(Cite as: 49 FR 36424)
NOTICES
DEPARTMENT OF COMMERCE (DOC)
International Trade Administration
[C-469-403]
Potassium Chloride From Spain; Final Affirmative Countervailing Duty Determination
Monday, September 17, 1984
*36424 AGENCY: International Trade Administration, Import Administration, Commerce.
ACTION: Notice of final affirmative countervailing duty determination.
SUMMARY: We determine that certain benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Spain of potassium chloride. The estimated net subsidy is 7.88 percent ad valorem on exports prior to July 11, 1984, and 6.90 percent ad valorem on exports on or after July 11, 1984. Therefore, we are directing the U.S. Customs Service to continue to suspend liquidation of all unliquidated entries of potassium chloride from Spain which are entered, or withdrawn from warehouse, for consumption on or after June 29, 1984. The Customs Service shall require a cash deposit or bond on this product in the amount equal to the estimated net subsidy.
EFFECTIVE DATE: September 17, 1984.
FOR FURTHER INFORMATION CONTACT: Terry Link, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, D.C. 20230; telephone: (202) 377-0189.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that certain benefits constituting 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 Spain of potassium chloride. The following programs are found to confer subsidies:
Short-term preferential loans (provided under the Privileged Circuit Exporter Credits Program as working-capital loans and export credits).
Excessive rebates of indirect taxes on exports under the Desgravacion Fiscal a la Exportacion (DFE).
We determine the net subsidy to be 7.88 percent ad valorem on exports prior to July 11, 1984, and 6.90 percent ad valorem on exports on or after July 11, 1984.
Case History
On March 30, 1984, we received a petition from Amax Chemical, Inc. and Kerr- McGee Chemical Corporation filed on behalf of the U.S. industry producing potassium chloride. In compliance with the filing requirements of s 355.26 of the Commerce Regulations (19 CFR 355.26), petitioners alleged that manufacturers, producers, or exporters in Spain of potassium chloride receive, directly or indirectly, benefits which constitute subsidies within the meaning of section 701 of the Act, and that these imports materially injure, or threaten to materially injure, a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on April 19, 1984, we initiated an investigation (49 FR 18149).
Since Spain is a "country under the Agreement" within the meaning of section 701(b) of the Act, an injury determination is required for this investigation. On May 14, 1984, the U.S. International Trade Commission (ITC) determined that there is a reasonable indication that these imports materially injure, or threaten to materially injure, a U.S. industry (49 FR 21813).
We presented questionnaires concerning the allegations to the government of Spain at its embassy in Washington, D.C., on April 23, 1984. On June 4, 1984, we received a response to the questionnaire from Minas de Potasa de Suria, S.A., (Suria) and on June 22, 1984, we received a response from the related exporter, Comercial de Potasas, S.A. (Copsa). The government of Spain replied to our questionnaire on July 3, 1984. On June 29, 1984, we published an affirmative preliminary countervailing duty determination (49 FR 26784).
During the week of July 8, 1984, we conducted a verification of the responses in Spain.
In response to a request from petitioners, a public hearing was held on August 9, 1984. We received briefs from the parties to the proceeding on August 3, 1984, and August 16, 1984.
Scope of Investigation
The product covered by this investigation is potassium chloride. For the purposes of this investigation, the term "potassium chloride" covers potassium chloride, otherwise known as muriate of potash, as currently provided for in item 480.50 of the Tariff Schedules of the United States
There is one known firm in Spain which produces potassium chloride for export to the United States. We have received information from Suria, which produced 100 percent of the potassium chloride exported to the United States during the period of investigation, calendar year 1983, and from Suria's related exporter, Copsa.
Analysis of Programs
Based upon our analysis of the petition, the responses to our questionnaires, and our verification, we determine the following :
*36425 I. Programs Determined To Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters in Spain of potassium chloride under the programs discussed below:
A. Privileged Circuit Exporter Credits Program
Petitioners alleged benefits which constitute subsidies in the form of short- term preferential loans. We requested information on all short-term loans outstanding during the period for which we are measuring subsidization. The only preferential short-term borrowing received by Suria was that obtained under the Privileged Circuit Exporter Credits Program.
