59 FR 28340
NOTICES
DEPARTMENT OF COMMERCE
(C-508-808)
Preliminary Affirmative Countervailing Duty Determination: Certain Carbon Steel
Butt-Weld Pipe Fittings From Israel
Wednesday, June 1, 1994
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AGENCY: Import Administration, International Trade Administration, Department of
Commerce.
EFFECTIVE DATE: June 1, 1994.
FOR FURTHER INFORMATION CONTACT:
Jennifer Yeske or Penelope Naas, Office of Countervailing Investigations, Import Administration,
U.S. Department of Commerce, room B099, 14th Street and Constitution Avenue NW., Washington,
DC 20230; telephone (202) 482-0189 or 482- 3534, respectively.
PRELIMINARY DETERMINATION: The Department preliminarily determines 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 certain carbon
steel butt-weld pipe fittings (pipe fittings).
For information on the estimated net subsidies, please see the Suspension of Liquidation section of
this notice.
Case History
Since the publication of the notice of initiation in the Federal Register (59 FR 14149, March 25,
1994), the following events have occurred.
On March 31, 1994, we issued a questionnaire to the Embassy of Israel in Washington, DC,
concerning petitioners' allegations. On May 9, 1994, we received responses from the Government
of Israel (GOI) and Pipe Fittings
Carmiel, Ltd. (Carmiel). On May 11, 1994, we issued a supplemental questionnaire to the GOI and
Carmiel. We received responses on May 16, 1994.
Scope of Investigation
The products covered by this investigation are certain carbon steel butt-weld pipe fittings having
an inside diameter of less than fourteen inches (355 millimeters), imported in either finished or
unfinished condition. Pipe fittings are formed or forged steel products used to join pipe sections in
piping systems where conditions require permanent welded connections, as distinguished from
fittings based on other methods of fastening (e.g., threaded, grooved, or bolted fittings). Butt-weld
fittings come in a variety of shapes which include "elbows", "tees", "caps", and "reducers." The edges
of finished pipe fittings are beveled, so that when a fitting is placed against the end of a pipe (the
ends of which have also been beveled), a shallow channel is created to accommodate the "bead" of
the weld which joins the fitting to the pipe. These pipe fittings are currently classifiable under
subheading 7307.93.3000 of the Harmonized Tariff Schedule of the United States (HTSUS).
Although the HTSUS subheading is provided for convenience and customs purposes, our written
descriptions of the scope of these proceedings are dispositive.
Injury Test
Israel is a "country under the Agreement" within the meaning of section 701(b) of the Act.
Therefore, Title VII of the Act applies to this investigation. Accordingly, the U.S. International
Trade Commission ("ITC") must determine whether imports of the subject merchandise from
Israel materially injure, or threaten material injury to, a U.S. industry. On April 20, 1994, the
ITC published its preliminary determination that there is a reasonable indication that industries in
the United States are being materially injured or threatened with material injury by reasons of
imports from Israel of the subject merchandise (59 FR 18825, April 20, 1994).
Analysis of Programs
Consistent with our practice in preliminary determinations, when a response to an allegation
denies the existence of a program receipt of benefits under a program, or eligibility of a company
or industry under a program, and the Department has no persuasive evidence showing that the
response is incorrect, we accept the response for purposes of the preliminary determination. All
such responses, however, are subject to verification. If the response cannot be supported at
verification, and the program is otherwise
countervailable, the program will be considered a subsidy in the final determination.
Based upon our analysis of the petition and the responses to our questionnaires, we preliminarily
determine the following:
Period of Investigation
For purposes of this preliminary determination, the period of investigation ("the POI") is calendar
year 1993.
