[Federal Register: August 31, 2001 (Volume 66, Number 170)]
[Notices]
[Page 45965-45968]
[[Page 45965]]
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DEPARTMENT OF COMMERCE
[C-508-605]
Industrial Phosphoric Acid From Israel: Preliminary Results of
Countervailing Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of preliminary results and final partial rescission of
countervailing duty administrative review.
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SUMMARY: The Department of Commerce (the Department) is conducting an
administrative review of the countervailing duty order on industrial
phosphoric acid from Israel for the period January 1, 1999 through
December 31, 1999. For information on the net subsidy for each reviewed
company, as well as for all non-reviewed companies, please see the
Preliminary Results of Review section of this notice. If the final
results remain the same as these preliminary results, we will instruct
the U.S. Customs Service to assess countervailing duties as detailed in
the Preliminary Results of Review section. Interested parties are
invited to comment on these preliminary results. See Public Comment
section of this notice.
EFFECTIVE DATE: August 31, 2001.
FOR FURTHER INFORMATION CONTACT: Sean Carey or Dana Mermelstein, Office
of AD/CVD Enforcement VII, Group III, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW., Washington, DC 20230; telephone
(202) 482-3964 or (202) 482-1391, respectively.
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 16, 2000, the Department
published a notice of ``Opportunity to Request Administrative Review''
(65 FR 49962) of this countervailing duty order. We received a timely
request for review, and we initiated the review, covering the period
January 1, 1999 through December 31, 1999, on October 2, 2000 (65 FR
58733). In accordance with 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).
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). The Department is conducting this administrative review in
accordance with section 751(a) of the Act. All citations to the
Department's regulations are to 19 CFR part 351 (2000).
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
1999.
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, as it
was articulated in the General Issues Appendix appended to the Final
Countervailing Duty Determination; Certain Steel Products from Austria,
58 FR 37225 (July 9, 1993) (GIA). In accordance with the Court's
decision, on remand, the Department determined that the most reasonable
method of deriving the allocation period for nonrecurring subsides is a
company-specific average useful life (AUL). This remand determination
was affirmed by the Court on June 4, 1996. See British Steel plc. v.
United States, 929 F.Supp 426, 439 (CIT 1996) (British Steel II).
However, in administrative reviews in which the Department examines
non-recurring subsidies received prior to the 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. When 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. (See, e.g., Certain Carbon Steel
Products from Sweden; Final Results of Countervailing Duty
Administrative Review, 62 FR 16549 (April 7, 1997)).
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 POR to which the current
countervailing duty regulations apply. Under these circumstances, and
as discussed below, the Department is using different allocation
periods depending upon the date of receipt of the non-recurring
subsidy. For non-recurring subsidies received prior to the 1995
administrative review (the first review for which the Department
implemented the British Steel I decision), the Department is using the
original allocation period of 10 years. For non-recurring subsidies
received since 1995, Rotem has submitted in each subsequent
administrative review, including this one, AUL calculations based on
depreciation and values of productive assets reported in its financial
statements. In accordance with the Department's practice, we derived
Rotem's company-specific AUL for each respective administrative review
since 1995, 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.
Pursuant to section 351.524(d)(2) of the Department's regulations, this
company-specific AUL rebuts the presumptive use of the IRS tables.
Therefore, for the purposes of these preliminary results, non-recurring
subsidies received during the POR will be 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, 1995, 1997 and 1998. In this administrative review, the
Government of Israel (GOI) and Rotem reported that additional shares of
ICL were sold in 1999. We have previously determined that the partial
privatization of ICL represents a partial privatization of each of the
[[Page 45966]]
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.
On December 4, 2000, the Department announced a new privatization
approach in a remand determination 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). The Department applied this new
approach in the final results of the prior administrative review of
this order. See Final Results of Countervailing Duty Administrative
Review; Industrial Phosphoric Acid from Israel, 66 FR 15839 (March 21,
2001) (1998 Final Results). 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. The Department would, however, consider whether any
subsidy had been bestowed upon that producer/exporter as a result of
the change-in-ownership transaction. 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 or review. Assuming that the
original subsidy had not been fully amortized under the Department's
normal allocation methodology as of the period of review (POR), 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 have analyzed the
information provided by the GOI and Rotem to determine whether the
subsidies received by Rotem continued to benefit Rotem during the POR.
