Slip Op. 02-114
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
[Department of Commerce’s Redetermination Pursuant to Remand Sustained]
Decided: September 24, 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 M. Rosen), Jonathan Bloom, Jennifer J. Rhodes, for
Defendant-Intervenors.
Consolidated Court No. 99-09-00566 Page 2
OPINION
BARZILAY, JUDGE:
I. INTRODUCTION
This opinion constitutes the latest writing in a continuing effort of this court to clarify the
statutory and case law concerning when non-recurring subsidies can continue to be
countervailable after a formerly subsidized business entity is privatized. The court now reviews
the Department of Commerce’s (“Commerce” or “Department”) Results of Redetermination
Pursuant to Court Remand, Allegheny Ludlum Corp., et al. v. United States, Court No. 99-09-
00566 (CIT Jan. 4, 2002) (June 3, 2002) (“Remand Determination II”). This case originated
pursuant to Plaintiffs’ and Defendant-Intervenors’ USCIT R. 56.2 Motions for Judgment Upon
an Agency Record. Defendant-Intervenors challenged certain aspects of the final determination
of the Department of Commerce International Trade Administration’s countervailing duty
investigation of carbon-quality steel plate from France. See Final Affirmative Countervailing
Duty Determination: Stainless Steel Sheet and Strip Coils from France, 64 Fed. Reg. 30,774
(June 8, 1999) (“Final Determination”). While Commerce’s Final Determination 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, Court. No. 99-1186 (June 20, 2000) (“Delverde III”).
Delverde III required Commerce to examine the facts and circumstances of the privatization
transaction itself to determine whether previously bestowed subsidies “passed through” to the
new owners.
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,
Consolidated Court No. 99-09-00566 Page 3
2000, Defendant United 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 the 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 reviewed Commerce’s Final Results of Redetermination Pursuant
to Court Remand: Allegheny-Ludlum Corp., et al. v. United States, Court No. 99-09-00566
(December 20, 2000) (“Remand Determination I”) in Allegheny Ludlum Corp., et al. v. United
States, 26 CIT __ ,182 F. Supp 2d. 1357 (2002) (“Allegheny I”).1 The court found that
Commerce had developed a methodology that circumvents its statutorily mandated duty, under
19 U.S.C. § 1677(5)(F), to determine if a benefit was conferred on the privatized corporation.
Therefore, the court remanded the case to Commerce and ordered that Commerce look at the
facts and circumstances of the transaction as Delverde III required to determine if the purchaser
received a subsidy, directly or indirectly, for which it did not pay adequate compensation. See
Allegheny I, 182 F. Supp. 2d at 1366. The court now reviews Commerce’s actions taken
pursuant to its instructions. 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
1
This case is a companion case to GTS Industries S.A. v. United States, 26 CIT ___, 182
F. Supp. 2d 1369 (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
Familiarity with the facts presented in Allegheny I is presumed; however, a brief summary
of the facts is necessary to delineate the pending issues in Commerce’s Remand Determination
II. 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
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); 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 I at 17. In 1991, Credit Lyonnais, a
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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.” Remand Determination I at 17.
Despite the public stock offering that privatized Usinor, Commerce concluded in Remand
Determination I that Usinor was the “same person” and thus, the previously determined subsidies
automatically passed through after privatization. Id. at 15.2 In making its “same person” finding
Commerce used principles of United States law “in the general corporate context.” Id. at 10.
In its original determination, Commerce 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. 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
2
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 I at 14-15 (footnote omitted).
Consolidated Court No. 99-09-00566 Page 6
entity. However, if the two entities are not the 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.
Allegheny I, 182 F. Supp. 2d at 1363 (quoting Def.’s Mem. In Opp’n to Pl.’s and Def.-
Intervenors’ Mot. for J. Upon Agency R. (“Def.’s Br.”) at 16-17). 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.
(citing Def.’s Br. 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. Thus, it was 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 1363-64 (quoting Def.’s Br. at 18). Additionally, Commerce used a 14-year average useful
life (AUL) to allocate the benefits bestowed by nonrecurring subsidies. Based upon its findings,
Commerce recalculated Usinor’s CVD rate to be 7.72% ad valorem.
