Certain Pasta From Italy: Preliminary Results and Partial Rescission of Countervailing Duty Administrative Review

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Notice of preliminary results and partial rescission of countervailing duty administrative review.

SUMMARY:

The Department of Commerce is conducting an administrative review of the countervailing duty order on certain pasta from Italy for the period January 1, 1998, through December 31, 1998. We have preliminarily determined that certain producers/exporters have received net subsidies during the period of review. If the final results remain the same as these preliminary results, we will instruct the U.S. Customs Service to assess countervailing duties as detailed in the Preliminary Results of Review section of this notice.

Because its request for review was withdrawn, we are rescinding this review for La Molisana Industrie Alimentari S.p.A. (“La Molisana”).

Interested parties are invited to comment on these preliminary results (see the Public Comment section of this notice).

EFFECTIVE DATE:

August 8, 2000.

FOR FURTHER INFORMATION CONTACT:

Craig Matney, Sally Hastings, Annika O'Hara, or Andrew Covington, AD/CVD Enforcement, Group I, Office 1, Import Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-1778, 482-3464, 482-3798, or 482-3534, respectively.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are references to the provisions of section 751(a) of the Tariff Act of 1930, as amended by the Uruguay Round Agreements Act (“URAA”) effective January 1, 1995 (“the Act”). Unless otherwise indicated, all citations to the Department's regulations are to the regulations codified at 19 CFR part 351 (1999).

Case History

On July 24, 1996, the Department of Commerce (“the Department”) published in the Federal Register (61 FR 38544) the countervailing duty order on certain pasta from Italy. On July 15, 1999, the Department published a notice of “Opportunity to Request Administrative Review” of this countervailing duty order (64 FR 38181). We received requests for review and initiated the review, covering calendar year 1998, on August 30, 1999 (64 FR 47167). Corrections to the initiation notice were published in the Federal Register on September 8, 1999 (64 FR 48897) and November 4, 1999 (64 FR 60161). In accordance with 19 CFR 351.213(b), this review of the order covers the following producers or exporters of the subject merchandise for which a review was specifically requested: Delverde S.p.A. (“Delverde”), Tamma Industrie Alimentari S.r.L. (“Tamma”), Rummo S.p.A. Molino e Pastaficio (“Rummo”), and Pastificio Riscossa F.lli Mastromauro S.r.L. (“Riscossa”). La Molisana, which had requested to be included in this review, withdrew its request on October 14, 1999 (see Partial Rescission of Review section, below). This review covers 29 programs.

On October 4, 1999, we issued countervailing duty questionnaires to the Government of Italy (“GOI”), the Commission of the European Union (“EC”), and the above-named companies under review. We received responses to our questionnaires and issued supplemental questionnaires throughout the period November 1999 through January 2000. Responses to the supplemental questionnaires were received in January and February 2000.

On April 6, 2000, the Department published a notice in the Federal Register extending the time limit for issuing these preliminary results until no later than July 31, 2000 (65 FR 18069). We issued a second set of supplementary questionnaires to Delverde and Tamma on June 6, 2000, and to the GOI on June 9, 2000. We received responses to these supplemental questionnaires on June 23, 2000.

Partial Rescission

On October 14, 1999, La Molisana submitted a timely request for withdrawal from this administrative review. Therefore, consistent with the Department's regulations and practice, we are rescinding this review with respect to La Molisana. See 19 CFR 351.213(d)(1).

Scope of the Review

Imports covered by this review are shipments of certain non-egg dry pasta in packages of five pounds (2.27 kilograms) or less, whether or not enriched or fortified or containing milk or other optional ingredients such as chopped vegetables, vegetable purees, milk, gluten, diastases, vitamins, coloring and flavorings, and up to two percent egg white. The pasta covered by this scope is typically sold in the retail market, in fiberboard or cardboard cartons, or polyethylene or polypropylene bags, of varying dimensions.

Excluded from the scope of this review are refrigerated, frozen, or canned pastas, as well as all forms of egg pasta, with the exception of non-egg dry pasta containing up to two percent egg white. Also excluded are imports of organic pasta from Italy that are accompanied by the appropriate certificate issued by the Instituto Mediterraneo Di Certificazione (“IMC”), by Bioagricoop Scrl, by QC&I International Services, by Ecocert Italia, or by the Conzorzio per il Controllo dei Prodotti Biologici.

The merchandise subject to review is currently classifiable under item 1902.19.20 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Although the HTSUS subheading is provided for convenience and customs purposes, the written description of the merchandise subject to the order is dispositive.

Scope Rulings

The Department has issued the following scope rulings to date:

(1) On August 25, 1997, the Department issued a scope ruling that multicolored pasta, imported in kitchen display bottles of decorative glass that are sealed with cork or paraffin and bound with raffia, is excluded from the scope of the countervailing duty order. (See August 25, 1997 memorandum from Edward Easton to Richard Moreland, which is on file in the Central Records Unit (“CRU”) in Room B-099 of the main Commerce building.)

(2) On July 30, 1998, the Department issued a scope ruling, finding that multipacks consisting of six one-pound packages of pasta that are shrink-wrapped into a single package are within the scope of the countervailing duty order. (See July 30, 1998 letter from Susan H. Kuhbach, Acting Deputy Assistant Secretary for Import Administration, to Barbara P. Sidari, Vice President, Joseph A. Sidari Company, Inc., which is on file in the CRU.)

(3) On October 26, 1998, the Department self-initiated a scope inquiry to determine whether a package weighing over five pounds as a result of allowable industry tolerances may be within the scope of the countervailing duty order. On May 24, 1999, we issued a final scope ruling finding that, effective October 26, 1998, pasta in packages weighing or labeled up to (and including) five pounds four ounces is within the scope of the countervailing duty order. (See May 24, 1999 memorandum from John Brinkmann to Richard Moreland, which is on file in the CRU.)

