Industrial Phosphoric Acid From Israel; Preliminary Results of Countervailing Duty Administrative Review

[[Page 28845]]

DEPARTMENT OF COMMERCE

[C-508-605]

Industrial Phosphoric Acid From Israel; Preliminary Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of preliminary results of countervailing duty

administrative review.

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

administrative review of the countervailing duty order on industrial

phosphoric acid from Israel. For information on the net subsidy for the

reviewed company, as well for all non-reviewed companies, please see

the Preliminary Results of Review section of this notice. If the final

results remain the same as these preliminary results of administrative

review, we will instruct the U.S. Customs Service to assess

countervailing duties as detailed in the Preliminary Results of Review

section of this notice. Interested parties are invited to comment on

these preliminary results.

EFFECTIVE DATE: June 6, 1996.

FOR FURTHER INFORMATION CONTACT: Norma Curtis 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 August 19, 1987, the Department published in the Federal

Register (52 FR 31057) the countervailing duty order on industrial

phosphoric acid from Israel. On August 1, 1995, the Department

published a notice of ``Opportunity to Request an Administrative

Review'' (60 FR 39150) of this countervailing duty order. We received

timely requests for review, and we initiated the review, covering the

period January 1, 1994 through December 31, 1994, on September 15, 1995

(60 FR 47930).

In accordance with Sec. 355.22(a) of the Department's Interim

Regulations, this review covers only the producer and/or exporter of

the subject merchandise for which a review was specifically requested

(see Antidumping and Countervailing Duties: Interim Regulations;

Request for Comments, 60 FR 25130 (May 11, 1995) (Interim

Regulations)). Accordingly, this review covers Rotem Amfert Negev Ltd.

(Rotem). This review also covers nine programs.

As explained in the November 22, 1995 and January 11, 1996,

Memoranda from the Assistant Secretary for Import Administration for

the Record Re: Deadlines Affected by the November/December-January

Closure of the Import Administration, which are on file in the public

file of the Central Records Unit, Room B-099 of the Department of

Commerce, all deadlines were extended to take into account the partial

shutdowns of the Federal Government from November 15 through November

21, 1995, and December 15, 1995, through January 6, 1996. Therefore,

the deadline for these preliminary results is no later than May 30,

1996, and the deadline for the final results of this review is no later

than 120 days from the date on which these preliminary results are

published in the Federal Register.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the

Act). The Department is conducting this administrative review in

accordance with section 751(a) of the Act. References to the

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 URAA. 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 the Review

Imports covered by this review 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.

Privatization

Israeli Chemicals Ltd. (ICL), the parent company which holds one

hundred percent of Rotem's shares, was partially privatized in 1992 and

1993. The percentages of ICL's shares privatized were twenty percent

and five percent respectively. In the questionnaire responses, the

Government of Israel and Rotem reported that ICL was also partially

privatized in 1994. We have determined that the partial privatization

of ICL represents a partial privatization of each of the companies in

which ICL holds an ownership interest. See Final Results of

Countervailing Duty Administrative Reviews; Industrial Phosphoric Acid

from Israel published concurrently with this notice (Final Results).

In this review and prior reviews of the subject merchandise, the

Department has found that Rotem and/or its predecessor, Negev

Phosphates Ltd., received non-recurring countervailable subsidies prior

to these partial privatizations. Further, the Department has 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 (see the General Issues Appendix

appended to the Final Countervailing Duty Determination; Certain Steel

Products from Austria, 58 FR 37262 (July 9, 1993) (General Issues

Appendix)). Therefore, to the extent that a portion of the sales price

paid for a privatized company can be reasonably attributed to prior

subsidies, that portion of those subsidies are repaid. This methodology

was applied in the 1992 and 1993 reviews. In the questionnaire response

for 1994, respondents reported that the Government of Israel sold less

than 0.5 percent of its shares in ICL. Because this percentage of

shares privatized is so small, the percentage of subsidies potentially

repaid through this privatization could have no measurable impact on

Rotem's overall net subsidy rate. Therefore, we have not applied our

repayment methodology which is described in the General Issues

Appendix. (See May 23, 1996 memorandum to Paul L. Joffe regarding

applicability of the Department's privatization methodology in the

instant review, which is on file in the public file of the Central

Records Unit, Room B-099 of the Department of Commerce.)

[[Page 28846]]

Analysis of Programs

I. Programs Previously Determined to Confer Subsidies

(A) Encouragement of Capital Investments Law (ECIL) Grants

The ECIL grants program was established to attract capital to

Israel. In order to be eligible to receive various benefits under the

ECIL, including investment grants, capital grants, accelerated

depreciation, reduced tax rates, and certain loans, the applicant must

obtain approved enterprise status. Approved enterprise status is

granted by the Investment Center of the Israeli Ministry of Industry

and Trade. Investment grants are given for the amount representing a

percentage of the cost of the approved investment. The amount of the

grant benefits received by approved enterprises depends on the

geographic location of the eligible enterprise. For purposes of the

ECIL program, Israel is divided into three zones--Development Zone A,

Development Zone B, and the Central Zone--each with a different funding

level.

