52 FR 25447
NOTICES
DEPARTMENT OF COMMERCE
[C-508-605]
Final Affirmative Countervailing Duty Determination: Industrial Phosphoric
Acid From Israel
Tuesday, July 7, 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 manufacturers,
producers, or exporters in Israel of industrial phosphoric acid (IPA). The estimated net
subsidies and duty deposit rates are indicated in the "Suspension of Liquidation" section of this
notice. In addition, we determine that critical circumstances do not exist in this case.
We have notified the U.S. International Trade Commission (ITC) of our determinations. If the ITC
determines that imports of IPA materially injure, or threaten material injury to, a U.S. industry, we
will direct the U.S. Customs Service to resume suspension of liquidation of all entries of IPA from
Israel that are entered or withdrawn from warehouse, for consumption, on or after the date of
publication of our countervailing duty order and to require a cash deposit on entries of the
subject merchandise in an amount equal to the appropriate estimated net subsidy as described in
the "Suspension of Liquidation" section of this notice.
EFFECTIVE DATE: July 7, 1987.
FOR FURTHER INFORMATION CONTACT: David Levine 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:
202/377-1673 (Levine), 202/377-0160 (Taverman).
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that 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 IPA. For purposes of this investigation, the
following programs are found to confer subsidies:
- Encouragement of Capital Investments Law Grants
- Long-Term Industrial Development Loans
- Bank of Israel Export Production Fund Loans
- Bank of Israel Export Shipment Fund Loans
- Bank of Israel Import-for-Export Fund Loans
- Exchange Rate Risk Insurance Scheme
- Encouragement of Research and Development Law Grants
Case History
Since the last Federal Register publication pertaining to this case [the
notice of extension of the deadline date for this final determination (52 FR 5321, February 20,
1987)], the following events have occurred. We conducted verification in Israel from March 23
through April 3 and from May 10 through May 22, 1987, of the questionnaire responses of the
Government of Israel and Negev Phosphates Ltd (NPL).
Petitioners, NPL, and the Israeli government filed briefs on June 10 and rebuttal briefs on June 12,
1987, and waived their respective rights to a hearing in this case. On June 8, 1987, Haifa filed
comments on our preliminary determination.
Scope of Investigation
The product covered by this investigation is industrial phosphoric acid (IPA), currently
provided for in item
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416.30 of the Tariff Schedules of the United States.
Analysis of Programs
Throughout this notice, we refer to certain general principles applied to the facts of the current
investigation. These 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 final determination, the period for which we are measuring subsidization ("the
review period") is April 1, 1985, through March 31, 1986. In their responses and at verification, the
Government of Israel and NPL provided data, including financial statements, for the applicable
period.
There are two known manufacturers, producers, or exporters in Israel of IPA, NPL and Haifa.
Haifa did not respond to our questionnaire and we were not able to verify any information related
to Haifa, except for Government of Israel export statistics. Therefore, under each
countervailable program we calculated benefits to Haifa based on the best information available.
As best information available, we used the higher of either the rate we calculated for NPL (the other
company under investigation) or a rate found in a past Israeli case.
We have calculated a company-specific estimated net subsidy rate in this final determination for
Haifa because its estimated net subsidy rate is significantly different than the weighted-average
country-wide rate (the weighted-average of NPL's and Haifa's rates). Since Haifa and NPL are the
only two known producers and exporters of IPA in Israel, and since we have calculated a
company-specific rate for Haifa, the estimated net subsidy for NPL and all others equals NPL's
estimated net subsidy rate.
Based upon our analysis of the petition, the responses to our questionnaire,
verification, and written comments filed 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 IPA under the following programs:
A. The Encouragement of Capital Investments Law (ECIL) Grants
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, drawback grants, and capital grants,
accelerated depreciation, and reduced tax rates, the applicant must obtain approved enterprise
status. We discuss ECIL tax programs below under the section entitled "Programs Determined Not
to be Used."
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 grant benefits
received by approved enterprises depends on the geographic location of the eligible enterprise.
For purposes of the ECIL, Israel is divided into three zones--Development Zone A,
Development Zone B, and the Central Zone--each with a different funding level.
We verified that, since 1978, only investment projects outside the Central Zone have been eligible
to receive grants. The Central Zone comprises the geographic center of Israel including its
largest and most developed population centers. Because the grants are limited to enterprises
located in specific regions, we determine that they constitute subsidies within the meaning of the
Act.
NPL, which is located in Development Zone A, received ECIL investment, drawback, and capital
grants for several projects. We verified that NPL's production at its Oron and Zin plants, where all
but two of the funded projects were located, was unrelated to its IPA production. For the other two
projects, some of the grants applied entirely to NPL's IPA production facility and some were for
another facility. We verified that only 5.3 percent of the sales value of this other facility's
production was devoted to the production of IPA and have, therefore, included only 5.3 percent of
those grant values in our calculation of the benefit.
