[Federal Register Volume 61, Number 43 (Monday, March 4, 1996)]
[Notices]
[Pages 8255-8259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4984]



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DEPARTMENT OF COMMERCE
[C-508-605]


Industrial Phosphoric Acid From Israel; Preliminary Results of 
Countervailing Duty Administrative Reviews

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


[[Page 8256]]

ACTION: Notice of preliminary results of Countervailing Duty 
Administrative Reviews.

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SUMMARY: The Department of Commerce (the Department) is conducting two 
administrative reviews of the countervailing duty order on industrial 
phosphoric acid from Israel. We preliminarily determine the net subsidy 
to be 3.84 percent ad valorem for all companies for the period January 
1, 1992 through December 31, 1992, and 5.50 percent ad valorem for all 
companies for the period January 1, 1993 through December 31, 1993. If 
the final results of these reviews remain the same as these preliminary 
results, the Department intends to instruct the U.S. Customs Service to 
assess countervailing duties as indicated above. Interested parties are 
invited to comment on these preliminary results.

EFFECTIVE DATE: March 4, 1996.

FOR FURTHER INFORMATION CONTACT: Brian Albright or Cameron Cardozo, 
Office of Countervailing Compliance, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW., Washington, DC 20230; telephone: 
(202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

    On August 19, 1987, the Department published in the Federal 
Register (52 FR 31057) the countervailing duty order on industrial 
phosphoric acid from Israel. On August 3, 1993, and August 3, 1994, the 
Department published notices of ``Opportunity to Request Administrative 
Review'' of this countervailing duty order for the periods January 1, 
1992 through December 31, 1992 and January 1, 1993 through December 31, 
1993, respectively (58 FR 41240 and 59 FR 39543). We received a timely 
request for review for the 1992 review period from the petitioners, FMC 
Corporation and the Monsanto Company. We received timely requests for 
review for the 1993 review period from both the petitioners and the 
respondent, Rotem Fertilizers Ltd.
    We initiated the review covering the period January 1, 1992 through 
December 31, 1992, on September 30, 1993 (58 FR 51054). We initiated 
the review covering the period January 1, 1993 through December 31, 
1993, on September 16, 1994 (59 FR 47609). Each review covers one 
manufacturer/exporter of the subject merchandise, which accounts for 
virtually all of the exports of subject merchandise from Israel to the 
United States during the review period, and ten programs.

Applicable Statute and Regulations

    The Department is conducting these administrative reviews in 
accordance with section 751(a) of the Tariff Act of 1930, as amended 
(the Act). Unless otherwise indicated, all citations to the statute and 
to the Department's regulations are in reference to the provisions as 
they existed on December 31, 1994. However, references to the 
Department's Countervailing Duties; Notice of Proposed Rulemaking and 
Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed 
Regulations), are provided solely for further explanation of the 
Department's countervailing duty practice. Although the Department has 
withdrawn the particular rulemaking proceeding pursuant to which the 
Proposed Regulations were issued, the subject matter of these 
regulations is being considered in connection with an ongoing 
rulemaking proceeding which, among other things, is intended to conform 
the Department's regulations to the Uruguay Round Agreements Act. See 
60 FR 80 (Jan. 3, 1995).

Scope of Review

    Imports covered by this review are shipments of industrial 
phosphoric acid (IPA) from Israel. Such merchandise is classifiable 
under item number 2809.20.00 of the Harmonized Tariff Schedule (HTS). 
The HTS item number is provided for convenience and Customs purposes. 
The written description remains dispositive.

Calculation Methodology for Assessment and Cash Deposit Purposes

    Because Rotem is the only manufacturer/exporter of the subject 
merchandise to the United States, Rotem's net subsidy rate is also the 
country-wide rate.

