64 FR 2879
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-508-605]
Industrial Phosphoric Acid from Israel: Final Results of Countervailing Duty
Administrative Review
Tuesday, January 19, 1999
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AGENCY: Import Administration, International Trade Administration, Department of
Commerce.
ACTION: Notice of Final Results and Partial Recission of Countervailing Duty Administrative
Review.
SUMMARY: On September 9, 1998, the Department of Commerce 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, 1996 through
December 31, 1996 (63 FR 48193). 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
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instruct the U.S. Customs Service to assess countervailing duties as detailed in the Final
Results of Review section of this notice.
EFFECTIVE DATE: January 19, 1999.
FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Eric Greynolds, Office of CVD/AD
Enforcement VI, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, D.C. 20230;
telephone: (202) 482-3692 or (202) 482- 6071, respectively.
SUPPLEMENTARY INFORMATION:
Background
Pursuant to 19 CFR 351.213(b), 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). Haifa Chemicals Ltd. (Haifa) did not export the subject
merchandise during the period of review (POR). Therefore, in accordance with section
351.213(d)(3) of the Department of Commerce's (the Department) regulations, we rescinded the
review with respect to Haifa. The review also covers nine programs.
Since the publication of the preliminary results on September 9, 1998 (63 FR 48193), the following
events have occurred. We invited interested parties to comment on the preliminary results. On
October 9, 1998, a case brief was submitted by counsel for FMC Corporation and Albright & Wilson
Americas Inc. (petitioners). On October 13, 1998, a case brief was submitted by the Government of
Israel (GOI) and Rotem, producer/exporter of IPA to the United States during the review
period (respondents). On October 14, 1998, rebuttal briefs were submitted by respondents and
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). The Department is conducting this administrative review in
accordance with section 751(a) of the Act. All citations to the Department's regulations
reference 19 CFR Part 351 (1998), unless otherwise indicated.
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 U.S. Customs Service
purposes. The written description of the scope remains dispositive.
Subsidies Valuation Information
Period of Review
The period for which we are measuring subsidies is calendar year 1996.
Allocation Period
In British Steel plc. v. United States, 879 F.Supp. 1254 (February 9, 1995) (British Steel), the U.S.
Court of International Trade (the Court) ruled against the allocation period methodology for
non-recurring subsidies that the Department had employed for the past decade, as it 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 decision on remand, the Department determined that the most
reasonable method of deriving the allocation period for nonrecurring subsidies is a
company-specific average useful life (AUL). This remand determination was affirmed by the Court
on June 4, 1996. British Steel, 929 F.Supp 426, 439 (CIT 1996). Accordingly, the Department has
applied this method to those non-recurring subsidies that have not yet been countervailed.
Rotem submitted an AUL calculation based on depreciation expenses and asset values of
productive assets reported in its financial statements. Rotem's AUL was derived by adding the sum
of average gross book value of depreciable fixed assets for ten years and dividing these assets by
the total depreciation charges 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 average useful life of 23 years, which we have used as the allocation period for
non-recurring subsidies received during the POR.
For non-recurring subsidies received prior to the POR and already 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. Since the
countervailing duty rate in earlier segments of the proceeding was calculated based on a
certain allocation period and resulted in a certain benefit stream, redefining the allocation period
in later segments of the proceeding would entail taking the original grant amount and creating an
entirely new benefit stream for that grant. Such a practice may lead to an increase or decrease in
the total amount countervailed and, thus, would result in the possibility of over-or under-
countervailing the actual benefit. Therefore, for purposes of these final results, the Department is
using the original allocation period assigned to each non-recurring subsidy received prior to the
POR. See, e.g., Certain Carbon Steel Products from Sweden; Final Results of Countervailing
Duty Administrative Review, 62 FR 16549 (April 7, 1997). For further discussion, see the
Department's position on Comment 3 (Allocation of Grants Over AUL), below.
