58 FR 57986 NOTICES DEPARTMENT OF COMMERCE International Trade Administration (C-508-605) Industrial Phosphoric Acid From Israel; Preliminary Results of Countervailing Duty Administrative Review Thursday, October 28, 1993 *57986 AGENCY: International Trade Administration/Import Administration, Department of Commerce. ACTION: Notice of preliminary results of countervailing duty administrative review. SUMMARY: The Department of Commerce is conducting an administrative review of the countervailing duty order on industrial phosphoric acid from Israel. We preliminarily determine the net subsidy to be 6.98 percent ad valorem for all firms during the period January 1, 1991 through December 31, 1991. We invite interested parties to comment on these preliminary results. *57987 EFFECTIVE DATE: October 28, 1993. FOR FURTHER INFORMATION CONTACT: Brian Albright or Cameron Cardozo, Office of Countervailing Compliance, International Trade Administration, U.S. Department of Commerce, Washington, DC 20230; telephone: (202) 482-2786. SUPPLEMENTARY INFORMATION: Background On August 12, 1992, the Department of Commerce (the Department) published in the Federal Register a notice of "Opportunity to Request Administrative Review" (57 FR 36063) of the countervailing duty order on industrial phosphoric acid from Israel (52 FR 31057; August 19, 1987) for the period January 1, 1991 to December 31, 1991. On August 28, 1992, the petitioners, FMC Corporation and the Monsanto Company, requested an administrative review of the order for the 1991 period. On August 31, 1992, Rotem Fertilizers Ltd., a producer and exporter of the subject merchandise, requested on behalf of Negev Phosphates Ltd. (NPL) that we conduct an administrative review of the order for the same period. NPL merged with Rotem on December 31, 1991 after operating independently throughout the review period. We initiated the review on September 28, 1992 (57 FR 44551). The Department is conducting this administrative review in accordance with section 751(a) of the Tariff Act of 1930, as amended (the Act). Scope of 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 Customs purposes. The written description remains dispositive. The review covers the period January 1, 1991 through December 31, 1991, and nine programs. The Government of Israel (GOI) identified NPL as the only producer of the subject merchandise in Israel exporting to the United States during the review period. Analysis of Programs (1) Encouragement of Capital Investments Law (ECIL) Grants The ECIL grants program was established to attract capital to Israel. In order to be eligible to receive various benefits under the ECIL, including investment grants, capital grants, accelerated depreciation, reduced tax rates, and certain loans, the applicant must obtain approved enterprise status. Approved enterprise status is obtained after a review of information submitted to the Investment Center of the Israeli Ministry of Industry and Trade. Investment grants are given as a percentage of the cost of the approved investment. The amount of the grant benefits received by approved enterprises depends on the geographic location of the eligible enterprise. For purposes of the ECIL program, Israel is divided into three zones--Development Zone A, Development Zone B, and the Central Zone--each with a different funding level. Since 1978, only investment projects outside the Central Zone have been eligible to receive grants. The Central Zone comprises the geographic center of Israel, including its largest and most developed population centers. In Final Affirmative Countervailing Duty Determination: Industrial Phosphoric Acid from Israel (52 FR 129; July 7, 1987) (IPA Investigation), the Department found the ECIL grants program to be de jure specific and thus countervailable because the grants are limited to enterprises located in specific regions. The GOI has provided no new information to warrant reconsideration of this finding. NPL is located in Development Zone A, and received ECIL investment, drawback, and capital grants in disbursements over a period of years for several projects. Three projects which received ECIL grants, two at the Zin plant and one at Arad, were unrelated to IPA production in 1991. Although the plant at Zin has produced input rock for IPA in prior review periods, none of the rock mined there in 1991 contributed to the production of IPA. The project at Arad was for production of phosphoric salts and was unrelated to IPA production. Therefore, we did not examine these ECIL grants for purposes of this review. There were five projects that received ECIL grants and were related to IPA production in 1991, two of which applied directly to NPL's IPA production facilities and three of which applied to the phosphate rock processing plants at Arad and Oron, which produce an input for IPA. Expansion and renovation grants to these projects during the period 1982 through 1991 resulted in benefits to NPL during the period under review. To calculate the benefit, we allocated these grants over ten years (the average useful life of renewable physical assets in the chemical manufacturing industry, as determined under the U.S. Internal Revenue Service Asset Depreciation Range System). To allocate benefits over time, we typically use as our discount rate the cost of the firm's long-term fixed-rate debt for the year in which the terms of the grant were approved. However, consistent with past reviews, because NPL had no fixed-rate long-term debt, we used the prevailing rate for long-term industrial development loans, adjusted for inflation, as the discount rate for grants received in the years 1982-1987. Because