FINAL RESULTS OF REDETERMINATION PURSUANT TO COURT REMAND
Delverde, SrL v. United States
Consol. Court No. 96-08-01997, Remand Order (CIT September 27, 2000)
I. Introduction
The Department of Commerce ("Department") has prepared these final remand results pursuant to an order from the U.S. Court of International Trade ("CIT") in Delverde, SrL v. United States, Consol. Court No. 96-08-01997, dated September 27, 2000, which was issued pursuant to the holding of the U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") in Delverde, SrL v. United States, 202 F.3d 1360 (Fed. Cir. Feb. 2, 2000), reh'g denied, (June 20, 2000) ("Delverde III").
II. Background
On June 3, 1996, the Department issued its notice of Final Affirmative Countervailing Duty Determination: Certain Pasta ("Pasta") From Italy, 61 FR 30288 (June 14, 1996). The Italian pasta producer Delverde challenged several aspects of the Department's decision in the CIT. On December 2, 1997, the CIT issued its opinion in Delverde, SrL v. United States, 989 F.Supp. 218 (CIT 1997) ("Delverde I"). In its ruling, the Court remanded two issues to the Department. On April 2, 1998, the Department issued final remand results pursuant to the CIT's order. The first of the two issues addressed in the remand results involved offsets for withholding of income taxes on subsidy payments. The second issue concerned the Department's treatment of subsidies received prior to Delverde's 1991 change in ownership. In the remand results, the Department revised its methodology regarding the first issue and, with regard to the second issue, further explained its rationale for continuing to use the same change-in-ownership methodology.
On September 25, 1998, the CIT affirmed the Department's remand results in Delverde, SrL v. United States, 24 F. Supp. 2d 314 (CIT 1998) ("Delverde II"). Plaintiff, Delverde, appealed the change in ownership issue to the Federal Circuit.
On February 2, 2000, the Federal Circuit vacated the decision of the CIT with respect to this issue and instructed the CIT to remand the case to the Department "to determine, based on the facts and circumstances, including the terms of the transaction, whether Delverde indirectly received a subsidy, i.e., a 'financial contribution' and a 'benefit,' from the Italian government by purchasing the assets involved from the former subsidized owner." Delverde III at 1369-1370. On September 29, 2000, the CIT issued its remand order to the Department, which gave the Department 60 days to issue remand results consistent with the Federal Circuit's decision in Delverde III.
On October 5, 2000, the Department solicited comments from the petitioners (1) and Delverde regarding potential changes to our change-in-ownership methodology in light of the Federal Circuit ruling. We also sent a questionnaire to Delverde soliciting additional information regarding its change in ownership. Delverde responded to this questionnaire on October 20, 2000. The Department issued supplemental questionnaires to Delverde and the Government of Italy ("GOI") on October 24, 2000. Delverde and the GOI responded to these questions on October 30, 2000.
On November 13, 2000, the Department filed a motion with the Court seeking an extension of time until December 4, 2000 to file these final remand results, which was subsequently granted. The Department circulated a draft remand determination to the interested parties on November 21, 2000 ("Draft Redetermination"). Timely comments were filed on November 27, 2000, by both petitioners and Delverde.III. Analysis
Interpreting Delverde III
In Delverde III, the Federal Circuit first observed that, in order to find a countervailable subsidy on merchandise imported into the United States, the Department must determine that a government "provid{ed}, directly or indirectly, a countervailable subsidy with respect to the manufacture, production, or export of that merchandise." 202 F.3d at 1365, citing 19 U.S.C. § 1671(a)(1). In order to find that a countervailable subsidy had been provided to the "manufacture, production, or export" of the imported merchandise, the Court found that the person who produced or exported that merchandise must have received a financial contribution and enjoyed a benefit from that financial contribution. Id. at 1365, 1366. In the Court's words, a subsidy exists when "an authority provides a financial contribution, . . . to a person and a benefit is thereby conferred." Id., quoting 19 U.S.C. § 1677(5)(B) (emphasis in original). The Court stated that this meant that "{i}n order to conclude that a 'person' received a subsidy, Commerce must determine that a government provided that person with both a 'financial contribution' (or equivalent as described in §§ 1677(5)(B)(ii) and (iii)) and a benefit." 202 F.3d at 1365 (footnote omitted). (2)
The Court next turned to the question of whether, once these conditions had been satisfied, a change in the ownership of the subsidy recipient would affect the countervailability of those subsidies. The Court noted that the statute's change-in-ownership provision (§ 771(5)(F)) states that "a subsidy cannot be concluded to have been extinguished solely by an arm's length change of ownership." 202 F.3d at 1366. On the other hand, the Court pointed out that "Congress did not intend the opposite, that a change in ownership always requires a determination that a past countervailable subsidy continues to be countervailable, regardless whether the change in ownership is accomplished by an arm's length transaction or not." Id. (emphasis in original). Instead, the Court stated that the change in ownership provision "simply prohibits a per se rule either way." Id.
The Court then considered the change-in-ownership provision in the context of the provisions for determining the existence of a subsidy and concluded that "the statute does not contemplate any exception" to those requirements (of a financial contribution and a benefit) in situations where the person who is the producer/exporter acquired corporate assets from a distinct person who had been subsidized. Id. The Court emphasized that the change-in-ownership provision "does not change the meaning of 'subsidy,'" and therefore "{a} subsidy can only be determined by finding that a person," meaning the producer or exporter of the imports in question, "received a 'financial contribution' and a 'benefit' . . . ." Id.
The Court then held that the methodology Commerce employed to determine whether previously bestowed subsidies continued to be countervailable following a change in ownership was not in accordance with the statute. Id. at 1367. In particular, under the impression that Delverde was a different person from the original subsidy recipient, (3) the Court noted that
{n}owhere following its methodology did Commerce determine whether Delverde directly or indirectly received a financial contribution and benefit from one of the acts enumerated. Rather, 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.
Id. As we explain below, the Department came to realize in the process of conducting the remand in this proceeding that the Delverde transaction did not, in fact, constitute a sale of assets, but was, in essence, a sale of shares.
For purposes of understanding the Court's holding, however, we must proceed on the basis of the facts as they were understood by the Court. Based on the parties' presentations, the Court understood the facts to be that certain assets of one company had been sold to another company. With this premise, the Court held that the new producer/exporter could not be presumed to have received any part of the original subsidy as a result of this change in ownership. The Court held that, for the new producer/exporter to be liable for countervailing duties following the change in ownership, it must be demonstrated that the new producer/exporter received a financial contribution and a benefit in its own right as a result of the change in ownership (for example, by demonstrating that the purchaser paid the seller less than adequate remuneration). Because the Court understood the original subsidy recipient and the post-change-in-ownership producer/exporter under the Delverde facts to have been distinct persons, it directed the Department to demonstrate that the new producer/exporter had received a financial contribution and a benefit.
