SAARSTAHL, AG v. US

• Decision Date: 07 June 1994
• Docket Number: Court Number 93-04-00219. Slip Op. No. 94-92.
• Citation: 858 F. Supp. 187
• Parties: SAARSTAHL, AG, Plaintiff, v. UNITED STATES, Defendant, and Inland Steel Bar Co., Defendant-Intervenor.
• Court: U.S. Court of International Trade

858 F. Supp. 187

SAARSTAHL, AG, Plaintiff, v. UNITED STATES, Defendant, and Inland Steel Bar Co., Defendant-Intervenor.

Court Number 93-04-00219 Slip Op. No. 94-92.

United States Court of International Trade.

June 7, 1994.

Grunfeld, Desiderio, Lebowitz & Silverman (Bruce M. Mitchell, Max F. Schutzman, David L. Simon, Phillip S. Gallas, Andrew B. Schroth and Jeffrey S. Grimson), New York City, for plaintiff.

Frank W. Hunger, Asst. Atty. Gen., David M. Cohen, Director, Civ. Div., Commercial Litigation Branch, U.S. Dept. of Justice (Jeffrey Telep), Marguerite E. Trossevin, Atty.-Advisor, Office of Chief Counsel for Import Admin., Washington, DC, for defendant.

Wiley, Rein & Fielding, Charles Owen Verrill, Jr., Alan H. Price, Willis S. Martyn, III, Peter S. Jordan, Beth A. Kurowski, Jacqueline A. Jones and Brian E. Rosen, Washington, DC, for defendant-intervenor.

OPINION

CARMAN, Judge:

Plaintiff and defendant-intervenor contest the U.S. Department of Commerce's (Commerce) determination in Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Germany, 58 Fed.Reg. 6233 (Dep't Comm.1993) (final determination) (Final Determination), as modified by Remand Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Germany (Dep't Comm.1993) (Remand Determination). The Court has jurisdiction over this matter pursuant to 28 U.S.C. ž 1581(c) (1988).

BACKGROUND

Commerce's period of investigation for Saarstahl AG is calendar year 1991. Final Determination, 58 Fed.Reg. at 6233. The products covered by Commerce's investigation are "hot-rolled bars and rods of nonalloy or other alloy steel, whether or not descaled, containing by weight 0.03 percent or more of lead or 0.05 percent or more of bismuth, in coils or cut lengths, and in numerous shapes and sizes." Id.

Between 1978 and 1985, Saarstahl, which went through various mergers, restructurings and name changes, received a total of DM 3.948 billion in subsidies from the Saarland state and German federal governments. Id. at 6233-34. The Saarland and federal governments provided Saarstahl and its corporate predecessors with loan guarantees and "RZVs." RZVs are loans provided by the German government, the face value of which must be repaid by the recipient. In Saarstahl's case, the repayment of the RZVs was contingent upon the company's return to profitability. Id. at 6234. When Saarstahl could not make principal payments on the guaranteed loans, the two governments assumed the company's interest and principal payments. Id. In exchange for this funding, Saarstahl continued to amass RZVs.

In 1989, Dillinger HRtte Saarstahl AG (DHS), a holding company, purchased Saarstahl after requiring (1) the Saarland and federal governments to assume certain debt and forgive outstanding RZVs; (2) private lenders to forgive debt amounting to DM 217.1 million; and (3) Saarstahl to reorganize its capital structure. Id. at 6234-35. The Saarland government contributed the assets of Saarstahl and DM 145.1 million in cash in exchange for 27.5% ownership of DHS. Id. at 6234. The majority owner of DHS, the French-owned Usinor Sacilor, contributed its shares of Dillinger Huttenwerke and received 70% of DHS. A third participant, ARBED Luxembourg, purchased 2.5% of DHS for DM 8.9 million.

Pursuant to a petition filed by Inland Steel Corporation and Bethlehem Steel Corporation, Commerce initiated an investigation on May 8, 1992, and issued its preliminary determination on September 17, 1992. Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Brazil, France, Germany, and the United Kingdom, 57 Fed.Reg. 19,884 (Dep't Comm.1992) (initiation notice); Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Germany, 57 Fed.Reg. 42,971 (Dep't Comm.1992) (prelim. determination). In its Final Determination, published on January 27, 1993, Commerce determined "because the debt forgiveness was part of the deal negotiated to effect the merger, we consider the forgiveness to benefit the newly-formed company, not the predecessor to DHS." Final Determination, 58 Fed.Reg. at 6236-37. Additionally, Commerce determined the forgiveness of debt by the private banks "was countervailable because it was required by the governments as part of a government-led debt reduction package for Saarstahl and because the two governments guaranteed the future liquidity of Saarstahl, thereby, implicitly assuring the private banks that the remaining portion of Saarstahl's outstanding loans would be repaid." Id. at 6235. Subsequent to the International Trade Commission's affirmative injury determination, Commerce issued a countervailing duty (CVD) order for the relevant products. Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Germany, 58 Fed.Reg. 15,325 (Dep't Comm.1993) (CVD order).

