[Federal Register Volume 59, Number 104 (Wednesday, June 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13317]


[[Page Unknown]]

[Federal Register: June 1, 1994]


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DEPARTMENT OF COMMERCE
[C-508-808]

 

Preliminary Affirmative Countervailing Duty Determination: 
Certain Carbon Steel Butt-Weld Pipe Fittings From Israel

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

EFFECTIVE DATE: June 1, 1994.

FOR FURTHER INFORMATION CONTACT:
Jennifer Yeske or Penelope Naas, Office of Countervailing 
Investigations, Import Administration, U.S. Department of Commerce, 
room B099, 14th Street and Constitution Avenue NW., Washington, DC 
20230; telephone (202) 482-0189 or 482-3534, respectively.

PRELIMINARY DETERMINATION: The Department preliminarily determines that 
benefits which constitute subsidies within the meaning of Section 701 
of the Tariff Act of 1930, as amended (the Act) are being provided to 
manufacturers, producers, or exporters in Israel of certain carbon 
steel butt-weld pipe fittings (pipe fittings).
    For information on the estimated net subsidies, please see the 
Suspension of Liquidation section of this notice.

Case History

    Since the publication of the notice of initiation in the Federal 
Register (59 FR 14149, March 25, 1994), the following events have 
occurred.
    On March 31, 1994, we issued a questionnaire to the Embassy of 
Israel in Washington, DC, concerning petitioners' allegations. On May 
9, 1994, we received responses from the Government of Israel (GOI) and 
Pipe Fittings Carmiel, Ltd. (Carmiel). On May 11, 1994, we issued a 
supplemental questionnaire to the GOI and Carmiel. We received 
responses on May 16, 1994.

Scope of Investigation

    The products covered by this investigation are certain carbon steel 
butt-weld pipe fittings having an inside diameter of less than fourteen 
inches (355 millimeters), imported in either finished or unfinished 
condition. Pipe fittings are formed or forged steel products used to 
join pipe sections in piping systems where conditions require permanent 
welded connections, as distinguished from fittings based on other 
methods of fastening (e.g., threaded, grooved, or bolted fittings). 
Butt-weld fittings come in a variety of shapes which include 
``elbows'', ``tees'', ``caps'', and ``reducers.'' The edges of finished 
pipe fittings are beveled, so that when a fitting is placed against the 
end of a pipe (the ends of which have also been beveled), a shallow 
channel is created to accommodate the ``bead'' of the weld which joins 
the fitting to the pipe. These pipe fittings are currently classifiable 
under subheading 7307.93.3000 of the Harmonized Tariff Schedule of the 
United States (HTSUS). Although the HTSUS subheading is provided for 
convenience and customs purposes, our written descriptions of the scope 
of these proceedings are dispositive.

Injury Test

    Israel is a ``country under the Agreement'' within the meaning of 
section 701(b) of the Act. Therefore, Title VII of the Act applies to 
this investigation. Accordingly, the U.S. International Trade 
Commission (``ITC'') must determine whether imports of the subject 
merchandise from Israel materially injure, or threaten material injury 
to, a U.S. industry. On April 20, 1994, the ITC published its 
preliminary determination that there is a reasonable indication that 
industries in the United States are being materially injured or 
threatened with material injury by reasons of imports from Israel of 
the subject merchandise (59 FR 18825, April 20, 1994).

Analysis of Programs

    Consistent with our practice in preliminary determinations, when a 
response to an allegation denies the existence of a program receipt of 
benefits under a program, or eligibility of a company or industry under 
a program, and the Department has no persuasive evidence showing that 
the response is incorrect, we accept the response for purposes of the 
preliminary determination. All such responses, however, are subject to 
verification. If the response cannot be supported at verification, and 
the program is otherwise countervailable, the program will be 
considered a subsidy in the final determination.
    Based upon our analysis of the petition and the responses to our 
questionnaires, we preliminarily determine the following:

Period of Investigation

    For purposes of this preliminary determination, the period of 
investigation (``the POI'') is calendar year 1993.

