Vol. 60 No. 158 Wednesday, August 16, 1995 p 42535 (Notice) [C-301-003; C-301-601] Roses and Other Cut Flowers From Colombia; Miniature Carnations From Colombia; Preliminary Results of Countervailing Duty Administrative Reviews of Suspended Investigations AGENCY: Import Administration, International Trade Administration, Department of Commerce. ACTION: Notice of Preliminary Results of Countervailing Duty Administrative Reviews of Suspended Investigations. SUMMARY: The Department of Commerce (the Department) is conducting administrative reviews of the agreements suspending the countervailing duty investigation on roses and other cut flowers (roses) from Colombia and the countervailing duty investigation on miniature carnations (minis) from Colombia. These reviews cover the period of review (POR) January 1, 1993, through December 31, 1993, and eleven programs. We preliminarily determine that the Government of Colombia (GOC) and the signatories/exporters of roses and minis have complied with the terms of the suspension agreements. We invite interested parties to comment on these results. EFFECTIVE DATE: August 16, 1995. FOR FURTHER INFORMATION CONTACT: Jean Kemp or Stephen Jacques, Office of Agreements Compliance, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C. 20230, telephone: (202) 482-3793. SUPPLEMENTARY INFORMATION: Applicable Statute and Regulations Unless otherwise indicated, all citations to the statute and to the Department's regulations are in reference to the provisions as they existed on December 31, 1994. However, references to the Department's Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments (54 FR 23366 (May 31, 1989)) (Proposed Regulations), are provided solely for further explanation of the Department's countervailing duty practice. Although the Department has withdrawn the particular rulemaking proceeding pursuant to which the Proposed Regulations were issued, the ---- page 42536 ---- subject matter of these regulations is being considered in connection with an ongoing rulemaking proceeding which, among other things, is intended to conform the Department's regulations of the Uruguay Round Agreements Act (See 60 FR 80 (January 3, 1995)). Background On January 5, 1994, the Department published in the Federal Register (59 FR 564) a notice of ``Opportunity to Request an Administrative Review'' for the 1993 review period. On January 31, 1994 the Colombian Association of Flower Exporters (Asocoflores) requested administrative reviews of the suspended countervailing duty investigations covering roses and minis for the 1993 period. On February 17, 1994, the Department initiated these reviews (59 FR 7979). The Department is now conducting these reviews in accordance with section 751 of the Tariff Act of 1930, as amended (the Tariff Act), and 19 CFR 355.22. Scope of Review The products covered by these administrative reviews constitute two separate ``classes or kinds'' of merchandise: roses and minis from Colombia. During the POR, such merchandise covered by these suspension agreements was classifiable under Harmonized Tariff Schedule (HTS) item numbers 0603.10.60, 0603.10.70, 0603.10.80, and 0603.90.00 for roses, and 0603.10.30 for minis. The HTS item numbers are provided for convenience and Customs purposes. The written descriptions remain dispositive. These reviews of the suspended investigations involve over 800 Colombian flower growers/ exporters of roses, over 100 Colombian flower growers/exporters of minis, as well as the GOC. We verified the responses from six growers/exporters of the subject merchandise: Flores La Conchita German Ribon E. en C. (roses and minis); Tuchany, S.A. (roses); Flores de Exportacion, S.A. (roses and minis); Queen's Flowers of Colombia Ltda. (roses and minis); Florval, S.A. (roses and minis); and Flores de Funza, S.A. (roses and minis) (collectively, the six companies). The suspension agreement for minis covers ten programs: (1) Tax Reimbursement Certificate Program; (2) BANCOLDEX (funds for the promotion of exports); (3) Plan Vallejo; (4) Free Industrial Zones; (5) Export Credit Insurance; (6) Countertrade; (7) Research and Development; (8) Instituto de Fomento Industrial (IFI); (9) Financier de Desarrollo Territorial (FINDETER); and (10) Fondo Financiero de Proyectos de Desarrollo (FONADE). The suspension agreement for roses covers the ten programs listed above, as well as (11) Air Freight Rates. Analysis of Programs We examined the following programs subject to the suspension agreements: (1) Tax Reimbursement Certificate Program The ``Certificado de Reembolso Tributario'' (CERT) or Tax Reimbursement Certificate program allows exporters to receive a full or partial rebate on indirect taxes based on the value of their exports of specific products to specific destinations. The GOC determines the CERT levels based on product and market conditions. Under the terms of the suspension agreements, Colombian flower growers/exporters will be apply for, or receive, tax certificates or other rebates, remissions, or exemptions under the CERT program for exports of the subject merchandise to the United States and Puerto Rico. Moreover, since 1987, when the GOC restructured the CERT program, the level of CERT payments for exports of the subject merchandise to