Slip Op. 02-01
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Judge Judith M. Barzilay
_________________________________________ x
ALLEGHENY LUDLUM CORP., ET AL., :
Plaintiffs, : Consolidated
Court No. 99-09-00566
v. :
UNITED STATES, :
Defendant
:
and
:
USINOR, UGINE S.A., AND UGINOX SALES
CORPORATION, ET AL., :
Defendant-Intervenors. :
_________________________________________ x
[Defendant-Intervenors’ motion for Judgment Upon an Agency Record granted in part and
remanded.]
Decided: January 4, 2002
Collier Shannon Scott, PLLC, Paul C. Rosenthal, Kathleen W. Cannon, Lynn Duffy
Maloney,(John M. Herrmann), for Plaintiffs.
Robert D. McCallum, Jr., Assistant Attorney General, United States Department of Justice;
David M. Cohen, Director, Commercial Litigation Branch, Civil Division, United States
Department of Justice (Thomas B. Fatrouros); Michele D. Lynch, Office of the Chief Counsel for
Import Administration, United States Department of Commerce, of Counsel, for Defendant.
Weil, Gotshall & Manges LLP, (Stuart Rosen), Jonathan Bloom, Jennifer J. Rhodes, for
Defendant-Intervenors.
Consolidated Court No. 99-09-00566 Page 2
MEMORANDUM OPINION AND ORDER
BARZILAY, JUDGE:
I. INTRODUCTION
In this case, the court is asked, yet again, to review the subsidy calculation methodology
employed by the Department of Commerce (“Commerce”) during countervailing duty
investigations and reviews to determine under what circumstances a privatized company is the
recipient of a benefit pursuant to United States law. This case comes before the court pursuant to
Plaintiffs’ and Defendant-Intervenors’ USCIT R. 56.2 Motions for Judgment Upon an Agency
Record. Plaintiffs and Defendant-Intervenors challenged certain aspects of the final
determination of the Department of Commerce International Trade Administration’s
countervailing duty investigation of stainless steel sheet and strip from France.1 See Final
Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils from
France, 64 Fed. Reg. 30,774 (1999) (“Final Determination”). While this case was pending
before the court, the Federal Circuit issued its opinion in Delverde SrL v. United States, 202 F.3d
1360 (Fed. Cir. 2000) reh’g denied, Ct. No. 99-1186 (June 20, 2000) (“Delverde III”). On
February 29, 2000, Usinor filed, and the court granted, a motion to amend its complaint to add a
claim based upon the Federal Circuit’s ruling in Delverde III. On July 13, 2000, the United
1
When the case was initiated, Allegheny Ludlum Corp., (“Allegheny”) et al, the
domestic producers, were the Plaintiffs, the United States (Commerce) the Defendant, and
Usinor, Ugine S.A. and Uginox Sales Corp. (“Usinor”), the foreign producers, the Defendant-
Intervenors. As explained, infra, this case was remanded to Commerce before any decision was
rendered on Allegheny’s motion. After the remand determination, Allegheny supported the
outcome of Commerce’s redetermination and it was Usinor that objected to certain aspects of
the remand results.
Consolidated Court No. 99-09-00566 Page 3
States requested a remand to Commerce to consider the impact of the Federal Circuit’s holding
in Delverde III to the facts of this case. The subsequent remand order instructed Commerce to
“issue a determination consistent with United States law, interpreted pursuant to all relevant
authority, including the decision of the Court of Appeals for the Federal Circuit in Delverde SrL
v. United States 202 F.3d 1360 (Fed. Cir. 2000).” Remand Order (August 15, 2000). The court
now reviews Commerce’s Final Results of Redetermination Pursuant to Court Remand:
Allegheny-Ludlum Corp., et al v. United States, No. 99-09-00566 (December 20, 2000).
(“Remand Determination”).2 The court exercises jurisdiction pursuant to 28 U.S.C. § 1581(c)
(1994) which provides for judicial review of a final determination by the Department of
Commerce in accordance with the provisions of 19 U.S.C. § 1516a(a)(2)(B)(i) (1994).
