[Federal Register Volume 61, Number 43 (Monday, March 4, 1996)]
[Notices]
[Pages 8255-8259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4984]
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DEPARTMENT OF COMMERCE
[C-508-605]
Industrial Phosphoric Acid From Israel; Preliminary Results of
Countervailing Duty Administrative Reviews
AGENCY: Import Administration, International Trade Administration,
Department of Commerce
[[Page 8256]]
ACTION: Notice of preliminary results of Countervailing Duty
Administrative Reviews.
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SUMMARY: The Department of Commerce (the Department) is conducting two
administrative reviews of the countervailing duty order on industrial
phosphoric acid from Israel. We preliminarily determine the net subsidy
to be 3.84 percent ad valorem for all companies for the period January
1, 1992 through December 31, 1992, and 5.50 percent ad valorem for all
companies for the period January 1, 1993 through December 31, 1993. If
the final results of these reviews remain the same as these preliminary
results, the Department intends to instruct the U.S. Customs Service to
assess countervailing duties as indicated above. Interested parties are
invited to comment on these preliminary results.
EFFECTIVE DATE: March 4, 1996.
FOR FURTHER INFORMATION CONTACT: Brian Albright or Cameron Cardozo,
Office of Countervailing Compliance, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW., Washington, DC 20230; telephone:
(202) 482-2786.
SUPPLEMENTARY INFORMATION:
Background
On August 19, 1987, the Department published in the Federal
Register (52 FR 31057) the countervailing duty order on industrial
phosphoric acid from Israel. On August 3, 1993, and August 3, 1994, the
Department published notices of ``Opportunity to Request Administrative
Review'' of this countervailing duty order for the periods January 1,
1992 through December 31, 1992 and January 1, 1993 through December 31,
1993, respectively (58 FR 41240 and 59 FR 39543). We received a timely
request for review for the 1992 review period from the petitioners, FMC
Corporation and the Monsanto Company. We received timely requests for
review for the 1993 review period from both the petitioners and the
respondent, Rotem Fertilizers Ltd.
We initiated the review covering the period January 1, 1992 through
December 31, 1992, on September 30, 1993 (58 FR 51054). We initiated
the review covering the period January 1, 1993 through December 31,
1993, on September 16, 1994 (59 FR 47609). Each review covers one
manufacturer/exporter of the subject merchandise, which accounts for
virtually all of the exports of subject merchandise from Israel to the
United States during the review period, and ten programs.
Applicable Statute and Regulations
The Department is conducting these administrative reviews in
accordance with section 751(a) of the Tariff Act of 1930, as amended
(the Act). Unless otherwise indicated, all citations to the statute and
to the Department's regulations are in reference to the provisions as
they existed on December 31, 1994. However, references to the
Department's Countervailing Duties; Notice of Proposed Rulemaking and
Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed
Regulations), are provided solely for further explanation of the
Department's countervailing duty practice. Although the Department has
withdrawn the particular rulemaking proceeding pursuant to which the
Proposed Regulations were issued, the subject matter of these
regulations is being considered in connection with an ongoing
rulemaking proceeding which, among other things, is intended to conform
the Department's regulations to the Uruguay Round Agreements Act. See
60 FR 80 (Jan. 3, 1995).
Scope of Review
Imports covered by this review are shipments of industrial
phosphoric acid (IPA) from Israel. Such merchandise is classifiable
under item number 2809.20.00 of the Harmonized Tariff Schedule (HTS).
The HTS item number is provided for convenience and Customs purposes.
The written description remains dispositive.
Calculation Methodology for Assessment and Cash Deposit Purposes
Because Rotem is the only manufacturer/exporter of the subject
merchandise to the United States, Rotem's net subsidy rate is also the
country-wide rate.
Privatization
Israeli Chemicals Ltd. (ICL), the parent company which holds one
hundred percent of Rotem's shares, was partially privatized in 1992 and
again in 1993. Accordingly, we have determined that the partial
privatization of ICL represents a partial privatization of each of the
companies in which ICL holds an ownership interest.
