52 FR 3684
NOTICES
DEPARTMENT OF COMMERCE
[C-508-605]
Preliminary Affirmative Countervailing Duty Determination; Industrial
Phosphoric Acid From Israel
Thursday, February 5, 1987
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AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We preliminarily determine that benefits which constitute subsidies within the
meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in Israel of industrial phosphoric acid. The
estimated net subsidy is 6.52 percent ad valorem for Negev Phosphates Ltd., 14.83 percent ad
valorem for Haifa Chemicals Ltd., and 7.14 percent ad valorem for all other manufacturers,
producers, or exporters in Israel of industrial phosphoric acid. 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 determination. We are
directing the U.S. Customs Service to suspend liquidation of all entries of industrial phosphoric
acid from Israel that are entered, or withdrawn from warehouse, for consumption on or after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 on entries of the subject
merchandise 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:David Levine or Gary Taverman, Office of Investigations,
Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230;
telephone: 202/377-1673 (Levine), 202/377-0161 (Taverman).
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SUPPLEMENTARY INFORMATION: .
Preliminary Determination
Based upon our investigation, we preliminarily determine that 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 in Israel of industrial phosphoric
acid. For purposes of this investigation, the following programs are found to confer subsidies to
manufacturers, producers, or exporters of industrial phosphoric acid in Israel:
- Investment Grants under the Encouragement of Capital Investments Law (ECIL)
- Long-Term Development Loans under the ECIL
- Bank of Israel Export Production Fund loans
- Bank of Israel Export Shipment Fund Loans
- Bank of Israel Imports-for-Export Fund Loans
- Exchange Rate Risk Insurance Scheme
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 § 355.26 of the Commerce Regulations (19 CFR
355.26), the petition alleges that manufacturers, producers, or exporters in Israel 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 Israel 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 Israel 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 Israel of industrial
phosphoric acid (52 FR 612, January 7, 1987).
On December 8, 1986, we presented a questionnaire to the Government of Israel in
Washington, DC concerning the petitioners' allegations, and requested a response by January 5,
1987. On December 30, 1986, upon request of respondents, we granted additional time to submit
responses. On January 12, 1987, we received responses to our questionnaire from the Government
of Israel and from Negev Phosphates Ltd. (Negev).
We did not receive a response from Haifa Chemicals Ltd. (Haifa), although it is a producer and
exporter of industrial phosphoric acid. For purposes of this preliminary determination, we
therefore applied the best information available to derive an estimated countervailing duty
rate for Haifa. As best information available, we used the subsidy rates for particular programs
found in our most recent final affirmative countervailing duty determination for an
industrial product from Israel (Final Affirmative Countervailing Duty Determination:
Oil Country Tubular Goods from Israel (OCTG) (52 FR 1649, January 15, 1987)), or the rate
found for Negev, whichever was greater. Because Haifa did not respond, we preliminarily
determine that a significant difference exists in the estimated net subsidies for the two companies.
We therefore found company- specific rates for Haifa and Negev, and derived a weighted average
for the "all other" company rate for insustrial phosphoric acid from Israel.
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 determination.
For purposes of this preliminary determination, the period for which we are measuring
subsidization ("the review period") is April 1, 1985 through March 31, 1986, the fiscal year for the
companies under investigation. In their responses, the Government of Israel and Negev
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 Subsidies
We preliminarily determine that subsidies are being provided to manufacturers, producers, or
exporters of industrial phosphoric acid in Israel under the following programs.
A. The Encouragement of Capital Investments Law (ECIL)
The purpose of the ECIL is to attract capital to Israel. In order to be eligible to receive various
benefits under the ECIL, including investment grants, long-term industrial development loans,
accelerated depreciation, and reduced tax rates, the applicant must obtain approved enterprise
status.
Approved enterprise status is obtained after review of information submitted to the Israel
Ministry of Industry and Trade, Investment Center Division. The amount of the benefits received
by approved enterprises depends on the geographic location of the eligible enterprise. For
purposes of the ECIL, Israel is divided into three zones--Development Zone A, Development
Zone B, and the "central area"--each with a different funding level.
1. Investment Grants. According to the responses, only investment projects outside the central
area are eligible to receive investment grants since 1978. Because the grants are limited to
enterprises located in specific regions, we preliminarily determine that they constitute subsidies
within the meaning of the Act. Since 1975, Negev has been approved to receive grants for two
projects.
