48 FR 36635
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
Fresh Cut Roses From Israel; Final Results of Administrative Review of
Countervailing Duty Order
Friday, August 12, 1983
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AGENCY: International Trade Administration, Department of Commerce.
ACTION: Notice of Final Results of Administrative Review of Countervailing Duty Order.
SUMMARY: On February 9, 1983, the Department of Commerce published the preliminary results
of its 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.
We gave interested parties an opportunity to comment on our preliminary results. After review of
all comments received, the final results of the review are the same as the preliminary results except
for a correction of a calculation error.
EFFECTIVE DATE: August 12, 1983.
FOR FURTHER INFORMATION CONTACT:Laura Kneale or Joseph Black, 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. On February 9, 1983, the Department published in the Federal Register (48 FR 5985)
the preliminary results of its first administrative review of the order. The Department has now
completed that administrative review.
Scope of the Review
Imports covered by the review are shipments of Israeli fresh cut roses. 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.
Analysis of Comments Received
We gave interested parties an opportunity to comment on our preliminary results. At the request
of the petitioner, Roses, Inc., we held a public hearing on March 25, 1983.
Comment 1: Roses, Inc. argues that the Department should apply tax savings received from
accelerated depreciation to the year in which the income giving rise to the taxes was earned, rather
than the year in which the tax forms were filed. The determining factor in allocating benefits should
be when a subsidy is received, not when the recipient knows the amount of the subsidy.
Department's Position: A firm cannot receive a benefit from a preferential tax program until it is
able to calculate the amount of the tax savings. With regard to income taxes, the exact tax benefit
for a particular tax year cannot be known until the firm's books have closed, because it is only then
that the firm can determine with finality its taxable income. The Department therefore maintains
that it must allocate income tax savings to the year in which total taxable income is knowable.
Comment 2: Roses, Inc. contends that accelerated depreciation provides companies with a
benefit even in those years where the company would have shown a loss (or no taxable income)
without using the accelerated depreciation. Accumulated losses that can be carried forward
provide a benefit in such years by reducing estimated tax payments and providing an asset against
which funds may be borrowed. The Department could measure the present value of the loss carry
forward by projecting future tax savings. Alternatively, the petitioner argues, "it is possible" that
the increased losses due to accelerated depreciation "are passed on to shareholders in the form of
lower taxes (an issue on which there is no information of record to our knowledge)" or that such
losses are covered by increased equity infusions inconsistent with commercial considerations.
Department's Position: Our policy is to attribute benefits from accelerated depreciation to the year
in which tax savings are calculable.
Attempting to project future tax savings would require us to speculate on companies' future profits
and countervail potential, rather than actual, benefits. The petitioner's suggestions that increased
losses due to accelerated depreciation may be passed on to shareholders, or covered by new
equity infusions that, in turn, are countervailable, consitute new allegations lacking any supporting
evidence.
Comment 3: The petitioner argues that the discount rate used by the Department in its present
value analysis of grants is too low. The riskiness of investment in a recipient and possible
alternative sources of financing are factors which the Department must consider in determining a
discount rate. Since grants are one extreme of a financial continuum composed of loans at
commercial interest rates, loans at preferential interest rates, interest-free loans, and grants, the
Department must value grants as interest-free loans without principal repayment and use the
commercial interest rate to calculate the benefit amount.
Department's Position: The petitioner is confusing the purpose of a benchmark interest rate with
the purpose of a discount rate. In determining how much countervailing duty to collect, the
Department must perform two operations. First, the Department must value the subsidy itself.
Next, the Department must allocate that value to an appropriate time period. The value of the
subsidy accruing to a firm as the result of a preferential loan is the difference
between the amount of principal and interest the firm would have paid on the benchmark loan and
the principal and interest charged on the preferential loan. In contrast, the value of a grant is its
face value upon receipt, regardless of the riskiness of the recipient. Allocating grants by the use of
company-specific discount rates would be inappropriate, since it would produce different results in
the case of two firms in one country receiving identical grants.
Comment 4: The petitioner contends that benefits from government funded agricultural extension
services are countervailable, on the grounds that "(t)he scope of the availability of the benefit is not
pertinent to determining whether the benefit has been provided to the industry under
investigation."
