Industrial Phosphoric Acid From Israel: final results and partial recission of countervailing duty administrative review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-508-605]

Industrial Phosphoric Acid From Israel: final results and partial

recission 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 May 7, 1999, 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, 1997 through December 31, 1997 (64 FR

24582). 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 instruct the U.S. Customs Service to

assess countervailing duties as detailed in the Final Results of Review

section of this notice.

EFFECTIVE DATE: September 13, 1999.

FOR FURTHER INFORMATION CONTACT: Dana Mermelstein or Sean Carey, Office

of CVD/AD Enforcement VII, Import Administration, International Trade

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

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

3208 or (202) 482-3964, 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) and Haifa Chemicals Ltd. (Haifa). 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 are rescinding the

review with respect to Haifa. This review also covers eleven programs.

Since the publication of the preliminary results, the following

events have occurred. We invited interested parties to comment on the

preliminary results. On June 7, 1999 case briefs were filed by both

petitioners (FMC Corporation and Albright & Wilson Americas Inc.) and

respondents (the Government of Israel (GOI) and Rotem-Amfert Negev, the

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

period). On June 11, 1999, respondents filed a rebuttal brief;

petitioners filed a rebuttal brief on June 14, 1999.

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

[[Page 49461]]

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

1997.

Allocation Period

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

1995) (British Steel I), 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, a methodology that was articulated in the General Issues

Appendix appended to the Final Affirmative Countervailing Duty

Determination: Certain Steel Products from Austria, 58 FR 37217 (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 non-recurring subsidies is a company-specific

average useful life (AUL) of non-renewable physical assets. This remand

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

plc. v. United States, 929 F.Supp 426, 439 (CIT 1996) (British Steel

II).

However, in administrative reviews where the Department examines

non-recurring subsidies received prior to the period of review (POR)

which have been countervailed based on an allocation period established

in an earlier segment of the proceeding, it is not practicable to

reallocate those subsidies over a different period of time. Where a

countervailing duty rate in earlier segments of a 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.

In this administrative review, the Department is considering non-

recurring subsidies previously allocated in earlier administrative

reviews under the old practice, non-recurring subsidies also previously

allocated in recent administrative reviews under the new practice, and

non-recurring subsidies received during the instant POR. Therefore, for

purposes of these preliminary results, the Department is using the

original allocation period of 10 years assigned to non-recurring

subsidies received prior to the 1995 administrative review (the first

review for which the Department implemented the British Steel I

decision). For non-recurring subsidies received since 1995, Rotem has

submitted, in each administrative review including this one, AUL

calculations based on depreciation and asset values of productive

assets reported in its financial statements. In accordance with the

Department's practice, we derived Rotem's company-specific AUL by

dividing the aggregate of the annual average gross book values of the

firm's depreciable productive fixed assets by the firm's aggregated

annual charge to depreciation for a 10-year period. In the current

review, this methodology has resulted in an AUL of 23 years; thus, non-

recurring subsidies received during the POR have been allocated over 23

years.

Privatization

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

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

1994, and 1995. In this administrative review, the Government of Israel

(GOI) and Rotem reported that additional shares of ICL were sold in

1997. 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 went toward

the repayment of prior subsidies. In the 1994 privatization, less than

0.5 percent of ICL shares were privatized. 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 1994 Final Results, 61 FR at 53352. However, we are

applying this methodology to the 1997 partial privatization because 17

percent of ICL's shares were sold. This approach is consistent with our

findings in the GIA and Department precedent under the URAA. See e.g.,

GIA, 58 FR at 37259; Certain Hot-Rolled Lead and Bismuth Carbon Steel

Products from the United Kingdom; Final Results of Countervailing Duty

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

Affirmative Countervailing Duty Determination: Certain Pasta from

Italy, 61 FR 30288 (June 14, 1996).

Discount Rates

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 an appropriate discount rate.

Therefore, we considered ICL's cost of long-term commercial borrowing

in U.S. dollars in each year from 1984 through 1997 as the most

appropriate discount rate. ICL's interest 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.

Analysis of Programs

Based upon the responses to our questionnaire and written comments

from the interested parties, we determine the following:

I. Programs Conferring Subsidies

A. 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 calculations

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

subsidy for this

[[Page 49462]]

program remains unchanged from the preliminary results and is as

follows:

[Percent ad valorem]

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Manufacturer/exporter Rate

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Rotem Amfert Negev............................................... 5.43

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B. 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:

[Percent ad valorem]

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Manufacturer/exporter Rate

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Rotem Amfert Negev............................................... 0.22

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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. Encouragement of Industrial research and Development Grants (EIRD)

2. Environmental Grant Program

3. Reduced Tax Rates under ECIL

4. ECIL Section 24 Loans

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

6. ECIL Preferential Accelerated Depreciation

7. Exchange Rate Risk Insurance Scheme

8. Labor Training Grants

9. 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: The Privatization Calculation

Respondents contend that the Department's privatization calculation

is incorrect and should be corrected in two areas: the numerators used

in the ratios which are averaged to calculate the ``gamma'' should

include all of the subsidies received by Rotem over the years; and, the

gamma itself is understated because the numerators contain only the

grants received in a given year, while the denominators are accumulated

values in that they contain Rotem's net worth in each year (i.e., net

worth is, by definition, the accumulation of a company's financial

results since its inception), resulting in a ratio of apples to

oranges.

