[Federal Register Volume 64, Number 249 (Wednesday, December 29, 1999)]
[Notices]
[Pages 73176-73196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33233]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-580-837]
Final Affirmative Countervailing Duty Determination: Certain Cut-
to-Length Carbon-Quality Steel Plate From the Republic of Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: December 29, 1999.
FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Tipten Troidl,
Office of CVD/AD Enforcement VI, Group II, Import Administration, U.S.
Department of Commerce, Room 4012, 14th Street and Constitution Avenue,
NW, Washington, DC 20230; telephone (202) 482-2786.
Final Determination: The Department of Commerce (the Department)
determines that countervailable subsidies are being provided to
producers and exporters of certain cut-to-length carbon-quality steel
plate from the Republic of Korea. For information on the countervailing
duty rates, see the ``Suspension of Liquidation'' section of this
notice.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition in this investigation was filed by Bethlehem Steel
Corporation, U.S. Steel Group, a unit of USX Corporation, Gulf States
Steel, Inc., IPSCO Steel Inc., Tuscaloosa Steel Corporation, and the
United Steelworkers of America (petitioners).
Case History
Since the publication of our preliminary determination in this
investigation on July 26, 1999 (Preliminary Affirmative Countervailing
Duty Determination and Alignment of Final Countervailing Duty
Determination with Final Antidumping Duty Determination: Certain Cut-
to-Length Carbon-Quality Steel Plate from the Republic of Korea, 64 FR
40445 (Preliminary Determination)), the following events have occurred:
On September 13, 1999, we issued supplemental questionnaires to
Pohang Iron & Steel Co., Ltd. (POSCO), Dongkuk Steel Mill Co., Ltd.
(DSM), and the Government of Korea (GOK). We received the respondents'
questionnaire responses on October 5, 1999. We conducted verification
of the countervailing duty questionnaire responses from October 25
through November 9, 1999. Because the final determination of this
countervailing duty investigation was aligned with the final
antidumping duty determination (see 64 FR 40416), and the final
antidumping duty determination was postponed (see 64 FR 46341), the
Department on August 25, 1999, extended the final determination of this
countervailing duty investigation until no later than December 13, 1999
(see 64 FR 40416). On November 19, 1999, we issued to all parties the
verification reports for POSCO, DSM, and the Meetings with Banking
Experts in Korea. We later issued on November 23, 1999, the
verification report for the GOK. Petitioners and respondents filed case
briefs on November 29, 1999. Rebuttal briefs were submitted to the
Department by petitioners and respondents on December 3, 1999. A public
hearing on the case was held on December 6, 1999.
On November 23, 1999, we discontinued the suspension of liquidation
of all entries of the subject merchandise entered or withdrawn from
warehouse for consumption on or after that date, pursuant to section
703(d) of the Act. See the ``Suspension of Liquidation'' section of
this notice.
Scope of Investigation
The products covered by this scope are certain hot-rolled carbon-
quality steel: (1) universal mill plates (i.e., flat-rolled products
rolled on four faces or in a closed box pass, of a width exceeding 150
mm but not exceeding 1250 mm, and of a nominal or actual thickness of
not less than 4 mm, which are cut-to-length (not in coils) and without
patterns in relief), of iron or non-alloy-quality steel; and (2) flat-
rolled products, hot-rolled, of a nominal or actual thickness of 4.75
mm or more and of a width which exceeds 150 mm and measures at least
twice the thickness, and which are cut-to-length (not in coils).
Steel products to be included in this scope are of rectangular,
square, circular or other shape and of rectangular or non-rectangular
cross-section where such non-rectangular cross-section is achieved
subsequent to the rolling process (i.e., products which have been
``worked after rolling'')--for example, products which have been
beveled or rounded at the edges. Steel products that meet the noted
physical characteristics that are painted, varnished or coated with
plastic or other non-metallic substances are included within this
scope. Also, specifically included in this scope are high strength, low
alloy (HSLA) steels. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium,
titanium, vanadium, and molybdenum.
Steel products to be included in this scope, regardless of
Harmonized Tariff Schedule of the United States (HTSUS) definitions,
are products in which: (1) iron predominates, by weight, over each of
the other contained elements, (2) the carbon content is two percent or
less, by weight, and (3) none of the elements listed below is equal to
or exceeds the quantity, by weight, respectively indicated:
1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
[[Page 73177]]
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent zirconium.
All products that meet the written physical description, and in
which the chemistry quantities do not equal or exceed any one of the
levels listed above, are within the scope of these investigations
unless otherwise specifically excluded. The following products are
specifically excluded from these investigations: (1) products clad,
plated, or coated with metal, whether or not painted, varnished or
coated with plastic or other non-metallic substances; (2) SAE grades
(formerly AISI grades) of series 2300 and above; (3) products made to
ASTM A710 and A736 or their proprietary equivalents; (4) abrasion-
resistant steels (i.e., USS AR 400, USS AR 500); (5) products made to
ASTM A202, A225, A514 grade S, A517 grade S, or their proprietary
equivalents; (6) ball bearing steels; (7) tool steels; and (8) silicon
manganese steel or silicon electric steel.
The merchandise subject to these investigations is classified in
the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,
7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,
7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,
7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,
7226.91.8000, 7226.99.0000.
Although the HTSUS subheadings are provided for convenience and
Customs purposes, the written description of the merchandise under
investigation is dispositive.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations as codified at
19 CFR Part 351 (1998) and to the substantive countervailing duty
regulations published in the Federal Register on November 25, 1998 (63
FR 65348) (CVD Regulations).
Injury Test
Because the Republic of Korea is a ``Subsidies Agreement Country''
within the meaning of section 701(b) of the Act, the International
Trade Commission (ITC) is required to determine whether imports of the
subject merchandise from Korea materially injure, or threaten material
injury to, a U.S. industry. On April 8, 1999, the ITC published its
preliminary finding that there is a reasonable indication that an
industry in the United States is being materially injured, or
threatened with material injury, by reason of imports from Korea of the
subject merchandise (see Certain Cut-to-Length Steel Plate From the
Czech Republic, France, India, Indonesia, Italy, Japan, Korea, and
Macedonia; Determinations, 64 FR 17198 (April 8, 1999)).
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1998.
Subsidies Valuation Information
Allocation Period
Section 351.524(d)(2) of the CVD Regulations states that we will
presume the allocation period for non-recurring subsidies to be the
average useful life (AUL) of renewable physical assets for the industry
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class
Life Asset Depreciation Range System and updated by the Department of
Treasury. The presumption will apply unless a party claims and
establishes that these tables do not reasonably reflect the AUL of the
renewable physical assets for the company or industry under
investigation, and the party can establish that the difference between
the company-specific or country-wide AUL for the industry under
investigation is significant.
In this investigation, no party to the proceeding has claimed that
the AUL listed in the IRS tables does not reasonably reflect the AUL of
the renewable physical assets for the firm or industry under
investigation. Therefore, according to section 351.524(d)(2) of the CVD
Regulations, we have allocated POSCO and DSM's non-recurring subsidies
over 15 years, the AUL listed in the IRS tables for the steel industry.
Benchmarks for Long-term Loans and Discount Rates
During the POI, POSCO and DSM had a number of won-denominated and
foreign currency-denominated long-term loans outstanding which the
company received from government-owned banks, Korean commercial banks,
overseas banks, and foreign banks with branches in Korea. A number of
these loans were received prior to 1992. In the 1993 investigation of
Steel Products from Korea,1 the Department determined that
the GOK influenced the practices of lending institutions in Korea and
controlled access to overseas foreign currency loans through 1991. See
Final Affirmative Countervailing Duty Determinations and Final Negative
Critical Circumstances Determinations: Certain Steel Products from
Korea, 58 FR 37328, 37338 (July 9, 1993) (Steel Products from Korea),
and the ``Direction of Credit'' section below. In that investigation,
we determined that the best indicator of a market rate for long-term
loans in Korea was the three-year corporate bond rate on the secondary
market. Therefore, in the final determination of this investigation, we
used the three-year corporate bond rate on the secondary market as our
benchmark to calculate the benefits which the respondent companies
received from direct foreign currency loans and domestic foreign
currency loans obtained prior to 1992, and still outstanding during the
POI.
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\1\ On October 1, 1999, the United States Court of Appeals for
the Circuit (CAFC) issued a decision regarding Steel Products from
Korea. See AK Steel Corp. v. United States, 192F.3d (AK Steel). The
Department has not received specific instructions from the Court on
how this decision should be implemented. However, our review of the
decision indicates that the CAFC found that there was not sufficient
evidence on the record of Steel Products from Korea to determine
that the GOK provided credit directly to the Korean steel industry.
In this investigation, we have additional information on the record
indicating that the GOK's direction of credit prior to 1992 provided
a countervailable benefit to the Korean steel industry. Therefore,
the selection of long-term benchmarks cited to in Steel Products
from Korea is appropriate for this current investigation. For
further information on direction of credit prior to 1992, see the
``Direction of Credit'' section of this notice.
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In Stainless Steel Plate and Stainless Steel Sheet and
Strip,2 the Department, for the first time, examined the
GOK's direction of credit policies for the period 1992 through 1997.
Based on new information gathered during the course of those
investigations, the Department determined that the GOK controlled
directly or indirectly the lending practices of most sources of credit
in Korea between 1992 and 1997. In the current investigation, we
determine that the GOK still exercised
[[Page 73178]]
substantial control over lending institutions in Korea during the POI.
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\2\ See Final Negative Countervailing Duty Determination:
Stainless Steel Plate in Coils from the Republic of Korea, 64 FR
15530, 15532 (March 31, 1999) (Stainless Steel Plate), and Final
Affirmative Countervailing Duty Determination: Stainless Steel Sheet
and Strip in Coils from the Republic of Korea, 64 FR 30636, 39641
(June 8, 1999) (Stainless Steel Sheet and Strip).
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Based on our findings on this issue in prior investigations, as
well as in the instant investigation, discussed below in the
``Direction of Credit'' section of this notice, we are using the
following benchmarks to calculate respondents' long-term loans obtained
in the years 1992 through 1998. First, for countervailable, foreign-
currency denominated long-term loans, we used, where available, the
company-specific weighted-average U.S. dollar-denominated interest
rates on the companies' loans from foreign bank branches in Korea.
However, certain companies had foreign currency loans denominated in a
currency other than U.S. dollars but did not have the same type of
currency loans from foreign bank branches in Korea. Because we were
unable to find a similar foreign-currency denominated loan benchmark
within Korea, we used foreign-currency interest rates as reported in
the International Financial Statistics, a publication of the IMF.
Second, for countervailable won-denominated long-term loans, where
available, we used the company-specific corporate bond rate on the
companies' public and private bonds. We note that this benchmark is
based on the decision in Stainless Steel Plate, 64 FR at 15531, in
which we determined that the GOK did not control the Korean domestic
bond market after 1991, and that domestic bonds may serve as an
appropriate benchmark interest rate. Where unavailable, we used the
national average of the yields on three-year corporate bonds as
reported by the Bank of Korea (BOK).
We are also using the three-year company-specific corporate bond
rate as the discount rate to determine the benefit from non-recurring
subsidies received between 1992 and 1998.
Benchmarks for Short-Term Financing
For those programs which require the application of a short-term
interest rate benchmark, we used as our benchmark a company-specific
weighted-average interest rate for commercial won-denominated loans for
the POI. Each respondent provided its respective company-specific,
short-term commercial interest rate to the Department.
Treatment of Subsidies Received by Trading Companies
During the POI, POSCO exported the subject merchandise to the
United States through three trading companies, POSTEEL, Hyosung, and
Sunkyong. DSM exported through one trading company, DKI. POSTEEL is
affiliated with POSCO, and DKI is affiliated with DSM within the
meaning of section 771(33)(E) of the Act because as of December 31,
1998, POSCO owned 95.8 percent of POSTEEL's shares, and DSM owned 51.3
percent of DKI shares. The other trading companies are not affiliated
with either POSCO or DSM. We required that the trading companies
provide responses to the Department with respect to the export
subsidies under investigation. Responses were required from the trading
companies because the subject merchandise may be subsidized by means of
subsidies provided to both the producer and the exporter. All subsidies
conferred on the production and exportation of subject merchandise
benefit the subject merchandise even if it is exported to the United
States by an unaffiliated trading company rather than by the producer
itself. Therefore, the Department calculates countervailable subsidy
rates on the subject merchandise by cumulating subsidies provided to
the producer, with those provided to the exporter. See 19 CFR 351.525.
Under section 351.107 of the Department's Regulations, when the
subject merchandise is exported to the United States by a company that
is not the producer of the merchandise, the Department may establish a
``combination'' rate for each combination of an exporter and supplying
producer. However, as noted in the ``Explanation of the Final Rules''
(the Preamble), there may be situations in which it is not appropriate
or practicable to establish combination rates when the subject
merchandise is exported by a trading company. In such situations, the
Department will make exceptions to its combination rate approach on a
case-by-case basis. See Antidumping Duties; Countervailing Duties;
Final Rule, 62 FR 27296, 27303 (May 19, 1997).
In this investigation, we have determined that it is not
appropriate to establish combination rates. This determination is based
on two main facts: first, the majority of the subsidies conferred upon
the subject merchandise were received by the producers. Second, the
difference in the levels of subsidies conferred upon the subject
merchandise among the individual trading companies is insignificant.
Therefore, combination rates would serve no practical purpose because
the calculated subsidy rate for POSCO/POSTEEL or POSCO/Sunkyong or
POSCO and any of the other trading companies would effectively be the
same rate. For these reasons, we are not calculating combination rates
in this investigation. Instead, we have only calculated one rate for
each producer of the subject merchandise, all of which is produced by
either POSCO or DSM.
To include the subsidies received by the trading companies, which
are conferred upon the export of the subject merchandise, in the
calculated ad valorem subsidy rate, we used the following methodology.
For each of the four trading companies, we calculated the benefit
attributable to the subject merchandise and factored that amount into
the calculated subsidy rate for the producer. In each case, we
determined the benefit received by the trading companies for each
export subsidy and weight-averaged the benefit amounts by the relative
share of each trading company's value of exports of the subject
merchandise to the United States. This calculated ad valorem subsidy
was then added to the subsidy calculated for either POSCO or DSM. Thus,
for each of the programs below, the listed ad valorem subsidy rate
includes the countervailable subsidies received by both the trading
companies and either POSCO or DSM.
