49 FR 26776
NOTICES
DEPARTMENT OF COMMERCE
[C-508-401]
Potassium Chloride From Israel; Preliminary Affirmative Countervailing Duty
Determination
Friday, June 29, 1984
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AGENCY: International Trade Administration, Import Administration, Department of
Commerce.
ACTION: Notice of Preliminary Affirmative Countervailing Duty Determination.
SUMMARY: We preliminarily determine that certain benefits which constitute bounties or grants
within the meaning of the countervailing duty law are being
provided to manufacturers, producers, or exporters in Israel of potassium chloride, as
described in the "Scope of Investigation" section below. The estimated net bounty or grant is 8.71
percent ad valorem. Therefore, we are directing the U.S. Customs Service to suspend liquidation of
all entries of potassium chloride from Israel which are entered, or withdrawn from warehouse,
for consumption, and to require a cash deposit or bond on these products in the amount equal to
the estimated net bounty or grant.
If this investigation proceeds normally, we will make our final determination by September 10,
1984.
EFFECTIVE DATE: June 29, 1984.
FOR FURTHER INFORMATION CONTACT: John R. Binkmann, Office of Investigations, Import
Administration, International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW., Washington, D.C. 20230, telephone: (202) 377-4929.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine there is reason to believe or suspect that
certain benefits which constitute bounties or grants within the meaning of section 303 of the Tariff
Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or exporters
in Israel of potassium chloride. For purposes of this investigation, the following programs are
preliminarily found to confer bounties or grants:
Investment Grants under the Encouragement of Capital Investment Law 5719- 1959 (ECIL).
Export Credit Funds.
For this preliminary determination, we have used the unverified information provided in response
to our questionnaires. We will verify all information used in our final determination.
The estimated bounty or grant is 8.71 percent ad valorem.
Case History
On March 29, 1984, we received a petition filed by AMAX Chemicals Inc., Lakeland, Florida, and
Kerr-McGee Chemical Corporation, Oklahoma City, Oklahoma, on behalf of U.S. producers of
potassium chloride who represent a major portion of that industry. In compliance with the filing
requirements of
section 355.26 of our regulations (19 CFR 355.26), the petition alleges that manufacturers,
producers, or exporters in Israel of potassium chloride receive, directly or indirectly,
bounties or grants within the meaning of section 303 of the Act and that these imports are
materially injuring, or threatening to materially injure, a U.S. industry.
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We found the petition to contain sufficient grounds upon which to initiate a countervailing
duty investigation and, on April 18, 1984, we initiated such an investigation (49 FR 18001). We
stated that we expected to issue a preliminary determination by June 25, 1984.
Israel is not a "country under the Agreement" within the meaning of section 701(b) of the Act;
therefore, section 303 of the Act applies to this investigation. Since this merchandise enters the
United States duty-free and since the international obligations of the United States so require,
section 303(a)(2) of the Act, provides that an injury determination shall be made by the United
States International Trade Commission (ITC).
We presented questionnaires concerning the allegations to the government of Israel and to
Dead Sea Works Ltd. (DSW), the only known Israeli producer of potassium chloride, in Washington,
D.C., on April 23, 1984, and requested a response by May 23, 1984. In a letter dated May 2, 1984,
DSW requested an extension until June 6 to submit its response. We granted an extension until May
29. On that date we received responses from the Israeli government and
DSW. On May 17, 1984, we denied a government of Israel request that we consider this case
extraordinarily complicated.
Scope of Investigation
The product covered by this investigation is potassium chloride, currently provided for under item
480.5000 of the Tariff Schedules of the United States Annotated.
The period for which we are measuring benefits is April 1, 1982, through March 31, 1983. In their
responses, the government of Israel and DSW provided data for the applicable period. We are
including information in those responses in this preliminary countervailing duty
determination.
Analysis of Programs
Based upon our analysis to date of the petition and the responses to our questionnaires, we
preliminarily determine the following:
I. Programs Preliminarily Determined to Confer Bounties or Grants
We preliminarily determine that bounties or grants are being provided to DSW
under the following programs:
A. ECIL Investment Grants
The purpose of "The Encouragement of Capital Investments Law, 5719-1959 (ECIL)" is to attract
capital to Israel with a view toward developing the productive capacity of the national
economy, improving the balance of payments, absorbing immigration, and offsetting the economic
disadvantages in Israel's development areas.