By applying this approach to the facts and circumstances of the instant
countervailing duty administrative review of industrial phosphoric acid
from Israel and the relevant privatization of ICL and its subsidiary,
Rotem, we find that the pre-sale and post-sale entities are not
distinct persons. Specifically, Rotem still maintains its plants and
uses the same production facilities to manufacture and sell the same
products; continues to rely on the same suppliers and customer base;
and employs largely the same personnel and management. See the
Department's June 13, 2001, letter to Rotem (with attached Change in
Ownership Analysis Memorandum from the 1998 administrative review) and
the 1998 Final Results and accompanying Decision Memorandum (section
entitled Change in Ownership), for a complete discussion of our
analysis of ICL's and Rotem's privatization. Therefore, we determine
that the subsidies provided to Rotem, prior to the privatization of
ICL, continue to benefit Rotem after ICL's privatization.
Grant Benefit Calculations
To calculate the benefit for the POR, we followed the same
methodology used in the final results of prior administrative reviews.
We converted Rotem's shekel-denominated grants into U.S. dollars, using
the exchange rate in effect on the dates the grants were received. We
then applied the grant methodology to determine the benefit for the
POR. See e.g., Industrial Phosphoric Acid from Israel; Final Results of
Countervailing Duty Administrative Review, 63 FR 13626, 13633 (March
20, 1998) (1995 Final Results).
As a result of our privatization approach and our determination
that Rotem continues to benefit from subsidies received prior to the
privatization of ICL, the non-recurring subsidies allocated over time
in the instant and previous administrative reviews are no longer
reduced by the pass-through percentages calculated under our old
repayment methodology. Therefore, the full value of the benefit
allocable to the 1999 POR from non-recurring subsidies is being used to
calculate Rotem's net subsidy rate.
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 have turned to ICL's cost of long-term borrowing in U.S.
dollars in each year from 1984 through 1999 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
I. Programs Conferring Subsidies
A. Encouragement of Capital Investments Law (ECIL)
The ECIL program is designed to encourage the distribution of the
population throughout Israel, to create new sources of employment, to
aid the absorption of immigrants, and to develop the economy's
production capacity. To be eligible for benefits under the ECIL,
including investment grants, capital grants, accelerated depreciation,
reduced tax rates, and certain loans, applicants must obtain approved
enterprise status. Investment grants cover a percentage of the cost of
the approved investment, and the amount of the grant depends on the
geographic location of eligible enterprises. For purposes of the ECIL
program, Israel is divided into three zones; Development Zones A and B,
and the Central Zone. In Final Affirmative Countervailing Duty
Determination: Industrial Phosphoric Acid From Israel, 52 FR 25447
(July 7, 1987) (IPA Investigation), the Department found the ECIL grant
program to be de jure specific because the program limits the
availability of grants to enterprises located only in Development Zones
A and B. In this review, no new information or evidence of changed
circumstances has been submitted to warrant reconsideration of this
determination.
[[Page 45967]]
Rotem is located in Development Zone A, and received ECIL
investment and capital grants in disbursements over a period of years
for several projects. In past reviews, we have treated these grants as
non-recurring. The guidelines set forth in section 351.524 of
Department's regulations support finding these grants to be non-
recurring. As explained in the ``Allocation Period'' section above, for
grants that have been allocated in prior administrative reviews, we are
continuing to use the allocation period assigned to these grants. For
grants received during the POR, we have used the AUL calculated by
Rotem in this review. To calculate the benefit for the POR, we followed
the same methodology used in the final results of the 1995
administrative review, as indicated in the ``Grant Benefit
Calculations'' section above.
In prior reviews of this order, we applied the methodology
described in our proposed countervailing duty regulations when
determining whether to allocate non-recurring grants over time or
expense them in the year of receipt (``the 0.5 percent test'').
