[Federal Register Volume 64, Number 11 (Tuesday, January 19, 1999)]
[Notices]
[Pages 2879-2886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1116]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-508-605]


Industrial Phosphoric Acid from Israel: Final Results of 
Countervailing Duty Administrative Review

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

ACTION: Notice of Final Results and Partial Recission of Countervailing 
Duty Administrative Review.

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SUMMARY: On September 9, 1998, the Department of Commerce published in 
the Federal Register its preliminary results of administrative review 
of the countervailing duty order on industrial phosphoric acid (IPA) 
from Israel for the period January 1, 1996 through December 31, 1996 
(63 FR 48193). The Department has now completed this administrative 
review in accordance with section 751(a) of the Tariff Act of 1930, as 
amended. For information on the net subsidy for each reviewed company, 
and for all non-reviewed companies, please see the Final Results of 
Review section of this notice. We will

[[Page 2880]]

instruct the U.S. Customs Service to assess countervailing duties as 
detailed in the Final Results of Review section of this notice.

EFFECTIVE DATE: January 19, 1999.

FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Eric Greynolds, 
Office of CVD/AD Enforcement VI, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, D.C. 20230; telephone: (202) 482-
3692 or (202) 482-6071, respectively.

SUPPLEMENTARY INFORMATION:

Background

    Pursuant to 19 CFR 351.213(b), 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). Haifa Chemicals Ltd. (Haifa) did not export 
the subject merchandise during the period of review (POR). Therefore, 
in accordance with section 351.213(d)(3) of the Department of 
Commerce's (the Department) regulations, we rescinded the review with 
respect to Haifa. The review also covers nine programs.
    Since the publication of the preliminary results on September 9, 
1998 (63 FR 48193), the following events have occurred. We invited 
interested parties to comment on the preliminary results. On October 9, 
1998, a case brief was submitted by counsel for FMC Corporation and 
Albright & Wilson Americas Inc. (petitioners). On October 13, 1998, a 
case brief was submitted by the Government of Israel (GOI) and Rotem, 
producer/exporter of IPA to the United States during the review period 
(respondents). On October 14, 1998, rebuttal briefs were submitted by 
respondents and petitioners.

Applicable Statute and Regulations

    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. All citations to the 
Department's regulations reference 19 CFR Part 351 (1998), unless 
otherwise indicated.

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.

Subsidies Valuation Information

Period of Review

    The period for which we are measuring subsidies is calendar year 
1996.

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, as it 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 applied 
this method to those non-recurring subsidies that have not yet been 
countervailed.
    Rotem submitted an AUL calculation based on depreciation expenses 
and asset values of productive assets reported in its financial 
statements. Rotem's AUL was derived by adding the sum of average gross 
book value of depreciable fixed assets for ten years and dividing these 
assets by the total depreciation charges 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 23 years, which we have used as the allocation 
period for non-recurring subsidies received during the POR.
    For non-recurring subsidies received prior to the POR and already 
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 resulted in a 
certain 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-or 
under-countervailing the actual benefit. Therefore, for purposes of 
these final results, the Department is using the original allocation 
period assigned to each non-recurring subsidy received prior to the 
POR. See, e.g., Certain Carbon Steel Products from Sweden; Final 
Results of Countervailing Duty Administrative Review, 62 FR 16549 
(April 7, 1997). For further discussion, see the Department's position 
on Comment 3 (Allocation of Grants Over AUL), below.

Privatization

    The Department has previously determined that the partial 
privatizations of Israel Chemicals Limited (ICL), Rotem's parent 
company, represents a partial privatization of Rotem. Further, the 
Department 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, and Final 
Results of Countervailing Duty Administrative Review; Industrial 
Phosphoric Acid from Israel, 63 FR 13627 (March 20, 1998) (1995 Final).
    In prior reviews, to calculate the portion of the purchase price 
representing repayment of prior subsidies through partial 
privatizations in 1992, 1993 and 1995, the Department converted the net 
worth figures for Rotem from new Israeli shekels (NIS) to U.S. dollars, 
based on exchange rate information on the record. In this review, Rotem 
submitted U.S. dollar denominated audited financial statements for 1983 
through 1989. The notes to the financial statements indicate that the 
company maintains its accounts in NIS and in U.S. dollars. Amounts 
originating from transactions denominated in, or linked to, the dollar 
are stated at their original amounts. Amounts not originating from such 
transactions are determined on the basis of the exchange rate 
prevailing at the time of the transaction. As a result, we have 
recalculated the portion of the purchase price paid for ICL's shares 
that is attributable to repayment of prior subsidies using the U.S. 
dollar denominated net worth figures provided in Rotem's financial 
statements.

