[Federal Register Volume 64, Number 142 (Monday, July 26, 1999)]
[Notices]
[Pages 40445-40457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18857]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-580-837]
Preliminary Affirmative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination: Certain Cut-to-Length Carbon-Quality
Steel Plate From the Republic of Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 26, 1999.
FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Tipten Troidl, CVD/
AD Enforcement, Office 6, Group II, Import Administration, U.S.
Department of Commerce, Room 4012, 14th Street and Constitution Avenue,
NW, Washington, DC 20230; telephone (202) 482-2786.
PRELIMINARY DETERMINATION: The Department of Commerce (the Department)
preliminarily determines that countervailable subsidies are being
provided to certain producers and exporters of certain cut-to-length
carbon-quality steel plate from the Republic of Korea. For information
on the estimated countervailing duty rates, see the ``Suspension of
Liquidation'' section of this notice.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition in this investigation was filed by Bethlehem Steel
Corporation, U.S. Steel Group, a unit of USX Corporation, Gulf States
Steel, Inc., IPSCO Steel Inc., Tuscaloosa Steel Corporation, and the
United Steelworkers of America (the petitioners).
Case History
Since the publication of the notice of initiation in the Federal
Register (see Notice of Initiation of Countervailing Duty
Investigations: Certain Cut-to-Length Carbon-Quality Steel Plate from
France, India, Indonesia, Italy, and the Republic of Korea, 64 FR 12996
(March 16, 1999) (Initiation Notice)), the following events have
occurred. On March 18, 1999, we issued countervailing duty
questionnaires to the Government of Korea (GOK), and the producers/
exporters of the subject merchandise. On April 29, 1999, we postponed
the preliminary determination of this investigation until no later than
July 16, 1999. See Certain Cut-to-Length Carbon-Quality Steel Plate
from France, India, Indonesia, Italy, and the Republic of Korea:
Postponement of Time Limit for Countervailing Duty Investigations, 64
FR 23057 (April 29, 1999).
We received responses to our initial questionnaires from the GOK
and Pohang Iron & Steel Company, Ltd. (POSCO), and Dongkuk Steel Mill
Co., Ltd. (DSM), producers of the subject merchandise, on May 10, 1999.
In addition, on July 1, 1998 we received responses from four trading
companies which are involved in exporting the subject merchandise to
the United States: POSCO Steel Service & Sales Company, Ltd. (POSTEEL),
Dongkuk Industries Co., Ltd. (DKI), Hyosung Corporation (Hyosung), and
Sunkyong Ltd. (Sunkyong). On June 9, 1999, we issued supplemental
questionnaires to all of the responding parties and received their
responses on June 28, 1999, and July 1, 1999.
The Department is currently seeking additional information
regarding certain R&D programs used by either POSCO, DSM or their
affiliates, which may have benefitted the producers/exporters of the
subject merchandise.
Scope of Investigation
For purposes of this investigation, the product covered is certain
hot-rolled carbon-quality steel: (1) Universal mill plates (i.e., flat-
rolled products rolled on four faces or in a closed box pass, of a
width exceeding 150 mm but not exceeding 1250 mm, and of a nominal or
actual thickness of not less than 4 mm, which are cut-to-length (not in
coils) and without patterns in relief), of iron or non-alloy-quality
steel; and (2) flat-rolled products, hot-rolled, of a nominal or actual
thickness of 4.75 mm or more and of a width which exceeds 150 mm and
measures at least twice the thickness, and which are cut-to-length (not
in coils).
Steel products to be included in this scope are of rectangular,
square, circular or other shape and of rectangular or non-rectangular
cross-section where such non-rectangular cross-section is achieved
subsequent to the rolling process (i.e., products which have been
``worked after rolling'')--for example, products which have been
beveled or rounded at the edges. Steel products that meet the noted
physical characteristics that are painted, varnished or coated with
plastic or other non-metallic substances are included within this
scope. Also, specifically included in this scope are high strength, low
alloy (HSLA) steels. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium,
titanium, vanadium, and molybdenum.
Steel products to be included in this scope, regardless of
Harmonized Tariff Schedule of the United States (HTSUS) definitions,
are products in which: (1) Iron predominates, by weight, over each of
the other contained elements, (2) the carbon content is two percent or
less, by weight, and (3) none of the elements listed below is equal to
or exceeds the quantity, by weight, respectively indicated:
1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent zirconium.
All products that meet the written physical description, and in
which the chemistry quantities do not equal or exceed any one of the
levels listed above, are within the scope of these
[[Page 40446]]
investigations unless otherwise specifically excluded. The following
products are specifically excluded from these investigations: (1)
Products clad, plated, or coated with metal, whether or not painted,
varnished or coated with plastic or other non-metallic substances; (2)
SAE grades (formerly AISI grades) of series 2300 and above; (3)
products made to ASTM A710 and A736 or their proprietary equivalents;
(4) abrasion-resistant steels (i.e., USS AR 400, USS AR 500); (5)
products made to ASTM A202, A225, A514 grade S, A517 grade S, or their
proprietary equivalents; (6) ball bearing steels; (7) tool steels; and
(8) silicon manganese steel or silicon electric steel.
The merchandise subject to this investigation is classified in the
HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,
7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,
7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,
7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,
7226.91.8000, 7226.99.0000.
Although the HTSUS subheadings are provided for convenience and
Customs purposes, the written description of the merchandise under
investigation is dispositive.
Scope Comments
As stated in our notice of initiation, we set aside a period for
parties to raise issues regarding product coverage. In particular, we
sought comments on the specific levels of alloying elements set out in
the description below, the clarity of grades and specifications
excluded from the scope, and the physical and chemical description of
the product coverage.
On March 29, 1999, Usinor, a respondent in the French antidumping
and countervailing duty investigations and DSM and POSCO, respondents
in the Korean antidumping and countervailing duty investigations
(collectively the Korean respondents), filed comments regarding the
scope of the investigations. On April 14, 1999, the petitioners
responded to Usinor's and the Korean respondents' comments. In
addition, on May 17, 1999, ILVA S.p.A. (ILVA), a respondent in the
Italian antidumping and countervailing duty investigations, requested
guidance on whether certain products are within the scope of these
investigations.
Usinor requested that the Department modify the scope to exclude:
(1) Plate that is cut to non-rectangular shapes or that has a total
final weight of less than 200 kilograms; and (2) steel that is 4'' or
thicker and which is certified for use in high-pressure, nuclear or
other technical applications; and (3) floor plate (i.e., plate with
``patterns in relief'') made from hot-rolled coil. Further, Usinor
requested that the Department provide clarification of scope coverage
with respect to what it argues are over-inclusive HTSUS subheadings
included in the scope language.
The Department has not modified the scope of these investigations
because the current language reflects the product coverage requested by
the petitioners, and Usinor's products meet the product description.
With respect to Usinor's clarification request, we do not agree that
the scope language requires further elucidation with respect to product
coverage under the HTSUS. As indicated in the scope section of every
Department antidumping and countervailing duty proceeding, the HTSUS
subheadings are provided for convenience and Customs purposes only; the
written description of the merchandise under investigation or review is
dispositive.
The Korean respondents requested confirmation whether the maximum
alloy percentages listed in the scope language are definitive with
respect to covered HSLA steels.
At this time, no party has presented any evidence to suggest that
these maximum alloy percentages are inappropriate. Therefore, we have
not adjusted the scope language. As in all proceedings, questions as to
whether or not a specific product is covered by the scope should be
timely raised with Department officials.
ILVA requested guidance on whether certain merchandise produced
from billets is within the scope of the current CTL plate
investigations. According to ILVA, the billets are converted into wide
flats and bar products (a type of long product). ILVA notes that one of
the long products, when rolled, has a thickness range that falls within
the scope of these investigations. However, according to ILVA, the
greatest possible width of these long products would only slightly
overlap the narrowest category of width covered by the scope of the
investigations. Finally, ILVA states that these products have different
production processes and than merchandise covered by the scope of the
investigations and therefore are not covered by the scope of the
investigations.
