[Federal Register Volume 64, Number 249 (Wednesday, December 29, 1999)]
[Notices]
[Pages 73176-73196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33233]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-580-837]


Final Affirmative Countervailing Duty Determination: Certain Cut-
to-Length Carbon-Quality Steel Plate From the Republic of Korea

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

EFFECTIVE DATE: December 29, 1999.

FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Tipten Troidl, 
Office of CVD/AD Enforcement VI, Group II, Import Administration, U.S. 
Department of Commerce, Room 4012, 14th Street and Constitution Avenue, 
NW, Washington, DC 20230; telephone (202) 482-2786.
    Final Determination: The Department of Commerce (the Department) 
determines that countervailable subsidies are being provided to 
producers and exporters of certain cut-to-length carbon-quality steel 
plate from the Republic of Korea. For information on the countervailing 
duty rates, see the ``Suspension of Liquidation'' section of this 
notice.

SUPPLEMENTARY INFORMATION:

Petitioners

    The petition in this investigation was filed by Bethlehem Steel 
Corporation, U.S. Steel Group, a unit of USX Corporation, Gulf States 
Steel, Inc., IPSCO Steel Inc., Tuscaloosa Steel Corporation, and the 
United Steelworkers of America (petitioners).

Case History

    Since the publication of our preliminary determination in this 
investigation on July 26, 1999 (Preliminary Affirmative Countervailing 
Duty Determination and Alignment of Final Countervailing Duty 
Determination with Final Antidumping Duty Determination: Certain Cut-
to-Length Carbon-Quality Steel Plate from the Republic of Korea, 64 FR 
40445 (Preliminary Determination)), the following events have occurred:
    On September 13, 1999, we issued supplemental questionnaires to 
Pohang Iron & Steel Co., Ltd. (POSCO), Dongkuk Steel Mill Co., Ltd. 
(DSM), and the Government of Korea (GOK). We received the respondents' 
questionnaire responses on October 5, 1999. We conducted verification 
of the countervailing duty questionnaire responses from October 25 
through November 9, 1999. Because the final determination of this 
countervailing duty investigation was aligned with the final 
antidumping duty determination (see 64 FR 40416), and the final 
antidumping duty determination was postponed (see 64 FR 46341), the 
Department on August 25, 1999, extended the final determination of this 
countervailing duty investigation until no later than December 13, 1999 
(see 64 FR 40416). On November 19, 1999, we issued to all parties the 
verification reports for POSCO, DSM, and the Meetings with Banking 
Experts in Korea. We later issued on November 23, 1999, the 
verification report for the GOK. Petitioners and respondents filed case 
briefs on November 29, 1999. Rebuttal briefs were submitted to the 
Department by petitioners and respondents on December 3, 1999. A public 
hearing on the case was held on December 6, 1999.
    On November 23, 1999, we discontinued the suspension of liquidation 
of all entries of the subject merchandise entered or withdrawn from 
warehouse for consumption on or after that date, pursuant to section 
703(d) of the Act. See the ``Suspension of Liquidation'' section of 
this notice.

Scope of Investigation

    The products covered by this scope are certain hot-rolled carbon-
quality steel: (1) universal mill plates (i.e., flat-rolled products 
rolled on four faces or in a closed box pass, of a width exceeding 150 
mm but not exceeding 1250 mm, and of a nominal or actual thickness of 
not less than 4 mm, which are cut-to-length (not in coils) and without 
patterns in relief), of iron or non-alloy-quality steel; and (2) flat-
rolled products, hot-rolled, of a nominal or actual thickness of 4.75 
mm or more and of a width which exceeds 150 mm and measures at least 
twice the thickness, and which are cut-to-length (not in coils).
    Steel products to be included in this scope are of rectangular, 
square, circular or other shape and of rectangular or non-rectangular 
cross-section where such non-rectangular cross-section is achieved 
subsequent to the rolling process (i.e., products which have been 
``worked after rolling'')--for example, products which have been 
beveled or rounded at the edges. Steel products that meet the noted 
physical characteristics that are painted, varnished or coated with 
plastic or other non-metallic substances are included within this 
scope. Also, specifically included in this scope are high strength, low 
alloy (HSLA) steels. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium, 
titanium, vanadium, and molybdenum.
    Steel products to be included in this scope, regardless of 
Harmonized Tariff Schedule of the United States (HTSUS) definitions, 
are products in which: (1) iron predominates, by weight, over each of 
the other contained elements, (2) the carbon content is two percent or 
less, by weight, and (3) none of the elements listed below is equal to 
or exceeds the quantity, by weight, respectively indicated:

1.80 percent of manganese, or
 1.50 percent of silicon, or
 1.00 percent of copper, or
 0.50 percent of aluminum, or
 1.25 percent of chromium, or

[[Page 73177]]

 0.30 percent of cobalt, or
 0.40 percent of lead, or
 1.25 percent of nickel, or
 0.30 percent of tungsten, or
 0.10 percent of molybdenum, or
 0.10 percent of niobium, or
 0.41 percent of titanium, or
 0.15 percent of vanadium, or
 0.15 percent zirconium.

    All products that meet the written physical description, and in 
which the chemistry quantities do not equal or exceed any one of the 
levels listed above, are within the scope of these investigations 
unless otherwise specifically excluded. The following products are 
specifically excluded from these investigations: (1) products clad, 
plated, or coated with metal, whether or not painted, varnished or 
coated with plastic or other non-metallic substances; (2) SAE grades 
(formerly AISI grades) of series 2300 and above; (3) products made to 
ASTM A710 and A736 or their proprietary equivalents; (4) abrasion-
resistant steels (i.e., USS AR 400, USS AR 500); (5) products made to 
ASTM A202, A225, A514 grade S, A517 grade S, or their proprietary 
equivalents; (6) ball bearing steels; (7) tool steels; and (8) silicon 
manganese steel or silicon electric steel.
    The merchandise subject to these investigations is classified in 
the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030, 
7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000, 
7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045, 
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050, 
7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000, 
7226.91.8000, 7226.99.0000.
    Although the HTSUS subheadings are provided for convenience and 
Customs purposes, the written description of the merchandise under 
investigation is dispositive.

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the 
Act). In addition, unless otherwise indicated, all citations to the 
Department's regulations are to the current regulations as codified at 
19 CFR Part 351 (1998) and to the substantive countervailing duty 
regulations published in the Federal Register on November 25, 1998 (63 
FR 65348) (CVD Regulations).

Injury Test

    Because the Republic of Korea is a ``Subsidies Agreement Country'' 
within the meaning of section 701(b) of the Act, the International 
Trade Commission (ITC) is required to determine whether imports of the 
subject merchandise from Korea materially injure, or threaten material 
injury to, a U.S. industry. On April 8, 1999, the ITC published its 
preliminary finding that there is a reasonable indication that an 
industry in the United States is being materially injured, or 
threatened with material injury, by reason of imports from Korea of the 
subject merchandise (see Certain Cut-to-Length Steel Plate From the 
Czech Republic, France, India, Indonesia, Italy, Japan, Korea, and 
Macedonia; Determinations, 64 FR 17198 (April 8, 1999)).

Period of Investigation

    The period of investigation for which we are measuring subsidies 
(the POI) is calendar year 1998.

Subsidies Valuation Information

Allocation Period

    Section 351.524(d)(2) of the CVD Regulations states that we will 
presume the allocation period for non-recurring subsidies to be the 
average useful life (AUL) of renewable physical assets for the industry 
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class 
Life Asset Depreciation Range System and updated by the Department of 
Treasury. The presumption will apply unless a party claims and 
establishes that these tables do not reasonably reflect the AUL of the 
renewable physical assets for the company or industry under 
investigation, and the party can establish that the difference between 
the company-specific or country-wide AUL for the industry under 
investigation is significant.
    In this investigation, no party to the proceeding has claimed that 
the AUL listed in the IRS tables does not reasonably reflect the AUL of 
the renewable physical assets for the firm or industry under 
investigation. Therefore, according to section 351.524(d)(2) of the CVD 
Regulations, we have allocated POSCO and DSM's non-recurring subsidies 
over 15 years, the AUL listed in the IRS tables for the steel industry.

Benchmarks for Long-term Loans and Discount Rates

    During the POI, POSCO and DSM had a number of won-denominated and 
foreign currency-denominated long-term loans outstanding which the 
company received from government-owned banks, Korean commercial banks, 
overseas banks, and foreign banks with branches in Korea. A number of 
these loans were received prior to 1992. In the 1993 investigation of 
Steel Products from Korea,1 the Department determined that 
the GOK influenced the practices of lending institutions in Korea and 
controlled access to overseas foreign currency loans through 1991. See 
Final Affirmative Countervailing Duty Determinations and Final Negative 
Critical Circumstances Determinations: Certain Steel Products from 
Korea, 58 FR 37328, 37338 (July 9, 1993) (Steel Products from Korea), 
and the ``Direction of Credit'' section below. In that investigation, 
we determined that the best indicator of a market rate for long-term 
loans in Korea was the three-year corporate bond rate on the secondary 
market. Therefore, in the final determination of this investigation, we 
used the three-year corporate bond rate on the secondary market as our 
benchmark to calculate the benefits which the respondent companies 
received from direct foreign currency loans and domestic foreign 
currency loans obtained prior to 1992, and still outstanding during the 
POI.
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    \1\ On October 1, 1999, the United States Court of Appeals for 
the Circuit (CAFC) issued a decision regarding Steel Products from 
Korea. See AK Steel Corp. v. United States, 192F.3d (AK Steel). The 
Department has not received specific instructions from the Court on 
how this decision should be implemented. However, our review of the 
decision indicates that the CAFC found that there was not sufficient 
evidence on the record of Steel Products from Korea to determine 
that the GOK provided credit directly to the Korean steel industry. 
In this investigation, we have additional information on the record 
indicating that the GOK's direction of credit prior to 1992 provided 
a countervailable benefit to the Korean steel industry. Therefore, 
the selection of long-term benchmarks cited to in Steel Products 
from Korea is appropriate for this current investigation. For 
further information on direction of credit prior to 1992, see the 
``Direction of Credit'' section of this notice.
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    In Stainless Steel Plate and Stainless Steel Sheet and 
Strip,2 the Department, for the first time, examined the 
GOK's direction of credit policies for the period 1992 through 1997. 
Based on new information gathered during the course of those 
investigations, the Department determined that the GOK controlled 
directly or indirectly the lending practices of most sources of credit 
in Korea between 1992 and 1997. In the current investigation, we 
determine that the GOK still exercised

[[Page 73178]]

substantial control over lending institutions in Korea during the POI.
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    \2\ See Final Negative Countervailing Duty Determination: 
Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 
15530, 15532 (March 31, 1999) (Stainless Steel Plate), and Final 
Affirmative Countervailing Duty Determination: Stainless Steel Sheet 
and Strip in Coils from the Republic of Korea, 64 FR 30636, 39641 
(June 8, 1999) (Stainless Steel Sheet and Strip).
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    Based on our findings on this issue in prior investigations, as 
well as in the instant investigation, discussed below in the 
``Direction of Credit'' section of this notice, we are using the 
following benchmarks to calculate respondents' long-term loans obtained 
in the years 1992 through 1998. First, for countervailable, foreign-
currency denominated long-term loans, we used, where available, the 
company-specific weighted-average U.S. dollar-denominated interest 
rates on the companies' loans from foreign bank branches in Korea. 
However, certain companies had foreign currency loans denominated in a 
currency other than U.S. dollars but did not have the same type of 
currency loans from foreign bank branches in Korea. Because we were 
unable to find a similar foreign-currency denominated loan benchmark 
within Korea, we used foreign-currency interest rates as reported in 
the International Financial Statistics, a publication of the IMF. 
Second, for countervailable won-denominated long-term loans, where 
available, we used the company-specific corporate bond rate on the 
companies' public and private bonds. We note that this benchmark is 
based on the decision in Stainless Steel Plate, 64 FR at 15531, in 
which we determined that the GOK did not control the Korean domestic 
bond market after 1991, and that domestic bonds may serve as an 
appropriate benchmark interest rate. Where unavailable, we used the 
national average of the yields on three-year corporate bonds as 
reported by the Bank of Korea (BOK).
    We are also using the three-year company-specific corporate bond 
rate as the discount rate to determine the benefit from non-recurring 
subsidies received between 1992 and 1998.

Benchmarks for Short-Term Financing

    For those programs which require the application of a short-term 
interest rate benchmark, we used as our benchmark a company-specific 
weighted-average interest rate for commercial won-denominated loans for 
the POI. Each respondent provided its respective company-specific, 
short-term commercial interest rate to the Department.

Treatment of Subsidies Received by Trading Companies

    During the POI, POSCO exported the subject merchandise to the 
United States through three trading companies, POSTEEL, Hyosung, and 
Sunkyong. DSM exported through one trading company, DKI. POSTEEL is 
affiliated with POSCO, and DKI is affiliated with DSM within the 
meaning of section 771(33)(E) of the Act because as of December 31, 
1998, POSCO owned 95.8 percent of POSTEEL's shares, and DSM owned 51.3 
percent of DKI shares. The other trading companies are not affiliated 
with either POSCO or DSM. We required that the trading companies 
provide responses to the Department with respect to the export 
subsidies under investigation. Responses were required from the trading 
companies because the subject merchandise may be subsidized by means of 
subsidies provided to both the producer and the exporter. All subsidies 
conferred on the production and exportation of subject merchandise 
benefit the subject merchandise even if it is exported to the United 
States by an unaffiliated trading company rather than by the producer 
itself. Therefore, the Department calculates countervailable subsidy 
rates on the subject merchandise by cumulating subsidies provided to 
the producer, with those provided to the exporter. See 19 CFR 351.525.
    Under section 351.107 of the Department's Regulations, when the 
subject merchandise is exported to the United States by a company that 
is not the producer of the merchandise, the Department may establish a 
``combination'' rate for each combination of an exporter and supplying 
producer. However, as noted in the ``Explanation of the Final Rules'' 
(the Preamble), there may be situations in which it is not appropriate 
or practicable to establish combination rates when the subject 
merchandise is exported by a trading company. In such situations, the 
Department will make exceptions to its combination rate approach on a 
case-by-case basis. See Antidumping Duties; Countervailing Duties; 
Final Rule, 62 FR 27296, 27303 (May 19, 1997).
    In this investigation, we have determined that it is not 
appropriate to establish combination rates. This determination is based 
on two main facts: first, the majority of the subsidies conferred upon 
the subject merchandise were received by the producers. Second, the 
difference in the levels of subsidies conferred upon the subject 
merchandise among the individual trading companies is insignificant. 
Therefore, combination rates would serve no practical purpose because 
the calculated subsidy rate for POSCO/POSTEEL or POSCO/Sunkyong or 
POSCO and any of the other trading companies would effectively be the 
same rate. For these reasons, we are not calculating combination rates 
in this investigation. Instead, we have only calculated one rate for 
each producer of the subject merchandise, all of which is produced by 
either POSCO or DSM.
    To include the subsidies received by the trading companies, which 
are conferred upon the export of the subject merchandise, in the 
calculated ad valorem subsidy rate, we used the following methodology. 
For each of the four trading companies, we calculated the benefit 
attributable to the subject merchandise and factored that amount into 
the calculated subsidy rate for the producer. In each case, we 
determined the benefit received by the trading companies for each 
export subsidy and weight-averaged the benefit amounts by the relative 
share of each trading company's value of exports of the subject 
merchandise to the United States. This calculated ad valorem subsidy 
was then added to the subsidy calculated for either POSCO or DSM. Thus, 
for each of the programs below, the listed ad valorem subsidy rate 
includes the countervailable subsidies received by both the trading 
companies and either POSCO or DSM.

