Final Negative Countervailing Duty Determination: Fresh Atlantic Salmon from Chile

DEPARTMENT OF COMMERCE

International Trade Administration

[C-337-802]

Final Negative Countervailing Duty Determination: Fresh Atlantic

Salmon from Chile

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 9, 1998.

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

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

Office 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.

Final Determination

The Department of Commerce (the ``Department'') 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; Treats Island Fisheries;

and Trumpet Island Salmon Farm, Inc. (collectively referred to

hereinafter as the ``petitioners'').

Case History

Since the publication of the preliminary negative determination in

the Federal Register on November 19, 1997 (62 FR 61803) (``Preliminary

Determination''), the following events have occurred.

On December 3, 1997, the petitioners requested that the Department

collect information on Law 889, a program which we had not included in

our investigation because information in the petition indicated that

the program was no longer in existence. The petitioners' submission

included evidence that indicated that this program was in operation

during the POI.

Upon a review of information on the record, we determined that

because the program was included in the petition, the petitioners'

request constituted a timely submission of factual information rather

than a new subsidy allegation. Accordingly, on December 11, 1997, we

requested that the Government of Chile (``GOC'') provide information

regarding benefits provided under Chilean Law 889. The GOC submitted

the requested information on January 21, 1998.

We conducted verification of the responses of the GOC from January

28 through February 11, 1998.

The petitioners and the GOC filed case and rebuttal briefs on March

4 and

[[Page 31438]]

March 10, 1998, respectively. The Department held a hearing on March

13, 1998.

On March 9, 1998, the petitioners amended the petition to include

Trumpet Island Salmon Farm, Inc., a U.S. producer of the subject

merchandise, as an additional petitioner.

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 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

item numbers 0302.12.0003 and 0304.10.4093 of the Harmonized Tariff

Schedule of the United States (``HTSUS''). Although the HTSUS numbers

are provided for convenience and customs purposes, the written

description of the merchandise is dispositive.

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'').

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.

De Minimis Countervailable Subsidy

Pursuant to its authority under section 771(36) of the Act, the

United States Trade Representative (``USTR'') has designated Chile as a

``developing country.'' See USTR Interim Final Rule: Developing and

Least-Developed Country Designations Under the Countervailing Duty Law

(15 CFR 2013). Consequently, a net countervailable subsidy rate that

does not exceed two percent ad valorem is considered de minimis, in

accordance with section 703(b)(4)(B) of the Act and Article 27 of the

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

As discussed below, we determine that the net countervailable subsidy

bestowed on fresh Atlantic salmon from Chile is less than two percent

ad valorem, and therefore, de minimis.

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

questionnaires, and the information reviewed at verification, we

determine the following:

I. Programs Determined To Be Countervailable

A. ProChile Export Promotion Assistance

In the preliminary determination, we found that this program

conferred countervailable subsidies on the subject merchandise. Our

review of the record, our findings at verification and our analysis of

the comments submitted by the interested parties, summarized below,

have led us to modify our findings from the preliminary determination

for this program. See infra Comments 2 and 4 for a discussion of issues

related to this program. See also memorandum from the team to the file,

``Calculations for Final Determination,'' dated June 1, 1998 (public

version on file in the Central Records Unit of the Department of

Commerce) (``Calculation Memorandum''). The benefit in the POI was

calculated using our standard grant allocation methodology. The

countervailable subsidy rate for this program is changed and is

determined to be 0.04 percent ad valorem.

B. CORFO Export Credit Insurance Premium Assistance

In the preliminary determination, we found that this program

conferred countervailable subsidies on the subject merchandise. We did

not receive any comments on this program from the interested parties,

and our review of the record has not led us to change any findings or

calculations. Accordingly, the countervailable subsidy for this program

is unchanged and is determined to be 0.01 percent ad valorem.

C. Law 18,634

In the preliminary determination, we found that the fiscal credit

and the waiver provisions of this program conferred countervailable

subsidies on the subject merchandise. Based on our review of the record

and our analysis of comments on this program from the interested

parties, we have changed our findings and find the entirety of Law

18,634, including the duty deferral provision which was preliminarily

determined to be not countervailable, constitutes a countervailable

export subsidy. See infra Comment 5; see also infra Comment 6 for a

discussion of another issue that did not affect our findings. We

changed our methodology for calculating the fiscal credit benefit to

account for the difference between the date the GOC records the loan

and the date the funds are disbursed to participants. In addition, we

corrected our calculations for certain clerical errors discovered in

the data submitted by the GOC. See infra Comment 7. Accordingly, the

countervailable subsidy for this program is changed and is determined

to be 0.48 percent ad valorem.

D. Promotion and Development Fund (Decree 15)

In the preliminary determination, we found that this program

conferred countervailable subsidies on the subject merchandise. Our

review of the record and our analysis of the comments on this program

from the interested parties have not led us to change our findings or

calculations. See infra Comment 11. Accordingly, the countervailable

subsidy for this program is unchanged

[[Page 31439]]

and is determined to be 0.01 percent ad valorem.

E. Law 18,480

In the preliminary determination, we found that this program

conferred countervailable subsidies on the subject merchandise. Our

review of the record and our analysis of the comments submitted by the

interested parties have led us to modify our calculations from the

preliminary determination for this program. Specifically, we adjusted

the denominator used to calculate the benefit for this program. See

infra Comment 8; see also Calculation Memorandum. Accordingly, the

countervailable subsidy for this program has been changed and is

determined to be 0.06 percent ad valorem.

F. Law 889 (Workers' Support Program)

(As discussed in the ``Case History'' section above, Law 889 was

not considered at the preliminary determination.)

Law 889, enacted in 1975, established the ``Workers'' Support

Program'' for Regions I, XI and the province of Chiloe in Region X. In

1993, the eligibility was extended to the province of Palena, also in

Region X. The Workers' Support Program provides grants to employers

operating in those named regions in an amount equivalent to 17 percent

of the taxable remuneration of the worker. The taxable remuneration of

the employee must not exceed 90,000 pesos. This limit is adjusted every

year according to the Consumer Price Index of the corresponding year

(adjusted to 109,967 pesos during the period January 1, 1996, through

May 31, 1996, and then again to 118,984 pesos for the remainder of

1996). The GOC reports that the government policy behind this program

was to provide an incentive to generate new jobs in certain

economically disadvantaged territories of the country by compensating

for a portion of the cost of labor to employers operating in those

regions.

To be eligible, the company must employ workers who are both

domiciled and permanently employed in the identified regions. Certain

employers including the public sector, large and medium copper and iron

mining companies, state-controlled enterprises, banking and financing

companies, insurance companies, and domestic (household) workers are

excluded from benefits under this program. The GOC has provided

information on the amount of grants received under this program by the

producers and exporters of fresh Atlantic salmon.

