[Federal Register Volume 62, Number 175 (Wednesday, September 10, 1997)]
[Notices]
[Pages 47645-47649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23999]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-508-605]
Industrial Phosphoric Acid From Israel: Preliminary Results and
Partial Recission of Countervailing Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of preliminary results of countervailing duty
administrative review.
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SUMMARY: The Department of Commerce (the Department) is conducting an
administrative review of the countervailing duty order on industrial
phosphoric acid from Israel for the period January 1, 1995 through
December 31, 1995. For information on the net subsidy for each reviewed
company, as well as for all non-reviewed companies, please see the
Preliminary Results of Review section of this notice. If the final
results remain the same as these preliminary results of administrative
review, we will instruct the U.S. Customs Service to assess
countervailing duties as detailed in the Preliminary Results of Review.
Interested parties are invited to comment on these preliminary results.
See Public Comment section of this notice.
EFFECTIVE DATE: September 10, 1997.
FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Lorenza Olivas,
Office CVD/AD Enforcement VI, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-
4847 or (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 12, 1996, the Department
published a notice of ``Opportunity to Request Administrative Review''
(61 FR 41768) of this countervailing duty order. We received a timely
request for review, and we initiated the review, covering the period
January 1, 1995 through December 31, 1995, on September 17, 1996 (61 FR
48882).
In accordance with 19 C.F.R. 355.22(a), this review covers only
those producers or exporters of the subject merchandise for which a
review was specifically requested. Accordingly, this review covers
Rotem-Amfert Negev Ltd. (Rotem) and Haifa Chemicals Ltd. (Haifa). Haifa
did not export the subject merchandise during the period of review.
Therefore, we are rescinding the review with respect to Haifa. This
review also covers nine programs.
Pursuant to section 751(a)(3) of the Tariff Act of 1930, as
amended, we extended the preliminary results to no later than September
2, 1997, and the final results to 120 days from the date on which these
preliminary results are published. See Certain Industrial Phosphoric
Acid from Israel; Extension of Time Limit for Countervailing Duty
Administrative Review, 62 FR, 23220.
Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). The Department is conducting this administrative review in
accordance with section 751(a) of the Act.
[[Page 47646]]
Scope of the 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 U.S. Customs
Service purposes. The written description of the scope remains
dispositive.
Verification
As provided in section 782(i) of the Act, we verified information
submitted by the Government of Israel and Rotem. We followed standard
verification procedures, including meeting with government and company
officials and examining relevant accounting and financial records and
other original source documents. Our verification results are outlined
in the public versions of the verification reports, which are on file
in the Central Records Unit (Room B-099 of the Main Commerce Building).
Subsidies Valuation Information
Period of Review
The period for which we are measuring subsidies (the POR) is
calendar year 1995.
Allocation Period
In British Steel plc. v. United States, 879 F.Supp. 1254 (February
9, 1995) (British Steel), the U.S. Court of International Trade (the
Court) ruled against the allocation period methodology for non-
recurring subsidies that the Department had employed for the past
decade, which was articulated in the General Issues Appendix appended
to the Final Countervailing Duty Determination; Certain Steel Products
from Austria, 58 FR 37225 (July 9, 1993) (GIA)). In accordance with the
Court's decision on remand, the Department determined that the most
reasonable method of deriving the allocation period for nonrecurring
subsidies is a company-specific average useful life (AUL). This remand
determination was affirmed by the Court on June 4, 1996. British Steel,
929 F.Supp 426, 439 (CIT 1996). Accordingly, the Department has decided
to acquiesce to the British Steel decision where reasonable and
practicable.
Rotem submitted an AUL calculation based on depreciation and asset
values of productive assets reported in its financial statements.
Rotem's AUL was derived by adding depreciation charges for ten years,
and dividing these charges by the sum of average gross book value of
depreciable fixed assets for the related periods. We found this
calculation to be reasonable and consistent with our company-specific
AUL objective. Rotem's calculation resulted in an average useful life
of 24 years, and we have used this calculated figure for the allocation
period for non-recurring subsidies received during the POR.