I. Programs Determined To Be Countervailable

A. The GOK's Direction of Credit Policies

1. The GOK's Credit Policies Through 1991
    As noted above in the ``Subsidies Valuation'' section of this 
notice, on October 1, 1999, the CAFC issued a decision regarding Steel 
Products from Korea. See AK Steel. The Department has not received 
specific instructions from the Court as to how this decision should be 
implemented. However, our review of the decision indicates that the 
CAFC found that there was not sufficient evidence on the record of 
Steel Products from Korea to determine that the GOK provided credit 
directly to the Korean steel industry. Since the time of the final 
determination of Steel Products from Korea the URAA was enacted and the 
Department developed and codified new substantive countervailing duty 
regulations. Under the new statute and regulations and considering the 
new information that was not on the record of Steel Products from 
Korea, we determine that all loans disbursed to respondent companies 
through 1991 are countervailable. For a discussion of this new 
information, please see Comments 1 and 2 in the ``Interested Party 
Comments'' section of the notice. The provision of long-term loans in 
Korea through 1991 results in a financial contribution within the 
meaning of section 771(5)(D)(i) of the Act. In accordance with section 
771(5)(E)(ii) of the Act, a benefit has

[[Page 73179]]

been conferred on the recipient to the extent that the regulated loans 
are provided at interest rates less than the benchmark rates described 
under the ``Subsidies Valuation Information'' section, above.
    POSCO and DSM were the only producers of the subject merchandise, 
and both companies received long-term loans prior to 1992 that were 
still outstanding during the POI. To determine the benefit from the 
regulated loans, we applied the long-term loan methodology provided for 
in section 351.505 of the CVD Regulations. We then summed the benefit 
amounts from the loans attributable to the POI and divided the total 
benefit by each company's respective total sales. On this basis, we 
determine the net countervailable subsidy to be 0.12 percent ad valorem 
for POSCO, and 0.04 percent ad valorem for DSM.
    In the preliminary determination, we stated that the long-term 
KExim Bank loans are regulated. Accordingly, these loans are 
countervailable as directed credit, and we included these long-term 
loans in POSCO's benefit calculations for directed credit. In the 
preliminary determination, we concluded that the loans provided to 
POSCO from the KExim Bank were export subsidies, and thus divided the 
benefit amounts from the loans attributable to the POI by the company's 
export sales. During verification, we found that these loans were 
provided under the Overseas Resource Development Program, and thus were 
not provided to POSCO based upon its export performance. Therefore, for 
the purposes of this final determination, we have attributed the 
benefit conferred from the KExim Bank loans over POSCO's total sales.
 2. The GOK's Credit Policies From 1992 Through 1998
    In the Stainless Steel Plate and Stainless Steel Sheet and Strip 
investigations, the Department determined that the GOK continued to 
control directly and indirectly the lending practices of most sources 
of credit in Korea through 1997.3 The Department also 
determined that the GOK's regulated credit from domestic commercial 
banks and government-controlled banks such as the Korea Development 
Bank (KDB) was specific to the steel industry. This credit conferred a 
benefit on the producers/exporters of the subject merchandise to the 
extent that the interest rates on these loans were less than the 
interest rates on comparable commercial loans. See section 771(5)(ii) 
of the Act. See also Stainless Steel Plate, 64 FR 15530, 15533, and 
Stainless Steel Sheet and Strip, 64 FR 30636, 30642.
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    \3\ In the Stainless Steel Plate and Stainless Steel Sheet and 
Strip investigations, the Department based its affirmative direction 
of credit determination for the period 1992 through 1997 on record 
evidence covering a time period different than that covered by the 
CAFC's decision in AK Steel which was Pre-1992. Moreover, in its 
decision, the CAFC did not reject the notion of the GOK directing 
credit specifically to the Korean steel industry but rather took 
issue with the evidence upon which the Department based its 
affirmative finding. Thus, because the Department based its 
affirmative direction of credit determination for the years 1992 
through 1997 on evidence that was not before the CAFC at the time of 
its decision in AK Steel, that case does not preclude a finding of 
directed credit during this later time period.
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    We provided the GOK with the opportunity to present new factual 
information concerning the government's credit policies during the 1992 
through 1997 period, which we would consider along with our finding in 
the prior investigations. The GOK did not provide new factual 
information that would lead us to change our determination in Stainless 
Steel Plate and Stainless Steel Sheet and Strip. Therefore, we continue 
to find lending from domestic banks and from government-owned banks 
such as the KDB to be countervailable.
    In the instant investigation, we examined whether the GOK continued 
to control or influence directly or indirectly, the lending practices 
of sources of credit in Korea in 1998, in light of our prior finding 
that the GOK controlled and directed credit provided by domestic banks 
and government-owned banks during the period 1992 through 1997. The GOK 
asserted that it does not provide direction or guidance to Korean 
financial institutions in the allocation of loans to selected 
industries. The GOK stated that the lending decisions and loan 
distributions of financial institutions in Korea reflect commercial 
considerations. The GOK also stated that its role in the financial 
sector is limited to monetary and credit policies as well as bank 
supervision and examination.
    According to the GOK, measures were taken in 1998 to liberalize the 
Korean financial sector. For example, in January 1998 the GOK announced 
closure of some banks, and in April 1998, launched the Financial 
Supervisory Commission (FSC) to monitor the competitiveness of 
financial institutions. In June 1998, the Regulation on Foreign 
Exchange Controls was amended to further liberalize foreign currency 
transactions, and in July, the GOK abolished the limit on purchasing 
foreign currency. According to the GOK, it also liberalized access to 
foreign loans. For direct foreign loans to Korean companies, the 
approval process under Article 19 of the Foreign Investment and Foreign 
Capital Inducement Act (FIFCIA) and Article 21 of its enforcement 
decree were eliminated and replaced with the Foreign Investment 
Promotion Act (FIPA), effective in November 1998. However, during most 
of the POI, access to direct foreign loans still required the approval 
of the Ministry of Finance and Economy.
    Regarding the GOK regulated credit from government-controlled banks 
such as the Korea Development Bank (KDB), the GOK reported that the KDB 
Act was amended in January 1998, in response to the financial crisis in 
1997. According to the GOK, with the new Act, the KDB no longer 
allocates funds for various functional categories; such as R&D, 
environment and technology. All functional loan categories were 
eliminated and such loans were consolidated into a single category for 
facility (equipment) loans. The GOK also stated that the KDB 
strengthened its credit evaluation procedures by developing an 
objective and systematic credit evaluation standard to prevent 
arbitrary decisions on loans and interest rates. The KDB changed its 
Credit Evaluation Committee to the Credit Deliberation Committee (CDC), 
and gave the CDC the authority to make lending decisions. As a result, 
the KDB governor no longer makes lending decisions without the approval 
of the CDC. The GOK also stated that in 1997, the KDB used the prime 
rate plus a spread for determining interest rates. Effective January 1, 
1998, the KDB increased the range of the credit spread to provide more 
flexibility in determining interest rates based on creditworthiness and 
to allow the KDB to increase its profits. However, respondents did not 
provide any evidence to demonstrate that the KDB has discontinued the 
practice of selectively making loans to specific firms or activities to 
support GOK policies.
    In Stainless Steel Plate, the Department noted conflicting 
information regarding the GOK's direct or indirect influence over the 
lending decisions of financial institutions. For example, the GOK 
policies appeared to be aimed, in part, at promoting certain sectors of 
the economy, such as high technology, which is defined to include the 
steel industry.
    While the GOK started to plan and implement reforms in the 
financial system during the POI as a result of the 1997 financial 
crisis, the record evidence indicates that the GOK previously attempted 
reforms of the

[[Page 73180]]

financial system in order to remove or reduce its control and influence 
over lending in the country. In the past ten years, the GOK has twice 
attempted to reform its financial system. In 1988, the GOK attempted to 
deregulate interest rates. However, the government deemed the 1988 
liberalization a failure. When the interest rates began to rise, the 
GOK canceled the reforms by indirectly pressuring the banks to keep 
interest rates low. In the early 1990s, the GOK attempted reforms again 
with a four-stage interest rate deregulation plan. Again, the GOK 
deemed this attempt to reform the financial system a failure. During 
1998 and 1999, the GOK has threatened to cut off credit to Korean 
companies unless the companies follow GOK policies. In addition, during 
the POI, the GOK took control of five large commercial banks due to the 
financial crisis.
    Based upon the information on the record and our determinations in 
Stainless Steel Plate and Stainless Steel Sheet and Strip, we determine 
that the GOK continued to control, directly and indirectly, the lending 
practices of domestic banks and government-owned banks through the POI.
    With respect to foreign sources of credit, in Stainless Steel Plate 
and Stainless Steel Sheet and Strip, we determined that access to 
government regulated foreign sources of credit in Korea did not confer 
a benefit to the recipient as defined by 771(5)(E)(ii) of the Act, and, 
as such, credit received by respondents from these sources was found 
not countervailable. This determination was based upon the fact that 
credit from Korean branches of foreign banks was not subject to the 
government's control and direction. Thus, respondents' loans from these 
banks served as an appropriate benchmark to establish whether access to 
regulated foreign sources of credit conferred a benefit on respondents. 
On the basis of this comparison, we found that there was no benefit 
during the POI. Petitioners have not provided any new information or 
evidence of changed circumstances to cause us to revisit this 
determination. Therefore, we continue to determine that credit from 
Korean branches of foreign banks were not subject to the government's 
control and direction. As such, lending from this source continues to 
be not countervailable, and loans from Korean branches of foreign banks 
continue to serve as an appropriate benchmark to establish whether 
access to regulated foreign sources of funds confer a benefit to 
respondents.
    With respect to loans provided under the Energy Savings Fund, in 
Stainless Steel Plate, 64 FR at 15533, the Department found that these 
loans were countervailable as directed credit on the grounds that they 
are policy loans provided by banks that are subject to the same GOK 
influence as described above. POSCO had Energy Savings Fund loans 
outstanding during the POI. Accordingly, these loans are 
countervailable as directed credit, and we have included these long-
term loans in POSCO's benefit calculations for directed credit.
    In addition, respondents received loans under the Industry 
Promotion Fund and the Industry Technology Development Fund. Similar to 
our determination with respect to the Energy Savings Fund, loans from 
both of these Industry Funds are policy loans provided by banks subject 
to the same GOK influence as described above. Therefore, loans from 
these two Industry Funds are countervailable as directed credit. 
POSCO's affiliates had outstanding loans during the POI from these 
Industry Funds. Therefore, we have included these long-term loans in 
POSCO's benefit calculations for directed credit.
    Both POSCO and DSM received long-term loans from domestic banks and 
government-owned banks during the period 1992 to 1998 that were still 
outstanding during the POI. These included loans with both fixed and 
variable interest rates. To determine the benefit from the regulated 
loans with fixed interest rates and those with variable interest rates, 
we applied the methodology provided for in section 351.505(c)(2) and 
section 351.505(c)(4), respectively, of the CVD Regulations, using as 
our benchmark the rate described in the ``Subsidies Valuation 
Information'' section of the notice, above. Therefore, for both fixed 
and variable rate loans, we calculated the difference in interest 
payments for the POI based upon the difference in the amount of actual 
interest paid during 1998 on the regulated loan and the amount of 
interest that would have been paid on a comparable commercial loan. We 
then summed the benefit amounts from the loans attributable to the POI 
and divided the total benefit by each company's respective total sales. 
On this basis, we determine the net countervailable subsidy to 0.15 
percent ad valorem for POSCO, and 0.13 percent ad valorem for DSM.

B. GOK Infrastructure Investment at Kwangyang Bay

    In Steel Products from Korea, the Department investigated the GOK's 
infrastructure investments at Kwangyang Bay over the period 1983-1991. 
We determined that the GOK's provision of infrastructure at Kwangyang 
Bay was countervailable because we found POSCO to be the predominant 
user of the GOK's investments. The Department has consistently held 
that a countervailable subsidy exists when benefits under a program are 
provided, or are required to be provided, in law or in fact, to a 
specific enterprise or industry or group of enterprises or industries. 
See Steel Products from Korea, 58 FR at 37346.
    No new factual information or evidence of changed circumstances has 
been provided to the Department with respect to the GOK's 
infrastructure investments at Kwangyang Bay over the period 1983-1991. 
Therefore, to determine the benefit from the GOK's investments to POSCO 
during the POI, we relied on the calculations performed in the 1993 
investigation of Steel Products from Korea, which were placed on the 
record of this investigation by POSCO. In measuring the benefit from 
this program in the 1993 investigation, the Department treated the 
GOK's costs of constructing the infrastructure at Kwangyang Bay as 
untied, non-recurring grants in each year in which the costs were 
incurred.
    To calculate the benefit conferred during the POI, we applied the 
Department's standard grant methodology and allocated the GOK's 
infrastructure investments over a 15-year allocation time period. See 
the allocation period discussion under the ``Subsidies Valuation 
Information'' section, above. We used as our discount rate the three-
year corporate bond rate on the secondary market as used in Steel 
Products from Korea. We then summed the benefits received by POSCO 
during 1998 from each of the GOK's yearly investments over the period 
1983-1991. We then divided the total benefit attributable to the POI by 
POSCO's total sales for 1998. On this basis, we determine a net 
countervailable subsidy of 0.23 percent ad valorem for the POI.

C. Short-Term Export Financing

    The Department determined that the GOK's short-term export 
financing program was countervailable in Steel Products from Korea (see 
58 FR at 37350). During the POI, POSCO was the only producer/exporter 
of the subject merchandise that used export financing.
    In accordance with section 771(5A)(B) of the Act, this program 
constitutes an export subsidy because receipt of the financing is 
contingent upon export performance. A financial contribution is 
provided to POSCO under this program within the meaning of section 
771(5)(D)(i) of the Act in the form of a

[[Page 73181]]

loan. To determine whether this export financing program confers a 
countervailable benefit to POSCO, we compared the interest rate POSCO 
paid on the export financing received under this program during the POI 
with the interest rate POSCO would have paid on a comparable short-term 
commercial loan. See discussion above in the ``Subsidies Valuation 
Information'' section with respect to short-term loan benchmark 
interest rates.
    Because loans under this program are discounted (i.e., interest is 
paid up-front at the time the loans are received), the effective rate 
paid by POSCO on its export financing is a discounted rate. Therefore, 
it was necessary to derive from POSCO's company-specific weighted-
average interest rate for short-term won-denominated commercial loans, 
a discounted benchmark interest rate. We compared this discounted 
benchmark interest rate to the interest rates charged on the export 
financing and found that the program interest rates were lower than the 
benchmark rate. Therefore, in accordance with section 771(5)(E)(ii) of 
the Act, we determine that this program confers a countervailable 
benefit because the interest rates charged on the loans were less than 
what POSCO would have had to pay on a comparable short-term commercial 
loan.
    To calculate the benefit conferred by this program, we compared the 
actual interest paid on the loans with the amount of interest that 
would have been paid at the applicable discounted benchmark interest 
rate. When the interest that would have been paid at the benchmark rate 
exceeded the interest that was paid at the program interest rate, the 
difference between those amounts is the benefit. We then divided the 
benefit derived from all of POSCO's export loans by the value of the 
company's total exports. On this basis, we determine a net 
countervailable subsidy of less than 0.005 percent ad valorem for 
POSCO.