To calculate the benefit, we allocated these grants over ten years (the average useful life of assets in
the chemical manufacturing industry, as determined under the U.S. Internal Revenue Service's
Asset Depreciation Range System). 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. In
this instance, however, NPL has no significant fixed-rate long-term debt. Instead, virtually all of its
long-term loans bear variable interest rates. Therefore, we have used the interest rate in effect
during the review period for non-preferential Israeli-sourced loans taken out in the same years that
the grants were given as the discount rate. We have used those variable interest rates charged on
dollar-linked long-term industrial development loans in the Central Zone (see next section). Based
on this allocation methodology, we computed the benefit for IPA during the review period and
then divided this amount by the value of NPL's total IPA sales during the review period. The
estimated net subsidy for NPL is 0.48 percent ad valorem. As best information available, we
determine that the estimated net subsidy for Haifa is 1.18 percent ad valorem based on our Final
Affirmative Countervailing Duty Determination: Potassium Chloride from Israel
(Potash) (49 FR 36122, September 14, 1984).
B. 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. We verified that these loans, like the ECIL grants,
were project-specific. They were
disbursed through the Industrial Development Bank of Israel (IDBI) and other industrial
development banks which no longer exist.
We verified that the long-term industrial development loans are provided to a diverse number of
industries, including agricultural, chemical, mining, machine, and others. However, the interest
rates charged on these loans vary depending on the Development Zone location of the borrower.
The interest rates on loans to borrowers in Development Zone A are lowest, while those on loans to
borrowers in the Central Zone are highest. Therefore, loans to companies in Zones A and B are at
preferential terms relative to loans received by companies in the heavily populated and developed
Central Zone. Because preferential terms are limited to companies located in certain regions, we
determine that these loans are regional subsidies, countervailable to the extent that the applicable
interest rates are less than those on loans to companies in the Central Zone.
NPL had loans outstanding under this program during the review period for projects at five of its
plants, four of which are unrelated to IPA production and one of which is a rock processing facility
which produces an input for IPA. The loans provided for this plant carry
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the Zone A interest rates because of NPL's location. Therefore, we determine that NPL received
countervailable benefits under this program because the interest rates charged NPL are less than
those which would apply in the Central Zone.
To calculate a benefit under our normal long-term loan methodology, we would
calculate the present value of interest savings accuring over the life of the loan and allocate that
amount using an appropriate discount rate. However, the loans under this program have variable
interest rates linked to changes in the dollar-shekel exchange rate. Therefore, we cannot calculate
the present value of the interest savings, nor is there a single discount rate for allocating the
benefits over time. Because of this, we have compared the interest that would have been paid on
the variable-rate benchmark loan (i.e., a loan available to firms in the Central Zone) to the interest
paid on the preferential loan during the review period. We divided the difference in these amounts
by NPL's total sales of IPA during the review period, which resulted in an estimated net subsidy of
0.06 percent ad valorem for NPL.
In this case, we were able to verify at the government that the interest rate on loans to companies
located in the Central Zone is not limited and we were able to verify at NPL complete information
concerning these loans. Accordingly, we used verified information for calculating the benefit
received by NPL. However, we have no verified information concerning Haifa's use of long-term
development loans, i.e., loan amounts, terms and conditions of the loans, and interest rates paid.
Therefore, we cannot apply to Haifa the methodology used to calculate NPL's benefit. As such, we
have relied on the rate found in our Final Affirmative Countervailing Duty Determination:
Oil Country Tubular Goods from Israel (OCTG) (52 FR 1649, January 15, 1987) as best
information available (BIA) for purposes of estimating the net subsidy received by Haifa. Applying
the highest rate found in a prior investigation is a standard Departmental practice for purposes of
establishing a BIA rate. Therefore, the estimated net subsidy for Haifa is 5.02 percent ad valorem.
C. Bank of Israel Export Loans
The Government of Israel provided preferential short-term financing in local and foreign
currencies to exporters in Israel through three export credit funds administered by the Bank of
Israel (BOI).
In cases in which program-wide changes have occurred prior to a preliminary determination and
where the changes are verifiable, the Department's practice is to adjust the duty deposit rate to
correspond to the eventual duty liability. We have verified that since July 1985 the loans under
these funds are provided only in foreign currencies and are no longer at preferential terms.
Accordingly, we have taken this change into account by not including the BOI export loan benefits
in the duty deposit rate.
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, NPL received
loans under this program denominated in NIS prior to July 1985, and in U.S. dollars after July
1985.
Because only exporters are eligible for these loans, we determine that they are countervailable to
the extent that they are provided at preferential rates. We used as our benchmark for the
NIS-denominated loans the national average non-directed short-term NIS lending rate, as
provided by the BOI, adjusted for inflation. Comparing this benchmark to the interest rates charged
on these loans, we determine that the loans were provided at preferential rates prior to July 1985
and are, therefore, countervailable. Dollar loans are not otherwise available in Israel and we
were not able to obtain a benchmark interest rate for these loans from independent sources. We
therefore used the benchmark applied to dollar loans under the Export Shipment Fund (see next
section) in Potash and OCTG, which is the London Interbank Offered Rate (LIBOR) plus two percent.