I. Programs Determined To Be Countervailable
A. The GOK's Direction of Credit Policies
1. The GOK's Credit Policies Through 1991
As noted above in the ``Subsidies Valuation'' section of this
notice, on October 1, 1999, the CAFC issued a decision regarding Steel
Products from Korea. See AK Steel. The Department has not received
specific instructions from the Court as to how this decision should be
implemented. However, our review of the decision indicates that the
CAFC found that there was not sufficient evidence on the record of
Steel Products from Korea to determine that the GOK provided credit
directly to the Korean steel industry. Since the time of the final
determination of Steel Products from Korea the URAA was enacted and the
Department developed and codified new substantive countervailing duty
regulations. Under the new statute and regulations and considering the
new information that was not on the record of Steel Products from
Korea, we determine that all loans disbursed to respondent companies
through 1991 are countervailable. For a discussion of this new
information, please see Comments 1 and 2 in the ``Interested Party
Comments'' section of the notice. The provision of long-term loans in
Korea through 1991 results in a financial contribution within the
meaning of section 771(5)(D)(i) of the Act. In accordance with section
771(5)(E)(ii) of the Act, a benefit has
[[Page 73179]]
been conferred on the recipient to the extent that the regulated loans
are provided at interest rates less than the benchmark rates described
under the ``Subsidies Valuation Information'' section, above.
POSCO and DSM were the only producers of the subject merchandise,
and both companies received long-term loans prior to 1992 that were
still outstanding during the POI. To determine the benefit from the
regulated loans, we applied the long-term loan methodology provided for
in section 351.505 of the CVD Regulations. We then summed the benefit
amounts from the loans attributable to the POI and divided the total
benefit by each company's respective total sales. On this basis, we
determine the net countervailable subsidy to be 0.12 percent ad valorem
for POSCO, and 0.04 percent ad valorem for DSM.
In the preliminary determination, we stated that the long-term
KExim Bank loans are regulated. Accordingly, these loans are
countervailable as directed credit, and we included these long-term
loans in POSCO's benefit calculations for directed credit. In the
preliminary determination, we concluded that the loans provided to
POSCO from the KExim Bank were export subsidies, and thus divided the
benefit amounts from the loans attributable to the POI by the company's
export sales. During verification, we found that these loans were
provided under the Overseas Resource Development Program, and thus were
not provided to POSCO based upon its export performance. Therefore, for
the purposes of this final determination, we have attributed the
benefit conferred from the KExim Bank loans over POSCO's total sales.
2. The GOK's Credit Policies From 1992 Through 1998
In the Stainless Steel Plate and Stainless Steel Sheet and Strip
investigations, the Department determined that the GOK continued to
control directly and indirectly the lending practices of most sources
of credit in Korea through 1997.3 The Department also
determined that the GOK's regulated credit from domestic commercial
banks and government-controlled banks such as the Korea Development
Bank (KDB) was specific to the steel industry. This credit conferred a
benefit on the producers/exporters of the subject merchandise to the
extent that the interest rates on these loans were less than the
interest rates on comparable commercial loans. See section 771(5)(ii)
of the Act. See also Stainless Steel Plate, 64 FR 15530, 15533, and
Stainless Steel Sheet and Strip, 64 FR 30636, 30642.
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\3\ In the Stainless Steel Plate and Stainless Steel Sheet and
Strip investigations, the Department based its affirmative direction
of credit determination for the period 1992 through 1997 on record
evidence covering a time period different than that covered by the
CAFC's decision in AK Steel which was Pre-1992. Moreover, in its
decision, the CAFC did not reject the notion of the GOK directing
credit specifically to the Korean steel industry but rather took
issue with the evidence upon which the Department based its
affirmative finding. Thus, because the Department based its
affirmative direction of credit determination for the years 1992
through 1997 on evidence that was not before the CAFC at the time of
its decision in AK Steel, that case does not preclude a finding of
directed credit during this later time period.
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We provided the GOK with the opportunity to present new factual
information concerning the government's credit policies during the 1992
through 1997 period, which we would consider along with our finding in
the prior investigations. The GOK did not provide new factual
information that would lead us to change our determination in Stainless
Steel Plate and Stainless Steel Sheet and Strip. Therefore, we continue
to find lending from domestic banks and from government-owned banks
such as the KDB to be countervailable.
In the instant investigation, we examined whether the GOK continued
to control or influence directly or indirectly, the lending practices
of sources of credit in Korea in 1998, in light of our prior finding
that the GOK controlled and directed credit provided by domestic banks
and government-owned banks during the period 1992 through 1997. The GOK
asserted that it does not provide direction or guidance to Korean
financial institutions in the allocation of loans to selected
industries. The GOK stated that the lending decisions and loan
distributions of financial institutions in Korea reflect commercial
considerations. The GOK also stated that its role in the financial
sector is limited to monetary and credit policies as well as bank
supervision and examination.
According to the GOK, measures were taken in 1998 to liberalize the
Korean financial sector. For example, in January 1998 the GOK announced
closure of some banks, and in April 1998, launched the Financial
Supervisory Commission (FSC) to monitor the competitiveness of
financial institutions. In June 1998, the Regulation on Foreign
Exchange Controls was amended to further liberalize foreign currency
transactions, and in July, the GOK abolished the limit on purchasing
foreign currency. According to the GOK, it also liberalized access to
foreign loans. For direct foreign loans to Korean companies, the
approval process under Article 19 of the Foreign Investment and Foreign
Capital Inducement Act (FIFCIA) and Article 21 of its enforcement
decree were eliminated and replaced with the Foreign Investment
Promotion Act (FIPA), effective in November 1998. However, during most
of the POI, access to direct foreign loans still required the approval
of the Ministry of Finance and Economy.
Regarding the GOK regulated credit from government-controlled banks
such as the Korea Development Bank (KDB), the GOK reported that the KDB
Act was amended in January 1998, in response to the financial crisis in
1997. According to the GOK, with the new Act, the KDB no longer
allocates funds for various functional categories; such as R&D,
environment and technology. All functional loan categories were
eliminated and such loans were consolidated into a single category for
facility (equipment) loans. The GOK also stated that the KDB
strengthened its credit evaluation procedures by developing an
objective and systematic credit evaluation standard to prevent
arbitrary decisions on loans and interest rates. The KDB changed its
Credit Evaluation Committee to the Credit Deliberation Committee (CDC),
and gave the CDC the authority to make lending decisions. As a result,
the KDB governor no longer makes lending decisions without the approval
of the CDC. The GOK also stated that in 1997, the KDB used the prime
rate plus a spread for determining interest rates. Effective January 1,
1998, the KDB increased the range of the credit spread to provide more
flexibility in determining interest rates based on creditworthiness and
to allow the KDB to increase its profits. However, respondents did not
provide any evidence to demonstrate that the KDB has discontinued the
practice of selectively making loans to specific firms or activities to
support GOK policies.
In Stainless Steel Plate, the Department noted conflicting
information regarding the GOK's direct or indirect influence over the
lending decisions of financial institutions. For example, the GOK
policies appeared to be aimed, in part, at promoting certain sectors of
the economy, such as high technology, which is defined to include the
steel industry.
While the GOK started to plan and implement reforms in the
financial system during the POI as a result of the 1997 financial
crisis, the record evidence indicates that the GOK previously attempted
reforms of the
[[Page 73180]]
financial system in order to remove or reduce its control and influence
over lending in the country. In the past ten years, the GOK has twice
attempted to reform its financial system. In 1988, the GOK attempted to
deregulate interest rates. However, the government deemed the 1988
liberalization a failure. When the interest rates began to rise, the
GOK canceled the reforms by indirectly pressuring the banks to keep
interest rates low. In the early 1990s, the GOK attempted reforms again
with a four-stage interest rate deregulation plan. Again, the GOK
deemed this attempt to reform the financial system a failure. During
1998 and 1999, the GOK has threatened to cut off credit to Korean
companies unless the companies follow GOK policies. In addition, during
the POI, the GOK took control of five large commercial banks due to the
financial crisis.
Based upon the information on the record and our determinations in
Stainless Steel Plate and Stainless Steel Sheet and Strip, we determine
that the GOK continued to control, directly and indirectly, the lending
practices of domestic banks and government-owned banks through the POI.
With respect to foreign sources of credit, in Stainless Steel Plate
and Stainless Steel Sheet and Strip, we determined that access to
government regulated foreign sources of credit in Korea did not confer
a benefit to the recipient as defined by 771(5)(E)(ii) of the Act, and,
as such, credit received by respondents from these sources was found
not countervailable. This determination was based upon the fact that
credit from Korean branches of foreign banks was not subject to the
government's control and direction. Thus, respondents' loans from these
banks served as an appropriate benchmark to establish whether access to
regulated foreign sources of credit conferred a benefit on respondents.
On the basis of this comparison, we found that there was no benefit
during the POI. Petitioners have not provided any new information or
evidence of changed circumstances to cause us to revisit this
determination. Therefore, we continue to determine that credit from
Korean branches of foreign banks were not subject to the government's
control and direction. As such, lending from this source continues to
be not countervailable, and loans from Korean branches of foreign banks
continue to serve as an appropriate benchmark to establish whether
access to regulated foreign sources of funds confer a benefit to
respondents.
With respect to loans provided under the Energy Savings Fund, in
Stainless Steel Plate, 64 FR at 15533, the Department found that these
loans were countervailable as directed credit on the grounds that they
are policy loans provided by banks that are subject to the same GOK
influence as described above. POSCO had Energy Savings Fund loans
outstanding during the POI. Accordingly, these loans are
countervailable as directed credit, and we have included these long-
term loans in POSCO's benefit calculations for directed credit.
In addition, respondents received loans under the Industry
Promotion Fund and the Industry Technology Development Fund. Similar to
our determination with respect to the Energy Savings Fund, loans from
both of these Industry Funds are policy loans provided by banks subject
to the same GOK influence as described above. Therefore, loans from
these two Industry Funds are countervailable as directed credit.
POSCO's affiliates had outstanding loans during the POI from these
Industry Funds. Therefore, we have included these long-term loans in
POSCO's benefit calculations for directed credit.
Both POSCO and DSM received long-term loans from domestic banks and
government-owned banks during the period 1992 to 1998 that were still
outstanding during the POI. These included loans with both fixed and
variable interest rates. To determine the benefit from the regulated
loans with fixed interest rates and those with variable interest rates,
we applied the methodology provided for in section 351.505(c)(2) and
section 351.505(c)(4), respectively, of the CVD Regulations, using as
our benchmark the rate described in the ``Subsidies Valuation
Information'' section of the notice, above. Therefore, for both fixed
and variable rate loans, we calculated the difference in interest
payments for the POI based upon the difference in the amount of actual
interest paid during 1998 on the regulated loan and the amount of
interest that would have been paid on a comparable commercial loan. We
then summed the benefit amounts from the loans attributable to the POI
and divided the total benefit by each company's respective total sales.
On this basis, we determine the net countervailable subsidy to 0.15
percent ad valorem for POSCO, and 0.13 percent ad valorem for DSM.
B. GOK Infrastructure Investment at Kwangyang Bay
In Steel Products from Korea, the Department investigated the GOK's
infrastructure investments at Kwangyang Bay over the period 1983-1991.
We determined that the GOK's provision of infrastructure at Kwangyang
Bay was countervailable because we found POSCO to be the predominant
user of the GOK's investments. The Department has consistently held
that a countervailable subsidy exists when benefits under a program are
provided, or are required to be provided, in law or in fact, to a
specific enterprise or industry or group of enterprises or industries.
See Steel Products from Korea, 58 FR at 37346.
No new factual information or evidence of changed circumstances has
been provided to the Department with respect to the GOK's
infrastructure investments at Kwangyang Bay over the period 1983-1991.
Therefore, to determine the benefit from the GOK's investments to POSCO
during the POI, we relied on the calculations performed in the 1993
investigation of Steel Products from Korea, which were placed on the
record of this investigation by POSCO. In measuring the benefit from
this program in the 1993 investigation, the Department treated the
GOK's costs of constructing the infrastructure at Kwangyang Bay as
untied, non-recurring grants in each year in which the costs were
incurred.
To calculate the benefit conferred during the POI, we applied the
Department's standard grant methodology and allocated the GOK's
infrastructure investments over a 15-year allocation time period. See
the allocation period discussion under the ``Subsidies Valuation
Information'' section, above. We used as our discount rate the three-
year corporate bond rate on the secondary market as used in Steel
Products from Korea. We then summed the benefits received by POSCO
during 1998 from each of the GOK's yearly investments over the period
1983-1991. We then divided the total benefit attributable to the POI by
POSCO's total sales for 1998. On this basis, we determine a net
countervailable subsidy of 0.23 percent ad valorem for the POI.
C. Short-Term Export Financing
The Department determined that the GOK's short-term export
financing program was countervailable in Steel Products from Korea (see
58 FR at 37350). During the POI, POSCO was the only producer/exporter
of the subject merchandise that used export financing.
In accordance with section 771(5A)(B) of the Act, this program
constitutes an export subsidy because receipt of the financing is
contingent upon export performance. A financial contribution is
provided to POSCO under this program within the meaning of section
771(5)(D)(i) of the Act in the form of a
[[Page 73181]]
loan. To determine whether this export financing program confers a
countervailable benefit to POSCO, we compared the interest rate POSCO
paid on the export financing received under this program during the POI
with the interest rate POSCO would have paid on a comparable short-term
commercial loan. See discussion above in the ``Subsidies Valuation
Information'' section with respect to short-term loan benchmark
interest rates.
Because loans under this program are discounted (i.e., interest is
paid up-front at the time the loans are received), the effective rate
paid by POSCO on its export financing is a discounted rate. Therefore,
it was necessary to derive from POSCO's company-specific weighted-
average interest rate for short-term won-denominated commercial loans,
a discounted benchmark interest rate. We compared this discounted
benchmark interest rate to the interest rates charged on the export
financing and found that the program interest rates were lower than the
benchmark rate. Therefore, in accordance with section 771(5)(E)(ii) of
the Act, we determine that this program confers a countervailable
benefit because the interest rates charged on the loans were less than
what POSCO would have had to pay on a comparable short-term commercial
loan.
