98-320

63 FR 13626

NOTICES

DEPARTMENT OF COMMERCE

[C-508-605]

Industrial Phosphoric Acid From Israel: Final Results of Countervailing Duty
Administrative Review

Friday, March 20, 1998

*13626

AGENCY: Import Administration, International Trade Administration, Department of
Commerce.

ACTION: Notice of final results of countervailing duty administrative review.

SUMMARY: On September 10, 1997, the Department of Commerce published in the Federal
Register its preliminary results of administrative review of the
countervailing duty order on industrial phosphoric acid from Israel for the period
January 1, 1995 through December 31, 1995 (62 FR 47645). The Department of Commerce 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: March 20, 1998.

FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Lorenza Olivas, Office of CVD/AD
Enforcement VI, Import Administration, International Trade Administration, U.S.
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 19 CFR 355.22(a), this review covers only those producers or exporters of the subject
merchandise for which a review was specifically requested. Accordingly, this review covers
Rotem-Amfert Negev Ltd. (Rotem). This review also covers the period January 1, 1995 through
December 31, 1995.

Since the publication of the preliminary results on September 10, 1997, (Preliminary Results), the
following events have occurred. Pursuant to section 751(a)(3) of the Tariff Act of 1930, as
amended, we extended the final results to no later than March 9, 1998. See Industrial
Phosphoric Acid From Israel; Extension of Time Limit for Countervailing Duty
Administrative Review, 63 FR 1441 (January 9, 1998). On October 10, 1997, a case brief was
submitted by the Government of Israel (GOI) and Rotem, producer/exporter of industrial
phosphoric acid (IPA) to the United States during the review period (respondents). On
October 17, 1997, a rebuttal brief was submitted by counsel for the FMC Corporation and Albright
& Wilson Americas Inc. (petitioners). On January 26, 1998, we provided petitioners and
respondents the opportunity to address the grant calculation methodology followed in the Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from Venezuela, 62 FR
55014 (October 22, 1997) (Wire Rod from Venezuela). That methodology has direct relevance in
this proceeding and the final determination in that case was published after the preliminary results
in this proceeding were completed. Accordingly, on February 3, 1998, comments were submitted
by respondents and petitioners. On February 6, 1996, rebuttal comments were submitted by
respondents and petitioners.

Applicable Statute

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). The Department of Commerce (the Department) is conducting this administrative review
in accordance with section 751(a) of the Act.

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

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Schedule (HTS). The HTS item number is provided for convenience and U.S. Customs Service
purposes. The written description of the scope remains dispositive.

Verification

As provided in section 782(i) of the Act, we verified information submitted by the GOI and Rotem.
We followed standard verification procedures, including meeting with government and company
officials, and examining relevant accounting and financial records and other original source
documents. Our verification results are outlined in the public versions of the verification reports,
which are on file in the Central Records Unit (Room B-099 of the Main Commerce Building).

Subsidies Valuation Information

Period of Review

The period for which we are measuring subsidies (the POR) is calendar year 1995.

Allocation Period

In British Steel plc. v. United States, 879 F.Supp. 1254, 1289 (February 9, 1995) (British Steel I),
the U.S. Court of International Trade (the Court) ruled against the allocation methodology for
non-recurring subsidies that the Department had employed for the past decade, which was
articulated in the
General Issues Appendix, appended to the Final Countervailing Duty Determination; Certain
Steel Products from Austria, 58 FR 37225 (July 9, 1993) (GIA). In accordance with the Court's
remand order, the Department determined that the most reasonable method of deriving the
allocation period for nonrecurring subsidies is a company-specific average useful life (AUL) of non-
renewable physical assets. This remand determination was affirmed by the Court on June 4, 1996.
British Steel, 929 F.Supp 426, 439 (CIT 1996) (British Steel II). Accordingly, the Department has
applied this method to those non-recurring subsidies that have not yet been countervailed.
For non-recurring subsidies received prior to the POR and which have already been countervailed
based on an allocation period established in an earlier segment of the proceeding, it is not
reasonable or practicable to reallocate those subsidies over a different period of time. Therefore,
for purposes of these final results, the Department is using the original allocation period assigned to
each nonrecurring subsidy received prior to the POR. This conforms with our approach in Certain
Carbon Steel Products from Sweden; Final Results of Countervailing Duty Administrative
Review, 62 FR 16549 (April 7, 1997). For additional discussion of this issue, see Department's
Position on "Comment 6: Grants Previously Allocated According to the U.S. IRS Depreciation
Schedules, Should be Allocated Over Rotem's Actual AUL", below.
For non-recurring subsidies received during the POR, Rotem submitted an
AUL calculation based on depreciation and asset values of productive assets reported in its
financial statements. Rotem's AUL was derived by adding depreciation charges for ten years, and
dividing these charges by the sum of average gross book value of depreciable fixed assets for the
related periods. We found this calculation to be reasonable and consistent with our company-
specific AUL objective. Rotem's calculation resulted in an AUL of 24 years, and we have used this
calculated figure for the allocation period for non- recurring subsidies which have not been
previously allocated.

Privatization

(I) Background

Israeli Chemicals Limited (ICL), the parent company which owns 100 percent of Rotem's shares,
was partially privatized in 1992, 1993 and 1994. In this administrative review, the GOI and Rotem
reported that additional shares of ICL were sold in 1995. We have previously determined that the
partial privatization of ICL represents a partial privatization of each of the companies in which ICL
holds an ownership interest. See Final Results of Countervailing Duty Administrative
Reviews; Industrial Phosphoric Acid from Israel, 61 FR 53351, 53352 (October 11, 1996)
(1994 Final Results).

In this review and prior reviews of this order, 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 portion of the price paid by a
private party for all or part of a government-owned company represents partial repayment of prior
subsidies. See GIA, 58 FR at 37262. Therefore, in the 1992 and 1993 reviews, we calculated the
portion of the purchase price paid for ICL's shares that is attributable to repayment of prior
subsidies. In the 1994 review, respondents reported that the GOI sold less than 0.5 percent of its
shares in ICL. Because this percentage of shares privatized was so small, the percentage of subsidies
potentially repaid through this privatization could have no measurable impact on Rotem's overall
net subsidy rate. Therefore, we did not apply our repayment methodology to the 1994 partial
privatization. See 1994 Final Results, 61 FR at 53352. However, we are applying this methodology
to the 1995 partial privatization of ICL during the POR because 24.9 percent of ICL's shares were
sold. This approach is consistent with our findings in the GIA and Department precedent under the
URAA. See e.g., GIA, 58 FR at 37259; Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
from the United Kingdom; Final Results of Countervailing Duty Administrative Review, 61
FR 58377 (November 14, 1996); and Final Affirmative Countervailing Duty Determination:
Certain Pasta From Italy, 61 FR 30288 (June 14, 1996).