II. BACKGROUND
On July 13, 1998, Commerce initiated countervailing duty investigations to determine
whether manufacturers, producers or exporters of stainless steel sheet and strip from France, Italy
and the Republic of Korea were receiving countervailable subsidies. See Initiation of
Countervailing Duty Investigations: Stainless Steel Sheet and Strip in Coils From France, Italy
and the Republic of Korea, 63 Fed. Reg. 37,539 (July 13, 1998). The period of investigation was
calender year 1997. Id. Commerce issued its preliminary affirmative determination on
November 17, 1998 and its final affirmative determination on June 8, 1999, finding that the total
2
This case is a companion case to GTS Industries S.A. v. United States, 26 CIT ___
(2002). GTS Industries, formerly a subsidiary of Usinor, produced and imported products into
the United States that were also subject to a countervailing duty investigation. The same
privatization transaction is at issue in both cases.
Consolidated Court No. 99-09-00566 Page 4
estimated net countervailable subsidy (“CVD”) rate was 5.38% ad valorem for Usinor and all
others. See Preliminary Affirmative Countervailing Duty Determination and Alignment of Final
Countervailing Duty Determination With Final Antidumping Duty Determination: Stainless
Steel Sheet and Strip in Coils from France, 63 Fed. Reg. 63,876 (Nov. 17, 1998) (“Preliminary
Determination”); Final Determination, 64 Fed. Reg. 30,790. During the investigation, the
Government of France (“France” or “French Government”) identified a division of Usinor as the
sole French producer of the subject merchandise that was exported to the United States during
the period of investigation. The French Government was the majority owner of Usinor and
Sacilor, another steel producer, until the mid-1980s. Final Determination, 64 Fed. Reg. at
30,776. After a capital restructuring in 1986, France was the sole owner of both companies. Id.
In 1987, France placed Usinor and Sacilor under the ownership of a holding company, with the
holding company retaining Usinor as its name. Remand Determination at 17. In 1991, Credit
Lyonnais, a government-owned bank, purchased 20% of Usinor. Final Determination, 64 Fed.
Reg. at 30,776. Beginning in the summer of 1995 and continuing through 1996 and 1997, the
French Government privatized Usinor through a public stock offering. Id. By the end of 1997,
approximately 82% of Usinor’s shares were owned by private shareholders, with the remaining
shares owned by employees and “stable shareholders.”3 Remand Determination at 17.
Despite the public stock offering that privatized Usinor, Commerce concluded in the
Remand Determination that Usinor was the “same person” after the privatization and, since it
3
Article 4 of the French privatization law establishes procedures for designating “Stable
Shareholders” under guidance from the Privatization Commission. Usinor Verification Report at
7, Feb. 19, 1999. The purpose seems to be to provide a core group of investors who are restricted
from selling during the privatization process, in order to promote stability and project confidence
in the sale.
Consolidated Court No. 99-09-00566 Page 5
had already determined that Usinor had previously received subsidies, it did not have to analyze
whether the past subsidies were extinguished by the change in ownership transaction. In making
its “same person” finding Commerce used principles of United States law “in the general
corporate context.” Remand Determination at 10. Additionally, Commerce used a 14-year
average useful life (AUL) to allocate the benefits bestowed by nonrecurring subsidies.4 Based
upon its findings, Commerce recalculated Usinor’s CVD rate to be 7.72% ad valorem.
III. STANDARD OF REVIEW
The court must evaluate whether the remand findings are supported by substantial
evidence on the record or otherwise in accordance with law. See 19 U.S.C. § 1516a(b)(1)(B).
“Substantial evidence is more than a mere scintilla;” it is “such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.” Consolidated Edison Co. of New York
v. NLRB, 305 U.S. 197, 229 (1938); Matsushita Elec. Indus. Co., Ltd. v. United States, 750 F.2d
927, 933 (Fed. Cir. 1984). To determine if the agency’s interpretation of the statute is in
accordance with law “we must first carefully investigate the matter to determine whether
Congress’s purpose and intent on the question at issue is judicially ascertainable.” Timex V.I. v.
United States, 157 F.3d 879, 881 (Fed. Cir. 1998). The expressed will or intent of Congress on a
4
“Commerce assumes that when a company sells ‘productive assets’ during ‘the average
useful life,’ a pro rata portion of that subsidy ‘passes through’ to the purchaser at the time of sale.
Commerce then quantifies the assumed ‘pass through’ amount, makes adjustments based on the
purchase price, allocates an amount to the year of investigation, and calculates the ad valorem
subsidy rate.” Delverde III, 202 F.3d at 1363 (citing Affirmative Countervailing Duty
Determination: Certain Steel From Prod. From Aus., 58 Fed. Reg. 37,217, 37,268-69 (1993))
(citation omitted). The court reaches a decision in this case solely on the issue of the effect of
privatization, and, therefore, will not discuss which AUL is correct.
