NOTICES
DEPARTMENT OF COMMERCE
[C-337-601]
Final Affirmative Countervailing Duty Determination; Standard Carnations From
Chile
Tuesday, February 3, 1987
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AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to producers or exporters in Chile of standard carnations as described in the "Scope of Investigation" section of this notice. The estimated net subsidy is 2.25 percent ad valoreum. However, consistent with our stated policy of taking into account changes in programs that occur before our preliminary determination, we are adjusting the duty deposit rate to 12.25 percent ad valorem to reflect the commencement of the Simplified Drawback Program. We have notified the U.S. International Trade Commission (ITC) of our determination. We are directing the U.S. Customs Service to suspend liquidation of all entries of standard carnations from Chile, commencing on the date of publication of this notice in the Federal Register, that are entered, or withdrawn from warehouse, for comsumption, and to require a cash deposit or bond on entries of these products in the amount equal to the duty deposit rate.
EFFECTIVE DATE: February 3, 1987.
FOR FURTHER INFORMATION CONTACT:Loc Nguyen, Jessica Wasserman or Gray Taverman, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW, Washington, DC 20230; Telephone (202) 377-0167, 377-1442, or 377- 0161.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that there is reason to believe or suspect that benefits which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to producers or exporters in Chile of standard carnations. For purposes of this investigation, the following programs are found to confer subsidies.
- Stamp and Seal Tax Exemption for Exporters
- Export Rebate (Simplified Drawback)
We determine the estimated net subsidy to be 2.5 percent ad valoreum, and the duty deposit rate to be 12.25 percent ad valoreum.
Case History
On May 21, 1986, we received a petition in proper form from the Floral Trade Council filed on behalf of the U.S. industry producing standard carnations. In compliance with the filing requirements of s 355.26 of the Commerce Regulations (19 CFR 355.26), the petition alleged that producers or exporters in Chile of standard carnations receive, directly or indirectly, benefits which constitute subsidies within the meaning of section 701 of the Act.
We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on June 10, 1986, we initiated an investigation (51 FR 21953, June 17, 1986). We stated that we expected to issue a preliminary determination on or before August 14, 1986.
On June 25, 1986, the petitioner requested a full extension of the period within which a preliminary countervailing duty determination must be made pursuant to section 703(c)(1)(A) of the Act. On July 3, 1986, we issued a notice of postponement stating that the preliminary determination would be made on or before October 20, 1986 (51 FR 25084, July 10, 1986).
Since Chile is a "country under the Agreement" within the meaning of section 701(b) of the Act, the ITC is required to determine whether imports of the subject merchandise from Chile materially injure, or threaten material injury to, a U.S. industry. On July 7, 1986, the ITC determined that there is a reasonable indication that an industry in the United States is materially injured by reason of imports from Chile of standard carnations (51 FR 25751, July 6, 1986).
On June 20, 1986, we presented a questionnaire to the Government of Chile in Washington, DC, concerning petitioner's allegations. We received the government and company responses on July 25, 1986, September 15, 1986, and September 26, 1986, from the Government of Chile, Coexflor Ltd., and Agricola Longotoma. Coexflor Ltd. is the exporter for Sociedad Agricola Flores Pochohay Ltda., Andres Ramirez Matte, Sociedad Agricola Los Molles Ltda., Juan Alberto Decombe, Sociedad Agricola Millary, Ltda., and Alberto Behn T., producers of standard carnations. Agricola Longotoma is both a producer and an exporter of standard carnations. We received responses from both the exporters and the producers of standard carnations.
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On November 4, 1986, petitioner filed a request to extend the deadline date for a final determination in the countervailing duty investigation to correspond to the date of the final determination in the antidumping investigation, pursuant to section 705(a)(1) of the Tariff Act of 1930, as amended by section 606 of the Trade and Tariff Act of 1984 (Pub. L. 98-573). The Department granted an extension of the deadline for the final determination in this countervailing duty investigation to January 12, 1987, the original deadline for the final determination in the antidumping investigation.
