55 FR 37926
NOTICES
DEPARTMENT OF COMMERCE
[C-508-605]
Industrial Phosphoric Acid From Israel; Preliminary Results of Countervailing
Duty Administrative Review
Friday, September 14, 1990
AGENCY: International Trade Administration/Import Administration, Department of
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 industrial phosphoric acid from Israel. We
preliminarily determine the net subsidy to be 5.40 percent ad valorem during the period February
5, 1987 through December 31, 1987. We invite interested parties to comment on these preliminary
results.
EFFECTIVE DATE: September 19, 1990.
FOR FURTHER INFORMATION CONTACT:Britt Doughtie or Maria MacKay, Office of Countervailing
Compliance, International Trade Administration, U.S. Department of Commerce,
Washington, DC 20230; telephone: (202) 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On August 8, 1988, the Department of Commerce (the Department) published in the Federal
Register a notice of "Opportunity to Request Administrative Review" (53 FR 29754) of the
countervailing duty order on industrial phosphoric acid form Israel (August 19,
1987; 52 FR 31057). On August 30, 1988, the petitioners, FMC Corporation and the Monsanto
Company, requested an administrative review of the order. We initiated the review, covering the
period February 5, 1987 through December 31, 1987, on September 27, 1988 (53 FR 37618). The
Department has now conducted this administrative review in accordance with section 751 of the
Tariff Act of 1930 (the Tariff Act). This is the first administrative review.
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merchandise entered, or withdrawn from warehouse, for consumption on or after that date is now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).
The imports covered in this review are shipments of Israeli industrial phosphoric acid.
During the period of review, this merchandise was classifiable under item number 416.30 of the
Tariff Schedules of the United States. This merchandise is currently classifiable under HTS item
number 2809.20.00. The TSUSA and HTS item numbers are provided for convenience and
Customs purposes. The written description remains dispositive.
The review covers the period February 5, 1987 through December 31, 1987 and four programs.
Negev Phospates, Ltd. (NPL) is the only known exporter of industrial phosphoric acid (IPA)
from Israel to the United States during the review period.
Analysis of Programs
(1) Encouragement of Capital Investments Law (ECIL) Grants
The ECIL grants program was established 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.
Approved enterprise status is obtained after review of information
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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 program, Israel is divided into three
zones--Development Zone A, Development Zone B, and the Central Zone--each with a different
funding level.
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 Tariff Act.
NPL is located in Development Zone A, and received ECIL investment, drawback, and capital
grants for several projects. All but two of the funded projects were located at its Oron and Zin
plants and were unrelated to IPA production. We did not include ECIL grants to these locations in
our calculations. There were three grants related to IPA production, two of which applied directly
to NPL's IPA production facility and one of which applied to the phosphate rock processing plant in
Arad, which produces an input for IPA. To determine the amount of the Arad grant applicable to
IPA production, the Department first calculated the subsidy to the Arad facility per unit of output
of rock (by volume), and then determined the subsidy tied to IPA production based on the share of
Arad's output utilized in IPA production. The Department used only the grant value related to IPA
production in the 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 Asset
Depreciation Range System). Usually, to allocate benefits over time we use as our discount rate
the cost of the firm's long-term fixed-rate debt for the year in which the terms of the grant were
approved. However, because NPL had no significant fixed-rate long-term debt and virtually all of
its long-term loans bear variable interest rates, we used the interest rate in effect during
the review
period for non-preferential Israeli-sourced loans, as listed in the Bank of Israel's Annual
Report for 1987, as the discount rate in our calculations. We used a declining balance formula to
determine the benefit stream for the relevant grants.
We allocated benefits attributable to the review period over the value of NPL's total IPA sales
during the review period. On this basis, we preliminarily determine the benefit from this program
to be 1.69 percent ad valorem.
(2) Long-term Industrial Development Loans
Prior to July 1985, approved enterprises were eligible to receive long-term industrial development
loans funded by the Government of Israel. During our investigation, 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.
The long-term industrial development loans were provided to a diverse number
of industries, including agricultural, chemical, mining, machine, and others. However, the interest
rates on 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 countervailable.
NPL had loans outstanding under this program during the review period for projects at two of its
plants, one of which is unrelated to IPA production and one of which is the phosphate rock
processing facility (in Arad) which produces an input for IPA. The loans provided for the rock
processing facility carry 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.
