87-325

NOTICES

DEPARTMENT OF COMMERCE

[C-779-601]

Final Negative Countervailing Duty Determination; Certain Fresh Cut Flowers
From Kenya

Wednesday, March 25, 1987

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AGENCY: Import Administration, International Trade Administration,
Commerce.

ACTION: Notice.

SUMMARY: We determine that no benefits which constitute bounties or grants within the
meaning of the countervailing duty law are being provided to producers or exporters
in Kenya of certain fresh cut flowers (cut flowers) as described in the "Scope of
Investigation" section of this notice. We have notified the U.S. International Trade
Commission (ITC) of our determination.

EFFECTIVE DATE: March 25, 1987.

FOR FURTHER INFORMATION CONTACT: Carole Showers or Gary Taverman, Office of
Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC
20230; telephone (202) 377-3217 or 377-0161.

SUPPLEMENTARY INFORMATION:

Final Determination

Based upon our investigation, we determine that no benefits which constitute bounties or
grants within the meaning of section 303 of the Tariff Act of 1930, as amended (the Act),
are being provided to producers or exporters in Kenya of cut flowers.

Case History

On May 21, 1986, we received a petition in proper form from the Floral Trade Council
filed on behalf of the U.S. industry producing cut flowers. In compliance with the filing
requirements of section 355.26 of the Commerce Regulations (19 CFR 355.26), the
petition alleged that producers or exporters in Kenya of cut flowers receive, directly or
indirectly, benefits which constitute bounties or grants within the meaning of section 303
of the Act.
We found that the petition contained sufficient grounds upon which to initiate a
countervailing duty investigation, and on June 10, 1986, we initiated an investigation
(51 FR 21953, June 17, 1986). We stated that we expected to issue a preliminary
determination on or before August 14, 1986.
On June 25, 1986, the petitioner requested a full extension of the period within which a
preliminary countervailing duty determination must be made, pursuant to section
703(c)(1)(A) of the Act. On July 3, 1986, we issued a notice of postponement stating that
the preliminary determination would be made on or before October 20, 1986 (51 FR
25084, July 10, 1986).
Since Kenya is not a "country under the Agreement" within the meaning of section 701(b)
of the Act, section 303 of the Act applies to this investigation. However, because Kenya
is a signatory to the General Agreement on Tariffs and Trade and the cut flowers subject to
this investigation are duty-free, the petitioner is required to allege that, and the ITC is
required to determine whether, imports of the subject merchandise from Kenya
materially injure, or threaten material injury to a U.S. industry. On July 7, 1986, the ITC
determined that there is a reasonable indication that an industry in the United States is
materially injured by reason of imports from Kenya of the subject merchandise (51 FR
25751, July 16, 1986).
On June 20, 1986, we presented a questionnaire to the Government of Kenya in
Washington, DC concerning petitioner's allegations. We received the government and
company responses on August 15, September 22, and October 14 and 26, 1986.
On October 20, 1986, we issued a preliminary negative determination in this investigation
(51 FR 37925, October 27, 1986). We preliminarily determined that no benefits
constituting bounties or grants within the meaning of the Act are being provided to
producers or exporters in Kenya of the subject merchandise.
On November 4, 1986, petitioner filed a request for extension of the deadline date for the
final determination in the countervailing duty investigation to correspond with the
date of the final determination in the antidumping duty investigation. Section 705(a)(1) of
the Tariff Act of 1930, as amended by section 606 of the Trade and Tariff Act of 1984
(Pub. L. 98-573), provides that when a countervailing duty investigation is "initiated
simultaneously with an [antidumping] investigation . . . which involves imports of the
same class or kind of merchandise from the same or other countries, the administering
authority, if requested by the petitioner, shall extend the date of the final determination
[in the countervailing duty investigation] to the date of the final determination [in the
antidumping duty investigation]." 19 U.S.C. 1671d(a)(1). Pursuant to this provision, the
Department granted an extension of the deadline for the final determination in the
countervailing duty investigation of certain fresh cut flowers from Kenya to January
12, 1987, the original deadline for the final determination in the antidumping duty
investigation (51 FR 43649, December 3, 1986).
On November 24, 1986, counsel for respondents requested that the Department postpone
the antidumping duty final determination to 135 days from the publication date of our
preliminary antidumping duty determination, in accordance with section 735(a)(2)(A) of
the Act. We granted this request and postponed our final antidumping duty determination
until March 18, 1987. Pursuant to section 705(a)(1) of the Tariff Act of 1930, as amended
by section 606 of the Trade and Tariff Act of 1984, the deadline for the final
countervailing duty determination on certain fresh cut flowers from Kenya was also
postponed until March 18, 1987, to coincide with the revised date on the final
antidumping duty determination (52 FR 698, January 8, 1987).
Verification of the government and company responses in this investigation was held
from January 8 through 14, 1987. At the request of petitioner, a public hearing was held
on February 20, 1987, to afford interested parties an

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opportunity to present
views orally, in accordance with our regulations (19 CFR 355.35). Petitioner and
respondents filed pre-hearing and post-hearing briefs on February 13 and 27, 1987,
respectively.

