1985), a case
involving the antidumping statute, the Court held that final orders may only cover merchandise
which satisfies both the less than fair value sales criteria and the material injury criteria under
section 731 of the Act. A broader coverage, the Court noted, would render the ITC's role in
determining the like product, the industry effected. and injury, meaningless:
If taken to its logical conclusion. plaintiffs' interpretation of [19 USCl 1673 would require an
affirmative material injury determination in only one industry for the issuance of an antidumping
order covering the entire class or kind of merchandise being sold at less than fair value. Such an
incongruous result would violate the basic tenets of antidumping duty law. (footnote omitted).
6 ITRD at 2327. This holding, and the reasoning upon which it is based. are as applicable to a
countervailing duty case as it is to an antidumping duty case.
Verification
In accordance with section 776(a) of the Act, we verified the information used in making our final
determination. During verification, we followed standard verification procedures, including
meeting with government and company officials, inspection of documents and ledgers, and tracing
information in the responses to source documents, accounting ledgers, and financial statements.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to
continue to suspend liquidation of all entries of SSHP from Sweden, except SSHP produced and
exported by Sandvik Steel, which are entered, or withdrawn from warehouse, for consumption on
or after December 7, 1986. As of the date of publication of this notice in the Federal Register, the
Customs- Service will require a cash deposit or bond of 2.18 percent ad valorem for each entry of
the subject merchandise from Sweden by all manufacturers, producers,
or exporters except Sandvik Steel. The estimated net subsidy for Sandvik Steel is 0.062 percent ad
valorem, which is de minimis.
*5806
Accordingly, the subject merchandise produced by Sandvik Steel is not included in this
determination. The suspension of liquidation ordered in our preliminary affirmative
countervailing duty determination shall be terminated with respect to Sandvik Steel. All
estimated countervailing duties shall be refunded and all appropriate bonds shall be
released for entries of the subject merchandise produced by Sandvik Steel.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In
addition. we are making available to the ITC all nonprivileged and nonproprietary information
relating to this investigation. We will allow the ITC access to all privileged and proprietary
information in our files, provided the ITC confirms that it will not disclose such information, either
publicly or under an administrative protective order, without the written consent of the Deputy
Assistant Secretary for Import Administration.
If the ITC determines that material injury, or threat of material injury, does not exist, this
proceeding will be terminated and all estimated
duties deposited or securities posted, as a result of the suspension of liquidation, will be refunded
or cancelled. If, however, the ITC determines that such injury does not exist, we will issue a
countervailing duty order, directing Customs officers to assess countervailing duties
on all entries of the subject merchandise from Sweden, except that produced and exported by
Sandvik Steel, entered, or withdrawn from warehouse, for consumption, as described in the
"Suspension of Liquidation" section of this notice.
Administrative Procedures
We afforded interested parties an opportunity to submit written views in accordance with section
355.34 of our regulations (19 CFR 355.34). We also afforded the parties to the proceeding an
opportunity to present views orally before the Department at a public hearing held on January 23,
1987, in accordance with § 355.35 of our regulations (19 CFR 355.35).
This determination is published pursuant to section 705(d) of the Act [19 U.S.C. 1671d(d)].
Dated: February 17, 1987.
Paul Freedenberg,
Assistant Secretary for Trade Administration.
[FR Doc. 87-3908 Filed 2-25-87; 8:45 am]
BILLING CODE 3510-DS-M