In our view, the Court's holding focused not on the nature of the Delverde transaction, but on the Department's methodological approach to analyzing the transaction. The Court faulted the Department's failure to make specific findings regarding the existence of a subsidy benefitting Delverde, as required by the countervailing duty statute:
Having determined that the meaning of the statute is clear, we need not give Chevron deference to Commerce's interpretation; we need only determine whether Commerce's methodology is in accordance with the statute. We have concluded that it is not. Nowhere following its methodology did Commerce determine whether Delverde directly or indirectly received a financial contribution and benefit from one of the acts enumerated.
Id. at 1367. In other words, the Court was concerned because the Department had not undertaken a review of all of the facts and circumstances of the Delverde transaction. Without prejudging what the outcome would be, the Court indicated that such a review was required before the Department could properly make a determination regarding the existence of a subsidy. In accordance with the Court's pronouncements, that is what we have attempted to do in this remand determination.
In order to determine how the Court's holding applies to the facts before us, the first requirement is to determine whether the person to which the subsidies were given is, in fact, distinct from the person that produced the pasta exported to the United States. If the two persons are distinct, the original subsidies may not be attributed to the new producer/exporter. The Department would, however, consider whether any subsidy had been bestowed upon that producer/exporter as a result of the change-in-ownership transaction. (4)
On the other hand, if the original subsidy recipient and the current producer/exporter are demonstrated to be the same person, that person benefits from the original subsidies, and its exports are subject to countervailing duties to offset those subsidies. In other words, if the firm under investigation is the same person as the one that received the subsidies, nothing material has changed since the original bestowal of the subsidy, so that the statutory requirements for finding a subsidy are satisfied with regard to that person. In the change-in-ownership context, the existence of a "financial contribution" and a "benefit" (conferred prior to the change in ownership) depends on the "person" requirement and, specifically, whether the firm under investigation is the same person as the original, pre-change-in-ownership subsidy recipient. Where it is demonstrated that those two entities are the same "person," we will determine that all of the elements of a subsidy are established, i.e., we will determine that a "financial contribution" and a "benefit" have been received by the "person" that is the firm under investigation. Assuming that the original subsidy had not been fully amortized under the Department's normal allocation methodology (5) as of the period of investigation, the Department would then continue to countervail the remaining benefits of that subsidy. (6)
Although it is not directly relevant here, see Delverde III, 202 F.3d at 1369, we note that the decision of the WTO's Appellate Body in U.K. Lead Bar is consistent with the analysis set forth by the Delverde III Court, as it sets forth essentially the same two-step analysis as the Delverde III Court. Addressing a privatization rather than a purely private transaction, the Appellate Body's first inquiry addressed the identity of the firm under investigation and specifically whether it was the person that had originally received certain pre-privatization subsidies. Then, having found that the two entities were distinct, the Appellate Body inquired into whether a subsidy had been provided through the privatization transaction. (7)
In any event, for purposes of this remand proceeding, the Delverde III Court did not explain how the Department should determine whether the firm under investigation is or is not the same "person" as the one that received the original subsidies. (8) Presumably, it had understood the issue to be settled that the case before it involved two distinct entities.
In addressing this issue, the Department has sought guidance, in part, from how this type of issue has been handled under U.S. law in the general corporate context. There, a set of principles has been developed regarding whether a legal person (9) is the same or different for the purpose of determining whether it is appropriate to attribute prior liabilities (or assets) to a company once it has undergone a change in ownership.
Under these principles of corporate successorship, a mere change in a company's name does not automatically create a new legal person, nor does a mere change in the owners of a company, without more. Rather, the change in name or the change in the owners may or may not result in a change in the legal person, depending on a number of factors.
It is generally accepted that if a change in ownership is accomplished through a simple sale of shares, the purchaser steps into the shoes of the company being sold and becomes legally responsible for all existing and potential liabilities of that company, absent contractual agreement to the contrary. The most obvious example of a change in ownership accomplished through a simple sale of shares would be where a company's shares turn over through public trading on a stock market. In other situations, it is a factual question as to whether the purchaser becomes legally responsible for all existing and potential liabilities of the company or assets being sold. Specifically, it is a question of whether the company carries on substantially the same business after the change in ownership. Here, the factors examined include whether there is a continuation of assets, general business operations, locality, management, personnel, whether the seller exits the business after the transaction, and whether the company after the change in ownership holds itself out to be the effective continuation of the original enterprise. If an examination of these factors shows that the company is carrying on substantially the same business after the change in ownership, it is legally responsible for all existing and potential liabilities. (10)
The Department notes that, in its experience, particularly when dealing with privatizations, it often does not encounter straightforward changes in ownership where the status of the firm under investigation is readily apparent. For example, it is not common for the Department to be confronted with a change in ownership accomplished through a simple sale of shares, which is the type of case that would most readily reveal no change in the legal person. Similarly infrequent are cases where the firm under investigation has simply purchased some but not all of another firm's subsidized assets outright, which, conversely, would normally mean that the firm under investigation was a different legal person from the original subsidy recipient. Rather, in the cases that the Department more usually sees, the transactions are complex and do not lend themselves to such straightforward analysis.
In any event, although the Department is not adopting the test used in the area of corporate successorship, it does consider the principles developed in that area to provide useful guidance to it in its development of an approach for determining whether, in the countervailing duty context, the firm under investigation is the same "person" as the one that received the original subsidies. For one thing, the basic purpose in both contexts is to determine whether there has been any meaningful change in an entity. In addition, although the particular focus in the countervailing duty context is on the attribution of previously bestowed subsidy benefits rather than previously incurred liabilities as in the corporate successorship context, the ultimate question in the countervailing duty context is whether any liability for countervailing duties can be attributed to an entity based on subsidy benefits bestowed prior to a change in ownership. Furthermore, essentially the same principles that govern corporate successor liability also govern how previously obtained rights accrue to the corporate successor, and the nature of those rights is not unlike that of subsidy benefits.
In developing our approach, we have also considered the petitioners' arguments regarding precedent specifically in the countervailing duty context. (11) In this regard, the petitioners have suggested that we adopt an analysis similar to the successor-in-interest test that the Department uses to assign antidumping duty or countervailing duty cash deposit rates following changes in a company's ownership or structure. Under that test, the Department uses a fact-based approach and attempts to determine whether the successor remains essentially the same entity as the predecessor following a sale or merger so that it is appropriate to impose the existing antidumping or countervailing duty cash deposit rate of the predecessor on the successor. In making this determination, the Department examines a number of factors including, but not limited to, changes in management, production facilities, supplier relationships, and customer base in an attempt to determine how the successor will likely act subsequent to its sale or merger. (12)
We note that the inquiry that we are attempting to follow in the change-in-ownership context is somewhat different from this inquiry. We are not attempting to determine how the entity in question will act subsequent to its change in ownership. Rather, our determination focuses more fundamentally on whether the post-sale entity is the same "person" as the subsidized pre-sale entity. For this reason, in making the "person" determination contemplated by Delverde III, we believe that only limited guidance can be obtained from the Department's successor-in-interest test.