[[Page 2881]]

Analysis of Programs

    Based upon the responses to our questionnaires and written comments 
from the interested parties, we determine the following:

I. Programs Conferring Subsidies

A. Programs Previously Determined to Confer Subsidies
    1. Encouragement of Capital Investments Law (ECIL). In the 
preliminary results, we found that this program conferred 
countervailable subsidies on the subject merchandise. Our review of the 
record and our analysis of the comments submitted by the interested 
parties, summarized below, has not led us to modify our findings from 
the preliminary results for this program. Accordingly, the net subsidy 
for this program remains unchanged from the preliminary results and is 
as follows:

------------------------------------------------------------------------
                                                                 Rate
                   Manufacturer/explorer                      (percent)
------------------------------------------------------------------------
Rotem Amfert Negev.........................................         5.58
------------------------------------------------------------------------

    2. Encouragement of Industrial Research and Development Grants 
(EIRD). In the preliminary results, we found that this program 
conferred countervailable subsidies on the subject merchandise. Our 
review of the record and our analysis of the comments submitted by the 
interested parties, summarized below, has not led us to modify our 
calculations for this program from the preliminary results. 
Accordingly, the net subsidy for this program remains unchanged from 
the preliminary results and is as follows:

------------------------------------------------------------------------
                                                                 Rate
                   Manufacturer/explorer                      (percent)
------------------------------------------------------------------------
Rotem Amfert Negev.........................................         0.02
------------------------------------------------------------------------

B. New Programs Determined to Confer Subsidies
    1. Environmental Grant Program. In the preliminary results, we 
found that this program conferred countervailable subsidies on the 
subject merchandise. Our review of the record and our analysis of the 
comments submitted by the interested parties, summarized below, has not 
led us to modify our calculations for this program from the preliminary 
results. Accordingly, the net subsidy for this program remains 
unchanged from the preliminary results and is as follows:

------------------------------------------------------------------------
                                                                 Rate
                   Manufacturer/explorer                      (percent)
------------------------------------------------------------------------
Rotem Amfert Negev.........................................         0.11
------------------------------------------------------------------------

    2. Infrastructure Grant Program. In the preliminary results, we 
found that this program conferred countervailable subsidies on the 
subject merchandise. We did not receive any comments on this program 
from the interested parties, and our review of the record has not led 
us to change any findings or calculations. Accordingly, the net subsidy 
for this program remains unchanged from the preliminary results and is 
as follows:

------------------------------------------------------------------------
                                                                 Rate
                   Manufacturer/explorer                      (percent)
------------------------------------------------------------------------
Rotem Amfert Negev.........................................         0.18
------------------------------------------------------------------------

II. Programs Found to be Not Used

    In the preliminary results, we found that the producers and/or 
exporters of the subject merchandise did not apply for or receive 
benefits under the following programs:

1. Reduced Tax Rates under ECIL
2. ECIL Section 24 Loans
3. Dividends and Interest Tax Benefits under Section 46 of the ECIL
4. ECIL Preferential Accelerated Depreciation
5. Exchange Rate Risk Insurance Scheme
6. Labor Training Grants
7. Long-Term Industrial Development Loans

    We did not receive any comments on these programs from the 
interested parties, and our review of the record has not led us to 
change our findings from the preliminary results.

Analysis of Comments

Comment 1: Denominator for ECIL Grants

    Rotem argues that the Department incorrectly calculated the 
denominator for ``grants allocable to all sales other than direct sales 
of phosphate rock,'' because the sales figure from the ``others'' 
category, as reported in respondents December 15, 1997, questionnaire 
response, was excluded.
    Petitioners counter that because the product listing provided by 
respondents did not provide a breakdown of products in the ``others'' 
category, the Department could not assume that these other products 
benefitted from ECIL grants, and therefore, was correct to exclude 
these sales from its subsidy calculations.

Department's Position

    We attribute ECIL grants to a particular facility to the sales of 
the products produced by that facility plus sales of all products into 
which that product may be incorporated. To do so, it is necessary that 
all products to which the grants are being attributed are identified. 
Respondents did not indicate what products are included in the 
``others'' category or any indication that the ECIL grants should 
appropriately be attributed to those ``other'' sales. Therefore, it 
would have been improper to attribute ECIL grants to those unidentified 
products.

