54 FR 10395
NOTICES
DEPARTMENT OF COMMERCE
[C-508-064]
Fresh Cut Roses From Israel; Preliminary Results of Countervailing Duty
Administrative Review
Monday, March 13, 1989
*10395-02
AGENCY: International Trade Administration/Import Administration; Commerce.
ACTION: Notice of preliminary results of countervailing duty administrative review.
SUMMARY: The Department of Commerce has conducted an administrative review of
the countervailing duty order on fresh cut roses from Israel. We preliminarily
determine the total bounty or grant to be 10.59 percent ad valorem for the period October 1, 1985
through September 30, 1986. We invite interested parties to comment on these preliminary
results.
EFFECTIVE DATE: March 13, 1989.
FOR FURTHER INFORMATION CONTACT:Cynthia Sewell or Paul McGarr, Office of Countervailing
Compliance, International Trade Administration, U.S. Department of Commerce,
Washington, DC 20230; telephone: (202) 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On December 10, 1986, the Department of Commerce ("the Department") published in the Federal
Register (51 FR 44498) the final results of its last administrative review of the countervailing
duty order on fresh cut roses from Israel (45 FR 58516; September 4, 1980). On September
30, 1987, the Government of Israel requested in accordance with section 355.10 of the
Commerce Regulations on administrative review of the order. We published the
initiation on October 20, 1987 (52 FR 38952). The Department has now conducted that
administrative review in accordance with section 751 of the Tariff Act of 1930 ("the Tariff Act").
Scope of Review
The United States, under the auspices of the Customs Cooperation Council, has developed a system
of tariff classification based on the international harmonized system of Customs nomenclature. On
January 1, 1989, the United States fully converted to the Harmonized Tariff Schedule (HTS) as
provided for in section 1201 et seq. of the Omnibus Trade and Competitiveness Act of 1988. All
merchandise entered, or withdrawn from warehouse, for consumption on or after that date is now
classified solely according to the appropriate HTS item number(s).
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Imports covered by the review are shipments of Israeli fresh cut roses. During the review period,
such merchandise was classified under item numbers 192.1810 and 192.1890 of the Tariff
Schedules of the United States Annotated. Such merchandise is currently classifiable under item
number 0603. 10.60 of the Harmonized Tariff Schedule. The review covers the period October 1,
1985 through September 30, 1986 and twelve programs.
Analysis of Programs
(1) Government-Guaranteed Minimum Price Program
The Ministry of Agriculture ("MOA") operates this program to guarantee a minimum price to
farmers for their crops in case of bad marketing conditions. The MOA determines a national level of
production to be covered by the guarantee program, sets a minimum (guaranteed) price based on
export market conditions, and pays 50 percent of the difference between the guaranteed price and
the actual average market price if the market price is lower than the guaranteed price. Payments
are based on claims submitted to the MOA after the close of the growing season.
Because these payments are available only to growers that export, we preliminarily determine that
they are countervailable. We calculated the benefit from this program by dividing the total
payments received for roses by the total value of rose exports to all markets during the review
period. On this basis, we preliminarily determine the benefit from this program to be 0.95 percent
ad valorem.
(2) Export Promotion Financing Fund
The MOA operates the Export Promotion Financing Fund to promote the development of export
markets for Israeli agricultural products. Exporters submit proposals to the MOA for promotional
expenses, and the MOA determines whether to approve the request based on the development
potential for the product and the availability of funds. For proposals that are approved, exporters
receive reimbursements for up to 50 percent of actual expenses. We verified that during the review
period Agrexco, Bickel and Hillron received funds for the promotion of flowers to all markets.
Because this program provides assistance only to exporters, we preliminarily determine that it is
countervailable. To calculate the benefit, we divided total payments received by each company by
the value of its total flower exports to all markets during the period of review. We then
weight-averaged the resulting benefits by each company's proportion of total rose exports to the
United States during the period of review. On this basis, we preliminarily determine the benefit
from this program to be 0.14 percent ad valorem.
At verification, we found that the Export Promotion Committee had renounced funding of
promotional activities for flowers exported to the United States, and that no funds had been
budgeted for the 1987/88 growing season for the promotion of flowers in the U.S. market.
Therefore, for purposes of cash deposit of estimated countervailing duties, we preliminarily
determine the benefit from this program to be zero.
(3) Insurance From Israel Foreign Trade Risks Insurance Corporation (IFTRIC)
The Exchange Rate Risks Insurance Scheme ("EIS"), which is operated by IFTRIC, insures exporters
against losses occurring when the rate of devaluation of the shekel does not keep pace with the rate
of inflation. If the rate of inflation is higher than the rate of devaluation, the exporter is
compensated in an amount equal to the difference between the two rates multiplied by the value
added by each exporter to the exported merchandise.
