51 FR 37050

                                   NOTICES

                           DEPARTMENT OF COMMERCE

                                  [C-508-064]

     Fresh Cut Roses From Israel; Preliminary Results of Countervailing Duty
     Administrative Review and Tentative Determination Not To Revoke Countervailing
                                 Duty Order

                             Friday, October 17, 1986

*37050

AGENCY: International Trade Administration/Import Administration, Department of
Commerce.

ACTION: Notice of Preliminary Results of Countervailing Duty Administrative Review and
Tentative Determination Not to Revoke 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, 1981 through September 30, 1984 and 10 programs.

As a result of the review, the Department has preliminarily determined the total bounty or grant to
be 12.03 percent ad valorem for the period October 1, 1981 through September 30, 1982, 13.88
percent ad valorem for the period October 1, 1982 through September 30, 1983, and 28.72 percent
ad valorem for the period October 1, 1983 through September 30, 1984. We also tentatively
determine not to revoke the countervailing duty order. We invite interested parties to
comment on these preliminary results.

EFFECTIVE DATE: October 17, 1986.

FOR FURTHER INFORMATION CONTACT: Cynthia Gozigian 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 January 6, 1984, the Department of Commerce ("the Department") published in the Federal
Register (49 FR 

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924) 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). We began this review of the
order under our old regulations. On October 2, 1985, after the promulgation of our new
regulations, the petitioner, Roses, Inc., requested in accordance with section 355.10 of the
Commerce Regulations that we complete the administrative review of this order. We published the
new initiation on November 27, 1985 (50 FR 48825). The Department has now conducted that
administrative review in accordance with section 751 of the Tariff Act of 1930 ("the Tariff Act").

Scope of Review

Imports covered by the review are shipments of Israeli fresh cut roses. Such merchandise is
currently classifiable under items 192.1810 and 192.1890 of the Tariff Schedules of the United
States Annotated.

The review covers the period October 1, 1981 through September 30, 1984 and ten programs: (1)
The ECIL; (2) Government-guaranteed Minimum Price Program; (3) preferential short-term
financing; (4) government funding of AGREXCO; (5) cash payments to growers for greenhouses; (6)
cash payments to 
packing houses; (7) cash payments from the Export Promotion Fund; (8) fuel grants to rose
growers; (9) long-term loans to AGREXCO; and (10) a capital fund for AGREXCO.

Analysis of Programs

The Israeli government did not respond to the Department's questionnaires covering the review
period. Therefore, we calculated the benefits using the best information available. Sources include
information collected during previous administrative reviews, published documents, the final
affirmative countervailing duty determination on potassium chloride from Israel (49 FR
36122, September 14, 1984) ("the potash final determination"), and the preliminary determination
on oil country tubular goods from Israel (51 FR 21201, June 11, 1986) ("the OCTG preliminary
determination").

(1) ECIL 

The purpose of the Encouragement of Capital Investment Law ("the 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. To become eligible for these benefits, individual enterprises must obtain government
approval for each investment project.

From previous reviews, we know that the Israeli government has not approved rose growers for
ECIL benefits. However, we found that the government had approved ECIL benefits for two rose
exporters and eight packing houses. These benefits include:

(A) Ten-Year Exemption From 1/6 of the Property Tax on Stock and Machinery/Equipment

The Israeli government repealed this provision in 1978, but those enterprises approved prior to
repeal continued to receive benefits during the review period.
We have no information on the value of equipment for approved enterprises during the review
period. Therefore, we used as the best information available the rate calculated for the previous
administrative review. On this basis, we preliminarily determine the benefit from this provision to
be 0.01 percent ad valorem for the review period.

(B) Investment Grants Based on the Cost of Property and/or Machinery/Equipment for an
Approved Project

Seven enterprises involved in exporting roses received grants under these provisions
beginning in 1977. We have information on the grants received only up to the 1979-80 growing
year (i.e., October 1, 1979 through September 30, 1980). To estimate the amount of grants
provided during the growing years under review, we used as the best information the highest
aggregate grant amount provided to any of the seven companies in any single previously examined
period, i.e., 1979-80.

