British Steel Corp. v. United States

• Decision Date: 08 March 1985
• Docket Number: Court No. 83-7-01032.
• Citation: 605 F. Supp. 286
• Parties: BRITISH STEEL CORPORATION, et al., Plaintiffs, v. UNITED STATES, et al., Defendants, Allegheny Ludlum Steel Corporation, et al., Defendants-Intervenors.
• Court: U.S. Court of International Trade

605 F. Supp. 286

BRITISH STEEL CORPORATION, et al., Plaintiffs, v. UNITED STATES, et al., Defendants Allegheny Ludlum Steel Corporation, et al., Defendants-Intervenors.

Court No. 83-7-01032.

United States Court of International Trade.

March 8, 1985.

Steptoe & Johnson Chartered, Washington, D.C. (Richard O. Cunningham, Charlene Barshefsky, Alice L. Mattice, and William Martin, Washington, D.C., of counsel), for plaintiffs.

Richard K. Willard, Acting Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, and Sheila N. Ziff, Washington, D.C., for defendants.

Collier, Shannon, Rill & Scott, Washington, D.C. (David A. Hartquist, Paul C. Rosenthal and Jeffrey S. Beckington, Washington, D.C., of counsel), for defendants-intervenors.

Stewart & Stewart (Eugene L. Stewart, Washington, D.C., of counsel), for amicus curiae Bethlehem Steel Corp.

NEWMAN, Senior Judge:

Introduction

The novel issue raised, with far-ranging implications in international trade, is whether under the facts and circumstances presented here certain benefits provided by the United Kingdom (U.K.) government used to "restructure" British Steel Corporation's (BSC) steel-making facilities are subsidies subject to countervailing duties.

Pursuant to section 516A of the Tariff Act of 1930 (19 U.S.C. § 1516a) BSC, the only U.K. producer and/or exporter to the United States of stainless steel sheet and plate, and British Steel Corporation, Inc., the exporter's American affiliate, challenge the final affirmative countervailing duty determinations of the United States Department of Commerce, International Trade Administration (ITA), concerning stainless steel plate (48 Fed.Reg. 19048, April 27, 1983). Jurisdiction is conferred upon this Court by 28 U.S.C. § 1581(c). Briefly, plaintiffs contend that ITA acted arbitrarily and contrary to law in determining that certain U.K. government benefits provided to BSC from April 1977 through March 1982 were countervailable subsidies and in calculating the value of the subsidies.

Before the Court are: (1) plaintiffs' motion for review of ITA's determinations upon the agency record in conformance with Court of International Trade Rule 56.1; (2) defendants' cross-motion for review and for partial remand; and (3) defendants-intervenors' (intervenors) cross-motion for review.

Administrative Background

On October 7, 1982 ITA received a petition from Allegheny Ludlum Steel Corporation, other American specialty steel manufacturers and United Steelworkers of America, filed pursuant to 19 U.S.C. § 1671 on behalf of domestic manufacturers of stainless steel sheet, strip and plate, alleging that certain benefits constituting subsidies within the meaning of section 1671 are being provided, directly or indirectly, to the manufacturers, producers or exporters in the U.K. of these stainless steel products.¹ The petition also included allegations of injury caused by the imports.²

On November 2, 1982 ITA initiated a countervailing duty investigation into the subsidy allegations contained in the petition (47 Fed.Reg. 49692). In due course, ITA notified the International Trade Commission (ITC) of its initiation of the investigations and on November 22, 1982 ITC made a preliminary affirmative injury determination respecting the involved stainless steel plate (47 Fed.Reg. 54180).

ITA issued its preliminary affirmative countervailing duty determinations on February 10, 1983, finding that the U.K. government was providing British manufactures, producers or exporters of stainless steel sheet, strip and plate with benefits constituting subsidies (48 Fed.Reg. 6146). The programs preliminarily found to confer subsidies were: public dividend capital and new capital; National Loans Fund (NLF) loans and loan conversions; Regional development grants; and Iron and Steel Industry Training Board grants.

In its determinations, ITA applied the general principles and conclusions of law described in Appendices 2-4 of the "Final Affirmative Countervailing Duty Determinations on Certain Steel Products from Belgium" (47 Fed.Reg. 39304, 39316, September 27, 1982). Appendix 2 explained ITA's methodology for dealing with certain types of capital and financial subsidies, including grants, loans, loan guarantees and equity. ITA has since modified various aspects of its methodology in the "Subsidies Appendix", attached to its notice of "Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina: Final Affirmative Countervailing Duty Determination and Countervailing Duty Order" (49 Fed.Reg. 18006 (April 26, 1984)).

