Industrial Phosphoric Acid from Israel: Final Results of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-508-605]

Industrial Phosphoric Acid from Israel: Final Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Final Results and Partial Recission of Countervailing

Duty Administrative Review.

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SUMMARY: On September 9, 1998, the Department of Commerce published in

the Federal Register its preliminary results of administrative review

of the countervailing duty order on industrial phosphoric acid (IPA)

from Israel for the period January 1, 1996 through December 31, 1996

(63 FR 48193). The Department has now completed this administrative

review in accordance with section 751(a) of the Tariff Act of 1930, as

amended. For information on the net subsidy for each reviewed company,

and for all non-reviewed companies, please see the Final Results of

Review section of this notice. We will

[[Page 2880]]

instruct the U.S. Customs Service to assess countervailing duties as

detailed in the Final Results of Review section of this notice.

EFFECTIVE DATE: January 19, 1999.

FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Eric Greynolds,

Office of CVD/AD Enforcement VI, Import Administration, International

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

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

3692 or (202) 482-6071, respectively.

SUPPLEMENTARY INFORMATION:

Background

Pursuant to 19 CFR 351.213(b), this review covers only those

producers or exporters of the subject merchandise for which a review

was specifically requested. Accordingly, this review covers Rotem-

Amfert Negev Ltd. (Rotem). Haifa Chemicals Ltd. (Haifa) did not export

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

in accordance with section 351.213(d)(3) of the Department of

Commerce's (the Department) regulations, we rescinded the review with

respect to Haifa. The review also covers nine programs.

Since the publication of the preliminary results on September 9,

1998 (63 FR 48193), the following events have occurred. We invited

interested parties to comment on the preliminary results. On October 9,

1998, a case brief was submitted by counsel for FMC Corporation and

Albright & Wilson Americas Inc. (petitioners). On October 13, 1998, a

case brief was submitted by the Government of Israel (GOI) and Rotem,

producer/exporter of IPA to the United States during the review period

(respondents). On October 14, 1998, rebuttal briefs were submitted by

respondents and petitioners.

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 (1998), 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) ruled 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

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

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

929 F.Supp 426, 439 (CIT 1996). Accordingly, the Department has 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 final results, the Department is using the original allocation

period assigned to each non-recurring subsidy received prior to the

POR. See, e.g., Certain Carbon Steel Products from Sweden; Final

Results of Countervailing Duty Administrative Review, 62 FR 16549

(April 7, 1997). For further discussion, see the Department's position

on Comment 3 (Allocation of Grants Over AUL), below.

Privatization

The Department has previously determined that the partial

privatizations of Israel Chemicals Limited (ICL), Rotem's parent

company, represents a partial privatization of Rotem. 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, and Final

Results of Countervailing Duty Administrative Review; Industrial

Phosphoric Acid from Israel, 63 FR 13627 (March 20, 1998) (1995 Final).

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

representing 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, Rotem

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.

[[Page 2881]]

Analysis of Programs

Based upon the responses to our questionnaires and written comments

from the interested parties, we determine the following:

I. Programs Conferring Subsidies

A. Programs Previously Determined to Confer Subsidies

1. Encouragement of Capital Investments Law (ECIL). In the

preliminary results, 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, summarized below, has not led us to modify our findings from

the preliminary results for this program. Accordingly, the net subsidy

for this program remains unchanged from the preliminary results and is

as follows:

------------------------------------------------------------------------

Rate

Manufacturer/explorer (percent)

------------------------------------------------------------------------

Rotem Amfert Negev......................................... 5.58

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2. Encouragement of Industrial Research and Development Grants

(EIRD). In the preliminary results, 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, summarized below, has not led us to modify our

calculations for this program from the preliminary results.