(II) Modification of the Privatization Calculation Methodology

As noted above, in the 1992 and 1993 administrative reviews of this order, we determined that the
partial privatization of ICL, Rotem's parent company, represented partial privatization of Rotem.
Therefore, in each of those reviews, we calculated the portion of the purchase price paid for ICL's
shares that was attributable to the repayment of prior subsidies. Under this methodology, to
determine the amount of subsidies that are extinguished due to privatization, we calculate the net
present value (NPV) of the remaining allocable subsidies at the time of privatization. For example,
if the privatization took place in 1993, the NPV calculation for that transaction would be the
remaining benefit from all unamortized subsidies in 1993. However, in past cases involving
privatization or changes in ownership we recalculated the NPV in subsequent review periods by
including only the remaining benefit from unamortized subsidies affecting that subsequent review
period. For example, if we calculated the NPV for a privatization that took place in 1993, in the
next administrative review, 1994, we would recalculate the NPV using only those subsidies still
allocable to 1994, i.e., the remaining unamortized subsidies still benefitting the company in 1994.
We revisited that methodology in the 1995 countervailing duty
administrative review of lead and bismuth carbon steel products from the United Kingdom. See
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom; Final
Results of Countervailing Duty Administrative Review, 62 FR 53306 (October 14, 1997). In
that review, we determined that it is

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not appropriate to modify the calculation of the NPV of the subsidies existing at the time of sale.
The change in ownership of a company is a fixed event at a particular point in time. Thus, the
percentage of subsidies that may be extinguished due to privatization or reallocated due to a
change in ownership in a given year is also fixed at that same point in time and does not change.
Therefore, the pass-through percentage will no longer be altered once it has initially been
determined in an investigation or administrative review. We have modified the ICL privatization
calculations in this administrative review to reflect the change outlined above.

Analysis of Programs

Based upon the responses to our questionnaire, the results of verification, and written comments
from the interested parties, we determine the following:

I. Programs Conferring Subsidies

A. Programs Previously Determined To Confer Subsidies

1. Encouragement of Capital Investments Law (ECIL) Grants. In the preliminary results, we found
that this program conferred countervailable subsidies on the subject merchandise. Our review of
the record and our analysis of the comments submitted by the interested parties, summarized
below, has led us to modify our findings from the preliminary results for this program. In
particular, we followed the methodology set forth in Wire Rod from Venezuela to calculate the
benefit from these non-recurring grants. Under this methodology, we converted the grant amount
into U.S. dollars on the date of receipt of the grant. The benefit in the POR was then calculated using
our standard grant allocation methodology. For a detailed discussion of the changes to the
calculation methodology for this program, see the Department's Position on "Comment 9: Inflation
Adjustment for Non-Recurring Grants," below; see also the Calculation Memorandum to the File,
dated March 9, 1998 (public version on file in the Central Records Unit of the Department of
Commerce) ("Calculation Memo"). Accordingly, the net subsidies for this program have changed
and are as follows:

---------------------------------------
Manufacturer/exporter Rate (percent)
---------------------------------------
Rotem Amfert Negev .......... 8.85
---------------------------------------

2. Long-term Industrial Development Loans. In the preliminary results, we found that this program
conferred countervailable subsidies on the subject merchandise. We did not receive any comments
on this program from the interested parties, and our review of the record has not led us to change
any findings or calculations. Accordingly, the net subsidies for this program remain unchanged
from the preliminary results and are as follows:

---------------------------------------
Manufacturer/exporter Rate (percent)
---------------------------------------
Rotem Amfert Negev ......... less than 0.005
---------------------------------------

3. Encouragement of Industrial Research and Development Grants (EIRD). In the preliminary
results we found that this program conferred countervailable subsidies on the subject
merchandise. We did not receive any comments on this program from the interested parties, and
our review of the record has not led
us to change any findings or calculations. Accordingly, the net subsidies for this program remain
unchanged from the preliminary results and are as follows:

---------------------------------------
Manufacturer/exporter Rate (percent)
---------------------------------------
Rotem Amfert Negev .......... 0.08
---------------------------------------

II. Programs Found To Be Not Used

In the preliminary results, we found that the producer/exporter of the subject merchandise did not
apply for or receive benefits under the following programs:
A. Reduced Tax Rates under ECIL;
B. ECIL Section 24 loans;
C. Dividends and Interest Tax Benefits under Section 46 of the ECIL; and
D. ECIL Preferential Accelerated Depreciation.
E. Exchange Rate Risk Insurance Scheme.
We did not receive any comments on these programs from the interested parties, and our review of
the record has not led us to change our findings from the preliminary results.

Analysis of Comments

Comment 1: Denominator for ECIL Grants Allocable to IPA, MKP and Fertilizers

Respondents argue that the denominator used to calculate the ad valorem rate from ECIL grants
allocable to IPA, monopotassium phosphate (MKP) and fertilizers is understated, because it does
not include Rotem's direct sales of green acid, which is also a fertilizer. The correct denominator for
these ECIL benefits should be taken from page two of Rotem's May 27, 1997, questionnaire
response, and should include Rotem's sales of fertilizers, IPA, and MKP. The fertilizer sales amount
includes direct sales of green acid.

Petitioners contend that the Department used the correct denominator in the benefit calculations.
According to petitioners, the Department's preliminary calculation reflects commercial realities
because green acid is sold and accounted for as green acid and not as fertilizer.

Department's Position. We agree with respondents. In the preliminary results, we incorrectly
excluded direct sales of green acid from the ad valorem rate calculation for ECIL grants allocable to
IPA, MKP and fertilizers. The funding for the grant projects in question, projects 9, 11, and 15, was
for the
expansion and debottlenecking of Rotem's green acid facilities. In the preliminary results, we
determined that it was appropriate to attribute ECIL grants tied to a particular unit over the sales
of the product produced by that unit plus the sales of all products into which that product may be
incorporated. We also noted that green acid produced at plant 30 and 31 can be incorporated into
the production of all of the company's downstream products. Therefore, in these final results, we
have included sales of fertilizers, including direct sales of green acid, as well as sales of IPA and
MKP, in calculating the ad valorem rate from ECIL grants 9, 11, and 15 .

Comment 2: Attribution of ECIL Grants to Inputs Used in the Production of IPA

Respondents contend that the Department should return to the attribution approach followed in
the investigation of this case and in the five subsequent administrative reviews. According to
respondents, departing from a long- standing methodology is unwarranted, in particular, as
respondents claim here, when the earlier approach was more accurate. Under that earlier
approach, ECIL grants to inputs, such as phosphate rock and green acid, were apportioned to IPA
according to the consumption of each input product in IPA production. Respondents state that in
the preliminary results, the Department incorrectly attributed these ECIL grants to the direct sales
of the inputs and the sales of all downstream products that potentially incorporate the input.

Respondents assert that it is the Department's practice not to disturb established methodologies in
the absence of any new evidence or without new and compelling arguments. For example,
respondents note that in the certain steel investigations, the Department rejected an argument
made

*13629

by parties in that case to change the long-standing grant amortization methodology, stating that
"before a change is made in established policy there should be evidence to show that the change is
warranted." GIA, 58 FR at 37229. Further, in a 1996 antidumping proceeding, the Department
refused to alter the existing model match methodology "unless compelling reasons exist" to do so.
Polyethylene Terephthalate Film, Sheet, and Strip from the Republic of Korea; Final Results of
Antidumping Duty Administrative Review, 61 FR 37177, 35181 (July 5, 1996) (Strip from ROK).
Respondents also state that the U.S. Court of International Trade (CIT) has found that changes to
long-standing methodologies, even if those changes result in greater accuracy, are not warranted
because these methodologies become "the law of these proceedings," and "(p)rinciples of fairness
prevent Commerce from changing its methodology." Shikoko Chemicals Corp. v. United States, 795
F. Supp. 417, 421-22 (CIT 1992) (Shikoko).