To calculate the benefit conferred by this program, we compared the
actual interest paid on the loans with the amount of interest that
would have been paid at the applicable discounted benchmark interest
rate. When the interest that would have been paid at the benchmark rate
exceeded the interest that was paid at the program interest rate, the
difference between those amounts is the benefit. We then divided the
benefit derived from all of POSCO's export loans by the value of the
company's total exports. On this basis, we determine a net
countervailable subsidy of less than 0.005 percent ad valorem for
POSCO.
D. Reserve for Export Loss
Under Article 16 of the Tax Exemption and Reduction Control Act
(TERCL), a domestic person engaged in a foreign-currency earning
business can establish a reserve amounting to the lesser of one percent
of foreign exchange earnings or 50 percent of net income for the
respective tax year. Losses accruing from the cancellation of an export
contract, or from the execution of a disadvantageous export contract,
may be offset by returning an equivalent amount from the reserve fund
to the income account. Any amount that is not used to offset a loss
must be returned to the income account and taxed over a three-year
period, after a one-year grace period. All of the money in the reserve
is eventually reported as income and subject to corporate tax either
when it is used to offset export losses or when the grace period
expires and the funds are returned to taxable income. The deferral of
taxes owed amounts to an interest-free loan in the amount of the
company's tax savings. During the POI, DSM was the only exporter of the
subject merchandise that benefitted from this program.
We determine that the Reserve for Export Loss program constitutes
an export subsidy under section 771(5A)(B) of the Act because use of
the program is contingent upon export performance. We also determine
that this program provides a financial contribution within the meaning
of section 771(5)(D)(i) of the Act in the form of a loan. The benefit
provided by this program is the tax savings enjoyed by the company.
To determine the benefit conferred by this program, we calculated
the tax savings by multiplying the balance amount of the reserve as of
December 31, 1997, by the corporate tax rate for 1997. We treated the
tax savings on these funds as a short-term interest-free loan.
Accordingly, to determine the benefit, the amount of tax savings was
multiplied by the company's weighted-average interest rate for short-
term won-denominated commercial loans for the POI, as described in the
``Subsidies Valuation Information'' section, above. Using the
methodology for calculating subsidies received by trading companies,
which also is detailed in the ``Subsidies Valuation Information''
section of this notice, we determine a net countervailable subsidy of
0.02 percent ad valorem for DSM.
E. Reserve for Overseas Market Development
Article 17 of the TERCL operates in a manner similar to Article 16,
discussed above. This provision allows a domestic person engaged in a
foreign trade business to establish a reserve fund equal to one percent
of its foreign exchange earnings from its export business for the
respective tax year. Expenses incurred in developing overseas markets
may be offset by returning from the reserve, to the income account, an
amount equivalent to the expense. Any part of the fund that is not
placed in the income account for the purpose of offsetting overseas
market development expenses must be returned to the income account over
a three-year period, after a one-year grace period. As is the case with
the Reserve for Export Loss, the balance of this reserve fund is not
subject to corporate income tax during the grace period. However, all
of the money in the reserve is eventually reported as income and
subject to corporate tax either when it offsets overseas expenses or
when the grace period expires. The deferral of taxes owed amounts to an
interest-free loan equal to the company's tax savings. The following
exporters of the subject merchandise used this program during the POI:
Hyosung, POSTEEL, Sunkyong, and DKI.
We determine that the Reserve for Overseas Market Development
program constitutes an export subsidy under section 771(5A)(B) of the
Act because use of the program is contingent upon export performance.
We also determine that this program provides a financial contribution
within the meaning of section 771(5)(D)(i) of the Act in the form of a
loan. The benefit provided by this program is the tax savings enjoyed
by the companies.
To determine the benefits conferred by this program during the POI,
we employed the same methodology used for determining the benefit from
the Reserve for Export Loss program. Using the methodology for
calculating subsidies received by trading companies, which is detailed
in the ``Subsidies Valuation Information'' section of this notice, we
determine a net countervailable subsidy of 0.01 percent ad valorem for
POSCO and a rate of 0.01 percent ad valorem for DSM.
F. Technical Development Reserve Funds Under Article 8 of TERCL
Article 8 of TERCL allows a company operating in manufacturing or
mining, or in a business prescribed by the Presidential Decree, to
appropriate reserve funds to cover the expenses needed for development
or innovation of technology. These reserve funds are included in the
company's losses and reduces the amount of taxes paid by the company.
Article 8 specifies that capital good and capital intensive companies
can establish a reserve of five percent, while companies in all other
industries are only allowed to establish a three percent reserve.
Because the capital goods industry is allowed to claim a larger tax
reserve under this program than all other manufacturers, we determine
that the Technical Development Reserve Funds is specific under section
771(5A)(D). We also determine that this program provides a financial
contribution within the meaning of section 771(5)(D)(i) of the Act in
the form of a loan. The benefit provided by this program is the
differential two percent tax savings enjoyed by the companies in the
capital
[[Page 73182]]
goods industry, which includes steel manufacturers.
During the POI, POSCO was the only exporter of the subject
merchandise that benefitted from this program. To determine the benefit
conferred by this program, we first calculated the balance amount of
the reserve as of December 31, 1997, attributable to the company being
allowed to contribute a higher amount to the reserve account. We then
calculated the tax savings by multiplying the calculated balance amount
in the reserve account, by the corporate tax rate for 1997. We treated
the tax savings on these funds as a short-term interest-free loan. As a
benchmark interest rate, we used an affiliated company's weighted-
average interest rate for short-term won-denominated commercial loans
for the POI. On this basis, we determine a net countervailable subsidy
for POSCO of less than 0.005 percent ad valorem.
G. Investment Tax Credits
Under the TERCL, companies in Korea are allowed to claim investment
tax credits for various kinds of investments. If the tax credits cannot
all be used at the time they are claimed, then the company is
authorized to carry them forward for use in subsequent tax years.
During the POI, POSCO claimed various investment tax credits to reduce
its 1997 net tax liability. In Steel Products from Korea, we found that
investment tax credits were not countervailable (see 58 FR at 37351);
however, there were changes in the countervailing duty statute
effective in 1995, which have caused us to revisit the
countervailability of the investment tax credits.
POSCO used the following tax credits: (1) tax credits for
investments in facilities for research and experiment under Article
10(1)(a) and Article 10(1)(b); (2) tax credits for investments in
productivity improvement under Article 25; (3) tax credits for specific
facility investments under Article 26; (4) tax credit for Equipment
Investment to Promote Workers' Welfare under Article 88.
Under these TERCL Articles, if a company invested in foreign-
produced facilities (i.e., facilities produced in a foreign country),
the company received a tax credit equal to either three or five percent
of its investment. However, if a company invested in domestically-
produced facilities (i.e., facilities produced in Korea) under the same
Articles, it received a 10 percent tax credit. Under Article 88, a tax
credit can only be claimed if a company is using domestic machines and
materials. Under section 771(5A)(C) of the Act, which became effective
on January 1, 1995, a program that is contingent upon the use of
domestic goods over imported goods is specific, within the meaning of
the Act. Because Korean companies received a higher tax credit for
investments made in domestically-produced facilities, we determine that
investment tax credits received under Articles 10(1)(a), 10(1)(b), 25,
26, and 88 constitute import substitution subsidies under section
771(5A)(C) of the Act. In addition, because the GOK is foregoing the
collection of tax revenue otherwise due under this program, we
determine that a financial contribution is provided under section
771(5)(D)(ii) of the Act. The benefit provided by this program is a
reduction in taxes payable. Therefore, we determine that this program
is countervailable.
To calculate the benefit from this tax credit program, we examined
the amount of tax credits POSCO deducted from its taxes payable for the
1997 fiscal year. POSCO deducted from its 1997 taxes payable, credits
earned in the years 1995 and 1996. Therefore, we first determined the
amount of the tax credits claimed which were based upon investments in
domestically-produced facilities. We then calculated the additional
amount of tax credits received by the company because it earned tax
credits of 10 percent on such investments instead of a three or five
percent tax credit. Next, we calculated the amount of the tax savings
earned through the use of these tax credits during the POI and divided
that amount by POSCO's total sales during the POI. On this basis, we
determine a net countervailable subsidy of 0.32 percent ad valorem for
POSCO. DSM did not claim any tax deductions during the POI through the
use of any of these investment tax credits.
H. Electricity Discounts Under the Requested Load Adjustment Program
The GOK reported that during the POI, the government-owned Korea
Electric Power Company (KEPCO) provided respondents with four types of
discounts under its tariff schedule. These four discounts were based on
the following rate adjustment programs in KEPCO's tariff schedule: (1)
Power Factor Adjustment; (2) Summer Vacation and Repair Adjustment; (3)
Requested Load Adjustment; and (4) Voluntary Curtailment Adjustment.
See the discussion below in ``Programs Determined To Be Not
Countervailable'' with respect to the Power Factor Adjustment and
Summer Vacation and Repair Adjustment, and Voluntary Curtailment
Adjustment discount programs.
The GOK introduced the Requested Load Adjustment (RLA) discount in
1990, to address emergencies in KEPCO's ability to supply electricity.
Under this program, customers with a contract demand of 5,000 KW or
more, who can curtail their maximum demand by 20 percent or suppress
their maximum demand by 3,000 KW or more, are eligible to enter into a
RLA contract with KEPCO. Customers who choose to participate in this
program must reduce their load upon KEPCO's request, or pay a surcharge
to KEPCO.
During the POI, KEPCO granted 33 companies RLA discounts even
though KEPCO did not request these companies to reduce their respective
loads. The GOK reported that because KEPCO increased its capacity to
supply electricity in 1997, it reduced the number of companies with
which it maintained RLA contracts in 1997 and 1998. In 1996, KEPCO had
entered into RLA contracts with 232 companies, which was reduced to 44
companies in 1997 and 33 in 1998. Therefore, we continue to find that
the discounts provided under the RLA were distributed to a limited
number of users. Given the data with respect to the small number of
companies which received RLA electricity discounts during the POI, we
determine that the RLA program is de facto specific under section
771(5A)(D)(iii)(I) of the Act. The benefit provided under this program
is a discount on a company's monthly electricity charge. A financial
contribution is provided to POSCO under this program within the meaning
of section 771(5)(D)(ii) of the Act in the form of revenue foregone by
the government. See Stainless Steel Sheet and Strip, 64 FR at 40454.
Under section 351.524(c) of the CVD regulations, discounts on
electricity will normally be treated as recurring benefits and expensed
in the year of receipt. Therefore, to measure the benefit from this
program, we summed the electricity discounts which POSCO and DSM
received from KEPCO under the RLA program during the POI and divided
that amount by each company's total sales value for 1998. On this
basis, we determine a net countervailable subsidy of less than 0.005
percent ad valorem for POSCO, and a rate less than 0.005 percent ad
valorem for DSM from the RLA discount program.
I. Asset Revaluation Pursuant to TERCL Article 56(2)
This provision under Article 56(2) of the Tax Exemption and
Reduction Control Act (TERCL) allowed companies making an initial
public offering between January 1, 1987, and December
[[Page 73183]]
31, 1990, to revalue their assets without meeting the requirement in
the Asset Revaluation Act of a 25 percent change in the wholesale price
index since the company's last revaluation. In Steel Products from
Korea, after verification, petitioners submitted additional
information, which according to them, indicated that POSCO's
revaluation may have been significantly greater than that of the other
companies that revalued. Because the information submitted by
petitioners was untimely, it was rejected; however, we requested
additional information on the subject. The additional information
submitted by petitioners contained data on the amount of assets
revalued of only 45 of the 207 companies that revalued pursuant to
Article 56(2). It was unclear from petitioners' data which companies
revalued pursuant to Article 56(2) and which revalued in accordance
with the general provisions of the Asset Revaluation Act. Because of
these shortcomings, and because the information was submitted too late
for verification, we were unable to draw conclusions with respect to
the relative benefit derived by POSCO from this program. Since there
was no evidence of de jure or de facto selectivity concerning the
timing of POSCO's revaluation or the method of POSCO's revaluation
under the Asset Revaluation Act, the Department determined this program
to be not countervailable. See Steel Products from Korea, 58 FR at
37351.
In the petition in this case, petitioners provided information to
substantiate their allegation that POSCO and DSM received a specific
benefit under this program because their massive asset revaluations
permitted the companies to substantially increase their depreciation
and, thereby, reduce their income taxes payable. Based on this new
information, the Department initiated a reexamination of the
countervailability of this program and solicited information regarding
the usage of this program.
Because the enabling legislation does not expressly limit access to
the subsidy to an enterprise or industry, or group thereof, the program
is not de jure specific within the meaning of section 771(5A)(D)(i) of
the Act. Although the regulation itself does not expressly limit the
access to this law to a specified group or industry, it does place
restrictions on the time period and eligibility criteria which may have
been structured to result in de facto limitations on the actual usage
of this tax program. For example, Article 56(2) was enacted on November
28, 1987, and applied only to companies making an initial public
offering from January 1, 1987 until the provision was abolished
effective December 31, 1990. Pursuant to Article 56(2), companies
listed on the Korea Stock Exchange between January 1, 1987 and December
31, 1988 (as was the case with POSCO) had until December 31, 1989 to
revalue their assets. A company that listed its stock after December
31, 1988 had to revalue its assets prior to being listed on the stock
exchange. Therefore, based upon the eligibility criteria of the
program, Article 56(2) effectively limited usage of this program to
only the 316 companies that were newly listed on the Korean Stock
Exchange during the three years the program was in place rather than
the 15 to 24 thousand manufacturers in operation in Korea during that
period.
Information on the record of the current investigation shows that
during the period 1987-1990, there were between 14,988 and 24,073
manufacturing companies operating in Korea, and only 77 companies
revalued their assets in 1989 (at the time the respondents revalued
their assets). In addition to the limited number of companies using
this program, we note that the basic metal sector accounted for 83
percent of the total revaluation surplus amount (book value less
revalued amount), which indicates that the basic metal industry was a
dominant user of this program in 1988/89. See, e.g., Stainless Steel
Plate in Coils from South Africa, 64 FR 15553 (March 31, 1999). In
examining the de facto specificity of the program, we recognize the
concern that a tax benefit conferred on a large company might be
disproportionate merely because of the size of the company. However,
based upon the facts of this particular case, this concern is
unfounded. First, given the number of manufacturing companies in Korea
during the effective period of this program's operation, there were
very few companies receiving tax benefits under this program. In
addition, given the number of manufacturers in Korea, there should have
been other large companies relative to the size of POSCO revaluing
assets under this program. However, this is not the case with respect
to this program.
