Notice of Initiation of Countervailing Duty Investigation: Fresh Atlantic Salmon From Chile

DEPARTMENT OF COMMERCE

International Trade Administration

[C-337-802]

Notice of Initiation of Countervailing Duty Investigation: Fresh

Atlantic Salmon From Chile

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 9, 1997.

FOR FURTHER INFORMATION CONTACT: Elizabeth A. Graham at (202) 482-4105

or Rosa S. Jeong at (202) 482-1278, Import Administration, U.S.

Department of Commerce, Room 3099, 14th Street and Constitution Avenue,

N.W., Washington, DC 20230.

Initiation of Investigation

The Applicable Statute

Unless otherwise indicated, all citations to the statute are

references to the provisions of Tariff Act of 1930 (the Act), as

amended by the Uruguay Round Agreements Act effective January 1, 1995.

In addition, unless otherwise indicated, all citations to the

Department's regulations refer to the regulations, codified at 19 CFR

part 355, as they existed on April 1, 1997.

The Petition

On June 12, 1997, the Department of Commerce (the Department)

received a petition filed in proper form by the Coalition for Fair

Atlantic Salmon Trade (FAST) and the following individual members of

FAST: Atlantic Salmon of Maine; Cooke Aquaculture U.S., Inc.; DE

Salmon, Inc.; Global Aqua--USA, LLC; Island Aquaculture Corp.; Maine

Coast Nordic, Inc.; ScanAm Fish Farms; and Treats Island Fisheries

(collectively referred to hereafter as ``the petitioners''). A

supplement to the petition was filed on June 26, 1997.

On June 27 and July 1, 1997, the Department held consultations with

representatives of the Government of Chile (GOC) pursuant to section

702(b)(4)(ii) of the Act (see July 1, 1997 memoranda to the File

regarding these consultations). During these consultations, the GOC

submitted copies of public laws relating to certain programs alleged in

the petition.

In accordance with section 701(a) of the Act, petitioners allege

that producers and exporters of the subject merchandise in Chile

receive countervailable subsidies.

The petitioners state that they have standing to file the petition

because they are interested parties, as defined under section 771(9)(C)

of the Act.

Scope of Investigation

The scope of this investigation covers fresh, farmed Atlantic

salmon, whether imported ``dressed'' or cut. Atlantic salmon is the

species Salmo salar, in the genus Salmo of the family salmoninae.

``Dressed'' Atlantic salmon refers to salmon that has been bled,

gutted, and cleaned. Dressed Atlantic salmon may be imported with the

head on or off; with the tail on or off; and with the gills in or out.

All cuts of fresh Atlantic salmon are included in the scope of the

investigation. Examples of cuts include, but are not limited to:

Crosswise cuts (steaks), lengthwise cuts (fillets), lengthwise cuts

attached by skin (butterfly cuts), combinations of crosswise and

lengthwise cuts (combination packages), and Atlantic salmon that is

minced, shredded, or ground. Cuts may be subjected to various degrees

of trimming, and imported with the skin on or off and with the ``pin

bones'' in or out.

Excluded from the scope of this petition are (1) fresh Atlantic

salmon that is ``not farmed'' (i.e., wild Atlantic salmon); (2) live

Atlantic salmon and Atlantic salmon that has been subjected

[[Page 36773]]

to further processing, such as frozen, canned, dried, and smoked

Atlantic salmon; and (3) Atlantic salmon that has been further

processed into forms such as sausages, hot dogs, and burgers.

The merchandise subject to this investigation is classified at

statistical reporting numbers 0302.12.0003 and 0304.10.4091 of the

Harmonized Tariff Schedule (HTS) of the United States. Although the HTS

numbers are provided for convenience and Customs purposes, the written

description of the merchandise is dispositive.

During pre-filing consultations and as a result of our review of

the petition, we discussed with the petitioners whether the proposed

scope was an accurate reflection of the product for which the domestic

industry is seeking relief. We noted that the scope in the petition

appeared to include both farmed and not farmed Atlantic salmon. The

petitioners subsequently notified the Department on June 26, 1997, that

Atlantic salmon that is not farmed should be excluded from the scope of

the investigation. Accordingly, we have done so.

