Notice of Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determination: Certain Hot-Rolled Carbon Steel Flat Products From Indonesia

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Notice of preliminary affirmative countervailing duty determination.

EFFECTIVE DATE:

April 20, 2001.

FOR FURTHER INFORMATION CONTACT:

Stephanie Moore at (202) 482-3692 or Tipten Troidl at (202) 482-1767, Office of AD/CVD Enforcement VI, Group II, Import Administration, U.S. Department of Commerce, Room 4012, 14th Street and Constitution Avenue, NW., Washington, DC 20230.

Preliminary Determination

The Department of Commerce (the Department) preliminarily determines that countervailable subsidies are being provided to certain producers and exporters of certain hot-rolled carbon steel flat products (subject merchandise) from Indonesia. For information on the estimated countervailing duty rates, please see the “Suspension of Liquidation” section of this notice.

SUPPLEMENTARY INFORMATION:

Petitioners

The petition in this investigation was filed by Bethlehem Steel Corporation, U.S. Steel Group, a unit of USX Corporation, Gallatin Steel Company, IPSCO Steel Inc., LTV Steel Company, Inc., National Steel Corporation, Nucor Corporation, Steel Dynamics, Inc., Weirton Steel Corporation, the Independent Steelworkers Union, and the United Steelworkers of America (the petitioners).

Case History

Since the publication of the notice of initiation in the Federal Register (see Notice of Initiation of Countervailing Duty Investigations: Certain Hot-Rolled Carbon Steel Flat Products From Argentina, India, Indonesia, South Africa, and Thailand, 65 FR 77580 (December 12, 2000) (Initiation Notice)), the following events have occurred. On December 5, 2000, we issued countervailing duty questionnaires to the Government of Indonesia (GOI) and to producers/exporters of the subject merchandise. We received responses to our initial questionnaires from the GOI and PT. Krakatau Steel (Krakatau), the producer/exporter of the subject merchandise on January 31, 2001. We then issued supplemental questionnaires to the GOI and Krakatau. Beginning on March 7, 2001, we received supplemental questionnaire responses from the GOI and Krakatau.

On January 18, 2001, we issued a partial extension of the due date for this preliminary determination from February 7, 2001 to March 26, 2001. See Certain Hot-Rolled Carbon Steel Flat Products From India, Indonesia, South Africa, and Thailand: Extension of Time Limit for Preliminary Determinations in Countervailing Duty Investigations, (Extension Notice) 66 FR 8199 (January 30, 2001).

On March 26, 2001, we amended the Extension Notice to take the full amount of time to issue this preliminary determination. The extended due date is April 13, 2001. See Certain Hot-Rolled Carbon Steel Flat Products From India, Indonesia, South Africa, and Thailand: Extension of Time Limit for Preliminary Determinations in Countervailing Duty Investigations, 66 FR 17525 (April 2, 2001).

On April 10, 2001, we received comments from petitioners based on their partial translation of the respondent's untranslated financial statements. Petitioner's comments concerned the equityworthiness and creditworthiness of Cold Rolling Mill of Indonesia (CRMI), and the equityworthiness of Krakatau.

Scope of the Investigation

The merchandise subject to this investigation is certain hot-rolled flat-rolled carbon-quality steel products of a rectangular shape, of a width of 0.5 inch or greater, neither clad, plated, nor coated with metal and whether or not painted, varnished, or coated with plastics or other non-metallic substances, in coils (whether or not in successively superimposed layers), regardless of thickness, and in straight lengths, of a thickness of less than 4.75 mm and of a width measuring at least 10 times the thickness. Universal mill plate (i.e., flat-rolled products rolled on four faces or in a closed box pass, of a width exceeding 150 mm, but not exceeding 1250 mm, and of a thickness of not less than 4 mm, not in coils and without patterns in relief) of a thickness not less than 4.0 mm is not included within the scope of this investigation.

Specifically included within the scope of this investigation are vacuum degassed, fully stabilized (commonly referred to as interstitial-free (IF)) steels, high strength low alloy (HSLA) steels, and the substrate for motor lamination steels. IF steels are recognized as low carbon steels with micro-alloying levels of elements such as titanium or niobium (also commonly referred to as columbium), or both, added to stabilize carbon and nitrogen elements. HSLA steels are recognized as steels with micro-alloying levels of elements such as chromium, copper, niobium, vanadium, and molybdenum. The substrate for motor lamination steels contains micro-alloying levels of elements such as silicon and aluminum.