To calculate the benefit, we allocated these grants over 10 years (the average useful life of assets in
the chemical manufacturing industry, as determined under the U.S. Internal Revenue
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Service's Asset Depreciation Range System). Usually, to allocate benefits over time we use as our
discount rate the firm's weighted cost of capital, which is an average of the company's marginal
costs of debt and equity for the year in which the terms of the grant were approved. However, we
were unable to calculate a weighted cost of capital for Negev because there is no fixed rate
long-term borrowing in Israel. Therefore, in order to reflect most accurately the benefit to
Negev over time, we have used a variable discount rate to allocate the grant benefits.
To calculate the grant allocation amount for the review period, we applied the grant methodology
outlined in the Subsidies Appendix, using as our variable discount rate the national average
short-term borrowing rate for new Israeli shekels (NIS) in the review period, as determined by the
Bank of Israel, adjusted for inflation. We divided by the value of total sales during the review
period to calculate an estimated net subsidy for Negev of 2.1 percent ad valorem. As best
information available, we preliminarily determine that the estimated net subsidy for Haifa also is
2.1 percent ad valorem.
2. Long-Term Industrial Development Loans. Prior to July 1985, approved enterprises were
eligible to receive long-term industrial development loans funded by the Government of Israel.
These loans were disbursed through the Industrial Development Bank of Israel (IDBI) and
other industrial development banks associated with each commercial bank in Israel.
We stated in OCTG that the Government of Israel did not provide us with sufficient information
concerning selection criteria for approved enterprises under ECIL, the criteria for receiving
industrial development loans under ECIL, or the distribution of loans under the program. Although
we asked for explanations of these elements in our questionnaire for the instant case, the responses
did not provide sufficient clarification. Therefore, we preliminarily determine that the loans are
limited to a specific enterprise or
industry, or group of enterprises or industries, and are countervailable if they were provided on
terms inconsistent with commercial considerations.
The supplemental response of Negev indicates that the company had loans under this program
outstanding during the review period for projects at five of its plants, one of which produces an
input for the subject product. The loans provided for this plant were linked to the U.S. dollar and
were not on terms inconsistent with commercial considerations; i.e., interest paid on the loans was
not less than what would have been paid at our benchmark rate for these loans (the dollar-linked
variable short-term rate adjusted for exchange rate fluctuation). Therefore, we preliminarily
determine that Negev received no countervailable benefits under this program. As best
information available, we preliminarily determine the estimated net subsidy for Haifa to be 5.02
percent ad valorem, based on OCTG.
B. Bank of Israel Export Loans
The Government of Israel provides preferential financing to manufacturers, producers, or
exporters in Israel of industrial phosphoric acid through three export credit funds
administered by the Bank of Israel (BOI).
1. Export Production Fund (EPF). Under the EPF, three-month loans are provided to exporters to
finance export production. The amount which a company is able
to borrow under this program is limited by a quota set by the BOI. The quota is based on the value
of the company's exports, the product's value-added percentage, and the production cycle of the
company. During the review period, Negev received loans denominated in NIS under this program.
Because only exporters are eligible for these loans, we preliminarily determine that they are
countervailable to the extent that they are provided at preferential rates. We used as our
benchmark the national average non-directed short-term NIS lending rate in the review period, to
be published in the 1986 BOI Annual Report, [FN1] adjusted for inflation. Comparing this
benchmark to the interest rates charged on these loans, we preliminarily determine that the loans
were provided at preferential rates and are, therefore, countervailable.
FN1 We received this public information during verification for our Final Affirmative
Countervailing Duty Determination: Certain Fresh Cut Flowers from Isreal (Flowers) (to be
published in the Federal Register on February 3, 1987). It is contained in Verification Exhibit 20 of
the official file (C-508-603).
To calculate the benefit from these loans, we allocated the interest savings over total exports
during the review period, because Negev did not segregate loans provided for industrial
phosphoric acid from loans for other products. We thereby calculated an estimated net
subsidy of 0.64 percent ad
valorem for Negev. The estimated net subsidy for Haifa is 2.78 percent ad valorem, based on OCTG.