the United States and Puerto Rico wee set at zero. Therefore, exporters of the subject merchandise are no longer eligible to receive countervailable benefits. At verification, we examined documentation at the GOC and found that this program was not used by exporters of the subject merchandise for exports to the United States and Puerto Rico during the POR. In addition, at verification of the six companies, we examined documentation and confirmed that they did not use the program for exports of the subject merchandise to the United States and Puerto Rico during the POR. Therefore, we preliminarily determine that the GOC has eliminated the subsidy on the subject merchandise by abolishing this program for exports of the subject merchandise to the United States and Puerto Rico and that this program did not confer any countervailable benefits upon exports of the subject merchandise to the United States and Puerto Rico during the POR. (2) BANCOLDEX On January 2, 1992, the former Fondo de Promocion de Exportaciones (PROEXPO) transferred from a government-administered fund to a commercial bank and was renamed Banco de Comercio Exterior de Exterior (BANCOLDEX). The same resolutions continued to govern export loans granted by BANCOLDEX as previously granted by PROEXPO. There are six major BANCOLDEX credit lines: Short-term working capital Colombian peso (peso) loans; medium-term working capital peso loans; short- and long-term working capital U.S. dollar (dollar) loans; long-term capitalization peso loans; long-term capitalization dollar loans; and long-term fixed investment loans. In accordance with Departmental practice, we will treat medium-term working capital peso loans as long-term working capital peso loans. Under the terms of the suspension agreements, Colombian flower growers/exporters will not apply for, or receive any export financing for BANCOLDEX other than that offered on non-preferential terms, and at or above the established Department benchmark interest rates. For the roses and minis suspension agreements in the Roses and Other Cut Flowers from Colombia and Miniature Carnations from Colombia: Final Results of Countevailing Duty Administrative Reviews of Suspended Investigations, (published concurrently with this notice), the Department established new benchmark interest rates for all short- and long-term peso loans. The Department's short-term benchmark interest rate is nominal DTF (the Colombian Central Bank time deposit rate, the ``Depositos a Termino Fijo'') plus 3.66 percentage points, and for long- term loans nominal DTF plus 3.66 percentage points and 0.25 percentage point for each additional year after the first. This change in the benchmark interest rates will be effective 14 days after publication of the final results for the administrative reviews 1991 and 1992 (See Roses and Other Cut Flowers from Colombia and Miniature Carnations from Colombia: Final Results of Countevailing Duty Administrative Reviews of Suspended Investigations, (published concurrently with this notice). As discussed below, we preliminarily determine to maintain those benchmark rates. Colombian Peso Loans At verification, we examined GOC documents and confirmed that BANCOLDEX charged interest rates on its short- and long- term peso loans above the established Department benchmark interest rates in effect during the POR. In addition, we found that BANCOLDEX issued the loans on non-preferential terms. We also examined the six companies' accounting records which confirmed that the companies received BANCOLDEX peso loans for the subject merchandise on non-preferential terms and at interest rates at ---- page 42537 ---- or above the Department benchmark rates for exports of the subject merchandise to the United States and Puerto Rico in effect during the POR. Therefore, we preliminary determine that BANCOLDEX did not confer any countervailable benefits upon exports of the subject merchandise to the United States and Puerto Rico during the POR. In order to update previous benchmark rates determined by the Department, we reviewed interest rates in Columbia to define what interest rate benchmarks were appropriate for future BANCOLDEX loans. In the case of short- and long-term peso BANCOLDEX loans, the Department confirmed at verification that the GOC adopted rates based on the Colombian fixed deposit rate, DTF, because the DTF rates more accurately reflect interest rate fluctuations in the market. While the Department verified that there is no single, predominant source of alternative financing in Columbia, we have determined that the independent government agency, FINAGRO (Fondo para el financiameinto del Sector Agropecuario), a major intermediary lender to the agricultural sector, is an appropriate alternative source of financing for the Department's benchmarks. FINAGRO is the successor to the Fondo Financiero Agropecuario (FFA). The most recent FINAGRO short-term rate is equal to DTF plus up to 6 percentage points. Because the Department is unable to set the benchmark as a range (i.e., DTF plus up to 6 percentage points), the Department established a benchmark rate applying the methodology used in the final determination for the 1991 and 1992 administrative reviews (See Roses and Other Cut Flowers and Miniature