Steel products to be included in the scope of this investigation, regardless of definitions in the Harmonized Tariff Schedule of the United States (HTS), are products in which: (i) Iron predominates, by weight, over each of the other contained elements; (ii) the carbon content is 2 percent or less, by weight; and (iii) none of the elements listed below exceeds the quantity, by weight, respectively indicated: 1.80 percent of manganese, or 2.25 percent of silicon, or 1.00 percent of copper, or 0.50 percent of aluminum, or 1.25 percent of chromium, or 0.30 percent of cobalt, or 0.40 percent of lead, or 1.25 percent of nickel, or 0.30 percent of tungsten, or 0.10 percent of molybdenum, or 0.10 percent of niobium, or 0.15 percent of vanadium, or 0.15 percent of zirconium.

All products that meet the physical and chemical description provided above are within the scope of this investigation unless otherwise excluded. The following products, by way of example, are outside or specifically excluded from the scope of this investigation:

• Alloy hot-rolled steel products in which at least one of the chemical elements exceeds those listed above (including, e.g., ASTM specifications A543, A387, A514, A517, A506).
• SAE/AISI grades of series 2300 and higher.
• Ball bearings steels, as defined in the HTS.
• Tool steels, as defined in the HTS.
• Silico-manganese (as defined in the HTS) or silicon electrical steel with a silicon level exceeding 2.25 percent.
• ASTM specifications A710 and A736.
• USS Abrasion-resistant steels (USS AR 400, USS AR 500).
• All products (proprietary or otherwise) based on an alloy ASTM specification (sample specifications: ASTM A506, A507).
• Non-rectangular shapes, not in coils, which are the result of having been processed by cutting or stamping and which have assumed the character of articles or products classified outside chapter 72 of the HTS.

The merchandise subject to this investigation is classified in the HTS at subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00, 7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60, 7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60, 7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30, 7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90, 7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00, 7208.90.00.00, 7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 7211.19.30.00, 7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 7211.19.75.60, and 7211.19.75.90. Certain hot-rolled flat-rolled carbon-quality steel covered by this investigation, including: vacuum degassed fully stabilized; high strength low alloy; and the substrate for motor lamination steel may also enter under the following tariff numbers: 7225.11.00.00, 7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 7225.40.70.00, 7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 7226.11.90.60, 7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 7226.91.70.00, 7226.91.80.00, and 7226.99.00.00. Subject merchandise may also enter under 7210.70.30.00, 7210.90.90.00, 7211.14.00.30, 7212.40.10.00, 7212.40.50.00, and 7212.50.00.00. Although the HTS subheadings are provided for convenience and U.S. Customs purposes, the Department's written description of the merchandise under investigation is dispositive.

In the scope section of the Initiation Notice for this investigation, the Department encouraged all parties to submit comments regarding product coverage by December 26, 2000. The Department is presently considering a request to amend the scope of this investigation to exclude a particular specialty steel product. We will issue our determination on this request prior to the final determination.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are references to the provisions effective January 1, 1995, the effective date of the amendments made to the Tariff Act of 1930 (the Act) by the Uruguay Round Agreements Act (URAA). In addition, unless otherwise indicated, all citations to the Department's regulations are references to the provisions codified at 19 CFR Part 351 (2000).

Injury Test

Because Indonesia is a “Subsidies Agreement Country” within the meaning of section 701(b) of the Act, the International Trade Commission (ITC) is required to determine whether imports of the subject merchandise from Indonesia materially injure, or threaten material injury to, a U.S. industry. On January 4, 2001, the ITC published its preliminary determination finding that there is a reasonable indication that an industry in the United States is being materially injured, or threatened with material injury, by reason of imports from Indonesia of the subject merchandise. See Hot-Rolled Steel Products from Argentina, China, India, Indonesia, Kazakhstan, Netherlands, Romania, South Africa, Taiwan, Thailand, and Ukraine, 66 FR 805 (January 4, 2001).

Alignment With Final Antidumping Duty Determination

On March 23, 2001, the petitioners submitted a letter requesting alignment of the final determination in this investigation with the final determination in the companion antidumping duty investigation. Therefore, in accordance with section 705(a)(1) of the Act, we are aligning the final determination in this investigation with the final determinations in the antidumping duty investigations of hot-rolled carbon steel flat products.

Period of Investigation

The period for which we are measuring subsidies (the POI) is calendar year 1999.

Allocation Period

Under section 351.524(d)(2) of the CVD Regulations, we will presume the allocation period for non-recurring subsidies to be the average useful life (AUL) of renewable physical assets for the industry concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation Range System, as updated by the Department of Treasury. The presumption will apply unless a party claims and establishes that these tables do not reasonably reflect the AUL of the renewable physical assets for the company or industry under investigation, and the party can establish that the difference between the company-specific or country-wide AUL for the industry under investigation is significant.

In this investigation, no party to the proceeding has claimed that the AUL listed in the IRS tables does not reasonably reflect the AUL of the renewable physical assets for the firm or industry under investigation. Therefore, in accordance with section 351.524(d)(2) of the CVD Regulations, we will allocate non-recurring subsidies over 15 years, the AUL listed in the IRS tables for the steel industry.