Comment 2: IPA as an Input to Fertilizers

    Petitioners argue that the Department expanded the attribution of 
certain ECIL grants to include sales of fertilizers, based on 
respondents' claim, unsupported by documentation, that IPA may be and 
has been an input into fertilizers other than MKP. In this regard, 
petitioners cite to the Department's 1995 verification report, which 
does not indicate that IPA was found to be an input to any fertilizer 
product other than MKP. Thus, petitioners assert that the Department 
erroneously included sales of all fertilizers in its denominator. 
Petitioners further argue that unless Rotem demonstrates that IPA is an 
input to a specific fertilizer product, the Department should not 
include that fertilizer product in the attribution denominator.
    Respondents agree with petitioners that only those products that 
use IPA as an input should be included in the attribution denominator. 
However, respondents argue that the Department has rejected this 
approach and includes a product in its attribution calculation if the 
product can be used as an input into IPA, irrespective of whether it 
has actually been used. Further, respondents argue that if petitioners 
want the Department to include only products actually receiving IPA 
inputs in a given review in the attribution calculation, then the 
Department must also exclude those products that are not used in a 
given review.

Department's Position

    In the 1995 administrative review of this case, we attributed ECIL 
grants tied to a particular unit to the sales of the product produced 
by that unit plus the sales of all products into which that product may 
be incorporated. Accordingly, in that review, we attributed ECIL grants 
to the IPA facility to sales of IPA and sales of MKP, a

[[Page 2882]]

downstream fertilizer. In this administrative review, respondents have 
stated that IPA can also ``be and has been used by Rotem as an input 
into other fertilizers,'' that is other than MKP. Therefore, consistent 
with our approach in the 1995 proceeding, we included the sales of 
fertilizers in the denominator for ECIL grants to the IPA facility.
    Petitioners' argument that the Department must ``limit attribution 
to specific products that actually are inputs'' is incorrect. In fact, 
if this were the case, the Department would not have altered its 
original attribution approach followed through the 1993 administrative 
review, a change supported by petitioners. In the 1995 review, we 
stated that the attribution of ECIL grants to the sales of the units 
that received the grants and sales of all downstream products is 
``consistent with the Department's attribution principles concerning 
subsidies to inputs where the same corporate entity produces the inputs 
and the subject merchandise, as well as other downstream products.'' 63 
FR at 13629. Of further note is that this approach has been codified in 
the Department's final countervailing duty regulations at 19 CFR 
Sec. 351.525(b)(5)(ii). Therefore, for these final results, in 
calculating the benefit from ECIL grants to Rotem's IPA facility, we 
have included the sales of fertilizers in the denominator.

Comment 3: Allocation of Grants Over AUL

    Respondents agree that the Department used the appropriate AUL 
during the POR, but disagree with the Department's application of the 
company-specific AUL only to grants that were not previously allocated 
over ten years. They state that for the initial determination in 1987 
and all subsequent reviews, the Department used a ten-year AUL, which 
does not reflect the company's actual situation. According to 
respondents, the Department's failure to apply the actual AUL to all 
grants is contrary to the Court of International Trade's ruling in 
British Steel, because the Court invalidated the use of the Internal 
Revenue Service (IRS) tables and instructed the Department to use ``a 
method of allocating the benefits on non-recurring subsidies that 
reasonably reflect the commercial and competitive advantages enjoyed by 
the firms receiving'' the subsidies. Respondents note that the 
Department chose the company-specific AUL to allocate non-recurring 
subsidies and the Court has endorsed it. Therefore, they argue that the 
Department's allocation of some of Rotem's grants according to the 
company's actual AUL, while allocating others according to an 
invalidated IRS proxy, which has no relevance to Rotem's actual 
situation, is clearly contrary to British Steel, and overstates the 
non-recurring subsidies.
    Respondents also argue that the Department's rationale for not 
changing its AUL methodology is flawed. Respondents claim that 
reallocation is a very simple exercise, which can be accomplished by 
the Department taking the remaining balance during the POR and 
allocating that amount over the number of years left in the 23-year AUL 
benefit stream that begins in the year the grant was received. 
Respondents also argue that this approach takes into account the fact 
that countervailable subsidies have been fully paid for in all prior 
years up to the POR, and such an approach would not result in over- or 
under-countervailing the actual benefit since the entire actual benefit 
will be fully countervailed over the 23-year period.
    Petitioners counter that while the Court in British Steel 
instructed the Department to use an allocation method that reasonably 
reflects the commercial and competitive advantages created by a 
subsidy, it does not require the Department to use the AUL method. 
Petitioners also counter that the Department chose not to recalculate 
the AUL because such a change could result in an allocation that 
distorts the allocation of the actual benefits Rotem received from the 
non-recurring subsidies, and this decision is fair and in keeping with 
the mandate of British Steel.