2. Export Shipment Fund (ESF). Under the ESF, loans are provided to exporters to enable them to
extend credit in foreign currency to their overseas customers. Financing is granted on a
shipment-by-shipment basis. Funding is provided after shipment of the goods and must be repaid
within six months. Because only exporters are eligible for these loans, we preliminarily determine
that they are countervailable to the extent that they are provided at preferential rates.
According to its response, Negev received only dollar-denominated loans under the ESF at the
interest rate of LIBOR plus two percent. Dollar loans are not otherwise available in Israel, and
we were not able to obtain a benchmark interest rate for these loans from independent sources. We
therefore used the benchmark applied in our Final Affirmative Countervailing Duty
Determination: Potassium Chloride from Israel (Potash) (49 FR 36122, September 14, 1984)
and OCTG, which is the London Interbank Offered Rate (LIBOR) plus two percent. Since Negev paid
interest on the loans at our benchmark rate, we preliminarily determine that the company received
no countervailable benefits under the ESF. The estimated net subsidy for Haifa is 0.002 percent ad
valorem, based on OCTG.
3. Imports-for-Export Fund (IEF). Under the IEF, exporters receive loans with a three-month term
in order to finance imported materials used for export
production. Because only exporters are eligible for these loans, we determine that they are
countervailable to the extent that they provided at preferential rates.
According to its response, Negev received dollar-denominated loans under the IEF during the
review period. Comparing the benchmark interest rate (LIBOR plus two percent) to the rates
charged on these loans, we preliminarily determine that some of the loans were provided at
preferential rates and are, therefore, countervailable. To calculate the benefit from these loans, we
allocated the interest savings over total exports during the review period, since Negev did not
segregate loans for industrial phosphoric acid from loans for other products. We thereby
calculated an estimated net subsidy of 0.01 percent ad valorem for Negev. The estimated net
subsidy for Haifa is 1.16 percent ad valorem, based on OCTG.
D. Exchange Rate Risk Insurance Scheme
The Exchange Rate Risk Insurance Scheme (EIS), operated by the Israel Foreign Trade Risk
Insurance Corporation Ltd. (IFTRIC), is aimed at insuring exporters against losses which result
when the rate of inflation exceeds the rate of devaluation and the new Israeli shekel (NIS) value of
an exporter's foreign currency receivables does not rise enough to cover increases in local
costs.
The EIS scheme is optional and open to any exporter willing to pay a premium to IFTRIC.
Compensation is based on a comparison of the change in the rate of devaluation of the NIS against a
basket of foreign currencies with the change in the consumer price index. If the rate of inflation is
greater than the rate of devaluation, the exporter is compensated by an amount equal to the
difference between these two rates multiplied by the value-added of the exports. If the rate of
devaluation is higher than the change in the domestic price index, however, the exporter must
compensate IFTRIC. The premium is calculated on the basis of the value-added of the exports.
In determining whether an export insurance program provides a countervailable benefit, we
examine whether the premiums and other charges are adequate to cover the program's long-term
operating costs and losses. In Potash, we stated that we had insufficient data to determine that the
premiums and other charges were manifestly inadequate to cover the program's long-term
operating costs and losses. We noted, however, that we were not making a conclusive
determination on the program's countervailability at that time. However, in OCTG and Flowers we
found that this program conferred a countervailable benefit on manufacturers, producers, or
exporters in Israel of oil country tubular goods and flowers.
In both those cases we reviewed EIS data which showed that EIS operated at a
loss from 1981 through 1985. In fact, in the five years of operations, there was only one month
when premiums received were greater than compensation paid out. We believe that five years is, in
this case, a sufficiently long period to establish that the premiums and other charges are manifestly
inadequate to cover the long-term operating costs and losses of the program. Therefore, we
preliminarily determine that this program confers an export subsidy on exports of industrial
phosphoric acid from Israel.
We calculated the benefit from this program by allocating the amount of compensation Negev
received from IFTRIC expressly for industrial phosphoric acid exported to the United States,
after deducting premiums paid, over the company's exports of industrial phosphoric acid to
the United States during the review period. We thereby found a estimated net subsidy of 3.77
percent ad valorem for Negev. As best information available, we preliminarily determine that the
estimated net subsidy for Haifa also is 3.77 percent ad valorem.