Creditworthiness

Petitioners alleged that Krakatau was uncreditworthy in the years in which it received GOI loans and equity infusions. See Initiation Notice and Office of AD/CVD Enforcement VI, Initiation Checklist (Checklist), public versions are available in the Central Records Unit, Room B-099. In order to make a determination with respect to Krakatau's creditworthiness, we have determined that more information is needed. We have requested additional information from Krakatau and provided a deadline of April 27, 2001. Krakatau is in the process of providing translations of its financial statements for the years 1985 through 1995. We anticipate that this information will be submitted to the Department prior to verification. After we collect additional information and conduct verification, we will prepare an analysis memorandum addressing the company's creditworthiness during this period. Before our final determination, we will provide all parties with an opportunity to comment on this memorandum. Comments on our creditworthy analysis, as well as our preliminary determination will be addressed in the final determination.

I. Programs Preliminarily Determined To Be Countervailable

A. Two-Step Loan Program

Pursuant to Government Regulation number 12/1969, the Ministry of Finance through Bank Indonesia, which is Indonesia's Central Bank, can borrow money denominated in foreign currencies to lend to Indonesian companies. As stated in the Final Affirmative Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality Steel Plate from Indonesia, 64 FR 73155, 73161 (December 29, 1999) (CTL Plate), two-step loans are drawn from credit facilities (i.e., lines of credit) in the billing currencies of foreign equipment suppliers. These loans are converted into rupiah based on the exchange rate on the drawing date, and carry an established interest rate of four percent. In CTL Plate, we determined this program to be countervailable. Id. No new substantive information or evidence of changed circumstances has been submitted in this investigation to warrant reconsideration of this finding.

In 1995, the year in which the credit facility was extended, a lending rate of four percent would have been inconsistent with an interest rate the company would have received on a comparable commercial loan, and would thus provide a countervailable benefit in accordance with section 771(5)(E)(ii) of the Act. Moreover, there is no information on the record of this investigation which would indicate that the two-step loan was provided to Krakatau pursuant to a program to which other companies ostensibly had access. Therefore, we preliminarily determine that the loan was specific to Krakatau under section 771(5A)(D)(i) of the Act.

To calculate the benefit from this program, we compared the interest rate Krakatau paid on the two-step loan during the POI to the benchmark interest rate the company would have paid for a comparable commercial loan. For the benchmark interest rate, we used the average cost of long-term fixed-rate loans in Indonesia as the interest rates that would have been paid by a creditworthy company, specifically the rates offered by commercial banks in Indonesia as reported in the Indonesian Financial Statistics, submitted in the March 20, 2001, GOI questionnaire response. This difference was then divided by Krakatau's total sales during the POI. On this basis, we preliminarily determine the countervailable subsidy from this program to be 1.01 percent ad valorem for Krakatau.

B. Equity Infusions to Krakatau From the Government of Indonesia

Petitioners alleged that the GOI provided various equity infusions into Krakatau and its subsidiary, the CRMI. Petitioners alleged that in 1995, the GOI converted approximately 1.298 trillion rupiah of debt into equity. In addition, petitioners alleged that the GOI provided Krakatau with equity infusions totaling 1.6 trillion rupiah in the five years prior to December 31, 1992. Petitioners also alleged two equity infusions into CRMI. We initiated on these two allegations under the following programs: “1989 Equity Infusion to CRMI” and “Three-Step Equity Infusion to CRMI.” See the Initiation Notice and Checklist.

According to the response of the GOI and Krakatau, equity infusions or debt-to-equity conversions were provided to Krakatau in various years. In addition, all of the alleged equity infusions were provided to Krakatau. The details of the equity infusions and conversions are proprietary, and are discussed in the Business Proprietary Calculations Memorandum.

Section 771(5)(E)(i) of the Act and section 351.507(a)(1) of the CVD Regulations state that, in the case of government-provided equity infusion, a benefit is conferred if an equity investment decision is inconsistent with the usual investment practice of private investors.

Consistent with the methodology discussed in section 351.507(a)(2) of the CVD Regulations, the first question in analyzing a benefit with respect to an equity infusion is whether, at the time of the infusion, there was a market price for similar newly-issued equity. If so, the Department will consider an equity infusion to be inconsistent with the usual investment practice of private investors if the price paid by the government for newly-issued shares is greater than the price paid by private investors for the same, or similar, newly-issued shares.

If actual private investor prices are not available, then the Department will determine whether the firm funded by the government-provided infusion was equityworthy or unequityworthy at the time of the equity infusion. (See section 351.507(a)(3)(i) of the CVD Regulations.) Section 351.507(a)(4)(ii) of the CVD Regulations further stipulates that the Department will “normally require from the respondents the information and analysis completed prior to the infusion upon which the government based its decision to provide the equity infusion.” Absent the existence or provision of an analysis or study, containing information typically examined by potential private investors considering an equity investment, on which the government based its decision to invest, the Department will normally determine that the equity infusion provides a countervailable benefit. This is because, before making a significant equity infusion, it is the usual investment practice of private investors to evaluate the potential risk versus the expected return, using the most objective criteria and information available to the investor.