As ILVA itself acknowledges, the particular products in question
appear to fall within the parameters of the scope and, therefore, we
are treating them as covered merchandise for purposes of these
investigations.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations as codified at
19 CFR part 351 (1998) and to the substantive countervailing duty
regulations published in the Federal Register on November 25, 1998 (63
FR 65348) (CVD Regulations).
Injury Test
Because the Republic of Korea (Korea) is a ``Subsidies Agreement
Country'' within the meaning of section 701(b) of the Act, the
International Trade Commission (ITC) is required to determine whether
imports of the subject merchandise from Korea materially injure, or
threaten material injury to, a U.S. industry. On April 8, 1999, the ITC
published its preliminary determination finding that there is a
reasonable indication that an industry in the United States is being
materially injured, or threatened with material injury, by reason of
imports from Korea of the subject merchandise (See Certain Cut-To-
Length Steel Plate From Czech Republic, France, India, Indonesia,
Italy, Japan, Korea, and Macedonia, 64 FR 17198 (April 8, 1999).
Alignment With Final Antidumping Duty Determination
On July 2, 1999, the petitioners submitted a letter requesting
alignment of the final determination in this investigation with the
final determination in the companion antidumping duty investigation.
See Initiation of Antidumping Duty Investigations: Certain Cut-To-
Length Carbon-Quality Steel Plate from the Czech Republic, France,
India, Indonesia, Italy, Japan, Republic of Korea, and the Former
Yugoslav Republic of Macedonia, 64 FR 12959 (March 16, 1999).
Therefore, in accordance with section 705(a)(1) of the Act, we are
aligning the final determination in this investigation with the final
determinations in the antidumping investigations of certain cut-to-
length plate.
Period of Investigation
The period for which we are measuring subsidies (the POI) is
calendar year 1998.
[[Page 40447]]
Subsidies Valuation Information
Allocation Period
Section 351.524(d)(2) of the CVD Regulations states that we will
presume the allocation period for non-recurring subsidies to be the
average useful life (AUL) of renewable physical assets for the industry
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class
Life Asset Depreciation Range System and updated by the Department of
Treasury. The presumption will apply unless a party claims and
establishes that these tables do not reasonably reflect the AUL of the
renewable physical assets for the company or industry under
investigation, and the party can establish that the difference between
the company-specific or country-wide AUL for the industry under
investigation is significant.
In this investigation, no party to the proceeding has claimed that
the AUL listed in the IRS tables does not reasonably reflect the AUL of
the renewable physical assets for the firm or industry under
investigation. Therefore, according to Sec. 351.524(d)(2) of the CVD
Regulations, we have allocated POSCO and DSM's non-recurring subsidies
over 15 years, the AUL listed in the IRS tables for the steel industry.
Benchmarks for Long-Term Loans and Discount Rates
During the POI, POSCO and DSM had a number of won-denominated and
foreign currency-denominated long-term loans outstanding which the
company received from government-owned banks, Korean commercial banks,
overseas banks, and foreign banks with branches in Korea. A number of
these loans were received prior to 1992. In the 1993 investigation of
Steel Products from Korea, the Department determined that the GOK
influenced the practices of lending institutions in Korea and
controlled access to overseas foreign currency loans through 1991. See
Final Affirmative Countervailing Duty Determinations and Final Negative
Critical Circumstances Determinations: Certain Steel Products from
Korea, 58 FR 37328, 37338 (July 9, 1993) (Steel Products from Korea),
and the ``Direction of Credit'' section below. In that investigation,
we determined that the best indicator of a market rate for long-term
loans in Korea was the three-year corporate bond rate on the secondary
market. Also, see Final Negative Countervailing Duty Determination:
Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 15530,
15532 (March 31, 1999) (Plate in Coils), and Final Affirmative
Countervailing Duty Determination: Stainless Steel Sheet and Strip in
Coils from the Republic of Korea, 64 FR 30636, 39641 (June 8, 1999)
(Sheet and Strip). Therefore, in the preliminary determination of the
current investigation, to calculate the benefit which POSCO and DSM
received from direct foreign currency loans and domestic foreign
currency loans obtained prior to 1991 and still outstanding during the
POI, we used as our benchmark the three-year corporate bond rate on the
secondary market. We are also using the three-year corporate bond rate
on the secondary market as the discount rate to determine the benefit
from non-recurring subsidies received prior to 1992.
In Plate in Coils and Sheet and Strip, the Department determined
that the GOK continued to control directly or indirectly the lending
practices of most sources of credit in Korea between 1992 and 1997. In
the current investigation, we preliminarily determine that the GOK
still exercised substantial control over lending institutions in Korea
during the POI. Based on our findings on this issue in prior
investigations, as well as in the current investigation on CTL Plate,
discussed below in the ``Direction of Credit'' section of this notice,
we are using the following benchmarks to calculate POSCO's and DSM's
benefit from long-term loans obtained in the years 1992 through 1998:
(1) For countervailable, foreign-currency denominated loans, we are
using the company-specific, weighted-average U.S. dollar-denominated
interest rates on the companies' loans from foreign bank branches in
Korea; (2) for countervailable won-denominated loans, where available,
we are using the company-specific three-year corporate bond rate on the
companies' public bonds. Where unavailable, we continue to use a
national average three-year corporate bond rate. In Plate in Coils and
in Sheet and Strip, we found that the Korean domestic bond market was
not controlled by the GOK after 1991, and that domestic bonds serve as
an appropriate benchmark interest rate.
We are also using the three-year company-specific corporate bond
rate as the discount rate to determine the benefit from non-recurring
subsidies received between 1992 and 1998.
Benchmarks for Short-Term Financing
For those programs which require the application of a short-term
interest rate benchmark, we used as our benchmark a company-specific
weighted-average interest rate for commercial won-denominated loans for
the POI. Each respondent provided to the Department its respective
company-specific, short-term commercial interest rate.
Treatment of Subsidies Received by Trading Companies
During the POI, POSCO exported the subject merchandise to the
United States through three trading companies, POSTEEL, Hyosung, and
Sunkyong. DSM exported through one trading company, DKI. POSTEEL is
affiliated with POSCO, and DKI is affiliated with DSM within the
meaning of section 771(33)(E) of the Act because as of December 31,
1998, POSCO owned 95.8 percent of POSTEEL's shares, and DSM owned 51.3
percent of DKI shares. The other trading companies are not affiliated
with either POSCO or DSM. We required that the trading companies
provide responses to the Department with respect to the export
subsidies under investigation. Responses were required from the trading
companies because the subject merchandise may be subsidized by means of
subsidies provided to both the producer and the exporter. All subsidies
conferred on the production and exportation of subject merchandise
benefit the subject merchandise even if it is exported to the United
States by an unaffiliated trading company rather than by the producer
itself. Therefore, the Department calculates countervailable subsidy
rates on the subject merchandise by cumulating subsidies provided to
the producer, with those provided to the exporter. See 19 CFR 351.525.
Under Sec. 351.107 of the Department's Regulations, when the
subject merchandise is exported to the United States by a company that
is not the producer of the merchandise, the Department may establish a
``combination'' rate for each combination of an exporter and supplying
producer. However, as noted in the ``Explanation of the Final Rules''
(the Preamble), there may be situations in which it is not appropriate
or practicable to establish combination rates when the subject
merchandise is exported by a trading company. In such situations, the
Department will make exceptions to its combination rate approach on a
case-by-case basis. See Antidumping Duties; Countervailing Duties;
Final Rule, 62 FR 27296; 27303 (May 19, 1997).