Therefore, based upon the above set of facts, we determine that
this program is specific, within the meaning of 771(5A)(D)(iii). As a
result of the increase in the value of depreciable assets resulting
from the asset revaluation, the companies were able to lower their tax
liability. Therefore, we also determine that the program provides a
financial contribution within the meaning of section 771(5)(D)(ii),
because by allowing companies to reduce their income tax liability, the
GOK has foregone revenue that is otherwise due.
The benefit from this program is not the amount of the revaluation
surplus, but rather the impact of the difference that the revaluation
of depreciable assets has on a company's tax liability each year. Based
on clarification of the May 28, 1999 questionnaire responses submitted
by the respondents, we have revised our calculations. We have now used
the additional depreciation in 1997, which resulted from the company's
assets revaluation and multiplied that amount by the tax rate
applicable to the tax return filed in the POI, and divided the benefit
for each company by their respective total sales during the POI. On
this basis, we determine a net countervailable subsidy of 0.04 percent
ad valorem for POSCO and a rate of 0.02 percent ad valorem for DSM.
I. Exemption of Bond Requirement for Port Use at Asan Bay
The GOK's overall development plan is published every 10 years,
last published in 1991, and describes the nationwide land development
goals and plans for the balanced development of the country. Under
these plans, the Ministry of Construction and Transportation (MOCAT)
prepares and updates its Asan Bay Area Broad Development Plan. The
Korea Land Development Corporation (KOLAND) is a government investment
corporation that is responsible for purchasing, developing, and selling
land in the industrial sites.
The Asan Bay area was designated as an Industrial Site Development
Area in December 1979. The Asan Bay area consists of five development
sites, (1) Kodai, (2) Wanjung, (3) Woojung, (4) Poseung, and (5) Bukok.
Although Wanjung and Woojung are within the Asan National Industrial
Estate, those properties are not owned by KOLAND.
After the preliminary determination, we requested and received
information regarding the GOK's infrastructure investments at Asan Bay,
which we subsequently verified. At verification, the officials
explained that the GOK had built port berths #1, #2, #3, and #4 in the
Poseung area. We also learned of POSCO's activities at Asan Bay. In
September 1997, POSCO signed a three-year lease agreement with the
Inchon Port Authority (IPA) for the exclusive use of port berth #1,
which was constructed by the GOK, and paid the applicable user fee.
In 1997, the GOK also entered into a lease agreement for the
exclusive use of the other port berths #2, #3, and #4, with
[[Page 73184]]
a consortium of six companies. The consortium of companies was required
to purchase bonds, which the GOK would repay without interest after the
lease expired in 10 years. However, POSCO was not required to purchase
a bond for the exclusive use of port berth #1. See POSCO Verification
Report, public version dated November 19, 1999, on file in the CRU.
We first determine that the waiver of the bond purchase was only
provided to POSCO. Therefore, the program meets the specificity
requirements under section 771(5A)(D) of the Act. In addition, we
determine that the GOK's waiver of the bond purchase requirement for
the exclusive use of port berth #1 by POSCO confers a financial
contribution under section 771(5)(D)(ii) of the Act, because the GOK
foregoes collecting revenue that it normally would collect. We also
determine that because the GOK had to repay the bonds at the end of the
lease term, the bond purchase waiver is equivalent to an interest free
loan for three years, the duration of the lease.
To determine the benefit from the loan, we treated the amount of
the bond as a long-term interest-free loan. We then applied the
methodology provided for in section 351.505(c)(4) of the CVD
Regulations for a long-term fixed rate loan, and compared the amount of
interest that should have been paid during 1998 on the interest free
loan to the amount of interest that would have been paid based upon the
interest rate on a comparable won-denominated benchmark loan. We then
divided the benefit by the company's total sales. On this basis, we
determine the net countervailable subsidy to be less than 0.005 percent
ad valorem for POSCO.
J. Price Discount for DSM Land Purchase at Asan Bay
In 1995, DSM purchased land at the Asan Bay Industrial Site, a GOK
constructed industrial estate. DSM began making land payments in 1995
and continued until the last payment in December 1998. The original
total land cost to the KDLC included land, management fees, and land
development costs. During the period of the contract from 1995 to 1998,
a variety of cost and fees changed. For instance, DSM decided to have a
private company perform land development, thus reducing the original
total amount of land cost. Also, the management fee to West Area
Industrial Site Management Corporation (WAISM) was waived and the GOK
further reduced the land price.
During verification, the Department noted a difference between the
total cost of land amount after changes and what DSM actually paid.
This difference occurred because the GOK reduced the amount by percent
and waived a management fee owed to WAISM. Based upon
771(5A)(D)(iii)(I) of the Act, this price reduction was specific to
DSM. As the GOK issued this price reduction, this confers a benefit
under 771(5)(D)(ii) of the Act, because the GOK foregoes revenue that
it normally would collect.
To calculate the benefit from this program, the Department first
took the original amount of the land cost and deducted the amount that
was to be paid to the KLDC for land development, to obtain the new
price of the land. Next, to derive the amount DSM paid for the land, we
took the actual amount and added the prepaid interest. The Department
then took the difference between the new price of the land and the
calculated amount paid by DSM. We treated the difference as a grant as
described in 19 CFR 351.504 of the CVD regulations. Although this
program confers a non-recurring benefit, the amount of the benefit is
less than 0.5 percent of DSM's total sales, therefore, we have expensed
this benefit in the year of receipt, which was the POI, pursuant to
section 351.524(2) of the CVD regulations. On this basis, we have
calculated a net countervailable subsidy rate of 0.48 percent ad
valorem for DSM.
K. POSCO's Dual-Pricing Scheme
POSCO maintains three different pricing systems which serve
different markets: domestic prices in Korean won for products that will
be consumed in Korea, direct export prices in U.S. dollars or Japanese
yen, and local export prices in U.S. dollars. According to POSCO's
response, local export prices are provided to those domestic customers
who purchase steel for further processing into products that are
exported. POSCO is the only Korean producer of slabs, which is the main
input into the subject merchandise. During the POI, POSCO sold slab to
DSM for products that will be consumed in Korea, as well as slab to
produce exports of the subject merchandise.
During the POI, POSCO continued to be a government-controlled
company. See Stainless Steel Sheet and Strip 64 FR at 30642-43. POSCO
sets different prices for the identical product for domestic purchasers
based upon that purchaser's anticipated export performance. See
Stainless Steel Sheet and Strip, 64 FR at 30647. Thus, in selling to
DSM, POSCO charged a domestic price for slab when DSM's finished
product was to be sold in Korea, and a ``local-export'' price for slab
when DSM's finished product was to be exported. In Stainless Steel
Sheet and Strip, we found this pricing scheme to be an export subsidy
under section 771(5A)(B) of the Act, which provides a financial
contribution under section 771(5)(D) of the Act.
In Stainless Steel Sheet and Strip, we calculated the benefit
conferred by POSCO's pricing policies under section 351.516 of the CVD
regulations which provides the methodology used to determine price
preferences for inputs used in the production of goods for export.
Therefore, in Stainless Steel Sheet and Strip, and in the preliminary
determination of this investigation, the Department determined the
benefit from this pricing scheme by comparing the difference in the
local-export and domestic prices charged by POSCO.
In comments prior to our preliminary determination, petitioners
argued that POSCO's dual-pricing system is a provision of a good for
less than adequate remuneration under section 771(5)(E)(iv), therefore,
petitioners stated that the Department should analyze this pricing
scheme in accordance with section 351.511 of the CVD regulations. In
our preliminary determination, we stated that we would continue to
analyze this issue for our final determination.
The focus of our analysis in Stainless Steel Sheet and Strip was
whether the GOK, acting through its ownership and control of POSCO, was
setting below-market prices for raw materials used by Korean steel
exporters. Based upon this premise, we determined that this program
should be analyzed under section 351.516 of the CVD regulations to
measure the discriminatory pricing practice between domestic and export
consumption. This was the appropriate methodology to employ based upon
the allegation in Stainless Steel Sheet and Strip that the government
was providing price preferences for inputs used in the production of
goods for export. As noted above, section 351.516 specifies the
methodology to be employed when there are price preferences for inputs
used in the production of goods for export and is based upon Item (d)
of the Illustrative List of Export Subsidies, which is provided for in
Annex I of the Agreement on Subsidies and Countervailing Measures.
In this current investigation, petitioners have argued that the GOK
is controlling both the domestic and export prices of slab, the input
into plate. Petitioners have stated that the same information on the
record that demonstrates that the GOK through its control of POSCO is
setting below-market prices for exporters also supports a conclusion
that a similar pricing policy is followed for POSCO's
[[Page 73185]]
domestic-priced slab sales. Therefore, we must analyze POSCO's dual
pricing scheme based upon the specific allegation in this current
investigation, i.e., the provision of a good or service for less than
adequate remuneration.
Under section 351.511(a)(2), the adequacy of remuneration is to be
determined by comparing the government price to a market determined
price based on actual transactions in the country in question. Such
prices could include prices stemming from actual transactions between
private parties, actual imports, or, in certain circumstances, actual
sales from competitively run government auctions. During the POI, DSM
imported slab; therefore, we are using actual imported prices of slab
as our basis of comparison. Based upon this comparison, we determined
that POSCO's local-export price for slab is sold at less than adequate
remuneration. As a result, a benefit is conferred to DSM under section
771(5)(E)(iv). We have not made a determination with respect to POSCO's
domestic-priced slab sales to DSM because under section 351.525(b)(4)
of the CVD regulations, subsidies tied to a particular market will be
attributed only to the products sold by the firm to that market.
To determine the value of the benefit under this program, we
compared the quarterly delivered weighted-average price charged by
POSCO to DSM for local export production to the quarterly delivered
duty-exclusive weighted-average price DSM paid for imported slab, by
grade of slab. We used a duty-exclusive price because, consistent with
the prevailing market conditions referred to in section 771(5)(E)(iv)
of the Act, an exporter in Korea is entitled to duty drawback. We then
divided the amount of the price savings by the value of exports of the
subject merchandise during the POI. On this basis, we determine that
DSM received a countervailable subsidy of 0.90 percent ad valorem from
this program during the POI.
L. Special Cases of Tax for Balanced Development Among Areas (TERCL
Article 43)
TERCL Article 43 allows a company to claim a tax reduction or
exemption for income gained from the disposition of factory facilities
when relocating from a large city to a local area (e.g., Seoul
Metropolitan area to a place outside the Seoul Metropolitan area). On
December 29, 1995, DSM sold land from its Pusan factory and within
three years from the sale date began production at its Pohang plant. In
accordance with Article 16, paragraph 7 of the Addenda to the TERCL,
DSM was entitled to receive an exemption on its income tax for the
resulting capital gain.
Payment for the Pusan facilities is on a long-term installment
basis. Therefore, the income tax on the capital gain is payable when
DSM actually receives payment or transfers the title of ownership. The
capital gain in the tax year cannot exceed DSM's total taxable income.
The maximum tax savings permitted is 100 percent of the taxable income;
however, this program is also subject to the minimum tax. This program
does not allow carrying forward of unused benefits in future years.
We determine that the TERCL Article 43, for Special Cases of Tax
for Balanced Development Among Areas is specific within the meaning of
section 771(5A)(D)(iv) of the Act, because the program is limited to
enterprises or industries located within a designated geographical
region. See Final Affirmative Countervailing Duty Determination:
Stainless Steel Plate in Coils From Italy, 64 FR 15508, 15516 (March
31, 1999) (funds were regionally specific because they were limited to
certain areas within Italy). We also determine that Article 43 provides
a financial contribution within the meaning of section 771(5)(D)(ii),
because the GOK foregoes revenue that is otherwise due by granting this
tax credit.
To calculate the benefit from this tax credit program, we examined
the amount of the tax credit DSM deducted from its taxes payable for
the 1997 fiscal year. In DSM's 1997 income tax return filed during the
POI it deducted from its taxes payable, credits earned in 1997. Next,
we calculated the amount of the tax savings and divided that amount by
DSM's total sales during POI. Using this methodology, we determine a
net countervailable subsidy of 0.61 percent ad valorem for DSM. POSCO
did not use this program.
M. Research and Development (R&D)
The GOK, through MOCIE, provides R&D grants to support numerous
projects pursuant to the Industrial Development Act, including
technology for core materials, components, and engineering systems, and
resource technology. The program is designed to foster the development
of efficient technology for industrial development. A company may
participate in this program in several ways: (1) a company may perform
its own R&D project, (2) it may participate through the Korea New Iron
and Steel Technology Research Association (KNISTRA), which is an
association of steel companies established for the development of new
iron and steel technology, and/or (3) a company may participate in
another company's R&D project and share R&D costs, along with funds
received from the GOK. To be eligible to participate in this program,
the applicant must meet the qualifications set forth in the basic plan
and must perform R&D as set forth under the Notice of Industrial Basic
Technology Development. Upon completion of the R&D project, the
participating company must repay 50 percent of the R&D grant (30
percent in the case of SME's established within 7 years) to the GOK, in
equal payments over a five-year period. If the R&D project is not
successful, the company must repay the full amount.
This program was not reported until after the Department published
its preliminary determination. We subsequently received information on
this program during verification. However, we are unable to conduct a
complete de facto specificity analysis regarding R&D that respondents
performed with GOK assistance because: (1) A complete breakdown of
projects, company names, sector, grant amount, and the duration of the
projects was not provided until verification, and (2) this data is
primarily in Korean. Therefore, as facts available, we determine that
grants provided directly to respondents and their affiliates that are
steel-related, are specific and thus countervailable. We also determine
that R&D funds through KNISTRA are specific to the steel industry, and
therefore countervailable. These grants also provide a financial
contribution under section 771(5)(D)(i) of the Act.