Respondents acknowledge that the CIT has permitted the Department to depart from a verified
methodology developed in an investigation if a "different
methodology permits a more accurate assessment of current margins." Hussey Copper, Ltd. v.
United States, 834 F. Supp. 413, 425 (CIT 1993) (Hussey). In this case, however, respondents
contend that the Department acted contrary to law by opting for a methodology that provides a
less accurate assessment than the one followed in all but the last two proceedings. For example, in
British Steel II, 929 F. Supp. at 426, the CIT stated that "Commerce is required to allocate subsidies
over products that have benefitted from the subsidies * * * in a manner that reasonably reflects the
extent to which the products have benefitted from the subsidies." Moreover, respondents note that
the Hussey Court required the Department to implement "the basic purpose of the statute--
determining current margins as accurately as possible." Hussey, 834 F. Supp. at 425, citing Rhone
Poulenc, Inc. v. United States, 899 F.2d 1185, 1191 (Fed. Cir. 1990).
In light of this precedent, respondents argue that the Department should return to the original
methodology, which allocates the grants as accurately as possible to the subject merchandise. Any
other result is less accurate, contrary to law and punitive.

Petitioners argue that the Department has reasonably determined that this new methodology more
precisely allocates the subsidy benefits. The change in the methodology, petitioners state, was
clearly within the Department's legal authority. According to petitioners, having made this
determination, the
Department should not return to the discarded methodology advocated by respondents.

Department's Position. Contrary to respondents' assertions, the attribution approach for ECIL
subsidies adopted in this administrative review, which departs from the approach followed until
the final results in the 1993 administrative review of this case (61 FR 2884), accurately measures
the benefit conferred from the countervailable ECIL grants and is consistent with the
countervailing duty statute. Moreover, this approach is consistent with the Department's
attribution principles concerning subsidies to inputs where the same corporate entity produces the
inputs and the subject merchandise, as well as other downstream products.
As a preliminary matter, we disagree with respondents' contention that the Department is
irrevocably tied to long-standing methodologies merely because those methodologies have
become accepted practice in a proceeding. Under respondents' logic, the Department could never
change a methodology it had applied in the past. This conclusion is not supported by the
countervailing duty statute, or administrative and legal precedent. Rather, administrative
precedent is rarely binding because agencies must be given the opportunity to develop agency law
on a case-by-case basis over time; otherwise they would be hindered in clarifying unsettled law and
from adapting their practice to new interpretations and factual situations. Not being able to do so
would force
them to maintain positions that were no longer relevant. See NLRB v. J. Weingarten, Inc., 420 U.S.
251, 265-66 (1975) ("The use by an administrative agency of the evolutionary approach is
particularly fitting."). In fact, administrative agencies are given broad leeway to depart from prior
administrative precedent, provided that such departure is adequately explained. See Ipsco, Inc. v.
United States, 678 F. Supp. 633, 639 (CIT 1988) (agency needn't explain its rationale at length, as
long as the "path of ITA's reasoning is discernible from the record").

Respondents' reliance on Shikoku for the proposition that changes in long- standing methodologies
are not warranted is also not persuasive. Aside from having little precedential value, the facts in
Shikoku are clearly distinguishable from those in this case. In Shikoku, the court found that the
plaintiff, respondent Shikoku, had reasonably relied upon the Department's continued application
of a case-specific antidumping calculation method applied in four previous reviews, and that by so
doing, Shikoku was attempting to comply with U.S. antidumping law. However, the Department's
departure from its past methodology resulted in a continuation of the antidumping order, which
otherwise would have been revoked. This resulted in substantial harm to Shikoku. By contrast, in
this case, Rotem has not demonstrated reliance upon the Department's prior methodology because
such reliance could only be evidenced by refusing to accept subsidies.

Respondents also incorrectly imply that the Department changed its methodology without
considering whether that change was warranted on the basis of new information or changes in
Department policy. In fact, in the 1994 administrative review of this case we conformed our
attribution approach to the methodology articulated in the countervailing duty
investigation of pasta from Italy. See Final Affirmative Countervailing Duty Determination:
Certain Pasta From Italy, 61 FR 30288, 30304-305 (June 14, 1996) (Pasta From Italy). In Pasta
From Italy, the Department reasoned that where subsidies for semolina production, a primary
input into pasta, were provided to the same corporate entity that milled semolina and produced
pasta, the production was sufficiently integrated that subsidies bestowed upon the production of
semolina, which is an input into pasta, would necessarily flow down to the production of subject
merchandise. In that circumstance, it was deemed unnecessary to conduct an upstream subsidy
investigation to examine whether a competitive benefit had been bestowed on subject merchandise
by the semolina subsidization. Therefore, the Department attributed subsidies provided to
semolina to the company's total sales of pasta and semolina, including sales of the subject
merchandise. The Department stated that "for those companies where the mill is not incorporated
separately from the producer of the subject merchandise, we have included subsidies for the
milling operations in our calculation." Pasta From Italy, 62 FR at 30289.

Respondents' complaint that the Department acted contrary to law by adopting a methodology that
is not precise and accurate is also without merit. As a preliminary matter, the Department has
broad discretion in

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adopting specific methods to identify and value subsidies, the only requirement being that the
method be reasonable and in accord with the law. See Inland Steel Industries, Inc. v. United States,
Slip-Op. 97-71 (CIT 1997) ("so long as Commerce's methodology is a reasonable means to carry out
the statute, it needn't be the most precise method"); Chevron U.S.A. v. United States, 467 U.S. 837,
844 (1984).

The attribution approach adopted in this review recognizes that the ECIL subsidies provided to the
Arad, Zin and Oron mines, as well as to Rotem's green acid facilities, benefitted not only the inputs
for which the subsidies were received, but also production of other downstream products,
including IPA. Rotem officials confirmed this at verification, stating that "every [phosphate] rock
can be used in every product," and green acid from both green acid facilities could be used in all
downstream products. See the August 22, 1997, Memorandum to Barbara E. Tillman, Verification
of Rotem's Questionnaire Responses (public version on file in the Central Records Unit, Room
B-099) (Rotem VR). Thus, by allocating the ECIL grants to inputs over sales of that input and sales
of downstream products incorporating that input, the Department more accurately assessed the
benefit attributable to IPA from the government's
subsidization of inputs. The subsidized inputs (phosphate rock and green acid) benefit all of Rotem's
downstream products. Moreover, as we established in prior reviews, phosphate rock inputs have in
fact been incorporated into Rotem's downstream products, including IPA. Therefore, the
Department appropriately attributed ECIL subsidies to inputs over Rotem's direct sales of these
inputs and the sales of all downstream products, because those end products incorporate the
inputs. Again, in order to make an apples-to-apples comparison, it is imperative that both the
numerator (the countervailable benefit) and denominator (the universe of sales to which the
benefit applies) used in the Department's calculation of a subsidy reflect the same universe of
goods. Otherwise, the rate calculated will either over or understate the subsidy attributable to
subject merchandise. The attribution method adopted in the preliminary results more accurately
captures the apples-to-apples comparison outlined above. Accordingly, we have not altered that
approach in these final results.

