66 FR 11144, February 22, 2001
DEPARTMENT OF COMMERCE
International Trade Administration
[C-508-810]
Preliminary Affirmative Countervailing Duty Determination: Pure
Magnesium From Israel
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: February 22, 2001.
FURTHER INFORMATION CONTACT: Marian Wells or Melanie Brown, Office of
CVD/AD Enforcement I, Import Administration, U.S. Department of
Commerce, Room 3096, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230; telephone (202) 482-6309 and (202) 482-4987,
respectively.
SUMMARY: The Department of Commerce (the Department) preliminarily
determines that countervailable subsidies are being provided to
producers and exporters of pure magnesium from Israel. For information
on the estimated countervailing duty rates, please see the ``Suspension
of Liquidation'' section of this notice.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition in this investigation was filed by the Magnesium
Corporation of America (``Magcorp''), the United Steel Workers of
America, Local 8319, and the United Steelworkers of America, Local 482
(the petitioners).
Case History
Since the publication of the notice of initiation in the Federal
Register (see Notice of Initiation of Countervailing Duty
Investigation: Pure Magnesium from Israel, 65 FR 68126 (November 14,
2000) (Initiation Notice)), the following events have occurred. On
November 8, 2000, we issued countervailing duty questionnaires to the
Government of Israel (GOI) and the sole producer/exporter of the
subject merchandise, Dead Sea Magnesium Ltd. (DSM). On December 20,
2000, we postponed the preliminary determination of this investigation
until no later than February 14, 2001. See, Pure Magnesium from Israel:
Postponement of Time Limit for Preliminary Determination of
Countervailing Duty Investigation, 65 FR 81489 (December 26, 2000). We
received responses to our initial questionnaires from the GOI and DSM
on January 3, 2001. Between January 11 and 30, 2001, we issued
supplemental questionnaires to the GOI and DSM, and we received
responses to those questionnaires in January and February.
[[Page 11145]]
On January 11, 2001, the petitioners requested that the Department
include an additional program, the Israeli Foreign Trade Risk Insurance
Corporation (IFTRIC), in our investigation. On January 22, 2001, the
GOI and DSM submitted comments opposing the investigation of IFTRIC. On
February 12, 2001, the Department declined to investigate the IFTRIC
program. See, February 12, 2001, Memorandum to Susan H. Kuhbach, Acting
Deputy Assistant Secretary, from the Team, Allegation of Possible
Subsidy: Magnesium from Israel.
Scope of the Investigation
The scope of this investigation includes imports of pure magnesium
products, regardless of chemistry, form, or size, including, without
limitation, ingots, raspings, granules, turnings, chips, powder, and
briquettes.
Pure magnesium includes: (1) Products that contain at least 99.95
percent primary magnesium, by weight (generally referred to as ``ultra-
pure'' magnesium); (2) products that contain less than 99.95 percent
but not less than 99.8 percent pure magnesium, by weight (generally
referred to as ``pure'' magnesium); and (3) chemical combinations of
pure magnesium and other material(s) in which the pure magnesium
content is 50 percent or greater, but less than 99.8 percent, by
weight, that do not conform to an ``ASTM Specification for Magnesium
Alloy'' \1\ (generally referred to as ``off-specification pure''
magnesium); and (4) physical mixtures of pure magnesium and other
material(s) in which the pure magnesium content is 50 percent or
greater, but less than 99.8 percent, by weight, except that mixtures
containing 90 percent or less pure magnesium, by weight, when mixed
with lime, calcium metal, calcium silicon, calcium carbide, calcium
carbonate, carbon slag coagulants, and/or fluorspar, are excluded.
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\1\ The meaning of this term is the same as that used by the
American Society for Testing and Materials in its Annual Book of
ASTM Standards: Volume 01.02 Aluminum and Magnesium Alloys.