We are setting aside a period for interested parties to raise

issues regarding product coverage. The Department will accept such

comments until August 4, 1997. This period of scope consultation is

intended to provide the Department ample opportunity to consider all

comments and consult with parties prior to the issuance of the

preliminary determination.

Determination of Industry Support for the Petition

Section 702(c)(4)(A) of the Act requires that the Department

determine, prior to the initiation of an investigation, that a minimum

percentage of the domestic industry supports a countervailing duty

petition. A petition meets these minimum requirements if the domestic

producers or workers who support the petition account for: (1) At least

25 percent of the total production of the domestic like product, and

(2) more than 50 percent of the production of the domestic like product

produced by that portion of the industry expressing support for, or

opposition to, the petition. Under section 702(c)(4)(D) of the Act, if

the petitioners account for more than 50 percent of the total

production of the domestic like product, the Department is not required

to poll the industry to determine the extent of industry support.

Based on U.S. salmon production information published by the State

of Maine Department of Marine Resources and the Washington Farmed

Salmon Commission, the petitioners claimed that they account for over

70 percent of total production of fresh Atlantic salmon in the United

States. The petitioners further claimed that, when the U.S. producers

related to foreign producers are excluded from the analysis, the

petitioners represent approximately 97 percent of domestic production

of fresh Atlantic salmon.

On June 27, 1997, the Association of Chilean Salmon and Trout

Producers (the Association) contested the petitioners' standing claim.

The Association stated that the petitioners' standing calculations

focused exclusively on dressed salmon producers while ignoring U.S.

fillet producers and claimed that fillet salmon represents a separate

domestic like product from dressed salmon under the five-part domestic

like product test used by the International Trade Commission (ITC). The

Association argued that these facts suggest: (1) The petitioners do not

have standing with respect to fillets, and; (2) even if the Department

accepts the petitioners' single domestic like product definition, the

petitioners have failed to provide adequate industry support data since

fillet producers represent a significant portion of the industry

producing the domestic like product. This submission included certain

letters in opposition to the petition submitted by U.S. fillet

processors, some of whom identified themselves as importers of dressed

salmon from Chile.

On June 30, 1997, the petitioners submitted a rebuttal, stating

that the Association failed to refute the ``total domestic production''

and ``percent of production'' industry support figures contained in the

petition and failed to provide any information that would indicate that

the petitioners do not have standing even under a two-like-product

analysis. The petitioners argued that the facts in this case do not

support a finding that fillet salmon is a separate domestic like

product because there are no clear dividing lines, in terms of

characteristics or uses, between dressed salmon and salmon fillets.

Specifically, petitioners contended that, inter alia,: (1) Salmon

fillets are derived from dressed Atlantic salmon and, in fact, all

forms of fresh Atlantic salmon include the salmon meat that is

ultimately consumed; (2) respondents focused solely on one cut of fresh

Atlantic salmon (fillet) while ignoring other cuts (e.g., steak); (3)

the one cutting step that does play a significant role in the physical

characteristic of the product (the initial cutting of the fish in order

to bleed it) has been performed on both dressed and fillet salmon;

1 and (4) fillet cutting is not a ``value added'' operation,

but instead results in a higher-priced end product primarily because

much waste has been eliminated. With respect to the last point, the

petitioners argued that the price trends of fillets compared with

dressed salmon suggest that there is no value added, but in fact

negative value added, because the price of Chilean fillets, when

adjusted for the cost of processing dressed salmon into fillets, is

less than the price of dressed salmon.

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\1\ In this respect, the petitioners distinguish this case from

the like product decisions in Live Swine and Pork from Canada, Inv.

No. 701-TA-22 (Final), USITC pub. 2218 (September 1989).

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On July 1, 1997, the Association submitted further comments in

response to the petitioners' arguments.

