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DEPARTMENT OF COMMERCE
[C-508-605]
Industrial Phosphoric Acid From Israel; Final Results of
Countervailing Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of countervailing duty administrative
review.
SUMMARY: On June 6, 1996, the Department of Commerce (``the
Department'') published in the Federal Register its preliminary results
of administrative review of the countervailing duty order on industrial
phosphoric acid (IPA) from Israel for the period January 1, 1994
through December 31, 1994 (61 FR 28845). The Department has now
completed this administrative review in accordance with section 751(a)
of the Tariff Act of 1930, as amended. For information on the net
subsidy for each reviewed company, and for all non-reviewed companies,
please see the Final Results of Review section of this notice. We will
instruct the U.S. Customs Service to assess countervailing duties as
detailed in the Final Results of Review section of this notice.
EFFECTIVE DATE: October 11, 1996.
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FOR FURTHER INFORMATION CONTACT: Cameron Cardozo or Brian Albright,
Office of CVD/AD Enforcement VI, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)
482-2786.
SUPPLEMENTARY INFORMATION:
Background
Pursuant to section 355.22(a) of the Department's Interim
Regulations, this review covers only those producers or exporters of
the subject merchandise for which a review was specifically requested.
See Antidumping and Countervailing Duties: Interim regulations; request
for comments, 60 FR 25130, 25137 (May 11, 1995) (``Interim
Regulations''). Accordingly, this review covers Rotem Amfert Negev Ltd.
(Rotem). This review also covers the period January 1, 1994 through
December 31, 1994, and nine programs.
We invited interested parties to comment on the preliminary
results. Since the publication of the preliminary results on June 6,
1996, the following events have occurred. On July 8, 1996, case briefs
were submitted by the Government of Israel (GOI) and Rotem, a producer
of the subject merchandise which exported industrial phosphoric acid to
the United States during the review period (respondents). On July 12,
1996, rebuttal briefs were submitted by FMC Corporation and Monsanto
Company (petitioners).
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995
(``the Act''). References to the 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 URAA. See Advance Notice of
Proposed Rulemaking and Request for Public Comments, 60 FR 80 (January
3, 1995).
Scope of the 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.
Privatization
Previously, we have 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.
Accordingly, in the preliminary results, we calculated a ratio
representing the amount of subsidies remaining with Rotem after each
partial privatization in 1992 and 1993. To calculate the benefit
provided to Rotem in the POR (1994), we multiplied the benefit
calculated for Encouragement of Capital Investment Law grants (the only
non-recurring allocable subsidies) by the ratio representing the amount
of subsidies remaining with Rotem after the partial privatizations.
Analysis of Programs
Based upon our analysis of the questionnaire responses and written
comments from the interested parties, we determine the following:
I. Programs Conferring Subsidies
1. Encouragement of Capital Investments Law (ECIL) Grants
In the preliminary results, we found that this program conferred
countervailable benefits on the subject merchandise. Our analysis of
the comments submitted by the interested parties, summarized below, has
led us to change our findings from the preliminary results. For ECIL
grants that were tied to IPA production, we have divided the benefit by
Rotem's sales of IPA during the POR. For ECIL grants that were not tied
specifically to IPA production but were tied to the production of
products that can be used as inputs in the production of IPA, we have
divided the benefit by Rotem's total sales of all products during the
POR. On this basis, the net subsidy for this program is 8.00 percent ad
valorem for 1994.
2. Long-term Industrial Development Loans
In the preliminary results, we found that this program conferred
countervailable benefits on the subject merchandise. We received no
comments on our preliminary results and our findings remain unchanged
in these final results. On this basis, the net subsidy for this program
is less than 0.005 percent ad valorem for 1994.
3. Encouragement of Industrial Research and Development Grants (EIRD)
In the preliminary results, we found that this program conferred
countervailable benefits on the subject merchandise. Our analysis of
the comments submitted by the interested parties, summarized below, has
not led us to change our findings from the preliminary results. On this
basis, the net subsidy for this program is 0.06 percent ad valorem for
1994.
II. Programs Found Not To Be Used
In the preliminary results, we found that Rotem did not apply for
or receive benefits under the following programs:
A. Exchange Rate Risk Insurance Scheme;
B. Reduced Tax Rates under ECIL;
C. ECIL Section 24 Loans;
D. Labor Training Grants;
E. Dividends and Interest Tax Benefits under Section 46 of the
ECIL; and
F. ECIL Preferential Accelerated Depreciation.
Our analysis of the comments submitted by the interested parties,
summarized below, has not led us to change our findings from the
preliminary results.