Department's Position

    The arguments presented by respondents are for the most part 
identical to those made in the 1995 administrative review of this case. 
The Department fully addressed those arguments in that review (see 63 
FR at 13632), and nothing argued by respondents in this review would 
lead us to change our prior determination with respect to this issue. 
It is our continued view that not disturbing allocation periods 
established in prior proceedings is reasonable and is not in conflict 
with the CIT's decision in British Steel, which does not require the 
Department to allocate non-recurring subsidies over a company's AUL.
    However, we would like to further address additional implications 
of the approach advocated by respondents which would pose significant 
additional burdens on the Department. First, it is the Department's 
practice to calculate a benefit for all countervailable subsidies that 
are allocable through the POR. In the original investigation of this 
case, the Department determined, based on the IRS tables, that the 
appropriate allocation period is ten years. The period of investigation 
was 1987. Accordingly, the Department countervailed all non-recurring 
subsidies still benefitting the company in 1987, i.e., subsidies 
received by Rotem from 1978 through 1987. While we determined in the 
1995 review that Rotem's company-specific AUL was 24 years, we did not 
countervail non-recurring subsidies received by Rotem for the entire 24 
year period. Rather, because the ten year allocation period had been 
previously established, we did not disturb the allocation period for 
those prior subsidies and also did not reach back to countervail non-
recurring subsidies not previously examined. Thus, we applied the 
company-specific AUL only to those new subsidies received during 1995. 
However, were the Department to reallocate previously allocated 
subsidies, it would also be appropriate, at that time, to investigate 
all subsidies received by the company during the entire company-
specific allocation period, including those not previously examined by 
the Department. This approach would be consistent with respondents' 
argument that the company-specific AUL is representative of Rotem's 
actual experience.
    Respondents have also stated that since the Department has found 
that the 23 years company-specific period is the appropriate period, 
the ten-year period is invalidated, and both periods cannot at the same 
time be representative of Rotem's actual experience. If this were the 
case, then the 24 year period calculated by the Department in the 1995 
review is also invalidated. Respondents have not contended, however, 
that the Department should now also recalculate the benefit stream for 
the 1995 non-recurring subsidies. It becomes clear, therefore, that 
respondents' proposed approach would require the Department to 
reallocate a company's subsidies each time the company-specific AUL has 
changed. This may occur, as is the case here, from one administrative 
review to the next. While such an approach may not seem to be overly 
burdensome in one case, in the context of all countervailing duty cases 
that burden is clearly significant.
    As noted above, respondents have not provided any new information 
that would warrant a reconsideration of the Department's AUL 
methodology. For this reason, and for the additional concerns outlined 
above, we have not altered the allocation period for

[[Page 2883]]

previously allocated non-recurring subsidies, including those that were 
allocated using a company-specific AUL.

Comment 4: Rotem's AUL Calculation

    Petitioners state that the Department, consistent with its normal 
practice, has accepted Rotem's audited financial statements at face 
value. However, they argue that there is no consistency between Rotem's 
AUL calculated for countervailing duty purposes and the actual useful 
life of assets as reflected in the firm's depreciation schedule used in 
its financial statements. Therefore, according to petitioners, the 
Department should either reject Rotem's AUL for inconsistency with its 
audited financial statements or make the appropriate adjustment in the 
gamma ratio, which is itself a function of a company's total assets, 
that would subsequently reduce the past subsidies previously calculated 
as having been extinguished by partial privatizations. Petitioners 
argue that if the Department continues to use the AUL as calculated by 
Rotem, then the productive assets that Rotem excluded from its AUL 
calculation (i.e., furniture, vehicles and office equipment) should be 
included, and assets that are no longer in service should be excluded.
    Respondents counter that there is no conflict between the 
calculated AUL and Rotem's depreciation schedules. The AUL was 
calculated in conformity with the Department's instructions and was 
taken directly from Rotem's audited financial statements. Respondents 
further argue that the length of Rotem's AUL stems from the merger 
between Rotem and Negev Phosphates Ltd., the latter of which had a 
longer AUL therefore increasing the overall AUL of the newly formed 
company, Rotem Amfert Negev Ltd. Respondents state that petitioners, in 
fact, recognize that the AUL is correct because they argue that if the 
Department accepts the AUL, then the gamma ratio must be adjusted to 
increase Rotem's net worth. According to respondents, there is no basis 
for making such an adjustment because the gamma denominator, which 
represents the net worth of the company, is taken directly from the 
audited annual reports and that figure was relied upon by the 
purchasers of ICL when the privatizations took place.
    Respondents also counter that the assets that petitioners argue 
should be included in the AUL calculation are not productive assets. 
Moreover, the grants at issue are not given for such assets; they are 
given only for production facilities. Therefore, it was correct not to 
include these assets in the AUL calculation.

