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

DEPARTMENT OF COMMERCE

International Trade Administration

[C-508-605]

Industrial Phosphoric Acid From Israel: Preliminary Results and

Partial Recission of Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of preliminary results of countervailing duty

administrative review.

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SUMMARY: The Department of Commerce (the Department) is conducting an

administrative review of the countervailing duty order on industrial

phosphoric acid from Israel for the period January 1, 1996 through

December 31, 1996. For information on the net subsidy for each reviewed

company, as well as for all non-reviewed companies, please see the

Preliminary Results of Review section of this notice. If the final

results remain the same as these preliminary results of administrative

review, we will instruct the U.S. Customs Service to assess

countervailing duties as detailed in the Preliminary Results of Review.

Interested parties are invited to comment on these preliminary results.

See Public Comment section of this notice.

EFFECTIVE DATE: September 9, 1998.

FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Eric Greynolds,

Office CVD/AD Enforcement VI, Import Administration, International

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

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

3692 or (202) 482-6071, respectively.

SUPPLEMENTARY INFORMATION:

Background

On August 19, 1987, the Department published in the Federal

Register (52 FR 31057) the countervailing duty order on industrial

phosphoric acid from Israel. On August 4, 1997, the Department

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

(62 FR 41925) of this countervailing duty order. We received a timely

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

January 1, 1996 through December 31, 1996, on September 25, 1997 (62 FR

50292).

In accordance with 19 CFR 351.213(b), this review covers only those

producers or exporters of the

[[Page 48194]]

subject merchandise for which a review was specifically requested.

Accordingly, this review covers Rotem-Amfert Negev Ltd. (Rotem) and

Haifa Chemicals Ltd. (Haifa). Haifa did not export the subject

merchandise during the period of review (POR). Therefore, we are

rescinding the review with respect to Haifa. This review covers nine

programs.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the

Act). The Department is conducting this administrative review in

accordance with section 751(a) of the Act. All citations to the

Department's regulations reference 19 CFR Part 351, et seq. Antidumping

Duties; Countervailing Duties; Final Rule, 62 FR 27296 (May 19, 1997),

unless otherwise indicated.

Scope of the Review

Imports covered by this review are shipments of industrial

phosphoric acid (IPA) from Israel. Such merchandise is classifiable

under item number 2809.20.00 of the Harmonized Tariff Schedule (HTS).

The HTS item number is provided for convenience and U.S. Customs

Service purposes. The written description of the scope remains

dispositive.

Subsidies Valuation Information

Period of Review

The period for which we are measuring subsidies is calendar year

1996.

Allocation Period

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

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

Court) rules against the allocation period methodology for non-

recurring subsidies that the Department had employed for the past

decade, as it was articulated in the General Issues Appendix appended

to the Final Countervailing Duty Determination; Certain Steel Products

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

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

reasonable method of deriving the allocation period for nonrecurring

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

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

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

this method to those non-recurring subsidies that have not yet been

countervailed.

Rotem submitted an AUL calculation based on depreciation expenses

and asset values of productive assets reported in its financial

statements. Rotem's AUL was derived by adding the sum of average gross

book value of depreciable fixed assets for ten years and dividing these

assets by the total depreciation charges for the related periods. We

found this calculation to be reasonable and consistent with our

company-specific AUL objective. Rotem's calculation resulted in an

average useful life of 23 years, which we have used as the allocation

period for non-recurring subsidies received during the POR.

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

countervailed based on an allocation period established in an earlier

segment of the proceeding, it is not reasonable or practicable to

reallocate those subsidies over a different period of time. Since the

countervailing duty rate in earlier segments of the proceeding was

calculated based on a certain allocation period and resulted in a

certain benefit stream, redefining the allocation period in later

segments of the proceeding would entail taking the original grant

amount and creating an entirely new benefit stream for that grant. Such

a practice may lead to an increase or decrease in the total amount

countervailed and, thus, would result in the possibility of over- or

under-countervailing the actual benefit. Therefore, for purposes of

these preliminary results, the Department is using the original

allocation period assigned to each non-recurring subsidy received prior

to the POR. See Certain Carbon Steel Products from Sweden; Final

Results of Countervailing Duty Administrative Review, 62 FR 16549

(April 7, 1997).

