54 FR 31714
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-401-401]
Certain Carbon Steel Products From Sweden; Final Results of Countervailing
Duty Administrative Review
Tuesday, August 1, 1989
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AGENCY: International Trade Administration/Import Administration, Department of
Commerce.
ACTION: Notice of final results of countervailing duty administrative review.
SUMMARY: On September 15, 1988, the Department of Commerce published the preliminary
results of its administrative review of the countervailing duty order on certain carbon steel
products from Sweden. We have now completed that review and determine the net subsidy for
the period March 20, 1985 through December 31, 1985 to be 4.58 perecent ad valorem.
EFFECTIVE DATE: August 1, 1989.
FOR FURTHER INFORMATION CONTACT:Stephanie Moore or Paul McGarr, Office of
Countervailing Compliance, International Trade Administration, U.S. Department of
Commerce, Washington, DC 20230, telephone: (202) 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On September 15, 1988, the Department of Commerce ("the Department") published in the Federal
Register (53 FR 35883) the preliminary results of its administrative review of the
countervailing duty order on certain carbon steel products from Sweden (50 FR 41547;
October 11, 1985). The Department has now completed that administrative review in accordance
with section 751 of the Tariff Act of 1930 ("the Tariff Act").
Scope of Review
The United States, under the auspices of the Customs Cooperation Council, has developed a system
of tariff classification based on the international harmonized system of Customs nomenclature. On
January 1, 1989, the United States fully converted to the Harmonized Tariff Schedule (HTS), as
provided for in section 1201 et seq. of the Omnibus Trade and Competitiveness Act of 1988. All
merchandise entered, or withdrawn from warehouse, for consumption on or after that date is now
classified solely according to the appropriate HTS item number(s).
Imports covered by the review are shipments from Sweden of cold-rolled carbon steel
flat-rolled products, whether or not corrugated or crimped; whether or not pickled; not cut, not
pressed, and not stamped to non-rectangular shape; not coated or plated with metal and not clad;
over 12 inches in width and of any thickness; whether or not in coils. During the review period,
such merchandise was classifiable under item numbers 607.8320, 607.8350, 607.8355 and
607.8360 of the Tariff Schedules of the United States Annotated. These products are currently
classifiable under HTS item numbers 7209.11.00, 7209.12.00, 7209.13.00, 7209.21.00,
7209.22.00, 7209.23.00, 7209.24.50,
7209.31.00, 7209.32.00, 7209.33.00, 7209.34.00, 7209.41.00, 7209.43.00, 7209.44.00,
7209.90.00, 7211.30.50, 7211.41.70 and 7211.49.50.
The review covers the period March 20, 1985 through December 31, 1985 and 10 programs: (1)
Regional development incentives; (2) reconstruction loans; (3) structural loans; (4) government
equity infusions; (5) government equity guarantees; (6) government acquisitions of assets for
SSAB; (7) research and development grants; (8) employment promotion grants; (9) government
export
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credits; and (10) municipal and county subsidies.
Sventsk Stall SB ("SSAB") was the only Swedish exporter of the subject merchandise to the United
States during the period or review.
Analysis of Comments Received
We invited interested parties to comment on the preliminary results. At the request of the
respondent, SSAB, we held a public hearing on January 12, 1989.
Comment 1: SSAB contends that the Department should not evaluate SSAB's equityworthiness
based on the past financial results of the investing companies. SSAB was formed through an asset
acquisition, not a merger, and there were no appropriate financial statements for evaluating SSAB's
equityworthiness at the time of its formation in 1978. Instead, the Department should evaluate the
Government of Sweden's equity infusion on the basis of the
soundness of the investment. The fact that two private companies, Granges and Stora Kopparbergs
(Stora), invested in SSAB indicates that SSAB was a prudent investment for the Government of
Sweden as well. The major precondition for the government's financing of SSAB was that an
extensive restructuring should be carried out in the Swedish carbon steel industry aimed at
improving productivity and profitability.
SSAB further contends that the Department's focus on considerations that would motivate a
hypothetical U.S. investor to determine whether SSAB was unequityworthy is incorrect. The
equityworthiness of SSAB must be approached from the point of view of a Swedish investor. Unlike
a U.S. investor, a Swedish investor would have placed more emphasis on asset values than on
earnings potential. The Department also failed to take into consideration that the steel industry is
capital-intensive and, as such, not likely to yield quick profits.
Department's Position: SSAB was formed in 1978 as a joint-venture between Granges AB and Stora
(both privately-owned), Statsfore-tag/Norbottens Jarnverk AB (NJA) (government-owned) and
the Government of Sweden. Under the terms of the formation agreement, Granges, Stora and
NJA each transferred to SSAB steel assets valued at 700 million Swedish kronor (MSEK) in
exchange for 25 percent shares of SSAB stock. The government also contributed 700 MSEK in cash
in exchange for a 25 percent share of SSAB stock.
