NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-423-603]
Preliminary Affirmative Countervailing Duty Determination; Industrial
Phosphoric Acid From Belgium
Thursday, February 5, 1987
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AGENCY: Import Administration, International Trade Administration,
Commerce.
ACTION: Notice.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies
within the meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in Belgium of industrial phosphoric acid. The
estimated net subsidy is 0.65 percent ad valorem. In addition, we preliminarily
determine that "critical circumstances" do not exist in this case.
We have notified the U.S. International Trade Commission (ITC) of our determinations.
We are directing the U.S. Customs Service to suspend liquidation of all entries of
industrial phosphoric acid from Belgium that are entered, or withdrawn from
warehouse, for consumption, on or after the date of publication of this notice, and to
require a cash deposit or bond or entries of this product in an amount equal to the
estimated net subsidy as described in the "Suspension of Liquidation" section of this
notice.
If this investigation proceeds normally, we will make our final determination by April 14,
1987.
EFFECTIVE DATE: February 5, 1987.
FOR FURTHER INFORMATION CONTACT:Alain Letort of Mark Linscott, Office of
Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC
20230; telephone: 202/377-0186 (Letort) or 202/377-1174 (Linscott).
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine that there is reason to believe
or suspect that certain benefits which constitute subsidies within the meaning of section
701 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers,
producers, or exporters of industrial phosphoric acid in Belgium. For purposes of this
investigation, the following programs are found to confer subsidies to manufacturers,
producers, or exporters of industrial phosphoric acid in Belgium:
- Capital Grants and Interest Rate Reductions
- Exemptions from Real Property Taxes
We determine the estimated net subsidy to be 0.65 percent ad valorem for all
manufacturers, producers, or exporters of industrial phosphoric acid in Belgium.
Case History
On November 5, 1986, we received a petition in proper form filed by the FMC
Corporation, of Philadelphia, Pennsylvania, and the Monsanto Company, of Saint Louis,
Missouri, on behalf of the U.S. industry producing industrial phosphoric acid.
In compliance with the filing requirements of section 355.26 of the Commerce
Regulations (19 CFR 355.26), the petition alleges that manufacturers, producers, or
exporters in Belgium of industrial phosphoric acid receive, directly or indirectly,
subsidies within the meaning of section 701 of the Act, and that these imports materially
injure, or threaten material injury to, a U.S. industry.
In addition, the petition alleges that "critical circumstances," as defined in section
703(e)(1) of the Act, exist in this case. We found that the petition contained sufficient
grounds upon which to initiate a countervailing duty investigation, and on November
25, 1986, we initiated such an investigation (51 FR 43761, December 4, 1986). We stated
that we expected to issue a preliminary determination by January 29, 1987.
Since Belgium is a "country under the Agreement" under section 701(b) of the Act, the
ITC is required to determine whether imports of the subject merchandise from Belgium
materially injure, or threaten material injury to, a U.S. industry. Therefore, we notified
the ITC of our initiation. On December 22, 1986, the ITC determined that there is a
reasonable indication that an industry in the United States is materially injured by reason
of imports from Belgium of industrial phosphoric acid (52 FR 612, January 7, 1987).
On December 5, 1986, we presented a questionnaire to the government of Belgium in
Washington, DC, concerning the petitioners' allegations, and requested a response by
January 5, 1987. On December 22, 1986, and again on January 7, 1987, upon request of
respondents, we granted additional time to submit responses. On January 20, 1987, we
received responses to our questionnaire from the government of Belgium, the
Socie>=1te>=1 Re>=1gionale d'Investissement de Wallonie (SRIW), which is an agency of
the regional government of Wallonia, and from the Socie>=1te>=1 Chimique
Prayon-Rupel S.A. (SCPR), which is the only known producer and exporter of industrial
phosphoric acid in Belgium.
Scope of Investigation
The product covered by this investigation is industrial phosphoric acid, which is
currently provided for in item 416.30 of the Tariff Schedules of the United States (TSUS).