Consolidated Court No. 99-09-00566 Page 6
specific issue is dispositive. See Japan Whaling Association v. American Cetacean Society, 478
U.S. 221, 233-237 (1986). If the court determines that the statute is silent or ambiguous, the
question to be asked is whether the agency’s construction of the statute is permissible. See
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 (1984).
This deference is due when it appears that Congress delegated authority to the agency generally
to make rules carrying the force of law, and that the agency interpretation claiming deference was
promulgated in the exercise of that authority. United States v. Mead Corp. 121 S.Ct. 2164, 1271
(2001). This is not limited to notice and comment rulemaking but is given to those “statutory
determinations that are articulated in any ‘relatively formal administrative procedure.’” Pesquera
Mares Australes Ltda. v. United States, 266 F.3d 1372, 1380 (Fed. Cir. 2001). Therefore,
statutory interpretations articulated by Commerce during antidumping proceedings are entitled to
judicial deference under Chevron. Id. at 1382. Essentially, this is an inquiry into the
reasonableness of Commerce’s interpretation. See Fujitsu General Ltd. v. United States, 88 F.3d
1034, 1038 (Fed. Cir. 1996).
IV. DISCUSSION
A. History of the Issue
A brief history of the privatization subsidy issue is appropriate. The applicable law
attempts to level the playing field by imposing a countervailing duty on subsidized imported
goods sold in the United States which materially injure a domestic industry. A subsidy is a
financial benefit conferred on a natural or legal person (usually the producing company) by a
government entity or agent. See 19 U.S.C. § 1677(B)
Consolidated Court No. 99-09-00566 Page 7
In the past twenty years many countries have moved to privatize state-owned enterprises
and thereby shift major manufacturing activity from public to private entities. Thus many plants
formerly run entirely or mostly under government finance and control are now under the control
of private shareholders. The question then becomes: if the plant received non-recurring financial
benefits when it was government owned and operated, do those benefits survive the privatization
and are the new owners, therefore, subject to countervailing duties on products they export to the
United States?
Commerce first confronted this issue in 1989 when it decided that no benefits had passed
to the recently privatized firm under review because the sale was for full market value and at
arm’s length. See Lime from Mexico; Preliminary Results of Changed Circumstances
Countervailing Duty Administrative Review, 54 Fed. Reg. 1,753, 1,754-55 (Jan. 17, 1989). By
1993, however, Commerce had changed its views in the context of steel countervailing duty
investigations. Commerce ignored the change of ownership at fair market value, which it had
found significant in Lime from Mexico, and held that the previously bestowed subsidies survived
such a sale and thus it assumed a continuing benefit to the new owners. See Certain Hot Rolled
Lead and Bismuth Carbon Steel Products from the U.K., 58 Fed. Reg. 6,237 (Jan. 27, 1993). 5
Commerce then issued a fuller explanation of its position on subsidies in the privatization
context when it published the General Issue Appendix covering several different CVD
investigations. See Final Affirmative Countervailing Duty Determination: Certain Steel
5
The historical and political context of this decision is discussed in Julie Dunne, Note,
Delverde and the WTO’s British Steel Decision Foreshadow More Conflict Where the WTO
Subsidies Agreement, Privatization and the United States Countervailing Duty Law Intersect, 17
Am. U. Int’l. L. Rev. 79, 89 n.38 (2001).
Consolidated Court No. 99-09-00566 Page 8
Products from Austria, General Issues Appendix, 58 Fed. Reg. 37,217, 37,225 (July 9, 1993). In
this new privatization methodology Commerce essentially assumed that a portion of the
previously bestowed subsidy passed through to the new owners from the state owned entity
depending on when it had been initially granted. In this methodology the life of the subsidy in
years (calculated by a formula based on amortization of assets) was the critical component and
whether the sale was for full market value had no significance.
Commerce’s methodology of ignoring a sale at full market value was rejected by this
court but reinstated by the Court of Appeals for the Federal Circuit. In Saarstahl, AG v. United
States, 18 CIT 525, 858 F.Supp. 187 (CIT 1994) this court applied pre-URAA law6 and held that
6
In 19 U.S.C. § 1677(5)(A)(ii) (1988) a subsidy was defined as “provided or required by
government action to a specific enterprise or industry. . . whether paid or bestowed directly or
indirectly on the manufacture, production or export of any class or kind of merchandise.” This
provision was amended in 1994 as part of the Uruguay Round Agreement Act to read as follows:
(B) Subsidy described
A subsidy is described in this paragraph in the case in which an authority --
(i) provides a financial contribution,
****
to a person and a benefit is thereby conferred.
