[Federal Register Volume 59, Number 91 (Thursday, May 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11590]


[[Page Unknown]]

[Federal Register: May 12, 1994]


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DEPARTMENT OF COMMERCE
[C-223-601]

 

Fresh Cut Flowers From Costa Rica; Final Results of 
Countervailing Duty Administrative Review and Termination of Suspended 
Investigation

AGENCY: International Trade Administration/Import Administration, 
Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative 
review and termination of suspended investigation; fresh cut flowers 
from Costa Rica.

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SUMMARY: On February 10, 1994, the Department of Commerce (the 
Department) published in the Federal Register (59 FR 6236) the 
preliminary results of its administrative review of the Suspension of 
Countervailing Duty Investigation; Certain Fresh Cut Flowers From Costa 
Rica (52 FR 1356; January 13, 1987) (Agreement). We have now completed 
that review and have upheld the results of the preliminary results. We 
have determined for the final results that the signatories have 
complied with the terms of the agreement during the period January 1, 
1991 through December 31, 1991. In addition, we have determined that 
the signatories of the agreement on fresh cut flowers have met the 
requirements for termination of the suspended investigation.

EFFECTIVE DATE: May 12, 1994.

FOR FURTHER INFORMATION CONTACT:
Elizabeth Patience or Jean Kemp, Office of Agreements Compliance, 
International Trade Administration, U.S. Department of Commerce, 
Constitution Avenue and 14th Street, NW., Washington, DC 20230; 
telephone: (202) 482-3793.

SUPPLEMENTARY INFORMATION: 

Background

    On February 10, 1994, the Department published in the Federal 
Register (59 FR 6236) the preliminary results of its administrative 
review of the agreement. We have now completed that review in 
accordance with section 751(a) of the Tariff Act of 1930, as amended 
(the Act), 19 USC 1675(a) (1988).

Scope of Review

    Imports covered by this review are shipments of miniature (spray) 
carnations, standard carnations, and pompon chrysanthemums from Costa 
Rica. This merchandise is currently classifiable under the Harmonized 
Tariff Schedule (HTS) items 0603.10.30 and 0603.10.70. The HTS item 
numbers are provided for convenience and Customs purposes. The written 
description remains dispositive.
    The review covers the period January 1, 1991 through December 31, 
1991 and six programs: (1) Tax Credit Certificates; (2) Certificates 
for Increasing Exports; (3) Income Tax Exemptions for Export Earnings; 
(4) Exporter Credit for Sales Tax and Consumption Tax on Certain 
Domestic Purchases; (5) Exporter Exemptions for Taxes and Duties on 
Imports; and (6) Accelerated Depreciation.

