56 FR 26389
NOTICES
DEPARTMENT OF COMMERCE
[C-508-605]
Industrial Phosphoric Acid from Israel Preliminary Results of Countervailing
Duty Administrative Reviews
Friday, June 7, 1991
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AGENCY: International Trade Administration/Import Administration, Department of
Commerce.
ACTION: Notice of Preliminary Results of Countervailing Duty Administrative Reviews.
SUMMARY: The Department of Commerce has conducted two administrative reviews of
the countervailing duty order on industrial phosphoric acid from Israel. We
preliminarily determine the net subsidy to be 19.46 percent ad valorem for Haifa Chemicals, Ltd.
and 9.18 percent ad valorem for all other firms during the period January 1, 1988 through
December 31, 1988. We preliminarily determine the net subsidy to be 11.26 percent ad valorem for
all firms during the period January 1, 1989 through December 31, 1989. We invite interested
parties to comment on these preliminary results.
EFFECTIVE DATE: June 7, 1991.
FOR FURTHER INFORMATION CONTACT:Cameron Cardozo, 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 7, 1989 and August 8, 1990, the Department of Commece (the Department) published in
the Federal Register notices of "Opportunity to
Request Administrative Review" (54 FR 32364 and 55 FR 32279) of the countervailing duty
order on industrial phosphoric acid from Israel. On August 24, 1989, the petitioners,
FMC Corporation and the Monsanto Company, requested that we conduct an administrative review
of the order for the period January 1, 1988 through December 31, 1988. On August 29, 1990, the
same petitioners requested that we conduct an administrative review of the order for the period
January 1, 1989 through December 31, 1989. We initiated the reviews on September 20, 1989 (54
FR 38712) and September 24, 1990 (55 FR 39032), respectively. The Department has now
conducted these administrative reviews in accordance with section 751 of the Tariff Act of 1930, as
amended (the Tariff Act). The final results of the last administrative reivew of this order were
published in the Federal Register on January 24, 1991 (56 FR 2751).
Scope of Review
Imports covered by these reviews are shipments of Israeli industrial phosphoric acid. During
the 1988 review period, this merchandise was classifiable under item number 416.30 of the Tariff
Schedules of the United States (TSUS). During the 1989 review period, this merchandise was
classifiable under item number 2809.20.00 of the Harmonized Tariff Schedule (HTS). The TSUS and
HTS item numbers are provided for convenience and Customs
purposes. The written description remains dispositive.
The reviews cover the periods January 1, 1988 through December 31, 1988, and January 1, 1989
through December 31, 1989, and ten programs. Negev Phosphates, Ltd. (NPL) and Haifa Chemicals,
Ltd. (Haifa) are the only known exporters of the subject merchandise from Israel to the United
States during the review periods.
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, capital
grants, accelerated depreciation, and reduced tax rates, the applicant must obtain approved
enterprise status.
Approved enterprise status is obtained after review of information submitted to the Israeli
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 in disbursements over a period of years for several projects. All but three 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 projects 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. Grants for these
projects made from 1980 through 1989 resulted in benefits during the periods under review. To
determine the amount of the Arad grants applicable to IPA production, the Department first
calculated the subsidy to the Arad facility per unit of output of rock (by volume) and multiplied
this amount by the number of metric tons of rock needed to produce one metric ton of IPA. We
then multiplied the subsidy on one ton of IPA by the total quantity of IPA sales to get a total
subsidy, which we divided by the total value of all sales of IPA. 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). To allocate benefits over time, we typically 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, we used the rate for long-term industrial development loans, adjusted for inflation, as
the discount rate for grants received in the years 1980-1987. Because these rates were
unavailable for 1988-1989, we used the rate for government indexed five-year bonds in
Israel, adjusted for inflation, from the Bank of Israel's Annual Reports for 1988 and 1989,
as the discount rate for grants received in 1988 and 1989. We used a declining balance formula
to determine
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the benefit stream for the relevant grants.