Scope of Investigation

The products covered by this investigation are fresh cut miniature (spray) carnations,
currently provided for in item 192.17 of the Tariff Schedules of the United States (TSUS),
and standard carnations, currently provided for in item 192.21 of the TSUS.

Analysis of Programs

Throughout this notice we refer to certain general principles applied to the facts of the
current investigation. These general principles are described in the "Subsidies Appendix"
attached to the notice of Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina:
Final Affirmative Countervailing Duty Determination and Countervailing Duty
Order (49 FR 18006, April 26, 1984).
For purposes of this determination, the period for which we are measuring bounties or
grants (the revew period) is calendar year 1985. Based upon our analysis of the petition,
the responses to our questionnaires, our verification, and comments filed by petitioner
and respondents, we determine the following:

I. Program Determined Not to Confer a Bounty or Grant

We determine that bounties or grants are not being provided to producers or exporters in
Kenya of cut flowers under the following program:

Government Sponsored Research and Development

The Kenyan Government provides funding for research and development (R&D) for
various government-directed agricultural projects through the Ministry of Agriculture.
Project results are published by the Ministry in the "Record of Research Annual Report."
There was one project for which the Kenyan government provided partial funding which
involved research on a variety of horticultural and agricultural products, including
carnations. This project was funded and conducted jointly by the United Nations
Development Program (UNDP) and the Kenyan government. The project was divided into
two phases, with reports given at the end of each phase. Only the first phase dealt with any
type of research on flowers. The results were published by the government in a handbook
entitled "Horticultural Crops Protection Handbook." At vertification, we found that this
handbook is made available to the public for a fee upon request.
Because the research results are publicly available, and because research is conducted on
a wide variety of horticultural and agricultural products, we determine that this program
is not countervailable.

II. Programs Determined not to be used

We determine that producers or exporters in Kenya of cut flowers did not use the
following programs:

A. Export Compensation Act

Petitioner alleged that exporters of cut flowers receive export incentives under the
revised Local Manufacturers' Export Compensation Act of June 1982 (Export Act),
including cash payments to exporters, duty drawback, and refund of sales tax.
During verificiation, we found that the Export Act provides for a 20 percent payment to
the exporter of the value of the export. This Act provides that these payments are
available only to exporters of manufactured products. At verification, government
records confirmed that no flower exporter had received payment under this program. We
also found that the Export Act does not provide for duty drawback nor for a refund of
sales tax. Because flower exporters are not eligible to receive benefits under this
program, we determine the program not to be used.

B. Investment Allowances

Petitioner alleged that various investment allowances are provided by the Government of
Kenya to assist in the development of areas outside major metropolitan centers.
During verification, we found that investment allowances available to specific regions of
Kenya are described in the second schedule of the Income Tax Act published by the
Government of Kenya. This Act allows for a "grant" of 50 percent against taxable income
for new construction of buildings and for new machinery placed in those buildings, if
located outside the two major metropolitan areas. This allowance is available only to the
manufacturing sector. At verification, records at Sulmac, the company under
investigation, confirmed that no allowance had been claimed. Because flower producers
are not eligible for the investment allowance under this program, we determine the
program not to be used.

III. Program Determined Not to Exist

Preferential Airfreight Rates for Exports of Flowers

Petitioner alleged that the Government of Kenya subsidizes airfreight rates for exports of
cut flowers from Kenya to the United States.
The Government of Kenya has established government directed airfreight rates for two
products, fruits and vegetables. There are no government-directed airfreight rates for
exports of flowers. During verification, we found that exporters of cut flowers in Kenya
pay specific commodity freight rates established by the International Air Transport
Authority (IATA) on international shipments of flowers. IATA rates are published in the
IATA rate manual and apply to all international airlines flying cargo from Kenya.
Commodity-specific rates are a usual practice followed by many countries throughout the
world. We found no evidence of a transfer of funds or absorption of costs on behalf of
flower growers through these rates nor any evidence of government subsidization. We
also verified that Sulmac paid the published rates on shipments of the subject
merchandise from Kenya. Similar IATA rates were found not to be countervailable in
Final Affirmative Countervailing Duty Determination: Certain Fresh Cut Flowers from
Peru (52 FR 6837, March 5, 1987).
Therefore, since the Government of Kenya has not established government- directed
airfreight rates for international shipments of flowers, we determine that there is no
government program providing preferential airfreight rates for flower exports.