In computing the benefit from the grants, we used the grant methodology outlined in the Subsidies
Appendix to the notice of "Final Affirmative Countervailing Duty Determination and
Countervailing Duty Order" on certain cold-rolled carbon steel flat-rolled products from
Argentina (49 FR 18006, April 26, 1984) ("the Subsidies Appendix"). We allocated the grants over
ten years, the average useful life of agricultural assets according to the "Asset Guideline 
Classes" of the U.S. Internal Revenue Service. For a discount rate, we used as the best 
information available a rate we determined for the seven companies in the 1979-80 review: 
The average London Interbank Offer Rate ("LIBOR") prevailing during the growing year in 
which the grant was received, plus five percentage points.

We multiplied the benefit for each growing year by the ratio of total rose to flower exports and
divided the result by the total estimated rose 
exports of that growing year. Based on these calculations, we preliminarily determine the benefit to
be 0.57 percent ad valorem for the 1981-82 period, 0.67 percent ad valorem for the 1982-83
period, and 0.72 percent ad valorem for the 1983-84 period.

(C) Preferential Accelerated Depreciation, and

(D) Income Tax Reductions and Exemptions

Section 42 of the ECIL provides that approved enterprises may depreciate: (1) Machinery and
equipment at double the normal rate for five years; and (2) buildings at four times the normal rate.
The law states that the accelerated depreciation is available only to approved enterprises. Another
ECIL provision allows income tax reductions and exemptions for approved enterprises.
We used as the best information available the rate calculated for both provisions during the
1979-80 administrative review. We preliminarily determine the benefit from these provisions to be
0.26 percent ad valorem for the review period.

(E) "Drawback" Grants

Section 40E of the ECIL provides that the owner of an approved enterprise is entitled to a drawback
grant with respect to taxes on investments and investment expenditures. Grants are based on a
fixed percentage of the investment. From previous Israeli government responses we know that in
1980 one packing house, Bickel, had received an award. The ECIL project approvals of the other
packing houses stated that they were not eligible to receive these grants. Because of the infrequent
use of this program, we have assumed there were no new grants during any year covered by the
current review.

We calculated the benefit from this program in accordance with the grant methodology outlined in
the Subsidies Appendix, allocating the grants over ten years and using the same discount rate as
described for the property investment grants. We multiplied the benefit for each growing year by
the ratio of total rose to flower exports and divided the result by the total estimated rose exports
for that growing year. On this basis, we preliminarily determine the benefit to be 0.004 percent ad
valorem for the 1981-82 period and 0.003 percent ad valorem for the 1982-83 and 1983-84
periods.

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(2) Government-Guaranteed Minimum Price Program 

The Government of Israel provides funds under this program as year-end, lump sum
payments. The payments are based on claims submitted to the Ministry of 
Agriculture after the close of the growing season.
We used as the best information available the rate for cash deposits of estimated
countervailing duties from our last administrative review. On this basis, we preliminarily
determine the benefit to be 0.38 percent ad valorem for the period of review.

(3) Preferential Short-Term Financing 

During the period of review, the Bank of Israel 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 (tied to accounts receivable). Because only exporters are eligible for these
loans, we preliminarily determine that they are countervailable to the extent that they are
provided at preferential rates. We allocated the benefits from the following three funds over total
rose exports to all makerts:

(A) EPF

Under the Export Production Fund ("EPF"), the Bank of Israel provides loans to exporters to
enable them to finance export production. During the review 
period, EPF financing was available only in Israeli shekels. In the potash final determination, we
found that the preferential rate under the EPF was 42 percent. As the best information available, we
have applied this rate to the review period.