Period of Review

The period of review (“POR”) for which we are measuring subsidies is from January 1, 1998, through December 31, 1998.

Reorganization of Delverde

Delverde began a company reorganization during the POR that continued through 1999. Although Delverde did not operate under its new organization during the POR, the company made the reorganization legally effective for accounting and tax purposes as of January 1, 1998.

Prior to the reorganization, Delverde was a wholly-owned subsidiary of a non-producing holding company, Sangralimenti S.r.L. (“Sangralimenti”). This holding company also held an ownership interest in Pietro Rotunno, S.r.L. (“Rotunno”) which ceased producing pasta in 1994. The principal result of the reorganization was the merger of Delverde S.r.L. and Sangralimenti. The new, merged entity is known as Delverde S.p.A. As part of the reorganization, Sangralimenti's ownership interest in Rotunno was sold to an unrelated company. Except for the merger with Sangralimenti, the ownership structure of Delverde changed little as a result of the reorganization.

Cross-Ownership

In previous segments of this proceeding, the Department found that Delverde and Tamma warranted treatment as a single company because of Tamma's ownership in Delverde's holding company, Sangralimenti, and common corporate officers. Therefore, in the investigation and previous reviews of this case, we calculated a single countervailing duty rate for these two companies. See Final Affirmative Countervailing Duty Determination: Certain Pasta (“Pasta”) from Italy, 61 FR 30287 (June 14, 1996) (“Pasta Investigation”); Certain Pasta from Italy: Final Results of Countervailing Duty Administrative Review, 63 FR 43905 (August 17, 1998) (“Pasta First Review”); and Certain Pasta From Italy: Final Results of the Second Countervailing Duty Administrative Review, 64 FR 44489 (August 16, 1999) (“Pasta Second Review”).

However, in this administrative review, we are applying the 1998 countervailing duty regulations which are effective for the first time in this proceeding. See 19 CFR 702(a)(2). These regulations require “cross-ownership” before the Department will assign subsidies received by one company to another company (see preamble to Countervailing Duties; Final Rule, 63 FR 65348, 65401 (November 25, 1998)). According to section 351.525(b)(6)(vi) of the Department's regulations, cross-ownership exists between two or more corporations where one corporation can use or direct the individual assets of the other corporation in essentially the same ways it can use its own assets. The regulations state that this standard will normally be met where there is a majority voting ownership interest between two corporations. The preamble to the Department's regulations identifies situations where cross ownership may exist even though there is less than a majority voting interest between two corporations: “in certain circumstances, a large minority interest (for example, 40 percent) or a ‘golden share’ may also result in cross-ownership.” (See 63 FR 65401.)

Based on our new regulations and for purposes of these preliminary results, we do not believe that Tamma's ownership interest in Delverde is sufficient to establish cross-ownership between Tamma and Delverde. Although Tamma's ownership in Delverde is significant, it does not have a majority ownership interest; nor does it have a “golden share” in Delverde. Additionally, there is a small number of other shareholders which, together, effectively control more shares in Delverde than Tamma.

Our treatment of Delverde and Tamma is consistent with our finding in Final Affirmative Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality Steel Plate from France, 64 FR 73277 (December 29, 1999). At issue in that case was the relationship between two respondents, Usinor and GTS, a company in which Usinor indirectly owned 48 percent. We treated Usinor and GTS as two separate companies because Usinor was not the majority shareholder in GTS and because, despite its large ownership position, Usinor did not control GTS directly or indirectly. Due to the high level of Usinor's ownership interest in GTS, we also examined a number of factors in making our determination that cross-ownership did not exist. Among them was whether Usinor controlled GTS via control over its Board of Directors and its management decision making process.

Despite our preliminary decision to calculate separate rates for Delverde and Tamma, we intend to examine this issue further. Although Tamma's ownership interest in Delverde is less than fifty percent, it is substantial. Moreover, other aspects of the corporate relationship, such as common corporate officers, in combination with Tamma's ownership interest, raises a concern as to whether cross-ownership exists. Therefore, for the final results, we will further consider the issue and seek additional information, if necessary, to fully address whether or not cross-ownership exists between these two companies. We invite comments from all interested parties.

Subsidies Valuation Information

Benchmarks for Long-term Loans and Discount Rates: The companies under review did not take out any long-term, fixed-rate, lira-denominated loans or other debt obligations which could be used as benchmarks in any of the years in which the government grants or loans under review were received. Therefore, for years prior to 1995, we used the Bank of Italy reference rate, adjusted upward to reflect the mark-up an Italian commercial bank would charge a corporate customer, as the benchmark interest rate for long-term loans and as the discount rate. For subsidies received in 1995 and later, we used the Italian Bankers' Association (“ABI”) interest rate, increased by the average spread charged by banks on loans to commercial customers plus an amount for bank charges.

Allocation Period: In the investigation of this case, the Department used, as the allocation period for non-recurring subsidies, the average useful life (“AUL”) of renewable physical assets in the food-processing industry as recorded in the Internal Revenue Service's 1977 Class Life Asset Depreciation Range System (“the IRS tables”), i.e., 12 years. However, the U.S. Court of International Trade (“CIT”) subsequently ruled against this allocation methodology for non-recurring subsidies (see British Steel plc v. United States, 879 F.Supp. 1254, 1289 (CIT 1995) (“British Steel I”)). In accordance with the CIT's remand order, the Department determined that the most reasonable method of deriving the allocation period for non-recurring subsidies was a company-specific AUL of renewable physical assets. This remand determination was affirmed by the CIT on June 4, 1996 (see British Steel plc v. United States, 929 F.Supp. 426, 439 (CIT 1996) (“British Steel II”)).

