Industrial Phosphoric Acid From Israel: Preliminary Results and Partial Recission of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-508-605]

Industrial Phosphoric Acid From Israel: Preliminary Results and

Partial Recission 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 the period January 1, 1995 through

December 31, 1995. For information on the net subsidy for each reviewed

company, as well as 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.

Interested parties are invited to comment on these preliminary results.

See Public Comment section of this notice.

EFFECTIVE DATE: September 10, 1997.

FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Lorenza Olivas,

Office CVD/AD Enforcement VI, Import Administration, International

Trade Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-

4847 or (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 12, 1996, the Department

published a notice of ``Opportunity to Request Administrative Review''

(61 FR 41768) of this countervailing duty order. We received a timely

request for review, and we initiated the review, covering the period

January 1, 1995 through December 31, 1995, on September 17, 1996 (61 FR

48882).

In accordance with 19 C.F.R. 355.22(a), this review covers only

those producers or exporters of the subject merchandise for which a

review was specifically requested. Accordingly, this review covers

Rotem-Amfert Negev Ltd. (Rotem) and Haifa Chemicals Ltd. (Haifa). Haifa

did not export the subject merchandise during the period of review.

Therefore, we are rescinding the review with respect to Haifa. This

review also covers nine programs.

Pursuant to section 751(a)(3) of the Tariff Act of 1930, as

amended, we extended the preliminary results to no later than September

2, 1997, and the final results to 120 days from the date on which these

preliminary results are published. See Certain Industrial Phosphoric

Acid from Israel; Extension of Time Limit for Countervailing Duty

Administrative Review, 62 FR, 23220.

Applicable Statute

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.

[[Page 47646]]

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 U.S. Customs

Service purposes. The written description of the scope remains

dispositive.

Verification

As provided in section 782(i) of the Act, we verified information

submitted by the Government of Israel and Rotem. We followed standard

verification procedures, including meeting with government and company

officials and examining relevant accounting and financial records and

other original source documents. Our verification results are outlined

in the public versions of the verification reports, which are on file

in the Central Records Unit (Room B-099 of the Main Commerce Building).

Subsidies Valuation Information

Period of Review

The period for which we are measuring subsidies (the POR) is

calendar year 1995.

Allocation Period

In British Steel plc. v. United States, 879 F.Supp. 1254 (February

9, 1995) (British Steel), the U.S. Court of International Trade (the

Court) ruled against the allocation period methodology for non-

recurring subsidies that the Department had employed for the past

decade, which was articulated in the General Issues Appendix appended

to the Final Countervailing Duty Determination; Certain Steel Products

from Austria, 58 FR 37225 (July 9, 1993) (GIA)). In accordance with the

Court's decision on remand, the Department determined that the most

reasonable method of deriving the allocation period for nonrecurring

subsidies is a company-specific average useful life (AUL). This remand

determination was affirmed by the Court on June 4, 1996. British Steel,

929 F.Supp 426, 439 (CIT 1996). Accordingly, the Department has decided

to acquiesce to the British Steel decision where reasonable and

practicable.

Rotem submitted an AUL calculation based on depreciation and asset

values of productive assets reported in its financial statements.

Rotem's AUL was derived by adding depreciation charges for ten years,

and dividing these charges by the sum of average gross book value of

depreciable fixed assets for the related periods. We found this

calculation to be reasonable and consistent with our company-specific

AUL objective. Rotem's calculation resulted in an average useful life

of 24 years, and we have used this calculated figure for the allocation

period for non-recurring subsidies received during the POR.

For non-recurring subsidies received prior to the POR and which

have already been countervailed based on an allocation period

established in an earlier segment of the proceeding, it is not

reasonable or practicable to reallocate those subsidies over a

different period of time. Since the countervailing duty rate in earlier

segments of the proceeding was calculated based on a certain allocation

period and resulting benefit stream, redefining the allocation period

in later segments of the proceeding would entail taking the original

grant amount and creating an entirely new benefit stream for that

grant. Such a practice may lead to an increase or decrease in the total

amount countervailed and, thus, would result in the possibility of

over-countervailing or under-countervailing the actual benefit.