Privatization
The Department has previously determined that the partial privatizations of Israel Chemicals
Limited (ICL), Rotem's parent company, represents a partial privatization of Rotem. Further, the
Department 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, and Final Results of Countervailing Duty Administrative Review; Industrial
Phosphoric Acid from Israel, 63 FR 13627 (March 20, 1998) (1995 Final).
In prior reviews, to calculate the portion of the purchase price representing repayment of prior
subsidies through partial privatizations in 1992, 1993 and 1995, the Department converted the net
worth figures for Rotem from new Israeli shekels (NIS) to U.S. dollars, based on exchange rate
information on the record. In this review, Rotem submitted U.S. dollar denominated audited
financial statements for 1983 through 1989. The notes to the financial statements indicate that the
company maintains its accounts in NIS and in U.S. dollars. Amounts originating from transactions
denominated in, or linked to, the dollar are stated at their original amounts. Amounts not
originating from such transactions are determined on the basis of the exchange rate prevailing at
the time of the transaction. As a result, we have recalculated the portion of the purchase price paid
for ICL's shares that is attributable to repayment of prior subsidies using the U.S. dollar
denominated net worth figures provided in Rotem's financial statements.
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Analysis of Programs
Based upon the responses to our questionnaires 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). 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 not
led us to modify our findings from the preliminary results for this program. Accordingly, the net
subsidy for this program remains unchanged from the preliminary results and is as follows:
---------------------------------------
Manufacturer/explorer Rate (percent)
---------------------------------------
Rotem Amfert Negev ............... 5.58
---------------------------------------
2. Encouragement of Industrial Research and Development Grants (EIRD). 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 not led us to modify our calculations for this program
from the preliminary results. Accordingly, the net subsidy for this program remains unchanged
from the preliminary results and is as follows:
---------------------------------------
Manufacturer/explorer Rate (percent)
---------------------------------------
Rotem Amfert Negev ............... 0.02
---------------------------------------
B. New Programs Determined to Confer Subsidies
1. Environmental Grant Program. 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 not led us to modify our
calculations for this program from the preliminary results. Accordingly, the net subsidy for this
program remains unchanged from the preliminary results and is as follows:
---------------------------------------
Manufacturer/explorer Rate (percent)
---------------------------------------
Rotem Amfert Negev ............... 0.11
---------------------------------------
2. Infrastructure Grant Program. 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 subsidy for this program remains unchanged from
the preliminary results and is as follows:
---------------------------------------
Manufacturer/explorer Rate (percent)
---------------------------------------
Rotem Amfert Negev ............... 0.18
---------------------------------------
II. Programs Found to be Not Used
In the preliminary results, we found that the producers and/or exporters of the subject
merchandise did not apply for or receive benefits under the following programs:
1. Reduced Tax Rates under ECIL
2. ECIL Section 24 Loans
3. Dividends and Interest Tax Benefits under Section 46 of the ECIL
4. ECIL Preferential Accelerated Depreciation
5. Exchange Rate Risk Insurance Scheme
6. Labor Training Grants
7. Long-Term Industrial Development Loans
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
Rotem argues that the Department incorrectly calculated the denominator for "grants allocable to
all sales other than direct sales of phosphate rock," because the sales figure from the "others"
category, as reported in respondents December 15, 1997, questionnaire response, was excluded.
Petitioners counter that because the product listing provided by respondents did not provide a
breakdown of products in the "others" category, the Department could not assume that these other
products benefitted from ECIL grants, and therefore, was correct to exclude these sales from its
subsidy calculations.
Department's Position
We attribute ECIL grants to a particular facility to the sales of the products produced by that
facility plus sales of all products into which that product may be incorporated. To do so, it is
necessary that all products to
which the grants are being attributed are identified. Respondents did not indicate what products
are included in the "others" category or any indication that the ECIL grants should appropriately be
attributed to those "other" sales. Therefore, it would have been improper to attribute ECIL grants to
those unidentified products.
