Fresh Cut Flowers From Costa Rica; Final Results of Countervailing Duty Administrative Review and Termination of Suspended Investigation

DEPARTMENT OF COMMERCE

[C-223-601]

Fresh Cut Flowers From Costa Rica; Final Results of

Countervailing Duty Administrative Review and Termination of Suspended

Investigation

AGENCY: International Trade Administration/Import Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review and termination of suspended investigation; fresh cut flowers

from Costa Rica.

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SUMMARY: On February 10, 1994, the Department of Commerce (the

Department) published in the Federal Register (59 FR 6236) the

preliminary results of its administrative review of the Suspension of

Countervailing Duty Investigation; Certain Fresh Cut Flowers From Costa

Rica (52 FR 1356; January 13, 1987) (Agreement). We have now completed

that review and have upheld the results of the preliminary results. We

have determined for the final results that the signatories have

complied with the terms of the agreement during the period January 1,

1991 through December 31, 1991. In addition, we have determined that

the signatories of the agreement on fresh cut flowers have met the

requirements for termination of the suspended investigation.

EFFECTIVE DATE: May 12, 1994.

FOR FURTHER INFORMATION CONTACT:

Elizabeth Patience or Jean Kemp, Office of Agreements Compliance,

International Trade Administration, U.S. Department of Commerce,

Constitution Avenue and 14th Street, NW., Washington, DC 20230;

telephone: (202) 482-3793.

SUPPLEMENTARY INFORMATION:

Background

On February 10, 1994, the Department published in the Federal

Register (59 FR 6236) the preliminary results of its administrative

review of the agreement. We have now completed that review in

accordance with section 751(a) of the Tariff Act of 1930, as amended

(the Act), 19 USC 1675(a) (1988).

Scope of Review

Imports covered by this review are shipments of miniature (spray)

carnations, standard carnations, and pompon chrysanthemums from Costa

Rica. This merchandise is currently classifiable under the Harmonized

Tariff Schedule (HTS) items 0603.10.30 and 0603.10.70. The HTS item

numbers are provided for convenience and Customs purposes. The written

description remains dispositive.

The review covers the period January 1, 1991 through December 31,

1991 and six programs: (1) Tax Credit Certificates; (2) Certificates

for Increasing Exports; (3) Income Tax Exemptions for Export Earnings;

(4) Exporter Credit for Sales Tax and Consumption Tax on Certain

Domestic Purchases; (5) Exporter Exemptions for Taxes and Duties on

Imports; and (6) Accelerated Depreciation.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the

preliminary results. We received comments from petitioner and rebuttal

comments from respondents (ACOFLOR, the trade association representing

the signatories in these proceedings and the Government of Costa Rica

(GOCR)).

Comment 1: Petitioner argues that all Coast Rican flower producers

and exporters covered by the agreement have not established non-use of

countervailable programs for a period of at least five years. Since the

first administrative review, nine companies have signed on to the

agreement. Petitioner notes that Sec. 355.25(a)(2)(i) of the

Department's regulations states that a suspended investigation may be

terminated if ``[a]ll producers and exporters covered at the time of

revocation by the order or suspension agreement have not applied for or

received any net subsidy on the merchandise for a period of at least

five consecutive years.'' As not all current signatories were covered

by the first review, petitioner argues that they have not been found to

comply with the terms of the agreement for five consecutive years.

Petitioner contends that it is not Department practice to deviate from

its regulations without a demonstration that the unusual facts or

circumstances of a particular case require special consideration.

Petitioner points out that in Ceramic Tile from Mexico; Final Results

of Countervailing Duty Administrative Review and Revocation in Part of

the Countervailing Duty Order (59 FR 2823, 2824, January 19, 1994)

(``Tile from Mexico'') the Department found that a company had

fulfilled the five-year requirement, even though it had not been

reviewed during one review period because it did not ship during that

period. The Department based this determination on the ``unusual facts

and circumstances'' of the case and the lack of a clearly articulated

Department policy detailing the requirements of 19 CFR 355.25(a)(3).