Comment 3: ECIL Grants to Projects that Did Not Provide Inputs to IPA During the POR

According to respondents, the Department exceeded its statutory authority when it attributed to
IPA subsidies under ECIL projects 1, 3, 4, 7,
and 15, because Department officials verified that inputs from the facilities that benefitted from
these grants were not used in the production of IPA during the POR. Under such circumstances,
respondents state, the Department's longstanding practice mandates that if a subsidy is not "tied" to
the subject merchandise and the equipment or plant procured with the subsidy are not used to
produce the subject merchandise, then the subsidy is not countervailable and cannot be
attributable to the subject merchandise. Respondents state that the 1997 proposed rules reaffirm
this approach, stating that "subsidies should be attributed, to the extent possible, to those products
for which costs are reduced (or revenues increased)," and that "if a subsidy is tied to the production
or sale of a particular product, the Secretary will attribute the subsidy only to that product." 1997
Proposed Rules, 62 FR at 8845, 8855.

According to respondents, the fact that the input products could "potentially" be incorporated in
all products produced by Rotem or that they "may" be incorporated into IPA, the Department's
rationale for countervailing these grants, is not relevant. Respondents contend that the 1997
Proposed Rules do not speak of "potential" input products, only "actual" inputs and that an input
that merely "could" be an input does not fall within this provision. Similarly, respondents note that
in British Steel II, the CIT observed that the Department must, after determining which products
benefitted from countervailable subsidies, "allocate countervailing duties over such
products
in a manner that reasonably reflects the extent to which the products have benefitted from the
subsidies." 929 F. Supp. at 453. Thus, respondents state that the Department should find no benefit
from these subsidies in 1995.

According to petitioners, the Department acted correctly in calculating the benefit from ECIL
projects to facilities that provided no inputs into the production of IPA during the POR (projects 1,
3, 4, 7, and 15). Petitioners state that the issue with respect to these indirect benefits is not whether
the particular inputs were used to produce IPA during a limited time period, such as the POR, but
whether they could have been used, or in fact have been used in the past for that purpose.

Petitioners further argue that by enhancing the facilities that produce inputs necessary for IPA
production, these ECIL grants indirectly benefitted IPA, because to the extent that inputs are
fungible, it is logical to consider enhanced production capability as an indirect benefit to IPA. Such
a determination is, petitioners state, consistent with the Department's approach to subsidies to
input products provided to a single corporate entity.

Department's Position. Respondents' argument that ECIL subsidies under projects 1, 3, 4, 7, and 15
are "tied" to products other than the subject merchandise, and that these subsidies should therefore
not be attributed to Rotem's sales of subject merchandise, is incorrect. In this review, we have
correctly determined that, regardless of whether any of the inputs (phosphate
rock and green acid) receiving subsidies were actually fed into IPA production during the POR, all
of these products are inputs into IPA. We have thus departed from our past practice of attempting
to determine the precise amount of inputs that were actually used in IPA production from each
ECIL project during the relevant period and then apportioning the subsidies provided to those
inputs accordingly. Consequently, we have fully brought our method of attributing ECIL grants
into harmony with Pasta From Italy.

The record in this case establishes that ECIL grants received by Rotem for Projects 1, 3, 4, and 7
were for Rotem's Arad, Zin and Oron mines, and grants received for Project 15 were for Rotem's
new green acid facility. The mines and green acid facility are not separately incorporated entities.
The Arad, Zin and Oron mines each produce phosphate rock, the main input of IPA and Rotem's
other downstream products. Green acid is also an input into the production of IPA and other end
products produced by Rotem. However, respondents attempt to argue that because inputs
benefiting from Projects 1, 3, 4, 7, and 15 have not been used in the production of IPA during the
POR, these subsidies are 'tied' to products other than the subject merchandise.
Our position on the tying of benefits is that "a subsidy is "tied" when the intended use is known to the
subsidy giver and so acknowledged prior to or concurrent with the bestowal of the subsidy." See
Final Affirmative Countervailing Duty Determinations; Certain Steel Products from Belgium, 47

*13631

FR 39304 (September 7, 1982). [FN1] When we determine that a benefit is "tied" to a product, there
is an implicit assumption that the benefit is intended to affect only that product. See Industrial
Nitrocellulose from France; Final Results of Countervailing Duty Administrative Review, 52
FR 833 (January 9, 1987). In this case, however, respondents have failed to provide any evidence
on the record demonstrating that ECIL grants 1, 3, 4, 7, and 15 were intended to affect only the
inputs that received the subsidy, and only the end products that incorporated these inputs only
during the POR. Rather, ECIL subsidies are provided to inputs that are also incorporated into other
downstream products produced by the same integrated company. Therefore, to the extent that
ECIL grants are tied to phosphate rock and green acid, they are also tied to the sales of all other
merchandise incorporating those inputs.

FN1 This position is also reflected in the Department's 1989 Proposed Rules, which define tied
benefits as "a benefit bestowed specifically to promote the production of a particular product."
Countervailing Duties: Notice of Proposed Rulemaking and Request for Public Comments,
54 FR 23366, 23374 (May 31, 1989) (1989 Proposed Rules).
It is also important to note that attribution is established at the point the subsidy is bestowed, not
the point at which it is used. Otherwise, the subsidy is apportioned on a pro-rata basis in each
administrative review. Such a pro-
rata apportionment contravenes our policy of not examining the use of the subsidy to determine
whether it is countervailable. As stated in the GIA, "nothing in the statute directs the Department to
consider the use to which subsidies are put or their effect on the recipient's subsequent
performance * * * nothing in the statute conditions countervailability on the use or effect of a
subsidy. Rather, the statute requires the Department to countervail an allocated share of the
subsidies received by producers, regardless of their effect." 58 FR at 37260; see also British Steel v.
United States, 879 F. Supp. 1254, 1298 (CIT 1995) (British Steel), appeals docketed, Nos. 96-1401
to -06 (Fed. Cir. June 21, 1996); British Steel Corp v. United States, 605 F. Supp. 286, 294-95
(1985) ("[I]t is unnecessary to trace the use" of funds), citing Michelin Tire Corp. v. United States, 4
CIT 252, 255 (1982), vacated on agreed statement of facts, 9 CIT 38 (1985). Such an interpretation
is also supported by the statute, as amended by the URAA. Specifically, � 771(5)(C) of the Act
states that the Department "is not required to consider the effect of the subsidy in determining
whether a subsidy exists." The SAA further elaborates, noting that the "definition of subsidy does
not require that Commerce consider or analyze the effect (including whether there is any effect at
all) of a government action on the price or output of the class or kind of merchandise under
investigation or review." SAA at 256; H.R. Rep. No. 826, 103d Cong., 2d Sess., vol. 1 at 926 (1994)
(SAA). As such, adoption of
the attribution approach set out in Pasta From Italy was reasonable because Rotem is also an
integrated producer, as are the pasta producers who own semolina production facilities. In such
cases, subsidies to inputs will be attributed to the inputs and the downstream products that
incorporate the inputs.

