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Vol. 61 No. 43 Monday, March 4, 1996 p 8255 (Notice)
[C-508-605]
Industrial Phosphoric Acid From Israel; Preliminary Results
of Countervailing Duty Administrative Reviews
AGENCY: Import Administration, International Trade Administration,
Department of Commerce
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ACTION: Notice of preliminary results of Countervailing Duty
Administrative Reviews.
SUMMARY: The Department of Commerce (the Department) is conducting
two administrative reviews of the countervailing duty order
on industrial phosphoric acid from Israel. We preliminarily
determine the net subsidy to be 3.84 percent ad valorem for
all companies for the period January 1, 1992 through December
31, 1992, and 5.50 percent ad valorem for all companies for
the period January 1, 1993 through December 31, 1993. If the
final results of these reviews remain the same as these preliminary
results, the Department intends to instruct the U.S. Customs
Service to assess countervailing duties as indicated above.
Interested parties are invited to comment on these preliminary
results.
EFFECTIVE DATE: March 4, 1996.
FOR FURTHER INFORMATION CONTACT: Brian Albright or Cameron Cardozo,
Office of Countervailing Compliance, Import Administration,
International Trade Administration, U.S. Department of Commerce,
14th Street and Constitution Avenue, NW., Washington, DC 20230;
telephone: (202) 482-2786.
SUPPLEMENTARY INFORMATION:
Background
On August 19, 1987, the Department published in the Federal
Register (52 FR 31057) the countervailing duty order on industrial
phosphoric acid from Israel. On August 3, 1993, and August 3,
1994, the Department published notices of ``Opportunity to Request
Administrative Review'' of this countervailing duty order for
the periods January 1, 1992 through December 31, 1992 and January
1, 1993 through December 31, 1993, respectively (58 FR 41240
and 59 FR 39543). We received a timely request for review for
the 1992 review period from the petitioners, FMC Corporation
and the Monsanto Company. We received timely requests for review
for the 1993 review period from both the petitioners and the
respondent, Rotem Fertilizers Ltd.
We initiated the review covering the period January 1, 1992
through December 31, 1992, on September 30, 1993 (58 FR 51054).
We initiated the review covering the period January 1, 1993
through December 31, 1993, on September 16, 1994 (59 FR 47609).
Each review covers one manufacturer/exporter of the subject
merchandise, which accounts for virtually all of the exports
of subject merchandise from Israel to the United States during
the review period, and ten programs.
Applicable Statute and Regulations
The Department is conducting these administrative reviews
in accordance with section 751(a) of the Tariff Act of 1930,
as amended (the Act). Unless otherwise indicated, all citations
to the statute and to the Department's regulations are in reference
to the provisions as they existed on December 31, 1994. However,
references to the Department's Countervailing Duties; Notice
of Proposed Rulemaking and Request for Public Comments, 54 FR
23366 (May 31, 1989) (Proposed Regulations), are provided solely
for further explanation of the Department's countervailing duty
practice. Although the Department has withdrawn the particular
rulemaking proceeding pursuant to which the Proposed Regulations
were issued, the subject matter of these regulations is being
considered in connection with an ongoing rulemaking proceeding
which, among other things, is intended to conform the Department's
regulations to the Uruguay Round Agreements Act. See 60 FR 80
(Jan. 3, 1995).
Scope of Review
Imports covered by this review are shipments of industrial
phosphoric acid (IPA) from Israel. Such merchandise is classifiable
under item number 2809.20.00 of the Harmonized Tariff Schedule
(HTS). The HTS item number is provided for convenience and Customs
purposes. The written description remains dispositive.
Calculation Methodology for Assessment and Cash Deposit Purposes
Because Rotem is the only manufacturer/exporter of the subject
merchandise to the United States, Rotem's net subsidy rate is
also the country-wide rate.
Privatization
Israeli Chemicals Ltd. (ICL), the parent company which holds
one hundred percent of Rotem's shares, was partially privatized
in 1992 and again in 1993. Accordingly, we have determined that
the partial privatization of ICL represents a partial privatization
of each of the companies in which ICL holds an ownership interest.
In these reviews and prior reviews of the subject merchandise,
the Department has found that Rotem and/or its predecessor,
Negev Phosphates Ltd., received non-recurring countervailable
subsidies prior to these partial privatizations. Further, the
Department has found that a private party purchasing all or
part of a government-owned company can repay prior non-recurring
subsidies on behalf of the company as part or all of the sales
price (see the General Issues Appendix appended to the Final
Countervailing Duty Determination; Certain Steel Products from
Austria, 58 FR 37262 (July 9, 1993) (General Issues Appendix)).
Therefore, to the extent that a portion of the sales price paid
for a privatized company can be reasonably attributed to prior
subsidies, that portion of those subsidies are repaid.