Investment grants are given as a percentage of the investment. The percentage varies according to
the location of a project. "Approved projects" located in Zone A are entitled to recieve a grant
amounting to 30 percent of the total investment in fixed assets; "approved projects" in Zone B are
entitled to receive a grant amounting to 15 percent of the total investment; and those in Zone C are
not entitled to receive grants. Any company located in Zone A, regardless of the industry, is
eligible for grants. Only projects that demonstrate economic viability are approved. The
Investment Center approves a project and provides the commercial development banks with the
approved funds. The banks then give the grants to the company, upon presentation of a letter of
approval of the investment.
The DSW response states that DSW, which is located in Zone A, received
various ECIL grants from fiscal years (April 1-March 31) 1977 through 1982 for the purposes of
plant enlargement and the construction of dikes and canals used in the production of potassium
chloride. The DSW response also claims that DSW received additional ECIL grants from fiscal years
1979 through 1982 for the expansion of potassium chloride production under its Makleff Stage A
and Stage B projects, but that the product from these projects cannot be sold to the United States.
Because ECIL investment grants are limited to companies located in specific regions, we
preliminarily determine that grants benfitting the production of potassium chloride of the grades
marketable by DSW in the United States confer countervailable bounties or grants. We have not
included those portions of the grants for the plant expansion, machinery, and equipment received
for Stages A and B of the Makleff Project as countervailable benefits since DSW has provided
support for its contention that it cannot export potassium chloride produced by its "cold
crystallization" process to the U.S. We plan to seek additional information on this matter during
verification. However, we have included those portions of the Makleff grants used for the
construction of dikes, evaporating ponds and canals since these investments do not exclusively
benefit the production of potassium chloride by the Makleff project.
We calculated the countervailable benefit of these grants by using the grant methodology
set out in the "Subsidies Appendix," 49 FR 18016 (April 26, 1984).
In determining the discount rate, we concluded that suitable company specific borrowing rates
were not available. Consequently, we used the national average bond rate and the national average
rate of return on equity. These numbers were based on Bank of Israel statistics. We allocated
the grants over ten years, the average useful life of depreciable assets used in mining, as
determined by Internal Revenue Service tables. We then allocated the benefits during the period of
investigation over the total sales (less the sales from the Makleff plant) by DSW during
the period of review. We thus determined a bounty or grant in the amount of 1.46 percent
ad valorem exists. We have information which states that the ECIL law now contains requirements
that a certain percentage of the merchandise produced as a result of the investment must be
exported in order for the plant that receives a grant to be considered an "approved project".
Thus, grants currently received under the ECIL program would constitute export subsidies.
However, this change was not in effect when the grants mentioned above were received.
B. Export Credit Funds.
During the period of review the Bank of Israel provided short-term financing to DSW through
three export credit funds: The Export Production Fund (for working capital loans), the Export
Shipments Fund (for accounts receivable),
and the Imports-for-Exports Fund (to finance imported materials used for export production). We
calculated the countervailable benefit of these export credit funds using the short-term loan
methodology set out in the "Subsidies Appendix," (49 FR 18016 (April 26, 1984)).
We find short-term export loans (one year or less) to be countervailable to the extent that
they are given at rates less than those for comparable commercial loans. To determine the
amount of the bounty or grant for short- term loans, we compare the terms of the loan at issue
ith a benchmark; that is, a comparable commercial loan. Since short-term loans are received
and repaid within a year, we allocate any benefits to one year only. For our benchmark, we
used the terms and rates of the most appropriate national average commercial method of
short-term financing. The benchmark used for each of the export funds is included in our
description of each program. We obtained the benchmark interest rates used from official
Bank of Israel publications.
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1. Export Production Fund
Preferential financing is provided in Israeli shekels and in certain foreign currencies to exporters
through the Export Production Fund to finance the production process for items to be exported.