Under 19 CFR 351.524, non-recurring benefits are allocated over
time, while recurring benefits are expensed in the year of receipt. In
addition, non-recurring benefits which are less than 0.5 percent of a
company's relevant sales are also expensed in the year of receipt. The
grants provided to respondents did not exceed 0.5 percent of each
company's respective sales. Therefore, regardless of whether this
program provided recurring or non-recurring benefits, the benefits are
expensed in the year of receipt. To determine the benefit from the
grants received through KNISTRA, we first calculated the percent of
each company's contribution to KNISTRA and applied that percent to the
GOK's contribution for each R&D project. We then summed the grants
received by each company through KNISTRA and divided the amount by each
company's respective total sales. To determine the benefit from the
grants provided directly to the companies, we divided the
[[Page 73186]]
amount of the grant by each company's respective consolidated total
sales. Based upon this methodology, we determine that POSCO received a
countervailable subsidy of 0.07 percent ad valorem, and that DSM
received a countervailable subsidy less than 0.005 percent ad valorem.
II. Programs Determined To Be Not Countervailable
A. Electricity Discounts under Power Factor Adjustment, Summer Vacation
and Repair Adjustment, and Voluntary Curtailment Adjustment Programs
In Stainless Steel Sheet and Strip, we determined that the Power
Factor Adjustment, and the Summer Vacation and Repair Adjustment
programs are not countervailable because the discounts under these
programs are distributed to a large number of firms in a wide variety
of industries. See Stainless Steel Sheet and Strip 64 FR at 30647-48.
Regarding the Voluntary Curtailment Adjustment (VCA) program, KEPCO
introduced this discount in 1995, to provide a stable supply of
electricity and to improve energy efficiency by reducing demand during
periods of peak consumption that occur during the summer. Under this
program, customers who use general, educational or industrial services
with a contract demand of 1,000 kw or more, and who arrange with KEPCO
a curtailment period of five or more days (or times) during the July
15-August 31 period, are eligible to enter into a VCA contract with
KEPCO. Customers who choose to participate in this program must curtail
demand by 20 percent or more on the basis of the average daily demand
during 10 a.m.-12 p.m., or by 3,000 kw.
Customers can apply for this program until June 15 of each year. If
KEPCO finds the application in order, KEPCO approves the application.
After approval, KEPCO and the customer enter into a contract with
respect to the VCA discount. Under this program, a basic discount of
110 won per kw is granted between July 15 and August 31.
We analyzed whether the VCA discount program is specific in law (de
jure specificity), or in fact (de facto specificity), within the
meaning of section 771(5A)(D)(i) and (iii) of the Act. First, we
examined the eligibility criteria contained in the law. The Regulation
on Electricity Supply and KEPCO's Rate Regulations for Electric Service
identified companies within a broad range of industries as being
eligible to participate in the electricity discount programs. The VCA
discount program is available to numerous companies across all
industries, provided that they have the required contract demand and
can reduce their maximum demand by a certain percentage. Therefore, we
determine that the VCA electricity programs is not de jure specific
under section 771(5A)(D)(i) of the Act because the regulation does not
explicitly limit eligibility of the program.
We next examined data on the distribution of assistance under the
VCA program to determine whether the electricity discount program meets
the criteria for de facto specificity under section 771(5A)(D)(iii) of
the Act. We found that discounts provided under the VCA program were
distributed to a large number of customers, across a wide range of
industries. Given the data with respect to the large number of
companies and industries which received VCA electricity discounts, and
the fact that POSCO and DSM were not dominant or disproportionate users
of this program, we determine that the VCA program is not de facto
specific under section 771(5A)(D)(iii) of the Act. Therefore, we
determine that the VCA program is not countervailable.
B. Port Facility Fees
In Stainless Steel Sheet and Strip, we determined that this program
is not countervailable because a diverse and large group of private
sector companies representing a wide cross-section of the economy have
made a large number of investments in infrastructure facilities at
various ports in Korea, including numerous investments at Kwangyang
Bay. See Stainless Steel Sheet and Strip at 30649.
C. GOK Infrastructure Investments at Kwangyang Bay Post-1991
In Stainless Steel Plate, we determined that this program is not
countervailable because the GOK's investments at Kwangyang Bay since
1991, in the Jooam Dam, the container terminal, and the public highway
were not specific. Id. at 15536.
III. Programs Determined To Be Not Used
Based on the information provided in the questionnaire responses
and the results of our verification, we determine that the companies
under investigation either did not apply for, or receive, benefits
under the following programs during the POI:
A. Special Cases of Tax for Balanced Development Among Areas (TERCL
Articles 41, 42, 44 and 45)
B. Private Capital Inducement Act (PCIA)
C. Social Indirect Capital Investment Reserve Funds (Art. 28)
D. Energy-Savings Facilities Investment Reserve Funds (Art. 29)
E. Industry Promotion and Research and Development Subsidies
1. Highly Advanced National Project Fund
2. Steel Campaign for the 21st Century
F. Export Insurance Rates Provided By The Korean Export Insurance
Corporation
G. Export Industry Facility Loans (EIFL) and Specialty Facility Loans
H. Scrap Reserve Fund
I. Excessive Duty Drawback
IV. Program Determined Not To Exist
Free Trade Zones (FTZ) at Pusan and Kwangyang
Interested Party Comments
Comment 1: CAFC's Decision in AK Steel With Respect to Domestic Loans
Respondents state that subsequent to the Department's preliminary
determination, the CAFC ruled on the issue of direction of credit and
foreign loans, and reversed the Court of International Trade's (CIT)
affirmation of the Department's decision in Steel Products from Korea
that the GOK's direction of credit provided a countervailable benefit
to the Korean steel industry. See AK Steel. Respondents conclude that
based upon the CAFC's decision, the Department must reverse its finding
in the preliminary determination regarding the countervailability of
the direction of credit.
Petitioners argue that, although the CAFC has reversed certain
aspects of the CIT's decision affirming the Department's determination
in Steel Products from Korea, the ultimate disposition of that decision
has no impact upon the Department's ability to countervail the domestic
loans in this investigation, because the record in this proceeding
contains new evidence that was not before the CAFC in AK Steel.
Petitioners claim that this new evidence clearly establishes a
proximate causal nexus between the GOK's control of the financial
system (control which POSCO and the GOK denied, but which the CAFC
affirmed) and the benefit of low cost credit to the Korean steel
industry. Moreover, according to petitioners, the CAFC's decision
pertained only to the lack of a casual nexus for an indirect subsidy
finding, i.e., private loans directed or induced by government action,
which were received after the end of the de jure preferences for steel,
and does not impact upon loans received directly from government
sources such as the Korean
[[Page 73187]]
Development Bank, or any loans received prior to 1987.
Department's Position
A large portion of the comments submitted by petitioners and
respondents dealt with the AK Steel decision and its relationship to
our preliminary determination that the GOK directed credit to the steel
industry. The CAFC decision was based upon the Department's
determination in Steel Products from Korea that the GOK provided a
countervailable benefit to the Korean steel industry through its
direction and influence over the provision of credit to selected
industries. The decision in Steel Products from Korea covered the GOK's
direction of credit polices through 1991. In subsequent investigations,
Stainless Steel Plate and Stainless Steel Sheet and Strip, which were
completed during 1999, the Department determined that the GOK also
directed credit to selected industries during the period 1992 through
1997. The CAFC ruling in AK Steel does not cover the GOK's directed
lending policies after 1991.
As we noted earlier, the Department has not received specific
instructions from the Court on the AK Steel decision. However, our
review of that decision indicates that the CAFC found that there was
not sufficient evidence on the record of Steel Products from Korea to
determine that the GOK provided directed domestic credit to the Korean
steel industry between 1985, the year the GOK removed de jure lending
preferences to the steel industry, and 1991. With respect to pre-1992
foreign loans, the CAFC found that the Department did not establish
that the terms of the foreign loans, which were provided through the
GOK's control of preferential access to foreign lending, were on
``terms inconsistent with commercial considerations'' as required by
the then governing statute. Since the final determination of Steel
Products from Korea, Congress enacted a new statute and in 1998, the
Department codified new substantive countervailing duty regulations.
Below, we address the issue of the GOK's control over domestic credit.
The Department's position with respect to access to foreign lending is
addressed in ``Comment 2''.
Based upon our reading of AK Steel, the CAFC did not reject the
notion of the GOK directing credit specifically to the Korean steel
industry, but rather took issue with the evidence upon which the
Department based its affirmative finding. Information which is on the
record of this investigation, which was not in the record of Steel
Products from Korea, indicates that the GOK directed credit to the
Korean steel industry through 1991.
In its decision in AK Steel, it appears that the CAFC focused on
the importance of Korea's second integrated steel mill at Kwangyang
Bay, and noted the key role that project played in the Department's
decision that the GOK was directing credit to the steel industry.
Indeed the CAFC stated:
If Commerce is correct in describing Kwangyang Bay as
essentially a government project, Commerce can plausibly contend
that a de jure preference program was replaced with a de facto
system under which industry credit requirements and supplies were
both managed by the government. If that premise is incorrect,
however, the aggressive targeting theory is clearly unsupported.
Based upon a review of the evidence, the CAFC decided that the
information on the record of Steel Products from Korea did not support
the Department's decision. Therefore, we have reviewed the record of
the instant investigation to determine whether there is new evidence on
this record to support a conclusion that Kwangyang Bay was essentially
a government project. Based upon this review, additional information is
on the record of this current investigation to support a determination
that the GOK directed credit to the steel industry.
In a speech in March 1981, Korean President Chun Doo Hwan stated
that despite the stagnation plaguing steel industries in other
countries, Korea intended to expand its steelmaking
capacity.4 In this speech marking the completion of POSCO's
fourth phase of construction at Pohang, President Chun stated that his
government will give special emphasis to Korea's steel industry and
promised to carry on the work of building a second integrated steel
plant in Korea. The speech from President Chun was on the record on AK
Steel, however, the CAFC questioned the relevance of excerpts from his
speech because the speech took place before any construction began at
Kwangyang Bay. Information on the record of the current investigation
places the speech in context of the time frame of the actual decision
to build a second integrated steel mill at Kwangyang Bay. At the time
of President Chun's speech, POSCO Chairman Park Tae Joon, stated that
an evaluation of sites for the second integrated steel plant would be
completed in July of 1981, at which time the government would make its
final decision. Information on this record also shows that in November
1981, the government selected Kwangyang Bay as the site of the
country's second integrated steel works and that groundbreaking for the
construction of the Kwangyang steel works began in 1982.
---------------------------------------------------------------------------
\4\ Supporting evidence on this record has been cited in the
December 13, 1999 Memorandum to David Mueller from Team, which is on
file in the CRU.
---------------------------------------------------------------------------
In addition, information from the 1995 KOSA (the Korea Iron and
Steel Association) Yearbook reports that the GOK originally designated
Asan Bay as the second integrated steel manufacturing site in 1979, but
put off construction of the second integrated steel at Asan Bay in
1980, before designating Kwangyang Bay as the site for the construction
of the steel mill. According to the publication Business Korea, the GOK
has been criticized for showing favoritism towards POSCO. The
publication noted that POSCO was given free hand with millions of
dollars in foreign loans for the construction of the Kwangyang steel
mill in the late 1980's. This publication also noted that in 1991 when
the GOK was following a tight fiscal policy, foreign loans coming into
the country were virtually halted. However, even when the GOK was
cutting off the supply of foreign funds, POSCO's application to bring
in US$200 million in foreign currency was quickly approved by the
government.
Information on the record includes statements from bankers in Korea
reporting that through the late 1980's the government directed funds to
specially designated sectors such as the steel sector. See Memorandum
on Meetings with Commercial and Investment Banks and Research
Institutes in the Countervailing Duty Investigation of Stainless Steel
Plate in Coils from the Republic of Korea dated February 2, 1999
(February Banker Verification Report). This verification report was
provided in petitioner's February 25, 1999 ``Amendment to Petition'' of
this current investigation. The February Banker Verification Report
also provides information of the role of the Korean Development Bank
(KDB) in support of the Korean steel industry. The KDB is and has been
since its inception the predominant source of long-term lending in
Korea and is used by the government to support GOK industrial policies.
According to Korean banking experts, the steel industry directly
benefitted from preferential access to KDB lending, and the KDB is
still known for preferring the semiconductor, shipbuilding, and steel
industries. In addition, other information on the record shows that
even in the 1990's the KDB has channeled billions of dollars into
[[Page 73188]]
sectors favored by the GOK's industrial policies, including the steel
industry. During our verification in this investigation, we examined
internal KDB loan approvals for DSM and POSCO. According to the KDB's
loan approval documents, both POSCO and DSM were ``nationally important
industr[ies].'' See GOK Verification Report at page 4.
These same financial experts also stated that the GOK can influence
commercial bank lending decisions by using the KDB. Korean financial
experts stated that when the KDB decides to fund a project, it may be
considered as a guarantee from the government. Projects funded by the
KDB are receiving tacit government approval for that project, and thus
an implicit guarantee is provided to commercial banks in Korea to
follow the KDB's lead. See February Banker Verification Report at 7.
A review of respondents' outstanding loans which were received
before 1992, demonstrates the importance of the KDB financing to the
steel industry. A substantial portion of POSCO's pre-1992 outstanding
loans are either from the KDB or guaranteed by the KDB. In addition,
almost all of DSM's pre-1992 outstanding loans are from the KDB.
In addition, further information on the GOK's direction of credit
policies came to light after Korea's 1997 financial crisis. Portions of
this information are now on the record of this current investigation.
The GOK has acknowledged to the IMF that it has directed lending in the
financial sector. As noted above, banking experts and other analysts
have stated that the GOK has used the KDB as a tool for directing
credit to strategic industries such as steel. Other observers of the
Korean financial system have concluded that the GOK has used commercial
banks to funnel money into favored industries, and that the GOK has
directed banks to provide lending to ``promising'' industries. These
experts have concluded that the GOK's directed lending policies have
helped build Korea's formidable steel industry.
As noted above, the CAFC decision in AK Steel was based upon the
evidence of the record on the Steel Products from Korea investigation.
As detailed above, there is additional information on the record of
this current investigation, which in conjunction with prior case
precedent, supports a determination that the GOK has directed credit to
the steel industry prior to 1992, the period covered by the AK Steel
decision.
