Industrial Phosphoric Acid from Israel; Final Results of Countervailing Duty Administrative Reviews

DEPARTMENT OF COMMERCE

[C-508-605]

Industrial Phosphoric Acid from Israel; Final Results of

Countervailing Duty Administrative Reviews

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Final Results of Countervailing Duty Administrative

Reviews.

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[[Page 28842]]

SUMMARY: On March 4, 1996, the Department of Commerce (the Department)

published in the Federal Register its preliminary results of two

administrative reviews of the countervailing duty order on industrial

phosphoric acid from Israel. The reviews cover the periods January 1,

1992 through December 31, 1992 and January 1, 1993 through December 31,

1993. We have completed these reviews and determine the net subsidy to

be 3.84 ad valorem for all companies for the period January 1, 1992

through December 31, 1992, and 5.49 percent ad valorem for all

companies for the period January 1, 1993 through December 31, 1993. We

will instruct the U.S. Customs Service to assess countervailing duties

as indicated above.

EFFECTIVE DATE: June 6, 1996.

FOR FURTHER INFORMATION CONTACT: Brian Albright or Cameron Cardozo,

Office of Countervailing Compliance, Import Administration,

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

Street and Constitution Avenue, NW., Washington, DC 20230; telephone:

(202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

On March 4, 1996, the Department published in the Federal Register

(61 FR 8255) the preliminary results of two administrative reviews of

the countervailing duty order on industrial phosphoric acid from

Israel. The Department has now completed these administrative reviews

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

(the Act).

We invited interested parties to comment on the preliminary

results. On April 2, 1996, case briefs were submitted by the Government

of Israel (GOI) and Rotem Amfert Negev Ltd. (Rotem), a producer of the

subject merchandise that exported industrial phosphoric acid to the

United States during the 1992 and 1993 review periods (respondents),

and FMC Corporation and Monsanto Company (petitioners). On April 9,

1996, rebuttal briefs were submitted by the respondents and

petitioners.

The reviews cover the periods January 1, 1992 through December 31,

1992 and January 1, 1993 through December 31, 1993. Each review covers

one manufacturer/exporter of the subject merchandise, Rotem, which

accounts for all of the exports of subject merchandise from Israel to

the United States during the review periods, and ten programs.

Applicable Statute and Regulations

The Department is conducting these administrative reviews in

accordance with section 751(a) 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) (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

1989 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

Advance Notice of Proposed Rulemaking and Request for Public Comments,

60 FR 80 (January 3, 1995); Antidumping Duties, Countervailing Duties:

Notice of Proposed Rulemaking and Request for Public Comments, 61 FR

7308 (February 27, 1996).

Scope of Review

Imports covered by these reviews are shipments of industrial

phosphoric acid (IPA) from Israel. Such merchandise is classifiable

under item number 2809.20.00 of the Harmonized Tariff Schedule (HTS).

The HTS item number is provided for convenience and Customs purposes.

The written description remains dispositive.

Calculation Methodology for Assessment and Cash Deposit Purposes

Because Rotem is the only manufacturer/exporter of the subject

merchandise to the United States, Rotem's net subsidy rate is also the

country-wide rate.

Privatization

Previously, we have found that a private party purchasing all or

part of a government-owned company can repay prior non-recurring

subsidies on behalf of the company as part or all of the sales price.

Accordingly, in the preliminary results, we calculated a ratio

representing the amount of subsidies remaining with Rotem after each

partial privatization in 1992 and 1993. To calculate the benefit

provided to Rotem in 1992 and 1993, we multiplied the benefit

calculated for Encouragement of Capital Investment Law grants (the only

non-recurring allocable subsidies) for each period by the ratio

representing the amount of subsidies remaining with Rotem after the

partial privatization. Our analysis of the comments submitted by the

interested parties, summarized below, has not led us to reconsider our

methodology from the preliminary results.

Analysis of Programs

Based upon our analysis of the questionnaire response,

verification, and written comments from the interested parties we

determine the following:

I. Programs Conferring Subsidies

A. Encouragement of Capital Investments Law (ECIL) Grants

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. Our analysis of

the comments submitted by the interested parties, summarized below, has

not led us to reconsider our findings in the preliminary results. On

this basis, the net subsidy for this program is 3.82 percent ad valorem

for 1992 and 5.47 percent ad valorem for 1993.