Prior to briefing, Commerce requested and was granted a remand to reconsider its original determination. On remand, Commerce adopted its reasoning from Certain Steel Products from Germany, 58 Fed.Reg. 37,315 (Dep't Comm.1993) (final determination). Commerce determined the debt forgiveness amounted to a grant bestowed upon Saarstahl in 1991, the benefit of which passed through to DHS after Saarstahl was privatized. Remand Determination at 6. Commerce also determined part of the Saarstahl sales price represented repayment of the subsidy and adjusted the CVD margins accordingly. Id. at 5-6. In the original final determination Commerce found CVD margins of 17.28%, and in the subsequent remand determination Commerce found CVD margins of 16.85%. Final Determination, 58 Fed.Reg. at 6237; Remand Determination at 8.

CONTENTIONS OF THE PARTIES

A. Saarstahl AG v. United States

Saarstahl argues Commerce erroneously found Saarstahl's subsidies survived privatization. Saarstahl contends Commerce should have valued the forgiveness of the RZVs at zero or, in the alternative, allowed a greater portion of the purchase price to be considered repayment of past subsidies. Additionally, Saarstahl asserts Commerce mischaracterized the subsidies as the forgiveness of long-term, contingent-liability, interest-free loans. According to Saarstahl, they should be treated as grants or equity. With respect to the forgiveness of interest and principal by private banks, Saarstahl claims there is no record evidence supporting the conclusion this forgiveness is a countervailable subsidy.

Commerce argues its determination that subsidies survive privatization, which is based on its new privatization policy, is supported by substantial evidence on the record and is in accordance with law. Because Saarstahl was obligated to repay the face value of the RZVs, Commerce contends this was the appropriate valuation of the subsidy received. Furthermore, Commerce maintains because the underlying subsidy was a loan, the forgiveness was of an obligation arising from a debt instrument not a grant and was properly countervailed from the time of forgiveness. Based on the evidence of the governments' significant role in the private banks' debt forgiveness, Commerce claims it reasonably determined the forgiveness was an indirect benefit from the governments and therefore countervailable.

Inland maintains Commerce properly determined the subsidies travelled with Saarstahl to its new home and argues Saarstahl has failed to demonstrate Commerce's reasoning is unlawful. Additionally, Inland contends Commerce properly valued the RZVs based on that which Saarstahl directly or indirectly received instead of face value. According to Inland, Saarstahl has no grounds to complain about the characterization of the RZVs because Saarstahl carried them on its books as liabilities until the governments forgave them in 1989. Finally, Inland agrees with Commerce's finding the private banks' forgiveness was countervailable due to the involvement of the Saarland and federal governments.

B. Inland Steel Bar Co. v. United States

Inland argues Commerce improperly treated subsidies received only by Saarstahl as benefitting products produced by DHS's other subsidiary, Dillinger. Inland also contends Commerce failed to make a final determination regarding Saarstahl's creditworthiness in 1989. Inland further maintains Commerce acted unlawfully in retroactively applying its new privatization methodology and Saarstahl thus has no basis for obtaining an offset to its subsidies. Moreover, according to Inland, because the Saarland government actually overpaid for its share of DHS by DM 62.5 million, there was no subsidy repayment. Finally, Inland asserts there was no privatization of Saarstahl because the Saarland government held veto power and because the three owners of DHS are themselves state-owned companies.

Commerce claims it properly determined Dillinger benefitted from Saarstahl's subsidies because the forgiveness of debt was not tied to the production of any specific product and was a general benefit to Saarstahl which travelled to DHS as a benefit to the entire company. Commerce argues it was lawful to apply its new privatization methodology to Saarstahl and that it correctly applied the methodology. Despite Inland's arguments to the contrary, Commerce maintains it properly concluded Saarstahl was privatized. With respect to Saarstahl's creditworthiness in 1989, Commerce requests a remand to review this point to determine whether a risk premium is necessary. Commerce also requests a remand to review the price Usinor Sacilor paid for its share of DHS.

STANDARD OF REVIEW

The appropriate standard for the Court's review of a final determination by Commerce is whether the agency's determination is "unsupported by substantial evidence on the record, or otherwise not in accordance with law." 19 U.S.C. ž 1516a(b)(1)(B) (1988). "Substantial evidence is something more than a `mere scintilla,' and must be enough reasonably to support a conclusion." Ceramica Regiomontana S.A. v. United States, 10 CIT 399, 405, 636 F.Supp. 961, 966 (1986), aff'd, 5 Fed.Cir. (T) 7...