We determine that the Workers' Support Program under Law 889

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

of the Act. The grants are a direct transfer of funds providing a

benefit in the amount of the grant. Pursuant to section 771(5A)(D)(iv)

of the Act, the grants are specific because they are limited to firms

located in a designated geographical region.

Because these grants are made on an ongoing basis, we have treated

these grants as recurring based on the analysis set forth in the

General Issues Appendix (``GIA''), attached to the Final Affirmative

Countervailing Duty Determination: Certain Steel Products from Austria,

58 FR 37217, 37226 (July 9, 1993).

To calculate the subsidy rate, we divided the benefit attributable

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

salmon during the POI. See infra Comment 11. On this basis, we

determine the countervailable subsidy for this program to be 0.51

percent ad valorem.

II. Programs Determined To Be Not Countervailable

Based on the information provided in the responses and the results

of verification, we continue to find the following programs not

countervailable for the same reasons identified in the preliminary

determination:

A. Fundacion Chile Assistance

B. Fund for Technological and Productive Development (FONTEC)

C. Central Bank Chapter XIX

D. Law 18,449 (Stamp Tax Exemption)

E. Article 59 of Law 824

III. Programs Determined To Be Not Used

Based on the information provided in the responses and the results

of verification, we determine that 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 18,392 (Tax Exemptions)

IV. Programs Determined Not To Exist

Based on information provided by the GOC and the results of

verification, we 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

V. Other Programs Examined

A. Export Credit Limits

In our preliminary determination, we found that Law 18,576, which

authorizes banks to lend an additional five percent of their paid-in

capital to exporters for their foreign currency loans, did not confer

countervailable benefits on the subject merchandise. (See Preliminary

Determination at 61808.) In Final Affirmative Countervailing Duty

Determination; Standard Carnations from Chile, 52 FR 3313, 3315

(February 3, 1987), we found this program to be not used, stating:

``[W]e found no indication that the exporters under investigation

received more loans than domestic sellers.'' At verification, we met

with several representatives from private banks in Chile, as well as

representatives from the Central Bank and from the SBIF. These experts

indicated that bank credit limits are designed to limit a bank's loss

exposure to any one client. They further stated that the decision to

lend funds to an individual customer is based on a variety of factors,

and that the bank will seek to prudently assess the risk associated

with lending to that customer (see memorandum from the team to Roy A.

Malmrose, Acting Director, Office I, ``Verification of the

Questionnaire Responses of the Government of Chile,'' dated February

27, 1998, page 33 and Appendix 3 at page 2).

Because Law 18,576 limits the amount that a bank may lend to any

individual customer, and it allows higher credit limits for export

loans, it may constitute a countervailable subsidy within the meaning

of section 771(5) of the Act. The GOC is directing the actions of

financial institutions by setting credit limits for otherwise similarly

situated domestic borrowers at a lower level than that which is

available to exporters. The higher lending limits for exporters may

result in exporters receiving more credit from any one bank than would

otherwise be available from that bank. The higher credit limits are

specific because they are contingent on exportation or anticipated

exportation.

A review of the record evidence, however, has led us to conclude

that any potential benefit to the subject merchandise resulting from

this program would be minuscule. First, the salmon industry in Chile is

fragmented, with many small- and medium-sized producers and exporters.

Accordingly, the borrowing needs of any individual producer are

relatively insignificant. Second, the banking industry in Chile has

undergone a period of consolidation, such that the available

[[Page 31440]]

capital at larger banks for an individual domestic borrower is

substantial. Further, record evidence indicates that the Chilean

banking industry is highly competitive; there is no reason to believe

loans on similar terms are not available from other banks. In fact,

information on the record does not demonstrate any differential between

interest rates on export loans compared to domestic loans that can be

attributed to Law 18,576. Because there would likely be no impact on

the overall subsidy rate in the instant investigation for the POI, we

do not consider it necessary to address the issue of whether this

program is countervailable or what would be the appropriate methodology

for measuring any benefit accruing to the subject merchandise.

Interested Party Comments

Comment 1: The petitioners argue that Chile should be treated as a

developed country subject to a de minimis threshold of one percent for

purposes of the countervailing duty law. The GOC rebuts that Chile is a

developing country and should, therefore, be subject to a two percent

de minimis threshold.

Department's Position: As acknowledged by the parties, section

771(36) of the Act reserves the authority to designate Chile's status

as developed or developing for purposes of the countervailing duty law

to the USTR. Accordingly, we are not addressing this issue. See supra

section entitled ``De Minimis Countervailable Subsidy.''

Comment 2: The GOC claims that ProChile assistance is not

countervailable because ProChile's services are not contingent upon

exports and ProChile does not promote certain products over others.

According to the GOC, the fact that 46 percent of the companies using

ProChile's services in 1996 did not export evinces the lack of an

export requirement. The GOC further contends that the ProChile program

is used by a broad range of industries from all regions of Chile,

thereby proving that the program is neither de jure nor de facto

specific.

Moreover, the GOC argues that ProChile's activities consist mostly

of general informational activities, similar to those practiced by the

U.S. Department of Commerce, International Trade Administration's

Foreign Commercial Service (``FCS'') and Trade Development (``TD'')

divisions. According to the GOC, ProChile provides the same services

for a broad spectrum of Chilean goods and services and does not seek to

promote a particular product over others.

The petitioners contend that the GOC's argument does not address

the presumption of per se specificity for export subsidies. The

petitioners argue that because the GOC assesses export potential when

considering a company for participation in ProChile export promotion

events, the program is contingent on exports or anticipated exports

and, thus, countervailable. The petitioners note that even if 46

percent of the participating companies did not export, the majority, 54

percent, did export. The petitioners argue that the name of the

division of the GOC administering the ProChile program, the Export

Promotion Bureau, is further evidence that the organization provides a

countervailable export promotion subsidy.

The petitioners also reject the GOC's argument that ProChiles'

activities should be considered ``general informational activities.''

The petitioners assert that export promotion programs that promote a

specific product or provide financial assistance, are not general

export promotion.

Department's Position: For this final determination we continue to

find that payments by ProChile to underwrite the cost of trade fairs

held in the United States and other marketing expenses to promote,

inter alia, Chilean salmon, are countervailable export subsidies within

the meaning of section 771(5) of the Act. At these trade fairs,

ProChile promoted specific products and assumed certain advertising and

marketing costs for the participating firms. Consistent with footnote 4

to Article 3.1(a) of the SCM Agreement, the payments made by ProChile

are tied to anticipated exportation of Chilean salmon.