these rates were unavailable for 1988-1991, for this period we used the rate for government ten-year bonds in Israel, adjusted for inflation, from the 1991 Bank of Israel Annual Report as the average cost of long-term fixed-rate debt in Israel. (See, section 355.49(b)(2)(ii) of the Department's proposed regulations (54 FR 23366, May 31, 1989)). In accordance with the Department's practice as set forth in section 355.49(b)(3) of the Department's proposed regulations, we used a declining balance formula to determine the benefit stream for the relevant grants. For the grants to the two IPA facility renovation projects, we divided the 1991 benefit, as calculated above, by the total value of all IPA sold during the period of review to determine the subsidy rate. To determine the amount of the grants to the three Arad and Oron projects applicable to IPA production, the Department first calculated the 1991 grant benefit to the Arad and Oron facilities per unit of output of rock. We weighted these amounts by the percentages of Arad and Oron rock out of total rock used in IPA production. The total rock figure included some rock phosphate taken from a closed plant at Machtesh, which produced this input for IPA in the past and continues to store some of its previous production. The Arad and Oron weighted subsidies were added to obtain a total weighted subsidy per metric ton of rock. We multiplied this amount by the number of metric tons of rock needed to produce one metric ton of IPA. We then multiplied the subsidy on one metric ton of IPA by the total quantity of IPA sales during the period of review to obtain the amount of the benefit bestowed on IPA. To calculate the subsidy rate, we then divided this amount by the total value of all sales of IPA during the period of review. We then added the benefit attributable to the review period by these three projects to the benefit received by the IPA facilities. On this basis, we preliminarily determine the benefit from this program to be 2.62 percent ad valorem for the 1991 review period. *57988 (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. During our investigation, we verified that these loans, like the ECIL grants, were project-specific. They were disbursed through the Industrial Development Bank of Israel (IDBI) and other industrial development banks which no longer exist. The long-term industrial development loans were provided to a diverse number of industries, including agricultural, chemical, mining, machine, and others. However, the interest rates on loans vary depending on the Development Zone location of the borrower. The interest rates on loans to borrowers in Development Zone A are lowest, while those on loans to borrowers in the Central Zone are highest. Therefore, loans to companies in Zone A are provided on preferential terms relative to loans received by companies in the heavily populated and developed Central Zone. In IPA Investigation (52 FR 129; July 7, 1987), the Department found long-term industrial development loans to be regional subsidies and countervailable to the extent that the applicable interest rates are less than those on loans to companies in the Central Zone. The GOI has provided no new information to warrant reconsideration of this finding. NPL had loans outstanding under this program during the review period for projects at its Arad and Oron phosphate rock processing plants, both of which produce an input for IPA. The loans provided for the rock processing facilities carry the Zone A interest rates because of NPL's location. Therefore, we determine that NPL received countervailable benefits under this program because the interest rates charged NPL are less than those which would apply in the Central Zone. The loans under this program have variable interest rates linked to changes in the dollar-shekel exchange rate. Therefore, we cannot calculate the present value of the interest savings, nor is there a single discount rate for allocating the benefits over time, as we would normally do under our long-term loan methodology. Accordingly, we have compared the interest that would have been paid on a variable-rate benchmark loan (i.e., a loan available to firms in the Central Zone) to the interest paid on the preferential loan during the review period. To determine the amount of the Arad loans applicable to IPA production, the Department first calculated the subsidy to the Arad facility per metric ton of rock and weighted this amount by the percentage of Arad rock out of total rock used in IPA production. The same calculation was used to determine the subsidy per unit of output rock at Oron. We added the weighted subsidies from Arad and Oron to obtain a total weighted subsidy. This amount was multiplied by the number of metric tons of rock needed to produce one metric ton of IPA. We then multiplied the subsidy on one ton of IPA by the total quantity of IPA sold to get a total subsidy. We then divided this amount by the total value of all sales of IPA. On this basis, we preliminarily determine the benefit from this program to be less than 0.005 percent during the 1991 review period. (3) Exchange Rate Risk Insurance Scheme Prior to September 1993, the Exchange Rate Risk Insurance Scheme (EIS), operated by the Israel Foreign Trade Risk Insurance Corporation Ltd. (IFTRIC), aimed to insure exporters against losses which resulted when the rate of inflation exceeded the rate of devaluation and the new Israeli Shekel (NIS) value of an exporter's foreign currency receivables did not rise enough to cover increases in local costs. The EIS was optional and open to any exporter willing to pay a premium to IFTRIC. Compensation was 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 was greater than the rate of devaluation, the exporter was 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 was higher than the change in the domestic price index, however, the exporter was required to compensate IFTRIC. The premium was calculated for all participants as a percentage of the value-added sales value of exports. IFTRIC changed this percentage rate periodically, but at any given time it was the same for all exporters. 