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, as under our normal long-term loan
methodology. Accordingly, we have compared the interest that would have been
paid on a 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 multiplied the subsidy by the
percentage of phosphate rock production used to make IPA, then divided this amount over the
total value of all sales of IPA. On this basis, we preliminary determine the benefit from this program
to be 0.002 percent ad valorem.
(3) 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 Shekel (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 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
pecentage rate periodically, but at any given time it is the same for all exporters.
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 our Final Affirmative Countervailing Duty Determination: Oil
Country Tubular Goods from Israel (OCTG) (52 FR 1649, January 15, 1987), and Final
Affirmative Countervailing Duty Determination: Certain Fresh Cut Flowers from Israel
(Flowers) (52 FR 3316, February 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
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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
insured 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 payment 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 foound an estimated net subsidy of 3.68 percent ad valorem for NPL.
(4) Encouragement of Research and Development Law (ERDL) Grants
NPL has received grants under this program, one of which, the Zohar rock phosphate research
project, was indirectly related to the production of IPA. Since we verified in the original
investigation that the results of research
funded by ERDL grants are not made publicly available, we determine these grants to be
countervailable. This ERDL grant, issued to NPL on July 23, 1987, could benefit the production of
IPA, as the grant is to benefit a research project concerning the development of a process for
quarrying and beneficiation of rock phosphates. This research will benefit the gathering of raw
materials (inputs) required to produce IPA. We expensed the full amount of the grant for the Zohar
rock phosphate research project to 1987 and divide by NPL's total sales of all products. On this
basis, we preliminarily determine the benefit from this program to be 0.03 percent ad valorem.
(5) Other Programs
We also examined the following programs and preliminarily determine that the
manufacturer/exporter of industrial phosphoric acid from Israel did not use them during
the review period:
(A) reduced tax rates under ECIL;
(B) ECIL section 24 loans;
(C) preferential accelerated depreciation under ECIL; and
(D) labor training grants.
Preliminary Results of Review
As a result of our review, we preliminarily determine the net subsidy to be 5.40 percent ad
valorem during the period February 5, 1987 through December 31, 1987.
Because, pursuant to Article 5.3 of the "Agreement on Interpretation and Application of Articles
VI, XVI, and XXIII of the General Agreement on Tariffs and Trade" (the Subsidies Code), we cannot
impose suspension of liquidation for more than 120 days without the issuance of a
countervailing duty order, we terminated the suspension of liquidation on the subject
merchandise entered, or withdrawn from warehouse, for consumption on or after June 5, 1987. We
reinstated the suspension of liquidation and required the collection of cash deposits of estimated
countervailing duties on the subject merchandise entered, or withdrawn from warehouse,
for consumption on or after August 19, 1987, the date of publication of the countervailing
duty order.
Therefore, the Department will instruct Customs Service to assess countervailing duties of
5.40 percent of the f.o.b. invoice price on all shipments of this merchandise entered, or withdrawn
from warehouse, for consumption on or after February 5, 1987 and on or before June 4, 1987 and
on all shipments of this merchandise entered, or withdrawn from warehouse, for consumption on
or after August 19, 1987 and exported on or before December 31, 1987. Entries or withdrawals
made on or after June 5, 1987 and on or before
August 18, 1987 are not subject to countervailing duties.
Further, 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 5.40
percent of the f.o.b. invoice price on all shipments of this merchandise entered, or withdrawn from
warehouse, for consumption on or after the date of publication of the final results of this
administrative review.
Parties to the proceeding may request disclosure of the calculation methodology and interested
parties may request a hearing not later than 10 days after date of publication of this notice.
Interested parties may submit written arguments in case briefs on these preliminary results within
30 days of the date of publication. Rebuttal briefs, limited to arguments raised in case briefs, may
be submitted seven days after the time limit for filing the case brief. Any hearing, if requested, will
be held seven days after the scheduled date for submission of rebuttal briefs. Copies of case briefs
and rebuttal briefs must be served on interested parties in accordance with 19 CFR 355.38(e).
Any request for disclosure under an administrative protective order must be made no later than
five days after the date of publication.
The Department will publish the final results of this administrative review including the results of
its analysis of issues raised in any case or rebuttal brief 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 19 CFR 355.22.
Dated: August 23, 1990.
Marjorie A. Chorlins,
Acting Assistant Secretary for Import Administration.
[FR Doc. 90-21664 Filed 9-13-90; 8:45 am]
BILLING CODE 3510-DS-M