Accordingly, grant disbursements exceeding 0.5 percent of a company's
sales in the year of receipt were allocated over time while grants
below or equal to 0.5 percent of sales were countervailed in full
(``expensed'') in the year of receipt (see Countervailing Duties
(Proposed Rules), 54 FR 23366, 23384 (section 355.49(a)(3)) (May 31,
1989)). However, section 351.524 (b)(2) of our current regulations
directs us to conduct the 0.5 percent test based on the company's sales
in the year of authorization rather than the year of receipt. Where
possible, we applied this new regulation; however, we did not redo the
0.5 percent test for disbursements received prior to the POR because we
had already calculated a benefit stream for those disbursements in
prior administrative reviews.
Pursuant to section 351.504(c) of our regulations, we used our
standard grant methodology as noted above in the ``Grant Benefit
Calculations'' section to calculate the countervailable subsidy from
ECIL grants. We allocated some of these grants over time because they
met the 0.5 percent test, as described above, and expensed others in
the POR that did not pass this test.
To calculate the total subsidy in the POR, we first summed the
grant amounts allocated to 1999. To derive the subsidy rates, as
discussed in the 1995 Final Results, we attributed ECIL grants that
were tied to a particular facility over the sales of the product
produced by that facility plus sales of all products into which that
product may be incorporated. The Department's practice is to
countervail the value of the subsidies at the time they are provided to
the company without regard to their actual use by that same company or
their effect on its subsequent performance. See section 771(5)(C) of
the Act which states that the Department ``is not required to consider
the effect of the subsidy in determining whether a subsidy exists.''
See also section 351.525 of the Department's regulations on attribution
of subsidy to a product. Accordingly, we attributed ECIL grants to
Rotem's phosphate rock mines to total sales; we attributed grants to
Rotem's green acid facility to total sales minus direct sales of
phosphate rock; and, finally, we attributed grants to Rotem's IPA
facilities to sales of IPA, MKP, fertilizers, and ``IPA-Akonomika'' and
MKP-HCL (by-products of IPA production which contribute to Rotem's
sales revenue). We summed the rates obtained on this basis, and
preliminarily determine the net countervailable subsidy from ECIL
grants to be 4.57 percent ad valorem for the POR.
B. Infrastructure Grant Program
During the 1999 review period, Rotem received an infrastructure
grant to initiate and establish industrial areas in a certain
geographical zone. Rotem previously received grants under this program
during the 1996, 1997 and 1998 PORs. In the 1996 administrative review,
the Department determined that infrastructure grants were specifically
provided to Rotem, and that they conferred a benefit. See Industrial
Phosphoric Acid from Israel; Final Results of Countervailing Duty
Administrative Review, 63 FR 13626, 13633 (March 20, 1998). No new
information or evidence of changed circumstances has been submitted to
warrant reconsideration.
In past reviews, we determined these grants to be ``non-
recurring.'' The guidelines set forth in section 351.524 of the
Department's regulations support finding these grants to be non-
recurring. Therefore, we calculated the benefit under this program
using the methodology for non-recurring grants noted above in the
``Grant Benefit Calculations'' section. On this basis, we preliminarily
determine the net subsidy from this program to be 0.21 percent ad
valorem for the POR.
C. Encouragement of Industrial Research and Development Grants (EIRD)
During the 1999 review period, Rotem received five EIRD
disbursements. Among these disbursements, two were tied to research
unrelated to IPA or any of its inputs. See section 351.525(b)(5) of the
Department's countervailing duty regulations concerning the attribution
of subsidies. In this review, we preliminarily determine that the three
remaining disbursements received by Rotem were tied to research related
to the production of IPA. Rotem previously received grants under this
program for research related to IPA or its inputs during the 1995 and
1996 PORs. In the 1995 Final Results, we determined that EIRD grants
were specifically provided to Rotem, and that they conferred a benefit.
Therefore, we calculated the benefit under this program using the
methodology for non-recurring grants noted above in the ``Grant Benefit
Calculations'' section. On this basis, we preliminarily determine the
net subsidy from this program to be 0.02 percent ad valorem for the
POR.
