[Federal Register Volume 64, Number 176 (Monday, September 13, 1999)]
[Notices]
[Pages 49460-49464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23776]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-508-605]


Industrial Phosphoric Acid From Israel: final results and partial 
recission 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 May 7, 1999, 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, 1997 through December 31, 1997 (64 FR 
24582). 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 instruct the U.S. Customs Service to 
assess countervailing duties as detailed in the Final Results of Review 
section of this notice.

EFFECTIVE DATE: September 13, 1999.

FOR FURTHER INFORMATION CONTACT: Dana Mermelstein or Sean Carey, Office 
of CVD/AD Enforcement VII, Import Administration, International Trade 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
3208 or (202) 482-3964, 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) and Haifa Chemicals Ltd. (Haifa). 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 are rescinding the 
review with respect to Haifa. This review also covers eleven programs.
    Since the publication of the preliminary results, the following 
events have occurred. We invited interested parties to comment on the 
preliminary results. On June 7, 1999 case briefs were filed by both 
petitioners (FMC Corporation and Albright & Wilson Americas Inc.) and 
respondents (the Government of Israel (GOI) and Rotem-Amfert Negev, the 
producer/exporter of IPA to the United States during the review 
period). On June 11, 1999, respondents filed a rebuttal brief; 
petitioners filed a rebuttal brief on June 14, 1999.

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

[[Page 49461]]

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 
1997.

Allocation Period

    In British Steel plc. v. United States, 879 F. Supp. 1254 (CIT 
1995) (British Steel I), 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, a methodology that was articulated in the General Issues 
Appendix appended to the Final Affirmative Countervailing Duty 
Determination: Certain Steel Products from Austria, 58 FR 37217 (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 non-recurring subsidies is a company-specific 
average useful life (AUL) of non-renewable physical assets. This remand 
determination was affirmed by the Court on June 4, 1996. British Steel 
plc. v. United States, 929 F.Supp 426, 439 (CIT 1996) (British Steel 
II).
    However, in administrative reviews where the Department examines 
non-recurring subsidies received prior to the period of review (POR) 
which have been countervailed based on an allocation period established 
in an earlier segment of the proceeding, it is not practicable to 
reallocate those subsidies over a different period of time. Where a 
countervailing duty rate in earlier segments of a 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.
    In this administrative review, the Department is considering non-
recurring subsidies previously allocated in earlier administrative 
reviews under the old practice, non-recurring subsidies also previously 
allocated in recent administrative reviews under the new practice, and 
non-recurring subsidies received during the instant POR. Therefore, for 
purposes of these preliminary results, the Department is using the 
original allocation period of 10 years assigned to non-recurring 
subsidies received prior to the 1995 administrative review (the first 
review for which the Department implemented the British Steel I 
decision). For non-recurring subsidies received since 1995, Rotem has 
submitted, in each administrative review including this one, AUL 
calculations based on depreciation and asset values of productive 
assets reported in its financial statements. In accordance with the 
Department's practice, we derived Rotem's company-specific AUL by 
dividing the aggregate of the annual average gross book values of the 
firm's depreciable productive fixed assets by the firm's aggregated 
annual charge to depreciation for a 10-year period. In the current 
review, this methodology has resulted in an AUL of 23 years; thus, non-
recurring subsidies received during the POR have been allocated over 23 
years.

Privatization

    Israel Chemicals Limited (ICL), the parent company which owns 100 
percent of Rotem's shares, was partially privatized in 1992, 1993, 
1994, and 1995. In this administrative review, the Government of Israel 
(GOI) and Rotem reported that additional shares of ICL were sold in 
1997. 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 Review; 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 found that Rotem and/or its predecessor, Negev Phosphates 
Ltd., received non-recurring countervailable subsidies prior to these 
partial privatizations. 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. Therefore, in 1992, 1993, and 1995 reviews, we calculated the 
portion of the purchase price paid for ICL's shares that went toward 
the repayment of prior subsidies. In the 1994 privatization, less than 
0.5 percent of ICL shares were privatized. We determined that the 
percentage of subsidies potentially repaid through this privatization 
could have no measurable impact on Rotem's overall net subsidy rate. 
Thus, we did not apply our repayment methodology to the 1994 partial 
privatization. See 1994 Final Results, 61 FR at 53352. However, we are 
applying this methodology to the 1997 partial privatization because 17 
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); Final 
Affirmative Countervailing Duty Determination: Certain Pasta from 
Italy, 61 FR 30288 (June 14, 1996).

