Preliminary Negative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determination: Fresh Atlantic Salmon From Chile

DEPARTMENT OF COMMERCE

International Trade Administration

[C-337-802]

Preliminary Negative Countervailing Duty Determination and

Alignment of Final Countervailing Duty Determination With Final

Antidumping Duty Determination: Fresh Atlantic Salmon From Chile

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: November 19, 1997.

FOR FURTHER INFORMATION CONTACT: Rosa Jeong, Marian Wells or Todd

Hansen, Office of Antidumping/Countervailing Duty Enforcement, Group 1,

Import Administration, U.S. Department of Commerce, Room 3099, 14th

Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone

(202) 482-1278, 482-6309 or 482-1276, respectively.

Preliminary Determination

The Department of Commerce (the ``Department'') preliminarily

determines that countervailable subsidies are not being provided to

producers or exporters of fresh Atlantic salmon (``salmon'') in Chile.

Petitioners

The petition in this investigation was filed 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 hereinafter as ``petitioners'').

Case History

Since the publication of the notice of initiation in the Federal

Register (62 FR 36772 (July 9, 1997) (``Initiation Notice''), the

following events have occurred.

We deemed this case to be extraordinarily complicated and on July

28, 1997, we postponed the preliminary determination until November 10,

1997 (62 FR 40335).

On July 23, 1997, we issued a countervailing duty questionnaire to

the Government of Chile (``GOC''). Due to the large number of producers

and exporters of fresh Atlantic salmon in Chile, and with the GOC's

assurance that it could provide aggregate data for most programs, we

solicited information from the GOC on an aggregate or industry-wide

basis, rather than from the individual producers and exporters. On

August 1, 1997, the GOC notified us that it lacked usage information

for the following programs: Chilean Production Development Corporation

(``CORFO'') Export Credits and Long-Term Export Financing, Law 18,439

Export Credit Limits, Law 18,449 (Stamp Tax Exemption), and Article 59

of Decree Law 824. Therefore, on August 7, 1997, we issued an

additional questionnaire to four producers/exporters of the subject

merchandise concerning the above four programs as well as Chapter XVIII

and Chapter XIX. The questionnaire was sent to the following companies:

Pesquera Mares Australes Ltda., Marine Harvest Chile, Aguas Claras

S.A., and Pesquera Eicosal Ltda.

On August 1, 1997, petitioners submitted comments arguing that the

Law No. 18,480 program should have been included in the initiation. In

the Initiation Notice, the Department declined to initiate on Law No.

18,480, partly based on information provided during consultations with

the GOC. Upon further review of information on the record, we

determined that our initial rejection of petitioners' allegation was

unwarranted. On August 21, 1997, we decided to include certain benefits

allegedly provided under Law No. 18,480 in our investigation (see

Memorandum from team to Richard W. Moreland, Acting Deputy Assistant

Secretary for Import Administration). On August 25, 1997, the

Department requested that the GOC provide information regarding rebates

for exports using domestically produced inputs provided under Law No.

18,480.

The Department received the GOC and company questionnaire responses

on September 15, 1997 and September 22, 1997. The Department issued

supplemental questionnaires to the GOC and the four companies, and

their affiliates, on September 30, 1997, and received the supplemental

responses on October 14, 1997. On October 21, 1997, the Department

issued a second supplemental questionnaire to the GOC. The GOC

responded to this questionnaire on October 27 and October 29, 1997.

On November 6, 1997, we received a request from petitioners,

pursuant to 19 CFR 355.20(c), to postpone the final determination in

this investigation to coincide with the final determination in the

antidumping duty investigation of the fresh Atlantic salmon from Chile.

Accordingly, we are aligning the final determination in this

investigation with the date of the final determination in the

antidumping duty investigation of the fresh Atlantic salmon from Chile.

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

[[Page 61804]]

(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 are: (1) fresh Atlantic salmon that is

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

and (3) Atlantic salmon that has been subjected to further processing,

such as frozen, canned, dried, and smoked Atlantic salmon, or processed

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

The merchandise subject to this investigation is classifiable 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.

Comment on Scope

As discussed in the Initiation Notice at 36773, we invited comments

on the scope of this proceeding. On August 8, 1997, we received a

comment from the National Restaurant Association, an interested party,

regarding product coverage. Specifically, the National Restaurant

Association argued that ``dressed'' whole Atlantic salmon and ``cut''

salmon are not ``like products.'' Most of the National Restaurant

Association's arguments have already been addressed in the Initiation

Notice, where the Department adopted the single domestic like product

definition set forth in the petition. In addition, the fact that

``dressed'' salmon and ``cut'' salmon are classified under separate HTS

categories is irrelevant. Like products can and often do comprise

several HTS categories or a subset of merchandise covered by a single

HTS number. Finally, the specific exclusion of ``cut'' salmon from the

scope of the Salmon from Norway proceeding was a result of the fact

that the petition in that case did not include cut salmon, whereas, due

to changing market conditions, the petition in this case specifically

did. See, e.g., Antidumping Duty Order: Fresh and Chilled Atlantic

Salmon from Norway, 56 Fed. Reg. 14920 (1991).

