Standard Chrysanthemums From the Netherlands; Preliminary Results of Countervailing Duty Administrative Reviews

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

administrative reviews of the countervailing duty order on standard

chrysanthemums from the Netherlands. We preliminarily determine the net

subsidy to be 0.43 percent ad valorem for the period January 1, 1992,

through December 31, 1992, and 0.80 percent ad valorem for the period

January 1, 1993, through December 31, 1993. If the final results of

these reviews remain the same as these preliminary results, the

Department intends to instruct the U.S. Customs Service to assess

countervailing duties as indicated above. Interested parties are

invited to comment on these preliminary results.

EFFECTIVE DATE: May 6, 1996.

FOR FURTHER INFORMATION CONTACT: Lorenza Olivas or Richard Herring,

Office of Countervailing Compliance, Import Administration,

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

Street and Constitution Avenue, N.W., Washington, D.C. 20230,

telephone: (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

On March 12, 1987, the Department published in the Federal Register

(52 FR 7646) the countervailing duty order on standard chrysanthemums

from the Netherlands. On March 12, 1993, and March 4, 1994, the

Department published notices of ``Opportunity to Request Administrative

Review'' of this countervailing duty order (58 FR 13583) and (59 FR

10368), respectively. We received timely requests for reviews for the

1992 and the 1993 review periods from petitioner, Floral Trade Council.

We initiated the review covering the period January 1, 1992 through

December 31, 1992, on May 6, 1993 (58 FR 26960). We initiated the

review covering the period January 1, 1993, through December 31, 1993,

on April 15, 1994 (59 FR 18099). We conducted a verification of the

questionnaire responses in the 1992 administrative review from February

7 through 14, 1994. These reviews are being conducted on an aggregate

basis.

Applicable Statute and Regulations

The Department is conducting these administrative reviews in

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

Act). 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 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 to the Uruguay Round Agreements Act. See 60 FR 80 (Jan. 3,

1995).

Scope of Review

Imports covered by these reviews are shipments of Dutch standard

chrysanthemums. Such merchandise is classifiable under item number

0603.10.70 of the Harmonized Tariff Schedule (HTS). The HTS item number

is provided for convenience and Customs purposes. The written

description remains dispositive.

Verification

As provided in section 776(b) of the Act, we verified information

provided by the Government of the Netherlands. We followed standard

verification procedures, including meeting with government officials

and examining relevant original source documents. Our verification

results are outlined in the public versions of the verification report,

which are on file in the Central Records Unit (Room B-099 of the Main

Commerce Building).

Calculation Methodology for Assessment and Cash Deposit Purposes

We calculated the net subsidy on a country-wide basis by first

calculating the subsidy rate for each program. We then summed the

subsidy rates from all programs benefitting exports of the subject

merchandise to the United States.

Analysis of Programs

I. Programs Conferring Subsidies

A. Programs Previously Determined to Confer Subsidies

1. Aids for the Creation of Cooperative Organizations

Under European Community (EC) Regulation 355/77, the EC has

provided grants to Dutch auction houses, which are flower grower

cooperatives. These funds were provided by the EC through the

Agricultural Guidance and Guarantee Fund, with matching grant

contributions from EC member states. The purpose of the program was to

improve the processing, marketing and distribution of agricultural

products in member states. This program was terminated on January 1,

1986, and no grants were disbursed after 1987.

In the 1986 and 1987 reviews, the Department determined that this

grant program was countervailable because it was limited to a specific

enterprise or industry, or group of enterprises or industries in the

Netherlands. (See Standard Chrysanthemums From The Netherlands;

Preliminary Results of Countervailing Duty Administrative Review (54 FR

43977, 43978; October 30, 1989) and Standard Chrysanthemums From the

Netherlands; Final Results of Countervailing Duty Administrative Review

(55 FR 462; January 5, 1990) (1987 Preliminary and Final Results)).

Although this program was officially terminated in 1986, under our

grant methodology, benefits are still accruing from this program.