The Department did revoke the order for this company. Petitioner also

notes a Department decision to require that separate administrative

reviews be conducted for each of the review periods. (See Lamb Meat

from New Zealand; Final Results of Countervailing Duty Administrative

Review (58 FR 45,097, August 26, 1993), and the Department's Memorandum

in that review Re: Basis for Revocation of Orders and Terminations of

Suspension Agreements Under 19 CFR 355.25(a)(1) at 4 (12/14/92) (on

file in room B-099, Department of Commerce, Washington, DC).

Respondents argue that the changes to the list of signatories

demonstrate the effectiveness and inclusiveness of compliance measures

established by respondents to assure fulfillment of their obligations

under the agreement. Respondents contend that requiring all those who

happen to appear on the list of signatories as of the period of review

to demonstrate their compliance with the terms of the agreement for a

period of five consecutive years imposes an impossible standard,

especially in the case where a company was newly established during the

five-year review period. Furthermore, respondents state that the 15

original signatories have accounted for at least 85 percent of Costa

Rican exports of subject merchandise to the United States throughout

the life of the agreement. Respondents argue that the Tile from Mexico

case, referred to by petitioner, dealt with partial revocation of a

countervailing duty order and is therefore irrelevant to the current

case. Respondents contend that the language of Sec. 355.25(a)(2), ``at

the time of revocation,'' refers to the current period of review upon

which the determination to terminate is based. Respondents argue that

following petitioner's interpretation would involve the parties in an

endless cycle of ongoing review that the termination provisions are

intended to avoid.

Department's Position: We disagree with petitioner. We recognize

that Sec. 355.25(a)(2)(i) appears to require that, in order for the

Department to terminate a suspended investigation, ``[a]ll producers or

exporters covered at the time of revocation'' must not have ``applied

for or received any net subsidy on the merchandise for a period of at

least five consecutive years.'' As explained below, however, the

Department has determined that the strict reading advocated by the

petitioner is not required by either the statute or the Department's

regulations, and would not be in accordance with the terms of the

agreement suspending the investigation in the present proceeding.

Specifically, section 704(b) of the Tariff Act provides that the

Department may suspend a countervailing duty investigation ``if the

government of the country in which the subsidy practice is alleged to

occur agrees, or exporters who account for substantially all of the

imports'' of the subject merchandise agree, ``to eliminate the subsidy

completely or to offset completely the amount of the net subsidy''

within the appropriate period of time. 19 U.S.C. 1671c(b) (emphasis

added). The statutory language has not been changed since 1987, when

the suspension agreement in this case was entered into. By regulation,

the Department has defined ``substantially all'' of the merchandise in

this context as meaning ``exporters that have accounted for not less

than 85 percent by value or volume of the merchandise during the period

for which the Department is measuring benefits in the investigation or

such other period that the [Department] considers representative.'' 9

CFR 355.18(c).

The regulations only require the addition of new exporters in the

event that the existing signatory exporters no longer account for

substantially all of the merchandise. 19 CFR 355.19(c). Consequently,

for purposes of terminating a suspended investigation under

355.25(a)(2)(i), all that is required is that the same exporters who

have accounted for 85 percent of the merchandise for a period of five

consecutive years have not applied for or received any net subsidy on

the merchandise during that period.

Although not required by the statute, the Department may require

new or additional producers or exporters to become signatories to an

agreement, thus raising the coverage above the 85 percent level, in

order to permit more effective monitoring of the agreement. In this

case, pursuant to the agreement, the GOCR was required to notify the

Department whenever new producers or exporters exported subject

merchandise to the United States, and whether those producers or

exporters had agreed to comply with the terms of the agreement.

Agreement, 52 FR at 1361. To ensure that it met this requirement, the

GOCR required any new or different producer or exporter which exported

a certain volume or value of the subject merchandise to the United

States to become a signatory. These new signatories were required to

comply with the terms of the agreement during each year they were

covered. The new signatories which have been reviewed by the Department

provided a further track record of compliance with the suspension

agreement. This provided the Department with evidence above and beyond

that required under the statute and the Department's regulations for

both coverage and termination.