Therefore, in past administrative reviews of this case, we used a company-specific AUL to allocate non-recurring subsidies that were not countervailed in the investigation. However, for non-recurring subsidies which had already been countervailed in the investigation, the Department used the original allocation period, i.e., 12 years, because it was deemed neither reasonable nor practicable to reallocate those subsidies over a different time period. This methodology was consistent with our approach in Certain Carbon Steel Products from Sweden; Final Results of Countervailing Duty Administrative Review, 62 FR 16549 (April 7, 1997).

As mentioned above, the Department is operating under new countervailing duty regulations in this review. Pursuant to section 351.524(d)(2) of these regulations, the Department will use the AUL in the IRS tables as the allocation period unless a party can show that the IRS tables do not reasonably reflect the company-specific AUL or the country-wide AUL for the industry. If a party can show that either of these time periods differs from the AUL in the IRS tables by one year or more, the Department will use the company-specific AUL or the country-wide AUL for the industry as the allocation period.

Riscossa and Rummo do not contest the 12-year allocation period in the IRS tables. Delverde and Tamma, however, have urged the Department to apply the methodology used in previous administrative reviews. To this end, Delverde and Tamma have resubmitted their calculation of the company-specific AUL from Pasta Second Review based on the depreciation and value of productive assets as reported in their financial statements. Delverde and Tamma have not stated which allocation period they believe is appropriate for subsidies received during the current POR.

Pursuant to our new regulations, information submitted in the questionnaire responses, and our practice to not reallocate subsidies, we have preliminarily decided to allocate non-recurring subsidies as follows:

(a) Subsidies countervailed in the investigation (i.e., subsidies received in 1994 and earlier) will continue to be allocated over 12 years.

(b) Subsidies countervailed in the first two administrative reviews (i.e., subsidies received in 1995, 1996, and 1997), which were allocated over the respondents' company-specific AULs, will continue to be allocated over the company-specific AULs.

(c) Subsidies received during the current POR (i.e., 1998) will be allocated over 12 years as specified in the IRS tables, in accordance with our regulations because no company demonstrated that its AUL differed from the 12-year period in the IRS tables.

Benefits to Mills: During the POR, Tamma and Riscossa owned semolina mills (semolina is the main input product in pasta). Neither Tamma nor Riscossa's mills were separately incorporated, i.e., both the semolina and the downstream product (pasta) were produced within a single corporate entity. Therefore, in accordance with section 351.525(b)(6)(i) of the regulations, the Department has attributed subsidies provided for the production of semolina and pasta to the sales by the corporate entities that received them.

Change in Ownership

One of the companies under review, Delverde, purchased an existing pasta factory from an unaffiliated party in 1991. The previous owner of the purchased factory had received non-recurring countervailable subsidies prior to the transfer of ownership. In Pasta Investigation, we calculated the amount of the prior subsidies that passed through to Delverde with the acquisition of the factory, following the spin-off methodology described in the Restructuring section of the General Issues Appendix (“GIA”), appended to Final Countervailing Duty Determination; Certain Steel Products from Austria, 58 FR 37225, 37265 (July 9, 1993). We followed the same methodology in Pasta First Review and Pasta Second Review.

After the Department's final determination in Pasta Investigation, Delverde sued in the CIT, arguing that the Department's spin-off methodology was erroneous and inconsistent with the Act. Initially, the CIT agreed with Delverde and remanded the case to the Department. See Delverde I, 989 F.Supp. at 234. However, after the Department had explained its spin-off methodology in more detail and further argued its reasonableness on remand, the CIT affirmed the Department's methodology. See Delverde II, 24 F.Supp.2d at 315 (“Delverde II”). Delverde appealed the CIT's decision to the Court of Appeals for the Federal Circuit (“CAFC”) which held on February 2, 2000, that the Department may not presume that non-recurring subsidies survive a transfer in a subsidized company's ownership. Accordingly, the CAFC vacated the CIT's decision in Delverde II and stated that it would instruct the CIT to remand the case to the Department. See Delverde v. United States, 202 F.3rd 1360, 1369 (Fed. Cir. 2000). On June 20, 2000, the CAFC denied the Department's petition for rehearing and suggestion for rehearing en banc. See Delverde, S.r.L. v. United States, Court No. 99-1186 (Fed. Cir. 2000).

The Department has not received a remand from the CIT and has, thus, not yet addressed what revisions to our change-in-ownership methodology are necessary. We are examining what information may be relevant to the change in ownership issue decided in Delverde and, if necessary, will issue a questionnaire as soon as possible. For these preliminary results, we have continued to use the spin-off methodology described in the GIA in the same way as it was used in Pasta Investigation and previous administrative reviews. We invite comments from interested parties on revisions to our change of ownership methodology.

Analysis of Programs

I. Programs Preliminarily Determined To Confer Subsidies

1. Law 64/86 Industrial Development Grants

Law 64/86 provided assistance to promote development in the Mezzogiorno (the south of Italy). Grants were awarded to companies constructing new plants or expanding or modernizing existing plants. Pasta companies were eligible for grants to expand existing plants but not to establish new plants, because the market for pasta was deemed to be close to saturated. Grants were made only after a private credit institution chosen by the applicant made a positive assessment of the project. (Loans were also provided under Law 64/86; see below.)

In 1992, the Italian Parliament abrogated Law 64/86 and replaced it with Law 488/92 (see below). This decision became effective in 1993. However, companies whose projects had been approved prior to 1993 were authorized to receive grants under Law 64/86 after 1993. Delverde, Tamma, and Riscossa benefitted from industrial development grants under Law 64/86 during the POR.

In Pasta Investigation, the Department determined that these grants conferred a countervailable subsidy within the meaning of section 771(5) of the Act. They provided a direct transfer of funds from the GOI bestowing a benefit in the amount of the grant. Also, these grants were found to be regionally specific within the meaning of section 771(5A) of the Act. In this review, neither the GOI nor the responding companies have provided new information which would warrant reconsideration of this determination.