Since NPL paid interest on the loans at our benchmark rate, we determine that the company
received no countervailable benefits under the dollar-denominated EPF loans.
To calculate the benefit from EPF loans, we allocated the interest savings over total exports during
the review period because NPL did not segregate loans provided for IPA from loans for other
products. On this basis, we calculated an estimated net subsidy of 0.65 percent ad valorem for NPL.
The estimated net subsidy for Haifa is 2.78 percent ad valorem based on OCTG.
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 determine that they are
countervailable to the extent that they are provided at preferential rates.
We verified that NPL received only dollar-denominated loans under the ESF at the interest rate of
LIBOR plus two percent. Since NPL paid interest on the loans at our benchmark rate, we determine
that the company received no countervailable benefits under the ESF. The estimated net subsidy
for Haifa is 0.41 percent ad valorem based on Potash.
3. Import-for-Export Fund (IEF). Under the IEF, exporters receive three-month loans 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.
We verified that NPL received dollar-denominated loans under the IEF during the review period,
before and after July 1985. Comparing the benchmark interest rate (LIBOR plus two percent) to the
rates charged on these loans, we determine that the pre-July 1985 loans were provided at
preferential rates and are, therefore, countervailable. To calculate the benefit from these loans, we
allocated the interest savings over total exports during the review period since NPL did not
segregate loans for IPA from loans for other products. We thereby calculated an estimated net
subsidy of 0.01 percent ad valorem for NPL. The estimated net subsidy for Haifa is 1.16 percent ad
valorem based on OCTG.
D. Exchange Rate Risk Insurance Scheme
The Exchange Rate Risk Insurance Scheme (EISA), 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 NIS value of an exporter's foreign
currency receivable 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
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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 for all participants as a percentage of the value-added
sales value of exports. IFTRIC changes this percentage rate periodically; but at any given time, it is
the same for all exporters.
In determining whether an export insurance program provides a countervailable benefits, we
examine whether the premiums and other charges are adequate to cover the program's long-term
operating costs and losses. In OCTG and Final Affirmative Countervailing Duty
Determination: Certain Fresh Cut Flowers from Israel (Flowers) (52 FR 3316, Feburary 3,
1987), we found that this program conferred a countervailable benefit on manufacturers,
producers, or exporters in Israel of oil country tubular goods and flowers. In both those cases
and in this case, we reviewed EIS data which showed that EIS operated at a loss from 1981 through
1985. In fact, in the five years of operation, there was only one month in which premiums received
were greater than compensation paid out. We believe that five years, in this case, is 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. Therefore, we determine that this
program confers an export subsidy on exports of IPA from Israel.
In calculating the benefit, we have taken into account the special features of this program. Under a
typical insurance scheme, the users pay premiums and then receive a payment if the event being
insurred against occurs. Under the Exchange Rate Risk Insurance Scheme, on the other hand, the
user can receive a payment (if the inflation rate exceeds the depreciation rate) or must make an
additional payment (if the depreciation rate exceeds the inflation rate).
Since the program has been in place, payments received by users have exceeded the payments
they have made to the scheme. Thus, users of the scheme have virtually no risk of incurring
additional payment costs, and the "premiums" serve only as a fee to obtain payment from the
scheme. Therefore, we have calculated the benefit by allocating the amount of compensation NPL
received from IFTRIC expressly for IPA exported to the United States, after deducting premiums
paid, over the value of the company's exports of IPA to the United States during the review period.
We thereby found an estimated net subsidy of 4.78 percent ad valorem for NPL. The estimated net
subsidy for Haifa is 8.87 percent ad valorem based on Flowers.
E. Encouragement of Research and Development Law (ERDL) Grants
Petitioners alleged that manufacturers, producers, or exporters in Israel of IPA may benefit
from research and development grants under this program. We verified that NPL directly received
a grant under this program, which was unrelated to its production of IPA. Petitioners also alleged
that NPL may have indirectly received benefits under this program for its IPA production through
grants provided to its parent company, Israel Chemicals Ltd (ICL). Although we were unable to
verify such grants to ICL, its 1985 Annual Report indicates that such grants were received. Since
we have verified that the results of research funded by ERDL grants are not made publicly
available, we determine these grants to be countervailable.
According to our grant methodology, we would normally gather information on such grants for the
last ten years, which is the average useful life of assets in the chemical industry. However, because
financial data were unavailable for years other than 1985, we used, as best information available,
the total value of grants listed in ICL's 1985 Annual Report, provided in the petition, as
representing the amount disbursed during the review period. We expensed this full amount to 1985
and divided by ICL's total consolidated sales, as reported in the Annual Report, to derive an
estimated net subsidy for NPL and Haifa of 0.04 percent ad valorem.