Our treatment of this program as a countervailable export promotion

program is consistent with our determination in Final Affirmative

Countervailing Duty Determination: Certain Fresh Atlantic Groundfish

from Canada, 51 FR 10041 (March 24, 1986) (``Groundfish from Canada'').

In that case, we countervailed a program in which the Canadian

government promoted certain products at a trade show abroad, covering

advertising costs among other costs.

We agree with the GOC that ProChile provides varied services to

many companies, including non-exporters, and supports general

informational activities. However, our finding of countervailability in

this investigation does not extend to those services and activities. We

have only found countervailable ProChile's assumption of costs in

connection with the salmon producers' and exporters' participation in

trade fairs held in the United States.

Comment 3: The GOC claims that the trade fair, ``Event Bon

Appetit,'' is not countervailable because it is part of a much broader

Chilean promotion campaign that does not promote salmon over other

products. According to the GOC, this program works to promote the image

of Chile without assuming costs that the salmon industry would

otherwise incur. In the event that the Department continues to find

``Event Bon Appetit'' to be countervailable, the GOC asserts that

certain payments made after the POI should not be considered

countervailable.

The petitioners counter that ``Event Bon Appetit'' is

countervailable because it conferred an export subsidy to the salmon

industry by promoting the export of salmon and wine to the United

States over other Chilean goods. The petitioners note that this is

consistent with the treatment of a similar program in the Groundfish

from Canada, where the Department countervailed a program in which the

Canadian government promoted certain products at a trade show abroad,

covering advertising costs among other expenses.

The petitioners further argue that the entirety of ``Event Bon

Appetit'' funding should be countervailed because it is the

Department's practice to find that the benefit occurs when the

recipient experiences the economic effect of the subsidy. The

petitioners cite to Final Affirmative Countervailing Duty Determination

and Countervailing Duty Order; Certain Steel Wire Nails from New

Zealand, 52 FR 37196, 37197 (October 5, 1987) (``Wire Nails from New

Zealand'') where the Department measured tax benefits on an earned

basis because the amount of the benefit was known at the time a firm

made an export transaction. The petitioners argue that it is irrelevant

when the GOC actually disbursed funds to pay for the events that had

already benefitted the salmon exporters. What is important, according

to the petitioners, is when the salmon exporters experienced the

economic effect of the subsidy, i.e., at the time of the ProChile-

sponsored event.

Department's Position: While we agree with the petitioners that

``Event Bon Appetit'' is specific in that it is contingent on exports

within the meaning of section 771(5A)(B) of the Act , we disagree with

them concerning the timing of the subsidy benefits. The Department's

practice deems benefits to be received at the time that there is an

effect on the recipient's cash flow. In the case of the provision of a

good or service, this would be the time a firm pays, or in the absence

of payment, would have paid, for the good or service. (See, e.g.,

Countervailing Duties: Notice of Proposed Rulemaking, 54 FR

[[Page 31441]]

23368 (May 31, 1989) (``1989 Proposed Regulations'') section

355.48(b)(2), and GIA at 37228-29, ``[B]enefits are generally deemed to

be received at the time there is a cash flow effect on the company

receiving the benefit.'') The Department occasionally makes an

exception to this general rule where benefits are earned on a shipment-

by-shipment basis and are known at the time of export, as was the case

in Wire Nails from New Zealand, but, because the benefits are not

associated with specific export transactions, this is not the case

here. (See also Final Results of Countervailing Duty Administrative

Review: Certain Iron-Metal Castings from India, 56 FR 52521, 52527

(October 21, 1991).)

Where the GOC paid fees in connection with this event after the POI

to the firms that provided the services, the salmon exporter

experienced the cash flow effect after the POI. Accordingly, we have

not included payments made after the POI in our calculation of benefits

from ``Event Bon Appetit.''

We have continued to find the costs paid by the GOC during the POI

in putting on this event countervailable, however, as they were costs

that would normally have been paid by the producers and exporters of

the promoted merchandise, were targeted to the U.S. market, and were

contingent on exportation.

Comment 4: The GOC argues that the ``Summer Harvest'' event is not

countervailable because it was sponsored as an ``image'' event

involving a broad range of products that did not promote particular

products over others. The GOC asserts that many of the costs of the

event were covered by private participants and no funds were provided

by the GOC directly to the Chilean companies or associations. The GOC

argues that if the Department calculates a benefit from the ``Summer

Harvest'' event, it must use a denominator that reflects the

participation of the salmon industry as one of many participating

products rather than allocating all of the benefits of the event to

salmon.

The petitioners assert that the ``Summer Harvest'' event is fully

countervailable. The petitioners argue that the GOC should have

reported the program prior to verification and that its decision not to

report the program does not demonstrate that the program constitutes

general export promotion. The petitioners argue that the GOC's analysis

is flawed because the Department's determination of an export subsidy

considers neither the examination of the number of participants nor the

amount of the government contribution. According to the petitioners,

the ``Summer Harvest'' event is fully countervailable because it was

not limited to general informational activities, promoted particular

products over others, and targeted the U.S. market. The petitioners

contend that because the record lacks adequate information to properly

calculate the value of the benefit conferred by this event, the

Department must apply facts available.

Department's Position: We agree with the GOC that the ``Summer

Harvest'' event does not constitute a countervailable subsidy. A review

of the information on the record indicates that ``Summer Harvest'' was

an ``image'' event that falls within the category of activities defined

as ``general export promotion'' which the Department has declined to

countervail in past cases. See, e.g., Certain Fresh Cut Flowers From

Mexico, 49 FR 15007, 15008 (April 16, 1984) and Final Affirmative

Countervailing Duty Determination and Countervailing Duty Order; Cotton

Sheeting and Sateen From Peru, 48 FR 4501, 4504 (February 1, 1983); see

also 1989 Proposed Regulations (section 355.44(m)) and Countervailing

Duties; Proposed Rule, 62 FR 8818, 8825 (February 26, 1997) (``1997

Proposed Regulations''). While the GOC did consider the export

potential of products on display at the event, a very broad range of

products was invited to participate in an effort to position the image

of Chile as a producer of high quality food products for the world

market. We note that in the documentation, the participants were

referred to by the GOC as ``donors'' of the merchandise on display.

Although the GOC covered certain expenditures related to the event, we

note that none of the outlays by the GOC for this event went to the

Chilean associations participating, nor did the GOC cover any of their

costs. In fact, the participants covered a significant portion of the

general costs associated with this event, in addition to contributing

merchandise for display (including transportation costs from Chile).

Accordingly, we have not included an amount for the ``Summer Harvest''

event in our calculation of benefits to the subject merchandise from

ProChile's export promotion activities.