Carnations from Columbia; Final Results of Countervailing Duty Administrative Reviews of Suspended Investigations; (published concurrently with this notice). In calculating the prospective benchmarks for short- and long-term peso loans, the Department preliminarily determines that the most recent verified weighted- average interest rate on all loans financed by FINAGRO through Caja Agraria, i.e., DTF plus 3.66 percentage points is the appropriate benchmark for short-term financing. Consequently, the Department preliminarily determines that the appropriate benchmark for the short-term peso loans rate is the nominal DTF plus 3.66 percentage points. The Department also preliminarily determines that the appropriate benchmark for long-term peso loans is the nominal DTF plus 3.66 percentage points, plus an additional 0.25 percentage points for each year after the first, including any grace period, reflecting the spread between BANCOLDEX short- and long-term loans. Loans provided at or above the benchmark will not be considered preferential. U.S. Dollar Loans At verification, we examined GOC documents and confirmed that BANCOLDEX issued short- and long-term dollar loans. In the case of short- and long-term dollar loans, there were no benchmark rates in effect during the POR, because these loans were introduced in 1991, i.e., after the last completed reviews of the suspension agreements. In order to establish dollar benchmark rates. we followed the same calculation methodology as in the final notice for Roses and Other Cut Flowers and Miniature Carnations from Columbia; Final Results of Countervailing Duty Administrative Reviews of Suspended Investigations; (published concurrently with this notice). We confirmed at verification that during the POR, BANCOLDEX loan interest rates on dollar loans charged to Colombian flower growers/exporters were based upon the London Interbank Offered Rate (LIBOR) plus a variable spread. The Department determines that LIBOR will be the basis of the benchmark for dollar loans, because LIBOR is used as the basis for dollar loan interest rates in Colombia. Therefore, the Department preliminarily determines that for the short-term dollar loans the Department's benchmark for dollar-based loans in Colombia will be the six-month LIBOR rate in effect at the time of the loan plus 1.52 percentage points. Based on the same methodology used for short-term dollar loan benchmark, we preliminarily determine that for long-term dollar loans the Department's benchmark for dollar-based loans in Colombia will be the six-month LIBOR rate in effect at the time of the loan plus 2.82 percentage points. It should be noted that the rate specified here was calculated based on effective, not nominal, interest rates; the effective rate is the equivalent to the nominal rate calculated on the basis of interest being payable at the end of the quarter. BANCOLDEX should set the nominal interest rate for dollar-based loans at a level that is high enough to ensure that the effective interest rate of these loans are at or above the Department's new benchmark. (3) Plan Vallejo Plan Vallejo was established in 1967 under decree 444. Its purpose is to exempt exporters from certain indirect taxes and customs duties assessed on imported capital equipment used to produce finished products for export. The Instituto Colombiano de Comercio Exterior (INCOMEX) administers the Plan Vallejo program. Under the terms of the suspension agreements, Colombian flower growers/exporters will not apply for or receive any benefits from duty and tax exemptions for capital equipment under Plan Vallejo for exports of the subject merchandise to the United States and Puerto Rico. At verification, we examined the GOC's documentation and confirmed that this program was not used by the exporters of the subject merchandise for exports to the United States and Puerto Rico during the POR. Also, GOC officials stated that, during the POR, no flower producer applied for Plan Vallejo benefits. In addition, we verified that the six companies did not use the program for capital equipment during the POR. Therefore, we preliminarily determine that this program did not confer any countervailable benefits upon exports of the subject merchandise of the United States and Puerto Rico during the POR. In addition, we preliminarily determine that Plan Vallejo has been abolished for the subject merchandise in Resolution 1212 since flower growers are ineligible to receive benefits for exports to the United States and Puerto Rico. (4) Free Industrial Zones In December 1985, Law 109 established Free Industrial Zones (FIZs) for industrial and service sector purposes. Certain regions in Colombia are designated as FIZs. At verification, we examined documentation at the Ministry of Foreign Trade and determined that there were not any flower producers located in FIZs. Therefore, we preliminarily determine that this program did not confer any countervailing benefits upon exports of the subject merchandise to the United States and Puerto Rico during POR. We also preliminarily determine that during the POR the GOC had eliminated the subsidy on this merchandise by abolishing this program for the merchandise. (5) Export Credit Insurance Decree 444, issued in 1967, established the