48 FR 5985
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
Fresh Cut Roses From Israel; Preliminary Results of Administrative
Review of Countervailing Duty Order
Wednesday, February 9, 1983
*5985
AGENCY: International Trade Administration, Commerce.
ACTION: Notice of Preliminary Results of Administrative Review of Countervailing Duty
Order.
SUMMARY: The Department of Commerce has conducted an administrative review of the
countervailing duty order on fresh cut roses from Israel. The review
covers the period October 1, 1979 through September 30, 1980. There are no known *5986
unliquidated entries of this merchandise for the period. As a result of the review, the Department
has preliminiarily determined to require a cash deposit of estimated countervailing duties
on future entries equal to 11.46 percent ad valorem. Interested parties are invited to comment on
these preliminary results.
EFFECTIVE DATE: February 9, 1983.
FOR FURTHER INFORMATION CONTACT: Josephine Russo or Richard Moreland, Office of
Compliance, International Trade Administration, U.S. Department of Commerce,
Washington, D.C. 20230; telephone: (202) 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On September 4, 1980, the Department of Commerce ("the Department") published in the Federal
Register (45 FR 58516) an affirmative final countervailing duty determination and
countervailing duty order regarding fresh cut roses from Israel. The Department
announced in the notice of March 16, 1981 (46 FR 16921)
its intent to conduct administrative reviews of outstanding countervailing duty orders.
On August 5, 1981, the Court of International Trade issued a partial remand order in AGREXCO v.
United States, et al., Consol. No. 80-10-01578, instructing the Department to re-investigate and/or
re-verify three programs not found countervailable in the final determination. On December 24,
1981, the Department forwarded its final results concerning the remanded issues to the court. The
resultant changes in the Department's determination are discussed below under Analysis of
Programs.
Scope of the Review
Imports covered by the review are frest cut roses imported directly or indirectly from
Israel. Such merchandise is currently classifiable under item 192.1800 of the Tariff Schedules
of the United States Annotated. The review covers the period October 1, 1979 through September
30, 1980 which is the exporting year for roses. The Department reviewed the programs found
countervailable in the original determination and in the court remand results.
Analysis of Programs
1. The Encouragement of Capital Investments Law ("the ECIL")
The purpose of the ECIL is to promote certain national objectives, including exporting, through the
use of various financial and fiscal incentives. To become eligible for these benefits, individual
enterprises must apply for government approval of each investment project.
Rose growers have not been approved for ECIL benefits. Two rose exporters have been approved
through the period of review, that is, AGREXCO (Agricultural Export Company) and Bickel Flowers
Limited. The packing houses that have similarly been approved include: Azata, Maboim, Pirchei
Haemek, Aviv, Lod, Kochav, Yael and Gat.
For the period of review, the following benefits were provided under the ECIL:
A. Five-year exemption from payment of 2/3 of the property tax on buildings.
This program was repealed with the publication of Amendment 17 to the ECIL in August 1978. For
the entire period of review, benefits continue to accrue to those enterprises approved prior to
repeal. In April 1981, however, all property taxes on buildings were abolished by the Israeli
government. We preliminaily determine, therefore, that the duty deposit rate should not
incorporate a subsidy amount for this program since future entries will not benefit from the tax
savings.
B. Ten-year exemption from 1/6 of the property tax on stock and machinery/equipment.
This program was repealed by the same Amendment 17 to the ECIL. As with the five-year
exemption, enterprises approved prior to repeal were eligible for benefits during the entire review
period. This includes AGREXCO, Bickel and certain of the packing houses.
AGREXCO, Azata and Pirchei Haemek paid property taxes on stock and equipment and utilized the
reduction. For AGREXCO, we calculated the subsidy rate by multiplying the amount of tax savings
by 24 percent (the portion of its total exports through the Ben Gurion facility, the approved site,
accounted for by roses). With respect to the two packing houses, we based our preliminary
calculations on the aggregated tax savings recorded in their tax returns, multiplied by 34.9 percent
(the percentage of rose to flower exports countrywide) to determine the portion of the tax savings
attributable to roses.
For the remaining packing houses, we estimated the tax savings based on the best information
available. In addition, since Bickel did not answer our questionnaire, we attributed to it the highest
tax savings found for the other eligible firms. The amount of the benefits for these enterprises was
multiplied by 34.9 percent.
We then summed the tax savings enjoyed by each firm and divided by total rose exports for
1979/80. Based on these calculations, we preliminarily determine
and ad valorem subsidy rate for this program or 0.01 percent for the period of review.
C. Investment grants based on the cost of property and/or machinery/equipment of an approved
project.