II. Programs Determined Not To Confer Subsidies
We determine that subsidies are not being provided to manufacturers, producers, or exporters in
Israel of IPA under the following programs:
A. Government of Israel Land Leases
Petitioners alleged that NPL receives preferential land leases on its IPA plant property from the
Government of Israel. We verified that the Government of Israel appraises land values
throughout Israel and neutrally applies terms on its land leases. We saw, for example, that the
government appraised NPL's IPA plant property relative to the value of a neighboring company's
property. Land lease rates are determined as a percentage of the appraised land value, and lease
payments for all lessees in Israel are annually linked to the Israeli consumer price index to
account for inflation. We verified that NPL and other companies paid land lease rates in accordance
with this established practice. We therefore determine that the Israeli government does not
provide preferential benefits under this program.
B. The Encouragement of Industry Law (EIL) Accelerated Depreciation and Further Tax Reductions
Petitioners alleged that manufacturers, producers, or exporters in Israel of IPA may receive
accelerated depreciation and further tax reductions under the EIL.
We verified that benefits under the EIL are limited neither regionally nor to specific enterprises or
industries, or groups of enterprises or industries. We
also verified that, in fact, EIL tax benefits have been used by a wide variety of industries, including
the machine, agriculture, construction, chemical, and hotel industries. Therefore, we determine
that the EIL provides no countervailable benefits to manufacturers, producers, or exporters in
Israel of IPA.
C. Provision of Rail Facilities by the Government of Israel
During our verification, we found that NPL ships its products over rail lines built by the
Government of Israel. We verified that a few chemical companies comprise the main users of
rail lines in the desert region of Israel, and that the government built these lines primarily for
use by these companies. The government determined the feasibility of constructing the lines based
on cost/profit analyses for itself and for the companies. The government made a profit on its cargo
lines during the review period.
We held in our Final Affirmative Countervailing Duty Determination and Countervailing
Duty Order: Carbon Steel Wire Rod From Saudi Arabia (51 FR 4206, 4210, February 3, 1986)
that the provision of basic infrastructure does not confer a countervailable (subsidy) when the
following three conditions are met:
(1) The government does not limit who can move into the area where the infrastructure has been built;
(2) The infrastructure that has been built is in fact used by more than a specific enterprise or
industry, or group of enterprises or industries; and
(3) Those that locate there have equal access or receive the benefits of the infrastructure on the
basis of neutral criteria.
Since we found that a limited number of chemical companies comprise almost all
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users of the rail lines in the desert region, part (2) of our test is not met.
Given that the rail lines in the desert region appear to have been built for the almost exclusive use
of a few chemical companies, we looked to see if the rates charged by the Government of Israel
on these lines are preferential to rates charged by the government on lines which are not limited to
a specific enterprise or industry, or group of enterprises or industries. The rail lines in northern
Israel carry a variety of products, including many agricultural products. The Department has
previously determined that agriculture constitutes more than a specific group of industries.
Therefore, it is appropriate to compare the rates charged on the desert lines to the rates charged on
the northern lines. We verified that NPL has paid higher rates than those charged other companies
in other regions. On this basis, we have determined that NPL does not pay preferential rail rates in
Israel.
Because NPL's rail rates are not preferential, we determine that the
provision of rail facilities in the desert region does not confer a subsidy to manufacturers,
producers, or exporters of IPA in Israel.
III. Programs Determined Not To Be Used
We determine that manufacturers, producers, or exporters of IPA in Israel did not use the
following programs during the review period:
A. Foreign Investment Company Benefits
Petitioners alleged that under Amendment 15 to the ECIL a "Foreign Investment Company" is
entitled to certain grants. NPL did not qualify for any benefits under this law.
B. Export Promotion Fund Benefits
Petitioners alleged that exporters in Israel may receive benefits under this program. We
verified that NPL received foreign currency loans under this program only for its Paris office, but
that it received no other benefits.
C. Preferential Accelerated Depreciation and Reduced Tax Rates Under the ECIL
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. We verified that NPL depreciated one of its buildings at the reate sanctioned
by this ECIL section, but that this building was not related to its IPA production or sales. We also
verified that NPL reported a tax loss, and therefore paid no taxes, on its IPA production facility
during the review period. Therefore, the preferential tax rate allowed under section 47 of the ECIL
did not apply to its IPA sales.
IV. Program Determined To Be Terminated
We determine that the following program has been terminated.
A. Property Tax Exemptions on Buildings and Equipment
Petitioners alleged that manufacturers, producers, or exporters in Israel of IPA may benefit
from tax incentives 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. We verified that the exemptions were 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.
Negative Determination of Critical Circumstances
Petitioners alleged that critical circumstances exist within the meaning of section 703(e)(1) of the
Act with respect to imports of IPA 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 on Interpretation and Application of Articles
VI, XVI, and XXIII of the General Agreement on Tariffs and Trade ("the Subsidies Code"), and (2)
there have been 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 vale 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. Therefore, we
determine that critical circumstances do not exist.