On December 22, 1986, respondents requested that the Department postpone the final determination in the antidumping duty investigation on standard carnations in accordance with section 735(a))(2)(A) of the Act. We granted this request and postponed our final antidumping duty determination until not later than January 26, 1987. Pursuant to section 705(a)(1) of the Tariff Act of 1930, as amended by section 606 of the Trade and Tariff Act of 1984, the deadline for the final countervailing duty determination on standard carnations from Chile was also postponed until January 26, 1987, to coincide with the revised date of the final antidumping duty determination (52 FR 1515, January 14, 1987).
Scope of Investigation
The products covered by this investigation are standard carnations currently provided for in item 192.21 of the Tariff Schedules of the United States (TSUS).
For purposes of this determination, the period for which we are measuring subsidies (the review period) is calendar year 1985. Based upon our analysis of the petition, the responses to our questionnaire, our verification, and comments submitted by petitioner we determine the following:
I. Programs Determined To Confer a Subsidy
We determine that subsidies are being provided to producers or exporters in Chile of standard carnations under the following programs:
A. Stamp and Seal Tax Exemption for Exporters (SST)
The SST is a tax that affects all credit operations in Chile. Bills of exchange, promissory notes, letters of credit and any other document containing a loan or any other money credit transaction are subject to the SST. This tax amounts to 0.2 percent of the par value of the document per month, for a maximum limit of twelve months or 2.4 percent. As of October 29, 1985, the Government of Chile began exempting export credit operations from the SST. Neither the Government of Chile nor the respondent companies gave us clear explanations as to what is meant by "export credit operations." Nor did we find any indication that the exporters paid the SST in any export credit operations. Therefore, based on best information available, we assume that companies which export are exempted from paying the stamp and seal tax on all export credit operations.
Because the exemption appears to be available only to companies which export, we determine that this exemption constitutes an export subsidy. To calculate the benefit during the review period, we used the best information available, since the companies did not give us specific information on each loan obtained in 1985; nor did they give us any information on loans for 1986. Therefore, for Agricola Longotoma, one of the two exporters, we first multiplied total principal outstanding as of December 31, 1985, by the ratio of export earnings to total earnings for 1985; we then multiplied the result by 0.4 percent, in order to determine the benefit conferred by the exemption granted for the last two months of 1985. For the second exporter, Coexflor (which exports 100 percent of its sales), we multiplied the outstanding balance of its 120-day credit line as of December 31, 1985, by 0.4 percent as well. Because this program started only during the last two months of the review period and, therefore, could only benefit export sales made after the start of the program, we allocated the total subsidy received by both companies in 1985 over the proportion of total exports during the review period to which this subsidy is attributable. This resulted in an estimated net subsidy of 2.25 percent ad valorem.
B. Export Rebate (Simplified Drawback)
Law 14,480 of December 1985 allows a 10 percent simplified drawback on the F.O.B. value of exports to those companies whose exports averaged US$2.5 million or less in 1983 and 1984 and whose annual exports have not exceeded US $7.5 million after 1984.
According to the Government of Chile's response, this drawback is a rebate of import duties and other indirect taxes on inputs physically incorporated in an exported product. However, the Government of Chile has provided no evidence that eligibility for the rebate is linked to import duties or indirect taxes paid on such inputs, as required in our determination in Certain Apparel from Thailand: Final Affirmative Countervailing Duty Determination and Countervailing Order (50 FR 9818, March 12, 1985). Lacking any evidence that the Government of Chile attempted to base the export rebate on an accurate model of indirect taxes and import duties on physically incorporated inputs, as best information available, we determine that this rebate is countervailable in its entirety.
We verified that this law went into effect in 1986 and that the companies under investigation did not receive any benefits under this program during the review period. However, to the best of our knowledge, the companies did receive benefits in 1986. Therefore, we are adjusting the duty deposit rate to reflect the 10 percent ad valorem subsidy granted under this program.
II. Programs Determined Not To Confer a Subsidy
We determine that subsidies are not provided to producers or exporters in Chile of standard carnations under the following program:
A. Value Added Tax (VAT) Rebate
Under the VAT system in Chile, a duty or sales tax of 20 percent is paid at each stage of production. Each time a transaction takes place, the purchaser pays, and the seller collects, the tax on behalf of the government. However, no VAT Is collected when an export sale is made. Once a month companies must total their payments and collections of VAT and settle their account with the Chilean tax authorities.