The 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 effective January 1, 1995 (the

``Act'').

Injury Test

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

meaning of section 701(b) of the Act, the International Trade

Commission (ITC) is required to determine whether imports of the

subject merchandise from Chile materially injure, or threaten material

injury to, a U.S. industry. On August 6, 1997, the ITC published its

preliminary determination finding that there is a reasonable indication

that an industry in the United States is being materially injured or

threatened with material injury by reason of imports from Chile of the

subject merchandise (62 FR 42262).

Period of Investigation (``POI'')

The period for which we are measuring subsidies is calendar year

1996.

Subsidies Valuation Information

Benchmarks for Loans and Discount Rates

To calculate the countervailable benefit from loans and

nonrecurring grants, we have used the average rates for U.S. dollar

lending in Chile, as calculated by the Superintendencia de Bancos e

Instituciones Financieras (``SBIF''), the Chilean bank supervisory

agency. The U.S. dollar interest rates were used because the loans in

question were denominated in U.S. dollars and the grant that was

allocated over time was made in U.S. dollars.

Allocation Period

Based on information provided by the GOC, we have used nine years,

the weighted-average useful life of productive assets for the Chilean

salmon industry, as the allocation period in this investigation.

Based upon our analysis of the petition and the responses to our

questionnaires, we determine the following:

I. Programs Preliminarily Determined To Be Countervailable

A. ProChile Export Promotion Assistance

ProChile, the Export Promotion Bureau of the Chilean Ministry of

Foreign Affairs, aims to promote and diversify Chile's exports by

providing grants to private companies or industries for export

promotional activities. Each ProChile project is designed and developed

through a joint participation of ProChile and the private sector. The

projects are aimed at the ``internationalization'' of the private

sector participant. ``Internationalization'' refers to the extension of

a company's commercial operations to the external markets, which can be

achieved through exportation, mixed-ownership (foreign and domestic),

joint ventures, and international subsidiaries. Typical ProChile

projects include advertising and promotional campaigns, creation of

catalogs and brochures, and organization of trade fairs. These projects

are co-financed by ProChile and the private sector participants.

The producers and exporters of salmon in Chile received funding

under this program for several salmon-related projects targeted to the

U.S. and other export markets.

In the past, the Department has recognized that general export

promotion programs which provide only general informational services,

do not constitute a countervailable benefit. See, e.g., Fresh Cut

Flowers from Mexico, 49 FR 15007 (1984). However, where such activities

promoted a specific product, or provided financial assistance to a

firm, we have found the programs to be countervailable. See, e.g.,

Fresh Atlantic Groundfish from Canada, 51 FR 10041 (1986) (government

funding of attendance at trade fair which targeted the exports of

specific product to the U.S. market found to be countervailable); and

Fresh Cut Flowers from Israel, 52 FR 3316 (1987) (government

reimbursements of up to 50 percent of actual expenses incurred by the

firm for promotional activities found to be countervailable). Based on

the information on the record, we find that ProChile's projects went

beyond what we normally consider to be general export promotional

activities. The projects were aimed at the promotion of specific

products to targeted export markets and also provided direct financial

assistance to the participating firms.

Accordingly, we preliminarily determine that the ProChile grants

provide countervailable subsidies within the meaning of section 771(5)

of the Act. The grants are a direct transfer of funds from the GOC

providing a benefit in the amount of the grant. The grants are also

specific within the meaning of section 771(5A)(B) of the Act because

their receipt is tied to the anticipated exportation of the subject

merchandise to the United States and other export markets.

We are treating these grants as ``non-recurring'' based on the

analysis set forth in the Allocation section of the General Issues

Appendix because they are exceptional rather than ongoing

[[Page 61805]]

events. Each project funded by a grant requires a separate application

and approval, and the projects represent one-time events.

To calculate the countervailable subsidy, we used our standard

grant methodology. In accordance with our past practice, we allocated

over time grants from those years in which the benefits from this

program exceeded 0.5 percent of the value of appropriate exports in the

year of receipt. We divided the benefit attributable to the POI by the

value of appropriate exports in the POI. On this basis, we determine

the countervailable subsidy rate for this program to be 0.05 percent ad

valorem. For a discussion of the denominators used in the calculation

of the subsidy rate for this program, see November 10, 1997 Calculation

Memorandum to file from team.