The Bank of Israel manages this fund. Financial institutions which offer credit to exporters
according to the
terms established for this fund by the Bank of Israel may receive credit from the Bank of
Israel for the financing which they provide.
DSW stated in its response that during the period of review it received Export Production Fund
loans only in shekels at an interest rate of 10.5 percent per quarter. As our benchmark interest
rate on comparable commercial loans we used the effective interest rate during the period of
review for shekel overdraft accounts. Since the Export Production Fund provides loans for
export-related purposes at interest rates significantly less than those prevailing for
comparable commercially available loans, we preliminarily determine that this program confers
a bounty or grant upon the exportation of potassium chloride.
We determined the benefits from these loans based on a comparison of the cost of the Export
Production Fund financing and the cost of the comparable commercially available financing. This
benefit was allocated over the value of DSW's total potassium chloride exports during the review
period. On this basis, we calculated a bounty or grant in the amount of 4.49 percent ad valorem.
2. Export Shipments Fund
The preferential financing designed to afford exporters the possibility of extending credit in
foreign currency to their customers abroad is provided by
the Export Shipments Fund. The Bank of Israel manages this fund. Financial institutions which
offer credit to exporters according to the terms established for this fund by the Bank of Israel
are discharged from certain payment obligations to the Bank of Israel and are exempt from the
credit ceiling fixed by the Bank of Israel.
The government of Israel's response indicates that exporters are required to pay the
Euro-currency interest rate plus 1.5 percent on loans obtained through the Export Shipments
Fund. Financing is granted after the merchandise is shipped upon the presentation by the exporter
of particular export documents. Up to 90 percent of the export value of the merchandise shipped
may be financed through this fund for a period not to exceed 6 months. Credit from this fund is
provided in the currency indicated on the export documents.
DSW's response to our questionnaire indicates that it was exempt from the surcharge which the
government of Israel generally requires borrowers of foreign currency to pay. Such
exemptions are granted for foreign currency loans obtained through an export credit fund.
Therefore, consistent with the position we have taken in the first and second administrative
reviews of Fresh Cut Roses from Israel (48 FR 36635 (1983) and 49 FR 924 (1984)), we
consider that DSW's exemption from payment of the surcharge on its foreign currency borrowings
during the period of review to be a countervailable export subsidy.
To represent the interest rate on comparable United States dollar denominated
commercial loans, we used as our benchmark the sum of the applicable surcharge and the interest
rate, in dollar terms, available in Israel on non-directed United States dollar credit. We were
not able to obtain the interest rates available in Israel on non-directed credit in other foreign
currencies. For loans provided to DSW in currencies other than United States dollars, we used as
the benchmark interest rates on comparable commercial loans, the interest rates DSW received on
foreign currency loans adjusted (on a quarterly basis) by the percentage difference by which the
interest rate on the non-directed United States dollar benchmark (surcharge excluded) exceeded
the interest rates DSW received on United States dollar loans. The applicable surcharge was then
added to the foreign currency benchmark interest rates.
We calculated the benefit of the loans by comparing the appropriate benchmark to the preferential
rates of interest obtained by DSW on its Export Shipments Fund loans. This benefit was allocated
over the value of DSW's total potassium chloride exports during the review period. On this basis, we
calculated a bounty or grant in the amount of 2.55 percent ad valorem.
3. Imports-for-Exports Fund
Through the Imports-for-Exports Fund, preferential financing is provided in foreign currency to
exporters in order to finance imported material used for
export production. The Bank of Israel manages this fund. Financial institutions which offer
credit to exporters through this fund may receive credit from the bank of Israel for the
financing which they provide. In its response, the government of Israel states that financial
institutions grant credit to exporters in foreign currency at a rate of interest equal to
60 percent of the Euro-currency interest rate for the currency in which the loan is given
for a period not to exceed 1 year. The Bank of Israel then credits the financial institution's
account with an amount equal to the difference between the rate of interest paid by the
exporter (60 percent of the Euro- currency rate) and the Euro-currency rate plus 1.
To represent the interest rate on comparable commercial loans, we used as our benchmark the
United States dollar and foreign currency benchmarks described in the "Export Shipments Fund"
section.