Privatization

(I) Background

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

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

1994, and 1995. We have previously determined that the partial

privatization of ICL represents a partial privatization of each of the

companies in which ICL holds an ownership interest. See Final Results

of Countervailing Duty Administrative Review; Industrial Phosphoric

Acid from Israel, 61 FR 53351, 53352 (October 11, 1996) (1994 Final

Results).

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

found that Rotem and/or its predecessor, Negev Phosphates Ltd.,

received non-recurring countervailable subsidies prior to these partial

privatizations. Further, the Department found that a portion of the

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

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

at 37262. Therefore, in 1992, 1993, and 1995 reviews, we calculated the

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

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

portion of the ICL shares privatized was so small, less than 0.5

percent, that we determined that the percentage of subsidies

potentially repaid through this privatization could have no measurable

impact on Rotem's overall net subsidy rate. Thus, we did not apply our

repayment methodology to the 1994 partial privatization. See the 1994

Final Results, 61 FR at 53352.

(II) Modification of the Application of Repayment Methodology

In prior reviews, to calculate the portion of the purchase price

which represented repayment of prior subsidies through partial

privatizations in 1992, 1993 and 1995, the Department converted the net

worth figures for Rotem from new Israeli shekels (NIS) to U.S. dollars,

based on exchange rate information on the record. In this review, the

respondent has submitted U.S. dollar denominated audited financial

statements for 1983 through 1989. The notes to the financial statements

indicate that the company maintains its accounts in NIS and in U.S.

dollars. Amounts originating from transactions denominated in, or

linked to, the dollar are stated at their original amounts. Amounts not

originating from such transactions are determined on the basis of the

exchange rate prevailing at the time of the transaction. As a result,

we have recalculated the portion of the purchase price paid for ICL's

shares that is attributable to repayment of prior subsidies using the

U.S. dollar denominated net worth figures provided in Rotem's financial

statements.

Grant Benefit Calculations

To calculate the benefit for the POR, we followed the same

methodology used in the final results of the 1995 administrative

review. We converted Rotem's shekel-denominated grants into U.S.

dollars, using the exchange rate in effect on the date the grant was

received. We then applied the grant methodology to determine the

benefit for the POR. See Industrial Phosphoric Acid from Israel; Final

Results of Countervailing Duty Administrative

[[Page 48195]]

Review, 63 FR 13626, 13633 (March 20, 1998) (1995 Final Results).

Facts Available

Section 776(a)(2) of the Act requires the Department to use facts

available if ``an interested party or any other person * * * withholds

information that has been requested by the administering authority * *

*.'' In this case, the Government of Israel (GOI) did not comply with

the Department's requests for information that was necessary to conduct

a specificity analysis of the Environment Grant Program. On April 7,

1998 and on April 24, 1998, the Department issued questionnaires

requesting information regarding eligibility for and actual use of the

benefits provided under the Environment Grant Program. The GOI provided

information regarding the total number of applicants that applied for

or received grants, and the total amount of the grants given under the

program. However, the GOI did not extract information from this data

that would have allowed the Department to fully examine whether the

program is, in fact, specific. Based on the information presented, the

Department could only derive the absolute number of applicants for and

recipients of grants under this program. The GOI also provided the

Department with the criteria considered by the MOE in determining

whether an application will be approved, including the financial and

economic strength of the applicant, extent of the investment needed,

and the extent of the improvement compared to the investment, but did

not provide information as to how these criteria were applied.

