52 FR 3316
NOTICES
DEPARTMENT OF COMMERCE
[C-508-603]
Final Affirmative Countervailing Duty Determination; Certain Fresh Cut Flowers
From Israel
Tuesday, February 3, 1987
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AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that benefits which constitute subsidies within the meaning of the
countervailing duty law are being provided to producers or
exporters in Israel of certain fresh cut flowers (cut flowers) as described in the "Scope of
Investigation" section of this notice. The estimated net subsidy is 11.59 percent ad valorem during
the review period. However, consistent with our stated policy of taking into account a
program-wide change which occurred after our review period, but prior to the preliminary
determination, we are adjusting the duty deposit rate to reflect changes in the Export Promotion
Financing Fund program.
We have notified the U.S. International Trade Commission (the ITC) of our determination. We are
directing the U.S. Customs Service to continue to suspend liquidation of all entries of cut flowers
from Israel that are entered, or withdrawn from warehouse, for consumption, and to require a
cash deposit or bond on entries of this merchandise in an amount equal to 10.79 percent ad
valorem.
EFFECTIVE DATE: February 3, 1987.
FOR FURTHER INFORMATION CONTACT:Mary Martin, Barbara Tillman, or Ross Cotjanle, Office of
Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230;
telephone (202) 377-2830, (202) 377-2433, or (202) 377-3534.
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
producers or exporters in Israel of cut flowers. For purposes of this investigation, the following
programs are found to confer subsidies:
- Exchange Rate Risk Insurance Scheme.
- Export Promotion Financing Fund.
- Long-Term Development Loans to Agrexco.
- Government Support of the Flower Board.
- Fuel Grants and Low-Cost Credit.
We determine the estimated net subsidy to be 11.59 percent ad valorem for all producers or
exporters in Israel of cut flowers during the review period. However, we are adjusting the duty
deposit rate to reflect a program-wide change in the Export Promotion Financing Fund program
that occurred after our review period but prior to our preliminary determination. Thus, the cash
deposit or bond on entries of these products will be 10.79 percent ad valorem.
Case History
On May 21, 1986, we received a petition in proper form from the Floral Trade Council filed on
behalf of the U.S. industry producing cut flowers. In compliance with the filing requirements of §
355.26 of the Commerce Regulations (19 CFR 355.26), the petition alleged that producers or
exporters in Israel of cut flowers receive, directly or indirectly,
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benefits which constitute subsidies within the meaning of section 701 of the Act.
We found that the petition contained sufficient grounds upon which to initiate a countervailing
duty investigation, and on June 10, 1986, we initiated an investigation (51 FR 21956, June 17,
1986). We stated that we expected to issue a preliminary determination on or before August 14,
1986.
On June 25, 1986, the petitioner requested a full extension of the period within which a preliminary
countervailing duty determination must be made pursuant to section 703(c)(1)(A) of the
Act. On July 3, 1986, we issued a notice of postponement stating that the preliminary
determination would be made on or before October 20, 1986 (51 FR 25084, July 10, 1986).
Since Israel is a "country under the Agreement" within the meaning of 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 July 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 the subject
merchandise (51 FR 25751, July 16, 1986).
On June 20, 1986, we presented a questionnaire to the Government of Israel in Washington,
DC, concerning petitioner's allegations. We received responses from the government and from
Agricultural Export Co., Ltd. (Agrexco), and R. Shemi, Ltd. (Shemi), on August 13, 1986. Agrexco
and Shemi are exporters of the subject merchandise, and they accounted for at least 60 percent of
the United States exports of cut flowers during the review period. Since there are over 1,000
growers of cut flowers in Israel, the government provided information on an aggregate basis
for all growers. Additional information was supplied on August 26, September 3, 16, 22, 25 and 26,
and October 9, 17, and 31, 1986. Corrections to the responses were filed on November 25, 1986.
On the basis of the information contained in these responses, we made our preliminary
determination on October 20, 1986 (51 FR 37925, October 27, 1986). Based upon the request of
the petitioner, on November 26, 1986, we extended the deadline dates for the final determinations
in the countervailing duty investigations of certain fresh cut flowers from Canada, Israel,
Kenya, the Netherlands, and Peru, and standard carnations from Chile to correspond to the
date of the final determinations in the antidumping duty investigations of the same merchandise,
pursuant to section 705(a)(1) of the Act, as amended by section 606 of the Trade and Tariff Act of
1984 (Pub. L. 98-573) (51 FR 43649, December 3, 1986). On January 9, 1987, we extended the
deadline date for the countervailing duty determinations on standard carnations from Chile
and certain fresh cut flowers from Israel and the Netherlands to coincide with the
postponement of the final antidumping duty determination on standard carnations from Chile, in
accordance with section 705(a)(1) as amended, 19 U.S.C. 1671d(a)(1) (52 FR 1515, January 14,
1987).
From November 6 to November 18, 1986, we verified the information submitted by the
Government of Israel, Agrexco, and Shemi.