Respondents note that in calculating the ``gamma'' used in the

privatization calculation, the Department did not include in the

numerators the subsidies received by Rotem arising from ECIL grants to

projects 8, 12, and 13. Respondents note that although grants to

projects 12 and 13 were fully countervailed in prior administrative

reviews, Rotem nevertheless reported these grants so the Department

could include them in the gamma calculation. However, the Department

failed to include these grants in the gamma numerators in the relevant

years, and did not include any grants to project 8 in the gamma

numerators, presumably because of the earlier finding that grants to

project 8 do not benefit IPA production. Respondents argue that in

calculating gamma, the Department is not seeking to determine the level

of countervailable subsidization, but rather the level of total

subsidization, relative to a company's net worth. Respondents cite the

final results of the prior administrative review, where the Department

stated that 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,'' (64

FR at 2884) and argue that the only way the gamma can be an accurate

historic surrogate is if all the subsidies received are included in its

calculation. Respondents note that the Department rejected this

argument in the previous administrative review, and urge the Department

to reconsider its position. See Final Results of Countervailing Duty

Administrative Review; Industrial Phosphoric Acid from Israel, 64 FR

2879 (January 19, 1999) (1996 Final Results).

Respondents also argue that the numerators and the denominators

used in calculating the gamma are not consistent in that the value of

the denominators, Rotem's net worth in each of the relevant years is,

by definition, an accumulated value, while the value the Department

uses in the numerators, the value of the subsidies in the same year, is

not an accumulated value. Respondents argue that the Department should

correct this methodological error by using a value in the numerator

which represents the accumulated value of the subsidies in the relevant

year.

Respondents note that in both the 1996 and the 1995 administrative

reviews, the Department rejected this argument. In the 1995 review, the

Department reasoned that respondents had ignored the fact that the

value of the subsidies is eroding over time. See 1995 Final Results.

Respondents further note that in the 1996 review, the Department took

the position that respondents incorrectly assumed ``that the company's

net worth increased in direct proportion to the value of the subsidies

received by the firm.'' 64 FR at 2884. Respondents now argue that the

Department's 1995 conclusion ignores the fact that the net worth of the

company is also eroding to a comparable degree as a result of the

depreciation of the company's assets (that is, but for additional

capital infusions, some of which are subsidies included in the gamma

numerator which increase the company's net worth, the net worth would

also decline over time, just as the subsidies do). This depreciation of

assets (which is manifest in the denominator), according to

respondents, offsets the erosion of the subsidies (manifest in the

numerator) over time. Respondents also argue that the Department's 1996

reasoning ignores the fact that the grants to Rotem were ``capital

infusions'' used by Rotem to build infrastructure, illustrating that,

contrary to the Department's conclusion, Rotem's equity is increasing

as a result of the grants, in direct proportion to their value.

Finally, respondents 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: the net

present value (NPV) used in the privatization formula is nothing more

than the subsidies accumulated, based on a ten year, declining benefit

stream. Thus, respondents argue, the subsidies are being accumulated

for the ``percent repaid'' calculation, but are not being accumulated

for the gamma calculation. According to respondents, either both should

be accumulated or neither should be accumulated.

Petitioners note that respondents make two now familiar attacks on

the Department's privatization methodology. Petitioners contend that

the Department has properly rejected these arguments in the past two

administrative reviews of this order. With respect to including all,

rather than just countervailable subsidies in the gamma numerators,

petitioners argue that this would lead to the absurd result of

requiring the Department to investigate all subsidies, regardless of

their countervailability, to construct an

[[Page 49463]]

appropriate privatization calculation. With respect to respondents'

arguments about the mismatch between the gamma numerators and

denominators, petitioners urge the Department to continue to apply the

sound reasoning applied in the two previous administrative reviews.

Department's Position

The Department has considered respondents' arguments with respect

to the privatization methodology in the last two administrative reviews

of this countervailing duty order. See 1995 Final Results; 1996 Final

Results. We continue to believe that these arguments are without merit.

First, the Department does not calculate a benefit from subsidies which

have been fully countervailed, or subsidies that are not

countervailable because they do not benefit the subject merchandise.

Therefore, the Department's privatization methodology does not address

the repayment of such subsidies. After calculating the gamma, and

therefore determining the portion of the purchase price which

``repays'' past subsidies, 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. If all

subsidies were included in the gamma numerator, the net present value

calculation would also have to include all other subsidies, even if

they were found not to benefit the production of subject merchandise,

or if they have already been fully countervailed. Accepting

respondents' arguments would require the Department to monitor and

allocate over time even subsidies which were found non-countervailable,

in the event that a company were to experience a change in ownership at

some time during the administration of a countervailing duty order.

This practice could give rise to many unintended consequences,

including increasing respondents' burden of complying with the

countervailing duty law, and allowing the parties to continue to

address issues relating to a program's countervailability, regardless

of earlier findings.