D. Reserve for Export Loss

    Under Article 16 of the Tax Exemption and Reduction Control Act 
(TERCL), a domestic person engaged in a foreign-currency earning 
business can establish a reserve amounting to the lesser of one percent 
of foreign exchange earnings or 50 percent of net income for the 
respective tax year. Losses accruing from the cancellation of an export 
contract, or from the execution of a disadvantageous export contract, 
may be offset by returning an equivalent amount from the reserve fund 
to the income account. Any amount that is not used to offset a loss 
must be returned to the income account and taxed over a three-year 
period, after a one-year grace period. All of the money in the reserve 
is eventually reported as income and subject to corporate tax either 
when it is used to offset export losses or when the grace period 
expires and the funds are returned to taxable income. The deferral of 
taxes owed amounts to an interest-free loan in the amount of the 
company's tax savings. During the POI, DSM was the only exporter of the 
subject merchandise that benefitted from this program.
    We determine that the Reserve for Export Loss program constitutes 
an export subsidy under section 771(5A)(B) of the Act because use of 
the program is contingent upon export performance. We also determine 
that this program provides a financial contribution within the meaning 
of section 771(5)(D)(i) of the Act in the form of a loan. The benefit 
provided by this program is the tax savings enjoyed by the company.
    To determine the benefit conferred by this program, we calculated 
the tax savings by multiplying the balance amount of the reserve as of 
December 31, 1997, by the corporate tax rate for 1997. We treated the 
tax savings on these funds as a short-term interest-free loan. 
Accordingly, to determine the benefit, the amount of tax savings was 
multiplied by the company's weighted-average interest rate for short-
term won-denominated commercial loans for the POI, as described in the 
``Subsidies Valuation Information'' section, above. Using the 
methodology for calculating subsidies received by trading companies, 
which also is detailed in the ``Subsidies Valuation Information'' 
section of this notice, we determine a net countervailable subsidy of 
0.02 percent ad valorem for DSM.

E. Reserve for Overseas Market Development

    Article 17 of the TERCL operates in a manner similar to Article 16, 
discussed above. This provision allows a domestic person engaged in a 
foreign trade business to establish a reserve fund equal to one percent 
of its foreign exchange earnings from its export business for the 
respective tax year. Expenses incurred in developing overseas markets 
may be offset by returning from the reserve, to the income account, an 
amount equivalent to the expense. Any part of the fund that is not 
placed in the income account for the purpose of offsetting overseas 
market development expenses must be returned to the income account over 
a three-year period, after a one-year grace period. As is the case with 
the Reserve for Export Loss, the balance of this reserve fund is not 
subject to corporate income tax during the grace period. However, all 
of the money in the reserve is eventually reported as income and 
subject to corporate tax either when it offsets overseas expenses or 
when the grace period expires. The deferral of taxes owed amounts to an 
interest-free loan equal to the company's tax savings. The following 
exporters of the subject merchandise used this program during the POI: 
Hyosung, POSTEEL, Sunkyong, and DKI.
    We determine that the Reserve for Overseas Market Development 
program constitutes an export subsidy under section 771(5A)(B) of the 
Act because use of the program is contingent upon export performance. 
We also determine that this program provides a financial contribution 
within the meaning of section 771(5)(D)(i) of the Act in the form of a 
loan. The benefit provided by this program is the tax savings enjoyed 
by the companies.
    To determine the benefits conferred by this program during the POI, 
we employed the same methodology used for determining the benefit from 
the Reserve for Export Loss program. Using the methodology for 
calculating subsidies received by trading companies, which is detailed 
in the ``Subsidies Valuation Information'' section of this notice, we 
determine a net countervailable subsidy of 0.01 percent ad valorem for 
POSCO and a rate of 0.01 percent ad valorem for DSM.

F. Technical Development Reserve Funds Under Article 8 of TERCL

    Article 8 of TERCL allows a company operating in manufacturing or 
mining, or in a business prescribed by the Presidential Decree, to 
appropriate reserve funds to cover the expenses needed for development 
or innovation of technology. These reserve funds are included in the 
company's losses and reduces the amount of taxes paid by the company. 
Article 8 specifies that capital good and capital intensive companies 
can establish a reserve of five percent, while companies in all other 
industries are only allowed to establish a three percent reserve.
    Because the capital goods industry is allowed to claim a larger tax 
reserve under this program than all other manufacturers, we determine 
that the Technical Development Reserve Funds is specific under section 
771(5A)(D). We also determine that this program provides a financial 
contribution within the meaning of section 771(5)(D)(i) of the Act in 
the form of a loan. The benefit provided by this program is the 
differential two percent tax savings enjoyed by the companies in the 
capital

[[Page 73182]]

goods industry, which includes steel manufacturers.
    During the POI, POSCO was the only exporter of the subject 
merchandise that benefitted from this program. To determine the benefit 
conferred by this program, we first calculated the balance amount of 
the reserve as of December 31, 1997, attributable to the company being 
allowed to contribute a higher amount to the reserve account. We then 
calculated the tax savings by multiplying the calculated balance amount 
in the reserve account, by the corporate tax rate for 1997. We treated 
the tax savings on these funds as a short-term interest-free loan. As a 
benchmark interest rate, we used an affiliated company's weighted-
average interest rate for short-term won-denominated commercial loans 
for the POI. On this basis, we determine a net countervailable subsidy 
for POSCO of less than 0.005 percent ad valorem.

G. Investment Tax Credits

    Under the TERCL, companies in Korea are allowed to claim investment 
tax credits for various kinds of investments. If the tax credits cannot 
all be used at the time they are claimed, then the company is 
authorized to carry them forward for use in subsequent tax years. 
During the POI, POSCO claimed various investment tax credits to reduce 
its 1997 net tax liability. In Steel Products from Korea, we found that 
investment tax credits were not countervailable (see 58 FR at 37351); 
however, there were changes in the countervailing duty statute 
effective in 1995, which have caused us to revisit the 
countervailability of the investment tax credits.
    POSCO used the following tax credits: (1) tax credits for 
investments in facilities for research and experiment under Article 
10(1)(a) and Article 10(1)(b); (2) tax credits for investments in 
productivity improvement under Article 25; (3) tax credits for specific 
facility investments under Article 26; (4) tax credit for Equipment 
Investment to Promote Workers' Welfare under Article 88.
    Under these TERCL Articles, if a company invested in foreign-
produced facilities (i.e., facilities produced in a foreign country), 
the company received a tax credit equal to either three or five percent 
of its investment. However, if a company invested in domestically-
produced facilities (i.e., facilities produced in Korea) under the same 
Articles, it received a 10 percent tax credit. Under Article 88, a tax 
credit can only be claimed if a company is using domestic machines and 
materials. Under section 771(5A)(C) of the Act, which became effective 
on January 1, 1995, a program that is contingent upon the use of 
domestic goods over imported goods is specific, within the meaning of 
the Act. Because Korean companies received a higher tax credit for 
investments made in domestically-produced facilities, we determine that 
investment tax credits received under Articles 10(1)(a), 10(1)(b), 25, 
26, and 88 constitute import substitution subsidies under section 
771(5A)(C) of the Act. In addition, because the GOK is foregoing the 
collection of tax revenue otherwise due under this program, we 
determine that a financial contribution is provided under section 
771(5)(D)(ii) of the Act. The benefit provided by this program is a 
reduction in taxes payable. Therefore, we determine that this program 
is countervailable.
    To calculate the benefit from this tax credit program, we examined 
the amount of tax credits POSCO deducted from its taxes payable for the 
1997 fiscal year. POSCO deducted from its 1997 taxes payable, credits 
earned in the years 1995 and 1996. Therefore, we first determined the 
amount of the tax credits claimed which were based upon investments in 
domestically-produced facilities. We then calculated the additional 
amount of tax credits received by the company because it earned tax 
credits of 10 percent on such investments instead of a three or five 
percent tax credit. Next, we calculated the amount of the tax savings 
earned through the use of these tax credits during the POI and divided 
that amount by POSCO's total sales during the POI. On this basis, we 
determine a net countervailable subsidy of 0.32 percent ad valorem for 
POSCO. DSM did not claim any tax deductions during the POI through the 
use of any of these investment tax credits.

H. Electricity Discounts Under the Requested Load Adjustment Program

    The GOK reported that during the POI, the government-owned Korea 
Electric Power Company (KEPCO) provided respondents with four types of 
discounts under its tariff schedule. These four discounts were based on 
the following rate adjustment programs in KEPCO's tariff schedule: (1) 
Power Factor Adjustment; (2) Summer Vacation and Repair Adjustment; (3) 
Requested Load Adjustment; and (4) Voluntary Curtailment Adjustment. 
See the discussion below in ``Programs Determined To Be Not 
Countervailable'' with respect to the Power Factor Adjustment and 
Summer Vacation and Repair Adjustment, and Voluntary Curtailment 
Adjustment discount programs.
    The GOK introduced the Requested Load Adjustment (RLA) discount in 
1990, to address emergencies in KEPCO's ability to supply electricity. 
Under this program, customers with a contract demand of 5,000 KW or 
more, who can curtail their maximum demand by 20 percent or suppress 
their maximum demand by 3,000 KW or more, are eligible to enter into a 
RLA contract with KEPCO. Customers who choose to participate in this 
program must reduce their load upon KEPCO's request, or pay a surcharge 
to KEPCO.
    During the POI, KEPCO granted 33 companies RLA discounts even 
though KEPCO did not request these companies to reduce their respective 
loads. The GOK reported that because KEPCO increased its capacity to 
supply electricity in 1997, it reduced the number of companies with 
which it maintained RLA contracts in 1997 and 1998. In 1996, KEPCO had 
entered into RLA contracts with 232 companies, which was reduced to 44 
companies in 1997 and 33 in 1998. Therefore, we continue to find that 
the discounts provided under the RLA were distributed to a limited 
number of users. Given the data with respect to the small number of 
companies which received RLA electricity discounts during the POI, we 
determine that the RLA program is de facto specific under section 
771(5A)(D)(iii)(I) of the Act. The benefit provided under this program 
is a discount on a company's monthly electricity charge. A financial 
contribution is provided to POSCO under this program within the meaning 
of section 771(5)(D)(ii) of the Act in the form of revenue foregone by 
the government. See Stainless Steel Sheet and Strip, 64 FR at 40454.
    Under section 351.524(c) of the CVD regulations, discounts on 
electricity will normally be treated as recurring benefits and expensed 
in the year of receipt. Therefore, to measure the benefit from this 
program, we summed the electricity discounts which POSCO and DSM 
received from KEPCO under the RLA program during the POI and divided 
that amount by each company's total sales value for 1998. On this 
basis, we determine a net countervailable subsidy of less than 0.005 
percent ad valorem for POSCO, and a rate less than 0.005 percent ad 
valorem for DSM from the RLA discount program.

I. Asset Revaluation Pursuant to TERCL Article 56(2)

    This provision under Article 56(2) of the Tax Exemption and 
Reduction Control Act (TERCL) allowed companies making an initial 
public offering between January 1, 1987, and December

[[Page 73183]]

31, 1990, to revalue their assets without meeting the requirement in 
the Asset Revaluation Act of a 25 percent change in the wholesale price 
index since the company's last revaluation. In Steel Products from 
Korea, after verification, petitioners submitted additional 
information, which according to them, indicated that POSCO's 
revaluation may have been significantly greater than that of the other 
companies that revalued. Because the information submitted by 
petitioners was untimely, it was rejected; however, we requested 
additional information on the subject. The additional information 
submitted by petitioners contained data on the amount of assets 
revalued of only 45 of the 207 companies that revalued pursuant to 
Article 56(2). It was unclear from petitioners' data which companies 
revalued pursuant to Article 56(2) and which revalued in accordance 
with the general provisions of the Asset Revaluation Act. Because of 
these shortcomings, and because the information was submitted too late 
for verification, we were unable to draw conclusions with respect to 
the relative benefit derived by POSCO from this program. Since there 
was no evidence of de jure or de facto selectivity concerning the 
timing of POSCO's revaluation or the method of POSCO's revaluation 
under the Asset Revaluation Act, the Department determined this program 
to be not countervailable. See Steel Products from Korea, 58 FR at 
37351.
    In the petition in this case, petitioners provided information to 
substantiate their allegation that POSCO and DSM received a specific 
benefit under this program because their massive asset revaluations 
permitted the companies to substantially increase their depreciation 
and, thereby, reduce their income taxes payable. Based on this new 
information, the Department initiated a reexamination of the 
countervailability of this program and solicited information regarding 
the usage of this program.
    Because the enabling legislation does not expressly limit access to 
the subsidy to an enterprise or industry, or group thereof, the program 
is not de jure specific within the meaning of section 771(5A)(D)(i) of 
the Act. Although the regulation itself does not expressly limit the 
access to this law to a specified group or industry, it does place 
restrictions on the time period and eligibility criteria which may have 
been structured to result in de facto limitations on the actual usage 
of this tax program. For example, Article 56(2) was enacted on November 
28, 1987, and applied only to companies making an initial public 
offering from January 1, 1987 until the provision was abolished 
effective December 31, 1990. Pursuant to Article 56(2), companies 
listed on the Korea Stock Exchange between January 1, 1987 and December 
31, 1988 (as was the case with POSCO) had until December 31, 1989 to 
revalue their assets. A company that listed its stock after December 
31, 1988 had to revalue its assets prior to being listed on the stock 
exchange. Therefore, based upon the eligibility criteria of the 
program, Article 56(2) effectively limited usage of this program to 
only the 316 companies that were newly listed on the Korean Stock 
Exchange during the three years the program was in place rather than 
the 15 to 24 thousand manufacturers in operation in Korea during that 
period.
    Information on the record of the current investigation shows that 
during the period 1987-1990, there were between 14,988 and 24,073 
manufacturing companies operating in Korea, and only 77 companies 
revalued their assets in 1989 (at the time the respondents revalued 
their assets). In addition to the limited number of companies using 
this program, we note that the basic metal sector accounted for 83 
percent of the total revaluation surplus amount (book value less 
revalued amount), which indicates that the basic metal industry was a 
dominant user of this program in 1988/89. See, e.g., Stainless Steel 
Plate in Coils from South Africa, 64 FR 15553 (March 31, 1999). In 
examining the de facto specificity of the program, we recognize the 
concern that a tax benefit conferred on a large company might be 
disproportionate merely because of the size of the company. However, 
based upon the facts of this particular case, this concern is 
unfounded. First, given the number of manufacturing companies in Korea 
during the effective period of this program's operation, there were 
very few companies receiving tax benefits under this program. In 
addition, given the number of manufacturers in Korea, there should have 
been other large companies relative to the size of POSCO revaluing 
assets under this program. However, this is not the case with respect 
to this program.
    Therefore, based upon the above set of facts, we determine that 
this program is specific, within the meaning of 771(5A)(D)(iii). As a 
result of the increase in the value of depreciable assets resulting 
from the asset revaluation, the companies were able to lower their tax 
liability. Therefore, we also determine that the program provides a 
financial contribution within the meaning of section 771(5)(D)(ii), 
because by allowing companies to reduce their income tax liability, the 
GOK has foregone revenue that is otherwise due.
    The benefit from this program is not the amount of the revaluation 
surplus, but rather the impact of the difference that the revaluation 
of depreciable assets has on a company's tax liability each year. Based 
on clarification of the May 28, 1999 questionnaire responses submitted 
by the respondents, we have revised our calculations. We have now used 
the additional depreciation in 1997, which resulted from the company's 
assets revaluation and multiplied that amount by the tax rate 
applicable to the tax return filed in the POI, and divided the benefit 
for each company by their respective total sales during the POI. On 
this basis, we determine a net countervailable subsidy of 0.04 percent 
ad valorem for POSCO and a rate of 0.02 percent ad valorem for DSM.