Since 1977, seven enterprises involved in exporting roses have received cash grants under
these programs. In computing the benefit, we employed the grant methodology set out in
Appendix 2 to the notice of "Affirmative Countervailing Duty Determination" on certain
steel products from Belgium (47 FR 39304, 39316; August 24, 1982) ("Appendix 2"). In
determining the useful lives of the assets (capital plant (25 years) and equipment (8 years)), we
relied upon Israeli tax schedules and U.S. Internal Revenue Service Depreciation Guidelines. The
benefit for the 1979/80 period of review was multiplied by 34.9 percent to account for the portion
attributable to roses, and then divided by total rose exports for 1979/80. Based on this
calculation, we preliminarily determine a rate of subsidy of 0.08 percent ad valorem for the review
period.
D. Accelerated depreciation of buildings and machinery/equipment and,
E. Direct reductions in company tax rates and exemption from income taxes.
Under the first program, machinery and equipment of an approved project may be depreciated at 2
times the ordinary rate set by Israeli Income Tax Rules and buildings may be depreciated at 4
times the normal rate. The second program allows for reductions in the company tax rate and
exemption from income taxes.
Because final calculation of income taxes can only be made after the close of an accounting year,
the amount of the benefit cannot be realized during the same exporting season. Therefore, for the
1979/80 review period, we calculated the subsidy under these programs based on tax information
for the 1978/79 tax year.
In computing the subsidy rate on these programs, we looked first to whether the enterprise
benefitted from accelerated depreciation through reduced taxable income and, hence, lower taxes
paid. We then looked to the tax savings attributable to the reductions/exemptions.
AGREXCO did not have a taxable income for tax year 1978/79 due to loss carry- forward. After
eliminating the effects of accelerated depreciation, we still found no tax liability. Therefore,
for the review period, no benefit was
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conferred on AGREXCO from these programs.
For the packing houses, only Azata and Pirchei Haemek provided tax declarations for the 1978/79
tax year. Azata's records show that accelerated depreciation was utilized for buildings for financial
and tax purposes. Pirchei Haemek did so with regard to both machinery and buildings. In
determining the subsidy amount, we recalculated the tax liability of each enterprise using ordinary
depreciation. We computed the benefit as the difference between the taxable income using
accelerated rates of depreciation and that using ordinary rates, and then by eliminating the effects
of the reductions/exemptions.
For Bickel and those packing houses failing to provide sufficient evidence concerning their tax
liability for 1978/79, we based our calculations on the best information available.
Finally, we summed the subsidy amounts for each enterprise and multiplied that total by 34.9
percent to find the portion attributable to roses. This figure was divided by rose exports for
1979/80 yielding an ad valorem benefit of 0.07 percent for the review period.
F. "Drawback" Grants.
Althouth the stated intention of this program is to rebate customs duties on imported materials
used for investment in an approved enterprise, grant awards are based on a fixed percentage of
investment. Since 1978, only Bickel has received an award. In determining the benefit conferred
during the period of review, we calculated the subsidy using the same methodology as employed
under program 1C above. The rate of benefit is preliminarily 0.001 percent ad valorem for the
1979/80 review period.
2. Government-Guaranteed Minimum Price Program
In the original investigation, we determined that the minimum price program did not confer a
benefit. We compared records of export prices to the United
States with the minimum support prices and found that the U.S. market prices were higher. During
the court remand, we learned that the program operates on worldwide price comparisons and does
not focus on any individual country. Funds provided under this program are awarded as year-end,
lump sum payments. We concluded that, since these payments are united, there is a potential
benefit bestowed on all exported roses.
The payments are based on claims by accountants submitted to the Ministry of Agriculture ("the
MOA") after the close of the exporting season. Thus, the benefits from the program are enjoyed in a
succeeding export year. During the review period, only the major association of flower growers
submitted a claim for payment based on the 1978/79 season. We quantified the subsidy rate using
the amount actually received during the period of review and divided this figure by the value of
total rose exports in 1979/80. We preliminarily conclude that the ad valorem benefit is 0.26
percent.
3. Preferential Short-Term Financing
In our original determination, we found that the government-sponsored loans for working capital
and accounts receivable did not bestow a countervailable subsidy. As part of the court remand, the
Department re-investigated this program and determined that the financing was provided to
exporters at preferential terms.
During the period of review, the Bank of Israel ("the Bank") provided short- term financing
through three export credit funds: the Export Production Fund (for working capital loans); the
Imports-for-Export Fund (to finance imported materials used for export production); and the
Export Shipments Fund (for accounts receivable). Financing under the first fund is denominated in
shekels while the latter two funds make loans in foreign currency.
For the Export Production and Imports-for-Export Funds, we have calculated the subsidy by
multiplying the principal amount repaid during the review period by the difference between the
preferential interest rates and commercial rates for comparable borrowings. These amounts were
then multiplied by the proportion of total financing attributable to roses and divided by rose
exports for the 1979/80 period. We preliminarily determine that the rate of subsidy from the two
export credit funds is 9.31 percent ad valorem.
