Preliminary Results of Countervailing Duty Administrative Reviews of Suspended Investigations

DEPARTMENT OF COMMERCE

[(C-301-003)--Roses and Other Cut Flowers from Colombia; (C-301-601)--

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.

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SUMMARY: The Department of Commerce (the Department) is conducting

administrative reviews of the agreements suspending the countervailing

duty investigations on roses and other cut flowers from Colombia and on

miniature carnations from Colombia. These reviews cover the periods

January 1, 1991, through December 31, 1991, and January 1, 1992,

through December 31, 1992, and eight programs. We preliminarily

determine that the Government of Colombia (GOC) and the signatories/

exporters of roses and other cut flowers and miniature carnations have

complied with the terms of the suspension agreements. We invite

interested parties to comment on these results.

EFFECTIVE DATE: October 18, 1994.

FOR FURTHER INFORMATION CONTACT: Stephen Jacques, Jeanene Lairo or

Derek Parks, Office of Agreements Compliance, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Ave., N.W., Washington, D.C. 20230; telephone:

(202) 482-3793.

SUPPLEMENTARY INFORMATION:

Background

On December 26, 1991, and January 13, 1993, the Department

published notices of ``Opportunity to Request an Administrative

Review'' for the 1991 and 1992 review periods, respectively (56 FR

66846 and 58 FR 4148). On January 31, 1992, and on January 29, 1993,

the Floral Trade Council (FTC) requested administrative reviews of the

suspended countervailing duty investigations covering roses and other

cut flowers (roses) and miniature carnations (minis) for the 1991 and

1992 periods, respectively. On February 24, 1992, and on March 26,

1993, the Department initiated these reviews (57 FR 6314 and 58 FR

16397). 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

Imports covered by these reviews are shipments of roses and minis

from Colombia. During the review periods, such merchandise 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.

The review periods are January 1, 1991, through December 31, 1991

and January 1, 1992, through December 31, 1992. These reviews of the

suspended investigations involve over 450 producers/exporters of roses,

over 100 producers/exporters of minis, as well as the GOC. We verified

the responses from four producers/exporters of the subject merchandise:

Floramerica, Inc. (roses and minis); Jardines de los Andes S.A. (roses

and minis); Agrosuba, Ltda. (roses and minis) and Horticultura de la

Sabana (minis) (collectively, the four companies). The suspension

agreement for minis covers seven programs: (1) Tax Reimbursement

Certificate Program; (2) PROEXPO/BANCOLDEX (funds for the promotion of

exports); (3) Plan Vallejo; (4) Free Industrial Zones; (5) Export

Credit Insurance; (6) Countertrade; and (7) Research and Development.

The suspension agreement for roses covers the seven programs listed

above, as well as Air Freight Rates.

Analysis of Programs

For a description of changes to these programs during the review

periods, please see ``Summary of Changes to Programs Covered by the

Suspension Agreements on Roses and Other Cut Flowers and Miniature

Carnations from Colombia,'' Memorandum to Edward C. Yang, Division

Director, Office of Agreements Compliance, available in the public

file.

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, producers/exporters

will not apply for, or receive, tax reimbursement certificates or other

rebates, remissions, or exemptions under the CERT program for exports

of the subject merchandise to the United States and Puerto Rico. 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 have been 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 period of

reviews (PORs). In addition, at verification of the four 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 PORs. 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 PORs.

(2) PROEXPO/BANCOLDEX

During 1991, PROEXPO (Fondo de Promocion de Exportaciones) provided

funds for the promotion of exports. On January 1, 1992, the 7th Law

transferred PROEXPO from a government-administered fund to a commercial

bank. The new bank's legal nature, functions, rights, and obligations

were outlined in decree 2505 and PROEXPO was renamed Banco de Comercio

Exterior de Colombia S.A. (BANCOLDEX). As a result, the same GOC

resolutions for export loans that were implemented by PROEXPO, are now

implemented by BANCOLDEX.

PROEXPO/BANCOLDEX provides four peso credit lines (short-term

working capital, long-term loans (capitalization), fixed investment,

financing for trade promotion); and U.S. dollar credit lines. Most

loans provided by PROEXPO/BANCOLDEX are short-term (less than a year).

Under the terms of the suspension agreements, producers/exporters

will not apply for, or receive, for exports of the subject merchandise

to the United States and Puerto Rico, any short- or long-term export

financing from PROEXPO/BANCOLDEX other than that offered on non-

preferential terms and at interest rates at or above the established

Department benchmark interest rates.

For the roses suspension agreement, the Department established

benchmark interest rates for all short- and long-term peso loans when

the agreement was signed (51 FR 44930, (December 15, 1986)). The

Department's short-term benchmark interest rate was 22.5 percent and

the long-term benchmark interest rate was 21.0 percent, for loans to

producers/exporters of roses. These same interest rates were in effect

during the PORs.