Comment 2: CAFC's Decision in AK Steel With Respect to Foreign Loans
Respondents state that subsequent to the Department's preliminary
determination, the CAFC issued its findings on the issue of foreign
loans, and reversed the Court of International Trade's (CIT)
affirmation of the Department's decision that the GOK's direction of
credit provided a countervailable benefit to the Korean steel industry
in Steel Products from Korea. See AK Steel. Respondents conclude that
based upon the CAFC's decision, the Department must reverse its finding
in the preliminary determination regarding the countervailability of
the foreign loans.
Petitioners argue that although the CAFC has reversed certain
aspects of the CIT's decision affirming the Department's determination
in Steel Products from Korea, the ultimate disposition of that decision
has no impact upon the Department's ability to countervail the foreign
loans in this investigation, because the record in this proceeding
contains new evidence that is not before the CAFC in AK Steel.
Department Position
First, we note that the CAFC in AK Steel did not disagree with our
determination that the GOK controlled the provision of foreign loans
and that a disproportionate share of those foreign loans were provided
to the steel industry. The CAFC, instead, based its decision on the
statutory language as to when a loan provides a countervailable
subsidy. In AK Steel, the CAFC stated the Department characterized the
foreign loans as subsidies on the ground that preferential access to
those loans benefitted the Korean steel industry. The CAFC concluded
that this was an inadequate basis under the then governing statute for
determining that the foreign loans constituted subsidies. Under the
statute in effect during the period pertinent to Steel Products from
Korea, 19 U.S.C. 1677(5)(a)(ii)(1) required that for a loan to be
countervailable it must be provided ``on terms inconsistent with
commercial considerations.'' The CAFC concluded that the Department did
not provide evidence to demonstrate the legal requirement that the
foreign loans were provided on ``terms inconsistent with commercial
considerations.''
Since the investigation of Steel Products from Korea, Congress has
amended the statute. With the enactment of the URAA in 1995, section
771(5)(E)(ii) of the Act provides that the standard for determining
whether a benefit has been provided is ``in the case of a loan, if
there is a difference between the amount the recipient of the loan pays
on the loan and the amount the recipient would pay on a comparable
commercial loan that the recipient could actually obtain on the
market.'' Therefore, to determine in this current investigation whether
the foreign loans received by POSCO and DSM are countervailable, the
Department must apply the standards set forth under section
771(5)(E)(ii) of the Act.
As noted above, the CAFC did not disagree with our conclusion that
the GOK controlled the access to foreign loans, which were made on
terms more favorable than the loans available in the Korean domestic
market. Absent GOK approval, a company could not borrow foreign loans
and would have to obtain financing in the more expensive, domestic
market. Under section 771(5)(E)(ii), a loan program provides a
countervailable benefit to the extent that the costs of the loan
provided under the government program is lower than the cost of a loan
the recipient could actually obtain on the market. Absent the approval
from the GOK to participate in this program, a Korean company would be
unable to obtain foreign lending and would only be able to obtain loans
in the Korean market. Therefore, under section 771(5)(E)(ii) of the
Act, the foreign loans received by DSM and POSCO are countervailable to
the extent that the interest rates on these foreign loans are less than
the interest rates the companies could actually obtain in the Korean
financial market. Based upon the statutory requirements set forth under
771(5)(E)(ii), we continue to find these loans countervailable.
Comment 3: Long-Term Won-Denominated Loan Benchmark Methodology
Petitioners argue that the long-term loan benchmark that the
Department used to calculate the benefit to POSCO from its won-
denominated loans received in 1998 is at odds with the Department's
Regulations and the Department's POSCO Verification Report. First, the
applicable regulation governing the choice of long-term loan benchmark
in section 351.505(a)(2)(iii), states that: in selecting a comparable
loan, the Department will normally use a loan the terms of which were
established during or immediately before, the year in which the terms
of the government-provided loan were established.
Second, to apply this regulatory objective, the Department must
consider POSCO's borrowing experience and developments in the Korean
financial
[[Page 73189]]
market in 1998. Petitioners state that according to the Department's
POSCO Verification Report, POSCO did not issue bonds or foreign
securities before August 1998 due to the financial crisis in Korea.
Instead, POSCO turned to subsidized long-term loans. However, late in
1998, after the financial crisis subsided and corporate-bond interest
rates declined, POSCO returned to the corporate bond market in August
1998. Thus, petitioners argue that the Department cannot use POSCO's
post-crisis borrowing experience as a benchmark to measure the benefit
from the government's subsidized loans to POSCO during the crisis
period. Therefore, petitioners argue that the Department should use a
monthly benchmark comparison and, during months when POSCO did not
issue corporate bonds, the Department should use the Bank of Korea's
corporate bond index.
Respondents counter that petitioners' cite to section
351.505(a)(2)(iii), is an unequivocal twist in the standard choices the
Department uses for comparable benchmarks. Respondents state that the
Department used a benchmark in the year that the KDB loan was given in
its preliminary determination. Therefore, they argue that petitioners'
argument that the Department should use data from a different part of
the year, as its benchmark, is an attempt to manipulate a subsidy
calculation, and should be rejected by the Department.
Department's Position
Petitioners' proposed methodology for selecting the long-term loan
benchmark for the government-provided won-denominated loans is
inappropriate in this investigation. The Department's regulations state
that the Department will select an interest rate benchmark from the
year in which the terms of the government-provided loan were
established. See section 351.505(a)(2)(iii) of the CVD regulations. The
interest rate benchmark selected in this investigation reflects the
rate at which POSCO could borrow in the same currency during the year
in which the government-provided loan was given. Petitioners have not
provided sufficient evidence to dictate a change in the Department's
policy. Furthermore, we used the same methodology of selecting the
interest rate benchmarks in Stainless Steel Sheet and Strip and
Stainless Steel Plate.
Comment 4: Subsidies Received by Affiliates
Petitioners state that the Department instructed respondents to
identify all affiliated companies, and further instructed certain
affiliated companies to provide complete questionnaire responses.
Petitioners argue that all of these affiliated companies fall under the
definition of mandatory respondents because they supply an input
product that is primarily dedicated to the production of the subject
merchandise or have otherwise engaged in financial transactions with
respondents. Therefore, petitioners argue that all subsidies received
by these affiliates are attributable to the subject merchandise and
should be countervailed.
Respondents counter that while they do not disagree in principle
with petitioners, they disagree with the methodology that the
Department should employ in allocating any subsidies found to be
received by these affiliated parties. Respondents counter that the
Department should determine the total ad valorem benefit of all
relevant subsidies received by each affiliated party and, based on the
portion of each affiliate's sales to the respondent company as a
percentage of their total sales, calculate the amount of subsidy
applicable to the respondents through their purchases from these
affiliates.
Department's Position
During this period of investigation, certain of POSCO's and DSM's
affiliates have received subsidies under investigated programs which
benefit the respondents' steel production, including the production of
subject merchandise. For example, certain of POSCO's affiliates have
received benefits under certain R&D loan and grant programs. To
quantify the benefit from these programs, we have calculated the ad
valorem subsidy rate by dividing the program benefit by POSCO's total
consolidated sales which includes the total sales of POSCO as well as
its affiliates. This methodology is consistent with section 351.525 of
the CVD regulations.
Comment 5: Exemption of Bond Requirement for Port Use at Asan Bay
Petitioners argue that on more than one occasion, POSCO did not
respond truthfully regarding its activity at Asan Bay, until the
Department discovered the truth as verification. According to
petitioners, these misrepresentations constitute a failure by POSCO to
act to the best of its ability. Therefore, they argue, as facts
available, the Department should find that (1) POSCO received a
specific benefit from the GOK's expenditures on infrastructure at Asan
Bay, and that (2) POSCO received a specific subsidy because the company
never paid the bond requested by the GOK for POSCO's exclusive use of
port berth #1, or (3) at a minimum the Department should use the
highest previously calculated rate for infrastructure provided in
Korea.
Respondents counter that the issues raised in this investigation
regarding Asan Bay were always framed by petitioners and the Department
in the context of infrastructure. Respondents claim that a warehouse,
unloading equipment and a coil service are not traditionally considered
infrastructure and POSCO has not built any infrastructure to date.
Furthermore, respondents counter that some of the facilities built in
the dockyard area, such as the coil service center and equipment used
in the unloading of cargo were reverted to the GOK, for which POSCO is
being compensated through free usage until full recovery of its
expenditures, pursuant to relevant provisions of the Harbor Act.
Respondents claim that in Stainless Steel Plate, the Department
determined that the program by which companies build facilities at
ports that are reverted to the GOK, and then are allowed free usage and
the right to collect fees from other users until fully compensated for
their costs, does not constitute a countervailable subsidy.
Respondents also counter that petitioners are wrong with respect to
the facts concerning POSCO's exclusive use of port berth #1.
Respondents claim that POSCO signed an agreement to purchase bonds on
the same terms as the companies that obtained the rights to exclusive
use of port berths #2, #3, and #4 through an open bidding process;
however, POSCO was not permitted to follow through on the agreement,
and has instead been required to either build port berth #5 or pay for
the construction costs of port berth #1, and receive compensation
through free use until it recovers its costs. Therefore, respondents
counter that instead of POSCO benefitting from a financial contribution
by not being required to purchase the bond, it is being required to
incur a far larger outlay of expenses for the construction of port
berth #5.
Department's Position
During verification, we found that other companies which received
exclusive use of port berths at Asan Bay were required to purchase a
bond through the GOK. POSCO was not required to purchase the bond
because it was going to build port berth #5. POSCO's argument that it
was required to build a port berth is not germane to the analysis as to
whether the
[[Page 73190]]
exemption from the bond requirement provided POSCO with a
countervailable subsidy. When POSCO builds the port berth, which will
revert back to the GOK under the provisions of the Harbor Act, POSCO
will be compensated for its expenditures through free usage of that
newly-built port berth until full recovery of its costs under the same
Harbor Act. As POSCO has correctly noted, the Department has found this
practice under the Harbor Act not countervailable. See the discussion
of the ``Port Facility Fees'' in Stainless Steel Sheet and Strip, 64 FR
at 30649.
Therefore, based upon the information gathered during verification,
the issue is whether POSCO received a benefit from the bond exemption.
Because POSCO was the only company to receive this exemption, the
program is specific to POSCO under section 771(5A)(D) of the Act. In
addition, a financial contribution was provided to POSCO under section
771(5)(D)(ii). Therefore, we determine that POSCO received a
countervailable benefit when it was not required to purchase a bond for
the exclusive use of the port berth at Asan Bay.
Comment 6: Highly Advanced National Project Fund (HANP)
Petitioners state that although the GOK claimed that it was unaware
of the existence of HANP, an exhibit provided by the GOK in the same
response explicitly referenced the HANP. Petitioners also state that at
verification, the Department found that a subsidiary of POSCO received
a HANP grant. Therefore, petitioners argue that because the parties
failed to act to the best of their ability to comply with a request for
information, the Department is required to apply facts available, and
determine that the HANP program conferred a specific benefit to POSCO.
Petitioners also argue that the benefit should be treated as a grant
and amortized using the mid-year convention.
Respondents counter that this grant received by POSCO's subsidiary
was not originally reported because the GOK and POSCO were unaware of
the HANP program. According to respondents, the program is commonly
referred to by the GOK as the G-7 project, and the company received the
R&D under the STEP 2000 project. Respondents also counter that the
grant which was received in 1994 would have been expensed in the year
of receipt, pursuant to section 351.524(b)(2) of the Department
regulations, because the subsidy is less than 0.5 percent ad valorem.
Department's Position
Although the HANP project, as argued by respondents is known by
different names, a POSCO affiliated subsidiary did receive a GOK grant
which should have been reported in their response. However, because
this grant was provided in 1994, and the calculated subsidy was less
than 0.5 percent ad valorem, it is expensed in the year of receipt in
accordance with section 351.524(b)(2) of the CVD regulations.
Therefore, no benefit was provided to POSCO from this program during
the POI.
Comment 7: Steel Campaign for the 21st Century
Petitioners argue that the GOK's claim that this program is a
private initiative organized by the Korea Iron and Steel Association
(KOSA), a trade organization with no government involvement and no
participation by respondents, has been demonstrated to be false.
According to petitioners, record evidence indicates that the GOK and
the respondents are active participants in the Campaign. A KOSA report
identifies the Ministry of Trade, Industry and Economy (MOTIE) as
providing ``fiscal and tax support,'' and the respondents as receiving
substantial benefits from various R&D projects. The KOSA report also
states that the Campaign funds R&D so as to boost exports and create
import substitution savings. Petitioners further state that a program
entitled ``Korean Industry in the 21st Century,'' which was never
disclosed to the Department in questionnaire responses, was discovered
by the Department at verification.
Petitioners also argue that, given respondents' repeated denials,
and their not acting to the best of their ability, the Department
should use facts available, and find that this program provides an
import substitution subsidy, which is specific, and therefore
countervailable.
Respondents counter that this is a private initiative by the Korean
steel industry, under the auspices of the Korea Iron and Steel
Association (KOSA), the industry trade association. Respondents also
counter that if there were any benefits specifically offered under this
program, one would expect that there would be explicit mention and some
attempt at quantification, just as other parts of the report mention.
Respondents also counter that if import substitution is done
economically and without government involvement, it is a perfectly
normal strategy for increasing revenues, and state that petitioners
offer no evidence of any specific government involvement in this
program.
Department's Position
At the GOK's verification, we obtained a document entitled ``Vision
and Development Strategy of Korean Industry in the 21st Century.'' We
were unable to determine whether there is a relationship between this
program that is administered by MOCIE and the Steel Campaign for the
21st Century, which respondents' claim is handled through KOSA.
However, we did not find any benefits given to respondents under either
of these programs during the POI.
Comment 8: Whether Assets Revaluation Pursuant to TERCL Article 56(2)
Is Countervailable
Petitioners argue that in its preliminary determination, the
Department properly countervailed a program which permitted POSCO and
DSM to revalue their assets at an earlier time than would otherwise be
allowed, and that the Department should maintain its position in the
final determination.
Respondents argue that the Department erred in its preliminary
determination that asset revaluation pursuant to TERCL Article 56(2)
was de facto specific to the basic metals sector, and in its
calculation of the benefit. According to respondents, this
determination cannot stand because the Department examined this program
in Steel Products from Korea based on the same record evidence in this
case, which the CAFC affirmed in AK Steel. Respondents also counter
that in Steel Products from Korea, the Department analyzed and rejected
petitioners' theory of dominant or disproportionate use based on the
percentage change in the value of a company's assets after revaluation.
