49 FR 36122
NOTICES
DEPARTMENT OF COMMERCE
[C-508-401]
Potassium Chloride From Israel; Final Affirmative Countervailing Duty
Determination
Friday, September 14, 1984
*36122
AGENCY: International Trade Administration, Import Administration, Commerce.
ACTION: Notice of Final Affirmative Countervailing Duty Determination.
SUMMARY: We 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 of this notice. The net bounty or grant is 3.64 percent ad
valorem. Therefore, we have notified the International Trade Commission (ITC) of our
determination. We are directing the U.S. Customs Service to continue the suspension of liquidation
ordered in the preliminary determination of all entries of potassium chloride from Israel
which are entered, or withdrawn from warehouse, for consumption, on or after the date of
publication of this notice and to require a cash deposit or bond on this product in the amount equal
to the net bounty or grant.
EFFECTIVE DATE: September 14, 1984.
FOR FURTHER INFORMATION CONTACT: John R. Brinkmann, 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:
Final Determination
Based upon our investigation we determine 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 postassium chloride. For
purposes of this investigation, the following programs are found to confer bounties or grants:
Investment Grants under the Encouragement of Capital Investment Law 5719- 1959 (ECIL).
Export Shipment Fund Under ECIL.
Export Production Fund Under ECIL.
Imports-for-Exports Fund under ECIL.
The bounty or grant is 3.64 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 § 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.
We found the petition to contain sufficient grounds upon which to initiate a countervailing
duty investigation and, on Apirl 18, 1984, we initiated such an investigation (49 FR 18001).
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. Section 303(a)(2) of the Act requires
an injury determination by the ITC, since the merchandise enters the United States duty-free and
the international obligations of the United States so require.
We presented questionnaires concerning the allegations to the government of Israel and Dead
Sea Works Ltd. (DSW), the only known Israeli producer or 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.
On June 25, 1984, we preliminarly determined that benefits that constitute bounties or grants
within the meaning of the countervailing duty law are being provided to manufacturers,
producers and exporters in Israel of postassium
chloride (49 FR 26776). At the request of the petitioners, we held a hearing on July 11, 1984
to allow the parties an opportunity to address the issues arising in the investigation.
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.
Analysis of Programs
Based upon our analysis of the petition, the responses to our questionnaries, our verification, and
the parties' comments we determine the following:
I. Programs Determined to Confer Bounties or Grants
We 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 receive 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. After the
Investment Center approves a project, it instructs a commercial bank to disburse the grant funds
to the grant recipient.
DSW, which is located in Zone A, received various ECIL grants during the years 1972 through 1982
for the purposes of plant enlargement and the construction of dikes and canals used in the
production of potassium chloride. DSW received additional ECIL grants in fiscal years 1979
through 1982 for the expansion of
potassium chloride production under its Makleff Stage A and Stage B projects.
Because ECIL investment grants are limited to companies located in specific regions, we determine
that grants benefiting the production of potassium chloride of the grades marketable by DSW
in the United States confer countervailable bounties or grants. We have included in our
calculations all grants for the construction of the hot leach and flotation plants and the portions of
those grants used to build the dikes, ponds, and canals that benefit
*36123
the hot leach and flotation plants. We have not considered as countervailable benefits those
portions of the grants for the plant expansion, machinery, and equipment received for Stages A and
B of the Makleff Project since DSW has provided convincing evidence that it is not selling, and
cannot sell, potassium chloride produced by the Makleff "Cold Crystallization" process to the
U.S. However, we have included in our calculations those portions of the Makleff grants used for
the construction of dikes, evaporting ponds, and canals which benefit the hot leach and flotation
plants. We have allocated the grants for all ponds, dikes canals based on the hot leach and flotation
plants' percentage of potassium chloride production during the period of review. If in future
administrative reviews we find that circumstances change and potassium chloride from the
Makleff plant is sold to the United States, we will reevaluate this determination.
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 long-term
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 eleven years, which is the average asset depreciation range
for assets used in the manufacture of chemicals, as determined by the 1977 Internal Revenue
Service guidelines (Rev. Proc. 77-10). We then allocated the benefits during the period of review
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 1.18 percent ad valorem exists.