Department's Position

    We disagree with petitioners' contention that the Department should 
reject Rotem's AUL information because it is inconsistent with the 
company's audited financial statements. Rotem complied with the 
Department's request and submitted information from its audited 
financial statements for use in the Department's company-specific AUL 
calculations. In the same submission, Rotem noted that the surge in 
asset values between 1990 and 1991 was due to the merger of Rotem and 
Negev Phosphate Ltd. We note that the verification reports from the 
previous proceeding, which were submitted on the record of the current 
review, discuss the issue of the Rotem/Negev merger and its effect on 
the newly formed company's AUL components. The information discussed in 
these reports is consistent with the information that Rotem submitted 
during the current review. Therefore, because respondent submitted its 
AUL information in the manner that the Department requested and because 
Rotem sufficiently explained the changes that occurred in its 
depreciable productive assets and regular depreciation expenses during 
the ten-year period examined by the Department, we find no reason to 
change the calculation of Rotem's AUL for the final results. For the 
same reasons, we also reject petitioners' contention that the 
Department should adjust Rotem's gamma ratio in order to account for 
the alleged inconsistencies between the company's AUL calculations and 
its audited financial statements.
    In addition, we reject petitioners' contention that the Department 
should ``satisfy itself'' that all of Rotem's reported productive 
assets are actually in service. The Department's questionnaire 
specifically asks that companies exclude any fully depreciated 
productive assets which are no longer in use. We also note that Rotem's 
financial statements are audited and that the Department conducted a 
verification of Rotem's questionnaire responses during the 1995 
administrative period of review. Given that Rotem's financial 
statements are audited and inspected annually and that they have been 
verified previously, we find no reason to doubt the integrity of the 
company's financial statements.
    Petitioners' contention that the Department erroneously omitted 
some of Rotem's assets (furniture, office equipment, etc.) in 
calculating the company-specific AUL may warrant further consideration. 
However, we do not have the information on the record for these assets 
in prior years to recalculate the AUL. Therefore, we will review this 
issue in the next administrative review.

Comment 5: The Privatization Calculation

    Respondents argue that the numerator of the ``gamma'' calculation 
does not include the face value of all subsidies received by Rotem over 
the years. They claim that the face value does not include subsidies 
given for projects 12 and 13, which were fully countervailed prior to 
this review. They also claim that the grants to project 8 were not 
included; presumably, because these grants did not benefit IPA. 
Respondents argue that to obtain a true picture of the relationship of 
the subsidies to the net worth, all subsidies must be included in the 
numerator, regardless of whether or not they benefit the subject 
merchandise.
    Respondents also argue that because Rotem's net worth, the 
denominator of the gamma calculation, is an accumulated figure, the 
subsidies received, the numerator, should also be calculated based on 
an accumulated figure. According to respondents, the Department's 
position in the 1995 Final, that the value of subsidies erodes over 
time, ignores the fact that the net worth also erodes over time. While 
a subsidy received in 1986 does not have the same relative value as a 
subsidy received in 1994, it still has some value; otherwise, they 
argue that the Department would not allocate non-recurring subsidies 
over time.
    Respondents claim that the Department rejected the Coopers & 
Lybrand analysis in the 1995 review because the Department did not 
understand the analysis. They argue that the Department's current gamma 
methodology incorrectly assumes that the grants disappear at the end of 
the year because the gamma numerator does not recognize the cumulative 
effect of the subsidies. Instead, Rotem received grants, which do not 
disappear at the end of the year of receipt, but continue as part of 
equity, and the company's net worth is a direct result of these grants. 
In addition, they argue that the Department's privatization calculation 
methodology is internally inconsistent because the Department does not 
accumulate the subsidies to calculate the gamma, but does so to 
calculate the percent of subsidies repaid.
    Petitioners counter that respondents have attempted to rehabilitate 
a fundamentally flawed argument that the Department previously 
rejected. Therefore, the Department should dismiss respondents' effort 
to reargue

[[Page 2884]]

matters that have already been decided. Petitioners also counter that 
respondents' argument that the Department should include grants to 
project 8 would require the Department to investigate all subsidies, 
whether or not countervailable, in order to make an appropriate 
privatization calculation, which is absurd. According to petitioners, 
respondents' argument, regarding projects 12 and 13, is flawed because 
these grants were countervailed prior to the current review.