In this instance, Krakatau reported that there was no market price for a similarly newly-issued equity at the time of the GOI equity infusions and debt-to-equity conversions into Krakatau. Therefore, we must determine whether Krakatau was equityworthy or unequityworthy at the time of the equity infusions and conversions.

The first criterion examined by the Department to determine whether, from the perspective of a reasonable private investor, Krakatau showed an ability to generate a reasonable rate of return within a reasonable period of time, is an objective analysis of Krakatau prepared prior to the government-provided equity infusions and conversions which the government based its decisions to invest. Based on our examination of the responses of the GOI and Krakatau, we have preliminarily determined that no objective studies of Krakatau had been prepared prior to the GOI's investment decisions on which the GOI could have based its investment decisions for the equity infusions and debt-to-equity conversions.

Therefore, we preliminarily determine that the GOI's equity infusions and conversions into Krakatau constitute countervailable subsidies within the meaning of section 771(5) of the Act. These investments provide a financial contribution, as described in section 771(5)(D)(i) of the Act. Also, we preliminarily determine that this program is specific under section 771(5A)(D)(i) of the Act because the equity infusions/conversions were limited to Krakatau. Finally, because no objective analysis was performed containing information typically examined by potential private investors considering an equity investment prior to the GOI's decisions to invest in Krakatau, the investment decisions were inconsistent with the usual investment practice of private investors. Therefore, a benefit exists according to section 771(5)(E)(i) of the Act in the amount of the equity infusions and the amount of the debt-to-equity conversions.

To calculate the benefit applicable to the POI, we applied the Department's standard grant methodology. We divided the total benefits attributable to the equity infusions and conversions by Krakatau's total sales during the POI. On this basis, we preliminarily determine the countervailable subsidy from this program to be 15.52 percent ad valorem for Krakatau.

II. Program Preliminarily Determined Not Used

A. Bank of Indonesia Rediscount Loans

Verification

In accordance with section 782(i)(1) of the Act, we will verify the information submitted by respondents prior to making our final determination.

Suspension of Liquidation

In accordance with 703(d)(1)(A)(i) of the Act, we have calculated an individual rate for Krakatau, the only company under investigation. We preliminarily determine that the total estimated net countervailable subsidy rate is 16.53 percent ad valorem. The All Others rate is 16.53 percent ad valorem, which is the rate calculated for Krakatau.

In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries of the subject merchandise from Indonesia, which are entered or withdrawn from warehouse, for consumption on or after the date of the publication of this notice in the Federal Register, and to require a cash deposit or bond for such entries of the merchandise in the amount indicated above. This suspension will remain in effect until further notice.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all non-privileged and nonproprietary information relating to this investigation. We will allow the ITC access to all privileged and business proprietary information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Assistant Secretary for Import Administration.

In accordance with section 705(b)(2) of the Act, if our final determination is affirmative, the ITC will make its final determination within 45 days after the Department makes its final determination.

Public Comment

In accordance with 19 CFR 351.310, we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on this preliminary determination. The hearing is tentatively scheduled to be held 57 days from the date of publication of the preliminary determination, at the U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230. Individuals who wish to request a hearing must submit a written request within 30 days of the publication of this notice in the Federal Register to the Assistant Secretary for Import Administration, U.S. Department of Commerce, Room 1870, 14th Street and Constitution Avenue, NW., Washington, DC 20230. Parties should confirm by telephone the time, date, and place of the hearing 48 hours before the scheduled time.

Requests for a public hearing should contain: (1) The party's name, address, and telephone number; (2) the number of participants; and, (3) to the extent practicable, an identification of the arguments to be raised at the hearing. In addition, six copies of the business proprietary version and six copies of the non-proprietary version of the case briefs must be submitted to the Assistant Secretary no later than 50 days from the date of publication of the preliminary determination. As part of the case brief, parties are encouraged to provide a summary of the arguments not to exceed five pages and a table of statutes, regulations, and cases cited. Six copies of the business proprietary version and six copies of the non-proprietary version of the rebuttal briefs must be submitted to the Assistant Secretary no later than 5 days from the date of filing of the case briefs. An interested party may make an affirmative presentation only on arguments included in that party's case or rebuttal briefs. Written arguments should be submitted in accordance with 19 CFR 351.309 and will be considered if received within the time limits specified above.

This determination is published pursuant to sections 703(f) and 777(i) of the Act. Effective January 20, 2001, Bernard T. Carreau is fulfilling the duties of the Assistant Secretary for Import Administration.