Analysis of Comments
Comment 1: Respondents argue that ECIL grants for Project 14 should
not be considered subsidies bestowed on the subject merchandise, which
is IPA sold as IPA, because the grants were intended to increase
production of IPA for use in downstream products. Respondents take
issue with the Department's application of section 355.47 of the
Proposed Regulations, which the Department cited in its memorandum
addressing the treatment of Project 14. (See, Memorandum to File from
Team on April 15, 1996, available in the public file of the Central
Records Unit, Room B-099, Department of Commerce). According to
respondents, section 355.47 does not support the Department's
preliminary decision to countervail Project 14 grants that were used in
the ``production'' of IPA. While the regulation does speak in terms of
``production,'' respondents argue that this does not contemplate
production of a product for use in value-added downstream products that
are outside the scope of the order. Rather, the provision contemplates
production of the product for sale as the product itself; that is, as
the subject merchandise.
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Respondents further argue that the Department's treatment of
Project 14 is at odds with its treatment of other ECIL grants.
Respondents point out that the Department allocated a portion of the
grants for Rotem's green acid facility, Project 9, to its calculation
of the subsidy on IPA because a portion of green acid was fed to IPA
production. IPA was thus, to a certain degree, a downstream product of
green acid. According to the Department's analysis, argue respondents,
the Project 9 grants, since the grants were for the production of green
acid and not downstream IPA, should have been fully allocated to the
production of green acid and not IPA.
Finally, respondents question the Department's citations to four
earlier determinations which support the ``practice of tying benefits
to specific products.'' In doing so, respondents maintain that Project
14 grants should not be ``tied'' to IPA when the sole purpose of the
grants was to benefit products other than IPA. Thus, respondents
conclude, while the four cited cases do stand for the ``established
tenet'' of tying benefits, they are not relevant to the issue of how to
treat grants for the ultimate production of downstream products.
In rebuttal, petitioners argue that the Department correctly
included Project 14 grants in its calculation of the net subsidy.
According to petitioner, the statute makes clear that when a
countervailable subsidy is provided with respect to the manufacture or
production of a class or kind of merchandise imported into the United
States, and the requisite injury determination is made, a duty shall be
imposed equal to the amount of the net countervailable subsidy. It is
undisputed that the grants made available to Rotem under Project 14
were for the ``manufacture'' or ``production'' of industrial phosphoric
acid. Moreover, state petitioners, as a matter of law, the Department
has also determined that the grants provided under Project 14 do
constitute ``countervailable subsidies.'' Under these circumstances,
the Department had no alternative but to include the amount of this
countervailable subsidy in its calculation of the net subsidy amount.
Petitioners further maintain that there are several flaws in
respondents' argument that the grants are not intended to benefit IPA
as subject merchandise. First, it does not square with the language of
the statute, which mentions no requirement for any sale, much less a
requirement that a sale be for a particular purpose. In addition, state
petitioners, respondents' argument would require a finding by the
Department that the grants provided to Rotem actually benefited Rotem's
sales of IPA in the United States, a so-called competitive-benefits-
conferred interpretation of the statute that has been soundly rejected
by the Department and the Court of Appeals for the Federal Circuit in
the privatization context. According to petitioners, the only relevant
legal test has been met in this case, i.e., that the grants received in
connection with Project 14 were provided for the production of IPA.
What Rotem subsequently did with the production and whether it used the
grants to obtain a competitive advantage for its sales of IPA in the
United States are legally irrelevant matters.
Department's Position: We disagree with respondents. Where the
Department determines that a countervailable benefit is tied to the
production or sale of a product or products, as set forth in section
355.47 of the Proposed Regulations, the benefit is attributable to
sales of that product or products made during the period of review. As
respondents have themselves pointed out, Project 14 grants are clearly
tied directly to the production of IPA, the subject merchandise.
Contrary to respondents assertion that it is clear that section 355.47
does not contemplate production of an input for use in value-added
downstream products, section 355.47 does not address the ``use'' of the
product in question in determining whether a benefit is tied to subject
merchandise. Rather, as outlined in section 355.47, the Department may
countervail a benefit that is tied to production or sale of the subject
merchandise.
