[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Commerce's (the Department) regulations, we rescinded the review with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
