52 FR 1649
NOTICES
DEPARTMENT OF COMMERCE
[C-508-601]
Final Affirmative Countervailing Duty Determination; Oil Country Tubular Goods
From Israel
Thursday, January 15, 1987
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AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that certain benefits which constitute subsidies within the meaning of
the countervailing duty law are being provided to manufacturers,
producers, or exporters in Israel of oil country tubular goods (OCTG). The estimated net
subsidy is 11.86 percent ad valorem. We also determine that critical circumstances do not exist.
We have notified the U.S. International Trade Commission (ITC) of our determination. Therefore, if
the ITC determines that imports of OCTG materially injure, or threaten material injury to, a U.S.
industry, we will direct the U.S. Customs Service to resume the suspension of liquidation of OCTG
from Israel and to require a cash deposit on entries or withdrawals from warehouse for
consumption in an amount equal to the estimated net subsidy.
EFFECTIVE DATE: January 15, 1987.
FOR FURTHER INFORMATION CONTACT:Loc Nguyen, Jessica Wasserman or Gary Taverman,
Office of Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230;
telephone (202) 377-0167, 377-1442 or 377- 0161.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that certain benefits which constitute subsidies within
the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to
manufacturers, producers, or exporters in Israel of OCTG. For purposes of this investigation,
the following programs are found to confer subsidies:
A. The Encouragement of Capital Investments Law
1. Investment Grants
2. Long-Term Industrial Development Loans
B. Bank of Israel Export Loans
1. Export Production Fund
2. Export Shipments Fund
3. Imports-for-Exports Fund
C. Exchange Rate Rish Insurance Scheme
We determine the estimated net subsidy to be 11.86 percent ad valorem for all manufacturers,
producers, or exporters in Israel of OCTG.
Case History
On March 12, 1986, we received a petition in proper form from Lone Star Steel
Company and CF&I Steel Corporation, on behalf of the U.S. industry producing OCTG. In
compliance with the filing requirements of § 355.26 of the Commerce Regulations (19 CFR 355.26),
the petition alleged that manufacturers, producers, or exporters in Israel of OCTG, directly or
indirectly, receive subsidies within the meaning of section 701 of the Act, and that these imports
materially injure, or threaten material injury to, a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate a countervailing
duty investigation, and on April 1, 1986, we initiated such an investigation (51 FR 11965, April 8,
1986).
Since Israel is entitled to an injury determination under section 701(b) of the Act, the ITC is
required to determine whether imports of the subject merchandise from Israel materially
injure, or threaten material injury to, a U.S. industry. On May 7, 1986, the ITC determined that
there is a reasonable indication that an industry in the United States is materially injured by reason
of imports from Israel of OCTG.
We presented questionnaires concerning the petitioners' allegations to the government of Israel
and Middle East Tube Co., Ltd. ("METCO"), the only
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manufacturer, producer, or exporter in Israel of OCTG, in Washington, DC, on April 11, 1986.
Response to our questionnaires were received on May 16 and 21, 1986. Additional information was
received over the course of the investigation. We issued our preliminary affirmative
countervailing duty determination on June 5, 1986 (51 FR 21201, June 11, 1986).
From June 20 through July 4, 1986, we verified the information submitted in response to our
questionnaires. At the request of respondents, we held a hearing on October 14, 1986. We received
pre-hearing briefs on September 10, 1986, and post-hearing briefs on October 28, 1986.
Scope of Investigation
The products covered by this investigation are "oil country tubular goods," which are hollow steel
products of circular cross-section intended for use in drilling for oil or gas. These products include
oil well casing, tubing, and drill pipe of carbon or alloy steel, whether welded or seamless,
manufactured to either American Petroleum Institute (API) or non-API (such as proprietary)
specifications as currently provided for in the Tariff Schedules of the United States Annotated
(TSUSA) under item numbers:
610.3216, 610.3219, 610.3233, 610.3234, 610.3242, 610.3243, 610.3249, 610.3252, 610.3254,
610.3256, 610.3258, 610.3262, 610.3264, 610.3721, 610.3722, 610.3751, 610.3925, 610.3935,
610.4025, 610.4035, 610.4210, 610.4220, 610.4225, 610.4230, 610.4235, 610.4240, 610.4310
610.4320, 610.4325, 610.4335, 610.4942, 610.4944, 610.5243, 610.4954, 610.4955, 610.4956,
610.4957, 610.4966, 610.4967, 610.4968, 610.4969, 610.4970, 610.5221, 610.5222, 610.5244,
610.5234, 610.5240, 610.5242
The scope of this investigation includes OCTG in both finished and unfinished condition.