Section 776(b) of the Act permits the administrative authority to

use an inference that is adverse to the interests of an interested

party if that party has ``failed to cooperate by not acting to the best

of its ability to comply with a request for information.'' Such an

adverse inference may include reliance on information derived from: (1)

The petition, (2) a final determination in the investigation under this

title, (3) any previous review under section 751 or determination under

section 753 regarding the country under consideration, or (4) any other

information placed on the record. Because respondents did not comply

with the Department's requests for such information, and failed to

explain why such information could not be provided, we find that

respondents failed to cooperate by not acting to the best of their

ability. Therefore, we are using an adverse inference in accordance

with section 776(b) of the Act. The adverse inference is a finding that

the Environment Grant Program is specific under section 771(5A)(D)(iii)

of the Act. For further discussion, see Memorandum regarding

Specificity of the Environment Grant Program dated August 12, 1998,

which is on file in the Central Records Unit (Room B-099 of the Main

Commerce Building.)

Analysis of Programs

I. Programs Conferring Subsidies

A. Programs Previously Determined To Confer Subsidies

1. Encouragement of Capital Investments Law (ECIL)

This ECIL program is designed to encourage the distribution of the

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

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

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

including investment grants, capital grants, accelerated depreciation,

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

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

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

geographic location of eligible enterprises. For purposes of the ECIL

program, Israel is divided into three zones--Development Zones A and B,

and the Central Zone. Under the ECIL program the Central Zone was not

eligible for benefits.

In Final Affirmative Countervailing Duty Determination: Industrial

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

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

Jure specific because the grants are limited to enterprises located in

specific regions. In this review, no new information or evidence of

changed circumstances has been submitted to warrant reconsideration of

this determination.

Rotem is located in Development Zone A, and received ECIL

investment, drawback, and capital grants in disbursements over a period

of years for several projects. As explained in the ``Allocation

Period'' section above, for grants that have been allocated in prior

administrative reviews, we are continuing to use the allocation period

assigned to these grants. For grants received during the POR, we have

used the AUL calculated by Rotem in this review, which is 23 years.

To calculate the benefit for the POR, we followed the same

methodology used in the final results of the 1995 administrative

review, as indicated in the ``Grant Benefit Calculations'' section

above. We considered Rotem's cost of long-term borrowing in U.S.

dollars as reported in the company's financial statements for use as

the discount rate used to allocate the countervailable benefit over

time. However, this information includes Rotem's borrowing from its

parent company, ICL, and thus does not provide appropriate discount

rate. Therefore, we have turned to ICL's cost of long-term borrowing in

U.S. dollars in each year from 1984 through 1996 as the most

appropriate discount rate. ICL's interests rates are shown in the notes

to the company's financial statements, public documents which are in

the record of this review. See Comment 9 in the 1995 Final Results.

To calculate the total subsidy in the POR, we first summed the

grant amounts allocated to and received in 1996, after taking into

account the partial privatizations in 1992, 1993, and 1995. To derive

the subsidy rates, as discussed in the 1995 Final Results, we

attributed ECIL grants to a particular facility over the sales of the

product produced by that facility plus sales of all products into which

that product may be incorporated. Accordingly, we attributed ECIL

grants to Rotem's phosphate rock mines to total sales, and grants to

Rotem's green acid to total sales minus direct sales of phosphate rock

and grants to Rotem's IPA facilities to sales of IPA, MKP, and

fertilizers. We summed the rates obtained on this basis, and

preliminarily determine the net subsidy from this program to be 5.58

per ad valorem for the POR.

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

During the 1996 review period, Rotem received five EIRD grants. Two

of them were received for projects which have no relation to the

production of subject merchandise or inputs thereto; the three

remaining grants are for research into phosphate rock production, which

is an input to IPA production. Thus, they provide countervailable

benefits to the production of subject merchandise. In the 1995 Final

Results, we determined that EIRD rants were specifically provided to

Rotem, and that they conferred a benefit. In this review, no new

information or evidence of changed circumstances has been submitted to

warrant reconsideration of this determination.

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

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

these benefits are exceptional, and Rotem cannot expect to receive

benefits on an ongoing basis from review period to

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review period. However, because the total benefit of the EIRD grants

received in 1996 was less than 0.50 percent of Rotem's total sales, we

allocated the entire benefit to the POR. To obtain the subsidy rate, we

divided the benefit by Rotem's total sales. On this basis, we

preliminarily determine the benefit from this program to be 0.02

percent ad valorem.