For non-recurring subsidies received prior to the POR and which
have already been countervailed based on an allocation period
established in an earlier segment of the proceeding, it is not
reasonable or practicable to reallocate those subsidies over a
different period of time. Since the countervailing duty rate in earlier
segments of the proceeding was calculated based on a certain allocation
period and resulting benefit stream, redefining the allocation period
in later segments of the proceeding would entail taking the original
grant amount and creating an entirely new benefit stream for that
grant. Such a practice may lead to an increase or decrease in the total
amount countervailed and, thus, would result in the possibility of
over-countervailing or under-countervailing the actual benefit.
Therefore, for purposes of these preliminary results, the Department is
using the original allocation period assigned to each nonrecurring
subsidy received prior to the POR. See Certain Carbon Steel Products
from Sweden; Final Results of Countervailing Duty Administrative
Review, 62 FR 16549 (April 7, 1997).
Privatization
(I) Background
Israeli Chemicals Limited (ICL), the parent company which owns 100
percent of Rotem's shares, was partially privatized in 1992, 1993 and
1994. In this administrative review, the Government of Israel (GOI) and
Rotem reported that additional shares of ICL were sold in 1995. We have
previously determined that the partial privatization of ICL represents
a partial privatization of each of the companies in which ICL holds an
ownership interest. See Final Results of Countervailing Duty
Administrative Reviews; Industrial Phosphoric Acid from Israel, 61 FR
53351, 53352 (October 11, 1996) (1994 Final Results).
In this review and prior reviews of this order, 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 portion of the
price paid by a private party for all or part of a government-owned
company represents partial repayment of prior subsidies. See GIA, 58 FR
at 37262. Therefore, in the 1992 and 1993 reviews, we calculated the
portion of the purchase price paid for ICL's shares that is
attributable to repayment of prior subsidies. In the 1994 review,
respondents reported that the GOI sold less than 0.5 percent of its
shares in ICL. Because this percentage of shares privatized was so
small, the percentage of subsidies potentially repaid through this
privatization could have no measurable impact on Rotem's overall net
subsidy rate. Therefore, we did not apply our repayment methodology to
the 1994 partial privatization. See the 1994 Final Results, 61 FR at
53352. However, we are applying this methodology to the 1995 partial
privatization of ICL during the POR because 24.9 percent of ICL's
shares were sold. This approach is consistent with our findings in the
GIA and Department precedent under the URAA. See e.g., GIA, 58 FR at
37259; Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from
the United Kingdom; Final Results of Countervailing Duty Administrative
Review, 61 FR 58377 (November 14, 1996); and Final Affirmative
Countervailing Duty Determination: Certain Pasta From Italy, 61 FR
30288 (June 14, 1996).
(II) Modification of Calculation Methodology
As noted above, in the 1992 and 1993 administrative review of this
order, we determined that the partial privatization of ICL, Rotem's
parent company, represented partial privatization of Rotem. Therefore,
in each of those reviews, we calculated the portion of the purchase
price paid for ICL's shares that was attributable to repayment of prior
subsidies. Under this methodology, to determine the amount of subsidies
that are extinguished due to privatization or reallocated as a result
of changes in ownership, we calculate the net present value (NPV) of
the remaining subsidies at the time of privatization or change in
ownership. For example, if the privatization took place in 1993, the
net present value calculation for that transaction would include all
subsidies allocable to 1993. However, as in all other cases involving
privatization or change in ownership, in each subsequent review, we
then recalculated the amount of subsidies that were extinguished or
reallocated by using only those subsidies affecting that subsequent
review. In this case, for example, if the privatization took place in
1993, in the next administrative
[[Page 47647]]
review, 1994, we would recalculate the NPV using only those subsidies
still allocable to 1994, i.e., the subsidies still benefitting the
company in 1994.