In Pasta Investigation, the Department treated the industrial development grants as non-recurring based on the analysis set forth in the Allocation section of the GIA, 58 FR at 37226. In the current review, no new information has been placed on the record that would cause us to depart from this treatment. In Pasta Investigation and previous administrative reviews, we applied the methodology described in our old (proposed) countervailing duty regulations when determining whether to allocate non-recurring grants over time or expense them in the year of receipt (“the 0.5 percent test”). Accordingly, grant disbursements exceeding 0.5 percent of a company's sales in the year of receipt were allocated over time while grants below or equal to 0.5 percent of sales were countervailed in full (“expensed”) in the year of receipt (see Countervailing Duties (Proposed Rules), 54 FR 23366, 23384 (19 CFR 355.49(a)(3)) (May 31, 1989)). However, section 351.524(b)(2) of our new countervailing duty regulations directs us to allocate over time those non-recurring grants whose total authorized amount exceeds 0.5 percent of a company's sales in the year of authorization. We applied this new regulation only to disbursements received during the POR, i.e., we did not redo the 0.5 percent test for disbursements received prior to the POR because we had already calculated a benefit stream for those disbursements in the investigation or in a previous administrative review.

Pursuant to section 351.504(c) of our regulations, we used our standard grant methodology as described in section 351.524(d) of the regulations to calculate the countervailable subsidy from those grants that passed the 0.5 percent test. We divided the benefit attributable to each company in the POR by its total sales, or total pasta sales, as appropriate, in the POR. On this basis, we preliminarily determine the countervailable subsidy from the Law 64/86 industrial development grants to be 1.73 percent ad valorem for Delverde, 3.10 percent ad valorem for Tamma, and 0.77 percent ad valorem for Riscossa.

2. Law 488/92 Industrial Development Grants

In 1986, the European Union (“EU”) initiated an investigation of the GOI's regional subsidy practices. As a result of this investigation, the GOI changed the regions eligible for regional subsidies to include depressed areas in central and northern Italy in addition to the Mezzogiorno. After this change, the areas eligible for regional subsidies are the same as those classified as Objective 1, Objective 2, and Objective 5(b) areas by the EU (see below). The new policy was given legislative form in Law 488/92 under which Italian companies in the eligible sectors (manufacturing, mining, and certain business services) may apply for industrial development grants. (Loans are not provided under Law 488/92.) Law 488/92 grants are made only after a preliminary examination by a bank authorized by the Ministry of Industry. On the basis of the findings of this preliminary examination, the Ministry of Industry ranks the companies applying for grants. The ranking is based on indicators such as the amount of capital the company will contribute from its own funds, the number of jobs created, regional priorities, etc. Grants are then made based on this ranking.

Delverde and Tamma benefitted from Law 488/92 industrial development grants in the POR. The grants were provided for modernization of both companies' pasta factories and Tamma's warehouse.

Industrial development grants under Law 488/92 were found countervailable in Pasta Second Review. The grants were a direct transfer of funds from the GOI bestowing a benefit in the amount of the grant. Also, these grants were found to be regionally specific within the meaning of section 771(5A) of the Act. In this review, neither the GOI nor the responding companies have provided new information which would warrant reconsideration of this determination.

In Pasta Second Review, the Department treated industrial development grants under Law 488/92 as non-recurring based on the analysis set forth in the Allocation section of the GIA, 58 FR at 37226. In the current review, no new information has been placed on the record that would cause us to depart from this treatment. We allocated the grant over time because it met the 0.5 percent test, as described above. Pursuant to section 351.504(c) of our regulations, we used our standard grant methodology as described in section 351.524(d) of the regulations to calculate the countervailable subsidy. We divided the benefits attributable to each company in the POR by its total sales in the POR. On this basis, we preliminarily determine the countervailable subsidy from the Law 488/92 industrial development grants to be 0.28 percent ad valorem from Delverde and 0.09 percent ad valorem for Tamma.

3. Law 183/76 Industrial Development Grants

Law 183/76 is known to the Department as a law that authorizes companies located in the Mezzogiorno to take reductions or exemptions in social security contributions for the hiring of new employees. Law 183/76 also allows for the provision of industrial development grants.

In 1983, Riscossa applied for an industrial development grant under Law 183/76. The GOI approved the application and disbursed the grant in tranches. Only the last of these disbursements, received by Riscossa in 1988, falls within that company's 12-year AUL period. Therefore, only this last disbursement has been countervailed in the current review.

In Pasta Investigation and the prior review, the Department determined that the industrial development grant received by Riscossa conferred a countervailable subsidy within the meaning of section 771(5) of the Act. It was a direct transfer of funds from the GOI bestowing a benefit in the amount of the grant. Also, we found this grant to be regionally specific within the meaning of section 771(5A) of the Act. The Department has not received any new information in this review which would merit a reexamination of this determination.

We have previously treated Riscossa's industrial development grant as a non-recurring grant based on the analysis set forth in the Allocation section of the GIA, 58 FR at 37226. In the current review, no new information has been placed on the record that would cause us to depart from this treatment. We allocated the last disbursement of this grant over time because it met the 0.5 percent test, as described above. Pursuant to section 351.504(c) of our regulations, we calculated the countervailable subsidy using our standard grant methodology, as described in section 351.524(d) of the regulations. We divided the benefit attributable to Riscossa in the POR by the company's total sales in the POR. On this basis, we preliminarily determine the countervailable subsidy from the Law 183/76 industrial development grant to be 0.08 percent ad valorem for Riscossa.