Accordingly, the net subsidy for this program remains unchanged from

the preliminary results and is as follows:

------------------------------------------------------------------------

Rate

Manufacturer/explorer (percent)

------------------------------------------------------------------------

Rotem Amfert Negev......................................... 0.02

------------------------------------------------------------------------

B. New Programs Determined to Confer Subsidies

1. Environmental Grant Program. In the preliminary results, 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, summarized below, has not

led us to modify our calculations for this program from the preliminary

results. Accordingly, the net subsidy for this program remains

unchanged from the preliminary results and is as follows:

------------------------------------------------------------------------

Rate

Manufacturer/explorer (percent)

------------------------------------------------------------------------

Rotem Amfert Negev......................................... 0.11

------------------------------------------------------------------------

2. Infrastructure Grant Program. In the preliminary results, 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 net subsidy

for this program remains unchanged from the preliminary results and is

as follows:

------------------------------------------------------------------------

Rate

Manufacturer/explorer (percent)

------------------------------------------------------------------------

Rotem Amfert Negev......................................... 0.18

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II. Programs Found to be Not Used

In the preliminary results, we found that the producers and/or

exporters of the subject merchandise did not apply for or receive

benefits under the following programs:

1. Reduced Tax Rates under ECIL

2. ECIL Section 24 Loans

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

4. ECIL Preferential Accelerated Depreciation

5. Exchange Rate Risk Insurance Scheme

6. Labor Training Grants

7. Long-Term Industrial Development Loans

We did not receive any comments on these programs from the

interested parties, and our review of the record has not led us to

change our findings from the preliminary results.

Analysis of Comments

Comment 1: Denominator for ECIL Grants

Rotem argues that the Department incorrectly calculated the

denominator for ``grants allocable to all sales other than direct sales

of phosphate rock,'' because the sales figure from the ``others''

category, as reported in respondents December 15, 1997, questionnaire

response, was excluded.

Petitioners counter that because the product listing provided by

respondents did not provide a breakdown of products in the ``others''

category, the Department could not assume that these other products

benefitted from ECIL grants, and therefore, was correct to exclude

these sales from its subsidy calculations.

Department's Position

We attribute ECIL grants to a particular facility to the sales of

the products produced by that facility plus sales of all products into

which that product may be incorporated. To do so, it is necessary that

all products to which the grants are being attributed are identified.

Respondents did not indicate what products are included in the

``others'' category or any indication that the ECIL grants should

appropriately be attributed to those ``other'' sales. Therefore, it

would have been improper to attribute ECIL grants to those unidentified

products.

Comment 2: IPA as an Input to Fertilizers

Petitioners argue that the Department expanded the attribution of

certain ECIL grants to include sales of fertilizers, based on

respondents' claim, unsupported by documentation, that IPA may be and

has been an input into fertilizers other than MKP. In this regard,

petitioners cite to the Department's 1995 verification report, which

does not indicate that IPA was found to be an input to any fertilizer

product other than MKP. Thus, petitioners assert that the Department

erroneously included sales of all fertilizers in its denominator.

Petitioners further argue that unless Rotem demonstrates that IPA is an

input to a specific fertilizer product, the Department should not

include that fertilizer product in the attribution denominator.

Respondents agree with petitioners that only those products that

use IPA as an input should be included in the attribution denominator.

However, respondents argue that the Department has rejected this

approach and includes a product in its attribution calculation if the

product can be used as an input into IPA, irrespective of whether it

has actually been used. Further, respondents argue that if petitioners

want the Department to include only products actually receiving IPA

inputs in a given review in the attribution calculation, then the

Department must also exclude those products that are not used in a

given review.

Department's Position

In the 1995 administrative review of this case, we attributed ECIL

grants tied to a particular unit to the sales of the product produced

by that unit plus the sales of all products into which that product may

be incorporated. Accordingly, in that review, we attributed ECIL grants

to the IPA facility to sales of IPA and sales of MKP, a

[[Page 2882]]

downstream fertilizer. In this administrative review, respondents have

stated that IPA can also ``be and has been used by Rotem as an input

into other fertilizers,'' that is other than MKP. Therefore, consistent

with our approach in the 1995 proceeding, we included the sales of

fertilizers in the denominator for ECIL grants to the IPA facility.