I. Exemption of Bond Requirement for Port Use at Asan Bay

    The GOK's overall development plan is published every 10 years, 
last published in 1991, and describes the nationwide land development 
goals and plans for the balanced development of the country. Under 
these plans, the Ministry of Construction and Transportation (MOCAT) 
prepares and updates its Asan Bay Area Broad Development Plan. The 
Korea Land Development Corporation (KOLAND) is a government investment 
corporation that is responsible for purchasing, developing, and selling 
land in the industrial sites.
    The Asan Bay area was designated as an Industrial Site Development 
Area in December 1979. The Asan Bay area consists of five development 
sites, (1) Kodai, (2) Wanjung, (3) Woojung, (4) Poseung, and (5) Bukok. 
Although Wanjung and Woojung are within the Asan National Industrial 
Estate, those properties are not owned by KOLAND.
    After the preliminary determination, we requested and received 
information regarding the GOK's infrastructure investments at Asan Bay, 
which we subsequently verified. At verification, the officials 
explained that the GOK had built port berths #1, #2, #3, and #4 in the 
Poseung area. We also learned of POSCO's activities at Asan Bay. In 
September 1997, POSCO signed a three-year lease agreement with the 
Inchon Port Authority (IPA) for the exclusive use of port berth #1, 
which was constructed by the GOK, and paid the applicable user fee.
    In 1997, the GOK also entered into a lease agreement for the 
exclusive use of the other port berths #2, #3, and #4, with

[[Page 73184]]

a consortium of six companies. The consortium of companies was required 
to purchase bonds, which the GOK would repay without interest after the 
lease expired in 10 years. However, POSCO was not required to purchase 
a bond for the exclusive use of port berth #1. See POSCO Verification 
Report, public version dated November 19, 1999, on file in the CRU.
    We first determine that the waiver of the bond purchase was only 
provided to POSCO. Therefore, the program meets the specificity 
requirements under section 771(5A)(D) of the Act. In addition, we 
determine that the GOK's waiver of the bond purchase requirement for 
the exclusive use of port berth #1 by POSCO confers a financial 
contribution under section 771(5)(D)(ii) of the Act, because the GOK 
foregoes collecting revenue that it normally would collect. We also 
determine that because the GOK had to repay the bonds at the end of the 
lease term, the bond purchase waiver is equivalent to an interest free 
loan for three years, the duration of the lease.
    To determine the benefit from the loan, we treated the amount of 
the bond as a long-term interest-free loan. We then applied the 
methodology provided for in section 351.505(c)(4) of the CVD 
Regulations for a long-term fixed rate loan, and compared the amount of 
interest that should have been paid during 1998 on the interest free 
loan to the amount of interest that would have been paid based upon the 
interest rate on a comparable won-denominated benchmark loan. We then 
divided the benefit by the company's total sales. On this basis, we 
determine the net countervailable subsidy to be less than 0.005 percent 
ad valorem for POSCO.

J. Price Discount for DSM Land Purchase at Asan Bay

    In 1995, DSM purchased land at the Asan Bay Industrial Site, a GOK 
constructed industrial estate. DSM began making land payments in 1995 
and continued until the last payment in December 1998. The original 
total land cost to the KDLC included land, management fees, and land 
development costs. During the period of the contract from 1995 to 1998, 
a variety of cost and fees changed. For instance, DSM decided to have a 
private company perform land development, thus reducing the original 
total amount of land cost. Also, the management fee to West Area 
Industrial Site Management Corporation (WAISM) was waived and the GOK 
further reduced the land price.
    During verification, the Department noted a difference between the 
total cost of land amount after changes and what DSM actually paid. 
This difference occurred because the GOK reduced the amount by percent 
and waived a management fee owed to WAISM. Based upon 
771(5A)(D)(iii)(I) of the Act, this price reduction was specific to 
DSM. As the GOK issued this price reduction, this confers a benefit 
under 771(5)(D)(ii) of the Act, because the GOK foregoes revenue that 
it normally would collect.
    To calculate the benefit from this program, the Department first 
took the original amount of the land cost and deducted the amount that 
was to be paid to the KLDC for land development, to obtain the new 
price of the land. Next, to derive the amount DSM paid for the land, we 
took the actual amount and added the prepaid interest. The Department 
then took the difference between the new price of the land and the 
calculated amount paid by DSM. We treated the difference as a grant as 
described in 19 CFR 351.504 of the CVD regulations. Although this 
program confers a non-recurring benefit, the amount of the benefit is 
less than 0.5 percent of DSM's total sales, therefore, we have expensed 
this benefit in the year of receipt, which was the POI, pursuant to 
section 351.524(2) of the CVD regulations. On this basis, we have 
calculated a net countervailable subsidy rate of 0.48 percent ad 
valorem for DSM.

K. POSCO's Dual-Pricing Scheme

    POSCO maintains three different pricing systems which serve 
different markets: domestic prices in Korean won for products that will 
be consumed in Korea, direct export prices in U.S. dollars or Japanese 
yen, and local export prices in U.S. dollars. According to POSCO's 
response, local export prices are provided to those domestic customers 
who purchase steel for further processing into products that are 
exported. POSCO is the only Korean producer of slabs, which is the main 
input into the subject merchandise. During the POI, POSCO sold slab to 
DSM for products that will be consumed in Korea, as well as slab to 
produce exports of the subject merchandise.
    During the POI, POSCO continued to be a government-controlled 
company. See Stainless Steel Sheet and Strip 64 FR at 30642-43. POSCO 
sets different prices for the identical product for domestic purchasers 
based upon that purchaser's anticipated export performance. See 
Stainless Steel Sheet and Strip, 64 FR at 30647. Thus, in selling to 
DSM, POSCO charged a domestic price for slab when DSM's finished 
product was to be sold in Korea, and a ``local-export'' price for slab 
when DSM's finished product was to be exported. In Stainless Steel 
Sheet and Strip, we found this pricing scheme to be an export subsidy 
under section 771(5A)(B) of the Act, which provides a financial 
contribution under section 771(5)(D) of the Act.
    In Stainless Steel Sheet and Strip, we calculated the benefit 
conferred by POSCO's pricing policies under section 351.516 of the CVD 
regulations which provides the methodology used to determine price 
preferences for inputs used in the production of goods for export. 
Therefore, in Stainless Steel Sheet and Strip, and in the preliminary 
determination of this investigation, the Department determined the 
benefit from this pricing scheme by comparing the difference in the 
local-export and domestic prices charged by POSCO.
    In comments prior to our preliminary determination, petitioners 
argued that POSCO's dual-pricing system is a provision of a good for 
less than adequate remuneration under section 771(5)(E)(iv), therefore, 
petitioners stated that the Department should analyze this pricing 
scheme in accordance with section 351.511 of the CVD regulations. In 
our preliminary determination, we stated that we would continue to 
analyze this issue for our final determination.
    The focus of our analysis in Stainless Steel Sheet and Strip was 
whether the GOK, acting through its ownership and control of POSCO, was 
setting below-market prices for raw materials used by Korean steel 
exporters. Based upon this premise, we determined that this program 
should be analyzed under section 351.516 of the CVD regulations to 
measure the discriminatory pricing practice between domestic and export 
consumption. This was the appropriate methodology to employ based upon 
the allegation in Stainless Steel Sheet and Strip that the government 
was providing price preferences for inputs used in the production of 
goods for export. As noted above, section 351.516 specifies the 
methodology to be employed when there are price preferences for inputs 
used in the production of goods for export and is based upon Item (d) 
of the Illustrative List of Export Subsidies, which is provided for in 
Annex I of the Agreement on Subsidies and Countervailing Measures.
    In this current investigation, petitioners have argued that the GOK 
is controlling both the domestic and export prices of slab, the input 
into plate. Petitioners have stated that the same information on the 
record that demonstrates that the GOK through its control of POSCO is 
setting below-market prices for exporters also supports a conclusion 
that a similar pricing policy is followed for POSCO's

[[Page 73185]]

domestic-priced slab sales. Therefore, we must analyze POSCO's dual 
pricing scheme based upon the specific allegation in this current 
investigation, i.e., the provision of a good or service for less than 
adequate remuneration.
    Under section 351.511(a)(2), the adequacy of remuneration is to be 
determined by comparing the government price to a market determined 
price based on actual transactions in the country in question. Such 
prices could include prices stemming from actual transactions between 
private parties, actual imports, or, in certain circumstances, actual 
sales from competitively run government auctions. During the POI, DSM 
imported slab; therefore, we are using actual imported prices of slab 
as our basis of comparison. Based upon this comparison, we determined 
that POSCO's local-export price for slab is sold at less than adequate 
remuneration. As a result, a benefit is conferred to DSM under section 
771(5)(E)(iv). We have not made a determination with respect to POSCO's 
domestic-priced slab sales to DSM because under section 351.525(b)(4) 
of the CVD regulations, subsidies tied to a particular market will be 
attributed only to the products sold by the firm to that market.
    To determine the value of the benefit under this program, we 
compared the quarterly delivered weighted-average price charged by 
POSCO to DSM for local export production to the quarterly delivered 
duty-exclusive weighted-average price DSM paid for imported slab, by 
grade of slab. We used a duty-exclusive price because, consistent with 
the prevailing market conditions referred to in section 771(5)(E)(iv) 
of the Act, an exporter in Korea is entitled to duty drawback. We then 
divided the amount of the price savings by the value of exports of the 
subject merchandise during the POI. On this basis, we determine that 
DSM received a countervailable subsidy of 0.90 percent ad valorem from 
this program during the POI.

L. Special Cases of Tax for Balanced Development Among Areas (TERCL 
Article 43)

    TERCL Article 43 allows a company to claim a tax reduction or 
exemption for income gained from the disposition of factory facilities 
when relocating from a large city to a local area (e.g., Seoul 
Metropolitan area to a place outside the Seoul Metropolitan area). On 
December 29, 1995, DSM sold land from its Pusan factory and within 
three years from the sale date began production at its Pohang plant. In 
accordance with Article 16, paragraph 7 of the Addenda to the TERCL, 
DSM was entitled to receive an exemption on its income tax for the 
resulting capital gain.
    Payment for the Pusan facilities is on a long-term installment 
basis. Therefore, the income tax on the capital gain is payable when 
DSM actually receives payment or transfers the title of ownership. The 
capital gain in the tax year cannot exceed DSM's total taxable income. 
The maximum tax savings permitted is 100 percent of the taxable income; 
however, this program is also subject to the minimum tax. This program 
does not allow carrying forward of unused benefits in future years.
    We determine that the TERCL Article 43, for Special Cases of Tax 
for Balanced Development Among Areas is specific within the meaning of 
section 771(5A)(D)(iv) of the Act, because the program is limited to 
enterprises or industries located within a designated geographical 
region. See Final Affirmative Countervailing Duty Determination: 
Stainless Steel Plate in Coils From Italy, 64 FR 15508, 15516 (March 
31, 1999) (funds were regionally specific because they were limited to 
certain areas within Italy). We also determine that Article 43 provides 
a financial contribution within the meaning of section 771(5)(D)(ii), 
because the GOK foregoes revenue that is otherwise due by granting this 
tax credit.
    To calculate the benefit from this tax credit program, we examined 
the amount of the tax credit DSM deducted from its taxes payable for 
the 1997 fiscal year. In DSM's 1997 income tax return filed during the 
POI it deducted from its taxes payable, credits earned in 1997. Next, 
we calculated the amount of the tax savings and divided that amount by 
DSM's total sales during POI. Using this methodology, we determine a 
net countervailable subsidy of 0.61 percent ad valorem for DSM. POSCO 
did not use this program.

M. Research and Development (R&D)

    The GOK, through MOCIE, provides R&D grants to support numerous 
projects pursuant to the Industrial Development Act, including 
technology for core materials, components, and engineering systems, and 
resource technology. The program is designed to foster the development 
of efficient technology for industrial development. A company may 
participate in this program in several ways: (1) a company may perform 
its own R&D project, (2) it may participate through the Korea New Iron 
and Steel Technology Research Association (KNISTRA), which is an 
association of steel companies established for the development of new 
iron and steel technology, and/or (3) a company may participate in 
another company's R&D project and share R&D costs, along with funds 
received from the GOK. To be eligible to participate in this program, 
the applicant must meet the qualifications set forth in the basic plan 
and must perform R&D as set forth under the Notice of Industrial Basic 
Technology Development. Upon completion of the R&D project, the 
participating company must repay 50 percent of the R&D grant (30 
percent in the case of SME's established within 7 years) to the GOK, in 
equal payments over a five-year period. If the R&D project is not 
successful, the company must repay the full amount.
    This program was not reported until after the Department published 
its preliminary determination. We subsequently received information on 
this program during verification. However, we are unable to conduct a 
complete de facto specificity analysis regarding R&D that respondents 
performed with GOK assistance because: (1) A complete breakdown of 
projects, company names, sector, grant amount, and the duration of the 
projects was not provided until verification, and (2) this data is 
primarily in Korean. Therefore, as facts available, we determine that 
grants provided directly to respondents and their affiliates that are 
steel-related, are specific and thus countervailable. We also determine 
that R&D funds through KNISTRA are specific to the steel industry, and 
therefore countervailable. These grants also provide a financial 
contribution under section 771(5)(D)(i) of the Act.
    Under 19 CFR 351.524, non-recurring benefits are allocated over 
time, while recurring benefits are expensed in the year of receipt. In 
addition, non-recurring benefits which are less than 0.5 percent of a 
company's relevant sales are also expensed in the year of receipt. The 
grants provided to respondents did not exceed 0.5 percent of each 
company's respective sales. Therefore, regardless of whether this 
program provided recurring or non-recurring benefits, the benefits are 
expensed in the year of receipt. To determine the benefit from the 
grants received through KNISTRA, we first calculated the percent of 
each company's contribution to KNISTRA and applied that percent to the 
GOK's contribution for each R&D project. We then summed the grants 
received by each company through KNISTRA and divided the amount by each 
company's respective total sales. To determine the benefit from the 
grants provided directly to the companies, we divided the

[[Page 73186]]

amount of the grant by each company's respective consolidated total 
sales. Based upon this methodology, we determine that POSCO received a 
countervailable subsidy of 0.07 percent ad valorem, and that DSM 
received a countervailable subsidy less than 0.005 percent ad valorem. 