Section 771(4)(A) of the Act defines the ``industry'' as the

producers of a domestic like product. Thus, to determine whether the

petition has the requisite industry support, the statute directs the

Department to look to producers and workers who account for production

of the domestic like product. The ITC, which is responsible for

determining whether ``the domestic industry'' has been injured, must

also determine what constitutes a domestic like product in order to

define the industry. However, while both the Department and the ITC

must apply the same statutory provision regarding the domestic like

product (section 771(10) of the Act), they do so for different purposes

and pursuant to separate and distinct authority. In addition, the

Department's determination is subject to limitations of time and

information. Although this may result in different definitions of the

domestic like product, such differences do not render the decision of

either agency contrary to the law.\2\ Therefore, we have examined the

Association's arguments regarding the definition of the domestic like

product in the petition in the context of the statutory provisions

governing initiation and the facts of the record.

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\2\ See Algoma Steel Corp., Ltd. v. United States, 688 F. Supp.

639, 642-44 (CIT 1988); High Information Content Flat Panel Displays

and Display Glass Therefor From Japan: Final Determination;

Rescission of Investigation and Partial Dismissal of Petition, 56 FR

32376, 32380-81 (July 16, 1991).

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The Association's contention is based on an examination of like

product determinations made in prior ITC cases, and follows an analysis

of factors traditionally examined by the ITC. However, as noted above,

the Department's analysis of like product is not bound by ITC practice.

The Department's analysis begins with section 771(10) of the Act, which

[[Page 36774]]

defines domestic like product as ``a product that is like, or in the

absence of like, most similar in characteristics and uses with, the

article subject to an investigation under this title.'' After

considering the information presented by the petitioner and the

Association, we do not find that the petitioner's domestic like product

definition is inconsistent with this statutory definition. While both

parties have cited to various cases involving agricultural and other

products, in light of the information presented in the petition, we

have concluded that there is no basis on which to reject as clearly

inaccurate the petitioners' representations that there are no clear

dividing lines, in terms of characteristics or uses, between dressed

and cut salmon. Therefore, we have adopted the single domestic like

product definition set forth in the petition.

Having found that dressed and cut salmon constitute a single like

product, we considered the Association's arguments that U.S. production

of salmon cuts had not been accounted for in the petition's

demonstration of industry support. The calculation of the standing

ratio in the petition was based on a comparison of the volume of the

petitioners' total 1996 production of dressed salmon to the volume of

the industry's total 1996 production of dressed salmon. We have revised

the petitioner's industry support calculations to add to the total U.S.

domestic industry figure an amount representing the estimated economic

value of U.S. fillet processing, in order to be as conservative as

possible in our evaluation of industry support. In so doing, we have

conservatively assumed that none of this processing industry has

affirmatively supported the petition.

In order to factor fillet processing into our analysis, we used a

value-based analysis. We determined that the calculation of industry

support on the basis of weight is inappropriate because the further

processing of dressed salmon into cuts involves significant weight

yield loss. In this regard, we note that the Statement of

Administrative Action (SAA) for the URAA explicitly provides that the

Department may determine the existence of industry support based on the

value of production. SAA at 862. For further explanation of our

inclusion of salmon processing in the total U.S. domestic industry

figure, which served as the denominator in the industry support

calculation, see the Initiation Checklist prepared for this case, dated

July 1, 1997.

Having accounted for U.S. production of salmon cuts, we find that

the production data provided in the petition indicate that the

petitioners account for more than 50 percent of the total production of

the domestic like product, thus meeting the requirements of section

702(c)(4)(A) of the Act. Since the petitioners exceed the industry

support threshold, we have not taken the letters of opposition that

were filed with the Association's June 27, 1997, submission into

account in our determination of industry support.

Injury Test

Because Chile is a ``Subsidies Agreement Country'' within the

meaning of section 701(b) of the Act, Title VII of the Act applies to

this investigation. Accordingly, the U.S. International Trade

Commission (``ITC'') must determine whether imports of the subject

merchandise from Chile materially injure, or threaten material injury

to, a U.S. industry.

Allegation of Subsidies

Section 702(b) of the Act requires the Department to initiate a

countervailing duty proceeding whenever an interested party files a

petition, on behalf of an industry, that (1) alleges the elements

necessary for an imposition of a duty under section 701(a), and (2) is

accompanied by information reasonably available to petitioners

supporting the allegations.

Initiation of Countervailing Duty Investigations

The Department has examined the petition on fresh Atlantic salmon

(``salmon'') from Chile and found that it complies with the

requirements of section 702(b) of the Act. Therefore, in accordance

with section 702(b) of the Act, we are initiating a countervailing duty

investigation to determine whether producers or exporters of salmon

from Chile receive subsidies.