Petitioners' Comments
Comment 1: Petitioners argue that the Department should follow its preliminary determination in
finding countervailable and allocating the full amount of the grants made to the Arad rock
processing facility over NPL's total sales. The Department should not use the allocation method
proposed by respondents which is based on cost and value and relies in large part on intracompany
sales. If only a portion of benefits to the Arad rock processing plant, however, are found
countervailable, the allocation should be limited to sales from the Arad plant alone.
DOC Position: We verified that, in fact, NPL uses only a small portion of the rock processing
facility's production in making IPA. We also verified, through NPL's cost and sales records, the
relative values of the facility's production which is sold, used captively in the production of
enriched phosphate, and used in the production of IPA. Therefore, we believe the benefits from
grants provided expressly for the rock processing facility should be allocated
proportionally to the products yielded by that facility.
Comment 2: Petitioners claim that an additional investment grant which the Department
discovered during verification should be included in the calculation of the net subsidy amount.
DOC Position: We have included this grant for the Arad rock processing facility in our grant benefit
calculation.
Comment 3: Petitioners assert that the Department should include in its final determination of net
subsidies certain ECIL grants received by respondent in 1986 which are directly related to IPA
production, but which were not included in the Department's preliminary finding.
DOC Position Because NPL received these grants after the review period, we have not included
them in our grant benefit calculation. Any benefits from these grants would be covered in an
administrative review conducted by the Department under section 751 of the Act, if one is
requested.
Comment 4: Petitioners contend that certain subsidies made available to the Ashdod plant should
be included in the subsidy calculation since the facilities at the Ashdod plant are involved with IPA.
DOC Position: We verified that there is no Ashdod plant. NPL has shipping and storage facilities at
the Ashdod port. However, the port facilities for which NPL received Government of Israel
assistance relate only to its shipment of rock phosphate. NPL's IPA port facilities
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are wholly separate and did not benefit from any government assistance.
Comment 5: Petitioners claim that, with regard to the Export Shipment Fund (ESP), the Export
Production Fund (EPF), and the Import-for-Export Fund (IEF), the lack of availability of dollar
loans, except through government export programs, demonstrates their subsidy nature and their
inconsistency with commercial considerations. Petitioners urge the Department to reconsider the
use of LIBOR plus two percent as the benchmark rate.
DOC Position: We disagree. The mere absence of Israeli-sourced short-term dollar financing outside
the BOI loan program does not, per se, make them subsidies. The limitation on foreign currency
financing in Israel is a legitimate means by which the Government of Israel has chosen to
control its foreign currency reserves. We also verified that, with BOI permission, companies in
Israel, including NPL, may negotiate short-term (and long-term) foreign currency financing
from foreign sources. For example, companies may receive suppliers' credits from foreign sources
or other types of financing from foreign banks. We found that the interest rates on such
foreign-sourced short-term financing varied, but did not exceed the rate of LIBOR plus two percent
during the review period.
Comment 6: Petitioners argue that the lack of private long-term credit facilities and the
corresponding need for government intervention in the marketplace to make such credit available
should be conclusive proof of the
subsidy nature of the long-term industrial development loans received by NPL. Moreover, the law
by its own terms bestows a prohibited regional subsidy since the subsidized interest rate on the
loans varies according to the ECIL "development zone" in which the recipient is located, with NPL
located in the development zone receiving the lowest available rates.
DOC Position: We have determined that these loans are countervailable to the extent that the
interest rates charged are lower than those charged companies located in the Central Zone. We
disagree with petitioners' assertion that they are countervailable merely because long-term
financing was otherwise not available from Israeli sources.
Comment 7: Petitioners believe that the benchmark for the long-term development loans should
account for inflation and a reasonable profit margin and should be higher than the benchmark for
short-term lending, reflecting the relatively greater return generally required by commercial
lenders on long-term transactions. Since NPL's only non-governmental long-term borrowing was
from its own parent company, the appropriate "adequate comparable commercial experience" on
which a company-specific rate might be based does not exist in this case. The proper benchmark
rate in this case, therefore, must be based on best information available, including those few
long-term commercial loans to comparable companies examined at verification which were at
rates considerably higher than the short-term rates used as a benchmark in the preliminary
determination.
DOC Position: We agree that short-term rates are not appropriate. However, the few long-term
loans outside the developmnet loan program which we saw at verification primarily came from
foreign sources and many originated in foreign currencies. We therefore believe that the rates on
these loans are less appropriate for measuring the benefit from this program than the generally
available rates under the program itself, i.e., those charged in the Central Zone, where no
preference applies.
Comment 8: Petitioners assert that overall production, including IPA production, benefits either
directly or indirectly from ECIL tax provisions. Although these tax benefits apparently have been
provided to a wide variety of industries within Israel, "approval" for purposes of receiving the
benfits depends on location within ECIL development zones. Thus, the benefits bestow a
countervailable regional subsidy and should be included in the calculation of the net subsidy
amount. Moreover, the department in a prior proceeding found that one of the economic criteria
on which approval is based is export performance, thus raising the likelihood that ECIL benefits
constitute a prohibited export subsidy as well.