Respondents claim that in defending the Department's decision to use
this methodology before the CAFC, the Department argued that the
domestic producers erroneously contend that percentage change
information contained within the record is not relevant in the
disproportionality analysis, and that with respect to a tax program, it
easily enables the Department to distinguish between general and
specifically targeted tax schemes without penalizing companies due to
their profits or size. Respondents also argue that the CAFC also
considered and rejected petitioners arguments on (1) dominant or
disproportionate share of the benefit conferred based on a percentage
basis rather than on an absolute basis, and (2) the Department's
reliance on the information contained in the Korea Listed Companies
Association (KLCA) report.
[[Page 73191]]
Respondents also argue that if the Department continues to
countervail the asset revaluation, the benefit from the asset
revaluation program, was calculated incorrectly, which reflects the
Department's misunderstanding of the data reported in respondents' May
28, 1999 questionnaire responses. Respondents claim that its May 28,
1999 responses were clarified at verification; therefore, the
Department should take the additional depreciation in 1997 as a result
of asset revaluation pursuant to TERCL 56(2), and multiply that by the
corporate tax rate of 30.8 percent to obtain POSCO's total tax savings
in fiscal year 1997.
Petitioners also counter that while they do agree with respondents
that the Department's methodology does not accurately reflect the
benefit received by respondents in any given year, they argue that
respondents' proposed methodology does not accurately represent the
true benefits either. According to petitioners, benefits received in
fiscal years 1990-1993 should be amortized using their mid-year grant
allocation methodology, and benefits received in fiscal years 1994-1998
should be expensed in the year of receipt. Petitioners also counter
that the benefits are exceptional because the recipient cannot expect
to receive additional subsidies under the same program on an on-going
basis from year to year, the program is not automatic, and because this
program is undoubtedly tied to the companies' capital structure and
capital assets.
Department's Position
We disagree with respondents that the Department should not
reconsider the specificity determination made in Steel Products from
Korea. In Steel Products from Korea, there was not sufficient
information on the record to indicate that POSCO revalued more of its
assets than is generally allowed under Korean law. We noted in that
case that the Department had rejected specificity information submitted
by petitioners, because it was untimely. In the absence of evidence of
de jure or de facto selectivity concerning the timing of POSCO's
revaluation or the method of POSCO's revaluation under the Asset
Revaluation Act, the Department determined this program to be not
countervailable. See Steel Products from Korea, 58 FR at 37351.
In the instant investigation, petitioners have timely submitted
information that warrants reconsideration of this program by the
Department. Information on this record shows that during the period
1987-1990, companies making an initial public offering were allowed to
revalue their assets pursuant to Article 56(2). There were between
14,988 and 24,073 manufacturing companies operating in Korea at that
time. However, only 77 companies revalued their assets in 1989, the
same year in which POSCO revalued its assets. The basic metal sector
accounted for 83 percent of the total revaluation surplus, of which
POSCO's revaluation accounted for 91 percent. While we recognize that
many factors can affect the relative size of tax benefits claimed under
programs (e.g., company size, value of assets, timing of investments,
management decisions, capital intensiveness, labor intensiveness), the
record evidence indicates that the basic metal industry was a dominant
user of this program in 1988/89. We also note that the GOK enacted
Article 56(2) on November 28, 1987, and it listed POSCO shares on the
Korean Stock Exchange in 1988. POSCO was also, by far, the largest
beneficiary under this program.
After clarification of the assets revalued by respondents at
verification, we agree with petitioners and respondents that the
Department did not properly calculate the benefits from this program in
its preliminary determination. However, we disagree with the
calculation methodology suggested by petitioners. Petitioners' approach
to allocating subsidies was presented to the Department during the
comment period of the CVD Regulations. See CVD Regulations, 63 FR at
65399. In finalizing its CVD Regulations, the Department considered and
chose not to adopt the methodology proposed by petitioners. We continue
to follow our policy as explained in the preamble to the CVD
Regulations. Further, petitioners' methodology combines allocating some
benefits over time and expensing other benefits in the year of receipt,
two different methodologies.
However, we disagree with petitioners that this program provides
exceptional non-recurring benefits. While there may be instances where
these types of benefits could be found to be non-recurring, in this
case, that is not possible because the total value of the benefit
cannot be determined at the point of the revaluation. This is because
the benefit is not the amount of the revaluation surplus, but rather
the impact of the difference the revaluation of depreciable assets has
on a company's tax liability in each year. Therefore, based on
verification of the respondents questionnaire responses, we have used
the additional depreciation in 1997, as a result of the asset
revaluation pursuant to 56(2), and multiplied that amount by the
applicable tax rate in 1997. We then divided the benefit for each
company by their respective total sales during the POI.
Comment 9: Countervailability of TERCL Investment Tax Credits
Petitioners argue that Articles 8, 9 and 10 fall under Section 2 of
the TERCL, which provides tax benefits for companies engaged in R&D
activities. Petitioners also argue that the Department previously found
Article 10 countervailable, and it should also find Article 8,
technical development reserve funds, and Article 9, technology for
manpower development expenses, specific and therefore countervailable.
Petitioners argue that Article 8 is specific because it is limited to
the manufacturing and mining industries, and it provides for a varying
level of benefit to industries. Petitioners argue that Article 9 is
also limited on its face to the manufacturing and mining industries.
Petitioners argue that Article 11 confers a type of import
substitution subsidy by granting greater tax benefits for patent rights
sold or leased domestically rather than abroad, which encourages
domestic production as a substitute for importation. Petitioners also
claim that Article 88 provides tax credits to companies that build or
purchase qualified assets for employee welfare. Petitioners argue that
Article 88 is specific because the tax deduction is limited to
investments in domestically-produced machines and materials.
Regarding Articles 8 and 9, respondents counter that since the
manufacturing sector, by itself, covers a very broad and non-specific
range of industries, there is no basis for finding these programs
specific. Respondents also counter that petitioners have not cited to
any Department precedent for the proposition that participation in such
a program, in and of itself, mandates a finding of specificity.
Respondents further counter that petitioners have not offered any
reasons for the Department to reverse its finding in Stainless Steel
Sheet and Strip, 64 FR at 30646, that Article 9 is not countervailable.
With respect to Article 11, respondents counter that this program
was investigated in Stainless Steel Plate, and the Department did not
countervail it. Respondents also counter that since the tax incentive
is earned for transferring or leasing either a patent right or
technical know-how, it is difficult to construe how this fits under the
rubric of import substitution.
[[Page 73192]]
Finally, with respect to Article 88, respondents counter that this
program had been reported and explained in Stainless Steel Plate, and
that the Department did not countervail this program in that
investigation. Respondents also counter that there is no apparent basis
for arguing that the benefit received has any bearing on the production
of subject or other merchandise, or in this case that investments in
worker housing provide any competitive benefit to POSCO.
Department's Position
Regarding Article 8, this article provides a higher tax credit to
the capital goods industry than to other manufacturers. Therefore, we
determine that the difference in the tax credit provided to the capital
goods industry and the tax credit rate provided to all other industries
to be a countervailable subsidy. However, we disagree with petitioners
argument with respect to Article 9. We previously determined in
Stainless Steel Sheet and Strip that this program is not
countervailable. Petitioners have provided no additional evidence or
information to suggest that a program provided to all manufacturing and
mining industries is specific under CVD law.
With respect to Article 11, we agree with respondents that this
program is not an import substitution subsidy as argued by petitioners.
Under an import substitution program, the government provides an
incentive to a domestic company to favor domestic consumption over
export consumption. For example, in certain of these investment tax
credits, the GOK provides Korean companies with a higher tax deduction
if they purchase domestically-manufactured machines rather than
purchasing imported machinery. This type of program is the classic
example of an import substitution program because it seeks to influence
the behavior of the party seeking to purchase a good or service.
Article 11 does not operate in this fashion. There is no incentive
provided to a domestic company by the GOK to purchase patent rights
from a domestic company as opposed to a foreign company. Any benefit
from this program would confer to a company for not exporting its
technology, not to a company which is purchasing the technology.
Finally, we have determined that Article 88 is specific because the
tax deduction is limited to investments in domestically-produced
machines and materials, and as such is an import substitution subsidy
under section 771(5A)(C) of the Act.
Comment 10: Countervailability of Tax Programs TERCL Article 23
Petitioners argue that although the Department failed to initiate
an investigation into Article 23, the Department must reconsider its
prior decision, especially in light of the European Union's recent
findings that this same program was countervailable and specific.
Petitioners also argue that this program is an export incentive, as the
amount of the allowable loss is limited to a set percentage of foreign
exchange receipts from overseas business, and is limited to exporters.
Respondents counter that Article 23 was found not countervailable
in Steel Products from Korea. Moreover, respondents state that Article
23 permits creation of a reserve for overseas investment losses and not
a deduction of income from an overseas business, which is covered under
Article 20, as argued by petitioners.
Department's Position
We disagree with petitioners that the Department must reconsider
its prior decision of not initiating an investigation on Article 23
given the European Union's recent findings that this same program was
countervailable and specific. The Department must base its decisions on
U.S. CVD law. (For example, in the referenced EU decision cited by
petitioners, it appears that the EU found Korean tax reserves provided
to all manufacturing and mining industries to meet the standards of de
jure specificity.) We also disagree with petitioners that this program
is an export incentive and limited to only exporters. The foreign
exchange in question under this tax reserve is foreign receipts earned
from an overseas business. Therefore, the income is not earned on
exports from Korea. Furthermore, a non-exporter may also be able to
earn foreign exchange from an overseas business.
Comment 11: Electricity Discount Programs
Petitioners argue that the Department incorrectly determined that
the Voluntary Curtailment Adjustment (VCA) program was not
countervailable. Petitioners argue that in its de facto specificity
analysis, the Department relied solely on one criterion. According to
petitioners, there is no indication of how the Department conducted its
specificity analysis of dominant or disproportionate use of this
program. Petitioners argue that the steel industry received an
overwhelming 51 percent of the total benefit during the POI, which is
specific, and thus countervailable. Petitioners also argue that this
analysis is consistent with Department practice.
Petitioners also argue that record evidence demonstrates that KEPCO
provides electricity subsidies through discriminatory pricing schedules
for certain industries, such as the steel industry. They argue that the
manufacturing and mining industries receive a lower rate than do other
industries in Korea, and therefore, a countervailable subsidy is
bestowed on these industries.
Respondents counter that petitioners misstate the nature of the
Department's specificity analysis. They state that the Department
analyzed the detailed breakdown of the number of companies in each
sector that used the program, and properly found that this program was
used by a wide variety of industry sectors, and that the respondents
were not dominant or disproportionate users. Respondents also counter
that petitioners ignore the fact that (1) steel companies tend to be
very large consumers of electricity, so it would be expected that their
savings from this program are relatively high, and (2) in order to
qualify for VCA savings, steel companies have to curtail relatively
more electricity usage than other sectors.
Respondents also counter that KEPCO's varying rate schedules to
different types of industries with different electricity use patterns
do not give rise to countervailable subsidies for those industries with
lower per unit rates. Moreover, according to respondents, a cursory
examination of KEPCO's rate schedule shows that there are considerable
variations in the rates applicable to users, including manufacturers,
that have different requirements as to voltage level and contract
demand.
Department's Position
The examination of electricity tariffs is a complicated issue.
However, tariff rates that are applicable to manufacturing and mining
industries would generally not be found countervailable. We have
recognized in prior cases that electricity tariffs are generally based
upon the type and amount of consumption of electricity, and have not
countervailed utility rates solely because the rates are provided to
large consumers. See e.g., Pure and Alloy Magnesium from Canada, 57 FR
30946 (July 13, 1992); Oil Country Tubular Goods from Argentina, 62 FR
32307 (June 13, 1997). Therefore, we did not simply analyze one
specificity criterion to reach a determination that the VCA program is
not countervailable, as argued by petitioners, but analyzed
[[Page 73193]]
the specificity of this program in light of established Department
practice regarding the countervailability of utility programs. As noted
by the above-cited case precedent, the fact that certain companies are
necessarily large consumers of electricity does not make an electricity
program providing tariff reductions to those companies countervailable.
KEPCO has established a program whereby electricity customers who use
general, educational, or industrial services with a contract demand of
at least 1,000 kw can volunteer to reduce their consumption during peak
summer periods (July 15--August 31) in exchange for a discount during
that period. Based upon our review of the KEPCO customers that
volunteered for this program, we found that there were a large number
of volunteers from across a wide range of industries. We also found
that steel companies were not the dominant or disproportionate
volunteers for this program.
Comment 12: Private Capital Inducement Act (PCIA)
Petitioners argue that, in their petition, they provided evidence
that POSCO had received government subsidies under the PCIA related to
the construction of coal-fired power co-generation facilities at
Kwangyang Bay. Petitioners argue that POSCO obfuscated the Department's
repeated requests for information on this program. According to
petitioners, if POSCO and the GOK had been honest regarding the
cogeneration facilities at Kwangyang, the investigation would have
taken a different track. Petitioners claim it was not until
verification that the Department discovered this misrepresentation.
Respondents counter that contrary to petitioners claim, the
petition merely noted that POSCO had plans to build four power plants
(two using coal and two using LNG as the power sources) and indicated
that they are being built pursuant to the PICA. Respondents claim that
it reported that POSCO did not use the PCIA program, which the GOK
confirmed. Respondents also counter that in subsequent responses, POSCO
and the GOK clarified the nature of POSCO's electric power projects in
response to the Department's questions. Furthermore, respondents
counter that the Department verified that POSCO did not receive any
loans for construction of these plants, nor was there evidence of
government contributions for the development of these plants.
Department's Position
At verification we examined the published list of approved PCIA
projects during our meetings with GOK officials. An examination of this
published list revealed that there were no POSCO approved PICA
projects. In addition, during our verification of POSCO, we reviewed
the company's accounts and its corporate financing. During this
examination of POSCO's records, we did not find any evidence that POSCO
received any loans for construction of these plants, nor was there any
evidence of government contributions for the development of these
plants.
Comment 13: DSM's Denominator
Petitioners assert that the denominator used for DSM is overstated.
