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

DEPARTMENT OF COMMERCE

[C-508-605]

Industrial Phosphoric Acid From Israel; Final Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review.

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SUMMARY: On June 6, 1996, the Department of Commerce (``the

Department'') published in the Federal Register its preliminary results

of administrative review of the countervailing duty order on industrial

phosphoric acid (IPA) from Israel for the period January 1, 1994

through December 31, 1994 (61 FR 28845). The Department has now

completed this administrative review in accordance with section 751(a)

of the Tariff Act of 1930, as amended. For information on the net

subsidy for each reviewed company, and for all non-reviewed companies,

please see the Final Results of Review section of this notice. We will

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

detailed in the Final Results of Review section of this notice.

EFFECTIVE DATE: October 11, 1996.

[[Page 53352]]

FOR FURTHER INFORMATION CONTACT: Cameron Cardozo or Brian Albright,

Office of CVD/AD Enforcement VI, 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

Pursuant to section 355.22(a) of the Department's Interim

Regulations, this review covers only those producers or exporters of

the subject merchandise for which a review was specifically requested.

See Antidumping and Countervailing Duties: Interim regulations; request

for comments, 60 FR 25130, 25137 (May 11, 1995) (``Interim

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

(Rotem). This review also covers the period January 1, 1994 through

December 31, 1994, and nine programs.

We invited interested parties to comment on the preliminary

results. Since the publication of the preliminary results on June 6,

1996, the following events have occurred. On July 8, 1996, case briefs

were submitted by the Government of Israel (GOI) and Rotem, a producer

of the subject merchandise which exported industrial phosphoric acid to

the United States during the review period (respondents). On July 12,

1996, rebuttal briefs were submitted by FMC Corporation and Monsanto

Company (petitioners).

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''). References to the 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 URAA. See Advance Notice of

Proposed Rulemaking and Request for Public Comments, 60 FR 80 (January

3, 1995).

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

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 the POR (1994), we multiplied the benefit

calculated for Encouragement of Capital Investment Law grants (the only

non-recurring allocable subsidies) by the ratio representing the amount

of subsidies remaining with Rotem after the partial privatizations.

Analysis of Programs

Based upon our analysis of the questionnaire responses and written

comments from the interested parties, we determine the following:

I. Programs Conferring Subsidies

1. 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

led us to change our findings from the preliminary results. For ECIL

grants that were tied to IPA production, we have divided the benefit by

Rotem's sales of IPA during the POR. For ECIL grants that were not tied

specifically to IPA production but were tied to the production of

products that can be used as inputs in the production of IPA, we have

divided the benefit by Rotem's total sales of all products during the

POR. On this basis, the net subsidy for this program is 8.00 percent ad

valorem for 1994.

2. 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 less than 0.005 percent ad valorem for 1994.

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

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 change our findings from the preliminary results. On this

basis, the net subsidy for this program is 0.06 percent ad valorem for

1994.

II. Programs Found Not To Be Used

In the preliminary results, we found that Rotem did not apply for

or receive benefits under the following programs:

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.

Our analysis of the comments submitted by the interested parties,

summarized below, has not led us to change our findings from the

preliminary results.

Analysis of Comments

Comment 1: Respondents argue that ECIL grants for Project 14 should

not be considered subsidies bestowed on the subject merchandise, which

is IPA sold as IPA, because the grants were intended to increase

production of IPA for use in downstream products. Respondents take

issue with the Department's application of section 355.47 of the

Proposed Regulations, which the Department cited in its memorandum

addressing the treatment of Project 14. (See, Memorandum to File from

Team on April 15, 1996, available in the public file of the Central

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

respondents, section 355.47 does not support the Department's

preliminary decision to countervail Project 14 grants that were used in

the ``production'' of IPA. While the regulation does speak in terms of

``production,'' respondents argue that this does not contemplate

production of a product for use in value-added downstream products that

are outside the scope of the order. Rather, the provision contemplates

production of the product for sale as the product itself; that is, as

the subject merchandise.

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Respondents further argue that the Department's treatment of

Project 14 is at odds with its treatment of other ECIL grants.

Respondents point out that the Department allocated a portion of the

grants for Rotem's green acid facility, Project 9, to its calculation

of the subsidy on IPA because a portion of green acid was fed to IPA

production. IPA was thus, to a certain degree, a downstream product of

green acid. According to the Department's analysis, argue respondents,

the Project 9 grants, since the grants were for the production of green

acid and not downstream IPA, should have been fully allocated to the

production of green acid and not IPA.

Finally, respondents question the Department's citations to four

earlier determinations which support the ``practice of tying benefits

to specific products.'' In doing so, respondents maintain that Project

14 grants should not be ``tied'' to IPA when the sole purpose of the

grants was to benefit products other than IPA. Thus, respondents

conclude, while the four cited cases do stand for the ``established

tenet'' of tying benefits, they are not relevant to the issue of how to

treat grants for the ultimate production of downstream products.