In Allegheny I, this court found that Commerce’s change in ownership methodology for
determining if subsidies passed through to the newly privatized Usinor violated § 1677(5)(F). In
accordance with the Federal Circuit’s interpretation of 19 U.S.C. § 1677(5) in Delverde III, this
court held that
[t]he 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
Consolidated Court No. 99-09-00566 Page 7
which it did not PAY ADEQUATE COMPENSATION. In this instance,
Commerce avoids examining the terms of the sale by 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.
Allegheny I, 182 F. Supp. 2d at 1366 (emphasis in original).
In Remand Determination II (“Redetermination”), Commerce begrudgingly attempted to
comply with this court’s order. “[W]hile [Commerce does] not agree with the Court’s
interpretation of Delverde III, we have performed the remand, as ordered.” Remand
Determination II at 4. Commerce determined that the “overwhelming majority of the purchasers
of Usinor’s shares paid the full fair-market value (or more than full value) for those shares and,
therefore, did not receive any countervailable subsidy.” Id. (footnote omitted). However,
Commerce also determined that “Usinor employees who purchased the small percentage of
remaining shares paid less than the full fair-market value of those shares, and thus did receive a
subsidy from the French Government. . . . ” Id. at 4. Despite Commerce’s finding that a subsidy
from the French Government was passed through during the privatization of Usinor, it concluded
“this subsidy is not countervailable because these purchasers are distinct individuals who are not,
in their individual capacity, engaged in the production of the subject merchandise.” Id. at 5.
Thus, it concluded “the rate of countervailable subsidy for the subject merchandise produced and
sold by Usinor during the period of investigation to be 00.00 percent.” Id. at 19.
Plaintiffs raise a number of objections to the Redetermination. They argue that
Consolidated Court No. 99-09-00566 Page 8
Commerce has adopted a new per se rule, that “an arm’s-length sale at [fair market value] at
once precludes finding of new subsidies and eliminates past subsidies, which contravenes both
the directives of this court and the Federal Circuit in Delverde III. Domestic Industry’s
Comments on the Results of Redetermination Pursuant to Court Remand (“Pls.’ Remand Br.”) at
3. Plaintiffs contend that if “the corporate entity remain[s] unchanged, then the agency’s original
finding of financial contribution and benefit should be sufficient to attribute the unallocated
portion of these subsidies to Usinor.” Id at 7. Plaintiffs also argue that Commerce erred by
focusing on “fair market value” paid for shares, instead of whether the subsidies were repaid, and
that “privatization can extinguish prior subsidies only where purchasers ‘compensate’ the
government seller by paying more than FMV for the company.” Id. at 7. Plaintiffs, lastly, argue
Commerce mistakenly applied its privatization analysis to the sales of stock subsequent to the
1995 initial sale. Id. at 8. Plaintiffs contend that the amount of shares sold was too small to
“trigger application of the agency’s methodology.” Id.
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).
IV. DISCUSSION
In Remand Determination II, Commerce analyzed the privatization transaction by
“gaug[ing] the reasonableness of the prices set by the [Government of France] and, consequently,
whether full value was paid for the company by examining whether the sales process solicited the
Consolidated Court No. 99-09-00566 Page 9
maximum number of potential purchasers practicable and whether the share prices set by the
[Government of France] were market clearing prices.” Remand Determination II at 11. Thus,
Commerce analyzed whether the sales process was open and competitive and examined the
demand levels for Usinor’s shares at the prices the Government of France had offered the stock.
Commerce first analyzed the sales process the Government of France used to foster the
sale of Usinor’s shares:
The [Government of France’s] plan for privatizing Usinor essentially divided
potential purchasers of Usinor’s shares into four pools: the French public, the
international public, Usinor employees and stable shareholders. A certain number
of shares were set aside for each group and, generally different prices were
charged for each group.