I. Programs Preliminarily Determined to be Countervailable

    We preliminarily determine that subsidies are being provided to 
manufacturers, producers or exporters in Israel of pipe fittings under 
the following programs:
A. Grants under the Encouragement of Capital Investments Law of 1959 
(ECIL)
    The ECIL program was established to develop the production capacity 
of the Israeli economy. In order to be eligible to receive benefits 
under the ECIL, the applicant must obtain ``Approved Enterprise'' 
status. Approved Enterprise status is obtained after a review of 
information submitted to the Investment Center of the Israeli Ministry 
of Industry and Trade.
    The amount of an investment grant under ECIL is calculated as a 
percentage of the total approved investment in fixed assets. The amount 
of the grant also depends on the geographic location of the enterprise. 
For purposes of the ECIL program, Israel is divided into three zones--
The Central Zone, Development Zone A and Development Zone B. Funding 
was restricted to companies in the Development Zones, with Development 
Zone A receiving a higher level of funding than those in Development 
Zone B. The Central Zone comprises the geographic center of Israel, 
including its largest and most developed population centers; companies 
in the Central Zone could not receive grants under this program at all.
    In Final Affirmative Countervailing Duty Determination: Industrial 
Phosphoric Acid from Israel (``IPA'') (52 FR 25447; July 7, 1987), the 
Department found the ECIL grants program to be de jure specific and, 
thus, countervailable because the grants are limited to entperises 
located in specific regions (i.e., Development Zone A and B). The GOI 
has provided no new information to warrant reconsideration of this 
finding.
    Carmiel is located in Development Zone A, and received grants for 
two projects related to the production of subject merchandise. These 
grants were disbursed over the years 1983-1993.
    It is our policy to allocate non-recurring grants over a period 
equal to the average useful life of assets in the industry, unless the 
sum of grants provided under a program in a particular year is less 
than 0.50 percent of a firm's total sales in that year. See 
Countervailing Duties; Notice of Proposed Regulations and Request for 
Public Comments, 54 FR 23366 (May 31, 1989( (``Proposed Regulations'') 
Section 355.49(a), and the General Issues Appendix to the Final 
Affirmative Countervailing Duty Determination: Certain Steel Products 
From Austia, 58 FR 37217, July 9, 1993. In this instance, respondents 
have not provided sales information for years prior to 1989. Therefore, 
we have no reason to believe the grants made before 1989 were less than 
0.5 percent of sales in the year of receipt for these years and have 
preliminarily determined that the yearly disbursements should be 
allocated over time. In 1990, the sum of grants disbursed under the 
ECIL program accounted for less than 0.5 percent of Carmiel's total 
sales in that year. Therefore, benefits for 1990 were allocated to that 
year and are not included in our calculations. For all other years 
after 1989, the sum of the grants disbursed under the ECIL program 
accounted for more than 0.5 percent of Carmiel's total sales each year. 
Therefore, these benefits were allocated over time.
    For ECIL grants allocated over time, we used a fifteen year 
allocation period (the average useful life of assets in the steel 
industry, as determined by the U.S. Internal Revenue Service Asset 
Depreciation Range System). The formula described in Sec. 355.49(b)(3) 
of the Proposed Regulations for allocating grants relies on a fixed 
discount rate, which is based on the cost of long-term, fixed-rate debt 
of the firm or generally in the country under investigation. However, 
no long-term loans with fixed interest rates (or other long-term fixed-
rate debt) were available to Carmiel or other companies in Israel 
during the years 1983-1993. Instead, the only long-term loans (or other 
long-term debt) available to companies in Israel appear to utilize 
variable interest rates, i.e. a fixed real interest rate added to the 
Consumer Price Index (CPI) or the dollar/shekel exchange rate.
    We have preliminarily determined to adapt the grant allocation 
method described in our proposed regulations to use variable rather 
than fixed interest rates as the discount rate, given the absence of 
long-term fixed interest rates in the years these grants were 
disbursed. This methodology reflects the actual long-term options open 
to Israeli firms (i.e., that long-term financing was only available 
through variable rate loans) and also ensures the the net present value 
of amounts countervailed in year of receipt does not exceed the face 
value of the grant.
    In this preliminary determination, we have used the rate of return 
on CPI-indexed commercial bonds (the real rate of return, as published 
in the Bank of Israel Annual Reports, plus the CPI), as no actual loan 
rates for Carmiel or other companies in Israel were available. For use 
in our preliminary determination, CPI-indexed commercial bond rates 
were unavailable for the years 1983-1984, 1988-1989, and 1993. 
Therefore, for 1983 and 1984, we took the real rate reported for 1985 
(information for prior years was not available) and added it to the 
CPIs for 1983 and 1984, respectively. For 1988 and 1989, we used the 
real rate for 1987 and added it to the CPIs for 1988 and 1989, 
respectively. For 1993, we used the real rate for 1992 and added it to 
the 1993 CPI.
    We divided the benefit by Carmiel's 1993 total sales. On this 
basis, we preliminarily determine the estimated net subsidy for this 
program to be 2.12 percent ad valorem for the POI.
B. Long-Term Industrial Development Loans
    Prior to July 1985, companies in Israel were eligible to receive 
long-term industrial development loans funded by the Government of 
Israel. This program was used in conjunction with ECIL; however, a 
company did not have to be an Approved Enterprise in order to receive a 
development loan.
    The GOI reported that loans under this program were provided to a 
diverse number of industries. However, the interest rates varied 
depending on the location of the borrower. The interest rates on loans 
to borrowers in Development Zone A were lowest, while those on loans to 
borrowers in the Central Zone were highest. In previous cases, the 
Department has found long-term industrial development loans in Israel 
to be regional subsidies and countervailable to the extent that the 
applicable interest rates are less than those on loans to companies in 
the Central Zone (see IPA). The GOI has provided no new information to 
warrant reconsideration of this finding.
    Carmiel received loans for one of its Approved Enterprise projects 
located in Zone A. These loans were received from the years 1983-1989. 
Under the terms of the program, the interest rates on these loans have 
two components--a fixed real interest rate and a variable rate, based 
on the Consumer Price Index (CPI) or the dollar/shekel exchange rate. 
Thus, these loans were variable rate loans. It is unclear from 
Carmiel's responses whether the loans they received were linked to the 
CPI or to the dollar-shekel exchange rate. Based on the limited 
information provided in the GOI and Carmiel's responses, we have 
assumed for purposes of the preliminary determination that all loans 
received by Carmiel had a fixed real rate of interest which was added 
to the CPI.
    Because the CPI varies from year-to-year, we cannot calculate a 
priorim the payments that will be made over the life of these loans 
and, hence, we cannot calculate the ``grant equivalent'' of the loans. 
Accordingly, we have compared the interest that would have been paid by 
a company in the Central Zone, as a benchmark, to the amount actually 
paid by Carmiel during the POI (see Section 355.49(d)(1) of the 
Proposed Regulations). We divided the interest savings by Carmiel's 
total sales in 1993.
    On this basis, we preliminarily determine the net subsidy rate from 
this program to be 0.15 percent ad valorem during the POI.