Department's Position: In our final determination and order of September 4, 1980, regarding
Israeli roses, we determined that this program does not provide countervailable benefits
because it is generally available. The petitioner has not provided us with any
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new information which would compel us to reconsider our determination. In Carlisle Tire and
Rubber Company v. United States, Court No. 79-5-00748, Slip. Op. at 83-49 (May 18, 1983), the
Court of International Trade upheld the Department's interpretation of "bounty or grant" as
"connoting some special or comparative advantage conferred upon an industry or group of
industries and not avaliable to all manufacturers and producers within a given country." Further,
the Department, in its recent final negative
countervailing duty determination regarding fresh asparagus from Mexico (48 FR 21618),
found that benefits uniformly available to the agricultural sector did not constitute bounties or
grants because the Department "consider[s] the agricultural sector to consititute more than a single
group of industries" within the meaning of section 771(5) of the Tariff Act of 1930 ("the Tariff Act").
Comment 5: The petitioner argues that Israeli government participation in research and
development constitutes a countervailable subsidy, on the grounds that the research is
particularly directed toward Israeli rose growers.
Department's Position: In our final determination and order of September 4, 1980, we determined
that this program is not countervailable because the information stemming from these services has
a broad application and is pubicly available. We believe that, while individual research projects are
by definition directed toward specific projects in specific industries, the program and, more
importantly, the results of the research are available to parties outside of the industry both in and
outside of Israel. The fact that some of the results are only published in Hebew is irrelevant.
The Department does not believe that determinations about "general availability" are affected by
the languages of publication. The petitioner has not provided us with any new information which
would compel us to reconsider our determination.
Comment 6: The petitioner alleges that loans given to growers by the Jewish
Agency to finance land clearance and movement of topsoil provided countervailable benefits. The
fact that the Jewish Agency's funds derive from private overseas sources is not pertinent to a
determination of whether its programs provide countervailable benefits.
Department's Position: The purpose of the Jewish Agency is to aid in the resettlement of new
immigrants to Israel. It uses its funds for social welfare projects such as religious schools,
community centers, orphanages and homes for the aged. Information available to the Department
indicates that the Jewish Agency's funds are not intended to promote particular industries.
Therefore, we determine that its programs are generally available and, thus, not countervailable.
Further, in the Department's notice of "Final Affirmative Countervailing Duty
Determination" concerning certain steel products from the Republic of Korea (47 FR 57535), the
Department determined that similar humanitarian payments of war reparations were not
countervailable.
Because we have determined that the programs funded by the Jewish Agency do not confer
countervailable benefits, we need not address the issue of the source of the Jewish Agency's funds.
Comment 7: The respondent, Agricultural Export Company, Limited ("AGREXCO"), argues that the
Department erred when it allocated domestic production subsidies for roses based on a ratio of
the values of rose to flower exports.
The ratio should have been based upon quantity, because roses occupy the same space in a
greenhouse as other flower varieties and require the same amount of labor to produce.
Department's Position: To calculate ad valorem rates for domestic production subsidies, we divide
the value of the subsidy by the value of production to which it applies. In this case, domestic sales
are unverifiable, so we used exports as the value of production. The subsidies in this case generally
apply to flowers and not specifically to roses. Therefore, the rate of benefit is the subsidy
amount divided by total flower exports. We achieve the same result by multiplying the subsidy
amount by the ratio of the values of rose to flower exports, and the dividing by the value of rose
exports. In asserting that production costs are identical for roses and other flowers, the
respondent is arguing that we should allocate production subsidies based on cost. We cannot do so
because we do not know that the production costs are identical for the various types of flowers.
Therefore, we have continued to allocate domestic production subsidies based on value.
Comment 8: The respondent argues that the Department erred in its determination of best evidence
for Bickel. Because Bickel did not respond to the questionnaire or allow verification, the
Department used as best evidence the highest property tax savings among other responding firms,
that is, the rate received by AGREXCO. The respondent asserts that the Department is
knowingly overstating the subsidy amount, because AGREXCO's level of exports was much higher
than Bickel's.
The respondent further contends that the Department was inconsistent in its determination of best
evidence for Bickel. If the Department persists in using AGREXCO's tax rate, the Department should
have multiplied AGREXCO's tax savings attributed to Bickel by AGREXCO's ration of rose to total
exports, rather than the industry average of rose to total flower exports.