Producers for the domestic market usually owe the government because they collect more tax on the sales of their products than they have paid on inputs. Exporters, on the other hand, will always be in a credit situation vis-a-vis the government with respect to their export sales. In order to neutralize this disadvantage, the government provides that exporters may receive a rebate of a percentage of the total VAT paid by the exporter. This percentage is based on the amount export sales represent of total sales. At the end of each month, exporters, like all other companies, must reconcile payments and collections with the government and refund to the government the collections that exceed payments.
We found no evidence that this rebate constitutes an excessive remission of indirect taxes and, heance, it does not constitute a subsidy.
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III. Programs Determined Not To Be Used
We determine that producers or exporters in Chile of standard carnations did not use the following programs:
Petitioner alleges that exporters of standard carnations in Chile may benefit from export credits provided at preferential rates by the Government of Chile.
According to the Government of Chile, the lines of pre- and post- shipment credit available to exporters are regulated by Chapter X of the Compendium of Export Rules of the Central Bank of Chile and the rates of interest applicable to these lines of credit are market rates.
We found no evidence at verification that any of the companies under investigation received loans on terms inconsistent with commercial considerations. Therefore, we determine that the companies under investigation did not benefit from preferential export credit.
B. Corporacion de Fomento (CORFO) Loans and Debt Rescheduling
Petitioner alleges that producers and exporters of standard carnations in Chile may benefit from subsidized loans and subsidized debt rescheduling provided by the Chilean Development Bank (CORFO) to agriculture. We verified that the companies under investigation did not have loans received under this program outstanding during the review period.
C. Preferential Exchange Rate for Repayment of Foreign Debt
Petitioner alleges that producers and exporters of standard carnations in Chile may benefit from a preferential exchange rate available for repayment of foreign debt incurred before August 6, 1982.
We verified that a preferential foreign exchange rate was established during August 1982 in view of the deregulation of the national currency which adversely affected those with foreign currency debts. To be eligible for the preferential exchange rate, the debt had to be incurred prior to 1982. We verified that the companies under investigation did not benefit from this program.
D. Deferred Import Duties for Capital Goods
Petitioner alleges that producers and exporters of standard carnations in Chile may benefit from a deferral or exemption of import duties on capital goods used in the agricultural industry.
According to the Government of Chile, machinery for agriculture is excluded from the benefits of Decree Law 1,226 providing for the deferred payment of import duties. We verified that the companies under investigation have not received benefits from this program.
As of October 29, 1985, the Government of Chile provides a VAT rebate on fixed assets six months after the assets have been purchased. We verified that the companies under investigation have not received rebates under this program.
The Government of Chile requires almost all exporters to repatriate foreign exchange earnings from exports within 90 days of shipment. Under certain circumstances, the exporter is allowed a waiver of the 90-day rule. We verified that all exporters under investigation repatriated their foreign exchange within the 90-day period.
Under Law No. 18439, the Government of Chile has increased the level of authorized bank lending for exports beyond that which is available to producers which sell domestically. At verification, we found no indication that the exporters under investigation received more loans than domestic sellers.
Petitioner's Comments
Comment 1: Petitioner argues that Agricola Longotoma, Ltd., benefitted from a preferential exchange rate on repayment of a loan taken out on December 31, 1985. Petitioner contends that this loan was a loan under Agreement 1466, which was one of the vehicles used to implement the program providing a preferential rate for the repayment of foreign debt.
DOC Position: Under this program, a preferential exchange rate is available only for loans taken out prior to August 1982. Therefore, the loan petitioner refers to is not eligible for the preferential exchange rate.
Comment 2: Petitioner argues that the loans of Agricola Longotoma, Ltd., and Alberto Behn were rescheduled at preferential rates. Petitioner argues that, to the extent information on rescheduling was not obtained at verification, the agency should reject the questionnaire responses of the Chilean producers and use best information otherwise available for purposes of the final determination.
DOC Position: We found no evidence at verification that any of the companies under investigation received loans from government sources, nor did we find any evidence that commercial loans were rescheduled on terms inconsistent with commercial considerations.
