[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Notices]
[Pages 30636-30664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13769]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-580-835]
Final Affirmative Countervailing Duty Determination: Stainless
Steel Sheet and Strip in Coils From the Republic of Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce
EFFECTIVE DATE: June 8, 1999.
FOR FURTHER INFORMATION CONTACT: Eva Temkin or Richard Herring, Office
of CVD/AD Enforcement VI, Import Administration, U.S. Department of
Commerce, Room 4012, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone (202) 482-2786.
Final Determination
The Department of Commerce (the Department) determines that
countervailable subsidies are being provided to certain producers and
exporters of stainless steel sheet and strip in coils from the Republic
of Korea. For information on the estimated countervailing duty rates,
please see the ``Suspension of Liquidation'' section of this notice.
Petitioners
The petition in this investigation was filed by Allegheny Ludlum
Corporation, Armco, Inc., J&L Specialty Steel, Inc., Washington Steel
Division of Bethlehem Steel Corporation, United Steelworkers of
America, AFL-CIO/CLC, Butler Armco Independent Union, and Zanesville
Armco Independent Organization, Inc. (collectively referred to
hereinafter as the petitioners).
Case History
Since the publication of our preliminary determination in this
investigation on November 17, 1998 (Preliminary Affirmative
Countervailing Duty Determination and Alignment of Final Countervailing
Duty Determination With Final Antidumping Duty Determination: Stainless
Steel Sheet and Strip in Coils from the Republic of Korea, 63 FR 63884
(Preliminary Determination)), the following events have occurred:
[[Page 30637]]
We conducted verification of the countervailing duty questionnaire
responses from February 2 through February 12, 1999. In addition,
portions of the questionnaire responses were verified from December 3
through December 18, 1998, during our verification of the
countervailing duty investigation of Stainless Steel Plate in Coils
from Korea. Because the final determination of this countervailing duty
investigation was aligned with the final antidumping duty determination
(see 63 FR at 63885), and the final antidumping duty determination was
postponed (see 64 FR 137), the Department on January 13, 1999, extended
the final determination of this countervailing duty investigation until
no later than May 19, 1999 (see 64 FR 2195). On January 27, February 2,
10, and 12, April 12 and 13, 1999, the Department released its
verification reports to all interested parties.
The Department issued decision memoranda on the issue of direction
of credit by the Government of Korea (GOK) and the operations of the
Korean domestic bond market on March 4 and March 9, 1999, respectively,
during the countervailing duty investigation of Stainless Steel Plate
in Coils from the Republic of Korea. See Final Negative Countervailing
Duty Determination: Stainless Steel Plate in Coils from the Republic of
Korea, 64 FR 15530, 15533 (March 31, 1999) (Stainless Steel Plate from
Korea). These memoranda were placed on the record in this investigation
on March 31, 1999. Petitioners and respondents filed case briefs on
April 21, 1999, and rebuttal briefs were filed on April 28, 1999.
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 (April 1998).
Scope of Investigation
We have made minor corrections to the scope language excluding
certain stainless steel foil for automotive catalytic converters and
certain specialty stainless steel products in response to comments by
interested parties.
For purposes of this investigation, the products covered are
certain stainless steel sheet and strip in coils. Stainless steel is an
alloy steel containing, by weight, 1.2 percent or less of carbon and
10.5 percent or more of chromium, with or without other elements. The
subject sheet and strip is a flat-rolled product in coils that is
greater than 9.5 mm in width and less than 4.75 mm in thickness, and
that is annealed or otherwise heat treated and pickled or otherwise
descaled. The subject sheet and strip may also be further processed
(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that
it maintains the specific dimensions of sheet and strip following such
processing.
The merchandise subject to this investigation is classified in the
Harmonized Tariff Schedule of the United States (HTS) at subheadings:
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80,
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05,
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36,
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05,
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36,
7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05,
7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35,
7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10,
7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05,
7220.20.60.10, 7220.20.60.15, 7220.20.60.60, 7220.20.60.80,
7220.20.70.05, 7220.20.70.10, 7220.20.70.15, 7220.20.70.60,
7220.20.70.80, 7220.20.80.00, 7220.20.90.30, 7220.20.90.60,
7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and 7220.90.00.80.
Although the HTS subheadings are provided for convenience and Customs
purposes, the Department's written description of the merchandise under
investigation is dispositive.
Excluded from the scope of this investigation are the following:
(1) Sheet and strip that is not annealed or otherwise heat treated and
pickled or otherwise descaled, (2) sheet and strip that is cut to
length, (3) plate (i.e., flat-rolled stainless steel products of a
thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled
sections, with a prepared edge, rectangular in shape, of a width of not
more than 9.5 mm), and (5) razor blade steel. Razor blade steel is a
flat-rolled product of stainless steel, not further worked than cold-
rolled (cold-reduced), in coils, of a width of not more than 23 mm and
a thickness of 0.266 mm or less, containing, by weight, 12.5 to 14.5
percent chromium, and certified at the time of entry to be used in the
manufacture of razor blades. See Chapter 72 of the HTS, ``Additional
U.S. Note'' 1(d).
In response to comments by interested parties, the Department has
determined that certain specialty stainless steel products are also
excluded from the scope of this investigation. These excluded products
are described below.
Flapper valve steel is defined as stainless steel strip in coils
containing, by weight, between 0.37 and 0.43 percent carbon, between
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent
manganese. This steel also contains, by weight, phosphorus of 0.025
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur
of 0.020 percent or less. The product is manufactured by means of
vacuum arc remelting, with inclusion controls for sulphide of no more
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper
valve steel has a tensile strength of between 210 and 300 ksi, yield
strength of between 170 and 270 ksi, plus or minus 8 ksi, and a
hardness (Hv) of between 460 and 590. Flapper valve steel is most
commonly used to produce specialty flapper valves in compressors.
Also excluded is a product referred to as suspension foil, a
specialty steel product used in the manufacture of suspension
assemblies for computer disk drives. Suspension foil is described as
302/304 grade or 202 grade stainless steel of a thickness between 14
and 127 microns, with a thickness tolerance of plus-or-minus 2.01
microns, and surface glossiness of 200 to 700 percent Gs. Suspension
foil must be supplied in coil widths of not more than 407 mm, and with
a mass of 225 kg or less. Roll marks may only be visible on one side,
with no scratches of measurable depth. The material must exhibit
residual stresses of 2 mm maximum deflection, and flatness of 1.6 mm
over 685 mm length.
Certain stainless steel foil for automotive catalytic converters is
also excluded from the scope of this investigation. This stainless
steel strip in coils is a specialty foil with a thickness of between 20
and 110 microns used to produce a metallic substrate with a honeycomb
structure for use in automotive catalytic converters. The steel
contains, by weight, carbon of no more than 0.030 percent, silicon of
no more than 1.0 percent, manganese of no more than 1.0 percent,
chromium of between 19 and 22 percent, aluminum of no less than 5.0
percent, phosphorus of no more than 0.045 percent, sulfur of no more
than 0.03 percent, lanthanum of less than
[[Page 30638]]
0.002 or greater than 0.05 percent, and total rare earth elements of
more than 0.06 percent, with the balance iron.
Permanent magnet iron-chromium-cobalt alloy stainless strip is also
excluded from the scope of this investigation. This ductile stainless
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10
percent cobalt, with the remainder of iron, in widths 228.6 mm or less,
and a thickness between 0.127 and 1.270 mm. It exhibits magnetic
remanence between 9,000 and 12,000 gauss, and a coercivity of between
50 and 300 oersteds. This product is most commonly used in electronic
sensors and is currently available under proprietary trade names such
as ``Arnokrome III.'' 1
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\1\ ``Arnokrome III'' is a trademark of the Arnold Engineering
Company.
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Certain electrical resistance alloy steel is also excluded from the
scope of this investigation. This product is defined as a non-magnetic
stainless steel manufactured to American Society of Testing and
Materials (``ASTM'') specification B344 and containing, by weight, 36
percent nickel, 18 percent chromium, and 46 percent iron, and is most
notable for its resistance to high temperature corrosion. It has a
melting point of 1390 degrees Celsius and displays a creep rupture
limit of 4 kilograms per square millimeter at 1000 degrees Celsius.
This steel is most commonly used in the production of heating ribbons
for circuit breakers and industrial furnaces, and in rheostats for
railway locomotives. The product is currently available under
proprietary trade names such as ``Gilphy 36.'' 2
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\2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
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Certain martensitic precipitation-hardenable stainless steel is
also excluded from the scope of this investigation. This high-strength,
ductile stainless steel product is designated under the Unified
Numbering System (``UNS'') as S45500-grade steel, and contains, by
weight, 11 to 13 percent chromium, and 7 to 10 percent nickel. Carbon,
manganese, silicon and molybdenum each comprise, by weight, 0.05
percent or less, with phosphorus and sulfur each comprising, by weight,
0.03 percent or less. This steel has copper, niobium, and titanium
added to achieve aging, and will exhibit yield strengths as high as
1700 Mpa and ultimate tensile strengths as high as 1750 Mpa after
aging, with elongation percentages of 3 percent or less in 50 mm. It is
generally provided in thicknesses between 0.635 and 0.787 mm, and in
widths of 25.4 mm. This product is most commonly used in the
manufacture of television tubes and is currently available under
proprietary trade names such as ``Durphynox 17.'' 3
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\3\ ``Durphynox 17'' is a trademark of Imphy, S.A.
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Finally, three specialty stainless steels typically used in certain
industrial blades and surgical and medical instruments are also
excluded from the scope of this investigation. These include stainless
steel strip in coils used in the production of textile cutting tools
(e.g., carpet knives).4 This steel is similar to AISI grade
420 but containing, by weight, 0.5 to 0.7 percent of molybdenum. The
steel also contains, by weight, carbon of between 1.0 and 1.1 percent,
sulfur of 0.020 percent or less, and includes between 0.20 and 0.30
percent copper and between 0.20 and 0.50 percent cobalt. This steel is
sold under proprietary names such as ``GIN4 Mo.'' The second excluded
stainless steel strip in coils is similar to AISI 420-J2 and contains,
by weight, carbon of between 0.62 and 0.70 percent, silicon of between
0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent,
phosphorus of no more than 0.025 percent and sulfur of no more than
0.020 percent. This steel has a carbide density on average of 100
carbide particles per 100 square microns. An example of this product is
``GIN5'' steel. The third specialty steel has a chemical composition
similar to AISI 420 F, with carbon of between 0.37 and 0.43 percent,
molybdenum of between 1.15 and 1.35 percent, but lower manganese of
between 0.20 and 0.80 percent, phosphorus of no more than 0.025
percent, silicon of between 0.20 and 0.50 percent, and sulfur of no
more than 0.020 percent. This product is supplied with a hardness of
more than Hv 500 guaranteed after customer processing, and is supplied
as, for example, ``GIN6''.5
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\4\ This list of uses is illustrative and provided for
descriptive purposes only.
\5\ ``GIN4 Mo,'' ``GIN5'' and ``GIN6'' are the proprietary
grades of Hitachi Metals America, Ltd.
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Injury Test
Because the Republic of Korea (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 August 9, 1998, the
ITC announced 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 Stainless Steel Sheet and
Strip from France, Germany, Italy, Japan, the Republic of Korea,
Mexico, Taiwan and the United Kingdom, 63 FR 41864 (August 9, 1998)).
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1997.
Use of Facts Available
As discussed in our preliminary determination, both Sammi Steel
Co., Ltd. (Sammi) and Taihan Electric Wire Co., Ltd. (Taihan), two
producers of subject merchandise, failed to respond to the Department's
questionnaire. See Preliminary Determination. Since the preliminary
determination in this investigation we have not been presented with new
information on this issue. Therefore, we have continued to find that
Sammi and Taihan each have failed to cooperate to the best of their
abilities, and, in accordance with 776(b) of the Act, have continued to
apply an adverse facts available (AFA) rate to these two companies.
This rate was based on the petition, as well as our findings in the
Final Affirmative Countervailing Duty Determinations and Final Negative
Critical Circumstances Determinations: Certain Steel Products from
Korea, 58 FR 37338 (July 9, 1993) (Steel Products from Korea), and
additional findings in this proceeding.
In Steel Products from Korea, we determined a country-wide ad
valorem subsidy rate of 4.64 percent based on many of the same programs
alleged in this case. Therefore, we are using the highest published ad
valorem rate of 4.64 percent that was calculated in Steel Products from
Korea as representative of the benefits from the industry-wide
subsidies alleged in this petition, and received by the other
respondents in this investigation. In addition, we are also applying a
facts available rate to Sammi and Taihan for a subsidy program newly
examined in this investigation, POSCO's two-tiered pricing structure to
domestic customers. We found this program to be countervailable, and
calculated company-specific program rates for Dai Yang and Inchon; as
discussed below, we used Inchon's calculated rate for this program as
adverse facts available for Sammi and Taihan. (A detailed discussion of
this program can be found in the ``Programs Determined to be
Countervailable'' section of this notice.)
Therefore, in Taihan's case, we used the 4.64 rate from Steel
Products from Korea because the subsidy programs alleged in this
investigation, with the exception of the one new allegation, are
[[Page 30639]]
virtually identical to the programs for which the 4.64 rate in Steel
Products from Korea was calculated. In addition, in accordance with
section 776(b)(4) of the Act, for the two-tiered pricing program, we
are applying the highest calculated company-specific rate for this
program to Taihan as adverse facts available, 2.36 percent ad valorem,
the company-specific program rate for Inchon. We added this 2.36
percent rate to the 4.64 percent rate (representing the program rates
of the other subsidy allegations) to arrive at a total ad valorem rate
of 7.00 percent as adverse facts available for Taihan.
In Sammi's case, in addition to applying the 4.64 rate from Steel
Products from Korea for most of the programs covered in this
investigation and the 2.36 rate for POSCO's two-tiered pricing
structure, we calculated a rate for one other program that was not
previously investigated: POSCO's purchase of Sammi Specialty Steel.
This program is addressed below in the ``Programs Determined to be
Countervailable'' section of this notice. We used information provided
in the petition, in the verification reports of POSCO and the
Government of Korea, in POSCO's questionnaire responses, and additional
information placed on the record of this investigation, for the
calculation of the program rate for POSCO's purchase of Sammi Specialty
Steel. We then added the rate calculated for this program and the rate
representing the subsidy conferred by POSCO's two-tiered pricing
structure to the other programs' rate of 4.64 percent ad valorem
calculated in Steel Products from Korea, which is representative of the
benefits from the other industry-wide subsidies alleged in the petition
and received by the other respondents. We thus arrived at a total ad
valorem rate of 59.30 percent as adverse facts available for Sammi.
Petitioners also alleged that Sammi benefitted from two other
company-specific subsidies: (1) A ``national subsidy'' and (2) 1992
emergency loans. With respect to the alleged ``national subsidy,'' we
have not deviated from the methodology established in the Preliminary
Determination. We continue to treat this ``national subsidy'' as a
grant bestowed upon Sammi, and employ the Department's grant
methodology. See the General Issues Appendix, which is appended to the
Final Affirmative Countervailing Duty Determination: Certain Steel
Products from Austria, 58 FR 37225, 37227 (July 9, 1993) (GIA). Because
the total amount of the national subsidy is less than 0.50 percent of
Sammi's 1993 sales, the subsidy was expensed in the year of receipt.
Thus, there is no benefit under this program during the POI.
The petitioners also alleged that in 1992 the GOK directed a
package of 132 billion won in ``emergency loans'' to Sammi in order to
save the company from bankruptcy. In our preliminary determination we
calculated a separate subsidy rate for this allegation. However, we
have reconsidered this facts available calculation in this final
determination. In Steel Products from Korea, we investigated the
allegation that the GOK directs banks in Korea to provide loans to the
steel industry. This program was determined to be countervailable, and
a calculated subsidy rate for this program is included as part of the
facts available rate applied in this determination. Because we have
already accounted for the subsidy provided by the GOK's direction of
credit in our facts available rate taken from Steel Products from
Korea, we have not calculated an additional subsidy rate for this
allegation.
The Statement of Administrative Action accompanying the URAA
clarifies that information from the petition and prior segments of the
proceeding is ``secondary information.'' See Statement of
Administrative Action, accompanying H.R. 5110 (H.R. Doc. No. 103-316)
(1994) (SAA), at 870. If the Department relies on secondary information
as facts available, section 776(c) of the Act provides that the
Department shall, to the extent practicable, corroborate such
information using independent sources reasonably at its disposal. The
SAA further provides that to corroborate secondary information means
simply that the Department will satisfy itself that the secondary
information to be used has probative value. However, where
corroboration is not practicable, the Department may use uncorroborated
information.
With respect to the programs for which we did not receive
information from uncooperative respondents, the information was
corroborated either through the exhibits attached to the petition or by
reviewing determinations in other proceedings in which we found
virtually identical programs in the same country to be countervailable.
Specifically, with respect to Taihan, the programs alleged in the
current investigation were virtually identical to those found to be
countervailable in Steel Products from Korea. We were unable to
corroborate the rate we used for Taihan, because the petition did not
contain countervailing duty rate information for these programs.
Therefore, it was not practicable to corroborate such a rate. However,
we note that the SAA at 870 specifically states that where
``corroboration may not be practicable in a given circumstance,'' the
Department may nevertheless apply an adverse inference. Further, in
Sammi's case (in addition to the programs from Steel Products from
Korea discussed above), we corroborated the newly-alleged programs with
the information provided in the petition, i.e., Sammi's financial
statements for years 1993 through 1996, and numerous public press
articles. Specifically, Sammi's financial statements show a line item
entitled ``national subsidy.'' The financial statements further
indicate that Sammi's debt burden was very high and that the company
was not making interest payments that reflected the significant debt
load. This demonstrates that the GOK may have entrusted or directed
government and/or commercial banks to provide the type of emergency
loan package to Sammi in 1992 that was alleged in the petition.
Moreover, news articles indicate that the GOK was trying to rescue
Sammi, and that this effort included both the emergency loans in 1992
and POSCO's purchase of Sammi Specialty Steel.
Additionally, the Department initiated an investigation with
respect to a fourth new allegation, ``Financial Assistance in
Conjunction with the 1997 Sammi Steel Company Bankruptcy.'' The
petitioners alleged that the GOK mitigated the effects of Sammi's
bankruptcy with the use of countervailable subsidies. According to
petitioners, when Sammi filed for receivership in March 1997, the GOK:
(1) Provided grants and other rescue aid which were directed through a
consortium of Sammi's rivals, and (2) rescheduled Sammi's debt through
a combination of loan forgiveness and reduced interest rate loans.
We requested information concerning this program from the GOK and
Sammi. While Sammi chose not to cooperate in this investigation, the
GOK responded to the Department's questionnaires, stating that there
was no consortium and that no grants were provided to Sammi. The GOK
further stressed that Sammi's debt was addressed in the context of
normal bankruptcy proceedings. In our preliminary determination we
calculated no benefit from this program, but we stated we would
continue to seek information that would enable us to make a facts
available determination about this program in our final determination.