Second, we reject respondents' argument that the Department's

privatization methodology is inconsistent by virtue of the gamma

denominator representing accumulated net worth and the gamma numerator

not representing the accumulated value of subsidies received over time.

Thus, we reject respondents' conclusion that the methodology assumes

that the benefits of a subsidy disappear at the end of the year of

receipt. As we stated in the 1995 Final Results and the 1996 Final

Results, the gamma calculation attempts to determine the portion of the

company's net worth which is comprised of subsidies in the year prior

to privatization. Once again, we believe that respondents' proposal to

compare the accumulated value of a company's subsidies in the year

before privatization to the company's net worth in that year would

overstate the value of the subsidies in relationship to the company's

net worth by assuming that a company's net worth increases in direct

proportion to the value of the subsidies received by that firm.

Moreover, as we stated in the last administrative review, a company's

net worth is not increasing in direct proportion to the value of the

subsidies received because the value of the subsidies is eroding over

time. See 1996 Final Results.

We also reject respondents' suggestion that the Department either

remove the net present value element from the ``percent repaid''

calculation or add it to the gamma calculation (by accumulating the

subsidies). This suggestion might have merit if our gamma methodology

only considered the subsidies to net worth ratio in the year prior to

privatization in isolation. However, the gamma looks at ten years of

data and averages those ten years, thus providing a historical context

to the ratio of subsidies to net worth over time. In addition, we note

that while the gamma itself does not factor in the net present value of

past subsidies, the results of the gamma calculation are applied to the

present value of the remaining benefit streams at the time of

privatization. Thus, our current calculations, as a whole, do properly

account for the present value of the remaining benefits at the time of

privatization. See Final Affirmative Countervailing Duty Determination:

Certain Hot-Rolled Flat Rolled Carbon Quality Steel Products from

Brazil, 64 FR 38742 (July 19, 1999); 1996 Final Results.

Finally, respondents have once again provided a Coopers & Lybrand

report in support of their privatization methodology arguments and

maintain that the Department's failure to accept this report in the

last two administrative reviews indicates that the Department does not

understand the arguments presented therein. As explained above, while

the Department does appreciate the argument, we do not believe that it

merits a change in our privatization methodology. This methodology

aims, through the calculation of the gamma, to determine the percentage

of subsidies that constitute the overall value (i.e., net worth) of the

company at a given point in time, and then to use that gamma to

determine the portion of total subsidies which are repaid through the

privatization transaction and the portion which remains with the

company and continues to provide countervailable benefits. See, GIA, 58

FR at 37263, and 1995 Final Results, 63 FR at 13635, 13636. This

methodology has been accepted by the courts as a reasonable way to

determine the impact of privatization on previously bestowed subsidies.

See 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);

Saarstahl AG v. United States, 177 F. 3d 1314 (Fed. Cir. 1999).

Comment 2: Rotem's AUL Calculation

Petitioners contend that the Department's calculation of Rotem's

AUL is flawed in that it excludes a category of assets referred to as

``Furniture, vehicles, and equipment.'' Petitioners argue that it is

inappropriate for the Department to accept Rotem's explanation that

these assets should be excluded from the AUL calculation because they

are not ``productive assets.'' Some of these assets are identified by

Rotem as ``office equipment'' which, according to petitioners consists

of computers and/or related software which may be essential to Rotem's

production and operations; assets identified as ``vehicles'' could,

petitioners maintain, be used in, or essential to, production and

operations. Petitioners believe that the determination of what

constitutes productive assets is a factual determination which the

Department must make on a case-by-case basis; petitioners maintain that

the record in this review does not contain the necessary factual

information for this determination. Petitioners urge the Department to

require Rotem to provide a detailed listing of the specific assets

which comprise this category and their uses so that the Department can

evaluate and petitioners can comment on whether they should be included

in the AUL calculation.

Respondents note that it should be clear from the items enumerated

that the category is intended for office-type assets. Productive assets

are accounted for in the category ``facilities, machinery, and

equipment,'' and respondents believe that the difference between

productive and non-productive assets is clear from the accounting

records.

[[Page 49464]]

Department's Position

We disagree with petitioners' argument that the category of Rotem's

assets entitled ``furniture, vehicles, and office equipment,'' requires

any further examination by the Department. Rotem complied with the

Department's request and provided information from its audited

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

calculations. We note that the verification reports from the 1995

administrative review, which were submitted on the record of the

current review, discuss the calculation of Rotem's company-specific AUL

and its 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 this information has

previously been verified and tied to Rotem's audited financial

statements, we find no reason to change the calculation of Rotem's AUL

for these final results.

Final Results of Review

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, 1997 through December

31, 1997, we determine the net subsidy for Rotem to be 5.65 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 Sec. 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 at 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, 1997 through December 31, 1997, 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 351.305(a)(3). Timely written

notification of return/destruction of APO materials or conversion to

judicial protective order is hereby requested. Failure to comply is a

violation of the APO.

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)).

Dated: September 7, 1999.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 99-23776 Filed 9-10-99; 8:45 am]

BILLING CODE 3510-DS-P