Petitioners' argument that the Department must ``limit attribution

to specific products that actually are inputs'' is incorrect. In fact,

if this were the case, the Department would not have altered its

original attribution approach followed through the 1993 administrative

review, a change supported by petitioners. In the 1995 review, we

stated that the attribution of ECIL grants to the sales of the units

that received the grants and sales of all downstream products is

``consistent with the Department's attribution principles concerning

subsidies to inputs where the same corporate entity produces the inputs

and the subject merchandise, as well as other downstream products.'' 63

FR at 13629. Of further note is that this approach has been codified in

the Department's final countervailing duty regulations at 19 CFR

Sec. 351.525(b)(5)(ii). Therefore, for these final results, in

calculating the benefit from ECIL grants to Rotem's IPA facility, we

have included the sales of fertilizers in the denominator.

Comment 3: Allocation of Grants Over AUL

Respondents agree that the Department used the appropriate AUL

during the POR, but disagree with the Department's application of the

company-specific AUL only to grants that were not previously allocated

over ten years. They state that for the initial determination in 1987

and all subsequent reviews, the Department used a ten-year AUL, which

does not reflect the company's actual situation. According to

respondents, the Department's failure to apply the actual AUL to all

grants is contrary to the Court of International Trade's ruling in

British Steel, because the Court invalidated the use of the Internal

Revenue Service (IRS) tables and instructed the Department to use ``a

method of allocating the benefits on non-recurring subsidies that

reasonably reflect the commercial and competitive advantages enjoyed by

the firms receiving'' the subsidies. Respondents note that the

Department chose the company-specific AUL to allocate non-recurring

subsidies and the Court has endorsed it. Therefore, they argue that the

Department's allocation of some of Rotem's grants according to the

company's actual AUL, while allocating others according to an

invalidated IRS proxy, which has no relevance to Rotem's actual

situation, is clearly contrary to British Steel, and overstates the

non-recurring subsidies.

Respondents also argue that the Department's rationale for not

changing its AUL methodology is flawed. Respondents claim that

reallocation is a very simple exercise, which can be accomplished by

the Department taking the remaining balance during the POR and

allocating that amount over the number of years left in the 23-year AUL

benefit stream that begins in the year the grant was received.

Respondents also argue that this approach takes into account the fact

that countervailable subsidies have been fully paid for in all prior

years up to the POR, and such an approach would not result in over- or

under-countervailing the actual benefit since the entire actual benefit

will be fully countervailed over the 23-year period.

Petitioners counter that while the Court in British Steel

instructed the Department to use an allocation method that reasonably

reflects the commercial and competitive advantages created by a

subsidy, it does not require the Department to use the AUL method.

Petitioners also counter that the Department chose not to recalculate

the AUL because such a change could result in an allocation that

distorts the allocation of the actual benefits Rotem received from the

non-recurring subsidies, and this decision is fair and in keeping with

the mandate of British Steel.

Department's Position

The arguments presented by respondents are for the most part

identical to those made in the 1995 administrative review of this case.

The Department fully addressed those arguments in that review (see 63

FR at 13632), and nothing argued by respondents in this review would

lead us to change our prior determination with respect to this issue.

It is our continued view that not disturbing allocation periods

established in prior proceedings is reasonable and is not in conflict

with the CIT's decision in British Steel, which does not require the

Department to allocate non-recurring subsidies over a company's AUL.

However, we would like to further address additional implications

of the approach advocated by respondents which would pose significant

additional burdens on the Department. First, it is the Department's

practice to calculate a benefit for all countervailable subsidies that

are allocable through the POR. In the original investigation of this

case, the Department determined, based on the IRS tables, that the

appropriate allocation period is ten years. The period of investigation

was 1987. Accordingly, the Department countervailed all non-recurring

subsidies still benefitting the company in 1987, i.e., subsidies

received by Rotem from 1978 through 1987. While we determined in the

1995 review that Rotem's company-specific AUL was 24 years, we did not

countervail non-recurring subsidies received by Rotem for the entire 24

year period. Rather, because the ten year allocation period had been

previously established, we did not disturb the allocation period for

those prior subsidies and also did not reach back to countervail non-

recurring subsidies not previously examined. Thus, we applied the

company-specific AUL only to those new subsidies received during 1995.