Comment 2: IPA as an Input to Fertilizers
Petitioners argue that the Department expanded the attribution of certain ECIL grants to include
sales of fertilizers, based on respondents' claim, unsupported by documentation, that IPA may be
and has been an input into fertilizers other than MKP. In this regard, petitioners cite to the
Department's 1995 verification report, which does not indicate that IPA was found to be an input to
any fertilizer product other than MKP. Thus, petitioners assert that the Department erroneously
included sales of all fertilizers in its denominator. Petitioners further argue that unless Rotem
demonstrates that IPA is an input to a specific fertilizer product, the Department should not
include that fertilizer product in the attribution denominator.
Respondents agree with petitioners that only those products that use IPA as an input should be
included in the attribution denominator. However, respondents
argue that the Department has rejected this approach and includes a product in its attribution
calculation if the product can be used as an input into IPA, irrespective of whether it has actually
been used. Further, respondents argue that if petitioners want the Department to include only
products actually receiving IPA inputs in a given review in the attribution calculation, then the
Department must also exclude those products that are not used in a given review.
Department's Position
In the 1995 administrative review of this case, we attributed ECIL grants tied to a particular unit to
the sales of the product produced by that unit plus the sales of all products into which that product
may be incorporated. Accordingly, in that review, we attributed ECIL grants to the IPA facility to
sales of IPA and sales of MKP, a
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downstream fertilizer. In this administrative review, respondents have stated that IPA can also "be
and has been used by Rotem as an input into other fertilizers," that is other than MKP. Therefore,
consistent with our approach in the 1995 proceeding, we included the sales of fertilizers in the
denominator for ECIL grants to the IPA facility.
Petitioners' argument that the Department must "limit attribution to specific
products that actually are inputs" is incorrect. In fact, if this were the case, the Department would
not have altered its original attribution approach followed through the 1993 administrative review,
a change supported by petitioners. In the 1995 review, we stated that the attribution of ECIL grants
to the sales of the units that received the grants and sales of all downstream products 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." 63 FR at 13629. Of further note is that this approach has been codified in the
Department's final countervailing duty regulations at 19 CFR §351.525(b)(5)(ii). Therefore,
for these final results, in calculating the benefit from ECIL grants to Rotem's IPA facility, we have
included the sales of fertilizers in the denominator.
Comment 3: Allocation of Grants Over AUL
Respondents agree that the Department used the appropriate AUL during the POR, but disagree
with the Department's application of the company-specific AUL only to grants that were not
previously allocated over ten years. They state that for the initial determination in 1987 and all
subsequent reviews, the Department used a ten-year AUL, which does not reflect the company's
actual situation. According to respondents, the Department's failure to apply the
actual AUL to all grants is contrary to the Court of International Trade's ruling in British Steel,
because the Court invalidated the use of the Internal Revenue Service (IRS) tables and instructed
the Department to use "a method of allocating the benefits on non-recurring subsidies that
reasonably reflect the commercial and competitive advantages enjoyed by the firms receiving" the
subsidies. Respondents note that the Department chose the company-specific AUL to allocate
non-recurring subsidies and the Court has endorsed it. Therefore, they argue that the Department's
allocation of some of Rotem's grants according to the company's actual AUL, while allocating
others according to an invalidated IRS proxy, which has no relevance to Rotem's actual situation,
is clearly contrary to British Steel, and overstates the non-recurring subsidies.
Respondents also argue that the Department's rationale for not changing its AUL methodology is
flawed. Respondents claim that reallocation is a very simple exercise, which can be accomplished
by the Department taking the remaining balance during the POR and allocating that amount over
the number of years left in the 23-year AUL benefit stream that begins in the year the grant was
received. Respondents also argue that this approach takes into account the fact that
countervailable subsidies have been fully paid for in all prior years up to the POR, and such an
approach would not result in over- or under- countervailing the actual benefit since the entire
actual benefit will be fully countervailed over the 23-year period.
Petitioners counter that while the Court in British Steel instructed the Department to use an
allocation method that reasonably reflects the commercial and competitive advantages created by
a subsidy, it does not require the Department to use the AUL method. Petitioners also counter that
the Department chose not to recalculate the AUL because such a change could result in an
allocation that distorts the allocation of the actual benefits Rotem received from the non-recurring
subsidies, and this decision is fair and in keeping with the mandate of British Steel.