Id. at 12. Commerce found that for the French public and international public the sales process
was open and competitive. However, “[r]egarding the shares to the employees and stable
shareholders, we have determined that the sales processes included restrictions and limitations
which reduced the number of investors that might have participated in the share offering” Id. at
15.
Commerce next focused on the pricing of Usinor’s shares. Commerce determined that
“[g]iven the over-subscription at FF 86 price; the fact that shares were moved from the
international offering to the French offering; and the number of shares sold at each of the two
prices, it appears that the market clearing price for Usinor’s shares was between FF 86 and 89.”
Id. at 14. Thus, Commerce concluded that only the employees failed to pay full value for their
shares because they were able to purchase shares at FF 68.80. Although it did note there were
certain restrictions on these shares it did not attempt to set a market value for the employees’
restricted shares. Although Commerce determined that the sale of shares to the stable
Consolidated Court No. 99-09-00566 Page 10
shareholders was not open and competitive, Commerce concluded “[r]egarding the shares sold to
stable shareholders, the stable shareholders paid a little more than full value for the shares and as
such did not receive a benefit from the privatization transaction.” Id. at 18-19.
Additionally, in subsequent share transactions Commerce did “determine that the sales
process for the shares sold by the [Government of France] in the 1997 public offering was open
and unrestricted. Moreover, the prices paid for these shares reflected the market price for
Usinor’s shares. Therefore, we determine that these investors paid full value for these shares.”
Id. at 17.
Commerce has complied with the court’s instructions in Allegheny I and examined the
transaction in detail. It has determined that as a result of the analysis, the CVD rate attributable
to GTS should now be 0.00%. The court will affirm this result of remand on the record before it.
However, the court is troubled by Commerce’s reasoning that although current or former
employees of Usinor paid less than full fair-market value for the small percentage of shares they
purchased “this subsidy was not countervailable because these purchasers are distinct individuals
who are not, in their individual capacity, engaged in the production of the subject merchandise.”
Id. at 5. With this rationale, Commerce became unnecessarily embroiled in the distinction
between the corporation (Usinor) that received the original subsidies and the shareholders that
purchased Usinor. The court agrees with Plaintiffs that its decision in Allegheny I did not intend
to “‘reject’ the long-held principle that subsidies accrue to companies rather than owners.” Pls.’
Remand Br. at 5. In fact, the court was explicit in Allegheny I, where Commerce attempted to
ignore the role of the purchaser in the privatization, that Commerce must evaluate the transaction
“to determine if the subsidy continued to benefit the post-privatized corporation” or determine
Consolidated Court No. 99-09-00566 Page 11
that the purchaser paid adequate compensation to the Government of France such that the
subsidies were extinguished. Allegheny I, 182 F. Supp. 2d at 1366.
Commerce’s better approach would have been a further analysis of the transaction to
determine any benefit of this supposedly non-countervailable subsidy. However, a remand on
this issue is not warranted. Neither Plaintiffs nor Defendant-Intervenors has addressed this issue
and the court declines to conclude that Commerce’s approach is not in accordance with law on its
own initiative in the absence of legal argument from all parties. Plaintiffs ask instead that the
court remand “this case so that Commerce may focus on the entity under investigation and the
extent to which the identity of the corporate entity may have been affected by the change in
ownership.” Pls.’ Remand Br. at 7. This is precisely the inquiry the court held was inadequate in
Allegheny I, following the Federal Circuit’s decision in Delverde. The court rejects the
contention that focusing on the company justifies the application of the “same-person” test
advocated by Commerce and Plaintiffs. The reasons for rejection were fully explicated in
Allegheny I and need not be repeated here.3
Furthermore, although the court agrees that “Commerce must examine the facts of the
transaction to determine ‘whether the new owners compensated the government for previous
3
In asserting this argument, Plaintiffs cite a recent opinion of this Court ACCIAI Speciali
Terni S.p.A., et al v. United States, 26 CIT __, 206 F. Supp. 2d 1344 (2002), published after
Allegheny I, which upheld Commerce’s “same person” methodology. There are, however, two
other actions, both on remand to Commerce, rejecting Commerce’s “same person” methodology.