Therefore, for purposes of these preliminary results, the Department is

using the original allocation period assigned to each nonrecurring

subsidy received prior to the POR. See Certain Carbon Steel Products

from Sweden; Final Results of Countervailing Duty Administrative

Review, 62 FR 16549 (April 7, 1997).

Privatization

(I) Background

Israeli Chemicals Limited (ICL), the parent company which owns 100

percent of Rotem's shares, was partially privatized in 1992, 1993 and

1994. In this administrative review, the Government of Israel (GOI) and

Rotem reported that additional shares of ICL were sold in 1995. We have

previously 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, 61 FR

53351, 53352 (October 11, 1996) (1994 Final Results).

In this review and prior reviews of this order, 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 portion of the

price paid by a private party for all or part of a government-owned

company represents partial repayment of prior subsidies. See GIA, 58 FR

at 37262. Therefore, in the 1992 and 1993 reviews, we calculated the

portion of the purchase price paid for ICL's shares that is

attributable to repayment of prior subsidies. In the 1994 review,

respondents reported that the GOI sold less than 0.5 percent of its

shares in ICL. Because this percentage of shares privatized was 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 did not apply our repayment methodology to

the 1994 partial privatization. See the 1994 Final Results, 61 FR at

53352. However, we are applying this methodology to the 1995 partial

privatization of ICL during the POR because 24.9 percent of ICL's

shares were sold. This approach is consistent with our findings in the

GIA and Department precedent under the URAA. See e.g., GIA, 58 FR at

37259; Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from

the United Kingdom; Final Results of Countervailing Duty Administrative

Review, 61 FR 58377 (November 14, 1996); and Final Affirmative

Countervailing Duty Determination: Certain Pasta From Italy, 61 FR

30288 (June 14, 1996).

(II) Modification of Calculation Methodology

As noted above, in the 1992 and 1993 administrative review of this

order, we determined that the partial privatization of ICL, Rotem's

parent company, represented partial privatization of Rotem. Therefore,

in each of those reviews, we calculated the portion of the purchase

price paid for ICL's shares that was attributable to repayment of prior

subsidies. Under this methodology, to determine the amount of subsidies

that are extinguished due to privatization or reallocated as a result

of changes in ownership, we calculate the net present value (NPV) of

the remaining subsidies at the time of privatization or change in

ownership. For example, if the privatization took place in 1993, the

net present value calculation for that transaction would include all

subsidies allocable to 1993. However, as in all other cases involving

privatization or change in ownership, in each subsequent review, we

then recalculated the amount of subsidies that were extinguished or

reallocated by using only those subsidies affecting that subsequent

review. In this case, for example, if the privatization took place in

1993, in the next administrative

[[Page 47647]]

review, 1994, we would recalculate the NPV using only those subsidies

still allocable to 1994, i.e., the subsidies still benefitting the

company in 1994.

We revisited that methodology in the 1995 countervailing duty

administrative review of certain hot-rolled lead and bismuth carbon

steel products from the United Kingdom. See Certain Hot-Rolled Lead and

Bismuth Carbon Steel Products from the United Kingdom; Preliminary

Results of Countervailing Duty Administrative Review, 62 FR 16555,

16557 (April 7, 1997). In that review, we preliminarily determined that

it is not appropriate to modify the calculation of the NPV of the

subsidies existing at the time of sale. The change in ownership of a

company is a fixed event at a particular point in time. Thus, the

percentage of subsidies that may be extinguished due to privatization

or reallocated due to a change in ownership in a given year is also

fixed at that same point in time and does not change. Therefore, the

pass-through percentage will no longer be altered once it has initially

been determined in an investigation or administrative review. We have

modified the ICL privatization calculations in this administrative

review to reflect the change outlined above.