II. Programs Determined To Be Not Countervailable

A. Electricity Discounts under Power Factor Adjustment, Summer Vacation 
and Repair Adjustment, and Voluntary Curtailment Adjustment Programs

    In Stainless Steel Sheet and Strip, we determined that the Power 
Factor Adjustment, and the Summer Vacation and Repair Adjustment 
programs are not countervailable because the discounts under these 
programs are distributed to a large number of firms in a wide variety 
of industries. See Stainless Steel Sheet and Strip 64 FR at 30647-48.
    Regarding the Voluntary Curtailment Adjustment (VCA) program, KEPCO 
introduced this discount in 1995, to provide a stable supply of 
electricity and to improve energy efficiency by reducing demand during 
periods of peak consumption that occur during the summer. Under this 
program, customers who use general, educational or industrial services 
with a contract demand of 1,000 kw or more, and who arrange with KEPCO 
a curtailment period of five or more days (or times) during the July 
15-August 31 period, are eligible to enter into a VCA contract with 
KEPCO. Customers who choose to participate in this program must curtail 
demand by 20 percent or more on the basis of the average daily demand 
during 10 a.m.-12 p.m., or by 3,000 kw.
    Customers can apply for this program until June 15 of each year. If 
KEPCO finds the application in order, KEPCO approves the application. 
After approval, KEPCO and the customer enter into a contract with 
respect to the VCA discount. Under this program, a basic discount of 
110 won per kw is granted between July 15 and August 31.
    We analyzed whether the VCA discount program is specific in law (de 
jure specificity), or in fact (de facto specificity), within the 
meaning of section 771(5A)(D)(i) and (iii) of the Act. First, we 
examined the eligibility criteria contained in the law. The Regulation 
on Electricity Supply and KEPCO's Rate Regulations for Electric Service 
identified companies within a broad range of industries as being 
eligible to participate in the electricity discount programs. The VCA 
discount program is available to numerous companies across all 
industries, provided that they have the required contract demand and 
can reduce their maximum demand by a certain percentage. Therefore, we 
determine that the VCA electricity programs is not de jure specific 
under section 771(5A)(D)(i) of the Act because the regulation does not 
explicitly limit eligibility of the program.
    We next examined data on the distribution of assistance under the 
VCA program to determine whether the electricity discount program meets 
the criteria for de facto specificity under section 771(5A)(D)(iii) of 
the Act. We found that discounts provided under the VCA program were 
distributed to a large number of customers, across a wide range of 
industries. Given the data with respect to the large number of 
companies and industries which received VCA electricity discounts, and 
the fact that POSCO and DSM were not dominant or disproportionate users 
of this program, we determine that the VCA program is not de facto 
specific under section 771(5A)(D)(iii) of the Act. Therefore, we 
determine that the VCA program is not countervailable.

B. Port Facility Fees

    In Stainless Steel Sheet and Strip, we determined that this program 
is not countervailable because a diverse and large group of private 
sector companies representing a wide cross-section of the economy have 
made a large number of investments in infrastructure facilities at 
various ports in Korea, including numerous investments at Kwangyang 
Bay. See Stainless Steel Sheet and Strip at 30649.

C. GOK Infrastructure Investments at Kwangyang Bay Post-1991

    In Stainless Steel Plate, we determined that this program is not 
countervailable because the GOK's investments at Kwangyang Bay since 
1991, in the Jooam Dam, the container terminal, and the public highway 
were not specific. Id. at 15536.

III. Programs Determined To Be Not Used

    Based on the information provided in the questionnaire responses 
and the results of our verification, we determine that the companies 
under investigation either did not apply for, or receive, benefits 
under the following programs during the POI:

A. Special Cases of Tax for Balanced Development Among Areas (TERCL 
Articles 41, 42, 44 and 45)
B. Private Capital Inducement Act (PCIA)
C. Social Indirect Capital Investment Reserve Funds (Art. 28)
D. Energy-Savings Facilities Investment Reserve Funds (Art. 29)
E. Industry Promotion and Research and Development Subsidies
    1. Highly Advanced National Project Fund
    2. Steel Campaign for the 21st Century
F. Export Insurance Rates Provided By The Korean Export Insurance 
Corporation
G. Export Industry Facility Loans (EIFL) and Specialty Facility Loans
H. Scrap Reserve Fund
I. Excessive Duty Drawback

IV. Program Determined Not To Exist

Free Trade Zones (FTZ) at Pusan and Kwangyang
Interested Party Comments

Comment 1: CAFC's Decision in AK Steel With Respect to Domestic Loans

    Respondents state that subsequent to the Department's preliminary 
determination, the CAFC ruled on the issue of direction of credit and 
foreign loans, and reversed the Court of International Trade's (CIT) 
affirmation of the Department's decision in Steel Products from Korea 
that the GOK's direction of credit provided a countervailable benefit 
to the Korean steel industry. See AK Steel. Respondents conclude that 
based upon the CAFC's decision, the Department must reverse its finding 
in the preliminary determination regarding the countervailability of 
the direction of credit.
    Petitioners argue that, although the CAFC has reversed certain 
aspects of the CIT's decision affirming the Department's determination 
in Steel Products from Korea, the ultimate disposition of that decision 
has no impact upon the Department's ability to countervail the domestic 
loans in this investigation, because the record in this proceeding 
contains new evidence that was not before the CAFC in AK Steel. 
Petitioners claim that this new evidence clearly establishes a 
proximate causal nexus between the GOK's control of the financial 
system (control which POSCO and the GOK denied, but which the CAFC 
affirmed) and the benefit of low cost credit to the Korean steel 
industry. Moreover, according to petitioners, the CAFC's decision 
pertained only to the lack of a casual nexus for an indirect subsidy 
finding, i.e., private loans directed or induced by government action, 
which were received after the end of the de jure preferences for steel, 
and does not impact upon loans received directly from government 
sources such as the Korean

[[Page 73187]]

Development Bank, or any loans received prior to 1987.

Department's Position

    A large portion of the comments submitted by petitioners and 
respondents dealt with the AK Steel decision and its relationship to 
our preliminary determination that the GOK directed credit to the steel 
industry. The CAFC decision was based upon the Department's 
determination in Steel Products from Korea that the GOK provided a 
countervailable benefit to the Korean steel industry through its 
direction and influence over the provision of credit to selected 
industries. The decision in Steel Products from Korea covered the GOK's 
direction of credit polices through 1991. In subsequent investigations, 
Stainless Steel Plate and Stainless Steel Sheet and Strip, which were 
completed during 1999, the Department determined that the GOK also 
directed credit to selected industries during the period 1992 through 
1997. The CAFC ruling in AK Steel does not cover the GOK's directed 
lending policies after 1991.
    As we noted earlier, the Department has not received specific 
instructions from the Court on the AK Steel decision. However, our 
review of that decision indicates that the CAFC found that there was 
not sufficient evidence on the record of Steel Products from Korea to 
determine that the GOK provided directed domestic credit to the Korean 
steel industry between 1985, the year the GOK removed de jure lending 
preferences to the steel industry, and 1991. With respect to pre-1992 
foreign loans, the CAFC found that the Department did not establish 
that the terms of the foreign loans, which were provided through the 
GOK's control of preferential access to foreign lending, were on 
``terms inconsistent with commercial considerations'' as required by 
the then governing statute. Since the final determination of Steel 
Products from Korea, Congress enacted a new statute and in 1998, the 
Department codified new substantive countervailing duty regulations. 
Below, we address the issue of the GOK's control over domestic credit. 
The Department's position with respect to access to foreign lending is 
addressed in ``Comment 2''.
    Based upon our reading of AK Steel, the CAFC did not reject the 
notion of the GOK directing credit specifically to the Korean steel 
industry, but rather took issue with the evidence upon which the 
Department based its affirmative finding. Information which is on the 
record of this investigation, which was not in the record of Steel 
Products from Korea, indicates that the GOK directed credit to the 
Korean steel industry through 1991.
    In its decision in AK Steel, it appears that the CAFC focused on 
the importance of Korea's second integrated steel mill at Kwangyang 
Bay, and noted the key role that project played in the Department's 
decision that the GOK was directing credit to the steel industry. 
Indeed the CAFC stated:

    If Commerce is correct in describing Kwangyang Bay as 
essentially a government project, Commerce can plausibly contend 
that a de jure preference program was replaced with a de facto 
system under which industry credit requirements and supplies were 
both managed by the government. If that premise is incorrect, 
however, the aggressive targeting theory is clearly unsupported.

    Based upon a review of the evidence, the CAFC decided that the 
information on the record of Steel Products from Korea did not support 
the Department's decision. Therefore, we have reviewed the record of 
the instant investigation to determine whether there is new evidence on 
this record to support a conclusion that Kwangyang Bay was essentially 
a government project. Based upon this review, additional information is 
on the record of this current investigation to support a determination 
that the GOK directed credit to the steel industry.
    In a speech in March 1981, Korean President Chun Doo Hwan stated 
that despite the stagnation plaguing steel industries in other 
countries, Korea intended to expand its steelmaking 
capacity.4 In this speech marking the completion of POSCO's 
fourth phase of construction at Pohang, President Chun stated that his 
government will give special emphasis to Korea's steel industry and 
promised to carry on the work of building a second integrated steel 
plant in Korea. The speech from President Chun was on the record on AK 
Steel, however, the CAFC questioned the relevance of excerpts from his 
speech because the speech took place before any construction began at 
Kwangyang Bay. Information on the record of the current investigation 
places the speech in context of the time frame of the actual decision 
to build a second integrated steel mill at Kwangyang Bay. At the time 
of President Chun's speech, POSCO Chairman Park Tae Joon, stated that 
an evaluation of sites for the second integrated steel plant would be 
completed in July of 1981, at which time the government would make its 
final decision. Information on this record also shows that in November 
1981, the government selected Kwangyang Bay as the site of the 
country's second integrated steel works and that groundbreaking for the 
construction of the Kwangyang steel works began in 1982.
---------------------------------------------------------------------------

    \4\  Supporting evidence on this record has been cited in the 
December 13, 1999 Memorandum to David Mueller from Team, which is on 
file in the CRU.
---------------------------------------------------------------------------

    In addition, information from the 1995 KOSA (the Korea Iron and 
Steel Association) Yearbook reports that the GOK originally designated 
Asan Bay as the second integrated steel manufacturing site in 1979, but 
put off construction of the second integrated steel at Asan Bay in 
1980, before designating Kwangyang Bay as the site for the construction 
of the steel mill. According to the publication Business Korea, the GOK 
has been criticized for showing favoritism towards POSCO. The 
publication noted that POSCO was given free hand with millions of 
dollars in foreign loans for the construction of the Kwangyang steel 
mill in the late 1980's. This publication also noted that in 1991 when 
the GOK was following a tight fiscal policy, foreign loans coming into 
the country were virtually halted. However, even when the GOK was 
cutting off the supply of foreign funds, POSCO's application to bring 
in US$200 million in foreign currency was quickly approved by the 
government.
    Information on the record includes statements from bankers in Korea 
reporting that through the late 1980's the government directed funds to 
specially designated sectors such as the steel sector. See Memorandum 
on Meetings with Commercial and Investment Banks and Research 
Institutes in the Countervailing Duty Investigation of Stainless Steel 
Plate in Coils from the Republic of Korea dated February 2, 1999 
(February Banker Verification Report). This verification report was 
provided in petitioner's February 25, 1999 ``Amendment to Petition'' of 
this current investigation. The February Banker Verification Report 
also provides information of the role of the Korean Development Bank 
(KDB) in support of the Korean steel industry. The KDB is and has been 
since its inception the predominant source of long-term lending in 
Korea and is used by the government to support GOK industrial policies. 
According to Korean banking experts, the steel industry directly 
benefitted from preferential access to KDB lending, and the KDB is 
still known for preferring the semiconductor, shipbuilding, and steel 
industries. In addition, other information on the record shows that 
even in the 1990's the KDB has channeled billions of dollars into

[[Page 73188]]

sectors favored by the GOK's industrial policies, including the steel 
industry. During our verification in this investigation, we examined 
internal KDB loan approvals for DSM and POSCO. According to the KDB's 
loan approval documents, both POSCO and DSM were ``nationally important 
industr[ies].'' See GOK Verification Report at page 4.
    These same financial experts also stated that the GOK can influence 
commercial bank lending decisions by using the KDB. Korean financial 
experts stated that when the KDB decides to fund a project, it may be 
considered as a guarantee from the government. Projects funded by the 
KDB are receiving tacit government approval for that project, and thus 
an implicit guarantee is provided to commercial banks in Korea to 
follow the KDB's lead. See February Banker Verification Report at 7.
    A review of respondents' outstanding loans which were received 
before 1992, demonstrates the importance of the KDB financing to the 
steel industry. A substantial portion of POSCO's pre-1992 outstanding 
loans are either from the KDB or guaranteed by the KDB. In addition, 
almost all of DSM's pre-1992 outstanding loans are from the KDB.
    In addition, further information on the GOK's direction of credit 
policies came to light after Korea's 1997 financial crisis. Portions of 
this information are now on the record of this current investigation. 
The GOK has acknowledged to the IMF that it has directed lending in the 
financial sector. As noted above, banking experts and other analysts 
have stated that the GOK has used the KDB as a tool for directing 
credit to strategic industries such as steel. Other observers of the 
Korean financial system have concluded that the GOK has used commercial 
banks to funnel money into favored industries, and that the GOK has 
directed banks to provide lending to ``promising'' industries. These 
experts have concluded that the GOK's directed lending policies have 
helped build Korea's formidable steel industry.
    As noted above, the CAFC decision in AK Steel was based upon the 
evidence of the record on the Steel Products from Korea investigation. 
As detailed above, there is additional information on the record of 
this current investigation, which in conjunction with prior case 
precedent, supports a determination that the GOK has directed credit to 
the steel industry prior to 1992, the period covered by the AK Steel 
decision.