We revisited that methodology in the 1995 countervailing duty
administrative review of certain hot-rolled lead and bismuth carbon
steel products from the United Kingdom. See Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products from the United Kingdom; Preliminary
Results of Countervailing Duty Administrative Review, 62 FR 16555,
16557 (April 7, 1997). In that review, we preliminarily determined that
it is not appropriate to modify the calculation of the NPV of the
subsidies existing at the time of sale. The change in ownership of a
company is a fixed event at a particular point in time. Thus, the
percentage of subsidies that may be extinguished due to privatization
or reallocated due to a change in ownership in a given year is also
fixed at that same point in time and does not change. Therefore, the
pass-through percentage will no longer be altered once it has initially
been determined in an investigation or administrative review. We have
modified the ICL privatization calculations in this administrative
review to reflect the change outlined above.
Analysis of Programs
I. Programs Previously Determined To Confer Subsidies
(A) Encouragement of Capital Investments Law (ECIL) Grants
This GOI grant program is designed to encourage the distribution of
the population throughout Israel, to create new sources of employment,
to aid the absorption of immigrants, and to develop the economy's
production capacity. To be eligible for benefits under the ECIL,
including investment grants, capital grants, accelerated depreciation,
reduced tax rates, and certain loans, applicants must obtain approved
enterprise status. Investment grants cover a percentage of the cost of
the approved investment, and the amount of the grant depends on the
geographic location of eligible enterprises. For purposes of the ECIL
program, Israel is divided into three zones--Development Zone A,
Development Zone B, and the Central Zone--and the level of grant
funding differs in each zone.
In Final Affirmative Countervailing Duty Determination: Industrial
Phosphoric Acid from Israel, 52 FR 25447 (July 7, 1987) (IPA
Investigation), the Department found the ECIL grant program to be de
jure specific because the grants are limited to enterprises located in
specific regions. In this review, no new information or evidence of
changed circumstances has been submitted to warrant reconsideration of
this determination.
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. As explained in the ``Allocation
Period'' section above, for grants provided that have already been
allocated in past administrative reviews, we are continuing to use the
ten-year allocation period. For grants received during the POR, we
followed the company-specific allocation methodology and allocated
these grants over Rotem's company-specific AUL of 24 years.
Under our past practice we used 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
Industrial Phosphoric Acid from Israel; Final Results of Countervailing
Duty Administrative Review, 61 FR 28842 (June 6, 1996) (1992/93 Final
Results), 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. Consistent with the 1992/93 Final Results, we have used as the
discount rate the yield (in real terms) on consumer price indexed (CPI)
commercial bonds, plus the CPI (as published in the Bank of Israel
Annual Reports). 61 FR 28842; See also Industrial Phosphoric Acid From
Israel: Preliminary Results of Countervailing Duty Administrative
Review, 61 FR 8255, 8257 (March 4, 1996). We are utilizing a
calculation methodology that conforms with the use of variable rather
than fixed interest rates in the years these grants were disbursed.
This methodology reflects the actual long-term options open to Israeli
firms.
To calculate the benefit to Rotem under this program, we have
modified the grant methodology in this review to conform with our grant
methodology developed in the countervailing duty investigation of steel
wire rod from Venezuela. See Preliminary Affirmative Countervailing
Duty Determination: Steel Wire Rod From Venezuela, 62 FR 41939, 41943
(August 4, 1997) (Wire Rod). In Wire Rod, we preliminarily determined
that it is appropriate to inflation. Wire Rod, 62 FR at 41939. Making
this adjustment is appropriate for high inflation economies because it
maintains the allocated principal at a constant, inflation adjusted,
value. It is also important to note that Israeli companies use
inflation accounting in preparing their financial statements. Moreover,
this reflects the adjustment recommended by respondents in their June
17, 1997, second supplemental questionnaire response, which is on file
in the public file of the Central Records Unit of the Department of
Commere, Room B-099. (The Department did not make an additional
adjustment in these preliminary results recommended by respondents
concerning the interest component of the benefit in these
calculations.) In conformance with Wire Rod, we have adjusted the
allocated principal of each ECIL grant for which benefits are still
allocable to the POR.
An additional modification to these calculations is reflected in
the ad valorem subsidy rate calculation. To calculate the ad valorem
subsidy rate in the 1994 review, we allocated the 1994 benefits over
either Rotem's total sales of IPA or total sales of all products. ECIL
grants tied to production of IPA were allocated over sales of IPA,
while grants tied to input products such as phosphate rock and green
acid were allocated over Rotem's total sales of all products.