For purposes of its preliminary determination, the ITC ruled that drill pipe is a separate "like
product" from other types of OCTG. Since the petitioners neither manufacture, produce, or
wholesale drill pipe, they are not "interested parties" with respect to drill pipe, within the meaning
of section 771(9)(C) of the Act. Therefore, we did not investigate sales of drill pipe in this
investigation.
Analysis of Programs
Throughout this notice, we refer to certain general principles applied to the facts of the current
investigation. These general principles are described in the "Subsidies Appendix" attached to the
notice of Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina: Final Affirmative
Countervailing Duty Determination and Contervailing Duty Order (49 FR 18006, April 26,
1984).
For purposes of this final determination, the period for which we are measuring subsidies ("the
review period") is calendar year 1985. Based upon our analysis of the petition, the responses to our
questionnaries submitted by the government of Israel and METCO, our verification, and
comments submitted by petitioners and respondents, we determine the following:
I. Programs Determined to Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters in
Israel of OCTG under the following programs:
A. The Encouragement of Capital Investments Law (ECIL)
The purpose of the ECIL is to attract capital to Israel. In order to be eligible to receive various
benefits under the ECIL, including investment grants, long-term industrial development laons,
accelerated depreciation, and reduced tax rates, the applicant must obtain approved enterprise
status. Approved enterprise status is obtained after review of information submitted to the
Israel Ministry of Industry and Trade, Investment Center Division. The amount of the benefits
received by approved enterprises depends on the geographic location of the eligible enterprise.
For purposes of the ECIL, Israel is divided into three development zones, each with a different
funding level.
1. Investment Grants. In order to receive a grant under the ECIL, an applicant must obtain
"approved enterprise" status and obtain an economic viability
evaluation of the proposed investment from the Industrial Development Bank of Israel. METCO
received approvals for grants in 1971, 1974, 1975 and 1976. According to the approval
documents, these grants were contingent upon increased exports. Therefore, we determine that
the grants given to METCO are export subsidies.
In its questionnaire response, METCO claimed that these grants did not benefit the production of
OCTG. However, according to the approval documents, all of the pipe for which grants were
approved, except galvanized pipe, is suitable for use as OCTG. Although one grant was intended for
the production of both black and galvanized pipe, we could not segregate the benefit provided to
black pipe from the benefit provided to galvanized pipe. Therefore, we find all of the grants to be
countervailable subsidies benefitting METCO's total exports.
To calculate the benefit, we allocated the grants received over 15 years (the average useful life of
assets in the steel industry). Usually, to allocate benefits over time we use as our discount rate the
firm's weighted cost of capital, which is an average of the company's marginal costs of debt and
equity for the year in which the terms of the grant were approved. However, in this case, we are
unable to calculate a weighted cost of capital for METCO, because there is no fixed-rate long-term
borrowing in Israel. We have, therefore, used a variable discount rate to allocate the grant
benefits since this most accurately reflects the benefits to METCO over time.
To calculate the grant allocation amount for 1985, we applied the grant methodology outlined in
the Subsidies Appendix, using as our variable discount rate the national average short-term
borrowing rate for new Israeli shekels (NIS) in 1985 as published in the Bank of Israel annual
report adjusted for inflation. Dividing by the value of total exports during the review period, we
calculated an estimated net subsidy of 0.002 percent ad valorem.
2. Long-Term Industrial Development Loans. Prior to July 1985, approved enterprises were
eligible to receive long-term industrial development loans funded by the government of Israel.
At verification, we learned that METCO received long-term industrial development loans between
1966 and July 1985. Industrial development loans were disbursed through the Industrial
Development Bank of Israel (IDBI) and other industrial development banks associated with
each commercial bank in Israel.
The government of Israel did not provide us with sufficient information concerning selection
criteria for approved enterprises under ECIL or the criteria for receiving industrial development
loans under ECIL. Nor did it provide us with information on the distribution of loans under this
program. Because we have no information in the approval process or actual distribution of these
loans, we have determined that the loans are limited to a specific enterprise or industry or group of
enterprises or industries.