(Emphasis added).
The URAA also included 19 U.S.C. §1677(5)(F) which stated:
A change in ownership of all or part of a foreign enterprise or the productive
assets of a foreign enterprise does not by itself require a determination by the
administering authority that a past countervailable subsidy received by the
enterprise no longer continues to be countervailable, even if the change in
ownership is accomplished through an arm’s length transaction.
Consolidated Court No. 99-09-00566 Page 9
subsidies are extinguished in a true arms-length sale for full market value because the value of
the company includes the benefit of any previous subsidies which the buyer pays for at time of
purchase, leaving no remaining competitive advantage.
The Federal Circuit disagreed, holding that Commerce’s decision to countervail
previously bestowed subsidies was reasonable absent an explicit mandate from Congress to the
contrary and that the CIT should have deferred to Commerce’s interpretation. See Saarstahl AG
v. United States, 78 F.3d 1539, 1544 (Fed. Cir. 1996). The appeals court reasoned that the statute
at issue did not require countervailable subsidies to confer a benefit and that once Commerce
finds a governmental subsidy it can assess countervailing duties on the new entity if the private
purchaser repaid none or only some of the subsidy received prior to privatization.
In December 1999, the World Trade Organization first addressed the issue in a case also
originating in the steel industry. See WTO Dispute Panel Report on United States - Imposition of
Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
Originating in the United Kingdom, No. WT/DS138/R (Dec. 23, 1999). The Panel examined
Commerce’s assessment of countervailing duties on steel after a complaint by the European
Communities. Commerce had specifically determined that the privatization at issue was at
arm’s-length for fair market value and consistent with commercial considerations. Panel Report,
¶ 6.23. The Panel held that Commerce’s decision to countervail was contrary to the definition of
a subsidy contained in the Agreement on Subsidies and Countervailing Measures, Pt. I, Art. 1
(1994). Specifically the Panel stated, inter alia, that the existence of a benefit could only be
This provision was widely thought to have been added in reaction to this court’s opinion
in Saarstahl which at the time of URAA enactment had not been reversed by the Federal Circuit.
See Delverde III, 202 F.3d at 1367 n.3.
Consolidated Court No. 99-09-00566 Page 10
found by comparing whether the recipient was better off than it would be without the
contribution and that “the marketplace provides an appropriate basis for comparison . . . whether
the recipient has received a ‘financial contribution’ on terms more favorable than those available
to the recipient in the market.” Panel Report, ¶ 6.65. The Panel found that the privatization of a
government owned company in an arm’s length, fair market value transaction eliminates any
benefit from prior subsidization. The United States appealed to the WTO’s Appellate Body
which upheld the Panel’s Report and recommended “ the United States [to] bring its measures
found in the Panel Report, as upheld by this Report, to be inconsistent with its obligations under
the SCM agreement into conformity with its obligations under that agreement.” WTO Dispute
Appellate Body Report on United States - Imposition of Countervailing Duties on Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom, No.
WT/DS138/R at ¶ 76 (May 10, 2000).
The Federal Circuit noted the Panel decision in Delverde III when it reviewed a decision
by this court in a CVD case involving pasta from Italy.7 See Delverde SrL v. United States, 22
CIT 947, 24 F. Supp. 2d 314 (1998) (“Delverde II”). Delverde, the foreign producer, had asked
this court to review the imposition of CVD by Commerce when the department, using its General
Issues Appendix methodology, held Delverde responsible for a pro-rata portion of nonrecurring
subsidies that had been granted to the former owner. Initially, this court had agreed with
Delverde’s argument that Commerce could not assume the pro-rata portion survived the sale and
remanded to Commerce to examine the sale itself to determine whether Delverde received a
subsidy through its purchase of plant assets from an owner that had previously received
7
The Delverde case will be discussed at length infra in this opinion.
Consolidated Court No. 99-09-00566 Page 11
subsidies. Delverde Sr.L v. United States, 21 CIT 1294, 989 F. Supp. 218 (1997)8 (“Delverde I”).