In these reviews and prior reviews of the subject merchandise, the
Department has found that Rotem and/or its predecessor, Negev
Phosphates Ltd., received non-recurring countervailable subsidies prior
to these partial privatizations. Further, the Department has found that
a private party purchasing all or part of a government-owned company
can repay prior non-recurring subsidies on behalf of the company as
part or all of the sales price (see the General Issues Appendix
appended to the Final Countervailing Duty Determination; Certain Steel
Products from Austria, 58 FR 37262 (July 9, 1993) (General Issues
Appendix)). Therefore, to the extent that a portion of the sales price
paid for a privatized company can be reasonably attributed to prior
subsidies, that portion of those subsidies are repaid.
To calculate the non-recurring subsidies remaining with Rotem after
each partial privatization, we performed the following calculations. We
first calculated the amount of the purchase price paid for the ICL
shares which could be attributed to Rotem using the ratio of Rotem's
net assets to ICL's net assets in the year of sale. (For a further
explanation of the Department's analysis of the purchase price
attributable to Rotem, see October 25, 1995 memorandum to Barbara E.
Tillman regarding partial privatization of ICL, which is on file in the
public file of the Central Records Unit, Room B-099 of the Department
of Commerce.) We then calculated the net present value (NPV) of the
future benefit stream of the non-recurring subsidies received by Rotem
at the time of the sale of the shares. Next, we calculated the portion
of the purchase price which represents repayment of prior subsidies in
accordance with the methodology described in the ``Privatization''
section of the General Issues Appendix (58 FR 37259). This amount was
then subtracted from the NPV of the subsidies, and the result was
divided by the NPV of the subsidies to calculate the ratio representing
the amount of subsidies remaining with Rotem after each partial
privatization.
To calculate the benefit provided to Rotem for 1992 and 1993, we
multiplied the benefit calculated for Encouragement of Capital
Investment Law grants (the only subsidies relevant to the privatization
calculation) for each period by the ratio representing the amount of
subsidies remaining with Rotem after the partial privatization. We then
divided the results by the company's total sales of subject merchandise
in each respective period.
Analysis of Programs
I. Programs Preliminarily Determined to Confer Subsidies
(A) Encouragement of Capital Investments Law (ECIL) Grants
The ECIL grants program was established to attract capital to
Israel. In
[[Page 8257]]
order to be eligible to receive various benefits under the ECIL,
including investment grants, capital grants, accelerated depreciation,
reduced tax rates, and certain loans, the applicant must obtain
approved enterprise status. Approved enterprise status is obtained
after a review of information submitted to the Investment Center of the
Israeli Ministry of Industry and Trade. Investment grants are given as
a percentage of the cost of the approved investment. The amount of the
grant benefits received by approved enterprises depends on the
geographic location of the eligible enterprise. For purposes of the
ECIL program, Israel is divided into three zones--Development Zone A,
Development Zone B, and the Central Zone--each with a different funding
level.
Since 1978, only investment projects outside the Central Zone have
been eligible to receive grants. The Central Zone comprises the
geographic center of Israel, including its largest and most developed
population centers. In Final Affirmative Countervailing Duty
Determination: Industrial Phosphoric Acid from Israel, 52 FR 25447
(July 7, 1987) (IPA Investigation), the Department found the ECIL
grants program to be de jure specific and thus countervailable because
the grants are limited to enterprises located in specific regions. In
these reviews, the Government of Israel (GOI) has provided no new
information or evidence of changed circumstances to warrant
reconsideration of this determination.
Rotem Fertilizers Ltd. (Rotem) is located in Development Zone A,
and received ECIL investment, drawback, and capital grants in
disbursements over a period of years for several projects. We followed
the methodology developed in IPA Investigation to determine the
benefits from the ECIL grants. However, consistent with the Final
Affirmative Countervailing Duty Determination: Certain Carbon Steel
Butt-Weld Pipe Fittings From Israel, 60 FR 10569 (February 27, 1995)
(Butt-Weld Pipe Investigation), in these reviews we have amended the
calculation methodology to conform with the use of variable rather than
fixed interest rates in the years these grants were disbursed. Section
355.49(b)(3) of the Department's Proposed Regulations relies on a
discount rate, based on the cost of fixed-rate long-term debt for the
firm under review or generally in the country under review. However,
Rotem had no fixed-rate long-term debt during the years in which it
received ECIL grants. Moreover, in Butt-Weld Pipe Investigation, the
Department determined that no long-term loans with fixed interest rates
(or other long-term debt) were available in Israel during that period;
the only long-term loans (or other long-term debt) available to
companies in Israel were provided at variable interest rates.