Analysis of Programs
Throughout this notice, we refer to certain general principles applied to the facts of the
current investigation. These principles are described in the "Subsidies Appendix" attached
to the notice of "Cold-Rolled Carbon Steel Flat- Rolled Products from Argentina; Final
Affirmative Countervailing Duty Determination and Countervailing Duty Order"
(49 FR 18006, April 26, 1984).
Consistent with our practice in preliminary determinations, when a response to an
allegation denies the existence of a program, receipt of benefits under a program, or
eligibility of a company or industry under a program, and the Department has no
persuasive evidence showing that the response is incorrect, we accept the response for
purposes of the preliminary determination. All such responses are subject to verification.
If the response cannot be supported at verification, and the program is otherwise
countervailable, the program will be considered a subsidy in the final detemination.
For purposes of this preliminary determination, the period for which we are measuring
subsidization ("the review period") is calendar year 1985, which coincides with SCPR's
fiscal year. In their responses, the government of Belgium, SRIW, and SCPR provided
data, including financial statements, for the applicable period.
Based upon our analysis of the petition and the responses to our questionnaire, we
preliminarily determine the following:
I. Programs Preliminarily Determined to Confer a Subsidy
We preliminarily determine that subsidies are being provided to manufacturers,
producers, or exporters
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of industrial phosphoric acid in Belgium under the
following programs.
A. Programs Created by the 1970 Economic Expansion Law (EEL)
Under the Economic Expansion Law (EEL) of December 30, 1970, the Belgian
government offers incentives to promote sectoral and technological development in
designated development areas and in adjoining industrial sites. The provisions of the EEL
are implemented and administered by regional authorities. Under the EEL the following
benefits may be provided: Capital grants or interest rate reductions; loan guarantees;
accelerated depreciation; real property, capital registration and capital gains tax
exemptions; contractual aid and employment premiums. Companies which invest in
development areas and which contribute directly to the creation, extension or
conversion of industrial and service-related establishments pursuant to the general
economic interest of the country are eligible to participate in these programs.
1. Capital Grants and Interest Rate Reductions. Companies which finance qualifying
investments under the EEL through approved credit institutions may receive up to a
seven percent reduction in the interest rate payable on 75 percent of the total cost of
investment, so long as the effective rate does not fall below one percent per annum.
For those companies which finance at least 50 percent of the investment from their own
funds, the interest rate reduction may be wholly or partly replaced by a nonrefundable
capital grant of an equivalent amount. Because benefits received under this federal
program are limited to companies within certain regions, we preliminarily determine the
capital grants to be countervailable.
SCPR'S plant at Puurs, the only plant producing industrial grade phosphoric acid for sale
to all markets, is not located in a development area and has never received benefits under
this program. According to the responses, SCPR's plant at Engis was located in a
development area and received two capital grants in 1985. All of the Engis plant's
production of industrial phosphoric acid is for captive use (i.e., it is consumed internally
by SCPR to manufacture other products). Although industrial phosphoric acid produced
by the Engis plant is not currently sold to any market, we find no evidence in the
responses that industrial phosphoric acid produced at Engis differs in any respect from
that produced at Puurs, nor any evidence that industrial phosphoric acid produced in the
Engis plant could not be exported to the United States. Accordingly, to the extent that
SCPR's production of industrial phosphoric acid has benefited under this program,
regardless of the fact that benefits were conveyed to the Engis plant rather than to the
Puurs plant, we find that these benefits accure to all production of industrial phosphoric
acid.
To calculate the benefits, we allocated the grants received in 1985 over ten years, which is
the average useful life of renewable physical assets in the chemical manufacturing
industry, as determined under the U.S. Internal Revenue Service's Asset Depreciation
Range System. Because SCPR obtained no new loans during the year in which it received
the grants, we used as our discount rate the average rate charged by commercial banks in
Belgium to their prime borrowers in 1985. Applying the grant methodology and
dividing by the f.o.b. value of total sales by SCPR during the review period, we calculated
an estimated net subsidy of 0.54 percent ad valorem.
2. Exemption from Real Property Tax. Companies which make qualifying investments
pursuant to the EEL in designated development areas may be exempted from national,
provincial and local real property taxes for a period of up to five years. Because benefits
received under this federal program are limited to companies within certain regions, we
preliminarily determine real property tax exemptions to be countervailable.