On remand, however, after Commerce had further explained its position, the result was
different. This court found permissible Commerce’s presumption of pass through of subsidies
when it assessed benefit only at the time the subsidization occurred. Delverde II, 24 F. Supp. 2d
at 317. The Federal Circuit disagreed, holding that the statutory language required Commerce to
determine whether the purchaser received both a financial contribution and a benefit from a
government before concluding that the purchaser was subsidized. See Delverde III, 202 F.3d at
1367. The court went on to instruct that Commerce examine the issue “based on the facts and
circumstances, including the terms of the transaction. . . .” Id. at 1369-70. It specifically stated
that its decision was not inconsistent with that of the WTO Dispute Panel. Id. at 1369.
B. What does Delverde require?
The court views the Delverde decision as central to the resolution of this case. The
parties have sharply divergent views on the meaning of that decision and its application to the
administrative action now before the court. Commerce asserts that, in accordance with the
Federal Circuit’s holding in Delverde III, it formulated a new two-step inquiry to determine if
prior subsidies passed through to the new privatized entity.
Consistent with the Federal Circuit’s analysis in Delverde III, Commerce
announced a two-step inquiry. As the Remand Determination shows, Commerce
first analyzes whether the pre-sale and post-sale entities are for all intents and
purposes the same person. If they are, Commerce’s analysis stops, as all of the
elements of a subsidy will have been established with regard to the producer under
investigation, i.e., the post-sale entity. If, however, the two entities are not the
8
Both this court and the Federal Circuit assumed the sale in Delverde was between
private entities. Delverde III, at 202 F.3d 1362.
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same person, Commerce will proceed to the second step in its inquiry and will
examine whether a subsidy has been provided to the post-sale entity through the
change-in-ownership transaction itself.
Defendant’s Mem. in Opp’n to Pls.’ and Def.-Intervenors’ Mot. for J. upon the Agency R. at 16-
17 (“Def.’s Br.”). After applying the two-step analysis to Usinor, Commerce concluded it did not
have a duty to analyze whether the subsidies passed to Usinor because Usinor was the same
“person” before and after the privatization. Id. at 18.
After a lengthy review and analysis of the remand record, Commerce determined
that government-owned Usinor and privatized Usinor were for all intents and
purposes the same person. As a result, the prior subsidies remained attributable to
privatized Usinor, as all of the elements of a subsidy were established with regard
to privatized Usinor.
With this outcome it became unnecessary for Commerce to proceed to the
second step in its privatization analysis, which would have involved an inquiry
into whether a subsidy had nevertheless been provided to the privatized entity
through the privatization transaction itself. Commerce, therefore, did not address
the issue whether the transaction’s purchase price had been fair market value.
Id. at 18 (emphasis added). Therefore, since Commerce had previously determined that Usinor
was the recipient of subsidies, it imputed the subsidies to Usinor after the privatization.
Usinor asserts the Remand Determination is contrary to Delverde III because Commerce
“deems wholly irrelevant” the fact that Usinor was privatized through an arm’s-length global
public stock offering and failed to analyze the terms of the change in ownership transaction to
determine if the subsidies passed through to the privatized entity . Def.-Intervenors’
Supplemental Mem. In Supp. of Mot. for J. Upon the Agency Record at 3-4 (“Def.-Intervenors’
Supp. Mem.”). Usinor claims “Commerce’s ‘same person approach’. . . ignores the terms of the
transaction and instead focuses exclusively on whether the newly-purchased entity is
‘substantially the same business’ as the company that received the subsidies. Id. at 3.
Additionally, Usinor claims that the Remand Determination is contrary to Agreement on
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Subsidies and Countervailing Measures and inconsistent with the WTO decision in Appellate
Body Report on United States - Imposition of Countervailing Duties on Certain Hot-Rolled Lead
and Bismuth Carbon Steel Products Originating in the United Kingdom, No. WT/DS138/R at ¶
76 (May 10, 2000). In the alternative, Usinor argues that “even if some type of ‘same person’
analysis were appropriate, the record facts relating to [Usinor ‘s] privatization show that it was
not the ‘same person’ following the privatization and thus should not be saddled with prior
subsidies” Def.-Intervenors’ Supp. Mem. at 4.
The central question is whether Commerce’s application of its method complies with
congressional intent embodied in the statutory language of 19 U.S.C. § 1677(5)(F), as interpreted
by the Federal Circuit in Delverde. Consistent with the court of appeals’ decision in Delverde,
this court finds the statute’s meaning to be clear, and, therefore, does not reach the issue of
deference to Commerce’s interpretation under the Chevron doctrine. See Delverde III, 202 F.3d at
1367. “[W]e need only determine whether Commerce’s methodology is in accordance with the
statute.” Id. As noted above, the Delverde decision assumed the sale of assets from one private
company to another. The question directly before the court was whether Commerce’s
methodology for determining a subsidy was permitted under the new statutory direction by
Congress. Commerce assumed that when a company sells “productive assets” previously
subsidized during their “average usual life” a pro rata portion of the subsidy “passes through.” Id.
at 1363.