In January, 1984, the ECIL law was amended to include export performance requirements as one
of its criteria for eligibility. Since this requirement was not in effect when the grants
relevant to the period for which we are measuring benefits in this investigation were
received, we have treated this program as a domestic bounty or grant.
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 (for financing of 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 with a benchmark,
that is, a comparable commercial loan. We included in our calculations all loans for which DSW
paid interest during the review period. For our benchmark, we used the 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.
1. Export Production Fund. Preferential financing is provided in Israeli shekels and in certain
foreign currencies to exporters through the Export Production Fund (EPF) 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.
During the period of review DSW received EPF loans in shekels at a quarterly interest rate of 10.5
percent. In our preliminary determination, we annualized the EPF quarterly interest rate of 10.5
percent and compared that number with our benchmark which was the effective annual cost of
overdraft accounts published by the Bank of Israel.
We have changed our calculation to take into account the fact that DSW pays interest on its EPF
loans at the end of each 3 months and not on an annualized basis. Accordingly, we are now using as
the basis of our benchmark the average quarterly cost of overdraft accounts published by the Bank
of Israel. This figure includes the interest rate, commitment fees, management fees, and
penalties.
We determined the benefits from these loans based on a comparision of the cost of the EPF
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 caluclated a bounty or grant in the amount of 1.966 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 (ESF). 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.
Exporters are required to pay the Euro-currency interest rate plus a premium on loans obtained
through the ESF. 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.
In our preliminary determination, we used as the best available benchmark for dollar loans the
sum of the interest rate and the applicable surcharge, in dollar terms, available in Israel on
non-directed United States dollar credit. We obtained these figures from Bank of Israel
statistics. We were not able to obtain the interest rates available in Israel on non-directed
credit in other foreign currencies. For these loans, we used as the benchmark the 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.
Based on our verification, we have determined that during the review period, non-directed foreign
currency credit liable to surcharge is not the most appropriate commercial method of foreign
currency borrowing for large companies since it represents only a narrow segment of foreign
currency borrowing that is not commonly utilized by Israeli companies. At verification, we
determined that Israeli companies were able to borrow in the international financial markets at
Euro rate plus an appropriate premium. Consequently, we are using as our foreign currency
benchmark the Euro rate in effect on the date DSW obtained its foreign currency loans plus a spread
of 2 percent which we determined to be the most representative premium paid by Israeli
companies during the review period.
*36124
We calculated the benefit of the loans by comparing the appropriate benchmark to the preferential
rates of interest obtained by DSW on its ESF 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 0.41 percent ad valorem.
3. Imports-for-Exports Fund. Through the Imports-for-Export 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 3/8.
As with the ESF, we have amended the benchmarks used in the preliminary determination to
represent the interest rate on comparable commercial loans. We used as our benchmark for this
fund the foreign currency benchmark 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 0.083 percent ad valorem.
II. Programs Determined Not To Confer Bounties or Grants
We determine that bounties or grants are not being provided to DSW under the following programs:
A. Exchange Insurances 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 risk 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 appreciation of the consumer price index.
IFTRIC structured the EIS program so that it contains certain fundamental economic principles.
First, IFTRIC designed EIS to be self-balancing. 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 depreciation is higher than the change in the consumer price index, EIS requires
the exporter to compensate IFTRIC. Second, IFTRIC set up a premium schedule and compensation
formula based on economic projections. Based on these projections, IFTRIC established separate
premium
schedules for three areas: (1) The U.S., (2) the European Communities, and (3) the rest of the world.
Based on the economic projections, the premium rate for exporters of merchandise to the U.S. was
the highest. Third, IFTRIC made EIS insurance optional. Those Israeli exporters who chose to
participate in the program could choose EIS coverage for all three areas or for all areas other than
the U.S. This policy was established due to pressure from exporters who felt that premiums to the
U.S. were higher than the risks warranted. Lastly, the EIS is required to pay a premium to the
government of Israel which acts as a reinsurer.