Privatization

    Israeli Chemicals Ltd. (ICL), the parent company which holds one 
hundred percent of Rotem's shares, was partially privatized in 1992 and 
again in 1993. Accordingly, we have determined that the partial 
privatization of ICL represents a partial privatization of each of the 
companies in which ICL holds an ownership interest.
    In these reviews and prior reviews of the subject merchandise, the 
Department has found that Rotem and/or its predecessor, Negev 
Phosphates Ltd., received non-recurring countervailable subsidies prior 
to these partial privatizations. Further, the Department has found that 
a private party purchasing all or part of a government-owned company 
can repay prior non-recurring subsidies on behalf of the company as 
part or all of the sales price (see the General Issues Appendix 
appended to the Final Countervailing Duty Determination; Certain Steel 
Products from Austria, 58 FR 37262 (July 9, 1993) (General Issues 
Appendix)). Therefore, to the extent that a portion of the sales price 
paid for a privatized company can be reasonably attributed to prior 
subsidies, that portion of those subsidies are repaid.
    To calculate the non-recurring subsidies remaining with Rotem after 
each partial privatization, we performed the following calculations. We 
first calculated the amount of the purchase price paid for the ICL 
shares which could be attributed to Rotem using the ratio of Rotem's 
net assets to ICL's net assets in the year of sale. (For a further 
explanation of the Department's analysis of the purchase price 
attributable to Rotem, see October 25, 1995 memorandum to Barbara E. 
Tillman regarding partial privatization of ICL, which is on file in the 
public file of the Central Records Unit, Room B-099 of the Department 
of Commerce.) We then calculated the net present value (NPV) of the 
future benefit stream of the non-recurring subsidies received by Rotem 
at the time of the sale of the shares. Next, we calculated the portion 
of the purchase price which represents repayment of prior subsidies in 
accordance with the methodology described in the ``Privatization'' 
section of the General Issues Appendix (58 FR 37259). This amount was 
then subtracted from the NPV of the subsidies, and the result was 
divided by the NPV of the subsidies to calculate the ratio representing 
the amount of subsidies remaining with Rotem after each partial 
privatization.
    To calculate the benefit provided to Rotem for 1992 and 1993, we 
multiplied the benefit calculated for Encouragement of Capital 
Investment Law grants (the only subsidies relevant to the privatization 
calculation) for each period by the ratio representing the amount of 
subsidies remaining with Rotem after the partial privatization. We then 
divided the results by the company's total sales of subject merchandise 
in each respective period.

Analysis of Programs

I. Programs Preliminarily Determined to Confer Subsidies

(A) Encouragement of Capital Investments Law (ECIL) Grants
    The ECIL grants program was established to attract capital to 
Israel. In 