In this investigation, we preliminarily determine that it is not
appropriate to establish combination rates. This determination is based
on two main facts: First, the majority of the subsidies conferred upon
the subject merchandise were received by the producers. Second, the
difference in the levels of subsidies conferred upon the subject
merchandise
[[Page 40448]]
among the individual trading companies is insignificant. Therefore,
combination rates would serve no practical purpose because the
calculated subsidy rate for POSCO/POSTEEL or POSCO/Sunkyong or POSCO
and any of the other trading companies would effectively be the same
rate. For these reasons we are not calculating combination rates in
this investigation. Instead, we have only calculated one rate for each
producer of the subject merchandise, all of which is produced by either
POSCO or DSM.
To include the subsidies received by the trading companies, which
are conferred upon the export of the subject merchandise, in the
calculated ad valorem subsidy rate, we used the following methodology.
For each of the four trading companies, we calculated the benefit
attributable to the subject merchandise and factored that amount into
the calculated subsidy rate for the producer. In each case, we
determined the benefit received by the trading companies for each
export subsidy and weight-averaged the benefit amounts by the relative
share of each trading company's value of exports of the subject
merchandise to the United States. This calculated ad valorem subsidy
was then added to the subsidy calculated for either POSCO or DSM. Thus,
for each of the programs below, the listed ad valorem subsidy rate
includes the countervailable subsidies received by both the trading
companies and either POSCO or DSM.
I. Programs Preliminarily 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) the GOK-regulated long-term loans
were provided to the steel industry on a selective basis; and (3) 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 Steel Products from Korea,
58 FR at 37339.
In the Plate in Coils and Sheet and Strip investigations, the
Department examined whether the GOK continued to influence the
practices of lending institutions in Korea between 1992 and 1997. 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 countervailable benefits being
conferred 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 Steel Products from Korea, 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 determination in Steel
Products from Korea. Therefore, we continue to 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 Statement of
Administrative Action (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, accompanying H.R. 5110
(H.R. Doc. No. 316, Vol. 1, 103d Cong., 2d Sess.) (1994), at 926. 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 Information'' section, above.
We also continue to 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 in conformance with our determination in Steel Products
from Korea, 58 FR at 37342, Plate in Coils, 64 FR at 15532 and Sheet
and Strip, 64 FR at 30642.
POSCO and DSM were the only producers of the subject merchandise,
and both companies received long-term loans prior to 1992 that were
still outstanding during the POI. To determine the benefit from the
regulated loans with fixed interest rates, we applied the long-term
loan methodology provided for in Sec. 351.505(c)(3) of the CVD
Regulations and calculated the grant equivalent for the loans. To
determine the benefit from regulated loans with variable interest
rates, we applied the methodology provided for in section 351.505(c)(4)
of the CVD Regulations, and compared the amount of interest paid during
1998 on the regulated loans to the amount of interest that would have
been paid based upon the interest rate on the comparison benchmark
loan. We then summed the benefit amounts from the loans attributable to
the POI and divided the total benefit by each company's respective
total sales. On this basis, we preliminarily determine the net
countervailable subsidy to be 0.10 percent ad valorem for POSCO, and
0.06 percent ad valorem for DSM.
2. The GOK's Credit Policies From 1992 Through 1998
In Plate in Coils and Sheet and Strip, the Department examined the
GOK's credit policies during the period 1992 through 1997. In those
investigations, the Department determined that the GOK continued to
control directly and indirectly the lending practices of most sources
of credit in Korea through 1997. The Department also determined that
the 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
producers/exporters of the subject merchandise to the extent that the
interest rates on the countervailable loans were less than the interest
rates on comparable commercial loans. See section 771(5)(ii) of the
Act. Also see Plate in Coils, 64 FR at 15533, and Sheet and Strip, 64
FR at 30642.
In this investigation, we provided the GOK with the opportunity to
present new factual information concerning the
[[Page 40449]]
government's credit policies during the 1992 through 1997 period, which
we would consider along with our finding in the prior investigations.
The GOK has not provided new factual information that would lead us to
change our determination in Plate in Coils and Sheet and Strip.
Therefore, we continue to find lending from domestic banks and from
government-owned banks such as the KDB to be countervailable.
In the current investigation, we examined whether the GOK continued
to control or influence directly or indirectly, the lending practices
of sources of credit in Korea in 1998. Because of the Department's
determination that the GOK controlled and directed credit provided by
domestic banks and government-owned banks during the period 1992
through 1997, the burden of demonstrating that the GOK has changed its
practice of interfering in the financial market is placed, in large
part, upon the respondents. Similarly, when we have determined a
program or a government practice to be not countervailable, petitioners
must come forth with new information or evidence of change
circumstances before the Department will reexamine the
countervailability of that program.
In its questionnaire responses, the GOK asserted that it does not
provide direction or guidance to Korean financial institutions in the
allocation of loans to selected industries. The GOK stated that the
lending decisions and loan distributions of financial institutions in
Korea reflect commercial considerations. The GOK also stated that its
role in the financial sector is limited to monetary and credit policies
as well as bank supervision and examination.
According to the GOK, measures were taken in 1998 to liberalize the
Korean financial sector. For example, in January 1998 the GOK announced
closure of some banks, and in April 1998, launched the Financial
Supervisory Commission (FSC) to monitor the competitiveness of
financial institutions. In June 1998, the Regulation on Foreign
Exchange Controls was amended to further liberalize foreign currency
transactions, and in July, the GOK abolished the limit on purchasing
foreign currency. According to the GOK, it also liberalized access to
foreign loans. For direct foreign loans to Korean companies, the
approval process under Article 19 of the Foreign Investment and Foreign
Capital Inducement Act (FIFCIA) and Article 21 of its enforcement
decree were eliminated and replaced with the Foreign Investment
Promotion Act (FIPA), effective in November 1998. However, during most
of the POI, access to direct foreign loans still required the approval
of the Ministry of Finance and Economy.
Regarding the GOK regulated credit from government-controlled banks
such as the Korea Development Bank (KDB), the GOK reported that the KDB
Act was amended in January 1998, in response to the financial crisis in
1997. According to the GOK, the KDB ended the allocation of funds for
various functional categories, such as R&D, environment, and
technology. All functional loan categories were eliminated and such
loans were consolidated into a single category for facility (equipment)
loans. The GOK also stated that the KDB strengthened its credit
evaluation procedures by developing an objective and systematic credit
evaluation standard to prevent arbitrary decisions on loans and
interest rates. The KDB changed its Credit Evaluation Committee to the
Credit Deliberation Committee (CDC), and gave the CDC the authority to
make lending decisions. As a result, the KDB governor no longer makes
lending decisions without the approval of the CDC. The GOK also stated
that in 1997, the KDB used a system of the prime rate plus a spread for
determining interest rates. Effective January 1, 1998, the KDB
increased the range of the credit spread to provide more flexibility in
determining interest rates based on creditworthiness and allowed the
KDB to increase its profits. However, with respect to the KDB reforms,
no evidence was provided by respondents to demonstrate that the KDB no
longer selectively makes loans to specific firms or activities to
support GOK policies.
In Plate in Coils, the Department noted conflicting information
regarding the GOK's direct or indirect influence over the lending
decisions of financial institutions. For example, the GOK policies
appeared to be aimed, in part, at promoting certain sectors of the
economy, such as high technology and small and medium-sized industries
(SMEs).
While the GOK has started to plan and implement reforms in the
financial system during the POI as a result of the 1997 financial
crisis, the record evidence indicates that the GOK has previously
attempted reforms of the financial system in order to remove or reduce
its control and influence over lending in the country. In the past ten
years, the GOK has twice attempted to reform its financial system. In
1988, the GOK attempted to deregulate interest rates. However, the 1988
liberalization was deemed a failure by the government. When the
interest rates began to rise, the GOK canceled the reforms by
indirectly pressuring the banks to keep interest rates low. In the
early 1990s, the GOK attempted reforms again with a four-stage interest
rate deregulation plan. Again, this attempt to reform the financial
system was deemed a failure by the GOK. During 1998 and 1999, the GOK
has threatened to cut off credit to Korean companies unless the
companies follow GOK policies. In addition, during the POI, five large
commercial banks were taken over by the GOK due to the financial
crisis.