Comment 2: CAFC's Decision in AK Steel With Respect to Foreign Loans

    Respondents state that subsequent to the Department's preliminary 
determination, the CAFC issued its findings on the issue of foreign 
loans, and reversed the Court of International Trade's (CIT) 
affirmation of the Department's decision that the GOK's direction of 
credit provided a countervailable benefit to the Korean steel industry 
in Steel Products from Korea. See AK Steel. Respondents conclude that 
based upon the CAFC's decision, the Department must reverse its finding 
in the preliminary determination regarding the countervailability of 
the foreign loans.
    Petitioners argue that although the CAFC has reversed certain 
aspects of the CIT's decision affirming the Department's determination 
in Steel Products from Korea, the ultimate disposition of that decision 
has no impact upon the Department's ability to countervail the foreign 
loans in this investigation, because the record in this proceeding 
contains new evidence that is not before the CAFC in AK Steel.

Department Position

    First, we note that the CAFC in AK Steel did not disagree with our 
determination that the GOK controlled the provision of foreign loans 
and that a disproportionate share of those foreign loans were provided 
to the steel industry. The CAFC, instead, based its decision on the 
statutory language as to when a loan provides a countervailable 
subsidy. In AK Steel, the CAFC stated the Department characterized the 
foreign loans as subsidies on the ground that preferential access to 
those loans benefitted the Korean steel industry. The CAFC concluded 
that this was an inadequate basis under the then governing statute for 
determining that the foreign loans constituted subsidies. Under the 
statute in effect during the period pertinent to Steel Products from 
Korea, 19 U.S.C. 1677(5)(a)(ii)(1) required that for a loan to be 
countervailable it must be provided ``on terms inconsistent with 
commercial considerations.'' The CAFC concluded that the Department did 
not provide evidence to demonstrate the legal requirement that the 
foreign loans were provided on ``terms inconsistent with commercial 
considerations.''
    Since the investigation of Steel Products from Korea, Congress has 
amended the statute. With the enactment of the URAA in 1995, section 
771(5)(E)(ii) of the Act provides that the standard for determining 
whether a benefit has been provided is ``in the case of a loan, if 
there is a difference between the amount the recipient of the loan pays 
on the loan and the amount the recipient would pay on a comparable 
commercial loan that the recipient could actually obtain on the 
market.'' Therefore, to determine in this current investigation whether 
the foreign loans received by POSCO and DSM are countervailable, the 
Department must apply the standards set forth under section 
771(5)(E)(ii) of the Act.
    As noted above, the CAFC did not disagree with our conclusion that 
the GOK controlled the access to foreign loans, which were made on 
terms more favorable than the loans available in the Korean domestic 
market. Absent GOK approval, a company could not borrow foreign loans 
and would have to obtain financing in the more expensive, domestic 
market. Under section 771(5)(E)(ii), a loan program provides a 
countervailable benefit to the extent that the costs of the loan 
provided under the government program is lower than the cost of a loan 
the recipient could actually obtain on the market. Absent the approval 
from the GOK to participate in this program, a Korean company would be 
unable to obtain foreign lending and would only be able to obtain loans 
in the Korean market. Therefore, under section 771(5)(E)(ii) of the 
Act, the foreign loans received by DSM and POSCO are countervailable to 
the extent that the interest rates on these foreign loans are less than 
the interest rates the companies could actually obtain in the Korean 
financial market. Based upon the statutory requirements set forth under 
771(5)(E)(ii), we continue to find these loans countervailable.

Comment 3: Long-Term Won-Denominated Loan Benchmark Methodology

    Petitioners argue that the long-term loan benchmark that the 
Department used to calculate the benefit to POSCO from its won-
denominated loans received in 1998 is at odds with the Department's 
Regulations and the Department's POSCO Verification Report. First, the 
applicable regulation governing the choice of long-term loan benchmark 
in section 351.505(a)(2)(iii), states that: in selecting a comparable 
loan, the Department will normally use a loan the terms of which were 
established during or immediately before, the year in which the terms 
of the government-provided loan were established.
    Second, to apply this regulatory objective, the Department must 
consider POSCO's borrowing experience and developments in the Korean 
financial

[[Page 73189]]

market in 1998. Petitioners state that according to the Department's 
POSCO Verification Report, POSCO did not issue bonds or foreign 
securities before August 1998 due to the financial crisis in Korea. 
Instead, POSCO turned to subsidized long-term loans. However, late in 
1998, after the financial crisis subsided and corporate-bond interest 
rates declined, POSCO returned to the corporate bond market in August 
1998. Thus, petitioners argue that the Department cannot use POSCO's 
post-crisis borrowing experience as a benchmark to measure the benefit 
from the government's subsidized loans to POSCO during the crisis 
period. Therefore, petitioners argue that the Department should use a 
monthly benchmark comparison and, during months when POSCO did not 
issue corporate bonds, the Department should use the Bank of Korea's 
corporate bond index.
    Respondents counter that petitioners' cite to section 
351.505(a)(2)(iii), is an unequivocal twist in the standard choices the 
Department uses for comparable benchmarks. Respondents state that the 
Department used a benchmark in the year that the KDB loan was given in 
its preliminary determination. Therefore, they argue that petitioners' 
argument that the Department should use data from a different part of 
the year, as its benchmark, is an attempt to manipulate a subsidy 
calculation, and should be rejected by the Department.

Department's Position

    Petitioners' proposed methodology for selecting the long-term loan 
benchmark for the government-provided won-denominated loans is 
inappropriate in this investigation. The Department's regulations state 
that the Department will select an interest rate benchmark from the 
year in which the terms of the government-provided loan were 
established. See section 351.505(a)(2)(iii) of the CVD regulations. The 
interest rate benchmark selected in this investigation reflects the 
rate at which POSCO could borrow in the same currency during the year 
in which the government-provided loan was given. Petitioners have not 
provided sufficient evidence to dictate a change in the Department's 
policy. Furthermore, we used the same methodology of selecting the 
interest rate benchmarks in Stainless Steel Sheet and Strip and 
Stainless Steel Plate.

Comment 4: Subsidies Received by Affiliates

    Petitioners state that the Department instructed respondents to 
identify all affiliated companies, and further instructed certain 
affiliated companies to provide complete questionnaire responses. 
Petitioners argue that all of these affiliated companies fall under the 
definition of mandatory respondents because they supply an input 
product that is primarily dedicated to the production of the subject 
merchandise or have otherwise engaged in financial transactions with 
respondents. Therefore, petitioners argue that all subsidies received 
by these affiliates are attributable to the subject merchandise and 
should be countervailed.
    Respondents counter that while they do not disagree in principle 
with petitioners, they disagree with the methodology that the 
Department should employ in allocating any subsidies found to be 
received by these affiliated parties. Respondents counter that the 
Department should determine the total ad valorem benefit of all 
relevant subsidies received by each affiliated party and, based on the 
portion of each affiliate's sales to the respondent company as a 
percentage of their total sales, calculate the amount of subsidy 
applicable to the respondents through their purchases from these 
affiliates.

Department's Position

    During this period of investigation, certain of POSCO's and DSM's 
affiliates have received subsidies under investigated programs which 
benefit the respondents' steel production, including the production of 
subject merchandise. For example, certain of POSCO's affiliates have 
received benefits under certain R&D loan and grant programs. To 
quantify the benefit from these programs, we have calculated the ad 
valorem subsidy rate by dividing the program benefit by POSCO's total 
consolidated sales which includes the total sales of POSCO as well as 
its affiliates. This methodology is consistent with section 351.525 of 
the CVD regulations.

Comment 5: Exemption of Bond Requirement for Port Use at Asan Bay

    Petitioners argue that on more than one occasion, POSCO did not 
respond truthfully regarding its activity at Asan Bay, until the 
Department discovered the truth as verification. According to 
petitioners, these misrepresentations constitute a failure by POSCO to 
act to the best of its ability. Therefore, they argue, as facts 
available, the Department should find that (1) POSCO received a 
specific benefit from the GOK's expenditures on infrastructure at Asan 
Bay, and that (2) POSCO received a specific subsidy because the company 
never paid the bond requested by the GOK for POSCO's exclusive use of 
port berth #1, or (3) at a minimum the Department should use the 
highest previously calculated rate for infrastructure provided in 
Korea.
    Respondents counter that the issues raised in this investigation 
regarding Asan Bay were always framed by petitioners and the Department 
in the context of infrastructure. Respondents claim that a warehouse, 
unloading equipment and a coil service are not traditionally considered 
infrastructure and POSCO has not built any infrastructure to date. 
Furthermore, respondents counter that some of the facilities built in 
the dockyard area, such as the coil service center and equipment used 
in the unloading of cargo were reverted to the GOK, for which POSCO is 
being compensated through free usage until full recovery of its 
expenditures, pursuant to relevant provisions of the Harbor Act. 
Respondents claim that in Stainless Steel Plate, the Department 
determined that the program by which companies build facilities at 
ports that are reverted to the GOK, and then are allowed free usage and 
the right to collect fees from other users until fully compensated for 
their costs, does not constitute a countervailable subsidy.
    Respondents also counter that petitioners are wrong with respect to 
the facts concerning POSCO's exclusive use of port berth #1. 
Respondents claim that POSCO signed an agreement to purchase bonds on 
the same terms as the companies that obtained the rights to exclusive 
use of port berths #2, #3, and #4 through an open bidding process; 
however, POSCO was not permitted to follow through on the agreement, 
and has instead been required to either build port berth #5 or pay for 
the construction costs of port berth #1, and receive compensation 
through free use until it recovers its costs. Therefore, respondents 
counter that instead of POSCO benefitting from a financial contribution 
by not being required to purchase the bond, it is being required to 
incur a far larger outlay of expenses for the construction of port 
berth #5.

Department's Position

    During verification, we found that other companies which received 
exclusive use of port berths at Asan Bay were required to purchase a 
bond through the GOK. POSCO was not required to purchase the bond 
because it was going to build port berth #5. POSCO's argument that it 
was required to build a port berth is not germane to the analysis as to 
whether the

[[Page 73190]]

exemption from the bond requirement provided POSCO with a 
countervailable subsidy. When POSCO builds the port berth, which will 
revert back to the GOK under the provisions of the Harbor Act, POSCO 
will be compensated for its expenditures through free usage of that 
newly-built port berth until full recovery of its costs under the same 
Harbor Act. As POSCO has correctly noted, the Department has found this 
practice under the Harbor Act not countervailable. See the discussion 
of the ``Port Facility Fees'' in Stainless Steel Sheet and Strip, 64 FR 
at 30649.
    Therefore, based upon the information gathered during verification, 
the issue is whether POSCO received a benefit from the bond exemption. 
Because POSCO was the only company to receive this exemption, the 
program is specific to POSCO under section 771(5A)(D) of the Act. In 
addition, a financial contribution was provided to POSCO under section 
771(5)(D)(ii). Therefore, we determine that POSCO received a 
countervailable benefit when it was not required to purchase a bond for 
the exclusive use of the port berth at Asan Bay.

Comment 6: Highly Advanced National Project Fund (HANP)

    Petitioners state that although the GOK claimed that it was unaware 
of the existence of HANP, an exhibit provided by the GOK in the same 
response explicitly referenced the HANP. Petitioners also state that at 
verification, the Department found that a subsidiary of POSCO received 
a HANP grant. Therefore, petitioners argue that because the parties 
failed to act to the best of their ability to comply with a request for 
information, the Department is required to apply facts available, and 
determine that the HANP program conferred a specific benefit to POSCO. 
Petitioners also argue that the benefit should be treated as a grant 
and amortized using the mid-year convention.
    Respondents counter that this grant received by POSCO's subsidiary 
was not originally reported because the GOK and POSCO were unaware of 
the HANP program. According to respondents, the program is commonly 
referred to by the GOK as the G-7 project, and the company received the 
R&D under the STEP 2000 project. Respondents also counter that the 
grant which was received in 1994 would have been expensed in the year 
of receipt, pursuant to section 351.524(b)(2) of the Department 
regulations, because the subsidy is less than 0.5 percent ad valorem.

Department's Position

    Although the HANP project, as argued by respondents is known by 
different names, a POSCO affiliated subsidiary did receive a GOK grant 
which should have been reported in their response. However, because 
this grant was provided in 1994, and the calculated subsidy was less 
than 0.5 percent ad valorem, it is expensed in the year of receipt in 
accordance with section 351.524(b)(2) of the CVD regulations. 
Therefore, no benefit was provided to POSCO from this program during 
the POI.

Comment 7: Steel Campaign for the 21st Century

    Petitioners argue that the GOK's claim that this program is a 
private initiative organized by the Korea Iron and Steel Association 
(KOSA), a trade organization with no government involvement and no 
participation by respondents, has been demonstrated to be false. 
According to petitioners, record evidence indicates that the GOK and 
the respondents are active participants in the Campaign. A KOSA report 
identifies the Ministry of Trade, Industry and Economy (MOTIE) as 
providing ``fiscal and tax support,'' and the respondents as receiving 
substantial benefits from various R&D projects. The KOSA report also 
states that the Campaign funds R&D so as to boost exports and create 
import substitution savings. Petitioners further state that a program 
entitled ``Korean Industry in the 21st Century,'' which was never 
disclosed to the Department in questionnaire responses, was discovered 
by the Department at verification.
    Petitioners also argue that, given respondents' repeated denials, 
and their not acting to the best of their ability, the Department 
should use facts available, and find that this program provides an 
import substitution subsidy, which is specific, and therefore 
countervailable.
    Respondents counter that this is a private initiative by the Korean 
steel industry, under the auspices of the Korea Iron and Steel 
Association (KOSA), the industry trade association. Respondents also 
counter that if there were any benefits specifically offered under this 
program, one would expect that there would be explicit mention and some 
attempt at quantification, just as other parts of the report mention. 
Respondents also counter that if import substitution is done 
economically and without government involvement, it is a perfectly 
normal strategy for increasing revenues, and state that petitioners 
offer no evidence of any specific government involvement in this 
program.

Department's Position

    At the GOK's verification, we obtained a document entitled ``Vision 
and Development Strategy of Korean Industry in the 21st Century.'' We 
were unable to determine whether there is a relationship between this 
program that is administered by MOCIE and the Steel Campaign for the 
21st Century, which respondents' claim is handled through KOSA. 
However, we did not find any benefits given to respondents under either 
of these programs during the POI.