With these various considerations in mind, the Department has developed its own approach for assessing changes in the entity under consideration that relies on a variety of factors, while regarding no single factor or group of factors as dispositive. We have not established an all-inclusive list of factors to be applied in every such analysis to be conducted by the Department. Rather, we recognize that the specific facts and circumstances surrounding each change in ownership will be unique and, therefore, will require a flexible approach. We do anticipate, however, that certain factors will generally be found to be relevant to many or most transactions examined by the Department.
Thus, as part of this approach, where appropriate and applicable, we would analyze factors such 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 use of the same name, (2) continuity of production facilities, (3) continuity of assets and liabilities, and (4) retention of personnel. No single factor will necessarily provide a dispositive indication of any change in the entity under analysis. Instead, the 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 was operated in substantially the same manner before and after the change in ownership.
We note that, by taking this more comprehensive approach to analyzing the facts and circumstances surrounding a change-in-ownership transaction, we have attempted to address the concerns previously raised by the Department and the courts regarding restructuring changes, namely, that such changes not permit respondent firms to avoid prior liabilities while retaining the benefits underlying those liabilities. For example, the CIT has noted that while a producer may be incorporated under a different name from the person that was previously identified as the subsidy recipient, the "new" company may be the successor-in-interest of the original subsidy recipient and, thus, constitute "for all intents and purposes the same entity." British Steel plc v. United States, 879 F. Supp. 1254, 1276, 1279, 1283, 1287 (CIT 1995) (British Steel I), rev'd, 127 F.3d 1471 (Fed. Cir. 1997). (13)
As is evident below, when we apply this approach to the facts and circumstances of the Delverde change in ownership, we find that the pre-sale and post-sale entities are not distinct persons. It is on that basis that we have attributed the GOI subsidies provided prior to the change in ownership to the post-sale entity, Delverde, and we, therefore, do not reach the question of whether a subsidy has been provided to Delverde as a result of the change-in-ownership transaction.
The Delverde Change in Ownership
In the underlying investigation of pasta from Italy, the Department's change-in-ownership methodology focused on the amount of remaining unallocated subsidies, the transaction price, and an average historic ratio of subsidies to the company's net worth. The Department's so-called "gamma" methodology applied this ratio to the transaction price to determine what portion of the price constituted payment for prior subsidies. That amount was subtracted from the remaining amount of unallocated subsidies at the time of the sale and the difference passed through to be countervailed.
The nature of the transaction, including the manner in which it was structured, e.g., a sale of assets or a sale of shares, was wholly irrelevant to the Department's analysis. Indeed, the Federal Circuit stated that the Department "did not consider any of the facts or circumstances of the sale relevant." Delverde III, 202 F.3d at 1367 (emphasis in original). (14) One result of this approach was that the Department did not analyze the transaction in order to make a determination regarding the identity of the "person" that received the subsidies at issue and whether that person was the same as the firm under investigation. Consequently, this was not an issue in the Department's proceeding or in the proceedings before the CIT or the Federal Circuit.
The Department has carefully considered the Court's opinion and, in particular, its admonition that the Department's inquiry seek to determine whether "an authority provides a financial contribution, . . . to a person and a benefit is thereby conferred." Id., 202 F.3d at 1365 (emphasis in original) (citation omitted). To this end, the Department has begun its analysis here by analyzing the transaction in question for the purpose of addressing the one subsidy element that it initially places in issue, i.e., the "person" determination. In other words, we are seeking to determine whether the entity under investigation (Delverde) itself received a government-provided financial contribution and a benefit.
Concurrently, the Department has undertaken a review of all of the evidence on the record from the underlying investigation and previous remands concerning the nature of the transaction in question. In addition, for this remand, the Department has sought more specific information as to the nature of the sale by sending questionnaires to Delverde and the GOI. As a result of this more focused inquiry, the Department has found that the transaction at issue was structured as follows.
In early March of 1991, a privately owned holding company, Sangralimenti, SrL ("Sangralimenti"), created a new company called Nuovo Delverde, SrL ("Nuovo Delverde") for the purpose of acquiring a pasta operation belonging to a company called Delverde, SrL, located in Fara San Martino ("FSM"), which we will refer to as "Old Delverde." (15) The pasta operation was a discrete line of business within Old Delverde but it was not separately incorporated. [***] contributed [***] percent of the capital in Nuovo Delverde while the remaining [***] percent came from [***]. October 20, 2000 Remand Questionnaire Response ("RQR") at 43.
On March 9, 1991, Old Delverde and Sangralimenti signed a private preliminary
agreement according to which the following of Old Delverde's assets and liabilities were to be
transferred to Nuovo Delverde: (1) the FSM pasta factory (including land, buildings, machinery,
equipment, etc.); (2) the Delverde brand name; (3) existing inventories; (4) outstanding
receivables; and (5) outstanding liabilities owed to banks and other creditors. The inventories,
outstanding receivables, and outstanding liabilities listed under points (3) through (5) above were
on Old Delverde's books on March 8, 1991, and were limited to those items associated with the
FSM pasta operation. (16)
RQR at 21 and October 30, 2000, Remand Supplemental Questionnaire
Response ("RSQR") at Exhibit D. The final sales agreement, dated May 18, 1991, modified the private preliminary
agreement as follows: (1) Nuovo Delverde assumed responsibility for one-half of the loan
liability of Old Delverde's non-pasta businesses; (2) Old Delverde's litigation with its prior
semolina supplier was taken over by Nuovo Delverde; (3) the commitment in the private
preliminary agreement that Nuovo Delverde should buy certain materials and supplies from Old
Delverde was removed; (4) certain cars and trucks were excluded from the agreement; (5) certain
debts which had not been on Old Delverde's books by March 8, 1991, but which related to the
period before March 8, 1991, were transferred to Nuovo Delverde; and (6) the schedule
according to which Sangralimenti was to pay Old Delverde for the FSM pasta business was
modified. RQR at 21 and Exhibit 14. Pursuant to the final sales agreement, the transfer of the FSM pasta operation took the
form of a stock transaction. On May 18, 1991, Nuovo Delverde's board voted to increase the
capital of the company from 200 million to [***] lire. Nuovo Delverde's [***]. Shortly after the
transfer, Old Delverde changed its name to MI.BA under which it continued to operate its other
lines of business (mainly a fresh pasta factory, an olive oil plant, and a cardboard box factory).