While respondents have stated that during the POR their capacity to
produce IPA expanded in some measure as a result of the Project 14
grant, respondents' submission merely indicated a future intent to
manufacture products that can use IPA as an input. See April 15, 1996
submission to the Department from respondents regarding New Factual
Information at 5-8. They have submitted no evidence that any increased
production of IPA during the POR (1994), which resulted from expansion
of capacity from Project 14, was used as an input in the production of
downstream products manufactured by Rotem. Moreover, respondents' April
15, 1996 submission indicates that the expansion intended to increase
production of IPA ``has not yet come fully on stream.'' If, in future
reviews, Rotem increases its production of IPA and record evidence
establishes that some portion of Rotem's IPA is used as an input for
downstream products manufactured by Rotem, we will then examine how the
benefits from Project 14 grants on IPA, whether sold or captively
consumed, should be treated for the purpose of calculating the subsidy
rate. In this review, however, the information on the record indicates
that during the POR Rotem only produced IPA that is sold as IPA.
Respondents have also mistakenly analogized the Department's
treatment of Project 14 grants with its treatment of other ECIL grants
that were not directly tied to IPA production. In those projects,
grants were provided to expand the production of materials (e.g.,
phosphate rock, green acid) that were either sold or used captively
during the POR to produce IPA. Accordingly, consistent with our
approach in prior reviews, the Department is allocating benefits from
those grants to IPA, (See, e.g., Industrial Phosphoric Acid from
Israel; Final Results of Countervailing Duty Administrative Reviews, 61
FR 28841 (June 6, 1996), although utilizing a different allocation
methodology (See Department's Position on Comment 2). In contrast, the
Project 14 grants were provided for the purpose of expanding production
of IPA, and are therefore tied directly to the production of the
subject merchandise.
Respondents correctly recognize that the four cases cited by the
Department stand for the ``established tenet'' of tying benefits and
that they are not relevant to the issue of how to treat grants for the
ultimate production of downstream products. Project 14 grants were
provided to increase production of IPA. Although respondents claim that
the ``sole purpose'' of the Project 14 grants was to benefit products
other than IPA, record evidence indicates that during the POR, IPA
produced was sold as IPA. Therefore, we continue to treat the Project
14 grants as subsidies bestowed directly on the production of the
subject merchandise during the 1994 POR and allocate the benefit over
sales of IPA during the review period.
Comment 2: Rotem argues that the Department should not have found
that three EIRD grants conferred benefits on IPA during the review
period, since Rotem stated in its questionnaire response that these
grants were not related to IPA production. Two grants benefited a
research project concerning green acid, and one grant benefited a
research project concerning phosphate. Accordingly, for the final
results, Rotem argues that the Department should find that the EIRD
grants were not countervailable subsidies to IPA during the period of
review. Alternatively, if the Department refuses to accept
---- page 53354 ----
Rotem's statements, then the Department must allocate the EIRD grants
in the same manner as the ECIL grants that related to the green acid
facility.
Petitioners respond that the countervailing duty law does not
require that a subsidy directly benefit the subject merchandise.
Instead, the statute is quite clear that countervailable subsidies may
be provided either directly or indirectly. Both the phosphate raw
material and the green acid, which were the direct targets of these
grants, are important inputs in the production of IPA. As a result, IPA
benefits indirectly from these grants.
Finally, petitioners argue that the Department has dealt previously
with this issue in the 1987 administrative review. In that review,
respondent advanced a similar argument that a grant provided for
research on phosphate rock did not benefit IPA. The Department rejected
that argument because rock phosphates are a main input in the
production of IPA. This reasoning, argue petitioners, is equally
applicable to the EIRD grants at issue in the instant review. To the
extent the production of green acid and phosphate is improved by the
research made possible through the EIRD grants, IPA will also benefit.
Therefore, the Department acted properly in including these EIRD grants
in its calculation of the net subsidy rate for IPA.
Department's Position: The statute gives the Department clear
authority to countervail benefits that are provided directly or
indirectly to the production of the subject merchandise. See 19 U.S.C.