B. Long-term Industrial Development Loans

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. We received no

comments on our preliminary results and our findings remain unchanged

in these final results. On this basis, the net subsidy for this program

is 0.01 percent ad valorem for 1992 and less than 0.005 percent ad

valorem for 1993.

C. Exchange Rate Risk Insurance Scheme

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise. Our analysis of

the comments submitted by the interested parties, summarized below, has

not led us to reconsider our findings in the preliminary results. On

this basis, the net subsidy for this program is zero for 1992 and 0.02

percent ad valorem for 1993.

D. Encouragement of Industrial Research and Development Grants (EIRD)

In the preliminary results, we found that this program conferred

countervailable benefits on the subject merchandise for the 1992 review

period. We received no comments on our preliminary results and our

findings remain unchanged in these final results.

[[Page 28843]]

On this basis, the net subsidy for this program is less than 0.005

percent ad valorem for 1992.

II. Program Not Conferring Subsidies

Law for the Encouragement of the Business Sector (Absorption of

Workers)

In the preliminary results, we found that this program did not

confer countervailable benefits on the subject merchandise. Since we

received no comments on our preliminary results, our findings remain

unchanged in these final results.

III. Programs Found Not To Be Used

We determine that Rotem did not apply for or receive benefits under

the following programs during the 1992 and 1993 review periods:

A. Reduced Tax Rates under ECIL;

B. ECIL Section 24 Loans:

C. Preferential Accelerated Depreciation under ECIL;

D. Labor Training Grants; and

E. Dividends and Interest Tax Benefits under Section 46 of the

ECIL.

Analysis of Comments

Comment 1: Petitioners argue that the Department was incorrect in

treating a portion of the price paid by the public for shares in Israel

Chemicals Ltd. (ICL), the parent company of Rotem Fertilizers, Ltd., as

partial repayment of prior non-recurring subsidies. According to the

petitioners, Rotem clearly received subsidies that are actionable under

U.S. countervailing duty law, and nothing happened in the partial

privatizations that in any way reduced or diminished those subsidies.

Rotem was the same company after the partial privatization of ICL; the

only change that occurred as a result of privatization was in the

makeup of the shareholders of ICL.

To support their argument, petitioners point out that the Court of

International Trade (CIT) recently ruled on privatization accomplished

through the sale of stock. In British Steel PLC v. United States, 879

F.Supp. 1254, 1277 (1995) (British Steel), the CIT stated that ``* * *

when a bona fide purchaser in an arm's length transaction buys all or

some of the stock of a government-owned corporation, none of the

subsidy is repaid by that purchase.'' Under the CIT's analysis in

British Steel, state petitioners, there clearly should be no reduction

in prior subsidies paid to Rotem as a result of the so-called partial

privatization.

Petitioners continue that the Department's justification for

treating a part of the price paid for government shares in a

privatization as a repayment of prior subsidies is based in large part

on the ``theory,'' elaborated upon in the Final Countervailing Duty

Determination; Certain Steel Products from Austria, 58 FR 37262 (July

9, 1993) (General Issues Appendix), that the new private shareholders

will operate the newly privatized company differently from the way in

which the government operated the old ``subsidized'' company. Much of

this rationale is, in petitioners' view, highly speculative. Whatever

factors motivated private parties to invest in ICL, those parties have

no ability to change or affect the management or business operations of

ICL, since the GOI still owns 75 percent of the outstanding shares and

maintains absolute authority over fundamental corporate decisions. In

conclusion, the Department should make no adjustment for any so-called

subsidy ``repayments.''

In rebuttal, the respondents state that the Department's repayment

methodology was upheld in a recent decision by the Court of Appeals for

the Federal Circuit (CAFC) in Saarstahl v. United States, Slip Op. 94-

1457, -1475 (Fed. Cir., March 12, 1996). The CAFC observed that, ``in

the absence of explicit mandates [from Congress], Commerce's approach

must be accorded deference.'' Also, according to respondents, the

petitioners'' reliance on British Steel to support their position is

misplaced. To the extent that one judge on the CIT may disagree with

the Department's repayment methodology, that disagreement is overridden

by the CAFC's ruling in Saarstahl, which affirmed the Department's

repayment methodology. As a result, according to respondents, the

petitioners' arguments should be disregarded.