Similarly, Nuovo Delverde changed its name to Delverde. As a starting point in applying the analysis described above regarding the "person"
determination contemplated by Delverde III, we have considered Delverde's questionnaire
response, where Delverde maintains that the structure of post-sale Delverde (i.e., Nuovo
Delverde, later known simply as Delverde) was fundamentally different from that of pre-sale
Delverde (i.e., Old Delverde) . RQR at 24-27. Delverde points out that Sangralimenti did not
buy certain other operations of Old Delverde, e.g., a fresh pasta operation and an olive oil plant
located in other cities. At various points in its questionnaire response, Delverde therefore
describes the FSM pasta plant as one of Old Delverde's "diverse businesses," "operations,"
"lines of business," " operational entities" and "company branch{es}." RQR at 23, 27 and
Verification Report at Exhibit 14, paragraph 12. We do not dispute the fact that Old Delverde was composed of several diverse lines of
business or the fact that the FSM pasta operation was not initially incorporated separately from
these other businesses. Nevertheless, Delverde's argument is one of form over function. While
the FSM business did not have independent legal status, it was an operation that was separate,
both in function and in geography, from Old Delverde's other productive operations. Indeed, this
operation was, in fact, transferred to Nuovo Delverde, a corporate person created to receive and
hold it, [***]. (17) For these reasons, we find that it is not appropriate to compare Old Delverde, in its
entirety, with post-sale Delverde. Instead, when we consider the factors set out in our test for
examining whether there was a continuous business entity, the correct comparison is between the
FSM pasta operation as it existed prior to its sale, on the one hand, and post-sale Delverde, on the
other. Continuity of General Business Operations Although the ownership of the FSM pasta operation changed following the transaction in
question, the most important aspects of this operation remained essentially unchanged by the
shift in ownership. Delverde itself admits that "{t}he {FSM} pasta operation did remain 'intact'
after the sale . . . ." RQR at 29. Delverde also states that no particular steps were taken to prepare
the FSM operation for sale, nor were there any major changes in the productive operations of the
newly created company. RQR at 11, 29 and 30. (18) Thus, after the ownership change, post-sale Delverde maintained its plant and
headquarters in the same location, and it used the same production facilities to manufacture and
sell the same products under the same brand name. According to Delverde, "{t}he products
produced by the FSM pasta operation did not change significantly in the short term following the
sale" and that "{t}here were no production lines eliminated or added to the FSM pasta operation
as a direct result of its sale." RQR at 29 and 30. In other words, no changes in product lines were
made as a direct result of the sale, no new or additional facilities were acquired, and no facilities
were closed. In this context, it is important to consider that the goal of the purchaser,
Sangralimenti, in the acquisition was to operate the FSM pasta factory and to acquire the
Delverde brand name. RQR at 29 and 32. Functionally, there also was a certain degree of operational continuity at the company-wide level. The head office of Old Delverde, as defined by the valuation report, by virtue of its
location in Fara San Martino, was also apparently transferred to the purchaser. RQR at Exhibit
14, Valuation Report, page 1. In addition, [***]. RQR at 38. (19) There is evidence showing that changes were made with regard to certain suppliers, the
most significant of which was the change in the supplier of semolina, a major input in pasta
production. However, a change in the semolina supplier may have been inevitable even in the
absence of the change in ownership that took place. As the evidence shows, Old Delverde itself
had been having significant ongoing disagreements with its semolina supplier, which were the
subject of litigation. Post-sale Delverde took over this litigation pursuant to the terms of the final
sales agreement. At that point, given that [***] had a significant ownership interest in
Sangralimenti and was highly involved in the production and sale of semolina, it was a natural
business decision that the new semolina supplier chosen by post-sale Delverde would be [***].
RQR at 34 and RSQR at Exhibits C and G. The Department does not have detailed information about any changes in the pre- and
post-sale customer base. Delverde states that while it retained certain (unspecified) customers,
"its strategy was to increase and change the customer base to reflect a premium quality, premium
price market position." RQR at 34. While this statement would seem to indicate that a
substantial amount of continuity seems to have been maintained, particularly in the short run, we
do not place too much reliance on it, as continuity in customers is more relevant to our successor-in-interest test than the approach that we have developed here in the change-in-ownership
context. Continuity of Production Facilities The evidence shows that the productive assets and operations that comprised post-sale
Delverde had existed intact since at least the early 1970s. In other words, from the early 1970s
up to and including the 1991 ownership change, when the FSM pasta operation became post-sale
Delverde, those productive assets and operations, although upgraded and modernized over time,
remained for all intents and purposes unchanged. Continuity of Assets and Liabilities Another important element of the Department's analysis in determining whether the post-sale entity is for all intents and purposes the same as the pre-sale entity relates to the continuity of
assets and the liabilities associated with those assets. Here, looking at the transaction itself, we
first note that while the parties undertook a complicated transaction involving several steps, the
Department considers the actual sale of the FSM pasta operation to have taken place when Old
Delverde [***]. That is the point at which control of the FSM pasta operation was transferred.
For this reason, as is reflected in our above description of the relevant facts and circumstances, it
becomes apparent that the transaction was structured not as a simple sale of assets, as the Federal
Circuit apparently was led to believe. See, e.g., Delverde III, 202 F.3d at 1367, 1368, and 1370.
It was more in the nature of a sale of shares. It is clear, moreover, that Nuovo Delverde assumed the assets associated with the FSM
pasta operation as well as all the liabilities attributable to that operation. RQR at 11 and 40. (20)
Delverde states that the tangible assets and liabilities that were transferred were those "specific to
the pasta operation." RQR at 49. Notably, post-sale Delverde, as part of the transaction, agreed
to assume an undetermined amount of liabilities as long as those liabilities [***]. RQR at
Exhibit 14, Valuation Report, page 2, and RSQR at 5. In addition, subsequent arbitration
between the parties confirms that the purchaser assumed responsibility for all of the liabilities
associated with the FSM pasta operation. Delverde states that there was a dispute between the
two parties regarding whether certain liabilities were associated with the FSM pasta operation
and, therefore, should have been assumed by the purchaser. In March of 1995, the Board of
Arbitrators decided that certain of the liabilities in question indeed were associated with the FSM
operation and, consequently, were the responsibility of the purchaser. RQR at 42. It is also clear that the purchaser's interest was not merely to obtain pasta production
capacity, but also to acquire the Delverde brand name and identity. For example, Delverde states
that [***] made purchasing the Fara San Martino factory a worthwhile investment." RQR at 37.