However, were the Department to reallocate previously allocated

subsidies, it would also be appropriate, at that time, to investigate

all subsidies received by the company during the entire company-

specific allocation period, including those not previously examined by

the Department. This approach would be consistent with respondents'

argument that the company-specific AUL is representative of Rotem's

actual experience.

Respondents have also stated that since the Department has found

that the 23 years company-specific period is the appropriate period,

the ten-year period is invalidated, and both periods cannot at the same

time be representative of Rotem's actual experience. If this were the

case, then the 24 year period calculated by the Department in the 1995

review is also invalidated. Respondents have not contended, however,

that the Department should now also recalculate the benefit stream for

the 1995 non-recurring subsidies. It becomes clear, therefore, that

respondents' proposed approach would require the Department to

reallocate a company's subsidies each time the company-specific AUL has

changed. This may occur, as is the case here, from one administrative

review to the next. While such an approach may not seem to be overly

burdensome in one case, in the context of all countervailing duty cases

that burden is clearly significant.

As noted above, respondents have not provided any new information

that would warrant a reconsideration of the Department's AUL

methodology. For this reason, and for the additional concerns outlined

above, we have not altered the allocation period for

[[Page 2883]]

previously allocated non-recurring subsidies, including those that were

allocated using a company-specific AUL.

Comment 4: Rotem's AUL Calculation

Petitioners state that the Department, consistent with its normal

practice, has accepted Rotem's audited financial statements at face

value. However, they argue that there is no consistency between Rotem's

AUL calculated for countervailing duty purposes and the actual useful

life of assets as reflected in the firm's depreciation schedule used in

its financial statements. Therefore, according to petitioners, the

Department should either reject Rotem's AUL for inconsistency with its

audited financial statements or make the appropriate adjustment in the

gamma ratio, which is itself a function of a company's total assets,

that would subsequently reduce the past subsidies previously calculated

as having been extinguished by partial privatizations. Petitioners

argue that if the Department continues to use the AUL as calculated by

Rotem, then the productive assets that Rotem excluded from its AUL

calculation (i.e., furniture, vehicles and office equipment) should be

included, and assets that are no longer in service should be excluded.

Respondents counter that there is no conflict between the

calculated AUL and Rotem's depreciation schedules. The AUL was

calculated in conformity with the Department's instructions and was

taken directly from Rotem's audited financial statements. Respondents

further argue that the length of Rotem's AUL stems from the merger

between Rotem and Negev Phosphates Ltd., the latter of which had a

longer AUL therefore increasing the overall AUL of the newly formed

company, Rotem Amfert Negev Ltd. Respondents state that petitioners, in

fact, recognize that the AUL is correct because they argue that if the

Department accepts the AUL, then the gamma ratio must be adjusted to

increase Rotem's net worth. According to respondents, there is no basis

for making such an adjustment because the gamma denominator, which

represents the net worth of the company, is taken directly from the

audited annual reports and that figure was relied upon by the

purchasers of ICL when the privatizations took place.

Respondents also counter that the assets that petitioners argue

should be included in the AUL calculation are not productive assets.

Moreover, the grants at issue are not given for such assets; they are

given only for production facilities. Therefore, it was correct not to

include these assets in the AUL calculation.