The Federal Circuit struck down this methodology as not in accordance with 19 U.S.C. §
1677(5). The court characterized the method used in Delverde as a per se rule which avoided
looking at the “facts and circumstances of the sale.” Delverde III, 202 F.3d at 1364. The Federal
Consolidated Court No. 99-09-00566 Page 14
Circuit stated:
[W]e have come to the conclusion that the Tariff Act as amended does not allow
Commerce to presume conclusively that the subsidies granted to the former owner
of Delverde’s corporate assets automatically “passed through”to Delverde
following the sale. Rather, the Tariff Act requires that Commerce make such a
determination by examining the particular facts and circumstances of the sale and
determining whether Delverde directly or indirectly received both a financial
contribution and benefit from a government.
Id. at 1364. The court of appeals, therefore, interpreted section 1677(5) to prohibit Commerce
from adopted any per se rule that a subsidy passes through, or is eliminated, with a change of
ownership. Id. at 1366.
Commerce, the court granted, did have some flexibility to establish a methodology for
calculating the financial contribution and benefit conferred on a person. Id. However, contrary to
Commerce’s assertion in the case now before the court, the Delverde court expressed no doubt
that the new statute required two actions from Commerce: one, that the terms of the sale must be
examined, and must include analysis of the entire transaction to determine if the subsidy (not the
corporate identity) passed through to a person now under investigation. Id. at 1365-66. In
addition, such examination must focus on the new owner. According to the Delverde decision,
the term “person” is not open to interpretation. The court said that “person” means the purchaser
of the asset.
[W]e conclude that the statute does not contemplate any exception to the
requirement that Commerce determine that a government provided both a financial
contribution and benefit to a person, either directly or indirectly, by one of the acts
enumerated, before charging it with receipt of a subsidy, even when that person
bought corporate assets from another person who was previously subsidized.
Id. at 1366 (emphasis added). In Delverde the purchaser was a private company, buying some
portion of a subsidized company’s assets. In the instant case, the purchasers are the shareholders
Consolidated Court No. 99-09-00566 Page 15
of the newly privatized company buying all the assets of the company in an initial public offering
from the Government of France. In either case, the Federal Circuit’s teachings are clear that in
order to countervail the imported product, “Commerce must find that the purchaser indirectly
received subsidies from a government.” Id. at 1367 (emphasis in original).
The Federal Circuit emphasizes that the legislative history supports a reading of the
statute, “as plainly requiring Commerce to make a determination that a purchaser of corporate
assets received both a financial contribution and a benefit from a government. . . .” Id. The court
was even more specific and found the methodology contrary to law because,
[i]t did not consider any of the facts or circumstances of the sale relevant.
Commerce produced no evidence that Delverde received goods for less than
“adequate remuneration.”
Id. (emphasis in original).
The court in Delverde did not have Commerce’s novel “personhood” methodology before
it, but was explicit enough in its description of when a rule can be considered per se that the
decision provides clear guidance. A methodology is per se, and therefore contrary to the statute,
when it determines that a subsidy continues to be countervailable to a new owner following a
change in ownership without looking at the transaction itself. Id. The Federal Circuit directed
that any methodology must examine the facts of the sale to determine if the new owner, “paid full
value for the asset and thus received no benefit from the prior owner’s subsidies. . . .” Id. at 1368.
Such an analysis must focus on the new owner, since that entity is the producer of the goods at
issue during the period of investigation under review.
The Delverde III court did note that there are differences between the sale of a single asset
and a wholesale privatization. A private seller will presumably always seek the highest price for
Consolidated Court No. 99-09-00566 Page 16
its assets, while a government may have other goals. Id. at 1369. Similarly, there are differences
between the elements of the transaction which must be evaluated when the sale is of a single asset
or is a privatization of an entire company through the sale of stock. These differences, however,
do not alter the statutory requirements for determining if a financial contribution and benefit was
conferred on the new owner. Variations in the structure of a transaction and the motives of the
parties involved do not relieve Commerce of its responsibility to look at the facts and
circumstances of the sale to determine if the new owner received directly or indirectly a subsidy
for which it did not pay “adequate remuneration.” Id. at 1368.