II. Programs Preliminarily Determined Not to be Used
We preliminarily determine that the following programs were not used by manufacturers,
producers, or exporters in Israel of industrial phosphoric acid during the review period.
A. Encouragement of Industrial Research and Development Law (EIRD)
Petitioners allege that manufacturers, producers, or exporters in Israel of industrial
phosphoric acid may benefit from research and development grants. Negev's response states
that the company received no grants for research and development related to its production of
industrial phosphoric acid.
B. Foreign Investment Company Benefits
Petitioners allege that under Amendment 15 to the ECIL a "Foreign Investment Company" is
entitled to certain grants. Negev's response indicates that the company did not qualify for any
benefits under this law.
C. Export Promotion Fund Benefits
Petitioners allege that exporters in Israel may receive benefits under this program. Negev's
response indicates that it receives foreign currency loans under this program to establish a Paris
office, but that it received no other benefits.
III. Program Preliminarily Determined to be Terminated
We preliminarily determine that the following program has been terminated.
A. Property Tax Exemptions on Buildings and Equipment
Petitioners allege that manufacturers, producers, or exporters in Israel of industrial
phosphoric acid may benefit from tax incentives that allow eligible enterprises a five-year
exemption from payment of two-thirds of property taxes on buildings and a ten-year exemption
for payment of one-sixth of property taxes on equipment. According to the responses and our
determinations in OCTG and Potash, the exemptions were repealed by Amendment No. 17, ECIL,
5738-1979. Also, property taxes on industrial buildings and equipment were repealed for all
taxpayers in Israel on April 1, 1981. Property tax exemptions referred to in Section 53 of the
ECIL are taxes on apartment buildings in residential areas.
IV. Programs for Which We Need Additional Information
We preliminarily determine that we need additional information in order to analyze accurately the
following programs.
A. Preferential Accelerated Depreciation
Under section 42 of the ECIL, a company which has obtained approval enterprise status can choose
to depreciate machinery and equipment at double the normal rate and buildings at four times the
normal rate. Based on the responses, it is unclear whether Negev used accelerated depreciation
under this law, or whether such accelerated depreciation is available to more than a specific
enterprise or industry, or group of enterprises or industries. We therefore preliminarily determine
that we need additional information to make a determination regarding this program.
B. Other ECIL Tax Benefits
Under Section 47 of the ECIL, a company which has obtained approved enterprise status is eligible
for a reduced corporate and income tax rate. For the reasons provided in IV.A. above, we need
additional information to make a determination regarding this program.
C. The Encouragement of Industry Law (EIL) Accelerated Depreciation and Further Tax Reductions
Petitioners allege that manufacturers, producers or exporters in Israel of industrial
phosphoric acid may receive accelerated depreciation and further tax reductions under the
EIL. For the reasons stated in IV.A. above, we need additional information to make a
determination regarding this program.
Critical Circumstances
Petitioners allege that "critical circumstances" exist within the meaning of section 703(e)(1) of the
Act, with respect to imports of industrial phosphoric acid from Israel. In determining
whether critical circumstances exist, we must examine whether there is a reasonable basis to
believe or suspect that: (1) The alleged subsidy is inconsistent with the Agreement, and (2) there
have been massive imports of the subject merchandise over a relatively short period.
In determining whether imports have been massive over a relatively short period of time, we have
considered the following factors: (1) the volume and value of the imports; (2) seasonal trends; and
(3) the share of domestic consumption accounted for by the imports. A review of this information
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indicates that imports from Israel have not been massive over a relatively short period of time.
Since we have not found massive imports over a relatively short period of time, we do not need to
consider whether the alleged subsidies are inconsistent
with the Agreement. Therefore, we preliminarily determine that critical circumstances do not
exist.
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 Israel 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 deposit or bond for each such entry of this merchandise
equal to 6.52 percent ad valorem for Negev Phosphates Ltd., 14.83 percent ad valorem for Haifa
Chemicals Ltd., and 7.14 percent ad valorem for all other companies in Israel.
ITC Notification
In accordance with section 703(f) 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 determation.
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 10:00 a.m. on March 12, 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 March 5, 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. 87-2430 Filed 2-4-87; 8:45 am]
BILLING CODE 3510-DS-M