[[Page 8257]]
order to be eligible to receive various benefits under the ECIL, 
including investment grants, capital grants, accelerated depreciation, 
reduced tax rates, and certain loans, 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. Investment grants are given as 
a percentage of the cost of the approved investment. The amount of the 
grant benefits received by approved enterprises depends on the 
geographic location of the eligible enterprise. For purposes of the 
ECIL program, Israel is divided into three zones--Development Zone A, 
Development Zone B, and the Central Zone--each with a different funding 
level.
    Since 1978, only investment projects outside the Central Zone have 
been eligible to receive grants. The Central Zone comprises the 
geographic center of Israel, including its largest and most developed 
population centers. In Final Affirmative Countervailing Duty 
Determination: Industrial Phosphoric Acid from Israel, 52 FR 25447 
(July 7, 1987) (IPA Investigation), the Department found the ECIL 
grants program to be de jure specific and thus countervailable because 
the grants are limited to enterprises located in specific regions. In 
these reviews, the Government of Israel (GOI) has provided no new 
information or evidence of changed circumstances to warrant 
reconsideration of this determination.
    Rotem Fertilizers Ltd. (Rotem) is located in Development Zone A, 
and received ECIL investment, drawback, and capital grants in 
disbursements over a period of years for several projects. We followed 
the methodology developed in IPA Investigation to determine the 
benefits from the ECIL grants. However, consistent with the Final 
Affirmative Countervailing Duty Determination: Certain Carbon Steel 
Butt-Weld Pipe Fittings From Israel, 60 FR 10569 (February 27, 1995) 
(Butt-Weld Pipe Investigation), in these reviews we have amended the 
calculation methodology to conform with the use of variable rather than 
fixed interest rates in the years these grants were disbursed. Section 
355.49(b)(3) of the Department's Proposed Regulations relies on a 
discount rate, based on the cost of fixed-rate long-term debt for the 
firm under review or generally in the country under review. However, 
Rotem had no fixed-rate long-term debt during the years in which it 
received ECIL grants. Moreover, in Butt-Weld Pipe Investigation, the 
Department determined that no long-term loans with fixed interest rates 
(or other long-term debt) were available in Israel during that period; 
the only long-term loans (or other long-term debt) available to 
companies in Israel were provided at variable interest rates.
    This methodology reflects the actual long-term options open to 
Israeli firms, and also ensures that the net present value of the 
amount countervailed in the year of receipt does not exceed the face 
value of the grant. In accordance with General Issues Appendix, we 
allocated these grants over ten years (the average useful life of 
renewable physical assets in the chemical manufacturing industry, as 
determined under the U.S. Internal Revenue Service Asset Depreciation 
Range System). As the discount rate, 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).
    We summed the benefits from these projects for each year (1992 and 
1993), and then reduced the annual benefits according to the 
methodology outlined in the ``Privatization'' section above. We then 
divided the results by the value of IPA sold by Rotem during the 
relevant review period. On this basis, we preliminarily determine the 
net subsidy from this program to be 3.82 percent ad valorem for 1992 
and 5.47 percent ad valorem for 1993.
(B) Long-term Industrial Development Loans
    Prior to July 1985, approved enterprises were eligible to receive 
long-term industrial development loans funded by the Government of 
Israel (GOI). During the original investigation, we verified that these 
loans, like the ECIL grants, were project-specific. They were disbursed 
through the Industrial Development Bank of Israel (IDBI) and other 
industrial development banks which no longer exist.
    The long-term industrial development loans were provided to a 
diverse number of industries, including agricultural, chemical, mining, 
machine, and others. However, the interest rates on loans vary 
depending on the Development Zone in which the borrower is located. The 
interest rates on loans to borrowers in Development Zone A are lowest, 
while those on loans to borrowers in the Central Zone are highest. 
Therefore, loans to companies in Zone A are provided on preferential 
terms relative to loans received by companies in the heavily populated 
and developed Central Zone. In IPA Investigation, the Department found 
long-term industrial development loans to be regional subsidies and 
countervailable to the extent that they are provided at interest rates 
which are lower than those applied on loans provided to companies 
located in the Central Zone. In these reviews, the Government of Israel 
(GOI) has provided no new information or evidence of changed 
circumstances to warrant reconsideration of this determination. Rotem 
had loans outstanding under this program during both review periods. 
The loans carry the Zone A interest rates because of Rotem's location. 
Therefore, we determine that Rotem received countervailable benefits 
under this program because the interest rates paid by Rotem are less 
than those which would apply in the Central Zone.
    As was determined in the Butt-Weld Pipe Investigation, under the 
terms of this program, the interest rates on these loans have two 
components--a fixed real interest rate and a variable interest rate, 
the latter of which is based on either the CPI or the dollar/shekel 
exchange rate. All of Rotem's loans were linked to the dollar/shekel 
exchange rate. Because the dollar-shekel exchange rate varies from 
year-to-year, we were unable to apply the Department's methodology 
described in the Proposed Regulations because we cannot calculate a 
priori the payments due over the life of these loans, and hence cannot 
calculate the ``grant equivalent'' of the loans. Accordingly, in 
accordance with section 355.49(d)(1) of the Proposed Regulations, 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 Rotem 
during the review periods.
    For each project, we calculated the interest savings accrued during 
the period of review (POR). We then summed the benefits and divided the 
total by the value of all IPA sold by Rotem during the POR. On this 
basis, we preliminarily determine the net subsidy from this program to 
be 0.01 percent ad valorem for 1992, and less than 0.005 percent ad 
valorem for 1993.
(C) Exchange Rate Risk Insurance Scheme
    Prior to September 1993, the Exchange Rate Risk Insurance Scheme 
(EIS), operated by the Israel Foreign Trade Risk Insurance Corporation 
Ltd. (IFTRIC), was designed to insure exporters against losses which 
resulted when the rate of inflation exceeded the rate of devaluation 
and the new Israeli Shekel (NIS) value of an exporter's foreign 
currency receivables did not rise enough to cover increases in local 
costs.
    The EIS was optional and open to any exporter willing to pay a 
premium to IFTRIC. Compensation was based on a 