Discount Rates

    We considered Rotem's cost of long-term borrowing in U.S. dollars 
as reported in the company's financial statements for use as the 
discount rate used to allocate the countervailable benefit over time. 
However, this information includes Rotem's borrowing from its parent 
company, ICL, and thus does not provide an appropriate discount rate. 
Therefore, we considered ICL's cost of long-term commercial borrowing 
in U.S. dollars in each year from 1984 through 1997 as the most 
appropriate discount rate. ICL's interest rates are shown in the notes 
to the company's financial statements, public documents which are in 
the record of this review. See Comment 9 in the 1995 Final Results.

Analysis of Programs

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

I. Programs Conferring Subsidies

A. 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 calculations 
for this program from the preliminary results. Accordingly, the net 
subsidy for this

[[Page 49462]]

program remains unchanged from the preliminary results and is as 
follows:

                          [Percent ad valorem]
------------------------------------------------------------------------
                      Manufacturer/exporter                         Rate
------------------------------------------------------------------------
Rotem Amfert Negev...............................................   5.43
------------------------------------------------------------------------

B. 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:

                          [Percent ad valorem]
------------------------------------------------------------------------
                      Manufacturer/exporter                         Rate
------------------------------------------------------------------------
Rotem Amfert Negev...............................................   0.22
------------------------------------------------------------------------

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. Encouragement of Industrial research and Development Grants (EIRD)
2. Environmental Grant Program
3. Reduced Tax Rates under ECIL
4. ECIL Section 24 Loans
5. Dividends and Interest Tax Benefits under Section 46 of the ECIL
6. ECIL Preferential Accelerated Depreciation
7. Exchange Rate Risk Insurance Scheme
8. Labor Training Grants
9. 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: The Privatization Calculation
    Respondents contend that the Department's privatization calculation 
is incorrect and should be corrected in two areas: the numerators used 
in the ratios which are averaged to calculate the ``gamma'' should 
include all of the subsidies received by Rotem over the years; and, the 
gamma itself is understated because the numerators contain only the 
grants received in a given year, while the denominators are accumulated 
values in that they contain Rotem's net worth in each year (i.e., net 
worth is, by definition, the accumulation of a company's financial 
results since its inception), resulting in a ratio of apples to 
oranges.
    Respondents note that in calculating the ``gamma'' used in the 
privatization calculation, the Department did not include in the 
numerators the subsidies received by Rotem arising from ECIL grants to 
projects 8, 12, and 13. Respondents note that although grants to 
projects 12 and 13 were fully countervailed in prior administrative 
reviews, Rotem nevertheless reported these grants so the Department 
could include them in the gamma calculation. However, the Department 
failed to include these grants in the gamma numerators in the relevant 
years, and did not include any grants to project 8 in the gamma 
numerators, presumably because of the earlier finding that grants to 
project 8 do not benefit IPA production. Respondents argue that in 
calculating gamma, the Department is not seeking to determine the level 
of countervailable subsidization, but rather the level of total 
subsidization, relative to a company's net worth. Respondents cite the 
final results of the prior administrative review, where the Department 
stated that 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,'' (64 
FR at 2884) and argue that the only way the gamma can be an accurate 
historic surrogate is if all the subsidies received are included in its 
calculation. Respondents note that the Department rejected this 
argument in the previous administrative review, and urge the Department 
to reconsider its position. See Final Results of Countervailing Duty 
Administrative Review; Industrial Phosphoric Acid from Israel, 64 FR 
2879 (January 19, 1999) (1996 Final Results).
    Respondents also argue that the numerators and the denominators 
used in calculating the gamma are not consistent in that the value of 
the denominators, Rotem's net worth in each of the relevant years is, 
by definition, an accumulated value, while the value the Department 
uses in the numerators, the value of the subsidies in the same year, is 
not an accumulated value. Respondents argue that the Department should 
correct this methodological error by using a value in the numerator 
which represents the accumulated value of the subsidies in the relevant 
year.
    Respondents note that in both the 1996 and the 1995 administrative 
reviews, the Department rejected this argument. In the 1995 review, the 
Department reasoned that respondents had ignored the fact that the 
value of the subsidies is eroding over time. See 1995 Final Results. 
Respondents further note that in the 1996 review, the Department took 
the position that respondents incorrectly assumed ``that the company's 
net worth increased in direct proportion to the value of the subsidies 
received by the firm.'' 64 FR at 2884. Respondents now argue that the 
Department's 1995 conclusion ignores the fact that the net worth of the 
company is also eroding to a comparable degree as a result of the 
depreciation of the company's assets (that is, but for additional 
capital infusions, some of which are subsidies included in the gamma 
numerator which increase the company's net worth, the net worth would 
also decline over time, just as the subsidies do). This depreciation of 
assets (which is manifest in the denominator), according to 
respondents, offsets the erosion of the subsidies (manifest in the 
numerator) over time. Respondents also argue that the Department's 1996 
reasoning ignores the fact that the grants to Rotem were ``capital 
infusions'' used by Rotem to build infrastructure, illustrating that, 
contrary to the Department's conclusion, Rotem's equity is increasing 
as a result of the grants, in direct proportion to their value. 
Finally, respondents 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: the net 
present value (NPV) used in the privatization formula is nothing more 
than the subsidies accumulated, based on a ten year, declining benefit 
stream. Thus, respondents argue, the subsidies are being accumulated 
for the ``percent repaid'' calculation, but are not being accumulated 
for the gamma calculation. According to respondents, either both should 
be accumulated or neither should be accumulated.
    Petitioners note that respondents make two now familiar attacks on 
the Department's privatization methodology. Petitioners contend that 
the Department has properly rejected these arguments in the past two 
administrative reviews of this order. With respect to including all, 
rather than just countervailable subsidies in the gamma numerators, 
petitioners argue that this would lead to the absurd result of 
requiring the Department to investigate all subsidies, regardless of 
their countervailability, to construct an