We are including in our investigation the following programs

alleged in the petition to have provided subsidies to producers of the

subject merchandise in Chile:

1. Fundacion Chile Assistance

a. Company Start Up Projects

b. Provision of Salmon Infrastructure

c. Technology Support Measures

2. Institute for Technological Research (INTEC)

3. Fund for Technological and Productive Development (FONTEC) Grants

4. Central Bank Chapter 19 (Debt Conversion Program)

5. Central Bank Chapter 18 (Debt Conversion Program)

6. ProChile Export Promotion Assistance

7. Export Promotion Fund

8. Chilean Production Development Corporation (CORFO) Export Credit

Insurance Program

9. CORFO Export Credits and Long-Term Export Financing

10. Law No. 18,439 (Export Credit Limits)

11. GOC Guarantee of Private Bank Loans

12. Law No. 18,449 (Stamp Tax Exemption)

13. Law No. 18,634 (Deferred and/or Waived Import Duties on Capital

Goods)

14. Import Substitution of Capital Goods

15. Import Substitution for New Industries

16. Tax Deductions Available to Exporters

17. Law No. 18,392 (Tax Exemptions)

18. Article 59 of Decree Law 824 (Chilean Income Tax Law)

19. Decree 15 (Promotion and Development Fund)

We are not including in our investigation the following programs

alleged to be benefitting producers and exporters of the subject

merchandise in Chile:

1. Decree Law No. 825 (VAT Rebates for Goods Necessary for Exporting)

Petitioners allege that Decree Law No. 825 allows exporters to

recover the 18 percent VAT tax paid on domestic transactions associated

with export activities. Exporters may either receive the tax benefit in

the form of a fiscal credit deductible from the tax charged on their

local sales, or as the cash equivalent of the VAT tax actually paid.

Petitioners assert that because the Department initiated an

investigation of this program in Standard Carnations from Chile

(``Carnations''), 52 FR 3313 (February 3, 1987), the Department should

investigate whether salmon exporters received VAT rebates during the

POI that extended to inputs that were not consumed in the production of

the export product.

We determined this program to be not countervailable in Carnations.

Further, petitioners have provided no basis to believe or suspect that

the program currently provides excessive rebates. On this basis, we are

not including this program in our investigation.

2. Law No. 18,708 (Duty Drawback)

Petitioners allege that Law No. 18,708 provides drawback of custom

duties paid on imported inputs incorporated into the production of

exported final goods. Petitioners assert that we should investigate

this program because in Carnations, we determined the Law No. 18,480

Simplified Duty Drawback program to be countervailable because it

allowed for excessive drawback of duties. Based on this finding,

petitioners argue the GOC has a practice of remitting excessive import

duties.

We do not consider duty drawback on inputs consumed in the

production of exported products to be countervailable subsidies.

Petitioners have provided no basis for us to believe or suspect that

the duty drawback under Law No. 18,708 is

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excessive. On this basis, we are not including this program in our

investigation.

3. Tariff Abatement for New Companies

Petitioners allege that the GOC provides a tariff abatement of up

to 80 percent to firms that move their machinery to Chile to continue

operations there. Petitioners assert that this abatement constitutes an

import substitution subsidy. However, petitioners have not explained

how this tariff abatement promotes the use of domestic over imported

goods. On this basis, we are not including this program in our

investigation.

4. Law No. 18,645 Loan Guarantees

Petitioners allege that Law No. 18,645 provides loan guarantees to

exporters of non-traditional goods who typically have less access to

ordinary commercial financing. The program provides guarantees of up to

50 percent of the exporter's loans and the loans may not exceed

$150,000. Petitioners state that although the program guarantees

financing at market rates and a fee is charged for the guarantees, the

terms of the guarantees are inconsistent with commercial considerations

because they allow exporters to obtain financing sooner and more easily

then they otherwise could.

Petitioners speculate that the fees paid for Law No. 18,645 loan

guarantees are preferential but provide no information in this respect.

Further, regarding the allegation that exporters are able to receive

loans more easily and sooner as a result of this program, petitioners

have failed to allege any benefit by reason of loans obtained on non-

commercial terms. On this basis, we are not including this program in

our investigation.