4. Law 64/86 Industrial Development Loans

In addition to the industrial development grants discussed above, Law 64/86 also provided reduced rate industrial development loans with interest contributions paid by the GOI on loans taken by companies constructing new plants or expanding or modernizing existing plants in the Mezzogiorno. For the reasons discussed above, pasta companies were eligible for interest contributions to expand existing plants, but not to establish new plants. The interest rate on these loans was set at the reference rate with the GOI's interest contributions serving to reduce this rate. In 1992, the Italian parliament abrogated Law 64/86. This decision became effective in 1993. Project approved prior to 1993, however, were authorized to receive interest subsidies after 1993.

Delverde and Tamma benefitted from outstanding Law 64/86 industrial development loans during the POR.

In Pasta Investigation, the Department determined that the Law 64/86 loans conferred a countervailable subsidy within the meaning of section 771(5) of the Act. They were a direct transfer of funds from the GOI providing a benefit in the amount of the difference between the benchmark interest rate and the interest rate paid by the companies after accounting for the GOI's interest contributions. Also, they were found to be regionally specific within the meaning of section 771(5A) of the Act. In this review, neither the GOI nor the responding companies have provided new information which would warrant reconsideration of this determination.

In accordance with section 351.505(c)(2) of our regulations, we calculated the benefit for the POR by computing the difference between the payments Delverde and Tamma made on their Law 64/86 loans during the POR and the payments the companies would have made on a comparable commercial loan. We divided Delverde's and Tamma's benefits attributable to the POR by their total sales or total pasta sales, as appropriate, in the POR. On this basis, we preliminarily determine the countervailable subsidy from the Law 64/86 industrial development loans to be 0.56 percent ad valorem for Delverde and 0.23 percent ad valorem for Tamma.

5. Law 304/90 Export Marketing Grants

Under Law 304/90, the GOI provided grants to promote the sale of Italian food and agricultural products in foreign markets. The grants were given for pilot projects aimed at developing links and integrating marketing efforts between Italian food producers and foreign distributors. The emphasis was on assisting small- and medium-sized producers.

Delverde received a grant under this program for an export sales pilot project in the United States. The purpose of the project was to increase the presence of all Delverde's products in the U.S. market, not only pasta.

In Pasta Investigation, the Department determined that these export marketing grants conferred a countervailable subsidy within the meaning of section 771(5) of the Act. They were a direct transfer of funds from the GOI bestowing a benefit in the amount of the grant. Also, these grants were found to be specific within the meaning of section 771(5A) of the Act because their receipt was contingent upon exportation. In this review, neither the GOI nor the responding companies have provided new information which would warrant reconsideration of this determination.

Each project funded by Law 304/90 grants requires a separate application and approval, and the projects represent one-time events in that they involve an effort to establish warehouses, sales offices, and a selling network in overseas markets. Therefore, in Pasta Investigation, the Department treated the grant received under this program as non-recurring based on the analysis set forth in the Allocation section of the GIA, 58 FR at 37226. In the current review, we have found no reason to depart from this treatment. We allocated the grant over time because it met the 0.5 percent test, as described above.

Pursuant to section 351.504 (c) of our regulations, we used our standard grant methodology as described in section 351.524(d) of the regulations to calculate the countervailable subsidy. We divided the benefit attributable to the POR by the value of Delverde's total exports to the United States in the POR. On this basis, we preliminarily determine the countervailable subsidy from the Law 304/90 export marketing grants to be 0.26 percent ad valorem for Delverde.

6. Social Security Reductions and Exemptions—Sgravi

Italian law allows companies, particularly those located in the Mezzogiorno, to use a variety of exemptions and reductions (“sgravi”) of the payroll contributions that employers make to the Italian social security system for health care benefits, pensions, etc. The sgravi benefits are regulated by a complex set of laws and regulations and are sometimes linked to conditions such as creating more jobs. The benefits under some of these laws (e.g., Laws 1089/68, 183/76, 30/97, and 449/97) are available only to companies located in the Mezzogiorno. Other laws (e.g., Laws 407/90 and 863/84) provide benefits to companies all over Italy, but the level of benefits is higher for companies in the south than for companies in other parts of the country. All the respondent companies in this review benefitted from the sgravi program during the POR.

In Pasta Investigation, the Department determined that the various forms of social security reductions and exemptions conferred countervailable subsidies within the meaning of section 771(5) of the Act. They represent revenue foregone by the GOI and confer a benefit in the amount of the savings received by the companies. Also, they were found to be regionally specific within the meaning of section 771(5A) of the Act because they were limited to companies in the Mezzogiorno. In this review, neither the GOI nor the responding companies provided new information which would warrant reconsideration of this determination.

In the investigation and previous reviews, we treated social security reductions and exemptions as recurring benefits. In the current review, we have found no reason to depart from this treatment. To calculate the countervailable subsidy, we divided each company's savings in social security contributions during the POR by that company's total sales in the POR. In those instances where the applicable law provided a higher level of benefits to companies in the south, we divided the amount of the ăsgravi benefits that exceeded the amount available to companies in other parts of Italy by the recipient company's total sales in the POR, in accordance with section 351.503(d) of the regulations. On this basis, we preliminarily determine the countervailable subsidy from the sgravi program to be 0.30 percent ad valorem for Delverde, 0.21 percent ad valorem for Tamma, 0.36 percent ad valorem for Rummo, and 0.26 percent ad valorem for Riscossa.

7. Law 598/94 Interest Subsidies

Under Law 598/94, the GOI pays a portion of the interest on certain loans granted to small- and medium-sized industrial companies. These loans are to be used for investments related to technological innovation and/or environmental protection. Rummo received interest subsidies under this program in the POR in connection with a long-term, variable-rate loan obtained prior to the POR. The GOI paid the interest subsidies directly to the lending bank shortly after Rummo had made the full twice-yearly interest payments to the bank. The bank then credited the amount of the GOI's payments to Rummo's account.

The GOI has stated that the general level of subsidies under Law 598/94 is 30 percent of the initial interest payable, but is 45 percent for companies in disadvantaged regions of Italy. Because Rummo is located in a disadvantaged region it received the higher level of benefits.