We calculated the benefit of these loans by comparing the appropriate benchmark to the
preferential rates of interest obtained by DSW on its Imports- for-Exports Fund loans. This benefit
was allocated over the value of DSW's total potassium chloride exports during the review period.
On this basis, we calculated a bounty or grant in the amount of 0.21 percent ad valorem.
II. Programs Preliminarily Determined Not To Confer Bounties or Grants
We preliminarily determine that boundies or grants are not being provided to DSW under the
following programs:
A. Exchange Insurance Scheme.
During the period for which we are measuring bounties or grants, DSW's exports were covered
under the "Exchange Rate Risk Insurance Scheme" (EIS) offered by the Government-owned
"Israel Foreign Trade Risks Insurance Corporation Ltd." (IFTRIC). EIS, which is optional for all
exporters, is a mixture of exchange rate risks, insurance, and cost escalation coverage. It is
designed to insure the exporter against decreased payments in its foreign currency receivables
resulting from a delay in devaluation of the shekel with respect to a market basket of exchange
rates, relative to the appropriation of the consumer price index. Under EIS, if the change in the
consumer price index is larger than the changes in the rate of the shekel depreciation, the exporter
is indemnified by an amount equal to the difference between the changes multiplied by the "added
value" of the exports. When the rate of depreciation is higher than the change in the consumer price
index, the exporter compensates IFTRIC.
EIS premiums are the same for all industries and are based on two indicators: (a) The average
anticipated inflation rate in the buyers' countries: And (b) the forward relation between currencies
which constitute the market
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basket of exchange rates. based on these indicators, the weighted premium rates to the United
States were higher than to other countries.
While no specific information is available at this time to determine whether the premiums charged
by IFTRIC for the EIS program are sufficient to cover its long-term operating expenses, our review
of the 1981/82 and 1982/83 annual reports of IFTRIC shows that in each year the company showed
an overall profit as well as a profit from its insurance activities. This pattern of operating
profits on its overall insurance activities indicates that IFTRIC does charge premiums sufficient
to cover long-term operating costs and losses. Therefore, we preliminarily determine that the
EIS program does not confer a bounty or a grant.
B. ECIL Partial Non-Payment of Employer's Tax
The petition alleges that DSW benefits from the partial non-payment of the employer's tax which
normally amounts to 7 percent of payroll. The extent of non-payment depends on the ratio
between "approved" assets and total assets.
The response states that on January 1, 1980, the employer's tax law was amended. Since April 1,
1980, the employer's tax has not been applicable to the productive sectors, including industrial
manufacturing firms, agricultural
farms, operation of hotels, and the building of housing or civil engineering related to the above
activities. As a result, DSW has not paid an employer's tax since 1980.
Consequently, we preliminarily determine this domestic program is not provided by government
action to a specific enterprise or industry, or a group of enterprises or industries; thus it does not
confer a countervailable benefit.
III. Programs Preliminarily Determined Not To Be Used
We preliminarily determine that the following programs were not used by DSW:
A. ECIL Reduction of Corporate Tax Liability
The petition alleges that DSW's corporate tax liability is limited to 30 percent instead of the normal
60 percent rate and that the benefit lasts 7 years and is prorated according to the ratio between
"approved" assets and total assets.
The response states that "approved projects" under ECIL are liable to pay a 30 percent corporate
tax on the portion of the "approved" fixed assets, while the regular corporate rate for an industrial
corporation is 40 percent, and not 60
percent as alleged. The program is administered by the Investment Center. The response indicates
that even though DSW had profits, DSW did not receive benefits from this program during the
period of review. Under Israeli tax law, DSW's tax liability is consolidated with its parent, Israel
Chemicals Ltd. (ICL). Since ICL had losses, DSW paid no taxes.
B. Property Tax Exemption on Buildings
The petitioner alleges that DSW may continue to benefit from the ECIL provisions that allow eligible
enterprises a 5 year exemption from payment of 2/3 of property taxes on building. The petiton
states that this program was repealed by Amendment 17 of the ECIL on August 1, 1978.
The response states that the last year that DSW used this program was 1980. The property tax on
buildings was abolished for all taxpayers on April 1, 1981.