Finally, we note that for subsidies "tied" to non-subject merchandise, i.e., products that could not
be inputs into IPA, such as grants tied to fertilizers under Project 13, we did not include that ECIL
grant in calculating the subsidy rate. For the reasons set forth above, for the purposes of these final
results, the Department will continue to allocate ECIL grants from Projects 1, 3, 4 and 7, and 15
over the sales of the inputs (phosphate rock and green acid) and the downstream products made by
Rotem during the POR (IPA, MKP, and fertilizers).

Comment 4: ECIL Grants to Project 15

According to respondents, the input product produced by the Rotem II facility, the plant that
benefited from ECIL grant project 15, was never intended as an input into IPA. Respondents claim
that the Department countervailed grants from project 15 on the basis of statements by Rotem
officials at verification that green acid from the plant could chemically be used for IPA. According
to
respondents, however, the relevant fact is that it is not economical to use this green acid in the
production of IPA. Therefore, respondents state, the Department should find that grants to project
15 did not benefit IPA during the POR.

Respondents further note that because the plant that benefited from project 15 did not start
operations until 1996, no benefit could possibly have accrued to IPA in 1995 from these grants.
This is especially the case, since the grants to this facility were not intended to be used in IPA
production. Rather, the inputs were to be directed to another product, not yet produced in 1995.

According to petitioners, respondents' argument that project 15 grants should not be
countervailed because the facilities that benefited from the grants were not in operation in 1995 is
irrelevant. Petitioners state that it is the potential use of the input that is important, and not its
actual use.

Department's Position. We disagree with respondents. Rotem II produces green acid, which is an
input into IPA as well as other downstream products produced by Rotem. Respondents do not
dispute that green acid from Rotem II can be used in the production of all downstream products,
including the subject merchandise. In fact, respondents confirmed that green acid from Rotem II
could be incorporated into IPA and Rotem's other end products. See Rotem VR. Therefore, as
explained in detail under in the Department's Position on "Comment 3, ECIL Grants to Projects that
Did Not Provide Inputs to IPA During
the POR," above, consistent with our policy concerning corporate entities that produce both the
inputs and the subject merchandise, we appropriately attributed the grants provided to Rotem II
to the direct sales of green acid and all downstream products that can be produced from green acid.
Such an attribution approach is consistent with the countervailing duty statute, and is in
accordance with the attribution approach followed in Pasta From Italy.

Respondents' argument that the Rotem II facility was not operational in 1995 is also without merit.
In light of our policy concerning integrated producers, this fact is irrelevant. Under the
countervailing duty statute, the Department will find a countervailable subsidy when a
financial contribution has been provided and that financial contribution has conferred a benefit
upon the recipient. While respondents may assert that green acid from Rotem II was directed to
another product not yet produced, there is no information on the record of this proceeding
indicating that green acid from Rotem II cannot be an input into the production of IPA, or that the
ECIL grants to that facility are "tied" to the production of specific downstream products. Therefore,
we have appropriately attributed these grants to Rotem's sales of green acid and to the sales of the
company's downstream products that incorporate green acid.

Comment 5: Rate of Inflation and Interest Rate To Be Used for ECIL Grant Calculations for 1994 and
1995

Respondents contend that the interest rate used by the Department to calculate the benefit during
the POR from grants received in 1994 and 1995 under ECIL project 15 was incorrect. The interest
rate in 1995 was calculated by adding the rate of inflation in 1994 to the real interest on
CPI-indexed bonds in 1995. According to respondents, the rate of

*13632

inflation in 1995, not 1994 should have been added to that bond rate.

Respondents further argue that the Department selected an incorrect inflation rate for 1995 from
the Bank of Israel (BOI) Annual Report. The Department has consistently used the average
change in the rate of inflation in its non- recurring grant benefit calculations. In 1995, this figure
was 10.0 percent. According to respondents, this is not the actual rate of inflation during the year
but the average change from the prior year. The actual change during the period, respondents
state, was 8.1 percent, as noted in the BOI annual report.

Petitioners contend that the Department has consistently used the average CPI change for the year
in calculating the interest rate to be used in the ECIL benefit calculations. Therefore, the
Department should not use a different CPI statistic in this administrative review, merely because
the new rate would be helpful to Rotem. Petitioners point out that in 1994, the CPI change during
the period was 14.5 percent, while the average change was 12.3 percent. In that review,
respondents did not argue that the Department modify the CPI.

Department's Position. As explained in the Department's Position on "Comment 9: Inflation
Adjustment for Non-Recurring Grants," below, we have modified the calculation methodology for
ECIL grants. The new approach does not require the use of NIS linked interest rates or the Israeli
CPI index. Therefore, this issue is now moot.

Comment 6: Grants Previously Allocated According to the U.S. IRS Depreciation Schedules, Should
Be Allocated Over Rotem's Actual AUL

Respondents argue that the Department correctly allocated non-recurring grants received by
Rotem over the company's average useful life of assets (AUL) of 24 years. However, respondents
note that the Department erred in not applying that allocation period to all of Rotem's
non-recurring grants, including those received prior to the POR and which had been previously
allocated according to the U.S. Internal Revenue Service depreciation schedules. According to
respondents, the benefit from these earlier grants is, therefore, overstated, and will continue to be
overstated if the allocation is not changed to reflect Rotem's AUL. Respondents state this
correction can be achieved by taking the remaining balance in 1995 of previously allocated grants
and reallocating that amount over the number of years left in a 24-year benefit stream that begins
in the year the grant was received. This approach avoids
the possibility of over-countervailing or under-countervailing the subsidy, because the entire
benefit will be countervailed over the 24 year period. Respondents further note that if the
Department found it reasonable to revise the ECIL grant calculations prior to the POR with respect
to the inflation adjustment, it should also be reasonable and practicable to do so for the AUL
correction.

Petitioners contend that the CIT's decision in British Steel does not require the Department to use a
company-specific allocation period for all subsidies. Rather, petitioners state that the Department
decided not to recalculate the AUL for subsidies received prior to the POR because such a change
could distort the allocation of the actual benefits is fair and within the mandate of British Steel.
Petitioners further argue that nothing in British Steel or in any other decision requires the
Department to accept respondents' proposed method for recalculating the allocation period for
earlier grants. In fact, petitioners note that the Department did not disturb previously established
allocation periods in administrative reviews of other countervailing duty orders. See, e.g.,
Certain Carbon Cut-to-Length Carbon Steel Plate from Sweden; Final Results of Countervailing
Duty Administrative Review, 62 FR 16551, 16552 (April 7, 1997), and Certain Carbon Steel
Products from Sweden; Final Results of Countervailing Duty Administrative Review, 62 FR
16549, 16550 (April 7, 1997). Accordingly, petitioners argue that the Department's allocation of
prior subsidies should remain unchanged.

Department's Position. Petitioners correctly note that in prior cases we have not disturbed
allocation periods established in prior proceedings. This approach is reasonable and, as noted by
petitioners, is not in conflict with the CIT's decision in British Steel, which does not require the
Department to allocate non-recurring subsidies over a company's AUL. Furthermore, maintaining
established allocation periods is both fair and practical, and modifying the allocation stream for
previously allocated subsidies can produce unfair results. For example, it is conceivable that a
company-specific AUL would yield a shorter allocation period. In that case, it is possible that the
subsidy may be under-countervailed, in particular for subsidies that have reached the point in the
allocation stream beyond the total number of years in the company-specific AUL. For these
reasons, Rotem's 24-year company-specific AUL will only be adopted for ECIL grants that have not
been previously allocated.