We based our commercial benchmark on the Bank of Israel's quarterly rates reflecting the cost
of overdraft accounts (see, potash final determination). These rates include commitment fees,
management fees and penalties. The differential between our commercial benchmark rate and the
quarterly non- commercial interest rates is 59.50 percent for the 1981-82 period, 65.00 percent
for the 1982-83 period, and 183.00 percent for the 1983-84 period.

The Bank of Israel determines maximum eligibility (i.e., a line of credit) for these loans using a
"rate-of-credit" formula. To rate-of-credit formula is based on three factors: A value-added rate, a
rate-of-financing ratio based on the dollar/shekel exchange rate, and a turnover rate. In our
administrative review of the 1979-80 period, we found that rose exporters used the entire amount
of credit available to them under this formula.

The calculate the benefit, we multiplied the annual interest rate differential by the rate-of-credit
formula. On this basis, we preliminarily determine the benefit to be 7.14 percent ad valorem for the
1981-82 period, 7.80 percent ad valorem for the 1982-83 period, and 21.96 percent ad valorem for
the 1983-84 period.

In July 1985, the Bank of Israel discontinued EPF financing in Israeli shekels. EPF loans are
now available in U.S. dollars. However, we found in our OCTG preliminary determination that the
preferential dollar rates are company-specific and thus not relevant to the firms covered by this
review. Therefore, as the best information available, we have used the benefit from the 1983-84
period to establish the rate of estimated countervailing duties for cash deposit purposes.

(B) IEF

Under the Imports-for-Export-Fund ("IEF"), exporters may receive dollar- denominated loans in
order to finance imported materials used for export production. We used as our dollar benchmark
an interest rate we found in the OCTG preliminary determination: The three-month LIBOR plus two
percentage points.

We found in the potash final determination that exporters obtain financing under this fund at an
interest rate equal to sixty percent of the twelve-month LIBOR. As the best information available,
we consider this rate to be the average preferential interest rate during the review period. We
calculated the benefit by multiplying the rate of eligibility (based on another Bank of Israel
rate-of-credit formula) by the differential between the preferential interest 
rate and the commercial benchmark.
On this basis, we preliminarily determine the benefit from this program to be 0.07 percent ad
valorem for the 1981-82 period, 0.04 percent ad valorem for the 1982-83 period, and 0.05 percent
ad valorem for the 1983-84 period.

(C) ESF

Under the Export Shipments Fund ("ESF"), the Bank of Israel provides loans to exporters to
enable them to extend credit in foreign currency to their foreign customers. Financing is granted
after shipment of the goods, and for not more than six months. The maximum eligibility rate under
this fund is 90 percent of the shipment value. Since fresh-cut rose exporters have not provided
information concerning their use of this fund during the review period, we have assumed that they
received the maximum amount and that all loans were for six months.

ESF loans are dollar-denominated. We used as our commercial benchmark for this fund the dollar
benchmark described under the IEF. We found in the potash final determination that exporters
obtain financing under this fund at an interest rate equal to the three-month LIBOR plus 1.5
percentage points. On this basis, we preliminarily determine the benefit from this program to be
0.005 percent ad valorem for the 1983-84 period.

(4) Government Funding of AGREXCO 

The Ministry of Agriculture provided AGREXCO with funds to finance the expansion of its air freight
terminal at Ben Gurion Airport in 1978-79 and 1979-80. The Government of Isreal maintains that
these funds represented purchases of equity in AGREXCO. However, in our 1979/80 review, the
Israeli government did not provide sufficient evidence to support this contention. We therefore
treat the funds as grants. Because of their infrequency, we have assumed that there were no new
grants during any growing years covered by the review.

We calculated the benefits using the grant methodology outlined in the Subsidies Appendix,
allocating the grants over 10 years and using the same discount rate as described for the property
investment grants. We multiplied the benefit for each growing year by the ratio of total rose to
flower exports and divided the result by the total estimated rose exports of the corresponding
growing year. Based on these calculations, we preliminarily determine the benefit to be 0.15
percent ad valorem for the 1981-82 period, 0.14 percent ad valorem for the 1982-83 period, and
0.11 percent ad valorem for the 1983-84 period.