Therefore, during our verification of POSCO, we examined various
accounts of POSCO to determine whether POSCO provided any assistance to
Sammi
[[Page 30640]]
similar to that alleged by petitioners. We did not find a provision of
assistance to Sammi or write-off of Sammi's debt by POSCO. In addition,
during our verification of the Government of Korea, we examined Sammi's
Bankruptcy Reorganization Plan, which included Sammi's 1997 balance
sheet and income statement. Our examination of these documents revealed
no government assistance to Sammi in the form of grants or write-off of
debt. Therefore, we have not calculated a subsidy rate for this
allegation. However, because Sammi did not respond to our request for
information, we will continue to examine this allegation in any
subsequent administrative review.
Subsidies Valuation Information
Benchmarks for Long-term Loans and Discount Rates: During the POI,
the respondent companies had both won-denominated and foreign currency-
denominated long-term loans outstanding which had been 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, the Department determined that, through 1991, the GOK
influenced the practices of lending institutions in Korea and
controlled access to overseas foreign currency loans. See Certain Steel
Products from Korea, 58 FR at 37338, 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 1991, and still outstanding during the POI. These
rates were reported by the GOK in its September 10, 1998, questionnaire
response (public version on file in the Department's Central Records
Unit, Room B-099).
For years in which the companies under investigation have been
deemed uncreditworthy, we calculated the discount rates according to
the methodology described in the GIA. Specifically, due to the
necessary use of adverse facts available with regard to Sammi, we used
the highest commercial bank loan interest rates available, and added a
risk premium equal to 12 percent of the commercial lending rate, in
accordance with the methodology outlined in the GIA.
In this investigation, the Department also examined whether the GOK
continued to control and/or influence the practices of lending
institutions in Korea between 1992 and 1997. Based on our findings,
discussed below in the ``Direction of Credit'' section of this notice,
we are using the following benchmarks to calculate the companies'
benefit from long-term loans obtained in the years 1992 through 1997:
(1) For countervailable, foreign-currency denominated loans, we are
using, where available, company-specific, weighted-average U.S. dollar-
denominated interest rates on the companies' loans from foreign bank
branches in Korea; and (2) for countervailable won-denominated loans,
where available, we are using company-specific three-year corporate
bond rates. Where unavailable, we continue to use a national average
three-year corporate bond rate on the secondary market, consistent with
our preliminary determination. We are also using three-year company-
specific corporate bond rates, where applicable, as discount rates to
determine the benefit from non-recurring subsidies received between
1992 and 1997.
We continue to find that the Korean domestic bond market was not
controlled by the GOK during the period 1992 through 1997, and that
domestic bonds serve as an appropriate benchmark interest rate. See
Analysis Memorandum on the Korean Domestic Bond Market, dated March 9,
1999 (public document on file in the Department's Central Records Unit,
Room B-099 (CRU)). On February 5, 1999, POSCO, Inchon, and Dai Yang
submitted information in response to the Department's request for the
companies' average interest rate on corporate bonds for each year 1992
through 1997. See POSCO's February 5, 1999 questionnaire response,
Inchon's February 5, 1999 questionnaire response, and Dai Yang's
February 5, 1999 questionnaire response (public versions on file in the
CRU). Dai Yang had no corporate bonds (other than a previously reported
convertible bond) issued during the period 1992-1997; therefore, we
continue to use the national-average three-year corporate bond rate as
a benchmark for this company. Additionally, Inchon had not issued any
bonds prior to 1997; thus, we continue to use the national-average
three-year corporate bond rates as a benchmark for Inchon between 1992
and 1996. Because POSCO was unable to retrieve data on the bond
issuance fees the company paid in the years 1992 through 1996, we have
added to the average interest rate for each of those years the bond
issuance fees that POSCO paid in 1997.
Dai Yang did not have U.S. dollar loans from foreign bank branches
in Korea. Therefore, we had to rely on a dollar loan benchmark that is
not company-specific, but provides a reasonable representation of
industry practice, to determine whether a benefit was provided to Dai
Yang from dollar loans received from government banks and Korean
domestic banks. Our first alternative was to use a national-average
benchmark, but we were unable to identify a national-average dollar
benchmark from foreign bank branches in Korea. Therefore, we used the
interest rates on dollar loans from foreign bank branches in Korea
received by another respondent in this investigation, Inchon, as a
benchmark for Dai Yang's dollar loans from government banks and Korean
domestic banks. For a further discussion on our selection of a dollar-
loan benchmark for Dai Yang, see Comment 9.
Benchmarks for Short-Term Financing: For those programs which
require the application of a short-term interest rate benchmark, we
used as our benchmark company-specific weighted-average interest rates
for commercial won-denominated loans for the POI. Each respondent
provided to the Department its respective company-specific, short-term
commercial interest rate.
Allocation Period: In the Preliminary Determination, we allocated
nonrecurring subsidies received by POSCO and Sammi over 15 years. (No
other company received nonrecurring subsidies.) We invited interested
parties to comment on this allocation period. We received no objections
from the interested parties on the use of a 15 year allocation period.
Therefore, for the reasons specified in the Preliminary Determination
and in the Final Negative Countervailing Duty Determination: Stainless
Steel Plate in Coils From the Republic of Korea, 64 FR 15530, 15531
(March 31, 1999), we continue to determine that the appropriate
allocation period is 15 years for this investigation.
Treatment of Subsidies Received by Trading Companies: We required
responses from the trading companies because the subject merchandise
may be subsidized by means of subsidies provided to both the producer
and the exporter of the subject merchandise. Subsidies conferred on the
production and exportation of subject merchandise benefit the subject
merchandise even if the merchandise is exported to the
[[Page 30641]]
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. During
the POI, POSCO and Inchon exported subject merchandise to the United
States through trading companies. We required that the trading
companies provide responses to the Department with respect to the
export subsidies under investigation.
We continue to find that one of the trading companies, POSTEEL, is
affiliated with POSCO within the meaning of section 771(33)(E) of the
Act because POSCO owned 95.3 percent of POSTEEL's shares as of December
31, 1997. The other trading companies are not affiliated with POSCO.
Additionally, according to its response, Inchon is affiliated with one
of the trading companies, Hyundai. This reported affiliation is based
upon cross-shareholdings and common board members within the Hyundai
group. The trading company, Hyundai, responded to the Department's
questionnaire concerning subsidies that it had received during the POI.
In the current proceeding, the status of affiliation does not affect
the inclusion of subsidies provided to trading companies in the
respondents' calculated subsidy rates. Therefore, we are not making a
determination of affiliation of Inchon and Hyundai within the meaning
of section 771(33) of the Act.
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 the Preliminary Determination of this investigation, we
determined that it was not appropriate to establish combination rates.
This determination was 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 individual trading companies with regard to the subject
merchandise is insignificant. Combination rates would serve no
practicable purpose because the calculated subsidy rate for a producer
and a combination of any of the trading companies would effectively be
the same rate. As no new information has been presented since the
Preliminary Determination which would cause us to reconsider this
methodology, we are not calculating combination rates in the final
determination of this investigation.
Instead, we have continued to calculate rates for the producers of
subject merchandise that include the subsidies received by the trading
companies. To reflect those subsidies that are received by the
exporters of the subject merchandise in the calculated ad valorem
subsidy rate, we used the following methodology: for each of the seven
trading companies, we calculated the benefit attributable to the
subject merchandise. We then factored that amount into the calculated
subsidy rate for the relevant producer. In each case, we determined the
benefit received by the trading companies for each export subsidy, and
weighted the average of the benefit amounts by the relative share of
each trading company's value of exports of the subject merchandise to
the United States. These calculated ad valorem subsidies were then
added to the subsidies calculated for the producers of subject
merchandise. Thus, for each of the programs below, the listed ad
valorem subsidy rate includes countervailable subsidies received by
both the producing and trading companies.
Creditworthiness
As discussed in the Preliminary Determination, we initiated an
investigation of Inchon's creditworthiness from 1991 through 1997, and
of Sammi's creditworthiness from 1990 to 1997, to the extent that
nonrecurring grants, long-term loans, or loan guarantees were provided
in those years. In the Preliminary Determination, we found Inchon to be
creditworthy, but we found Sammi to be uncreditworthy for the years
1990 through 1997. We received no comments from the interested parties
relating to our analysis of Inchon's and Sammi's creditworthiness.
Thus, for the reasons specified in the Preliminary Determination, we
determine that Inchon is creditworthy and that Sammi is uncreditworthy
for the years 1990 through 1997. See Preliminary Determination, 63 FR
at 63888.
I. Programs Determined To Be Countervailable
A. Direction of Credit
In the 1993 investigation of Steel Products from Korea, the
Department determined (1) that the GOK influenced the practices of
lending institutions in Korea; (2) that the GOK regulated long-term
loans provided to the steel industry on a selective basis; and (3) that
the selective provision of these regulated loans resulted in a
countervailable benefit. Accordingly, all long-term loans received by
the producers/exporters of the subject merchandise were treated as
countervailable. The determination in that investigation covered all
long-term loans bestowed through 1991. See 58 FR at 37339.
In this investigation, petitioners allege that the GOK continued to
control the practices of lending institutions in Korea through the POI,
and that the steel sector received a disproportionate share of low-
cost, long-term credit, resulting in the conferral of countervailable
benefits on the producers/exporters of the subject merchandise.
Petitioners assert, therefore, that the Department should countervail
all long-term loans received by the producers/exporters of the subject
merchandise that were still outstanding during the POI.
1. The GOK's Credit Policies Through 1991
As noted above, we previously found significant GOK control over
the practices of lending institutions in Korea through 1991, the period
investigated in Steel Products From Korea. This finding of control was
determined to be sufficient to constitute a government program and
government action. See 58 FR at 37342. We also determined that (1) the
Korean steel sector, as a result of the GOK's credit policies and
control over the Korean financial sector, received a disproportionate
share of regulated long-term loans, so that the program was, in fact,
specific, and (2) that the interest rates on those loans were
inconsistent with commercial considerations. Id. at 37343. Thus, we
countervailed all long-term loans received by the steel sector from all
lending sources.
In this investigation, we provided the GOK with the opportunity to
present new factual information concerning the government's credit
policies prior to 1992, which we would consider along with our finding
in the prior investigation. The GOK has not provided new factual
information that would lead us to change our
[[Page 30642]]
determination in Steel Products from Korea. Therefore, we determine
that 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. This finding is in conformance with the SAA, which states that
``section 771(5)(B)(iii) encompasses indirect subsidy practices like
those which Commerce has countervailed in the past, and that these
types of indirect subsidies will continue to be countervailable.'' SAA
at 925. In accordance with section 771(5)(E)(ii) of the Act, a benefit
has been conferred to the recipient to the extent that the regulated
loans are provided at interest rates less than the benchmark rates
described under the ``Subsidies Valuation'' section, above.
We also determine that all regulated long-term loans provided to
the producers/exporters of the subject merchandise through 1991 were
provided to a specific enterprise or industry, or group thereof, within
the meaning of section 771(5A)(D)(iii)(III) of the Act. This finding is
consistent with our determination in Steel Products from Korea. See 58
FR at 37342.
POSCO, Inchon and Dai Yang all received long-term loans prior to
1992 that remained outstanding during the POI. These included loans
with both fixed and variable interest rates for all three responding
companies. To determine the benefits from the regulated loans with
fixed interest rates, we applied the Department's standard long-term
loan methodology and calculated the grant equivalent for the loans. For
the variable-rate loans, we compared the amount of interest paid during
the POI on the regulated loans to the amount of interest that would
have been paid at the benchmark rate. We then summed the benefit
amounts from all of the loans attributable to the POI and divided the
total benefit by each company's total sales. On this basis, we
determine the countervailable subsidy rates to be 0.17 percent ad
valorem for POSCO, 0.06 percent ad valorem for Inchon, and 0.04 percent
ad valorem for Dai Yang.
2. The GOK's Credit Policies From 1992 Through 1997.
The Department's preliminary analysis of the GOK's credit policies
from 1992 through 1997 is contained in the March 4, 1999, Memorandum
Re: Analysis Concerning Post 1991 Direction of Credit, on file in the
CRU (Credit Memo). As detailed in the Credit Memo, the Department
preliminarily determined that the GOK continued to control directly and
indirectly the lending practices of most sources of credit in Korea
through the POI. The Department also preliminarily determined that GOK-
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 producer/
exporters of the subject merchandise in accordance with section
771(5)(E)(ii) of the Act, because the interest rates on the
countervailable loans were less than the interest rates on comparable
commercial loans. See Credit Memo at 15-17. Finally, we preliminarily
found that access to government-regulated foreign sources of credit in
Korea did not confer a benefit to the recipient, as defined by section
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 on the fact that credit from Korean branches of foreign banks
were 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 funds
conferred a benefit on the respondents. On the basis of that
comparison, we found that there was no benefit. See id. at 18. The
comments we received from the parties have not led us to change the
basic findings detailed in the Credit Memo.
In the preliminary determination we examined, as a separate
program, loans provided under the Energy Savings Fund, and found that
these loans were countervailable. See Preliminary Determination, 63 FR
at 63890. However, on the basis of our findings detailed in the Credit
Memo, we now determine that these loans are countervailable as directed
credit, rather than as a separate program. These loans are policy loans
provided by banks that are subject to the same GOK influence that is
described in the Credit Memo. Accordingly, they are countervailable as
directed credit, and we have included these loans in our benefit
calculations. Thus, on the basis of our finding in the credit memo, and
the modifications to the calculations discussed in the comments
section, below, for the GOK's post-1991 credit policies, we determine
the countervailable subsidy rates to be less than 0.005 percent ad
valorem for POSCO, less than 0.005 percent ad valorem for Inchon, and
0.08 percent ad valorem for Dai Yang.
B. Purchase of Sammi Specialty Steel Division by POSCO
In February 1997, POSCO purchased the specialty steel bar and pipe
division of Sammi for 719.4 billion won. This division became POSCO's
Changwon facility. Petitioners alleged that POSCO was directed by the
government to purchase the Sammi Specialty Steel Division as a matter
of national interest as opposed to one of economic merit. Petitioners
alleged that the GOK used its ownership in POSCO as a vehicle for the
subsidization of Sammi. Thus, petitioners allege that POSCO's purchase
of the Sammi Specialty Steel Division provided a countervailable
benefit to Sammi.
As noted in the ``Use of Facts Available'' section of this notice,
Sammi did not respond to the Department's questionnaires. POSCO has
provided certain documents relevant to this purchase, but Sammi's lack
of response to our questionnaires means that significant portions of
information required by the Department to analyze this program have not
been provided. Thus, in making this determination, we have relied, in
part, on both information provided by POSCO and information provided in
the petition with respect to this allegation. In accordance with
section 776(b) of the Act, the Department may use an inference that is
adverse to the interest of a party when selecting from facts otherwise
available when the party has failed to cooperate with a request for
information. As discussed in the ``Use of Facts Available'' section, we
determined that Sammi has failed to cooperate by not answering the
Department's questionnaire.
Based on the information on the record, we determine that the
actions of POSCO should be considered as an action of the GOK because
POSCO is a government-controlled company. During the POI, the GOK was
the largest shareholder of POSCO. The shareholdings of the GOK are
approximately ten times larger than the next largest shareholder.
Indeed, the next two largest shareholders of POSCO are domestic banks,
the credit of which has been determined to be directed by the GOK (see
the ``Direction of Credit'' section of this notice). In order to
further maintain its control over POSCO, the GOK has enacted a law, as
well as placed into the Articles of Incorporation of POSCO, a
requirement that no individual shareholder except the GOK can exercise
voting rights in excess of three percent of the company's common stock.
According to POSCO, the GOK intends to maintain the individual
ownership limit of three percent until the end of 2001.
In addition, the Chairman of POSCO is appointed by the GOK. The
Chairman of POSCO during the POI was the former Deputy Prime Minister
and the Minister of the GOK's Economic
[[Page 30643]]
Planning Board, and was appointed as POSCO's chairman by the Korean
president. Half of POSCO's outside directors are appointed by the GOK
and the Korean Development Bank (three by the GOK and one by the
government-owned KDB.) During the POI, the appointed directors of POSCO
included a Minister of Finance, the Vice Minister of the Ministry of
Commerce and Industry, the Minister of the Ministry of Science and
Technology, and a Member of the Bank of Korea's Monetary Board. POSCO
is also one of three companies designated a ``Public Company'' by the
GOK. One of the other ``Public Companies'' is the state-run utility
company, KEPCO.
Over the course of this investigation, we have reviewed numerous
documents that relate to this purchase, including the valuation studies
and the purchase contract between POSCO and Sammi. The purchase price
of 719.4 billion won agreed upon by POSCO and Sammi included money both
for the assets that POSCO was purchasing and for the repayment of debt
associated with these assets. Ostensibly, Sammi used the proceeds from
the sale to pay debts owed by its other divisions.
Because no information was provided by Sammi with respect to this
program, as facts available the determination of the countervailability
of this program was based upon information gathered from POSCO, the
GOK, information provided in the petition, and from public documents
regarding POSCO's purchase of Sammi which have been placed on the
record of this investigation. This information indicates that POSCO
purchased the speciality steel division of Sammi Steel as the result of
government pressure. The current Chairman of POSCO has confirmed that
the POSCO purchase of Sammi's speciality steel division was the result
of outside political pressure. The Chairman characterized POSCO's
decision in 1997 to purchase the production facilities from Sammi in an
attempt by the government to prevent Sammi's bankruptcy as ``a
mistake.'' At the time of the Sammi purchase, the Chairman of POSCO had
been appointed by the former president. In addition, at the time of the
purchase, a POSCO director stated that the decision to purchase Sammi's
speciality steel division ``transcends economic merit.'' Internal
proprietary documents of POSCO (which are on the record in this
investigation) echo this statement. At the time of the purchase, the
company was operating at less than 60 percent of its capacity. In
addition, Sammi had shown a profit only once since 1991 and lacked
strong future prospects. See Memorandum to the File Re: Source
Documents on Government Control of POSCO, Sammi Purchase by POSCO, and
POSCO Pricing (Source Document Memo).
Internal government auditors also examined POSCO's purchase of the
Sammi speciality steel division. A report issued by the Board of Audit
and Inspection (BAI) criticized POSCO's purchase of the Sammi plant.
The BAI found fault with POSCO's investment decision resulting from
poor feasibility studies. The BAI noted that, according to POSCO's own
internal business plan, the internal rate of return (IRR) of new
investments should be over 10 percent. However, the BAI noted that
POSCO did not even examine Sammi's IRR when it decided to purchase the
Sammi plant. The BAI concluded that Sammi's IRR is much lower than the
minimum required by POSCO's own internal regulations for new
investments. The BAI also stated that, in estimating the future profits
and losses of an investment, POSCO's own internal regulations state
that it should assume an investment's prices would remain constant for
15 years. However, as the BAI noted with respect to the Sammi purchase,
POSCO assumed that prices would increase two percent a year. Thus,
profit from the purchase was overestimated. POSCO's deviation from its
own internal regulations on estimating future profit and loss resulted
in calculations that anticipated profits from the Sammi investment
within four years of the purchase date. If POSCO had followed its own
internal regulations, it would have expected to incur losses on its
purchase of Sammi for an additional 14 years.