We have consistently held that government provision of equity per se does not confer a subsidy.
Government equity infusions are countervailable only when they occur on terms inconsistent with
commercial considerations. Where there is no market-determined price for the shares, it is
necessary to assess the prospects of the company at the time of the investment. Although the steel
industry is capital-intensive, any private investor motivated by commercial considerations would
invest in a company if the investment is expected to yield a reasonable rate of return within a
reasonable period of time.
Because Granges and Stora invested in SSAB does not necessarily make SSAB a reasonable
commercial investment. During the 1970's, the overall demand for steel in Sweden was
virtually stagnant while at the same time imports increased annually at an average rate of five
percent. As a result, Swedish steel- producing companies faced excessive inventory build-up,
reduced sales and low profitability or losses. In an effort to become competitive, Granges and Stora
entered into a joint venture with NJA by combining their commercial-grade carbon
steel-producing assets while the Government of Sweden provided capital. The companies
invested in SSAB to concentrate operations, increase efficiency and competitiveness and remain
going concerns. They were not disinterested investors objectively evaluating the potential return
on their investment.
In analyzing the formation of SSAB and the government's initial investment, we examined the
report of an official commission that studied the
Swedish carbon steel industry, entitled "The Commercial Steel Industry in the Decade of the
1980's." We also analyzed a five-year forecast for SSAB for the period 1978 through 1982 that was
based, in part, on the commission's report. The forecast projected that SSAB would not begin
making a profit until 1982.
The financial data and the economic condition of the steel industry at the time of the equity
investment indicated the following: (1) That SSAB was projected to become profitable at the end of
its fifth year, with no projections beyond 1982, (2) that the anticipated rate of return on equity,
based on the projected profit, would be too low to provide a reasonable rate of return on
investment, and (3) that the demand for Swedish steel in the home and export market remained
uncertain. Based on this information, we determined that the Government of Sweden's 1978
equity investment in SSAB was not made in accordance with commercial considerations.
Comments 2: SSAB contends that the provision of a promissory note to SSAB by the Government of
Sweden for the purchase of a railroad from Granges did not benefit SSAB. Two independent
studies prepared in 1977 assessed the value of the assets transferred from Granges, Stora and NJA,
to be relatively equal. The three investing companies negotiated a figure of 700 MSEK as the value
for the assets each transferred, and the 700 MSEK of assets transferred from Granges to SSAB
included the railroad. The transfer of Granges' steel, mining and railroad assets would have resulted
in an unsustainable book loss for
Granges. Therefore, the Swedish government decided to offset this book loss by making the railroad
transfer a separate transaction. Granges required 480 MSEK to cover the difference between the
book value and the transfer value of its steel assets to SSAB. The note was never carried on SSAB's
financial statement because payments were made directly to Granges by the government.
Accordingly, it was Granges, not SSAB, that benefited from the transfer. SSAB, by signing over the
note to Granges, was simply a conduit between the government and Granges.
Department's Position: We disagree. The SSAB formation agreement states that Granges would
transfer its railroad to SSAB in exchange for 480 MSEK. Payment of the 480 MSEK to Granges
consisted of SSAB's assumption of Granges railroad pension liabilities, and the National Debt Office's
issuance of a 12-year promissory note for 343.3 MSEK bearing interest of 8.25 percent per annum.
The government made a special authorization of funds with which to pay off the promissory note
and, because SSAB signed over the note issued on its behalf to Granges, the government makes
payments directly to Granges. Since the Government of Sweden is paying off the promissory
note and SSAB is relieved of a debt obligation that it otherwise would have assumed, we determined
that the 343.3 MSEK promissory note confers a benefit on SSAB.
Comment 3: SSAB contends that the government's payment of 530 MSEK to NJA did not confer a
benefit on SSAB. NJA incurred a book loss because (1) the
book value of its steel assets transferred to SSAB exceeded the negotiated price of 700 MSEK, (2) it
had an operating loss for 1977, and (3) it abandoned its "steel works 80" employment project. The
write-off of steel assets on NJA's balance sheet was offset by the government's payment of 530
MSEK to NJA. If the government had not made the payment to NJA, the company would
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have had to liquidate. The government payment was needed only to keep NJA a viable
corporation.
Department's Position: NJA, a government-owned company, transferred steel assets to SSAB. In
return, NJA received stock from SSAB valued at 700 MSEK and cash of 530 MSEK from the
government. Since the transfer of NJA's steel assets to SSAB was conditioned on NJA's receiving
530 MSEK from the government (to cover the loss in book value of the assets transferred to SSAB),
we consider the 530 MSEK to be an assumption of cost by the government on behalf of SSAB.
Therefore, we determine that the 530 MSEK contributed by the government to effect this transfer
confers a countervailable benefit on SSAB.