Department's Position

We disagree with petitioners' contention that the Department should

reject Rotem's AUL information because it is inconsistent with the

company's audited financial statements. Rotem complied with the

Department's request and submitted information from its audited

financial statements for use in the Department's company-specific AUL

calculations. In the same submission, Rotem noted that the surge in

asset values between 1990 and 1991 was due to the merger of Rotem and

Negev Phosphate Ltd. We note that the verification reports from the

previous proceeding, which were submitted on the record of the current

review, discuss the issue of the Rotem/Negev merger and its effect on

the newly formed company's AUL components. The information discussed in

these reports is consistent with the information that Rotem submitted

during the current review. Therefore, because respondent submitted its

AUL information in the manner that the Department requested and because

Rotem sufficiently explained the changes that occurred in its

depreciable productive assets and regular depreciation expenses during

the ten-year period examined by the Department, we find no reason to

change the calculation of Rotem's AUL for the final results. For the

same reasons, we also reject petitioners' contention that the

Department should adjust Rotem's gamma ratio in order to account for

the alleged inconsistencies between the company's AUL calculations and

its audited financial statements.

In addition, we reject petitioners' contention that the Department

should ``satisfy itself'' that all of Rotem's reported productive

assets are actually in service. The Department's questionnaire

specifically asks that companies exclude any fully depreciated

productive assets which are no longer in use. We also note that Rotem's

financial statements are audited and that the Department conducted a

verification of Rotem's questionnaire responses during the 1995

administrative period of review. Given that Rotem's financial

statements are audited and inspected annually and that they have been

verified previously, we find no reason to doubt the integrity of the

company's financial statements.

Petitioners' contention that the Department erroneously omitted

some of Rotem's assets (furniture, office equipment, etc.) in

calculating the company-specific AUL may warrant further consideration.

However, we do not have the information on the record for these assets

in prior years to recalculate the AUL. Therefore, we will review this

issue in the next administrative review.

Comment 5: The Privatization Calculation

Respondents argue that the numerator of the ``gamma'' calculation

does not include the face value of all subsidies received by Rotem over

the years. They claim that the face value does not include subsidies

given for projects 12 and 13, which were fully countervailed prior to

this review. They also claim that the grants to project 8 were not

included; presumably, because these grants did not benefit IPA.

Respondents argue that to obtain a true picture of the relationship of

the subsidies to the net worth, all subsidies must be included in the

numerator, regardless of whether or not they benefit the subject

merchandise.

Respondents also argue that because Rotem's net worth, the

denominator of the gamma calculation, is an accumulated figure, the

subsidies received, the numerator, should also be calculated based on

an accumulated figure. According to respondents, the Department's

position in the 1995 Final, that the value of subsidies erodes over

time, ignores the fact that the net worth also erodes over time. While

a subsidy received in 1986 does not have the same relative value as a

subsidy received in 1994, it still has some value; otherwise, they

argue that the Department would not allocate non-recurring subsidies

over time.

Respondents claim that the Department rejected the Coopers &

Lybrand analysis in the 1995 review because the Department did not

understand the analysis. They argue that the Department's current gamma

methodology incorrectly assumes that the grants disappear at the end of

the year because the gamma numerator does not recognize the cumulative

effect of the subsidies. Instead, Rotem received grants, which do not

disappear at the end of the year of receipt, but continue as part of

equity, and the company's net worth is a direct result of these grants.

In addition, they argue that the Department's privatization calculation

methodology is internally inconsistent because the Department does not

accumulate the subsidies to calculate the gamma, but does so to

calculate the percent of subsidies repaid.

Petitioners counter that respondents have attempted to rehabilitate

a fundamentally flawed argument that the Department previously

rejected. Therefore, the Department should dismiss respondents' effort

to reargue

[[Page 2884]]

matters that have already been decided. Petitioners also counter that

respondents' argument that the Department should include grants to

project 8 would require the Department to investigate all subsidies,

whether or not countervailable, in order to make an appropriate

privatization calculation, which is absurd. According to petitioners,

respondents' argument, regarding projects 12 and 13, is flawed because

these grants were countervailed prior to the current review.