Petitioners note that at verification the Department concluded that
certain materials, such as: other products, (non-subject merchandise
purchased and resold) and sub-materials, (products purchased from
outside vendors as intended for production materials but were resold
without being used in the production) were included in DSM's sales
denominator. Petitioners explain that the statute requires the
Department to countervail subsidies bestowed upon the manufacture,
production, or export of the subject merchandise; the other products
and sub-materials which were not manufactured, produced or exported by
the respondent. Therefore, petitioners argue that these amounts should
be excluded from the sales denominator.
Department's Position
According to the General Issues Appendix, attached to the Final
Determination of Sales at Less Than Fair Value: Certain Cold-Rolled
Carbon Steel Flat Products from Argentina, 58 FR 37062 (July 9, 1993)
(GIA), it is the Department's aim to ``capture every part of the sales
transaction that could benefit from subsidies'' in the total sales
denominator. GIA, 58 FR at 37237. Moreover, it is the Department's
long-standing position that production subsidies are tied to a
company's domestic production. See 351.525 of the CVD Regulations. The
presumption that the subsidies at issue are tied to domestic production
has not in any way been rebutted by respondents, and respondents have
not attempted to show that DSM's ``merchandise'' sales should
appropriately be included in the sales denominator. We, therefore,
determine that the appropriate sales denominator is the total of DSM's
domestically produced merchandise, and we have excluded DSM's
``merchandise'' sales, as these are not sales of goods produced by the
company. The Department also verified that DSM included other items
which were not produced, manufactured or exported in total sales. As
applied to ``merchandise sales'' the Department will remove the value
of ``other products,'' and ``sub-materials'' from total sales.
Comment 14: Tax Exemption for Locating at Asan Bay
Petitioners state that DSM received a countervailable benefit from
the exemption of taxes related to its purchase of land at Asan Bay. DSM
entered a purchasing agreement in 1995, and closed the deal in 1998;
however, DSM did not register the land until 1999. Petitioners note
that DSM benefitted from this tax exemption for 1998. Petitioners
suggest treating this amount as a grant or as an interest free loan.
Respondents refute petitioners allegation, based upon the fact that
taxes are only due upon registration of the title for land purchase
after the settlement. Notification of settlement was on January 7,
1999, which required DSM to enter into the settlement agreement by
January 30, 1999. Based upon the dates of notification and settlement
agreement, taxes were not due during the POI.
Department Position
The date of settlement on the land purchased at the Asan Bay was
December 31, 1998. After the final settlement, DSM registered title of
the land in June of 1999. Under Korean law when title is registered
companies are required to pay certain taxes including the registration
tax, the education tax, and acquisition tax. However, land purchased in
industrial estates is exempt from these taxes. We verified that these
taxes are due at the time the title is registered with the court and
that DSM received these exemptions on June 30, 1999, which is outside
the period of investigation. Under section 351.509(b) of the CVD
regulations, the benefit from a tax exemption is the date on which the
recipient would otherwise have had to pay the taxes associated with the
exemption. We verified that this date is in 1999. Therefore, no benefit
is provided under this program during the POI. If this investigation
results in a countervailing duty order, we will review this issue in a
subsequent administrative review if one is requested.
[[Page 73194]]
Comment 15: Price Discount for DSM Land Purchase at Asan Bay
Petitioners state that DSM received a countervailable benefit from
paying a discounted price for its land at Asan Bay. Petitioners note
that a difference in cost of the land and the amount that DSM paid
exists; and this reduction in cost of the land reflects a benefit from
the GOK to DSM. This deduction also included the removal of a
management fee that was to be paid by DSM. Petitioners point out that
DSM had a contract with West Area Industrial Site Management Corp
(WAIMC) and was obligated to pay a management fee; however, DSM did not
end up paying this fee. Rather the management fee was waived.
Petitioners argue that since the GOK sold land to DSM for less than the
official price available to other purchasers, the GOK has provided a
financial contribution.
Respondents refute petitioners allegation that DSM received a
countervailing benefit from the management fee being waived for the
land purchase at Asan Bay. First, the purchase agreement was not final
until the last payment and title transfer. Second, the fee was waived
between the original purchase agreement and the revised 1997 agreement,
and there is no legal provision for collecting a management fee. Third,
DSM does not have an obligation to pay this fee.
Department Position
DSM began making land payments in 1995 and continued until the last
payment in December 1998. The original total land cost to the KDLC
included land, management fees and land development costs. During
verification, the Department noted a difference between the total cost
of land amount compared to the amount that DSM actually paid. This
difference occurred because the GOK reduced the purchase price of the
land, waived the management fee, and deducted the land development
costs. We determine that the purchase price reduction of the land, and
the waiver of the fee are specific to DSM and thus countervailable. We
also determine that the deduction of the land development costs is not
countervailable, because the development was contracted out to another
company. Hence, the GOK was not entitled to payment for developing the
land.
Comment 16: Infrastructure at Asan Bay
Petitioners state that the industrial estate at Asan Bay benefits
the steel industry, and the Department should follow the methodology
used for Kwangyang Bay. Petitioners state that DSM has received a
benefit from the infrastructure built at Asan Bay by the GOK, such as:
roads, industrial water conduits, electricity, transmission lines, and
port facilities. This expenditure relieves DSM from the financial
liability it would otherwise have to bear. Petitioners state that the
value of land DSM purchased increases with the addition of
infrastructure, and therefore, DSM receives a benefit by the amount
that the land appreciates.
Respondents argue that DSM does not have a facility at Asan Bay,
rather they concluded the settlement agreement in 1999. Respondents
state that DSM has only purchased land, and the land in question is
still undeveloped, therefore, DSM is not receiving any benefits for any
infrastructure at Asan Bay.
Department Position
We verified that DSM does not have any facilities at Asan Bay.
Therefore, during the POI, the company is not benefitting from any of
the GOK developed infrastructure at Asan Bay. Because there is no
benefit to DSM during the POI, we need not address the specificity
arguments raised by petitioners. With respect to petitioners' novel
argument that DSM is accruing a benefit from the Asan Bay
infrastructure based on an increase in the value of its land holdings
at Asan Bay we note that (1) there is no evidence on the record to
indicate that land prices are appreciating at Asan Bay, and (2)
assuming that the Department were to adopt such a methodology, the
benefit would accrue to DSM at the point in which the land is sold.
Comment 17: Excessive Duty Drawback
Petitioners argue that DSM received a countervailable subsidy from
claiming excessive duty drawback. DSM receives duty drawback from
certain materials used in the production of subject merchandise.
Drawback must be claimed on the amount of an input product consumed in
production, if there is a drawback on wastage, then it is considered
excessive. The GOK maintains ``standard input usage tables,'' prepared
by the National Institute of Technology and Quality (NITQ) based upon
POSCO's 1990 production data. DSM used the standard input usage rate
from these tables in its duty drawback calculations. Petitioners argue
that DSM is not as efficient as POSCO and by DSM using POSCO usage
chart demonstrates excessive duty drawback. Petitioners state that DSM
used a higher standard rate rather than its own, less efficient usage
rate. Being able to use a higher standard rate and claim a greater
percentage of imported inputs as incorporated into the subject
merchandise constitutes a financial contribution, for the GOK has
foregone revenue which is would have otherwise received.
Respondents claim that duty drawback is based on the standard usage
rate applicable when a company imports slab as an input for plate for
export, and can only be claimed when matching imports of slab for paid
import duties. Based upon the context of how the Korean duty drawback
operates, there were no over-rebates of import duties.
Department's Position
We have determined this program not to be used because DSM did not
receive excessive duty drawback. We verified that the amount of duty
drawback received by DSM is based directly on the duty actually paid by
DSM at the time of importation of slab. The argument that DSM is a less
efficient producer than POSCO does not negate the fact that DSM did not
receive excessive duty drawback. Indeed, it supports a determination
that DSM did not receive excessive drawback. This is because a less
efficient producer would have a higher wastage rate, i.e., it would
require more of the imported slab to produce the same quantity of
exported plate. However, the amount of drawback is determined by the
NITQ's standard usage rate, which according to petitioner, is based
upon a more efficient producer's lower wastage rate. Therefore, DSM
would not receive the duty drawback on the additional amount of
imported slab it requires to produce the same quantity of exported
plate as the more efficient producer.
Comment 18: Tariff Rate Quota on Slab
Petitioners claim that during 1998, the tariff rate for imported
slab was lowered from 8 percent to 1 percent during the first half of
1998 and up to 3 percent for the second half of the year. According to
petitioners, this program is limited by the number of products and
therefore is specific. A reduction in tariff rate for imported slab
constitutes a financial contribution because the GOK foregoes revenue
it would otherwise receive. Petitioners suggest calculating this
benefit by taking the difference between the import duty actually paid
on imported slabs (1 to 3 percent) and the usual duty (8 percent). The
Department should allocate this sum to only the production of the
subject merchandise.
Respondents argue that duties on imported slab are paid upon import
and rebated upon export (whether at normal or reduced rates). If a
lower duty is
[[Page 73195]]
initially charged upon import then the company receives the rebate of
that lower import duty at the time of export. No import duties are
ultimately paid on imported slab that is eventually exported. A subsidy
could only arise if normal import duty rates were refunded on exports
for slab that had paid the lower duty rate upon import.
Department's Position
First, we note that petitioners made this allegation in a July 8,
1999 submission to the Department. Thus, we rejected this allegation as
being untimely as set forth in section 351.301(d)(4)(i)(A) of the
Department's regulations, and we declined to examine this allegation in
this current investigation. See ``Memorandum to David Mueller from the
Team Re: New Subsidy Allegation in Countervailing Duty Investigation of
Certain Cut-to-Length Carbon Quality Steel Plate from Korea'' dated
August 11, 1999, which is on file in the CRU. Furthermore, we note that
petitioners have failed to demonstrate how a temporary reduction in a
tariff rate for slab would confer a benefit upon the export of subject
merchandise. Regardless of whether the tariff rate is one percent or
eight percent the full amount of the tariff would be returned to the
respondents through the duty drawback system when the imported slab is
manufactured into plate and then exported as subject merchandise.
Comment 19: Scrap Reserve Fund
Petitioners argue that the GOK provides low-interest or no-interest
financing through the scrap reserve fund, thus affording a financial
subsidy to DSM. They further observe that the financial contribution
benefits all of DSM's production, not strictly subject merchandise.
Since the scrap reserve fund is limited to only those producers of
steel that have the capability of using scrap, this program is
specific.
Respondents state that the loans are directly tied to the purchase
of scrap. The scrap reserve fund involves specific purchases of scrap
that were not used to produce slab, the input into the subject
merchandise. As a result, there is no possibility that these purchases
will ever be used to produce slab.
Department Position
The Department verified DSM's scrap reserve fund. The Department
verified that DSM purchased all of its slab used in the production of
plate. Therefore, DSM does not use scrap in the production of plate.
Based upon 19 CFR 351.525(b)(5)(ii), if a subsidy is tied to production
of an input product then the Secretary will attribute the subsidy to
both the input and the downstream products produced by a corporation.
Since scrap is tied to slab and DSM does not produce slab, the
Department finds this program not tied to subject merchandise and
therefore not countervailable.
Verification
In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with the government
and company officials, and examining relevant accounting records and
original source documents. Our verification results are outlined in
detail in the public versions of the verification reports, which are on
file in the CRU of the Department of Commerce (Room B-099).
Suspension of Liquidation
In accordance with section 705(c)(1)(B)(i) of the Act, we have
calculated an individual rate for each company investigated. We
determine that the total estimated net countervailable subsidy is 2.21
percent ad valorem for DSM. We determine that the total estimated net
countervailable subsidy is 0.95 percent ad valorem for POSCO, which is
de minimis. Therefore, we determine that no countervailable subsidies
are being provided to POSCO for its production or exportation of
certain cut-to-length carbon-quality steel plate.
In accordance with section 705(c)(5)(A)(i) of the Act, we have
calculated an all-others rate which is ``an amount equal to the
weighted-average countervailable subsidy rates established for
exporters and producers individually investigated, excluding any zero
and de minimis countervailable subsidy rates and any rates determined
entirely under section 776.'' On this basis, we determine that the all-
others rate is 2.21 percent ad valorem, which is the rate calculated
for DSM.
------------------------------------------------------------------------
Company Net subsidy rate
------------------------------------------------------------------------
POSCO................................... 0.95% ad valorem.
DSM..................................... 2.21% ad valorem.
All Others.............................. 2.21% ad valorem.
------------------------------------------------------------------------
In accordance with our preliminary affirmative determination, we
instructed the U.S. Customs Service to suspend liquidation of all
entries of certain cut-to-length carbon-quality from Korea, which were
entered or withdrawn from warehouse, for consumption on or after July
26, 1999, the date of the publication of our preliminary determination
in the Federal Register. In accordance with section 703(d) of the Act,
we instructed the U.S. Customs Service to discontinue the suspension of
liquidation for merchandise entered on or after November 23, 1999, but
to continue the suspension of liquidation of entries made between July
26, 1999 and November 22, 1999.
We will reinstate suspension of liquidation under section 706(a) of
the Act for all entries except for POSCO if the ITC issues a final
affirmative injury determination and will require a cash deposit of
estimated countervailing duties for such entries of merchandise in the
amounts indicated above. If the ITC determines that material injury, or
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 canceled.
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 non-privileged and non-proprietary information related to this
investigation. We will allow the ITC access to all privileged and
business 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 Assistant Secretary for Import Administration.
If the ITC determines that material injury, or threat of material
injury, does not exist, these proceedings will be terminated and all
estimated duties deposited or securities posted as a result of the
suspension of liquidation will be refunded or canceled. If, however,
the ITC determines that such injury does exist, we will issue a
countervailing duty order.
Return or Destruction of Proprietary Information
In the event that the ITC issues a final negative injury
determination, this notice will serve as the only reminder to parties
subject to Administrative Protective Order (APO) of their
responsibility concerning the destruction of proprietary information
disclosed under APO in accordance with 19 CFR 351.305(a)(3). Failure to
comply is a violation of the APO.
This determination is published pursuant to sections 705(d) and
777(i) of the Act.
[[Page 73196]]
Dated: December 13, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-33233 Filed 12-28-99; 8:45 am]
BILLING CODE 3510-DS-P