To calculate the non-recurring subsidies remaining with Rotem
after each partial privatization, we performed the following
calculations. We first calculated the amount of the purchase
price paid for the ICL shares which could be attributed to Rotem
using the ratio of Rotem's net assets to ICL's net assets in
the year of sale. (For a further explanation of the Department's
analysis of the purchase price attributable to Rotem, see October
25, 1995 memorandum to Barbara E. Tillman regarding partial
privatization of ICL, which is on file in the public file of
the Central Records Unit, Room B-099 of the Department of Commerce.)
We then calculated the net present value (NPV) of the future
benefit stream of the non-recurring subsidies received by Rotem
at the time of the sale of the shares. Next, we calculated the
portion of the purchase price which represents repayment of
prior subsidies in accordance with the methodology described
in the ``Privatization'' section of the General Issues Appendix
(58 FR 37259). This amount was then subtracted from the NPV
of the subsidies, and the result was divided by the NPV of the
subsidies to calculate the ratio representing the amount of
subsidies remaining with Rotem after each partial privatization.
To calculate the benefit provided to Rotem for 1992 and 1993,
we multiplied the benefit calculated for Encouragement of Capital
Investment Law grants (the only subsidies relevant to the privatization
calculation) for each period by the ratio representing the amount
of subsidies remaining with Rotem after the partial privatization.
We then divided the results by the company's total sales of
subject merchandise in each respective period.
Analysis of Programs
I. Programs Preliminarily Determined to Confer Subsidies
(A) Encouragement of Capital Investments Law (ECIL) Grants
The ECIL grants program was established to attract capital
to Israel. In
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order to be eligible to receive various benefits under the ECIL,
including investment grants, capital grants, accelerated depreciation,
reduced tax rates, and certain loans, 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. Investment grants
are given as a percentage of the cost of the approved investment.
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. In Final Affirmative
Countervailing Duty Determination: Industrial Phosphoric Acid
from Israel, 52 FR 25447 (July 7, 1987) (IPA Investigation),
the Department found the ECIL grants program to be de jure specific
and thus countervailable because the grants are limited to enterprises
located in specific regions. In these reviews, the Government
of Israel (GOI) has provided no new information or evidence
of changed circumstances to warrant reconsideration of this
determination.
Rotem Fertilizers Ltd. (Rotem) is located in Development
Zone A, and received ECIL investment, drawback, and capital
grants in disbursements over a period of years for several projects.
We followed the methodology developed in IPA Investigation to
determine the benefits from the ECIL grants. However, consistent
with the Final Affirmative Countervailing Duty Determination:
Certain Carbon Steel Butt-Weld Pipe Fittings From Israel, 60
FR 10569 (February 27, 1995) (Butt-Weld Pipe Investigation),
in these reviews we have amended the calculation methodology
to conform with the use of variable rather than fixed interest
rates in the years these grants were disbursed. Section 355.49(b)(3)
of the Department's Proposed Regulations relies on a discount
rate, based on the cost of fixed-rate long-term debt for the
firm under review or generally in the country under review.
However, Rotem had no fixed-rate long-term debt during the years
in which it received ECIL grants. Moreover, in Butt-Weld Pipe
Investigation, the Department determined that no long-term loans
with fixed interest rates (or other long-term debt) were available
in Israel during that period; the only long-term loans (or other
long-term debt) available to companies in Israel were provided
at variable interest rates.
This methodology reflects the actual long-term options open
to Israeli firms, and also ensures that the net present value
of the amount countervailed in the year of receipt does not
exceed the face value of the grant. In accordance with General
Issues Appendix, we allocated these grants over ten years (the
average useful life of renewable physical assets in the chemical
manufacturing industry, as determined under the U.S. Internal
Revenue Service Asset Depreciation Range System). As the discount
rate, 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).
We summed the benefits from these projects for each year
(1992 and 1993), and then reduced the annual benefits according
to the methodology outlined in the ``Privatization'' section
above. We then divided the results by the value of IPA sold
by Rotem during the relevant review period. On this basis, we
preliminarily determine the net subsidy from this program to
be 3.82 percent ad valorem for 1992 and 5.47 percent ad valorem
for 1993.
(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 (GOI). During the original 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 in which the borrower
is located. 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 Zone
A are provided on preferential terms relative to loans received
by companies in the heavily populated and developed Central
Zone. In IPA Investigation, the Department found long-term industrial
development loans to be regional subsidies and countervailable
to the extent that they are provided at interest rates which
are lower than those applied on loans provided to companies
located in the Central Zone. In these reviews, the Government
of Israel (GOI) has provided no new information or evidence
of changed circumstances to warrant reconsideration of this
determination. Rotem had loans outstanding under this program
during both review periods. The loans carry the Zone A interest
rates because of Rotem's location. Therefore, we determine that
Rotem received countervailable benefits under this program because
the interest rates paid by Rotem are less than those which would
apply in the Central Zone.