Department's Position

Respondents' argument that the Department should include subsidies

that have been fully countervailed and subsidies that do not benefit

the subject merchandise is without merit. As a preliminary matter, the

Department does not determine the benefit from subsidies for programs

that are determined not to benefit the subject merchandise. Further,

the Department's methodology determines the portion of the purchase

price that goes towards the repayment of the subsidies which were found

to be countervailable. That portion of the purchase price is deducted

from the net present value of the remaining benefit stream of all non-

recurring subsidies that are being countervailed. This performs the

appropriate calculation: deducting from the net present value of all

countervailable subsidies in the year of privatization the portion of

the purchase price representing repayment of those countervailable

subsidies.

We also reject respondents' argument that because Rotem's net

worth, the denominator of the gamma calculation, is an accumulated

figure, the subsidies received, the numerator, should also be

calculated based on an accumulated figure. Because the grants were

received at different time periods and the benefit streams are

different, we cannot accumulate the grants as respondents have

suggested. The privatization methodology attempts to estimate that

portion of the purchase price that is attributable to remaining

subsidies from the time of bestowal until the date of the privatization

by calculating the gamma. The gamma calculation serves as a reasonable

historic surrogate for the percentage of subsidies that constitute the

overall value (i.e., net worth of the company) at a given point in

time. See, GIA, 58 FR at 37263, and 1995 Final, 63 FR at 13635, 13636;

see also Inland Steel Bar Co., v. United Engineering Steels, Ltd., 155

F.3d 1370, 1374-75 (Fed. Cir. 1998) (the Court affirmed the

Department's methodology for determining the amount of a subsidy that

is repaid). Thus, the relative value of an earlier subsidy is not

``totally ignored'' in the Department's calculation, as argued by

respondents. The value of that subsidy is appropriately being compared

to the net worth of the firm in the year that it was received. This

comparison thus fully captures the weight of that subsidy in the gamma

calculation.

Respondents' claim that the Department's position in the 1995

review, that the ``depreciation of assets offsets any of the erosion of

subsidies,'' is also flawed. We do not dispute that the company's net

worth increased, in part, as a result of subsidies. However,

respondents' comparison of the value of the company's accumulated

subsidies in the year before privatization to the company's net worth

in that year is misplaced, because it assumes that the company's net

worth increased in direct proportion to the value of the subsidies

received by the firm. It is simply not reasonable to assume that there

is a direct relationship between additional capital infusion by the

government and increases in the equity of the firm. Accordingly, it is

equally unreasonable to assume that the accumulated face value of all

of Rotem's subsidies received in each year can be appropriately

compared to the company's net worth in the year prior to privatization.

Such a comparison overstates the value of the subsidies in relationship

to the company's net worth because it assumes that a company's net

worth increases in direct proportion to the value of the subsidies

received by that firm. However, this is not the case, as those values

are depreciating from year to year.

Comment 6: Program Denominator for Grants Allocable to IPA, MKP, and

Fertilizers

Respondents argue that although IPA is an input into downstream

products, such as phosphate salts and food additives, the Department

did not include the sales values of these products in the denominator

of the countervailing duty calculations, nor did the Department provide

an explanation. Respondents claim that although the Department's

preliminary results state that the ECIL grants were attributed 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, this statement is not entirely correct. They argue that

since the products produced by Rotem were also incorporated into the

phosphate salts and food additives produced by Rotem's subsidiary, the

Department should have attributed the ECIL grants to these products as

well.

Respondents also argue that because Rotem sells IPA as an end

product and as an input into downstream products that are produced in

another country by its subsidiary, these sales should be included in

the denominator of the calculation for grants that are allocable to

IPA, MKP, and fertilizers. In support of its argument, respondents

point to the Countervailing Duties: Notice of Proposed Rulemaking and

Request for Public Comments, 62 FR 8818, 8856 (1997 Proposed Rules),

which states that where a firm has ``production facilities in two or

more countries,'' the Department will generally attribute the subsidy

to products produced by the firm within the jurisdiction of the

government that granted the subsidy.