Under paragraph j of the Annex to the Agreement on Interpretation and Application of Articles VI,
XVI and XXIII of the General Agreement On Tariffs and Trade (the Subsidies Code), an export
subsidy is
[t]he provision by governments (or special institutions controlled by governments) . . . of
insurance or guarantee programmes against increase in the costs of exported products or of
exchange risk programmes, at premium rates, which are manifestly inadequate to cover the
long-term operating costs and losses of the programmes.
Under this standard, the premiums must be manifestly inadequate to cover long-term operating
costs and losses.
As described above, EIS is structured to be self-balancing. It is designed to prevent losses and take
away any gains that arise because of non-commensurate
movements in the domestic inflation rate and the currency appreciation/depreciation rate. Under
the compensation formula, if inflation equals devaluation, then the insured receives no payment
under EIS. If inflation is greater than devaluation, then the insured is paid. If inflation
is less than devaluation, the insured pays EIS.
In the long run, it would not be expected that either of the latter two situations would be sustained
since movements in inflation rates and exchange rates are generally correlated. With floating
exchange rates, the adjustment would be more rapid. With fixed rates, the rate of adjustment would
depend on how often and to what extent the government of Israel devalues the currency. Even
with fixed rates, it is unlikely that an overvalued or undervalued currency could be maintained
indefinitely.
Thus, in the long term, it should be expected that the inflation rate and the devaluation rate will
correspond. As a result, a scheme such as EIS should operate at about the break even level over the
long-term. Any premiums paid would be necessary only to cover operating costs.
In the short-run period examined, EIS has not attained the break-even point. While actual loss
figures are only available for the first six months of operation, there are indications that the
program has suffered continuing losses. However, the program has been in operation only for a
short period and it is impossible to ascertain, on the basis of the data available, whether the
extent of the losses make the premiums manifestly inadequate to cover long-term losses.
For these reasons, we are unable at this time to determine whether the premiums are manifestly
inadequate to cover long term operating costs and consequently do not currently find this
program to confer a countervailable benefit. However, we will continue to review the financial
performance of this program during our first review under section 751 of the Act. If at this time
sufficient information is available to permit a judgment as to whether the premiums are adequate
to meet long-term operating costs, and if that judgment results in a conclusion that the program
confers a bounty or grant, countervailing duties to offset the bounties or grants will be
issued on all entries of the subject merchandise from the effective date of the initial suspension of
liquidation in the investigation.
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
*36125
amounts to 7 percent of payroll. The extent of non-payment depends on the ratio between
"approved" assets and total assets.
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.
We determine that non-payment of the employer's tax as a result of the 1980 amendment is so
broad that the 1980 amendment is no longer a selective exemption from a tax. Further, 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.
C. 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 charges on bulk (grain) 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.
We verified that there are three Israeli bulk carriers: Zim Navigation Company Ltd. (Zim), El Yam
Ships Ltd. (El Yam), and Rosenfeld Company (Rosenfeld), the most recent entrant in the bulk
freight business. While Zim is partially owned by the government of Israel, El Yam and
Rosenfeld are both privately owned. Although unrelated, Zim and El Yam have an informal
agreement to share their bulk freight business, including grain and potassium chloride
shipments. We verified that Zim and El Yam negotiated their grain contracts with the Government
Trade Administration (GTA) on a commercial basis. El Yam's and Zim's rates to carry grain were
substantially lower than the rates charged by U.S. carriers that also ship grain to Israel for the
GTA. While the petitioners have submitted a chart showing that some shippers to the Middle East
carry grain at rates generally lower than Zim and El Yam carry grain to Israel, this chart is not
dispositive. The risk associated with blacklisting of shippers which carry cargo to Israel, the
differences in the size and efficiency of the ships, and the difference in the distances to the port
destinations are factors which, alone, could account for the differences in rates. Further, even
putting these factors aside, the differences in rates are not so large as to warrant the conclusion
that the government of Israel was paying high grain shipment rates to Zim or other Israeli
shippers to cross- subsidize lower potassium chloride shipment rates.