5. Currency Retention Scheme

Petitioners allege that exporters are limited in their use of the

foreign exchange they earn from export activities because the Central

Bank requires them to repatriate their foreign exchange earnings to

commercial banks within a designated period. However, the GOC allows

certain exporters to waive this rule if they have export-oriented

investment projects that require the repayment of foreign suppliers or

financial credits of over one year with special authorization from the

Central Bank. This program was investigated in Carnations and found not

used.

The International Monetary Fund's Exchange Arrangements and

Exchange Restrictions Annual Report on Chile states that as of June 16,

1995, exporters were no longer required to repatriate export proceeds

to the Central Bank. Given the elimination of the repatriation

requirement, exemptions from the requirement cease to have meaning. (We

note that petitioners based their allegation on the IMF's 1991 Annual

Report.) On this basis, we are not including this program in our

investigation.

6. Law No. 18,480 (Simplified Duty Drawback)

Petitioners allege that Law No. 18,480, enacted in 1985, allows

certain exporters a duty drawback of up to 10 percent of the FOB value

of their exports representing import duties paid on imported inputs

used to produce non-traditional exports. Petitioners also assert that

another provision of the law entitles exporters that are using

domestically-produced inputs in their export operations an amount of

duty drawback that the exporter would otherwise realize if they had

imported the inputs. Petitioners allege although this program was

amended to exclude salmon, the program should be investigated given

that the exclusion of salmon was recent.

Included in the information provided by the GOC during its

consultations with the Department were copies of Decrees 102 (dated

March 27, 1991) and 123 (dated March 14, 1997). These decrees clearly

state that as of December 31, 1990, Atlantic salmon was excluded from

the duty drawback provided by Law No. 18,480. On this basis, we are not

including this program in our investigation.

7. VAT Rebates for Fixed Assets

Petitioners allege that exporters may recover the VAT paid on fixed

assets after a designated waiting period of six months from the date of

purchase. They claim that the program is available only to exporters in

that the rebate is limited to acquisitions incurred in the

preproduction phase of export operations.

Petitioners have provided no information to indicate that the VAT

rebates are in any way excessive or that they are provided only to

exporters. On this basis, we are not including this program in our

investigation.

8. Exemption From Prior Deposit Requirements

Petitioners allege that the Central Bank grants companies producing

exclusively for export a complete exemption from prior-deposit

requirements of import taxes on new and used components.

Information provided by the GOC during its consultations with the

Department included a copy of section 88 of Law 18,840, which states

that under no circumstances may prior deposits be required for the

execution of export or import transactions. On this basis, we are not

including this program in our investigation.

9. Decree Law No. 889 (Tax Credits)

Petitioners allege that Decree Law No. 889 provides tax credits to

``non-traditional'' enterprises located in Region I (far north), XI

(Rio Palena to south of O'Higgins) and XII (Cape Horn) regions.

Eligible enterprises receive a subsidy equal to 17 percent of the

employees' taxable income, up to a maximum of 60,000 pesos.

Evidence presented in the petition reveals that this program was

terminated after December 31, 1992. Further, petitioners have not

provided a sufficient basis for us to believe or suspect that the Tax

Credits program remains in existence. On this basis, we are not

including this program in our investigation.

Distribution of Copies of the Petition

In accordance with section 702(b)(4)(A) of the Act, a copy of the

public version of the petition has been provided to the representatives

of Chile. We will attempt to provide copies of the public version of

the petition to all the exporters named in the petition.

ITC Notification

We have notified the ITC of our initiation of this investigation as

required by section 702(d) of the Act.

Preliminary Determination by the ITC

The ITC will determine by July 28, 1997, whether there is a

reasonable indication that imports of fresh Atlantic salmon from Chile

are causing material injury, or threatening to cause material injury,

to a U.S. industry. A negative ITC determination will result in

termination of the investigation; otherwise, the investigation will

proceed according to statutory and regulatory time limits.

This notice is published pursuant to 702(c)(2) of the Act.

Dated: July 2, 1997.

Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration.

[FR Doc. 97-17951 Filed 7-8-97; 8:45 am]

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