Comment 7: Grants Not Previously Considered in Subsidy Calculations Should Be Allocated Over
Rotem's Actual AUL

According to respondents, the Department has determined to countervail certain grants in this
administrative review that have not been countervailed
in prior reviews. Among these are grants received prior to the POR. For these grants, respondents
argue that the Department should allocate these grants over Rotem's company-specific AUL of 24
years, because these grants have not already been allocated in past administrative reviews.

Department's Position. Grants from ECIL project 15, received in 1994, were not countervailed in
the 1994 administrative review and therefore have not previously been allocated. Therefore, we
concur with respondents that it is appropriate to allocate these grants over Rotem's
company-specific 24-year allocation period. However, we disagree with respondents that there are
"numerous grants countervailed this time that have not been countervailed in the past." In the
1994 administrative review, the Department countervailed grants from projects that benefitted
inputs that were not used in the production of IPA during 1994. Moreover, in past administrative
reviews, ECIL grant projects to each of Rotem's phosphate rock and green acid facilities had been
countervailed. This includes grants to the Arad and Zin mines, which Rotem claims in this review
did not benefit production of IPA. Accordingly, the allocation period for these grants will not
change in these final results.

Comment 8: The Denominator for Grants to Projects Not Tied Directly to IPA

Respondents contend that the Department should not deviate from the practice
followed in the 1994 review of attributing grants not tied to IPA over Rotem's total sales. This
approach was modified in the preliminary results of this review so that grants to Rotem's green acid
facilities were attributed to Rotem's total sales minus direct sales of phosphate rock. (Grants tied to
Rotem's phosphate rock facilities were attributed to the company's total sales.) According to
respondents, this change is not justified by the Department's regulations.
Respondents state that the rationale for this change is found in the tying provision of the 1997
Proposed Rules.

*13633

However, respondents note that these rules, while they provide guidance, are not controlling in
this review and are therefore not applicable. Respondents further argue that this provision should
only be invoked for grants to an input that is essential to the production of the downstream
product. This is not the case with green acid, which, while it has been an input into IPA, is not
required for IPA production.

Respondents further claim that under section 355.47 of the 1989 Proposed Rules, the Department
is directed to attribute subsidies either to total sales or to products to which the benefit is tied.
Therefore, if a grant is tied to several products, the Department will allocate that grant over the
sales of only those products. However, respondents contend that where the subsidy is given to an
input into the subject merchandise, rather than directly to the
subject merchandise or several products including the merchandise under investigation, the
denominator should be the company's total sales. Therefore, respondents argue that in the final
results, the Department should allocate all grants not tied directly to the subject merchandise over
Rotem's total sales.

Petitioners state that the Department is permitted to change its methodologies and that the
approach followed in this review is a refinement of the methodology adopted in the 1994
proceeding. The Department has determined that the approach with respect to ECIL subsidies to
Rotem's green acid facilities is a more precise measurement of the benefit bestowed. According to
petitioners, the Department reasonably determined that because green acid is not an input into
phosphate rock, sales of phosphate rock cannot benefit from a subsidy provided to Rotem's green
acid facilities. Therefore, petitioners argue, the Department's modification is a logical and
reasonable refinement of the new "single-corporate-entity-input" methodology.
Department's Position. Our determination that ECIL subsidies provided to Rotem's green acid
facilities are not attributable to direct sales of phosphate rock is, as petitioners note, a logical
refinement of the attribution approach followed in the 1994 administrative review. During the
course of this proceeding, we learned that Rotem's total sales statistics include direct sales of
phosphate rock and direct sales of green acid. These are the principal inputs for Rotem's end
products. Under the approach first adopted in the 1994
final results of this order, we determined that subsidies to inputs are appropriately attributable to
the sales of the input and the sales of downstream products that can incorporate that input.
Therefore, we excluded Rotem's direct sales of phosphate rock in calculating the subsidy rate from
ECIL grants for the green acid facilities. This is logical given that phosphate rock is an input into
green acid, but green acid is only a downstream product of phosphate rock, and, therefore, this
approach accurately captures the universe of sales to which the benefit applies. Subsidies to green
acid production cannot benefit the production of phosphate rock, and attributing such subsidies to
phosphate rock will understate the subsidy to green acid and the end products that incorporate
green acid.

Respondents' contention that the provision with respect to inputs in the 1997 Proposed Rules
should only be invoked for grants to an input that is "essential to the production of the downstream
product" is incorrect. The plain language of the proposed rules states that "a subsidy which is tied to
the input product will be attributed to the input and downstream products produced by that
corporation." See 1997 Proposed Rules, �351.524(b)(5)(ii), 62 FR at 8855. Nothing in the 1997
proposed rules speaks of inputs that are "essential to the production of the downstream product."
Nor do respondents provide any justification for the rationale that subsidies tied to inputs that are
not "essential to the production of the downstream product," be attributed to a
company's total production, including upstream products. Rather, as the plain language of the
proposed rules suggests, such subsidies can only be attributed to production of the input and the
downstream products. Attributing such subsidies to upstream products would, as noted above,
understate the subsidy and attribute the subsidy to products that did not benefit from the subsidy.
Respondents' reliance on the 1989 Proposed Rules for the proposition that the Department is
directed to attribute subsidies either by total sales or by products to which the benefit is tied is
misguided. As a preliminary matter, we fail to see how this argument reconciles with respondents'
earlier claim that subsidies to Rotem's green acid facilities provide competitive benefits only to
green acid and to downstream products, but only according to the exact proportion that they were
used to produce the downstream products. If this were the case, respondents have failed to explain
how these same subsidies to green acid may also benefit a firm's total production, including
upstream production. Thus, respondents are incorrect on both accounts. As outlined above, in
order to make an apples-to-apples comparison, it is imperative that both the numerator (the
countervailable benefit) and denominator (the universe of sales to which the benefit applies) used
in the Department's calculation of a subsidy reflect the same universe of goods. Accordingly, this
approach will remain unchanged in these final results.

Comment 9: Inflation Adjustment for Non-Recurring Grants

Respondents argue that the inflation adjustment used by the Department in the preliminary results
to calculate the benefit from non-recurring ECIL grants significantly overstates the benefit from
these grants. According to respondents, the Department should "dollarize" the grants, which would
have the same effect as indexing the grants for inflation. This approach would comport with
Rotem's actual business practices because most of the company's financing is in U.S. dollars, and
the company's financial statements are expressed in U.S. dollars. Respondents further claim that
converting the grant amount into dollars would be consistent with the approach followed in Wire
Rod from Venezuela. Respondents suggest that the Department use Rotem's long-term cost of U.S.
dollar-denominated borrowing in 1995 to calculate the benefit from the ECIL grants converted into
dollars.

Respondents state that if the Department chooses not to dollarize, then it should index the
principal grant amounts and use a real interest rate in the benefit calculation. In the preliminary
results, respondents argue, the Department incorrectly used a nominal interest rate. This approach
double counts inflation, once by adjusting the principal by the inflation index, and again by
accounting for inflation in the calculation of the interest component of the benefit. Short of making
either of these adjustments, respondents
contend the Department should return to the original methodology followed in the 1994
administrative review.

