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Dispute Settlement
U.S. Trade Remedy Law: The Canadian Experience
V United States Countervailing Duty Investigations regarding Imports from Canada: Case Histories, 1991–1999
6 Certain Laminated Hardwood Trailer Flooring (LHF) from Canada
- 7 Certain Steelwire Rod from Canada (and Germany, Trinidad and Tobago, and Venezuela)
- 7.1 Case History
- 7.2 Key Issues
- 7.3 Programs Determined to be Countervailable
- 7.4 Programs Determined Not to be Countervailable
- 7.5 Programs Determined Not to be Used
7 Certain Steelwire Rod from Canada (and Germany, Trinidad and Tobago, and Venezuela)
7.1 Case History
On February 26, 1997, Commerce and the ITC accepted a petition filed by the following companies: Steel Corp.; Co-Steel Raritan; GS Industries, Inc.; Keystone Steel & Wire Co.; and North Star Steel Texas Inc. The petitioners alleged that subsidized imports of steel wire rod from Canada, Germany, Trinidad and Tobago, and Venezuela were injuring the U.S. industry.
On April 30, 1997, the ITC published an affirmative preliminary determination, finding a reasonable indication that the domestic industry was threatened with material injury by reason of allegedly subsidized imports from Canada, Germany, Trinidad and Tobago, and Venezuela.
On August 4, 1998, Commerce released an affirmative preliminary determination, in which it estimated the following preliminary countervailing duty rates:
Manufacturer/Exporter | CVD rate |
| Sidbec-Dosco (Ispat) Inc. | 9.55% |
| Ivaco, Inc. | 0.00% |
| Stelco, Inc. | 0.00% |
| All Others | 9.55% |
On October 22, 1997, Commerce released an affirmative final determination, finding that countervailable subsidies were provided to Sidbec-Dosco (Ispat) Inc.
Manufacturer/Exporter | CVD rate |
| Sidbec-Dosco (Ispat) Inc. | 8.95% |
| Ivaco, Inc. | 0.00% |
| Stelco, Inc. | 0.00% |
| All Others | 8.95% |
On October 22, 1997, Commerce released an affirmative final determination, finding that countervailable subsidies were provided to Sidbec-Dosco (Ispat) Inc.
On November 21, 1997, Ispat Sidbec Inc. filed a request for a Chapter 19 Binational Panel Review with the NAFTA Secretariat. A second request was filed on November 21, 1997, on behalf of the Quebec government. A Panel Review was requested of the final countervailing duty determination made by Commerce. Given the ITC’s negative final determination, these requests were subsequently withdrawn.
On December 3, 1997, the ITC made a negative final determination and the investigation was terminated.
In the ITC determination, Canadian imports were cumulated with subsidized and dumped imports from Venezuela and Trinidad and Tobago, and dumped imports from Germany. In light of the lack of significant volume of subject imports and significant price effects, the consistently high level of investments by the domestic industry, and the improving trend in the industry’s financial condition (which began well before the petition was filed), the ITC did not find that the subject imports had an adverse impact on the domestic industry. Although the domestic industry had lost over 3.0 percentage points of market share from 1994 to 1995, the subject imports’ market share remained constant during that period. From 1995 to 1996, when subject imports made their greatest gains in volume, the domestic industry’s market share remained virtually the same. The subject imports captured sales and market share at the expense of other imports, rather than the domestic like product. Moreover, the domestic industry was not able to satisfy all of the domestic demand for steel wire rod during this period.
With respect to price issues, in light of the absence of evidence supporting a correlation between subject import volumes or prices and declines in domestic steel wire rod prices, the ITC decided it could not conclude that subject import prices prevented, to a significant degree, domestic price increases that would otherwise have occurred.
With regard to threat of material injury, the interim 1997 data and the full year 1996 data led the ITC to conclude that a substantially increased volume of subject imports was not imminent and that no material injury would occur by reason of subject imports. Subject imports decreased throughout 1997 according to the interim data, and were at lower levels during that period than during either the first or second half of 1996. Foreign producers of the subject merchandise had generally been operating at or near full capacity throughout the period of investigation, with no plans for expansion. There was no basis for concluding that imports were likely to have a significant adverse effect on prices for the U.S. domestic like product in the imminent future.