(5) Cash Payments to Growers for Greenhouses

The Ministry of Agriculture awards grants to flower growers for the establishment and/or
expansion of greenhouses. We have information only on grants received between 1975 and 1979.
To calculate the benefit for the review period, we allocated all grants received before the growing
years under review in accordance with the Subsidies Appendix, using a 10-year period and the
same discount rate as described for the property investment grants. To estimate the amount of
grants provided during the growing years under review, we used as the best information the
highest aggregate grant amount provided to all growers in any single previous 

*37053

growing year, which was 1978-79. The total benefit for the growing years under review is the sum
of the grants allocated to those years.

We then multiplied the benefit for each growing year by the ratio of total rose to flower exports and
divided the result by the total estimated rose exports of the corresponding year. On this basis, we
preliminarily determine the benefit to be 2.16 percent ad valorem for the 1981-82 period, 2.56
percent ad valorem for the 1982-83 period, and 2.71 percent ad valorem for the 1983-84 period.

(6) Cash Payments to Packing Houses

The Ministry of Agriculture provides grants to packing houses for investments in buildings and
machinery. We have information on grants received between 1977 and 1980. To calculate the
benefit for each growing year, we allocated all grants received before the growing years under
review in accordance with the Subsidies Appendix, using a 10-year period and the same discount
rate as described for the property investment grants. To estimate the amount of grants provided
during the growing years under review, we used as the best information the highest aggregate grant
provided to the growers in any single previous growing year, which was 1977-78. The total benefit
for the growing years under review is the sum of the grant amounts allocated to those years.
We then multiplied the benefit for each growing year by the ratio of total rose to flower exports and
divided the result by the total estimated rose exports of the corresponding year. On this basis, we
preliminarily determine the benefit to be 0.50 percent ad valorem for the 1981-82 period, 0.61
percent ad valorem for the 1982-83 period, and 0.64 percent ad valorem for the 1983-84 period.

(7) Cash Payments From the Export Promotion Fund

The Ministry of Agriculture provides grants to exporters to compensate for 
export expenses such as advertising, merchandising and public relations. Only AGREXCO has
recieved such grants. We have information on grants received by AGREXCO in 1980. The payments
are based on exports of all flowers to specific countries. To calculate the benefit for each growing
year, we allocated all grants received before the growing years under review in accordance with
the Subsidies Appendix, using a 10-year period and the same discount rate as described for the
property investment grants. To estimate the amount of grants received during the growing years
under review, we used as best information the highest grant provided to AGREXCO in any single
previous growing year, which was 1980-81. The total benefit for each growing year under review is
the sum of the grants allocated to those years. We multiplied the benefit for each growing year by
the ratio of AGREXCO's rose to flower exports to the United States and divided the result by the
total estimated rose exports to the United States of that growing year. On this basis, we
preliminarily determine the benefit to be 0.01 percent ad valorem for the review period.

(8) Fuel Grants to Rose Growers

In 1982 the Israeli Institute for Farm Research published a survey on the profitability of rose
prodction in the 1980-81 season. That study stated that the gross income for rose growers included
grants for fuel expenses and 
interest savings on low-cost credit. In the absence of additional information, we assume that this
program is countervailable. We determined the total grant for the 1980-81 growing year by adding
the amout of fuel grants and the amount of interest savings reported by the Israeli Institute for
Farm Research. We treated the interest savings as a grant because we have no information on the
terms, interest rate, or length of the low-cost credit.

To estimate the amount of grants provided during the growing years under review, we used as the
best information the aggregate grant amount provided during the 1980-81 growing year. In our
last review, we expensed the full amount of the 1980-81 grant in the year of receipt. We have now
allocated all grants received during the review period in accordance with the Subsidies Appendix,
using a 10-year period and the same discount rate as described for the property investment grants.
We then divided the benefit for each growing year by the total estimated rose exports of that
growing year. On this basis, we preliminarily determine the benefit to be 0.73 percent ad valorem
for the 1981-82 period, 1.35 percent ad valorem for the 1982-83 period, and 1.81 percent ad
valorem for the 1983-84 period.