At the request of the petitioner, we held a public hearing on December 5, 1986, to afford interested
parties an opportunity to present views orally in accordance with our regulations (19 CFR 355.35).
Petitioner and respondents filed case briefs on December 18, 1986, post-hearing briefs on
December 22, 1986, and comments on the verification reports on January 14, 1987.
Scope of Investigation
The products covered by this investigation are fresh cut miniature (spray) carnations, currently
provided for in item 192.17 of the Tariff Schedules of
the United States (TSUS) and gerbera, currently provided for in item 192.21 of the TSUS.
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 Countervailing Duty Order (49 FR 18006,
April 26, 1984).
For purposes of this determination, the period for which we are measuring subsidies (the review
period) is October 1, 1985 through September 30, 1986, which corresponds to the companies' fiscal
year.
Based upon our analysis of the petition, the responses to our questionnaire, verification and
comments submitted by the interested parties, we determine the following:
I. Programs Determined to Confer Subsidies
We determine that subsidies are being provided to producers or exporters in Israel of cut
flowers under the following programs:
A. 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 which result
when the rate of inflation exceeds the rate of devaluation and the new Israeli snekel (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 calculated on the basis of the value-added of the exports .
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 Potassium Chloride from Israel: Final Affirmative
Countervailing Duty Determination (49
FR 36122, September 14, 1982), we stated that we had insufficient data to determine that the
premiums and other charges were manifestly 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. However, in the Final Affirmative
Countervailing Duty Determination: Oil Country Tubular Goods from Israel (52 FR
1649, January 15, 1987), we found that this program conferred a countervailable benefit on
manufacturers, producers, or exporters in Israel of oil country tubular goods.
In this case, we reviewed EIS data which show that EIS operated at a loss from 1981 through 1986.
In fact, in the five years of operations, there was only one month where premiums received were
greater than compensation paid out. 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
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cover the long-term operating costs and losses of the program. We, therefore, determine that this
program confers an export subsidy on exports of cut flowers from Israel.
We calculated the benefit from this program by allocating the amount of compensation Agrexco
and Shemi received from IFTRIC, after deducting premiums paid, over the companies' relevent
exports during the review period. The calculation was based upon all non-European exports for
Shemi and all flower
exports to all markets for Agrexco for the period October 1985 to September 1986. We used these
exports for the basis of the calculation because that is how the accounting records on this program
are maintained in the companies. This resulted in an estimated net subsidy of 8.87 percent ad
valorem.
B. Export Promotion Financing Fund
The Foreign Trade Center of the Ministry of Agriculture operates the Export Promotion Financing
Fund to promote the development of export markets for fresh Israeli produce.
Exporters submit a request for participation in promotional activities, and the Ministry determines
on the basis of the development potential and in view of the availability of funds whether to
approve the request. Approved proposals receive reimbursements of up to 50 percent of actual
expenses. The Israeli government requires exporters to provide receipts before granting
reimbursements.
On July 10, 1986, the Export Promotion Committee of the Ministry of Agriculture determined at its
annual meeting that effective October 1, 1986, no export promotion funds would be provided for
promotion of cut flowers in the United States market.
We verified that during the review period Shemi received funds for general
advertising of all products in all markets, and Agrexco received funds for promotion of all flowers
in the United States and Canada. We also verified that Shemi used a portion of these funds for the
promotion of carnation plants and cuttings, rather than for flowers.
Because assistance under this program provides cash payments and is available only to exporters,
we determine it is countervailable. To estimate the benefits Shemi received on exports to the
United States, we multiplied the value of the funds Shemi received for export promotion for flowers
for all markets during the review period by the ratio of Shemi's U.S. exports to its total exports. We
calculated the ad valorem benefits from this program by dividing the compensation Shemi and
Agrexco received on their exports to the United States by the value of their U.S. exports during the
review period. This resulted in an estimated net subsidy of 0.80 percent ad valorem.
The Export Promotion Financing Fund is overseen by the Israeli government's Export Promotion
Committee. This committee meets once a year to review the past administration of the fund and to
set policy for the future. During its most recent annual meeting on July 10, 1986, the committee
voted to eliminate as of October 1, 1986, any benefits under the fund for the export of flowers to the
United States. When the government in question institutes a program-wide change prior to our
preliminary determination and when that change results in complete cessation prior to our
preliminary determination of
benefits under the program, it is our policy to take that change into account by not including the
estimated net subsidy from this program for duty deposit purposes. We are satisfied here that the
Export Promotion Committee's action constitutes such a program-wide change. We have
accordingly not included the estimated net subsidy from the Export Promotion Fund in the duty
deposit rate.
C. Long-Term Development Loans to Agrexco
Agrexco received four long-term development loans which had balances outstanding during the
review period. Fixed-rate loans were reciveived in 1971 and 1973, and two variable rate loans
linked to the Consumer Price Index (CPI) were received in 1980.