Comment 5: The GOC argues that the fiscal credit program of Law

18,634 is not an import substitution subsidy and, thus, should not be

countervailed. The GOC contends that the fiscal credit provision and

the duty deferral provision are in fact a single loan program, rather

than two separate ones, and when considered together for the

Department's specificity analysis, the program does not constitute an

import substitution subsidy.

According to the GOC, the fiscal credit and duty deferral

provisions of Law 18,634 are both part of a single, unified statutory

loan program whose purpose is to promote investment in capital goods

regardless of the source of those goods. The GOC points out both the

fiscal credit and the duty deferral are established in the same law,

administered in the same manner, and their rules are set forth in the

same Chilean Customs resolution. Referring to the factors set forth in

the Department's 1997 Proposed Regulations (at 8825) and 1989 Proposed

Regulations (section 355.43(b)(6)) with respect to the Department's

practice in evaluating programs that are ``integrally linked,'' the GOC

states that the fiscal credit and duty deferral provisions of Law

18,634 meet all of the factors. According to the GOC, an evaluation of

factors demonstrates that the duty deferral and fiscal credit are not

only integrally linked, but they in fact are a single loan program.

The GOC argues that the purpose and design of the fiscal credit was

to ensure that imports and domestic products would be treated equally.

Referring to the legislative history of Law 18,634, the GOC asserts

that the fiscal credit was specifically adopted to offset the pecuniary

benefits to imported goods created by the duty deferral provision.

When the fiscal credit and duty deferral provisions are considered

together, the GOC argues that the fiscal credit does not create a

preference for domestic goods nor are the loans issued contingent upon

the purchase of domestic goods. The GOC points out that the amount of

fiscal credit is equal to 73 percent of the amount of the customs duty

that would be deferred under the duty deferral provision. Consequently,

the GOC asserts, the program avoids any preference for domestic goods

since the amount of the fiscal credit for domestic goods can never

exceed the amount of the duty deferral for imported goods. The GOC

further states that the conditions for obtaining a loan under this

program are the same for both provisions of the law which is limited to

the type and the value of the good. According to the GOC, the source of

the good as either foreign or domestic does not affect the eligibility,

the issuance or the condition of the loan. The GOC states that the

source is only relevant in determining whether the form of the loan

will be that of a fiscal credit or a duty deferral.

[[Page 31442]]

When considered as a single domestic subsidy program, the GOC

contends that the usage information on the record demonstrates that the

two provisions are not specific in that there is no disproportionate or

dominant usage by the salmon industry.

The petitioners argue that the fiscal credit and the duty deferral

provisions are properly analyzed as separate programs. Because the

receipt of benefits is available only to purchasers of domestic goods,

the petitioners assert that the fiscal credit program is a de jure

import substitution subsidy which is per se specific pursuant to

section 771(5A)(A) of the Act. According to the petitioners, whether

the fiscal credit provision or both provisions of Law 18,634 taken

together creates any ``preference'' is irrelevant to the analysis of an

import substitution subsidy, i.e., whether receipt of benefit is

contingent on the purchase of domestic goods over imported goods.

Moreover, the petitioners argue that contrary to the GOC's claims, the

program encourages firms to purchase domestic goods through the

issuance of interest-free credits. According to the petitioners, the

duty deferral provision addresses the distortion caused by the

imposition of the import tariff and, thus, allows imported capital

goods to compete on an equal basis with domestic capital goods. The

petitioners contend that the fiscal credit provision, on the other

hand, artificially reduces the price of the domestic good that was made

comparable through the duty deferral, thereby creating a preference to

purchase domestic goods.

Furthermore, the petitioners argue that the ``integral linkage''

test does not apply in this situation because the test is only relevant

in analyzing the de facto specificity of domestic subsidies. Because

the fiscal credit program is specific as an import substitution

subsidy, the petitioners assert that a de facto specificity analysis is

unnecessary and irrelevant. Even assuming the integral linkage test

were appropriate in this case, the petitioners argue that Law 18,634

does not satisfy the criteria set forth in the Department's integral

linkage analysis. In particular, the petitioners claim that the GOC has

not proven that the programs share the same purpose and that all

recipients are treated equally.

Department's Position: In our preliminary determination, we

analyzed the assistance provided under Law 18,634 by considering

separately four components of the law. First, firms that import capital

equipment are eligible to defer payment of duty. Second, if the firm

that imports the equipment meets a specified export target, then the

deferred duty and accrued interest are waived. Third, firms that

purchase their equipment domestically are eligible to borrow up to 73

percent of the value of the duty that would have been paid if the

equipment had been imported. Finally, if the firm that purchases

domestically sourced equipment meets a specified export target, then

the loan and accrued interest are forgiven. In our preliminary

determination, we found that all the components of Law 18,634 except

the first conferred countervailable subsidies. This was consistent with

our determinations in past cases (see, e.g., Final Affirmative

Countervailing Duty Determinations: Certain Steel Products from Brazil,

58 FR 37295, 37299 (July 9, 1993) (Exemption of IPI and Duties on

Imports under Decree-Law 2324)). With respect to the duty deferral, we

found that the benefit was not specific.

The GOC argues that two components of the program, the duty

deferral component and the loans to purchasers of domestically sourced

equipment, should be treated as a single program for specificity

analysis. We have not adopted this position because it amounts to

picking and choosing which elements of the law should be combined in

order to achieve the result that the loans to purchasers of

domestically sourced equipment are not specific. Based on our review of

the law and its legislative history, we have determined that the four

components should be analyzed as a single program.

In its argument, the GOC points to the legislative history

discussing the purpose of introducing the loans and waivers for

purchases of domestically sourced equipment, i.e., to avoid a

preference for imported equipment. However, the same legislative

history indicates that the purpose of the pre-existing duty deferral

and waiver system was to promote importation of capital goods and, at

the same time, to promote exports. (See January 21, 1998 GOC

Submission, exhibit 8, page 2, paragraph 2.) We further note that all

components of Law 18,634 are administered by Chilean Customs, and the

list of eligible goods is the same for the duty deferral/waiver

components as for the loan/waiver for domestically sourced equipment.

Thus, the loan/waiver for domestically sourced equipment was added to

and became part of an overall scheme to, inter alia, promote exports.

While we acknowledge that the duty deferrals and loans for

purchases of domestically sourced equipment are not strictly contingent

upon exportation, their overarching purpose, along with the waiver

components, is to promote exports. Viewed as a whole, we determine that

the benefits provided under Law 18,634 constitute an export subsidy

within the meaning of section 771(5A)(B) of the Act are, therefore,

specific. A benefit is conferred on the recipient firms in the amount

of the waivers and to the extent that the benchmark interest exceeds

the program interest on the duty deferrals and on the loans for

purchases of domestically sourced equipment.