To calculate the benefit, we used a declining balance grant

methodology, as determined in the Final Affirmative Countervailing Duty

Determination; Certain Fresh Cut Flowers From the Netherlands (52 FR

3301; February 3, 1987) (Netherland Flowers). We allocated the benefits

from each grant over 10 years, the average useful life of renewable

physical assets in the agricultural sector as determined under the U.S.

Internal Revenue Service's Asset Depreciation Range System. This

methodology is in accordance with the Proposed Regulations (51 FR

23366, 23385; May 31, 1989). We used the average interest rate for

long-term commercial loans published by the Netherlands Bank (the

Central Bank) as the discount rate for each year in which grants were

provided. We divided the sum of these benefits by the f.o.b. value of

total auction sales in the relevant review period. On this basis, we

preliminarily determine the net subsidy to be 0.07 percent ad valorem

for 1992 and 0.04 percent ad valorem for 1993.

[[Page 20407]]

2. Glasshouse Enterprises Program

Under the Glasshouse Enterprises Program, the Ministry of

Agriculture, Nature Management and Fisheries (MAF) provided grants to

greenhouse growers to stimulate private investment in energy saving

methods in the horticulture industry. This program was terminated in

June 1985. However, grants approved prior to the termination were

disbursed through 1987.

We previously determined that this program was a countervailable

domestic subsidy because it was available only to greenhouse growers.

(See 1987 Preliminary and Final Result). Although this program

officially terminated in 1985, under our grant methodology, benefits

are still accruing from this program.

To calculate the benefit from this program, we used the grant

methodology described in section 1. above. We divided the total

benefits from these grants by the value of total greenhouse sales in

the relevant review period. On this basis, we preliminarily determine

the net subsidy to be 0.17 percent ad valorem for the period January 1,

1992, through December 31, 1992, and 0.09 percent ad valorem for the

period January 1, 1993 through, December 31, 1993.

3. Aids for the Reduction of Glass Surface

Under the Aids for the Reduction of Glass Surface program, the MAF

provided grants to greenhouse growers for the purpose of increasing the

energy efficiency of greenhouses by replacing existing glass with

modern energy-saving glass. The program was terminated in November

1984. However, grants approved prior to the termination of the program

were disbursed through 1987.

We previously determined that this program was countervailable

because it was limited to a specific enterprise or industry, or group

of enterprises or industries. (See 1987 Preliminary and Final Results).

Although this program was officially terminated in 1984, under our

grant methodology, benefits are still accruing under this program.

To calculate the benefit from this program, we used the grant

methodology described in section 1. above. We divided the total

benefits from these grants by the value of total greenhouse sales in

the relevant review period. On this basis, we preliminarily determine

the net subsidy to be less than 0.005 percent ad valorem for the period

January 1, 1992, through December 31, 1992, and less than 0.005 percent

ad valorem for the period January 1, 1993, through December 31, 1993.

4. Steam Drainage Systems

In January 1981, the Government of the Netherlands (GON) banned the

use of methylbromide as a means of soil disinfection due to the

potential health hazards caused by the chemical. In December of that

year, the MAF established a program making available cash grants to

encourage the use of steam drainage as an alternative method of soil

disinfection for greenhouses. The program was terminated in September

1984. However, some grants were disbursed through 1987.

In the 1990 administrative review, we determined that this program

was countervailable because it was limited to a specific enterprise or

industry, or group of enterprises or industries. (See Standard

Chrysanthemums From the Netherlands; Preliminary Results of

Countervailing Duty Administrative Review (57 FR 9539; March 19, 1992)

and Standard Chrysanthemums From the Netherlands; Final Results of

Countervailing Duty Administrative Review (57 FR 24249; June 8, 1992)

(1990 Preliminary and Final Results)). Although this program was

officially terminated in 1984, under our grant methodology, benefits

are still accruing under this program.

To calculate the benefit from this program, we used the grant

methodology described in section 1, above. We divided the benefits from

these grants by the value of total greenhouse sales in the relevant

review period. On this basis, we preliminarily determine the net

subsidy to be less than 0.005 percent ad valorem for the period January

1, 1992, through December 31, 1992, and less than 0.005 percent ad

valorem for the period January 1, 1993, through December 31, 1993.