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The merchandise subject to this investigation is classifiable under
8104.11.00, 8104.19.00, and 8104.30.00 of the Harmonized Tariff
Schedule of the United States (HTSUS). Although the HTSUS subheading is
provided for convenience and customs purposes, the written description
of the merchandise under investigation is dispositive.
Comment on Scope
In the Initiation Notice, 65 FR at 68126, we invited comments on
the scope of this proceeding. On December 1, 2000, we received comments
from the petitioners clarifying that finished mixtures containing pure
magnesium and/or off-specification pure magnesium that are prepared
solely for use as a desulfurizer in steel-making are excluded from the
scope of the investigation, unless such mixtures contain only minimal
amounts of non-magnesium materials in order to circumvent an
antidumping or countervailing duty order. On January 30, 2001, the
petitioners submitted proposed language to further clarify their intent
with respect to the scope of this investigation. The resulting revised
scope language is reflected in the ``Scope of Investigation'' section
above.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act (URAA). In addition, unless otherwise
indicated, all citations to the Department's regulations are to the
regulations codified at 19 CFR Part 351 (2000).
Injury Test
Because Israel is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (ITC) is required to determine whether imports of the
subject merchandise from Israel materially injure, or threaten material
injury to, a U.S. industry. On December 13, 2000, the ITC published its
preliminary determination finding that there is a reasonable indication
that an industry in the United States is being materially injured, or
threatened with material injury, by reason of imports from Israel of
the subject merchandise. (See Pure Magnesium from China, Israel, and
Russia: Determinations, 65 FR 77910 (December 13, 2000).)
Period of Investigation (POI)
The period of investigation (POI) for which we are measuring
subsidies is calendar year 1999.
Change in Ownership
DSM, the sole producer/exporter of subject merchandise from Israel,
is a joint venture between the Israeli company, Dead Sea Works (DSW)
and Volkswagen (VW). DSW, in turn, is owned by the Israeli company
Israel Chemicals Ltd. (ICL). The subsidies were received by DSW and
later, by DSM, after the formation of the joint venture.
In 1991, the GOI announced its plan to privatize ICL, under the
supervision of the Government Corporation Authority. Prior to that, in
1987, the Ministry of Finance, which controlled the Government
Corporation Authority, commissioned an investment banking firm, First
Boston, to assist in the initial steps of the privatization process of
government-owned corporations. The GOI's objective in privatizing these
companies was to promote and strengthen free-market mechanisms in
Israel, enhance competitiveness, and raise funds to reduce internal and
external debt. See GOI Response at II-5. First Boston identified a
number of government-owned corporations that were suitable for private
sale or public offering, suggested schedules for each sale, and
addressed technical issues relating to the Government Companies Law,
accounting and tax issues, and privatization methods.
In 1988, the Ministry of Finance's Government Economic Committee
adopted First Boston's recommendations as the framework for a five-year
plan for privatization. The Government Corporation Authority updated
this plan in 1991 to include the sale of shares in government-owned
companies on the Tel Aviv Stock Exchange. In February 1992, the
Committee on Privatization approved the sale of up to 72 percent of ICL
through public and private sales.
The GOI privatized ICL through a series of private sales and public
offerings of existing shares of ICL conducted in the years 1992 through
1995, and 1997 through 1999. The privatization of ICL, the parent
company of DSW/DSM, directly and necessarily resulted in the
privatization of the government's interest in DSW/DSM. The first
partial privatization was conducted under a prospectus for sale of
ICL's shares to the public and its employees that was published on
February 19, 1992. According to the prospectus, the share capital of
ICL consisted of 1,199,999,999 ordinary shares registered on the Tel
Aviv Stock Exchange, and one special state share. Under this
prospectus, the state sold 20 percent of ICL's shares, including
226,619,916 shares sold to the public, and 13,068,999 shares sold to
ICL employees. The GOI continued to hold the special state share after
this and subsequent privatizations. See GOI Response at II-9 through
II-12 for information relating to shares sold at each privatization.