Petitioners counter that respondents' argument ignores the fact

that IPA is the class or kind of merchandise, and while the inputs into

the production of IPA may be relevant for subsidy calculations

purposes, what happens to IPA after it is produced is irrelevant. There

is no precedent or support for the Department to go beyond a finding

that grants have been provided for the production of IPA and make the

further determination that such grants also benefitted the subsequent

production of non-subject merchandise. Petitioners also counter that

for the Department to apply respondents' methodology would be adoption

of the so-called competitive-benefits-conferred interpretation of a

countervailable subsidy which has been rejected by the Department and

the Court of Appeals for the Federal Circuit in the privatization

context.

Furthermore, petitioners counter that the downstream products are

not produced in Israel. The Department's policy in circumstances where

the firm that received a subsidy has production facilities in two or

more countries is to attribute the subsidy to products produced by the

firm within the jurisdiction of the government that granted the

subsidy. Since the ECIL grants are designed to promote economic

development in Israel, it is appropriate to countervail the benefits in

that country. Therefore, petitioners argue that the respondents'

arguments should be rejected.

Department's Position

We reject respondents' contention that the Department should add to

the denominator of the countervailing duty calculations for grants

allocable to IPA, MKP, and fertilizer the sales of downstream products

produced from IPA. We reject respondents' argument on this matter on

the basis that the

[[Page 2885]]

downstream products referred to by respondents are not manufactured in

Israel. Rather, they are produced by a subsidiary of Rotem in Germany.

It has been the Department's position that domestic subsidies benefit

domestic production. This practice has been well-established since the

Certain Steel investigations and has been upheld by the CIT. See GIA,

58 FR at 37231; see also British Steel plc v. United States, 929 F.

Supp. 426, 453-55 (CIT 1996), appeal pending sub nom. Inland Steel

Industries, Inc. v. United States, Nos. 98-1230, 1259 (Fed. Cir.).

Comment 7: The Environmental Grants

Respondents argue that the Department incorrectly focused solely on

the ``general availability'' issue without first addressing whether the

subsidy even benefitted IPA. According to respondents, whether the

environmental grants are specific or general is irrelevant because they

are not tied to IPA, and, hence did not benefit IPA. Respondents claim

that the grants were given for the purpose of reducing dust pollution

at the Ashdod port and because IPA, which is a liquid and does not

produce dust, could not have benefitted from these grants.

Respondents also argue that it is inappropriate for the Department

to use adverse ``facts available'' when a party indicates that

information requested is not available, and in such an instance, the

Department must use other information on the record. Respondents claim

that this other information was provided by the Ministry of

Environment, which clearly indicates that the grants are available to

all industries regardless of the region.

Petitioners counter that the environmental grants benefitted the

entire company, and whether IPA itself was the cause of any pollution

at the port is of no consequence. The countervailing duty law is not

concerned with causation, but rather with benefit. Thus, the issue is

whether IPA and other Rotem products benefitted from the improved

conditions at the port made possible by the grants. Petitioners also

counter that respondents' argument regarding use of other information

on the record to determine specificity is not persuasive because the

``other information'' did not address the issue of de facto

specificity.

Department's Position

We disagree with respondents. According to the December 15, 1997,

questionnaire response at II-16, financial assistance is provided to

industrial plants for the adaptation of the facility to meet new

environmental requirements, which include other hazards besides dust.

The provision of these grants by the GOI relieves the company of an

obligation that it otherwise would have incurred. Although IPA may not

produce dust, as stated by respondents, the company did utilize the

Ashdod port for IPA shipments. Therefore, the environmental grants are

untied benefits that are bestowed to the entire company.