We also verified that Zim and El Yam negotiate their contracts directly with DSW to carry
potassium chloride. These negotiations are on a commercial basis, with Zim and El Yam using
their deviation costs as a basis for negotiations. The government's participation in the negotiations
between DSW and El Yam and Zim was limited to the government securing: (1) An assurance from
the two shippers that the back-haul of potassium chloride would not interfere with the existing
obligations of the shippers to carry grain on the front-haul, and (2) more favorable terms from the
shippers for the shipment of grain.
Lastly, we verified that during the review period DSW paid a non-Israeli shipper a lower rate to
carry potassium chloride than the rate charged by Zim and El Yam. DSW has also provided
evidence of lower spot market rates which it had received but did not utilize, preferring instead to
stick with reliable long-term contracts.
For these reasons, we conclude that the shipping rates to carry potassium chloride paid by
DSW to Zim and El Yam are set on a commercial basis and that the government is not paying higher
grain shipment rates to cross-subsidize lower potassium chloride shipment rates.
Consequently, ocean freight rates do not constitute a countervailable benefit.
D. Preferential Wharfage Charges
Petitioners allege that the "Israeli Ports Dues and Charges" schedule is designed to subsidize exports
by disproportionately raising wharfage revenue from imports and vastly undercharging exports.
The Knesset established the Israel Port Authority (IPA) by Port Authority Law 5721-1961 as a
self-supporting enterprise to build and operate the ports. The "Israeli Ports Dues and Charges" is a
general schedule of port charges which applies to all users of the port who do not have a separate
contract with IPA. DSW, however, is one of two companies that has used their own monies to build
port facilities for its own use at Ashdod. Consequently, DSW has a separate contract with IPA and
the general schedule of port charges does not apply to DSW. We verified that DSW pays both rental
and operational charges to IPA. The basis of DSW's rental charges to IPA is a 1967 appraisal of the
land value which is linked to the cost of building index. We also verified that DSW pays operational
charges on a cost-plus basis. Consequently, we conclude that this program does not constitute a
countervailable benefit to DSW since DSW pays rental and operational charges on a commercial
basis.
III. Program Determined Not To Be Used
We determine that the following program was not used by DSW:
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.
"Approval 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. The program is administered by the Investment Center. Even though DSW had profits,
DSW did not receive benefits from this program during the period of review. Under Israeli tax laws,
DSW's tax liability is consolidated with its parent, Israel Chemicals Ltd. (ICL). Since ICL had
losses, DSW paid no taxes. Consequently, DSW did not use the benefit of a reduced corporate
income tax.
IV. Programs Which Have Been Terminated
A. Property Tax Exemption on Buildings
The petition 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 buildings. The petition states that this program was repealed by
Amendment 17 of the ECIL on August 1, 1978.
The last year that DSW used this program was 1980. The property tax on buildings was abolished
for all taxpayers on April 1, 1981.
*36126
B. Property Tax Exemption on Equipment
The petition alleges that the government of Israel provides a 10 year exemption from payment
of 1/6 of the property taxes on equipment approved prior to repeal of this program. The program
was repealed by Amendment 17 of ECIL on August 1, 1978. The last year for which DSW used this
progream was 1980. This program was abolished for all taxpayers as of April 1, 1981.
Petitioners Comments
Comment 1: The four grades of potassium chloride produced by all of DSW's plants are
fungible, "like" products not only to each other but to the grades produced and sold in the United
States. Based on the chemical and physical data provided by DSW, there is no obvious unresolvable
technical reason why the fine grade potassium chloride product of the Makleff plant is not
suitable for sale in the United States market either as is or as a compacted granular
grade. Thus, the ECIL grants relating to the Makleff plant are countervailable.
DOC Position: After reviewing all the technical evidence on the record, we find that DSW cannot sell
potassium choloride produced by the Makleff plant to the U.S. Although all grades of potassium
chloride are essentially chemically fungible, there uses in the market place are largely
grade-specific. The Makleff plant primarily produces a fine grade of potassium chloride and
there is persuasive evidence that this product technically is not saleable in the United States.