Loans under this program are linked to the consumer price index (CPI) or to
the U.S. dollar. Therefore, we are treating them as variable rate loans, and have used as our
benchmark a short-term interest rate in the review period. For loans on which interest is linked to
the CPI, we used a NIS benchmark and
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for loans on which interest is linked to the dollar exchange rate, we used a dollar-linked NIS
benchmark. We compared the benchmarks to the interest rate charged on each loan and
determined that some of the loans were provided on terms inconsistent with commercial
considerations. Therefore, we determine those loans to be countervailable. To calculate the benefit
from these loans, we applied our short-term loan methodology. Dividing the amount of interest
savings in 1985 by the value of total sales during the review period, we calculated an estimated net
subsidy of 5.019 percent ad valorem.
B. Bank of Israel Export Loans
The government of Israel provides preferential financing to manufacturers, producers, or
exporters in Israel of OCTG through three export credit funds adminstered by the Bank of
Israel (BOI).
1. Export Production Fund (EPF). Under the EPF, three-month loans are provided to exporters to
finance export production. The amount which a company is able to borrow under this program is
limited by a quota set by the BOI. The quota is based on the value of the company's exports, the
product's value-added
percentage, and the production cycle of the company. During the review period, EPF financing was
provided both in dollar-linked NIS loans and in NIS loans. In July 1985, the BOI discontinued EPF
financing in NIS.
Because only exporters are eligible for these loans, we determine that they are countervailable to
the extent that they are provided at preferential rates. METCO received both NIS loans and
dollar-linked loans under this program. For NIS loans we used as our benchmark a nominal rate
based on the national average non-directed short-term NIS lending rate published in the 1985 BOI
annual report. For loans, we used as our benchmark a nominal rate based on the national average
non-directed short-term dollar-linked NIS lending rate as provided in the 1985 BOI annual report.
Comparing these benchmarks to the interest rates charged on these loans, we determine that the
loans were provided at a preferential rate, and are, therefore, countervailable.
To calculate the benefit from these loans, we allocated the interest savings over total exports
during the review period, because METCO did not segregate loans provided on OCTG exports from
loans for other products. On this basis, we calculated an estimated net subsidy of 2.777 percent ad
valorem.
2. Export Shipment Fund (ESF). Under the ESF, loans are provided to exporters to enable them to
extend credit in foreign currency to their overseas customers. Financing is granted on a
shipment-by-shipment basis. Funding is provided after shipment of the goods and must be repaid
within six months.
Because only exporters are eligible for these loans, we determined that they are countervailable to
the extent that they are provided at preferential rates. METCO received dollar loans under the ESF.
Dollar loans are not otherwise available in Israel, and we were not able to obtain benchmark
interest rates for these loans from independent sources. We have relied on our earlier
determination on Potassium Chloride from Israel: Final Affirmative Countervailing
Duty Determination (Potash) (49 FR 36122, September 14, 1984), in deriving our benchmark.
We have determined this rate to be the London Interbank Offering Rate (LIBOR) plus two percent.
Comparing the benchmark interest rate to the rates charged on these loans, we determine that
some of the loans were provided at perferential rates and are countervailable. To calculate the
benefit from these loans, we allocated the interest savings over total exports during the review
period because METCO did not segregate loans provided on OCTG exports from loans for other
product. On this basis, we calculated an estimated net subsidy of 0.002 percent ad valorem.
3. Imports-for-Exports Fund (IEF). Under the IEF, exporters receive loans with a three-month
term in order to finance imported materials used for export production. Because only exporters
are eligible for these loans, we determine that they are countervailable to the extent that they are
provided at preferential rates. Since loans under the IEF are dollar-linked NIS loans, we used as our
benchmark a nominal rate based on the national average non-directed
short-term dollar-linked NIS lending rate as provided in the 1985 BOI annual report. Comparing
the benchmark interest rate to the rates charged on these loans, we determine that the loans were
provided at preferential rates and are countervailable.
To calculate the benefit from these loans, we allocated the interest savings over total exports
during the review period because METCO did not segregate loans provided on OCTG exports from
loans for other products. On this basis, we calculated an estimated net subsidy of 1.163 percent ad
valorem.
C. Exchange Rate Risk Insurance Scheme
The Exchange Rate Risk Insurance Scheme (EIS), operated by the Israel Foreign Trade Risk
Insurance Corporation Ltd. (IFTRIC), is aimed at insuring exporters against losses resulting from
decreased payments in foreign currency receivables due to lags in the rate of devaluation of the
NIS. The EIS insures the exporter's revenue (in domestic currency) against unexpected
fluctuations between exchange rates and domestic inflation. The scheme is intended to protect
exporters when the rate of inflation exceeds the rate of devaluation and the NIS value of an
exporter's foreign currency receivables does not rise enough to cover increases in local costs.