Analysis of Programs

I. Programs Previously Determined To Confer Subsidies

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

This GOI grant program is designed to encourage the distribution of

the population throughout Israel, to create new sources of employment,

to aid the absorption of immigrants, and to develop the economy's

production capacity. To be eligible for benefits under the ECIL,

including investment grants, capital grants, accelerated depreciation,

reduced tax rates, and certain loans, applicants must obtain approved

enterprise status. Investment grants cover a percentage of the cost of

the approved investment, and the amount of the grant depends on the

geographic location of eligible enterprises. For purposes of the ECIL

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

Development Zone B, and the Central Zone--and the level of grant

funding differs in each zone.

In Final Affirmative Countervailing Duty Determination: Industrial

Phosphoric Acid from Israel, 52 FR 25447 (July 7, 1987) (IPA

Investigation), the Department found the ECIL grant program to be de

jure specific 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. As explained in the ``Allocation

Period'' section above, for grants provided that have already been

allocated in past administrative reviews, we are continuing to use the

ten-year allocation period. For grants received during the POR, we

followed the company-specific allocation methodology and allocated

these grants over Rotem's company-specific AUL of 24 years.

Under our past practice we used 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

Industrial Phosphoric Acid from Israel; Final Results of Countervailing

Duty Administrative Review, 61 FR 28842 (June 6, 1996) (1992/93 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 the 1992/93 Final Results, we have used as the

discount rate the yield (in real terms) on consumer price indexed (CPI)

commercial bonds, plus the CPI (as published in the Bank of Israel

Annual Reports). 61 FR 28842; See also Industrial Phosphoric Acid From

Israel: Preliminary Results of Countervailing Duty Administrative

Review, 61 FR 8255, 8257 (March 4, 1996). 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.

To calculate the benefit to Rotem under this program, we have

modified the grant methodology in this review to conform with our grant

methodology developed in the countervailing duty investigation of steel

wire rod from Venezuela. See Preliminary Affirmative Countervailing

Duty Determination: Steel Wire Rod From Venezuela, 62 FR 41939, 41943

(August 4, 1997) (Wire Rod). In Wire Rod, we preliminarily determined

that it is appropriate to inflation. Wire Rod, 62 FR at 41939. Making

this adjustment is appropriate for high inflation economies because it

maintains the allocated principal at a constant, inflation adjusted,

value. It is also important to note that Israeli companies use

inflation accounting in preparing their financial statements. Moreover,

this reflects the adjustment recommended by respondents in their June

17, 1997, second supplemental questionnaire response, which is on file

in the public file of the Central Records Unit of the Department of

Commere, Room B-099. (The Department did not make an additional

adjustment in these preliminary results recommended by respondents

concerning the interest component of the benefit in these

calculations.) In conformance with Wire Rod, we have adjusted the

allocated principal of each ECIL grant for which benefits are still

allocable to the POR.

An additional modification to these calculations is reflected in

the ad valorem subsidy rate calculation. To calculate the ad valorem

subsidy rate in the 1994 review, we allocated the 1994 benefits over

either Rotem's total sales of IPA or total sales of all products. ECIL

grants tied to production of IPA were allocated over sales of IPA,

while grants tied to input products such as phosphate rock and green

acid were allocated over Rotem's total sales of all products.

To calculate the total subsidy in this administrative review, we

first summed the benefit to Rotem from all ECIL grant projects

allocated to and received in 1995, after taking into account the 1992

and 1993 partial privatizations (and also accounting for the

modification in the privatization calculation described above). Then,

we determined the portion of that benefit still remaining with Rotem

after accounting for the partial privatization of ICL in 1995. As with

the 1994 review, ECIL grants tied to phosphate rock production were

attributed to Rotem's total sales of all products. This is consistent

with information reviewed at verification that phosphate rock produced

from the company's three mines (Zin, Oron and Arad) could potentially

be incorporated in all products produced by Rotem. Rotem officials

explained that the decision to incorporate phosphate rock from a

particular mine for production of specific downstream products is

driven by economic considerations and because a different allocation

may result in efficiency losses and increased costs. See the August 22,

1997, Memorandum to Barbara E. Tillman from The Team Re: Verification

of Rotem's Questionnaire Responses in the 1995 Administrative Review of

Industrial Phosphoric Acid from Israel at page 6 (public version on

file in the public file

[[Page 47648]]

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

(Rotem VR).