Department's Position: For firms which refuse to respond, our policy is to use as best evidence the
highest benefit among responding firms. There is no necessary relationship between the level of a
company's exports and the value of its assets. Therefore, we cannot determine whether, by using
AGREXCO's rate, we are overstating or understating Bickel's tax savings. Further, in the absence of
information on Bickel's rose to flower export ratio, the appropriate ratio is the countrywide rose to
flower export ratio. We have no evidence to support the respondent's contention that Bickel's ratio
is as low as AGREXCO's, which is below the countrywide average.
Comment 9: The respondent maintains that the Department is penalizing responsive firms by
including Bickel's best evidence rate in its calculation of a countrywide countervailing duty
rate.
Department's Position: Where, as in this case, a respondent refuses to cooperate with the
Department in a proceeding, the Department may take such
refusal into account in making its determination of what constitutes the best information otherwise
available. Further, as stated previously, in the absence of a response, we cannot determine whether
we are overstating or understating the amount of benefit to Bickel.
Comment 10: The respondent argues that the Department used an excessive commercial rate in
calculating the benefit from export financing. The respondent claims that the three preferential
export funds comprise a single financing package, and that "dollar" loans under two of the three
funds are in fact denominated in shekels.
Department's Position: We have previously concluded that the three funds are separate. See
December 24, 1981 remand results to the Court of International Trade in AGREXCO v. United
States, Consol. No. 80-10-01578. The respondent has not presented any new information to
support a change in our position. Furthermore, we found evidence in Bank of Israel circulars
and in company records that "dollar" loans
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under both the Export Shipments Fund and the Imports-for-Export Fund are received in dollars
and paid back in dollars. Therefore, the comparable interest rate for such "dollar" loans is the
commercial rate on dollar loans in Israel.
Comment 11: The respondent maintains that loans under the Export Shipments Fund are not
subsidized. Exemption for loans through this fund from the one percent surcharge on commercial
financing is an exemption from a
penalty, and not an export subsidy. The respondent further asserts that AGREXCO had access to
dollar financing in New York at a rate considerably below the rate in Israel for dollar financing.
Department's Position: The Israeli government did not provide the Department with sufficient
information concerning the types and volume of loans receiving the exemption. Similarly, the
Israeli government was unable to provide information concerning who paid the surcharge.
Therefore, consistent with our court remand results, we have determined that the exemption is
available on a preferential basis. Because the Export Shipments Fund is available to all exporters,
we have compared the preferential interest rate to the comparable country-wide market rate in
Israel and not with company-specific commercial rates.
Comment 12: The respondent asserts that the Minimum Price Program did not confer benefits on
exports of roses to the U.S., because the average price of roses sold to the U.S. during the
review period was consistently higher than the guaranteed minimum price for such roses.
Department's Position: Benefits under the Minimum Price Program are based on annual worldwide
rose exports. Because the funds awarded under the program are lump-sum payments, not tied to
specific shipments, they benefit total exports. Therefore, we have allocated the total subsidy under
this program to total rose exports.
Comment 13: The respondent contends that the Export Promotion Fund does not confer a benefit
on roses. Because they are not a new species and are not entering a new market, they only
appear as accent flowers in other advertisements. In the absence of evidence that roses
received benefits under this program, the Department should not assume that benefits were
received.
Department's Position: During our verification, we found posters from AGREXCO devoted solely to
roses. This contradicts the respondent's argument. Absent rebutting evidence, we must use
best evidence and assume that this program confers more than a minimal benefit on roses.
Final Results of the Review
As a result of our review and after a correction of a calculation error, we determine the rate of
subsidy during the period October 1, 1979 through September 30, 1980 to be 11.69 percent ad
valorem. There are no known unliquidated entries for the period. As provided for by section
751(a)(1) of the Tariff Act a cash deposit of estimated countervailing duties of 11.69 percent
of the f.o.b. invoice price shall be required on all shipments of this merchandise entered, or
withdrawn from warehouse, for consumption on or after the date of publication of this notice. This
deposit requirement shall remain in effect until publication of the final results of the next
administrative review. The Department is now commencing the next administrative review.
The Department encourages interested parties to review the public record and submit applications
for protective orders, if desired, as early as possible after the Department's receipt of the
information during the next administrative review.
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 § 355.41 of the Commerce Regulations (19 CFR 355.41).
Dated: August 7, 1983.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 83-22136 Filed 8-11-83; 8:45 am]
BILLING CODE 3510-25-M