Department's Position
The arguments presented by respondents are for the most part identical to those made in the 1995
administrative review of this case. The Department fully addressed those arguments in that review
(see 63 FR at 13632), and nothing argued by respondents in this review would lead us to change
our prior determination with respect to this issue. It is our continued view that not disturbing
allocation periods established in prior proceedings is reasonable and 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.
However, we would like to further address additional implications of the
approach advocated by respondents which would pose significant additional burdens on the
Department. First, it is the Department's practice to calculate a benefit for all countervailable
subsidies that are allocable through the POR. In the original investigation of this case, the
Department determined, based on the IRS tables, that the appropriate allocation period is ten
years. The period of investigation was 1987. Accordingly, the Department countervailed all
non-recurring subsidies still benefitting the company in 1987, i.e., subsidies received by Rotem
from 1978 through 1987. While we determined in the 1995 review that Rotem's company-specific
AUL was 24 years, we did not countervail non-recurring subsidies received by Rotem for the entire
24 year period. Rather, because the ten year allocation period had been previously established, we
did not disturb the allocation period for those prior subsidies and also did not reach back to
countervail non-recurring subsidies not previously examined. Thus, we applied the
company-specific AUL only to those new subsidies received during 1995. However, were the
Department to reallocate previously allocated subsidies, it would also be appropriate, at that time,
to investigate all subsidies received by the company during the entire company-specific allocation
period, including those not previously examined by the Department. This approach would be
consistent with respondents' argument that the company-specific AUL is representative of Rotem's
actual experience.
Respondents have also stated that since the Department has found that the 23 years
company-specific period is the appropriate period, the ten-year period is invalidated, and both
periods cannot at the same time be representative of Rotem's actual experience. If this were the
case, then the 24 year period calculated by the Department in the 1995 review is also invalidated.
Respondents have not contended, however, that the Department should now also recalculate the
benefit stream for the 1995 non-recurring subsidies. It becomes clear, therefore, that respondents'
proposed approach would require the Department to reallocate a company's subsidies each time
the company-specific AUL has changed. This may occur, as is the case here, from one
administrative review to the next. While such an approach may not seem to be overly burdensome
in one case, in the context of all countervailing duty cases that burden is clearly significant.
As noted above, respondents have not provided any new information that would warrant a
reconsideration of the Department's AUL methodology. For this reason, and for the additional
concerns outlined above, we have not altered the allocation period for
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previously allocated non-recurring subsidies, including those that were allocated using a
company-specific AUL.
Comment 4: Rotem's AUL Calculation
Petitioners state that the Department, consistent with its normal practice, has accepted Rotem's
audited financial statements at face value. However, they argue that there is no consistency
between Rotem's AUL calculated for countervailing duty purposes and the actual useful life
of assets as reflected in the firm's depreciation schedule used in its financial statements.
Therefore, according to petitioners, the Department should either reject Rotem's AUL for
inconsistency with its audited financial statements or make the appropriate adjustment in
the gamma ratio, which is itself a function of a company's total assets, that would subsequently
reduce the past subsidies previously calculated as having been extinguished by partial
privatizations. Petitioners argue that if the Department continues to use the AUL as
calculated by Rotem, then the productive assets that Rotem excluded from its AUL calculation
(i.e., furniture, vehicles and office equipment) should be included, and assets that are no
longer in service should be excluded.
Respondents counter that there is no conflict between the calculated AUL and Rotem's
depreciation schedules. The AUL was calculated in conformity with the Department's instructions
and was taken directly from Rotem's audited financial statements. Respondents further argue that
the length of Rotem's AUL stems from the merger between Rotem and Negev Phosphates Ltd., the
latter of which had a longer AUL therefore increasing the overall AUL of the newly formed
company, Rotem Amfert Negev Ltd. Respondents state that petitioners, in fact,
recognize that the AUL is correct because they argue that if the Department accepts the AUL, then
the gamma ratio must be adjusted to increase Rotem's net worth. According to respondents, there
is no basis for making such an adjustment because the gamma denominator, which represents the
net worth of the company, is taken directly from the audited annual reports and that figure was
relied upon by the purchasers of ICL when the privatizations took place.