This methodology reflects the actual long-term options open to
Israeli firms, and also ensures that the net present value of the
amount countervailed in the year of receipt does not exceed the face
value of the grant. In accordance with General Issues Appendix, we
allocated these grants over ten years (the average useful life of
renewable physical assets in the chemical manufacturing industry, as
determined under the U.S. Internal Revenue Service Asset Depreciation
Range System). As the discount rate, we have used the rate of return on
CPI-indexed commercial bonds (the real rate of return, as published in
the Bank of Israel Annual Reports, plus the CPI).
We summed the benefits from these projects for each year (1992 and
1993), and then reduced the annual benefits according to the
methodology outlined in the ``Privatization'' section above. We then
divided the results by the value of IPA sold by Rotem during the
relevant review period. On this basis, we preliminarily determine the
net subsidy from this program to be 3.82 percent ad valorem for 1992
and 5.47 percent ad valorem for 1993.
(B) Long-term Industrial Development Loans
Prior to July 1985, approved enterprises were eligible to receive
long-term industrial development loans funded by the Government of
Israel (GOI). During the original investigation, we verified that these
loans, like the ECIL grants, were project-specific. They were disbursed
through the Industrial Development Bank of Israel (IDBI) and other
industrial development banks which no longer exist.
The long-term industrial development loans were provided to a
diverse number of industries, including agricultural, chemical, mining,
machine, and others. However, the interest rates on loans vary
depending on the Development Zone in which the borrower is located. The
interest rates on loans to borrowers in Development Zone A are lowest,
while those on loans to borrowers in the Central Zone are highest.
Therefore, loans to companies in Zone A are provided on preferential
terms relative to loans received by companies in the heavily populated
and developed Central Zone. In IPA Investigation, the Department found
long-term industrial development loans to be regional subsidies and
countervailable to the extent that they are provided at interest rates
which are lower than those applied on loans provided to companies
located in the Central Zone. In these reviews, the Government of Israel
(GOI) has provided no new information or evidence of changed
circumstances to warrant reconsideration of this determination. Rotem
had loans outstanding under this program during both review periods.
The loans carry the Zone A interest rates because of Rotem's location.
Therefore, we determine that Rotem received countervailable benefits
under this program because the interest rates paid by Rotem are less
than those which would apply in the Central Zone.
As was determined in the Butt-Weld Pipe Investigation, under the
terms of this program, the interest rates on these loans have two
components--a fixed real interest rate and a variable interest rate,
the latter of which is based on either the CPI or the dollar/shekel
exchange rate. All of Rotem's loans were linked to the dollar/shekel
exchange rate. Because the dollar-shekel exchange rate varies from
year-to-year, we were unable to apply the Department's methodology
described in the Proposed Regulations because we cannot calculate a
priori the payments due over the life of these loans, and hence cannot
calculate the ``grant equivalent'' of the loans. Accordingly, in
accordance with section 355.49(d)(1) of the Proposed Regulations, we
have compared the interest that would have been paid by a company in
the Central Zone, as a benchmark, to the amount actually paid by Rotem
during the review periods.
For each project, we calculated the interest savings accrued during
the period of review (POR). We then summed the benefits and divided the
total by the value of all IPA sold by Rotem during the POR. On this
basis, we preliminarily determine the net subsidy from this program to
be 0.01 percent ad valorem for 1992, and less than 0.005 percent ad
valorem for 1993.
(C) Exchange Rate Risk Insurance Scheme
Prior to September 1993, the Exchange Rate Risk Insurance Scheme
(EIS), operated by the Israel Foreign Trade Risk Insurance Corporation
Ltd. (IFTRIC), was designed to insure exporters against losses which
resulted when the rate of inflation exceeded the rate of devaluation
and the new Israeli Shekel (NIS) value of an exporter's foreign
currency receivables did not rise enough to cover increases in local
costs.
The EIS was optional and open to any exporter willing to pay a
premium to IFTRIC. Compensation was based on a
[[Page 8258]]
comparison of the rate of devaluation of the NIS against a basket of
foreign currencies with the change in the consumer price index. If the
rate of inflation exceeded the rate of devaluation, the exporter was
compensated by an amount equal to the difference between these two
rates multiplied by the value-added of the exports. If the rate of
devaluation was higher than the rate of inflation, however, the
exporter was required to compensate IFTRIC. The premium was calculated
for all participants as a percentage of the value-added sales value of
exports. IFTRIC changed this percentage rate periodically, but at any
given time it was the same for all exporters.