B. New Program Preliminarily Found to Confer Subsidies

Stimulation for the Innovation of Electric Energy (SES)

The SES program was implemented in 1988 with the goal of

stimulating energy conservation. Under the administration of the

Ministry of Economic Affairs (MEA), the program is designed to

encourage the installation of cogeneration equipment by providing

payments of up to 25 percent of the equipment cost, with a cap of 20

million guilders per project. Cogeneration equipment reduces energy

consumption by up to 30 percent.

At verification, we found that this program is available to

virtually all industries. Although the program is neither designed nor

administered with any particular industry in mind, we were told by MEA

officials that greenhouse growers were ideal candidates for the program

due to their enormous demand for energy. See Verification Report of the

Questionnaire Response in the 1992 Administrative Review (April 3,

1995) (public document).

We examined disbursements made under the program on an industry-

specific basis to determine whether horticulture was the dominant user

or received a disproportionate share of benefits under this program. We

based our analysis on payments to all horticulture recipients because

information is not available on a plant-by-plant basis. Based on our

analysis, we found that horticulture accounted for 69 percent of all

grant approvals and received 36 percent of all disbursements.

Horticulture was, therefore, the largest recipient of grants under this

program compared to the share of benefits to other recipients whose

disbursements ranged from less than 0.01 percent to 13.9 percent. In

prior cases where the Department has found disproportionality, we

analyzed whether a program provided a disproportionate share of

benefits by comparing their collective or individual share of benefits

provided to all other users of the program in question. (See, e.g.,

Final Affirmative Countervailing Duty Determination: Grain-Oriented

Electrical Steel From Italy (59 FR 18357; April 18, 1994) (Electrical

Steel)). In Electrical Steel, steel producers received 34 percent of

the benefits under the examined program. In that case, we found that

steel producers received a disproportionate share of the program being

considered. Similarly, in this case we compared the share of benefits

received by horticulture to the collective share of benefits to all

others. On this basis, we determine that the SES program provided a

disproportionate share of benefits to horticulture. Thus, we

preliminarily determine that this program provides a countervailable

benefit to producers of the subject merchandise.

Our policy with respect to grants is (1) to expense recurring

grants in the year of receipt and (2) to allocate non-recurring grants

over the average useful life of assets in the industry, unless the sum

of grants provided under a particular program is less than 0.50 percent

of a firm's total or export sales (depending on whether the program is

a domestic or export subsidy) in the year in which the grants were

received. (See section 355.49(a) of the Proposed

[[Page 20408]]

Regulations and the General Issues Appendix, at 37226, which is

attached to Final Affirmative Countervailing Duty Determination:

Certain Steel Products from Austria (58 FR 37217; July 9, 1993)

(General Issues Appendix)).

For the 1992 administrative review, the amount of grants received

under this program was not less than 0.50 percent of greenhouse sales.

Therefore, we must determine whether the grants provided under the SES

program are recurring or nonrecurring to determine whether the grants

should be expended in the year of receipt or allocated over time. For

the 1993 administrative review, the total amount of grants provided to

greenhouses under the SES program was less than 0.50 percent of total

greenhouse sales. Therefore, the total value of all grants provided

under this program in 1993 have been allocated to that year.

The Department considers that a grant is nonrecurring if the

benefits are exceptional, the recipient cannot expect to receive

benefits on an ongoing basis from year to year, and/or the provision of

funds by the government must be approved every year. The Department

also considers that grants used for the purchase of fixed assets would

generally be considered nonrecurring. (See General Issues Appendix, at

37226). We therefore determine that benefits from grants provided under

the SES program are nonrecurring. On this basis, we allocated the

benefit from the grants provided under this program during 1992 over

the useful life of assets.

Grants were also provided to greenhouses during the years 1988

through 1991. In those years, the grants provided were less than 0.50

percent of total greenhouse sales. Therefore, we would have allocated

all grants provided under this program solely to the year of receipt.