The government of Spain requires all Spanish commercial banks to maintain a specific percentage of their lendable funds in privileged circuit accounts. These funds are made available to exporters at preferential interest rates though a variety of credit programs. While there is no direct outlay of government funds, the benefits conferred on the companies are the result of a government-mandated program to promote exports. Of the four privileged circuit programs available to companies, we determine that the respondent potassium chloride producer benefited from two programs, the working-capital loan and the short-term export credit programs.
1. Working Capital Loans. Under the privileged circuit program, firms may obtain working-capital loans for one year, the total of which is not to exceed a specified percentage of their previous year's exports. During the period of investigation, Suria received three working-capital loans under this program.
For our preliminary countervailing duty determination on potassium chloride from Spain, we used the average prime interest rate for one year as the basis for our benchmark interest rate. We added two percentage points to the average prime rate to arrive at the interest rate faced by average borrowers. To this we then added a legally established 0.5 percent commission.
During our verification of the responses, we met with the director of a bank in Madrid. From the director we learned that our benchmark is a nominal interest rate. We also found that the Bank of Spain which publishes the average prime interest rate also publishes weighted-average lending rates on all loans by length and type of loan. Since the weighted-average lending rate reflects average borrowing in Spain, it is a more accurate source for a benchmark than the prime rate to which we have been adding an estimate of the percent over prime which average borrowers would pay.
Consequently, for this final determination, we chose as our 1983 benchmark for short-term operating capital loans, the 1983 weighted-average lending rate for loans of one to three years. Since this is a nominal rate, we found the effective rate by quarterly compounding, and then adding the 0.5 percent commission. In addition, an ITE tax of four percent is charged by the government on all interest payments, both commercial and preferential. We added this tax to the benchmark. Based on these data, we determine the national average commercial interest rate to be 20.09 percent for one-year working capital loans given in 1983.
Although in the past we have relied upon comparisons between nominal interest rates, we prefer to compare effective interest rates as stated in the Subsidies Appendix (49 FR at 18022). At verification we received information with which to calculate an effective benchmark interest rate. Given our preference for effective interest rates, we are changing Suria's nominal interest rates to effective rates and calculating the benefit based on a comparison of effective rates.
To determine the benefit, we compared the effective preferential interest rate (including tax and commission) with the effective national average commercial interest rate of 20.09 percent. We multiplied this interest differential by the total amount of Suria's privileged circuit working-capital loans.
We allocated the resulting product over the total sales value of all exports of Suria in 1983. On this basis we determine that the ad valorem subsidy for short-term working capital loans to Suria is 0.48 percent.
2. Short-Term Export Credit. The short-term export credit program provides loans for up to 90 percent of the value of a company's export shipments at a 10 percent nominal interest rate for a maximum of one year. Suria obtained four 90-day loans under this program during 1983 to finance exports of potassium chloride to the United States.
For our preliminary countervailing duty determination on potassium chloride from Spain, we used as a benchmark the average prime interest rate for loans of 90 days. We added two percentage points to the average prime rate to arrive at the interest rate faced by average borrowers. To this we then added a legally established 0.5 percent commission.
As with working capital loans, we learned during verification that the average prime rate for 90-day loans is a nominal rate and that the Bank of Spain publishes weighted-average lending rates which more closely approximate the rates afforded the average borrowers.
Consequently, for this final determination, we chose as our 1983 benchmark for short-term export credit loans, the 1983 weighted-average lending rate for trade discount loans of three months. Since this a nominal rate, we found the effective rate by quarterly compounding. in addition, an ITE tax of four percent is charged by the government on all interest payments, both commercial and preferential. We added this tax to the benchmark. Based on these data, we determine the national average commercial interest rate to be 18.35 percent for 90-day export credit loans given in 1983.
As explained in the section of this notice on working capital loans, we prefer to compare effective interest rates to evaluate the benefit from preferential financing.
To determine the benefit, we compared the effective preferential interest rate (including tax) with the effective national average commercial interest rate of 18.35 percent. We multiplied this interest differential by the amount of Suria's privileged circuit export credit loans. We allocated the interest benefit over the total sales value of Suria's exports to the United States during 1983. We determine that the ad valorem subsidy for short-term export credits to Suria is 1.56 percent.
B. Desgravacion Fiscal a la Exportacion (DFE)
Spain employs a cascading tax system. Under this system, the government levies a turnover tax ("IGTE") on each sale of a product through its various stages of production, up to (but not including) the final sale in Spain. Upon exportation of the product, the government, under the DFE, rebates both these accumulated IGTE indirect taxes and certain final stage taxes.