Due to its location in a development area, SCPR's plant at Engis has been exempt from
paying a combined real property tax rate of 37.9 percent for investments it has made in
Engis. To the extent that SCPR's production of industrial phosphoric acid has benefited
under this program, regardless of the fact that benefits were conveyed to the Engis plant
rather than to the Puurs plant, we find these benefits to accure to all production of
industrial phosphoric acid.
To calculate the benefits, we divided the amounts reported in the responses as exempted
in 1985 by the f.o.b. value of total sales by SCPR during the review period. Using our usual
tax methodology, the benefit would be that amount reported in the tax return filed during
the review period. According to SCPR's response, the government does not notify the
taxpayer of its real property tax liability until the year following the year covered by the
tax liability. Because we did not have the tax exemption for the 1984 tax liability, which
would have been actually reported by government tax authorities during the review
period in 1985, we have used as best information available, the exemption for the 1985
tax liability reported in 1986. Using this methodology, we calculated an estimated net
subsidy of 0.11 percent ad valorem.
The remaining benefits under the EEL are discussed in the "Programs Preliminarily
Determined Not to Be Used" section of this notice.
II. Programs Preliminarily Determined not to Confer a Subsidy
We preliminarily determine that subsidies are not being provided to manufacturers,
producers, or exporters of industrial phosphoric acid in Belgium under the following
programs.
A. Investment in SCPR by SRIW
Petitioners allege that the Societe Regionale d'Investissement de Wallonie
(SRIW), an agency of the regional government of Wallonia, played a crucial role in
liquidating the former holding company Societe de Prayon (SP) and its
manufacturing subsidiary Societe Industrielle de Prayon (SIP), and reorganizing
them into the Societe Chimique Prayon-Rupel S.A. (SCPR), the current producer
and exporter in Belgium of the subject merchandise. Petitioners further allege that
SRIW's equity investment in SCPR was made on terms inconsistent with commercial
considerations.
In its response, SRIW states that it carries out two types of activities: (1) Equity
investments made on behalf of and under the direction of the regional government of
Wallonia with funds transferred to it by that government; and (2) equity investments
aimed at promoting the economy of the region, made with SRIW's own funds, without any
direction, advice, or prior approval from the regional government of Wallonia or the
government of Belgium. SRIW's investment in SCPR falls into the second category.
Under the law of April 2, 1962, governing regional investment companies, SRIW is
required to seek a "normal return" on the second category of investments and to apply
rules of "sound management." In order to avoid confusion between the two types of
investments, SRIW set up in 1985 a wholly owned subsidiary called SOWAGEP, whose
purpose is to act, in lieu of SRIW, as a representative of the regional government of
Wallonia with respect to investments by that government.
With respect to SRIW's investment in SCPR, SRIW and SCPR state that SCPR is not SP or
SIP reorganized, but rather a separate firm. According to the responses, SP and SIP filed
for bankruptcy in 1981 under normal Belgian procedures comparable to Chapter XI
proceedings in the United States. After SP and SIP were placed in receivership, SRIW
formed a joint venture with a private Belgian industrial consortium, a Moroccan
phosphate company, and a private French engineering firm. This joint venture was named
Socie>=1te>=1 Chimique Prayon-Rupel S.A. (SCPR). SCPR then purchased certain assets
of the former SP and SIP from the court-appointed receiver.
In order to determine whether SRIW's equity investment in SCPR was made on terms
inconsistent with commercial considerations, we analyzed the terms of this investment in
light of normal commercial practices. We do not find this transaction inconsistent with
commercial considerations for the following reasons.
First, SRIW is only a minority shareholder in SCPR. SRIW purchased its equity in SCPR on
the same terms and conditions, at the same price, and at the same time as the private
shareholders, which constitutes a prima facie indication that SRIW's investment was
consistent with commercial considerations.
Second, at the time the joint venture was set us (late in 1981), the shareholders in the joint
venture had every expectation that SCPR would return a profit, as evidenced by the
shareholders' agreement which shows SCPR's anticipated stream of profits and rates of
return on equity. SCPR purchased only those assets of SP and SIP it believed could return
a profit, i.e., the plants at Engis and Puurs. The sizable share of foreign and private
investment in the joint venture is another indication of anticipated profitability.