Since 1978, only investment projects outside the Central Zone have

been eligible to receive grants. The Central Zone comprises the

geographic center of Israel, including its largest and most developed

population centers. In Final Affirmative Countervailing Duty

Determination: Industrial Phosphoric Acid from Israel, 52 FR 25447

(July 7, 1987) (IPA Investigation), the Department found the ECIL

grants program to be de jure specific and thus countervailable because

the grants are limited to enterprises located in specific regions. In

this review, no new information or evidence of changed circumstances

has been submitted to warrant reconsideration of this determination.

Rotem is located in Development Zone A, and received ECIL

investment, drawback, and capital grants in disbursements over a period

of years for several projects. In this review we have followed the

methodology developed in IPA Investigation to determine the benefits

from the ECIL grants. However, consistent with the Final Results, we

are utilizing a calculation methodology that conforms with the use of

variable rather than fixed interest rates in the years these grants

were disbursed. This methodology reflects the actual long-term options

open to Israeli firms, and also ensures that the net present value of

the amount countervailed in the year of receipt does not exceed the

face value of the grant. In accordance with General Issues Appendix, we

allocated these grants over ten years (the average useful life of

renewable physical assets in the chemical manufacturing industry, as

determined under the U.S. Internal Revenue Service Asset Depreciation

Range System).

Section 355.49(b)(2) of the Department's 1989 Proposed Regulations

requires the use of a discount rate based on the cost of fixed-rate

long-term debt for the firm under review or generally in the country

under review. However, Rotem had no fixed-rate long-term debt during

the years in which it received ECIL grants. Moreover, in Final Results,

the Department determined that no long-term loans with fixed interest

rates (or other long-term debt) were available in Israel during that

period; the only long-term loans (or other long-term debt) available to

companies in Israel were provided at variable interest rates.

Consistent with Final Results, as the discount rate we have used the

rate of return on CPI-indexed commercial bonds (as published in the

Bank of Israel Annual Reports, plus the CPI).

To calculate the benefit, we summed the benefits from these

projects for 1994. We then divided the results by Rotem's sales of IPA

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

net subsidy from this program to be 6.53 percent ad valorem for 1994.

(B) Long-term Industrial Development Loans

Prior to July 1985, approved enterprises were eligible to receive

long-term industrial development loans funded by the Government of

Israel (GOI). During the original investigation, we verified that these

loans were project-specific. They were disbursed through the Industrial

Development Bank of Israel (IDBI) and other industrial development

banks which no longer exist.

The long-term industrial development loans were provided to a

diverse number of industries, including agricultural, chemical, mining,

machine, and others. However, the interest rates on loans vary

depending on the Development Zone in which the borrower is located. The

interest rates on loans to borrowers in Development Zone A are lowest,

while those on loans to borrowers in the Central Zone are highest.

Therefore, loans to companies in Zone A are provided on preferential

terms relative to loans received by companies in the heavily populated

and developed Central Zone. In IPA Investigation, the Department found

long-term industrial development loans to be regional subsidies and

countervailable to the extent that they are provided at interest rates

which are lower than those applied on loans provided to companies

located in the Central Zone. In this review, no new information or

evidence of changed circumstances has been submitted to warrant

reconsideration of this determination. Rotem had loans outstanding

under this program during the review period. The loans carry the Zone A

interest rates because of Rotem's location. Therefore, we determine

that Rotem received countervailable benefits under this program because

the interest rates paid by Rotem are lower than those which would apply

in the Central Zone.

As was determined in the Final Affirmative Countervailing Duty

Determination: Certain Carbon Steel Butt-Weld Pipe Fittings from

Israel, 60 FR 10569 (February 27, 1995), under the terms of this

program, the interest rates on these loans have two components--a fixed

real interest rate and a variable interest rate, the latter of which is

based on either the CPI or the dollar/shekel exchange rate. All of

Rotem's loans were linked to the dollar/shekel exchange rate. Because

the dollar-shekel exchange rate varies from year-to-year, we were

unable to apply the Department's methodology described in the 1989

Proposed Regulations because we cannot calculate a priori the payments

due over the life of these loans, and hence cannot calculate the

``grant equivalent'' of the loans. Therefore, in accordance with

Sec. 355.49(d)(1) of the 1989 Proposed Regulations, we have compared

the interest that would have been paid by a company in the Central

Zone, as a benchmark, to the amount actually paid by Rotem during the

review period. We then calculated the interest savings during the

period of review. We summed the benefits and divided the total by

Rotem's sales of IPA during the review period. On this basis, we

preliminarily determine the net subsidy from this program to be 0.002

percent ad valorem for 1994.