Further, there is no evidence on the record to refute DSW's contention that the Makleff fine grade
has not been sold as is or as a compacted granular grade in the United States market. Accordingly,
we determine that ECIL grants for the Makleff plant are not countervailable because they do not
benefit the production of exports of potassium chloride to the United States. Since the
technical evidence supporting this position is proprietary information we are unable to elaborate
on our position in this notice.
Comment 2: The ITC determined that potassium chloride is a "like product." In determining in
its preliminary determination that grants for the construction of the Makleff plant are not
countervailable, it was improper for the Department to conclude that Makleff produced potassium
chloride is excluded from the concept of "like product."
DOC Position: As stated above, the Department excluded these grants because the Makleff
produced potassium chloride is not, and cannot be, sold to the U.S. The definition of a "like
product" is a criterion the Department must consider in determining "interested party" status. The
concept of "like product", however, has no bearing on our determination of which ECIL grants to
include in our calculations of countervailable benefits.
Comment 3: The preliminary determination which did not treat the grants relating to the Makleff
plant as countervailable is inconsistent with Certain Steel Products from Italy, 47 FR 39356 (Sept.
7, 1982) and Congressional intent.
DOC Position: Certain Steel Products from Italy is inapposite. Unlike the present case, the steel
products from both factories could be sold to the United States. There were no technical difficulties
prohibiting the sale of steel from either factory to the U.S. The comment about Congressional intent
is irrelevant to this issue. A countervailable practice must be conferred with respect to the
manufacture, production, or exportation of a class or kind of merchandise imported into the
United States. As stated above, we are satified that potassium chloride produced by the
Makleff plant is not, and cannot be, sold to the U.S.
Comment 4: Even if potassium chloride produced in the Makleff plant cannot be sold to the
U.S., it is sold to Europe and other markets. Sales to markets
other than the U.S. can release output from other DSW plants for sale in the U.S. Thus, the grants to
Makleff indirectly subsidize the sale of potassium chloride in the U.S. market.
DOC Position: There is no evidence on the record that the grants to Makleff indirectly subsidize the
sale of DSW's potassium chloride in the U.S. The evidence shows the DSW has penetrated the
European market with potassium chloride produced by the Makleff plant. However, the
amount of granular or standard grades sold to Europe had remained fairly constant. The record
does not show that DSW has substituted fine for granular or standard grades in the European
market.
Comment 5: The Department should (1) allocate ECIL grant benefiting all DSW assets put in service
after 1980 over 5 years (based on IRS ACRS guidelines) and (2) allocated ECIL grants put in service
prior to 1981 over 9.5 years (based on IRS Class Life Asset Depreciation Range System (ADRS)
(Rev. Prac. 77-10)) guidelines.
DOC Position: We have allocated ECIL grant over 11 years based on the average depreciation range
for assets used in the manufacture of chemicals and allied products as reflected by category 28 of
the 1977 ARDS guidelines. The use of this table is consistent with our Subsidies Appendix
published at 49 FR 18006, 18016 (April 26, 1984). The fact that U.S. taxpayers may elect
accelerated depreciation or may use the 1983 IRS table for assets put into service prior to
1981 is not determinative. As stated in the Subsidies Appendix, "we have concluded that there are
no economic or financial rules that mandate the choice of an allocation period." The ITA has
selected the 1977 IRS guidelines as the standard to apply.
Comment 6: With regard to the calculation of the weighted cost of capital, the Department should
use actual interest rates incurred by DSW to calculate the marginal cost of debt. Also, the
Department should include dividends paid on shares as part of the marginal cost of equity.
DOC Position: We concluded that DSW's long-term loan rates were not suitable as benchmarks for
the marginal cost of debt because they contained restrictive terms. For reasons more fully set out
in the Subsidies Appendix, we cannot calculate a company's actual marginal cost of equity. As a
surrogate, we have used the company's marginal cost of debt, plus the difference between the
national average rate of return on equity and the national average cost of debt. Further, the
company specific refinements are not possible because of the aggregate (i.e. nationwide) nature of
the figures which adjust the marginal cost of debt to the marginal cost of equity.