B. Other Programs Preliminarily Determined To Confer Subsidies

1. Infrastructure Grant Program

Under the Infrastructure Grant Program, the GOI establishes new

industrial areas by partially reimbursing companies for their costs of

developing the infrastructure in certain geographical zones. Rotem

received assistance under this program during the POR. Therefore,

within the meaning of section 771(5)(B)(i), a subsidy is bestowed

because the GOI provided a financial contribution, which conferred a

benefit. We analyzed whether this program is specific within the

meaning of section 751(5A)(D) of the Act. Because the infrastructure

grants are limited to an enterprise or industry located in certain

zones within the jurisdiction of the authority providing the subsidy,

we find this program to be regionally specific in accordance with

section 771(5A)(D)(iv).

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

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

these benefits are exceptional, and the company cannot expect to

receive benefits on an ongoing basis from review period to review

period. Therefore, we calculated the benefit under this program using

the methodology for non-recurring grants noted above in the ``Grant

Benefit Calculations'' section. We then divided the grant amount by

Rotem's total sales because the grant benefited the Company's total

production. On this basis, we preliminarily determine the benefit from

this program to be 0.18 percent ad valorem.

2. Environmental Grant Program

Through the Ministry of the Environment, the GOI administers a

program to provide financial assistance for the adaptation of existing

industrial facilities to new environmental requirements. Companies

undertaking programs to reduce air pollution, hazardous wastes, and

noise levels, and to improve water quality, can receive assistance. The

maximum amount of assistance available is the lesser of 35 percent of

the approved investment or the actual investment, and is capped at

1.125 million NIS.

We analyzed whether this program is specific in law (de jure), or

in fact (de facto), within the meaning of section 751(5A)(D) of the

Act. We examined the Directive of the Director-General of the Ministry

of the Environment for the program eligibility criteria and found that

this program is not de jure specific, because there is no express

intent to limit the availability of benefits under this program to an

enterprise or industry or group of enterprises or industries.

We then examined the information provided by the GOI with respect

to the actual provision of assistance under the program (since its

inception in 1995) to see whether it meets the criteria for de facto

Specificity. According to 771(5A)(D)(iii), ``a subsidy is de facto

specific if one of the following factors exists: (1) The actual

recipients of the subsidy, whether considered on an enterprise or

industry basis, are limited in number; (2) an enterprise or industry is

a predominant user of the subsidy; (3) an enterprise or industry

receives a disproportionately large amount of the subsidy; or (4) the

manner in which the authority providing the subsidy has exercised

discretion in the decision to grant the subsidy indicates that an

enterprise or industry is favored over others.''

The Department requested information regarding the number of

companies and type of industries that applied for or received benefits

under the program, and the amount of benefits received. The GOI

provided no information on actual usage of the program by enterprise or

industry nor did it identify any alternative information through which

the Department could make an assessment of whether the program is de

facto specific. Accordingly, based on the information on the record, we

preliminarily determine that this program is de facto specific and is,

therefore, countervailable within the meaning of section

771(5A)(D)(iii). (See Facts Available section of this notice.)

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

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

these benefits are exceptional, and the company cannot expect to

receive benefits on an ongoing basis from review period to review

period. However, because the total value of the benefit received in

1996 was less then 0.50 percent of Rotem's total sales, we allocated

the entire benefit to the POR. We divided the grant amount by Rotem's

total sales because the grants benefited the company's total

production. On this basis, we preliminarily determine the benefit from

this program to be 0.11 percent ad valorem.