Analysis of Comments Received

    We gave interested parties an opportunity to comment on the 
preliminary results. We received comments from petitioner and rebuttal 
comments from respondents (ACOFLOR, the trade association representing 
the signatories in these proceedings and the Government of Costa Rica 
(GOCR)).
    Comment 1: Petitioner argues that all Coast Rican flower producers 
and exporters covered by the agreement have not established non-use of 
countervailable programs for a period of at least five years. Since the 
first administrative review, nine companies have signed on to the 
agreement. Petitioner notes that Sec. 355.25(a)(2)(i) of the 
Department's regulations states that a suspended investigation may be 
terminated if ``[a]ll producers and exporters covered at the time of 
revocation by the order or suspension agreement have not applied for or 
received any net subsidy on the merchandise for a period of at least 
five consecutive years.'' As not all current signatories were covered 
by the first review, petitioner argues that they have not been found to 
comply with the terms of the agreement for five consecutive years. 
Petitioner contends that it is not Department practice to deviate from 
its regulations without a demonstration that the unusual facts or 
circumstances of a particular case require special consideration. 
Petitioner points out that in Ceramic Tile from Mexico; Final Results 
of Countervailing Duty Administrative Review and Revocation in Part of 
the Countervailing Duty Order (59 FR 2823, 2824, January 19, 1994) 
(``Tile from Mexico'') the Department found that a company had 
fulfilled the five-year requirement, even though it had not been 
reviewed during one review period because it did not ship during that 
period. The Department based this determination on the ``unusual facts 
and circumstances'' of the case and the lack of a clearly articulated 
Department policy detailing the requirements of 19 CFR 355.25(a)(3). 
The Department did revoke the order for this company. Petitioner also 
notes a Department decision to require that separate administrative 
reviews be conducted for each of the review periods. (See Lamb Meat 
from New Zealand; Final Results of Countervailing Duty Administrative 
Review (58 FR 45,097, August 26, 1993), and the Department's Memorandum 
in that review Re: Basis for Revocation of Orders and Terminations of 
Suspension Agreements Under 19 CFR 355.25(a)(1) at 4 (12/14/92) (on 
file in room B-099, Department of Commerce, Washington, DC).
    Respondents argue that the changes to the list of signatories 
demonstrate the effectiveness and inclusiveness of compliance measures 
established by respondents to assure fulfillment of their obligations 
under the agreement. Respondents contend that requiring all those who 
happen to appear on the list of signatories as of the period of review 
to demonstrate their compliance with the terms of the agreement for a 
period of five consecutive years imposes an impossible standard, 
especially in the case where a company was newly established during the 
five-year review period. Furthermore, respondents state that the 15 
original signatories have accounted for at least 85 percent of Costa 
Rican exports of subject merchandise to the United States throughout 
the life of the agreement. Respondents argue that the Tile from Mexico 
case, referred to by petitioner, dealt with partial revocation of a 
countervailing duty order and is therefore irrelevant to the current 
case. Respondents contend that the language of Sec. 355.25(a)(2), ``at 
the time of revocation,'' refers to the current period of review upon 
which the determination to terminate is based. Respondents argue that 
following petitioner's interpretation would involve the parties in an 
endless cycle of ongoing review that the termination provisions are 
intended to avoid.
    Department's Position: We disagree with petitioner. We recognize 
that Sec. 355.25(a)(2)(i) appears to require that, in order for the 
Department to terminate a suspended investigation, ``[a]ll producers or 
exporters covered at the time of revocation'' must not have ``applied 
for or received any net subsidy on the merchandise for a period of at 
least five consecutive years.'' As explained below, however, the 
Department has determined that the strict reading advocated by the 
petitioner is not required by either the statute or the Department's 
regulations, and would not be in accordance with the terms of the 
agreement suspending the investigation in the present proceeding.
    Specifically, section 704(b) of the Tariff Act provides that the 
Department may suspend a countervailing duty investigation ``if the 
government of the country in which the subsidy practice is alleged to 
occur agrees, or exporters who account for substantially all of the 
imports'' of the subject merchandise agree, ``to eliminate the subsidy 
completely or to offset completely the amount of the net subsidy'' 
within the appropriate period of time. 19 U.S.C. 1671c(b) (emphasis 
added). The statutory language has not been changed since 1987, when 
the suspension agreement in this case was entered into. By regulation, 
the Department has defined ``substantially all'' of the merchandise in 
this context as meaning ``exporters that have accounted for not less 
than 85 percent by value or volume of the merchandise during the period 
for which the Department is measuring benefits in the investigation or 
such other period that the [Department] considers representative.'' 9 