In addition to noting that POSCO failed to follow its own internal
regulations in its purchase of Sammi's speciality steel division, the
BAI found other fundamental problems with the purchase of Sammi's
Changwon facility. The BAI stated that at the time of the purchase of
the Changwon plant, there was both oversupply and overproduction in the
speciality steel industry. The BAI noted that, while supply at the time
of the purchase was 240 million tons, the demand for speciality steel
was only 110 million tons. Therefore, the BAI concluded that there was
no reason for POSCO's ``hasty'' undertaking of Sammi's ``old
equipment.'' The BAI also stated that because POSCO contracted to
purchase the Sammi facility without clarifying the state of the
equipment and labor force, the Changwon Tax Office and Labor Committee
may require POSCO to pay an additional 80 billion won for both Sammi
employees' retirement, and unforeseen tax consequences and
administrative litigation. The BAI report also stated that POSCO paid
Sammi 21.4 billion won for steel-making techniques that were already
either developed by POSCO or widely used in the steel industry.
The information on the record demonstrates that POSCO is a
government-controlled entity; that POSCO's decision to purchase the
Sammi speciality steel division was the result of government pressure;
that Sammi was in poor financial straits; that POSCO failed to follow
its own internal regulations regarding new investments when making the
investment decision to purchase Sammi; and that, overall, the purchase
of Sammi did not make good economic sense. For these reasons, the
Department determines that POSCO's purchase of the Sammi speciality
steel division provided a countervailable benefit and a financial
contribution to Sammi under section 771(5)(D) of the Act. In accordance
with section 771(5A)(D)(i) of the Act, we also find that this program
is specific to Sammi.
During verification of POSCO's questionnaire response, POSCO
officials stated that Sammi was also trying to sell its specialty steel
division to other companies. However, as Sammi has refused to cooperate
in this investigation, we have no information as to whether any
potential investor expressed an interest in purchasing Sammi's
speciality steel division for any price. As adverse facts available, we
are assuming that were it not for POSCO's purchase, Sammi's Changwon
facility would not have been sold to a commercial investor due to the
poor financial condition of the company and the overcapacity in the
stainless steel market at the time of the POSCO purchase. In addition,
according to POSCO's own internal guidelines regarding new investments,
POSCO should not have purchased Sammi's Changwon facility. Further
information on the record also demonstrates that the decision to
purchase the stainless steel facility from Sammi was based upon
political and government influence in order to provide funds to Sammi
to forestall its eventual bankruptcy. The information on the record
indicates that, absent the GOK's control of POSCO and its influence on
POSCO's decision to purchase the Changwon facility, Sammi would not
have been able to sell its stainless steel division; therefore, we
consider the full amount of the purchase price paid to Sammi by POSCO
to constitute a countervailable benefit.
To calculate the benefit to Sammi from this purchase, we treated
the amount of the purchase price, 719.4 billion won, as a non-recurring
grant
[[Page 30644]]
and allocated it over the average useful life of assets in the
industry. For a discussion of the AUL, see the ``Subsidies Valuation''
section of this notice. Based on this methodology, we calculated a
countervailable subsidy of 52.30 percent ad valorem for Sammi for this
program during the POI.
C. GOK Pre-1992 Infrastructure Investments 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 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, the same rate used in Steel Products
from Korea. We then summed the benefits received by POSCO during 1997,
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 1997. On this basis, we determine a net countervailable
subsidy of 0.29 percent ad valorem for the POI.
D. Export Industry Facility Loans
In Steel Products from Korea, 58 FR at 37328, the Department
determined that export industry facility loans (EIFLs) are contingent
upon export, and are therefore export subsidies to the extent that they
are provided at preferential rates. In this investigation, we provided
the GOK with the opportunity to present new factual information
concerning these EIFLs, which we would consider along with our finding
in the prior investigation. The GOK has not provided new factual
information that would lead us to change our determination in Steel
Products from Korea. Therefore, we continue to find that EIFLs are
provided on the basis of export performance and are export subsidies
under section 771(5A)(B) of the Act. We also determine that the
provision of loans under this program 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 been
conferred on the recipient to the extent that the EIFLs are provided at
interest rates less than the benchmark rates described under the
``Subsidies Valuation'' section, above. We note that this program is
also countervailable due to the GOK's direction of credit; however, we
have separated this program from direction of credit because it is an
export subsidy, and therefore requires a different benefit calculation.
Dai Yang was the only respondent with outstanding loans under this
program during the POI. To calculate the benefit conferred by this
program, we compared the actual interest paid on the loan with the
amount of interest that would have been paid at the applicable dollar-
denominated long term benchmark interest rate as discussed in the
``Subsidies Valuation'' section, above. When the interest that would
have been paid at the benchmark rate exceeds the interest that was paid
at the program interest rate, the difference between those amounts is
the benefit. We divided the benefits derived from the loans by total
export sales. On this basis, we determine that Dai Yang received from
this program during the POI a countervailable subsidy of 0.08 percent
ad valorem.
E. 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 and Dai Yang were the only
producers or exporters 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 under this program within the meaning of section 771(5)(D)(i)
of the Act in the form of a loan. To determine whether this export
financing program confers a countervailable benefit to POSCO and Dai
Yang, we compared the interest rate POSCO and Dai Yang paid on the
export financing received under this program during the POI with the
interest rate each company 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 and Dai Yang on their export financing is a discounted
rate. Therefore, it was necessary to derive a discounted benchmark
interest rate from POSCO's and Dai Yang's company-specific weighted-
average interest rate for short-term won-denominated commercial loans.
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. 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 and Dai Yang 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. Because POSCO and Dai
Yang were unable to segregate their export financing applicable only to
subject merchandise exported to the United States, we divided the
benefit derived from the loans by total exports. On this basis, we
determine a net countervailable subsidy of less than 0.005 percent ad
valorem for POSCO, and 0.04 percent ad valorem for Dai Yang.
[[Page 30645]]
F. Reserve for Export Loss--Article 16 of the TERCL
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. This program is only available to exporters.
During the POI, Dai Yang, Inchon, Samsun, Samsung, Sunkyong, and Daewoo
used this program. Although POSCO did not use this program during the
POI, its exports of the subject merchandise were shipped through
trading companies which did use this program during the POI (Samsun,
Samsung, Sunkyong, and Daewoo). Neither Inchon nor Dai Yang shipped
through any trading companies that received benefits from this program,
although both Inchon and Dai Yang received benefits as exporters.
We determine that the Reserve for Export Loss program constitutes
an export subsidy under section 771(5A)(B) of the Act because the 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.
To determine the benefits conferred by this program, we calculated
the tax savings by multiplying the balance amounts of the reserves as
of December 31, 1996, by the corporate tax rate for 1996. We treated
the tax savings on these funds as short-term interest-free loans.
Accordingly, to determine the benefits, the amounts of tax savings were
multiplied by the companies' weighted-average interest rates for short-
term won-denominated commercial loans for the POI, 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 countervailable subsidy of less
than 0.005 percent ad valorem attributable to POSCO, a subsidy of 0.15
percent ad valorem for Inchon, and a countervailable subsidy of 0.01
percent ad valorem attributable to Dai Yang.
G. Reserve for Overseas Market Development--Article 17 of the TERCL
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 export losses or when
the grace period expires. The deferral of taxes owed amounts to an
interest-free loan equal to the company's tax savings. This program is
only available to exporters. The following exporters of the subject
merchandise received benefits under this program during the POI: Dai
Yang, Hyosung, Hyundai, POSTEEL, Samsun, Samsung, and Sunkyong, and
Daewoo. Although Inchon and POSCO did not use this program during the
POI, these companies' exports of the subject merchandise were shipped
through trading companies which did use this program during the POI:
Inchon shipped through Hyundai, and POSCO shipped through Hyosung,
POSTEEL, Samsun, Samsung, and Sunkyong, and Daewoo. Dai Yang did not
ship through trading companies during the POI.
We determine that the Reserve for Overseas Market Development
program constitutes an export subsidy under section 771(5A)(B) of the
Act because the 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.
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. We used as our benchmark interest
rate, each company's respective weighted-average interest rate for
short-term won-denominated commercial loans for the POI, 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 calculate a countervailable subsidy of 0.01
percent ad valorem for this program during the POI for POSCO, 0.01
percent ad valorem for Inchon, and 0.01 percent ad valorem for Dai
Yang.
H. 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, the company is authorized to
carry them forward for use in later tax years. During the POI, the
respondents used various investment tax credits received under the
TERCL to reduce their net tax liability. In Steel Products from Korea,
we found that investment tax credits were not countervailable (see 58
FR at 37351); however, changes in the statute effective in 1995 have
caused us to revisit the countervailability of the investment tax
credits.
POSCO claimed or used the following tax credits in its fiscal year
1996 income tax return which was filed during the POI: (1) Tax credits
for investments in facilities for research and experimental use and
investments in facilities for vocational training or assets for
business to commercialize new technology under Article 10; (2) tax
credits for vocational training under Article 18; (3) tax credits for
investment in productivity improvement facilities under Article 25; (4)
tax credits for investment in specific facilities under Article 26; (5)
tax credits for temporary investment under Article 27; and (6) tax
credits for specific investments under Article 71 of TERCL. Inchon
claimed or used: (1) Tax credits for investments in technology and
human resources under Article 9; and (2) tax credits for investment in
productivity improvement facilities under Article 25. Dai Yang also
claimed or used tax credits under Articles 9 and 25.
For these specific tax credits, a company normally calculates its
authorized tax credit based upon three or five percent of its
investment, i.e., the
[[Page 30646]]
company receives either a three or five percent tax credit. However, if
a company makes the investment in domestically-produced facilities
under these Articles, it receives a 10 percent tax credit. 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 receive a higher tax credit for investments made in
domestically-produced facilities, we determine that investment tax
credits received under Articles 10, 18, 25, 26, 27, and 71 constitute
import substitution subsidies under section 771(5A)(C) of the Act. In
addition, because the GOK foregoes collecting tax revenue otherwise due
under this program, we also determine that a financial contribution is
provided under section 771(5)(D)(ii) of the Act. Therefore, we
determine this program to be countervailable.
To calculate the benefit from this tax credit program, we examined
the amount of tax credit the companies deducted from their taxes
payable for the 1996 fiscal year. In its fiscal year 1996 income tax
return filed during the POI, POSCO deducted from its taxes payable
credits earned in the years 1992 through 1995, which were carried
forward and used in the POI in addition to POSCO's 1996 deduction. We
first determined the amount of the tax credits claimed which were based
upon the investment 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 investments in
domestically-produced facilities rather than the regular 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 for the POI. Neither Inchon nor Dai
Yang carried forward any tax credits from previous years. Therefore, to
calculate their rates we calculated the additional amount of the tax
savings earned on investments in domestically-produced facilities and
divided that amount by each company's total sales for the POI. On this
basis, we determine a countervailable subsidy of 0.18 percent ad
valorem to POSCO, 0.06 percent ad valorem to Inchon, and 0.41 percent
ad valorem to Dai Yang from this program during the POI.
I. Electricity Discounts Under the Requested Load Adjustment Program
Petitioners alleged that the respondents are receiving
countervailable benefits in the form of utility rate discounts. The GOK
reported that during the POI the government-owned electricity provider,
KEPCO, provided the respondents with three types of discounts under its
tariff schedule. These three discounts were based on the following rate
adjustment programs in KEPCO's tariff schedule: (1) Power Factor
Adjustment; (2) Summer Vacation and Repair Adjustment; and (3)
Requested Load 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 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, both POSCO and Inchon participated in this
program.
The RLA discount is provided based upon a contract of two months,
normally July and August when the demand for electricity is greatest.
Under this program, a basic discount of 440 won per KW is granted
between July 1 and August 31, regardless of whether KEPCO makes a
request for a customer to reduce its load. During the POI, KEPCO
granted 44 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. In 1996, KEPCO had entered into RLA contracts with 232
companies.
At the preliminary determination, we found that discounts provided
under the RLA were distributed to a limited number of customers, i.e.,
a total of 44 customers during the POI. Therefore, we determined that
the RLA program is de facto specific under section 771(5A)(D)(iii)(I)
of the Act. We also stated in the preliminary determination that, given
the information the GOK provided on the record regarding KEPCO's
increased capacity to supply electricity and the resulting decrease in
KEPCO's need to enter into a large number of RLA contracts during the
POI, we would further investigate the de facto specificity of this
discount program at verification. We stated that it was the GOK's
responsibility to demonstrate to the Department on what basis KEPCO
chose the 44 customers with which it entered into RLA contracts during
the POI.
Based on the information which we obtained at verification, we
analyzed whether this electricity discount program is specific in fact
(de facto specificity), within the meaning of section 771(5A)(D)(iii)
of the Act. We find that the GOK failed to demonstrate to the
Department a systematic procedure through which KEPCO selects those
customers with which it enters into RLA contracts. The GOK simply
stated that KEPCO enters into contracts with those companies which
volunteer for the discount program. If KEPCO does not reach its
targeted adjustment capacity with those companies which volunteered for
the program, then KEPCO will solicit the participation of large
companies. We note that KEPCO was unable to provide to the Department
the percentage of 1997 RLA recipients which volunteered for the program
and the percentage of those recipients which were persuaded to
cooperate in the program. 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 and Inchon under this program within
the meaning of section 771(5)(D)(ii) of the Act in the form of revenue
foregone by the government.
Because the electricity discounts are not ``exceptional'' benefits
and are received automatically on a regular and predictable basis
without further government approval, we determine that these discounts
provide a recurring benefit to POSCO and Inchon. Therefore, we have
expensed the benefit from this program in the year of receipt. See GIA,
58 FR at 37226. To measure the benefit from this program, we summed the
electricity discounts which POSCO and Inchon received from KEPCO under
the RLA program during the POI. We then divided that amount by POSCO's
and Inchon's total sales value for 1997.
[[Page 30647]]
On this basis, we determine a net countervailable subsidy of less than
0.005 percent ad valorem for both POSCO and Inchon.
J. Loans From the National Agricultural Cooperation Federation
According to Dai Yang's September 10, 1998, questionnaire response,
the company received a loan administered by the National Agricultural
Cooperation Federation (NACF). The loan was given at an interest rate
which is below the benchmark interest rate described in the ``Subsidies
Valuation'' section of the notice. Moreover, under the terms of this
loan, the regional government (that of Ansan City) paid a portion of
the interest. Although this Ansan City-administered program is only
available to small- and medium-sized enterprises, the loan approval
criteria indicates that export performance is also an important
criterion for approval. Applications for these loans are evaluated on a
point system. The applicant receives 10 out of a possible 100
``points'' if it is a promising small and medium size business.
However, the applicant can also receive 10 points if its exports
comprise over twenty percent of its total sales. In addition, an
applicant can garner 10 points if it is involved in overseas market
development. Therefore, two of the criteria of loan approval are based
upon export performance.
Under section 771(5A)(B) of the Act, an export subsidy is a subsidy
that is, in law or in fact, contingent upon export performance, alone
or as one of two or more conditions. Dai Yang did meet the criteria of
having over twenty percent of sales in export markets, and so may have
qualified based on these export criteria. Further, pursuant to section
351.514 of the Department's regulations (63 FR at 65381), Dai Yang did
not demonstrate that it was approved to receive these benefits solely
under non-export criteria. Thus, after examination of this program, we
determine that Dai Yang's receipt of this loan to be a de facto export
subsidy pursuant to section 771(5A)(B) of the Act. In addition, by
paying a portion of the interest on the loan, the actions of the Ansan
City government confer a benefit in accordance with section
771(5)(E)(ii) of the Act. Therefore, we determine this program to be
countervailable.
In the Preliminary Determination, we treated this loan as a short-
term loan because it is rolled over annually with a revised interest
rate. However, record evidence indicates that all of the interest rates
for the life of the loan were set at the time the loan was approved.
Thus, we believe that it is more reasonable to measure the benefit from
this loan using the Department's long-term fixed rate loan methodology.
We used as our benchmark the rate described in the ``Subsidies
Valuation'' section of the notice, above. We divided the benefit
calculated in the POI by Dai Yang's total exports during 1997. On this
basis, we determine the countervailable subsidy attributable to Dai
Yang during the POI to be 0.04 percent ad valorem.
K. POSCO's Two-Tiered Pricing Structure to Domestic Customers
In our supplemental questionnaire, we requested information from
POSCO and the other respondents regarding an allegation that the GOK
mandates POSCO to subsidize local manufacturers by selling them steel
at 30 percent below the international market price. In response to this
allegation, POSCO stated that no such program exists. However, in its
response, POSCO provided information regarding its pricing structure in
the domestic and export markets.
We verified that 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.
POSCO's local export prices are provided to those domestic customers
that purchase steel for further processing into products that are
exported. During the POI, POSCO sold hot-rolled stainless steel coil,
which is the main input in the subject merchandise, to Dai Yang and
Inchon, which used the coil to produce subject merchandise sold both as
exports and in the domestic market. POSCO is the only Korean producer
of hot-rolled stainless steel coil.
As noted earlier, POSCO is a government-controlled company. (See
the discussion relating to government control of POSCO in the program
``Purchase of Sammi Speciality Steel Division by POSCO''.) POSCO sets
different prices for the identical product for domestic purchases based
upon the purchasers' anticipated export performance. Therefore, when
POSCO sells hot-rolled stainless steel coil to Dai Yang and Inchon to
be used to manufacture subject merchandise which is exported, POSCO
charges a lower price than the price charged on the identical hot-
rolled stainless steel coil sold to the companies for manufacturing
subject merchandise to be sold in the domestic market. Because POSCO
charges a lower price based upon export performance, this pricing
policy constitutes an export subsidy under section 771(5A)(B) of the
Act. Because exporters are charged a lower price, this program also
provides a financial contribution to the exporters under section
771(5)(D).
The benefit from this type of export subsidy is based upon the
difference in the price charged to exporters and the price charged for
domestic consumption. The only exception is for pricing programs which
fall under Item (d) of the Illustrative List of Export Subsidies, which
is provided for in Annex I of the Agreement on Subsidies and
Countervailing Measures.6 Item (d) allows governments to
maintain a program which provides different prices based upon export or
domestic consumption if certain strict criteria are met by the
government. However, POSCO's dual pricing policy does not fit within
the parameters of the Item (d) exception. Therefore, the benefit from
this program is based upon the difference between the prices charged by
POSCO for export and the prices charged by POSCO for domestic
consumption.
---------------------------------------------------------------------------
\6\ A subsidy arises under Item (d) from the provision by
governments or their agencies either directly or indirectly through
government-mandated schemes, of imported or domestic products or
services for use in the production of export goods, on terms or
conditions more favourable than for provision of like or directly
competitive products or services for use in the production of goods
for domestic consumption, if (in the case of products) such terms or
conditions are more favorable than those commercially available on
world markets to their exporters.
---------------------------------------------------------------------------
To determine the value of the benefit under this program, we
compared the monthly weighted-average price charged by POSCO to Dai
Yang and Inchon for domestic production to the monthly weighted-average
price charged by POSCO to respondents for export production, by grade
of hot-rolled coil. 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 Dai Yang received a countervailable subsidy of
0.87 percent ad valorem from this program, and that Inchon received a
countervailable subsidy of 2.36 percent ad valorem from this program
during the POI.
