[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]
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Manufacturer/exporter Rate
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Rotem Amfert Negev............................................... 5.43
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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]
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Manufacturer/exporter Rate
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Rotem Amfert Negev............................................... 0.22
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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