Consequently, in addition to the tangible assets and liabilities transferred from the seller to the
purchaser, the final sales agreement transferred [***]. RSQR at Exhibit D. Indeed, the seller
was prohibited from using the Delverde name after the sale and, therefore, changed its name to
MI.BA. Retention of Personnel Delverde contends that the sale of the FSM pasta operation resulted in significant
management changes. According to Delverde, before the sale, the FSM pasta operation was a
line of business within Old Delverde without separate legal status. Old Delverde was run by a
"sole administrator," [***], who was also the company's principal owner. In contrast, Nuovo
Delverde, to which the FSM pasta operation was transferred, is a limited liability shareholder
company controlled by a three-person board of directors. RQR at 27. Delverde also points out
that, in Old Delverde, the separate product lines were not responsible for their own sales,
administration, or personnel functions. Rather, these functions were handled centrally on a
corporate-wide level for all of Old Delverde's lines of business. Meanwhile, according to
Delverde, the new chief executive officer of Nuovo Delverde, [***], reorganized the
management of the FSM pasta operation, which resulted in personnel changes. RQR at 28,
Exhibits 4 and 10. While we recognize these facts, it also appears from the response that a number of
individuals were transferred from Old Delverde to Nuovo Delverde as part of the sale. For
example, [***]. RQR at 29 and Exhibit 4, RSQR at Exhibit F. Overall, based on the above analysis, we conclude that post-sale Delverde was, for all
intents and purposes, the same "person" as the FSM pasta operation as it existed prior to its sale.
As explained above, we focused our comparison between the two entities on the FSM pasta
operation (not the entire Old Delverde with all its other business operations) before the sale and
post-sale Delverde after the sale. We then examined the transaction in question and what it
meant from the perspective of a variety of factors, i.e., whether there was continuity in general
business operations, including whether post-sale Delverde held itself out as a continuation of Old
Delverde's FSM pasta operation by, for example, keeping the brand name, whether there was
continuity of production facilities, and whether there was continuity of assets and liabilities
associated with the FSM pasta operation. Although not as important as the other factors, we also
considered whether there was continuity in personnel. For each one of these factors, the evidence
indicates that post-sale Delverde was essentially a continuation of Old Delverde's FSM pasta
operation. Having determined that Nuovo Delverde (later Delverde) for all intents and purposes is
the same "person" as the FSM pasta operation upon which the original subsidies were bestowed,
we conclude, in accordance with Delverde III, that Delverde continues to benefit in full from all
of the subsidies that were provided to Old Delverde prior to the sale of the FSM pasta operation.
The one aspect of the Department's original determination regarding the existence of those prior
subsidies as of the time of their bestowals that has been placed in issue -- the identity of the
"person" that received those prior subsidies -- has been shown not to have changed, and,
therefore, the Department will apply its normal allocation methodology to those prior subsidies
and countervail the benefits that remain as of the period of investigation. IV. Comments Comment 1 Delverde argues that the Department has failed to comply with the Federal Circuit's
mandate in two ways. First, Delverde says, the Federal Circuit explicitly instructed the
Department to undertake a case-specific analysis of Delverde regardless of the implications for
the Department's general privatization/restructuring methodology. Instead, Delverde argues, the
Department has used the Draft Redetermination as a vehicle to create a new
privatization/restructuring methodology. Second, Delverde argues that the Department made no attempt to undertake the analysis
required by the Federal Circuit. According to Delverde, the Federal Circuit held that the
Department could not "conclusively presume" that the benefits of the pre-change in ownership
subsidies automatically passed through to Delverde and that the countervailing duty statute
instead "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 a benefit from a government." Delverde Comments at 6
(quoting Delverde III, 202 F.3d at 1364) (emphasis supplied by Delverde). The Federal Circuit
then instructed the Department, Delverde explains, to determine whether Delverde indirectly
received a financial contribution and a benefit as a result of its purchase of the FSM pasta
operation. Delverde points out that, in the Draft Redetermination, the Department itself admits
that it did "not reach the question of whether a subsidy has been provided to Delverde as a result
of the change-in-ownership transaction." Draft Redetermination at 16. Thus, Delverde
concludes that the Department concedes that it failed to engage in the specific inquiry ordered by
the Court. The petitioners contend that the Department's interpretation of Delverde III is "sound and
accurate." The petitioners explain that the Federal Circuit ordered the Department to examine
the facts and circumstances of Delverde's purchase of the FSM pasta factory and required the
Department to develop a methodology for examining the relevant facts, which is what the
Department has done. The Department's Position With regard to the Department's decision to set out its new approach for the handling of
changes in ownership in its redetermination, we disagree with Delverde. We believe that the
Department had no choice but to do so. The Federal Circuit invalidated the
privatization/restructuring methodology that the Department had used to address the Delverde
change-in-ownership transaction in the underlying investigation. At the same time, however, the
Federal Circuit did not attempt to impose a specific, new approach on the Department. Instead, it
explained why the Department's old methodology was inconsistent with the countervailing duty
statute, and it directed the Department essentially to remove those inconsistencies when it re-visited the Delverde change-in-ownership transaction on remand. It was, therefore, necessary
for the Department to develop a new approach in its redetermination in light of the
pronouncements made by the Federal Circuit. We also disagree with Delverde's further suggestion that the Department did not
undertake a case-specific analysis of the Delverde change in ownership. The Department did so,
although it necessarily had to decide on the specific approach to apply before addressing the
particular facts of the Delverde change in ownership. As to Delverde's more specific argument that the Department did not follow the Federal
Circuit's mandate to determine whether Delverde indirectly received a financial contribution and
a benefit as a result of its purchase of the FSM pasta operation, we agree with Delverde's
characterization of the Federal Circuit's holding, but we disagree that the Department did not
follow the Federal Circuit's instructions. After faulting the Department for conclusively
presuming that the benefits of the pre-change in ownership subsidies automatically passed
through to Delverde, the Federal Circuit instructed the Department to "examine the facts and
circumstances, including the terms of the transaction," and then determine "whether Delverde
indirectly received a subsidy" by virtue of its purchase of the FSM pasta operation. Delverde III,
202 F.3d at 1369-70. Again, that is what the Department has done. The Department examined
the facts and circumstances, including the terms of the transaction, first to determine whether
Delverde, the firm under investigation, was the same person as the original subsidy recipient.
Because the Department found that they were the same person, it was then able to determine that
all of the elements of a subsidy were established with regard to Delverde, and its analysis of the
transaction necessarily ended. Essentially, Delverde is arguing that the Department should have skipped this first step in
its analysis of the change-in-ownership transaction and should have examined only whether or
not a subsidy could be considered provided to Delverde on the basis that the purchase price was
too low (e.g., less than adequate remuneration). We do not believe that the Federal Circuit's
instructions were so limited. It does appear that the Federal Circuit was under the impression
that Delverde was a different person from the original subsidy recipient. Nevertheless, the
Federal Circuit did not render a holding to that effect, nor does Delverde seem to maintain that it
did. For that reason, as more fully explained above, we do not interpret the Federal Circuit's
instructions as precluding an examination of the facts and circumstances, including the terms of
the transaction, for the purpose of determining whether Delverde, the firm under investigation,
was the same person as the original subsidy recipient. Comment 2 Delverde contends that the approach that the Department developed in the Draft
Redetermination for its "person" inquiry is unlawful, both in concept and in application. First, according to Delverde, the Department's approach perpetuates the very legal
presumption that the Federal Circuit found unlawful in Delverde III, namely, that subsidies
always "travel" from seller to buyer when assets change ownership. Delverde claims that the
Department's approach is only a thinly disguised version of the Department's "irrebuttable
presumption that subsidies confer a countervailable benefit upon goods produced," as originally
set forth in the General Issues Appendix, 58 FR at 37260. Delverde explains that the
Department's approach equates "person" to "production." Thus, Delverde claims, the
Department has continued to use the presumption found unlawful by the Federal Circuit. Second, Delverde argues that the Department's approach is "overtly biased" in favor of
finding the buyer and the seller to be the same person. According to Delverde, this bias ensures
that the buyer and the seller will be found to be the same person regardless of the circumstances
of each sale and, therefore, manifests the presumption voided by Delverde III. Delverde explains
that this bias is apparent from the Department's equation of "person" and "production facility."