We preliminarily determine that the higher level of interest subsidies for companies in disadvantaged regions under Law 598/94 confers a countervailable benefit within the meaning of section 771(5) of the Act. It is a direct transfer of funds from the GOI. As discussed in section 351.508 of the regulations, because the interest subsidy is tied to a particular loan and because Rummo knew that it would receive the subsidy when it applied for the loan, we are treating the interest subsidy as a reduced-interest loan in accordance with section 351.508(c)(2) of the regulations.

Because the higher level of subsidies under Law 598/94 is limited to companies in certain regions of Italy, we preliminarily determine that this program is regionally specific within the meaning of section 771(5A) of the Act. In accordance with sections 351.503(d) and 351.505(c)(2) of our regulations, we calculated the benefit for the POR by dividing the portion of the interest subsidy that exceeded the amount available to companies in non-disadvantaged regions by Rummo's total sales in the POR. On this basis, we preliminarily determine the countervailable subsidy from the Law 598/94 interest subsidies to be 0.10 percent ad valorem for Rummo.

8. Law 236/93 Training Grants

Under Law 236/93, which is administered by the regional governments but funded by the GOI, grants are provided to Italian companies for worker training. Delverde received a grant under this program during the POR. The company submitted an application to the Regional Council of Abruzzo where Delverde is located. The application was examined by an evaluating committee appointed by the Regional Council, which approved the application in 1997. The grant was disbursed in tranches, the first of which was received by Delverde in the POR. Since the grant did not cover the entire training cost, Delverde also contributed its own funds.

The Department considers worker training programs to provide a countervailable benefit to a company when the company is relieved of an obligation it otherwise would have incurred. See section 351.513(a) of the regulations. Companies normally incur the costs of training to enhance the job-related skills of their own employees. Therefore, we preliminarily determine that the Law 236/93 training grant relieved Delverde of an obligation that the company otherwise would have incurred.

The Department has not received any information from the GOI or the Regional Government of Abruzzo (“GOA”) showing how the funds under Law 236/93 were distributed across Italian regions and industries. Delverde has stated that assistance under the program was available to production facilities in the region of Abruzzo, but there is no information on the record as to whether funding under Law 236/93 was also available to companies in other regions of Italy. Because this information is not on the record, we must base our preliminary specificity determination on facts available pursuant to section 776(a) of the Act.

Pursuant to section 776 (b) of the Act, we preliminarily determine that it is appropriate to use adverse facts available because the GOI and the GOA did not cooperate to the best of their ability to provide information requested on the distribution of benefits by industry and by region as requested by the Department. Specifically, in our January 12, 2000, supplemental questionnaire to the GOI, we asked that certain questions be forwarded to the GOA concerning the Law 236/93 training grants, including a request for information about which other industries received benefits under the program. We received a partial response from the GOA, but, as noted above, we did not receive a response to our question about which other industries had received benefits under this law. We, therefore, preliminarily determine that the GOI and the GOA have failed to cooperate by not acting to the best of their abilities to comply with our request for information regarding this program (see 19 CFR 351.308). On this basis, as adverse facts available, we preliminarily find the Law 236/93 grant received by Delverde to be specific.

We also preliminarily determine that the Law 236/93 grant confers a countervailable subsidy within the meaning of section 771(5) of the Act. It provides a direct transfer of funds from the GOI bestowing a benefit in the amount of the grant.

Under section 351.524(c)(1) of the regulations, the Department normally considers worker training subsidies to provide recurring benefits. Therefore, to calculate the countervailable subsidy, we divided the amount received by Delverde in the POR by the company's total sales in the POR. On this basis, we preliminarily determine the countervailable subsidy from the Law 236/93 training grant to be 0.02 percent ad valorem for Delverde.

9. European Social Fund

The European Social Fund (“ESF”), one of the EU's structural funds, was created under Article 123 of the Treaty of Rome to improve employment opportunities for workers and to help raise their living standards. There are six different objectives identified for the structural funds: Objective 1 covers projects located in underdeveloped regions; Objective 2 addresses areas in industrial decline; Objective 3 relates to the employment of persons under the age of 25; Objective 4 funds training for employees in companies undergoing restructuring; Objective 5 pertains to agricultural areas; and Objective 6 applies to regions with very low population (i.e., the far north).

Delverde and Riscossa received ESF grants during the POR. Riscossa's grant was provided under Objective 4; there is no information on the record about the EU objective pertaining to Delverde's grant.

In the case of Riscossa, the Regional Government of Puglia (“GOP”) approved a program in 1997, allowing Riscossa to receive an employee training grant jointly funded by the ESF, the GOP, and the GOI through the National Rotational Fund. The GOP published the details and goals of the program in the Official Bulletin of the Puglia Region on January 30, 1997. Riscossa arranged for a private company to organize a training course and requested the GOP to provide funds to cover the cost of the course, as allowed by the program. These funds were given to Riscossa, which in turn paid the company offering the course. Riscossa itself was responsible for covering about 20 percent of the cost of the course.

In the case of Delverde, the company received a grant for employee training which was disbursed to the company in several tranches. The grant, which was provided under a regional operational program, was jointly funded by the ESF and the GOI through the National Rotational Fund. Previous tranches of this grant were found to be countervailable in Pasta First Review.

The Department considers worker training programs to provide a countervailable benefit to a company when the company is relieved of an obligation it otherwise would have incurred. See 19 CFR 351.513(a). Companies normally incur the costs of training to enhance the job-related skills of their own employees. Riscossa in particular has stated that it would have paid for the training using its own funds in the absence of the grant. Therefore, we preliminarily determine that the training grants relieved Riscossa and Delverde of an obligation that the companies otherwise would have incurred.