According to petitioners, the Department correctly followed the methodology adopted for the
preliminary determination in Wire Rod from Venezuela. Petitioners also reject respondents'
argument that because inflation was not as high as in Venezuela, the Department should return to
its original methodology to account for inflation if it does not accept respondents' proposed
methodology. Petitioners note that respondents' own analysis identifies Israel as a high

*13634

inflation country. Moreover, petitioners point out that Israeli companies have adjusted their
financial statements throughout the allocation period.

With respect to the methodology adopted in Wire Rod from Venezuela, petitioners state that
dollarization can be used in this case if the Department applies exchange rates and interest rates
that correctly account for inflation. Accordingly, petitioners argue that the Department should use
a long-term, dollar-denominated interest rate as a discount rate in the grant calculations. In
particular, if the Department is unable to locate a long-term fixed rate dollar-denominated rate in
Israel, petitioners contend that it is appropriate to use the average long-term variable rate in
dollars available to ICL, Rotem's parent company, from private lenders during the POR. A
long-term rate, petitioners claim, reflects the economic benefit that Rotem received from
the subsidies. Petitioners reject respondents' argument that the Department should use Rotem's
long-term cost of borrowing during the POR, because at least some of those loans are financed by
ICL and may, therefore, reflect below market interest rates.

Department's Position. We have modified the calculation methodology for ECIL grants to conform
with the approach followed in the final determination of Wire Rod from Venezuela. This approach
aligns with respondents' proposed methodology to dollarize the grants at the time they were
received.

With respect to the discount rate to be applied to the grants, we agree with petitioners that an
interest rate reflecting the long-term, U.S. dollar- denominated cost of borrowing to Israeli firms is
most appropriate. However, we have been unable to find such rates. While Rotem's 1995 financial
statements show the company's long-term cost of borrowing in U.S. dollars, we are unable to
segregate long-term interest charged by Rotem's parent company, ICL, from the long-term interest
rate charged by financial institutions. As such, we have turned to ICL's long-term cost of borrowing
denominated in U.S. dollars in each year from 1985 through 1995 as the most appropriate discount
rate. ICL's rates are shown in the notes to the company's financial statements, which are public
documents that have been placed on the record of this proceeding. See "Calculation Memorandum."
For 1983 and 1984, we used the interest rate on short-term euro-dollar financing because we were
unable to
locate an appropriate long-term dollar-denominated interest rate for those years. See "Calculation
Memorandum." In converting the ECIL grants into dollars, we used the shekel/U.S. dollar exchange
rates prevailing on the day the grants were received by Rotem. This information is available from
the Bank of Israel. See the "Calculation Memorandum" for additional discussion of this issue.

Comment 10: Timing of Inflation Adjustments for Non-Recurring Subsidies

According to respondents, in the preliminary results, the Department incorrectly adjusted the
ECIL subsidies to take into account inflation for all grants dating back to 1986, the beginning of the
relevant period. Respondents argue that it is "not appropriate to adjust those grants that have
already been adjusted by virtue of the inflated interest, since adjusting both interest and principal
for inflation leads to a total subsidy greater than actually received." Therefore, respondents claim
that the inflation adjustment should begin in 1995, as "inflation has already been captured in the
interest rate formula used for the grants prior to that year," and adjusting those grants now double
counts the effects of inflation.

Petitioners contend that dollarization should apply only to the period marked by high inflation in
Israel, i.e., between 1983 and 1986, when inflation
exceeded 30 percent. Petitioners state that this conforms with the approach taken in Wire Rod
from Venezuela. Starting in 1987, petitioners argue, the remaining principal of the grants should be
reconverted into shekels and interest on the remaining amount should be calculated using the rate
of return on CPI-indexed commercial bonds. Petitioners reject respondents' argument that
adjusting the principal of the grants received prior to 1995 would double count the effect of
inflation. According to petitioners, in previous years the Department countervailed only the
portion of the grants allocated to a particular POR, while no allocation has been made for the
portion that will be countervailed in this review.

Department's Position. Respondents' argument that inflation has already been captured for the
grants in years prior to 1995 is incorrect. The purpose of adjusting non-recurring grants for
inflation is to capture the impact of inflation on the nominal grant amounts. This merely accounts
for the fact that, when inflation is consistently high, the value of non-monetary assets increases,
and the value of the subsidy that benefits the non-monetary assets also increases. By converting
the subsidy into dollars at the beginning of a high inflation period, we are taking into account the
real value of the subsidy. To accurately capture that real value, we must adjust the nominal value
from the time that inflation has a measurable impact. In this case, inflation was significant from the
beginning of the allocation stream, with
annual inflation at over 100 percent. If the adjustment is not made at the beginning of the
allocation stream, in particular during the high inflation period of 1983 through 1986, the real
value of the grant principal is eroded significantly. Therefore, it is essential that the ECIL grants are
dollarized from the beginning of the allocation stream to preserve the real value of the grant and
the real benefit from those grants to Rotem. Further, Rotem converts and maintains all of its
financial records in U.S. dollars. Thus, dollarization conforms with Rotem's own business practices.
It is also consistent with the approach followed in Wire Rod from Venezuela (62 FR at 55014).
Respondents' claim that adjusting for inflation for years prior to 1995 overstates the
countervailable benefit because the adjustment has already been captured in prior reviews, is also
without merit. As explained above, the real benefit in 1995 will be significantly understated if the
adjustment is not made from the beginning of the allocation stream. Further, the inflation
adjustment used in prior administrative reviews of this order added the rate of inflation to the
discount rate. This approach treats inflation as a benefit in each year. However, as explained
above, inflation increases the real value of non- monetary assets, such as machinery, over time,
and is not a benefit in each year. Therefore, if anything, the impact of inflation was underestimated
in prior reviews because inflation was only accounted for in the interest
component of the benefit, while the principal amount remained in constant terms during the entire
allocation period. Furthermore, petitioners correctly note that no allocation has yet been made for
the portion that will be countervailed in this review, and therefore, the 1995 benefit has not yet
been adjusted and is not overstated. For these reasons, we determine that dollarization is the most
appropriate approach to capture the impact of inflation on ECIL grants received by Rotem. As
noted above, we also determine that the grants should be dollarized throughout the entire
allocation period.

Comment 11: Privatization of ICL

Respondents allege that the Department's privatization methodology

*13635

is flawed. First, respondents state that each partial privatization of ICL between 1992 and 1995 was
at fair value, and that the privatization process was highly competitive. Therefore, the stock price
of ICL at the time of privatization reflected all publically available information about the company,
including the fair value of the subsidies bestowed upon Rotem up to privatization. This means that
investors who form expectations about ICL's projected cash flows would include the full benefits of
the subsidies Rotem received. Accordingly, respondents argue that because the privatization price
reflected the fair value of ICL, including the fair value
of Rotem's subsidies, those subsidies are fully repaid to GOI with the sale of the company.

Respondents further claim that while ICL was only partially privatized (51.48 percent of the
company has been sold), the private party that purchased ICL has gained control over the
company, including control over Rotem's business decisions. Thus, the effect on the pricing of
Rotem's products is "as if none of the subsidies awarded to Rotem prior to the privatization remain
countervailable after the privatization."