The EIS scheme is optional and open to any exporter willing to pay a
premium to IFTRIC. Compensation is based on a comparison of the change in the rate of
devaluation of the NIS against a basket of foreign currencies with the change in the consumer price
index. If the rate of inflation is greater than the rate of devaluation, the exporter is compensated by
an amount equal to the difference between these two rates multiplied by the value-added of the
exports. If the rate of devaluation is higher than the change in the domestic price index, however,
the exporter must compensate IFTRIC. The premium is paid on the basis of the value-added of the
exports, and this rate is the same for all industries.
In determining whether an export insurance program provides a countervailable benefit, we
examine whether the premiums and other charges are adequate to cover the program's long-term
operating costs and losses. In Potash, we stated that we had insufficient data at that time to
determine that the premiums and other charges were mainifestly inadequate to cover the
program's long-term operating costs and losses. We noted, however, that we were not making a
conclusive determination on the program's countervailability at that time.
In this case, the data show that EIS operated at a loss from 1981 through 1985. We believe that five
years is, in this case, a sufficiently long period to establish that the premiums and other charges are
manifestly inadequate to cover the long-term operating costs and losses of the program. We,
therefore, determine that this program confers a countervailable benefit on manufacturers,
producers, or exporters in Israel of OCTG.
We calculated the benefit to METCO from this program by subtracting from the amount of
compensation METCO received from IFTRIC during the review period the premiums paid and
compensatory payments made in that
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year. We allocated this amount over METCO's total exports during the review period to find an
estimated net subsidy of 2.895 percent ad valorem.
II. Programs Determined Not to be Used
We determine that the following programs have not been used by manufacturers, producers, or
exporters in Israel of OCTG during the review period.
A. Encouragement of Industrial Research and Development Law (EIRD)
Petitioners allege that manufacturers, producers, or exporters in Israel of OCTG may benefit
from research and development grants equal to 50 percent of approved project costs where such
activity is directed at export expansion. We verfied that METCO was not eligible for nor did it apply
for or receive grants under the EIRD.
B. Labor Training Grants
Petitioners allege that manufacturers, producers, or exporters in Israel of OCTG may receive
benefits in the form of labor training funded by the Ministry of Labor. We verified that METCO did
not apply for or receive benefits under this program.
C. BOI Special Export Financing Loans
Petitioners allege that manufacturers, producers, or exporters in Israel of OCTG may receive
benefits from special export financing loans administered by the BOI. We verified that METCO did
not apply for or receive benefits under this program.
D. ECIL Preferential Accelerated Depreciation
Under section 42 of the ECIL, a company which has obtained approved enterprise status can
choose to depreciate machinery and equipment at double the normal rate and buildings at four
times the normal rate. At verification, we learned that METCO did not apply for or receive benefits
under Section 42 of the ECIL in the year covered by the tax return filed during the review period.
E. Other ECIL Tax Benefits
Under section 47 of the ECIL, a company which has obtained approved enterprise status is eligible
for a reduced corporate and income tax rate. At verification, we learned that METCO did not apply
for or receive benefits under section 47 of the ECIL in the year covered by the tax return filed
during the review period.
Under section 46 of the ECIL, dividends and interest paid to foreign investors are taxed at a
maximum rate of twenty-five percent. Since METCO is not a foreign investor, this provision of the
ECIL is not applicable to METCO.
F. ECIL Loans
Petitioners allege that manufacturers, producers or exporters in Israel of OCTG may receive
loans on preferential terms under section 24 of the ECIL for the enlargement of facilities. At
verification, we learned that loans under section 24 are only granted to foreign investors in Israeli
companies. We verified that METCO received no loans under this program.
G. 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 investment and investment expenditures. We verified that METCO
did not receive any grants under this section. We also verified that the program was terminated on
April 1, 1986.
H. ECIL Interest Subsidy Payments
Petitioners allege that manufacturers, producers or exporters in Israel of OCTG may receive
grants provided by the government of Israel for the rebate of interest on loans provided by
commercial banks. The amount of the grants varies according to the development zone in which
the enterprise is located. We verified that METCO did not use this program and that the program
was terminated in April 1985.
