64 FR 49460
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-508-605]
Industrial Phosphoric Acid From Israel: final results and partial recission of
countervailing duty administrative review
Monday, September 13, 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 May 7, 1999, 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, 1997 through December 31,
1997 (64 FR 24582). The Department has now completed this administrative review in accordance
with section 751(a) of the Tariff Act of 1930, as amended. For information on the net subsidy for
each reviewed company, and for all non-reviewed companies, please see the Final Results of
Review section of this notice. We will instruct the U.S. Customs Service to assess
countervailing duties as detailed in the Final Results of Review section of this notice.
EFFECTIVE DATE: September 13, 1999.
FOR FURTHER INFORMATION CONTACT: Dana Mermelstein or Sean Carey, Office of CVD/AD
Enforcement VII, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230;
telephone: (202) 482-3208 or (202) 482-3964, 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) and Haifa Chemicals Ltd. (Haifa). 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 are rescinding
the review with respect to Haifa. This review also covers eleven programs.
Since the publication of the preliminary results, the following events have occurred. We invited
interested parties to comment on the preliminary results. On June 7, 1999 case briefs were filed by
both petitioners (FMC Corporation and Albright & Wilson Americas Inc.) and respondents (the
Government of Israel (GOI) and Rotem-Amfert Negev, the producer/exporter of IPA to the
United States during the review period). On June 11, 1999, respondents filed a rebuttal brief;
petitioners filed a rebuttal brief on June 14, 1999.
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
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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 1997.
Allocation Period
In British Steel plc. v. United States, 879 F. Supp. 1254 (CIT 1995) (British Steel I),
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, a methodology that was articulated in the General Issues Appendix appended to
the Final Affirmative Countervailing Duty Determination: Certain Steel Products from
Austria, 58 FR 37217 (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 non-recurring 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 plc. v. United States, 929 F.Supp 426,
439 (CIT 1996) (British Steel II).
However, in administrative reviews where the Department examines non-recurring subsidies
received prior to the period of review (POR) which have been countervailed based on an allocation
period established in an earlier segment of the proceeding, it is not practicable to reallocate those
subsidies over a different period of time. Where a countervailing duty rate in earlier
segments of a 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.
In this administrative review, the Department is considering non-recurring subsidies previously
allocated in earlier administrative reviews under the old practice, non-recurring subsidies also
previously allocated in recent administrative reviews under the new practice, and non-recurring
subsidies received during the instant POR. Therefore, for purposes of these preliminary results, the
Department is using the original allocation period of 10 years assigned to non-recurring subsidies
received prior to the 1995 administrative review (the first review for which the Department
implemented the British Steel I decision). For non-recurring subsidies received since 1995, Rotem
has submitted, in each administrative review including this one, AUL calculations based on
depreciation and asset values of productive assets reported in its financial statements. In
accordance with the Department's practice, we derived Rotem's company-specific AUL by dividing
the aggregate of the annual average gross book values of the firm's depreciable productive fixed
assets by the firm's aggregated annual charge to depreciation for a 10-year period. In the current
review, this methodology has resulted in an AUL of 23 years; thus, non- recurring subsidies
received during the POR have been allocated over 23 years.
Privatization
Israel Chemicals Limited (ICL), the parent company which owns 100 percent of Rotem's
shares, was partially privatized in 1992, 1993, 1994, and 1995. In this administrative review, the
Government of Israel (GOI) and Rotem reported that additional shares of ICL were sold in
1997. 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 Review; 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 found that Rotem and/or its predecessor, Negev Phosphates
Ltd., received non-recurring countervailable subsidies prior to these partial privatizations.
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. Therefore, in 1992, 1993, and 1995 reviews, we calculated the portion of the purchase price
paid for ICL's shares that went toward the repayment of prior subsidies. In the 1994 privatization,
less than 0.5 percent of ICL shares were privatized. We determined that the percentage of subsidies
potentially repaid through this privatization could have no measurable impact on Rotem's overall
net subsidy rate. Thus, 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 1997 partial privatization because 17 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); Final Affirmative Countervailing Duty Determination: Certain Pasta
from Italy, 61 FR 30288 (June 14, 1996).