Comment 6: The petitioners argue that the fiscal credits under Law

18,634 constitute contingent liabilities which should be treated as

short-term, interest-free loans in the final determination. Referring

to section 355.49(f) of the 1989 Proposed Regulations, the petitioners

assert that ``where a government provides a long-term, interest-free

loan, the obligation for repayment of which is contingent upon

subsequent events,'' the Department's practice is to treat such loans

as short-term, interest-free loans. According to the petitioners, all

the conditions of section 355.49(f) are met here.

The petitioners first state that the loans are long-term because

the repayment of the fiscal credits under Law 18,634 occurs at years

three, five and seven from the date of receipt. Second, the petitioners

point out that even though interest may be accruing, the recipient

company is not required to make any principal or interest payments

until the occurrence of subsequent events. According to the

petitioners, the lack of payments during the period that the fiscal

credits are outstanding and given the significant likelihood of a

salmon company having its fiscal credit waived, the fiscal credits are

in effect equivalent to a zero interest rate loan. In addition, the

petitioners assert that because repayment of principal and interest is

subject to a condition relating to a specific export target, the fiscal

credits represent contingent liabilities. The petitioners further state

that the Department treated loans with similar payment structures to

Law 18,634 fiscal credits as contingent liabilities in past cases such

as Final Affirmative Countervailing Duty Determination: Carbon Steel

Products from Sweden, 50 FR 33375 (August 19, 1985) and Final

Affirmative Countervailing Duty Determinations: Certain Steel Products

from Germany, 58 FR 37315 (July 9, 1993).

The GOC counters that because Law 18,634 fiscal credits are in fact

not interest-free, the petitioners' proposed methodology of treating

the loans as interest-free would effectively double-count interest--

once when accrued interest has been waived and again

[[Page 31443]]

when the amount of interest is calculated. The GOC states that the

cases cited by the petitioners are clearly distinguishable because the

programs examined actually did involve interest-free loans. By

contrast, the GOC asserts that the fiscal credits accrue interest from

the invoice date of the capital good and, thus, are not interest-free

for any period of time. According to the GOC, the Department's

preliminary determination methodology of calculating the difference

between program interest and benchmark interest accurately captured all

benefits offered by the fiscal credits.

Department's Position: We agree with the GOC. While the fiscal

credits may represent contingent liabilities in that repayment is

conditioned upon subsequent events, the methodology contained in

section 355.49(f) of the 1989 Proposed Regulations is inapplicable

because the loans are in fact not interest-free. Under the terms of Law

18,634, the interest on the fiscal credit accrues from the date of the

invoice of the capital good until the time of repayment. Although the

accrued interest, along with the principal, may ultimately be waived,

we cannot ignore the fact that the interest may have to be paid.

Despite the petitioners' argument that a salmon company was

significantly more likely to have its fiscal credit waived, the fact

remains that some of the borrowers did not meet the conditions and did

repay the accrued interest and the principal. As stated by the GOC, by

countervailing the difference between the program and the benchmark

interest rate during the time the fiscal credit is outstanding and then

countervailing the entire waived amount, we have accurately captured

all benefits that arise from the fiscal credits.

Comment 7: The GOC argues that the Department should adjust the

reported amounts for waivers of deferred duties and fiscal credits

under Law 18,634 to correct for amounts that were double-counted in the

database submitted by the GOC, as detailed in the GOC's January 21,

1998 submission, and supplemented in the January 27, 1998 submission.

The GOC notes that the Department verified that when there was a

change in ownership of equipment on which the duty deferral or fiscal

credit was claimed, that asset was reentered in the fiscal credit

database although the original balance was not deleted from the

original database. The GOC argues that to avoid double-counting, the

Department should delete all fiscal credit entries with reference

numbers less than 500,000 from the database.

Department's Position: We have corrected the amount of waivers in

our final determination to exclude double-counted waivers of interest,

deferred duties and fiscal credits identified by the GOC in the January

28, 1998 submission. We have not deleted all balances with reference

numbers of less than 500,000 as suggested by the GOC, however, as it is

the original reference number that represents the obligation of the

original owner and should be deleted, not the number that represents

the obligation by the subsequent purchaser. The GOC has not identified

the matching reference numbers for all reference numbers less than

500,000. Accordingly, we have no assurance that the seller was a

producer of the subject merchandise and that the seller's obligation

for the duty deferral or fiscal credit was included in the submitted

databases.

Comment 8: The petitioners argue that the Department should

recalculate the benefit provided under Law 18,480 to reflect the

Department's practice of tying a subsidy to the particular product that

it benefits. The petitioners suggest that the Department divide the

amount of grants received by the value of the salmon producers' exports

of only those products eligible to receive such benefits.

The petitioners contend that by using a denominator comprised of

all exports by the salmon producers and exporters, the Department

significantly understated the benefits conferred by this program in the

preliminary determination.

The petitioners suggest that because the GOC has not provided the

information needed to calculate the correct denominator, i.e., a

denominator that includes only eligible merchandise, the Department

should use a numerator that would include total receipts under both

prongs of Law 18,480. The petitioners also assert that the GOC should

have been able to identify the subject merchandise in question and the

amount of benefits tied to that merchandise through the paperwork

required to document each refund with the Servicio Nacional de Aduanas

(``Chilean Customs'') and the Tesoreria General de la Republica

(``Chilean Treasury'').

The GOC argues that the petitioners have an incorrect understanding

of Law 18,480 and that the Department should continue to calculate the

benefits from Law 18,480 by using all exports as the denominator and

all subsidy benefits received under the domestically sourced inputs

program as the numerator. The GOC asserts that using the denominator of

total exports is appropriate because the reported amount of benefits

for the domestic input prong of Law 18,480 was the total amount of

benefits received by the responding companies on all of their exports.

The GOC asserts that the petitioners' statement that there are

categories of exports that are not eligible for either prong of Law

18,480 is erroneous, as eligibility for the domestic input prong of Law

18,480 is not related to the product exported.

The GOC also argues that it is not practicable for the GOC to

report benefits received only on exports of the subject merchandise.

The GOC insists that databases at the Chilean Customs and the Chilean

Treasury do not contain a link allowing them to cross-reference and

determine the amount of benefits claimed on domestic inputs based on

exports of a given category of merchandise. The GOC states that it has

no way to identify the exported merchandise on which benefits were

claimed and therefore had no alternative but to report only the

benefits received for domestically sourced inputs on all exports by

producers and exporters of the subject merchandise. The GOC contends

that it has acted to the best of its ability to comply with all

requests from the Department during this proceeding, therefore

eliminating any grounds to apply adverse facts available. According to

the GOC, the Department should not add a value for the simplified duty

drawback to the input credit benefits, i.e., increase the numerator to

match the denominator, because salmon is not eligible for the

simplified duty drawback. The GOC argues that it would clearly be

incorrect for the Department to countervail benefits that do not and

cannot relate to the subject merchandise. The GOC argues that if the

Department considers it necessary to adjust the calculation of the

benefit rate for this program, the Department should reduce the

denominator to exclude only those exports where the exporter was shown

to have claimed simplified duty drawback on that category of

merchandise.