Petitioner's Comments

Comment 1: Petitioner states that airfreight rates charged for shipments of flowers from
the United States to Kenya (i.e., general cargo rates) are higher than those charged from
Kenya to the United States (i.e., commodity-specific IATA rates) and, therefore, they
argue that the Kenyan government must be subsidizing airfreight rates charged from that
country. Petitioner contends that general cargo rates are a conservative benchmark for
measuring the magnitude of the preference and argues that evidence on the record
showing subsidized airfreight rates for fruits and vegetables is sufficient to demonstrate
that the Government of Kenya subsidizes a wide variety of products which it considers of
high export priority.

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DOC Position: We disagree. Kenyan flower exporters pay commodity-specific
IATA rates for international shipments of flowers on all airlines. We found no evidence of
a transfer of funds or absorption of costs on behalf of flower growers through these rates
nor any evidence of government subsidization. We also verified that Sulmac paid the
published rates on shipments of flowers. We verified the government has no involvement
in setting the rates for flowers; any rate the government may set for other products is
irrelevant. See also section III. of this notice.
Comment 2: Petitioner disputes respondents' contention that investment allowances
provided under the "Income Tax Act" are available only to the manufacturing sector, and
cites as evidence to the contrary data collected by independent sources which show that
other industries, such as the hotel industry and the mining sector, also receive
allowances. Petitioner argues that, because the Government of Kenya refused to
surrender any information concerning the "Income Tax Act" or the incentives available
under it, we should use petitioner's submitted data as best information available.
Petitioner believes that it is very unlikely that flower production has been excluded from
this program, given the program's clear bias in favor of rural and labor- intensive
industries.
DOC Position: We disagree. As stated earlier in this notice and in the verification report,
the "Income Tax Act" is clear as to which sectors and what type of investments are eligible
to receive the investment incentives under this program. At verification, we received a
copy of the "Income Tax Act" from Sulmac, because the government did not provide it to
us before the company verification began. We were able to obtain the information
necessary to verify the investment incentives available in Kenya and to verify that
Sulmac did not use these incentives. See section II.B. of this notice.
Comment 3: Petitioner contends that Kenyan flower producers receive export incentives,
including rebates on the f.o.b. value of exports under certain conditions, duty drawbacks
on certain inputs, and refunds of sales tax on certain specific exported goods, and argues
that the Government of Kenya has not been forthcoming in providing relevant
information. Petitioner suspects that a statue other than the "Export Compensation Act"
(Export Act) authorizes duty drawback and sales tax refunds and requests that we use
best information available with respect to these programs.
DOC Position: We disagree. The petitioner's original allegation stated that the various
export incentives were legislated under the Export Act and it was based upon this
allegation, among others, that we initiated this investigation. In our questionnaire, we
asked about the incentives provided under the Export Act, specifically about rebates
based on the value of exports, duty drawback, and rebates of sales tax. In response to
these questions, respondents stated that the Export Act provided for a payment to the
exporter based on the value of the exported product, but did not provide for any other
incentives such as duty drawback or a refund of sales tax. In our preliminary
determination, we determined that this program was not used based upon this response.
At that point, petitioner had not submitted any comments alleging that the response in
any way led them to "suspect" that some of the incentives might be included in legislation
other than the Export Act.
At the government verification, we confirmed that the Export Act did provide payments
to exporters (but not to exporters of cut flowers), and did not provide other incentives,
such as duty drawback or a refund of sales tax. At the company verification, we checked
company records which showed that these incentives, even if available under another
government program, had not been used. Moreover, we note that in the companion
antidumping duty investigation of cut flowers from Kenya, where it would have been to
the company's advantage to report such benefits, they were not claimed. In sum, we
found no evidence at either the government or company level to lead us to believe that
export incentives exist, either under the Export Act or otherwise.
Petitioner did not state their suspicion that provisions for duty drawback and a refund of
sales tax may be provided outside of the context of the Export Act until the time at which
they filed their pre-hearing brief, well after the verification had been conducted. Given
that petitioner had ample opportunity to make such an allegation after receipt of the
responses in September and October 1986, we consider petitioner's statement to be a new
program allegation that is untimely.
Comment 4: Petitioner argues that the U.S. countervailing duty and antidumping duty
law mandates use of best information available in this case. Under section 776(b) of the
Act, we are required to use the best information otherwise available, including
information provided by petitioner, when respondent refuses or is unable to provide
information requested in a timely manner and in the form required. Petitioner argues that
the Government of Kenya has failed to provide such information and that we must
accordingly reverse our preliminary negative determination and, using best information
available, determine that cut flowers exported from Kenya benefit from countervailing
subsidies in the form of preferential airfreight rates, investment allowances, and export
incentives.
DOC Position: We disagree. We invoke the best information available provision of the Act
only in circumstances where no information is provided or where information provided
by respondent is so inadequate and incomplete that the adverse inferences associated
with use of best information available are justified. Our decision to use best information
available in the Final Affirmative Countervailing Duty Determination and
Countervailing Duty Order: In-Shell Pistachios from Iran, (51 FR 8344, March 11,
1986). (Pistachios from Iran) is a textbook situation of its use. In Pistachios from Iran, a
deficient response was not received until after the preliminary affirmative determination
and two months after the original due date. As we stated in that determination, "the
response failed to provide even the most basic information requested in all
countervailing duty questionnaires such as laws and regulations governing the alleged
bounty or grant programs." In addressing specific questions on the alleged programs, the
response simply stated that a program did not exist or that no benefits were received
under a program. No evidence substantiating these bald statements of denial was
provided. Finally, verification, the procedure most valuable for obtaining such
information, was not possible.
The present case possesses no such circumstances of untimeliness and inadequacy of the
information provided. The Government of Kenya cooperated in providing a punctual
response to the questionnaire submitted by the Department. It provided relevant laws
and regulations, where requested. At verification, we were provided with a log of
legislative actions, enabling us to confirm the existence or non-existence of alleged
programs. Finally, we were able to confirm non-receipt of benefits by Sulmac by
inspecting its financial books and records provided at verification. Therefore, there is no
reason to reject the response and use