Finally, we agree with respondents that the Tile from Mexico case

dealt with partial revocation, i.e., a company-specific revocation, of

a countervailing duty order under Sec. 355.25(a)(3) of the Department's

regulations. The regulations contain no similar provision permitting

partial termination of a suspension agreement. Therefore, the Tile from

Mexico determination does not bear on the outcome of this proceeding.

Accordingly, we have determined that section 355.25(a)(2) permits

termination of a suspended investigation whenever the Department

determines that the exporters or producers that originally signed the

suspension agreement have consistently accounted for at least 85

percent of the imports of the subject merchandise for a period of at

least five consecutive years, during which time they did not apply for

or receive any net subsidy on the subject merchandise. In addition, any

new signatories must be found to have complied with the terms of the

agreement during the time they are covered.

The Department has determined that throughout the life of the

present agreement, including during the current review, the producers

and exporters that originally signed the agreement have continued to

account for at least 85 percent of the imports, despite the fact that

new producers or exporters were added to the agreement. See Memo to the

File, dated March 30, 1994, public version on file in room B-099,

Department of Commerce, Washington, DC. In addition, we have determined

that no producer or exporter covered by the agreement has applied for

or received any net subsidy on the subject merchandise during this

review or during any of the previous four reviews. Hence, for a period

of at least five consecutive years after entry into the agreement, the

Department has determined that the producers and exporters that signed

the agreement and that consistently have accounted for substantially

all of the imports of the subject merchandise into the United States

have not applied for or received any net subsidy on the subject

merchandise. Also, the signatories that were later added to the

agreement have complied with the terms of the agreement during each

review period in which they were covered. Therefore, we determine that

the requirements for termination under Sec. 355.25(a)(2)(i) have been

met. Comment 2: Petitioner argues that the Department should decline to

terminate the suspended investigation because all the programs are

still in existence and used by the flower producers and exporters for

non-subject merchandise. Petitioner asserts that after termination, the

former signatories will continue to be eligible to receive benefits for

most of the programs, absent active ACOFLOR intervention and

monitoring. Moreover, petitioner contends that termination would be

inappropriate without updated information covering the 1992 and 1993

review periods.

Petitioner argues that it is not unlikely that the flower producers

and exporters will use the six programs covered by the agreement.

Specifically, petitioner makes the following arguments regarding the

six programs:

(1) Exporter Credit for Sales Tax on Certain Domestic Purchases:

Petitioner argues that there will be no incentive for ACOFLOR or the

GOCR to continue monitoring receipt of benefits under this program.

Petitioner also asserts that there will be incentives for flower

producers and exporters to switch equipment used for the production on

non-subject merchandise, for which exemptions are allowed, to the

production of subject merchandise, for which exemptions are monitored

under the agreement.

(2) Exporter Exemptions for Taxes and Duties on Imports: Petitioner

makes the same arguments as stated above for the Exporter Credit for

Sales Tax on Certain Domestic Purchases.

(3) Accelerated Depreciation: Petitioner argues that, although the

Department has found that no signatories have used accelerated

depreciation, there is no formal or informal mechanism to stop flower

producers and exporters from claiming accelerated depreciation on their

tax forms.

(4) Certificates for Increasing Exports (CIEX): Petitioner argues

that the CIEX program has not been terminated because some Costa Rican

exporters received CIEX benefits in 1991 through a special commission

established in 1984 to pay benefits accrued in earlier years.

Additionally, petitioner contends that there are no formal or informal

measures to render exports of the subject merchandise ineligible for

the benefit.

(5) Tax Credit Certificates (Certificados Abono Tributario CATs)):

Petitioner contends that it is not clear that the CAT program was

terminated as it continues to undergo fundamental changes. Petitioner

also urges that although the Central Bank is not granting CATs in new

export contracts, it is unclear whether the same or different benefits

could be granted without using export contracts which are currently

required to obtain CAT benefits.