These loans were not provided under the Encouragement of Capital Investments in Agriculture
Law (ECILA), or under the development budget of the Ministry of Agriculture. (See section II.D. of
this notice, which discusses development loans for agriculture.) The Government of Israel did
not provide us with information concerning selection criteria for these loans, nor did it provide us
with information on the distribution of loans under this program. Because we have no information
on 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.
To determine if these loans are provided on terms inconsistent with commercial considerations, we
compared them to a commercial benchmark interest rate. Because there is no fixed-rate long-term
borrowing in Israel, we have used as our benchmark the short-term NIS interest rate
prevailing in the review period. Based on this comparison, we find that the loans were provided on
terms inconsistent with commercial considerations. Therefore, we determine these development
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 the review period by the value of total sales of Agrexco and Shemi
during the review period, we calculated an estimated net subsidy of 0.04 percent ad valorem.
D. Government Support of the Flower Board
Petitioner alleges that the Government of Israel may provide funds directly to the Ornamental
Plants Production and Marketing Board (Flower Board) or may reduce the Flower Board's expenses
by providing staff. The Flower Board is a statutory body established by the Ornamental Plants
Production and Marketing Board Law of 1976. The Flower Board is appointed by the Israeli Cabinet
acting through the Ministers of Agriculture and Commerce and Industry. However, the
Government provides no staff to the Board.
In its responses, the Government of Israel stated that no government support had been
provided to the Flower Board. At verification, however, we found that the Flower Board had
received funds from the Ministry of Agriculture in the year prior to the review period. The
Government of Israel attempted to establish that funds provided by the Ministry of Agriculture
to the Flower Board were not intended to support the general activities of the Board, but rather
were provided for a research project on ocean transport of flowers. The government claimed that
the results of the study were public.
Based on the information provided, we were unable to verify that the Ministry of Agriculture
specifically required that the funds be used for this research project. Furthermore, a similar sum of
money had been provided by the Ministry of Agriculture in the previous year, also for unspecified
purposes. Because respondents did not provide us with the budget of the Flower Board for the
review period, we determine on the basis of the best information available that the Government of
Israel provided financial support to the Flower Board in the review period and that this
financial support is countervailable.
To calculate the benefit from this assistance, we divided the amount of financial support provided
to the Flower Board during the year prior to the review period by the value of flower
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exports during the review period. The estimated net subsidy is 0.07 percent ad valorem.
E. Fuel Grants and Low-Cost Credit
In 1982, the Israeli Institute for Farm Research published a survey on the profitability of rose
production in the 1980/81 season. This study states that gross income for rose growers included
grants for fuel expenses and interest savings on low-cost credit. Petitioner requested that we
investigate such benefits.
We verified that Agrexco and Shemi did not receive fuel grants or so-called "low-cost credit" during
the review period, but we were unable to verify that growers of cut flowers did not receive these
benefits. Although the Government of Israel maintained that the program had been
discontinued, they failed to provide evidence of termination of the program or non-receipt of
benefits by the growers.
In the Department's recent administrative review under section 751 of the Act, Fresh Cut Roses
from Israel; Final Results of Countervailing Duty Administrative Review and
Determination Not to Revoke Countervailing Duty Order (51 FR 44498, December 19,
1986), we determined the benefit from this program to be 1.81 percent ad valorem. On the basis of
this determination as the best information available, we determine that the estimated net subsidy
for cut flowers is 1.81 percent ad valorem.
. II. Programs Determined Not to Confer Subsidies
We determine that subsidies are not being provided to producers or exporters in Israel of cut
flowers under the following programs:
A. Export Financing Program
Petitioner alleges that the Government of Israel provides preferential export financing to
producers or exporters in Israel of cut flowers through three export credit funds administered
by the Bank of Israel. The Export Production Fund provides foreign currency loans to
exporters to enable them to finance export production. The Export Shipments Fund provides loans
to exporters to enable them to extend credit in foreign currency to their overseas customers.
Under the Imports-for-Exports Fund, exporters receive loans in foreign currency in order to
finance imported materials used for export production. The export financing program was referred
to in our notice of initiation as the "Export Credit Fund."
Since July 1985, the Bank of Israel has authorized commercial banks to lend specified levels of
foreign currency to exporters. The interest rate charged by the commercial banks for these foreign
currency loans is the London Interbank Offered Rate (LIBOR) plus two percent.
During the review period, Agrexco and Shemi received dollar loans under the export financing
program. Because only exporters are eligible for these loans, we determine that they are
countervailable to the extent that they are provided as preferential rates.
Dollar loans are not otherwise available in Israel, and we were not able to obtain benchmark
interest rates for these loans from independent sources. In Potassium Chloride from Israel:
Final Affirmative Countervailing Duty Determination (49 FR 36122, September 14, 1982),
we found that the appropriate benchmark for short-term foreign currency loans was LIBOR plus
two percent. Based on information received at verification concerning offers for short-term foreign
currency loans, we consider that this is still the appropriate benchmark.