Department's Position

    Respondents' argument that the Department should include subsidies 
that have been fully countervailed and subsidies that do not benefit 
the subject merchandise is without merit. As a preliminary matter, the 
Department does not determine the benefit from subsidies for programs 
that are determined not to benefit the subject merchandise. Further, 
the Department's methodology determines the portion of the purchase 
price that goes towards the repayment of the subsidies which were found 
to be countervailable. That portion of the purchase price is deducted 
from the net present value of the remaining benefit stream of all non-
recurring subsidies that are being countervailed. This performs the 
appropriate calculation: deducting from the net present value of all 
countervailable subsidies in the year of privatization the portion of 
the purchase price representing repayment of those countervailable 
subsidies.
    We also reject respondents' argument that because Rotem's net 
worth, the denominator of the gamma calculation, is an accumulated 
figure, the subsidies received, the numerator, should also be 
calculated based on an accumulated figure. Because the grants were 
received at different time periods and the benefit streams are 
different, we cannot accumulate the grants as respondents have 
suggested. The privatization methodology attempts to estimate that 
portion of the purchase price that is attributable to remaining 
subsidies from the time of bestowal until the date of the privatization 
by calculating the gamma. The gamma calculation serves as a reasonable 
historic surrogate for the percentage of subsidies that constitute the 
overall value (i.e., net worth of the company) at a given point in 
time. See, GIA, 58 FR at 37263, and 1995 Final, 63 FR at 13635, 13636; 
see also Inland Steel Bar Co., v. United Engineering Steels, Ltd., 155 
F.3d 1370, 1374-75 (Fed. Cir. 1998) (the Court affirmed the 
Department's methodology for determining the amount of a subsidy that 
is repaid). Thus, the relative value of an earlier subsidy is not 
``totally ignored'' in the Department's calculation, as argued by 
respondents. The value of that subsidy is appropriately being compared 
to the net worth of the firm in the year that it was received. This 
comparison thus fully captures the weight of that subsidy in the gamma 
calculation.
    Respondents' claim that the Department's position in the 1995 
review, that the ``depreciation of assets offsets any of the erosion of 
subsidies,'' is also flawed. We do not dispute that the company's net 
worth increased, in part, as a result of subsidies. However, 
respondents' comparison of the value of the company's accumulated 
subsidies in the year before privatization to the company's net worth 
in that year is misplaced, because it assumes that the company's net 
worth increased in direct proportion to the value of the subsidies 
received by the firm. It is simply not reasonable to assume that there 
is a direct relationship between additional capital infusion by the 
government and increases in the equity of the firm. Accordingly, it is 
equally unreasonable to assume that the accumulated face value of all 
of Rotem's subsidies received in each year can be appropriately 
compared to the company's net worth in the year prior to privatization. 
Such a comparison overstates the value of the subsidies in relationship 
to the company's net worth because it assumes that a company's net 
worth increases in direct proportion to the value of the subsidies 
received by that firm. However, this is not the case, as those values 
are depreciating from year to year.

Comment 6: Program Denominator for Grants Allocable to IPA, MKP, and 
Fertilizers