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. We determined in the Final Affirmative Countervailing Duty
Determination: Certain Fresh Cut Flowers from Israel ("Flowers") (52 FR 3316, February 3,
1987) that this program conferred a countervailable benefit on exports of cut flowers from
Israel because the EIS operated at a loss in the five years from 1981 through 1985, and that five
years is a sufficiently long period to establish that the premiums and other charges are inadequate
to cover the long-term operating costs and losses of the program.
Based on this determination, we preliminarily determine that this program is countervailable.
We calculated the benefit from this program by dividing the amount of compensation each
company received by the value of its total flower exports to all markets during the period of
review. We then weight-averaged the resulting benefits by each company's proportion of total rose
exports to the United States during the period of review. On this basis, we preliminarily determine
the benefit from this program to be 9.18 percent ad valorem.
(4) Short-Term Fuel Advances to Rose Growers
In 1982, the Israeli Institute for Farm Research published a survey on the profitability of rose
production in the 1980/81 season. This study stated that gross income for rose growers included
grants for fuel expenses and interest savings on low-cost credit. In past reviews, we determined on
the basis of best information available that these grants conferred a countervailable benefit.
At verification, we found that on December 12, 1980, the MOA had disbursed short-term
interest-free loans or advances to four rose growers for the purchase of fuel. Three of the four
growers repaid their fuel advances before the current review period. The remaining grower had an
outstanding debt balance for fuel advances during the review period. We consider the balance
outstanding during the review period to be a short-term interest-free loan. To
calculate the benefit, we used as our benchmark the nominal annual short-term commercial
interest rate for Israeli shekels, as published in the Bank of Israel Annual Report. We then
allocated the total interest savings over total rose production during the review period. On this
basis, we preliminarily determine the benefit from this program to be 0.32 percent ad valorem.
(5) Government Funding of Agrexco and Purchase of Agrexco Shares
In 1978/79 and 1979/80, the MOA provided funds to Agrexco specifically to finance the
expansion of Agrexco's air freight terminal at Ben Gurion Airport. In past administrative reviews,
we determined on the basis of the best information available that these funds were grants and,
therefore, countervailable. In the current administrative review, we verified that these
government funds to Agrexco consisted of government purchases of shares in the company.
When Agrexco was established in 1957, the Israeli government purchased 50 percent of the
company's founders (voting) shares. From 1957 through 1979, the purchase of all subsequent
issues of nonvoting (ordinary) shares was equally split between government and nongovernment
entities (i.e, growers and producer organizations). Between 1980 and 1982, the government's
percentage of new shares purchased dropped slightly below 50 percent and then substantially
declined in 1983 and 1984. All shares issued in 1985 and 1986 were purchased entirely by
nongovernment investors. However,
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Agrexco remains 50 percent government-controlled because no new voting shares have been
issued since Agrexco's founding.
Agrexco is a nonprofit company that acts as a seller, marketer and distributor of all types of Israeli
agricultural products. While precluded from making a profit, Agrexco always covers its operating
costs. If Agrexco had surplus funds in any one year, the company may redistribute such funds to
the growers and producer organizations that are shareholders. Agrexco does not pay dividends to
its shareholders, and shares may be sold by individual investors only at the normal share value
(original purchase price).
We have consistently held that government equity ownership per se does not confer a subsidy.
Government ownership confers a subsidy only when it is on terms inconsistent with commercial
considerations. When a government and private investors purchase shares in a company at the
same price, we normally do not consider such government provision of capital to confer a subsidy.
In this case, however, both government and private investors paid the same price for Agrexco
shares, but with different prospects.
Producer organizations and growers invest in Agrexco with the expectation of benefiting from the
use of Agrexco's export facilities and services. Most growers are too small to export on their own.
The growers' ability to export and the profits from those export sales constitute the "return" on
their investment in Agrexco.
The Israeli government, on the other hand, could anticipate no such benefit because it does not use
the services of the company (i.e., Agrexco's export facilities). Moreover, the Israeli government
could not expect any return on its investment either from dividends or an increase in the value of
Agrexco's shares (because the shares can only be sold at their nominal value). In effect, the rate of
return for the nonuser investor is always zero. Thus, the purchase of shares in Agrexco by the
Israeli government cannot be considered a reasonable commercial investment. We preliminarily
determine that the government's purchases of Agrexco shares were inconsistent with commercial
considerations and, therefore, countervailable.
For commercially unreasonable equity infusions, we normally apply our "rate of return shortfall"
methodology (a comparison of the company's rate of return on equity with the national average
rate of return on equity). Such a methodology, however, is inappropriate when applied to a
nonprofit company such as Agrexco. Absent the possibility of earning a rate of return, the Israeli
government's ownership of shares in Agrexco does not fit the normal characteristics of equity.
Because the Israeli government has held these shares, some of them for more than 30 years,
without receiving any return or exercising any claim on them, the benefit somewhat resembles a
grant. On the
other hand, the benefit to Agrexco is not truly a grant because the Israeli government still has a
claim on Agrexco and could redeem the shares.