I. Programs Preliminarily Determined to be Countervailable
We preliminarily determine that subsidies are being provided to manufacturers, producers or
exporters in Israel of pipe fittings under the following programs:
A. Grants under the Encouragement of Capital Investments Law of 1959 (ECIL)
The ECIL program was established to develop the production capacity of the Israeli economy. In
order to be eligible to receive benefits under the ECIL, the applicant must obtain "Approved
Enterprise" status. Approved Enterprise status is obtained after a review of information submitted
to the Investment Center of the Israeli Ministry of Industry and Trade.
The amount of an investment grant under ECIL is calculated as a percentage of the total approved
investment in fixed assets. The amount of the grant also depends on the geographic location of the
enterprise. For purposes of the ECIL program, Israel is divided into three zones--The Central
Zone, Development Zone A and Development Zone B. Funding was restricted to companies in the
Development Zones, with Development Zone A receiving a higher level of funding than those in
Development Zone B. The Central Zone comprises the geographic center of Israel, including its
largest and most developed population centers; companies in the Central Zone could not receive
grants under this program at all.
In Final Affirmative Countervailing Duty Determination: Industrial Phosphoric Acid
from Israel ("IPA") (52 FR 25447; July 7, 1987), the Department found the ECIL grants
program to be de jure specific and, thus, countervailable because the grants are limited to
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entperises located in specific regions (i.e., Development Zone A and B). The GOI has provided no
new information to warrant reconsideration of this finding.
Carmiel is located in Development Zone A, and received grants for two projects related to the
production of subject merchandise. These grants were disbursed over the years 1983-1993.
It is our policy to allocate non-recurring grants over a period equal to the
average useful life of assets in the industry, unless the sum of grants provided under a program in a
particular year is less than 0.50 percent of a firm's total sales in that year. See Countervailing
Duties; Notice of Proposed Regulations and Request for Public Comments, 54 FR 23366 (May 31,
1989 ( ("Proposed Regulations") Section 355.49(a), and the General Issues Appendix to the Final
Affirmative Countervailing Duty Determination: Certain Steel Products From Austia, 58 FR
37217, July 9, 1993. In this instance, respondents have not provided sales information for years
prior to 1989. Therefore, we have no reason to believe the grants made before 1989 were less than
0.5 percent of sales in the year of receipt for these years and have preliminarily determined that
the yearly disbursements should be allocated over time. In 1990, the sum of grants disbursed
under the ECIL program accounted for less than 0.5 percent of Carmiel's total sales in that year.
Therefore, benefits for 1990 were allocated to that year and are not included in our calculations.
For all other years after 1989, the sum of the grants disbursed under the ECIL program accounted
for more than 0.5 percent of Carmiel's total sales each year. Therefore, these benefits were
allocated over time.
For ECIL grants allocated over time, we used a fifteen year allocation period (the average useful
life of assets in the steel industry, as determined by the U.S. Internal Revenue Service Asset
Depreciation Range System). The formula described in §355.49(b)(3) of the Proposed Regulations
for allocating grants relies on a fixed discount rate, which is based on the cost of
long- term, fixed-rate debt of the firm or generally in the country under investigation.
However, no long-term loans with fixed interest rates (or other long-term fixed-rate debt)
were available to Carmiel or other companies in Israel during the years 1983-1993. Instead,
the only long-term loans (or other long-term debt) available to companies in Israel appear to
tilize variable interest rates, i.e. a fixed real interest rate added to the Consumer Price
Index (CPI) or the dollar/shekel exchange rate. We have preliminarily determined to adapt the
grant allocation method described in our proposed regulations to use variable rather than fixed
interest rates as the discount rate, given the absence of long-term fixed interest rates in the
years these grants were disbursed. This methodology reflects the actual long-term options open to
Israeli firms (i.e., that long- term financing was only available through variable rate loans) and
also ensures the the net present value of amounts countervailed in year of receipt does not exceed
the face value of the grant.