As a result, according to Delverde, the Department's approach ensures that every time corporate
assets of any significance change hands, the original subsidy recipient and the producer under
investigation will be considered to be the same person. Third, Delverde insists that bias is evident from how the Department compared the
original subsidy recipient to the producer under investigation. Here, a comparison was made
between the pasta factory before the sale and the pasta factory after the sale. Not surprisingly,
Delverde says, the Department found that the pasta factory was the same person before and after
the sale. In Delverde's view, this shows that the Department's approach is "blatantly results-oriented" and constitutes further proof that it is based on the production of the pasta factory and
not on whether the pre-and post-sale entities are the same person. Delverde asserts that a proper
comparison would have been between Old Delverde in its entirety (the seller of the FSM pasta
operation) and Sangralamenti (the purchaser of the FSM pasta operation). According to
Delverde, the seller and the purchaser were not the same person. Finally, Delverde notes that 1 U.S.C. § 1 defines "person" for purposes of the
countervailing duty statute as meaning "corporations, companies, associations, firms,
partnerships, societies, and joint stock companies, as well as individuals," and the FSM pasta
factory does not fit into any of these categories. Delverde suggests that, for that reason, it is
improper for the Department to compare the pre-change in ownership FSM pasta operation to
Delverde. The petitioners, meanwhile, agree with the Department's analysis of whether the subsidy
recipient and the producer/exporter under investigation are the same person. In their view, this
approach is in accordance with both the countervailing duty statute and Delverde III. They also
support the Department's illustrative list of factors, in particular, because they evidence an
approach that is flexible and based on several different models of corporate successorship. The Department's Position We disagree with Delverde that the Department's approach for determining whether the
firm under investigation is the same person as the original subsidy recipient in the change-in-ownership context creates any kind of presumption. The Department has developed a fact-based
approach that takes into account a number of factors, including continuity of general business
operations, continuity of production facilities, continuity of assets and liabilities and retention of
personnel. The degree of continuity evidenced by a consideration of these factors will vary from
transaction to transaction, depending on the facts, and therefore the Department's approach on its
face gives rise to no type of presumption. Meanwhile, Delverde's specific contention that the Department's approach on its face
equates "person" and "production" is contradicted by a review of the factors analyzed by the
Department. As the Department's analysis in this case shows, the Department's consideration of
the factors relating to general business operations and production facilities goes beyond a mere
analysis of production. Moreover, in addition to these factors, the Department has examined the
continuity of assets and liabilities and the retention of personnel. The Department also has
expressly stated that no one of these factors is dispositive for the "person" determination. Thus,
we see no basis for Delverde's argument that the Department's approach equates "person" and
"production" and, therefore, is no different from the Department's old methodology. For similar reasons, we disagree with Delverde's argument that the Department's
approach is biased and will result in a determination that the firm under investigation is the same
person as the original subsidy recipient whenever assets of any significance are sold. In
supporting its argument on this point, Delverde insists that the Department's approach equates
"person" and "production facility" and, therefore, always will result in a finding of the same
person whenever significant assets change hands. In our view, however, the Department's
approach does not equate "person" and "production facility," just as it does not equate "person"
and "production," as we have explained above. Regarding the Department's application of its approach in this case, it is true that the
Department found Delverde to be the same person as the original subsidy recipient. However,
that is the result dictated by the facts and circumstances in this case, not by the Department's
approach. Moreover, as discussed above, we disagree with Delverde's specific contention that the
only proper comparison for the required "person" inquiry in this case is between Old Delverde in
its entirety (the seller of the FSM pasta operation) and Sangralamenti (the purchaser of the FSM
pasta operation). Most importantly, even if this comparison were assumed to be permissible
under the countervailing duty statute, we do not interpret the countervailing duty statute as
requiring Delverde's suggested approach. The comparison advocated by Delverde focuses solely on the old and new owners of the
FSM pasta operation, as Old Delverde in its entirety was the old owner of the FSM pasta
operation and Sangralamenti is the new owner of the FSM pasta operation that is now called
Delverde and is the firm under investigation. As should be evident, this type of comparison
would result in a per se rule that a new "person" is created whenever a sale occurs between two
unrelated parties, or in other words, whenever there is a change in ownership. At the very least,
we do not interpret the countervailing duty statute as requiring the Department to base its
"person" determination solely and dispositively on this criterion. We also consider such an approach to be ill-advised. It would mean, for example, that a
new "person" is created even when a company's shares simply turn over through public trading
on a stock market. Although we have not adopted the test used under general corporate
successorship law, we note that a mere change in owners in that context is not dispositive of
whether a new person exists for liability purposes. In addition, in the countervailing duty
context, as a policy matter, we view the analysis that we have developed in this case to be more
consistent with the remedial goals of the countervailing duty statute, namely, to "level the
playing field" by offsetting the benefit conferred by a subsidy. Finally, we do not agree with Delverde's argument regarding 1 U.S.C. § 1, which is that
this section renders it improper for the Department to compare the pre-change in ownership FSM
pasta operation (as opposed to Old Delverde in its entirety) to Delverde for purposes of the
"person" analysis, given that the pre-change in ownership FSM pasta operation is not one of the
listed entities in the section's definition of "person." In other words, Delverde is arguing that the
FSM pasta operation was part of a company, not a company itself. In fact, however, the FSM
pasta operation was placed into its own separate company prior to the sale in question. More fundamentally, there are two aspects of 1 U.S.C. § 1 that Delverde overlooks. First,
this section states that it defines "person" to "include" corporations, companies, associations,
firms, partnerships, societies, and joint stock companies and individuals. The plain meaning of
the word "include" is normally one of enlargement rather than limitation in that it denotes a
category or group of things without limiting the defined term to the particular things actually
listed. Consequently, the absence of a particular type of entity from the list in 1 U.S.C. § 1 does
not automatically mean that it is excluded from the definition of "person." In addition, this
section states that its definition applies "unless the context indicates otherwise." In the context
of the countervailing duty statute, with court approval, the Department has routinely treated a
subsidy, in appropriate circumstances, as benefitting less than the entire company. For example,