Although the Spanish government rebates upon exportation all indirect taxes paid under the cascading tax system, the Act and the Commerce Regulations allow the rebate of only the following: (1) Indirect taxes borne by inputs which are physically incorporated in the export product (see Annex 1.1 of Part 355 of the Commerce Regulations); and (2) indirect taxes levied at the final stage (see Annex 1.2 *36426 of part 355 of the Commerce Regulations). If the payment upon export exceeds the total amount of allowable indirect taxes described above, the Department considers the difference to be an overrebate of indirect taxes and, therefore, a subsidy.
In this case, we determine that Suria does not purchase from other sources any inputs that are physically incorporated into the final product. Thus, there are no turnover taxes paid on these inputs. The rebate of a final stage tax, the tax on freight, is, however, allowable when calculating whether or not there is an overrebate of indirect taxes under the DFE. Based on our analysis, the amount of the subsidy if the DFE rebate less the amount of the final stage freight tax.
During our verification, we learned that the DFE rebate was reduced from 6.5 percent on potassium chloride exports to 5.525 percent effective July 11, 1984. Since the decree was signed on June 20, 1984, prior to our preliminary determination, we have included this information in our final determination. Therefore, any exports of the merchandise under investigation on or after July 11, 1984, are subject to the lower DFE rebate.
On this basis, we determine that the DFE rebate, less the final stage tax, confers an ad valorem subsidy of 5.84 percent on exports prior to July 11, 984, and 4.86 percent ad valorem on exports on or after July 11, 1984.
II. Program Determined Not to Confer Subsidies
We determine that subsidies are not being provided to manufacturers, producers, or exporters, in Spain of potassium chloride under the following program:
Petitioners alleged that producers of potassium chloride benefited from government of Spain purchases of equity on terms inconsistent with commercial considerations.
During verification we found that prior to 1982, a Belgian company held 100 percent of Suria's stock. In 1982, this Belgian company sold 51 percent of its shares in Suria to Fodina, a holding company owned by the government of Spain. Consistent with the Subsidies Appendix (49 FR 18006), we determine that since Fodina purchased previously issued shares from the Belgian company, there is no subsidy to Suria. This is true no matter what price the government pays, since any overpayment benefits only the prior shareholders and not Suria.
III. Programs Determined Not To Be Used
We have determined that potassium chloride manufacturers, producers, or exporters in Spain do not use the following programs identified in the notice of "Initiation of Countervailing Duty Investigation of Potassium Chloride from Spain."
A. Certain Benefits Under the Privileged Circuit Export Credits Program
In our analysis of the Privileged Circuit Export Credits Program earlier in this notice, we found that two programs, short-term working capital loans and short-term export credits, did provide subsidies to the respondent. We determine that the two remaining programs identified in our notice of initiation are not used. They are: (1) Commercial services loans, and (2) Prefinancing exports.
B. Medium- and Long-Term Preferential Loans
Petitioners alleged that producers of potassium chloride are receiving medium- and long-term preferential financing either directly from the government of Spain or from banks instructed by the government of Spain. We verified that Suria had no outstanding medium- or long-term loans during the period in which we are measuring subsidization.
Petitioners' Comments
Comment 1. Petitioners argue that the entire rebate of the DFE is a subsidy to the producer of potassium chloride, since there are no physically incorporated imputs on which indirect taxes are paid.
DOC Position. Although the Spanish government rebates upon exportation all indirect taxes paid under the cascading tax system, the Act and the Commerce Regulations allow the rebate of only the following: (1) Indirect taxes borne by inputs which are physically incorporated in the exported product (see Annex 1.1 of Part 355 of the Commerce Regulations); and (2) indirect taxes levied at the final stage (see Annex 1.2 of Part 355 of the Commerce Regulations). If the payment upon export exceeds the total amount of allowable indirect taxes described above, the Department considers the difference to be an overrebate of indirect taxes, and therefore, a subsidy.
In this case, we determine that Suria does not purchase from other sources any imputs that are physically incorporated into the final product. Thus, there are no turnover taxes paid on these inputs. Consequently, the subsidy is equal to the DFE rebate less final stage taxes.
Comment 2. Petitioners state that the Department incorrectly characterized the IGTE on rail transportation to the port as a final stage indirect tax that may be properly offset against the DFE. Petitioners take the position that such export freight is a tax on transport categorized under present GATT rules as a tax occulte, i.e., a tax that may not be rebated.