In rebuttal, petitioners argue that the Department correctly

included Project 14 grants in its calculation of the net subsidy.

According to petitioner, the statute makes clear that when a

countervailable subsidy is provided with respect to the manufacture or

production of a class or kind of merchandise imported into the United

States, and the requisite injury determination is made, a duty shall be

imposed equal to the amount of the net countervailable subsidy. It is

undisputed that the grants made available to Rotem under Project 14

were for the ``manufacture'' or ``production'' of industrial phosphoric

acid. Moreover, state petitioners, as a matter of law, the Department

has also determined that the grants provided under Project 14 do

constitute ``countervailable subsidies.'' Under these circumstances,

the Department had no alternative but to include the amount of this

countervailable subsidy in its calculation of the net subsidy amount.

Petitioners further maintain that there are several flaws in

respondents' argument that the grants are not intended to benefit IPA

as subject merchandise. First, it does not square with the language of

the statute, which mentions no requirement for any sale, much less a

requirement that a sale be for a particular purpose. In addition, state

petitioners, respondents' argument would require a finding by the

Department that the grants provided to Rotem actually benefited Rotem's

sales of IPA in the United States, a so-called competitive-benefits-

conferred interpretation of the statute that has been soundly rejected

by the Department and the Court of Appeals for the Federal Circuit in

the privatization context. According to petitioners, the only relevant

legal test has been met in this case, i.e., that the grants received in

connection with Project 14 were provided for the production of IPA.

What Rotem subsequently did with the production and whether it used the

grants to obtain a competitive advantage for its sales of IPA in the

United States are legally irrelevant matters.

Department's Position: We disagree with respondents. Where the

Department determines that a countervailable benefit is tied to the

production or sale of a product or products, as set forth in section

355.47 of the Proposed Regulations, the benefit is attributable to

sales of that product or products made during the period of review. As

respondents have themselves pointed out, Project 14 grants are clearly

tied directly to the production of IPA, the subject merchandise.

Contrary to respondents assertion that it is clear that section 355.47

does not contemplate production of an input for use in value-added

downstream products, section 355.47 does not address the ``use'' of the

product in question in determining whether a benefit is tied to subject

merchandise. Rather, as outlined in section 355.47, the Department may

countervail a benefit that is tied to production or sale of the subject

merchandise.

While respondents have stated that during the POR their capacity to

produce IPA expanded in some measure as a result of the Project 14

grant, respondents' submission merely indicated a future intent to

manufacture products that can use IPA as an input. See April 15, 1996

submission to the Department from respondents regarding New Factual

Information at 5-8. They have submitted no evidence that any increased

production of IPA during the POR (1994), which resulted from expansion

of capacity from Project 14, was used as an input in the production of

downstream products manufactured by Rotem. Moreover, respondents' April

15, 1996 submission indicates that the expansion intended to increase

production of IPA ``has not yet come fully on stream.'' If, in future

reviews, Rotem increases its production of IPA and record evidence

establishes that some portion of Rotem's IPA is used as an input for

downstream products manufactured by Rotem, we will then examine how the

benefits from Project 14 grants on IPA, whether sold or captively

consumed, should be treated for the purpose of calculating the subsidy

rate. In this review, however, the information on the record indicates

that during the POR Rotem only produced IPA that is sold as IPA.

Respondents have also mistakenly analogized the Department's

treatment of Project 14 grants with its treatment of other ECIL grants

that were not directly tied to IPA production. In those projects,

grants were provided to expand the production of materials (e.g.,

phosphate rock, green acid) that were either sold or used captively

during the POR to produce IPA. Accordingly, consistent with our

approach in prior reviews, the Department is allocating benefits from

those grants to IPA, (See, e.g., Industrial Phosphoric Acid from

Israel; Final Results of Countervailing Duty Administrative Reviews, 61

FR 28841 (June 6, 1996), although utilizing a different allocation

methodology (See Department's Position on Comment 2). In contrast, the

Project 14 grants were provided for the purpose of expanding production

of IPA, and are therefore tied directly to the production of the

subject merchandise.

Respondents correctly recognize that the four cases cited by the

Department stand for the ``established tenet'' of tying benefits and

that they are not relevant to the issue of how to treat grants for the

ultimate production of downstream products. Project 14 grants were

provided to increase production of IPA. Although respondents claim that

the ``sole purpose'' of the Project 14 grants was to benefit products

other than IPA, record evidence indicates that during the POR, IPA

produced was sold as IPA. Therefore, we continue to treat the Project

14 grants as subsidies bestowed directly on the production of the

subject merchandise during the 1994 POR and allocate the benefit over

sales of IPA during the review period.