Department's Position: We disagree with petitioners. The

Department's position on privatization was recently upheld by the CAFC

in its Saarstahl decision, where the court affirmed the Department's

position that privatization does not as a matter of law extinguish

prior subsidies. We are also not deferring to the CIT's decision in

British Steel because it does not represent a final and conclusive

court decision and may yet be appealed. Moreover, neither the CAFC nor

the CIT specifically addressed the issue of the Department's repayment

methodology. Accordingly, we are following our privatization and

repayment methodology outlined in the General Issues Appendix.

Comment 2: The respondents state that the Department calculated

separate ``shares of subsidies remaining after privatization'' for 1992

and 1993 and then applied those separate calculations to each year's

subsidies. Thus, for 1992, the Department multiplied the ECIL grants by

94.55 percent and for 1993, by 98.80 percent. Respondents believe that

this method overstates the share of subsidies remaining after

privatization for 1993. The percentages should be applied cumulatively,

not separately. Accordingly, state respondents, the effect of

privatization is cumulative. For 1993, therefore, the share of

subsidies remaining should be 98.90 x 94.55, or 92.73 percent. Thus,

the Department should use 92.73 percent to calculate the share of

subsidies remaining.

Department's Position: In our calculations of the subsidies

remaining after the 1993 privatization, we have taken into account the

reduction of subsidies which occurred as the result of the 1992

privatization. We first multiplied each allocated non-recurring subsidy

amount by 94.55 percent, the percentage of subsidies remaining after

the 1992 privatization. These adjusted grant amounts were summed for

the 1993 period, and multiplied by 98.80 percent, which is the share of

subsidies remaining after the 1993 privatization. As a result, the

Department properly accounted for both the 1992 and 1993 repayment of

subsidies as a result of privatization.

Comment 3: The respondents state that the Department did not take

into account the depreciation of the shekel in its calculation of the

benefit from the ECIL grants. Since Rotem keeps its records in dollar

terms (the grants are issued in shekels), the respondents argue that

the calculation should take the erosion of the shekel into account.

According to the respondents, the calculation should include the

portion of principal allocated to a particular year plus dollar-linkage

differences on that principal from the date the grant was received.

Otherwise, the respondents conclude that the Department's methodology

overstates the benefits from the grants. Finally, to avoid double-

counting the portion of benefit derived from the dollar-linkage, which

has already been accounted for according to the present formula, this

methodology should apply only to grants from 1993 forward.

The petitioners contend that the respondents' argument ignores the

Department's long-standing practice of not reevaluating its allocation

of non-recurring subsidies over time based upon subsequent events.

Depreciation (or, for that matter, appreciation) of the Israeli shekel

is clearly one of the kinds of ``subsequent events in the marketplace''

that should not be taken into account in determining and allocating the

net subsidy received by Rotem from non-recurring grants. Accordingly,

petitioners state that

[[Page 28844]]

Rotem's so-called ``linkage'' argument must be rejected.

Department's Position: We disagree with respondents. Rotem received

the ECIL grants in shekels and the Department appropriately allocated

the grant amounts to the review periods according to our variable rate

grant methodology, which accounted for the hyperinflation rates that

existed in Israel when some of the grants were provided. See Final

Affirmative Countervailing Duty Determination: Certain Carbon Steel

Butt-Weld Pipe Fittings from Israel, 60 FR 10569 (February 27, 1995).

The fact that Rotem records the grant values in their books in dollars

is irrelevant. As we explained in the General Issues Appendix at

37,263, ``the countervailable subsidy (and the amount of the subsidy to

be allocated over time) is fixed at the time the government provides

the subsidy.'' We continued that ``the statute does not permit the

amount of the subsidy, including the allocated subsidy stream, to be

reevaluated based upon subsequent events in the marketplace.'' Id. As a

result, we cannot alter our grant allocations based on the fluctuations

in the value of the shekel against the U.S. dollar.

Comment 4: Respondents argue that the Department's calculation

methodology ignores the fact that Rotem's fixed assets are reduced for

tax purposes by the value of the grants. Thus, respondents argue,

because the true value of the grants is eroded by a concomitant tax

increase, the grant benefit should be reduced by 36 percent, the

current tax rate.