Based upon the information on the record and our determinations in
Plate in Coils and Sheet and Strip, we preliminarily determine that the
GOK continued to control directly and indirectly, the lending practices
of domestic banks and government-owned banks through the POI. During
verification, we will closely examine the financial reforms undertaken
by the GOK in 1998. We plan to meet with various individuals
knowledgeable about the financial sector in Korea in order to gather
information on the impact of the GOK's financial liberalization on the
lending practices of Korean banks after 1997. We also plan to gather
information to assist us in determining whether we have appropriately
measured the benefit conferred to the respondent companies by the GOK's
influence over domestic bank and government bank lending.
With respect to foreign sources of credit, in Plate in Coils and
Sheet and Strip, we determined that access to government regulated
foreign sources of credit in Korea did not confer a benefit to the
recipient as defined by 771(5)(E)(ii) of the Act, and, as such, credit
received by respondents from these sources were found not
countervailable. This determination was based upon the fact that credit
from Korean branches of foreign banks was not subject to the
government's control and direction. Thus, respondents' loans from these
banks served as an appropriate benchmark to establish whether access to
regulated foreign sources of credit conferred a benefit on respondents.
On the basis of this comparison, we found that there was no benefit.
Petitioners have provided no new information or evidence of changed
circumstances to cause us to revisit this determination. Therefore, we
continue to determine that credit from Korean branches of foreign banks
were not subject to the government's control and direction. As such,
lending from this source continues to be not countervailable, and loans
from Korean branches of foreign banks continue to
[[Page 40450]]
serve as an appropriate benchmark to establish whether access to
regulated foreign sources of funds confer a benefit to respondents.
During the POI, both POSCO and DSM received long-term loans from
domestic banks and from government-owned banks during the 1992 to 1998
period that were still outstanding during the POI. These included loans
with both fixed and variable interest rates. To determine the benefit
from the regulated loans with fixed interest rates, we applied the
methodology provided for in Sec. 351.505(c)(2) of the CVD Regulations,
and to determine the benefit from regulated loans with variable
interest rates, we applied the methodology provided for in
Sec. 351.505(c)(4) of the CVD Regulations. Therefore, for both fixed
and variable rate loans, we calculated the difference in interest
payments for the POI based upon the difference in the amount of actual
interest paid during 1998 on the regulated loan and the amount of
interest that would have been paid on a comparable commercial loan. We
then summed the benefit amounts from the loans attributable to the POI
and divided the total benefit by each company's respective total sales.
On this basis, we preliminarily determine the net countervailable
subsidy to be less than 0.005 percent ad valorem for POSCO, and 0.12
percent ad valorem for DSM.
(a) Loans From the Energy Savings Fund
Established in accordance with Article 51 of the ``Rationalization
of Energy Utilization Act'' (Energy Use Act), the Energy Saving Fund
provides financing at below-market interest rates for investments by
businesses in facilities that rationally and efficiently use energy.
Overall responsibility for the program lies with the Ministry of
Industry and Energy (MIE), but the operation and management of the
program is entrusted to the Korea Energy Management Corporation (KEMC).
While the Energy Use Act was repealed in 1995, the MIE, under the new
``Energy Use Rationalization Act,'' provides financing for this program
from special government accounts.
Korean companies obtain financing under this program by submitting
an application to the KEMC. If the KEMC is satisfied that the
applicant's business plans are intended for the rationalization of
energy use, it will then issue a recommendation, and forward the
company's application to a bank. The KEMC will transfer funds to the
bank, which will in turn provide the funds to the applicant. POSCO paid
interest on two Energy Saving Fund loans during the POI. DSM did not
have any of these loans outstanding during the POI.
In Plate in Coils and Sheet and Strip, the Department determined
that the loans provided under the Energy Savings Fund are
countervailable as GOK directed credit. See Plate in Coils, 64 FR at
15533, and Sheet and Strip, 64 FR at 30642. This program provides a
financial contribution within the meaning of section 771(5)(D)(i) of
the Act and, in accordance with section 771(5)(E)(ii) of the Act,
provides a benefit to the recipient based on the difference between the
interest rate on the program loan and the benchmark rate described in
the ``Subsidies Valuation'' section, above.
To calculate the benefit from the Energy Savings Loans, we employed
the Department's long-term fixed-rate loan methodology specified in
Sec. 351.505(c)(2) of the CVD Regulations, using as our benchmark the
rate described in the ``Subsidies Valuation Information'' section,
above. We divided the benefit attributable to the POI by POSCO's total
sales during 1998. On this basis, we preliminarily determine the net
countervailable subsidy to be less than 0.005 percent ad valorem for
POSCO. As stated above, DSM did not use this program.
(b) Korean Export-Import Bank Loans (KExim)
KExim provides import and export credits, overseas investment
credits, and guarantees to companies in Korea. The petitioners allege
that through its financing mechanisms, KExim provides low-interest
loans to the steel industry.
The Department previously determined in Steel Products from Korea,
Plate in Coils and Sheet and Strip that all regulated long-term loans
provided to exporters through 1997 are specific and countervailable.
POSCO received a fixed-rate regulated KExim long-term loan prior to
1997, which was outstanding during the POI. DSM did not have any
outstanding KExim loans during the POI. We preliminarily determine that
this program is specific within the meaning of section 771(5A)(B)
because only exporters are eligible to use this program.
To calculate the benefit, we applied the Department's standard loan
methodology for long-term fixed-rate loans as provided for in
Sec. 351.504(c)(2) of the CVD Regulations, using as our benchmark the
rate described in the ``Subsidies Valuation Information'' section of
the notice, above. We divided the benefit attributable to the POI by
POSCO's total export sales during 1998. On this basis, we preliminarily
determine the net countervailable subsidy to be 0.03 percent ad valorem
for POSCO. As noted earlier, DSM did not use this program.
B. Infrastructure at Kwangyang Bay
Petitioners requested that the Department investigate whether the
GOK's infrastructure development at Kwangyang Bay continues to provide
a countervailable subsidy to POSCO's steel production. The Department
previously determined that the Korean government's infrastructure
development at Kwangyang Bay constituted a specific countervailable
subsidy to POSCO, because POSCO was found to be the predominant user of
the infrastructure. See Steel Products from Korea, 58 FR at 37346-47.
Because POSCO still produces steel products at Kwangyang Bay, we
requested information on this program to determine whether the GOK has
made additional investments since 1991, at Kwangyang Bay.
In Steel Products from Korea, the Department investigated the GOK's
infrastructure investments at Kwangyang Bay over the period 1984-1991.
During this period of time, the GOK's investments at Kwangyang Bay
included: construction of an industrial waterway, construction of a
railroad station, construction of a road to Kwangyang Bay, dredging of
the harbor, and construction of three finished goods berths. We
determined that the GOK's provision of infrastructure to POSCO 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 1984-1991.
In Plate in Coils and Sheet and Strip, we also examined whether GOK
infrastructure investments made at Kwangyang Bay after 1991 provided
countervailable benefits to POSCO. In those investigations, we
determined that additional infrastructure investments made by the GOK
at Kwangyang Bay after 1991 did not provide countervailable benefits to
POSCO. See Sheet and Strip at 30648-49. Thus, post-1991 investments are
not countervailable. Petitioners have not
[[Page 40451]]
provided new factual information or evidence of changed circumstances
to cause the Department to reexamine our determination that post-1991
investments are not countervailable.