Exchange Rate Risk Insurance Scheme

    Prior to September 1993, the Exchange Rate Risk Insurance Scheme 
(EIS) operated by the Israel Foreign Trade Insurance Corporation Inc. 
(IFTRIC), allowed exporters to insure themselves against the risk of 
losses which would occur when the rate of devaluation lagged behind the 
rate of inflation. The EIS was optional and open to virtually any 
exporter willing to pay a premium to IFTRIC.
    Under EIS, if the rate of inflation was greater than the rate of 
devaluation, the exporter was compensated by an amount equal to the 
difference between these two rates multiplied by the value-added of the 
exports. If the rate of devaluation was higher than the change in the 
domestic price index, however, the exporter was required to compensate 
IFTRIC. Companies using EIS also paid a premium, calculated for each 
exporter as a percentage of their insured value of exports.
    In determining whether an export insurance program provides a 
countervailable benefit, we examine whether the premiums and other 
changes are adequate to cover the program's long-term operating costs 
and losses. See Section 355.44(d) of the Proposed Regulations and IPA. 
We have reviewed EIS data in this investigation which showed that EIS 
operated at a loss from 1981 through 1991. We believe that this 11 year 
history is more than adequate to establish that the premiums and other 
charges are manifestly inadequate to cover the long-term operating 
costs and losses of the program. This preliminary determination that 
EIS is countervailable is consistent with our determination in IPA.
    The GOI has provided information showing that EIS was terminated in 
September 1, 1993. It also confirmed that residual benefits would exist 
after September 1, 1993.
    We have calculated the benefit under this program as the net amount 
of compensation Carmiel received during the review period from IFTRIC 
(compensation received less compensation and fees paid) expressly for 
pipe fittings exported to the United States. This amount was divided by 
the value of the company's exports of pipe fittings to the United 
States during the POI.
    On this basis, we preliminarily determine the estimated net subsidy 
for Carmiel from this program to be 0.25 percent ad valorem during the 
POI.