Comment 8: Whether Assets Revaluation Pursuant to TERCL Article 56(2) 
Is Countervailable

    Petitioners argue that in its preliminary determination, the 
Department properly countervailed a program which permitted POSCO and 
DSM to revalue their assets at an earlier time than would otherwise be 
allowed, and that the Department should maintain its position in the 
final determination.
    Respondents argue that the Department erred in its preliminary 
determination that asset revaluation pursuant to TERCL Article 56(2) 
was de facto specific to the basic metals sector, and in its 
calculation of the benefit. According to respondents, this 
determination cannot stand because the Department examined this program 
in Steel Products from Korea based on the same record evidence in this 
case, which the CAFC affirmed in AK Steel. Respondents also counter 
that in Steel Products from Korea, the Department analyzed and rejected 
petitioners' theory of dominant or disproportionate use based on the 
percentage change in the value of a company's assets after revaluation. 
Respondents claim that in defending the Department's decision to use 
this methodology before the CAFC, the Department argued that the 
domestic producers erroneously contend that percentage change 
information contained within the record is not relevant in the 
disproportionality analysis, and that with respect to a tax program, it 
easily enables the Department to distinguish between general and 
specifically targeted tax schemes without penalizing companies due to 
their profits or size. Respondents also argue that the CAFC also 
considered and rejected petitioners arguments on (1) dominant or 
disproportionate share of the benefit conferred based on a percentage 
basis rather than on an absolute basis, and (2) the Department's 
reliance on the information contained in the Korea Listed Companies 
Association (KLCA) report.

[[Page 73191]]

    Respondents also argue that if the Department continues to 
countervail the asset revaluation, the benefit from the asset 
revaluation program, was calculated incorrectly, which reflects the 
Department's misunderstanding of the data reported in respondents' May 
28, 1999 questionnaire responses. Respondents claim that its May 28, 
1999 responses were clarified at verification; therefore, the 
Department should take the additional depreciation in 1997 as a result 
of asset revaluation pursuant to TERCL 56(2), and multiply that by the 
corporate tax rate of 30.8 percent to obtain POSCO's total tax savings 
in fiscal year 1997.
    Petitioners also counter that while they do agree with respondents 
that the Department's methodology does not accurately reflect the 
benefit received by respondents in any given year, they argue that 
respondents' proposed methodology does not accurately represent the 
true benefits either. According to petitioners, benefits received in 
fiscal years 1990-1993 should be amortized using their mid-year grant 
allocation methodology, and benefits received in fiscal years 1994-1998 
should be expensed in the year of receipt. Petitioners also counter 
that the benefits are exceptional because the recipient cannot expect 
to receive additional subsidies under the same program on an on-going 
basis from year to year, the program is not automatic, and because this 
program is undoubtedly tied to the companies' capital structure and 
capital assets.

Department's Position

    We disagree with respondents that the Department should not 
reconsider the specificity determination made in Steel Products from 
Korea. In Steel Products from Korea, there was not sufficient 
information on the record to indicate that POSCO revalued more of its 
assets than is generally allowed under Korean law. We noted in that 
case that the Department had rejected specificity information submitted 
by petitioners, because it was untimely. In the absence of evidence of 
de jure or de facto selectivity concerning the timing of POSCO's 
revaluation or the method of POSCO's revaluation under the Asset 
Revaluation Act, the Department determined this program to be not 
countervailable. See Steel Products from Korea, 58 FR at 37351.
    In the instant investigation, petitioners have timely submitted 
information that warrants reconsideration of this program by the 
Department. Information on this record shows that during the period 
1987-1990, companies making an initial public offering were allowed to 
revalue their assets pursuant to Article 56(2). There were between 
14,988 and 24,073 manufacturing companies operating in Korea at that 
time. However, only 77 companies revalued their assets in 1989, the 
same year in which POSCO revalued its assets. The basic metal sector 
accounted for 83 percent of the total revaluation surplus, of which 
POSCO's revaluation accounted for 91 percent. While we recognize that 
many factors can affect the relative size of tax benefits claimed under 
programs (e.g., company size, value of assets, timing of investments, 
management decisions, capital intensiveness, labor intensiveness), the 
record evidence indicates that the basic metal industry was a dominant 
user of this program in 1988/89. We also note that the GOK enacted 
Article 56(2) on November 28, 1987, and it listed POSCO shares on the 
Korean Stock Exchange in 1988. POSCO was also, by far, the largest 
beneficiary under this program.
    After clarification of the assets revalued by respondents at 
verification, we agree with petitioners and respondents that the 
Department did not properly calculate the benefits from this program in 
its preliminary determination. However, we disagree with the 
calculation methodology suggested by petitioners. Petitioners' approach 
to allocating subsidies was presented to the Department during the 
comment period of the CVD Regulations. See CVD Regulations, 63 FR at 
65399. In finalizing its CVD Regulations, the Department considered and 
chose not to adopt the methodology proposed by petitioners. We continue 
to follow our policy as explained in the preamble to the CVD 
Regulations. Further, petitioners' methodology combines allocating some 
benefits over time and expensing other benefits in the year of receipt, 
two different methodologies.
    However, we disagree with petitioners that this program provides 
exceptional non-recurring benefits. While there may be instances where 
these types of benefits could be found to be non-recurring, in this 
case, that is not possible because the total value of the benefit 
cannot be determined at the point of the revaluation. This is because 
the benefit is not the amount of the revaluation surplus, but rather 
the impact of the difference the revaluation of depreciable assets has 
on a company's tax liability in each year. Therefore, based on 
verification of the respondents questionnaire responses, we have used 
the additional depreciation in 1997, as a result of the asset 
revaluation pursuant to 56(2), and multiplied that amount by the 
applicable tax rate in 1997. We then divided the benefit for each 
company by their respective total sales during the POI.

Comment 9: Countervailability of TERCL Investment Tax Credits

    Petitioners argue that Articles 8, 9 and 10 fall under Section 2 of 
the TERCL, which provides tax benefits for companies engaged in R&D 
activities. Petitioners also argue that the Department previously found 
Article 10 countervailable, and it should also find Article 8, 
technical development reserve funds, and Article 9, technology for 
manpower development expenses, specific and therefore countervailable. 
Petitioners argue that Article 8 is specific because it is limited to 
the manufacturing and mining industries, and it provides for a varying 
level of benefit to industries. Petitioners argue that Article 9 is 
also limited on its face to the manufacturing and mining industries.
    Petitioners argue that Article 11 confers a type of import 
substitution subsidy by granting greater tax benefits for patent rights 
sold or leased domestically rather than abroad, which encourages 
domestic production as a substitute for importation. Petitioners also 
claim that Article 88 provides tax credits to companies that build or 
purchase qualified assets for employee welfare. Petitioners argue that 
Article 88 is specific because the tax deduction is limited to 
investments in domestically-produced machines and materials.
    Regarding Articles 8 and 9, respondents counter that since the 
manufacturing sector, by itself, covers a very broad and non-specific 
range of industries, there is no basis for finding these programs 
specific. Respondents also counter that petitioners have not cited to 
any Department precedent for the proposition that participation in such 
a program, in and of itself, mandates a finding of specificity. 
Respondents further counter that petitioners have not offered any 
reasons for the Department to reverse its finding in Stainless Steel 
Sheet and Strip, 64 FR at 30646, that Article 9 is not countervailable.
    With respect to Article 11, respondents counter that this program 
was investigated in Stainless Steel Plate, and the Department did not 
countervail it. Respondents also counter that since the tax incentive 
is earned for transferring or leasing either a patent right or 
technical know-how, it is difficult to construe how this fits under the 
rubric of import substitution.

[[Page 73192]]

    Finally, with respect to Article 88, respondents counter that this 
program had been reported and explained in Stainless Steel Plate, and 
that the Department did not countervail this program in that 
investigation. Respondents also counter that there is no apparent basis 
for arguing that the benefit received has any bearing on the production 
of subject or other merchandise, or in this case that investments in 
worker housing provide any competitive benefit to POSCO.

Department's Position

    Regarding Article 8, this article provides a higher tax credit to 
the capital goods industry than to other manufacturers. Therefore, we 
determine that the difference in the tax credit provided to the capital 
goods industry and the tax credit rate provided to all other industries 
to be a countervailable subsidy. However, we disagree with petitioners 
argument with respect to Article 9. We previously determined in 
Stainless Steel Sheet and Strip that this program is not 
countervailable. Petitioners have provided no additional evidence or 
information to suggest that a program provided to all manufacturing and 
mining industries is specific under CVD law.
    With respect to Article 11, we agree with respondents that this 
program is not an import substitution subsidy as argued by petitioners. 
Under an import substitution program, the government provides an 
incentive to a domestic company to favor domestic consumption over 
export consumption. For example, in certain of these investment tax 
credits, the GOK provides Korean companies with a higher tax deduction 
if they purchase domestically-manufactured machines rather than 
purchasing imported machinery. This type of program is the classic 
example of an import substitution program because it seeks to influence 
the behavior of the party seeking to purchase a good or service. 
Article 11 does not operate in this fashion. There is no incentive 
provided to a domestic company by the GOK to purchase patent rights 
from a domestic company as opposed to a foreign company. Any benefit 
from this program would confer to a company for not exporting its 
technology, not to a company which is purchasing the technology.
    Finally, we have determined that Article 88 is specific because the 
tax deduction is limited to investments in domestically-produced 
machines and materials, and as such is an import substitution subsidy 
under section 771(5A)(C) of the Act.

Comment 10: Countervailability of Tax Programs TERCL Article 23

    Petitioners argue that although the Department failed to initiate 
an investigation into Article 23, the Department must reconsider its 
prior decision, especially in light of the European Union's recent 
findings that this same program was countervailable and specific. 
Petitioners also argue that this program is an export incentive, as the 
amount of the allowable loss is limited to a set percentage of foreign 
exchange receipts from overseas business, and is limited to exporters.
    Respondents counter that Article 23 was found not countervailable 
in Steel Products from Korea. Moreover, respondents state that Article 
23 permits creation of a reserve for overseas investment losses and not 
a deduction of income from an overseas business, which is covered under 
Article 20, as argued by petitioners.

Department's Position

    We disagree with petitioners that the Department must reconsider 
its prior decision of not initiating an investigation on Article 23 
given the European Union's recent findings that this same program was 
countervailable and specific. The Department must base its decisions on 
U.S. CVD law. (For example, in the referenced EU decision cited by 
petitioners, it appears that the EU found Korean tax reserves provided 
to all manufacturing and mining industries to meet the standards of de 
jure specificity.) We also disagree with petitioners that this program 
is an export incentive and limited to only exporters. The foreign 
exchange in question under this tax reserve is foreign receipts earned 
from an overseas business. Therefore, the income is not earned on 
exports from Korea. Furthermore, a non-exporter may also be able to 
earn foreign exchange from an overseas business.

Comment 11: Electricity Discount Programs

    Petitioners argue that the Department incorrectly determined that 
the Voluntary Curtailment Adjustment (VCA) program was not 
countervailable. Petitioners argue that in its de facto specificity 
analysis, the Department relied solely on one criterion. According to 
petitioners, there is no indication of how the Department conducted its 
specificity analysis of dominant or disproportionate use of this 
program. Petitioners argue that the steel industry received an 
overwhelming 51 percent of the total benefit during the POI, which is 
specific, and thus countervailable. Petitioners also argue that this 
analysis is consistent with Department practice.
    Petitioners also argue that record evidence demonstrates that KEPCO 
provides electricity subsidies through discriminatory pricing schedules 
for certain industries, such as the steel industry. They argue that the 
manufacturing and mining industries receive a lower rate than do other 
industries in Korea, and therefore, a countervailable subsidy is 
bestowed on these industries.
    Respondents counter that petitioners misstate the nature of the 
Department's specificity analysis. They state that the Department 
analyzed the detailed breakdown of the number of companies in each 
sector that used the program, and properly found that this program was 
used by a wide variety of industry sectors, and that the respondents 
were not dominant or disproportionate users. Respondents also counter 
that petitioners ignore the fact that (1) steel companies tend to be 
very large consumers of electricity, so it would be expected that their 
savings from this program are relatively high, and (2) in order to 
qualify for VCA savings, steel companies have to curtail relatively 
more electricity usage than other sectors.
    Respondents also counter that KEPCO's varying rate schedules to 
different types of industries with different electricity use patterns 
do not give rise to countervailable subsidies for those industries with 
lower per unit rates. Moreover, according to respondents, a cursory 
examination of KEPCO's rate schedule shows that there are considerable 
variations in the rates applicable to users, including manufacturers, 
that have different requirements as to voltage level and contract 
demand.

Department's Position

    The examination of electricity tariffs is a complicated issue. 
However, tariff rates that are applicable to manufacturing and mining 
industries would generally not be found countervailable. We have 
recognized in prior cases that electricity tariffs are generally based 
upon the type and amount of consumption of electricity, and have not 
countervailed utility rates solely because the rates are provided to 
large consumers. See e.g., Pure and Alloy Magnesium from Canada, 57 FR 
30946 (July 13, 1992); Oil Country Tubular Goods from Argentina, 62 FR 
32307 (June 13, 1997). Therefore, we did not simply analyze one 
specificity criterion to reach a determination that the VCA program is 
not countervailable, as argued by petitioners, but analyzed

[[Page 73193]]

the specificity of this program in light of established Department 
practice regarding the countervailability of utility programs. As noted 
by the above-cited case precedent, the fact that certain companies are 
necessarily large consumers of electricity does not make an electricity 
program providing tariff reductions to those companies countervailable. 
KEPCO has established a program whereby electricity customers who use 
general, educational, or industrial services with a contract demand of 
at least 1,000 kw can volunteer to reduce their consumption during peak 
summer periods (July 15--August 31) in exchange for a discount during 
that period. Based upon our review of the KEPCO customers that 
volunteered for this program, we found that there were a large number 
of volunteers from across a wide range of industries. We also found 
that steel companies were not the dominant or disproportionate 
volunteers for this program.

Comment 12: Private Capital Inducement Act (PCIA)

    Petitioners argue that, in their petition, they provided evidence 
that POSCO had received government subsidies under the PCIA related to 
the construction of coal-fired power co-generation facilities at 
Kwangyang Bay. Petitioners argue that POSCO obfuscated the Department's 
repeated requests for information on this program. According to 
petitioners, if POSCO and the GOK had been honest regarding the 
cogeneration facilities at Kwangyang, the investigation would have 
taken a different track. Petitioners claim it was not until 
verification that the Department discovered this misrepresentation.
    Respondents counter that contrary to petitioners claim, the 
petition merely noted that POSCO had plans to build four power plants 
(two using coal and two using LNG as the power sources) and indicated 
that they are being built pursuant to the PICA. Respondents claim that 
it reported that POSCO did not use the PCIA program, which the GOK 
confirmed. Respondents also counter that in subsequent responses, POSCO 
and the GOK clarified the nature of POSCO's electric power projects in 
response to the Department's questions. Furthermore, respondents 
counter that the Department verified that POSCO did not receive any 
loans for construction of these plants, nor was there evidence of 
government contributions for the development of these plants.

Department's Position

    At verification we examined the published list of approved PCIA 
projects during our meetings with GOK officials. An examination of this 
published list revealed that there were no POSCO approved PICA 
projects. In addition, during our verification of POSCO, we reviewed 
the company's accounts and its corporate financing. During this 
examination of POSCO's records, we did not find any evidence that POSCO 
received any loans for construction of these plants, nor was there any 
evidence of government contributions for the development of these 
plants.