[[Page 8258]]
comparison of the rate of devaluation of the NIS against a basket of 
foreign currencies with the change in the consumer price index. If the 
rate of inflation exceeded 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 rate of inflation, however, the 
exporter was required to compensate IFTRIC. The premium was calculated 
for all participants as a percentage of the value-added sales value of 
exports. IFTRIC changed this percentage rate periodically, but at any 
given time it was the same for all exporters.
    In determining whether an export insurance program provides a 
countervailable benefit, we examine whether the premiums and other 
charges are adequate to cover the program's long-term operating costs 
and losses. Despite periodic increases in the premium rate, we 
determined in IPA Investigation that this program did not cover its 
long term costs and losses and, therefore, conferred an export subsidy 
on exports of IPA from Israel. In addition, in the Final Results of 
Countervailing Duty Administrative Review; Industrial Phosphoric Acid 
from Israel (59 FR 5176; February 3, 1994), covering the 1991 review 
period, we found that this program conferred a countervailable benefit 
on exporters in Israel of the subject merchandise. Normally, five years 
is a sufficiently long enough period of time to establish that the 
premiums and other charges are manifestly inadequate to cover the long-
term operating costs and losses of the program. (See section 
355.44(d)(1) of the Proposed Regulations). We reviewed EIS financial 
statements in these reviews which showed that EIS has continuously 
operated at a loss from 1981 through 1992. Since EIS has operated at a 
loss for 12 years, the determination that this program is 
countervailable remains unchanged.
    We verified that Rotem did not receive benefits from IFTRIC for its 
IPA exports to the United States during 1992. However, Rotem did 
receive benefits from IFTRIC for its IPA exports to United States 
during 1993. Therefore, for the 1993 review period, we have calculated 
the benefit rate by dividing the net amount of compensation Rotem 
received during the review period from IFTRIC for IPA exported to the 
United States, by the value of the company's exports of IPA to the 
United States during the same period. On this basis, we preliminarily 
determine the benefit from this program to be zero for the 1992 review 
period and 0.02 percent ad valorem for the 1993 review period.
(D) Encouragement of Industrial Research and Development Grants (EIRD)
    Rotem received several grants under this program in both the 1992 
and 1993 review periods. In IPA Investigation, we determined that the 
results of research funded by EIRD grants are not made publicly 
available, and that such grants are countervailable. (See also section 
355.44(l) of the Proposed Regulations). We followed the methodology 
developed in IPA Investigation in determining the benefits from the 
EIRD funding.
    The EIRD grant issued to Rotem on January 13, 1992 benefited a 
research project concerning green acid, which is used as an input in 
the production of IPA. We view this as a ``non-recurring'' grant based 
on the analysis set forth in the Allocation section of the General 
Issues Appendix. Since the grant value was less than 0.50 percent of 
all Rotem's sales, we allocated the full amount of the grant to 1992 
and divided by Rotem's total sales of all products. On this basis, we 
preliminarily determine the benefit from this program to be less than 
0.005 percent ad valorem.

II. New Program Preliminarily Determined Not to Confer Subsidies Law 
for the Encouragement of the Business Sector (Absorption of Workers)

    The questionnaire responses submitted by the GOI and Rotem for the 
1992 and 1993 review periods stated that Rotem participated in a 
temporary program aimed at encouraging employment in order to cope with 
the problems caused by immigration. This program, enacted under the 
temporary Law for the Encouragement of the Business Sector (Absorption 
of Workers), has not been examined in any prior reviews or in the 
investigation of the subject merchandise. Therefore, we requested 
additional information on this program, and on the benefits received by 
Rotem, in a supplemental questionnaire, and we verified the information 
in both responses in order to determine whether the program was 
limited, either de jure or de facto, to a specific enterprise or 
industry, or a group of enterprises or industries, and thus 
countervailable.
    The temporary Law for the Encouragement of the Business Sector 
(Absorption of Workers) was instituted in 1991 in an effort to expand 
employment opportunities in the Israeli economy, following rising 
levels of unemployment between 1988-1991 caused by large Russian 
immigration. Under the Absorption of Workers program, funded by the 
Treasury and administered by the National Insurance Institute (NII), 
any employer in the business sector employing a monthly average of over 
five employees is eligible to receive a monthly grant from the Treasury 
for each additional employee hired. The period of payment of the grant 
for each employee is limited to two years. During the first year, the 
grant consists of one-third of the monthly wages paid to the employee 
but cannot exceed NIS 1000 per month. During the second year, the grant 
consists of one-fourth of the monthly wages paid to the employee but 
cannot exceed NIS 750 per month. Payments under the program began in 
July 1991 and are scheduled to terminate in December 1995.
    Companies that wish to participate in this program submit an 
application, certified by a CPA, through their bank to the NII within 
nine months of the end of the quarter for which they are requesting 
assistance. The NII reviews the application form and compares it to the 
company's insurance records and Department of the Interior records to 
calculate the average number of workers employed prior to the period of 
application. Any workers hired over this baseline number make the 
company eligible for participation in the program. For eligible 
companies, payment is transferred directly into the employer's bank 
account within 45 days of the application. The NII conducts random 
audits of approximately 20 percent of the recipients.
    We verified that all companies in the business sector employing a 
minimum of five workers are eligible to participate in the program and, 
upon submission of a complete and accurate application within the 
specified time frame, will receive a grant for each additional worker 
hired. Moreover, we found no evidence that the program is regional or 
that approval is contingent upon the export performance of the company. 
Finally, we found no evidence that the program is limited to a specific 
enterprise or industry, or a group of enterprises or industries. There 
are a large number and wide variety of users of the program. The range 
of industrial branches that received grants includes agriculture, 
general industry, electricity and water, construction, food and 
hospitality, transportation, financial, public services, and private 
services. Chemical producers are neither a dominant nor 
disproportionate recipient of the grants, and there is no evidence that 
the GOI exercises discretion, in general or across industries, in 