In this preliminary determination, we have used the rate of return on CPI- indexed commercial
bonds (the real rate of return, as published in the Bank of Israel Annual Reports, plus the CPI),
as no actual loan rates for Carmiel or other companies in Israel were available. For use in our
preliminary determination, CPI-indexed commercial bond rates were unavailable for the years
1983-1984, 1988-1989, and 1993. Therefore, for 1983 and 1984, we took the real rate reported for
1985 (information for prior years was not available) and added it to the CPIs for 1983 and 1984,
respectively. For 1988 and 1989, we used the real rate for 1987 and added it to the CPIs for 1988
and 1989, respectively. For 1993, we used the real rate for 1992 and added it to the 1993 CPI.
We divided the benefit by Carmiel's 1993 total sales. On this basis, we preliminarily determine the
estimated net subsidy for this program to be 2.12 percent ad valorem for the POI.
B. Long-Term Industrial Development Loans
Prior to July 1985, companies in Israel were eligible to receive long-term industrial
development loans funded by the Government of Israel. This program was used in conjunction
with ECIL; however, a company did not have to be an Approved Enterprise in order to receive a
development loan.
The GOI reported that loans under this program were provided to a diverse number of industries.
However, the interest rates varied depending on the location of the borrower. The interest rates on
loans to borrowers in Development Zone A were lowest, while those on loans to borrowers in the
Central Zone were highest. In previous cases, the Department has found long-
term industrial development loans in Israel to be regional subsidies and countervailable to the
extent that the applicable interest rates are less than those on loans to companies in the Central
Zone (see IPA). The GOI has provided no new information to warrant reconsideration of this
finding.
Carmiel received loans for one of its Approved Enterprise projects located in Zone A. These loans
were received from the years 1983-1989. Under the terms of the program, the interest rates on
these loans have two components--a fixed real interest rate and a variable rate, based on the
Consumer Price Index (CPI) or the dollar/shekel exchange rate. Thus, these loans were variable
rate loans. It is unclear from Carmiel's responses whether the loans they received were linked to
the CPI or to the dollar-shekel exchange rate. Based on the limited information provided in the GOI
and Carmiel's responses, we have assumed for purposes of the preliminary determination that all
loans received by Carmiel had a fixed real rate of interest which was added to the CPI.
Because the CPI varies from year-to-year, we cannot calculate a priorim the payments that will be
made over the life of these loans and, hence, we cannot calculate the "grant equivalent" of the loans.
Accordingly, we have compared the interest that would have been paid by a company in the
Central Zone, as a benchmark, to the amount actually paid by Carmiel during the POI (see Section
355.49(d)(1) of the Proposed Regulations). We divided the interest savings by
Carmiel's total sales in 1993.
On this basis, we preliminarily determine the net subsidy rate from this program to be 0.15 percent
ad valorem during the POI.
Exchange Rate Risk Insurance Scheme
Prior to September 1993, the Exchange Rate Risk Insurance Scheme (EIS) operated by the Israel
Foreign Trade Insurance Corporation Inc. (IFTRIC), allowed exporters to insure themselves
against the risk of losses which would occur when the rate of devaluation lagged behind the rate of
inflation. The EIS was optional and open to virtually any exporter willing to pay a premium to
IFTRIC.
Under EIS, if the rate of inflation was greater than the rate of devaluation, the exporter was
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 was higher than the change in the domestic
price index, however, the exporter was required to compensate IFTRIC. Companies using EIS also
paid a premium, calculated for each exporter as a percentage of their insured value of exports.
In determining whether an export insurance program provides a countervailable benefit, we
examine whether the premiums and other
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changes are
adequate to cover the program's long-term operating costs and losses. See Section 355.44(d) of the
Proposed Regulations and IPA. We have reviewed EIS data in this investigation which showed that
EIS operated at a loss from 1981 through 1991. We believe that this 11 year history is more than
adequate to establish that the premiums and other charges are manifestly inadequate to cover the
long-term operating costs and losses of the program. This preliminary determination that EIS is
countervailable is consistent with our determination in IPA.
The GOI has provided information showing that EIS was terminated in September 1, 1993. It also
confirmed that residual benefits would exist after September 1, 1993.