Third, SRIW states that its investment in SCPR was made with its own funds, and not at the
direction of the regional government of Wallonia. As noted above, where SRIW makes an
equity investment with its own funds, it is required by law to obtain a "normal return" on
its investment.
For the reasons stated above, we preliminarily determine that SRIW's investment in SCPR
was not made on terms inconsistent with commercial considerations, and, therefore, does
not confer a subsidy on industrial phosphoric acid from Belgium.
B. 1985 Equity Infusion by SRIW into SCPR
Petitioners allege that SCPR's capital stock increase by its shareholders in 1985 was
inconsistent with commercial considerations because the company was clearly not an
attractive investment opportunity at that time.
In order to determine whether the 1985 equity infusion was made on terms inconsistent
with commercial considerations, we followed the same methodology as for the original
equity investment into SCPR and analyzed this infusion in light of normal commercial
practices. We do not find this transaction inconsistent with commercial considerations
because (1) SCPR's private shareholders also contributed to the increase in capital stock
on the same terms and conditions as SRIW, which constitutes a prima facie indication that
SRIW's investment was consistent with commercial considerations, and (2) SCPR reported
profits in each of the three years preceding the 1985 equity infusion.
Accordingly, we preliminarily determine that SRIW's equity infusion into SCPR in 1985
does not confer a subsidy on industrial phosphoric acid from Belgium.
III. Programs Preliminarily Determined not to be Used
We preliminarily determine that the following programs were not used by the
manufacturers, producers, or exporters of industrial phosphoric acid in Belgium during
the review period.
A. Preferential Loans
Petitioners allege that SCPR may have benefited from loans made on terms inconsistent
with commercial considerations by the Socie>=1te>=1 Nationale de Cre>=1dit a>=2
l'Industrie (SNCI), which is a primary government-controlled lender to industrial and
commercial enterprises in Belgium. In its response, SCPR states that it has never applied
for nor received loans from SNCI.
B. Employment-Based Benefits
Petitioners allege that SCPR may have received funds for employee training programs and
other employment-based benefits from the Office National de l'Emploi. In its response,
SCPR states that it has never applied for nor received such benefits.
C. Programs Created by the 1970 Economic Expansion Law (EEL)
1. Loan Guarantees. The government may gurantee loans made or bonds issued for the
financing of investments which realize the objectives set forth in the EEL. If a loan was not
granted by a public credit organization, or if a bond was not acquired or subscribed by a
public-sector institution, the guarantee is limited to 75 percent of the amount due after
realization of any collateral security. According to the responses, SCPR received no
guarantees under this program.
2. Accelerated Depreciation. Companies qualified for governmental aid under the EEL
may depreciate investments in plants, equipment and industrial buildings at double the
rate allowed for normal straight-line depreciation. Accelerated depreciation benefits may
be utilized for three successive tax periods, to be agreed upon and embodied in an aid
contract. According to the responses, SCPR has not claimed accelerated depreciation
under this program.
3. Exemption from Capital Registration Tax. Subscriptions or contributions to the capital
of companies vested with legal personality and incorporated to act in accordance with the
intentions of the EEL are exempted from payment of the capital registration tax.
According to the responses, SCPR received no exemptions under this program.
4. Employment Premiums. Investments made pursuant to the EEL that create new jobs in
development areas entitle the employer to a non-repayable grant. The magnitude of
payment varies according to the number of jobs created. According to the responses,
SCPR received no employment premiums under this program.
5. Contractual Aid. The EEL provides aid in the form of contracts awarded to firms making
investments that promote economic, technological, industrial and/or commercial
development within development areas. Specific types of aid include progress contracts,
administrative promotion contracts, technological promotion contracts and contracts
for the conversion or restructuring of operations. According to the responses, SCPR was
awarded no contracts under this program.
6. Exemption from Capital Gains Tax. Capital gains invested in development areas under
the EEL are exempt from the Belgium capital gains tax, if invested within a year
following the close of the tax year in which the gain is realized. According to the
responses, SCPR received no capital gains tax exemptions under this program.