Respondents also counter that the assets that petitioners argue should be included in the AUL
calculation are not productive assets. Moreover, the grants at issue are not given for such assets;
they are given only for production facilities. Therefore, it was correct not to include these
assets in the AUL calculation.
Department's Position
We disagree with petitioners' contention that the Department should reject Rotem's AUL
information because it is inconsistent with the company's audited financial statements. Rotem
complied with the Department's request and submitted information from its audited financial
statements for use in the Department's company-specific AUL calculations. In the same
submission, Rotem noted that the surge in asset values between 1990 and 1991 was due to the
merger of Rotem and Negev Phosphate Ltd. We note that the verification reports
from the previous proceeding, which were submitted on the record of the current review, discuss
the issue of the Rotem/Negev merger and its effect on the newly formed company's AUL
components. The information discussed in these reports is consistent with the information that
Rotem submitted during the current review. Therefore, because respondent submitted its AUL
information in the manner that the Department requested and because Rotem sufficiently
explained the changes that occurred in its depreciable productive assets and regular depreciation
expenses during the ten-year period examined by the Department, we find no reason to change the
calculation of Rotem's AUL for the final results. For the same reasons, we also reject petitioners'
contention that the Department should adjust Rotem's gamma ratio in order to account for the
alleged inconsistencies between the company's AUL calculations and its audited financial
statements.
In addition, we reject petitioners' contention that the Department should "satisfy itself" that all of
Rotem's reported productive assets are actually in service. The Department's questionnaire
specifically asks that companies exclude any fully depreciated productive assets which are no
longer in use. We also note that Rotem's financial statements are audited and that the Department
conducted a verification of Rotem's questionnaire responses during the 1995 administrative period
of review. Given that Rotem's financial statements are audited and inspected annually and that they
have been verified previously, we find no reason to doubt the integrity of the company's financial
statements.
Petitioners' contention that the Department erroneously omitted some of Rotem's assets (furniture,
office equipment, etc.) in calculating the company- specific AUL may warrant further
consideration. However, we do not have the information on the record for these assets in prior
years to recalculate the AUL. Therefore, we will review this issue in the next administrative review.
Comment 5: The Privatization Calculation
Respondents argue that the numerator of the "gamma" calculation does not include the face value
of all subsidies received by Rotem over the years. They claim that the face value does not include
subsidies given for projects 12 and 13, which were fully countervailed prior to this review. They
also claim that the grants to project 8 were not included; presumably, because these grants did not
benefit IPA. Respondents argue that to obtain a true picture of the relationship of the subsidies to
the net worth, all subsidies must be included in the numerator, regardless of whether or not they
benefit the subject merchandise.
Respondents also argue that because Rotem's net worth, the denominator of the gamma
calculation, is an accumulated figure, the subsidies received, the numerator, should also be
calculated based on an accumulated figure. According
to respondents, the Department's position in the 1995 Final, that the value of subsidies erodes over
time, ignores the fact that the net worth also erodes over time. While a subsidy received in 1986
does not have the same relative value as a subsidy received in 1994, it still has some value;
otherwise, they argue that the Department would not allocate non-recurring subsidies over time.
Respondents claim that the Department rejected the Coopers & Lybrand analysis in the 1995
review because the Department did not understand the analysis. They argue that the Department's
current gamma methodology incorrectly assumes that the grants disappear at the end of the year
because the gamma numerator does not recognize the cumulative effect of the subsidies. Instead,
Rotem received grants, which do not disappear at the end of the year of receipt, but continue as
part of equity, and the company's net worth is a direct result of these grants. In addition, they
argue that the Department's privatization calculation methodology is internally inconsistent
because the Department does not accumulate the subsidies to calculate the gamma, but does so to
calculate the percent of subsidies repaid.