In determining whether an export insurance program provides a
countervailable benefit, we examine whether the premiums and other
charges are adequate to cover the program's long-term operating costs
and losses. Despite periodic increases in the premium rate, we
determined in IPA Investigation that this program did not cover its
long term costs and losses and, therefore, conferred an export subsidy
on exports of IPA from Israel. In addition, in the Final Results of
Countervailing Duty Administrative Review; Industrial Phosphoric Acid
from Israel (59 FR 5176; February 3, 1994), covering the 1991 review
period, we found that this program conferred a countervailable benefit
on exporters in Israel of the subject merchandise. Normally, five years
is a sufficiently long enough period of time to establish that the
premiums and other charges are manifestly inadequate to cover the long-
term operating costs and losses of the program. (See section
355.44(d)(1) of the Proposed Regulations). We reviewed EIS financial
statements in these reviews which showed that EIS has continuously
operated at a loss from 1981 through 1992. Since EIS has operated at a
loss for 12 years, the determination that this program is
countervailable remains unchanged.
We verified that Rotem did not receive benefits from IFTRIC for its
IPA exports to the United States during 1992. However, Rotem did
receive benefits from IFTRIC for its IPA exports to United States
during 1993. Therefore, for the 1993 review period, we have calculated
the benefit rate by dividing the net amount of compensation Rotem
received during the review period from IFTRIC for IPA exported to the
United States, by the value of the company's exports of IPA to the
United States during the same period. On this basis, we preliminarily
determine the benefit from this program to be zero for the 1992 review
period and 0.02 percent ad valorem for the 1993 review period.
(D) Encouragement of Industrial Research and Development Grants (EIRD)
Rotem received several grants under this program in both the 1992
and 1993 review periods. In IPA Investigation, we determined that the
results of research funded by EIRD grants are not made publicly
available, and that such grants are countervailable. (See also section
355.44(l) of the Proposed Regulations). We followed the methodology
developed in IPA Investigation in determining the benefits from the
EIRD funding.
The EIRD grant issued to Rotem on January 13, 1992 benefited a
research project concerning green acid, which is used as an input in
the production of IPA. We view this as a ``non-recurring'' grant based
on the analysis set forth in the Allocation section of the General
Issues Appendix. Since the grant value was less than 0.50 percent of
all Rotem's sales, we allocated the full amount of the grant to 1992
and divided by Rotem's total sales of all products. On this basis, we
preliminarily determine the benefit from this program to be less than
0.005 percent ad valorem.
II. New Program Preliminarily Determined Not to Confer Subsidies Law
for the Encouragement of the Business Sector (Absorption of Workers)
The questionnaire responses submitted by the GOI and Rotem for the
1992 and 1993 review periods stated that Rotem participated in a
temporary program aimed at encouraging employment in order to cope with
the problems caused by immigration. This program, enacted under the
temporary Law for the Encouragement of the Business Sector (Absorption
of Workers), has not been examined in any prior reviews or in the
investigation of the subject merchandise. Therefore, we requested
additional information on this program, and on the benefits received by
Rotem, in a supplemental questionnaire, and we verified the information
in both responses in order to determine whether the program was
limited, either de jure or de facto, to a specific enterprise or
industry, or a group of enterprises or industries, and thus
countervailable.
The temporary Law for the Encouragement of the Business Sector
(Absorption of Workers) was instituted in 1991 in an effort to expand
employment opportunities in the Israeli economy, following rising
levels of unemployment between 1988-1991 caused by large Russian
immigration. Under the Absorption of Workers program, funded by the
Treasury and administered by the National Insurance Institute (NII),
any employer in the business sector employing a monthly average of over
five employees is eligible to receive a monthly grant from the Treasury
for each additional employee hired. The period of payment of the grant
for each employee is limited to two years. During the first year, the
grant consists of one-third of the monthly wages paid to the employee
but cannot exceed NIS 1000 per month. During the second year, the grant
consists of one-fourth of the monthly wages paid to the employee but
cannot exceed NIS 750 per month. Payments under the program began in
July 1991 and are scheduled to terminate in December 1995.