C. Property Tax Exemption on Equipment
The petition alleges that the government of Isreal provides a 10 year exemption from payment of
1/6 of the property taxes on equipment approved prior to repeal of this program. The petition
states the program was repealed by Amendment 17 of ECIL on August 1, 1978. The response states
the last year for
which DSW used this program was 1980. This program was abolished for all taxpayers as of April 1,
1981.
IV. Programs for Which Additional Information Is Required
We preliminarily determine that additional information is needed on the following programs:
A. Preferential Ocean Freight Rates
The petition alleges that most potassium chloride exported from Israel to the United States
(back-haul) is shipped by Zim Navigation, which is 40 percent owned by the government of
Israel, at rates which are far lower than the rates it charges on bulk shipments from the United
States to Israel (front-haul). Petitioners add that the enormous difference between the
front-haul and back- haul rates cannot be accounted for simply as the result of the imbalance in
shipments into and out of Israel. They are deliberately structured, at the government of
Israel's direction, to cross-subsidize lower freight rates on potassium chloride exports to the
United States by higher freight rates on grain imports (by the government of Israel) from the
United States.
The responses of DSW and the government of Israel state that Zim
Navigation structures its ocean freight rates on a purely commercial basis without government of
Israel intervention and that DSW ships most of its potassium chloride to the United States with
several private carriers at rates equal to those it is charged by Zim Navigation. Before determining
whether DSW has benefited from bounties or grants due to preferential ocean freight rates we will
require additional information.
B. Preferential Wharfage Charges
The petition alleges that the Israel Ports Authority (IPA) subsidizes exports by
disproportionately raising wharfage revenue from imports while vastly undercharging exports and
by basing wharfage charges on value, not volume of shipments, which favors low value exports
such as potassium chloride.
IPA was established by statute in 1961 as a state corporation to plan, build, develop, manage,
maintain, and operate the ports of Israel as self-supporting enterprises. The Department noted
in Certain Steel Products from Belgium (47 FR 39304), that government ownership of separate
companies does not necessarily preclude them from conducting transactions on an arm's-length
basis and that our examination of such relationships should focus on whether prices actually
charged were at prevailing market rates. In this case, DSW alleges that it did not benefit from the
alleged bounty or grant during the period of review since
it built and operates its own port facilities (wharf, terminal, conveyor and loader) and thus does not
incur any wharfage charge by IPA on export shipments. DSW does, however, pay to IPA an annual
rent for using the port territory for its terminal as well as general operating charges on a cost plus
basis. We will examine the rental arrangement and operating costs paid by DSW to IPA to
determine whether or not they were at arm's-length and at prevailing market rates as well the
source of financing for the construction of the wharf facilities.
Verification
In accordance with section 776(a) of the Act, we will verify information used in making our final
determination.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend
liquidation of all entries of potassium chloride from
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Israel which are entered, or withdrawn from warehouse, for consumption on or after the date
of publication of this notice in the Federal Register and to require a cash deposit or bond for each
such entry of this merchandise from Israel in the amount of 8.71 percent ad valorem.
Public Comment
In accordance with § 355.35 of our regulations, and pursuant to a request by a party to this
proceeding, we will hold a public hearing to afford interested parties an opportunity to comment
on this preliminary determination at 10 a.m. on July 11, 1984, at the U.S. Department of
Commerce, Conference Room A, 14th Street and Constitution Avenue, N.W., Washington, D.C.
20230. Individuals who wish to participate in this hearing must submit a request to the Deputy
Assistant Secretary for Import Administration, Room 3099B, at the above address by July 3, 1984.
Requests should contain: (1) The party's name, address, and telephone number; (2) the number of
participants; (3) the reason for attending; and (4) a list of the issues to be discussed. Prehearing
briefs must be submitted to the Deputy Assistant Secretary by July 5, 1984. Oral presentations will
be limited to issues raised in the briefs. All written views should be filed in accordance with 19 CFR
355.34 within 30 days of this notice's publication, at the above address and in at least 10 copies.
Dated: June 25, 1984.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 84-17396 Filed 6-28-84; 8:45 am]
BILLING CODE 3510-DS-M