To calculate the benefit from this program, we allocated the

benefits from grants received in 1992 using the declining balance grant

methodology described in section I.A.1. above. For 1993, the benefit is

the total value of all grants provided in that year, plus the benefits

from the 1992 grants that were allocable to 1993. We then divided the

total benefits from these grants by the value of greenhouse sales for

the respective review period. On this basis, we preliminarily determine

the net subsidy to be 0.18 percent ad valorem for the period January 1,

1992, through December 31, 1992, and 0.66 percent ad valorem for the

period January 1, 1993, through December 1, 1993.

II. Programs Preliminarily Found Not to be Countervailable

1. Arrangement for Stimulation of Innovation Projects

Petitioner alleged that floricultural products benefitted from the

Arrangement for Stimulation of Innovation Projects. This program was

implemented in 1991 as the continuation of two innovation programs (the

Subsidy Scheme for Large Innovation Projects of 1989 and the Grant

Scheme for Small Innovation Projects of 1984.) Under the program, the

MAF provided funds to promote innovation within the agriculture sector,

including entities engaged in flower production. To qualify for

assistance, projects must have an innovative element and offer new

technological and economic perspectives that have not yet been in

practice. In addition, the projects must be such that the results can

be passed on to other firms in the Netherlands. Project applications

are assessed yearly by technical experts in consultation with

agribusiness. Approval or rejection of an application is not based on

the type of agricultural production engaged by the applicant, but

rather on whether the project meets the criteria outlined above.

The GON divides agriculture into four major subsectors:

horticulture, arable farming (crops grown on arable land), livestock

farming and cattle farming. We found that grants were provided to all

of the subsectors within agriculture. We examined at verification a

table listing disbursement of funds, by industry, showing cumulative

payments made under the program through December 1993. We verified that

flowers accounted for only 0.59 percent of total disbursements under

this program.

Because all agricultural subsectors are eligible for and used the

Stimulation of Innovation Projects program, and because no

disproportionate benefits were provided under this program, we

preliminarily determine this program is not countervailable because it

is not limited to a specific enterprise or industry, or group thereof.

2. Arrangement for Structural Improvement and the Complementary Scheme

for Investment in Agricultural Holdings

Petitioner alleged that floricultural products received benefits

from this program. The Arrangement for Structural Improvement (SVL) was

implemented in 1985 as a result of the EC Improvement of Efficiency of

Agriculture Structures Regulation, which mandated that each member

state develop a program to improve efficiency within the agricultural

sector. Through the provision of grants to cover the interest on loans

for farm improvement projects, the arrangements aim to promote a more

rapid adjustment of businesses to environmental and animal welfare

requirements. The MAF provides assistance to specified investments

which must benefit certain environmental and animal welfare policy

objectives. Each year applications from the entire agricultural sector

are approved by the MAF. These projects must generate a return but

cannot lead to an expansion of production capacity. Any farmer with a

farm production income between 15,155 and 43,300 guilders is eligible

to apply for SVL assistance. There are no restrictions on the types of

agricultural or horticultural products raised or produced by the

eligible farmer.

The EC regulation distinguishes between two types of investments,

real estate and non-real estate, and allows funding levels of up to 35

percent and 25 percent, respectively. The level of funding allowed by

the Dutch regulations, however, is lower than the EC regulation levels.

According to Dutch regulations, funding levels range from 7.5 percent

to 25 percent, depending upon the type of project.

The SVL program receives co-financing from the EC in the amount of

25 percent of the payments made by the Dutch government. For example,

although the EC regulation allows funding levels up to 35 percent for

real estate related investments, the Dutch regulation (SVL) allows only

7.5 percent funding. Of the 7.5 percent that is paid by the Dutch

government, the EC reimburses 25 percent of the payment.

The Complementary Scheme for Investment in Agricultural Holdings

(CRL) was implemented in 1989 by EC Regulation 2328/91. Under this

scheme, the MAF provides assistance to farmers which do not meet the

farm income requirement for SVL grants.