II. Programs Preliminarily Determined To Be Not Used
We examined the following programs and preliminarily determine that
the producer and/or exporter of the subject merchandise did not apply
for or receive benefits under these programs during the POR:
A. Environmental Grant Program
B. Reduced Tax Rates under ECIL
C. ECIL Section 24 loans
D. Dividends and Interest Tax Benefits under Section 46 of the ECIL
E. ECIL Preferential Accelerated Depreciation
III. Other Program Examined
Labor Training Grant
In its questionnaire response, Rotem reported that it had received
a very small labor training grant as payment for hiring and training
conducted in a prior period. In previous administrative reviews, we
have found that this program was not used (see, e.g., 1994 Final
Results and 1996 Final Results). Under section 351.524 of the
Department's regulations, grants for worker training are normally
considered recurring and are expensed in the year of receipt. For
purposes of this administrative review, we expensed this labor training
grant and have found that any subsidy which could be calculated for
this program would be so small (significantly less than 0.005 percent
ad valorem) that there would be no impact on the overall subsidy rate.
Accordingly, because there would be no impact on the overall subsidy
rate in the instant review, we do not consider it necessary to address
the issue of specificity for purposes of this administrative review and
have not further considered this program. See Final Results of
[[Page 45968]]
Countervailing Duty Administrative Review: Live Swine from Canada, 63
FR 2210, 2211 (January 14, 1998) (regarding the Department's
methodology in calculating the de minimis rate).
Preliminary Results of Review
In accordance with 19 CFR 351.213(b), we calculated an individual
subsidy rate for the producer/exporter subject to this administrative
review. For the period January 1, 1999 through December 31, 1999, we
preliminarily determine the net subsidy for Rotem to be 4.80 percent ad
valorem. If the final results of this review remain the same as these
preliminary results, the Department intends to instruct the U.S.
Customs Service (Customs) to assess countervailing duties as indicated
above.
As a result of the International Trade Commission's determination
that revocation of this countervailing duty order would not likely lead
to continuation or recurrence of material injury to an industry in the
United States in the reasonably foreseeable future, the Department,
pursuant to section 751(d)(2) of the Act, revoked the countervailing
duty order on IPA from Israel. See Revocation Countervailing Duty
Order: Industrial Phosphoric Acid from Israel, 65 FR 114 (June 13,
2000). Pursuant to section 751(c)(6)(A)(iv) of the Act and 19 CFR
351.222(i)(2)(ii), the effective date of revocation was January 1,
2000. Accordingly, the Department has instructed Customs to discontinue
suspension of liquidation and collection of cash deposits on entries of
the subject merchandise entered or withdrawn from warehouse on or after
January 1, 2000. The Department, however, will complete this instant
administrative review of subject merchandise entered during 1999, prior
to the effective date of revocation.
Public Comment
Pursuant to 19 CFR 351.224(b), the Department will disclose to
parties to the proceeding any calculations performed in connection with
these preliminary results within five days after the date of
publication of this notice. Pursuant to 19 CFR 351.309, interested
parties may submit written comments in response to these preliminary
results. Normally, case briefs are to be submitted within 30 days after
the date of publication of this notice, and rebuttal briefs, limited to
arguments raised in case briefs, are to be submitted no later than five
days after the time limit for filing case briefs. Parties who submit
argument in this proceeding are requested to submit with the argument:
(1) A statement of the issues, and (2) a brief summary of the argument.
Case and rebuttal briefs must be served on interested parties in
accordance with 19 CFR 351.303(f). Also, pursuant to 19 CFR 351.310,
within 30 days of the date of publication of this notice, interested
parties may request a public hearing on arguments to be raised in the
case and rebuttal briefs. Unless the Secretary specifies otherwise, the
hearing, if requested, will be held two days after the date for
submission of rebuttal briefs. Representatives of parties to the
proceeding may request disclosure of proprietary information under
administrative protective order no later than ten days after the
representative's client or employer becomes a party to the proceeding,
but in no event later than the date case briefs, under 19 CFR
351.309(c)(ii), are due. The Department will publish the final results
of this administrative review, including the results of its analysis of
issues raised in any case or rebuttal brief. These preliminary results
are issued and published in accordance with sections 751(a)(1) and
777(i)(1) of the Act (19 U.S.C. 1675(a)(1) and 19 U.S.C. 1677f(i)(1)).
Dated: August 24, 2001.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 01-22066 Filed 8-30-01; 8:45 am]
BILLING CODE 3510-DS-P