(9) Long-Term Loans to AGREXCO

AGREXCO's 1979-80 financial report, obtained during the first administrative 
review, lists long-term loans at interest rates lower than the commercial interest rates for
long-term credit published in the Bank of Israel's 1981 Annual Report. In the absence of other
information, we assume that these loans are countervailable.

To measure the benefit, we used as the best information available the rate calculated during the
first administrative review. We preliminarily determine the benefit to be 0.04 percent ad valorem
for the review period.

(10) Capital Fund for AGREXCO

AGREXCO's 1979 financial statement shows a capital fund created from Ministry of Agriculture
investment grants. In the absence of information concerning the frequency of grants received
under this program, we assume AGREXCO received an equivalent grant during each growing year
covered by the period of review.

In our last review, we expensed the entire amount of the fund in the period of review. We have now
allocated each new grant over 10 years in accordance with the Subsidies Appendix, using the same
discount rate as described for the cost of property investment grants. On this basis, we
preliminarily determine the benefit to be 0.002 percent ad valorem for the 1981-82 period, 0.004
percent ad valorem for the 1982-83 period, and 0.006 percent ad valorem for the 1983-84 period.

Preliminary Results of Review and Tentative Determination Not To Revoke Countervailing
Duty Order

As a result of the review, we preliminarily determine the total bounty or grant to be 12.03 percent
ad valorem for the period October 1, 1981 through September 30, 1982, 13.88 percent ad valorem
for the period October 1, 1982 through September 30, 1983, and 28.72 percent ad valorem for the
period October 1, 1983 through September 30, 1984. The Department intends to instruct the
Customs Service to assess countervailing duties of 12.03 percent of the f.o.b. invoice price
on any shipments exported on or after October 1, 1981 and on or before September 30, 1982, 13.88
percent of the f.o.b. invoice price on any shipments exported on or after October 1, 1982 and on or
before September 30, 1983, and 28.72 percent of the f.o.b. invoice price on any shipments
exported on or after October 1, 1983 and on or before September 30, 1984.
The Department intends to instruct the Customs Service to collect a cash deposit of estimated
  countervailing duties, as provided by section 751(a)(1) of the Tariff Act, of 28.72 percent of
the f.o.b. invoice price on all shipments of Israeli fresh-cut roses entered, or withdrawn from
warehouse, for consumption on or after the date of publication of the final results of this
administrative review.

This deposit requirement shall remain in effect until publication of the final 

*37054

results of the next administrative review.

On April 7, 1986, the Government of Israel requested that we revoke the countervailing
duty order on fresh cut roses from Israel based on its position that the
countervailing duty order is unlawful. The Israeli government argues that because the
Department issued the countervailing duty order under section 303 of the Tariff Act without
an affirmative injury determination by the International Trade Commission ("the ITC"), because
Israel is now a "country under the Agreement" within the meaning of section 701(b) of the
Tariff Act, and because the ITC has stated that it lacks authority to conduct an injury
determination, the Department must revoke the order. The Israeli government holds that since
section 303 provides for the imposition of countervailing duties "except in the case of an
article or merchandise which is the product of a country under the Agreement (within the meaning
of section 1671(b)," section 303 no longer applies to this order. Rather, the Israeli government
believes that since September 18, 1985, when the United States formally recognized Israel as a
"country under the Agreement," section 701 applies to this order and section 701 does not
authorize continuation of this order without an affirmative injury determination by the ITC.
We must look to the statutory scheme to determine whether section 303 orders issued after
January 1, 1980 remain valid without an affirmative injury 
determination once a country acquires "country under the Agreement" status.