CFR 355.18(c).
    The regulations only require the addition of new exporters in the 
event that the existing signatory exporters no longer account for 
substantially all of the merchandise. 19 CFR 355.19(c). Consequently, 
for purposes of terminating a suspended investigation under 
355.25(a)(2)(i), all that is required is that the same exporters who 
have accounted for 85 percent of the merchandise for a period of five 
consecutive years have not applied for or received any net subsidy on 
the merchandise during that period.
    Although not required by the statute, the Department may require 
new or additional producers or exporters to become signatories to an 
agreement, thus raising the coverage above the 85 percent level, in 
order to permit more effective monitoring of the agreement. In this 
case, pursuant to the agreement, the GOCR was required to notify the 
Department whenever new producers or exporters exported subject 
merchandise to the United States, and whether those producers or 
exporters had agreed to comply with the terms of the agreement. 
Agreement, 52 FR at 1361. To ensure that it met this requirement, the 
GOCR required any new or different producer or exporter which exported 
a certain volume or value of the subject merchandise to the United 
States to become a signatory. These new signatories were required to 
comply with the terms of the agreement during each year they were 
covered. The new signatories which have been reviewed by the Department 
provided a further track record of compliance with the suspension 
agreement. This provided the Department with evidence above and beyond 
that required under the statute and the Department's regulations for 
both coverage and termination.
    Finally, we agree with respondents that the Tile from Mexico case 
dealt with partial revocation, i.e., a company-specific revocation, of 
a countervailing duty order under Sec. 355.25(a)(3) of the Department's 
regulations. The regulations contain no similar provision permitting 
partial termination of a suspension agreement. Therefore, the Tile from 
Mexico determination does not bear on the outcome of this proceeding.
    Accordingly, we have determined that section 355.25(a)(2) permits 
termination of a suspended investigation whenever the Department 
determines that the exporters or producers that originally signed the 
suspension agreement have consistently accounted for at least 85 
percent of the imports of the subject merchandise for a period of at 
least five consecutive years, during which time they did not apply for 
or receive any net subsidy on the subject merchandise. In addition, any 
new signatories must be found to have complied with the terms of the 
agreement during the time they are covered.
    The Department has determined that throughout the life of the 
present agreement, including during the current review, the producers 
and exporters that originally signed the agreement have continued to 
account for at least 85 percent of the imports, despite the fact that 
new producers or exporters were added to the agreement. See Memo to the 
File, dated March 30, 1994, public version on file in room B-099, 
Department of Commerce, Washington, DC. In addition, we have determined 
that no producer or exporter covered by the agreement has applied for 
or received any net subsidy on the subject merchandise during this 
review or during any of the previous four reviews. Hence, for a period 
of at least five consecutive years after entry into the agreement, the 
Department has determined that the producers and exporters that signed 
the agreement and that consistently have accounted for substantially 
all of the imports of the subject merchandise into the United States 
have not applied for or received any net subsidy on the subject 
merchandise. Also, the signatories that were later added to the 
agreement have complied with the terms of the agreement during each 
review period in which they were covered. Therefore, we determine that 
the requirements for termination under Sec. 355.25(a)(2)(i) have been 
met. Comment 2: Petitioner argues that the Department should decline to 
terminate the suspended investigation because all the programs are 
still in existence and used by the flower producers and exporters for 
non-subject merchandise. Petitioner asserts that after termination, the 
former signatories will continue to be eligible to receive benefits for 
most of the programs, absent active ACOFLOR intervention and 
monitoring. Moreover, petitioner contends that termination would be 
inappropriate without updated information covering the 1992 and 1993 
review periods.
    Petitioner argues that it is not unlikely that the flower producers 
and exporters will use the six programs covered by the agreement. 
Specifically, petitioner makes the following arguments regarding the 
six programs:
    (1) Exporter Credit for Sales Tax on Certain Domestic Purchases: 
Petitioner argues that there will be no incentive for ACOFLOR or the 
GOCR to continue monitoring receipt of benefits under this program. 
Petitioner also asserts that there will be incentives for flower 
producers and exporters to switch equipment used for the production on 
non-subject merchandise, for which exemptions are allowed, to the 
production of subject merchandise, for which exemptions are monitored 
under the agreement.
    (2) Exporter Exemptions for Taxes and Duties on Imports: Petitioner 
makes the same arguments as stated above for the Exporter Credit for 