In this preliminary determination, we have applied our new
privatization approach, first announced in a remand determination on
December 4, 2000,
[[Page 11146]]
following the decision of the U.S. Court of Appeals for the Federal
Circuit (CAFC) in Delverde Srl v. United States, 202 F.3d 1360, 1365
(Fed. Cir. 2000), reh'g en banc denied (June 20, 2000) (Delverde III).
We have also applied this new approach recently in Grain-Oriented
Electrical Steel from Italy: Final Results of Countervailing Duty
Administrative Review, 66 FR 2885 (January 12, 2001).
Under this approach, the first requirement is to determine whether
the person to which the subsidies were given is, in fact, distinct from
the person that produced the subject merchandise exported to the United
States. If the two persons are distinct, the original subsidies may not
be attributed to the new producer/exporter.
On the other hand, if the original subsidy recipient and the
current producer/exporter are considered to be the same person, that
person benefits from the original subsidies, and its exports are
subject to countervailing duties to offset those subsidies. In other
words, we will determine that a ``financial contribution'' and a
``benefit'' have been received by the ``person'' that is the firm under
investigation. Assuming that the original subsidy had not been fully
amortized under the Department's normal allocation methodology as of
the POI, the Department would then continue to countervail the
remaining benefits of that subsidy.
In making the ``person'' determination, where appropriate and
applicable, we analyze factors such as (1) continuity of general
business operations, including whether the successor holds itself out
as the continuation of the previous enterprise, as may be indicated,
for example, by use of the same name, (2) continuity of production
facilities, (3) continuity of assets and liabilities, and (4) retention
of personnel. No single factor will necessarily provide a dispositive
indication of any change in the entity under analysis. Instead, the
Department will generally consider the post-sale entity to be the same
person as the pre-sale entity if, based on the totality of the factors
considered, we determine that the entity in question can be considered
a continuous business entity because it was operated in substantially
the same manner before and after the change in ownership.
Using the approach described above, we analyzed the information
provided by the GOI and DSM to determine whether the subsidies received
by DSW and DSM prior to the privatization of ICL continued to benefit
DSM during the POI. When we apply this approach to the facts and
circumstances of the instant countervailing duty investigation of pure
magnesium from Israel and the relevant privatization of ICL and its
subsidiary, DSW/DSM, we find that the pre-sale and post-sale entities
are not distinct persons.\2\ Therefore, we preliminarily determine that
the subsidies provided to DSW/DSM, prior to the privatization of ICL,
continue to benefit DSW/DSM post-privatization.
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\2\ The GOI stated that it only provided subsidies to DSW/DSM
because its parent company, ICL, is a holding company and was,
therefore, not eligible to receive any of the reported subsidies.
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Due to the proprietary nature of the information submitted on the
record by DSM, a more specific discussion of the factors considered in
the change of ownership transactions of ICL is included in our
Memorandum to the File dated February 14, 2001, Change in Ownership in
the Countervailing Duty Investigation of Pure Magnesium from Israel
(Change in Ownership Memorandum).
Creditworthiness
In the Initiation Notice, 65 FR at 68128, the Department stated
that it would investigate DSM's creditworthiness, based on the
petitioners' allegation that DSM has been uncreditworthy since its
inception.\3\ On January 11, 2001, the Department issued questions
concerning DSM's creditworthiness and on February 1, 2001, DSM
responded to those questions.
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\3\ DSM was incorporated in 1996.
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Because the only grants that were approved for DSM in 1996 or
subsequent years, were either expensed in the year of receipt or did
not give rise to a benefit during the POI, we have not addressed DSM's
creditworthiness in this preliminary determination.