To determine the benefit from the GOK's investments made from the
1984 through 1991 period to POSCO that are attributable to 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 determine the benefit conferred to POSCO 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 used in Steel Products
from Korea. We then summed the benefits received by POSCO during 1998,
from each of the GOK's yearly investments over the period 1984-1991. We
then divided the total benefit attributable to the POI by POSCO's total
sales for 1998. On this basis, we preliminary determine a net
countervailable subsidy of 0.22 percent ad valorem for POSCO. DSM did
not receive a benefit from this program.
C. Asset Revaluation Pursuant to TERCL Article 56(2)
This provision under Article 56(2) of the Tax Exemption and
Reduction Control Act (TERCL) allowed companies making an initial
public offering between January 1, 1987, and December 31, 1990, to
revalue their assets without meeting the requirement in the Asset
Revaluation Act of a 25 percent change in the wholesale price index
since the company's last revaluation. In Steel Products from Korea,
after verification, petitioners submitted additional information, which
according to them, indicated that POSCO's revaluation may have been
significantly greater than that of the other companies that revalued.
Because the information submitted by petitioners was untimely, it was
rejected; however, we requested additional information on the subject.
The additional information submitted by petitioners contained data on
the amount of assets revalued of only 45 of the 207 companies that
revalued pursuant to Article 56(2). It was unclear from petitioners'
data which companies revalued pursuant to Article 56(2) and which
revalued in accordance with the general provisions of the Asset
Revaluation Act. Because of these shortcomings, and because the
information was submitted too late for verification, we were unable to
draw conclusions with respect to the relative benefit derived by POSCO
from this program. Since there was no evidence of de jure or de facto
selectivity concerning the timing of POSCO's revaluation or the method
of POSCO's revaluation under the Asset Revaluation Act, the Department
determined this program to be not countervailable. See Steel Products
from Korea, 58 FR at 37351.
In the petition, petitioners provided information to substantiate
their allegation that POSCO and DSM received a benefit under this
program because their massive asset revaluations permitted the
companies to substantially increase their depreciation and, thereby,
reduce their income taxes payable. In support of their allegation,
petitioners provided a chart listing 197 companies that were eligible
for revaluation of their assets pursuant to this program. The chart
illustrates that POSCO's revaluation accounted for 54 percent of the
total amount of asset revaluation by companies that were eligible to
revalue under Article 56(2). Furthermore, according to petitioners'
data, the 14 companies in the basic metals industry that used this
program accounted for 67 percent of the total amount of asset
revaluations under Article 56(2). Based on this new information, the
Department initiated a reexamination of the countervailability of this
program and solicited information regarding the usage of this program.
Because the enabling legislation does not expressly limit access to
the subsidy to an enterprise or industry, or group thereof, the program
is not de jure specific within the meaning of section 771(5A)(D)(i) of
the Act. Although the regulation itself does not expressly limit the
access to this law to a specified group or industry, it does place
restrictions on the time period and eligibility criteria which may have
caused de facto limitations on the actual usage of this tax program.
For example, Article 56(2) was enacted on November 28, 1987, and
applied only to companies making an initial public offering from
January 1, 1987 until the provision was abolished effective December
31, 1990. Pursuant to Article 56(2), companies listed on the Korea
Stock Exchange between January 1, 1987 and December 31, 1988 (as was
the case with POSCO) had until December 31, 1989 to revalue their
assets. A company that listed its stock after December 31, 1988 had to
revalue its assets prior to being listed on the stock exchange.
Therefore, based upon the eligibility criteria of the program, Article
56(2) effectively limited usage of this program to only the 316
companies that were newly listed on the Korean Stock Exchange during
the three years the program was in place rather than the 15 to 24
thousand manufacturers in operation in Korea during that period.
According to section 771(5A)(D)(iii), a subsidy is de facto
specific if one of the following factors exist: (1) The actual
recipients of the subsidy, whether considered on an enterprise or
industry basis, are limited in number; (2) An enterprise or industry is
a predominant user of the subsidy; (3) An enterprise or industry
receives a disproportionately large amount of the subsidy; or (4) The
manner in which the authority providing the subsidy has exercised
discretion in the decision to grant the subsidy indicates that an
enterprise or industry is favored over others.
Information on the record of the current investigation shows that
during the period 1987-1990, there were between 14,988 and 24,073
manufacturing companies operating in Korea. A requirement for
participation in this program was that companies had to make an initial
public offering between January 1, 1987 and December 31, 1990. DSM
listed its initial public offering in May 1988 and revalued its assets
under Article 56(2) in July 1988. POSCO listed its initial public
offering in June 1988 and revalued its assets under Article 56(2) in
January 1989. According to the GOK's July 1, 1999 questionnaire
response, 77 companies revalued their assets in 1989. The basic metal
sector accounted for 83 percent of the total revaluation surplus amount
(book value less revalued amount). POSCO's revaluation surplus
accounted for 91 percent of the basic metal sector revaluation surplus,
and 75 percent of the total revaluation surplus. While we recognize
that many factors can affect the relative size of tax benefits claimed
under programs (e.g., company size, value of assets, timing of
investments, management decisions, capital intensiveness, labor
intensiveness), the record evidence indicates that the basic metal
industry was a dominant user of this program in 1988/89. See, e.g.,
Stainless Steel Plate in Coils from South Africa, 64 FR 15553 (March
1999). Therefore, we preliminarily determine that this program is
specific, within the meaning of 771(5A)(D)(iii). As a result
[[Page 40452]]
of the increase in the value of depreciable assets resulting from the
asset revaluation, the companies were able to lower their tax
liability. Therefore, we also preliminarily determine that the program
provides a financial contribution within the meaning of section
771(5)(D)(ii), because by allowing companies to reduce their income tax
liability, the GOK has foregone revenue that is otherwise due.
The benefit from this program is not the amount of the revaluation
surplus, but rather the impact of the difference that the revaluation
of depreciable assets has on a company's tax liability each year.
However, respondents did not provide this information, and stated that
the depreciation expense resulting from the asset revaluation would
involve a detailed, item-by-item comparison of thousands of items, and
that it would be difficult for them to distinguish between the
remaining benefit from revaluation under Article 56(2), and revaluation
pursuant to normal procedures of the Asset Revaluation Act. Therefore,
we have calculated the benefit from this program by determining the
surplus amount of the revaluation of assets authorized under the
program for each company and divided the total revaluation surplus by
15, the AUL we are using in this investigation. We then multiplied the
amount of the revaluation surplus attributable to the POI by the tax
rate applicable to the tax return filed in the POI, and divided the
benefit for each company by their respective total sales during the
POI. On this basis, we preliminarily determine a net countervailable
subsidy of 0.50 percent ad valorem for POSCO and 0.23 percent ad
valorem for DSM.
D. Short-term Export Financing
The Department determined that the GOK's short-term export
financing program was countervailable in Steel Products from Korea, 58
FR at 37350. Petitioners allege that this program may also benefit the
producers and/or exporters of the subject merchandise. In this
investigation, the GOK reports that the BOK, under the ``Detailed Rules
of Trade Financing Related to the Aggregate Ceiling Loans'' (Detailed
Rules), provides discounts on foreign trade bills to commercial banks,
which, in turn, extend short-term loans to exporters. Under the
aggregate credit ceiling system established in 1994, the BOK allocates
a credit ceiling every month to each commercial bank, including
branches of Korean and foreign banks. This ceiling is based on each
bank's loan performance i.e., each bank's discounting of commercial
loans, foreign trade financing, and loans for the production of parts
and material. These banks then provide loans to exporters using the
funds received from the BOK and funds generated from their own sources
to discount trade bills.
There are two types of trade financing: Production financing and
raw material financing. A bank provides production financing when a
company needs funds for the production of export merchandise or the
production of raw materials used in the production of exported
merchandise. A bank extends raw material financing to exporters which
require financing for the importation or local purchase of raw
materials used in the production of exported merchandise.
During the POI, POSCO was the only producer/exporter of the subject
merchandise that received short-term export financing. DSM did not have
any short-term export financing under this program during the POI.