Discount Rates
We considered Rotem's cost of long-term borrowing in U.S. dollars as reported in the company's
financial statements for use as the discount rate used to allocate the countervailable benefit over
time. However, this information includes Rotem's borrowing from its parent company, ICL, and
thus does not provide an appropriate discount rate. Therefore, we considered ICL's cost of
long-term commercial borrowing in U.S. dollars in each year from 1984 through 1997 as the most
appropriate discount rate. ICL's interest rates are shown in the notes to the company's financial
statements, public documents which are in the record of this review. See Comment 9 in the 1995
Final Results.
Analysis of Programs
Based upon the responses to our questionnaire and written comments from the interested parties,
we determine the following:
I. Programs Conferring Subsidies
A. 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 calculations for this program
from the preliminary results. Accordingly, the net subsidy for this
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program remains unchanged from the preliminary results and is as follows:
------------------------------
[Percent ad valorem]
Manufacturer/exporter Rate
------------------------------
Rotem Amfert Negev ...... 5.43
------------------------------
B. 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:
------------------------------
[Percent ad valorem]
Manufacturer/exporter Rate
------------------------------
Rotem Amfert Negev ...... 0.22
------------------------------
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. Encouragement of Industrial research and Development Grants (EIRD)
2. Environmental Grant Program
3. Reduced Tax Rates under ECIL
4. ECIL Section 24 Loans
5. Dividends and Interest Tax Benefits under Section 46 of the ECIL
6. ECIL Preferential Accelerated Depreciation
7. Exchange Rate Risk Insurance Scheme
8. Labor Training Grants
9. 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: The Privatization Calculation
Respondents contend that the Department's privatization calculation is incorrect and should be
corrected in two areas: the numerators used in the ratios which are averaged to calculate the
"gamma" should include all of the subsidies received by Rotem over the years; and, the gamma
itself is understated because the numerators contain only the grants received in a given year, while
the denominators are accumulated values in that they contain Rotem's net worth in each year (i.e.,
net worth is, by definition, the accumulation of a company's financial results since its inception),
resulting in a ratio of apples to oranges.
Respondents note that in calculating the "gamma" used in the privatization calculation, the
Department did not include in the numerators the subsidies received by Rotem arising from ECIL
grants to projects 8, 12, and 13. Respondents note that although grants to projects 12 and 13 were
fully countervailed in prior administrative reviews, Rotem nevertheless reported these grants so
the Department could include them in the gamma calculation. However, the Department failed to
include these grants in the gamma numerators in the relevant years, and did not include any grants
to project 8 in the gamma numerators, presumably because of the earlier finding that grants to
project 8 do not benefit IPA production. Respondents argue that in calculating gamma, the
Department is not seeking to determine the level of countervailable subsidization, but rather the
level of total subsidization, relative to a
company's net worth. Respondents cite the final results of the prior administrative review, where
the Department stated that 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," (64 FR at 2884) and argue that the only way the gamma can be an accurate historic
surrogate is if all the subsidies received are included in its calculation. Respondents note that the
Department rejected this argument in the previous administrative review, and urge the
Department to reconsider its position. See Final Results of Countervailing Duty
Administrative Review; Industrial Phosphoric Acid from Israel, 64 FR 2879 (January 19,
1999) (1996 Final Results).
Respondents also argue that the numerators and the denominators used in calculating the gamma
are not consistent in that the value of the denominators, Rotem's net worth in each of the relevant
years is, by definition, an accumulated value, while the value the Department uses in the
numerators, the value of the subsidies in the same year, is not an accumulated value. Respondents
argue that the Department should correct this methodological error by using a value in the
numerator which represents the accumulated value of the subsidies in the relevant year.
Respondents note that in both the 1996 and the 1995 administrative reviews, the Department
rejected this argument. In the 1995 review, the Department
reasoned that respondents had ignored the fact that the value of the subsidies is eroding over time.