Comparing the benchmark interest rate to the rates charged on these loans, we determine that
none of the loans were provided at preferential rates, and, thus are not countervailable.
B. Grants Under the ECILA
The ECILA came into effect in April 1981, to encourage capital investments in agriculture. To
accomplish this, the ECILA provides investment and drawback grants for approved agricultural
enterprises. Investment grants are provided
for a portion of the investment. Drawback grants relate to taxes on investment. ECILA grants were
also referred to as "Cash Payments to Growers for Greenhouses" and "Cash Payments to Packing
Houses" in our notice of initiation.
Persons requesting ECILA grants apply to a regional office of the Ministry of Agriculture. The
regional office forwards the application together with its recommendation to the national office of
the Ministry, which in turn makes its recommendation to the Agricultural Investment Authority.
This Authority decides whether to approve the request. If approved, the grant is paid upon
completion of the project or upon specified stages of completion. Since the beginning of this
program in 1981, producers and exporters of cut flowers have received both investment and
drawback grants.
We verified that grants have been received by agricultural enterprises of all types throughout
Israel, and, that the grants are not contingent upon export performance or limited to
companies in specific regions of the country. Therefore, we determine that the program is not
countervailable.
C. Preferential Accelerated Depreciation and Other Tax Benefits Under ECILA
The ECILA provides tax benefits for approved enterprises. The text of the ECILA indicates that
producers that receive "approved undertaking" status are
automatically eligible for ECILA tax benefits. We verified that ECILA grants to "approved
undertakings" were provided throughout the entire agricultural sector. Therefore, we determine
that these tax benefits are not limited to a specific enterprise or industry, or group of
enterprises or industries. In addition, we verified that Agrexco, which was not eligible for
ECILA benefits, received no benefits from preferential tax provisions since its tax liabilities
were not affected by the application of these provisions.
D. Development Loans for Agriculture
Development loans were the primary source of institutional long-term credit in the agriculture
sector until they were abolished in 1985. This program is also referred to in the notice of initiation
as "Long-Term Loans to Packing Houses/Exporters." Development loans in the agricultural sector
were provided as part of the development budget of the Ministry of Agriculture. Shemi had
development loans approved by the Ministry of Agriculture on which principal was outstanding
during the review period.
We verified that the agricultural development loans were given on the same terms to virtually all
agricultural producers, irrespective of region or development zone and irrespective of export
performance. Accordingly, we determine that the program is not countervailable.
E. General Research and Development Programs
Petitioner believes that exporters of cut flowers are benefitting from research and development
programs funded by the Government of Israel.
We verified that the Government of Israel sponsors and carries out a great deal of agricultural
research in all fields by grants to universities and research institutions. Results of basic
and general research are widely published in Israel and abroad.
Since the results of these research and development activities are made available for public use, we
determine that these programs are not countervailable.
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F. Government Funding of Agrexco and Purchase of Agrexco Shares
Petitioner alleges that the Government of Israel provided funds, in the form of cash grants or
purchases of equity, to Agrexco.
We verified the government's funding of Agrexco consisted of government purchases of shares in
the company. Agrexco is a non-profit company which acts as the seller, marketer, and distributor
of all types of Israeli agricultural products. Most of Agrexco's stock is owned by agricultural
producers and not
the government. Since Agrexco operates as a cooperative, it does not retain profits, but always
covers its costs and obligations. Although Agrexco is a non-profit company, it is classified as a
private company under Israeli law. We have consistently held that government provision of equity
does not per se confer a countervailable benefit. Government equity infusions bestow
countervailable benefits only when they occur on terms inconsistent with commercial
considerations.
There is no evidence in the record indicating that the purchase of Agrexco's shares was
inconsistent with commercial considerations. We verified that the government's investment was
justified by the value of Agrexco's real assets, its logistics and sales organization, its
reputation and the goodwill of its customers, and by its "Carmel" brandname. Due to these
attributes, the government could realize a reasonable rate of return on its investment in
Agrexco by sale of its equity to other parties, despite the fact that it is a not-for-profit
company. We note that the Government of Israel has in the past sold its equity in commercial
companies, including other not-for-profit companies. Therefore, we determine that the
government's purchase of equity in Agrexco does not confer a countervailable benefit.
III. Programs Determined Not To Be Used
Based on the verification of the responses of the Government of Israel, Agrexco, and Shemi, we
determine that the producers or exporters in Israel of cut flowers did not use the following
programs, which were listed in our notice of initiation:
A. Interest Subsidy Payments
Petitioner alleges that beginning on July 1, 1985, exporters in Israel of cut flowers may receive
under the Encouragement of Capital Investments Law (ECIL), grants from the Government of
Israel for the rebate of interest on loans provided by commercial banks. We verified that
Agrexco and Shemi did not receive any benefits under this program, and that agricultural
enterprises including the flower industry are not eligible to receive benefits under the ECIL
program.