[[Page 8259]]
conferring the grants. Thus, we preliminarily determine that this 
program is not countervailable within the meaning of section 701(a) of 
the Act. (For a more detailed explanation of the Department's decision, 
see the May 26, 1995 Memorandum for the 1992 Administrative Reviews of 
IPA from Israel, on file in the public file of the Central Records 
Unit, Room B-099 of the Department of Commerce).

III. Programs Preliminarily Determined Not to Be Used

    We also examined the following programs and preliminarily determine 
that the producer/exporter of the subject merchandise did not apply for 
or receive benefits under these programs during the 1992 or 1993 review 
periods:

A. Reduced tax rates under ECIL;
B. ECIL section 24 loans;
C. Preferential accelerated depreciation under ECIL;
D. Labor training grants; and
E. Dividends and Interest Tax Benefits under Section 46 of the ECIL.

Preliminary Results of Reviews

    For the period January 1, 1992, through December 31, 1992, we 
preliminarily determine the net subsidy to be 3.84 percent ad valorem 
for all firms. For the period January 1, 1993 through December 31, 
1993, we preliminarily determine the net subsidy to be 5.50 percent ad 
valorem for all firms.
    If the final results of this review remain the same as these 
preliminary results, the Department intends to instruct the U.S. 
Customs Service to assess the following countervailing duties:

------------------------------------------------------------------------
                                                                  Rate  
        Manufacturer/exporter                  Period          (percent)
------------------------------------------------------------------------
All companies.......................  1992...................       3.84
All companies.......................  1993...................       5.50
------------------------------------------------------------------------

    The Department also intends to instruct the U.S. Customs Service to 
collect a cash deposit of estimated countervailing duties, as provided 
by section 751(a)(1) of the Act, of 5.50 percent of the f.o.b. invoice 
price on all shipments of the subject merchandise from Israel entered, 
or withdrawn from warehouse, for consumption on or after the date of 
publication of the final results of these administrative reviews.
    Parties to the proceedings may request disclosure of the 
calculation methodology used in either review and interested parties 
may request a hearing not later than 10 days after the date of 
publication of this notice. Interested parties may submit written 
arguments in case briefs on these preliminary results within 30 days of 
the date of publication. Rebuttal briefs, limited to arguments raised 
in the case briefs, may be submitted seven days after the time limit 
for filing the case brief. Parties who submit written arguments in 
these proceedings are requested to submit with the argument (1) a 
statement of the issue and (2) a brief summary of the argument. Written 
arguments that are intended to comment on the preliminary results for 
both the 1992 and 1993 reviews must be submitted to the file for each 
proceeding. Any hearing, if requested, will be held seven days after 
the scheduled date for submission of rebuttal briefs. Copies of case 
briefs and rebuttal briefs must be served on interested parties in 
accordance with 19 CFR 355.38(e).
    Representatives of parties to these proceedings may request 
disclosure of proprietary information under administrative protective 
order no later than 10 days after the representative's client or 
employer becomes a party to the proceeding, but in no event later than 
the date the case briefs, under section 355.38(c), are due. The 
Department will publish the final results of these administrative 
reviews including the results of its analysis of issues raised in any 
case or rebuttal brief or at a hearing.
    These administrative reviews and notice are in accordance with 
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.

    Dated: February 22, 1996.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 96-4984 Filed 3-1-96; 8:45 am]
BILLING CODE 3510-DS-P