(C) Encouragement of Industrial Research and Development Grants (EIRD)

Rotem received several grants under this program during the review

period. In IPA Investigation, we determined that these grants are

countervailable. In this review, no new information or evidence of

changed circumstances has been submitted to warrant reconsideration of

this determination. We followed the methodology developed in IPA

Investigation in determining the benefits from the EIRD funding.

[[Page 28847]]

During the 1994 review period, Rotem received three EIRD grants.

The EIRD grants issued to Rotem on February 1, 1994 and April 7, 1994

benefited a research project concerning green acid, which is used as an

input in the production of IPA as well as other products. The EIRD

grant issued to Rotem on August 1, 1994 benefited a research project

concerning phosphate, which can be used to produce IPA as well as other

products. We view these grants as ``non-recurring'' grants based on the

analysis set forth in the ``Allocation'' section of the General Issues

Appendix (58 FR 37226) because these benefits are exceptional, and

Rotem cannot expect to receive benefits on an ongoing basis from review

period to review period. Since the total value of the grants received

in 1994 was less than 0.50 percent of all Rotem's sales, we divided the

total amount of the 1994 grants by Rotem's total sales of all products.

On this basis, we preliminarily determine the benefit from this program

to be 0.06 percent ad valorem.

II. Programs Preliminarily Determined To Be Not Used

We examined the following programs and preliminarily determine that

the producer and/or exporter of the subject merchandise did not apply

for or receive benefits under these programs during the period of

review:

A. Exchange Rate Risk Insurance Scheme;

B. Reduced Tax Rates under ECIL;

C. ECIL Section 24 loans;

D. Labor Training Grants;

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

and

F. ECIL Preferential Accelerated Depreciation.

Preliminary Results of Review

In accordance with Sec. 355.22(c)(4)(ii) of the Department's

Interim Regulations, we have calculated an individual subsidy rate for

each producer/exporter subject to this administrative review. For the

period January 1, 1994 through December 31, 1994, we preliminarily

determine the net subsidy for Rotem to be 6.59 percent ad valorem.

If the final results of this review remain the same as these

preliminary results, the Department intends to instruct the U.S.

Customs Service to assess the following countervailing duties:

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

Net

Net Subsidies-- Producer/Exporter Subsidy

Rate %

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Rotem Amfert Negev Ltd........................................ 6.59

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

collect cash deposits of estimated countervailing duties, at the rate

indicated above, on the f.o.b. invoice price for all shipments of the

subject merchandise from the reviewed company, entered, or withdrawn

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

the final results of this review.

The URAA replaced the general rule in favor of a country-wide rate

with a general rule in favor of individual rates for investigated and

reviewed companies. The procedures for countervailing duty cases are

now essentially the same as those in antidumping cases, except as

provided for in section 777A(e)(2)(B) of the Act. Requests for

administrative reviews must now specify the companies to be reviewed.

See Sec. 355.22(a) of the Interim Regulations. The requested review

will normally cover only those companies specifically named. Pursuant

to 19 CFR 355.22(g), for all companies for which a review was not

requested, duties must be assessed at the cash deposit rate, and cash

deposits must continue to be collected at the rate previously ordered.

As such, the countervailing duty cash deposit rate applicable to a

company can no longer change, except pursuant to a request for a review

of that company. See Federal-Mogul Corporation and The Torrington

Company v. United States, 822 F.Supp. 782 (CIT 1993) and Floral Trade

Council v. United States, 822 F.Supp. 766 (CIT 1993) (interpreting 19

CFR 353.22(e), the antidumping regulation on automatic assessment,

which is identical to 19 CFR 355.22(g)). Therefore, the cash deposit

rates for all companies except those covered by this review will be

unchanged by the results of this review.

We will instruct Customs to continue to collect cash deposits for

non-reviewed companies at the most recent company-specific or country-

wide rate applicable to the company. Accordingly, the cash deposit

rates that will be applied to all non-reviewed companies covered by

this order are those established in the most recently completed

administrative proceeding. These rates shall apply to all non-reviewed

companies until a review of a company assigned these rates is

requested. In addition, for the period January 1, 1994 through December

31, 1994, the assessment rates applicable to all non-reviewed companies

covered by this order are the cash deposit rates in effect at the time

of entry.

Public Comment

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

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

submit argument in this proceeding are requested to submit with the

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

argument. Any hearing, if requested, will be held seven 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.

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, are due. The Department will

publish the final results of this administrative review including the

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

or at a hearing.

This administrative review and notice are in accordance with

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

Dated: May 29, 1996.

Paul L. Joffe,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-14156 Filed 6-5-96; 8:45 am]

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