48 FR 50140
NOTICES
DEPARTMENT OF COMMERCE
[C-508-064]
Fresh Cut Roses From Israel; Preliminary Results of Administrative Review of
Countervailing Duty Order
Monday, October 31, 1983
*50140
AGENCY: International Trade Administration, Commerce.
ACTION: Notice or 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, 1980 through September 30, 1981. As a result of the review, the
Department has preliminarily determined the net subsidy to be 27.94 percent ad valorem.
Interested parties are invited to comment on these preliminary results.
EFFECTIVE DATE: October 31, 1983.
FOR FURTHER INFORMATION CONTACT:Laura Kneale or Alan Long, Office of Compliance,
International Trade Administration, U.S. Department of Commerce, Washington, D.C.
20230; telephone: 202, 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On August 12, 1983, the Department of Commerce ("the Department") published in the Federal
Register (48 FR 36635) the final results of its last administrative review of the countervailing
duty order on fresh cut roses from Israel (45 FR 58516, September 4, 1980) and
announced its intent to conduct the next administrative review. The Department has now
conducted that 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, 1980 through September 30, 1981 which is the exporting
year for roses. The Department reviewed the programs found countervailable in the previous
administrative review and three additional programs which we preliminarily determine to be
countervailable.
Analysis of Programs
The Israeli government did not respond to the Department's questionnaire covering the current
review period. Therefore, we calculated the benefits from the following countervailable programs
using the best information available. Sources include information collected during the previous
administrative review and published documents.
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 and eight packing
houses were approved as of the previous period of review.
For the current 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 effective June 1978. For the period of review, benefits accrued only to those enterprises
approved prior to repeal. Further, the Israeli government abolished all property taxes on buildings
in April 1981. Therefore, during the period of review, approved enterprises received benefits from
this program for six months.
We calculated the benefit under this program by multiplying the property value of each approved
enterprise by one-half of the reduction in the property tax rate. To calculate the benefit to roses,
we multiplied total tax savings by the ratios of rose to flower exports during the 1979/80 season,
and divided this amount by estimated rose exports during the 1980/81 season. Based on this
calculation, we preliminarily determine a benefit of 0.02 percent ad valorem for the period of
review.
Further, we preliminarily determine that the countervailing duty cash deposit
rate should not incorporate an amount for this program since future entries will not benefit from
such tax savings.
B. Ten-year exemption from 1/6 of the property tax on stock and machinery/equipment. This
program was also repealed in June 1978. The same enterprises which were eligible for benefits
under the five-year exemption were eligible for benefits under this program during the period of
review.
We have no information on the value of equipment for approved enterprises during the review
period. We used as the best information available the amount of tax savings under this program
during the 1979/80 period. To calculate the subsidy rate on roses, we multiplied total tax
savings by the ratios of total rose to flower exports during the 1979/80 season, and divided this
amount by estimated total rose exports during the current review period. Based on this
calculation, we preliminarily determine a benefit of 0.01 percent ad valorem for the 1980/81
season. This is also the estimated ad valorem benefit for duty deposit purposes.
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 during the previous administrative review, 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 accordance with this methodology, we calculated the present
value allocation of all grants received since 1977.
The benefit under this program in the current review period is the sum of the present value
allocation of all past grants calculated for the previous review and the present value allocation of
any grants received during the current review period. To estimate the amount of grants provided
during the current review period, we used as best evidence the highest aggregate grant amount
provided to the companies in previous years.
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We multiplied the benefit for the current review period by the ratio of total rose to flowers exports
to account for the portion attributable to roses, and then divided by total estimated rose
exports in 1980/81. Based on this calculation, we preliminarily determine a rate of benefit of 0.37
percent ad valorem for the review period. This is also the estimated ad valorem benefit for duty
deposit purposes.
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 twice 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 knowable or calculable during the same
accounting year, here the exporting season. Therefore, for the 1980/81 review period, we have
used the calculable tax savings for the 1979/80 tax year.
In computing the benefit 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. For those firms
for which we do not have 1979/80 income tax data, we used the highest tax savings calculated for
the other firms as the best information available.
We summed the tax savings amounts for each enterprise and multiplied that total by the ratio of
rose to flower exports in 1979/80 to find the portion attributable to roses. We then divided
this figure by estimated rose exports for 1980/81 and found an ad valorem benefit of 0.26 percent
for the review period. This is also the estimated ad valorem benefit for duty deposit purposes.
F. "Drawback" Grants. 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 one packing house, Bickel, has received an award. The
ECIL project approvals of the other packing houses state that they are not eligible to
receive these grants. Because of the infrequency of use of the program, we have not assumed new
grants during 1980/81.
The value of the subsidy is the annual present value allocation of the grant as calculated during the
1979/80 review. We preliminarily determine the rate of benefit to be 0.01 percent ad valorem for
the 1980/81 review period. This is also the estimated ad valorem benefit for duty deposit purposes.
2. Government-Guaranteed Minimum Price Program
Funds provided under this program are awarded as year-end, lump sum payments. These
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 the
succeeding export year. During the previous review, only the Flower Board (the major association
of flower growers) submitted a claim for payment.