See ACCIAI Speciali Terni S.p.A. v. United States, 26 CIT __, 2002 WL 342659 (2002), and
ILVA Lamiere E Tubi S.R.L. v. United States, 26 CIT __, 196 F. Supp. 2d 1347 (2002). The
WTO has also weighed in on this issue in a recent panel decision. United States -Countervailing
Measures Concerning Certain Products From The European Communities, WT/DS212/r (July
31, 2002). This decision cites GTS I for the proposition that Commerce cannot develop
methodologies that allow it to avoid analyzing the privatization transaction. Id. at 7.79.
Consolidated Court No. 99-09-00566 Page 12
subsidies,’” Pls.’ Remand Br. at 7, quoting Allegheny I, 182 F. Supp. 2d at 1367 n.9, the court
rejects the argument that the purchasers must pay more than full fair-market value to repay
subsidies. Pls.’ Remand Br. at 7. Plaintiffs fail to recognize that when evaluated concurrent with
the privatization the value of a subsidy given by the Government of France may differ
significantly from the actual currency value of the subsidy at the time it was bestowed. For
instance, if a corporation had a full fair-market value of $100 million at the time of sale and
received a $50 million subsidy, Plaintiffs would require that the new purchasers/owners pay $150
million to extinguish the subsidies. However, if the corporation invested the $50 million subsidy
in property, plant and equipment that became outdated or unproductive, the value of the
corporation could change significantly. It could be determined that the full fair market value of
the corporation and the subsidies given prior to and/or during privatization, is $125 million. In
addition to the reasons given in this simplistic example, there are numerous reasons why the full
fair-market value of the corporation, including the value of subsidies, is less than the absolute
dollar value of $150 million. Conversely, there could be conditions where a previous subsidy
could become so valuable that new purchasers/owners would be willing to pay a premium for the
corporation, which could increase the full fair-market value beyond $150 million. Thus,
Plaintiffs’ “absolute value” approach fails to capture the true economic reality that a full fair-
market valuation would consider.
Likewise, Plaintiffs’ argument that the stock sales conducted after the 1995 public
offering should not be considered part of the privatization process is not persuasive. Pls.’
Remand Br. at 9. The 1997 and 1998 stock sales were within the entirety of the privatization
process, and, therefore, could have resulted in a sale that was not for full value, because the
Consolidated Court No. 99-09-00566 Page 13
overall price paid to the Government of France would have been less than the full value of the
company, including any continuing benefit conferred by previous subsidization. Commerce
evaluated the sales and determined “that the sales process for the shares sold by the GOF in the
1997 public offering was open and unrestricted. Moreover, the prices paid for the shares
reflected the market price for Usinor’s shares.” Remand Determination II at 18-19. Commerce
found the shareholders who purchased stock in 1997 and 1998 paid full value, and that the price
was paid to France, and, therefore, did not go toward capitalizing Usinor. Remand
Determination II at 18-19. Commerce was correct, therefore, to analyze these sales as part of the
privatization process, and there is substantial evidence that the transaction did not create any new
subsidies.
Consolidated Court No. 99-09-00566 Page 14
CONCLUSION
Although Commerce’s Remand Determination II may be flawed, the parties’ contentions
are resolved. Plaintiffs does not contest Remand Determination II presumably because
Commerce ultimately found that the rate of countervailable subsidy was 0.00 per cent.
Furthermore, Defendant supports Commerce’s findings and requests that the court sustain its
Remand Determination II and dismiss this action. The only parties challenging this Remand
Determination are the Defendant-Intervenors; however, for the reasoned detailed above the court
rejects their arguments. Therefore, having adjudicated and resolved the legal issues raised by the
parties to this action, for the foregoing reasons, the court holds that the Department's Final
Results of Redetermination Pursuant to Court Remand, Allegheny Ludlum Corp. v. United
States, Court No. 99-09-00566 (CIT January 4, 2002) (May 10, 2002) is sustained. Judgment
will be entered accordingly.
Dated: ___________________ ___________________________
New York, NY Judith M. Barzilay
Judge