POSCO reports that the company entered into a credit ceiling loan
agreement with a commercial bank in accordance with Articles 12 and 13
of the Detailed Rules to receive financing. The loan agreement outlines
the maximum amount of credit which POSCO is eligible to receive, the
period covered by the loan agreement, the applicable interest rate, and
the penalty interest rate. POSCO states that when the company purchases
raw materials from a supplier on a letter of credit basis, the supplier
presents the letter of credit to POSCO's bank for payment. The bank, in
turn, pays the purchase price to the supplier and debits the trade loan
against POSCO's line of credit. POSCO pays the full amount of each
trade loan after about 90 days, which is the average period from
production to sales. Interest is paid by POSCO against each trade loan
at the time the loans are received. POSCO reported that the company
paid all of its export financing during the POI in a timely manner and
incurred no overdue interest penalties. In accordance with section
771(5A)(B) of the Act, we preliminary determine that this program
constitutes an export subsidy because receipt of the financing is
contingent upon export performance. In order to determine whether this
export financing program confers a countervailable benefit to POSCO, we
compared the interest rate POSCO paid on the export financing received
under this program during the POI with the interest rate POSCO would
have paid on a comparable short-term commercial loan. See discussion
above in the ``Subsidies Valuation Information'' section with respect
to short-term loan benchmark interest rates.
Because loans under this program are discounted (i.e., interest is
paid up-front at the time the loans are received), the effective rate
paid by POSCO on its export financing is a discounted rate. Therefore,
it was necessary to derive from POSCO's company-specific weighted-
average interest rate for short-term won-denominated commercial loans,
a discounted benchmark interest rate. We compared this discounted
benchmark interest rate to the interest rates charged on the export
financing and found that the program interest rates were lower than the
benchmark rates. Therefore, in accordance with section 771(5)(E)(ii) of
the Act, we preliminarily determine that this program provides a
countervailable benefit because the interest rates charged on the loans
were less than what POSCO would have had to pay on a comparable short-
term commercial loan. See Plate in Coils, 64 FR at 15533, and Sheet and
Strip, 64 FR at 30644. We also preliminarily determine that a financial
contribution is provided to POSCO under this program within the meaning
of section 771(5)(D)(i) of the Act.
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 benchmark interest rate. When the interest
that would have been paid at the benchmark rate exceeded the interest
that was paid at the program interest rate, the difference between
those amounts is the benefit. We then divided the benefit derived from
all of the loans on which interest was paid during the POI by total
exports. On this basis, we preliminarily determine that POSCO received
from this program during the POI a net countervailable subsidy of less
than 0.005 percent ad valorem.
We also requested information on whether POSCO or DSM received
short-term export financing under two additional programs: (1) A 1998
emergency support package unveiled by the GOK which included $4 billion
in trade financing, and (2) a 1998 short-term export financing program
operated by the Korean Export-Import Bank. According to both the
responses of POSCO and DSM, these programs were not used.
E. Reserve for Export Loss--Article 16 of the TERCL
Under Article 16 of the TERCL, a domestic person engaged in a
foreign-currency earning business can establish a reserve amounting to
the lesser of one
[[Page 40453]]
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, DKI, a trading company, was the only
exporter of the subject merchandise which claimed benefits under this
program.
We preliminarily 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 preliminarily 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. See Plate in Coils, 64 FR at 15534, and Sheet and
Strip, 64 FR at 30645.
To determine the benefit conferred by this program, we calculated
the tax savings by multiplying the balance amount of the reserve as of
December 31, 1997, by the corporate tax rate for 1997. We treated the
tax savings on these funds as a short-term interest-free loan. See 19
CFR 351.509. Accordingly, to determine the benefit, the amount of tax
savings was multiplied by the company's weighted-average interest rate
for short-term won-denominated commercial loans for the POI, 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, above, we preliminarily determine a net countervailable
subsidy of 0.02 percent ad valorem for DSM. POSCO did not benefit from
this program because it did not export the subject merchandise through
DKI during the POI.
F. Reserve for Overseas Market Development--Article 17 of the TERCL
Article 17 of the TERCL 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 were entitled to claimed benefits under this program during
the POI: Hyosung, POSTEEL, Sunkyong, and DKI.
We determine that the Reserve for Overseas Market Development
program constitutes an export subsidy under section 771(5A)(B) of the
Act because 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. See 19 CFR 351.509.
To determine the benefits conferred by this program during the POI,
we employed the same methodology used for determining the benefit from
the Reserve for Export Loss program. Using the methodology for
calculating subsidies received by trading companies, which also is
detailed in the ``Subsidies Valuation Information'' section, above, we
preliminarily calculate a net countervailable subsidy of 0.01 percent
ad valorem for POSCO, and 0.01 percent ad valorem for DSM.
G. Investment Tax Credits
Under the TERCL, companies in Korea are allowed to claim investment
tax credits for various kinds of investments. If the tax credits cannot
all be used at the time they are claimed, the company is authorized to
carry them forward for use in later tax years. During the POI, POSCO,
and DSM 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, there were changes in the statute effective in 1995,
which caused us to revisit the countervailability of the investment tax
credits. See Plate in Coils, 64 FR at 15534, and Sheet and Strip, 64 FR
at 30645.
POSCO claimed or used the following tax credits in its fiscal year
1997 income tax return which was filed during the POI: (1) Tax credits
for investments in equipment to develop technology and manpower under
Article 10; (2) tax credits for investment in productivity improvement
facilities under Article 25; and (3) tax credits for investment in
specific facilities under Article 26. DSM only claimed or used tax
credits for technology and manpower development expenses under Article
9 and tax credits under Article 25 in its fiscal year 1997 income tax
return which was filed during the POI. For certain of these tax
credits, a company normally calculates its authorized tax credit based
upon 3 or 5 percent of its investment, i.e., the company receives
either a 3 or 5 percent tax credit. However, if a company makes the
investment in domestically-produced facilities under these Articles, it
receives a 10 percent tax credit. The investment tax credit was amended
to eliminate the rate differential between domestic and foreign-made
facilities for investments that are made after December 31, 1997.
However, the differential rate remains in effect for investments made
prior to that date, and tax credits on these investments can be carried
forward beyond the POI.
Under section 771(5A)(C) of the Act, a program that is contingent
upon the use of domestic goods over imported goods is specific, within
the meaning of the Act. In Sheet and Strip, we examined the use of
investment tax credits under Articles 9, 10, 18, 25, 26, 27, and 71. In
that case, we determined that investment tax credits received under
Articles 10, 18, 25, 26, 27, and 71 constituted import substitution
subsidies under section 771(5A)(C) of the Act, because Korean companies
received a higher tax credit for investments made in domestically-
produced facilities under these Articles. In addition, because the GOK
foregoes collecting tax revenue otherwise due under this program, we
also determined that a financial contribution is provided under section
771(5)(D)(ii) of the Act. We did not countervail the use of Article 9
because a higher tax credit was not allowed for investments made in
domestically-produced facilities. See Sheet and Strip at 30645-46.
In this investigation, POSCO claimed investment tax credits under
Articles
[[Page 40454]]
10, 25, and 26. Therefore, we preliminarily determine that these tax
credits provided POSCO with a countervailable benefit. Petitioners have
also alleged that POSCO used investment tax credits under Article 88
and that this tax credit also constitutes an import substitution
subsidy because a higher credit is received if more domestically-
produced goods are used. However, we have insufficient information on
the record at this time to make this determination, but we will further
examine Article 88 at verification.
DSM was entitled to claim investment tax credits under Articles 9
and 25 during the POI. However, DSM did not use the tax credits to
reduce its tax liability during the POI. Instead, the company carried
forward the tax credits which can be used in the future. Because DSM
did not claim the investment tax credits on its tax return which was
filed during the POI, we preliminarily determine that DSM did not use
this program during the POI.