II. Programs Determined To Be Not Countervailable
A. Electricity Discounts Under the Power Factor Adjustment and Summer
Vacation and Repair Adjustment Programs
KEPCO provided three types of discounts under its tariff schedule
during the POI. These three discounts were based on the following rate
[[Page 30648]]
adjustment programs in KEPCO's tariff schedule: (1) Power Factor
Adjustment; (2) Summer Vacation and Repair Adjustment; and (3)
Requested Load Adjustment. See the separate discussion above in regard
to the countervailability of the ``Requested Load Adjustment'' program.
With respect to the Power Factor Adjustment (PFA) program, the GOK
reported that the goal of the PFA is to improve the energy efficiency
of KEPCO's customers which, in turn, provides savings to KEPCO in
supplying electricity to its entire customer base. Customers who
achieve a higher efficiency than the performance standard (i.e., 90
percent) receive a discount on their base demand charge.
We verified that the PFA is not a special program, but a normal
factor used in the calculation of a customer's electricity charge which
was introduced in 1989. The PFA is available to all general,
educational, industrial, agricultural, midnight power, and temporary
customers who meet the eligibility criteria. The eligibility criteria
are that a customer must: (1) Have a contract demand of 6 KW or more;
(2) have a power factor that exceeds the 90 percent standard power
factor; and (3) have proper facilities to measure its power factor. If
these criteria are met, a customer automatically receives a PFA
discount on its monthly electricity invoice. During the POI, over
600,000 customers were recipients of PFA discounts.
With the aim of curtailing KEPCO's summer load by encouraging
customer vacations or the repair of their facilities during the summer
months, the GOK introduced the Summer Vacation and Repair Adjustment
program (VRA) in 1985. Under this program, a discount of 550 won per KW
is given to customers, if they curtail their maximum demand by more
than 50 percent, or 3,000 KW, through a load adjustment or maintenance
shutdown of their production facilities during the summer months.
The VRA discount program is available to all industrial and
commercial customers with a contract demand of 500 KW or more. The VRA
is one of several programs that KEPCO operates as part of its broad
long-term strategy of demand-side management which includes curtailing
peak demand. We verified that over eight hundred customers, from a wide
and diverse range of industries, received VRA discounts during the POI.
We analyzed whether these electricity discount programs are
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 identify companies within a broad range of
industries as eligible to participate in the electricity discount
programs. With respect to the PFA, all general, educational,
industrial, agricultural, midnight power, and temporary customers who
have the necessary contract demand are eligible to participate in the
discount program. The VRA discount program is available to a wide
variety of companies across all industries, provided that they have the
required contract demand and can reduce their maximum demand by a
certain percentage. Therefore, based on our analysis of the law, we
determine that the PFA and VRA electricity programs are not de jure
specific under section 771(5A)(D)(i) of the Act.
We also examined evidence regarding the usage of the discount
electricity programs and found no predominant use by the steel
industry. The information on the record demonstrates that discounts
under the PFA and VRA are distributed to a large number of firms in a
wide variety of industries. Therefore, after analyzing the data with
respect to the large number of companies and diverse number of
industries which received electricity discounts under these programs
during the POI, we determine that the PFA and VRA programs are not de
facto specific under section 771(5A)(D)(iii) of the Act. Accordingly,
we determine that the PFA and VRA discount programs are not
countervailable.
B. GOK Infrastructure Investments at Kwangyang Bay Post-1991
The GOK has made the following infrastructure investments at
Kwangyang Bay since 1991: Construction of a road from Kwangyang to
Jinwol, construction of a container terminal, and construction of the
Jooam Dam. The GOK stated that pursuant to Article 29 of the Industrial
Sites and Development Act, it is the national and local governments'
responsibility to provide basic infrastructure facilities throughout
the country, and the nature of the infrastructure depends on the
specific needs of each area and/or the types of industries located in a
particular area. The GOK provides services to companies through the use
of the infrastructure facilities and charges fees for the services
based on published tariff rates applicable to all users.
With respect to the GOK's post-1991 infrastructure investments at
Kwangyang Bay, the GOK argues that the construction of the
infrastructure was not for the benefit of POSCO. The GOK reported that
the purpose of developing the Jooam Dam was to meet the rising demand
for water by area businesses and households. The supply capacity of the
Sueochon Dam, which was constructed prior to 1991, cannot meet the
area's water needs and, therefore, a second dam in the Kwangyang Bay
area was built. The GOK further reported that the Jooam Dam does not
benefit POSCO because POSCO receives all of its water supply from the
Sueochon Dam. At verification, we obtained information which
demonstrates that the Jooam Dam's water pipe line connects neither to
the Sueochon Dam nor to POSCO's steel mill at Kwangyang Bay.
Accordingly, POSCO cannot source any of its water supply from the Jooam
Dam and, therefore, the company is not benefiting from the GOK's
construction of the Jooam Dam.
The GOK also constructed a container terminal at Kwangyang Bay to
relieve congestion at the Pusan Port and to encourage the further
commercial development of the region. The GOK stated that, given the
nature of the merchandise imported, produced, and exported by POSCO at
Kwangyang Bay, this container terminal cannot be used by POSCO's
operations. According to the responses of the GOK and POSCO and the
information obtained at verification, neither steel inputs nor steel
products can be shipped through the container terminal at Kwangyang
Bay. Given the nature of steel inputs (e.g., bulk products like scrap)
and finished steel products (e.g., bundled bars and plate), products
such as these would or could not be loaded or unloaded from a ship
through a container terminal and, therefore, the facility is not used
by steel producers.
The road from Kwangyang to Jinwol was constructed in 1993. The GOK
stated that this is a general service, public access road available
for, and used by, all residents and businesses in the area of Kwangyang
Bay. According to the GOK, the reason for building the public highway
was not to serve POSCO, but to provide general infrastructure to the
area as part of the GOK's continuing development of the country and to
relieve a transportation bottleneck. At verification, we obtained
information on the road and learned that, in fact, it is utilized by
both industries in the area to transport goods and by residents living
in the Kwangyang Bay area.
Based on the information obtained at verification regarding the
GOK's infrastructure investments at
[[Page 30649]]
Kwangyang Bay since 1991, we determine that the GOK's investments in
the Jooam Dam, the container terminal, and the public highway were not
made for the benefit of POSCO. Therefore, we find that these
investments are not providing countervailable benefits to POSCO.
C. Port Facility Fees
In the 1993 investigation of Steel Products from Korea, the
Department found that POSCO, which built port berths at Kwangyang Bay
but, by law, was required to deed them to the GOK, was exempt from
paying fees for use of the berths. POSCO was the only company entitled
to use the berths at the port facility free of charge. The Department
determined that because this privilege was limited to POSCO, and
because the privilege relieved POSCO of costs it would otherwise have
had to pay, POSCO's free use of the berths at Kwangyang Bay constituted
a countervailable subsidy. The Department stated that each exemption
from payment of the fees, or ``reimbursement'' to POSCO, creates a
countervailable benefit because the GOK is relieving POSCO of an
expense which the company would have otherwise incurred. See Steel
Products from Korea, 58 FR at 37347-348.
With respect to the instant investigation, since 1991, POSCO, at
its own expense, has built new port facilities at Kwangyang Bay.
Because title to port facilities must be deeded to the GOK in
accordance with the Harbor Act, POSCO transferred ownership of the
facilities to the GOK. In return, POSCO received the right to use the
port facilities free of charge, and the ability to charge other users a
usage fee until the company recovers all of its investment costs. At
the preliminary determination, we determined that because POSCO is
exempt from paying port facility fees, which it otherwise would have to
pay, and the government is foregoing revenue that is otherwise due,
POSCO's free usage of the port facilities provided a financial
contribution to the company within the meaning of section 771(5)(D)(ii)
of the Act. We also found that the exemption from paying port facility
charges is specific under section 771(5A)(D)(iii) of the Act, because
POSCO was the only company exempt from paying these port facility fees
during the POI. During verification, we discovered that Inchon also
participated in this program.
Since our preliminary determination, we have gathered further
information with respect to the Harbor Act and the number and types of
companies which have built infrastructure which, as required by law,
were subsequently transferred to the government. At verification, we
learned that, because the government does not have sufficient funds to
construct all of the infrastructure a company may need to operate its
business, the GOK allows a company to construct, at its own expense,
such infrastructure. However, the Harbor Act prohibits a private
company from owning certain types of infrastructure, such as ports.
Therefore, the company, upon completion of the project, must deed
ownership of the infrastructure to the government pursuant to Article
17-1 of the Harbor Act. Because a company must transfer to the
government its infrastructure investment, the GOK, under Articles 17-3
and 17-4 of the Harbor Act, grants the company free usage of the
facility and the right to collect fees from other users of the facility
until the company recovers its investment cost. Once a company has
recovered its cost of constructing the infrastructure, the company must
pay the same usage fees as other users of the infrastructure facility.
We verified that under the Harbor Act, any company within any
industrial sector is eligible to construct infrastructure necessary for
the operation of its business provided that it receives approval by the
Administrator of the Maritime and Port Authority to build the facility.
We learned that if the ownership of the infrastructure, which the
company built, must transfer to the government, then the company, by
law, has the right to free usage of that facility and the ability to
collect fees from other users of the facility. The right of free usage
and the ability to collect user fees are granted to every company which
has to deed facilities to the GOK. The free usage and collection of
user fees continues only until the company which built the facility
recaptures its cost of constructing the facility.
Further, at verification we learned that in permitting a company to
build infrastructure subject to the Harbor Act requirements, the GOK
has in place a procedure for approving a company's investment costs and
for monitoring the company's free usage and collection of user fees.
Because the GOK allows a company, for a period of time, to use for free
the infrastructure it built, the GOK, through the respective port
authority, reviews each infrastructure project to assess the cost. The
port authority then approves a certain monetary amount for the
infrastructure through a settlement process with the company. A company
can only receive free usage of a facility up to the monetary amount
approved by the port authority.
At verification, we obtained documentation which indicates that
since 1991, a diverse grouping of private sector companies across a
broad range of industrial sectors have made a number of investments in
infrastructure facilities at various ports in Korea, including at
Kwangyang Bay. In each case, the company which built the infrastructure
was required to transfer it to the GOK, and received free usage of the
infrastructure and the ability to collect user fees from other
companies until they recover their respective investment costs. POSCO
and Inchon were not the only companies entitled to use a particular
port facility infrastructure, which it built, free of charge.
As a result of the information obtained at verification, we have
revisited our preliminary determination that POSCO's exemption from
paying port facility charges is specific under section 771(5A)(D)(iii)
of the Act. As discussed above, we verified that since 1991, a diverse
grouping 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. Those companies which built
infrastructure that was transferred to the GOK, as required by the
Harbor Act, received free usage of the infrastructure and the ability
to collect user fees from other companies which use the facilities,
until they recover their respective investment costs. POSCO and Inchon
are only two of a large number of companies from a diverse range of
industries to use this program. Accordingly, we determine that this
program is not specific under section 771(5A)(D)(iii) of the Act.
Therefore, we find that this program is not countervailable.
III. Programs Determined To Be Not Used
Based on the information provided in the responses and the results
of verification, we determine that the companies under investigation
either did not apply for or receive benefits under the following
programs during the POI:
[[Page 30650]]
A. Tax Incentives for Highly-Advanced Technology Businesses under the
Foreign Investment and Foreign Capital Inducement Act
B. Reserve for Investment under Article 43-5 of TERCL
C. Export Insurance Rates Provided by the Korean Export Insurance
Corporation
D. Special Depreciation of Assets on Foreign Exchange Earnings
E. Excessive Duty Drawback
Petitioners alleged that under the Korean Customs Act, Korean
producers/exporters may have received an excessive abatement,
exemption, or refund of import duties payable on raw materials used in
the production of exported goods. The Department has found that the
drawback on imported raw materials is countervailable when the raw
materials are not consumed in the production of the exported item and,
therefore, the amount of duty drawback is excessive. In Steel Products
from Korea, we determined that certain Korean steel producers/exporters
received excessive duty drawback because they received duty drawback at
a rate that exceeded the rate at which imported inputs were actually
used. See Steel Products from Korea, 58 FR at 37349.
At verification, we learned that the refund of duties only applies
to imported raw materials that are physically incorporated into the
finished merchandise. Items used to produce a product, but which do not
become physically incorporated into the final product, do not qualify
for duty drawback. We confirmed that the National Technology Institute
(NTI) maintains a materials list for each product, and only materials
that are physically incorporated into the final product are eligible
for duty drawback.
We verified that the NTI routinely conducts surveys of producers of
exported products to obtain their raw material input usage rate for
manufacturing one unit of output. With this information, the NTI
compiles a standard usage rate table for imported raw material inputs
which is used to calculate a producer/exporter's duty drawback
eligibility. In determining an input usage rate for a raw material, the
NTI factors recoverable scrap into the calculation. In addition, the
loss rate for each imported input is reflected in the input usage rate.
At verification, the GOK confirmed that the factoring of reusable scrap
into usage rates is done routinely for all products under Korea's duty
drawback regime.
We also confirmed during our verification that there is no
difference in the rate of import duty paid and the rate of drawback
received. The rate of import duty is based on the imported materials
and the rate of drawback depends on the exported merchandise and the
usage rate of the imported materials. The companies pay import duties
based on the rate applicable to and the price of the imported raw
material. The companies then receive duty drawback based on the amount
of that material consumed in the production of the finished product
according to the standard input usage rate. Accordingly, the rate at
which the respondents receive duty drawback is the amount of import
duty paid on the amount of input consumed in producing the finished
exported product.
Based on the information on the record, we determine that the
respondents have not received duty drawback on imported raw materials
that were not physically incorporated in the production of exported
merchandise. As in Steel Products from Korea, we also determine that
the respondents appropriately factored recovered scrap into its
calculated usage rates and that the duty drawback rate applicable to
the respondents takes into account recoverable scrap. See Steel
Products from Korea, 58 FR at 37349. Therefore, we determine that the
respondents have not received excessive duty drawback.
IV. Programs Determined To Be Terminated
Based on information provided by the GOK, we determine that the
following program does not exist:
Unlimited Deduction of Overseas Entertainment Expenses
In Steel Products from Korea, 58 FR at 37348-49, the Department
determined that this program conferred benefits which constituted
countervailable subsidies because the entertainment expense deductions
were unlimited only for export business activities. In the present
investigation, the GOK reported that Article 18-2(5) of the Corporate
Tax Law, which provided that Korean exporters could deduct overseas
entertainment expenses without any limits, was repealed by the
revisions to the law dated December 29, 1995. According to the GOK,
beginning with the 1996 fiscal year, a company's domestic and overseas
entertainment expenses are deducted within the same aggregate sum
limits as set by the GOK. As a result of the revision to the law,
overseas entertainment expenses are now treated in the same fashion as
domestic expenses in calculating a company's income tax. Therefore, we
determine that this program is no longer in existence.
Interested Party Comments
Comment 1: The GOK's Pre-1992 Credit Policies: New Factual Information
Concerning Foreign Currency-Denominated Loans
Respondents assert that the Department ignored new factual
information on the record of this proceeding concerning domestic
foreign currency loans. Specifically, respondents submitted information
indicating that from 1986 through 1988, interest rates on domestic
foreign currency loans were only subject to an interest rate ceiling,
and that after 1988, banks and other financial institutions were free
to set the interest rates on these loans subject only to the ceiling
established by the Interest Limitation Act. Respondents claim that the
Department ignored this information and incorrectly assumed that the
reimposition of interest rate ceilings on Korean won loans after a
failed attempt at liberalization in 1988 also applied to domestic
foreign currency loans.
Respondents further state that the Department found at verification
that the interest rate liberalization program applied solely to lending
rates in Korean won. Therefore, for all domestic foreign currency loans
received prior to 1992, there is no basis for the Department's
determination that interest rates on these loans were regulated and
that these loans provided countervailable subsidies.
According to petitioners, the Department's finding that pre-1992
direct foreign loans provided a countervailable subsidy was correct and
supported by the evidence on the record. Petitioners contend that the
issue at hand is the GOK's control over access to the foreign loans,
not control of the interest rate. Petitioners further state that
respondents have provided no new evidence to disprove this finding and
nothing in the new law is contrary to either the Department's 1993
determination, or the determination in Stainless Steel Plate from
Korea.
Department's Position: The alleged ``new'' information cited by
respondents in their brief concerning interest rates on domestic
foreign currency loans was considered by the Department in Steel
Products From Korea, and again in Stainless Steel Plate from Korea. The
discussion addressing the GOK's strict control of interest rates
specifically states that ``[i]nterest rate ceilings on domestic foreign
currency loans were
[[Page 30651]]
also maintained until 1988.'' See Steel Products From Korea, 58 FR at
37341. Thus, the Department considered the fact that the de jure
controls over domestic foreign currency loans were removed after 1988
in reaching its conclusion that these loans continued to be subject to
indirect GOK influence. Respondents' contention that ``window
guidance'' (i.e., the GOK's indirect control over interest rates)
applied only to domestic won loans is also without merit.
The Department examined this question and reached the opposite
conclusion in Steel Products From Korea. The Department reiterated this
conclusion in Stainless Steel Plate from Korea, where it also noted
that independent bankers had stated that ``interest rates were once
again regulated until the early 1990s, through a system of ``window
guidance.'''' Under this system commercial banks were effectively
directed by the government not to raise interest rates above a certain
level. While this statement is contained within the discussion of the
failed 1988 liberalization plan, the bankers did not distinguish
between domestic and foreign rates of lending by domestic commercial
banks. Finally, in calling for the prohibition of ``window guidance''
over financial institutions'' loan rates, the Presidential Commission
did not refer only to won-denominated rates. As noted above, the
Department's findings in Steel Products From Korea took into account
respondents' ``new'' information. This finding has since been upheld by
the Court in British Steel plc v. United States, 941 F. Supp 119 (CIT
1996) (British Steel II), and by the Department in its final
determination of Stainless Steel Plate from Korea. For these reasons
our finding concerning the countervailability of pre-1992 foreign
currency denominated loans from domestic sources remains unchanged in
this final determination.
Comment 2: Post-1991 GOK Credit Policies: Whether POSCO Received Long-
Term Loans From Korean Banks At Favorable Interest Rates
Respondents contend that, according to the Department's own
calculations in Stainless Steel Plate from Korea, POSCO did not receive
a benefit from favorable interest rates from regulated and directed
sources of credit during the 1992-1997 period, and hence there is no
countervailable subsidy in this time period. Respondents propose that
the ``minuscule benefits'' found are merely a result of rounding errors
caused by the use of weighted-average benchmarks during a period of
fluctuating interest rates. Alternatively, the insignificant benefit
found in the Stainless Steel Plate from Korea determination may have
resulted from variations in the LIBOR base rate on all of these loans.
Respondents do not argue with the Department's use of three-year
corporate bonds as representative of the long-term market rate for won
loans in Korea.