As with the SVL scheme, the CRL arrangement aims to promote a more

rapid adjustment of businesses to environmental and animal welfare

through the provision of grants for farm improvement projects. Grants

are given for specified investments which must benefit certain

environmental and animal welfare policy objectives. These projects,

too, must generate some return but must not lead to an expansion of

production capacity. The main eligibility requirement for assistance

under the CRL is that the agricultural holding must have a production

capacity of a one man-work unit. In addition, the investment cannot

have been initiated prior to applying for CRL

[[Page 20409]]

funds. All sectors of agriculture are eligible to apply for assistance

under the CRL scheme.

The CRL provides funds for projects in three areas of investments:

environmental protection and improvement, quality improvement, and

improvement of working conditions. According to a 1992 MAF Annual

Report, 74 percent of the approved investments under this program

during that year were in the area of environmental protection and

improvement. The GON typically provides funds for 15 to 25 percent of

the approved projects. The application process for CRL grants is the

same as for assistance in the SVL.

During verification, the Department confirmed that grants under the

SVL and CRL schemes were provided to the entire agricultural community

and that the evaluation criteria for approval were not product-based.

We found that, in 1992, horticulture accounted for 11 percent of total

applications for SVL assistance and 3.2 percent of total investments

under the SVL.

In the investigation, the Department reviewed a similar program

which provided funding of interest on loans for the modernization of

agricultural ventures under the Decree for Structural Improvement of

Agricultural Enterprises. That program was found not countervailable,

since there was no indication that the program was targeted toward

flower growers, or was otherwise limited to a specific enterprise or

industry. (See Netherland Flowers.)

Because all agricultural products are eligible for and used SVL and

CRL grants, and because no disproportionate of benefits were provided

under the SVL and CRL program, we preliminarily determine this program

is not limited to a specific enterprise or industry or group thereof.

3. Natural Gas Provided at Preferential Rates

Natural gas in the Netherlands is sold directly to major customers

by the N.V. Nederlandse Gasunie (Gasunie), the utility company. The

Agricultural Industrial Board, or ``Landbouwschap,'' a quasi-

governmental body created under the Industrial Organizations Act,

negotiates with Gasunie prices and general terms of gas delivery for

Dutch greenhouse growers. The Landbouwschap is the central consultative

and cooperative organization for agriculture in the Netherlands. Its

purpose is to represent the economic and political interests of the

agricultural sector. All agriculturists are required to be members of

the organization and pay dues. Gasunie is 40 percent owned by DSM

Aardgas (a company wholly-owned by the GON), 10 percent by the GON, 25

percent by Shell Nederland, and 25 percent by Esso Nederland N.V. While

the GON does not own a controlling interest in Gasunie, it plays a

significant role in setting the price of natural gas. The Minister of

Economic Affairs reserves the right to approve selling prices and terms

of delivery for supplies to public distributors in the Netherlands,

large export contracts, and contracts between Gasunie and the

Landbouwschap.

Natural gas prices are based on levels of consumption, which are

broken down into four categories or ``zones'', zones a through d. Zone

a consumers use between 0 and 170,000 cubic meters (m3) of gas per

year; zone d consumers use between 10 million to 50 million m3 of

gas per year. Zone a users pay the highest price per m3; zone d

the lowest.

In the October 1984 contract negotiated with Gasunie by the

Landbouwschap on behalf of greenhouse growers, a maximum ceiling price

was established. In Netherlands Flowers, we determined that this

contract with the price ceiling provision was countervailable.

Accordingly, in Netherlands Flowers, we determined that the benefit to

greenhouse growers was the difference between the price of gas actually

paid by greenhouse growers in the period of the investigation and the

zone d price they would have had to pay under the contract absent the

price ceiling provision.

In the 1987 administrative review (54 FR 43977,43978; October 30,

1989), a renegotiated contract was in effect. Because the new contract

did not contain a provision for a ceiling price, we determined

greenhouse growers did not receive natural gas at preferential rates

and, therefore, the program did not confer a countervailable benefit.

This contract expired on October 1, 1989.

In the last administrative review, we found that greenhouse

growers, through the Landbouwschap, had negotiated a new contract with

Gasunie for the period October 1, 1989 through October 1, 1994. The

terms of the new contract were basically the same as the 1987 contract.

Therefore, we determined that such a contract did not confer a

countervailable benefit. (See 1990 Preliminary and Final Results).