Finally, the Federal Circuit, to re-enforce its underlying reasoning and amplify the analysis
required of Commerce, referred to the WTO decision in British Steel. There, as noted above,
when looking at the facts of government privatization of a steel company, where the terms were at
arms-length and for fair market value, the WTO determined no subsidy passed through to the new
owners. The Federal Circuit emphasized that its reasoning in Delverde is not inconsistent with
the WTO’s reasoning in British Steel. Id. at 1369. The court reads this portion of the Delverde
opinion to mean that any methodology adopted Commerce must recognize the possibility that a
subsidy can be extinguished by a privatization, even the privatization of an entire company, if a
thorough analysis of the transaction supports that conclusion.
The Federal Circuit in Delverde laid out certain criteria that at a minimum any new
methodology must include. First, Commerce cannot rely on any per se rule. Second, it must look
at the facts and circumstances of the TRANSACTION, to determine if the PURCHASER,
received a subsidy, directly or indirectly, for which it did not PAY ADEQUATE
COMPENSATION. In this instance, Commerce avoids examining the terms of the sale by
Consolidated Court No. 99-09-00566 Page 17
arguing that under the four-part test it developed, if the pre- and post-corporation is the same
person, it is not required to determine if the subsidy it found to exist pre-privatization continues
post-privatization. This argument contravenes the Federal Circuit’s holding in Delverde III.
From Delverde III, it is evident that the court interpreted section 1677(5)(F) as requiring
Commerce to determine if the subsidy continued to benefit the post-privatized corporation. In
this instance, Commerce has developed a methodology that circumvents its statutorily mandated
duty to determine if a benefit was conferred on the privatized corporation. To determine if Usinor
was the same “person” Commerce used a four-factor test based on general corporate law
principles.
[W]here appropriate and applicable we would analyze such factors as (1)
continuity of general business operations, including whether the successor holds
itself out as the continuation of the previous enterprise, as may be indicated, for
example, by the use of the same name, (2) continuity of production, (3) continuity
of assets and liabilities, and (4) retention of personnel. . . . [T]he Department will
generally consider the post-sale entity to be the same person as the pre-sale entity
if, based on the totality of the factors considered, we determine that the entity sold
in the change-in-ownership transaction can be considered a continuous business
entity because it operated in substantially the same manner before and after the
change in ownership.
Remand Determination at 14-15.9 Commerce has erroneously read Delverde III as leaving the
analysis of the privatization transaction to its discretion. It is clear the method used to analyze the
9
Commerce does not cite to any precedents or other supporting sources for using this test,
other than a Corporation Practice Guide and to say it is “how this type of issue has been handled
under U[nited] S[tates] law in the general corporate context.” Remand Determination at 10. It
appears to be similar to one used by courts to determine if successor corporations are still liable
to third parties, who are not parties to the merger, for the actions of the original corporation. See
e.g. Fehr Bros., Inc. v. Scheinman, 121 A.D.2d 13, 17, 509 N.Y.S.2d 304, 307 (N.Y. App. Div.
1986). The court is not persuaded that this test applies here. In this case there is no reason for
Commerce to default to a corporate law analysis because the facts of the sale will disclose
whether the new owners compensated the government for previous subsidies.
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privatization transaction is left to the discretion of Commerce. See Delverde III 202 F.3d at 1367,
citing H.R. Rep. No. 103-826(I), at 110 (1994). However, Commerce is required to examine the
transaction to determine if a financial contribution and benefit “passed through” to the privatized
corporation. See 19 U.S.C. § 1677(5)(B).
Although Commerce’s “person” analysis is not an explicit per se rule, it still fails to meet
the requirements of the statute because it concludes that a purchaser received a subsidy without
making “specific findings of financial contribution and benefit. . . that are required by §§
1677(5)(D) and (E).” Delverde III, 202 F.3d at 1367. An initial public offering of a formerly
government controlled corporation will often involve the same entity pre- and post-sale using
Commerce’s criteria. Indeed, in nearly every circumstance that a state-run enterprise is privatized
as a whole entity, Commerce would be able to find that the same “person” exists. Commerce’s
use of a methodology that eliminated the need to determine if the subsidies passed through to the
privatized entity in this situation was specifically rejected by the Federal Circuit in Delverde III.
Commerce’s methodology conclusively presumed that Delverde received a subsidy
from the Italian government– i.e., a financial contribution and a benefit, simply
because it bought assets from another person who earlier received subsidies.