B. Government-Guaranteed Minimum Price Program
The Ministry of Agriculture operates a program to guarantee a minimum income to farmers on
their crops in case of bad marketing conditions. The government determines a national level of
production to be covered by the guarantee program, sets a minimum price based on expected
market conditions, and pays
half of the difference between the guaranteed price and the actual average market price, if the
market price is lower than the guaranteed price.
We verified that no claims or payments were made under this program for carnations or gerbers
during the review period.
C. Capital Fund for Agrexco
Agrexco's 1979/80 financial statement shows that a capital fund for Agrexco was created from
Ministry of Agriculture investment grants.
We verified that Agrexco's capital fund was created in 1968, and that it has not received any
investment grants since then. We allocate grants over the average useful life of renewable physical
assets in the industry involved, as determined by the U.S. Internal Revenue Service in the 1977
Class Life Asset Depreciation Range System. According to our grant methodology, grants bestowed
in 1968 only bestow benefits for ten years in the flower industry. As a result, benefits are no longer
accruing from these grants.
D. Rebate of Export Insurance Premiums
Petitioner alleges that exporters of cut flowers receive rebates of export insurance premiums from
the Government of Israel. We verified that Agrexco and
Shemi did not hold export insurance, other than Exchange Rate Risk Insurance, during the review
period.
E. Encouragement of Industry (Taxes) Law (EIL)
Petitioner alleges that producers or exporters in Israel of cut flowers may receive benefits
under the following sections of the EIL: Preferential accelerated depreciation, reduction in income
tax rates, and tax deductible inventory adjustment. We verified that Agrexco and Shemi did not
claim any of these benefits during the review period and that growers are not eligible for EIL
benefits.
F. Other Benefits Referenced in the ECIL
The Foreword to the Encouragement of Capital Investments Law (ECIL) makes reference to benefits
in the form of labor training supported by the Ministry of Labor.
We verified that Shemi and Agrexco did not receive any benefits from the Ministry of Labor, and that
cut flower growers are not eligible for benefits by virtue of the fact that agricultural producers
receive benefits only under ECILA.
G. Specific Research and Development Funding
Research undertaken on behalf of the Government of Israel under contract with outside parties
is disseminated according to the terms of the contract. We verified that Agrexco and Shemi did not
receive any grants for research and development or participate in any government-sponsored
research and development programs. In addition, we found no evidence indicating that specific
research and development funding was provided for the products under investigation.
IV. Program Determined To Be Terminated Property Tax Exemption on Equipment
Petitioner alleges that producers or exporters in Israel of cut flowers may claim tax benefits
under the ECIL that allow eligible enterprises a 10-year exemption from payment of one-sixth of
property taxes on equipment. We verified that property taxes were abolished for all taxpayers in
Israel as of April 1, 1981. Accordingly, no property taxes were assessed against any company
in Israel from 1981 through 1984. A new special temporary property levy was introduced on
April 1, 1985, and was enacted in August 1985 under the Property Levy Law. These taxes were
applicable to all companies in Israel, and no company was exempt from the tax. Currently, no
property taxes are in effect with respect to any company in Israel.
Petitioner's Comments
Comment I: Petitioner argues that the appropriate test for determining whether Agrexco and
Shemi received preferential accelerated depreciation and other tax benefits under the ECILA is
whether, absent use of these benefits, there would have been a tax liability.
DOC Position: We found the ECILA program to be available and provided to the entire agriculture
sector and, therefore, not countervailable. In
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addition, we verified that Shemi would have had no tax liability in the review period even if it had
not used accelerated depreciation and other tax benefits. Finally, since Agrexco is not a producer
of agricultural products, it is not eligible for any ECILA benefits.
Comment 2: Petitioner contends that even if all enterprises and individuals within the agricultural
sector received identical benefits under the ECILA grant program, the program would still be
countervailable given its limitation to the agricultural industry or group of industries. The program
is clearly distinguishable from, for instance, government construction of highways intended to
assist the entire population and not a particular industry or enterprise. See e.g., Cabot Corp. v.
United States, 620 F. Supp. 722 (1985).
DOC Position: We disagree. To the extent that Cabot supports the proposition
that generally available benefits may be countervailable, we disagree with the decision of the court.
The Court vacated its remand order on mootness grounds by order dated November 20, 1986,
Consol. Court No. 83-7-01044. Furthermore, the decisions of the Court of International Trade in
Carlisle Tire and Rubber Co. v. United States, 6 CIT 229 (1983) and Al Tech Specialty Steel Corp. v.
United States, 12, CIT , Slip Op. 86-124 (December 1, 1986) clearly support our position on
specificity, which is that benefits provided to more than a specific enterprise or industry, or group
of enterprises or industries, are not countervailable.