Comment 3: Petitioner argues that the provision in the VAT rebate program which allows exporters to recover VAT prior to actually exporting their goods provides a benefit to the recipients (equal to the time value of money). Petitioner argues that the benefit should be calculated according to the following paragraph of Article 1 of Decree 34,011 of the General Controllership of the Republic:
If the exporter does not effect the respective export operation, he should restitute the values returned within the month following the one in which he realizes the export would not take place, the values should be adjusted in the same percentage the Consumer Price Index variation was established for the month prior to the reception of the values and the month prior to actual restitution. The adjusted value will be charged one percent monthly interest.
DOC Position: We disagree. During verification, we noted that, in the normal course of trade, it is usually the producer selling his goods domestically who actually recoups his "Purchases VAT" (the VAT he pays when purchasing an item) earlier than the exporter. As explained supra, the domestic seller starts recovering his "purchases VAT" the minute he sells his products through the acquisition of "sales VAT" (the VAT he collects when making a domestic sale). In fact, we found in many cases that domestic sellers receive more "sales VAT" per month than "purchases VAT", thus giving them extra funds which they do not have to return to the government until the end of the month when they reconcile their VAT payments and collections with the Chilean government. The exporter, on the other hand, receives no "sales VAT" for his foreign sales; therefore, if he had to wait until after his goods were exported to file for VAT rebates, he would always be at a disadvantage vis-a-vis a seller in the domestic market. The provision allowing exporters to recover "purchases VAT" prior to actually exporting their products merely entitles the exporter to treatment similar to the domestic seller. Therefore, we do not consider that this program provides a countervailable subsidy.
Comment 4: Petitioner contends that, from the face of the questionnaire responses, it is clear that in 1986 companies will receive benefits under the Simplified Drawback program. Petitioner argues that, since efforts to
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verify this program were met with much resistance, the ITA should issue an affirmative final determination finding this program countervailable with a net benefit of 10 percent ad valorem. This would be consistent with the mandates of the law and with prior agency practice regarding program-wide changes.
DOC Position: We agree that a new subsidy program went into effect after the review period. This program went into effect prior to our preliminary determination and, to the best of our knowledge, some of the respondents did receive benefits in 1986 under this program. This program thus benefits the merchandise that is subject to suspension of liquidation. Therefore, we are issuing an affirmative final determination with a duty deposit rate which reflects the best information available on the subsidy provided under this new program.
Comment 5: Petitioner argues that the verification report on one company indicates that its credit operations were not subject to the stamp and seal tax charge. Therefore, the ITA must find that a benefit has been received.
DOC Position: We agree. Based on best information available, we have determined that benefits have been received by exporters under this program. See Section I.A. of this notice.
Verification
In accordance with section 776(a) of the Act, we verified the information used in making our final determination. During verification, we followed standard verification procedures, including tracing the information in the responses to source documents, accounting ledgers, financial statements and annual reports.
Suspension of Liquidation
In accordance with section 705(c)(B) of the Act, we have instructed the U.S. Customs Service to suspend liquidation of all entries of standard carnations from Chile which are entered, or withdrawn from warehouse, for consumption, on or after the date of publication of this determination in the Federal Register and to require a cash deposit or bond for each such entry in the amount of 12.25 percent ad valorem. This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all non- privileged and non-proprietary information relating to this investigation. We will allow the ITC access to all privileged and business proprietary information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration.
The ITC will determine whether these imports materially injure, or threaten material injury to, a U.S. industry within 75 days after the date of publication of this notice. If the ITC determines that material injury, or the threat of material injury, does not exist, this proceeding will be terminated and all estimated duties deposited or securities posted as a result of the suspension of liquidation will be refunded or cancelled.
If, however, the ITC determines that injury does exist, we will issue a countervailing duty order, directing Customs officers to assess a countervailing duty on standard carnations from Chile entered, or withdrawn from warehouse, for consumption on or after the date of the suspension of liquidation as indicated in the "Suspension of Liquidation" section of this notice.
This notice is published pursuant to section 705(d) of the Act (19 U.S.C. 167d(d)).
Lee W. Mercer,
Acting Assistant Secretary for Trade Administration.
January 27, 1987.