B. CORFO Export Credit Insurance Premium Assistance

In 1995, CORFO established a program entitled ``Export Credit

Insurance Premium Assistance For Small and Medium-Sized Companies.''

This program provides a grant of up to 50 percent of the value of the

export credit insurance premium, subject to a cap of one percent of the

particular export invoice, for export insurance purchased by small and

medium-sized Chilean exporting companies from private insurance

companies. Only those Chilean exporters with annual sales of up to US

$10,000,000 are eligible for this program. CORFO's liability to the

insurers is limited to the payment of a portion of the insurance

premium for the eligible company. Once the exporter is approved, the

agreed portion of the insurance premium is paid directly to the

insurance company by CORFO. CORFO made payments to insurance companies

on behalf of eligible salmon-exporters under this program.

We preliminarily determine that CORFO's payments of the insurance

premiums constitute countervailable grants within the meaning of

section 771(5) of the Act. They are a direct transfer of funds from the

GOC that confer a benefit in the amount of the grant. These grants are

specific within the meaning of section 771(5A)(B) of the Act because

their receipt is contingent upon export performance. Because these

grants are made on an ongoing basis, we have treated the benefits as

recurring in accordance with the analysis set forth in the General

Issues Appendix.

To calculate the subsidy rate, we divided the benefit attributable

to the POI by the value of all exports of fresh Atlantic salmon by

producers and exporters of salmon during the POI. On this basis, we

determine the countervailable subsidy for this program to be 0.01

percent ad valorem.

C. Law No. 18,634 (Deferred and Waived Import Duties on Capital Goods)

Law Number 18,634 of August 5, 1987, established a program whereby

customs duties may be deferred and subsequently waived on imported

capital goods used in the production of exports. Under this program,

both exporters and non-exporters are allowed to defer paying duties on

certain capital goods. During the deferral period, the amount of duties

owed is treated as a loan on which the producer is required to pay

interest. If the capital goods are ultimately used for the production

of exported goods, the outstanding balance and interest on the loan are

waived.

The Law 18,634 deferral program is available to exporters as well

as non-exporters. The usage data provided by the GOC indicates that the

fishing and aquaculture sector is neither a predominant nor

disproportionate user of the program. Moreover, many sectors not

normally considered to be exporters, such as the construction,

electric, gas and water industries, participated in the duty deferral

program. Accordingly, we preliminarily determine that the benefit, if

any, under the deferral program is not specific within the meaning of

section 771(5A) of the Act.

Under the Law 18,634 waiver program, the waiver of duties is

allowed, in whole or in part, if imported capital goods are used in the

production of merchandise that is later exported. We preliminarily

determine that the waiver program provides countervailable subsidies

within the meaning of section 771(5) of the Act. The waiver of import

duties represents revenue foregone by the GOC, providing a benefit in

the amount of the waiver. Because the waiver program is contingent on

export performance, we preliminarily determine that it is specific

within the meaning of section 771(5A)(B) of the Act.

The GOC has provided the amounts of customs duties waived during

the POI for exporters of subject merchandise. Because these waivers are

automatic when exportation is demonstrated, we determine that the

benefits under this program are recurring. To calculate the

countervailable subsidy from this program, we divided the total amount

of waivers granted during the POI by the value of all exports of

producers and exporters of salmon. On this basis, we determine the

countervailable subsidy from this program to be 0.23 percent.

D. Import Substitution of Capital Goods

In addition to the duty deferral and waiver program discussed

above, Law 18,634 also contains a provision related to the purchase of

domestically sourced capital goods. According to the GOC, this program

is intended to encourage capital investment in Chile and to avoid a

preference for imported capital goods resulting from the import duty

deferral and waiver provisions of the same law. Under this provision,

companies purchasing capital equipment domestically can borrow up to 73

percent of the amount of customs duties that would have been paid on

the capital goods if they had been imported. If the capital goods are

ultimately used in the production of exports, the loan balances and any

unpaid interest are waived and the producer is not required to repay

the loan. The GOC has provided the amounts of loans and waivers

received under this program by exporters of subject merchandise for the

POI.

Because the receipt of loans under this program is contingent upon

the purchase of domestically produced capital equipment, we determine

that these loans are specific in accordance with section 771(5A)(C) of

the Act. Based on a comparison of the benchmark interest rates (see

Subsidies Valuation section of this notice) to the rates charged on the

loans, we preliminarily determine that certain loans confer benefits

within the meaning of section 771(5)(E)(ii) of the Act because the rate

charged is less than the benchmark rate. We calculated the benefit from

these loans by subtracting the interest charged during the POI under

the program from interest under the benchmark rate and dividing this

difference by the value of all sales of producers and exporters of

salmon. On this basis, we determine the countervailable subsidy from

this program to be 0.02 percent ad valorem.