Comment 3: Petitioner contends that the export financing program is countervailable. Petitioner
alleges that Agrexco and Shemi are uncreditworthy and would not have had access to foreign
currency loans at a rate of LIBOR plus two percent on the commercial market. Furhermore,
because Agrexco transfer to growers funds it receives under the export financing program, the
Department must determine whether the growers were creditworthy. Finally, petitioner argues
that, even if they are creditworthy, neither the Israeli growers, Agrexco, nor Shemi would be able
to obtain loans at the rate of LIBOR plus two percent. The Department's reliance in the preliminary
determination on the Government of Israel's representation that the benchmark for foreign
currency loans should be LIBOR plus two percent is incorrect. While this is the commercial rate at
which Israeli banks are able to raise funds are relend on a
profitable basis, it does not represent the rate available to Agrexco, Shemi and the growers. The
advantage bestowed by a subsidy is measured by the value of the benefit to the recipient, not the
cost of the loan to the Israeli banks.
DOC Position: Petitioner's uncreditworthiness allegation is untimely as it was not made until
December 8, 1986, after the verification was completed. Furthermore, in accordance with the
Subsidies Appendix, when we calculate benefits from short-term loans we do not treat
uncreditworthy companies differently from creditworthy companies.
We agree that the benchmark for short-term loans should be based upon the rate for comparable
commercial loans, rather than the cost of the loans to the Israeli banks. We have determined that
the rate of LIBOR plus two percent is available to Israeli companies borrowing foreign currency.
(See our discussion in section II.A.) Since Agrexco is the borrower and obligated to repay the
loans, what Agrexco does with the money is irrelevant and there is no need to look at the
creditworthiness of the growers.
Comment 4: Petitioner maintains that the development loans, which were provided by the Ministry
of Agriculture, are countervailable because the government has discretion in granting the loans.
The different sectors of agriculture receiving loans represent a specific group of enterprises or
industries and, hence, these benefits are countervailable.
DOC Position: We disagree. We verified that development loans provided by the
Ministry of Agriculture were given to virtually all types of agricultural commodities at the same
interest rate regardless of location. The Department has consistently held that benefits available
and provided to the entire agricultural sector of a country are not countervailable (See, e.g., Final
Negative Countervailing Duty Determination, Fresh Asparagus from Mexico (48 FR 21613,
May 13, 1983)).
Comment 5: Petitioner contends that in determining whether benefits from research and
development programs are generally available, the Department must look behind the apparent
range of beneficiaries to determine who in fact is intended to benefit. The Court of International
Trade has held that "it is immaterial whether the information is disseminated to all groups, but
whether the research and development is targeted to assist a particular, rather than a general
industry . . . If the research is targeted to the production of roses, it is a subsidy." Agrexco v.
United States, 604 F. Supp. 1238, 1241-42 (CIT 1985).
DOC Position: In determining whether research and development programs are countervailable,
we examine whether the results of such programs are publicly available. At verification, we found
that research and development support was provided by the Ministry of Agriculture to universities
and research institutions and that the results of this research were publicly available worldwide.
Under these circumstances, we have found research and
development not countervailable. The decision cited by the petitioner, Agrexco v. United States,
604 F. Supp. 1238 (CIT 1985), is not binding. On July 3, 1985, the United States moved the CIT to
vacate that part of its opinion which remanded the case to the Department. Because the CIT has not
yet ruled on this motion, the decision is not yet a final judgment.
Comment 5: Petitioner contends that based on the reasoning of the Subsidies Appendix and the
decision in Stainless Steel Plate from the United Kingdom; Final Results in Countervailing
Duty Administrative Review (51 FR 44656, December 11, 1986), the government's equity
purchases in Agrexco are inconsistent with commercial considerations and should be allocated in
accordance with the Department's grant methodology. Since Agrexco is a not- for-profit company,
and its shares are not publicly traded, but are held only by the agricultural cooperatives and
boards and by the government, the government's purchase of Agrexco's shares is inconsistent with
commercial considerations. The Department must place itself in the position of a private investor
assessing the prospects of the company at the time of th investment to determine whether the
purchases were consistent with commercial considerations.
DOC Position: We disagree that the government's purchase of Agrexco's shares was inconsistent
with commercial considerations. We verified that Agrexco operates a world-wide marketing
system with an annual turnover of more than 200 million dollars, and that its trademark and
goodwill have significant value.
Therefore, we cannot conclude that the government's equity purchases were inconsistent with
commercial considerations.
Comment 7: Petitioner maintains that the Department was unable to verify that flower growers did
not benefit from the fuel grants and low-cost credit program. Petitioner contends that, as best
information available, the Department should use the ad valorem benefit found in the recent
section 751
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review determination concerning fresh cut roses from Israel.
DOC Position: We agree. We verified that neither Agrexco nor Shemi benefitted from this program,
but we were unable to verify that flower growers did not receive benefits from this program. During
verification, the Israeli government contended that references to this program originated in a
report by the Institute of Farm Income Research, entitled, "The Profitability of the Greenhouse
Sector in 1980/81." The government provided a letter dated November 3, 1986, from the manager
of the Institute, stating that the fuel grants program operated in 1980/81, but was discontinued
after one year, and that it has not been reintroduced. The letter further stated that the manager did
not believe cut flower growers had received fuel grants. The letter also maintained that the
subsidized credit mentioned in the report represented the difference between the real value of
credit and the cost of actual credit that was extended to rose growers by exporters, and that
exporters received this credit under the Bank of Israel export financing program.