We have calculated the benefit under this program as the net amount of compensation Carmiel
received during the review period from IFTRIC (compensation received less compensation and
fees paid) expressly for pipe fittings exported to the United States. This amount was divided by the
value of the company's exports of pipe fittings to the United States during the POI.
On this basis, we preliminarily determine the estimated net subsidy for Carmiel from this program
to be 0.25 percent ad valorem during the POI.
II. Programs Preliminarily Determined Not To Be Used
We preliminarily determine that producers or exporters in Israel of the subject merchandise
did not receive benefits during the POI for exports of the subject merchandise to the United States
under the following programs:
A. Additional Incentives under the ECIL
1. Preferential Accelerated Depreciation
2. Tax Benefits
3. Preferential Loans
4. Industry Subsidy Payments
B. Labor Training Grants
C. Encouragement of Industrial Research and Development Grants
D. Special Export Financing Loans
E. Provision of Funds for Transportation to Eilat Harbor
III. Programs for Which We Need More Information
A. Exceptions from Wharfage Fee
Importers in Israel pay a wharfage fee of 1.5 percent on goods entering the country. Exporters
are required to pay a wharfage fee of 0.2 percent, unless they are exempted by the Port Authority.
Currently, the Port Authority has exempted all exporters from payment of this wharfage fee. We
are seeking
further information on why these fees might differ for importers and exporters.
B. Rebates of the Peace of Galilee Levy and Wharfage Fees
Exporters are also entitled to a partial rebate of levies paid under the Peace of Galilee and of
wharfage fees paid on imported inputs which are physically incorporated into exported goods. It
appears that these rebates are part of Israel's duty drawback system. However, we will be
seeking further information to establish that these rebated were not excessive.
Verification
In accordance with section 776(b) of the Act, we will verify the information used in making our
final determination.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend
liquidation of all entries of pipe fittings from Israel, which are entered or withdrawn from
warehouse, for consumption on or after the date of the publication of this notice in the Federal
Register, and to require a cash deposit or bond for such entries in the amount indicated below.
This suspension will remain in effect until further notice.
Certain Carbon Steel Butt-Weld Pipe Fittings
Country-Wide Ad Valorem Rate--2.52%
ITC Notification
In accordance with section 703(f) 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 administrative protective order, without the written
consent of the Deputy Assistant Secretary for Investigations, Import Administration.
If our final determination is affirmative, the ITC will make its final determination within
45 days after the Department makes its final determination.
Public Comment
In accordance with 19 CFR 355.38, any interested party or U.S. Government agency may submit
case briefs or other written comments with ten copies of the business proprietary version and five
copies of the nonproprietary version to the Assistant Secretary no later than July 19, 1994, and
rebuttal briefs no later than July 25, 1994. In accordance with 19 CFR 355.38(b), we will hold a
public hearing, if requested by an interested party, to give interested parties an opportunity to
comment on arguments raised in case or rebuttal briefs. Tentatively, the hearing will be held on
July 27, 1994, at 1 p.m. at the U.S. Department of Commerce, room 3708, 14th Street and
Constitution Avenue NW., Washington, DC 20230. Parties should confirm by telephone the time,
date, and place of the hearing 48 hours before the scheduled time.
Interested parties who wish to request a hearing must submit a written request to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, room B099, 14th Street and
Constitution Avenue NW., Washington, DC 20230, within ten days of the publication of this notice
in the Federal Register. Requests should contain: (1) The party's name, address, and telephone
number; (2) the number of participants; (3) the reason for attending; and (4) a list of the issues to
be discussed. In accordance with 19 CFR 355.38(b), oral presentations will be limited to issues
in the briefs.
This determination is published pursuant to section 703(f) of the Act.
Dated: May 24, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
(FR Doc. 94-13317 Filed 5-31-94; 8:45 am)
BILLING CODE 3510-DS-P-M