the Department has attributed a pro rata portion of a subsidy benefit to divisions or assets of a
company when internal corporate restructurings have occurred. See General Issues Appendix,
58 FR at 37266-68. The Department has also applied a "tying" analysis, which attributes a
subsidy benefit to products produced by a division of a company producing a particular product
or to products produced by particular facilities of a company. See id., 58 FR at 37231-36. Comment 3 Delverde challenges two aspects of the Department's characterization of the Delverde
change-in-ownership transaction as a sale of shares. First, Delverde points to a statement in the Draft Redetermination to the effect that the
Department learned during the remand process that the sale of the FSM pasta factory was a sale
of shares rather than a sale of assets. Delverde insists that the Department learned nothing
materially new about this transaction during the remand process that was not evident from the
record in the underlying investigation. Delverde adds that the Federal Circuit clearly understood
the structure of the transaction and correctly characterized it as a sale of corporate assets, based
upon, among other things, the Department's own factual assertions to the court. Second, according to Delverde, the Department's finding that the transaction was a sale
of shares is flawed for three reasons. Delverde contends that it ignores the record evidence as to
when the FSM pasta factory was sold, misinterprets the structure of the transaction, and ignores
the overwhelming record evidence that the transaction was a sale of corporate assets. The petitioners agree with the Department's conclusion that the sale of the FSM pasta
operation was a sale of shares and not an asset sale. The Department's Position In our view, Delverde's argument that the Department had all of the record evidence that
it needed prior to this remand proceeding is misplaced. Even if it were true, the fundamental
point is that at no stage of this case did the Department deem it relevant to decide whether or not
the Delverde change-in-ownership transaction was accomplished through a sale of assets or a
sale of shares. While shares in Nuovo Delverde did change hands, our analysis shows that
Nuovo Delverde is the same "person" as Old Delverde. We disagree with Delverde, moreover, that the Federal Circuit's characterization of the
Delverde change-in-ownership transaction as a sale of assets was based on the Department's own
factual assertions. Although the Department did not attempt to characterize this transaction as a
sale of shares or a sale of assets, the description provided indicates that it was a sale of shares.
Final Results of Redetermination Pursuant to Court Remand in Delverde, SrL v. United States,
Consol. Ct. No. 96-08-01997, Slip Op. 97-163 (CIT Dec. 2, 1997), dated April 2, 1998, at pages
8-9. Although we have acknowledged above that the Federal Circuit was under the impression
the Delverde change-in-ownership transaction as a sale of assets, we do not agree that the
Department made factual assertions in any previous stage of this case that this transaction was a
sale of assets. Indeed, it is clear from the Department's earlier remand determination that the
status of this transaction as a sale of shares or a sale of assets was never previously even an issue
in this case. As to Delverde's argument regarding flaws in the Department's finding in this remand
proceeding that the Delverde change-in-ownership transaction was a sale of shares, we have
explained and supported our finding in detail above. Delverde, meanwhile, has offered no
specific reasons for why that finding is flawed. Finally, we would like to reiterate, as should be clear from our analysis of the Delverde
change in ownership above, the distinction between a sale of shares and a sale of assets is not
crucial to the "person" determination, despite Delverde's focus on it in its comments. It is not
one of the factors that we examine. Rather, it becomes relevant principally to the extent that it
helps to clarify the analysis of one of those factors, namely, the continuity of assets and
liabilities. Comment 4 Delverde argues separately that the Department's redetermination relies on bits and
pieces from the record, frequently taken out of context, to support conclusions that have no
factual basis, thus ignoring the record as a whole. On that basis, Delverde contends that the
Department's redetermination is unsupported by substantial evidence. The Department's Position We disagree with Delverde's argument. Delverde does not identify any record evidence
that the Department ignored or took out of context, nor does it identify any factual conclusions
that are not supported by record evidence. Delverde simply makes unsupported assertions. The
redetermination, meanwhile, shows (at pages 16-28) that the Department has analyzed the record
carefully and thoroughly. V. Conclusion We have recalculated the net subsidy rate applicable to Delverde and Tamma (which we
treated as one company in the investigation) as shown in a separate memorandum to the file. The
new, recalculated net subsidy rate is 7.33 percent ad valorem. ___________________ Troy H. Cribb Assistant Secretary for Import Administration ___________________ Date
1. The petitioners are Borden, Inc., Hershey Foods Corp., and Gooch Foods, Inc.
2. The term "person" appeared in the countervailing duty statute for the first time
following the amendments made by the Uruguay Round Agreements Act ("URAA") effective
January 1, 1995. In its decision, the Court distinguished earlier Federal Circuit decisions
addressing the Department's privatization methodology on the basis that "we were interpreting
Commerce's methodology under the earlier statute, which we had already held was ambiguous."
202 F.3d at 1369. The language in the new statute was described by the Court as clear. Id. at
1366.
3. The Court was under this impression because the parties' presentations seemed to
characterize the Delverde change-in-ownership transaction as simply one firm selling some of its
assets to another firm, which would indicate that the assets now belonged to a different "person."
As we discuss more fully below, however, the nature of this transaction, and in particular
whether or not it was a simple sale of some of one firm's assets to another firm, was not relevant
to the methodology that the Department had applied. Consequently, the Department had never
made any finding regarding the precise nature of the transaction, nor was it ever brought into
issue before the Court.
4. We note that, like the Delverde III Court, see 202 F.3d at 1369, we would expect to see
"significant differences" between privatizations of government-owned firms, on the one hand,
and changes in ownership involving only private parties, on the other hand, when undertaking
this second step in our inquiry, i.e., when inquiring whether a subsidy has been provided through
the change-in-ownership transaction in question. At a minimum, in our experience, it would be
highly unlikely to find a subsidy resulting from a purely private transaction, particularly where
the parties are unrelated. In this situation, there is no reason to believe that the private seller
would not be seeking the highest price that it could obtain. Meanwhile, "{t}he government has
different concerns from those of a private seller. . . . {T}he government may have other goals,
such as employment, national defense, and political concerns, which may affect the terms of a
privatization transaction." Id.
5. Normally, in the absence of any changes in ownership, the Department allocates the
measured subsidy benefit over time to the subsidy recipient's future production pursuant to a
standard declining balance formula that generates a net present value equal to the amount of the
subsidy. The period of time selected for this allocation is based on the subsidy recipient's
average useful life of assets. See Countervailing Duties; Final Rule, 63 FR 65348, 65415-17
(Nov. 25, 1998) (§§ 351.524 and 525).