Export Credit Insurance program. Under the Export Credit Insurance program a company may receive insurance to cover certain commercial expenses (transportation, custom duties, insurance expenses, etc.) that it would have difficulty covering as a result of the insolvency of its foreign ---- page 42538 ---- client. Several commodities are ineligible for the program: coffee in certain forms, crude leather, oil and by-products, precious and semiprecious stones, gold, perishable goods, and others. The subject merchandise is classified under the ``perishable goods'' category which renders all exports of the subject merchandise ineligible for the program. Under the terms of the suspension agreements, Colombian flower growers/exporters shall notify the Department in writing prior to applying for any benefit from the Export Credit Insurance program for exports of the subject merchandise to the United States and Puerto Rico. Because we did not receive any such notification and confirmed that subject merchandise is ineligible for this program, we preliminarily determine that this program did not confer any countervailable benefits upon exports of the subject merchandise to the United States and Puerto Rico during the POR. We also preliminarily determine that the GOC has eliminated the subsidy by abolishing this program for the subject merchandise. (6) Countertrade Law 48 of 1983 established a special system for three types of exchange arrangements: (1) countertrade; (2) compensation offsets; and (3) three-way trade. GOC officials have stated that in 1986, Decree 1459 terminated the exchange system and there has been no follow-up legislation which would re-establish the exchange system. We confirmed that this program had been terminated on that date. Therefore, we preliminarily determine that this program did not confer any countervailing benefits upon exports of the subject merchandise to the United States and Puerto Rico during the POR. We also preliminarily determine that the GOC has eliminated the subsidy by abolishing this program for the subject merchandise. Other Programs Although not specifically listed in the suspension agreements, we examined the following programs: (7) Research and Development Columbian flower exporters, on a voluntary basis, allowed the Central Bank to withhold a certain percentage of the CERT rebates earned on exports of the subject merchandise to the United States and Puerto Rico and other countries for research and development from January 1983 (the effective date of the original suspension agreement) through November 1985, when the rebate rate for roses and other cut flowers subject to the suspension agreement was reduced to zero. In 1985, the GOC issued Resolution 10, which established a fund from the CERT payments that were withheld for the cultivation of and general and technological research on all flowers. The resolution requires that any funds expended under this resolution be disbursed in a manner consistent with the suspension agreements. The resolution 10 account was officially closed in October 1991 and no contributions were made to the account during the POR. Therefore, we preliminarily determine that this program did not confer any countervailable benefits upon exports of the subject merchandise to the United States and Puerto Rico during the POR. We also preliminarily determine that the GOC has eliminated the subsidy on the merchandise by abolishing this program for the subject merchandise. (8) Instituto de Fomento Industrial (IFI) Loans The Instituto de Fomento Industrial, or Institute for the Promotion of the Industrial Sector, is a branch of the Colombian Ministry of Economic Development. It provides financing to all sectors of the Colombian economy and to large and small companies. Companies with assets above 1.25 billion pesos may borrow directly from IFI, while smaller companies may borrow funds from IFI which are rediscounted through financial intermediaries. Two IFI credit lines are available to only exporters. These include a credit line for new exporters and relocation of export enterprises, and the ANDEAN Trade Preference Act (ATPA) line of credit. The other IFI credit lines are available to all enterprises. These include a commercial sector line of credit, a line of credit for free zones, a line of credit for working capital, a line of credit for capital equipment, a capitalization line of credit, ordinary resource loans, a line of credit for motel and tourist projects, and a line of credit for market studies. Loans are available in both pesos and dollars. Loan terms and rates vary by credit line and length of the loan. Fixed asset dollar loans are available for five-year terms at LIBOR plus five percentage points. Peso working capital loans are available for terms of up to three years at TCC (DTF) plus five percentage points. Long-term peso loans are available for terms up to seven years at TCC plus six percentage points plus a 0.25 percentage point for each additional year after the fifth. ATPA loans are available in pesos for up to four years at TCC plus five percentage points for working capital loans and for terms of up to twelve years for fixed asset peso loans at TCC plus five percentage points plus a 0.25 percentage point for each year after the