As was determined in the Butt-Weld Pipe Investigation, under
the terms of this program, the interest rates on these loans
have two components-a fixed real interest rate and a variable
interest rate, the latter of which is based on either the CPI
or the dollar/shekel exchange rate. All of Rotem's loans were
linked to the dollar/shekel exchange rate. Because the dollar-
shekel exchange rate varies from year-to-year, we were unable
to apply the Department's methodology described in the Proposed
Regulations because we cannot calculate a priori the payments
due over the life of these loans, and hence cannot calculate
the ``grant equivalent'' of the loans. Accordingly, in accordance
with section 355.49(d)(1) of the Proposed Regulations, 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 Rotem during the review periods.
For each project, we calculated the interest savings accrued
during the period of review (POR). We then summed the benefits
and divided the total by the value of all IPA sold by Rotem
during the POR. On this basis, we preliminarily determine the
net subsidy from this program to be 0.01 percent ad valorem
for 1992, and less than 0.005 percent ad valorem for 1993.
(C) Exchange Rate Risk Insurance Scheme
Prior to September 1993, the Exchange Rate Risk Insurance
Scheme (EIS), operated by the Israel Foreign Trade Risk Insurance
Corporation Ltd. (IFTRIC), was designed to insure exporters
against losses which resulted when the rate of inflation exceeded
the rate of devaluation and the new Israeli Shekel (NIS) value
of an exporter's foreign currency receivables did not rise enough
to cover increases in local costs.
The EIS was optional and open to any exporter willing to
pay a premium to IFTRIC. Compensation was based on a
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comparison of 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 exceeded 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 rate
of inflation, however, the exporter was required to compensate
IFTRIC. The premium was calculated for all participants as a
percentage of the value-added sales value of exports. IFTRIC
changed this percentage rate periodically, but at any given
time it was 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. Despite periodic increases in the
premium rate, we determined in IPA Investigation that this program
did not cover its long term costs and losses and, therefore,
conferred an export subsidy on exports of IPA from Israel. In
addition, in the Final Results of Countervailing Duty Administrative
Review; Industrial Phosphoric Acid from Israel (59 FR 5176;
February 3, 1994), covering the 1991 review period, we found
that this program conferred a countervailable benefit on exporters
in Israel of the subject merchandise. Normally, five years is
a sufficiently long enough period of time to establish that
the premiums and other charges are manifestly inadequate to
cover the long-term operating costs and losses of the program.
(See section 355.44(d)(1) of the Proposed Regulations). We reviewed
EIS financial statements in these reviews which showed that
EIS has continuously operated at a loss from 1981 through 1992.
Since EIS has operated at a loss for 12 years, the determination
that this program is countervailable remains unchanged.
We verified that Rotem did not receive benefits from IFTRIC
for its IPA exports to the United States during 1992. However,
Rotem did receive benefits from IFTRIC for its IPA exports to
United States during 1993. Therefore, for the 1993 review period,
we have calculated the benefit rate by dividing the net amount
of compensation Rotem received during the review period from
IFTRIC for IPA exported to the United States, by the value of
the company's exports of IPA to the United States during the
same period. On this basis, we preliminarily determine the benefit
from this program to be zero for the 1992 review period and
0.02 percent ad valorem for the 1993 review period.
(D) Encouragement of Industrial Research and Development Grants
(EIRD)
Rotem received several grants under this program in both
the 1992 and 1993 review periods. In IPA Investigation, we determined
that the results of research funded by EIRD grants are not made
publicly available, and that such grants are countervailable.
(See also section 355.44(l) of the Proposed Regulations). We
followed the methodology developed in IPA Investigation in determining
the benefits from the EIRD funding.
The EIRD grant issued to Rotem on January 13, 1992 benefited
a research project concerning green acid, which is used as an
input in the production of IPA. We view this as a ``non-recurring''
grant based on the analysis set forth in the Allocation section
of the General Issues Appendix. Since the grant value was less
than 0.50 percent of all Rotem's sales, we allocated the full
amount of the grant to 1992 and divided by Rotem's total sales
of all products. On this basis, we preliminarily determine the
benefit from this program to be less than 0.005 percent ad valorem.
II. New Program Preliminarily Determined Not to Confer Subsidies
Law for the Encouragement of the Business Sector (Absorption
of Workers)
The questionnaire responses submitted by the GOI and Rotem
for the 1992 and 1993 review periods stated that Rotem participated
in a temporary program aimed at encouraging employment in order
to cope with the problems caused by immigration. This program,
enacted under the temporary Law for the Encouragement of the
Business Sector (Absorption of Workers), has not been examined
in any prior reviews or in the investigation of the subject
merchandise. Therefore, we requested additional information
on this program, and on the benefits received by Rotem, in a
supplemental questionnaire, and we verified the information
in both responses in order to determine whether the program
was limited, either de jure or de facto, to a specific enterprise
or industry, or a group of enterprises or industries, and thus
countervailable.