D. Operating Subsidies
Petitioners allege that SCPR's annual reports for 1984 and 1985 show that the company
received certain unspecified "operating subsidies." In its response, SCPR states that the
"operating subsidies" in question consisted of certain research and development grants
awarded by IRSIA, an agency of the government of Belgium, for
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laboratory
research wholly unrelated to industrial phosphoric acid. Because these grants did not
benefit the production of industrial phosphoric acid, we preliminarily determine that
these grants were not used in this case.
Critical Circumstances
Petitioners allege that "critical circumstances" exist with respect to imports of industrial
phosphoric acid from Belgium. Under section 703(e)(1) of the Act, critical
circumstances exist when the Department has a reasonable basis to believe or suspect
that (1) the alleged subsidy is inconsistent with the Agreement on Interpretation and
Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs and Trade
(the Subsidies Code), and (2) there have been massive imports of the class or kind of
merchandise which is the subject of the investigation over a relatively short period.
Section 355.29(a) of the Commerce Regulations [19 CFR 355.29(a)] on critical
circumstances provides, inter alia, that we will determine "whether the alleged subsidy is
an export subsidy inconsistent with the Agreement" (emphasis added). Thus, under
existing regulations, a subsidy may be viewed as inconsistent with the Agreement only if
it is an export subsidy.
Based upon our analysis, no export subsidies inconsistent with the Subsidies Code are
being bestowed upon industrial phosphoric acid from Belgium. Therefore, we do not
need to address the issue of whether there have been massive imports of industrial
phosphoric acid from Belgium over a relatively short period. Accordingly, we
preliminarily determine that "critical circumstances" do not exist with respect to
industrial phosphoric acid from Belgium.
Verification
In accordance with section 776(a) of the Act, we will verify the data used in making our
final determination. We will not accept any statement in a response that cannot be
verified for our final determination.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service
to suspend liquidation of all entries of industrial phosphoric acid from Belgium which
are entered, or withdrawn from warehouse, for consumption, on or after the date of
publication of this notice in the Federal Register, and to require a cash depisit or bond
equal to 0.65 percent ad volorem for each such entry of this merchandise. This
suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(c) of the Act, we will notify the ITC of our determination.
In addition, we are making available to the ITC all nonprivileged and nonproprietary
information relating to this investigation. We will allow the ITC access to all privileged
and proprietary information in our files, provided the ITC confirms that it will not
disclose such information, either publicly or under an administrative protective order,
without the written consent of the Deputy Assistant Secretary for Import Administration.
If our final determination is affirmative, the ITC will determine whether these imports
materially injure, or threaten material injury to, a U.S. industry within 45 days after the
Department makes its final determination.
Public Comment
In accordance with § 355.35 of the Commerce Regulations (19 CFR 355.35) we will hold a
public hearing, if requested, to afford interested parties an opportunity to comment on
this preliminary determination, at 1:00 p.m. on March 3, 1987, at the U.S. Department of
Commerce, Room 3708, 14th Street and Constitution Avenue NW., Washington, DC
20230. Individuals who wish to participate in the hearing must submit a request to the
Deputy Assistant Secretary, Import Administration, Room B-099, at the above address
within 10 days of the publication of this notice in the Federal Register.
Requests should contain: (1) The party's name, address, and telephone number; (2) the
number of participants; (3) the reason for attending; and (4) a list of the issues to be
discussed. In addition, at least 10 copies of the proprietary version and seven copies of
the nonproprietary version of the pre-hearing briefs must be submitted to the Deputy
Assistant Secretary by February 24, 1987. Oral presentations will be limited to issues
raised in the briefs. In accordance with 19 CFR 355.33(d) and 19 CFR 355.34, all written
views will be considered if received not less than 30 days before the final determination is
due, or, if a hearing is held, within 10 days after the hearing transcript is available.
This determination is published pursuant to section 703(f) of the Act [19 U.S.C. 1671b(f)].
Joseph A. Spetrini,
Acting Deputy Assistant Secretary for Import Administration.
January 29, 1987.
[FR Doc. 87-2235 Filed 2-4-87; 8:45 am]
BILLING CODE 3510-DS-M