Comment 2: Rotem argues that the Department should not have found

that three EIRD grants conferred benefits on IPA during the review

period, since Rotem stated in its questionnaire response that these

grants were not related to IPA production. Two grants benefited a

research project concerning green acid, and one grant benefited a

research project concerning phosphate. Accordingly, for the final

results, Rotem argues that the Department should find that the EIRD

grants were not countervailable subsidies to IPA during the period of

review. Alternatively, if the Department refuses to accept

[[Page 53354]]

Rotem's statements, then the Department must allocate the EIRD grants

in the same manner as the ECIL grants that related to the green acid

facility.

Petitioners respond that the countervailing duty law does not

require that a subsidy directly benefit the subject merchandise.

Instead, the statute is quite clear that countervailable subsidies may

be provided either directly or indirectly. Both the phosphate raw

material and the green acid, which were the direct targets of these

grants, are important inputs in the production of IPA. As a result, IPA

benefits indirectly from these grants.

Finally, petitioners argue that the Department has dealt previously

with this issue in the 1987 administrative review. In that review,

respondent advanced a similar argument that a grant provided for

research on phosphate rock did not benefit IPA. The Department rejected

that argument because rock phosphates are a main input in the

production of IPA. This reasoning, argue petitioners, is equally

applicable to the EIRD grants at issue in the instant review. To the

extent the production of green acid and phosphate is improved by the

research made possible through the EIRD grants, IPA will also benefit.

Therefore, the Department acted properly in including these EIRD grants

in its calculation of the net subsidy rate for IPA.

Department's Position: The statute gives the Department clear

authority to countervail benefits that are provided directly or

indirectly to the production of the subject merchandise. See 19 U.S.C.

Sec. 1671(a). To the extent that green acid and phosphate produced by

Rotem are inputs in the production of IPA produced by Rotem, the EIRD

grants benefit IPA. In making this determination, we are being

consistent with our past practice with regard to EIRD grants. The

respondent received an EIRD grant for a research project on rock

phosphate during the 1990 administrative review. We found this grant

countervailable because the research would ``benefit the gathering of

raw materials (inputs) required to produce IPA.'' Industrial Phosphoric

Acid from Israel; Preliminary Results of Countervailing Duty

Administrative Review, 57 FR 21958, 21960 (May 26, 1992) and Final

Results of Countervailing Duty Administrative Review, 57 FR 39391

(August 31, 1992). The method used by the Department to calculate the

benefit under these grants is therefore reasonable and consistent with

our practice in prior reviews.

In consideration of respondents' comment, specifically respondents'

argument that EIRD grants should be allocated in the same manner as

ECIL grants, we have reexamined our calculation methodology with

respect to EIRD and ECIL grants. We have determined that the proper

grant allocation methodology to follow is the one that the Department

has used to determine the benefit for the EIRD grants. This methodology

is consistent with the Department's approach in Final Affirmative

Countervailing Duty Determination: Certain Pasta from Italy, 61 FR

30288, 30289 (June 14, 1996) (Certain Pasta). As the Department stated

in Certain Pasta, in cases where an input product and the subject

merchandise are produced within a single corporate entity, the

Department has found that subsidies to the input product benefit total

sales of the corporation, including sales of the subject merchandise.

See also Final Affirmative Countervailing Duty Determination: Certain

Softwood Lumber Products from Canada, 57 FR 22570 (May 28, 1992).

Therefore, we are taking the entire amount of grants provided to the

production of products that are inputs to IPA and dividing the benefit

by Rotem's total sales. As discussed above (Comment 1), for grants that

are directly tied to IPA production, we will continue to allocate the

entire amount of the grant to Rotem's sales of IPA.

Final Results of Review

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

Interim Regulations, we 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 determine the net subsidy

for Rotem to be 8.06 percent ad valorem.

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

Net

subsidy

Net subsidies--producer/exporter rate

(percent)

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Rotem Amfert Negev Ltd....................................... 8.06

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We will instruct the U.S. Customs Service (``Customs'') to assess

countervailing duties as indicated above. The Department will also

instruct Customs to collect cash deposits of estimated countervailing

duties in the percentages detailed above of the f.o.b. invoice price on

all shipments of the subject merchandise from reviewed companies,

entered, or withdrawn from warehouse, for consumption on or after the

date of publication of the final results of this review.

Because 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 establishing

countervailing duty rates, including those for non-reviewed companies,

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

provided for in section 777A(e)(2)(B) of the Act. The requested review

will normally cover only those companies specifically named. See

section 355.22(a) of the Interim Regulations. Pursuant to 19 C.F.R.

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 C.F.R.

353.22(e), the antidumping regulation on automatic assessment, which is

identical to 19 C.F.R. 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 non-reviewed companies covered by this

order are those established in the most recently completed

administrative proceeding. See Industrial Phosphoric Acid from Israel;

Final Results of Countervailing Duty Administrative Reviews, 61 FR

28841 (June 6, 1996). 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.

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 C.F.R. 355.34(d). Timely written notification

of return/destruction of

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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)).

Dated: October 4, 1996.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-26220 Filed 10-10-96; 8:45 am]

BILLING CODE 3510-DS-P