Petitioners rebuttal argument is twofold. As an initial matter, the
calculations from Stainless Steel Plate from Korea that are cited by
respondents contain an error. When this error is corrected, it becomes
apparent that there was a benefit to POSCO from its long-term won-
denominated loans. Secondly, even if this benefit is minimal, it falls
within the rubric of the GOK's direction of credit, and was therefore
properly countervailed.
Department's Position: As detailed in the Credit Memo, we have
determined that access to government-regulated foreign sources of
credit did not confer a benefit to POSCO, as defined by section
771(5)(E)(ii) of the Act, and, as such, credit received by respondents
from these sources was found not countervailable. Petitioners' argument
that this decision was based on a calculation error is based on an
incorrect characterization of these loans as fixed rate loans. Because
these loans have variable interest rates, our methodology is to
calculate the benefit at the time the interest on the loan is paid. For
these reasons, we find that there was no benefit from direct foreign
loans received by POSCO in 1997.
Comment 3: The GOK's Pre-1992 Credit Policies: Whether Direct Foreign
Loans Constitute a Financial Contribution Within the Meaning of the Act
According to respondents, the only government regulation of direct
foreign loans consisted of an interest rate ceiling. Respondents state
that the GOK could not, under its regulations, direct or induce foreign
lenders to provide loans to POSCO; nor could it regulate (and reduce)
the interest rates these lenders would charge on such loans. Rather,
these loans were negotiated directly between foreign banks and POSCO
without the GOK's direct or indirect involvement. As such, respondents'
state that the Department's preliminary finding that direct foreign
loans are countervailable is in conflict with the ``financial
contribution'' standard of section 771(5)(D)(i) of the Act. Respondents
assert that direct foreign loans from foreign banks do not constitute
countervailable subsidies because there is no government financial
contribution. Respondents further claim that the Department did not
explain in its preliminary determination how loans from foreign sources
could constitute a financial contribution by the GOK.
Moreover, respondents state that these loans do not meet the
``entrusts or directs'' standard of the Act, because (1) they can not
be characterized as a contribution that ``would normally be vested in
the government,'' and (2) the requirement that the practice of lending
by the foreign entity ``does not differ in substance from practices
normally followed by the government'' is not met in this instance.
Furthermore, because access to direct foreign loans was restricted by
the GOK on the basis of a borrowers' ability to access the market
without a government or bank guarantee, POSCO would have been able to
receive direct foreign loans at the interest rates obtained on its own
and without government involvement.
Respondents also address the Department's assertion in the new
countervailing duty regulations (and the Statement of Administrative
Action) that its indirect subsidy standard remains unchanged under the
``financial contribution'' standard of the Post-Uruguay Round law,
specifically referring to the indirect subsidy practices countervailed
in Steel Products from Korea.7 Respondents state that to
simply subsume direct foreign loans from foreign entities within the
broad claim of an unchanged indirect subsidy standard (and the
endorsement in the SAA of Steel Products From Korea) is ``overly
simplistic and legally in error.''
---------------------------------------------------------------------------
\7\ Countervailing Duties; Final Rule, 63 FR 65348, 65349
(November 25, 1998) (CVD Final Rule); SAA at 926.
---------------------------------------------------------------------------
Petitioners dispute respondents' assertion that the GOK's control
over access to direct foreign loans does not constitute a financial
contribution, within the meaning of the Act. Petitioners state that
this question has been addressed by the SAA, which specifically
references the Department's indirect subsidy findings in Steel Products
From Korea to illustrate that the indirect subsidy standard includes
the GOK's control over access to direct foreign loans. Petitioners
contend that to accept respondents' argument would be to repudiate the
interpretation of the statute in the SAA. Petitioners note, moreover,
that the Department preliminarily found in the Credit Memo that the
GOK's control over the Korean financial system continued through the
POI and included the control of access to direct foreign loans.
Department's Position: As petitioners correctly note, respondents'
arguments concerning this issue have been fully
[[Page 30652]]
addressed by the Congress through its approval of the SAA and the CVD
Final Rule.8 In Steel Products From Korea, the finding of
government control was determined to be sufficient to constitute a
government program and government action, as defined by the Act.
Moreover, in the preliminary determination, we did not revisit that
prior determination, and also found that the subsidy identified meets
the standard for a subsidy as defined by the post-URAA Act. Preliminary
Determination, 63 FR at 63890.
---------------------------------------------------------------------------
\8\ Although the CVD Final Rule is not controlling in this
investigation, it does represent a statement of the Department's
practice and interpretations of the Act, as amended by the URAA.
---------------------------------------------------------------------------
While respondents contend that subsuming GOK-controlled access to
direct foreign loans from foreign entities within the SAA's claim of an
unchanged indirect subsidy standard is ``overly simplistic and legally
in error,'' the clear and unambiguous language of the SAA is that
Congress intended the specific types of indirect subsidies found to be
countervailable in Steel Products From Korea to continue to be covered
by the Act, as amended by the URAA. The Department's final
countervailing duty regulations are equally clear on this issue: the
preamble confirms that the standard for finding indirect subsidies
countervailable under the URAA-amended law ``is no narrower than the
prior U.S. standard for finding an indirect subsidy as described in
Steel Products from Korea.'' See CVD Final Rule, 63 FR at 65349. For
these reasons, we have not changed our preliminary determination
concerning the countervailability of pre-1992 direct foreign loans.
Comment 4: The GOK's Pre-1992 Credit Policies: Benchmark Applied to
Determine the Benefit From Foreign Currency-Denominated Loans
Respondents challenge the Department's use of a won-denominated
benchmark to calculate the countervailable benefit from POSCO's
outstanding pre-1992 long-term foreign currency-denominated loans.
According to respondents, the Department's long established methodology
is to compare countervailable loans with a benchmark in the same
currency. Respondents cite the Final Affirmative Countervailing Duty
Determination: Certain Apparel from Thailand, 50 FR 9818, 9824 (1985),
which states that, the ``benchmark must be applicable to loans
denominated in the same currency as the loans under consideration.''
Respondents also note that this standard was articulated in the Final
Affirmative Countervailing Duty Determination: Cold-rolled Carbon Steel
Flat-rolled Products from Argentina, 49 FR 18006 (April 26, 1984)
(Cold-Rolled Steel From Argentina). In that case, the Department
stated:
[f]or loans denominated in a currency other than the currency of the
country concerned in an investigation, the benchmark is selected
from interest rates applicable to loans denominated in the same
currency as the loan under consideration (where possible, interest
rates on loans in that currency in the country where the loan was
obtained; otherwise, loans in that currency in other countries, as
best evidence). The subsidy for each year is calculated in the
foreign currency and converted at an exchange rate applicable for
each year. Id. at 18019.
Respondents contend that this policy was reiterated in the Department's
new regulations, the preamble to which refers to the currency of the
loans as one of ``the three most important characteristics'' in
determining the benchmark. CVD Final Rule, 63 FR at 65363. Thus,
respondents assert that the Department (1) did not consider any other
commercially-viable alternatives (such as those rates ``in other
countries''); (2) ignored any reference to its long-standing policy of
comparing loans in the same currency; and (3) provided no explanation
for abandoning that policy. Accordingly, respondents state that the
Department must revise its calculation of the benefit from foreign
currency-denominated loans, using a benchmark that is in conformance
with its policy and regulations.
Petitioners dispute respondents' benchmark argument, stating that
the Department clearly rejected this argument in Stainless Steel Plate
from Korea. While petitioners do not dispute that it is the
Department's preference to use a benchmark in the same currency, the
Department made clear in the final determination of Stainless Steel
Plate from Korea that such a comparison was not appropriate when it
reaffirmed its determination from Steel Products from Korea.
Department's Position: Respondents' arguments concerning the
Department's methodology for measuring benefits from countervailable
foreign currency-denominated long-term loans are partially correct. As
stated in the Stainless Steel Plate from Korea determination, it is
true that in most instances we measure the benefit from countervailable
foreign currency loans by comparing such loans with a benchmark
denominated in the same currency, provided the borrower would otherwise
have had access to such foreign currency loans. However, in the context
of the Korean financial system prior to 1992, this methodology is not
appropriate. 64 FR at 15540. Specifically, in Steel Products From
Korea, the Department found that all sources of foreign currency-
denominated credit were subject to the government's control and
direction, and were countervailable. Therefore, these sources of
foreign currency credit, including overseas markets, could not serve as
an appropriate benchmark, and the Department had to determine the rate
that companies would have had to pay absent government control. That
rate was the corporate bond yield on the secondary market. See Steel
Products From Korea, 58 FR at 37346; and Stainless Steel Plate from
Korea, 64 FR at 15540.
Respondents assert that the Department did not consider any other
commercially viable alternatives. Respondents ignore, however, the fact
that the corporate bond yield on the secondary market was the only
alternative, unregulated, and commercially viable source of financing
in Korea. Accordingly, this was the only viable benchmark with which to
measure the benefit from government-regulated sources of credit. None
of respondents' arguments in this investigation have led us to change
our determination in Steel Products From Korea, which was reiterated in
Stainless Steel Plate from Korea. Therefore, our finding concerning
POSCO's pre-1992 foreign currency-denominated long-term loans remains
unchanged in this final determination.
Comment 5: The GOK's Pre-1992 Credit Policies: Whether Direct Foreign
Loans Are Not Countervailable Pursuant to the Transnational Subsidies
Rule
Respondents assert that pursuant to the so-called ``transnational
subsidies rule,'' funds provided from sources outside a country under
investigation are not countervailable. Specifically, respondents state
that section 701(a)(1) of the Act applies only to subsidies provided by
the government of the country in question or an institution located in,
or controlled by, that country. In support of this contention,
respondents cite North Star Steel v. United States, 824 F. Supp. 1074
(CIT 1993) (North Star), in which the Court upheld the Department's
determination that an Inter-American Development Bank loan guaranteed
by the Government of Argentina on behalf of the recipient was not
subject to the countervailing duty law. In particular, the CIT stated
that ``[t]his determination is consistent with the purpose of the
countervailing duty law, which is `intended to offset the unfair
competitive advantage that foreign
[[Page 30653]]
producers would otherwise enjoy from * * * subsidies paid by their
government.' '' North Star, 824 F. Supp. at 1079 (quoting Zenith Radio
Corp. v. United States, 437 U.S. 443, 456 (1978)). Respondents also
cite a case in which the Department refused to initiate an
investigation of private, foreign co-financing of a World Bank project,
stating that ``[f]or the same reasons [applicable to funds from the
World Bank], a loan granted by a group of Japanese banks and insurance
companies [in the Philippines] * * * would not be countervailable.''
See Initiation of Countervailing Duty Investigation: Certain Textiles
and Textile Products from the Philippines, 49 FR 34381 (August 30,
1984).
Petitioners assert that the Department's determination does not
contravene the transnational subsidy rule because the subsidy in this
case is based on controlled access to credit, and not on a differential
in interest rates. The fact that the payment of the funds comes from a
private source outside of Korea is irrelevant. According to
petitioners, the case law cited by respondents does not involve
situations in which a foreign government conferred countervailable
subsidies by controlling access to third country financial sources. In
addition, petitioners note that these cases predate the changes in the
statute that expressly recognize indirect subsidies provided through
private actors.
Department's Position: Respondents' assertion concerning the
transnational subsidies rule is incorrect. Respondents made this same
argument in Steel Products From Korea (see 58 FR at 37344) and in
Stainless Steel Plate from Korea (see 64 FR at 15539). In upholding the
Department's determination in Steel Products From Korea, the Court did
not find in any way that the Department's determination with respect to
direct foreign loans was in conflict with the transnational subsidies
rule, as argued by respondents in that prior investigation. The cases
cited by respondents are also not relevant to the facts of this
investigation because those cases deal with funds from foreign
governments or international lending or development institutions. This
investigation, however, concerns the Korean government's control over
access to funds from overseas private sources of credit.
More specifically, however, the Department rejected respondents'
argument both in Steel Products From Korea and in Stainless Steel Plate
from Korea because the benefit alleged was not the actual funding of
direct foreign loans, but rather the ``preferential access to loans
that are not generally available to Korean borrowers.'' Steel Products
From Korea, 58 FR at 37344; Stainless Steel Plate from Korea, 64 FR at
15539. The GOK was found to control this access and because the steel
industry received a disproportionate share of these low-cost funds,
this preferential access was found to confer a countervailable benefit
on the steel industry. Nothing argued by respondents in this
investigation would lead us to change these prior determinations
concerning direct foreign loans. Therefore, our preliminary
determination remains unchanged.
Comment 6: Post-1991 GOK Credit Policies: Whether Foreign Currency
Loans from Domestic Branches of Foreign Banks are Countervailable
Petitioners argue that, contrary to its decision in Stainless Steel
Plate from Korea, the Department should find countervailable access to
foreign currency loans extended by foreign bank branches located in
Korea. Petitioners contend that the same conditions which led the
Department to find the existence of direction of credit for domestic
bank sources are present in the case of foreign currency loans extended
by foreign bank branches in Korea. Moreover, there is no affirmative
evidence to justify overturning the 1993 determination of GOK control
over domestic branches of foreign banks. Petitioners assert that the
Department mistakenly relied on a lack of any substantive discussion in
the record concerning the influence of the GOK on foreign banks as
affirmative evidence that no such controls exist. According to
petitioners, there is little, if any, meaningful discussion about the
direct or indirect influence of GOK regulations and policies on the
operation of foreign banks in Korea in the record, including the
verification reports. Thus, petitioners argue that the Department does
not have a basis for its determination in Stainless Steel Plate from
Korea that foreign currency loans from branches of foreign banks in
Korea are not countervailable.
Petitioners argue that pursuant to the Court of International
Trade's (CIT) recent ruling in Al Tech Specialty Steel Corp. v. United
States, the Department may not infer the truth of certain facts from
lack of any contradictory evidence on the record, and so may not
conclude that, absent evidence to the contrary, the GOK did not exert
improper controls or influence over foreign commercial
banks.9 Rather, petitioners argue that the Department is
required to support or authenticate with record evidence (i.e., verify)
any factual assertion on which it relies. Slip Op. 98-136 at 9 (CIT
1998). Petitioners state that, in this case, the Department has
violated that principle by failing to gather and verify the necessary
facts in support of the conclusion reached.
---------------------------------------------------------------------------
\9\ Slip Op. 98-136 at 9, 1998 WL 661461 (Ct. Int'l Trade Sept.
24, 1998)(``After having failed to uncover evidence to corroborate
Isibar's statement on the industry standard, Commerce should then
have either concluded that the claim was unverifiable or continued
the investigative process until corroborating evidence was
obtained'').
---------------------------------------------------------------------------
Moreover, petitioners assert that what little record evidence is
available demonstrates that GOK control over foreign banks in Korea is
equivalent to that over Korean domestic banks. The petitioners argue
that, according to record evidence, foreign commercial banks and
domestic banks are on an ``equal footing,'' and must therefore be
subject to the same controls. In particular, petitioners cite to the
General Bank Act, the Bank of Korea Act, and the Foreign Exchange
Management Law, noting that foreign banks are also subject to the
provisions of these laws. Petitioners also refer to the Department's
finding that the BOK and MOFE have equal authority to control and
monitor all banks, and acted a manner such that, ``[t]o a significant
extent, these institutions [BOK and MOFE] continued to intervene
directly and indirectly in the lending activities of commercial
banks.'' Directed Credit Memo at 6.
Petitioners assert that because the Department found that foreign
banks were controlled indirectly by the GOK in Steel Products from
Korea, and because the Department did not find any practical changes in
the GOK's indirect role on lending rates and appointment of bank
officials between 1991 and 1997, there is no evidence to support the
conclusion that these controls ceased to exist for foreign banks.
Specifically, petitioners argue that the GOK maintained indirect
control over foreign banks in two ways: (1) By influencing lending
rates; and (2) by influencing the appointment of bank officials. With
regard to lending rates, petitioners argue that (as indicated in the
Presidential Report) foreign commercial banks must be subject to the
same ``window guidance'' as domestic commercial banks to prevent
interest rates from increasing. See Presidential Report at 29.
According to petitioners, risk-averse, profit-motivated foreign
commercial banks would only charge such low interest rates in the
Korean
[[Page 30654]]
market if GOK policies restricted either the interest rates or
borrowers' access to credit from those banks. Moreover, petitioners
maintain instead that there is not sufficient evidence to determine
that foreign banks were without GOK influence in the selection of bank
officials at Korean branches.
In rebuttal, respondents argue that the petitioners' cite to Al
Tech is not pertinent. The reasoning of Al Tech does not logically
extend to this case because there is no evidence to support a
conclusion of direction and control over Korean branches of foreign
banks. Respondents advance that the record evidence, including meetings
with commercial bankers, incontrovertibly indicates that there is no
Korean government control of these banks. Rather, petitioners resort to
using generalities and speculation about the operation of the Korean
banking system and its provisions, which pertain neither to direction
of credit to the steel industry, nor to the Department's de facto
finding of direction of credit. Respondents also reject petitioners
argument because petitioners do not present any evidence of the means
by which the GOK controlled or directed the lending practices of these
foreign bank branches, in contrast to the Department's findings
regarding the domestic commercial banks. Rather, foreign banks' most
important source of funds is their head offices; this provides them
with both greater autonomy from the Korean banking system and a lower
cost of funds than that available to Korean commercial banks.
Respondents note that petitioners' focus on government controls on the
inflow of foreign funds is misplaced, as the GOK is primarily concerned
with the domestic money supply, while the inflow of foreign currency is
linked to the use of these funds.
Finally, respondents point out that the GOK does not, and does not
need to, influence these banks to lend to POSCO. Respondents reiterate
that POSCO is one of the best companies in Korea, and, given POSCO's
strong credit rating and reputation, most commercial banks would like
to lend to the company.
Department's Position: First, we note that petitioners make the
statement that because the Department found government control over
domestic branches of foreign banks in our 1993 decision in Steel
Products from Korea that it is incumbent on the Department to rely on
affirmative evidence that this control has been repealed. Petitioners
argue that the record evidence in this investigation provides no
affirmative evidence of any such repeal. Petitioners are incorrect.
First, we must make the basic point that the specific GOK control of
domestic branches of foreign banks during the period 1992 through 1997,
which is at issue here, was not examined in Steel Products from Korea.
As such, there is no ``affirmative evidence'' to ``repeal.'' In
addition, in Steel Products from Korea, our determination of GOK
control was based on the entirety of the financial system in Korea as
existed pre-1992. In this current investigation, we determined that the
more appropriate basis of examination of direction of credit after 1991
is an analysis of GOK control with respect to each aspect of the
different types of commercial banks in Korea, including domestic banks
and foreign bank branches.
More importantly, with respect to petitioners' argument on this
issue, as a matter of law, the countervailability of the GOK's control
over domestic branches of foreign banks during the period 1992 through
1997, which was not examined in the 1993 decision in Steel Products
from Korea, can only be based upon the information on the record in
this current investigation. As detailed above and explained in the
Credit Memo, the information on the record in this investigation
demonstrates that while the GOK controls domestic commercial banks it
does not control branches of foreign banks in Korea.
Petitioners' contention that record evidence establishes that the
Korean branches of foreign banks were subject to the same GOK controls
and direction that applied to domestic commercial banks is not
supported by the record. The record evidence cited by petitioners does
not amount to GOK control and direction of these institutions'
operations and lending practices.