DOC Position: We verified that ECIL tax benefits apply to specific approved projects. We also
verified that NPL received no ECIL tax benefits pertaining to its production, sale, or exports of IPA.
We therefore have determined that NPL received no countervailable ECIL tax benefits on IPA.
Comment 9: Petitioners argue that NPL and Haifa are the only Israeli producers who could benefit
from the research and development (R&D) grants since they are the sole producers of IPA in
Israel and economic barriers to entry into the industry are insurmountably high. There is no
indication that Haifa has shared, or would be permitted to share, in the results of these research
projects. The ERDL grants provided to NPL clearly benefit the production of IPA and should be
included in the final amount of countervailable net subsidies. In addition, the official government
records should be considered authoritative with respect to the second grant given to NPL and the
full amount of this grant should be included in the net subsidy amount.
DOC Position: At verification we found discrepancies between government and NPL records of R&D
grants provided to NPL. Because of many internal inconsistencies in the government records and
virtually no internal inconsistencies in NPL's company records, we determined that NPL's records
should be controlling. The R&D grant documented in NPL's records was unrelated to IPA
production, so we did not include it in our subsidy calculation.
However, we did include in our benefit calculation of R&D grants the best information available
regarding provisions to ICL because we were unable to verify such grant values and their ultimate
beneficiary. We agree that the results of such R&D in Israel are not made publicly available. As
best
information available, we assumed that Haifa received the same benefits under this program as
NPL.
Comment 10: Petitioners claim that the Government of Israel land leases constitute
countervailable subsidies since both the amount of initial payments and the date of
commencement of the obligation to pay rent vary according to location in a development zone.
The lease does not appear to have been adjusted to take into account the real increase in land
values in Israel. Petitioners urge the Department to compare the actual amount of rent paid by
NPL to appropriate benchmark rates and include the amount of any preference in its final
determination of net subsidies.
DOC Position: We verified that the Israeli government appraises land in commercial terms and
bases initial rent on appraised land value. We also verified that the increase in the annual rents is
linked to the CPI and that actual rent paid by NPL was consistent with this practice. We therefore
determined that this program is not countervailable.
Comment 11: Petitioners contend that NPL's parent company, ICL, has received substantial
investment grants and long-term loans from the Israeli government and it is likely that some of
these benefits have flowed downward to NPL in the form of loans on preferential or
non-commercial terms. The amount of any benefits conferred should be included in the final
amount of countervailable subsidies. With respect to any benefits that the Department was
*25453
not
permitted to investigate fully, the Department should use the annual reports of NPL and ICL as
"best information available" for purposes of determining an appropriate subsidy amount.
DOC Position: At verification we saw in NPL's general ledger and accounting records that it
maintains an "account" with ICL through which it receives and repays loans. We found that
long-term loans provided to NPL by ICL were on commercial terms and that NPL repaid them in
accordance with those terms.
The only government grants to ICL which we were not permitted to investigate fully were R&D
grants and we have used the best information available concerning these grants to determine
benefits which may have accrued to NPL. We verified that ECIL grants could not have been given to
ICL.
Comment 12: Petitioners submit that government assistance in the construction and maintenance
of the rail lines fails to satisfy the Department's three part infrastructure test and thus constitutes a
countervailable subsidy. The Department should allocate an appropriate portion of the benefits
over NPL's total production of IPA and include that amount in its final determination of net
subsidies.
DOC Position: We disagree. See the section of this notice entitled "Analysis of Programs" for our full
discussion of this issue.
Respondents' Comments
Comment 1: Respondents contend that essentially any company, located anywhere in Israel,
can apply for an ECIL grant, and any company that can withstand an objective economic feasibility
analysis concerning its project will become an approved enterprise. ECIL approval is generally
available in Israel and has not been conferred selectively on a specific enterprise or industry,
or group of enterprises or industries.
DOC Position: We verified that the benefits which accure under the ECIL grants vary regionally.
Therefore, we have determined that, to the extent the benefits received by a company exceed
those in the Central Zone, such benefits are countervailable subsidies.
Comment 2: Respondents claim that all approved enterprises, regardless of location in Israel,
are entitled to the same tax benefits. Because of their wide availability and usage on the same terms
throughout the country, ECIL tax benefits are generally available and do not confer
countervailable subsidies. The amount and type of benefits do not vary among development zones.
DOC Position: We have determined that NPL received no ECIL tax benefits pertaining to its sale or
production of IPA.
Comment 3: Respondents contend that the preliminary calculation of grants allocable to IPA
should be adjusted to conform with the numbers verified by the Department and that, with respect
to the Arad rock processing grants, the
Department should allocate only that portion of grants applicable to rock that is incorporated into
IPA over NPL's total sales of IPA since they claim that it was shown at verification that only a
"minimal" percentage of the Arad rock processing grants benefits IPA. The additional amount
"discovered" at verification is nothing more than a computer error and should not be included in
the subsidy calculation.