I. The Encouragement of Industry Law (EIL)
Petitioners allege that manufacturers, producers or exporters in Israel of OCTG may receive
benefits under the EIL. Benefits are available to every company located in Israel which derives
at least 90 percent of its gross income in a particular year from industrial or manufacturing
activities. Almost every company in Israel is eligible for EIL benefits; there is no application
process. A company in Israel wanting to claim EIL benefits files the claim on its income tax
form and the Income Tax and Property Department of the Ministry of Finance checks the claim. We
verified that METCO did not apply for or receive benefits in the year covered by the tax return filed
during the review period.
III. Program Determined Not to be Confer a Subsidy
We determined that subsidies are not provided to manufacturers, producers or exporters in
Israel of OCTG under the following programs:
A. Rebate of Shlom-Hagalil Special Levy
Under this program, a duty is paid on all imported raw materials and imported goods incorporated
into an exported product at a rate of two percent. The amount of the rebate provided to each
company is based on the percentage of the imported input in the total value of the company's
exports. This percentage is determined by the Ministry of Finance for each exporter in Israel
on an annual basis. This program provides a nonexcessive rebate of duties paid on imported inputs
physically incorporated into the exported product. Hence, we determine that this program is not
countervailable.
IV. Programs Determined To Be Terminated
We determine that the following programs have been terminated:
A. Property Tax Exemptions on Buildings and Equipment
Petitioners allege that manufacturers, producers, or exporters in Israel of OCTG may benefit
from tax benefits that allow eligible enterprises a five-year exemption from payment of two-thirds
of property taxes on buildings and a ten- year exemption for payment of one-sixth of property
taxes on equipment. At verification, we learned that the exemptions have been repealed by
Amendment No. 17, ECIL, 5738-1979. Also, property taxes on industrial buildings and equipment
were repealed for all taxpayers in Israel on April 1, 1981. Property tax exemptions referred to
in section 53 of the ECIL are taxes on apartment buildings in residential areas.
B. Partial Non-Payment of Employers' Tax
Under section 55 of the ECIL, employers in approved industrial enterprises located in
development zone A or B may be exempt from either one-half or all of
the employers' tax. At verification, we learned that the employers' tax has not been levied on
productive sectors of the Israel economy since April 1, 1980.
Negative Determination of Critical Circumstances
The petitioners allege that "critical circumstances" exist within the meaning of section 703(e)(1) of
the Act, with respect to imports of OCTG from Israel. In determining whether critical
circumstances exist, we must examine whether there is a reasonable basis to believe or suspect
that: (1) The alleged subsidy is inconsistent with the Agreement, and (2) there have been *1653
massive imports of the subject merchandise over a relatively short period.
In determining whether imports have been massive over a relatively short period of time, we have
considered the following factors: (1) The volume and value of the imports; (2) seasonal trends; and
(3) the share of domestic consumption accounted for by the imports. A review of this information
indicates that imports from Israel have not been massive over a relatively short period of time.
Since we have not found massive imports over a relatively short period of time, we do not need to
consider whether the alleged subsidies are inconsistent with the Agreement.
Petitioners' Comments
Comment 1: Petitioners argue that the amount of the benefit to METCO from the EIS program is
equal to the difference between the amount of premiums which METCO should have paid and the
amount which METCO actually paid during the review period. Petitioners contend that the amount
METCO should have paid can be determined by estimating the cost of the EIS program to the
government, including administrative expenses and compensatory payments and calculating the
premiums necessary to generate sufficient revenue to cover the cost of the program and provide a
four percent rate of return.
DOC Position: We do not have sufficiently detailed information to measure the costs, other than
compensation costs, paid under EIS. Therefore, we have calculated the excess that the company
receives in compensation over the premiums paid and compensatory payments made and
allocated the benefit to the year of receipt.
Comment 2: Petitioners argue that if the Department calculates the benefit from the EIS program as
the difference between METCO's compensatory payments and its premiums in 1985, then the
Department should calculate the ad valorem benefit by dividing the amount of benefit attributable
to OCTG exports by the value of METCO's OCTG exports.
DOC Position: Respondents were not able to segregate payments attributable to OCTG exports from
payments attributable to the export of other products produced by METCO. We, therefore,
calculated the ad valorem benefit by dividing the total net payments received by METCO in 1985
by its total 1985 exports.
Comment 3: Petitioners argue that the appropriate benchmark for BOI short-term export financing
denominated in dollars is the Eurodollar rate which would be available to firms with the same
financial standing as METCO. Petitioners contend that there is no evidence to indicate that METCO
could have obtained such loans, absent government intervention at the LIBOR plus two percent
rate used by the Department as a benchmark in its preliminary determination. For short-term
financing denominated in NIS, petitioners argue that the appropriate benchmark is the rate on NIS
overdraft accounts.