The 1996 and 1998 OECD reports do not support petitioners'
arguments. While the 1996 OECD report discusses funding levels by
foreign banks in Korea, nowhere does that report state that these banks
were subject to the GOK's control or direction. Moreover, the 1998 OECD
Report, in discussing the weakness of the Korean banking system, and in
attributing responsibility for that weakness partly to the government's
direct and indirect intervention in the operations of commercial banks,
mentions only domestic commercial banks, not foreign banks. In fact,
the report discusses the inability of domestic commercial banks, after
their privatization, to ``develop the autonomy [from the government]
needed in a market economy.''
Contrary to their arguments, petitioners' reliance on the reports
issued by the Presidential Commission for Financial Reform, quoted by
the Department in the Credit Memo, is equally misplaced. The section of
the Presidential Report titled ``Deregulation of Access to Foreign
Capital Markets,'' cited by petitioners, refers to regulations
governing access to foreign capital markets, not regulations governing
foreign currency-denominated loans from domestic branches of foreign
banks in Korea.10 Regulations governing access to foreign
capital markets are quite separate from those governing domestic
branches of foreign banks in Korea. To the extent that the Presidential
Commission addressed domestic foreign currency loans, it addressed the
lifting of restrictions on the usage of these funds, which is limited
mostly to the importation of machinery from abroad. This has nothing to
do with any GOK controls over the operations of domestic branches of
foreign banks.
---------------------------------------------------------------------------
\10\ Financial Reform in Korea: The First Report (Presidential
Report I) at 22 (April 1997), Exhibit MOFE-9 of the MOFE
Verification Report, on file in the CRU.
---------------------------------------------------------------------------
Petitioners also support their argument with the contention that
foreign banks are subject to some of the same regulatory provisions
contained in the General Bank Act that govern domestic commercial
banks. However, the Department's analysis in the Credit Memo did not
rely on these regulatory provisions but on the record evidence that the
GOK continued to influence the lending practices of these domestic
commercial banks indirectly, in part because these banks did not
develop autonomy from the government. As we explained in the Credit
Memo, the weakness of domestic banks vis-a-vis the government was in
part an outgrowth of the government's historical role in allocating
credit in accordance with policy objectives. Also, the corporate
governance structure of Korea's commercial banks (weak ownership
structure, lack of autonomy in appointing banking officials)
contributed to their weakness vis-a-vis the government. The fact that
the GOK's indirect involvement in commercial banking operations
continued into the 1990s exacerbated this problem. See Credit Memo at
8-9. Foreign banks in Korea, however, were not subject to this same
influence. Their sources of funds were their head offices and, as
respondents correctly illustrate, appointment of their senior officials
was not subject to influence by the GOK. Moreover, there is no evidence
that the GOK played a role in the distribution of these funds by the
Korean branches. Petitioners proffer no evidence that foreign banks in
Korea were
[[Page 30655]]
``inescapably influenced by the controls on every other sector of the
banking industry.'' Rather, they speculate that these banks would be no
less influenced than their Korean counterparts by the lead of the
Korean Development Bank and the Bank of Korea to extend credit to
certain government-favored projects. This is not a conclusion reached
by any of the commercial bankers at verification, and petitioners do
not point to any evidence that would support this contention. We also
note that petitioners' view of the GOK's motivation to control foreign
sources of money to keep interest rates from falling is not consistent
with one of the alleged methods of control, i.e., limits on interest
rates through ``window guidance.''
The fact that foreign banks in Korea did not account for a
significant amount of total lending in Korea is not sufficient evidence
to lead us to conclude that POSCO would not have been able to raise
sufficient funds from this source. Rather, the record shows that loans
from foreign banks in Korea were a significant source of POSCO's
borrowing, and credit from these banks was not controlled by the GOK.
Petitioners have correctly argued that the Department is required
to support or authenticate with record evidence factual assertions
relied upon in our final determinations. Indeed, section 782(i) of the
Act requires the Department to verify the information used in making a
final determination. In this investigation, petitioners alleged that
the GOK controlled the allocation of credit in Korea during the years
1992 through 1997. Therefore, once a credible allegation was made, the
responsibility of the Department was to solicit and develop factual
information to determine whether the GOK was directing credit during
those years. In this investigation, the Department properly examined
individually the various sources of long-term credit in Korea. This
examination included, among other sources, loans from foreign banks
with branches in Korea.
Because of the complexity of this issue, a government's control and
its allocation of credit within its borders, the Department conducted
four days of meetings with commercial and investment banks and with
economic and financial research institutes in Korea. During this
intensive four-day period with experts in the operation of the
commercial credit market in Korea, we focused on all aspects of the
alleged GOK control of banks in Korea, including its alleged control of
foreign banks. In these meetings we sought information on the aspects
and measures used by the government in its control of credit and
financial institutions in Korea. Information provided to us by these
banking and financial experts on the measures used by the GOK to
control banks and allocate credit in the Korean financial market was
summarized in our Bankers Report.
Based in large part on the information which was gathered during
these meetings, we determined that the actions of the GOK in the Korean
financial system support the conclusion that the GOK controls credit
through both government-owned banks, such as the Korean Development
Bank, and Korean domestic banks; however, no similar control was found
for foreign banks operating in Korea. As noted in the facts detailed
above, and in the Credit Memo, our determination that the GOK does not
control the lending decisions and allocation of credit of foreign banks
operating in Korea is supported by the information on the record in
this investigation.
Comment 7: Post-1991 GOK Credit Policies: Whether POSCO's Access to
Foreign Securities Markets Results in Countervailable Benefits
According to petitioners, extensive record evidence, in particular
the Department's findings at verification, shows that access to foreign
sources of funds, including foreign securities, was strictly controlled
by the GOK through the POI. Petitioners assert that, as recognized by
POSCO, the MOFE restricted access to foreign securities markets with
the purpose of maintaining low levels of cost of funds for certain
companies. Petitioners state that interest rates on foreign credit
markets were five to seven percentage points lower than those on
domestic foreign currency loans, and petitioners charge that the GOK's
goal of preventing inflationary effects necessitated the maintenance of
this interest rate differential. In addition, petitioners claim that
the GOK's control over access to foreign funds constitutes a financial
contribution within the meaning of the Act, in particular, the
``entrusts or directs'' standard of section 771(5)(B)(iii) of the Act.
Respondents note that in the recent Stainless Steel Plate from
Korea final determination, the Department determined that POSCO's
alleged ``preferential access'' to regulated foreign sources of funds
did not confer a benefit. They state that the record evidence in this
case also supports a finding that access to foreign securities did not
confer a benefit to POSCO. Respondents also dispute petitioners' claim
that access to foreign securities constitutes a financial contribution
within the meaning of the Act, stating that petitioners' interpretation
of the ``entrust or directs'' standard is unreasonable. Respondents
state that this standard cannot encompass private actions by
independent foreign parties that are consistent with market-oriented
behavior at market-determined interest rates.
Department's Position: In the Credit Memo, we stated that there are
three elements required to find a potential subsidy countervailable:
(1) A financial contribution is made by a government or public body;
(2) a benefit is conferred on the recipient; and (3) the subsidy is
specific. If one of these three elements is not met, the subsidy is not
countervailable. In accordance with section 771(5)(E)(ii) of the Act,
we examined whether a benefit has been conferred on the recipient,
POSCO, from foreign securities issued in overseas markets. We also
preliminarily determined that POSCO's access to government-regulated
foreign sources of credit did not confer a benefit to the recipient, as
defined by section 771(5)(E)(ii) of the Act, and, as such, is not
countervailable. See Credit Memo at 18. As discussed in Comment 5,
above, we continue to find that branches of foreign banks are not
subject to the GOK's control and direction. Therefore, we continue to
find that access to government-regulated foreign sources of credit did
not confer a benefit, because the rates obtained on foreign securities,
even though access to them was limited, were not less than those on
foreign currency loans available to respondent companies in Korea. As
such, there is no need to address the additional comments raised by
petitioners and respondents above.
Comment 8: Whether Lending From Domestic Branches of Foreign Commercial
Banks Is an Appropriate Benchmark for Long-term Financing
Petitioners dispute the Department's decision in Stainless Steel
Plate from Korea that because the GOK did not control or direct credit
provided by the domestic branches of foreign commercial banks, the
interest rate on certain such loans is an appropriate benchmark for
determining the benefit from (1) foreign currency loans from Korean
commercial banks extended post-1991 and (2) foreign securities
offerings. Petitioners argue that since record evidence establishes the
GOK's control of credit from domestic branches of foreign commercial
banks, the Department must use an alternative benchmark from an
uncontrolled
[[Page 30656]]
domestic source. Petitioners assert that the Department should instead
continue to apply the methodology established in Steel Products from
Korea (1993), and use the domestic corporate bond rate.
Respondents claim that there is substantial evidence on the record
to support the Department's finding that the GOK neither controls nor
directs the operations of foreign commercial banks. Therefore, loans
from these banks are appropriate as benchmark commercial loans.
Department's Position: We have determined that the GOK does not
control credit from domestic branches of foreign banks. See Comments 5
and 6, above. Because these uncontrolled foreign banks provided foreign
currency loans, interest rates on these loans are the appropriate
benchmarks to use in calculating the benefit from foreign currency
loans provided to the respondents from government-owned banks and
government-controlled domestic banks. For the reasons discussed in
Comment 6, we disagree with petitioners' arguments that funding from
domestic branches of foreign banks cannot serve as an appropriate
benchmark to measure any potential benefit from regulated foreign
currency-denominated sources of credit, e.g., foreign securities from
abroad.
Comment 9: Dai Yang's Long-Term Interest Rate Benchmark for Dollar-
Denominated Loans
Respondents argue that, absent loans by Korean branches of foreign
banks, the Department should use the average interest rates charged on
domestic foreign currency loans from Korean branches of foreign banks
to POSCO and Inchon as a benchmark for calculating the benefit from Dai
Yang's domestic foreign currency loans. Respondents note that the use
of this industry-specific data would be in line with the Department's
policy of using industry-specific benchmarks when company-specific
benchmarks were not available. Alternatively, respondents assert that
the Department may use data solely from Inchon if the Department
determines that to be more appropriate.
Petitioners reject the use of an ``industry-specific'' benchmark,
as proposed by Dai Yang. While respondents cite to the Department's
1989 Proposed Regulations in support of this practice, there is no such
standard established in the 1997 Proposed Regulations, which indicates
that the Department will use a national average rate absent company-
specific benchmark information. Moreover, petitioners suggest the
impracticality of this suggestion, as the stated purpose of a benchmark
rate is to reflect the ``amount the firm would pay on a comparable
commercial loan(s) that the firm could actually obtain on the market.''
19 C.F.R. 351.505(a)(1) (emphasis added). Given the varied financial
status of firms, there is no reason to believe that one firm's rates
are an acceptable surrogate for another firm. Therefore, the Department
should use the national average interest rate benchmark to determine
the benefit on all long-term financing, loans and bonds.
Department's Position: While petitioners are correct that it is the
Department's practice to use a national average interest rate benchmark
when company-specific rates are unavailable, we were unable to locate a
national average rate for domestic branches of foreign banks, or any
other appropriate surrogate national average rate in this case.
Additionally, it is the Department's long-standing practice to compare
countervailable foreign currency-denominated loans to a benchmark in
the same currency, as discussed in Comment 7 above, making the use of
the won-denominated interest rate benchmark, as suggested by
petitioners, inappropriate in this circumstance. See e.g., CVD Final
Rule, 63 FR at 65363; see also, Certain Apparel from Thailand, 50 FR at
9824 (``benchmark must be applicable to loans denominated in the same
currency as the loans under consideration),'' and Cold-Rolled Steel
From Argentina, 49 FR at 18019 (``the benchmark is selected from
interest rates applicable to loans denominated in the same currency as
the loan under consideration'').
In the past, where the Department has found that a company-specific
factor is a reasonable representation of industry practice, we have
used such information as the most appropriate surrogate. See Final
Affirmative Countervailing Duty Determination: Certain Stainless Steel
Wire Rod from Italy, 63 FR 40474, 40477 (July 29, 1998). As stated in
the Department's CVD Final Rule, 63 FR at 65408, section
351.505(a)(2)(i), ``* * * the Secretary normally will place primary
emphasis on similarities in the structure of the loans (e.g., fixed
interest rate v. variable interest rate), the maturity of the loans
(e.g., short-term v. long-term), and the currency in which the loans
are denominated.'' Based on the similarities in the circumstances and
structure of Inchon's and Dai Yang's lending practices, we find that
the rate calculated from Inchon's loans by Korean branches of foreign
banks is the most appropriate benchmark.
Comment 10: Inchon's Long-Term Loan Benchmark
Respondents propose that, consistent with the recent Stainless
Steel Plate from Korea final determination and its regulations, the
Department should use the interest rates on Inchon's long-term foreign
currency loans from Korean branches of foreign banks to calculate a
company-specific weighted-average U.S. dollar-denominated benchmark
rate for Inchon. If the Department finds that Inchon's domestic foreign
currency loans and direct foreign loans constitute directed credit, it
should then use this calculated company-specific benchmark for
calculating the benefits conferred upon Inchon.
In rebuttal, petitioners contend that the methodology used to
calculate POSCO's company-specific weighted average dollar denominated
benchmark interest rate, which Inchon proposes to continue using in
this investigation, deviates substantially from the Department's
established policy. It is the Department's practice to use a benchmark
that is based on the year in which a long-term loan obligation was
assumed. However, the methodology used by the Department understated
the benefit to producers of subject merchandise by failing to
countervail certain loans.
Department's Position: Consistent with the Department's long-term
policy, and with the methodology established in the final determination
of Stainless Steel Plate from Korea, it is appropriate to calculate a
company-specific weighted-average U.S. dollar-denominated benchmark
based on loans extended by Korean branches of foreign banks to
calculate the benefit to Inchon from domestic foreign currency loans
and direct foreign loans.
Petitioners argue that this is inconsistent with the Department's
practice of using a benchmark based on the year in which a loan was
received. While petitioners are correct that this is the Department's
standard practice, in this case, annual information was not available.
Moreover, it is also the Department's standard practice to compare
government-regulated credit to a benchmark denominated in the same
currency, if such a benchmark is available, as discussed in Comment 7,
above. This is in accordance with Department policy and past practice.
See e.g., CVD Final Rule, 63 FR at 65363; see also, Certain Apparel
from Thailand, 50 FR at 9824 (quoting, ``benchmark must be applicable
to loans denominated in the same currency as the loans under
consideration),'' and Cold-Rolled Steel From Argentina, 49
[[Page 30657]]
FR at 18019 (quoting, ``the benchmark is selected from interest rates
applicable to loans denominated in the same currency as the loan under
consideration''). Therefore, we believe that the benchmark calculation
methodology determined in Stainless Steel Plate from Korea is the most
reasonable surrogate.
Comment 11: Post-1991 GOK Credit Policies: Whether POSCO Received
Disproportionate Benefits From GOK-Regulated Long-Term Loans
Respondents argue the Department erred when it determined that all
producers of the subject merchandise received a disproportionate share
of long-term loans, in spite of POSCO's demonstration, according to the
Department's own GDP test, that it did not. Respondents indicate that
it is within the Department's authority to address, on a company-
specific basis, those companies that may have received a
disproportionate share of long-term loans; however, it is not within
the Department's authority to generalize the impact of benefits
received by specific companies onto an entire industry, thereby finding
disproportionality against a company whose loan shares were
demonstrably not disproportionate.
Respondents state that the appropriate legal standard is whether a
domestic subsidy ``is a specific subsidy, in law or in fact, to an
enterprise or industry * * *.'' (quoting section 771(5A)(D) of the
Act). Because POSCO is ``an enterprise'' as defined by the statue, and
constitutes ``the industry'' for which the Department must make a
determination concerning the existence of a domestic subsidy from the
purported directed credit, the Department must find that the subsidy is
not specific to POSCO.
According to petitioners, respondents' contention that the
Department must examine whether disproportionate benefits have been
provided to POSCO is a misinterpretation of the law. In particular,
petitioners state that the statute dictates that the Department will
find de facto specificity when either an enterprise or an industry
receives disproportionate benefits. The record, petitioners note, shows
that the Korean iron and steel industry received a disproportionate
amount of a subsidy.
Department's Position: We disagree with respondents' arguments. The
fact that POSCO borrowed very little from those sources of credit that
were found to be de facto specific to the steel industry during the
relevant period is irrelevant. The clear language of the statute is
that a subsidy is specific when ``an enterprise or an industry receives
a disproportionately large amount of the subsidy.'' Section
771(5A)(D)(iii)(III) of the Act (emphasis added). Thus, when a subsidy
is specific to an industry, even if it is not specific to an enterprise
that is part of that industry, the Department will find that subsidy to
be countervailable, even if the actual subsidy to the enterprise is
very small.
While respondents may characterize this approach as ``collective
guilt,'' the Department has in numerous cases found countervailable
relatively small subsidies to a respondent firm on the basis of
disproportionate use by the industry to which the respondent belongs.
See, e.g., Final Affirmative Countervailing Duty Determination: Certain
Steel Products from Brazil, 58 FR 37295, 37299 (July 9, 1993) (Certain
Steel from Brazil). Indeed, this is not an unusual fact pattern for de
facto specificity findings under, for example, large research and
development programs. As such it is not surprising that under
respondents' suggested approach, the Department would rarely find a
subsidy to be de facto specific, because subsidies under a program are
frequently not received on a disproportionate basis by a single
enterprise. Finally, we agree with petitioners that respondents'
attempt to link certain methodologies that are conducted on a company-
specific basis to the specificity analysis is also without merit. The
quantification of the benefit is simply not germane to the Department's
analysis concerning specificity.
Comment 12: Countervailability of POSCO's Two-Tiered Pricing System
Respondents argue that POSCO's pricing decisions are not influenced
by the GOK, and that the pricing structure in question is consistent
with commercial considerations and is widely used by companies in
numerous industries in Korea. RespondentsThey state that two-tiered
pricing has evolved as a natural response to market competition:
because the competing imports are eligible for duty drawback, companies
in Korea must set local export prices to compete with duty-exclusive
import prices. Otherwise, respondents claim, POSCO would lose business
to competing importers. Further, respondents argue that the
Department's methodology used in the preliminary determination was
based upon the flawed assumption that there are no major differences
between different hot-rolled stainless coils, and that the Department
failed to consider quality and terms-of-sale differences in its price
comparisons as required under section 771(5)(E)(iv) of the Act, which
sets forth the standards for determining the adequacy of remuneration.
Petitioners agree with the Department's preliminary determination
that POSCO supplied exporters of subject merchandise with
preferentially priced hot-rolled stainless steel coil, and that this
practice constitutes a countervailable export subsidy. Petitioners
state that the Department should continue to use import prices for hot-
rolled stainless steel coil as the benchmark for calculating the
benefit conferred by this program, consistent with the Department's
practice of using the world market price as a benchmark. As an
alternative, petitioners propose the use of a weighted-average of the
home market prices and import prices as the benchmark price.