Subsidies Valuation Information
Allocation Period
19 CFR 351.524(d)(2) states that we will presume the allocation
period for non-recurring subsidies to be the average useful life (AUL)
of renewable physical assets for the industry concerned, as listed in
the Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation
Range System and updated by the Department of Treasury. The presumption
will apply unless a party claims and establishes that these tables do
not reasonably reflect the AUL of the renewable physical assets for the
company or industry under investigation, and the party can establish
that the difference between the company-specific or country-wide AUL
for the industry under investigation is significant. The Department
will use the criteria found in 19 CFR 351.524(d)(2)(ii) and (iii) to
decide whether the presumption has been rebutted.
In this investigation, DSM has alleged that the IRS AUL is
inaccurate for DSM and has supplied gross book values of depreciable
productive assets, as well as the depreciation expenses recorded in the
company's normal accounting records, for purposes of calculating a
company-specific AUL. We have reviewed DSM's calculation of AUL and
made several minor adjustments which are fully documented in the
Department's Calculation Memorandum, dated February 14, 2001, on file
in Room B-099 at the U.S. Department of Commerce, Washington, DC 20230.
Since DSM's AUL differs significantly from the IRS AUL, we have used
DSM's AUL of 21 years to allocate all non-recurring subsidies, in
accordance with 19 CFR 351.524(d)(2).
Discount Rates
In selecting a discount rate to allocate non-recurring subsidies
over time, the Department prefers to use:
(1) The cost of long-term fixed-rate loans of the firm in question,
excluding any loans that the Secretary has determined to be
countervailable subsidies;
(2) The average cost of long-term fixed-rate loans in the country
in question; or,
(3) A rate that the Secretary considers to be most appropriate.
(See 19 CFR 351.524(d)(3)(i)).
DSW and DSM reported that they had long-term, variable-rate
borrowings but no fixed-rate borrowings. In addition, based on the
GOI's response there is no indication that long-term, fixed rate loans
were available to private companies in Israel during these years. This
is consistent with the Department's finding in the Final Affirmative
Countervailing Duty Determination: Certain Carbon Steel Butt-Weld Pipe
Fittings From Israel, 60 FR 10569, 10570 (February 27, 1995) (Butt-Weld
Fittings), that during the period examined in that case only variable-
rate lending was available on a long-term basis to private companies in
Israel. Thus, we lack information on the first two preferred sources
for a discount rate.
Lacking fixed interest rates, we looked to DSW and DSM's reported
interest rates. DSM stated that the interest rates on its long-term
borrowings were calculated as a fixed percentage above the London
Interbank Offer Rate (LIBOR). For purposes of this preliminary
determination, we have
[[Page 11147]]
calculated an annual average rate, based on DSM's reported borrowing
rate of LIBOR plus the fixed percentage, for the years in which grants
were approved to use as DSM's discount rate. This calculation is
consistent with the discount interest rate used in Industrial
Phosphoric Acid from Israel: Final Results and Partial Recision of
Countervailing Duty Administrative Review, 64 FR 49460, 49461
(September 13, 1999) (IPA). We will request additional information from
DSM on its long-term loans which we will examine at verification.
I. Programs Preliminarily Determined To Be Countervailable
A. Encouragement of Capital Investments Law (ECIL)
The ECIL is a regional development program aimed at providing
assistance to enterprises located in disadvantaged regions of the
country. This program is administered under the Law for the
Encouragement of Capital Investments 5719-1959. Amendment No. 4 of the
Law authorized grants beginning in 1967. The program contributes to the
development of industrial enterprises to improve the economic situation
in disadvantaged regions by encouraging population distribution,
creating new sources of employment, aiding the absorption of
immigrants, and developing the economy's production capacity.
There are three mutually exclusive programs under the ECIL: grants,
corporate income tax exemptions, and accelerated depreciation of
assets. Investment grants are provided to companies as a specified
percentage of the company's investment in eligible fixed assets. The
amounts vary based on the region in which the assets are located.