The Department has requested, but has not received, information from the GOI and the EC showing how ESF funds under Objective 4 were distributed across Italian regions and industries. Nor, despite requests, have we received such information regarding payments from the National Rotational Fund, the GOP, or the regional operational program under which Delverde received its grant. Therefore, because this information is not on the record, we must base our preliminary specificity determination on facts available pursuant to section 776 (a) of the Act.

Pursuant to section 776(b) of the Act, we preliminarily determine that it is appropriate to use adverse facts available because the EC, the GOI and the GOP did not cooperate to the best of their ability to provide information requested on the distribution of benefits by industry and by region as requested by the Department. In its questionnaire response, the EC has stated that it does not maintain any company-specific data. For information on how EU funds are distributed within individual EU member countries, the EC refers to the national or regional government authorities in the country in question. Therefore, in our January 12, 2000, supplemental questionnaire, we asked the GOI to provide such information. In addition, we asked that certain questions be forwarded to the GOP concerning the training grant provided to Riscossa, including a request for information on which other industries in the region received benefits under the program. As noted above, we did not receive a response to any of these questions from either the GOI or the GOP. We, therefore, preliminarily determine that the GOI and the GOP have failed to cooperate by not acting to the best of their abilities to comply with our request for information regarding this program (see 19 CFR 351.308(a)). On this basis, as adverse facts available, we preliminarily find the ESF grants received by Delverde and Riscossa to be specific.

Accordingly, we preliminarily determine that the ESF grants confer a countervailable subsidy within the meaning of section 771(5) of the Act. They provide a direct transfer of funds from the GOI, the GOP, and the EU bestowing a benefit a in the amount of the grant.

Pursuant to section 351.524(c)(1) of the regulations, the Department normally considers worker training subsidies to provide recurring benefits. Therefore, to calculate the countervailable subsidy, we divided the amounts received by Delverde and Riscossa in the POR by the companies' total sales in the POR. On this basis, we preliminarily determine the countervailable subsidy for this program to be 0.01 percent ad valorem for Delverde and 0.02 percent ad valorem for Riscossa.

10. Export Restitution Payments

Since 1962, the EU has operated a subsidy program which provides restitution payments to EU pasta exporters based on the durum wheat content of their exported pasta products. The program is designed to compensate pasta producers for the difference between EU prices and world market prices for durum wheat. Generally, under this program, a restitution payment is available to any EU exporter of pasta products, regardless of whether the pasta was made with imported wheat or wheat grown within the EU. The amount of the restitution payment is calculated by multiplying the prevailing restitution payment rate on the date of exportation by the weight of the unmilled durum wheat used to produce the exported pasta. The weight of the unmilled durum wheat is calculated by applying a conversion factor to the weight of the pasta. The EU calculates the restitution payment rate on a monthly basis by first computing the difference between the world market price of durum wheat and an internal EU price and then adding a monthly increment (in all months except June and July, which are harvest months). The EU will not normally allow the restitution payment rate to be higher than the levy that the EU imposes on imported durum wheat, as such a situation would lead to circular trade.

Because there was no significant price difference between the EU price and the world market price on durum wheat during most of the POR, the restitution payment rate was zero until mid-October 1998 when it was set at 0.91 percent for exports to the United States. The export restitution payments received by the respondents in the POR included restitution for exports made prior to the POR.

In Pasta Investigation, the Department determined that export restitution payments conferred a countervailable subsidy within the meaning of section 771(5) of the Act. Each payment represents a direct transfer of funds from the EU bestowing a benefit in the amount of the payment. The restitution payments were found to be specific because their receipt is contingent upon export performance. In this review, the GOI, the EU, and the responding companies have not provided new information which would warrant reconsideration of this determination.

Delverde and Rummo received export restitution payments during the POR for shipments of pasta to the United States.

In Pasta Investigation, we treated the export restitution payments as recurring benefits pursuant to 19 CFR 351.524(c). We have found no reason to depart from this treatment in the current review. Therefore, to calculate the countervailable subsidy, we divided the export restitution payments received by Delverde and Rummo in the POR for pasta shipments to the United States by the value of each company's pasta exports to the United States in the POR. On this basis, we preliminarily determine the countervailable subsidy from the export restitution program to be 0.70 percent ad valorem for Delverde, and 0.07 percent ad valorem for Rummo.

II. Programs Preliminarily Determined Not To Confer Countervailable Subsidies in the POR

1. Social Security Reductions and Exemptions—Fiscalizzazione

Fiscalizzazione is a nationwide program that allows for a reduction of certain social security payments similar to the sgravi program discussed above. In Pasta Investigation and previous administrative reviews, the Department found the fiscalizzazione program to confer a countervailable subsidy on companies in the Mezzogiorno because manufacturing enterprises in the south were allowed to take higher deductions for certain categories of social security payments than companies in the north.

The questionnaire responses submitted in the current review show that the particular category of social security contributions for which higher deductions were allowed for companies in the south was abolished as of January 1, 1998. The only remaining fiscalizzazione program in 1998 was related to orphans of Italian workers (“ENAOLI”). Contributions under this program were the same for all companies in the manufacturing sector regardless of where they were located. Thus, the particular deductions under the fiscalizzazione program which we previously found countervailable no longer exist. We, therefore, preliminarily determine that the fiscalizzazione program did not confer a countervailable subsidy in the POR.

2. Law 113/86 Training Grant

Rummo reported receiving grants under Law 113/86 in 1990 and 1994 to offset the cost of worker training. The program, which no longer is in effect, according to Rummo, was available only to companies located in the Mezzogiorno.

Pursuant to section 351.524(c)(1) of the regulations, the Department normally considers worker training subsidies to provide recurring benefits. Because Rummo did not receive any training grants under Law 113/86 in the POR, we preliminarily determine that this program did not confer a countervailable subsidy in the POR.