    Respondents argue that although IPA is an input into downstream 
products, such as phosphate salts and food additives, the Department 
did not include the sales values of these products in the denominator 
of the countervailing duty calculations, nor did the Department provide 
an explanation. Respondents claim that although the Department's 
preliminary results state that the ECIL grants were attributed to a 
particular facility over the sales of the product produced by that 
facility plus sales of all products into which that product may be 
incorporated, this statement is not entirely correct. They argue that 
since the products produced by Rotem were also incorporated into the 
phosphate salts and food additives produced by Rotem's subsidiary, the 
Department should have attributed the ECIL grants to these products as 
well.
    Respondents also argue that because Rotem sells IPA as an end 
product and as an input into downstream products that are produced in 
another country by its subsidiary, these sales should be included in 
the denominator of the calculation for grants that are allocable to 
IPA, MKP, and fertilizers. In support of its argument, respondents 
point to the Countervailing Duties: Notice of Proposed Rulemaking and 
Request for Public Comments, 62 FR 8818, 8856 (1997 Proposed Rules), 
which states that where a firm has ``production facilities in two or 
more countries,'' the Department will generally attribute the subsidy 
to products produced by the firm within the jurisdiction of the 
government that granted the subsidy.
    Petitioners counter that respondents' argument ignores the fact 
that IPA is the class or kind of merchandise, and while the inputs into 
the production of IPA may be relevant for subsidy calculations 
purposes, what happens to IPA after it is produced is irrelevant. There 
is no precedent or support for the Department to go beyond a finding 
that grants have been provided for the production of IPA and make the 
further determination that such grants also benefitted the subsequent 
production of non-subject merchandise. Petitioners also counter that 
for the Department to apply respondents' methodology would be adoption 
of the so-called competitive-benefits-conferred interpretation of a 
countervailable subsidy which has been rejected by the Department and 
the Court of Appeals for the Federal Circuit in the privatization 
context.
    Furthermore, petitioners counter that the downstream products are 
not produced in Israel. The Department's policy in circumstances where 
the firm that received a subsidy has production facilities in two or 
more countries is to attribute the subsidy to products produced by the 
firm within the jurisdiction of the government that granted the 
subsidy. Since the ECIL grants are designed to promote economic 
development in Israel, it is appropriate to countervail the benefits in 
that country. Therefore, petitioners argue that the respondents' 
arguments should be rejected.

Department's Position

    We reject respondents' contention that the Department should add to 
the denominator of the countervailing duty calculations for grants 
allocable to IPA, MKP, and fertilizer the sales of downstream products 
produced from IPA. We reject respondents' argument on this matter on 
the basis that the

[[Page 2885]]

downstream products referred to by respondents are not manufactured in 
Israel. Rather, they are produced by a subsidiary of Rotem in Germany. 
It has been the Department's position that domestic subsidies benefit 
domestic production. This practice has been well-established since the 
Certain Steel investigations and has been upheld by the CIT. See GIA, 
58 FR at 37231; see also British Steel plc v. United States, 929 F. 
Supp. 426, 453-55 (CIT 1996), appeal pending sub nom. Inland Steel 
Industries, Inc. v. United States, Nos. 98-1230, 1259 (Fed. Cir.).

Comment 7: The Environmental Grants

    Respondents argue that the Department incorrectly focused solely on 
the ``general availability'' issue without first addressing whether the 
subsidy even benefitted IPA. According to respondents, whether the 
environmental grants are specific or general is irrelevant because they 
are not tied to IPA, and, hence did not benefit IPA. Respondents claim 
that the grants were given for the purpose of reducing dust pollution 
at the Ashdod port and because IPA, which is a liquid and does not 
produce dust, could not have benefitted from these grants.
    Respondents also argue that it is inappropriate for the Department 
to use adverse ``facts available'' when a party indicates that 
information requested is not available, and in such an instance, the 
Department must use other information on the record. Respondents claim 
that this other information was provided by the Ministry of 
Environment, which clearly indicates that the grants are available to 
all industries regardless of the region.
    Petitioners counter that the environmental grants benefitted the 
entire company, and whether IPA itself was the cause of any pollution 
at the port is of no consequence. The countervailing duty law is not 
concerned with causation, but rather with benefit. Thus, the issue is 
whether IPA and other Rotem products benefitted from the improved 
conditions at the port made possible by the grants. Petitioners also 
counter that respondents' argument regarding use of other information 
on the record to determine specificity is not persuasive because the 
``other information'' did not address the issue of de facto 
specificity.

Department's Position

    We disagree with respondents. According to the December 15, 1997, 
questionnaire response at II-16, financial assistance is provided to 
industrial plants for the adaptation of the facility to meet new 
environmental requirements, which include other hazards besides dust. 
The provision of these grants by the GOI relieves the company of an 
obligation that it otherwise would have incurred. Although IPA may not 
produce dust, as stated by respondents, the company did utilize the 
Ashdod port for IPA shipments. Therefore, the environmental grants are 
untied benefits that are bestowed to the entire company.
    We also disagree with respondents' argument regarding the 
Department's use of adverse facts available for this program. On two 
occasions, the Department requested information from the GOI to enable 
us to conduct a de facto specificity analysis of the Environment Grant 
Program. On April 7, 1998 and on April 24, 1998, the Department 
requested information from the GOI regarding eligibility for and actual 
use of the benefits provided under this program. The GOI provided 
information regarding the total number of applicants that applied for 
or received grants, and the total amount of the grants given under the 
program. However, the GOI did not attempt to extrapolate the required 
information from its aggregate data, nor did they explain why such 
information could not be provided. In accordance with section 776(a)(2) 
of the Act, the Department used facts available because the GOI 
withheld information that had been requested. Section 776(b) of the Act 
permits the Department to draw an inference that is adverse to the 
interests of an interested if that party has ``failed to cooperate by 
not acting to the best of its ability to comply with a request for 
information.'' Because the GOI did not comply with the Department's 
request for information, and they did not give an explanation as to why 
they could not provide the information, they did not act to the best of 
their ability. Therefore, the Department determines it appropriate to 
use an adverse inference in concluding that the environmental grants 
are specific. For further discussion, see Preliminary Results, 63 FR at 
48195.