For the minis suspension agreement, the Department also established

benchmark rates for all short- and long-term peso loans when the

agreement was signed: the short-term benchmark interest rate was 22.5

percent, and the long-term benchmark interest rate was 21 percent. In

Miniature Carnations from Colombia: Final Results of Countervailing

Duty Administrative Review, (56 FR 14240, (April 8, 1991)), the

Department changed its benchmark rate for minis to nominal DTF (the

Colombian Central Bank time deposit rate, the ``Depositos a Termino

Fijo'') plus 1 percentage point for short-term loans, and nominal DTF

plus 1 percentage point and 0.25 percentage point for each additional

year after the first for long-term loans. This change in the benchmark

interest rates became effective on April 8, 1991, the date of

publication of the Department's notice.

Colombian Peso Loans

At verification, we examined GOC documents and confirmed that

PROEXPO/BANCOLDEX charged interest rates on its short- and long-term

peso loans above the established Department benchmark interest rates

for the subject merchandise during the PORs. In addition, we found that

PROEXPO/BANCOLDEX issued the loans on non-preferential terms. We also

examined the four companies' accounting records which confirmed that

the companies received PROEXPO/BANCOLDEX peso loans for the subject

merchandise on non-preferential terms and at interest rates at or above

the established Department benchmark rates for exports of the subject

merchandise to the United States and Puerto Rico during the PORs.

Therefore, we preliminarily determine that PROEXPO/BANCOLDEX did not

confer any countervailable benefits upon exports of the subject

merchandise to the United States and Puerto Rico during the PORs.

In order to update previous benchmark rates determined by the

Department, we reviewed interest rates in Colombia to define what

interest rate benchmarks were appropriate for future PROEXPO/BANCOLDEX

loans. In the case of short- and long-term peso PROEXPO/BANCOLDEX

loans, the Department confirmed at verification that the GOC adopted

the DTF-based rates because the DTF rates more accurately reflect

interest rate fluctuations in the market. While we verified that there

is no single predominant source of alternative financing in Colombia,

the Department established that a major lender to the agricultural

sector is the independent government agency, FINAGRO (Fondo para el

financiamiento del Sector Agropecuario). FINAGRO loans are outside

BANCOLDEX-controlled credit lines and account for 35 to 40 percent of

financing to the agricultural sector. FINAGRO loans are short-term.

The Department found that, in addition to FINAGRO, the Caja Agraria

bank finances 35 to 40 percent of the agricultural sector. At

verification, we found that the Caja Agraria interest rates are similar

to the rates offered by FFA/Finagro. However, information on the record

about Caja Agraria rates conflicts with what we found at verification.

Therefore, we preliminarily determine that FINAGRO interest rates

represent the best alternative source of financing for agricultural

entities in Colombia.

The Department, therefore, preliminarily determines that the short-

term benchmark interest rate will be the most recent FINAGRO short-term

interest rate established in February 1994, nominal DTF plus six

percentage points. The Department also preliminarily determines that

the long-term benchmark interest rate will be the most recent FINAGRO

short-term interest rate in February 1994, nominal DTF plus six

percentage points, plus an additional 0.25 percentage points for each

year after the first, including any grace period, reflecting the spread

between PROEXPO/BANCOLDEX short- and long-term loans. The short- and

long-term benchmark interest rates will apply to loans granted on or

after the date of publication of the final results of these

administrative reviews.

U.S. Dollar Loans

During the PORs, PROEXPO/BANCOLDEX established several new U.S.

dollar credit lines. On August 26, 1991, the GOC issued resolution 13/

91 and established a new short-term working capital credit line

financed by CAF (Corporacion Andina de Fomento) and administered by

PROEXPO/BANCOLDEX. The interest rates on CAF loans were set at the

London Interbank Offered Rate (LIBOR) plus up to 3.25 percentage

points, depending on the terms of the loan. In addition, resolution 4/

92 (February 19, 1992) established a U.S. dollar credit line for

preshipment operations. These loans are financed by FLAR (Fondo

Latinoamericano de Reservas) and BLADEX (Banco Latinoamericano de

Exportaciones), both of which are international financial institutions.

The interest rates on FLAR and BLADEX loans are LIBOR plus up to three

percentage points on 180-day loans, and interest is payable at the end

of the term of the loan.

In the case of short-term U.S. dollar loans, the Department had not

set any benchmarks prior to these PORs, since these loans had not been

introduced until 1991. Therefore, the Department could not examine

these loans for compliance with the terms of the suspension agreements

during these PORs.

In order to establish new U.S. dollar benchmark rates, we examined

alternative sources of dollar loans in Colombia to determine a

benchmark interest rate. We confirmed at verification that during the

PORs, PROEXPO/BANCOLDEX loan interest rates on U.S. dollar loans

charged to Colombian flower growers/exporters were based upon the LIBOR

plus a variable spread. At verification, we found no alternative

measure of what a firm's cost for debt in dollars would be in Colombia.

In the absence of a viable alternative source of dollar financing in

Colombia, we preliminarily determine that the U.S. weighted-average

effective interest rates, for short-term loans under $100,000 for

February 1994, as published in the Federal Reserve Statistical Release

is the most representative source of financing. This methodology is

consistent with DOC prior practice (See Final Affirmative

Countervailing Duty Determinations: Certain Steel Products From Mexico;

FR 58 37358, (July 9, 1993)).