In April 1982, the Bank altered financing under the Export Shipments Fund. While we understand
that the fund's credit is now provided at free market rates, such financing remains exempt (as are
loans from the Imports-for-Export Fund) from an interest surcharge applied generally to foreign
currency borrowings. The surcharge is waived for certain loans, based on perceived national
objectives which include export promotion. During the period of review the interest surcharge was
12 percent, but the Bank gradually reduced
the surcharge during 1981/82 to a current rate of 1 percent. Therefore, we preliminarily conclude
for cash deposit purposes that this one percent differential confers a benefit of 0.20 percent ad
valorem.
4. Government Funding of AGREXCO
During the court remand, the Department re-investigated and re-verified the financing of a
1978/79 expansion of the airport facilities. AGREXCO stated that the expansion was partially
funded by the issuance of shares, a significant portion of which were purchased by the MOA.
However, AGREXCO failed to provide evidence that would establish the rights and entitlements
accruing to the shareholders and also failed to produce the issued share certificates for the period.
Further, information submitted after verification indicated that no dividends were associated with
the shares.
Since AGREXCO was unable to establish that the MOA received rights normally arising from a
shareholder's investment, we were unable to determine if the infusion was in fact an equity
purchase. In the absence of such information, we concluded in our remand results that, based on
the best information available, the government purchase of equity in AGREXGO was a grant used
for the purchase of equipment. We have received no information to alter our position.
During 1979/80, there was a similar financing which was stated by AGREXCO to be a purchase of
equity by the MOA. Again, no information was provided concerning the entitlements to the
shareholder. In computing the benefit, we treated the share purchases of 1978/79 and 1979/80 as
cash grants to AGREXCO used to acquire machinery/equipment. We calculated the benefit using
the grant methodology set out in Appendix 2, based on 8 years as the full useful life of equipment.
The amounts for 1978/79 and 1979/80 were then multiplied by 24 percent to account for the
portion of exports through the Ben Gurion facilities attributable to roses, and divided by rose
exports for 1979/80. Based on this calculation, we preliminary determine a rate of subsidy of 0.07
percent ad valorem for the period of review.
5. Cash Payments to Growers for Greenhouses
The MOA awards grants to flower growers for the establishment and/or expansion of greenhouses.
In calculating the benefit, we applied the methodology of Appendix 2 for all grants received from
1975/76 through the current review period. We then multiplied the amount attributable to
1979/80 by 34.9 percent, and divided by total rose exports during this period. The ad valorem
rate of benefit is preliminarily 0.59 percent.
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6. Cash Payments to Packing Houses
Under this program, the MOA provides grants to packing houses for investment in buildings and
machinery/equipment. We computed the subsidy amount using the methodology of Appendix 2,
and relying on the useful lives given under program 1C above. The amount of benefit bestowed
during the period of review is preliminarily 0.06 percent ad valorem.
7. Cash Payments From the Export Promotion Fund
The MOA provides cash grants to exporters to compensate for export expenses, such as
advertising, merchandising and public relations. These payments are based on exports to specific
countries of all flowers and not just roses. Although the government states that a minimal
portion of these funds benefit roses, we have not found evidence to support this allegation.
During the period of review, AGREXCO was the only recipient of these funds. We calculated the ad
valorem benefit by multiplying the amount received for all such grants by 26 percent, which is the
amount of AGREXCO's flower exports to the United States attributable to roses by value, and
dividing by total exports of roses to the U.S. during 1979/80. On this basis, we have
preliminarily found an ad valorem benefit of 0.81 percent.
8. Export Insurance Premium Rebates
During the period of review, AGREXCO continued to self-insure its exports of roses. We
preliminarily conclude that no benefit was conferred on rose exports during this period.
Verification
We verified the information through examination of Israeli government laws and documents,
company books and records and consultations with Israeli and U.S. government officials.
Preliminary Results of Review
As a result of our review, we preliminarily determine the potential rate of subsidy to be 11.46
percent ad valorem.
Accordingly, as provided for by section 751(a)(1) of the Tariff Act of 1930 ("the Tariff Act"), the
Department intends to notify the Customs Service to collect a cash deposit of estimated
countervailing duties of 11.46 percent of the f.o.b. invoice price on all shipments of this
merchandise entered, or
withdrawn from warehouse, for consumption on or after the date of publication of the final results
of this administrative review. This deposit requirement shall remain in effect until publication of
the final results of the next administrative review.
Interested parties may submit written comments on these preliminary results within 30 days of the
date of publication of this notice and may request disclosure and/or a hearing within 10 days of the
date of publication. Any request for an administrative protective order must be made no later than
5 days after the date of publication. The Department will publish the final results of this
administrative review including the results of its analysis of any such comments or hearing.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19
U.S.C. 1675(a)(1)) and section 355.41 of the Commerce Regulations (19 CFR 355.41).
Dated: February 1, 1983.
Gary N. Horlick,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 83-3272 Filed 2-8-83; 8:45 am]
BILLING CODE 3510-25-M