With respect to the pricing arrangement under this program, we

confirmed during the verification of the 1992 administrative review

that the terms of the contract in effect during this review period,

which were still in effect during the subsequent 1993 review period,

had not changed from the previous contract found not countervailable in

the 1990 administrative review. Therefore, we continue to determine

that the contract rate for greenhouse growers does not provide a

countervailable benefit to producers and exporters of the subject

merchandise.

However, in the 1992 administrative review, petitioners alleged

that an additional aspect of the contract may confer a countervailable

benefit upon the production of the subject merchandise. Petitioner

alleged that the contract in effect during the 1992 review period

contained a new compensation arrangement for ``small'' consumption

users of natural gas. During verification of the 1992 administrative

review, we found that this compensation arrangement was part of the

contract in effect during October 1989 through October 1994 (the 1989-

1994 contract).

Negotiated by the Landbouwschap, that contract was made on behalf

of the horticulture sector. Gas prices in the 1989-1994 contract were

based on two annual gas consumption levels: Level 1, 0-30,000 cubic

meters (m3); and Level 2, 30,000 m3 and over. Since gas prices

were lower for Level 2 consumption, there were concerns that users

consuming less than 30,000 m3 of gas might waste gas in order to

qualify for the lower rate. Therefore, Landbouwschap and Gasunie

established a compensation arrangement which provided rebates to small

gas users to offset the difference in the consumption prices. The

purpose of this compensation arrangement was twofold: to ensure energy

conservation as well as to protect the environment.

According to the provisions of the contract, the arrangement was

funded through monies paid by those Landbouwschap members which were

large gas users. The fund, administered by Landbouwschap, was derived

from a surcharge built into the price of gas paid by the large gas

users under the 1989-1994 contract. The criteria for eligibility, as

outlined in the contract, were that the recipient had to be a

registered agriculturist or horticulturist and that the gas had to be

used for the growing process of horticulture. We noted at verification

that virtually all horticulturists (95-98 percent) fell under Level 2

with an average consumption of 450,000 m3 a year; these users were

covered by the 1989-1994 contract between the Landbouwschap and

Gasunie. The remaining horticulturists were the small gas users who

could be eligible for a rebate.

With respect to the separate rebate program for small growers, we

determine that the program does not provide a countervailable benefit.

This

[[Page 20410]]

rebate program was established under the contract between Landbouwschap

and Gasunie, and the funds used to provide the rebates are collected

from the large growers and then are distributed to the small growers of

the cooperative. The utility company received the full rates due it

under the contract from both the large and small grower-members of the

Landbouwschap. Under this arrangement, the role of Gasunie is to

collect the surcharge from the larger members of the Landbouwschap.

These funds are then returned to the Landbouwschap, which administers

the program and provides the rebates to the small growers. In addition,

there is no evidence to indicate that the Landbouwschap was required by

Government of the Netherlands to enter into this specific contract

arrangement with Gasunie. As such, this rebate program is not

countervailable.

4. Income Tax Deduction

The Income Tax Deduction was established in January 1990 under

Article 11 of The Netherlands Tax Code and was geared towards small

businesses. The program provides for a tax allowance on investments in

tangible assets. Any entrepreneur is eligible for this deduction as

long as the business reports the investments on the income tax form,

the investment amount does not exceed 471,000 guilders, and the

investment is substantiated by attaching the capital improvement

invoices to the tax form. The allowance ranges from 2 percent to 18

percent, depending on the amount of the investment, and is deducted

from the profits made during the year in which the investment is made.

The legislation provides that all industries are eligible to claim the

income tax deduction if the aggregate annual investments are at least

3,100 guilders, but not more than 471,000 guilders. As the investment

amount increases, the investment deduction decreases. For example: for

an investment in the 3,100-53,000 guilder range, the allowable

deduction is 18 percent of the investment; for investments in the

419,000-471,000 guilder range, it is 2 percent. Companies exceeding the

investment cap are not eligible for a deduction under this program.

At verification, we found that as long as any entrepreneur meets

the investment criteria the receipt of the deduction is automatic and

that there is no formal application process to apply for the deduction.