Companies can also receive reduced tax rates or a full tax exemption
for the first two years in certain circumstances. Accelerated
depreciation on eligible buildings and equipment is available for
qualifying enterprises for the first five years of use at rates of 200
percent of the ordinary rate for equipment and 400 percent of the
ordinary rate for buildings, with depreciation on buildings not
exceeding 20 percent per annum.
To be eligible for benefits under ECIL applicants must be located
within one of the designated development zones and meet one of the
following requirements: utilize natural resources and existing plants
to their full potential, absorb newly migrated persons, help to spread
the population across the country, or create new jobs.
ECIL Grant Program
For purposes of the ECIL program, Israel is divided into three
zones--Development Zones A and B, and the Central Zone. DSM is located
in Zone A and received ECIL grants for the construction of its
magnesium plant.
We preliminary determine that the investment grants provide
countervailable subsidies within the meaning of section 771(5) of the
Act. The grants are a direct transfer of funds from the GOI providing a
benefit in the amount of the grant. The grants are specific within the
meaning of section 771(5A)(D)(iv) because they are limited to firms
located in a designated geographic regions.
In accordance with 19 CFR 351.524(c)(1), we have treated these
grants as non-recurring subsidies and have allocated the benefit over
time. To calculate the countervailable subsidy, we divided the benefit
attributable to the POI by the value of DSM's total sales during the
POI. On this basis, we determine the countervailable subsidy for this
program to be 12.99 percent ad valorem.
B. Infrastructure Grants
Under the Infrastructure Grant Program, the GOI has established new
industrial areas by partially reimbursing companies for their costs of
developing the infrastructure in certain geographical zones. DSM
received assistance under this program.
We preliminary determine that the investment grants provide
countervailable subsidies within the meaning of section 771(5) of the
Act. The grants are a direct transfer of funds from the GOI providing a
benefit in the amount of the grant. The grants are specific within the
meaning of section 771(5A)(D)(iv) because they are limited to firms
located in a designated geographic regions.
In accordance with 19 CFR 351.524(c)(1), we have treated these
grants as non-recurring subsidies and have allocated the benefit over
time. To calculate the countervailable subsidy, we divided the benefit
attributable to the POI by the value of DSM's total sales during the
POI. On this basis, we determine the countervailable subsidy for this
program to be .40 percent ad valorem.
C. Encouragement of Industrial Research and Development Law Grants
(EIRD)
The EIRD was established in 1984 and is administered by the Office
of Chief Scientist (OCS) of the Ministry of Industry and Trade. The
benefits under this program include grants, loans, and tax exemptions.
The OCS provides grants for 30 to 66 percent of the approved research
and development expenditures (R&D), depending on the type of project to
be undertaken and the location where the proposed R&D will be done. The
typical level of support is 50 percent of the investment. Support for
improvements in existing products is 30 percent of the investment.
Support for R&D in Development Zone A is 60 percent of the investment.
Support for R&D for which sole financing comes from the company
performing the R&D is 66 percent of the investment.
Persons applying for a grant are required to submit information to
the OCS regarding the nature, aims and budget of the proposed project.
The OCS considers the following criteria in determining whether to
grant EIRD funds: (1) Whether the applicant company shows innovation in
the development of new technologies; (2) the management, production and
marketing capabilities of the firm, as well as any marketing strategy
for the new product; (3) whether the product will be able to
successfully compete in international markets; (4) whether the proposed
R&D project will result in the introduction of new technology or
scientific manpower. The OCS provided grants to DSM for industrial
research and development projects which contribute to the Israeli
economy and to its scientific and technological development. There is
no indication that DSM's receipt of benefits was related to export
performance.
The grants provided under the program are subject to repayment,
through the payment of royalties, if the supported R&D yields a
commercially successful product. With respect to the grants provided to
DSM for production of magnesium, one grant was partially repaid.