Petitioners counter that respondents have attempted to rehabilitate a fundamentally flawed
argument that the Department previously rejected. Therefore, the Department should dismiss
respondents' effort to reargue
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matters that have already been decided. Petitioners also counter that respondents' argument that
the Department should include grants to
project 8 would require the Department to investigate all subsidies, whether or not
countervailable, in order to make an appropriate privatization calculation, which is absurd.
According to petitioners, respondents' argument, regarding projects 12 and 13, is flawed because
these grants were countervailed prior to the current review.
Department's Position
Respondents' argument that the Department should include subsidies that have been fully
countervailed and subsidies that do not benefit the subject merchandise is without merit. As a
preliminary matter, the Department does not determine the benefit from subsidies for programs
that are determined not to benefit the subject merchandise. Further, the Department's
methodology determines the portion of the purchase price that goes towards the repayment of the
subsidies which were found to be countervailable. That portion of the purchase price is deducted
from the net present value of the remaining benefit stream of all non-recurring subsidies that are
being countervailed. This performs the appropriate calculation: deducting from the net present
value of all countervailable subsidies in the year of privatization the portion of the purchase price
representing repayment of those countervailable subsidies.
We also reject respondents' argument that because Rotem's net worth, the
denominator of the gamma calculation, is an accumulated figure, the subsidies received, the
numerator, should also be calculated based on an accumulated figure. Because the grants were
received at different time periods and the benefit streams are different, we cannot accumulate the
grants as respondents have suggested. The privatization methodology attempts to estimate that
portion of the purchase price that is attributable to remaining subsidies from the time of bestowal
until the date of the privatization by calculating the gamma. The gamma calculation serves as a
reasonable historic surrogate for the percentage of subsidies that constitute the overall value (i.e.,
net worth of the company) at a given point in time. See, GIA, 58 FR at 37263, and 1995 Final, 63 FR
at 13635, 13636; see also Inland Steel Bar Co., v. United Engineering Steels, Ltd., 155 F.3d 1370,
1374-75 (Fed. Cir. 1998) (the Court affirmed the Department's methodology for determining the
amount of a subsidy that is repaid). Thus, the relative value of an earlier subsidy is not "totally
ignored" in the Department's calculation, as argued by respondents. The value of that subsidy is
appropriately being compared to the net worth of the firm in the year that it was received. This
comparison thus fully captures the weight of that subsidy in the gamma calculation.
Respondents' claim that the Department's position in the 1995 review, that the "depreciation of
assets offsets any of the erosion of subsidies," is also flawed. We do not dispute that the company's
net worth increased, in part, as
a result of subsidies. However, respondents' comparison of the value of the company's accumulated
subsidies in the year before privatization to the company's net worth in that year is misplaced,
because it assumes that the company's net worth increased in direct proportion to the value of the
subsidies received by the firm. It is simply not reasonable to assume that there is a direct
relationship between additional capital infusion by the government and increases in the equity of
the firm. Accordingly, it is equally unreasonable to assume that the accumulated face value of all of
Rotem's subsidies received in each year can be appropriately compared to the company's net
worth in the year prior to privatization. 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.
Comment 6: Program Denominator for Grants Allocable to IPA, MKP, and Fertilizers
Respondents argue that although IPA is an input into downstream products, such as phosphate
salts and food additives, the Department did not include the sales values of these products in the
denominator of the
countervailing duty calculations, nor did the Department provide an explanation.
Respondents claim that although the Department's preliminary results state that the ECIL grants
were attributed to a particular facility over the sales of the product produced by that facility plus
sales of all products into which that product may be incorporated, this statement is not entirely
correct. They argue that since the products produced by Rotem were also incorporated into the
phosphate salts and food additives produced by Rotem's subsidiary, the Department should have
attributed the ECIL grants to these products as well.