Regarding the waivers provided under the program, we preliminarily

determine that the waivers are countervailable subsidies within the

meaning of section 771(5) of the Act. The waiver of the loan balances

represents a direct transfer of funds from the GOC, providing a benefit

in the amount of the balance and any unpaid interest waived. Further,

the waivers are specific within the meaning of section 771(5A)(B) of

the Act because their receipt is contingent upon export performance.

Because these waivers are automatic when exportation occurs, we

determine that the benefit from this program is recurring. To calculate

the

[[Page 61806]]

countervailable subsidy from the waiver portion of this program, we

divided the total amount of waivers granted during the POI by the value

of all exports of producers and exporters of salmon from Chile. On this

basis, we determine the countervailable subsidy from this program to be

0.25 percent ad valorem.

E. Promotion and Development Fund

The Promotion and Development Fund for Extreme Regions was

established pursuant to Decree Law No. 3,529, published on December 6,

1980. Article 38 of this law established the fund to aid in the

development of remote regions of Chile. These regions are Tarapaca,

Aysen del Presidente Carlos Ibanez del Campo, Magallanes and Antartica

Chilena and the provinces of Chiloe and Pelena. The fund was

established to assist small and medium-sized investors who make

investments or reinvestments in these regions. Decree 15 of Decree Law

3,529 (published April 20, 1981) established the regulations pertaining

to the fund. These investments must be directly linked to the

production process and involve capital assets relating to the company's

regular business activities. The program provides grants in the amount

of 15 percent of the cost of new investments or reinvestments made

between January 1 and December 31, 1981, and 20 percent of the cost of

investments and reinvestments made between January 1, 1982 and December

31, 1999. The GOC has provided information on the amount of grants

received under this program by the producers and exporters of the fresh

Atlantic salmon.

We preliminarily determine that Promotion and Development Fund

grants provide countervailable subsidies within the meaning of section

771(5) of the Act. The grants are a direct transfer of funds from the

GOC providing a benefit in the amount of the grant. The grants are

specific within the meaning of section 771(5A)(D)(iv) because they are

limited to firms located in a designated geographical region.

We have treated these grants as non-recurring based on the analysis

set forth in the Allocation section of the General Issues Appendix. In

accordance with our practice, we allocated over time, the grants from

those years in which the benefits from this program exceeded 0.5

percent of the value of all sales of producer and exporters of salmon

in the year of receipt. To calculate the countervailable subsidy, we

used our standard grant methodology. We divided the benefit

attributable to the POI by the value of all sales of producers and

exporters of salmon during the POI. On this basis, we determine the

countervailable subsidy for this program to be 0.01 percent ad valorem.

F. Law No. 18,480

Law 18,480 of December 19, 1985, established a simplified duty

drawback system for inputs used in small volume exports. In addition to

the duty drawback provision for imported inputs, the law also contains

a provision whereby exporters using domestically produced inputs in

their export operations are entitled to the amount of the duty drawback

that the exporter would otherwise have realized if they had imported

the inputs. Because fresh Atlantic salmon is excluded from the duty

drawback portion of the program, our investigation of Law No. 18,480 is

limited to the payments for using domestically sourced inputs in the

production of exported goods.

The maximum export values for which the rates are applicable and

the list of eligible inputs are updated each year. For an input to be

eligible as a domestic input, the CIF value of its imported raw

materials and inputs may not exceed 50 percent of its net value.

We preliminarily determine that Law 18,480 is a countervailable

subsidy within the meaning of section 771(5) of the Act. It is specific

within the meaning of section 771(5A)(B) of the Act because the receipt

of the payment is contingent upon export performance. The program

provides a financial contribution because it is a direct transfer of

funds from the GOC to the exporters and producers of salmon.

Because the payment is automatic for eligible products, we have

treated these grants as recurring. To calculate the countervailable

subsidy from this program, we divided the total amount of grants

received during the POI by the value of all exports of producers and

exporters of salmon during the POI. On this basis, we determine the

countervailable subsidy from this program to be 0.05 percent ad

valorem.

II. Programs Preliminarily Determined Not to Be Countervailable

A. Fundacion Chile Assistance

Fundacion Chile (``FCH'') is a private, non-profit organization

established in 1976 through an agreement between the GOC and the

International Telephone and Telegraph Corporation (``ITT'') with an

original endowment fund of US $50 million. This agreement (Decree No.