Petitioners rebut respondents' argument that POSCO's pricing system
is consistent with commercial considerations, and disagree with
respondents' claim that this pricing schemeystem is necessary in order
for POSCO to compete with foreign competitors. Petitioners maintain
that the attribution of commercial benefits to a subsidy program such
as this one is irrelevant, as commercial considerations--such as the
loss of business--do not mitigate the countervailability of such
subsidies. Moreover, the language of the statute states that the
adequacy of remuneration will be measured ``in relation to prevailing
market conditions * * * for goods purchased in the country which is
subject to the investigation.'' Therefore, POSCO's competition with
imported material is also immaterial.
Department's Position: Because POSCO, a government-owned entity,
charged lower prices to respondent companies for inputs that were used
to produce subject merchandise for export, this program constitutes an
export subsidy in accordance with section 771(5A)(B) of the Act. We
disagree with respondents' claim that there was no GOK control or
intervention in POSCO's pricing decisions. As discussed in the
``Programs Determined to be Countervailable'' section of this notice,
we have determined that the actions of POSCO are the actions of the GOK
because POSCO is a government-controlled company. Respondents also
indicate that POSCO has no incentive to sell to its competitors at
subsidized prices. However, as discussed above, POSCO is a government-
controlled company, and record evidence indicate that the GOK does
influence POSCO's pricing decisions. See Source Document Memo.
The parties have put forth numerous arguments explaining how the
benefit
[[Page 30658]]
from this program should be determined under the guidelines of the
adequacy of remuneration standard established in section 771(5)(E)(iv)
of the Act. However, the adequacy of remuneration standard is not
relevant to the program at issue. The program at issue is one in which
POSCO charges different prices to Korean steel manufacturers based upon
export performance. This type of dual pricing program is specifically
addressed in the Illustrative List of Export Subsidies (the
Illustrative List) which is provided as Annex I of the Agreement on
Subsidies and Countervailing Measures. Because this type of program is
specifically addressed under Item (d) of the Illustrative List, the
criteria to be used to determine whether POSCO's dual pricing policy is
a countervailable subsidy is the criteria set forth under Item (d), not
the criteria used to determine the adequacy of remuneration as argued
by the parties. Indeed, the adequacy of remuneration standard used for
the provision of goods and services and the criteria used to determine
the subsidy based upon price preferences for inputs used in the
production of goods for exports are set forth in separate regulations.
See section 351.511 and section 351.516 of the CVD Final Rules.
Additionally, respondents discussed various other market
conditions, e.g., quality, as factors which cause differences between
POSCO's prices and those of POSCO's foreign competitors. However, as
discussed in the ``Programs Determined to be Countervailable'' section
of this notice, we have altered our methodology from the preliminary
determination. Therefore, the products and pricing practices of only
one supplier, POSCO, is considered in the Department's comparison. The
Department is comparing POSCO's ``domestic'' prices to POSCO's ``local
export'' prices. While factors such as quality may potentially create a
price differential between different producers, these variables do not
play a role in the different prices at which POSCO sells the same
subject merchandise to its customers. Therefore, these arguments are
not applicable.
Respondents argued that if the Department mistakenly countervailed
POSCO's two-tiered pricing policy, numerous adjustments should be made
to the import prices which served as the benchmark in the preliminary
determination. Petitioners also put forth numerous arguments with
regard to these benchmark prices. However, as discussed in the
``Programs Determined to be Countervailable'' section of this notice,
we have stated the reasons for basing our comparison on prices charged
by POSCO to respondents when producing for domestic sale and the prices
charged by POSCO to respondents when producing for export. Therefore,
the parties' arguments with regard to the use of import prices as a
benchmark are not applicable.
The parties argue about the date that should be considered the
``date of sale'' by the Department. As indicated by both petitioners
and respondents, this is not a dumping investigation, and the important
question is when the prices being compared were set. Therefore, we
based the comparison on the months in which the prices were set, which
is the month in which the order was placed. Therefore, we believe that
the most reasonable comparison is a monthly one, established by the
order dates of the respondent firms.
Finally, respondents argue that this pricing system is not unique
to POSCO, but is used by numerous companies in a variety of industries
as a market response to Korea's system of duty drawback. First we note
POSCO's own statements indicate that POSCO sets local export prices at
levels that are below the duty-exclusive price. See POSCO's October 21,
1998 questionnaire response at 2. Under the countervailing duty law, a
government pricing program which provides a lower price to exporters
based upon export performance is a countervailable subsidy under
section 771(5A)(B) of the Act. The statute and Item (d) of the
Illustrative List provide the standard to be used by the Department to
determine whether a countervailable subsidy has been provided by a
pricing program of the type under examination in this investigation.
Once the pricing program is determined to be an export subsidy under
the statute, no further analysis on the countervailability of this
program is required.
Comment 13: The GOK's Pre-1992 Investments Constitute Non-
Countervailable ``General Infrastructure''
Respondents state that in the preliminary determination, the
Department relied exclusively upon its decision in Steel Products from
Korea, to find that the GOK's investments at Kwangyang Bay during the
period 1983-1991, provided countervailable subsidies to POSCO.
Respondents note that the final determination of Steel Products from
Korea, however, was made under the Pre-Uruguay Round law and on a
different factual record. Therefore, in order to carry out its
statutory mandate, the Department must apply the Post-Uruguay Round law
to the facts presented in this instant investigation, and revisit its
preliminary determination. Under section 771(5)(B) of the Act, there is
now a requirement that a financial contribution must be provided by the
government in order for a countervailable subsidy to exist. Respondents
further argue that under section 771(5)(D)(iii) of the Act, the term
``financial contribution'' does not include the provision of general
infrastructure.
Respondents state that, although the Department's administrative
determinations, and the statute itself, are silent as to the definition
of ``general infrastructure'' under the new law, the Department's new
CVD regulations are instructive. Respondents note that section
351.511(d) of the new regulations defines ``general infrastructure'' as
``infrastructure that is created for the broad societal welfare of a
country, region, state, or municipality.'' See CVD Final Rules. They
argue that under the Post-Uruguay Round law and the basic standard for
general infrastructure articulated in section 351.511(d) of the new
regulations, the GOK's pre-1992 infrastructure investments at Kwangyang
Bay constitute non-countervailable ``general infrastructure.''
Petitioners note that the Department in the past has found that the
Kwangyang Bay investments do not constitute general infrastructure, and
urge the Department to continue this practice. See Stainless Steel
Plate from Korea, 64 FR at 15547, and Steel Products from Korea, 58 FR
at 37346-47.
Department's Position: Respondents are correct when they assert
that general infrastructure is not considered to be a financial
contribution under 771(5)(D)(iii) of the Act. However, they are
incorrect when they state that the infrastructure development at
Kwangyang Bay constitutes general infrastructure. As respondents have
acknowledged, the statute is silent as to the definition of ``general
infrastructure;'' however, they note that the Department's new CVD
regulations are instructive. See CVD Final Rules, 63 FR at 65412. While
the new CVD regulations are not applicable to this case because this
investigation was initiated before the effective date of these
regulations, we are referring to them, in part, for guidance as to what
constitutes ``general infrastructure.''
The new CVD regulations define general infrastructure as
``infrastructure that is created for the broad societal welfare of a
country, region, state or municipality.'' Thus, any infrastructure that
does not satisfy this public welfare
[[Page 30659]]
concept is not general infrastructure and is potentially
countervailable. Therefore, the type of infrastructure per se is not
dispositive of whether the government provision constitutes ``general
infrastructure.'' Rather, the key issue is whether the infrastructure
is developed for the benefit of the society as a whole. For example,
interstate highways, schools, health care facilities, sewage systems,
or police protection would constitute general infrastructure if we
found that they were provided for the good of the public and were
available to all citizens and members of the public. Infrastructure,
such as industrial parks and ports, special purpose roads, and railroad
spur lines that do not benefit society as a whole, does not constitute
general infrastructure within the meaning of the new CVD regulations,
and is countervailable if the infrastructure is provided to a specific
enterprise or industry and confers a benefit.
The infrastructure provided at Kwangyang Bay was not provided for
the good of the general public; instead, it was built to support POSCO;
therefore, it does not constitute ``general infrastructure.'' It is
clear from the record that the infrastructure provided for POSCO's
benefit at Kwangyang Bay is de facto specific, and that POSCO is the
dominant user. See Steel Products From Korea, 53 FR at 37346-47.
Therefore, the infrastructure at Kwangyang Bay is countervailable.
Indeed, the ``Explanation of the Final Rules'' (the Preamble) to the
new CVD regulations, which respondents assert are instructive on this
issue, specifically cites to the infrastructure provided at Kwangyang
Bay in Steel Product From Korea as an example of industrial parks,
roads, rail lines, and ports that do not constitute ``general
infrastructure,'' and which are countervailable when provided to a
specific enterprise or industry. See CVD Final Rules, 63 FR at 65378-
79.
Comment 14: GOK's Pre-1992 Investments Are Not Countervailable Because
They Are ``Tied'' to Kwangyang Bay
Respondents state that, in the preamble to the new regulations, the
Department has adopted the practice of attributing subsidies that can
be ``tied'' to particular products to those products. See CVD Final
Rules, 63 FR at 65400. With respect to the instant investigation,
respondents argue that the alleged subsidies are ``tied'' to the
products that are produced at POSCO's Kwangyang Bay facility. Since the
subject merchandise is not produced at the Kwangyang Bay facility, the
subject merchandise does not benefit in any way from the allegedly
subsidized general infrastructure at Kwangyang Bay. Respondents contend
that it would run counter to the Department's practice, and common
sense, to attribute countervailable benefits to products that cannot
benefit from the alleged subsidies. They also note that under the
Department's past practice, where a subsidy is ``tied'' only to non-
subject merchandise, that subsidy is not attributed to the merchandise
under investigation. See Final Results of Countervailing Duty
Administrative Review: Certain Iron-Metal Castings from India, 62 FR
32297, 32302 (June 13, 1997).
Respondents argue that the Department was faced with a similar
factual situation as the instant case in the Final Affirmative
Countervailing Duty Determination: Iron Ore Pellets from Brazil, 51 FR
21961, 21966 (June 17, 1986) (Iron Ore Pellets from Brazil). In that
case, petitioners argued that infrastructure and regional tax benefits
provided to the Carajas mine project should be attributed to the
respondent even though respondent did not produce (or intend to
produce) subject merchandise at the Carajas mine project. The
Department rejected petitioners' argument finding that the
infrastructure and tax benefits were, by definition, only for the
Carajas mine project. Because the respondent did not produce subject
merchandise at the Carajas mine project, the Department did not
consider this program countervailable with respect to subject
merchandise.
Respondents contend that, rather than directly addressing the fact
that the alleged subsidies are tied to Kwangyang Bay, the Department
has instead mis-cited to its earlier finding in Steel Products from
Korea. They note that in the preliminary determination of the instant
investigation the Department claims that the alleged subsidy in Steel
Products from Korea was treated as ``untied.'' However, respondents
state that nowhere in Steel Products from Korea does it state that the
alleged subsidy was being treated as ``untied.'' In fact, respondents
state that the issue of whether the subsidies were tied or untied never
arose in that investigation because the subject merchandise was
produced at both of POSCO's steel facilities and, therefore, it was
unnecessary for the Department to characterize the alleged subsidy as
either ``tied'' or ``untied.'' They argue that in mischaracterizing its
finding in Steel Products from Korea, the Department is attempting to
bootstrap that finding into the instant investigation.
In their rebuttal brief, petitioners reject the respondents'
argument that the Department is attempting to bootstrap its finding in
Steel Products from Korea into the instant investigation. In Steel
Products from Korea, petitioners state that the Department, by dividing
the benefit attributable to the POI by POSCO's total sales, clearly
treated the grants as untied benefits. See Steel Products from Korea,
58 FR at 37347. The Department clearly reiterated this position in
Stainless Steel Plate from Korea, 64 FR 15549. Therefore, petitioners
argue, the Department should continue to find Kwangyang Bay
infrastructure investments ``untied'' in the final determination.
Department's Position: First, we note that the attribution, or
``tying,'' of a subsidy to a particular product or market is a long-
standing policy of the Department, not one recently adopted in the new
CVD regulations. Also, it has been the practice of the Department to
attribute the benefit conferred from an ``untied'' domestic subsidy to
the recipient's total sales. (This is how the subsidy rate was
calculated for the Kwangyang Bay subsidy in Steel Products from Korea.)
By contrast, if the subsidy was, for example, tied to export
performance, then the Department would only attribute the benefit of
the subsidy to the recipient's export sales.
Respondents' argument that the infrastructure subsidy provided to
POSCO is tied to only certain of POSCO's production is flawed. Part of
respondents' argument rests upon the premise that a regional subsidy
can be tied to only the subsidy recipient's production in that region.
If this allocation methodology were adopted and the Department tied
regional subsidies to production in a particular region, the Department
would essentially be forced to calculate factory-specific subsidy
rates. In addition, if such a methodology were applied, then foreign
companies could easily escape collection of countervailing duties by
selling the production of a subsidized region domestically, while
exporting from a facility in an unsubsidized region. This allocation
methodology has been clearly rejected by the Department. See, e.g.,
Final Negative Countervailing Duty Determination: Fresh Atlantic Salmon
from Chile, 63 FR 31437, 31445-46 (June 9, 1998) (stating, ``[T]he
Department does not tie the benefits of federally provided regional
programs to the product produced in the specified regions.'') Indeed,
the Department has explicitly rejected this argument in the new CVD
regulations cited by
[[Page 30660]]
respondents in support of their argument on this issue. See CVD Final
Rules, 63 FR at 65404. The infrastructure development at Kwangyang Bay
provided a benefit to POSCO and, as discussed further below, the
benefit from the subsidy is untied and is attributed to POSCO's total
sales.
Respondents' argument is also flawed because respondents have
misinterpreted the attribution methodology. Attribution of the benefit
of a subsidy is based upon the information available at the time of
bestowal. The concept of ``tying'' a subsidy at the time of bestowal
can be traced back to Certain Steel Products from Belgium. See Final
Affirmative Countervailing Duty Determination: Certain Steel Products
from Belgium, 47 FR 39304, 39317 (September 7, 1982). At the time of
bestowal of the subsidy conferred by the Kwangyang Bay infrastructure,
the benefit of the subsidy was to POSCO, not to a specific product
line. Thus, the benefit cannot be tied to any specific product, but
instead, is an untied benefit provided by the GOK to POSCO. Once it is
determined that an untied subsidy has been provided to a firm, the
Department will attribute that untied subsidy to the firm's total
sales, even if the products produced by the firm differ significantly
from the time when the subsidy was provided. The Department will not
examine whether product lines have been expanded or terminated since
the time of the subsidy's bestowal.
Finally, we note that respondents' reliance on Iron Ore Pellets
from Brazil is misplaced. First, in both Iron Ore Pellets from Brazil
and in the Kwangyang Bay subsidy at issue in this investigation, the
determination of attribution of a subsidy was made at the time of
bestowal, which is consistent with Department policy. Thus, in both
cases, the Department applied the same standard in determining whether
a subsidy was tied or untied. Second, the subsidy alleged in Iron Ore
Pellets from Brazil was alleged to have been provided to an input into
the subject merchandise, an issue distinct from the issue in the
instant investigation. We further note that the treatment of input
subsidies at issue in Iron Ore Pellets from Brazil has changed since
1986. See e.g., section 351.525(b)(6)(iv) of the CVD Final Rules and
Final Results of Countervailing Duty Administrative Review: Industrial
Phosphoric Acid from Israel, 63 FR 13626 (March 20, 1998). Thus, if the
identical subsidy issue cited in Iron Ore Pellets from Brazil were
before the Department today, it is uncertain whether the same decision
would be made in 1999 as was made in 1986.
Comment 15: The Department Erred in Treating the Alleged Benefit to
POSCO as a Grant
Respondents note that, in the preliminary determination, the
Department determined that the GOK's costs of constructing the
infrastructure at Kwangyang Bay constituted grants to POSCO. In
treating these costs as grants to POSCO, respondents argue, the
Department has ignored the fact that the GOK owns these facilities and
charges POSCO the normal user fees for the services provided. They
assert that it is erroneous as a matter of law and contrary to
Department precedent to countervail as grants infrastructure that the
respondent does not own and where normal user fees are paid to use the
infrastructure services. (Citing, sections 771(5)(D)(i) and (E)(iv) of
the Act, and the Final Affirmative Countervailing Duty Determination:
Industrial Phosphoric Acid from Israel, 52 FR 25447, 25451 (July 7,
1987) (IPA from Israel; Final Determination).)
Respondents contend that rather than treating the infrastructure
investments as grants, the Department should have analyzed the issue as
one of whether the infrastructure services were provided ``for less
than adequate remuneration,'' citing section 771(5)(E)(iv) of the Act.
They note that adequacy of remuneration is the new statutory provision
for determining whether the government's provision of a good or service
constitutes a countervailable subsidy. According to section 771(5)(E)
of the Act, the adequacy of remuneration with respect to a government's
provision of a good or service shall be determined in relation to
prevailing market conditions (i.e., price, quality, availability,
marketability, transportation, and other conditions of purchase or
sale) for the good or service being provided or the goods being
purchased in the country which is subject to the investigation or
review.
Respondents state that the Department addressed a similar issue in
IPA from Israel; Final Determination. At issue in that case were
certain rail lines built (and owned) by the Israeli government for
``the almost exclusive use of a few chemical companies. See IPA from
Israel; Final Determination, 52 FR at 25447. The Department recognized
that any benefit to be derived from the infrastructure was related to
the use of that infrastructure, and since the respondent in question
paid for such use, the question was whether the payments for such use
were higher or lower than those paid by other users for similar
services. The Department determined that the rates paid were not
preferential and, therefore, that no benefit or subsidy existed.
Respondents also state that in Certain Steel Products from Brazil,
the Department applied a similar analysis. In that case, the Department
determined that ``The fees charged * * * reflected standard fees
applied to all users of port facilities, thus, they are non-specific.''
Certain Steel Products from Brazil at 37300. See also, Final
Affirmative Countervailing Duty Determination: Carbon Steel Wire Rod
from Trinidad and Tobago, 49 FR 480, 486 (Jan. 4, 1984) (Carbon Steel
Wire Rod from Trinidad and Tobago).
Respondents argue, in the alternative, that if the Department
continues to treat these benefits as ``grants,'' then these grants must
be pro-rated based upon the actual benefit to POSCO. They note that the
GOK provided information on the use of these facilities and, where
possible, POSCO's portion of the total usage during the POI. Since
POSCO is not the only company that benefits from the infrastructure
investments at Kwangyang Bay, the Department cannot simply attribute
the entire benefit from the GOK's infrastructure investments to POSCO.
The benefit found must be allocated proportionate to POSCO's use of
these facilities at Kwangyang Bay during the POI.
In their rebuttal brief, petitioners state that respondents are
blurring the distinction between the original provision of specific
infrastructure investments and the adequacy of remuneration of fees
charged for the future use of the infrastructure. In addition,
petitioners argue that the investment grants should not be ``pro-
rated'' based on POSCO's use of the facilities, because POSCO is the
dominant beneficiary. Petitioners note that in Steel Products from
Korea, the Department determined that Kwangyang Bay was specifically
designed for POSCO. See Steel Products from Korea, 58 FR at 37347.