We preliminarily determine that the grants received under the EIRD
program are countervailable subsidies. The grants are a direct transfer
of funds from the GOI. If not repaid, the grants confer a benefit in
the amount equal to the difference between the non-specific base rate
of 30 percent and the Development Zone A rate of 60 percent. In
instances where the grant is repaid, the benefit is the company's
interest-free use of money. The EIRD program is specific, at least for
R&D undertaken in Development Zone A, because the level of assistance
is greater for companies located in that zone.
To calculate the benefit to DSM from the EIRD grants, we first
tested whether the amounts approved exceeded 0.5 percent of sales in
the year of approval.
[[Page 11148]]
If not, we expensed the grant in the year of receipt. DSM received no
disbursements in the POI. If the grant exceeded 0.5 percent of sales in
the year of approval, we treated it as a zero-rate loan. For ``loans''
outstanding during the POI, the subsidy was less than 0.005 percent
under any calculation methodology. Therefore, we are not computing a
benefit for this program. See the February 14, 2001, Preliminary
Affirmative Countervailing Duty Determination: Pure Magnesium from
Israel Calculation Memorandum for DSM.
II. Programs Preliminarily Determined To Be Not Used
The following programs were not used:
A. ECIL Tax Rate benefits
B. ECIL Depreciation Preferences
C. Magnesium Research Institute (MRI) and Consortium Research Programs
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by the respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated an individual rate for DSM, the sole manufacturer of the
subject merchandise. We preliminarily determine that the total
estimated net countervailable subsidy rate is 13.39 percent ad valorem.
Because we only investigated one producer/exporter, DSM's rate will
also serve as the ``all others'' rate. Therefore, the ``all others''
rate is 13.39 percent ad valorem.
In accordance with section 703(d) of the Act, we are directing the
U.S. Customs Service to suspend liquidation of all entries of pure
magnesium from Israel which are entered, or withdrawn from warehouse,
for consumption on or after the date of the publication of this notice
in the Federal Register, and to require a cash deposit or bond for such
entries of the merchandise in the amounts indicated above. This
suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged and nonproprietary 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 Assistant Secretary for Import Administration. If our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Public Comment
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held 57 days from the date of publication of the preliminary
determination or the next business day thereafter, at the U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW,
Washington, DC 20230. Individuals who wish to request a hearing must
submit a written request within 30 days of the publication of this
notice in the Federal Register to the Assistant Secretary for Import
Administration, U.S. Department of Commerce, Room 1870, 14th Street and
Constitution Avenue, NW, Washington, DC 20230. Parties should confirm
by telephone the time, date, and place of the hearing 48 hours before
the scheduled time. Requests for a public hearing should contain: (1)
The party's name, address, and telephone number; (2) the number of
participants; and, (3) to the extent practicable, an identification of
the arguments to be raised at the hearing. In addition, six copies of
the business proprietary version and six copies of the nonproprietary
version of the case briefs must be submitted to the Assistant Secretary
no later than 50 days from the date of publication of the preliminary
determination.
As part of the case brief, parties are encouraged to provide a
summary of the arguments, not to exceed five pages, and a table of
statutes, regulations, and cases cited. Six copies of the business
proprietary version and six copies of the non-proprietary version of
the rebuttal briefs must be submitted to the Assistant Secretary no
later than 5 days from the date of filing of the case briefs. An
interested party may make an affirmative presentation only on arguments
included in that party's case or rebuttal briefs. Written arguments
should be submitted in accordance with 19 CFR 351.309 and will be
considered if received within the time limits specified above.
This determination is published pursuant to sections 703(f) and
777(i) of the Act. Effective January 20, 2001, Bernard T. Carreau is
fulfilling the duties of the Assistant Secretary for Import
Administration.
Dated: February 14, 2001.
Bernard T. Carreau,
Deputy Assistant Secretary, AD/CVD Enforcement II.
[FR Doc. 01-4407 Filed 2-21-01; 8:45 am]
BILLING CODE 3510-DS-P