Commerce deemed the fact that Delverde bought the assets, as agreed to by both
parties, at fair market value to be irrelevant to the determination whether it
received a subsidy. It did not consider any of the facts and circumstances of the
sale relevant. Commerce produced no evidence that Delverde received goods at
less than “adequate remuneration.”
Id. (citations omitted). As the holding in Delverde III mandates, the change in ownership triggers
Commerce’s duty under 19 U.S.C. § 1677(5)(D) and (E) to determine if privatized Usinor
received a financial contribution and benefit from the French Government. Therefore, the court
finds that Commerce’s failure to analyze the privatization transaction to determine if Usinor
received a subsidy after it was privatized is contrary to Delverde III and the statutory intent of
Consolidated Court No. 99-09-00566 Page 19
section 1677(5)(F).
The court recognizes that the Usinor privatization is a complex transaction. This,
however, only heightens the need for in-depth and focused analysis. A short review of the
privatization reveals several facts ignored by Commerce in its Remand Determination, which may
prove significant to the required inquiry. In 1995 the French Government moved to privatize
Usinor. Final Determination, 64 Fed. Reg. at 30,776. France publically announced the decision
to privatize on May 31, 1995. An invitation to bid on shares published in the Official Gazette in
June 1, 1995. Usinor Verification Report at 7 (Feb. 19, 1999). The price of those shares was
determined by the French Privatization Commission, based on a valuation report by outside
financial banking firms, Paribas and SBC Warburg. Id. at 8.
The Privatization Commission is an independent body. Members serve five year terms
and cannot be removed other than in extreme circumstances. Government of France Verification
Report at 2 (Feb. 21, 1999). Generally, the Commission, relying on the analysis of the outside
banks, sets a market value to price the stock for a privatization. In this case Usinor’s value was
compared to other steel companies in Europe. Usinor Verification Report at 7. The Commission
will allow a privatization to go forward only if the stock can be sold above the minimum price set
by the Commission. So, in theory, no company will be sold at less than fair market value under
the French law. Government of France Verification Report at 3.
The privatization of the controlling interest here involved two public offerings. 64 Fed.
Reg. 30,776. The French public offering was set at FF 86 per share. The international public
offering was set at FF 89. Usinor Verification Report at 7. In addition an employee offering was
done with the price ranging from FF 68.8 to FF 86, and a sale of certain stock at FF 90.78, was
Consolidated Court No. 99-09-00566 Page 20
placed with so-called “Stable Shareholders.” Id. At the end of 1995, the French Government
retained a 9.8% interest in Usinor. Mem. in Supp. of Mot. for J. on the Agency Record, June 16,
2000, at 6. (“Def.-Intervenors’ Initial Br.”) International or French public investors held 82% of
the stock. Def.’s Br. at 5. The remaining stock was held by stable shareholders and employees of
Usinor. 64 Fed. Reg. 30,776.
In 1997, France distributed most of its remaining stock, so that it held less than 1%. Def.-
Intervenors’ Initial Br. at 6. The Government of France turned over this stock, without
compensation, to stable shareholders and employees who held their initial purchase of stock for a
required time. 64 Fed. Reg. 30,776. By 1998 the government had completely divested itself of
Usinor. Id. Even this cursory examination of the record raises several questions. Some facts
point to the probability that the stock offering represented a true arms-length transaction for fair
market value, which may include “adequate remuneration” to the government by the new owners
for any previous subsidies bestowed. Other facts point to possible mechanisms, such as the use of
“stable shareholders,” that could provide a vehicle for subsidy pass-through. On remand it is
imperative, and required by 19 U.S.C. § 1677(5), as interpreted by the court in Delverde III, that
Commerce examine the details of the transaction to determine if goods imported by Usinor during
the POI of 1997 were subsidized.
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V. CONCLUSION
For the foregoing reasons, the court holds that the Department's Final Results of
Redetermination Pursuant to Court Remand: Allegheny-Ludlum Corp., et al v. United States, No.
99-09-00566 (December 20, 2000) is not in accordance with law and therefore will be remanded
to the agency for review and action consistent with this opinion.
SO ORDERED.
Dated: ___________________ ___________________________
New York, NY Judith M. Barzilay
Judge
Allegheny Ludlum Corp. v. United States
Court: United States Court of International Trade
Date filed: 2002-01-04
Citations: 182 F. Supp. 2d 1357, 26 Ct. Int'l Trade 1
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