DOC Position: In calculating the benefit from Export Cedit Fund loans, we used our short-term loan
methodology, as set out in the Subsidies Appendix. 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 dollar-denominated loans we
used as our benchmark the rate available to Israeli companies for dollar borrowing outside of
Israel, LIBOR plus two percent, for the reason
stated in section I.B.2. For NIS-denominated loans, we used as our benchmark the
national-average real interest rate for non-directed short-term NIS loans, as published in the 1985
BOI annual report. We converted this real rate into a nominal rate by using the inflation index. We
believe that this rate is a more comparable method of short-term NIS financing than the rate on
NIS overdraft accounts. For dollar-linked NIS loans, we used as our benchmark the national-
average real rate for non-directed short-term dollar-linked loans and coverted this real rate into a
nominal rate by using the inflation index and adjusting for devaluation. We believe that this is the
most comparable rate of short- term dollar-linked loans in Israel.
Comment 4: Petitioners argue that preferential loans received in 1984 and repaid in 1985, as well as
loans received in 1985 and repaid in 1986, must be included in the Department's calculation of a
benefit, as long as interest on the loan was paid during the review period.
DOC Position: We agree. In accordance with the Subsidies Appendix, when valuing the subsidy
from preferential short-term loans, we based our calculations on the interest actually paid during
the review period.
Comment 5: Petitioners argue that the Department should not adjust the bonding rate for Export
Production Fund loans. Petitioners argue that the amount of the quota established for each firm
borrowing from the fund was not altered; only the currency in which loans were made was
changed. Therefore, petitioners
argue, the Department's critieria for program-wide changes have not been met.
DOC Position: In general, when there is a program-wide change prior to our preliminary
determination, it is the Department's policy to adjust the cash deposit rate to reflect this change. In
this case, however, we do not have sufficient information to determine the effect of the change in
the denomination of loans on the amounts of benefits provided under this program. Therefore, we
have calculated a cash deposit rate based on the benefits provided under this program during the
review period.
Comment 6: Petitioners argue that there is information in the record which indicates that the
Israel Development Bank administers a fund for loans at reduced interest rates to firms
adapting their production lines to export markets. Because there is no information on the record
which demonstrates that eligibility for ECIL development loans is not based on increased
production for export, petitioners contend that the Department must, as best information
available, conclude that the ECIL development loans constitute export subsidies.
DOC Position: We disagree. There is no verified information in the record indicating that the loans
received by METCO were based on increased exports. We have, however, found these loans to be
countervailable domestic subsidies, because they are limited to a specific enterprise or group of
enterprises and are provided at terms inconsistent with commercial considerations.
Comment 7: Petitioners argue that feasibility studies performed by the Industrial Development
Bank before approval of all long-term loans are provided free of charge and, therefore, constitute
subsidies. They contend that companies frequently conduct feasibility studies before making
significant investments and that banks frequently require companies to perform feasibility studies
before granting long-term loans. They claim that the value of this subsidy is the cost of obtaining an
equivalent study from a private consulting firm.
DOC Position: At verification, we found no evidence that the government of Israel pays for the
feasibility studies required under this program. Moreover, respondent has submitted evidence
showing that the cost of the studies is borne by the company and not by the government.
Therefore, we disagree with the contention that METCO
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received a subsidy in the form of a feasibility study at no charge.
Comment 8: Petitioners argue that long-term development loans are countervailable, despite the
fact that it is irrelevant that private banks disburse the financing. They note that Israeli
government sets the loan terms and determines which companies and projects are eligible to
receive loans and, moreover, that the government is the source of the loan funds.
DOC Position: We agree. In this case, the Israeli government is the source of financing and
determines the eligibility criteria for receiving these loans.
Because these loans are provided on terms inconsistent with commercial considerations to a
specific enterprise or industry or group of enterprises or industries, we have determined them to
be countervailable. The fact that the loans are administered through private banks does not alter
our determination.
Respondents' Comments
Comment 1: Respondents argue that the EIS operated by IFTRIC is not a countervailable subsidy
because the program is structured in accordance with commercial considerations. Respondents
argue that EIS is designed to be self- balancing. If the rate of domestic inflation is higher than the
rate of devaluation of the NIS against a basket of currencies, IFTRIC compensates the exporter. If
devaluation is higher than inflation, however, the exporter is required to compensate IFTRIC.