We also found that no specific government approval is required prior to

a company filling its tax form. Therefore, because any business in the

Netherlands who makes an investment no greater than 471,000 guilders

automatically receives the income tax deduction under this program by

merely claiming it in its tax return, we preliminarily determine this

program to be not countervailable because it is not limited to a

specific enterprise or industry, or group thereof.

5. Value Added Tax (VAT) Reduction of 6 Percent for Natural Gas Users

and Partial Restitution of VAT for Mineral Oils, Fuels, Bulk or Bottled

Gas

Petitioner alleged that the horticultural industry benefits from a

reduced VAT on natural gas and a partial restitution of the VAT on

purchases of mineral oils, fuel and bulk or bottled gas used for

heating greenhouses. The VAT system was first introduced in 1960 by the

EC. The VAT is a country-wide internal consumption tax paid by

consumers. As a commodity goes through various processing or production

stages, each downstream consumer pays a tax on the value added portion

of the product. The seller subtracts the tax already paid and forwards

the VAT owed on the ``enhanced or improved portion'' of the commodity

to the Dutch Internal Revenue Service. The general VAT rate for the

Netherlands was 17.5 percent during the review period.

When the EC first introduced the VAT, it decided that the

agricultural sector could be exempted from the normal VAT system

because the required record keeping was too burdensome. Under Article

25 of the EC Sixth Council Directive of May 17, 1977 (the 1977

Directive), member countries could exclude all or partial sectors of

agriculture and establish different rates for this sector.

Agricultural producers in the Netherlands fall under a flat-rate

scheme established to offset the VAT ``expense'' included in the price

of the goods and services they provide. Under this scheme, farmers are

not entitled to deduct the VAT they have already paid when purchasing

their own goods and services, but instead pass it along in their

selling price(s). Commodities sold by farmers to individual consumers

incorporate the prior stage VAT, resulting in a higher price to the

consumer.

The 1977 Directive and the Dutch National Tax Law also stipulate a

reduced VAT rate of 6 percent for virtually all goods and services

purchased or used by flat-rate farmers. Therefore, during this review,

farmers (which also includes all greenhouse growers and

horticulturists) paid only a 6 percent VAT rate on natural gas

purchased for heating their greenhouses.

In addition to the flat-rate scheme outlined above, farmers are

eligible for a reduced VAT rate of 6 percent, as per Article 34b of the

Dutch National Tax Law, on the purchase of fuels, mineral oils, and

bulk or bottled gas used for heating their greenhouses. In purchasing

these products, farmers paid the standard 17.5 percent VAT rate and

then applied for a VAT rebate with the MAF. The rebate is 11.5 percent

of the value of the gas or oil (not including the VAT). The rebate

represents the difference between the 17.5 percent VAT already paid and

the 6 percent VAT the farmers are entitled to pay under the Dutch

National Tax Law.

We verified that under Article 17 of the Dutch National Tax Law the

VAT rate established for farmers was 6 percent. We also found that the

Dutch Value Added Tax Act of 1968 provides a 6 percent reduced tax rate

for a variety of goods and services used in agriculture; such as,

foodstuffs, cereals, seeds, cattle, sheep, goats, pigs, horses,

breeding eggs, veterinary medicines, water, gas and mineral oil,

beetroot, agricultural seeds, fertilizer, feed, round wood, flax, wool,

agricultural tools, bulbs, plants, and services to agriculture, such

as, contracting, repairs, breeding, inspections, accounting, drying,

cooling, cleaning and packaging of agricultural products.

To receive a refund of the VAT, any taxpayer entitled to the

reduced tax rate was required only to present proof of the amount of

VAT tax already paid when purchasing the goods and services. No other

approval process was necessary. With respect to the farmer, we found

that to obtain a VAT refund, he merely provided proof that his

purchases of natural gas, mineral oils, and bulk and bottled gas were

used for heating his greenhouse and then received the reduced rate

automatically. Therefore, because the 6 percent VAT rate charged to

farmers is the same as the 6 percent VAT rate paid by all farmers on

virtually all their purchases of goods and services under the Dutch Tax

Law, and because no disproportionate benefits were provided under this

program, we preliminarily find that this program is not limited to a

specific enterprise or industry or group thereof.