The Federal Reserve publishes rates based upon the U.S. Prime

Lending Rate and not LIBOR rates. Thus, for short-term U.S. dollar

loans, we preliminarily determine setting the Department's benchmark at

U.S. Prime plus 1.96 percentage points, which corresponds to the

weighted-average effective interest rates for U.S. short-term loans

under $100,000 in February 1994.

We preliminarily determine that these new benchmarks will apply to

loans granted on or after the date of publication of the final results

of these administrative reviews. Any such financing outstanding on that

date shall be repaid or refinanced on non-preferential terms and

interest rates at or above the most recent benchmark interest rate

determined by the Department.

Prospective Benchmarks

The Department invites interested parties to comment on the current

procedure for determining revised and new benchmarks for PROEXPO/

BANCOLDEX loans or any other loan programs.

There are two main issues that arise out of the current procedure.

First, suspension agreements are forward looking, and the Department

sets benchmark interest rates prospectively (See Miniature Carnations

from Colombia: Final Results of Countervailing Duty Administrative

Review; 56 FR 14240 (April 8, 1991) and Miniature Carnations from

Colombia; Final Results of Countervailing Duty Administrative Review

and Determination Not To Terminate Suspended Investigation; 59 FR

10790, (March 8, 1994.)) Petitioners have argued that this leads to

situations where PROEXPO/BANCOLDEX loans at interest rates in

compliance with the Department's benchmarks could be at preferential

interest rates and thus be countervailable. Second, the Department did

not set benchmarks for U.S. dollar loans prior to these PORs because

the dollar loan programs were not initiated until August 26, 1991.

Therefore, because Department benchmarks in these suspension agreements

are set prospectively, during these PORs there was no Department dollar

interest rate benchmark in place against which the Department could

establish whether or not PROEXPO/BANCOLDEX dollar loans were granted on

non-preferential terms.

For these reasons, we invite interested parties to comment on

whether it would be in the public interest to amend and/or clarify

these suspension agreements with regard to benchmarks and the

procedures for establishing benchmarks for loan programs.

(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, producers/ 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 PORs. Also, GOC officials

stated that, during the PORs, no flower producers applied for Plan

Vallejo benefits. In addition, we verified that the four companies did

not use the program for capital equipment during the PORs. 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 PORs.

We also 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) 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 roses

suspension agreement states that the Department may consider rescinding

the agreement and reopening the investigation 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 PORs.

Since the Department has never found the air freight rates to be a

countervailable subsidy, the GOC is not required to abolish the program

for eventual termination of the agreement.

(5) 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 countervailable benefits upon exports of the

subject merchandise to the United States and Puerto Rico during the

PORs. We also preliminarily determine that during the PORs the GOC had

eliminated the subsidy on this merchandise by abolishing this program

for the subject merchandise.

(6) 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 client. Several

commodities are ineligible for the program: coffee in certain forms,

crude leathers, oil and by-products, precious and semi-precious 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, producers/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. At

verification of the SEGUREXPO insurance company, we examined a list of

all insurance policies outstanding during the PORs issued by the

company. We verified that exporters of the subject merchandise did not

participate in the Export Credit Insurance Program during the PORs.

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 PORs. We also

preliminarily determine that the GOC has eliminated the subsidy on this

merchandise by abolishing this program for the subject merchandise.

(7) 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. During verification, GOC officials 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

reviewed documentation that confirmed that this program had been

terminated on that date. 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 PORs. We also preliminarily determine that the GOC has eliminated

the subsidy on the subject merchandise.

Other Program

Although not specifically listed in the suspension agreements, we

examined the following program:

(8) Research and Development

From January 1983 (the effective date of the original suspension

agreement) until November 1985, when the CERT rate for roses and other

cut flowers subject to the suspension agreement was reduced to zero,

flower exporters, on a voluntary basis, allowed the Central Bank to

withhold a certain percentage of the CERTs earned on exports of the

subject merchandise to the United States and Puerto Rico and other

countries for research and development. In 1985, the GOC issued

resolution 10, which established a fund from the CERT payments that

were withheld for general and technological research on the cultivation

of all flowers. During the PORs, the only source of revenue for the

fund was from interest income. The resolution requires that any funds

expended under this resolution be disbursed in a manner consistent with

the suspension agreements. During the PORs, there was only one

disbursement of funds for the payment of legal fees to Arnold & Porter,

counsel to GOC and respondents in this proceeding. The resolution 10

account was officially closed in October 1991.

At verification at the four companies, we examined financial

documents and found that no funds were received under resolution 10

during the PORs. 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

PORs. We also preliminarily determine that the GOC has eliminated the

subsidy on the merchandise by abolishing this program.

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 periods January 1, 1991, through December 31, 1991, and January 1,

1992, through December 31, 1992. In addition, we preliminarily

determine that the new peso and U.S. dollar benchmarks will apply to

loans granted on or after the date of publication of the final results

of these administrative reviews.

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: October 7, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-25783 Filed 10-17-94; 8:45 am]

BILLING CODE 3510-DS-P