6. Delverde III does not directly address this point because, as discussed below, the
Federal Circuit understood that the Delverde change in ownership involved a simple sale of some
of one firm's subsidized assets to another firm, with the result that those subsidized assets
became part of a person that was not the original subsidy recipient. The Department notes that
the WTO Appellate Body's recent decision in United States - Imposition of Countervailing
Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United
Kingdom, WT/DS138/AB/R (May 10, 2000) ("U.K. Lead Bar"), in which the Department's
methodology was under review in the privatization context, does address this point. It indicates
that, where there has been no change in the person that received the original subsidy, the
investigating authorities may continue to apply a presumption that the subsidy benefit continues.
See id. at para. 62.
7. In U.K. Lead Bar, the Department's methodology was under review in the privatization
context. In construing the Agreement on Subsidies and Countervailing Measures, the Appellate
Body first asked whether the firm under investigation (the privatized company) was the "legal or
natural person" that had received the subsidies investigated by the Department (grants and equity
infusions provided by the U.K. government years prior to the privatization). U.K. Lead Bar,
para. 58. Finding that the firm under investigation was not the same person as the one that had
received those subsidies, the Appellate Body ruled that the Department could only have imposed
countervailing duties on the entity under investigation if the Department had found that that
person had itself received a subsidy. Id., paras. 58, 62. The Appellate Body then examined the
privatization transaction in question in order to determine if the entity under investigation had
received a subsidy. The Appellate Body determined that the entity under investigation had
received no benefit and therefore no subsidy through this transaction because a fair market value
purchase price had been paid. Id., paras. 67-68.
8. The countervailing duty statute itself does not illuminate this issue either. According to
1 U.S.C. § 1, which applies to all laws set forth in the United States Code, including the
countervailing duty statute, 19 U.S.C. §§ 1671 et seq., the term "person" includes "corporations,
companies, associations, firms, partnerships, societies, and joint stock companies, as well as
individuals," unless the context indicates otherwise. However, there is no further statutory
illumination of this issue.
9. The term "legal person" refers to an entity such as a corporation rather than an
individual.
10. See, e.g., Corporation Practice Guide, para. 2710 (Aspen Law & Business 1997). In
other countries, similar factors govern the determination of whether the new owner is legally
responsible for the liabilities of the company. In the European Union, for example, the factors
include whether the company under the new owner "continued to manufacture the same product
at the same place with the same staff." It is not enough that the company "merely changed its
name." SCA Holding Ltd. v. Commission of the European Communities, Case T-327/94, 1998
ECJ CELEX LEXIS 1139 (Ct. First Instance 1998).
11. See Letter to the Secretary of Commerce from Collier Shannon Scott regarding
Remand Proceeding in Delverde SrL v. United States, Ct. No. 96-08-01997 (Certain Pasta from
Italy), dated October 20, 2000.
12. See, e.g., Certain Welded Stainless Steel Pipe from Korea; Final Results of
Antidumping Duty Changed Circumstances Review, 63 FR 16979 (April 7, 1998); Certain
Welded Stainless Steel Pipe from Taiwan; Final Results of Changed Circumstances Antidumping
Duty Administrative Review, 63 FR 34147 (June 23, 1998); Certain Welded Stainless Steel Pipe
from Taiwan; Preliminary Results of Changed Circumstances Antidumping Duty Administrative
Review, 63 FR 16982, 16983-84 (April 7, 1998); Brass Sheet and Strip from Canada; Final
Results of Antidumping Duty Administrative Review, 57 FR 20460 (May 13, 1992).
13. Although the Department in the past disagreed with the CIT's British Steel I decision,
the Federal Circuit in Delverde III has made clear that the countervailing duty statute was
subsequently amended in a material way by the URAA, and it has emphasized the new language
regarding receipt of a subsidy by a "person." This new language provides a firmer statutory basis
for an approach similar to the one suggested by British Steel I. While the Department was also
concerned that the British Steel I approach would permit countries to structure privatizations in
such a way as to circumvent the countervailing duty law, we now believe that we have developed
a sufficiently flexible approach to address that concern.
14. At that time, the Department only considered the price paid to be relevant.
15. We refer to Delverde, SrL as it existed prior to the change-in-ownership transaction as
Old Delverde to avoid confusion. Later, as a result of the change-in-ownership transaction, the
name "Delverde, SrL" was changed to "Nuovo Delverde, SrL" and then back to its original name
of "Delverde, SrL."
16. Delverde claims that the preliminary private agreement confirms that the sale of the
FSM operation was a sale of assets based on Delverde's translation of this agreement into
English. RSQR at 4. We note that Delverde's translation uses the word "assets" as a translation
for the Italian word "azienda." However, we believe that "azienda," as used in the original
agreement, is broader than the "assets," as that term is typically used in the accounting field. The
Italian-English Dizionario Inglese (second edition) (Glasgow, UK: Harper Collins Publishers
(1995)) defines "azienda" as "business, firm, concern." Furthermore, the Dizionario Italiano
(fifth edition) (Milan, Italy: Biblioteca Universale Rizzoli (1997)) defines the word "azienda" as
"complesso di beni e di persone volto al raggiungimento di un determinato fine industriale o
commerciale." This is translated as: "the entirety of the goods and people that are used to arrive
at a specific commercial or economic purpose." By comparison, the Italian word frequently used
for the accounting term "assets" is "attivo." The Dizionario Inglese supports the translation of
"assets" as "attivo." The Dizionario Italiano (fifth edition) defines "attivo" as: "Insieme dei beni
economici di cui dispone un'azienda, un ente, ecc. || Parte del bilancio in cui sono registrati tali
beni." This is translated as: "The set of all economically valuable goods/items that a business,
organization, etc. has at its disposal. The part of a balance sheet on which such goods/items are
listed." Thus, "azienda" more closely compares with Delverde's narrative description of the
agreement as calling for the transfer of the [***] of the FSM pasta operation 17. The share transaction with Nuovo Delverde was essentially the incorporation of the
FSM business. We note that, under the Department's longstanding practice, the simple act of
incorporating a part or division of a company's operations has no effect on the benefit arising
from previously bestowed subsidies. See, e.g., General Issues Appendix to Final Affirmative
Countervailing Duty Determination; Certain Steel Products from Austria, 58 FR 37217, 37266-68 (July 9, 1993) ("General Issues Appendix").
18. Overall, what was sold (as indicated in the valuation report) represented more than
[***] percent of the assets and nearly [***] percent of the liabilities of Old Delverde based on its
1990 financial statements, which show the financial status of Old Delverde a few months prior to
the sale of the FSM pasta operation. RQR at Exhibits 2 and 14.
19. The FSM pasta operation, while part of Old Delverde and thus owned by [***]. March
7, 1996 Verification Report at 2 and Exhibit 44; RQR at 28, 36-38, and Exhibit 10; and RSQR at
Exhibit C.
20. In addition, as explained above, Nuovo Delverde also took over certain of Old
Delverde's liabilities that were not associated with the FSM pasta operation. RQR at 21.