As a practical matter, however, we note that the amount of benefit from any program can be no
greater than if the program were an outright grant. Were we to consider this program a grant, our
allocation period would be the average useful life of agricultural assets according to the "Asset
Guideline Classes" of the U.S. Internal Revenue Service (which is 10 years), and our declining
balance grant methodology would yield a benefit of 0.0006 percent ad valorem.
Because this maximum possible benefit has an inconsequential effect on the total bounty or grant
to Agrexco (because we carry out the countervailing duty rate to only two decimal places),
we believe it is unnecessary to determine the methodology that would be more appropriate for
calculating the benefit to Agrexco from the Israeli government's ownership of shares in Agrexco.
Therefore, for purposes of these preliminary results, our calculation of the total bounty or grant
does not include the benefit from this program.
(6) Government Support of the Flower Board of Israel
The Flower Board of Israel ("FBI") was established by the Ornamental Plants Production and
Marketing Board Law of 1976. The FBI is appointed by the Israeli Cabinet acting through the
Ministers of Agriculture and Commerce and Industry.
In the final determination on Flowers, we determined, on the basis of best information available,
that the Government of Israel provided financial support to the FBI and that such financial
support is countervailable.
At verification, we found that beginning in the 1985/86 growing season, the government no longer
funds the FBI. On this basis, we preliminarily determine that this program is not countervailable.
(7) Rebate of Export Insurance Premiums
This program, which was administered by IFTRIC, operated to rebate insurance premiums to
exporters. At verification, we established that this program was terminated on June 1, 1985, and
that no claims for rebates of premiums were accepted after that date. Therefore, we preliminarily
determine that there were no countervailable benefits received under this program.
(8) Long-Term Industrial Development Loans to Agrexco
Agrexco received four long-term industrial development loans which had outstanding balances
during the review period. In the Final Affirmative Countervailing Duty Determination:
Industrial Phosphoric Acid from Israel (52
FR 25448; July 7, 1987), we determined that long-term industrial development loans are
countervailable only to the extent that the applicable interest rates are less than those on loans to
companies located in the Central Zone (i.e., the heavily populated and developed zone). Because
Agrexco is located in the Central Zone, it paid the highest rate charged for long-term loans at that
time. Therefore, we preliminarily determine that these loans to Agrexco are not countervailable.
(9) Other Programs
In past reviews, we found that the programs listed below conferred countervailable benefits on the
basis of best information available. In the final determination on Flowers (which covered the same
period of review and the same companies), we found that these programs were not countervailable.
Therefore, we did not reinvestigate the following programs in this review:
1. Encouragement of Capital Investment Law (Agriculture) (ECILA)
(a) Investment Grants
(b) Accelerated Depreciation Tax Reductions/Exemptions
(c) Drawback Grants
(d) Reduction of Corporate Tax Liability
(e) Interest Subsidy Payments
2. Preferential Short-term Financing under the Export Credit Funds
(a) Export Shipments Fund
(b) Imports-for-Exports Fund
(c) Export Production Fund
3. Cash Payments to Growers for Greenhouses
4. Cash Payments to Packing Houses
Preliminary Results of Review
As a result of the review, we preliminarily determine the total bounty
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or grant to be 10.59 percent ad valorem for the period October 1, 1985 through September 30,
1986.
The Department intends to instruct the Customs Service to assess countervailing duties of
10.59 percent of the f.o.b. invoice price on all shipments of this merchandise exported on or after
October 1, 1985 and on or before September 30, 1986.
Further, due to the elimination of the Export Promotion Financing Fund, the Department intends
to instruct the Customs Service to collect a cash deposit of estimated countervailing duties,
as provided by section 751(a)(1) of the Tariff Act, of 10.45 percent of the f.o.b. invoice price on all
shipments of Israeli fresh cut roses entered, or withdrawn from warehouse, for consumption on or
after the date of publication of the final results of this administrative review.
Interested parties may submit written comments on these preliminary results within 30 days of the
date of publication of this notice and may request disclosure and/or a hearing within 10 days of the
date of publication. Any hearing, if requested, will be held 30 days after the date of publication or
the following workday. Any request for an administrative protective order must be made no later
than 5 days after the date of publication. The Department will publish the final results of this
administrative review including the results of its analysis of issues raised in any such written
comments or at a hearing.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19
U.S.C. 1675(a)(1)) and § 355.22 of the Commerce Regulations published in the Federal Register on
December 27, 1988 (53 FR 53206) (to be codified at 19 CFR 355.22).
Jan W. Mares,
Assistant Secretary for Import Administration
Date: March 6, 1989.
[FR Doc. 89-5721 Filed 3-10-89; 8:45 am]
BILLING CODE 3510-DS-M