Department's Position: The selection of an appropriate calculation

methodology for this program has been complicated because there are

two, potentially overlapping provisions to Law 18,480, and because of

the manner in which the GOC maintains records concerning benefits under

this program.

The first provision of Law 18,480 provides a simplified duty

drawback for small-volume, ``non-traditional,'' exports. The second

provision enables exporters to claim benefits for certain domestically

sourced inputs which are incorporated into exports of other

[[Page 31444]]

merchandise. The subject merchandise is not eligible for the simplified

duty drawback provision, however, during the POI, exporters of the

subject merchandise claimed benefits for domestically sourced inputs

incorporated in their exports of salmon. Exporters of the subject

merchandise also exported other merchandise, for which they may have

claimed benefits for domestically sourced inputs or simplified duty

drawback.

As noted by the GOC, exporters of merchandise that is eligible for

the simplified duty-drawback provision also have the option of claiming

benefits for the inputs into that merchandise. They cannot, however,

receive payments under both the simplified drawback and the provision

for domestically sourced inputs for the same export transaction. Also,

as noted by the petitioners, not all exports are eligible to claim

benefits for domestically sourced inputs. These include, e.g., exports

for which regular duty drawback was claimed, exports where imported

inputs exceed 50 percent of the f.o.b. value of the exported

merchandise, and exports whose raw materials or main factor of

production is ineligible for the simplified duty drawback and

represents 85 percent or more of the f.o.b. value of the exported

merchandise.

To calculate the countervailing duty rate for this program, we

would prefer to have information on the benefits provided for exports

of the subject merchandise, and divide that amount by the value of

exports of the subject merchandise. That is not possible in this

instance, however, because when the GOC receives claims for benefits

for domestically sourced inputs, it records this information under the

customs category of the input, not based on the merchandise that is

exported. Based on our verification, we are satisfied that the GOC was

not able to provide information on the amount of benefits paid on

exports of the subject merchandise.

The GOC was able to provide total payments to exporters of salmon

under the provision for domestically sourced inputs, which may include

payments for non-subject merchandise exported by these companies. In

our preliminary determination, we divided these total receipts by the

value of all products exported by the salmon exporters.

For our final determination, we have modified our calculation from

the preliminary determination because we believe it understated the

benefit to exports of the subject merchandise. In particular, because

certain exports of non-subject merchandise are eligible for the

simplified drawback and because the amount of benefits the exporters

would receive under the simplified drawback is generally greater than

the amount they would receive under the provision for domestically

sourced inputs, we have assumed that in most cases, if a claim were

filed, the simplified drawback would be claimed for eligible exports.

Consequently, at our request, the GOC provided information on the

amount of exports eligible for simplified duty drawback and we have

adjusted the denominator used in our preliminary determination to

exclude exports of such merchandise.

The GOC has argued that salmon exporters may have claimed benefits

for domestically sourced inputs where merchandise was also eligible for

the simplified drawback and, hence, payments related to merchandise

excluded from our denominator may be included in our numerator. If our

assumption is correct that salmon exporters can be expected to use

simplified drawback for exports of non-subject merchandise eligible for

that program, rather than claim benefits for domestically sourced

inputs, then our preliminary methodology dilutes the benefit

calculation for the subject merchandise. This dilution would result

from including exports of non-subject merchandise in the denominator

that had already benefited from the simplified drawback and did not and

could not have received the payments included in our numerator

(benefits for domestically sourced inputs). To the extent that benefits

for domestically sourced inputs were claimed for exports eligible for

simplified drawback by salmon exporters, we acknowledge that the

denominator may be slightly understated.

We disagree with the petitioners that the correct way to adjust our

calculation would be to increase the numerator by including simplified

drawback payments received on shipments of non-subject merchandise.

Because the benefits available under the simplified drawback are

generally much greater, this would have the effect of significantly

overstating the benefit to subject merchandise. Additionally, we have

not calculated the benefit from this program by using only exports of

subject merchandise as the denominator, because such a methodology

would clearly overstate the benefit from this program. We note that

while certain exports may not receive benefits for domestically sourced

inputs, this is dependent on the inputs, and not the category of

merchandise exported. Thus, exports of non-subject merchandise included

in our denominator are not precluded from claiming benefits for

domestically sourced inputs. Consequently, to the extent that non-

subject merchandise is included in the denominator, we have no evidence

or reason to believe that the benefit rate claimed on this merchandise

was less than the rate for benefits claimed on exports of the subject

merchandise.

Under the circumstances of this investigation, we have matched our

denominator to our numerator as best we can to measure the benefit to

the subject merchandise. As noted above, we are satisfied that the GOC

acted to the best of its ability in providing the information we

requested and, hence, we are not drawing an adverse inference. However,

we believe we have made reasonable assumptions and have calculated the

most accurate rate possible given the information available.

Comment 9: The petitioners argue that Chile's Chapter XIX debt-for-

equity swap program provided countervailable benefits to the producers

of the subject merchandise. The petitioners contend that the debt-for-

equity swap provided a financial contribution and that the acceptance

by the Central Bank of Chile of a proposed swap was contingent, either

in law or in fact, upon exportation by the applicant.

The petitioners cite anecdotal evidence included in articles

written on Chapter XIX that indicate that one of the goals of the

Chapter XIX program was to promote exports. The petitioners further

point to regulations issued in July 1990 for Chapter XIX transactions

which indicate that a preference would be given to export-oriented or

import-substituting projects. Although these regulations were not in

effect at the time the transactions involving producers of the subject

merchandise occurred, the petitioners argue that the regulations merely

codified pre-existing policies. The petitioners cite documents gathered

at verification claiming that these documents demonstrate that

anticipated exportation was a condition for acceptance of a proposed

swap. As further evidence that Chapter XIX approvals were biased in

favor of exports, and particularly in favor of non-traditional exports,

the petitioners point to statistics which indicate that 70 percent of

Chapter XIX projects through 1989 were in export-oriented industries,

while only 11 percent were in mining which previously accounted for 58

percent of Chile's exports. The petitioners acknowledge that not every

participant in the Chapter XIX debt conversion program was in an

export-oriented industry however, the petitioners argue that in Final

Affirmative Countervailing Duty

[[Page 31445]]

Determination and Countervailing Duty Order; Extruded Rubber Thread

From Malaysia, 57 FR 38472 (August 25, 1992) (``Extruded Rubber

Thread''), the Department found that benefits were countervailable

where Pioneer status was conferred on a respondent company subject to

an export commitment, stating:

The combination of the necessary export orientation of the

industry due to lack of domestic market opportunities and the

explicit export condition attached to Pioneer status approval, lead

us to conclude that the ``export'' side of the Pioneer Program

confers an export subsidy.