Petitioners point out that the Department specifically clarified this
point in the recent final determination of Stainless Steel Plate from
Korea. See Stainless Steel Plate from Korea, 64 FR at 15,550.
Department's Position: The Kwangyang Bay infrastructure subsidy
under investigation in Steel Products from Korea, Stainless Steel Plate
from Korea, and this investigation is not the fee charged by the
government for use of rail and port facilities, as was the issue in the
cases cited by respondents. Indeed, we found an alleged program
[[Page 30661]]
providing ``preferential'' port charges to the Korean steel industry
not to exist in Steel Products from Korea. Therefore, the cases cited
by respondents are not relevant to the treatment of the Kwangyang Bay
subsidy.
The benefit under this subsidy program to POSCO was the creation of
Kwangyang Bay to support POSCO's construction of its second integrated
steel mill. The building of this infrastructure to support POSCO's
expansion, which was planned years before POSCO commenced production at
Kwangyang Bay, was the benefit countervailed in Steel Products from
Korea and in this investigation. Thus, the benefit conferred by this
subsidy program to POSCO, and the benefit that must be measured, is the
construction of these facilities, rather than the fees charged to POSCO
for their use. Therefore, it is reasonable to measure the benefit from
this program by treating the costs of constructing the Kwangyang Bay
facilities for POSCO as nonrecurring grants.
In addition, we also disagree with respondents' argument that we
should pro-rate this subsidy between POSCO and to other companies
currently located at Kwangyang Bay. Again, respondents have
misinterpreted the nature of the benefit. The infrastructure at
Kwangyang Bay was built to support POSCO's expansion and its creation
of its second integrated steel mill. Therefore, the program is a
subsidy provided to POSCO, and the benefit from the program is properly
attributed to POSCO.
Comment 16: The Department Should Exclude Dai Yang's ``Merchandise''
Sales From its Reported Sales Denominator
Petitioners argue that the Department should exclude the amount of
``merchandise sales,'' or goods resold, from Dai Yang's sales
denominator in its final analysis. Petitioners reason that these sales,
which were discovered at verification, are sales of goods not produced
by Dai Yang, and so should not be included in Dai Yang's sales figures.
Respondents argue that it is hypocritical for petitioners to argue,
on one hand, that the ``untied'' subsidies which POSCO allegedly
received from the pre-1992 infrastructure investments at Kwangyang Bay
should be attributed to the production of subject merchandise, while on
the other hand Dai Yang's ``merchandise'' sales should be left out of
the calculation because they are ``untied.''
Department's Position: According to the 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. Following the
approach outlined in Certain Steel from France (1993), we have applied
the Department's ``tied'' analysis to this situation. See, GIA, 58 FR
at 37236. 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 Dai Yang's
``merchandise'' sales should appropriately be included in the sales
denominator. We therefore determine that the appropriate sales
denominator is the total of Dai Yang's domestically produced
merchandise, and we have excluded Dai Yang's ``merchandise'' sales, as
these are not sales of goods produced by the company.
Respondents argue that it is inconsistent to exclude ``untied''
sales while concurrently countervailing a subsidy which is ``untied''
to the production of subject merchandise. However, this position is not
inconsistent. Subsidies received for infrastructure, for example,
indirectly benefit production. Thus, it is reasonable to countervail
such a subsidy. However, to include in the sales denominator sales of
merchandise that were not produced by the particular respondent would
be unreasonable, as this merchandise is clearly not part of the
production process.
Comment 17: Countervailability of Long-Term Loans Where Dai Yang Did
Not Have Interest Payments Due During the POI
Respondents state that it is the Department's methodology to
calculate the benefit from long-term variable rate loans at the time
the interest on the loan would be paid; hence no benefit exists on a
loan if no interest was due during the POI. Respondents argue that the
Department's methodology for measuring the benefit from fixed rate
loans requires the same result. Therefore, respondents conclude that
there is no benefit from either fixed or variable rate long-term loans
if no interest payments were due on those loans in 1997.
Department's Position: We agree with respondents that it has been
the Department's long-standing policy to calculate the benefit of a
long-term fixed-rate loan assigned to a particular year by calculating
the difference in interest payments for that year, i.e., the difference
between the interest paid by the firm in that year on the government
provided loan and the interest the firm would have paid on a comparable
commercial loan. See section 771(5)(E)(ii) of the Act. Because our
methodology is to calculate the benefit at the time the interest on the
loan would be paid on the comparison loan, and because no interest
payment would have been made during the POI, we find that there is no
benefit to Dai Yang from these loans.
Comment 18: The Loan That Dai Yang Received From the National
Agricultural Cooperation Foundation Was Not Specific and Is Thus Not
Countervailable
Respondents argue that the Department erred in its preliminary
finding that the loan that Dai Yang received from the National
Agricultural Cooperation Foundation was countervailable as an export
subsidy because Dai Yang had provided the wrong evaluation criteria in
its questionnaire response. Respondents assert that the record
evidence, in particularly the evidence gathered at verification,
indicates that this loan program was generally available to small and
medium size enterprises (SMEs), and that companies were not evaluated
for these loans based on export performance. Respondents conclude that
this loan is not an export subsidy, is non-specific, and, hence is not
countervailable.
Petitioners argue that this loan should be countervailed as an
export subsidy, or alternatively as a GOK policy loan. According to
petitioners, the fact that this loan program was available only to SMEs
is not pertinent. The evidence on the record supports the conclusion
that export performance is a factor in the availability of NACF loans;
that the loans are advertised as ``small and medium size company loan''
does not negate the fact that export status is a criteria for
eligibility.
Respondents disagree with the assertion that Dai Yang's loan from
the NACF is countervailable as a GOK-directed policy loan. It is Ansan
City, and not the GOK, which funds and administers this loan program.
Respondents assert that since the GOK was not involved, this program
lies outside the rubric of GOK direction of credit. Rather, respondents
reiterate that the correct standard is whether the program was specific
within Ansan City which, as discussed above, it was not.
Department's Position: We disagree with respondents' assertion that
the criteria for approval of lending under this program is not
contingent upon
[[Page 30662]]
export performance. While new information was presented at verification
which indicated that this program is available only to small- and
medium-sized enterprises, the loan approval criteria indicates that
export performance is also an important criterion for approval.
According to the loan approval criteria, export performance and
overseas market development are two of the factors considered in the
approval process. As the Department has found this program to be a
countervailable export subsidy, petitioners argument that it should be
countervailed as direction of credit is moot.
Comment 19: The Department Should Not Include the Subsidy From Dai
Yang's Export Industry Facility Loan in the Cash Deposit Rate
Respondents argue that the Export Industry Facility Loan that Dai
Yang had outstanding during the POI should not be countervailed
because: (1) As verified, the program was terminated in 1994; and (2)
Dai Yang's outstanding balance was paid off in early 1998. Hence, there
can be no future benefit to Dai Yang. Respondents argue that according
to the Department's regulations, such a program-wide change may be
taken into account in establishing the estimated countervailing duty
cash deposit rate.
In their rebuttal brief, petitioners indicate that, as outlined in
the Department's new regulations, the Department's policy is to make
such an adjustment if the applicable events occurred during the POI,
but before the preliminary determination. In this case, the program-
wide change occurred prior to the POI, and thus is inapplicable to the
current investigation. Furthermore, since the benefits did not cease
until after the POI, the Department should not adjust the cash deposit
rate.
Department's Position: Petitioners are correct in their contention
that the Department should not adjust the cash deposit rate. Pursuant
to section 355.50(d)(1) of the Department's 1989 Proposed Regulations,
and codified in section 351.526 of the CVD Final Rule the Secretary
will not adjust the cash deposit rate where a program is terminated
and, ``the Secretary determines that residual benefits may continue to
be bestowed under the terminated program.'' See CVD Final Rule, 63 FR
at 65417. See also, e.g., Live Swine From Canada; Final Results of
Countervailing Duty Administrative Review, 63 FR 2204. As reported by
the GOK and verified by the Department, the Export Industry Facility
Loan program was terminated in 1994. However, Dai Yang continued to
receive countervailable benefits from this program throughout the POI.
Comment 20: The Department's Use of the Aggregate Rate Found in Steel
Products From Korea for Determining a Subsidy Benefit to Sammi
Respondents argue that the country-wide ad valorem rate from Steel
Products from Korea which was used as facts available should be
modified to reflect the fact that three of the programs found
countervailable in Steel Products from Korea were applicable only to
POSCO: government equity infusions, infrastructure at Kwangyang Bay,
and the exemption from dockyard fees. Petitioners maintain that the
Department should exclude these benefits because (1) the petition did
not allege these subsidies were provided to Sammi; and (2) the
Department recently determined that POSCO's exemption from port fees
was not a countervailable subsidy.
Petitioners rebut the suggestion that the facts available rate
applied to Sammi be adjusted to account for POSCO-specific programs.
Because the Department applied the rate from Steel Products from Korea
as adverse facts available, the components of this rate are immaterial.
None of the components of this rate are specific to Sammi; the
Department chose to use this rate as an adequate surrogate for company-
specific information. In support of this opinion, petitioners cite
Krupp Stahl A.G. v. United States, 822 F. Supp. 789, 792 (CIT 1993)
(Krupp Stahl), quoting Asociacion Colombiana de Exportadores de Flores
v. United States, 704 F. Supp. 1114,1126 (CIT 1989), aff'd, 901 F.2d
1089 (Fed. Cir. 1990), which said that the appropriate facts available
information ``is not necessarily accurate information, it is
information which becomes usable because a respondent has failed to
provide accurate information.''
Because Sammi did not cooperate in this investigation, there is no
evidence that they did not receive benefits from the ``POSCO-specific''
programs, nor can the Department know what subsidies may have been
uncovered had Sammi cooperated in the investigation. The Department
may, therefore, make the adverse assumption that unreported subsidies
may exist. The Department has broad discretion to define facts
available, as stated in Krupp Stahl and in Allied-Signal Aerospace Co.
v. United States, 996 F.2d 1185,1191 (Fed. Cir. 1993), and should use
the discretion to maintain the aggregate facts available rate for
Sammi.
Department's Position: Pursuant to section 776(b) of the Act, the
Department chose to use the aggregate rate found in Steel Products from
Korea as an adverse facts available representation of countervailable
benefits conferred to Sammi by the GOK. Because this rate was based on
many of the same programs alleged in this case, we consider it to be an
appropriate basis for a facts available countervailing duty rate
calculation.
We disagree with respondents' argument that because some of the
program rates incorporated in the aggregate rate were specific to
POSCO, the Department should exclude these POSCO-specific benefits. As
indicated by petitioners, because Sammi chose not to participate in
this investigation, the Department has no basis for concluding that
Sammi has not benefitted, at a minimum, from the level of subsidies
found applicable to the Korean steel industry in Steel Products from
Korea. According to section 351.308(c) of the Department's regulations,
the Department may use the rates found in a previous countervailing
duty investigation in an adverse facts available situation. Therefore,
we have relied upon the final determination of Steel Products from
Korea as an appropriate source for adverse facts available.
Comment 21: POSCO's Purchase of Sammi's Changwon Facility
Respondents argue that the because the preliminary determination
was based on a misplaced decimal in the translated version of the
purchase contract, the amount of the final payment to Sammi for this
facility was vastly overstated. In reality, respondents claim, the
amount POSCO paid was based on the lower of the two independent third-
party valuation reports. POSCO did not pay more for this facility than
this study concluded that it was worth, and there was no
countervailable subsidy to Sammi.
In rebuttal, petitioners point to record evidence which indicates
that this sale was an attempt by the GOK to prevent Sammi's bankruptcy.
Moreover, petitioners argue that the KDB's release of Sammi's
collateral which enabled this purchase amounts to a grant and, hence, a
financial contribution. Because this contribution was exclusive to
Sammi, this subsidy meets the Department's definition of specificity.
Therefore, the full purchase price paid by POSCO is countervailable as
a grant.
Department's Position: While respondents are correct in their
statement that the ad valorem rate determined by the Department in its
[[Page 30663]]
preliminary determination was based on a misplaced decimal in POSCO's
submission, we disagree with their contention that POSCO's purchase of
Sammi's Changwon does not confer a countervailable benefit. Additional
evidence acquired since the preliminary determination, however,
indicates that POSCO made this purchase at the request of the GOK, and,
in doing so, deviated substantially from its own internal regulations
on purchasing. Therefore, we determine that POSCO's purchase of this
facility provided a countervailable subsidy to Sammi. For a more
detailed discussion of this program, please see the ``Programs
Determined To Be Countervailable'' of this notice.
Comment 22: Government Financial Assistance as a Result of Sammi's
Bankruptcy
Respondents argue that, as verified by the Department, when Sammi
declared bankruptcy its debts were restructured and payment schedules
were established for each creditor, including the KDB. There is no
evidence that Sammi received government assistance in the form of
grants or debt write-offs in conjunction with its bankruptcy. Instead,
the Department found at verification that the KDB ceased lending to
Sammi after 1996, and that once Sammi declared bankruptcy, the KDB
notified Sammi that it was closing its accounts. Respondents argue
Sammi's bankruptcy was consistent with normal bankruptcy procedures;
therefore, the Department should conclude in its final determination
that there was no GOK financial assistance provided to Sammi in
conjunction with its bankruptcy and, hence, no countervailable subsidy.
Petitioners argue that, as shown by record evidence, the GOK forced
POSCO to purchase Sammi's Changwon facility to either prevent or
ameliorate the effects of bankruptcy on Sammi. Absent this rescue plan,
and the massive equity infusion caused by the Changwon purchase, Sammi
would have entered into bankruptcy earlier and have been liquidated.
Alternatively, Sammi would have defaulted on loans and had its
collateral seized. Petitioners propose that the Department should
countervail the full value of the loan extensions to Sammi on its KDB
loans.
Department's Position: Petitioners argue that POSCO's purchase of
Sammi's Changwon facility, and the KDB's corresponding release of
collateral, constitutes emergency assistance in conjunction with
Sammi's bankruptcy. While the Department agrees that the Changwon
facility was purchased by POSCO at the behest of the GOK, we disagree
that the KDB's release of collateral constituted bankruptcy assistance.
As verified by the Department, the KDB released the collateral in
question as a result of POSCO's agreement to purchase the assets held.
The bulk of POSCO's payment for the Changwon facility went to pay off
Sammi's outstanding loans with respect to this facility.
While Sammi chose not to cooperate in this investigation, the GOK
indicated that there was no consortium, there were no grants, and that
Sammi's debt was addressed in the context of normal bankruptcy
proceedings. During our verification, we examined the other
respondents' accounts and financial records and did not find any
provision of assistance to Sammi; nor did we find evidence of such
assistance during our verification of the Government of Korea. Because
our investigation revealed no government assistance to Sammi in the
form of grants or write-off of debt, we have not calculated a subsidy
rate for this allegation. However, because Sammi did not respond to our
request for information, we will continue to examine this allegation in
any subsequent administrative review. For more information regarding
this program, please see the ``Use of Facts Available'' section of this
notice.
Comment 23: Calculation of the Benefit From Sammi's 1992 ``Emergency
Loans'
Respondents argue that the Department made numerous mistakes in its
calculation of the countervailable benefit from the ``emergency loans''
in the preliminary determination. The Department's premise that the
entire amount of 132 billion won remained outstanding during the POI,
and that these were interest-free loans, is flawed. Further, Sammi's
1997 balance sheet indicates that there must have been little, if any,
of these ``emergency loan'' funds outstanding during the POI, and that
Sammi would have been unable to make payments on any loans from March
to December 1997, since Sammi was under court receivership at this
time. Respondents also argue that according to Sammi's 1996 balance
sheet, Sammi had less than 132 billion won in outstanding long-term
loans at the end of 1996, before the POI began.
Petitioners claim that the Department should reject this suggestion
and reaffirm the methodology used in the preliminary determination,
because there is not enough information on the record to justify any
other course of action. The Department has no way of knowing whether
the loans in question were forgiven between 1992 and 1996, which would
account for the 1997 balance sheet statement. Petitioners again cite
Krupp Stahl (See Comment 22) to support the idea that whether Sammi was
actually subject to a subsidy of the full amount of the loans is
irrelevant because of Sammi's refusal to cooperate. Because Sammi chose
not to participate in this investigation, and therefore the record
contains insufficient and unverified evidence, the full amount of the
emergency loans should be countervailed.
Department's Position: As discussed in the ``Programs Determined to
be Countervailable'' section of this notice, we determined that the
aggregate rate from Steel Products from Korea which we have applied to
Sammi as adverse facts available, includes a calculated subsidy rate
for the GOK's direction of credit. Because the aggregate rate from
Steel Products from Korea includes a calculated subsidy rate for the
GOK's direction of credit to the Korean steel industry, we have not
calculated an additional subsidy rate for this allegation that the GOK
directed banks in Korea to provide loans to Sammi in 1992. Indeed, in
the petition, this allegation of the provision of the 1992 loans to
Sammi is included as part of petitioners' allegation of directed
credit, and references our determination is Steel Products from Korea.
Therefore, parties' comments with respect to the quantification of the
benefit from the ``emergency loan'' package are not germane.
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 subsidy rate for each of the companies under
investigation. We determine that the total estimated net
countervailable subsidy rates are as follows:
------------------------------------------------------------------------
Net subsidy
Producer/exporter rate
(percent)
------------------------------------------------------------------------
POSCO................................................... 0.65
Inchon.................................................. 2.64
Dai Yang................................................ 1.58
[[Page 30664]]
Sammi................................................... 59.30
Taihan.................................................. 7.00
All Others Rate......................................... 1.68
------------------------------------------------------------------------
We determine that the total estimated net countervailable subsidy
rates for POSCO is 0.65 percent ad valorem, which is de minimis.
Therefore, we determine that no countervailable subsidies are being
provided to POSCO for its production or exportation of stainless steel
sheet and strip in coils. In accordance with section 705(c)(5)(A)(i) of
the Act, we have calculate the all-others rate by averaging the
weighted average countervailable subsidy rates determined for the
producers individually investigated. On this basis, we determine that
the all-others rate is 1.68 percent ad valorem.
In accordance with our preliminary affirmative determination, we
instructed the U.S. Customs Service to suspend liquidation of all
entries of stainless steel sheet and strip in coils from the Republic
of Korea which were entered, or withdrawn from warehouse, for
consumption on or after November 17, 1998, the date of the publication
of our preliminary determination in the Federal Register. Since the
estimated net countervailing duty rates for POSCO and Dai Yang were de
minimis, these companies were excluded from this suspension of
liquidation. 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 March 17, 1999, but to
continue the suspension of liquidation of entries made between November
17, 1998, and March 16, 1999.
We will reinstate suspension of liquidation under section 706(a) of
the Act 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. Because the
estimated net countervailing duty rate for POSCO is de minimis, this
company will be excluded from the suspension of liquidation.
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, 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. If, however,
the ITC determines that such injury does exist, we will issue a
countervailing duty order.
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.
Dated: May 19, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-13769 Filed 6-7-99; 8:45 am]
BILLING CODE 3510-DS-P