Respondents also argue that because Rotem sells IPA as an end product and as an input into
downstream products that are produced in another country by its subsidiary, these sales should be
included in the denominator of the calculation for grants that are allocable to IPA, MKP, and
fertilizers. In support of its argument, respondents point to the Countervailing Duties:
Notice of Proposed Rulemaking and Request for Public Comments, 62 FR 8818, 8856 (1997
Proposed Rules), which states that where a firm has "production facilities in two or more countries,"
the Department will generally attribute the subsidy to products produced by the firm within the
jurisdiction of the government that granted the subsidy.
Petitioners counter that respondents' argument ignores the fact that IPA is the class or kind of
merchandise, and while the inputs into the production of
IPA may be relevant for subsidy calculations purposes, what happens to IPA after it is produced is
irrelevant. There is no precedent or support for the Department to go beyond a finding that grants
have been provided for the production of IPA and make the further determination that such grants
also benefitted the subsequent production of non-subject merchandise. Petitioners also counter
that for the Department to apply respondents' methodology would be adoption of the so-called
competitive-benefits-conferred interpretation of a countervailable subsidy which has been
rejected by the Department and the Court of Appeals for the Federal Circuit in the privatization
context.
Furthermore, petitioners counter that the downstream products are not produced in Israel.
The Department's policy in circumstances where the firm that received a subsidy has production
facilities in two or more countries is to attribute the subsidy to products produced by the firm
within the jurisdiction of the government that granted the subsidy. Since the ECIL grants are
designed to promote economic development in Israel, it is appropriate to countervail the
benefits in that country. Therefore, petitioners argue that the respondents' arguments should be
rejected.
Department's Position
We reject respondents' contention that the Department should add to the
denominator of the countervailing duty calculations for grants allocable to IPA, MKP, and
fertilizer the sales of downstream products produced from IPA. We reject respondents' argument
on this matter on the basis that the
*2885
downstream products referred to by respondents are not manufactured in Israel. Rather, they
are produced by a subsidiary of Rotem in Germany. It has been the Department's position that
domestic subsidies benefit domestic production. This practice has been well-established since the
Certain Steel investigations and has been upheld by the CIT. See GIA, 58 FR at 37231; see also
British Steel plc v. United States, 929 F. Supp. 426, 453-55 (CIT 1996), appeal pending sub nom.
Inland Steel Industries, Inc. v. United States, Nos. 98- 1230, 1259 (Fed. Cir.).
Comment 7: The Environmental Grants
Respondents argue that the Department incorrectly focused solely on the "general availability"
issue without first addressing whether the subsidy even benefitted IPA. According to respondents,
whether the environmental grants are specific or general is irrelevant because they are not tied to
IPA, and, hence did not benefit IPA. Respondents claim that the grants were given for the purpose
of reducing dust pollution at the Ashdod port and because IPA, which is a liquid and does not
produce dust, could not have benefitted from these grants.
Respondents also argue that it is inappropriate for the Department to use adverse "facts available"
when a party indicates that information requested is not available, and in such an instance, the
Department must use other information on the record. Respondents claim that this other
information was provided by the Ministry of Environment, which clearly indicates that the grants
are available to all industries regardless of the region.
Petitioners counter that the environmental grants benefitted the entire company, and whether IPA
itself was the cause of any pollution at the port is of no consequence. The countervailing duty
law is not concerned with causation, but rather with benefit. Thus, the issue is whether IPA and
other Rotem products benefitted from the improved conditions at the port made possible by the
grants. Petitioners also counter that respondents' argument regarding use of other information on
the record to determine specificity is not persuasive because the "other information" did not
address the issue of de facto specificity.
Department's Position
We disagree with respondents. According to the December 15, 1997, questionnaire response at
II-16, financial assistance is provided to industrial
plants for the adaptation of the facility to meet new environmental requirements, which include
other hazards besides dust. The provision of these grants by the GOI relieves the company of an
obligation that it otherwise would have incurred. Although IPA may not produce dust, as stated by
respondents, the company did utilize the Ashdod port for IPA shipments. Therefore, the
environmental grants are untied benefits that are bestowed to the entire company.