1528) stemmed from an earlier agreement (Decree No. 801) in which the

GOC agreed to compensate ITT for the value of certain ITT property that

a former Chilean government had previously expropriated from ITT. Under

the terms of the agreement, ITT agreed to contribute its $25 million

compensation to FCH's endowment, and the GOC matched this amount.

FCH's mission is to carry out scientific and technological research

and apply the research to industrial production and service areas of

Chile. To meet these objectives, FCH forms companies to pursue

technologies of interest, which are later sold to private investors,

and also provides technical assistance, consulting services, and

training to companies for a fee. In 1996, a major portion of FCH's

operating budget came from fees for services and profit from the sale

of its companies with the remaining amount from the original endowment.

Under section 771(5)(B) of the Act, a countervailable subsidy

exists where the government provides a financial contribution or

``makes a payment to a funding mechanism to provide a financial

contribution, or entrusts or directs a private entity to make a

financial contribution, if providing the contribution would normally be

vested in the government and the practice does not differ in substance

from practices normally followed by governments.''

The GOC has argued that FCH should not be viewed as the government,

nor was FCH entrusted or directed by the GOC to take actions that would

normally be vested in the government. We have not addressed these

claims because, as explained below, we have preliminarily determined

that the financial contributions provided by FCH do not confer a

benefit.

With respect to the company start-up ventures, FCH created or co-

invested in three salmon-related companies. The first venture was

Salmones Antartica (``Antartica''), created in 1982, which became the

first company to successfully demonstrate the technical and economic

viability of salmon farming in Chile. FCH made three separate equity

infusions in Antartica, the last of which was disbursed in 1988.

Antartica was sold to private investors in 1989. Although Antartica

produced the subject merchandise during the POI, it did not do so

during the time FCH had ownership interest. The second venture was in

1988 when FCH, together with three other private companies, formed

Salmones Huillinco (25 percent equity participation by FCH) which

produces and commercializes smolts. Finally, Salmotec S.A. (Salmotec)

was created by FCH and Antartica in 1988. Salmotec was sold to a

private company in 1995. FCH made equity infusions in Salmotec in 1988

and 1990.

[[Page 61807]]

Section 771(5)(E)(i) of the Act provides that in the case of an

equity infusion, a benefit is conferred if the investment decision is

inconsistent with the usual investment practice of private investors,

including the practice regarding the provision of risk capital, in the

county in which the equity infusion is made.

In making this determination, the Department examines the following

factors, among others:

1. Current and past indicators of a firm's financial condition;

2. Future financial prospects of the firm including market studies,

economic forecasts, and projects or loan appraisals;

3. Rates of return on equity in the three years prior to the equity

infusion;

4. Equity investment in the firm by private investors; and

5. Prospects in world markets for the product under consideration.

In start up situations and major expansion programs, where past

experience is of little use in assessing future performance, we

recognize that the factors considered and the relative weight placed on

such factors may differ from the analysis of an established enterprise.

(For a more detailed discussion of the Department's equityworthiness

criteria see the General Issues Appendix at 37244.)

With respect to FCH's investments in Antartica, the decision to

invest was made in 1981. FCH provided the Department with three

separate feasibility studies that it considered at that time. The

factors evaluated in the studies included the environmental conditions

of Chile, world market conditions, and projected costs and profits. One

of the studies in particular projected an internal rate of return, in

U.S. dollar terms, of over 30 percent on investment. Based on these

factors, the studies conclude that the conditions in Chile were such

that salmon farming would be profitable. In light of the studies, we

preliminarily determine that FCH's 1982 decision to invest in Antartica

was consistent with the usual investment practice of private investors

in Chile.

The decision to invest in Salmotec was approved by FCH in 1988. The

GOC claims that at the time, the Chilean salmon industry was well-

established and profitable. The GOC points to the fact that by 1988,

there were 20 producers and/or exporters of salmon in operation in

Chile and more private companies were investing in the salmon industry.

Moreover, the Chilean salmon industry had been growing at an

extraordinary rate, as evidenced by the dramatic increase in volume and

value of salmon production. The growth was projected to continue at an

even greater rate (see Concurrence Memorandum to Richard W. Moreland,

Deputy Assistant Secretary, Import Administration from team dated

November 10, 1997). Based on the growth projections and the health of

the Chilean salmon industry in 1988 and the entry into that industry by

private investors in the same year, we preliminarily determine that

FCH's decision to invest in Salmotec was consistent with the usual

investment practice of private investors in Chile.

We have not analyzed nor investigated FCH's investment in Salmones

Huillinco because this company is not a producer or exporter of the

subject merchandise.