Comment 13: DSM's Denominator

    Petitioners assert that the denominator used for DSM is overstated. 
Petitioners note that at verification the Department concluded that 
certain materials, such as: other products, (non-subject merchandise 
purchased and resold) and sub-materials, (products purchased from 
outside vendors as intended for production materials but were resold 
without being used in the production) were included in DSM's sales 
denominator. Petitioners explain that the statute requires the 
Department to countervail subsidies bestowed upon the manufacture, 
production, or export of the subject merchandise; the other products 
and sub-materials which were not manufactured, produced or exported by 
the respondent. Therefore, petitioners argue that these amounts should 
be excluded from the sales denominator.

Department's Position

    According to the General Issues Appendix, attached to the Final 
Determination of Sales at Less Than Fair Value: Certain Cold-Rolled 
Carbon Steel Flat Products from Argentina, 58 FR 37062 (July 9, 1993) 
(GIA), it is the Department's aim to ``capture every part of the sales 
transaction that could benefit from subsidies'' in the total sales 
denominator. GIA, 58 FR at 37237. Moreover, it is the Department's 
long-standing position that production subsidies are tied to a 
company's domestic production. See 351.525 of the CVD Regulations. The 
presumption that the subsidies at issue are tied to domestic production 
has not in any way been rebutted by respondents, and respondents have 
not attempted to show that DSM's ``merchandise'' sales should 
appropriately be included in the sales denominator. We, therefore, 
determine that the appropriate sales denominator is the total of DSM's 
domestically produced merchandise, and we have excluded DSM's 
``merchandise'' sales, as these are not sales of goods produced by the 
company. The Department also verified that DSM included other items 
which were not produced, manufactured or exported in total sales. As 
applied to ``merchandise sales'' the Department will remove the value 
of ``other products,'' and ``sub-materials'' from total sales.

Comment 14: Tax Exemption for Locating at Asan Bay

    Petitioners state that DSM received a countervailable benefit from 
the exemption of taxes related to its purchase of land at Asan Bay. DSM 
entered a purchasing agreement in 1995, and closed the deal in 1998; 
however, DSM did not register the land until 1999. Petitioners note 
that DSM benefitted from this tax exemption for 1998. Petitioners 
suggest treating this amount as a grant or as an interest free loan.
    Respondents refute petitioners allegation, based upon the fact that 
taxes are only due upon registration of the title for land purchase 
after the settlement. Notification of settlement was on January 7, 
1999, which required DSM to enter into the settlement agreement by 
January 30, 1999. Based upon the dates of notification and settlement 
agreement, taxes were not due during the POI.

Department Position

    The date of settlement on the land purchased at the Asan Bay was 
December 31, 1998. After the final settlement, DSM registered title of 
the land in June of 1999. Under Korean law when title is registered 
companies are required to pay certain taxes including the registration 
tax, the education tax, and acquisition tax. However, land purchased in 
industrial estates is exempt from these taxes. We verified that these 
taxes are due at the time the title is registered with the court and 
that DSM received these exemptions on June 30, 1999, which is outside 
the period of investigation. Under section 351.509(b) of the CVD 
regulations, the benefit from a tax exemption is the date on which the 
recipient would otherwise have had to pay the taxes associated with the 
exemption. We verified that this date is in 1999. Therefore, no benefit 
is provided under this program during the POI. If this investigation 
results in a countervailing duty order, we will review this issue in a 
subsequent administrative review if one is requested.

[[Page 73194]]

Comment 15: Price Discount for DSM Land Purchase at Asan Bay

    Petitioners state that DSM received a countervailable benefit from 
paying a discounted price for its land at Asan Bay. Petitioners note 
that a difference in cost of the land and the amount that DSM paid 
exists; and this reduction in cost of the land reflects a benefit from 
the GOK to DSM. This deduction also included the removal of a 
management fee that was to be paid by DSM. Petitioners point out that 
DSM had a contract with West Area Industrial Site Management Corp 
(WAIMC) and was obligated to pay a management fee; however, DSM did not 
end up paying this fee. Rather the management fee was waived. 
Petitioners argue that since the GOK sold land to DSM for less than the 
official price available to other purchasers, the GOK has provided a 
financial contribution.
    Respondents refute petitioners allegation that DSM received a 
countervailing benefit from the management fee being waived for the 
land purchase at Asan Bay. First, the purchase agreement was not final 
until the last payment and title transfer. Second, the fee was waived 
between the original purchase agreement and the revised 1997 agreement, 
and there is no legal provision for collecting a management fee. Third, 
DSM does not have an obligation to pay this fee.

Department Position

    DSM began making land payments in 1995 and continued until the last 
payment in December 1998. The original total land cost to the KDLC 
included land, management fees and land development costs. During 
verification, the Department noted a difference between the total cost 
of land amount compared to the amount that DSM actually paid. This 
difference occurred because the GOK reduced the purchase price of the 
land, waived the management fee, and deducted the land development 
costs. We determine that the purchase price reduction of the land, and 
the waiver of the fee are specific to DSM and thus countervailable. We 
also determine that the deduction of the land development costs is not 
countervailable, because the development was contracted out to another 
company. Hence, the GOK was not entitled to payment for developing the 
land.

Comment 16: Infrastructure at Asan Bay

    Petitioners state that the industrial estate at Asan Bay benefits 
the steel industry, and the Department should follow the methodology 
used for Kwangyang Bay. Petitioners state that DSM has received a 
benefit from the infrastructure built at Asan Bay by the GOK, such as: 
roads, industrial water conduits, electricity, transmission lines, and 
port facilities. This expenditure relieves DSM from the financial 
liability it would otherwise have to bear. Petitioners state that the 
value of land DSM purchased increases with the addition of 
infrastructure, and therefore, DSM receives a benefit by the amount 
that the land appreciates.
    Respondents argue that DSM does not have a facility at Asan Bay, 
rather they concluded the settlement agreement in 1999. Respondents 
state that DSM has only purchased land, and the land in question is 
still undeveloped, therefore, DSM is not receiving any benefits for any 
infrastructure at Asan Bay.

Department Position

    We verified that DSM does not have any facilities at Asan Bay. 
Therefore, during the POI, the company is not benefitting from any of 
the GOK developed infrastructure at Asan Bay. Because there is no 
benefit to DSM during the POI, we need not address the specificity 
arguments raised by petitioners. With respect to petitioners' novel 
argument that DSM is accruing a benefit from the Asan Bay 
infrastructure based on an increase in the value of its land holdings 
at Asan Bay we note that (1) there is no evidence on the record to 
indicate that land prices are appreciating at Asan Bay, and (2) 
assuming that the Department were to adopt such a methodology, the 
benefit would accrue to DSM at the point in which the land is sold.

Comment 17: Excessive Duty Drawback

    Petitioners argue that DSM received a countervailable subsidy from 
claiming excessive duty drawback. DSM receives duty drawback from 
certain materials used in the production of subject merchandise. 
Drawback must be claimed on the amount of an input product consumed in 
production, if there is a drawback on wastage, then it is considered 
excessive. The GOK maintains ``standard input usage tables,'' prepared 
by the National Institute of Technology and Quality (NITQ) based upon 
POSCO's 1990 production data. DSM used the standard input usage rate 
from these tables in its duty drawback calculations. Petitioners argue 
that DSM is not as efficient as POSCO and by DSM using POSCO usage 
chart demonstrates excessive duty drawback. Petitioners state that DSM 
used a higher standard rate rather than its own, less efficient usage 
rate. Being able to use a higher standard rate and claim a greater 
percentage of imported inputs as incorporated into the subject 
merchandise constitutes a financial contribution, for the GOK has 
foregone revenue which is would have otherwise received.
    Respondents claim that duty drawback is based on the standard usage 
rate applicable when a company imports slab as an input for plate for 
export, and can only be claimed when matching imports of slab for paid 
import duties. Based upon the context of how the Korean duty drawback 
operates, there were no over-rebates of import duties.

Department's Position

    We have determined this program not to be used because DSM did not 
receive excessive duty drawback. We verified that the amount of duty 
drawback received by DSM is based directly on the duty actually paid by 
DSM at the time of importation of slab. The argument that DSM is a less 
efficient producer than POSCO does not negate the fact that DSM did not 
receive excessive duty drawback. Indeed, it supports a determination 
that DSM did not receive excessive drawback. This is because a less 
efficient producer would have a higher wastage rate, i.e., it would 
require more of the imported slab to produce the same quantity of 
exported plate. However, the amount of drawback is determined by the 
NITQ's standard usage rate, which according to petitioner, is based 
upon a more efficient producer's lower wastage rate. Therefore, DSM 
would not receive the duty drawback on the additional amount of 
imported slab it requires to produce the same quantity of exported 
plate as the more efficient producer.

Comment 18: Tariff Rate Quota on Slab

    Petitioners claim that during 1998, the tariff rate for imported 
slab was lowered from 8 percent to 1 percent during the first half of 
1998 and up to 3 percent for the second half of the year. According to 
petitioners, this program is limited by the number of products and 
therefore is specific. A reduction in tariff rate for imported slab 
constitutes a financial contribution because the GOK foregoes revenue 
it would otherwise receive. Petitioners suggest calculating this 
benefit by taking the difference between the import duty actually paid 
on imported slabs (1 to 3 percent) and the usual duty (8 percent). The 
Department should allocate this sum to only the production of the 
subject merchandise.
    Respondents argue that duties on imported slab are paid upon import 
and rebated upon export (whether at normal or reduced rates). If a 
lower duty is

[[Page 73195]]

initially charged upon import then the company receives the rebate of 
that lower import duty at the time of export. No import duties are 
ultimately paid on imported slab that is eventually exported. A subsidy 
could only arise if normal import duty rates were refunded on exports 
for slab that had paid the lower duty rate upon import.

Department's Position

    First, we note that petitioners made this allegation in a July 8, 
1999 submission to the Department. Thus, we rejected this allegation as 
being untimely as set forth in section 351.301(d)(4)(i)(A) of the 
Department's regulations, and we declined to examine this allegation in 
this current investigation. See ``Memorandum to David Mueller from the 
Team Re: New Subsidy Allegation in Countervailing Duty Investigation of 
Certain Cut-to-Length Carbon Quality Steel Plate from Korea'' dated 
August 11, 1999, which is on file in the CRU. Furthermore, we note that 
petitioners have failed to demonstrate how a temporary reduction in a 
tariff rate for slab would confer a benefit upon the export of subject 
merchandise. Regardless of whether the tariff rate is one percent or 
eight percent the full amount of the tariff would be returned to the 
respondents through the duty drawback system when the imported slab is 
manufactured into plate and then exported as subject merchandise.

Comment 19: Scrap Reserve Fund

    Petitioners argue that the GOK provides low-interest or no-interest 
financing through the scrap reserve fund, thus affording a financial 
subsidy to DSM. They further observe that the financial contribution 
benefits all of DSM's production, not strictly subject merchandise. 
Since the scrap reserve fund is limited to only those producers of 
steel that have the capability of using scrap, this program is 
specific.
    Respondents state that the loans are directly tied to the purchase 
of scrap. The scrap reserve fund involves specific purchases of scrap 
that were not used to produce slab, the input into the subject 
merchandise. As a result, there is no possibility that these purchases 
will ever be used to produce slab.

Department Position

    The Department verified DSM's scrap reserve fund. The Department 
verified that DSM purchased all of its slab used in the production of 
plate. Therefore, DSM does not use scrap in the production of plate. 
Based upon 19 CFR 351.525(b)(5)(ii), if a subsidy is tied to production 
of an input product then the Secretary will attribute the subsidy to 
both the input and the downstream products produced by a corporation. 
Since scrap is tied to slab and DSM does not produce slab, the 
Department finds this program not tied to subject merchandise and 
therefore not countervailable.

Verification

    In accordance with section 782(i) of the Act, we verified the 
information used in making our final determination. We followed 
standard verification procedures, including meeting with the government 
and company officials, and examining relevant accounting records and 
original source documents. Our verification results are outlined in 
detail in the public versions of the verification reports, which are on 
file in the CRU of the Department of Commerce (Room B-099).

Suspension of Liquidation

    In accordance with section 705(c)(1)(B)(i) of the Act, we have 
calculated an individual rate for each company investigated. We 
determine that the total estimated net countervailable subsidy is 2.21 
percent ad valorem for DSM. We determine that the total estimated net 
countervailable subsidy is 0.95 percent ad valorem for POSCO, which is 
de minimis. Therefore, we determine that no countervailable subsidies 
are being provided to POSCO for its production or exportation of 
certain cut-to-length carbon-quality steel plate.
    In accordance with section 705(c)(5)(A)(i) of the Act, we have 
calculated an all-others rate which is ``an amount equal to the 
weighted-average countervailable subsidy rates established for 
exporters and producers individually investigated, excluding any zero 
and de minimis countervailable subsidy rates and any rates determined 
entirely under section 776.'' On this basis, we determine that the all-
others rate is 2.21 percent ad valorem, which is the rate calculated 
for DSM.

------------------------------------------------------------------------
                 Company                         Net subsidy rate
------------------------------------------------------------------------
POSCO...................................  0.95% ad valorem.
DSM.....................................  2.21% ad valorem.
All Others..............................  2.21% ad valorem.
------------------------------------------------------------------------

    In accordance with our preliminary affirmative determination, we 
instructed the U.S. Customs Service to suspend liquidation of all 
entries of certain cut-to-length carbon-quality from Korea, which were 
entered or withdrawn from warehouse, for consumption on or after July 
26, 1999, the date of the publication of our preliminary determination 
in the Federal Register. In accordance with section 703(d) of the Act, 
we instructed the U.S. Customs Service to discontinue the suspension of 
liquidation for merchandise entered on or after November 23, 1999, but 
to continue the suspension of liquidation of entries made between July 
26, 1999 and November 22, 1999.
    We will reinstate suspension of liquidation under section 706(a) of 
the Act for all entries except for POSCO if the ITC issues a final 
affirmative injury determination and will require a cash deposit of 
estimated countervailing duties for such entries of merchandise in the 
amounts indicated above. If the ITC determines that material injury, or 
threat of material injury, does not exist, this proceeding will be 
terminated and all estimated duties deposited or securities posted as a 
result of the suspension of liquidation will be refunded or canceled.

ITC Notification

    In accordance with section 705(d) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all non-privileged and non-proprietary information related to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under an administrative protective order, without the written consent 
of the Assistant Secretary for Import Administration.
    If the ITC determines that material injury, or threat of material 
injury, does not exist, these proceedings will be terminated and all 
estimated duties deposited or securities posted as a result of the 
suspension of liquidation will be refunded or canceled. If, however, 
the ITC determines that such injury does exist, we will issue a 
countervailing duty order.

Return or Destruction of Proprietary Information

    In the event that the ITC issues a final negative injury 
determination, this notice will serve as the only reminder to parties 
subject to Administrative Protective Order (APO) of their 
responsibility concerning the destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 351.305(a)(3). Failure to 
comply is a violation of the APO.
    This determination is published pursuant to sections 705(d) and 
777(i) of the Act.


[[Page 73196]]


    Dated: December 13, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-33233 Filed 12-28-99; 8:45 am]
BILLING CODE 3510-DS-P