We also disagree with respondents' argument regarding the Department's use of adverse facts
available for this program. On two occasions, the Department requested information from the GOI
to enable us to conduct a de facto specificity analysis of the Environment Grant Program. On April
7, 1998 and on April 24, 1998, the Department requested information from the GOI regarding
eligibility for and actual use of the benefits provided under this program. The GOI provided
information regarding the total number of applicants that applied for or received grants, and the
total amount of the grants given under the program. However, the GOI did not attempt to
extrapolate the required information from its aggregate data, nor did they explain why such
information could not be provided. In accordance with section 776(a)(2) of the Act, the
Department used facts available because the GOI withheld information that had been requested.
Section 776(b) of the Act permits the Department to draw an inference that is adverse to the
interests of an interested if that
party has "failed to cooperate by not acting to the best of its ability to comply with a request for
information." Because the GOI did not comply with the Department's request for information, and
they did not give an explanation as to why they could not provide the information, they did not act
to the best of their ability. Therefore, the Department determines it appropriate to use an adverse
inference in concluding that the environmental grants are specific. For further discussion, see
Preliminary Results, 63 FR at 48195.
Comment 8: Grants to Project 15
Respondents argue that grants to project 15 are not countervailable because the green acid
produced in this facility was not used as an input into IPA. Although the green acid from project 15
could be used chemically for IPA, it is not economically suitable for IPA; therefore, it cannot be
viewed as a viable input. Respondents also argue that under the Department's practice of tying
subsidies, where a subsidy is tied to a product other than the product under investigation, the
Department will not allocate the subsidy to the product under investigation. Respondents argue
that the Department's rationale in the 1995 review for countervailing these grants because the
products produced from project 15 could be incorporated into IPA, does not comport with the
Department's tying requirement. While there may be a potential benefit, there
is, in fact, no actual benefit, and the countervailing duty law deals with actualities, not
potentialities. The 1997 Proposed Rules refer to an input into a downstream product and not a
potential input product; it refers to actual inputs. Therefore, they argue that the product produced
from project 15 was not used in the downstream production of IPA, even if it could have been used,
and as such, it does not fall within the definition of an input.
Petitioners agree with the Department's finding, and counter that there is no reason for the
Department to reconsider its previous decision.
Department's Position
The Department fully addressed respondents' argument in the 1995 administrative review. As
previously stated, green acid can be used in the production of all downstream products, including
IPA. The 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 green acid, they are also tied to the sales of all other merchandise incorporating those
inputs. See, the 1995 Final, 63 FR at 13630.
The Department's practice is to countervail the value of the subsidies at the time they are provided
to the company without regard to their actual use by that same company or their effect on its
subsequent performance. 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. Rather, the statute requires the
Department to countervail an allocated share of the subsidies received by producers, regardless of
their effect." Specifically, section 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."
See GIA, 58 FR at 37260, and the 1995 Final 63 FR at 13631. Because neither the statute nor the
Department's regulations permit an analysis of the use and effect of subsidies, the Department
does not attempt such an analysis.
*2886
Final Results of Reviews
In accordance with 19 CFR 351.221(b)(4)(i), we calculated an individual subsidy rate for each
producer/exporter subject to this administrative review. For the period January 1, 1996 through
December 31, 1996, we determine the net subsidy for Rotem to be 5.89 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 section 777A(e)(2)(B) of the Act.
The requested review will normally cover only those companies specifically named. See 19 CFR
351.213(b). Pursuant to 19 CFR 351.212(c), 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); Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993). 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 will be the rate for that company established in the
most recently completed administrative proceeding conducted under the Act, as amended by the
URAA. If such a review has not been conducted, the rate established in the most recently
completed administrative proceeding pursuant to the statutory provisions that were in effect prior
to the URAA amendments is applicable. See 1992/93 Final Results, 61 FR 28842. 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, 1996 through December 31, 1996, 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 is issued and published in accordance with sections 751(a)(1) and
777(i)(1) of the Act (19 U.S.C. 1675(a)(1) and 19 U.S.C. 1677(f)(i)(7)).
Dated: January 7, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-1116 Filed 1-15-99; 8:45 am]
BILLING CODE 3510-DS-P