The GOC reported that FCH did not provide any aquaculture

infrastructure to the salmon industry during the AUL period, and there

can be no residual benefits from the provision of infrastructure prior

to the AUL period. Therefore, we did not examine this program further.

Finally, regarding the technical assistance provided by FCH, this

assistance included research and development, consultations, seminars

and inspection services. For each type of service provided, FCH charged

a fee. Pursuant to section 771(5)(E)(iv) of the Act, a countervailable

benefit exists in this situation if the services are provided for less

than adequate remuneration. The adequacy of remuneration is determined

in relation to prevailing market conditions for the service.

We have examined the fees charged by private companies which are

FCH's major competitors and have found that the fees charged by FCH are

in line with those charged by the private service providers.

Accordingly, we preliminarily determine that FCH's fees provided

adequate remuneration for the services it provided.

For the foregoing reasons, we preliminarily determine that the

Chilean salmon industry has not received a benefit from financial

contributions provided by FCH.

B. Fund for Technological and Productive Development (FONTEC)

FONTEC was established in 1991 by CORFO to promote, guide, finance,

and assist the execution of technological research and development

projects in Chile. FONTEC is a committee composed of eight members from

the public and private sectors with significant experience and

reputation in technological fields. This program provides grants and

loans for research and development projects that are aimed at

innovations in technology and for investment projects in technological

infrastructure.

The amount of FONTEC financing was subject to a ceiling dependent

on the line of financing: (1) the first line was for ``technology

innovation'' projects involving financing requests lower than US

$100,000; (2) the second line was for projects involving financing

requests larger than US $100,000; and (3) the third line was for

technological infrastructure projects. Any private company or entity in

the production sector is eligible for FONTEC funding, provided that the

company demonstrates that it has the proper technical, administrative

and financial capacity to execute and implement the proposed project

and that the project is aimed at technological innovation in products

or processes. In addition, the third line of financing is only

available to entities which: (1) are formed by at least five companies;

(2) organized as a corporation or a foundation whose main line of

business is technological transfer; and (3) can show stable projections

of the project over time. Applicants, regardless of the line of

financing under which they are applying, must demonstrate the

eligibility of the project and the applicant company as well as the

economic benefits of the project. In particular, the evaluation

guidelines for the second line of financing (projects over US $100,000)

specifies that the economic benefit criterion may be satisfied by

factors such as ``cost savings, production increases, export increases,

etc.'' (Emphasis added). The guidelines for the other two lines of

financing do not enumerate specific factors to measure the economic

benefit. Chilean salmon producers received grants under all three lines

of financing of this program.

We analyzed whether the program is specific ``in law or fact''

within the meaning of section 771(5A) of the Act. We preliminarily

determine that the program is not de jure specific because the receipt

of the benefits, in law, is not contingent on export performance or on

use of domestically goods over imported goods nor are the benefits

limited to an enterprise, industry or region. As stated above, we note

that anticipated exportation could have been a factor in the approval

process of projects under the second line of financing. Nevertheless,

we have no evidence that the GOC approved the salmon project under the

second line of financing based on the export factor. In other words,

although the applicant may have fulfilled the economic benefits

criterion by demonstrating anticipated increases

[[Page 61808]]

in exports, it is also possible that the criterion was met by other

factors such as savings in cost and production increases. At

verification, we will closely examine the actual application and

approval documents of the project under the second line of financing to

determine whether the GOC's approval of the project was actually

contingent on the company's export performance.

Pursuant to section 771(5A)(D)(iii) of the Act, a subsidy is de

facto specific if one or more of the following factors exists: (1) the

number of enterprises, industries or groups thereof, which use a

subsidy is limited; (2) there is predominant use of a subsidy by an

enterprise, industry, or group; (3) there is disproportionate use of a

subsidy by an enterprise, industry, or group; or (4) the manner in

which the authority providing a subsidy has exercised discretion

indicates that an enterprise or industry is favored over others. As

explained in the Statement of Administrative Action (``SAA'') (H.R.

Doc. No. 316, Vol. I, 103d Cong., 2d Session (1994) at 931), the fourth

criterion normally serves to support the analysis of other de facto

specificity criteria.

During the period 1991 through 1996, assistance under this program

was distributed to a large number and wide variety of users in the

majority of regions of Chile. Therefore, the program is not limited

based on the number of users. The evidence also indicates that neither

the salmon nor the fishing and aquaculture industry received a

predominant or a disproportionate share of the total funding. Given our

findings that the number of users is large and that there is no

predominant or disproportionate use of the program by the salmon

industry, we do not reach the issue of whether administrators of the

program exercised discretion in awarding benefits. Accordingly, we

preliminarily determine that the funding of projects by FONTEC is not

specific and has not conferred countervailable subsidies to the Chilean

salmon industry within the meaning of section 771(5) of the Act.