However, based upon our finding at verification, we are now using a

different denominator for grants tied to Rotem's green acid and IPA

production. Rotem officials stated at verification that the green acid

produced at plant 30 and 31 could potentially be incorporated into the

production of all of the company's end-products. However, officials

stressed that for the same reason that phosphate rock is allocated to

specific products, green acid from plants 30 and 31 is also allocated

to specific products for economic reasons. See Rotem VR at 6-7. We also

learned that IPA or white acid can be and is incorporated into MKP, an

expensive fertilizer. See Rotem VR at 7. Therefore, we preliminarily

determine that it is appropriate to attribute ECIL grants tied to a

particular unit over the sales of the product produced by that unit

plus the sales of all products into which that product may be

incorporated. Accordingly, we attributed ECIL grants tied to Rotem's

green acid facilities to total sales minus direct sales of phosphate

rock, and grants tied to Rotem's IPA facility were attributed to total

sales of IPA and MKP. We summed the rates obtained on this basis, and

preliminarily determine the net subsidy from this program to be 12.69

percent ad valorem for the POR.

(B) Long-Term Industrial Development Loans

Prior to July 1985, approved enterprises were eligible to receive

long-term industrial development loans funded by the 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 long-term loan methodology 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 past practice, 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. See 1992/93 Final Results, 61 FR 28842. We thus

calculated the benefit during the period of review. We summed the

benefits for all loans and divided the total by Rotem's total sales

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

net subsidy from this program to be less than 0.005 percent ad valorem

for the POR.

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

Rotem received several grants under this program during the review

period. In the 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 the IPA

Investigation to determine the benefit to Rotem from the EIRD program

in 1995.

During the 1995 review period, Rotem received payments under six

separate EIRD grants. At verification, we found that two of these

grants, one tied to fertilizer production (File No. 18142) and the

other to rubber products (File No. 17772), could not benefit the

subject merchandise. However, the other grants were for research into

either green acid or phosphate rock production. See Rotem VR at 13-16.

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

set forth in the ``Allocation'' section of the GIA (58 FR at 37226)

because these benefits are exceptional, and Rotem cannot expect to

receive benefits on an ongoing basis from review period to review

period. The total value of the grants received in 1995 was less than

0.50 percent of all Rotem's sales. Therefore, we divided the benefit by

Rotem's total sales if the grant was tied to phosphate rock production

or by sales of fertilizers, MKP and IPA, if the grant was tied to

production of green acid. This conforms with the methodology described

above under the ECIL program. On this basis, we preliminarily determine

the benefit from this program to be 0.08 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. Reduced Tax Rates under ECIL;

B. ECIL Section 24 loans;

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

and

D. ECIL Preferential Accelerated Depreciation.

E. Exchange Rate Risk Insurance Scheme

Preliminary Results of Review

In accordance with 19 C.F.R. 355.22(c)(4)(ii), we calculated an

individual subsidy rate for each producer/exporter subject to this

administrative review. For the period January 1, 1995 through December

31, 1995, we preliminarily determine the net subsidy for Rotem to be

12.77 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 (``Customs'') to assess

countervailing duties as indicated above.

The Department also intends to instruct Customs to collect cash

deposits of estimated countervailing duties as indicated above of the

f.o.b.

[[Page 47649]]

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 19

C.F.R. Sec. 355.22(a). 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, conducted pursuant to the statutory

provisions that were in effect prior to the URAA amendments. See 1992/

93 Final Results, 61 FR 28842. 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, 1995 through December

31, 1995, 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 C.F.R. 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 C.F.R. 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: September 2, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-23999 Filed 9-9-97; 8:45 am]

BILLING CODE 3510-DS-P