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. Despite periodic increases in the premium rate, we determined in IPA Investigation (52 FR 129; July 7, 1987) that this program confers an export subsidy on exports of IPA from Israel. In addition, in our Preliminary Results of Countervailing Duty Administrative Review: Industrial Phosphoric Acid from Israel (57 FR 21958; May 26, 1992) and Final Results of Countervailing Duty Administrative Review; Industrial Phosphoric Acid from Israel (57 FR 169; August 31, 1992), we found that this program conferred a countervailable benefit on exporters in Israel of the subject merchandise. We have reviewed EIS data in this review which showed that EIS operated at a loss from 1981 through 1990. We believe that ten years, in this case, is 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. The GOI has provided no new information to warrant reconsideration of this determination. In calculating the benefit, we have taken into account the special features of this program. Under a typical insurance scheme, the users pay premiums and then receive a payment if the event being insured against occurs. Under the EIS, the user received a payment if the inflation rate exceeded the depreciation rate or made an additional payment if the depreciation rate exceeded the inflation rate. Since the program has been in place, payments received by users have consistently exceeded the payments they have made to the scheme. Thus, users of the scheme had virtually no risk of incurring additional payment costs, and the "premiums" served predominantly as a fee to obtain payment from the scheme. Therefore, we have calculated the benefit rate by dividing the net amount of compensation NPL received during the review period from IFTRIC expressly for IPA exported to the United States, by the value of the company's exports of IPA to the United States during the review period. On this basis, we preliminarily determine the benefit from this program to be 4.36 percent ad valorem during the 1991 review period. On August 3, 1993, the GOI submitted a letter stating that the EIS would be terminated effective September 1, 1993. In response to our supplemental questionnaire, the GOI confirmed that residual benefits would exist after September 1, 1993. Although termination of a program would normally require a change in the cash deposit rate, given these circumstances, we have not adjusted the cash deposit rate for this program. (4) Other Programs We also examined the following programs and preliminarily determine that exporters of industrial phosphoric *57989 acid did not use them during the review period: (A) Encouragement of Industrial Research and Development Grants (EIRD); (B) Reduced tax rates under ECIL; (C) ECIL section 24 loans; (D) Preferential accelerated depreciation under ECIL; (E) Labor training grants; and (F) Dividends and Interest Tax Benefits under Section 46 of the ECIL. Preliminary Results of Review As a result of our review, we preliminarily determine the net subsidy rate to be 6.98 percent ad valorem for all firms during the period January 1, 1991 through December 31, 1991. Therefore, the Department intends to instruct the Customs Service to assess countervailing duties of 6.98 percent of the f.o.b. invoice price on all shipments of this merchandise exported on or after January 1, 1991 and on or before December 31, 1991. The Department also intends to instruct the Customs Service to collect a cash deposit of estimated countervailing duties of 6.98 percent of the f.o.b. invoice price on all shipments of the subject merchandise from Israel entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this review. Parties to the proceeding may request disclosure of the calculation methodology and interested parties may request a hearing not later than 10 days after the date of publication of this notice. Interested parties may submit written arguments in case briefs on these preliminary results within 30 days of the date of publication. Rebuttal briefs, limited to arguments raised in case briefs, may be submitted seven days after the time limit for filing the case briefs. Any hearing, if requested, will be held seven days after the scheduled date for submission of rebuttal briefs. Copies of case briefs and rebuttal briefs must be served on interested parties in accordance with section 355.38(e) of the Commerce regulations. Representatives of parties to the proceeding may request disclosure of proprietary information under administrative protective order no later than 10 days after the representative's client or employer becomes a party to the proceeding, but in no event later than the date the case briefs, under § 355.38(c), are due. The Department will publish the final results of this administrative review including the results of its analysis of issues raised in any case or rebuttal brief or at a hearing. This administrative review and notice are in accordance with section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22. Dated: October 21, 1993. Joseph A. Spetrini. Acting Assistant Secretary for Import Administration. (FR Doc. 93-26600 Filed 10-27-93; 8:45 am) BILLING CODE 3510-DS-P