Sales Tax on Certain Domestic Purchases.
    (3) Accelerated Depreciation: Petitioner argues that, although the 
Department has found that no signatories have used accelerated 
depreciation, there is no formal or informal mechanism to stop flower 
producers and exporters from claiming accelerated depreciation on their 
tax forms.
    (4) Certificates for Increasing Exports (CIEX): Petitioner argues 
that the CIEX program has not been terminated because some Costa Rican 
exporters received CIEX benefits in 1991 through a special commission 
established in 1984 to pay benefits accrued in earlier years. 
Additionally, petitioner contends that there are no formal or informal 
measures to render exports of the subject merchandise ineligible for 
the benefit.
    (5) Tax Credit Certificates (Certificados Abono Tributario CATs)): 
Petitioner contends that it is not clear that the CAT program was 
terminated as it continues to undergo fundamental changes. Petitioner 
also urges that although the Central Bank is not granting CATs in new 
export contracts, it is unclear whether the same or different benefits 
could be granted without using export contracts which are currently 
required to obtain CAT benefits.
    (6) Income Tax Exemption for Export Earnings: The agreement 
requires exporters to maintain separate accounting records for subject 
and non-subject merchandise. Petitioner argues that as only one 
company, American Flower, maintains separate records of duty and tax 
exemption benefits received for exports of non-subject merchandise, the 
Department cannot confirm whether flower producers and exporters have 
received countervailable benefits on exports of subject merchandise. 
Petitioner contends that flower producers and exporters were eligible 
to apply for the income tax exemption if they had tax-exempt export 
profits and if they segregated domestic and export sales income in 
calculating income tax. Consequently, petitioner asserts, it is 
unlikely that new flower producers and exporters not previously subject 
to the agreement will maintain separate records for the subject 
merchandise.
    Respondents argue that the GOCR and ACOFLOR have pledged to 
maintain controls to monitor receipt of benefits and that the GOCR is 
committed to eliminating incentives that distort trade. Respondents 
argue that it is unlikely that the flower producers and exporters will 
use the following six programs after termination:
    (1) Exporter Credit for Sales Tax on Certain Domestic Purchases: 
Respondents argue that, in most cases, it will not always be feasible 
for flower producers and exporters to switch equipment from the 
production of a product which is non-subject merchandise to subject 
merchandise product.
    (2) Exporter Exemptions for Taxes and Duties on Imports: 
Respondents made the same arguments as above for the Exporter Credit 
for Sales Tax on Certain Domestic Purchases.
    (3) Accelerated Depreciation: Respondents assert that there are two 
separate government agencies, Ministry of Finance and CENPRO, which 
have established government controls to block access to the use of 
accelerated depreciation.
    (4) CIEX: Respondents argue that this program was terminated in 
1988. Respondents argue that even if some of the funds authorized for 
this program in 1988 were not actually distributed until 1991, the GOCR 
made no CIEX distributions to flower producers and exporters. The 
respondents also argue that the fact that such funds may have actually 
been distributed in 1991 does not alter that fact that the CIEX program 
was effectively terminated in 1984 for lack of funding and officially 
closed in 1988.
    (5) CATs: Respondents argue that the only verified fundamental 
changes to the CAT program are those reducing or restricting its 
benefits.
    (6) Income Tax Exemption for Export Earnings: Respondents contend 
that with the continuation of GOCR controls, the GOCR will not grant 
exemptions unless the claimant can demonstrate that the income for 
which an exemption is sought is not derived from exports of the subject 
merchandise. Respondents also note that this program is being phased 
out.
    Department's Position: Section 355.25(a)(2) of the Department's 
regulations provides that the Department may terminate a suspension 
agreement despite the fact that the subsidy programs have not been 
abolished, provided the Department concludes that the requirements of 
this provision are met. As explained in Comment 1, the Department 
determines that the original signatories have complied with the terms 
of the agreement and the requirements of Sec. 355.25(a)(2)(i). 
Regarding Sec. 355.25(a)(2)(ii), ACOFLOR has certified that the 
signatories are not likely to apply for or receive any countervailable 
subsidies in the future. The GOCR and ACOFLOR have certified that the 
control mechanisms to ensure compliance with the agreement will remain 
in place if the agreement is terminated. Furthermore, government 
officials stated during verification that Costa Rican subsidies in 
general were being phased out. In sum, as the Department determined in 
the preliminary results of review, the record contains no evidence 
indicating that the signatories will apply for or receive any net 
subsidy on the subject merchandise in the future. 59 FR at 6238. 
Petitioner has offered no arguments which would reasonably contradict 
this determination.
    In addition, we disagree with each of the petitioner's program-
specific arguments for the following reasons:
    (1) Exporter Credit for Sales Tax on Certain Domestic Purchases and 
(2) Exporter Exemptions for Taxes and Duties on Imports: The GOCR and 
ACOFLOR have certified that the control mechanisms currently in place 
to monitor compliance with the agreement will remain in place so that 
equipment on which duties or taxes were exempted will not be switched 
to the production of subject merchandise after termination.
    (3) Accelerated Depreciation: We agree with respondents that there 
are formal mechanisms in place at the Ministry of Finance and CENPRO to 
prevent flower producers and exporters from claiming accelerated 
depreciation. At verification, we found that the signatories have not 
used the accelerated depreciation program.
    (4) CIEX: We agree with respondents that this program was 
terminated in 1988 and that no flower producers or exporters have 
received benefits from this program during the five years required for 
termination.
    (5) CAT: We agree with respondents that all changes during the 
period of review to this program have reduced and/or restricted the 
receipt of benefits.
    (6) Income Tax Exemption for Export Earnings: The agreement 
requires signatories to maintain separate accounting records of exports 
to receive income tax exemptions for export earnings. Contrary to the 
argument of petitioner, the Department has verified that the 
signatories maintained these records. A company must maintain separate 
accounting records in order to receive an exemption from duties on non-
physically incorporated inputs. Only one company, American Flower, 
maintained these separate accounting records for the exemption from 
duties on non-physically incorporated inputs, and only American Flower 
received this exemption on duties. All companies maintained separate 
records of imports eligible for tax and duty exemptions and domestic 
purchases eligible for tax credits on inputs physically incorporated 
into exports of the subject merchandise.
    Further, under Sec. 355.25(b)(2) of the Department's regulations, 
the government of the affected country may request termination of a 
suspension agreement during the fifth and subsequent annual anniversary 
months of the suspension of the investigation. In the current 
proceedings, the fifth anniversary month was January 1992 and the 
review period for termination is January 1, 1991 through December 31, 
1991. Therefore, contrary to petitioner's argument, the fifth 
anniversary month, January 1992, and the 1991 review period is the 
``time of revocation'' within the meaning of Sec. 355.25(a)(2), and the 
Department may terminate the agreement without information regarding 
the 1992 and 1993 review periods.
    Based upon the foregoing, in accordance with section 
Sec. 355.25(a)(2)(ii) of the Department's regulations, we determine 
that it is not likely that the producers or exporters will in the 
future apply for or receive a net subsidy on the subject merchandise.
    Comment 3: Petitioner argues that the ability to export to the U.S. 
market is essential for Costa Rican flower producers and exporters to 
remain viable. Petitioner asserts that because Costa Rican flower 
producers and exporters must compete with hundreds of Colombian flower 
producers who dominate the U.S. market, the Costa Rican flower 
producers and exporters continue to have a need for flower subsidies.
    Respondents counter that throughout the life of the agreement, 
Costa Rican flower producers and exporters of the subject merchandise 
have been able to compete in the U.S. market without receiving 
subsidies. They also argue that the GOCR is committed to eliminating 
incentives that distort trade because they are no longer needed to 
maintain competitiveness, and because they cost too much.
    Department's Position: We disagree with petitioner. As stated in 
Comment 1, the original signatories still accounted for substantially 
all of the exports of the subject merchandise to the United States in 
1991, the period of review. The Department has determined that the 
original signatories have not received subsidies on exports of the 
subject merchandise to the United States during at least five 
consecutive years. Hence, there is no evidence that Costa Rican flower 
producers and exporters continue to need subsidies to compete.

Final Results of Review

    After considering all of the comments received, we determine that 
the signatories have complied with the terms of the agreement for the 
period January 1, 1991 through December 31, 1991. In addition, we 
determine that the signatories have met the requirements for 
termination of the agreement. The original signatories have not applied 
for or received any net subsidy on the subject merchandise for five 
consecutive years and they have filed the certifications required by 19 
CFR Sec. 355.25(b)(2). Based on the foregoing, we determine that there 
is no likelihood that the signatories will apply for or receive any net 
subsidy in the future. Therefore, we determine to terminate the 
Suspension of the Countervailing Duty Investigation on Fresh Cut 
Flowers from Costa Rica. As a result, we will also terminate the 
reviews in progress for the agreement covering the 1992 and 1993 
periods.
    The administrative review and notice are in accordance with section 
751(a)(1)(C) and 751(c) of the Tariff Act (19 U.S.C. 1675(a)(1)(C) and 
1675(c)) and 19 CFR 355.22 and 355.25.

    Dated: May 5, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 94-11590 Filed 5-11-94; 8:45 am]
BILLING CODE 3510-DS-M