DOC Position: We have allocated the grant benefits proportionally to the production yield of the
rock processing facility. However, since we were unable to verify NPL's receipt of one relatively
small grant, we have included it in our grant benefit calculation. See our responses to Petitioners'
Comments 1 and 2.
Comment 4: Respondents argue that none of the grants received for Machtesh should be allocated
to IPA sales since any benefit to NPL associated with operations at Machtesh expired when the
plant closed and the assets purchased by the grants ceased to operate or be productive. If the
Department should calculate a small benefit from these grants, the deposit rate should be zero
since the last Machtesh grant was paid in August 1977, almost a full ten years from the date of the
final determination.
DOC Position: Since a portion of the production left over from when the Machtesh plant was in
operation was used in NPL's IPA production, we have apportioned the 1977 grant value similarly
to our apportionment of Arad rock processing facility grants.
Comment 5: Respondents claim that the Department has examined all grants received by NPL since
1975. At verification it was shown that grants are tied to specific assets and that the company does
not receive the grant money unless it can prove that it has already spent the money to purchase
the designated assets. It was also shown that the facilities at Oron and Zin are not involved in IPA
production, sales, or export. The Ashdod facility which received grants was related to rock
phosphate and not to IPA production.
DOC Position: We agree. See the section of this notice entitled "Analysis of Programs."
Comment 6: Respondents claim that development loans given by the six industrial development
banks, at their own risk, were widely distributed throughout Israel and were available to all
sectors of Israeli industry. Basically, the same companies that obtained ECIL approval also
received development loans.
DOC Position: We agree that these loans are available to many sectors within Israel. However,
we have determined that the interest rates these loans bear very regionally and, thus, the loans are
countervailable to the extent interest is less than that which would be due in the Central Zone.
Comment 7: Respondents point out that at verification NPL demonstrated that it was able to
borrow long-term through its parent company, ICL, at an interest
rate lower than the indexed development loan rate. Respondents argue that if a long-term rate is
used as a benchmark, it is this company-specific rate that should be compared to the development
loan rate.
DOC Position: We disagree. We believe the generally available rate for the long-term development
loans in the Central Zone is a more appropriate benchmark because those loans are provided by
the same sources within Israel, for the same durations, and for similar purposes as the
development loans received by NPL. Moreover, this benchmark enables us to measure the exact
benefit resulting from the preference which we have found to exist. See the section of this notice
entitled "Analysis of Programs" for our discussion of this issue.
Comment 8: Respondents submit that ECIL grants and development loans were given for specific
projects and only grants and loans at the Arad rock processing plant can be said to have benefited
IPA production in any way. Loans and grants for Ashdod, Oron, and Machtesh are not related to
IPA production and should not be included in any net subsidy calculation.
DOC Position: We have not included loans and grants not related to the production of IPA in our
benefit calculations. See the section of this notice entitled "Analysis of Programs."
Comment 9: Respondents claim that ICL is not eligible for investment grants; only subsidiary
manufacturing companies, such as NPL, are entitled to receive grants for investment projects.
Since money is not given until after the
specific investment is proven to have been made, it would be impossible for another ICL
subsidiary, for example, to receive investment grant money and
*25454
divert it to NPL through the parent company, ICL.
DOC Position: We agree. See our response to Petitioners' Comment 11.
Comment 10: Respondents argue that any money received by NPL from its parent was raised
through public offerings in Israel and no government money was used. Respondents submit
that loans from ICL to NPL were at commercial rates and can be used as a benchmark comparison
for development loans taken by the company.
DOC Position: We believe that because the long-term development loans are countervailable due to
the regional variance in rates, the most appropriate benchmark rate is the one which applies in the
Central Zone. See our responses to Petitioners' Comment 7 and Respondents' Comment 7.
Comment 11: Respondents content that it is premature to judge the Exchange Rate Risk Insurance
Scheme operated by IFTRIC as a long-term loss. Becuase of unexpected and unprecedented
inflation in Israel, IFTRIC was not able to forecast changes in inflation and currencies; now that
inflation in Israel has been brought more under control, the EIS program will self-balance.
Respondents thus urge the Department to give this program a bit more time before finding it a
subsidy.
DOC Position: We verified that IFTRIC has operated this program at a loss
since its inception over five years ago and that it is continuing to do so. We therefore believe
sufficient time has elapsed for us to determine that this program confers a countervailable export
subsidy.
Comment 12: Respondents claim that the ERDL grants are generally available and that they are, in
fact, not grants since the recipient must pay royalties to the Chief Scientist's office equal to two
percent of sales if the R&D is successful. If the Department should find these to be a subsidy, they
cannot be attributed to IPA production.
DOC Position: We verified that one grant which went directly to NPL was unrelated to IPA. We also
found that, according to its own records, NPL never paid any royalties related to this grant. We also
found that any results of R&D funded under the ERDL are not made publicly available. Therefore,
we have determined that those grants going to ICL, which we were unable to verify, conferred
countervailable benefits which may have accrued to NPL.