See 1995 Final Results. Respondents further note that in the 1996 review, the Department took the
position that respondents incorrectly assumed "that the company's net worth increased in direct
proportion to the value of the subsidies received by the firm." 64 FR at 2884. Respondents now
argue that the Department's 1995 conclusion ignores the fact that the net worth of the company is
also eroding to a comparable degree as a result of the depreciation of the company's assets (that is,
but for additional capital infusions, some of which are subsidies included in the gamma numerator
which increase the company's net worth, the net worth would also decline over time, just as the
subsidies do). This depreciation of assets (which is manifest in the denominator), according to
respondents, offsets the erosion of the subsidies (manifest in the numerator) over time.
Respondents also argue that the Department's 1996 reasoning ignores the fact that the grants to
Rotem were "capital infusions" used by Rotem to build infrastructure, illustrating that, contrary to
the Department's conclusion, Rotem's equity is increasing as a result of the grants, in direct
proportion to their value. Finally, respondents 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: the
net present value (NPV) used in the privatization formula
is nothing more than the subsidies accumulated, based on a ten year, declining benefit stream.
Thus, respondents argue, the subsidies are being accumulated for the "percent repaid" calculation,
but are not being accumulated for the gamma calculation. According to respondents, either both
should be accumulated or neither should be accumulated.
Petitioners note that respondents make two now familiar attacks on the Department's privatization
methodology. Petitioners contend that the Department has properly rejected these arguments in
the past two administrative reviews of this order. With respect to including all, rather than just
countervailable subsidies in the gamma numerators, petitioners argue that this would lead to the
absurd result of requiring the Department to investigate all subsidies, regardless of their
countervailability, to construct an
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appropriate privatization calculation. With respect to respondents' arguments about the mismatch
between the gamma numerators and denominators, petitioners urge the Department to continue to
apply the sound reasoning applied in the two previous administrative reviews.
Department's Position
The Department has considered respondents' arguments with respect to the privatization
methodology in the last two administrative reviews of this
countervailing duty order. See 1995 Final Results; 1996 Final Results. We continue to
believe that these arguments are without merit. First, the Department does not calculate a benefit
from subsidies which have been fully countervailed, or subsidies that are not countervailable
because they do not benefit the subject merchandise. Therefore, the Department's privatization
methodology does not address the repayment of such subsidies. After calculating the gamma, and
therefore determining the portion of the purchase price which "repays" past subsidies, 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. If all subsidies were included in the gamma
numerator, the net present value calculation would also have to include all other subsidies, even if
they were found not to benefit the production of subject merchandise, or if they have already been
fully countervailed. Accepting respondents' arguments would require the Department to monitor
and allocate over time even subsidies which were found non- countervailable, in the event that a
company were to experience a change in ownership at some time during the administration of a
countervailing duty order. This practice could give rise to many unintended consequences,
including increasing respondents' burden of complying with the countervailing duty law,
and allowing the parties to continue to address issues relating to a program's countervailability,
regardless of earlier findings.
Second, we reject respondents' argument that the Department's privatization methodology is
inconsistent by virtue of the gamma denominator representing accumulated net worth and the
gamma numerator not representing the accumulated value of subsidies received over time. Thus,
we reject respondents' conclusion that the methodology assumes that the benefits of a subsidy
disappear at the end of the year of receipt. As we stated in the 1995 Final Results and the 1996 Final
Results, the gamma calculation attempts to determine the portion of the company's net worth
which is comprised of subsidies in the year prior to privatization. Once again, we believe that
respondents' proposal to compare the accumulated value of a company's subsidies in the year
before privatization to the company's net worth in that year would overstate the value of the
subsidies in relationship to the company's net worth by assuming that a company's net worth
increases in direct proportion to the value of the subsidies received by that firm. Moreover, as we
stated in the last administrative review, a company's net worth is not increasing in direct
proportion to the value of the subsidies received because the value of the subsidies is eroding over
time. See 1996 Final Results.