To calculate the benefit to POSCO from this tax credit program, we
determined the value of the tax credits POSCO deducted from its taxes
payable for the 1997 fiscal year. In POSCO's 1997 income tax return
filed during the POI, it deducted from its taxes payable, credits
earned in the years 1995 and 1996, which were carried forward and used
in the POI. We first determined those tax credits which were claimed
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 the regular 3 or 5 percent tax
credit. Next, we calculated the amount of the tax savings received
through the use of these tax credits during the POI, and divided that
amount by POSCO's total sales for the POI. On this basis, we
preliminarily determine a net countervailable subsidy of 0.30 percent
ad valorem for POSCO.
H. Electricity Discounts Under the Requested Load Adjustment Program
Petitioners alleged that POSCO is being charged utility rates at
less than adequate remuneration and, hence, the production of the
subject merchandise is receiving countervailable benefits from this
subsidy. Petitioners alleged that POSCO is receiving these
countervailable benefits in the form of utility rate discounts.
The GOK reports that during the POI the government-owned Korea
Electric Power Company (KEPCO) provided POSCO and DSM with four types
of discounts under its tariff schedule. These four discounts were based
on the following rate adjustment programs in KEPCO's tariff schedule:
(1) Power Factor Adjustment; (2) Summer Vacation and Repair Adjustment;
(3) Requested Load Adjustment; and (4) Voluntary Curtailment
Adjustment. (See the discussion below in ``Programs Preliminarily
Determined To Be Not Countervailable'' with respect to the Power Factor
Adjustment, Summer Vacation and Repair Adjustment, and the Voluntary
Curtailment Porgram discount programs.)
With respect to the Requested Load Adjustment (RLA) program, the
GOK introduced this 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.
Customers can apply for this program between May 1 and May 15 of
each year. If KEPCO finds the application in order, KEPCO and the
customer enter into a contract with respect to the RLA discount. The
RLA discount is provided based upon a contract for two months, normally
July and August. 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 33 companies RLA discounts even though KEPCO did not need
to request these companies to reduce their respective loads. The GOK
reports that because KEPCO increased its capacity to supply electricity
in 1997, it reduced the number of companies with which it maintained
RLA contracts in 1997 and 1998. In 1996, KEPCO entered into RLA
contracts with 232 companies, which was reduced to 44 companies in 1997
and 33 in 1998.
In Sheet and Strip, we found the RLA program countervailable
because the discounts provided under this program were distributed to a
limited number of users. See Sheet and Strip at 30646. No new
information or evidence of changed circumstances have been provided to
the Department to warrant a reconsideration of that determination.
Therefore, we continue to find the RLA program countervailable.
Because the electricity discounts are not ``exceptional'' benefits
and are received automatically on a regular and predictable basis
without further government approval, we preliminarily determine that
these discounts provide a recurring benefit to POSCO and DSM. See 19
CFR 351.524(a). Therefore, we have expensed the benefit from this
program in the year of receipt. See Sheet and Strip at 30646. To
measure the benefit from these programs, we summed the electricity
discounts which POSCO and DSM received from KEPCO under the RLA program
during the POI. We then divided the total RLA discount amount each
company received by their total sales for 1998. On this basis, we
preliminarily determine a net countervailable subsidy of less than
0.005 percent ad valorem for POSCO and less than 0.005 percent ad
valorem for DSM from the RLA discount program.
I. POSCO's Two-Tiered Pricing Structure to Domestic Customers
POSCO maintains three different pricing systems which serve
different markets: domestic prices in Korean won for products that will
be consumed in Korea, direct export prices in U.S. dollars or Japanese
yen, and local export prices in U.S. dollars. According to POSCO's
response, local export prices are provided to those domestic customers
who purchase steel for further processing into products that are
exported. POSCO is the only Korean producer of slabs, which is the main
input into the subject merchandise. During the POI, POSCO sold slab to
DSM for products that will be consumed in Korea, as well as slab to
produce exports of the subject merchandise.
During the POI, POSCO was a government-controlled company. See
Sheet and Strip at 30642-43. POSCO sets different prices for the
identical product for domestic purchasers based upon that purchaser's
anticipated export performance. Domestic purchasers which use the raw
material to produce a product for export are charged a lower price than
those domestic purchasers which do not export. See Sheet and Strip, 64
FR at 30647. In Sheet and Strip, we found this pricing scheme to be an
export subsidy under section 771(5A)(B) of the Act, which provides a
financial contribution under this program under section 771(5)(D) of
the Act.
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
[[Page 40455]]
Annex I of the Agreement on Subsidies and Countervailing
Measures.1 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. See
19 CFR 351.516. Based on the information in the record, it does not
appear that POSCO's dual pricing policy is being set directly or
indirectly through the application of a consistent method for
calculating the difference between the higher domestic and lower
international price of slab available to Korean exporters. See Final
Results of Redetermination Pursuant to the Court Remand Creswell
Trading Co. v. U.S., Slip.-Op. 94-65, which is publicly available in
Central Records Unit (CRU) (Room B-099 of the Main Commerce Building)
(Case No. 533-063), (in which the Department found in Certain Iron-
Metal Casting from India that the Indian government, under the IPRS
program maintained ``a clearly defined and consistently applied
methodology for calculating the difference between the higher domestic
and lower international price of pig iron available to Indian
exporters'') at 3. We will further investigate POSCO's pricing policies
at verification. We preliminarily determine that 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.
---------------------------------------------------------------------------
\1\ 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.
---------------------------------------------------------------------------
Petitioners argued in a July 12, 1999 submission that POSCO's dual-
pricing system is a provision of a good for less than adequate
remuneration, and the Department should therefore analyze such pricing
in accordance with Sec. 351.511 of the CVD Regulations. In Sheet and
Strip, we did not analyze POSCO's dual-pricing under the adequate
remuneration standard. While we have not modified our analysis in this
preliminary determination from our recent final determination in Sheet
and Strip, we intend to review the applicability of Sec. 351.511 of the
CVD Regulations for purposes of the final determination in this
investigation and, therefore, we are requesting comments on the
appropriate standard to apply to this dual-pricing scheme.
To determine the value of the benefit under this program, we
compared the monthly weighted-average price charged by POSCO to DSM for
domestic production to the monthly weighted-average price charged by
POSCO to DSM for export production. Where monthly comparison prices
were not available, we used quarterly weighted-average prices. We then
divided the amount of the price savings by the value of exports of the
subject merchandise during the POI. On this basis, we determine that
DSM received a net countervailable subsidy of 0.09 percent ad valorem
from this program during the POI.
J. Special Cases of Tax for Balanced Development Among Areas (TERCL
Article 43)
TERCL Article 43 allows a company to claim a tax reduction or
exemption for income gained from the disposition of factory facilities
when relocating from a large city to a local area (e.g., Seoul
Metropolitan area to a place outside the Seoul Metropolitan area). On
December 29, 1995, DSM sold land from its Pusan factory and within
three years from the sales date began production at its Pohang plant.
In accordance with Article 16, paragraph 7 of the Addenda to the TERCL,
DSM was entitled to receive an exemption on its income tax for the
resulting capital gain.
Payment for the Pusan facilities is on a long-term installment
basis, therefore, the income tax on the capital gain is payable when
DSM actually receives payment or transfers the title of ownership. The
capital gain in the tax year can not exceed DSM's total taxable income.
The maximum tax savings permitted is 100 percent of the taxable income;
however, this program is also subject to the minimum tax. This program
does not allow carrying forward of unused benefits in future years.
We preliminarily determine that the TERCL Article 43, for Special
Cases of Tax for Balanced Development Among Areas is specific within
the meaning of section 771(5A)(D)(iv) of the Act, because the program
is limited to an enterprise or industry located within a designated
geographical region. See also Iron-Metal Castings from Mexico, 48 FR
8834 (1983) (Fonei Loan program was regionally specific where available
to all companies outside of Mexico City), and Final Affirmative
Countervailing Duty Determination: Stainless Steel Plate in Coils From
Italy, 64 FR 15508, 15516 (funds were regionally specific because they
were limited to certain areas within Italy). We also preliminarily
determine that Article 43 provides a financial contribution within the
meaning of section 771(5)(D)(ii), because the GOK foregoes revenue that
is otherwise due by granting this tax credit.