Companies that wish to participate in this program submit an
application, certified by a CPA, through their bank to the NII within
nine months of the end of the quarter for which they are requesting
assistance. The NII reviews the application form and compares it to the
company's insurance records and Department of the Interior records to
calculate the average number of workers employed prior to the period of
application. Any workers hired over this baseline number make the
company eligible for participation in the program. For eligible
companies, payment is transferred directly into the employer's bank
account within 45 days of the application. The NII conducts random
audits of approximately 20 percent of the recipients.
We verified that all companies in the business sector employing a
minimum of five workers are eligible to participate in the program and,
upon submission of a complete and accurate application within the
specified time frame, will receive a grant for each additional worker
hired. Moreover, we found no evidence that the program is regional or
that approval is contingent upon the export performance of the company.
Finally, we found no evidence that the program is limited to a specific
enterprise or industry, or a group of enterprises or industries. There
are a large number and wide variety of users of the program. The range
of industrial branches that received grants includes agriculture,
general industry, electricity and water, construction, food and
hospitality, transportation, financial, public services, and private
services. Chemical producers are neither a dominant nor
disproportionate recipient of the grants, and there is no evidence that
the GOI exercises discretion, in general or across industries, in
[[Page 8259]]
conferring the grants. Thus, we preliminarily determine that this
program is not countervailable within the meaning of section 701(a) of
the Act. (For a more detailed explanation of the Department's decision,
see the May 26, 1995 Memorandum for the 1992 Administrative Reviews of
IPA from Israel, on file in the public file of the Central Records
Unit, Room B-099 of the Department of Commerce).
III. Programs Preliminarily Determined Not to Be Used
We also examined the following programs and preliminarily determine
that the producer/exporter of the subject merchandise did not apply for
or receive benefits under these programs during the 1992 or 1993 review
periods:
A. Reduced tax rates under ECIL;
B. ECIL section 24 loans;
C. Preferential accelerated depreciation under ECIL;
D. Labor training grants; and
E. Dividends and Interest Tax Benefits under Section 46 of the ECIL.
Preliminary Results of Reviews
For the period January 1, 1992, through December 31, 1992, we
preliminarily determine the net subsidy to be 3.84 percent ad valorem
for all firms. For the period January 1, 1993 through December 31,
1993, we preliminarily determine the net subsidy to be 5.50 percent ad
valorem for all firms.
If the final results of this review remain the same as these
preliminary results, the Department intends to instruct the U.S.
Customs Service to assess the following countervailing duties:
------------------------------------------------------------------------
Rate
Manufacturer/exporter Period (percent)
------------------------------------------------------------------------
All companies....................... 1992................... 3.84
All companies....................... 1993................... 5.50
------------------------------------------------------------------------
The Department also intends to instruct the U.S. Customs Service to
collect a cash deposit of estimated countervailing duties, as provided
by section 751(a)(1) of the Act, of 5.50 percent of the f.o.b. invoice
price on all shipments of the subject merchandise from Israel entered,
or withdrawn from warehouse, for consumption on or after the date of
publication of the final results of these administrative reviews.
Parties to the proceedings may request disclosure of the
calculation methodology used in either review and interested parties
may request a hearing not later than 10 days after the date of
publication of this notice. Interested parties may submit written
arguments in case briefs on these preliminary results within 30 days of
the date of publication. Rebuttal briefs, limited to arguments raised
in the case briefs, may be submitted seven days after the time limit
for filing the case brief. Parties who submit written arguments in
these proceedings are requested to submit with the argument (1) a
statement of the issue and (2) a brief summary of the argument. Written
arguments that are intended to comment on the preliminary results for
both the 1992 and 1993 reviews must be submitted to the file for each
proceeding. Any hearing, if requested, will be held seven days after
the scheduled date for submission of rebuttal briefs. Copies of case
briefs and rebuttal briefs must be served on interested parties in
accordance with 19 CFR 355.38(e).
Representatives of parties to these proceedings may request
disclosure of proprietary information under administrative protective
order no later than 10 days after the representative's client or
employer becomes a party to the proceeding, but in no event later than
the date the case briefs, under section 355.38(c), are due. The
Department will publish the final results of these administrative
reviews including the results of its analysis of issues raised in any
case or rebuttal brief or at a hearing.
These administrative reviews and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.
Dated: February 22, 1996.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 96-4984 Filed 3-1-96; 8:45 am]
BILLING CODE 3510-DS-P