However, the Israeli government did not provide us with documentation concerning the
termination of this program, and we have no information on the actual utilization of the program
by flower growers during the program's operation. Therefore, we have concluded on the basis of
best information available, that benefits were provided to growers of cut flowers under this
program.
Comment 8: Petitioner contends that respondents did not support their claim that the Ministry of
Agriculture did not contribute to the Flower Board's 1985/86 budget. The record is clear that the
Ministry of Agriculture in two prior years made contributions to the Flower Board's budget, and
there is no indication that the Ministry discontinued its contributions. In the absence of
verification of non-receipt, the Department should presume, as best information available, that the
Ministry of Agriculture provided the Board during the review period with the same sum it has
provided in each previous year.
DOC Position: We agree. See section I.D. of this notice.
Comment 9: Petitioner contends that, even if benefits under the export promotion financing fund
are no longer provided on flower exports to the United States, the duty deposit rate for this
program should not be zero. Petitioner believes that the budget of the fund has not been reduced
out, rather, funds under the program have simply been allocated away from the United States to
other countries. Given the fungibility of money, freeing funds in the
exporter's third country promotion budget for use in promoting exports to the United States can
result in the same benefits as previously were conferred by directly funding export promotion to
the United States.
DOC Position: We disagree. We have no evidence indicating that the Israeli government is
increasing export promotion financing on cut flowers to other countries. Moreover, even if
benefits for shipments to the third countries were increased, there would be no benefit on exports
of cut flowers to the United States, since funds under this program are granted to reimburse
specific expenses. Although market-specific or product-specific benefits may have the effect of
reducing a company's total expenses, the Department's policy is to allocate such benefits entirely
to the market or product which they were intended to benefit.
Comment 10: Petitioner objects to the Department's decision to permit the respondents to limit
their response to data covering the 1986 fiscal year, rather than also providing information
covering the 1985 fiscal year.
DOC Position: We withdrew our request for 1985 fiscal year data on September 17, 1986, because
the 1986 fiscal year (October 1 through September 30) represents the most recent period for which
data are available. The 1986 fiscal year is subsequent to Israel's signing of the Free Trade
Agreement with the United States and becoming a signatory of the Subsidies Code, which changed
its export financing program. Furthermore, since the growing season ended in
May, all exports of cut flowers had ended for fiscal year 1985. In addition, verification was
conducted in November, after the completion of the 1986 fiscal year. Therefore, it was unnecessary
for the respondents to supply data for the 1985 fiscal year.
Respondents' Comments
Comment 1: Respondents argue that ECILA grants are not countervailable because these grants are
awarded to producers in all sectors of agriculture without regard to location, and the grants are not
tied to export performance.
DOC Position: We agree. We verified that the ECILA grants are available and provided to the entire
agricultural sector in Israel, and the grants were not contingent upon export performance.
Comment 2: Respondents maintain that the development loans for agriculture are not
countervailable, because they were granted to producers in all sectors of agriculture, and there
was no preference for specific products or regions of the country.
DOC Position: We agree that the agricultural development loans are not countervailable. We
verified that they were available to, and provided on, equal terms to the entire agricultural sector.
Comment 3: Respondents contend that ECILA tax benefits should be considered
generally available for the same reasons that the ECILA grants should not be found
countervailable. In addition, both Agrexco and Shemi demonstrated that they would not have paid
taxes during the review period even absent the application of the ECILA tax benefits. Therefore,
Agrexco and Shemi did not benefit from this program.
DOC Position: We agree. We verified that ECILA tax benefits are available to the entire agricultural
sector in Israel and that Agrexco and Shemi did not benefit from ECILA tax benefits during the
review period. See section II.C. of the notice.
Comment 4: Respondents contend that the Exchange Rate Risk Insurance Program is structured
and operated on sound commercial considerations and is not a countervailable subsidy. The
program operates as a risk insurance program designed to balance over time. Because the program
has been operating for only about five years, the Department cannot conclude that long-term costs
will not be met my premiums. Moreover, this program merely attempts to restore exporters to
approximately the same position they would have enjoyed had the domestic economy not eroded
their profits during the period of time between the establishment of a contract price for exported
goods and the receipt of payment. Therefore, this program does not provide exporters with a
benefit.
DOC Position: We disagree. (See Final Affirmative Countervailing Duty Determination: Oil
Country Tubular Goods from Israel (52 FR 1649, January 15,
1987)). 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 approach is consistent with
Paragraph (j) of the Annex to the Agreement on Interpretation and Application of Articles VI, XVI,
and XXIII of the
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General Agreement of 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 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
conclude that the premiums and other charges levied by EIS are
minifestly inadequate to cover its long-term operating costs and losses.