The temporary Law for the Encouragement of the Business Sector
(Absorption of Workers) was instituted in 1991 in an effort
to expand employment opportunities in the Israeli economy, following
rising levels of unemployment between 1988-1991 caused by large
Russian immigration. Under the Absorption of Workers program,
funded by the Treasury and administered by the National Insurance
Institute (NII), any employer in the business sector employing
a monthly average of over five employees is eligible to receive
a monthly grant from the Treasury for each additional employee
hired. The period of payment of the grant for each employee
is limited to two years. During the first year, the grant consists
of one-third of the monthly wages paid to the employee but cannot
exceed NIS 1000 per month. During the second year, the grant
consists of one-fourth of the monthly wages paid to the employee
but cannot exceed NIS 750 per month. Payments under the program
began in July 1991 and are scheduled to terminate in December
1995.
Companies that wish to participate in this program submit
an application, certified by a CPA, through their bank to the
NII within nine months of the end of the quarter for which they
are requesting assistance. The NII reviews the application form
and compares it to the company's insurance records and Department
of the Interior records to calculate the average number of workers
employed prior to the period of application. Any workers hired
over this baseline number make the company eligible for participation
in the program. For eligible companies, payment is transferred
directly into the employer's bank account within 45 days of
the application. The NII conducts random audits of approximately
20 percent of the recipients.
We verified that all companies in the business sector employing
a minimum of five workers are eligible to participate in the
program and, upon submission of a complete and accurate application
within the specified time frame, will receive a grant for each
additional worker hired. Moreover, we found no evidence that
the program is regional or that approval is contingent upon
the export performance of the company. Finally, we found no
evidence that the program is limited to a specific enterprise
or industry, or a group of enterprises or industries. There
are a large number and wide variety of users of the program.
The range of industrial branches that received grants includes
agriculture, general industry, electricity and water, construction,
food and hospitality, transportation, financial, public services,
and private services. Chemical producers are neither a dominant
nor disproportionate recipient of the grants, and there is no
evidence that the GOI exercises discretion, in general or across
industries, in
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conferring the grants. Thus, we preliminarily determine that
this program is not countervailable within the meaning of section
701(a) of the Act. (For a more detailed explanation of the Department's
decision, see the May 26, 1995 Memorandum for the 1992 Administrative
Reviews of IPA from Israel, on file in the public file of the
Central Records Unit, Room B-099 of the Department of Commerce).
III. Programs Preliminarily Determined Not to Be Used
We also examined the following programs and preliminarily
determine that the producer/exporter of the subject merchandise
did not apply for or receive benefits under these programs during
the 1992 or 1993 review periods:
A. Reduced tax rates under ECIL;
B. ECIL section 24 loans;
C. Preferential accelerated depreciation under ECIL;
D. Labor training grants; and
E. Dividends and Interest Tax Benefits under Section 46 of the
ECIL.
Preliminary Results of Reviews
For the period January 1, 1992, through December 31, 1992,
we preliminarily determine the net subsidy to be 3.84 percent
ad valorem for all firms. For the period January 1, 1993 through
December 31, 1993, we preliminarily determine the net subsidy
to be 5.50 percent ad valorem for all firms.
If the final results of this review remain the same as these
preliminary results, the Department intends to instruct the
U.S. Customs Service to assess the following countervailing
duties:
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Manufacturer/exporter | Period | Rate
| | (percent)
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| |
All companies ................ | 1992 ......................... | 3.84
All companies................. | 1993.......................... | 5.50
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The Department also intends to instruct the U.S. Customs
Service to collect a cash deposit of estimated countervailing
duties, as provided by section 751(a)(1) of the Act, of 5.50
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 of the final
results of these administrative reviews.
Parties to the proceedings may request disclosure of the
calculation methodology used in either review and interested
parties may request a hearing not later than 10 days after the
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 the case briefs, may be submitted
seven days after the time limit for filing the case brief. Parties
who submit written arguments in these proceedings are requested
to submit with the argument (1) a statement of the issue and
(2) a brief summary of the argument. Written arguments that
are intended to comment on the preliminary results for both
the 1992 and 1993 reviews must be submitted to the file for
each proceeding. 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 these proceedings 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 section 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 Act (19 U.S.C. 1675(a)(1)) and
19 CFR 355.22.
Dated: February 22, 1996.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 96-4984 Filed 3-1-96; 8:45 am]
BILLING CODE 3510-DS-P
The Contents entry for this article reads as follows:
International Trade Administration
NOTICES
Countervailing duties:
Industrial phosphoric acid from-
Israel, 8255