During the current review period, the Flower Board did not receive final payment for the 1979/80
season. Therefore, we preliminarily determine that there was no subsidy under this program
during the period of review.
The estimated benefit for duty deposit purposes is the amount of payments received during the
1981/82 review period, which is the most recent period for which we have information. These
1981/82 payments are comprised of
the difference between the final payment claim for 1978/79 and the advance payment received in
March 1980, plus the payment for the claimed amount for the 1979/80 export year. To find the ad
valorem rate of subsidy we divided this amount by the estimated value of total rose exports in
1980/81. We preliminarily determine that the ad valorem benefit for duty deposit purposes is 0.38
percent.
3. Preferential Short-term Financing
During the period of review, the Bank of Israel (the Israeli Central Bank) provided preferential
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).
A. Export Production Fund. These are local currency loans. Therefore, the commercial benchmark
is the published effective rate for overdraft accounts. In contrast to our last review, the effective
rate now includes the average interest charged on withdrawals above credit ceilings, determined
by the Bank based on the actual frequency of such excess withdrawals. The differential between the
commercial rate and the average of the published preferential interest rates prevailing during the
1980/81 period is 138 percent.
The Bank of Israel determines maximum eligibility for these loans using a rate-of-credit
formula. The rate-of-credit formula is based on three factors: a value-added rate, a turnover rate,
and a rate-of-financing ratio based on the dollar/shekel exchange rate. In the first review, we found
that rose exporters used the entire amount of credit available under this program. Further,
eligibility is usually adjusted based on the current year's export performance. Therefore, we
estimated the amount of credit available to exporters by multiplying 1980/81 rose exports by the
rate-of-credit formula.
Multiplying the estimated level of credit by the published interest rate differential for the review
period and dividing by estimated 1980/81 total rose exports, we preliminarily find an ad valorem
benefit for the review period of 18.89 percent.
The Bank's 1981 Annual Report states that the rate-of-financing ratio used to calculate eligibility
under this program was reduced in September 1981. We revised our rate-of-crefit formula and
multiplied it by the published interest rate differential prevailing in the last quarter of 1981, and
found an ad valorem subsidy for duty deposit purposes of 15.78 percent.
B. Imports-for-Export Fund. These are dollar-denominated loans. Therefore, the commercial
benchmark is the sum of the published interest rate on dollar loans in Israel and the surcharge
on foreign currency borrowing (see our notice of preliminary and final results of the last
administrative review). In the
first review, we found that rose exporters used the entire amount of credit available under this
program. We calculated the benefit from this program by multiplying the rate-of-credit eligibility
associated with this Fund by the 25.62 percent differential between the average of the published
preferential interest rates for these loans and the commercial benchmark. We preliminarily
determine the benefit from this program to be 0.37 percent ad valorem.
The Bank's 1981 Annual Report indicates that the rate-of-credit eligibility for this program was
reduced on October 1981 and, as described in our last review, the Bank has phased out most of the
surcharge. As a result, we estimate an ad valorem rate for duty deposit purposes of 0.31 percent.
*50142
C. Export Shipments Fund. Unlike the other two funds, financing under the Export Shipments Fund
is not based on an annual line of credit. Rather, loans are granted based on a specified percentage of
the value appearing on the customs documents of the individual shipment to be financed.
Maximum eligibility was set at 80 percent of the shipment value in October 1980. Because
exporters do not use this program to finance all shipments, we calculated a loan use rate of 21
percent for this program based on data from the previous review period.
These are dollar-denominated loans. Therefore, the commercial benchmark again is the sum of the
published interest rate on dollar loans in Israel and the surcharge on foreign currency
borrowing. The differential between the
commercial rate and the average published interest rate for this program during the period of
review is 24.57 percent. Multiplying the interest differential by the loan use rate and prorating this
value by the 190-day maximum term for these loans, we preliminarily determine an ad valorem
benefit for the period of review of 2.68 percent.
Since April 1982, loans under this fund have been charged market interest rates. Consequently, the
only remaining benefit provided by this program is exemption from the one percent surcharge on
foreign currency loans. We therefore estimate a benefit for duty deposit purposes of 0.11 percent
ad valorem.
4. Government Funding of AGREXCO
The MOA provided AGREXCO with funds to finance the expansion of its terminal at Ben Gurion
Airport in 1978/79 and 1979/80. The Government of Israel maintains that these funds were
purchases of equity in AGREXCO. However, in our last review, the Israeli government did not
provide sufficient evidence to support this contention.
We therefore converted these infusions to dollars at the prevailing exchange rates and treated
them as investment grants, allocating them over eight years as the useful life of the facilities.
Because of the infrequency of these
infusions, we have assumed no new funding during 1980/81. The benefit from these funds in the
current review period is the sum of the annual present value allocation of each grant, multiplied by
the portion of both grants attributable to rose exports. We estimate a benefit for the 1980/81
review period of 0.15 percent ad valorem. This is also the estimated ad valorem benefit for duty
deposit purposes.