7.2 Key Issues
The Government of Quebec owned 100% of Sidbec’s stock, and Sidbec owned 100% of Sidbec-Dosco, Inc.’s stock, until privatization in 1994. On August 17, 1994, Sidbec-Dosco, Inc. was sold to Beheer-en Beleggingsmaatschappij Brohenco B.V. (Brohenco), which is wholly owned by Ispat-Mexicana, S.A. de C.V. (Ispat Mexicana). It became known as Sidbec-Dosco (Ispat) Inc. Sidbec, the holding company, continued to be 100% owned by the Government of Quebec.
It was Commerce’s practice to allocate subsidies received by a parent over the sales of its entire group of companies in certain situations. Therefore, Commerce treated any untied subsidy received by the parent, Sidbec, during the period of investigation as benefiting all of the companies in the Sidbec group, including Sidbec-Dosco, Inc. and Sidbec-Normines.
Commerce determined that while grants provided in 1983 and 1984 were tied to Sidbec-Normines’ iron ore production, these subsidies became attributable to the Sidbec group’s remaining production once the iron ore operations were shut down. Furthermore, because Commerce considered Sidbec-Normines to be a part of the Sidbec group, the grants were considered to be provided directly to Sidbec. Accordingly, Commerce found that grants provided both before and after the closure of Sidbec-Normines’ mining operations in 1984 benefited the Sidbec group’s remaining production as of 1985 onward, including the production of the subject merchandise (steel wire rod).
Commerce allocated the subsidies at issue to the remaining production of the consolidated group given that the closed mining operations had been operated by a subsidiary (Sidbec-Normines) whose only production came from the closed plant. The parent of the consolidated group (Sidbec) was the group’s shareholder in the subsidiary, and had financed and was obligated to pay the debts of the subsidiary. Thus Sidbec was being relieved of the costs it would have incurred in closing down the plant, so that its remaining production, including steel wire rod, undeniably benefited from the subsidies it received.
Commerce found that the 1983–1992 grants to cover Sidbec-Normines debt were non-recurring in nature. Commerce considers grants to be non-recurring when the benefits are exceptional, the recipient cannot expect to receive benefits on an ongoing basis, and/or the provision of funds by the government must be approved every year. Based upon the multi-layered process necessary to obtain budgetary authority, Commerce concluded that government approval was necessary prior to the receipt of each individual grant. Whereas non-recurring grants are allocated over the average useful life of assets in the industry, recurring grants are expensed in the year of receipt.
Commerce determined that Sidbec was uncreditworthy for the years from 1983 to 1992, based on certain liquidity and debt ratios. The Quebec Industrial Development Corporation (SDI) asserted that Commerce’s finding was not supported by evidence on the record as the company had received long-term commercial financing. SDI asserted that the result of this error was that Commerce added a risk premium to the discount rate. Commerce stated that its credit analysis was consistent with the decision to analyze the subsidies as benefiting the consolidated group of the parent company, Sidbec. Furthermore, Commerce did not consider Sidbec’s long-term capital lease as comparable to long-term commercial financing. The lease in question was a capital lease, secured by a first-rank specific charge, which is not unlike a typical mortgage.
On this basis, Commerce distinguished the capital lease from a typical long-term commercial loan, which was not secured in this way.
SDI asserted that any possible countervailable subsidies were extinguished by the privatization of Sidbec-Dosco. The Government of Canada expressed concerns with Commerce’s privatization methodology as it was advised that the sale of Sidbec-Dosco was an arm’s-length transaction and fully reflected the market value of the company’s assets. According to Commerce’s practice, the sale of a “business” or “productive unit” does not alter the effect of previously bestowed subsidies. A calculation is performed to measure the portion of the subsidies passed through, taking into account the sale price and previously bestowed subsidies. This approach was consistent with the Federal Circuit’s decision in Saarstahl AG v. United States, 78 F.3d 1539 (Fed. Cir. 1996).
