57 FR 21958 NOTICES DEPARTMENT OF COMMERCE (C-508-605) Industrial Phosphoric Acid From Israel; Preliminary Results of Countervailing Duty Administrative Review Tuesday, May 26, 1992 AGENCY: International Trade Administration/Import Administration, Department of Commerce. ACTION: Notice of preliminary results of countervailing duty administrative review. SUMMARY: The Department of Commerce has conducted an administrative review of the countervailing duty order on industrial phosphoric acid from Israel. We preliminarily determine the net subsidy to be 12.11 percent ad valorem for all firms during the period January 1, 1990 through December 31, 1990. We invite interested parties to comment on these preliminary results. EFFECTIVE DATE: May 26, 1992. FOR FURTHER INFORMATION CONTACT:Cameron Cardozo or Michael Rollin, Office of Countervailing Compliance, International Trade Administration, U.S. Department of Commerce, Washington, DC 20230; telephone: (202) 377-2786. SUPPLEMENTARY INFORMATION: Background On August 21, 1991, the Department of Commerce (the Department) published in the Federal Register a notice of "Opportunity to Request Administrative Review" (56 FR 41506) of the countervailing duty order on industrial phosphoric acid from Israel (52 FR 31057; August 19, 1987). On August 27, 1991, the petitioners, FMC Corporation and the Monsanto Company, requested that we conduct an administrative review of the order for the period January 1, 1990 through December 31, 1990. On August 30, 1991, the respondent, Negev Phosphates Ltd., requested that we conduct an administrative review of the order for the same period. We initiated the review on September 18, 1991 (56 FR 47185). The Department has now conducted this administrative review in accordance with section 751 of the Tariff Act of 1930, as amended (the Act). The final results of the last administrative review of this order were published in the Federal Register on October 9, 1991 (56 FR 50854). Scope of Review Imports covered by this review are shipments of Israeli industrial phosphoric acid (IPA). This 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, 1990 through December 31, 1990, and nine programs. Negev Phosphates, Ltd. (NPL) is the only known producer of the subject merchandise from 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, drawback grants, capital grants, 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 Israeli Ministry of Industry and Trade, Investment Center Division. 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. Because the grants are limited to enterprises located in specific regions, we determine that they constitute countervailable subsidies within the meaning of the Act. 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. All but five of the funded projects were located at its Oron plant and were unrelated to IPA production. We did not include ECIL grants to this location in our calculations. There were five projects related to IPA production, three of which applied directly to NPL's IPA production, facility and two of which applied to the phosphate rock processing plants at Arad and Zin, which produce an input for IPA. Grants for these projects made from 1981 through 1990 resulted in benefits during the period under review. To determine the amount of the Arad and Zin grants applicable to IPA production, the Department first calculated the subsidies to the Arad and Zin facilities per unit of output of rock (by volume) and weighted these amounts by the percentages of Arad and Zin rock out of total rock used in IPA production. The Arad and Zin weighted subsidies were then 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 to get a total subsidy, which we divided by the total value of all sales of IPA. The Department used only the grant value related to IPA production in the calculation of the benefit. To calculate the benefit, we allocated these grants over ten years (the average useful life of 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, because NPL *21959 had no significant fixed-rate long-term debt, we used the rate for long-term industrial development loans, adjusted for inflation, as the discount rate for grants received in the years 1981-1987. Because these rates were unavailable for 1988-1990, we used the rate for government indexed five-year bonds in Israel, adjusted for inflation, from the Bank of Israel's Annual Report for 1990, as the discount rate for grants received from 1988 through 1990. We used a declining balance formula to determine the benefit stream for the relevant grants. We allocated the benefits attributable to the review period over the value of NPL's total IPA sales during the review period. On this basis, we preliminarily determine the benefit from this program to be 2.69 percent ad valorem during the 1990 review period. (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 Zones A and B are at preferential terms relative to loans received by companies in the heavily populated and developed Central Zone. Because preferential terms are limited to companies located in certain regions, we determine that these loans are countervailable. NPL had loans outstanding under this program during the review period for projects at two of its plants, one of which is unrelated to IPA production and one of which is the phosphate rock processing facility in Arad which produces an input for IPA. The loans provided for the rock processing facility 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 under our normal 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 unit of output of rock (by volume) and weighted this amount by the percentage of Arad rock out of the total rock used in IPA production. 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 ton of IPA by the total quantity of IPA sales to get a total subsidy, which we divided by the total value of all sales of IPA. On this basis, we preliminarily determine the benefit from this program to be 0.01 percent ad valorem during the 1990 review period. (3) 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 receivable 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 for all participants as a percentage of the value-added sales value of exports. IFTRIC changes this percentage rate periodically, but at any given time it is 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. In our Final Results of Countervailing Duty Administrative Review; Oil Country Tubular Goods from Israel (55 FR 46703; November 6, 1990) and Final Affirmative Countervailing Duty Determination; Certain Fresh Cut Flowers from Israel (52 FR 3316; February 3, 1987), we found that this program conferred a counteravailable 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 1987. We believe that seven 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. Therefore, despite periodic increases in the premium rate, we determine that this program confers an export subsidy on exports of IPA from Israel. 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 Exchange Rate Risk Insurance Scheme, on the other hand, the user receives a payment if the inflation rate exceeds the depreciation rate or makes an additional payment if the depreciation rate exceeds the inflation rate. Since the program has been in place, payments received by users have exceeded the payments they have made to the scheme. Thus, users of the scheme have virtually no risk of incurring additional payment costs, and the "premiums" serve only as a fee to obtain payment from the scheme. Therefore, we have calculated the benefit by allocating the amount of compensation NPL received during the review period from IFTRIC expressly for IPA exported to the United States, after deducting premiums paid, over 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 9.40 percent ad valorem during the 1990 review period. *21960 (4) Encouragement of Industrial Research and Development Grants (EIRD) NPL has received grants under this program, one of which, the Zohar rock phosphate research project, was indirectly related to the production of IPA. Since we verified in the original investigation that the results of research funded by EIRD grants are not made publicly available, we determine these grants to be countervailable. This EIRD grant, issued to NPL on September 16, 1990, could benefit the production of IPA, as the grant benefited a research project concerning the development of a process for quarrying and benefication of rock phosphates. This research will benefit the gathering of raw materials (inputs) required to produce IPA. We expensed the full amount of the grant for the Zohar rock phosphate research project to 1990 and divided by NPL's total sales of all products. On this basis, we preliminarily determine the benefit from this program to be 0.01 percent ad valorem. (5) Other Programs We also examined the following programs and preliminarily determine that exporters of industrial phosphoric acid did not use them during the review period: (A) Reduced tax rates under ECIL; (B) ECIL section 24 loans; (C) Preferential accelerated depreciation under ECIL; (D) Labor training grants; and (E) 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 to be 12.11 percent ad valorem for Negev Phosphates, Ltd. during the period January 1, 1990 through December 31, 1990. The Department intends to instruct the Customs Service to assess countervailing duties of 12.11 percent of the f.o.b. invoice price on all shipments of this merchandise exported on or after January 1, 1990 and on or before December 31, 1990. Further, the Department intends to instruct the Customs Service to collect a cash deposit of estimated countervailing duties, as provided by section 751(a)(1) of the Act, of 12.11 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 administrative review. Parties to the proceeding may request disclosure of the calculations 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 19 CFR 355.38(e). 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 19 CFR 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: May 15, 1992. Alan M. Dunn, Assistant Secretary for Import Administration. (FR Doc. 92-12213 Filed 5-22-92; 8:45 am) BILLING CODE 3510-DS-M