[[Page 49463]]

appropriate privatization calculation. With respect to respondents' 
arguments about the mismatch between the gamma numerators and 
denominators, petitioners urge the Department to continue to apply the 
sound reasoning applied in the two previous administrative reviews.
Department's Position
    The Department has considered respondents' arguments with respect 
to the privatization methodology in the last two administrative reviews 
of this countervailing duty order. See 1995 Final Results; 1996 Final 
Results. We continue to believe that these arguments are without merit. 
First, the Department does not calculate a benefit from subsidies which 
have been fully countervailed, or subsidies that are not 
countervailable because they do not benefit the subject merchandise. 
Therefore, the Department's privatization methodology does not address 
the repayment of such subsidies. After calculating the gamma, and 
therefore determining the portion of the purchase price which 
``repays'' past subsidies, 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. If all 
subsidies were included in the gamma numerator, the net present value 
calculation would also have to include all other subsidies, even if 
they were found not to benefit the production of subject merchandise, 
or if they have already been fully countervailed. Accepting 
respondents' arguments would require the Department to monitor and 
allocate over time even subsidies which were found non-countervailable, 
in the event that a company were to experience a change in ownership at 
some time during the administration of a countervailing duty order. 
This practice could give rise to many unintended consequences, 
including increasing respondents' burden of complying with the 
countervailing duty law, and allowing the parties to continue to 
address issues relating to a program's countervailability, regardless 
of earlier findings.
    Second, we reject respondents' argument that the Department's 
privatization methodology is inconsistent by virtue of the gamma 
denominator representing accumulated net worth and the gamma numerator 
not representing the accumulated value of subsidies received over time. 
Thus, we reject respondents' conclusion that the methodology assumes 
that the benefits of a subsidy disappear at the end of the year of 
receipt. As we stated in the 1995 Final Results and the 1996 Final 
Results, the gamma calculation attempts to determine the portion of the 
company's net worth which is comprised of subsidies in the year prior 
to privatization. Once again, we believe that respondents' proposal to 
compare the accumulated value of a company's subsidies in the year 
before privatization to the company's net worth in that year would 
overstate the value of the subsidies in relationship to the company's 
net worth by assuming that a company's net worth increases in direct 
proportion to the value of the subsidies received by that firm. 
Moreover, as we stated in the last administrative review, a company's 
net worth is not increasing in direct proportion to the value of the 
subsidies received because the value of the subsidies is eroding over 
time. See 1996 Final Results.
    We also reject respondents' suggestion that the Department either 
remove the net present value element from the ``percent repaid'' 
calculation or add it to the gamma calculation (by accumulating the 
subsidies). This suggestion might have merit if our gamma methodology 
only considered the subsidies to net worth ratio in the year prior to 
privatization in isolation. However, the gamma looks at ten years of 
data and averages those ten years, thus providing a historical context 
to the ratio of subsidies to net worth over time. In addition, we note 
that while the gamma itself does not factor in the net present value of 
past subsidies, the results of the gamma calculation are applied to the 
present value of the remaining benefit streams at the time of 
privatization. Thus, our current calculations, as a whole, do properly 
account for the present value of the remaining benefits at the time of 
privatization. See Final Affirmative Countervailing Duty Determination: 
Certain Hot-Rolled Flat Rolled Carbon Quality Steel Products from 
Brazil, 64 FR 38742 (July 19, 1999); 1996 Final Results.
    Finally, respondents have once again provided a Coopers & Lybrand 
report in support of their privatization methodology arguments and 