We also disagree with respondents' argument regarding the

Department's use of adverse facts available for this program. On two

occasions, the Department requested information from the GOI to enable

us to conduct a de facto specificity analysis of the Environment Grant

Program. On April 7, 1998 and on April 24, 1998, the Department

requested information from the GOI regarding eligibility for and actual

use of the benefits provided under this 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 attempt to extrapolate the required

information from its aggregate data, nor did they explain why such

information could not be provided. In accordance with section 776(a)(2)

of the Act, the Department used facts available because the GOI

withheld information that had been requested. Section 776(b) of the Act

permits the Department to draw an inference that is adverse to the

interests of an interested if that party has ``failed to cooperate by

not acting to the best of its ability to comply with a request for

information.'' Because the GOI did not comply with the Department's

request for information, and they did not give an explanation as to why

they could not provide the information, they did not act to the best of

their ability. Therefore, the Department determines it appropriate to

use an adverse inference in concluding that the environmental grants

are specific. For further discussion, see Preliminary Results, 63 FR at

48195.

Comment 8: Grants to Project 15

Respondents argue that grants to project 15 are not countervailable

because the green acid produced in this facility was not used as an

input into IPA. Although the green acid from project 15 could be used

chemically for IPA, it is not economically suitable for IPA; therefore,

it cannot be viewed as a viable input. Respondents also argue that

under the Department's practice of tying subsidies, where a subsidy is

tied to a product other than the product under investigation, the

Department will not allocate the subsidy to the product under

investigation. Respondents argue that the Department's rationale in the

1995 review for countervailing these grants because the products

produced from project 15 could be incorporated into IPA, does not

comport with the Department's tying requirement. While there may be a

potential benefit, there is, in fact, no actual benefit, and the

countervailing duty law deals with actualities, not potentialities. The

1997 Proposed Rules refer to an input into a downstream product and not

a potential input product; it refers to actual inputs. Therefore, they

argue that the product produced from project 15 was not used in the

downstream production of IPA, even if it could have been used, and as

such, it does not fall within the definition of an input.

Petitioners agree with the Department's finding, and counter that

there is no reason for the Department to reconsider its previous

decision.

Department's Position

The Department fully addressed respondents' argument in the 1995

administrative review. As previously stated, green acid can be used in

the production of all downstream products, including IPA. The ECIL

subsidies are provided to inputs that are also incorporated into other

downstream products produced by the same integrated company. Therefore,

to the extent that ECIL grants are tied to green acid, they are also

tied to the sales of all other merchandise incorporating those inputs.

See, the 1995 Final, 63 FR at 13630.

The Department's practice is to countervail the value of the

subsidies at the time they are provided to the company without regard

to their actual use by that same company or their effect on its

subsequent performance. As stated in the GIA, ``nothing in the statute

directs the Department to consider the use to which subsidies are put

or their effect on the recipient's subsequent performance. Rather, the

statute requires the Department to countervail an allocated share of

the subsidies received by producers, regardless of their effect.''

Specifically, section 771(5)(C) of the Act states that the Department

``is not required to consider the effect of the subsidy in determining

whether a subsidy exists.'' See GIA, 58 FR at 37260, and the 1995 Final

63 FR at 13631. Because neither the statute nor the Department's

regulations permit an analysis of the use and effect of subsidies, the

Department does not attempt such an analysis.

[[Page 2886]]

Final Results of Reviews

In accordance with 19 CFR 351.221(b)(4)(i), 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 determine the net subsidy for Rotem to be 5.89 percent ad

valorem.

We will instruct the U.S. Customs Service (``Customs'') to assess

countervailing duties as indicated above. The Department will also

instruct Customs to collect cash deposits of estimated countervailing

duties in the percentages detailed 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 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);

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 conducted under the Act,

as amended by the URAA. If such a review has not been conducted, the

rate established in the most recently completed administrative

proceeding 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.

This notice serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 355.34(d). Timely written notification of

return/destruction of APO materials or conversion to judicial

protective order is hereby requested. Failure to comply with the

regulations and the terms of an APO is a sanctionable violation.

This administrative review is issued and published in accordance

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

and 19 U.S.C. 1677(f)(i)(7)).

Dated: January 7, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-1116 Filed 1-15-99; 8:45 am]

BILLING CODE 3510-DS-P