In section 104 of the TAA, Congress provided that a request for an injury determination could be
made with respect to orders issued under section 303 on products from "countries under the
Agreement" if the order was in effect on January 1, 1980 (or issued pursuant to litigation instituted
before that date), and the request was made by December 31, 1982. Congress thus set forth specific
requirements for "countries under the Agreement" to obtain an injury test for section 303 orders,
i.e., it created a "window" for requesting injury tests on existing section 303 orders. Congress also
dealt with section 303 orders not yet in existence on January 1, 1980: In section 701 of the Tariff
Act, if provided for an injury test for products from "countries under the Agreement" in
investigations not yet begun; and in section 102 of the TAA, it provided for an injury test for
investigations in progress at the time a country became a "country under the Agreement."
The statutory scheme makes clear that Congress provided an injury test for section 303 orders in
existence on January 1, 1980, the date the TAA became effective and the first date on which a
country could obtain an injury test on dutiable products, if it had signed the Agreement on
Interpretation and Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs
and Trade ("the Subsidies Code") and thereby become a "country under the Agreement." But except
for this limited situation, Congress did not provide an 
injury test for section 303 orders on dutiable products from a country which signed the Subsidies
Code after the issuance of the section 303 order.

In fact, in section 103 of the TAA, Congress amended section 303 to make clear that for orders
issued under that section, the injury test requirements of title VII of the Tariff Act would not apply.
For section 303 investigations on dutiable products conducted after the effective date of the TAA,
Congress did not provide for an injury test unless the exporting country became a "country under
the Agreement" prior to the issuance of the order.

The Israeli government asks us to read this failure of Congress to provide for an injury test in this
situation as a requirement for revocation of the section 303 order. That is, if Israel, now a
"country under the Agreement," cannot receive an injury test, we must revoke the order because
international and U.S. law prohibit assessment of duties on products from "countries under the
Agreement" without an affirmative injury determination.

To read such a requirement for revocation into the Tariff Act would produce an absurd result, one
which we cannot assume Congress intended. If we revoked this order, we would be affording
greater rights, i.e., automatic revocation, to later Subsidies Code signatories than to earlier
Subsidies Code signatories. The earlier signatories received the right to an injury test. They could
obtain a revocation of the order only if the determination were negative, whereas later signatories
would automatically obtain revocation. 

Congress could not have intended this result.

Therefore, we conclude that although Congress did grant "countries under the Agreement" the
injury test in the limited circumstances specified in sections 102 and 104(b) of the TAA and section
701 of the Tariff Act, Congress cannot be presumed to have required an injury test in this situation.
We believe that the statutory scheme is clear and that Congress was not silent on whether a
post-1979 section 303 order issued prior to a country's becoming a "country under the Agreement"
should be revoked if no injury test is provided. If Congress had intended for such an order to be
revoked, it would have explicitly provided for revocation.

The Report of the Committee on Ways and Means on the United States-Israel Free Trade Area
Implementation Act of 1985 confirms our conclusions. The Committee stated that:
Israel upon its accession to the GATT Agreement will become a "country under the Agreement"
under section 701(b) of the Traiff Act of 1930 and thereby receive the material injury test under
the U.S. countervailing duty law on dutiable imports; the test already applies to duty-free
imports from Israel. The test will be applied prospectively, not to existing countervailing
duty orders. [H.R. Rep. No. 99-64, 99th Cong., 1st Sess. 8 (May 6, 1985).]

We therefore tentatively determine that section 303 of the Tariff Act remains the valid authority
for the order on fresh cut roses from Isreal, that 
we have the authority to assess countervailing duties on entries of that product, ant that we
will not revoke the order.

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 30 days after the date of publication or
the first workday following. Any request for an administrative protective order must be made no
later than five 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 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 § 355.10 of the Commerce Regulations (50 FR 32556; August 13, 1985).
Dated: October 10, 1986.

Gilbert B. Kaplan,

Deputy Assistant Secretary, Import Administration.

[FR Doc. 86-23554 Filed 10-16-86; 8:45 am]

BILLING CODE 3510-DS-M