Comment 7: Petitioners suggest that the Department's allocation formula for grants lacks a
compounding term in the discount rate terms. Moreover, they recommend a different valuation
formula which would measure the benefit to the recipient by calculating the future value of the
grant.
DOC Position: We do not believe that the allocation formula should include a compounding term.
The formula used by ITA is designed to ensure that the present value (in the year of grant receipt)
of the amounts allocated over time does not exceed the face value of the grant. In this way, we are
consistent with the Act and our international obligations in that the amount countervailed will not
exceed the total net subsidy.
This result will not necessarily be obtained using the petitioner's methodology. Only if the discount
rate remains constant throughout the allocation period will the petitioners' methodology lead to
the present value of
*36127
the amounts countervailed (measured in the year of receipt) being equal to the grant. We note that
were we to apply their formula (using the same discount rate throughout), the effect would be to
allocate a disproportionate share of the benefit to later years of the allocation period. This result,
while not unreasonable, has been rejected in favor of a declining balance methodology that
allocates higher benefits to those years immediately following the receipt of the grant.
Comment 8: ECIL grants are export subsidies.
DOC Position: The ECIL program was changed in January 1984 to include as one of its criteria
certain export performance requirements. Since all the grants relevant to our investigation were
received prior to 1984, we have treated those ECIL grants as domestic subsidies.
Comment 9: The appropriate benchmark for determining the subsidy element for the export credit
funds is the actual commercial borrow experience of DSW. If DSW's credit experience is
unavailable, credits denominated in U.S. dollars and French francs should be measured against
LIBOR plus an appropriate premium for foreign currnency loans. For Israeli shekel loans, the
appropriate benchmark should be a reasonable positive real rate of return plus the increase in the
CPI.
DOC Position: For short-term loan benchmarks, the Subsidies Appendix provides that we will use
the most appropriate national average commercial method of short-term financing, rather than
company specific experience. For reasons elaborated in that appendix we agree that foreign
currency loans should be measured against interest rates offered in the international financial
market.
Comment 10: Since 1978, the U.S. has taken the position before GATT that export inflation
insurance schemes are subsidies. The EIS exchange risk program is a variant of these subsidies.
DOC Position: The standard under the GATT for whether such schemes constitute subsidies, as set
forth above. is whether premiums collected are manifestly inadequate to cover long-term
operating costs and losses. Available information does not permit us to reach that conclusion in
the present investigation.
Comment 11: With regard to the EIS program, the Department should segregate
long-term operating costs of IFTRIC from those to a specific insurance product line.
DOC Position: For the purposes of this investigation, based upon all the facts available, we have
done so. Whether this would be appropriate in future cases will be determined upon the facts of
those cases.
Comment 12: The gross subsidy from EIS should be the difference between the lag in devaluation of
the skekel behind inflation. The net subsidy is the difference between the gross subsidy and the
premiums.
DOC Position: Since we did not determine that the EIS program is countervailable at this time, we
do not have to reach the issue of how to measure the value of the alleged benefit.
Comment 13: Under Bethlehem Steel corp. v. United States, 6 CIT ------,. Slip Op. 84-67, June 8,
1984, the preliminary determination that the exemption from the employer's tax is not
countervailable because it is generally available is erroneous as a matter of law.
DOC Position: In Bethlehem, the court's broad opinion that the Department cannot apply a rule that
"generally available" benefits are not subsidies is dictum. The Department continues to interpret
the language in section 771(5)(B) of the Act that the term subsidy includes "domestic subsidies, if
provided or required by government action to a specific enterprise or industry, or group of
enterprises or industries . . ." to mean that benefits broadly or
"generally " available do not constitute countervailable bounties or grants. In this case we
determined that the exemption from the tax program is "generally available." Further, our position
does not conflict with the holding of Bethlehem which states that tax laws become bounties or
grants to the taxpayer only if the elimination or reduction of the tax is selective. In this case, the
1980 amendment to the tax law was so broad as to cover nearly every sector of the economy.
Consequently, the program no longer operates as a selective exemption from the employer's tax.