Of the several salmon-related projects funded by FONTEC, the GOC

has argued in the alternative that the funding provided to the

Instituto Tecnologico del Salmon, S.A. (``INTESAL'') falls within the

definition of a non-actionable subsidy under Article 8 of the WTO

Agreement on Subsidies and Countervailing Measures (``SCM Agreement'').

Because we have preliminarily determined that the project funding

provided by FONTEC does not constitute countervailable subsidies, we do

not reach the issue of whether FONTEC's grants to INTESAL constituted a

non-actionable subsidy.

C. Central Bank Chapter XIX

Chapter XIX of the Central Bank's Compendium of International

Exchange Rules was designed to reduce the strain on Chile's foreign

currency reserves following the country's external debt crisis at the

beginning of the 1980s. Chapter XIX permitted non-resident investors

who bought Chilean external debt to trade that debt in Chile for local

currency to be used in carrying out investment projects in Chile. The

debt swap and subsequent investment had to be authorized by the

Executive Council of the Central Bank. Chapter XIX came into effect on

May 14, 1985, and was abolished on August 3, 1995. No operations were

carried out after 1991, however, because Chile's external debt

appreciated in international markets, reducing the attractiveness of

the debt swap operations.

Petitioners alleged that the Central Bank used its authority in

approving the debt swaps to promote export-oriented industries and

import substitution. Based on the evidence provided by the GOC, we have

determined that the benefit, if any, of these debt swaps and equity

investments is not specific.

Neither the laws nor the regulations concerning Chapter XIX debt

for equity swaps contained any formal provision favoring exports or

import substitution at the time the investments at issue were approved.

Moreover, based on information provided by the GOC, nearly 30 percent

of the operations carried out under Chapter XIX were for sectors

producing non-traded goods. While certain anecdotal evidence exists

regarding a bias towards export industries, other anecdotal evidence

indicates that the Central Bank did not favor exporters in its

authorizations. The GOC has claimed that the Central Bank's purpose in

authorizing these transactions was to ensure that the parties were

legally eligible to participate and that the investment was not

fraudulent.

We note that the Central Bank rejected a large number of proposed

operations. Because it was not obligated to publish its reasons for

accepting or rejecting an application, we are unable to determine

whether the Central Bank directed operations under Chapter XIX to

export-oriented or import substituting industries. At verification, we

intend to review closely the rejected proposals to determine if the

Central Bank used discriminatory criteria to favor orientation towards

specific sectors of the economy.

The GOC provided information on the amount of debt renegotiated and

invested in each industry and region for each of the years in which

Chapter XIX operations occurred. Only 4.4 percent of the operations

were in the fishing and aquaculture sector; other sectors represented

in Chapter XIX operations included mining, forestry, communications,

and financial institutions, among others. Manufacture of paper and

printing was the industry sector with the highest representation at

nearly 20 percent of operations. Accordingly, we preliminarily

determine that the farmed salmon industry was neither a predominant nor

a disproportionate user of this program.

D. Export Credit Limits

Law Number 18,576 of 1986 governs lending limits for Chilean banks.

Under this law, Chilean banks are prohibited from extending more than

five percent of their paid-in-capital in non-guaranteed loans to any

single borrower. (For guaranteed loans, the limit is 25 percent.)

However, this law also allows Chilean banks to lend an additional five

percent of their paid-in-capital to exporters for their foreign

currency loans.

While this program allows a Chilean bank to lend a greater

percentage of its paid-in capital to an exporter than to a customer

that does not export, we have preliminarily determined that this does

not confer a benefit on exporters. Based on the information submitted,

it does not appear that non-exporting borrowers have less access to

credit because, if their borrowings will exceed the lending limit at

one bank, they can simply borrow from another commercial bank at

equivalent rates and terms. We intend to examine the information

closely at verification. Therefore, we preliminarily determine that the

export credit limits do not constitute a countervailable subsidy within

the meaning of section 771(5)(E)(ii) of the Act because there is no

benefit conferred on exporters.

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

Under Decree Law 3,475 of 1980, a stamp tax is levied on checks,

letters of exchange, money orders, promissory notes and loan documents

in Chile. The tax is levied on checks at the flat rate of 109 pesos,

and on other types of documents at the rate of 0.1 percent of the

capital amount per month, to a maximum of 1.2 percent per annum, or 0.5

percent on obligations payable on demand or with no specified maturity

date. The stamp tax is paid at the time a loan is disbursed, as the

issuing bank withholds the amount of the stamp tax

[[Page 61809]]

from the gross amount of the loan. Law 18,449 exempts documents

relating to the financing of exports from this tax.