(6) Income Tax Exemption for Export Earnings: The agreement

requires exporters to maintain separate accounting records for subject

and non-subject merchandise. Petitioner argues that as only one

company, American Flower, maintains separate records of duty and tax

exemption benefits received for exports of non-subject merchandise, the

Department cannot confirm whether flower producers and exporters have

received countervailable benefits on exports of subject merchandise.

Petitioner contends that flower producers and exporters were eligible

to apply for the income tax exemption if they had tax-exempt export

profits and if they segregated domestic and export sales income in

calculating income tax. Consequently, petitioner asserts, it is

unlikely that new flower producers and exporters not previously subject

to the agreement will maintain separate records for the subject

merchandise.

Respondents argue that the GOCR and ACOFLOR have pledged to

maintain controls to monitor receipt of benefits and that the GOCR is

committed to eliminating incentives that distort trade. Respondents

argue that it is unlikely that the flower producers and exporters will

use the following six programs after termination:

(1) Exporter Credit for Sales Tax on Certain Domestic Purchases:

Respondents argue that, in most cases, it will not always be feasible

for flower producers and exporters to switch equipment from the

production of a product which is non-subject merchandise to subject

merchandise product.

(2) Exporter Exemptions for Taxes and Duties on Imports:

Respondents made the same arguments as above for the Exporter Credit

for Sales Tax on Certain Domestic Purchases.

(3) Accelerated Depreciation: Respondents assert that there are two

separate government agencies, Ministry of Finance and CENPRO, which

have established government controls to block access to the use of

accelerated depreciation.

(4) CIEX: Respondents argue that this program was terminated in

1988. Respondents argue that even if some of the funds authorized for

this program in 1988 were not actually distributed until 1991, the GOCR

made no CIEX distributions to flower producers and exporters. The

respondents also argue that the fact that such funds may have actually

been distributed in 1991 does not alter that fact that the CIEX program

was effectively terminated in 1984 for lack of funding and officially

closed in 1988.

(5) CATs: Respondents argue that the only verified fundamental

changes to the CAT program are those reducing or restricting its

benefits.

(6) Income Tax Exemption for Export Earnings: Respondents contend

that with the continuation of GOCR controls, the GOCR will not grant

exemptions unless the claimant can demonstrate that the income for

which an exemption is sought is not derived from exports of the subject

merchandise. Respondents also note that this program is being phased

out.

Department's Position: Section 355.25(a)(2) of the Department's

regulations provides that the Department may terminate a suspension

agreement despite the fact that the subsidy programs have not been

abolished, provided the Department concludes that the requirements of

this provision are met. As explained in Comment 1, the Department

determines that the original signatories have complied with the terms

of the agreement and the requirements of Sec. 355.25(a)(2)(i).

Regarding Sec. 355.25(a)(2)(ii), ACOFLOR has certified that the

signatories are not likely to apply for or receive any countervailable

subsidies in the future. The GOCR and ACOFLOR have certified that the

control mechanisms to ensure compliance with the agreement will remain

in place if the agreement is terminated. Furthermore, government

officials stated during verification that Costa Rican subsidies in

general were being phased out. In sum, as the Department determined in

the preliminary results of review, the record contains no evidence

indicating that the signatories will apply for or receive any net

subsidy on the subject merchandise in the future. 59 FR at 6238.

Petitioner has offered no arguments which would reasonably contradict

this determination.

In addition, we disagree with each of the petitioner's program-

specific arguments for the following reasons:

(1) Exporter Credit for Sales Tax on Certain Domestic Purchases and

(2) Exporter Exemptions for Taxes and Duties on Imports: The GOCR and

ACOFLOR have certified that the control mechanisms currently in place

to monitor compliance with the agreement will remain in place so that

equipment on which duties or taxes were exempted will not be switched

to the production of subject merchandise after termination.