Comment 8: Grants to Project 15

    Respondents argue that grants to project 15 are not countervailable 
because the green acid produced in this facility was not used as an 
input into IPA. Although the green acid from project 15 could be used 
chemically for IPA, it is not economically suitable for IPA; therefore, 
it cannot be viewed as a viable input. Respondents also argue that 
under the Department's practice of tying subsidies, where a subsidy is 
tied to a product other than the product under investigation, the 
Department will not allocate the subsidy to the product under 
investigation. Respondents argue that the Department's rationale in the 
1995 review for countervailing these grants because the products 
produced from project 15 could be incorporated into IPA, does not 
comport with the Department's tying requirement. While there may be a 
potential benefit, there is, in fact, no actual benefit, and the 
countervailing duty law deals with actualities, not potentialities. The 
1997 Proposed Rules refer to an input into a downstream product and not 
a potential input product; it refers to actual inputs. Therefore, they 
argue that the product produced from project 15 was not used in the 
downstream production of IPA, even if it could have been used, and as 
such, it does not fall within the definition of an input.
    Petitioners agree with the Department's finding, and counter that 
there is no reason for the Department to reconsider its previous 
decision.

Department's Position

    The Department fully addressed respondents' argument in the 1995 
administrative review. As previously stated, green acid can be used in 
the production of all downstream products, including IPA. The ECIL 
subsidies are provided to inputs that are also incorporated into other 
downstream products produced by the same integrated company. Therefore, 
to the extent that ECIL grants are tied to green acid, they are also 
tied to the sales of all other merchandise incorporating those inputs. 
See, the 1995 Final, 63 FR at 13630.
    The Department's practice is to countervail the value of the 
subsidies at the time they are provided to the company without regard 
to their actual use by that same company or their effect on its 
subsequent performance. As stated in the GIA, ``nothing in the statute 
directs the Department to consider the use to which subsidies are put 
or their effect on the recipient's subsequent performance. Rather, the 
statute requires the Department to countervail an allocated share of 
the subsidies received by producers, regardless of their effect.'' 
Specifically, section 771(5)(C) of the Act states that the Department 
``is not required to consider the effect of the subsidy in determining 
whether a subsidy exists.'' See GIA, 58 FR at 37260, and the 1995 Final 
63 FR at 13631. Because neither the statute nor the Department's 
regulations permit an analysis of the use and effect of subsidies, the 
Department does not attempt such an analysis.

[[Page 2886]]

Final Results of Reviews

    In accordance with 19 CFR 351.221(b)(4)(i), we calculated an 
individual subsidy rate for each producer/exporter subject to this 
administrative review. For the period January 1, 1996 through December 
31, 1996, we determine the net subsidy for Rotem to be 5.89 percent ad 
valorem.
    We will instruct the U.S. Customs Service (``Customs'') to assess 
countervailing duties as indicated above. The Department will also 
instruct Customs to collect cash deposits of estimated countervailing 
duties in the percentages detailed above of the f.o.b. 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 CFR 
351.213(b). Pursuant to 19 CFR 351.212(c), 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); 
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993). 
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 will be the rate for that company established in the most 
recently completed administrative proceeding conducted under the Act, 
as amended by the URAA. If such a review has not been conducted, the 
rate established in the most recently completed administrative 
proceeding pursuant to the statutory provisions that were in effect 
prior to the URAA amendments is applicable. 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, 1996 through December 31, 1996, 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.
    This notice serves as a reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the disposition of proprietary information disclosed under 
APO in accordance with 19 CFR 355.34(d). Timely written notification of 
return/destruction of APO materials or conversion to judicial 
protective order is hereby requested. Failure to comply with the 
regulations and the terms of an APO is a sanctionable violation.
    This administrative review is issued and published in accordance 
with sections 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1) 
and 19 U.S.C. 1677(f)(i)(7)).

    Dated: January 7, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-1116 Filed 1-15-99; 8:45 am]
BILLING CODE 3510-DS-P