To calculate the total subsidy in this administrative review, we
first summed the benefit to Rotem from all ECIL grant projects
allocated to and received in 1995, after taking into account the 1992
and 1993 partial privatizations (and also accounting for the
modification in the privatization calculation described above). Then,
we determined the portion of that benefit still remaining with Rotem
after accounting for the partial privatization of ICL in 1995. As with
the 1994 review, ECIL grants tied to phosphate rock production were
attributed to Rotem's total sales of all products. This is consistent
with information reviewed at verification that phosphate rock produced
from the company's three mines (Zin, Oron and Arad) could potentially
be incorporated in all products produced by Rotem. Rotem officials
explained that the decision to incorporate phosphate rock from a
particular mine for production of specific downstream products is
driven by economic considerations and because a different allocation
may result in efficiency losses and increased costs. See the August 22,
1997, Memorandum to Barbara E. Tillman from The Team Re: Verification
of Rotem's Questionnaire Responses in the 1995 Administrative Review of
Industrial Phosphoric Acid from Israel at page 6 (public version on
file in the public file
[[Page 47648]]
of the Central Records Unit, Room B-099 of the Department of Commerce)
(Rotem VR).
However, based upon our finding at verification, we are now using a
different denominator for grants tied to Rotem's green acid and IPA
production. Rotem officials stated at verification that the green acid
produced at plant 30 and 31 could potentially be incorporated into the
production of all of the company's end-products. However, officials
stressed that for the same reason that phosphate rock is allocated to
specific products, green acid from plants 30 and 31 is also allocated
to specific products for economic reasons. See Rotem VR at 6-7. We also
learned that IPA or white acid can be and is incorporated into MKP, an
expensive fertilizer. See Rotem VR at 7. Therefore, we preliminarily
determine that it is appropriate to attribute ECIL grants tied to a
particular unit over the sales of the product produced by that unit
plus the sales of all products into which that product may be
incorporated. Accordingly, we attributed ECIL grants tied to Rotem's
green acid facilities to total sales minus direct sales of phosphate
rock, and grants tied to Rotem's IPA facility were attributed to total
sales of IPA and MKP. We summed the rates obtained on this basis, and
preliminarily determine the net subsidy from this program to be 12.69
percent ad valorem for the POR.
(B) Long-Term Industrial Development Loans
Prior to July 1985, approved enterprises were eligible to receive
long-term industrial development loans funded by the GOI. During the
original investigation, we verified that these loans 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 this review, no new information or
evidence of changed circumstances has been submitted to warrant
reconsideration of this determination. Rotem had loans outstanding
under this program during the review period. 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 lower than those which would apply
in the Central Zone.
As was determined in the Final Affirmative Countervailing Duty
Determination: Certain Carbon Steel Butt-Weld Pipe Fittings from
Israel, 60 FR 10569 (February 27, 1995), 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 long-term loan methodology 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. Therefore, in accordance with past practice, 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 period. See 1992/93 Final Results, 61 FR 28842. We thus
calculated the benefit during the period of review. We summed the
benefits for all loans and divided the total by Rotem's total sales
during the review period. On this basis, we preliminarily determine the
net subsidy from this program to be less than 0.005 percent ad valorem
for the POR.
(C) Encouragement of Industrial Research and Development Grants (EIRD)
Rotem received several grants under this program during the review
period. In the IPA Investigation, we determined that these grants are
countervailable. In this review, no new information or evidence of
changed circumstances has been submitted to warrant reconsideration of
this determination. We followed the methodology developed in the IPA
Investigation to determine the benefit to Rotem from the EIRD program
in 1995.
During the 1995 review period, Rotem received payments under six
separate EIRD grants. At verification, we found that two of these
grants, one tied to fertilizer production (File No. 18142) and the
other to rubber products (File No. 17772), could not benefit the
subject merchandise. However, the other grants were for research into
either green acid or phosphate rock production. See Rotem VR at 13-16.