Petitioners argue that the tax impact of the subsidy received by

Rotem is irrelevant and that Rotem's argument to have the tax impact

considered is flawed because it seeks to have the Department consider

subsequent economic events. Petitioners state that the critical factor

in countervailing duty law is not subsequent economic impact or

continuing competitive benefit, but rather the receipt of a subsidy.

Therefore, petitioners argue, the tax effect should not be considered.

Department's Position: We disagree with respondents. In calculating

the amount of a countervailable benefit, the Department's long-standing

practice is to ignore the secondary tax consequences of the benefit.

See Sec. 355.46(b) of the 1989 Proposed Regulations. See also, e.g.,

Final Affirmative Countervailing Duty Determinations: Certain Steel

Products from Belgium, 58 FR 37273 (July 9, 1993), and, Final

Affirmative Countervailing Duty Determination; Fresh and Chilled

Atlantic Salmon from Norway, 56 FR 7678 (February 25, 1991). Thus, the

tax effect of the grants received by Rotem is not pertinent to the

Department's calculation of the benefit.

Comment 5: Respondents argue that the Department's rounding of the

countervailing duty rates in the 1992 and 1993 reviews is either

inconsistent or incorrect. Rotem's rate for 1992, 3.84 percent, is

rounded to two decimal places. In contrast, Rotem's rate for 1993, 5.50

percent, is either rounded to only one decimal place, or incorrectly

rounded to two decimal places from 5.494 percent. Therefore,

respondents argue that the Department change either the 1992 rate to

3.8 percent, or the 1993 rate to 5.49 percent.

Department's Position: We agree with the respondents. We have now

accurately rounded the rate for the 1993 review to be 5.49 percent.

Comment 6: Respondents argue that the benefit rate from the

Exchange Rate Risk Insurance Scheme (EIS) should not be included in the

cash deposit rate because the program was terminated in 1993.

Respondents point to information submitted by the GOI in the

questionnaire response demonstrating that the EIS was terminated in

1993.

Petitioners rebut that Rotem's receipt of residual EIS benefits

will depend on such variables as the date of export shipment, the date

of delivery, the date of payment, and the length of time necessary for

EIS processing and payment. According to petitioners, in view of these

uncertainties, which preclude the determination of a fixed date for the

actual termination of EIS benefits to Rotem, the Department should

continue to include EIS benefits in the cash deposit rate.

Department's Position: The Department's practice, as outlined in

section 355.50(d)(1)(2) of the 1989 Proposed Regulations, is not to

adjust the cash deposit rate when it determines that residual benefits

may continue to be bestowed under a terminated program. The Department

noted in the 1991 review of IPA from Israel that the EIS was terminated

in 1993. See Industrial Phosphoric Acid from Israel; Final Results of

Countervailing Duty Administrative Review, 59 FR 5176 (February 3,

1994). In that review, we included the rate from the EIS in the cash

deposit rate because residual benefits continued to be available. The

Department has verified that the GOI will continue to honor outstanding

claims as long as they are made within three years of the date of

export. See, Final Affirmative Countervailing Duty Determination:

Certain Carbon Steel Butt-Weld Pipe Fittings from Israel, 60 FR 10573

(February 27, 1995). Therefore, because residual benefits continue to

be available under this program, we have not adjusted the cash deposit

rate.

Final Results of Review

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

determine the net subsidy to be 3.84 percent ad valorem for all firms.

For the period January 1, 1993 through December 31, 1993, we determine

the net subsidy to be 5.49 percent ad valorem for all firms.

The Department will instruct the U.S. Customs Service to assess the

following countervailing duties:

------------------------------------------------------------------------

Manufacturer/exporter Period Rate

------------------------------------------------------------------------

All companies........................ 1992................... 3.84

All companies........................ 1993................... 5.49

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The Department will also instruct the U.S. Customs Service to

collect a cash deposit of estimated countervailing duties, as provided

by section 751(a)(1) of the Act, of 5.49 percent of the f.o.b. invoice

price on all shipments of the subject merchandise from Israel entered,

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

publication of the final results of this review.

This notice serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 355.34(d). Timely written notification of

return/destruction of APO materials or conversion to judicial

protective order is hereby requested. Failure to comply with the

regulations and the terms of an APO is a sanctionable violation.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.

Dated: May 23, 1996.

Paul L. Joffe,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-14155 Filed 6-5-96; 8:45 am]

BILLING CODE 3510-DS-P