II. Programs Preliminarily Determined To Be Not Used

We examined the following programs and preliminarily determined

that the producer and/or exporter of the subject merchandise did not

apply for or receive benefits under these programs during the POR:

A. Reduced Tax Rates under ECIL

B. ECIL Section 24 loans

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

D. ECIL Preferential Accelerated Depreciation

E. Exchange Rate Risk Insurance Scheme

F. Labor Training Grants

G. Long-term Industrial Development Loans

Preliminary Results of Review

In accordance with 19 CFR 351.213(b), we calculated an individual

subsidy rate for each producer/exporter subject to this administrative

review. For the period January 1, 1996 through December 31, 1996, we

preliminarily determine the net subsidy for rotem to be 5.89 percent ad

valorem. If the final results of this review remain the same as these

preliminary results, the Department intends to instruct the U.S.

Customs Service (Customs) to assess countervailing duties as indicated

above.

The Department also intends to instruct Customs to collect cash

deposits of estimated countervailing duties as indicated above of the

f.o.b. invoice price on all shipments of the subject merchandise from

reviewed companies, entered, or withdrawn from warehouse, for

consumption on or after the date of publication of the final results of

this review.

Because the URAA replaced the general rule in favor of a country-

wide rate with a general rule in favor of individual rates for

investigated and reviewed companies, the procedures for establishing

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

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

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

will normally cover only those companies specifically named. See 19 CFR

351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which

a review was not requested, duties must be assessed at the cash deposit

rate, and cash deposits must continue to be collected, at the rate

previously ordered. As such, the countervailing duty cash

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deposit rate applicable to a company can no longer change, except

pursuant to a request for a review of that company. See Federal-Mogul

Corporation and The Torrington Company v. United States, 822 F.Supp.

782 (CIT 1993) and Floral Trade Council v. United States, 822 F. Supp.

766 (CIT 1993). Therefore, the cash deposit rates for all companies

except those covered by this review will be unchanged by the results of

this review.

We will instruct Customs to continue to collect cash deposits for

non-reviewed companies at the most recent company-specific or country-

wide rate applicable to the company. Accordingly, the cash deposit

rates that will be applied to non-reviewed companies covered by this

order will be the rate for that company established in the most

recently completed administrative proceeding under the URAA. If such a

review has not been conducted, the rate established in the most

recently completed administrative proceeding conducted pursuant to the

statutory provisions that were in effect prior to the URAA amendments,

is applicable. See 1992/93 Final Results, 61 FR 28842. These rates

shall apply to all non-reviewed companies until a review of a company

assigned these rates is requested. In addition, for the period January

1, 1996 through December 31, 1996, the assessment rates applicable to

all non-reviewed companies covered by this order are the cash deposit

rates in effect at the time of entry.

Public Comment

Pursuant to 19 CFR 351.224(b), the Department will disclose to

parties to the proceeding any calculations performed in connection with

these preliminary results within five days after the date of

publication of this notice. Pursuant to 19 CFR 351.309, interested

parties may submit written comments in response to these preliminary

results. Case briefs must be submitted within 30 days after the date of

publication of this notice, and rebuttal briefs, limited to arguments

raised in case briefs, must be submitted no later than five days after

the time limit for filing case briefs. Parties who submit argument in

this proceeding are requested to submit with the argument: (1) a

statement of the issues, and (2) a brief summary of the argument. Case

and rebuttal briefs must be served on interested parties in accordance

with 19 CFR 351.303(f). Also, pursuant to 19 CFR 351.310, within 30

days of the date of publication of this notice, interested parties may

request a public hearing on arguments to be raised in the case and

rebuttal briefs. Unless the Secretary specifies otherwise, the hearing,

if requested, will be held two days after the date for submission of

rebuttal briefs, that is, thirty-seven days after the date of

publication of these preliminary results.

Representatives of parties to the proceeding may request disclosure

of proprietary information under administrative protective order no

later than 10 days after the representative's client or employer

becomes a party to the proceeding, but in no event later than the date

case briefs, under 19 CFR 351.309(c)(ii), are due. The Department will

publish the final results of this administrative review, including the

results of its analysis of issues raised in any case or rebuttal brief

or at a hearing.

This administrative review is issued and published in accordance

with section 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1)

and 19 U.S.C 1677f(i)(1)).

Dated: August 31, 1998.

Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-24141 Filed 9-8-98; 8:45 am]

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