6. Guarantee Fund for Agriculture

The Stichting Borgstellingsfonds voor de Landbouw (Foundation

Security Fund for Agriculture, or ``Fund'') is used to guarantee the

servicing and repayment of loans made by banks to farmers. The Fund

acts as an

[[Page 20411]]

institutional guarantor, not as a lender itself, providing guarantees

only when the security offered by the farmer is inadequate for the

total loan amount. A loan application may be made to the Fund only

after all of the farmer's own securities or collateral have been

provided for the loan. If an application is approved under the Fund,

the guarantee applies only to the portion of the loan not originally

approved by the bank. This program was originally found countervailable

in the Netherlands Flowers.

In the 1990 administrative review, we found that the average long-

term annual interest rates charged on loans under this Fund were

consistent with the average interest rates charged on long-term bank

loans, as reported by De Nederlandsche Bank. (See 1990 Preliminary and

Final Results).

Based on verification of the 1992 review and on our analysis of

information provided in the 1993 review, we again determine that the

average long-term annual interest rates charged on loans under this

Fund were consistent with the average interest rates charged on long-

term bank loans. On this basis, we determine that this program does not

provide a countervailable benefit. Because this program has not been

terminated, we will continue to review it in subsequent administrative

reviews.

III. Programs Preliminarily Found Not to be Used

We determine that the producers or exporters of the subject

merchandise did not apply for or receive countervailable benefits under

these programs during these review periods:

A. Investment Incentive (WIR)--Regional Program.

B. Loans at preferential interest rates.

Preliminary Results of Reviews

For the period January 1, 1992, through December 31, 1992, we

preliminarily determine the total net subsidy to be 0.43 percent ad

valorem. For the period January 1, 1993 through December 31, 1993, we

preliminarily determine the net subsidy to be 0.80 percent ad valorem.

If the final results of these reviews remain the same as these

preliminary results, the Department intends to instruct the Customs

Service to assess countervailing duties of 0.43 percent of the f.o.b.

invoice price on shipments of the subject merchandise exported on or

after January 1, 1992, and on or before December 31, 1992, and 0.80 for

all shipments of the subject merchandise exported on or after January

1, 1993, and on or before December 31, 1993.

The Department also intends to instruct Customs to collect cash

deposits of estimated countervailing duties, as provided for by section

751(a)(1) of the Act, of 0.80 percent of the f.o.b. invoice price on

all shipments of the subject merchandise from the Netherlands entered,

or withdrawn from warehouse, for consumption on or after the date of

publication of the final results of these administrative reviews.

Parties to the proceeding may request disclosure of the calculation

methodology and interested parties may request a hearing not later than

10 days after the date of publication of this notice. Interested

parties may submit written arguments in case briefs on these

preliminary results within 30 days of the date of publication. Rebuttal

briefs, limited to arguments raised in case briefs, may be submitted 7

days after the time limit for filing the case brief. Parties who submit

written arguments in these proceedings are requested to submit with the

argument (1) a statement of the issue and (2) a brief summary of the

argument. Written arguments that are intended to comment on the

preliminary results for both the 1992 and 1993 reviews must be

submitted to the file for each proceeding. Any hearing, if requested,

will be held 7 days after the scheduled date for submission of rebuttal

briefs. Copies of case briefs and rebuttal briefs must be served on

interested parties in accordance with 19 CFR 355.38(e).

Representatives of parties to the proceeding may request disclosure

of proprietary information under administrative protective order no

later than 10 days after the representative's client or employer

becomes a party to the proceeding, but in no event later than the date

the case briefs, under 19 CFR 355.38(c), are due. The Department will

publish the final results of these administrative reviews including the

results of its analysis of issues raised in any case or rebuttal brief

or at a hearing.

These administrative reviews 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: April 29, 1996.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 96-11242 Filed 5-3-96; 8:45 am]

BILLING CODE 3510-DS-P