We view these grants as ``non-recurring'' grants based on the analysis
set forth in the ``Allocation'' section of the GIA (58 FR at 37226)
because these benefits are exceptional, and Rotem cannot expect to
receive benefits on an ongoing basis from review period to review
period. The total value of the grants received in 1995 was less than
0.50 percent of all Rotem's sales. Therefore, we divided the benefit by
Rotem's total sales if the grant was tied to phosphate rock production
or by sales of fertilizers, MKP and IPA, if the grant was tied to
production of green acid. This conforms with the methodology described
above under the ECIL program. On this basis, we preliminarily determine
the benefit from this program to be 0.08 percent ad valorem.
II. Programs Preliminarily Determined To Be Not Used
We examined the following programs and preliminarily determine that
the producer and/or exporter of the subject merchandise did not apply
for or receive benefits under these programs during the period of
review:
A. Reduced Tax Rates under ECIL;
B. ECIL Section 24 loans;
C. Dividends and Interest Tax Benefits under Section 46 of the ECIL;
and
D. ECIL Preferential Accelerated Depreciation.
E. Exchange Rate Risk Insurance Scheme
Preliminary Results of Review
In accordance with 19 C.F.R. 355.22(c)(4)(ii), we calculated an
individual subsidy rate for each producer/exporter subject to this
administrative review. For the period January 1, 1995 through December
31, 1995, we preliminarily determine the net subsidy for Rotem to be
12.77 percent ad valorem. If the final results of this review remain
the same as these preliminary results, the Department intends to
instruct the U.S. Customs Service (``Customs'') to assess
countervailing duties as indicated above.
The Department also intends to instruct Customs to collect cash
deposits of estimated countervailing duties as indicated above of the
f.o.b.
[[Page 47649]]
invoice price on all shipments of the subject merchandise from reviewed
companies, entered, or withdrawn from warehouse, for consumption on or
after the date of publication of the final results of this review.
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as
provided for in section 777A(e)(2)(B) of the Act. The requested review
will normally cover only those companies specifically named. See 19
C.F.R. Sec. 355.22(a). Pursuant to 19 C.F.R. 355.22(g), for all
companies for which a review was not requested, duties must be assessed
at the cash deposit rate, and cash deposits must continue to be
collected, at the rate previously ordered. As such, the countervailing
duty cash deposit rate applicable to a company can no longer change,
except pursuant to a request for a review of that company. See Federal-
Mogul Corporation and The Torrington Company v. United States, 822
F.Supp. 782 (CIT 1993) and Floral Trade Council v. United States, 822
F.Supp. 766 (CIT 1993) (interpreting 19 C.F.R. 353.22(e), the
antidumping regulation on automatic assessment, which is identical to
19 C.F.R. 355.22(g)). Therefore, the cash deposit rates for all
companies except those covered by this review will be unchanged by the
results of this review.
We will instruct Customs to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order are those established in the most recently completed
administrative proceeding, conducted pursuant to the statutory
provisions that were in effect prior to the URAA amendments. See 1992/
93 Final Results, 61 FR 28842. These rates shall apply to all non-
reviewed companies until a review of a company assigned these rates is
requested. In addition, for the period January 1, 1995 through December
31, 1995, the assessment rates applicable to all non-reviewed companies
covered by this order are the cash deposit rates in effect at the time
of entry.
Public Comment
Parties to the proceeding may request disclosure of the calculation
methodology 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 case briefs, may be submitted
seven days after the time limit for filing the case brief. Parties who
submit argument in this proceeding are requested to submit with the
argument (1) a statement of the issue and (2) a brief summary of the
argument. 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 C.F.R. 355.38.
Representatives of parties to the proceeding may request disclosure
of proprietary information under administrative protective order no
later than 10 days after the representative's client or employer
becomes a party to the proceeding, but in no event later than the date
the case briefs, under 19 C.F.R. 355.38, are due. The Department will
publish the final results of this administrative review, including the
results of its analysis of issues raised in any case or rebuttal brief
or at a hearing.
This administrative review and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).
Dated: September 2, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-23999 Filed 9-9-97; 8:45 am]
BILLING CODE 3510-DS-P