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the best information otherwise available.
Comment 5: Petitioner disputes our finding in our preliminary determination that
government financed research is not countervailing because it is widely available and
results are publicly disseminated. Petitioner further argues that because Sulmac
represents nearly all of Kenya's production of the subject merchandise, the program is
de facto specific. Finally, petitioner argues that the fact that the program is also UNDP
financed is irrelevant because the Act is very broadly worded to include all forms of
private or governmental subsidies.
DOC Position: We disagree. At verification, we found that the research funded jointly by
the Government of Kenya and the UNDP was conducted on a wide variety of agricultural
products, including flowers. This by itself is sufficient to warrant a finding that the
program is available to more than a specific group of industries. See, e.g., Final Negative
Countervailing Duty Determination: Certain Fresh Cut Flowers from Mexico (49 FR
15007, April 16, 1984). All research results are publicly disseminated and, contrary to
petitioner's belief, results of research conducted specifically on flowers was not de facto
limited to Sulmac, because other producers and exporters of flowers operate in Kenya
and because there is nothing to prevent these results from being made available
worldwide. Finally, we have consistently held that funds provided by multinational
organizations are not countervailable. See, e.g., Final Affirmative Countervailing Duty
Determination: Fuel Ethanol from Brazil (51 FR 3361, January 27, 1986).

Respondents' Comment

Respondents claim that, since total Kenyan exports to the U.S. are so small as to be de
minimis (less than .05% of total U.S. consumption according to the ITC Staff Report in this
investigation), they should, therefore, be considered non- existent. As a result, no
statutory finding can be made that imports from Kenya are in violation of the law and a
final negative determination is required.
DOC Position: We disagree. The Department's role in the investigation of countervailable
bounties or grants is to determine to what extent, if any, the government has bestowed a
bounty or grant within the meaing of section 303 of the Act on the producers and
exporters of the subject merchandise. Where, as here, an injury test is required, the ITC,
not the Department, makes determinations on injury to a domestic industry. If the
Department finds bounties or grants, and the ITC finds that imports of the subject
merchandise injure, or threaten material injury to, a U.S. industry, a order is issued and
duties are collected.
The Department's investigations are limited to examination of countervailable bounties
or grants. Under the Act, the Department does not have the authority to decline to
conduct, or to terminate, countervailing duty investigations, on the basis of arguably
small levels of imports.

Verification

In accordance with section 776(a) of the Act, we verified the information used in making
our final determination. During verification, we followed standard verification
procedures, including meeting with government and company officials, inspecting
documents and ledgers, and tracing information in the response to source documents,
accounting ledgers, and financial statements.

ITC Notification

In accordance with section 705(d) of the Act, we will notify the ITC of our determination.
Since this determination is negative, the investigation will be terminated upon the
publication of this notice in the Federal Register. Hence, the ITC is not required to make a
final injury determination.

Administrative Procedures

We afforded interested parties an opportunity to submit written views in accordance with
� 355.34 of our regulations (19 CFR 355.34). We also afforded the parties to the
proceeding an opportunity to present views orally before the Department at a public
hearing held on February 20, 1987, in accordance with � 355.35 of our regulations (19
CFR 355.35).
This determination is published pursuant to section 705(d) of the Act (19 U.S.C.
1671d(d)).

Paul Freedenberg,

Assistant Secretary for Trade Administration.

[FR Doc. 87-6484 Filed 3-24-87; 8:45 am]

BILLING CODE 3510-DS-M