ITA published its "Final Affirmative Countervailing Duty Determinations on Stainless Steel Sheet, Strip, and Plate from the United Kingdom" on April 27, 1983. 48 Fed.Reg. 19048 (1983).³ The programs determined to confer subsidies were those mentioned in ITA's preliminary affirmative determination. ITA found that BSC was receiving subsidies at an ad valorem rate of 19.31 percent.

On June 10, 1983 ITC issued a final affirmative injury determination with respect to imports of stainless steel plate and made negative determinations respecting stainless steel sheet and strip (48 Fed.Reg. 27454 (1983)).⁴ Accordingly, on June 23, 1983 ITA issued a countervailing duty order only as to U.K. stainless steel plate (48 Fed.Reg. 28690). Subsequently, on July 21, 1983 plaintiffs instituted this action.

Financial History of BSC

BSC was established on March 22, 1967 under the provisions of the Iron and Steel Act of 1967 by combining 14 steel firms into one nationalized company. The British government reimbursed stockholders of record and absorbed substantial debts of the individual companies. The bulk of the debt was converted to government equity under the provisions of the Iron and Steel Act of 1969, which also authorized government payments to BSC. Authority for the government to make payments to BSC was renewed by the Iron and Steel Act of 1975 (48 Fed.Reg. 19049). In nine of the 15 years of its existence, including every year since fiscal year 1974/75, BSC has received government payments, described by BSC prior to 1978/79 as Public Dividend Capital (PDC) and since 1978/79 as New Capital (NC). In 1972 and 1981, the British Parliament directed that portions of its capital investment in BSC be credited to accumulated revenue deficit.

In those same years, government loans from the NLF, established by the National Loan Fund Act of 1968, were also converted into equity. (Lending from the NLF is limited to nationalized companies and such loans must be authorized by an act of the British Parliament.) The Iron and Steel Act of 1967 authorized BSC to borrow from NLF's predecessor fund (the Consolidated Fund), and the Iron and Steel Act of 1975 authorized borrowings directly from the NLF. In 1971/72, all outstanding loans from the NLF to BSC were converted into equity, as were all NLF loan amounts out-standing as of the end of the 1980/81 fiscal year.

The direct government payments to BSC and the loan conversions (which also constitute equity investments) were essential, along with other programs, to the survival of BSC, which made a profit of 89 million pounds before taxes in the fiscal year 1974/75 (ending March 29, 1975) and has been losing money ever since.

Issues Presented

Plaintiffs raise eight distinct issues: Points I, II and III of plaintiffs' memorandum address the interpretation and application of certain statutory concepts to benefits conferred by the British government upon BSC during fiscal years 1977/78 through 1981/82 that were found by ITA to constitute countervailable subsidies under 19 U.S.C. §§ 1671 and 1677. Points IV through VII of plaintiffs' memorandum challenge the valuation methodologies utilized by ITA in its investigation, which methodologies have since been revised and clarified. Defendants urge that since the valuation methodologies challenged by plaintiffs are not currently being utilized, this action should be remanded to ITA for redetermination respecting valuation of the subsidies in accordance with current methodologies. In Point VIII of its memorandum plaintiffs challenge ITA's determination that BSC was not creditworthy in fiscal year 1977/78 (the last year prior to restructuring) and consequently contest the finding that U.K. government equity infusions were provided on terms inconsistent with commercial considerations.

For the reasons indicated below, ITA's determinations are affirmed in part and this action is remanded to ITA for further proceedings respecting Points IV through VIII of plaintiffs' memorandum. Accordingly, the Court will not presently address the issues raised by plaintiffs in points IV through VIII.

Opinion

I. The Statutory "Commercial Considerations" Standard

Section 771(5) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1677(5), includes any subsidy "bestowed directly or indirectly on the manufacture, production, or export of any class or kind of merchandise" including: "the provision of capital, loans, or loan guarantees on terms inconsistent with commercial considerations". 19 U.S.C. § 1677(5)(B)(i) (emphasis added). There is no dispute that BSC received loans and capital from the British government during its restructuring period, fiscal year 1978/79 to the present. The restructuring funds comprised the general equity funding provided by the U.K. government from the beginning of fiscal year 1978/79 to the present used by BSC for general corporate purposes (working capital, coverage of operating loss, etc.) to enable the company to restructure; the forgiveness of indebtedness to the NLF is also included. Plaintiffs contend that ITA erred in determining that these funds were provided to BSC during the restructuring period on "terms inconsistent with commercial considerations" within the purview of the statute.⁵

This Court agrees with ITA's finding that BSC received government funding "on terms inconsistent with commercial considerations."

In addition to the...