Finally, we believe that the EIS program does provide a benefit to exporters. Exporters who do not
participate in this program must absorb the losses that result when the rate of inflation in Israel
exceeds the rate of devaluation of the shekel.
Comment 5: Respondents maintain that benefits accorded under the export promotion financing
fund were overstated in their responses because of errors in reporting. The Department should use
the corrected and verified amounts of benefits for the review period. In addition, as was verified,
the program has been eliminated for promotion of flowers to the United States, so the duty deposit
rate should be zero on this program.
DOC Position: We agree. Section 776(a) of the Act requires us to use verified information for our
final determination. It is our stated policy to take into account a verified program-wide change,
which occurs after the review period, but prior to the preliminary determination, if no benefits are
still accruing under the program, by adjusting the duty deposit rate.
Comment 6: Respondents contend that government ownership of shares in Agrexco is not a
subsidy because the ownership constitutes a commercially sound equity purchase rather than a
grant. It was demonstrated at verification that Agrexco's shares have substantial commercial
value. The Government of Israel does sell its shares in government companies, and if Agrexco's
shares were sold the government would expect to realize a profit.
DOC Response: We agree. We verified that Agrexco operates a world-wide marketing system with
annual turnover of more than 200 million dollars. Since Agrexco operates as a cooperative, it does
not retain profits, but it always covers its costs and obligations. We also verified that Agrexco's
trademark, "Carmel," contains significant value. We found no evidence indicating that the
government's purchase of Agrexco's shares was not a commercially sound equity purchase. The
Government of Israel is free to sell all or part of Agrexco's shares at any time.
Comment 7: Respondents contend that the position of Agrexco is distinguishable from that of
British Steel in Stainless Steel Plate from the United Kingdom; Final Results of Countervailing
Duty Administrative Review (51 FR 44666, December 11, 1986), which petitioner cites as
providing the applicable standard to show that government ownership in Agrexco is a subsidy. In
British Steel the government was the only shareholder, while in the case of Agrexco, the
government is only one of several shareholders. The government has always paid the same price
for Agrexco's shares as other investors have paid. The percentage of government ownership in
Agrexco has decreased in recent years because Agrexco has issued additional shares to its other
shareholders. Agrexco is a viable company, that operates as a cooperative and always covers its
costs and obligations. By contrast, British Steel was "a dying concern
bolstered by the government infusions of equity." Despite the fact that Agrexco does not pay
dividends, ownership of Agrexco is a valuable asset.
DOC Position: We agree that the position of Agrexco is distinguishable from that of British Steel.
There is no evidence in this case that the government's investment in Agrexco was inconsistent
with commercial considerations.
Comment 8: Respondents contend that the export financing programs are not countervailable. All
loans under these programs during the review period were made and repaid in foreign currency at
the interest rate of LIBOR plus two percent. These programs do not represent government lending
because commercial banks lend the foreign currency out of money they themselves raise. The
government's role is to limit the volume of foreign currency lending because of currency controls
and to set a maximum interest rate. Moreover, it is irrelevant that Agrexco distributes to growers
money it borrows under this program, because Agrexco is liable for repayment.
DOC Position: We agree that these programs did not provide benefits to growers or exporters of cut
flowers during the review period because the interest rate did not exceed the benchmark.
However, we disagree that the program is not countervailable due to the fact that commercial
banks lend the money out of funds they raise. Financing required by government action, even if the
government is not the source of funds, can provide a subsidy. See, e.g., Final
Affirmative Countervailing Duty Determination: Oil Country Tubular Goods from Israel
(52 FR 1649, Jan. 15, 1987).
Verification
In accordance with section 776(a) of the Act, we verified the information and data used in making
our final determination. During verification, we followed normal verification procedures, including
meetings with government officials and inspection of documents, as well as on-site inspection of
the accounting records of the responding companies.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to
continue to suspend liquidation of all entries of cut flowers from Israel which are entered, or
withdrawn from warehouse, for consumption on or after October 27, 1986. As of the date of
publication of this notice in the Federal Register, the Customs Service shall require a cash deposit
or bond of 10.79 percent ad valorem for each entry of this merchandise from Israel.
ITC Notification
In accordance with section 705(d) of the Act, wel will notify the ITC of our determination. In
addition, we are making available to the ITC all nonprivileged and nonproprietary information
relating to this investigation. We will allow the ITC access to all privileged and proprietary
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 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,
*3324
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 cut flowers from Israel, entered or withdrawn
from warehouse, for consumption, as described in the "Suspension of Liquidation" section of this
notice.
This determination is published pursuant to section 705(d) of the Act (19 USC 1671d(d)).
Lee W. Mercer,
Acting Assistant Secretary for Trade Administration.
January 27, 1987.
[FR Doc. 87-2128 Filed 2-2-87; 8:45 am]
BILLING CODE 3510-DS-M