In the Final Affirmative Countervailing Duty Determination:

Standard Carnations from Chile, 52 FR 3313, 3314 (February 3, 1987),

the Department found the stamp tax exemption countervailable, stating:

``Neither the Government of Chile nor the respondent companies gave us

clear explanations as to what is meant by `export credit operations.'

'' In this proceeding, the GOC has placed on the record the copies and

translations of regulations relating to this program which describe the

types of operations and instruments eligible for the exemption. We have

previously determined that the non-excessive rebate or exemption of

indirect taxes levied at the final stage is not considered a subsidy

(see, e.g., Final Negative Countervailing Determination: Welded Carbon

Steel Line Pipe from Taiwan, 50 FR 53364 (December 31, 1985)). Because

the amount of the exemption is not greater than the amount of the stamp

tax due, we preliminarily determine that this program does not confer

countervailable benefits within the meaning of section 771(5)(E) of the

Act.

F. Article 59 of Decree Law 824

Under Article 59 of Decree Law 824, effective January 1, 1994, all

foreign service providers doing business in Chile are required to pay

income tax at the rate of 35 percent. This tax is withheld by the

Chilean company to which the service is provided and then paid to the

government. The law exempts the foreign service providers from paying

the tax if the income was for certain services related to exportable

goods and services produced in Chile. If the services are eligible for

the exemption, the Chilean company (i.e., the purchaser of the

services) is also exempt from the withholding requirement.

We found no evidence that the benefit, if any, resulting from the

exemption from the tax and the withholding requirement accrues to the

subject merchandise. Therefore, we preliminarily determine that this

program does not constitute a countervailable subsidy.

III. Programs Preliminarily Determined To Be Not Used

The following programs were not used:

A. Institute for Technological Research (INTEC)

B. Central Bank Chapter XVIII

C. Export Promotion Fund

D. CORFO Export Credits and Long-Term Export Financing

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

IV. Programs Preliminarily Determined Not To Exist

Based on information provided by the GOC, we preliminarily

determine that the following programs do not exist:

A. GOC Guarantee of Private Bank Loans

B. Import Substitution Subsidy for New Industries

C. Tax Deductions Available to Exporters

Summary

The total estimated preliminary net countervailable subsidy rate

for all producers or exporters of fresh Atlantic salmon in Chile is

0.62 percent, ad valorem, which is de minimis. Therefore, we

preliminarily determine that countervailable subsidies are not being

provided to producers, or exporters of fresh Atlantic salmon in Chile.

Verification

In accordance with section 782(i) of the Act, we will verify the

information submitted by respondents prior to making our final

determination.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the

ITC of our determination. In addition, we are making available to the

ITC all non-privileged and nonproprietary information relating to this

investigation. We will allow the ITC access to all privileged and

business proprietary information in our files, provided the ITC

confirms that it will not disclose such information, either publicly or

under an administrative protective order, without the written consent

of the Deputy Assistant Secretary, Import Administration.

If our final determination is affirmative, the ITC will make its

final determination within 45 days after the Department make its final

determination.

Public Comment

In accordance with 19 CFR 355.38, we will hold a public hearing, if

requested, to afford interested parties an opportunity to comment on

this preliminary determination. The hearing will be held on March 6,

1998, at the U.S. Department of Commerce, Room 3708, 14th Street and

Constitution Avenue, N.W., Washington, D.C. 20230. Individuals who wish

to request a hearing must submit a written request within ten days of

the publication of this notice in the Federal Register to the Assistant

Secretary for Import Administration, U.S. Department of Commerce, Room

B099, 14th Street and Constitution Avenue, N.W., Washington, DC 20230.

Parties should confirm by telephone the time, date, and place of the

hearing 48 hours before the scheduled time.

Requests for a public hearing should contain: (1) The party's name,

address, and telephone number; (2) the number of participants; (3) the

reason for attending; and (4) a list of the issues to be discussed. In

addition, ten copies of the business proprietary version and five

copies of the nonproprietary version of the case briefs must be

submitted to the Assistant Secretary no later than February 24, 1998.

Ten copies of the business proprietary version and five copies of the

nonproprietary version of the rebuttal briefs must be submitted to the

Assistant Secretary no later than March 3, 1998. An interested party

may make an affirmative presentation only on arguments included in that

party's case or rebuttal briefs. Written arguments should be submitted

in accordance with 19 CFR 355.38 and will be considered if received

within the time limits specified above.

This determination is published pursuant to section 703(f) of the

Act.

Dated: November 10, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-30387 Filed 11-18-97; 8:45 am]

BILLING CODE 3510-DS-P