(3) Accelerated Depreciation: We agree with respondents that there

are formal mechanisms in place at the Ministry of Finance and CENPRO to

prevent flower producers and exporters from claiming accelerated

depreciation. At verification, we found that the signatories have not

used the accelerated depreciation program.

(4) CIEX: We agree with respondents that this program was

terminated in 1988 and that no flower producers or exporters have

received benefits from this program during the five years required for

termination.

(5) CAT: We agree with respondents that all changes during the

period of review to this program have reduced and/or restricted the

receipt of benefits.

(6) Income Tax Exemption for Export Earnings: The agreement

requires signatories to maintain separate accounting records of exports

to receive income tax exemptions for export earnings. Contrary to the

argument of petitioner, the Department has verified that the

signatories maintained these records. A company must maintain separate

accounting records in order to receive an exemption from duties on non-

physically incorporated inputs. Only one company, American Flower,

maintained these separate accounting records for the exemption from

duties on non-physically incorporated inputs, and only American Flower

received this exemption on duties. All companies maintained separate

records of imports eligible for tax and duty exemptions and domestic

purchases eligible for tax credits on inputs physically incorporated

into exports of the subject merchandise.

Further, under Sec. 355.25(b)(2) of the Department's regulations,

the government of the affected country may request termination of a

suspension agreement during the fifth and subsequent annual anniversary

months of the suspension of the investigation. In the current

proceedings, the fifth anniversary month was January 1992 and the

review period for termination is January 1, 1991 through December 31,

1991. Therefore, contrary to petitioner's argument, the fifth

anniversary month, January 1992, and the 1991 review period is the

``time of revocation'' within the meaning of Sec. 355.25(a)(2), and the

Department may terminate the agreement without information regarding

the 1992 and 1993 review periods.

Based upon the foregoing, in accordance with section

Sec. 355.25(a)(2)(ii) of the Department's regulations, we determine

that it is not likely that the producers or exporters will in the

future apply for or receive a net subsidy on the subject merchandise.

Comment 3: Petitioner argues that the ability to export to the U.S.

market is essential for Costa Rican flower producers and exporters to

remain viable. Petitioner asserts that because Costa Rican flower

producers and exporters must compete with hundreds of Colombian flower

producers who dominate the U.S. market, the Costa Rican flower

producers and exporters continue to have a need for flower subsidies.

Respondents counter that throughout the life of the agreement,

Costa Rican flower producers and exporters of the subject merchandise

have been able to compete in the U.S. market without receiving

subsidies. They also argue that the GOCR is committed to eliminating

incentives that distort trade because they are no longer needed to

maintain competitiveness, and because they cost too much.

Department's Position: We disagree with petitioner. As stated in

Comment 1, the original signatories still accounted for substantially

all of the exports of the subject merchandise to the United States in

1991, the period of review. The Department has determined that the

original signatories have not received subsidies on exports of the

subject merchandise to the United States during at least five

consecutive years. Hence, there is no evidence that Costa Rican flower

producers and exporters continue to need subsidies to compete.

Final Results of Review

After considering all of the comments received, we determine that

the signatories have complied with the terms of the agreement for the

period January 1, 1991 through December 31, 1991. In addition, we

determine that the signatories have met the requirements for

termination of the agreement. The original signatories have not applied

for or received any net subsidy on the subject merchandise for five

consecutive years and they have filed the certifications required by 19

CFR Sec. 355.25(b)(2). Based on the foregoing, we determine that there

is no likelihood that the signatories will apply for or receive any net

subsidy in the future. Therefore, we determine to terminate the

Suspension of the Countervailing Duty Investigation on Fresh Cut

Flowers from Costa Rica. As a result, we will also terminate the

reviews in progress for the agreement covering the 1992 and 1993

periods.

The administrative review and notice are in accordance with section

751(a)(1)(C) and 751(c) of the Tariff Act (19 U.S.C. 1675(a)(1)(C) and

1675(c)) and 19 CFR 355.22 and 355.25.

Dated: May 5, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-11590 Filed 5-11-94; 8:45 am]

BILLING CODE 3510-DS-M