3. Law 64/86 VAT Reductions

During the period 1987 through 1991, Rummo was allowed to reduce the value added tax (“VAT”) the company paid on the purchase of fixed assets in accordance with Law 64/86. The VAT reduction was eight percent of the value of the asset.

Pursuant to section 351.524(c)(1) of the regulations, the Department normally considers rebates of indirect taxes to provide recurring benefits. Because Rummo did not receive the VAT reductions under Law 64/86 in the POR, we preliminarily determine that this program did not confer a countervailable subsidy in the POR.

4. Law 357/94 Tax Benefits

Rummo has stated that it received VAT tax benefits under Law 357/94 in 1995 and 1996 but that no benefits were received in the POR. No other information on this program has been made available to the Department.

Pursuant to section 351.524(c)(1) of the regulations, the Department normally considers tax programs to provide recurring benefits. Because Rummo did not use the tax benefits under Law 357/94 in the POR, we preliminarily determine that this program did not confer a countervailable subsidy in the POR.

III. Programs Preliminarily Determined To Be Not Used

We examined the following programs and preliminarily determine that the producers and/or exporters of the subject merchandise did not apply for or receive benefits under these programs during the POR:

1. Local Income Tax (“ILOR”) Exemptions

2. Remission of Taxes on Export Credit Insurance under Article 33 of Law 227/77

3. Export Credits under Law 227/77

4. Capital Grants under Law 675/77

5. Retraining Grants under Law 675/77

6. Interest Contributions on Bank Loans under Law 675/77

7. Interest Grants Financed by IRI Bonds

8. Preferential Financing for Export Promotion under Law 394/81

9. Corporate Income Tax (“IRPEG”) Exemptions

10. Urban Redevelopment under Law 181

11. Debt Consolidation Law 341/95

12. Interest Contributions under Law 1329/65

13. Grant Received Pursuant to the Community Initiative Concerning the Preparation of Enterprises for the Single Market (“PRISMA”)

14. European Agricultural Guidance and Guarantee Fund (“EAGGF”)

15. European Regional Development Fund (“ERDF”)

Preliminary Results of Review

In accordance with 19 CFR 351.221(b)(4)(i), we calculated an individual subsidy rate for each producer/exporter subject to this administrative review. For the period January 1, 1998 through December 31, 1998, we preliminarily determine the net subsidy rates for producers/exporters under review to be those specified in the chart shown below. If the final results of this review remain the same as these preliminary results, the Department intends to instruct the U.S. Customs Service (“Customs”) to assess countervailing duties at these net subsidy rates. The Department also intends to instruct Customs to collect cash deposits of estimated countervailing duties at these rates on the f.o.b. value of all shipments of the subject merchandise from the producers/exporters under review entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this administrative review.

Because the URAA replaced the general rule in favor of a country-wide rate with a general rule in favor of individual rates for investigated and reviewed companies, the procedures for establishing countervailing duty rates, including those for non-reviewed companies, are now essentially the same as those in antidumping cases, except as provided for in section 777A(e)(2)(B) of the Act. The requested reviews will normally cover only those companies specifically named. See 19 CFR 351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which a review was not requested, duties must be assessed at the cash deposit rate, and cash deposits must continue to be collected, at the rate previously ordered. As such, the countervailing duty cash deposit rate applicable to a company can no longer change, except pursuant to a request for a review of that company. See Federal-Mogul Corporation and The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993), and Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993) (interpreting 19 CFR 353.22(e), the antidumping regulation on automatic assessment, which is identical to 19 CFR 355.22(g), the predecessor to 19 CFR 351.212(c)). Therefore, the cash deposit rates for all companies, except those covered by this review, will be unchanged by the results of this review.

We will instruct Customs to continue to collect cash deposits for non-reviewed companies (except Barilla G. e R. F.lli S.p.A. (“Barilla”) and Gruppo Agricoltura Sana S.r.L. (“Gruppo”) which were excluded from the order during the investigation) at the most recent company-specific or country-wide rate applicable to the company. Accordingly, the cash deposit rates that will be applied to non-reviewed companies covered by this order are those established in the Notice of Countervailing Duty Order and Amended Final Affirmative Countervailing Duty Determination: Certain Pasta from Italy, 61 FR 38544 (July 24, 1996) or the company-specific rate published in the most recent final results of an administrative review in which a company participated. These rates shall apply to all non-reviewed companies until a review of a company assigned these rates is requested. In addition, for the period January 1, 1998 through December 31, 1998, the assessment rates applicable to all non-reviewed companies covered by this order are the cash deposit rates in effect at the time of entry, except for Barilla and Gruppo which were excluded from the order during the original investigation.

The calculations will be disclosed to the interested parties in accordance with section 351.224(b) of the regulations.

Because we are rescinding the review with respect to La Molisana, the company-specific rate for this company remains unchanged.

Public Comment

Interested parties may submit written arguments in case briefs within 30 days of the date of publication of this notice. Rebuttal briefs, limited to issues raised in case briefs, may be filed not later than five days after the date of filing the case briefs. Parties who submit briefs in this proceeding should provide a summary of the arguments not to exceed five pages and a table of statutes, regulations, and cases cited. Copies of case briefs and rebuttal briefs must be served on interested parties in accordance with 19 CFR 351.303(f).

Interested parties may request a hearing within 30 days after the date of publication of this notice. Any hearing, if requested, will be held two days after the scheduled date for submission of rebuttal briefs.

Representatives of parties to the proceeding may request disclosure of proprietary information under administrative protective order no later than 10 days after the representative's client or employer becomes a party to the proceeding, but in no event later than the date the case briefs, under 19 CFR 351.309(c)(ii), are due.

The Department will publish a notice of the final results of this administrative review within 120 days from the publication of these preliminary results.

This administrative review and notice are in accordance with sections 751(a)(1) and 777(i)(1) of the Act.