5. Cash Payments to Growers for Greenhouses
The MOA awards grants to flower growers for the establishment and/or expansion of greenhouses.
In the last administrative review, we calculated the benefit by allocating all grants received since
1975/76 over a useful/life of twenty years, using the methodology of Appendix 2. The estimated
benefit for the current review period is the sum of the present value allocations of previous years'
grants, and the present value allocation of estimated grants for 1980/81. To estimate the amount of
grants provided during the current review period, we used as best evidence the highest aggregate
grant amount provided to growers in previous years. We preliminarily determine the ad valorem
benefit for the current review period to be 1.24 percent. This is also the estimated benefit for duty
deposit purposes.
6. Cash Payments to Packing Houses
Under this program, the MOA provides grants to packing houses for investment in buildings and
machinery/equipment. In the 1979/80 review, we computed the subsidy amount using the
methodology of Appendix 2. The estimated benefit for the current review period is the sum of the
present value allocations of previous years' grants, and the present value allocation of estimated
grants for 1980/81. To estimate the amount of grants provided during the current review period,
we used as best evidence the highest aggregate grant amount providing to packing houses in
previous years. We preliminarily determine that the amount of benefit bestowed during the period
of review is 0.33 percent ad valorem. This is also the estimated benefit for duty deposit purposes.
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. During the 1979/80 review, AGREXCO was the only recipient of these
funds. We calculated the ad valorem benefit for the current review by multiplying the amount
received by AGREXCO in 1980/81 (obtained during verification in the last review) by 26
percent, which is the percentage by value of AGREXCO's rose to flower exports to the United States,
and dividing by total exports of roses to the U.S. during 1980/81. On this basis, we have
preliminarily found an ad valorem benefit of 0.64 percent. This is also the estimated benefit for
duty deposit purposes.
8. Programs Not Previously Found Countervailable
In our questionnaire, we requested information on six programs, three of which were not reviewed
in the 1979/80 administrative review. For the three others, we found no evidence to indicate that
these programs were used during that review period. These programs are: export insurance
premiums, exchange rate insurance, and government support of the Flower Board. The programs
for which we have evidence of countervailable benefits are: fuel grants to rose growers, long-term
loans granted to AGREXCO, and a capital fund for AGREXCO.
A. Fuel Grants to Rose Growers. In 1982 the Israeli Institute for Farm Research published a survey
on the profitability of rose production in the 1980/81 season. This study states that gross income
for rose growers included grants for fuel expenses, and interest savings on low-cost credit. In the
absence of information, we assumed that this program is preferential. We calculated that ad
valorem benefit by dividing the aggregate amount of the grants and interest savings reported in the
survey by total rose exports (as
best evidence of production) in 1980/81. Based on this calculation, we preliminarily determine the
benefit to be 2.92 percent ad valorem. This is also the estimated benefit for duty deposit purposes.
B. Long-term Loans Granted to AGREXCO. AGREXCO's 1979/80 financial report. obtained during
the previous review, lists its long-term loans. Comparing the interest rates on all but two of the
listed loans (the other two were consistent with commercial terms) with the commercial interest
rate for long- term credit published in the Bank of Israel's 1981 Annual Report, we found lower
interest rates on most of AGREXCO's loans. In the absence of other information, we assumed that
these loans are not generally available.
AGREXCO's financial statement lists the aggregate amount of principal due on its long-term loans in
1981. Because we have no information on the terms of individual loans, however, we cannot
construct comparable commercial benchmark rates. Therefore, we cannot use the present value
allocation methodology for long-term loans outlined in Appendix 2. To estimate the benefit from
these loans during the current review period, we multiplied the weighted-average interest rate
*50143
differential by the principal amount due in 1981. Based on this calculation, we preliminarily find an
ad valorem benefit of 0.04 percent. This is also the estimated benefit for duty deposit purposes.
C. Capital Fund for AGREXCO. AGREXCO's 1979/80 financial statement shows that
a capital fund for AGREXCO was created from MOA investment grants. In the absence of
information concerning the terms and conditions associated with this fund, we allocated the entire
grant installment to the current period of review. We preliminarily determine the ad valorem
benefit to be 0.01 percent. This is also the estimated benefit for duty deposit purposes.
Preliminary Results of Review
As a result of the review, we preliminarily determine the aggregate net subsidy to be 27.94 percent
ad valorem for the period of review. The Department intends to instruct the Customs Service to
assess countervailing duties of 27.94 percent of the f.o.b. invoice price on all shipments
exported on or after October 1, 1980 and on or before September 30, 1981.
As provided for by section 751(a)(1) of the Tariff Act of 1930 ("the Tariff Act"), the Department
intends to instruct the Customs Service to collect a cash deposit of estimated countervailing
duties of 22.56 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 requirements 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 hearing, if requested, will be held 45 days after the date of publication or
the first workday thereafter. Any request for an administrative protective order must be made no
later then 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 issues raised in any such written
comments or at a 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: October 25, 1983.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 83-29535 Filed 10-28-83; 8:45 am]
BILLING CODE 3510-DS-M