DOC Position: We disagree. The government of Israel owns all of the shares of IFTRIC and acts
as a re-insurer to cover IFTRIC's losses up to 150 million U.S. dollars. In general, to determine
whether government-controlled export insurance programs confer countervailable benefits, the
Department examines whether the insurance premiums and other payments charged are adequate
to cover the program's long-term operating costs and losses. This methodology is consistent with
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), under which an export subsidy is defined to include:
the provision by governments (or special institutions controlled by governments) . . . of insurance
or guarantee programs against increases 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.
EIS operated at a loss in each of the years 1981 through 1985. Despite continuing losses, which
have amounted to millions of U.S. dollars each year, EIS has not raised the premium rates charged
or increased other charges to its customers. We, therefore, conclude that the premiums and other
charges levied by EIS are manifestly inadequate to cover its long-term operating costs and losses.
Comment 2: Respondents further argue that the commercial viability of the EIS program cannot
fairly be judged on the basis of the clearly aberrational inflation rate Israel has experienced
during the period under investigation.
DOC Position: We disagree. EIS has operated at a loss for five consecutive years, including the year
in which the program was established. It is, therefore, difficult to argue that EIS losses were due
only to the extremely high inflation rate during the period of investigation. Moreover,
inflation rates in Israel were high prior to the establishment of the EIS program. The losses
incurred since 1981, therefore, could not have been due to unexpectedly high inflation rates. We
believe that five years of massive and continued losses cannot be overlooked on the grounds that
they are the result of an aberration.
Comment 3: As further evidence that EIS is operated along commercial lines, respondents argue
that participation in the program is optional.
DOC Position: In order to be found a subsidy, a program need not be mandatory. Furthermore,
although EIS is free to choose not to insure an applicant, METCO is participating and receiving
benefits.
Comment 4: Respondents argue that evidence EIS is operated along commercial lines can be found
in the fact that participants in the program were required to make payments to IFTRIC in July
1985.
DOC Position: We disagree. Although the exporters did make a compensatory payment to IFTRIC in
one month, during the remaining 59 months, EIS paid those who were insured. In this case, the
theoretical operation of the program is not dispositive. The fact that EIS did not collect sufficient
premiums to cover its costs and losses during this period leads us to conclude that EIS confers a
subsidy.
Comment 5: Respondents argue that the EIS program is designed to ensure that exporters receive a
fixed payment in real terms. In this respect, it is
similar to a forward exchagne system. Respondents argue that, since the EIS program does not
provide an exporter with a higher payment in real terms than the amount for which it initially
contracted, the program does not provide a subsidy.
DOC Position: We disagree. We believe that the EIS program does provide a benefit. Exporters who
do not participate in the EIS program must absorb the losses that result when the rate of inflation in
Israel exceeds the rate of devaluation of the NIS. Forward exchange systems, unlike the EIS
program, do not ensure against losses. Instead, they offer the seller the option of knowing with
certainty what his domstic currency return will be on foreign sales.
Comment 6: Respondents argue that two grants which were made to METCO's Ramla plant were
provided for a line which was not producing OCTG at the time the grants were received. This line
was not used for the production of OCTG until 1980, many years after the grants were received.
Therefore, respondents argue, the grants do not confer a countervailable benefit on the production
of OCTG.
DOC Position: We disagree. While the grant may have been intended originally to benefit the
production of other products, the benefits are clearly no longer tied to those other products.
Therefore, we have allocated the benefits over all products, including OCTG.
Comment 7: Respondents argue that, contrary to petitioners' assertion,
the circumstances of this case and those of British Steel Corp. v. United States, 6 ITRD 1929 (Court
of International Trade, March 8, 1985) are distinguishable. In British Steel, government funds used
to close inefficient parts of a production facility were countervailable subsidies because the funds
enhanced the efficiency of the production of the goods under investigation. In the present case, the
ECIL investment grants did not enhance the efficiency of the production of OCTG. The grants,
therefore, did not confer a countervailable benefit on OCTG production.
DOC Position: We disagree. In British Steel, an equity purchase by the government was found to
benefit the product under investigation because the equity infusion was used to enhance the
overall efficiency of the company. In this case, the grants at issue were "tied" to (i.e., bestowed
expressly to purcahse) specific capital assets. We determined that these assets were suitable for the
production of OCTG and, at verification, respondents were unable to demonstrate conclusively
otherwise. We, therefore, concluded that the grants conferred a benefit on the production of OCTG.