Comment 13: Respondents assert the following with regard to the provision of rail facilities: (1)
Previous to its construction, a feasibility study showed that the line was economically viable; (2)
cargo lines in Israel were (and are) profitable and self-supporting; (3) NPL pays a commercial
rate for rail services which is, in fact, higher than the rate charged other users of the lines; (4) the
charge per unit to NPL for rail services is higher than the cost per unit of the lines; (5) there are no
restrictions on access to the
various lines and, in fact, the lines are used by several companies, not just NPL; and (6) the lines
were built neither for nor at the request of NPL. Based on the foregoing, respondents argue that the
railways servicing NPL cannot be considerd to provide a subsidy to that company.
DOC Position: We have not found rail lines to be countervailable. See the section of this notice
entitled "Analysis of Programs" for our full discussion of this issue.
Comments by Haifa
Comment 1: Haifa contends that it should not have been required to respond to the Department's
questionnaire, and that Haifa's refusal to respond in no way impeded this investigation.
DOC Position: We disagree. In our questionnaire, we requested that all manufacturers, producers,
and exporters respond. Particularly when there are relatively few potential respondents in an
investigation, and when it would be administratively feasible, we believe that full coverage of
producers and exporters under investigation yields the most accurate case results. In the instant
case, because Haifa chose not to respond or participate in any way throughout the investigation,
we calculated an estimated net subsidy for Haifa based on the best information available.
Comment 2: Haifa argues that the best information applicable to Haifa should be the information we
verified for NPL and that the rate assigned to Haifa should be the rate established for NPL.
DOC Position: We disagree that the best information applicable to Haifa is the information we
verified for NPL. We have no way of determining the exact benefits received by Haifa under the
countervailable programs. Therefore, in accordance with established Department practice, we
adversely assumed that, under each program Haifa received the higher of either the benefits
received by NPL or those found in any other Israeli case.
Section 607 of the Trade and Tariff Act of 1984 provides that a countervailing duty order--
Shall presumptively apply to all merchandise of such class or kind exported from the country
investigated, except that if--
(A) the administering authority determines there is a significant differential between companies
receiving subsidy benefits, or
(B) a State-owned enterprise is involved,
The order may provide for differing countervailing duties. Section 355.20(d) of our
proposed regulations, which states our current practice for determining the existence of a
significant differential, provides in pertinent part that:
(3) A significant differential is a difference of the greater of at least 10 percentage points, or 25
percent, from the weighted-average net subsidy calculated on a country-wide basis.
Since the estimated net subsidy rate we have found for Haifa differs significantly from the
weighted-average country-wide rate, we have determined that a separate rate should be applied to
Haifa.
Verification
In accordance with section 776(a) of the Act, except where noted in this determination, we
verified the information used in making our final determination. During verification we followed
standard verification procedures, including meeting with government and company officials,
inspecting documents and ledgers, tracing information in the response to source documents,
accounting ledgers, and financial statements, and collecting additional information that we deemed
necessary for making our final determination.
Suspension of Liquidation
In accordance with our preliminary countervailing duty determination, published on
February 5, 1987, we directed the U.S. Customs Service to suspend liquidation on the product
under investigation and to require a cash deposit or bond equal to the estimated net subsidy. This
final countervailing duty
determination was extended to coincide with the companion final antidumping determination,
pursuant to section 606 of the Trade and Tariff Act of 1984 (section 705(a)(1) of the Act). However,
we cannot impose a suspension of liquidation on the subject merchandise for more than 120 days
without the issuance of final affirmative determinations of subsidization and injury. Therefore, on
June 3, 1987, we instructed the U.S. Customs Service to terminate the suspension of liquidation on
the subject merchandise entered on or after June 5, 1987, but to continue the suspension of
liquidation of all entries or withdrawals from warehouse, for consumption, of the subject
merchandise entered between February 5, 1987, and
*25455
June 4, 1987. We will reinstate suspension of liquidation under section 703(d) of the Act, if the ITC
issues a final affirmative injury determination, and require cash deposits on all entries of the
subject merchandise in the amounts indicated below:
-------------------------------------------------------------------------------
Manufacturer/producer/exporter Estimated net subsidy Duty deposit rate
(percent) (percent)
-------------------------------------------------------------------------------
Haifa Chemicals Ltd ............................... 19.46 15.11
All others ......................................... 6.02 5.36
-------------------------------------------------------------------------------
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In
addition, we are making available to the ITC all nonprivileged and nonproprietary information
relating to this investigation. We will allow the ITC access to all privileged and business 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 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 countevailing duty order, directing Customs officers to assess
countervailing duties on all entries of IPA from Israel entered, or withdrawn from
warehouse, for consumption, as descried in the "Suspension of Liquidation" section of this notice.
This determination is published pursuant to section 705(d) of the Act (19 U.S.C. 1671d(d)).
Paul Freedenberg,
Assistant Secretary for Trade Administration.
June 29, 1987.
[FR Doc. 87-15368 Filed 7-6-87; 8:45 am]
BILLING CODE 3510-DS-M