Comment 14: The amount of countervailable benefit attributable to the corporation income tax
program is the difference between the ordinary 61 percent and the special 30 percent rate linked to
ECIL benefits. Further, the Department should examine intra-corporate transfers of funds.
DOC Position: DSW's eligibility under the ECIL program to pay a reduced corporate income tax rate
is an insufficient basis to conclude that DSW has received a countervailable benefit. Where DSW
paid no tax because of its combined return with its parent company, it has not, in fact, received the
benefit of a lower tax rate. We are not concerned with intra-corporate transfers of funds but rather
with corporate income taxes paid by DSW througy ICL to the government.
Comment 15: The government is subsidizing potassium chloride shipments to the extent it is
paying more than $17.00 per MT for the grain haul to
Israel. The facts on the record indicate that Zim and El-Yam carry both potassium chloride
and grain, the contracts for import and export are between these carriers and the government
and no others, and the rates for import carriers of grain to Haifa are contingent upon a reciprocal
agreement for export charter of potassium chloride from Ashdod. When the GOL exclusively
negotiates all grain import rates and the shipment of potassium chloride and phosphates are
linked in reciprocal contracts with all carriers, there are no market rates by leg of voyage. Thus, the
Department should look to surrogate rates supplied by the petitioner to determine market rates.
DOC Position: See our discussion of these issues under Section II.C. of this notice.
Comment 16: The "Israeli Port Dues and Charges" schedule is designed to subsidize exports in
general and potassium chloride in particular. Further, the Department should analyze the
contract between DSW and the Israeli Port Authority to determine the extent to which the land and
equipment lease payments have actually been adjusted through exchange rate or consumer price
linkages to reflect the current market value of the lease services to DWS.
DOC Position: The "Israeli Port Dues and Charges" schedule does not apply to DSW. We verified that
the rental charges paid by DSW are linked to the cost of building index and that the operation
charges are paid on a cost plus basis.
Respondent's Comments
Comment I: It was inappropriate for ITA to consider as countervailable the grants for the
constructin of ponds and dikes relating to the Makleff plant. DSW's pond capacity prior to the
construction of the Makleff plant was more than adequte to produce sufficient raw material for the
hot leach and flotation plants. But for the construction of the Makleff plant, the new ponds would
not have been constructed. If ITA insists on including grants to Makleff-related ponds, dikes, and
canals, ITA should calculate the benefit by dividing the grant benefit by total sales and not
excluding exports of the Makleff product.
DOC Position: We have countervailed the grants for the construction of ponds
*36128
and dikes relating to Makleff because those ponds and dikes do not exclusively benefit the Makleff
plant. Rather, raw material used for the production of potassium chloride in the hot leach and
flotation plants also pass through those ponds. The larger capacity of the ponds increases the
efficiency of the production of raw material for all potassium chloride produced by DSW. We
therefore have included in our calculations those portions of the Makleff grants used to construct
canals, ponds, dikes and calculated the benefit by multiplying the grants by the proportion that
potassium chloride from the hot leach and flotation plants represent of total potassium
chloride production and allocating this amount over the sales of the hot leach and
flotation plants.
Comment 2: ITA's allocation of grants over 10 years is inappropriate. Although DSW's production is
a type of mining, it is not the type envisioned by the IRS depreciation guidelines. If ITA uses the
IRS guidelines, grants for land improvements should not be spread over the life of the equipment
when the grants were specifically tied to land improvements and when the IRS guidelines provide
specifically that land improvements shall be spread over 20 years.
DOC Position: As discussed previously, we have concluded that there are no economic or financial
rules that mandate the choice of an allocation period and we have selected the 1977 IRS guidelines
as the standard to apply. Consistent with the Subsidies Appendix, we have selected Category
28-Chemicals and Allied Products which reflects the type of business activities involved in DSW's
manufacture of potassium chloride.
Comment 3: The preliminary determination vastly overstates the benchmarks used to calculate the
benefits from the export funds. DSW's own experience should be used as a benchmark. Since DSW is
one of the most efficient and largest revenue producing companies in Israel, it is unfair,
inappropriate, and violative of the statute to use benchmark rates which include small and
unprofitable companies.