We also reject respondents' suggestion that the Department either remove the net present value
element from the "percent repaid" calculation or add it to the gamma calculation (by accumulating
the subsidies). This suggestion might have merit if our gamma methodology only considered the
subsidies to net
worth ratio in the year prior to privatization in isolation. However, the gamma looks at ten years of
data and averages those ten years, thus providing a historical context to the ratio of subsidies to
net worth over time. In addition, we note that while the gamma itself does not factor in the net
present value of past subsidies, the results of the gamma calculation are applied to the present
value of the remaining benefit streams at the time of privatization. Thus, our current calculations,
as a whole, do properly account for the present value of the remaining benefits at the time of
privatization. See Final Affirmative Countervailing Duty Determination: Certain Hot-Rolled
Flat Rolled Carbon Quality Steel Products from Brazil, 64 FR 38742 (July 19, 1999); 1996 Final
Results.
Finally, respondents have once again provided a Coopers & Lybrand report in support of their
privatization methodology arguments and maintain that the Department's failure to accept this
report in the last two administrative reviews indicates that the Department does not understand
the arguments presented therein. As explained above, while the Department does appreciate the
argument, we do not believe that it merits a change in our privatization methodology. This
methodology aims, through the calculation of the gamma, to determine the percentage of subsidies
that constitute the overall value (i.e., net worth) of the company at a given point in time, and then
to use that gamma to determine the portion of total subsidies which are repaid through the
privatization transaction and the portion which remains with the company and continues to
provide countervailable benefits. See, GIA, 58 FR at 37263, and 1995 Final Results, 63 FR at
13635, 13636. This methodology has been accepted by the courts as a reasonable way to
determine the impact of privatization on previously bestowed subsidies. See 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); Saarstahl AG v.
United States, 177 F. 3d 1314 (Fed. Cir. 1999).
Comment 2: Rotem's AUL Calculation
Petitioners contend that the Department's calculation of Rotem's AUL is flawed in that it excludes a
category of assets referred to as "Furniture, vehicles, and equipment." Petitioners argue that it is
inappropriate for the Department to accept Rotem's explanation that these assets should be
excluded from the AUL calculation because they are not "productive assets." Some of these assets
are identified by Rotem as "office equipment" which, according to petitioners consists of computers
and/or related software which may be essential to Rotem's production and operations; assets
identified as "vehicles" could, petitioners maintain, be used in, or essential to, production and
operations. Petitioners
believe that the determination of what constitutes productive assets is a factual determination
which the Department must make on a case-by-case basis; petitioners maintain that the record in
this review does not contain the necessary factual information for this determination. Petitioners
urge the Department to require Rotem to provide a detailed listing of the specific assets which
comprise this category and their uses so that the Department can evaluate and petitioners can
comment on whether they should be included in the AUL calculation.
Respondents note that it should be clear from the items enumerated that the category is intended
for office-type assets. Productive assets are accounted for in the category "facilities, machinery,
and equipment," and respondents believe that the difference between productive and
non-productive assets is clear from the accounting records.
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Department's Position
We disagree with petitioners' argument that the category of Rotem's assets entitled "furniture,
vehicles, and office equipment," requires any further examination by the Department. Rotem
complied with the Department's request and provided information from its audited financial
statements for use in the Department's company-specific AUL calculations. We note that the
verification
reports from the 1995 administrative review, which were submitted on the record of the current
review, discuss the calculation of Rotem's company-specific AUL and its 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 this information has previously been verified and tied
to Rotem's audited financial statements, we find no reason to change the calculation of Rotem's
AUL for these final results.
Final Results of Review
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, 1997 through
December 31, 1997, we determine the net subsidy for Rotem to be 5.65 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
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 at 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, 1997 through
December 31, 1997, 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 351.305(a)(3). Timely written notification of return/destruction of APO
materials or conversion to judicial protective order is hereby requested. Failure to comply is a
violation of the APO.
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)).
Dated: September 7, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-23776 Filed 9-10-99; 8:45 am]
BILLING CODE 3510-DS-P