We allocated the benefits attributable to each review period over the value of NPL's total IPA sales
during each review period. On this basis, we preliminarily determine the benefit from this program
to be 2.44 percent ad valorem during the 1988 review period, and 2.80 percent ad valorem during
the 1989 review period.
(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 periods 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 0.01 percent ad valorem during the 1988 review period,
and 0.01 percent ad valorem during the 1989 review period.
(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
compnsate 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 benefit, we
examine whether the premiums and other changes are adequate to cover the programs's long-term
operating costs and losses. In our Final Results of Countervailing Duty Administrative
Review; Oil Country Tubular Goods from Israel (55 FR 46703; November 6, 1990) and Final
Affirmative Countervailing Duty Determination; Certain Fresh Cut Flowers from Isreal (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, we reviewed EIS
data which showed that EIS operated at a loss from 1981 through 1987. We believe that seven
years, in this case, is a sufficiently long period to establish that the premiums and other
changes are manifestly inadequate to cover the long term operating costs and losses of the
program. Therefore, despite periodic increases in the premium rate, we determine that this
rogram 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 receives a payment if the inflation rate exceeds the depreciation rate or makes 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 periods. On this basis, we preliminarily
determine the benefit from this program to be 6.73 percent ad valorem during the 1988 review
period, and 8.45 percent ad valorem during the 1989 review period.
(4) Other Programs
We also examined the following programs and preliminarily determine that exporters of industrial
phosphoric acid did not use them during the 1988 and 1989 review periods:
(A) Reduced tax rates under ECIL;
(B) BCIL section 24 loans;
(C) Preferential accelerated depreciation under ECIL;
(D) Labor training grants;
(E) Encouragement of Industrial Research and Development Grants;
(F) Dividends and Interest Tax Benefits under section 46 of the ECIL; and
(G) Property tax exemptions on buildings and equipment.
(5) Best Information Available
Haifa Chemicals, Ltd., which exported the subject merchandise to the United
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States during the 1988 review period, did not respond to the Department's questionnaire.
Therefore, as best information available, we have selected the highest rate determined for Haifa in
this proceeding, the 19.46
percent ad valorem rate found in the Department's Final Affirmative Countervailing Duty
Determination; Industrial Phosphoric Acid from Israel (52 FR 25447; July 7, 1987).
Preliminary Results of Review
As a result of our review, we preliminarily determine the net subsidy to be 19.46 percent ad
valorem for Haifa Chemicals, Ltd., and 9.18 percent ad valorem for all other companies during the
period January 1, 1988 through December 31, 1988. We preliminarily determine the net subsidy to
be 11.26 percent ad valorem for all companies during the period January 1, 1989 through
December 31, 1989.
The Department intends to instruct the Customs Service to assess countervailing duties of
19.46 percent of the f.o.b. invoice price on shipments from Haifa Chemicals, Ltd., and 9.18 percent
of the f.o.b. invoice price on shipments from all other firms exported on or after January 1, 1988
and on or before December 31, 1988, and 11.26 percent of the f.o.b. invoice price on all shipments
of this merchandise exported on or after January 1, 1989 and on or before December 31, 1989.
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 11.26 percent of the f.o.b. invoice price on all shipments of
the subject merchandise from Israel entered, or withdrawn from warehouse, for consumption
on or after the date of publication aof the final results of these administrative reviews.
Parties to the proceeding may request disclosure of the calculations 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). Representatives of parties to the proceeding may request disclosure of
proprietary information under administrative protective order no later than 10 days after
the representative's client or employer becomes a party to the proceeding, but in no event
later than the date the case briefs, under 19 CFR 355.38(c), are due.
The Department will publish the final results of these administrative reviews including the
results of its analysis of issues raised in any case or rebuttal brief or at a hearing.
These administrative reviews 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: May 31, 1991.
Eric I. Garfinkel,
Assistant Secretary for Import Administration.
[FR Doc. 91-13557 Filed 6-6-91; 8:45 am]
BILLING CODE 3510-05-M