The petitioners note that in the companion antidumping investigation,

the Department stated that the home market for fresh Atlantic salmon is

incidental to Chilean growers and that growth in the Chilean salmon

industry has been almost entirely export-driven.

The GOC counters that there are statements in the same articles

cited by the petitioners which indicate that the GOC took a laissez-

faire approach to regulating Chapter XIX transactions. Concerning the

July 1990 regulations, the GOC points to the transcript of a speech

made in 1989 by Francisco Garces, who at the time was the International

Director of the Central Bank. In the speech, Mr. Garce's states that

the election of a new government in Chile may change the focus of the

Chapter XIX program to favor export-oriented industries. The GOC notes

that Mr. Garces refers to a ``change'' in the focus, not a mere

formalization of existing practice in the form of regulations. The GOC

argues that the documents reviewed at verification demonstrate the

opposite of what the petitioners claim, and that the documents show

that the GOC did not make acceptance of proposed transactions

contingent on export performance.

While the GOC does not dispute that a large number of the Chapter

XIX projects involved export-oriented industries, the GOC argues that

the investment projects were selected by the investors, without any

guidance from the GOC. Further, the GOC notes that participants in the

Pioneer Program in Extruded Rubber Thread made specific export

commitments in order to receive benefits. According to the GOC, the

Central Bank's role in reviewing proposed transactions was simply to

insure that the investors were eligible and that the transactions were

not fraudulent.

Finally, the GOC argues that there was no financial contribution,

because the Chapter XIX projects were carried out by private

individuals, with terms negotiated at arm's length.

Department's Position: We determine that the weight of the record

evidence does not support a conclusion that approval of Chapter XIX

proposals was contingent on export performance. The anecdotal evidence

in the published articles on the record of this case is contradictory

and cannot be considered conclusive. We further disagree that evidence

gathered at verification indicates that export performance was a

consideration in acceptance by the Central Bank of proposed

transactions. Due to the proprietary nature of the verification

documents, a further discussion of this issue is included in a

memorandum from the team to Richard W. Moreland, Deputy Assistant

Secretary for AD/CVD Enforcement, ``Analysis of Proprietary Comments

Concerning Chapter XIX Debt-for-Equity Swaps,'' dated June 1, 1998.

Because we have determined any potential subsidy arising under

Chapter XIX is not specific, we need not reach the question of whether

there was a financial contribution on the part of the GOC.

Comment 10: The petitioners argue that Law 18,449 which provides an

exemption from the Chilean stamp tax on certain financial transactions

for exporters is countervailable because it is contingent upon

exportation. The petitioners contend that the Chilean stamp tax

exemption is not analogous to the indirect taxes ``in respect of the

production and distribution of exported products'' referenced in the

Illustrative List of Export Subsidies in Annex 1 of the SCM Agreement

because the tax is assessed on loan documents and not the exported

merchandise. The petitioners further contend that the stamp tax, as it

is crafted in Chile, is not an indirect tax because it is borne by the

recipient of the loan, i.e., the exporter, and not borne by the

merchandise. According to the petitioners, the stamp tax is not shifted

forward and, therefore, behaves more like a direct than an indirect

tax.

The GOC rebuts that the SCM Agreement specifically enumerates stamp

taxes as an example of an indirect tax in footnote 58 to item (g) on

the Illustrative List. The GOC contends that an indirect tax is almost

necessarily levied on financial documents, whether the document be an

invoice or a letter of credit. The GOC notes that letters of credit

have been used for financing export sales for centuries, and that

Chilean law requires that the financing be repaid with proceeds from

export sales in order to qualify for exemption. The GOC cites

Countervailing Duties; Bicycle Tires and Tubes From Taiwan; Final

Results of Administrative Review, 48 FR 43366 (September 23, 1983) and

Final Affirmative Countervailing Duty Determination; Operators for

Jalousie and Awning Windows From El Salvador, 51 FR 41516, 41517

(November 17, 1986) as examples of previous cases where the Department

has found the exemption of exporters from stamp taxes to be non-

countervailable.

Department's Position: We disagree with the petitioners. First,

stamp taxes are specifically enumerated in the Illustrative List as

``indirect taxes.'' Second, although the stamp tax applies to loan

documents, the financing of sales through arrangements such as letters

of credit is a normal activity in the distribution of exported goods.

As the GOC notes, and as we confirmed at verification, Law 18,449

requires that exporters demonstrate that export financing transactions

that are exempt from the stamp tax be repaid with proceeds from the

financed export sales. Accordingly, we determine that the exemption of

Chilean salmon exporters from the stamp tax does not give rise to

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

Act.

Comment 11: In calculating the amount of countervailable benefits

provided under the two regional programs, Law 889 and the Promotional

and Development Fund, the petitioners argue that the Department should

attribute the subsidies to only those products that actually benefited

from the programs. The petitioners note that the Department's practice

in the case of domestic subsidies is to divide the benefit by a firm's

total sales of the product to which the benefit is ``tied.'' Because

the benefits under both Law 889 and the Promotion and Development Fund

are only available to companies located in specified regions, the

petitioners argue that the subsidies are ``tied'' to the products

produced in those regions.

The GOC disagrees that a ``longstanding policy'' exists with

respect to tying benefits only to production in that region. The GOC

asserts that the Department only ties benefits in two specific

situations: (1) when the receipt of benefits is tied to sales to a

particular market; or (2) when it is tied to the production of a

specific good. Because neither of these situations applies to the two

Chilean regional programs, the GOC contends that the subsidy rates for

both programs are correctly calculated by dividing the total amount of

benefits over total sales.

Department's Position: We disagree with the petitioners that our

policy of tying subsidies requires us to attribute

[[Page 31446]]

regional subsidies only to merchandise produced in the affected

regions. Our tying policy, as articulated in section 355.47 of the 1989

Proposed Regulations, discusses tying subsidies to particular products,

not to products produced in particular countries or locations. In

attributing a subsidy to sales of the product or products to which it

is tied, the Department normally does not define the product at a level

more specific than the subject merchandise. In the present case, for

example, the subject merchandise is specifically defined as ``fresh

Atlantic salmon from Chile,'' not ``fresh Atlantic salmon from Region

X'' or ``fresh Atlantic salmon from the Island of Chiloe.''