fifth. In addition, ATPA fixed asset loans are available in dollars at LIBOR plus five percentage points plus 0.25 for each year after the fifth. We verified that the non-export lines of credit provided by IFI were granted to a broad range of Colombian industry sectors including: agriculture, mining, textiles, metallic products, financial establishments, and chemicals, rubber and plastics. Therefore, we preliminarily determine that IFI's non-export lines of credit are not provided to a specific enterprise or industry or group thereof and that they are not countervailable. Furthermore, we verified that no Colombian flower growers/exporters received loans under the two export credit lines during the POR. We preliminarily determine that the GOC and the Colombian flower growers/exporters of the subject merchandise were in compliance with the suspension agreements because IFI's export credit lines were not used by Colombian flower growers/exporters of the subject merchandise during the POR. However, flower growers/exporters of the subject merchandise are eligible to apply for and receive IFI's export credit lines. Any such loans must be on non-preferential terms, and at or above the Department's most recent benchmarks (See Section II.c of the suspension agreements). We preliminarily determine that the short- and long-term benchmarks for IFI loans are the same as those for BANCOLDEX peso and dollar financing apply (See Section 2 above). (9) Financiera de Desarrollo Territorial (FINDETER) FINDETER, a government financial entity, finances state and municipal governments and governmental entities to promote urban and regional development projects relating to infrastructure and development in the public sector. The Department verified that all projects are aimed to improve the public sector, and that Colombian flower growers/exporters are not eligible to receive FINDETER loans. Therefore, we preliminarily determine that FINDETER financing is not countervailable for exports of the subject merchandise to the United States and Puerto Rico during the POR. ---- page 42539 ---- (10) Fondo Financiero de Proyectos de Desarrollo (FONADE) FONADE is an industrial and commercial state entity owned by the National Department of Planning. FONADE finances feasibility studies on pre-investment projects that are not conditioned on exporting. The main client is the National Institute for Road Development. We verified that no Colombian flower growers/exporters of the subject merchandise applied for or received financing from FONADE during the POR. Therefore, we preliminarily determine that FONADE's financing was not used by Colombian flower growers/exporters of the subject merchandise during the POR. Program Specific to the Roses and Other Cut Flowers' Suspension Agreement (11) Air Freight Rates (apply only to the roses suspension agreement) The Departmento Administrativo de la Aeronautica Civil (DAAC) is the government agency that develops, maintains and regulates air transport and air space activities. Section D(3) of the suspension agreement states that the Department may consider rescinding the agreement if the air freight rates paid by cut flower exporters approach the government-mandated maximum rates set by the DAAC because such rates might be indicative of government control rather than the result of competitive forces. At verification, we examined the companies' air freight bills and found that the rates negotiated between the flower producers and air freight carriers were between the minimum and maximum rates permitted and did not approach the maximum. Therefore, we preliminarily determine that this program did not confer any countervailable benefits upon exports of the subject merchandise to the United States and Puerto Rico during the POR. Preliminary Results of Review We preliminarily determine that the GOC and signatory companies have complied with all the terms of the suspension agreements during the period January 1, 1993 through December 31, 1993. In addition, we preliminarily determine that the peso and dollar benchmarks established in the 1991 and 1992 administrative reviews of these suspended investigations will continue to apply to loans after the date of publication of the final results of these administrative reviews, and until revised by the Department (See Roses and Other Cut Flowers and Miniature Carnations from Colombia; Final Results of Countervailing Duty Administrative Reviews of Suspended Investigations; (published concurrently with this notice). Interested parties may submit written comments on these preliminary results within 30 days of the date of publication of this notice and may request disclosure and/or a hearing within 10 days of the date of publication. Rebuttal briefs and rebuttals to written comments, limited to issues in those comments, must be filed not later than 37 days after the date of publication. Any hearing, if requested, will be held 44 days after the date of publication or the first workday thereafter. The Department will publish the final results of its analysis of issues raised in any such written comments or at a hearing. This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22. Dated: August 8, 1995. Susan G. Esserman, Assistant Secretary for Import Administration. [