*1655
Comment 8: Respondents argue that short-term export financing has been provided by
commercial banks since July 1985, and that since this time, no Israeli government money has been
distributed through any of the short-term financing programs under investigation.
DOC Position: According to the government's questionnaire response, as of July
1985, all export financing provided by the BOI was at an interest rate not to exceed LIBOR plus two
percent. The government of Israel sets loan quotas for each exporter, as well as maximum
interest rates. Financing required by government action, even if the government is not the source
of funds, can provide a subsidy. The Department has rejected the view that a subsidy must involve
a charge to the public account and has imposed countervailing duties where the benefit was
conferred by one firm on another at the direction of the government (e.g., banks required to give
preferential financing to exporters). See, e.g., Final Affirmative Countervailing Duty
Determination: Certain Carbon Steel Products from Spain (47 FR 51938, November 15, 1982); Final
Affirmative Countervailing Duty Determination: Carbon Steel Wire Rod From Spain (49 FR
19551, may 8, 1984).
Comment 9: Respondents argue that, whether the export loans are dollar loans or dollar-linked NIS
loans, a dollar-denominated benchmark must be used. Since there are no other sources of dollar
financing in Israel and since, in the absence of this program, METCO would have been forced to
seek comparable dollar loans abroad, the Department in its preliminary determination correctly
used as a benchmark the interest rate METCO would have had to pay for a dollar loan on the Euro
market.
DOC Position: See section I.B.2 of this notice.
Comment 10: Respondents argue that in setting the duty deposit rate, the
Department should not include benefits from NIS-denominated loans made prior to July 1985
under the EPF. Respondents noted that NIS loans are no longer available under the EPF, and that,
therefore, the estimated subsidy should be reduced.
DOC Position: We disagree. See DOC position on petitioners' comment 5.
Comment 11: Respondents argue that long-term deelopment loans are not countervailable because
they are currently offered exclusively by private commercial banks, and the Israeli government's
only role is to raise, through bond offerings, money it lends to commercial banks. Furthermore,
respondents argue that the loans are not limited to a specific industry.
DOC Position: We disagree. At the time METCO's loans were received, the loans were offered by the
Industrial Development Bank of Israel, not private commercial banks. As described in section
I.A.2., supra, eligibility for these loans is limited to companies designated by the Israeli
government as "approved enterprises."
Comment 12: Respondents argue that, although the rates paid on development loans varied
according to the region of the country in which the project in question was located, METCO paid
the highest regional rate on all of its loans. Therefore, these loans conferred no benefit on METCO.
DOC Position: We disagree. We have determined that development loans are available only to a
limited group of enterprises or industries, because they
are provided only to "approved enterprises" and because the Israeli government did not
demonstrate that these designated firms comprise more than a specific group of enterprises or
industries. The benefit to METCO is equal to the difference between the interest paid by METCO on
its loans and the interest which would be paid on comparable commercial loans.
Comment 13: Respondents argue that if the Department does find long-term development loans to
be countervailable, the benchmark rate should be the rate the Israeli government pays on
government bonds since the bond rate is the best measure of the cost of borrowing in Israel.
DOC Position: We disagree. The relevant consideration in determining our benchmark is alternative
commercial sources of financing, not the government cost of borowing.
Suspension of Liquidation
In accordance with section 705(d) of the Act, if the ITC determines that imports of OCTG materially
injure, or threaten material injury to, a U.S. industry, we will direct the U.S. Customs Service to
resume the suspension of liquidation of OCTG from Israel and to require a cash deposit on
entries or withdrawals from warehouse for consumption in an amount equal to 11.86 percent ad
valorem.
Verification
In accordance with section 776(a) of the Act, we verified the information used in making our final
determination. During verification, we followed standard verification procedures, including tracing
the information in the responses to source documents, accounting ledgers, financial statements
and annual reports.
ITC Notification
In accordance with section 705 of the Act, we will notify the ITC of our determination. In addition,
we are making available to the ITC all nonprivileged and nonconfidential 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.
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 the Customs officers to assess
countervailing duties on all entries of OCTG from Israel entered, or withdrawn from
warehouse, for consumption as described 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)).
Paul Freedenberg,
Assistant Secretary for Trade Administration.
January 7, 1987.
[FR Doc. 87-915 Filed 1-14-87; 8:45 am]
BILLING CODE 3510-DS-M