DOC Position: As explained more fully in the Subsidies Appendix, we use as our benchmark for
short-term financing the most appropriate national average
commercial method of short-term financing, instead of company-specific experience.
Comment 4: The benchmark for export production fund loans should be the quarterly (not
annualized and not compounded) shekel overdraft rate. Further, the overdraft rate includes
components not attributable to export production fund loans which are term loans. Since ITA is
using the overdraft as proxy for a term loan, it must eliminate those elements of the revolving
credit not attributable to term loans. Those elements are a negotiated commitment fee for the
credit line, penalty interest for exceeding the credit line, and a management fee.
DOC Position: We agree that the benchmark for export production fund loans should be the
quarterly shekel overdraft rate. In choosing a benchmark, we are seeking the national average
commercial method of short-term shekel financing. The benchmark selected for the EPF is the
average cost of overdraft accounts. Since the management fees, committment fees and penalty
interest are components of the national average experience of overdraft borrowing, they are
properly included in the benchmark.
Comment 5: With regard to the benchmark used in the preliminary determination for the Export
Shipments Fund and the Import-for-Export Fund, non-directed foreign currency credit liable to
the surcharge is unrepresentative of any national average because it represents only a narrow
segment of foreign
currency borrowing, is highly restrictive, and includes a surcharge intended to discourage
borrowing. Further, ITA's addition of the surcharge to the Bank of Israel figure used as the
benchmark double-counted the surcharge. Lastly, the Bank of Israel demonstrated that
commercial loans exist which should be used as a benchmark. Companies can discount accounts
receivable at the Euro rate plus a certain percent.
DOC Position: We agree and have modified our foreign currency benchmarks accordingly.
Comment 6: The EIS is an internationally accepted type of insurance and does not provide a
subsidy.
DOC Position: As stated above, section 771(5)(B) of the Act incorporates the Annex to the
Subsidies Code into U.S. law. Paragraph j of that Annex sets forth the standards for determining
when exchange rate insurance schemes, such as EIS, constitute export subsidies.
Verification
In accordance with section 776(a) of the Act, we verified all information used in making our final
determination. During verification we followed normal procedures, including meetings with
government officials, inspection of government documents and on-site inspection of the records
and operations of DSW.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we directed 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 on or after June 29, 1984. The Customs Service shall
continue to require a cash deposit or the posting of a bond equal to the net bounty or grant for each
such entry of this merchandise from Israel in the amount of 3.64 percent ad valorem.
Administrative Procedures
The Department has afforded interested parties an opportunity to present oral views in accordance
with its regulation (19 CFR 355.35). In accordance with the Department's regulations (19 CFR
355.34(A)) timely written views have been received and considered.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our
determination. In addition, we are making available to the ITC all non- privileged and
non-confidential information relating to this investigation. We will allow the ITC access to all
privileged and confidential information in our files, provided the ITC confirms that it will not
disclose such information, either publicly or under an administrative protective order, without the
written consent of the Deputy Assistant Secretary for Import Administration.
The ITC will make its determination whether these imports are materially injuring, or threatening
to materially injure, a U.S. industry within 45 days of the publication of this notice.
If the ITC determines that material injury or the threat of material injury does not exist, this
proceeding will be terminated and all estimated duties deposited or securities posted as a result of
the suspension of liquidation will be refunded or cancelled. If however, the ITC determines that
such injury does exist, we will issue a countervailing duty order, directing Customs officers
to assess a countervailing duty on potassium chloride from Israel entered, or
withdrawn from warehouse, for consumption after the suspension of liquidation, equal to the net
bounty or grant amount indicated in the "Suspension of Liquidation" section of this notice.
This notice is published pursuant to section 705(d) of the Act (19 U.S.C. 1671d(d)).
*36129
Dated: September 10, 1984.
William T. Archey,
Acting Assistant Secretary for Trade Administration.
[FR Doc. 84-24382 Filed 9-13-84; 8:45 am]
BILLING CODE 3510-05-M