II. Programs Preliminarily Determined Not To Be Used

    We preliminarily determine that producers or exporters in Israel of 
the subject merchandise did not receive benefits during the POI for 
exports of the subject merchandise to the United States under the 
following programs:

A. Additional Incentives under the ECIL
    1. Preferential Accelerated Depreciation
    2. Tax Benefits
    3. Preferential Loans
    4. Industry Subsidy Payments
B. Labor Training Grants
C. Encouragement of Industrial Research and Development Grants
D. Special Export Financing Loans
E. Provision of Funds for Transportation to Eilat Harbor

III. Programs for Which We Need More Information

A. Exceptions from Wharfage Fee
    Importers in Israel pay a wharfage fee of 1.5 percent on goods 
entering the country. Exporters are required to pay a wharfage fee of 
0.2 percent, unless they are exempted by the Port Authority. Currently, 
the Port Authority has exempted all exporters from payment of this 
wharfage fee. We are seeking further information on why these fees 
might differ for importers and exporters.
B. Rebates of the Peace of Galilee Levy and Wharfage Fees
    Exporters are also entitled to a partial rebate of levies paid 
under the Peace of Galilee and of wharfage fees paid on imported inputs 
which are physically incorporated into exported goods. It appears that 
these rebates are part of Israel's duty drawback system. However, we 
will be seeking further information to establish that these rebated 
were not excessive.

Verification

    In accordance with section 776(b) of the Act, we will verify the 
information used in making our final determination.

Suspension of Liquidation

    In accordance with section 703(d) of the Act, we are directing the 
U.S. Customs Service to suspend liquidation of all entries of pipe 
fittings from Israel, which are entered or withdrawn from warehouse, 
for consumption on or after the date of the publication of this notice 
in the Federal Register, and to require a cash deposit or bond for such 
entries in the amount indicated below. This suspension will remain in 
effect until further notice.
Certain Carbon Steel Butt-Weld Pipe Fittings
Country-Wide Ad Valorem Rate--2.52%

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all nonprivileged and nonproprietary information relating to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under administrative protective order, without the written consent of 
the Deputy Assistant Secretary for Investigations, Import 
Administration.
    If our final determination is affirmative, the ITC will make its 
final determination within 45 days after the Department makes its final 
determination.

Public Comment

    In accordance with 19 CFR 355.38, any interested party or U.S. 
Government agency may submit case briefs or other written comments with 
ten copies of the business proprietary version and five copies of the 
nonproprietary version to the Assistant Secretary no later than July 
19, 1994, and rebuttal briefs no later than July 25, 1994. In 
accordance with 19 CFR 355.38(b), we will hold a public hearing, if 
requested by an interested party, to give interested parties an 
opportunity to comment on arguments raised in case or rebuttal briefs. 
Tentatively, the hearing will be held on July 27, 1994, at 1 p.m. at 
the U.S. Department of Commerce, room 3708, 14th Street and 
Constitution Avenue NW., Washington, DC 20230. Parties should confirm 
by telephone the time, date, and place of the hearing 48 hours before 
the scheduled time.
    Interested parties who wish to request a hearing must submit a 
written request to the Assistant Secretary for Import Administration, 
U.S. Department of Commerce, room B099, 14th Street and Constitution 
Avenue NW., Washington, DC 20230, within ten days of the publication of 
this notice in the Federal Register. Requests should contain: (1) The 
party's name, address, and telephone number; (2) the number of 
participants; (3) the reason for attending; and (4) a list of the 
issues to be discussed. In accordance with 19 CFR 355.38(b), oral 
presentations will be limited to issues in the briefs.
    This determination is published pursuant to section 703(f) of the 
Act.

    Dated: May 24, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 94-13317 Filed 5-31-94; 8:45 am]
BILLING CODE 3510-DS-P-M