Petitioners dispute respondents' claim that market forces have adjusted the selling price of ICL to
reflect the full value of Rotem's subsidies. Even if this were the case, petitioners state that in 1995,
only 24.9 percent of ICL's stock was sold, and therefore, only a portion of the subsidies could have
been reflected in the sale price. Petitioners also dispute respondents' contention that the issue of
control is a relevant factor in the privatization analysis. Again, even if control were germane,
petitioners note that the GOI still enjoys "special rights" to make business decisions, including (1)
sales of company assets, (2) structural changes such as voluntary liquidation, reorganizations, or
mergers that would impair the GOI's special rights, and (3) investments or holding in shares of
subsidiaries. Moreover, the GOI retains over 48 percent ownership in the ICL.

Department's Position. The issue of whether a fair market value privatization eliminates previous
subsidies has already been addressed by the Department.

Respondents in the certain steel investigations made similar arguments, stating that, since the fair
market price of a government-owned company must include any remaining economic benefit from
the subsidies, privatization extinguishes all remaining unamortized subsidies. At the time, we
disputed this assertion because it rests on the assumption that subsidies must confer a
demonstrated benefit on production in order to be countervailable. As we stated,
[T]his is contrary to the CVD law, in which is embedded the irrebuttable presumption that
nonrecurring subsidies benefit merchandise produced by the recipient over time. In sum, the
countervailable subsidy (and the amount of the subsidy to be allocated over time) is fixed at the
time the government provides the subsidy. The privatization of a government-owned company,
per se, does not and cannot eliminate this countervailability.

GIA, 58 FR at 37263. This conclusion is also permitted under the change in ownership provision of
the Act, as amended by the URAA. The SAA specifically states that the Department retains "the
discretion to determine whether, and to what extent, the privatization of a government-owned firm
eliminates any previously conferred countervailable susidies." SAA at 258. This is the conclusion
we reached in a recent countervailing duty proceeding, where we noted that the Act
"purposely leaves the Department with the discretion to determine the impact of a change in
ownership on the countervailability of past subsidies." Certain Hot-Rolled Lead and Bismuth
Carbon Steel Products from the United Kingdom, 61 FR 58377, 58379 (November 14, 1996).
We also disagree with respondents contention that, while ICL was only partially privatized, by
virtue of the private party's control over the company, all of Rotem's prior subsidies are
extinguished. As a preliminary matter, the Department has always applied it's privatization
methodology to changes in ownership which resulted in the transfer of control from one party to
another. See e.g., Final Affirmative Countervailing Duty Determination; Certain Steel
Products From the United Kingdom, 58 FR 37393 (July 9, 1993) and Final Affirmative
Countervailing Duty Determination: Steel Wire Rod From Trinidad and Tobago, 62 FR
55003 (October 22, 1997).

Furthermore, respondents claim that the transfer of control has an effect on the pricing of Rotem's
products, so that none of the subsidies awarded to Rotem prior to the privatization remain
countervailable after the privatization, is also without merit. As we noted in the GIA, the
Department does not, and is not permitted to undertake an analysis of the effect of subsidies. In
particular, we stated " the Department does not take account of subsequent developments that may
reduce any initial cost savings or increase in output from a subsidy." GIA, 58 FR at 37261; see also,
SAA at 256. Therefore, whether and to what extent the pricing of Rotem's products changes as a
result of ICL's partial privatization is irrelevant for determining whether Rotem's previously
bestowed subsidies remain countervailable. In any case, the Department's determination that
previously bestowed subsidies may continue to benefit the privatized company during an arm's
length transaction, has been upheld by the Court of Appeals of the Federal Circuit. See Saarstahl AG
v. United States, 78 F.3d 1539, 1544 (Fed. Cir. 1996). For these reasons, our preliminary finding
with respect to ICL's partial privatization will remain unchanged in these final results.

Comment 12: The Privatization Methodology

According to respondents, the Department's gamma methodology is flawed. In particular,
respondents state that the gamma is incorrectly based on the average ratio of annual subsidies to
Rotem's net worth. Therefore, the Department is considering the annual flow of subsidies to Rotem.
However, the net worth in a given year reflects the accumulated value of Rotem's equity.
According to respondents, this results in an undervalued gamma ratio. Therefore, respondents
contend the gamma calculation should consider the stock of countervailable subsidies at the time
of the privatization. This would be done by dividing the total bestowed subsidies accumulated up to
the privatization by Rotem's equity capital just prior to ICL's privatization.

Respondents also contend that the Department's gamma percentage is
understated because the denominators used in the gamma calculation are expressed in adjusted
U.S. dollars while the numerators are nominal Shekel values. According to respondents, because
the denominators (the net worth amounts) are expressed in adjusted U.S. dollars, they reflect
inflation, while the grant amounts, the numerators, are expressed in nominal terms. Therefore,
respondents suggest the Department use Rotem nominal net worth amounts submitted in the case
brief. Alternatively, respondents assert that the Department should convert the ECIL grants into
dollars at the exchange rate on the day of receipt of the grants.

Petitioners argue that the Department's gamma calculation used Rotem's audited financial
statements, which are an accurate tool for this calculation. Petitioners further state that Rotem
should not be permitted to submit new net worth figures, after the Department has conducted
verification.

*13636

Department's Position. The gamma calculation attempts to derive a reasonable historic surrogate
for the percent that subsidies constitute of the company's net worth in the year prior to
privatization. Respondents' proposed modification of the gamma calculation is flawed because it
incorrectly compares the value of Rotem's accumulated subsidies in the year before privatization
to the company's net worth in that year. Such a comparison overstates the value of the subsidies in
relationship to the company's net worth because it assumes that a company's net worth increases in
direct proportion to the value of the
subsidies received by that firm. However, this is not the case, as those values are depreciating from
year to year. Simply stated, respondents comparison ignores the fact that the value of subsidies is
eroding over time, i.e., a subsidy received in 1986 does not have the same relative value as a
subsidy received in 1994. Therefore, respondents' approach overvalues the subsidies and thus
grossly overstates the ratio of Rotem's subsidies to net worth in the year prior to privatization.
Although we also disagree with respondents' argument that the gamma percentage is understated
because the denominator is expressed in adjusted U.S. dollars and the numerator in nominal
shekels, this issue is now moot because we have dollarized the ECIL grants.

Final Results of Review

In accordance with 19 CFR 355.22(c)(4)(ii), we calculated an individual subsidy rate for each
producer/exporter subject to this administrative review. For the period January 1, 1995 through
December 31, 1995, we determine the net subsidy for Rotem to be 8.93 percent ad valorem.
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 �777A(e)(2)(B) of the Act. The
requested review will normally cover only those companies specifically named. See 19 CFR
355.22(a). Pursuant to 19 CFR 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 CFR
353.22(e), the antidumping regulation on automatic assessment, which is identical to 19 CFR
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, conducted pursuant to the
statutory provisions that were in effect prior to the URAA amendments. See 61 FR 28841. 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, 1995 through December 31, 1995, 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 CFR 355.34(d). Timely written notification of return/destruction of 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: March 9, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration,

[FR Doc. 98-7352 Filed 3-19-98; 8:45 am]

BILLING CODE 3510-DS-P