To calculate the benefit from this tax credit program, we examined
the amount of the tax credit DSM deducted from its taxes payable for
the 1997 fiscal year. In DSM's 1997 income tax return filed during the
POI, it deducted from its taxes payable, credits earned in 1997. Next,
we calculated the amount of the tax savings and divided that amount by
DSM's total sales during POI. Using this methodology, we preliminarily
determine a net countervailable subsidy of 0.59 percent ad valorem for
DSM. POSCO did not use this program.
II. Programs Preliminarily Determined To Be Not Countervailable
A. Electricity Discounts Under Power Factor Adjustment, Summer Vacation
and Repair Adjustment, and Voluntary Curtailment Adjustment Programs
In Sheet and Strip, we determined that the Power Factor Adjustment,
and the Summer Vacation and Repair Adjustment programs are not
countervailable because the discounts under these programs are
distributed to a large number of firms in a wide variety of industries.
See Sheet and Strip at 30647-48.
Regarding the Voluntary Curtailment Adjustment (VCA) program, KEPCO
introduced this discount in 1995, to provide a stable supply of
electricity and to improve energy efficiency by reducing demand during
periods of peak consumption that occur during the summer. Under this
program, customers who use general, educational or industrial services
with a contract demand of 1,000 kw or more, and who arrange with KEPCO
a curtailment period of five or more days (or times) during the July
15-August 31 period, are eligible to enter into a VCA contract with
KEPCO. Customers who choose to participate in this program must curtail
demand by 20 percent or more on the basis of the average daily demand
during 10 a.m.-12 p.m., or by 3,000 kw.
Customers can apply for this program until June 15 of each year. If
KEPCO finds the application in order, KEPCO approves the application.
After approval, KEPCO and the customer enter into a contract with
respect to the VCA discount. Under this program, a basic discount of
110 won per kw is granted between July 15 and August 31.
We analyzed whether the VCA discount program is specific in law (de
jure specificity), or in fact (de facto specificity), within the
meaning of section 771(5A)(D)(i) and (iii) of the Act.
[[Page 40456]]
First, we examined the eligibility criteria contained in the law. The
Regulation on Electricity Supply and KEPCO's Rate Regulations for
Electric Service identified companies within a broad range of
industries as being eligible to participate in the electricity discount
programs. The VCA discount program is available to numerous companies
across all industries, provided that they have the required contract
demand and can reduce their maximum demand by a certain percentage.
Therefore, we preliminarily determine that the VCA electricity programs
is not de jure specific under section 771(5A)(D)(i) of the Act because
the regulation does not explicitly limit eligibility of the program.
We next examined data on the distribution of assistance under the
VCA program to determine whether the electricity discount program meets
the criteria for de facto specificity under section 771(5A)(D)(iii) of
the Act. We found that discounts provided under the VCA program were
distributed to a large number of customers, across a wide range of
industries. Given the data with respect to the large number of
companies and industries which received VCA electricity discounts, and
the fact that POSCO and DSM were not dominant or disproportionate users
of this program, we preliminarily determine that the VCA program is not
de facto specific under section 771(5A)(D)(iii) of the Act. Therefore,
we preliminarily determine that the VCA program is not countervailable.
B. Port Facility Fees
In Sheet and Strip, we determined that this program is not
countervailable because a diverse and large group of private sector
companies representing a wide cross-section of the economy have made a
large number of investments in infrastructure facilities at various
ports in Korea, including numerous investments at Kwangyang Bay. See
Sheet and Strip at 30649.
C. GOK Infrastructure Investments at Kwangyang Bay Post-1991
In Plate in Coils, we determined that this program is not
countervailable because the GOK's investments at Kwangyang Bay since
1991, in the Jooam Dam, the container terminal, and the public highway
were not specific to POSCO. Id. at 15536. The respondents state that
there have been no additional infrastructure investments at Kwangyang
Bay during the POI.
III. Programs Preliminarily Determined To Be Not Used
Based on the information provided in the questionnaire response, we
preliminarily determine that the companies under investigation either
did not apply for, or receive, benefits under the following programs
during the POI:
A. Special Cases of Tax for Balanced Development Among Areas (TERCL
Articles 41, 42, 44 and 45)
B. Private Capital Inducement Act (PCIA)
C. Social Indirect Capital Investment Reserve Funds (Art. 28)
D. Energy-Savings Facilities Investment Reserve Funds (Art. 29)
E. Industry Promotion and Research and Development Subsidies
1. Highly Advanced National Project Fund
2. Steel Campaign for the 21st Century
F. Overseas Resource Development Programs
G. Export Insurance Rates Provided By The Korean Export Insurance
Corporation
H. Export Industry Facility Loans (EIFL) and Specialty Facility Loans
I. Scrap Reserve Fund
J. Excessive Duty Drawback
IV. Program Preliminarily Determined Not To Exist
Free Trade Zones (FTZ) at Pusan and Kwangyang
The GOK states that at this time, there are only two FTZs in Korea.
One is located in Masan and the other is in Iksan. Therefore, we
preliminarily determine that this program does not exist.
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we
calculated an individual subsidy rate for POSCO, and DSM, manufacturers
of the subject merchandise. We preliminarily determine that the total
estimated net countervailable subsidy rate is 1.16 percent ad valorem
for POSCO and 1.12 percent ad valorem for DSM. The All Others rate is
1.14 ad valorem percent, which is the weighted-average of the rates for
both companies.
------------------------------------------------------------------------
Company Net subsidy rate
------------------------------------------------------------------------
POSCO............................... 1.16% Ad Valorem.
DSM................................. 1.12% Ad Valorem.
All Others.......................... 1.14% Ad Valorem.
------------------------------------------------------------------------
In accordance with section 703(d) of the Act, we are directing the
U.S. Customs Service to suspend liquidation of all entries of certain
cut-to-length carbon-quality steel from Korea, which are entered or
withdrawn from warehouse, for consumption on or after the date of the
publication of this notice in the Federal Register, and to require a
cash deposit or bond for such entries of the merchandise in the amounts
listed above. This suspension will remain in effect until further
notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged and nonproprietary information relating 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 our final determination is affirmative, the ITC will make its
final determination within 75 days after the Department makes its final
determination.
Public Comment
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held 57 days from the date of publication of the preliminary
determination at the U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230. Individuals who wish to
request a hearing must submit a written request within 30 days of the
publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14th Street and Constitution Avenue, NW, Washington, DC 20230.
Parties should confirm by telephone the time, date, and place of the
hearing 48 hours before the scheduled time.
Requests for a public hearing should contain: (1) The party's name,
address, and telephone number; (2) the number of participants; and, (3)
to the extent practicable, an identification of the arguments to be
raised at the hearing. In
[[Page 40457]]
addition, six copies of the business proprietary version and six copies
of the nonproprietary version of the case briefs must be submitted to
the Assistant Secretary no later than 50 days from the date of
publication of the preliminary determination. As part of the case
brief, parties are encouraged to provide a summary of the arguments not
to exceed five pages and a table of statutes, regulations, and cases
cited. Six copies of the business proprietary version and six copies of
the non-proprietary version of the rebuttal briefs must be submitted to
the Assistant Secretary no later than 5 days from the date of filing of
the case briefs. An interested party may make an affirmative
presentation only on arguments included in that party's case or
rebuttal briefs. Written arguments should be submitted in accordance
with 19 CFR 351.309 and will be considered if received within the time
limits specified above.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: July 16, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-18857 Filed 7-23-99; 8:45 am]
BILLING CODE 3510-DS-P