Sec. 1671(a). To the extent that green acid and phosphate produced by
Rotem are inputs in the production of IPA produced by Rotem, the EIRD
grants benefit IPA. In making this determination, we are being
consistent with our past practice with regard to EIRD grants. The
respondent received an EIRD grant for a research project on rock
phosphate during the 1990 administrative review. We found this grant
countervailable because the research would ``benefit the gathering of
raw materials (inputs) required to produce IPA.'' Industrial Phosphoric
Acid from Israel; Preliminary Results of Countervailing Duty
Administrative Review, 57 FR 21958, 21960 (May 26, 1992) and Final
Results of Countervailing Duty Administrative Review, 57 FR 39391
(August 31, 1992). The method used by the Department to calculate the
benefit under these grants is therefore reasonable and consistent with
our practice in prior reviews.
In consideration of respondents' comment, specifically respondents'
argument that EIRD grants should be allocated in the same manner as
ECIL grants, we have reexamined our calculation methodology with
respect to EIRD and ECIL grants. We have determined that the proper
grant allocation methodology to follow is the one that the Department
has used to determine the benefit for the EIRD grants. This methodology
is consistent with the Department's approach in Final Affirmative
Countervailing Duty Determination: Certain Pasta from Italy, 61 FR
30288, 30289 (June 14, 1996) (Certain Pasta). As the Department stated
in Certain Pasta, in cases where an input product and the subject
merchandise are produced within a single corporate entity, the
Department has found that subsidies to the input product benefit total
sales of the corporation, including sales of the subject merchandise.
See also Final Affirmative Countervailing Duty Determination: Certain
Softwood Lumber Products from Canada, 57 FR 22570 (May 28, 1992).
Therefore, we are taking the entire amount of grants provided to the
production of products that are inputs to IPA and dividing the benefit
by Rotem's total sales. As discussed above (Comment 1), for grants that
are directly tied to IPA production, we will continue to allocate the
entire amount of the grant to Rotem's sales of IPA.
Final Results of Review
In accordance with section 355.22(c)(4)(ii) of the Department's
Interim Regulations, we calculated an individual subsidy rate for each
producer/exporter subject to this administrative review. For the period
January 1, 1994 through December 31, 1994, we determine the net subsidy
for Rotem to be 8.06 percent ad valorem.
------------------------------------------------------------------------
Net
subsidy
Net subsidies--producer/exporter rate
(percent)
------------------------------------------------------------------------
Rotem Amfert Negev Ltd....................................... 8.06
------------------------------------------------------------------------
We will instruct the U.S. Customs Service (``Customs'') to assess
countervailing duties as indicated above. The Department will also
instruct Customs to collect cash deposits of estimated countervailing
duties in the percentages detailed above of the f.o.b. invoice price on
all shipments of the subject merchandise from reviewed companies,
entered, or withdrawn from warehouse, for consumption on or after the
date of publication of the final results of this review.
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as
provided for in section 777A(e)(2)(B) of the Act. The requested review
will normally cover only those companies specifically named. See
section 355.22(a) of the Interim Regulations. Pursuant to 19 C.F.R.
355.22(g), for all companies for which a review was not requested,
duties must be assessed at the cash deposit rate, and cash deposits
must continue to be collected, at the rate previously ordered. As such,
the countervailing duty cash deposit rate applicable to a company can
no longer change, except pursuant to a request for a review of that
company. See Federal-Mogul Corporation and The Torrington Company v.
United States, 822 F.Supp. 782 (CIT 1993) and Floral Trade Council v.
United States, 822 F.Supp. 766 (CIT 1993) (interpreting 19 C.F.R.
353.22(e), the antidumping regulation on automatic assessment, which is
identical to 19 C.F.R. 355.22(g)). Therefore, the cash deposit rates
for all companies except those covered by this review will be unchanged
by the results of this review.
We will instruct Customs to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order are those established in the most recently completed
administrative proceeding. See Industrial Phosphoric Acid from Israel;
Final Results of Countervailing Duty Administrative Reviews, 61 FR
28841 (June 6, 1996). These rates shall apply to all non-reviewed
companies until a review of a company assigned these rates is
requested. In addition, for the period January 1, 1994 through December
31, 1994, the assessment rates applicable to all non-reviewed companies
covered by this order are the cash deposit rates in effect at the time
of entry.
This notice serves as a reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 C.F.R. 355.34(d). Timely written notification
of return/destruction of
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APO materials or conversion to judicial protective order is hereby
requested. Failure to comply with the regulations and the terms of an
APO is a sanctionable violation.
This administrative review and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).
Dated: October 4, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-26220 Filed 10-10-96; 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, 53351