maintain that the Department's failure to accept this report in the 
last two administrative reviews indicates that the Department does not 
understand the arguments presented therein. As explained above, while 
the Department does appreciate the argument, we do not believe that it 
merits a change in our privatization methodology. This methodology 
aims, through the calculation of the gamma, to determine the percentage 
of subsidies that constitute the overall value (i.e., net worth) of the 
company at a given point in time, and then to use that gamma to 
determine the portion of total subsidies which are repaid through the 
privatization transaction and the portion which remains with the 
company and continues to provide countervailable benefits. See, GIA, 58 
FR at 37263, and 1995 Final Results, 63 FR at 13635, 13636. This 
methodology has been accepted by the courts as a reasonable way to 
determine the impact of privatization on previously bestowed subsidies. 
See 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); 
Saarstahl AG v. United States, 177 F. 3d 1314 (Fed. Cir. 1999).
Comment 2: Rotem's AUL Calculation
    Petitioners contend that the Department's calculation of Rotem's 
AUL is flawed in that it excludes a category of assets referred to as 
``Furniture, vehicles, and equipment.'' Petitioners argue that it is 
inappropriate for the Department to accept Rotem's explanation that 
these assets should be excluded from the AUL calculation because they 
are not ``productive assets.'' Some of these assets are identified by 
Rotem as ``office equipment'' which, according to petitioners consists 
of computers and/or related software which may be essential to Rotem's 
production and operations; assets identified as ``vehicles'' could, 
petitioners maintain, be used in, or essential to, production and 
operations. Petitioners believe that the determination of what 
constitutes productive assets is a factual determination which the 
Department must make on a case-by-case basis; petitioners maintain that 
the record in this review does not contain the necessary factual 
information for this determination. Petitioners urge the Department to 
require Rotem to provide a detailed listing of the specific assets 
which comprise this category and their uses so that the Department can 
evaluate and petitioners can comment on whether they should be included 
in the AUL calculation.
    Respondents note that it should be clear from the items enumerated 
that the category is intended for office-type assets. Productive assets 
are accounted for in the category ``facilities, machinery, and 
equipment,'' and respondents believe that the difference between 
productive and non-productive assets is clear from the accounting 
records.

[[Page 49464]]

Department's Position
    We disagree with petitioners' argument that the category of Rotem's 
assets entitled ``furniture, vehicles, and office equipment,'' requires 
any further examination by the Department. Rotem complied with the 
Department's request and provided information from its audited 
financial statements for use in the Department's company-specific AUL 
calculations. We note that the verification reports from the 1995 
administrative review, which were submitted on the record of the 
current review, discuss the calculation of Rotem's company-specific AUL 
and its 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 this information has 
previously been verified and tied to Rotem's audited financial 
statements, we find no reason to change the calculation of Rotem's AUL 
for these final results.

Final Results of Review

    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, 1997 through December 
31, 1997, we determine the net subsidy for Rotem to be 5.65 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 Sec. 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 at 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, 1997 through December 31, 1997, 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 351.305(a)(3). Timely written 
notification of return/destruction of APO materials or conversion to 
judicial protective order is hereby requested. Failure to comply is a 
violation of the APO.
    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)).

    Dated: September 7, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-23776 Filed 9-10-99; 8:45 am]
BILLING CODE 3510-DS-P