DOC Position. The freight charges in question are established for exporting the merchandise and are treated as a tax on the exported product. We view this as a final stage tax, and have consistently held that this freight tax is an allowable final stage tax. See, for example, Non-Rubber Footwear from Spain (49 FR 19378) and Amoxicillin Trihydrate and Its Salts from Spain (49 FR 12730). Consequently, the rebate of this tax is allowable when calculating whether or not there is an overrebate of indirect taxes under the DFE.
Comment 3. Petitioners argue that the Department should not offset the Impuesto de Muellaje, a port charge, against the DFE. They state that the port charge does not appear to be an indirect tax, but a utilization fee.
DOC Position. We agree that the Impuesto de Muellaje is a utilization fee rather than a tax and, therefore, we are not allowing this as a deduction from the DFE.
Comment 4. Petitioners express concern that if the Department calculates interest rate differentials based on effective interest rates, rather than nominal interest rates, the prepayment of interest on subsidized loans might cause an adjustment to be made mitigating the benefit from the lower (nominal) rate.
DOC Position. Although in the past we have relied upon comparisons between nominal interest rates, we prefer to compare effective interest rates as stated in the Subsidies Appendix (49 FR at 18022) as follows: "The magnitude of the benefit from loans is a function of the difference between the cost of the loan under examination and the cost of the benchmark loan. Ideally, we attempt to quantify the total effective cost of each type of loan in our comparisons. However, the charges added on to the nominal interest rates for each loan cannot always be quantified. In these cases, we base our calculations on the difference between the quantifiable equivalent terms of both loans." For our final determination we calculated the benefit from these preferential loans as the difference between the effective cost *36427 of the loans under examination and the effective cost of the benchmark loans.
Respondent's Comments
Comment 1. Respondent states that its effective average interest rate on short-term export credits is higher than the Department's preliminary calculations show.
DOC Position. We agree. For our preliminary determination we did not have sufficiently detailed information to calculate the effective interest rates on the short-term export credit loans. During our verification, we gathered sufficient information to calculate effective interest rates for short-term export credits which are higher interest rates than the nominal interest rates in our preliminary calculations. See the section on the Privileged Circuit Exporter Credits Program.
Comment 2. Respondent states that since 54.2 percent of the cost of its inputs for the production of potassium chloride are effected by the ICTE at the rate of 4 percent during 1983, the rebate of 6.5 percent under the DFE is clearly justified. Consequently, respondent argues that the DFE represents only a reimbursement of the indirect taxes affecting production and that there is no subsidy from the DFE program.
DOC Position. We disagree. See DOC Position to Petitioners' Comment 1.
Verification
In accordance with section 776(a) of the Act, we verified all information used in making our final determination.
Suspension of Liquidation
In accordance with section 703 of the Act, we are directing the U.S. Customs Service to continue to suspend liquidation of all unliquidated entries of potassium chloride from Spain which are entered, or withdrawn from warehouse, or consumption, on or after June 29, 1984. The Customs Service shall require a cash deposit or the posting of a bond for each such entry of this merchandise in the amount of 7.88 percent ad valorem on exports prior to July 11, 1984, and 6.90 percent ad valorem on exports on or after July 11, 1984. This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all nonprivileged and nonconfidential information relating to this investigation. We will allow the ITC access to all privileged and confidential 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.
The ITC will make its determination of whether these imports are materially injuring, or threatening to materially injure, a U.S. industry within 45 days of the publication of this notice.
If the ITC determines that material injury or the threat of material injury does not exist, this proceeding will be terminated and all estimated duties deposited or securities posted as a result of the suspension of liquidation will be refunded or cancelled. If, however, the ITC determines that such injury does exist, we will issue a countervailing duty order, directing the Customs Service to assess countervailing duties on all entries of potassium chloride from Spain entered, or withdrawn from warehouse, for consumption on or after the suspension of liquidation date, and to require a cash deposit or bond for an amount equal to the net subsidy amount indicated in the "Suspension of Liquidation" section of this notice.
This notice is published pursuant to section 705(d) of the Act (19 U.S.C. 1671d(d)).
William T. Archey,
Acting Assistant Secretary for Trade Administration.
BILLING CODE 3510-DS-M