7.3 Programs Determined to be Countervailable
7.3.1 Provincial Programs
7.3.1.1 1988 Debt-to-Equity Conversion
Sidbec-Dosco received a debt-to-equity conversion from the Government of Quebec in 1988. The Quebec Industrial Development Corporation reported that a portion of Sidbec’s debt was converted into Sidbec capital stock in 1988. The debt consisted of four loans provided to Sidbec during the period from 1982 to 1985, plus accrued interest. Every two years, Quebec extended the maturity date for these loans for another two years. Quebec converted four of Sidbec’s debt instruments into Sidbec equity in 1988 in order to improve Sidbec-Dosco, Inc.’s economic profile. Sidbec was authorized to acquire an equivalent amount in shares of Sidbec-Dosco, Inc.
Commerce concluded that benefits to Sidbec occurred at the point when the debt instruments (i.e. loans) were converted to capital stock, given that Sidbec was not equityworthy in 1988. The conversion of debt to capital stock was considered to constitute an equity infusion inconsistent with the usual investment practice of private investors. Commerce determined the 1988 debt-to-equity conversion to be specific, because it was provided to only one enterprise, Sidbec, and was not part of a broader program. The net rate found was 0.92%.
7.3.1.2 1983–1992 Grants
Sidbec received grants from the Quebec government as compensation for expenses it incurred to finance Sidbec-Normines and its discontinued operations. Some of these grants were provided by Quebec to Sidbec with regard to the payment of interest and principal on six different loans made in the period from 1984 to 1992.
The Government of Quebec was the guarantor of these loans. Commerce determined that the grants constituted countervailable subsidies and were non-recurring in nature. They were specific because they were provided to only one enterprise, Sidbec, and were not part of a broader program. The net rate found was 8.03%.
7.4 Programs Determined Not to be Countervailable
7.4.1 Federal Programs
7.4.1.1 Canadian Steel Trade Employment Congress (CSTEC) Skill Training Program
The federal Department of Human Resources Development (HRDC) and provincial governments provided financial support to private sector-led human resource projects through the Sectoral Partnerships Initiative. With regard to worker adjustment assistance, funds flowing from HRDC went not to the companies but rather to unemployed workers in the form of assistance for retraining costs or income support. The funds were therefore not countervailable because the companies were not relieved of any obligations. Furthermore, the funds received by SDI, Stelco and Ivaco from CSTEC for training purposes did not provide countervailable benefits during the period of investigation because they were not specific to the Canadian steel industry.
7.4.2 Provincial Programs
7.4.2.1 1987 Grant to Sidbec-Dosco, Inc.
Commerce found no evidence that Quebec provided a grant to Sidbec-Dosco, Inc. in 1987, as alleged by the petitioners.
7.4.2.2 1987 Debt-to-Equity Conversion
Commerce found no evidence at verification that Quebec had provided an infusion of equity, either through a debt-to-equity conversion or otherwise, to Sidbec- Dosco, Inc. in 1987.
7.4.2.3 Contributed Surplus
The petitioners alleged that C$51.7 million in contributed surplus constituted a countervailable subsidy. Commerce determined that Sidbec had received this contributed surplus prior to the Average Useful Life (AUL) period. These funds therefore did not provide countervailable benefits during the period of investigation.
7.4.2.4 Payments Against Accumulated Grants Receivable
Commerce determined that all Quebec payments made to Sidbec between 1983 and 1993 were accounted for by the 1983–1992 grants that went to the discontinued mining operations, discussed above, and that no additional countervailable benefits were provided.
7.4.2.5 1982 Assistance to Sidbec-Dosco, Inc.
Commerce determined that the Quebec government did not provide any governmental assistance to either Sidbec or Sidbec-Dosco, Inc. in 1982.
7.4.2.6 1980 and 1981 Grants
Commerce determined that Quebec did not provide any grants to Sidbec in 1980 or 1981.
7.5 Programs Determined Not to be Used
7.5.1 Industrial Development of Quebec
This program was administered by the Quebec Industrial Development Corporation, a Quebec agency that funded a wide range of industrial development projects in many sectors. Ivaco received grants in 1984 and 1985 that had been authorized prior to the program’s rescission in 1982. Commerce determined that the benefits Ivaco received for each year constituted a de minimis portion (i.e. less than 0.5%) of total sales value, and therefore should be expensed in each year that they were received. Therefore, because the grants provided under this program were expensed in the year of receipt, Commerce determined that no countervailable benefits were bestowed on Ivaco during the period of investigation.
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