Comment 4: SSAB contends that the Department incorrectly found SSAB to be unequityworthy in
1981 when additional equity was provided by the investing companies and the Government of
Sweden. Financial projections at the time of SSAB's creation forecast that SSAB would need
additional funds in 1981 to cover losses. In 1981, the additional capital was required partly to
cover the projected losses and also to restore SSAB's debt/equity ratio, which had been
affected by SSAB's acquisition of the TIBNOR group of companies. The Department's conclusion
that Stora relinquished its shares in SSAB rather than investing additional capital in 1981 is
incorrect. Stora chose to forego new investment in SSAB because of other financial commitments,
and its decision to relinquish its shares in SSAB at this time does not indicate that SSAB was
unequityworthy.
Department's Position: We disagree. At the time of the government's 1981 equity infusion, SSAB was
not operating profitably. However, SSAB's successive losses from 1978 through 1980 did not
reduce the company's equity base because the Government of Sweden allowed SSAB to cover
these losses and maintain its equity by converting funds from its reconstruction loans in an amount
equal to each year's losses to the equity account. SSAB's actual losses for 1978 through 1980
exceeded the projected losses. As a result, the government approved an additional reconstruction
loan to cover the losses for 1981. Because SSAB's return on equity continued to be negative and the
prospects of the world steel industry remained precarious, we determine that the Government of
Sweden's 1981 equity investment in SSAB was not made in accordance with commercial
considerations.
Comment 5: SSAB claims that the agreement between the Government of Sweden and Granges
to purchase Granges shares in 1991 has not been correctly characterized or countervailed by the
Department. As part of the 1981 transactions to
provide SSAB with needed capital, the government agreed to redeem Granges' shares in SSAB in
1991 for the sum of 875 MSEK, provided that SSAB had not declared bankruptcy or gone into
liquidation. The 875 MSEK figure represented a new investment of 375 MSEK, with interest
compounded at approximately 10 percent per annum for nine years. However, the long-term rate
of interest on Swedish government obligations in 1981 was 13.5 percent. Therefore, the
government's conditional promise to pay Granges 875 MSEK in 1991 was worth considerably less
than 375 MSEK in 1981.
Department's Position: We did not compare Granges' guaranteed rate of return to a long-term
interest rate on Swedish obligations because we are treating the additional 375 MSEK investment
by Granges in SSAB as equity, not as a loan. In our final determination (50 FR 33375; August 19,
1985), we treated the funds provided by Granges to SSAB as a loan. We have reconsidered this
approach and have concluded that the transaction is not equivalent to a loan because SSAB is not
obligated to repay the funds. We treated the 375 MSEK as an equity infusion that the government
provided indirectly (through Granges) to SSAB. Because we have determined that SSAB was
unequityworthy in 1981, this equity infusion bestows a countervailable benefit on SSAB.
Comment 6: SSAB requests that the Department test the conditional reconstruction loans as grants
to make sure that they have not been excessively countervailed.
Department's Position: We have determined that the amount of countervailing duties
calculated for the conditional reconstruction loans is significantly lower than if we had treated
these loans as grants.
Comment 7: SSAB argues that the employment promotion grants are not countervailable. In the
final determination of Certain Stainless Steel Hollow Products from Sweden (52 FR 5794;
February 26, 1987), the Department found the same program not countervailable.
Department's Position: In Certain Stainless Steel Hollow Products from Sweden, we found that
the companies in question were not relieved of any obligations they otherwise would have incurred
absent the employment promotion grants. In this case, we were not provided with such
information and cannot ascertain what SSAB's costs and obligations would have been absent grants
under this program. Therefore, as best information available, we conclude that the Government of
Sweden is assuming costs that SSAB otherwise would have had to pay and that this program
confers a countervailable domestic subsidy.
Final Results of Review
After considering all of the comments received, we determine the net subsidy during the period
March 20, 1985 to December 31, 1985 to be 4.58 percent ad valorem.
The Department will instruct the Customs Service to assess countervailing duties of 4.58
percent of the f.o.b. invoice price on all shipments of this merchandise entered, or withdrawn from
warehouse, for consumption on or after March 20, 1985, and exported on or before December 31,
1985.
The Department will instruct the Customs Service to collect a cash deposit of estimated
countervailing duties of 4.58 percent of the f.o.b. invoice price on all shipments of this
merchandise entered, or withdrawn from warehouse, for consumption on or after the date of
publication of this notice. This deposit requirement shall remain in effect until publication of the
final results of the next administrative review.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19
U.S.C. 1675(a)(1)) and § 355.22 of the Commerce Regulations published in the Federal Register on
December 27, 1988 (53 FR 52306) (to be codified at 19 CFR 355.22).
Eric I. Garfinkel,
Assistant Secretary for Import Administration.
Date: July 24, 1989.
[FR Doc. 89-17812 Filed 7-31-89; 8:45 am]
BILLING CODE 3510-DS-M