Furthermore, the Department does not tie the benefits of federally

provided regional programs to the product produced in the specified

regions. See, e.g., Final Affirmative Countervailing Duty

Determination: Fresh and Chilled Atlantic Salmon From Norway, 56 FR

7678 (February 25, 1991). Accordingly, we have continued to calculate

the countervailable subsidy from these programs by dividing the total

benefit from these programs by the value of all sales of producers and

exporters of salmon.

Comment 12: The petitioners argue that the Department should not

use the SBIF rates it used in the preliminary determination to

calculate benefits from loans and nonrecurring grants. Instead, the

petitioners urge the Department to use the interest rate from a private

bank, Banco Security, reported in the petitioners' June 26, 1997

submission.

In the petitioners' view, the Department should not use the SBIF

rate because it is based on government lending rates. They cite to

Preliminary Affirmative Countervailing Duty Determination and Alignment

of Final Countervailing Duty Determination with Final Antidumping Duty

Determination: Certain Stainless Steel Wire Rod from Italy, 63 FR 809

(January 7, 1998) where the Department stated it ``normally does not

use government interest rates in benchmark calculations,'' and to

section 355.44(b)(7) of the 1989 Proposed Regulations which stipulates

that the Department use a non-governmental interest rate as a benchmark

rate.

The petitioners further contend that the Export Credit Limits

program as well as the Chilean encaje distort the SBIF rates. The

petitioners cite Certain Iron-Metal Castings from India: Final Results

of Countervailing Duty Administrative Review, 61 FR 64687, 64688

(December 6, 1996) (``Castings from India'') where the Department

recognized that export financing measures, similar to those in Chile,

distorted the cost of financing for non-exporters. In that case, the

Department used an alternative benchmark to measure the preference

provided by the program.

The GOC contends that the SBIF rate is not a government rate but

rather an average of Chilean commercial bank rates, where only one of

the 30 to 35 banks averaged is a state-owned bank. The GOC argues that

the Banco del Estado, the only state-owned bank included in the SBIF

interest rate average pool, operates as a commercial bank and that the

rates it charges are commercial rates. The GOC also cites to the 1989

Proposed Regulations which state at section 355.44(b)(9) that the

Department can consider loans from government-owned banks as commercial

loans. The GOC insists that the Chilean lending rates are not

distorted, noting that no Chilean lending program has ever been found

countervailable and Chilean law prohibits the SBIF or any other body

from interfering with the lending process at private banks, thus

eliminating any question of manipulation of the Chilean financial

markets. The GOC asserts that the SBIF rate is the appropriate rate to

use in the calculations of these final results.

Department's Position: We disagree with the petitioners that the

SBIF rate is not an appropriate benchmark. As stated earlier, at

verification, we met with several representatives from private banks in

Chile, as well as representatives from the Central Bank and from the

SBIF. All of the experts with whom we met indicated that the Chilean

credit markets have ample liquidity, and that Central Bank and other

government intervention in financial markets is minimal. We note that

virtually all governments intervene, to some degree, in financial

markets. We found no evidence that government intervention in Chile's

financial markets is so pervasive that it undermines our reliance on

the SBIF interest rate.

With respect to the specific arguments raised by the petitioners,

we agree that the Department normally does not use government rates as

benchmarks (see section 355.44(b)(7) of the 1989 Proposed Regulations).

However, in this instance, the SBIF rate is based on the rates of more

than 30 banks, only one of which is government-owned. Moreover, there

is no information to indicate that this bank, Banco del Estado,

operates on anything other than commercial terms. Therefore, we do not

believe the SBIF rate should be rejected on this basis.

Regarding the alleged distortions in the credit market caused by

the Export Credit Limits program, we disagree that this program is

analogous to the situation described in Castings from India. While the

higher re-discount ratio on export credit financing available to banks

in Castings from India effectively reduced the cost of advancing export

credit compared to domestic credit, we have found, as discussed supra,

that any effect on lending rates from the increased export credit

ceilings is minimal.

Finally, regarding the encaje, we have analyzed the potential

distortion and concluded that the encaje has not resulted in lower SBIF

rates. The Chilean encaje requires banks to place 30 percent of foreign

currency deposits with the Central Bank without interest for the first

year. (Alternatively, the bank can pay to the Central Bank the

equivalent of the interest earnings that would have been realized by

the Central Bank, if such an amount had been placed in its account.)

Deposits that are used to finance qualifying export credits, however,

are not subject to the encaje. Such a requirement would be expected to

lower interest rates on export loans denominated in a foreign currency,

including dollar-denominated export loans. Because it is our

understanding that these export loan rates are included in the SBIF

rate, along with non-export-related dollar denominated loans, use of

the SBIF rate as a benchmark could understate the benefit to the

recipient. However, we have reviewed interest rate information included

in the Central Bank's June 1997 Boletin Mensual concerning dollar

indexed loans with terms of three years or greater. Dollar-indexed

loans in Chile are available to domestic borrowers, and would not be

subject to any potential distortion resulting from the Central Bank

deposit rules regarding the encaje. Additionally, although there may be

slight differences in the exchange rates actually applied, a borrower

in Chile should be indifferent when choosing between a dollar-indexed

loan and a dollar-denominated loan. The information on the record

concerning interest rates charged on dollar-indexed loans for the five

years for which data was reported indicates that the rates on dollar

indexed loans were very similar to the SBIF rates. On average, the

interest rate charged on dollar-denominated loans was slightly higher

than that charged on dollar-indexed loans. Accordingly, the information

on the record does not appear to support the petitioners' claim that

the encaje renders inappropriate our use of the SBIF rate as a

benchmark. Therefore, we have continued to use the SBIF rate to

[[Page 31447]]

calculate benefits for the ProChile and the fiscal credit and duty

deferral program of Law 18,634.

Summary

The total net countervailable subsidy rate for all producers or

exporters of fresh Atlantic salmon in Chile is 1.11 percent, ad

valorem, which is de minimis. Therefore, we 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 verified the

information used in making our final determination. We followed our

standard verification procedures, including meeting with government

officials and examination of relevant government records and original

source documents. Our verification results are outlined in detail 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).

Return or Destruction of Proprietary Information

This notice serves as the only reminder to parties subject to

Administrative Protective Order (``APO'') of their responsibility

concerning the return or destruction of proprietary information

disclosed under APO in accordance with 19 CFR 355.34(d). Failure to

comply is a violation of the APO.

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

Act.

Dated: June 1, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-15184 Filed 6-8-98; 8:45 am]

BILLING CODE 3510-DS-P