[Federal Register Volume 68, Number 66 (Monday, April 7, 2003)]
[Notices]
[Pages 16766-16783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8409]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-851]


Preliminary Affirmative Countervailing Duty Determination: 
Dynamic Random Access Memory Semiconductors From the Republic of Korea

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

ACTION: Notice of preliminary affirmative countervailing duty 
determination.

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SUMMARY: The Department of Commerce preliminarily determines that 
countervailable subsidies are being provided to producers or exporters 
of dynamic random access memory semiconductors from the Republic of 
Korea. For information on the estimated countervailing duty rates, see 
infra section on ``Suspension of Liquidation.''

EFFECTIVE DATE: April 7, 2003.

FOR FURTHER INFORMATION CONTACT: Melani Miller, Ryan Langan, Jesse 
Cortes, or Daniel J. Alexy, Office of Antidumping/Countervailing Duty 
Enforcement, Group 1, Import Administration, U.S. Department of 
Commerce, Room 3099, 14th Street and Constitution Avenue, NW., 
Washington, DC 20230; telephone (202) 482-0116, (202) 482-2613, (202) 
482-3986, and (202) 482-1540, respectively.

[[Page 16767]]

Petitioner

    The petitioner in this investigation is Micron Technology, Inc. 
(``the petitioner'').

Period of Investigation

    The period for which we are measuring subsidies, or period of 
investigation (``POI''), is January 1, 2001 through June 30, 2002.

Case History

    The following events have occurred since the publication of the 
Department of Commerce's (``the Department'') notice of initiation in 
the Federal Register. See Notice of Initiation of Countervailing Duty 
Investigation: Dynamic Random Access Memory Semiconductors from the 
Republic of Korea, 67 FR 70927 (November 27, 2002) (``Initiation 
Notice'').
    On December 6, 2002, we issued countervailing duty questionnaires 
to the Government of the Republic of Korea (``GOK'') and the two major 
producers/exporters of dynamic random access memory semiconductors 
(``DRAMS'' or ``subject merchandise'') in the Republic of Korea 
(``ROK''), Samsung Electronics Co., Ltd. (``SEC'') and Hynix 
Semiconductor Inc. (``Hynix'') (formerly, Hyundai Electronics 
Industries Co., Ltd. (``HEI'')).
    On January 13, 2003, we published a postponement of the preliminary 
determination in this investigation until March 31, 2003. See Dynamic 
Random Access Memory Semiconductors from the Republic of Korea: 
Extension of Time Limit for Preliminary Determination of Countervailing 
Duty Investigation, 68 FR 1597 (January 13, 2003).
    We received the companies' responses to the Department's 
questionnaire on January 27, 2003, and the GOK's response on February 
3, 2003. On February 5 and 11, 2003, the petitioner submitted comments 
regarding these questionnaire responses. We issued supplemental 
questionnaires to the companies and the GOK on February 11 and 19, 
2003, and received responses to those supplemental questionnaires on 
February 25 and March 4, 10, and 14, 2003. We issued a second 
supplemental questionnaire to SEC on March 25, 2003, and received a 
response to this questionnaire on March 28, 2003.
    On February 20, 2003, the petitioner submitted several new subsidy 
allegations. The petitioner made further submissions regarding these 
new allegations on February 24 and 28, 2003. Hynix, SEC, and the GOK 
filed comments on these new subsidy allegations on February 25, 26, and 
28, respectively. SEC filed additional comments on March 4, 2003. We 
addressed these new subsidy allegations in a March 7, 2003, memorandum 
to Susan Kuhbach, New Subsidy Allegations (``New Subsidy Allegations 
Memo''), which is on file in the Department's Central Records Unit in 
Room B-099 of the main Department building (``CRU''). Because we 
initiated an investigation of two of these newly-alleged programs (as 
discussed in the New Subsidy Allegations Memo), we issued a 
questionnaire to the each of the respondents with respect to these new 
programs on March 7, 2003. We received a response to these 
questionnaires on March 28, 2003.
    Finally, both the petitioner and the respondents, as well as other 
interested parties, submitted comments on the preliminary determination 
on March 10, 14, 18, 21, 24, 27, and 28, 2003.

Scope of Investigation

    The products covered by this investigation are DRAMS from the ROK, 
whether assembled or unassembled. Assembled DRAMS include all package 
types. Unassembled DRAMS include processed wafers, uncut die, and cut 
die. Processed wafers fabricated in the ROK, but assembled into 
finished semiconductors outside the ROK are also included in the scope. 
Processed wafers fabricated outside the ROK and assembled into finished 
semiconductors in the ROK are not included in the scope.
    The scope of this investigation additionally includes memory 
modules containing DRAMS from the ROK. A memory module is a collection 
of DRAMS, the sole function of which is memory. Memory modules include 
single in-line processing modules, single in-line memory modules, dual 
in-line memory modules, small outline dual in-line memory modules, 
Rambus in-line memory modules, and memory cards or other collections of 
DRAMS, whether unmounted or mounted on a circuit board. Modules that 
contain other parts that are needed to support the function of memory 
are covered. Only those modules that contain additional items which 
alter the function of the module to something other than memory, such 
as video graphics adapter boards and cards, are not included in the 
scope. This investigation also covers future DRAMS module types.
    The scope of this investigation additionally includes, but is not 
limited to, video random access memory and synchronous graphics RAM, as 
well as various types of DRAMS, including fast page-mode, extended 
data-out, burst extended data-out, synchronous dynamic RAM, Rambus 
DRAM, and Double Data Rate DRAM. The scope also includes any future 
density, packaging, or assembling of DRAMS. Also included in the scope 
of this investigation are removable memory modules placed on 
motherboards, with or without a central processing unit, unless the 
importer of the motherboards certifies with the Customs Service that 
neither it, nor a party related to it or under contract to it, will 
remove the modules from the motherboards after importation. The scope 
of this investigation does not include DRAMS or memory modules that are 
re-imported for repair or replacement.
    The DRAMS subject to this investigation are currently classifiable 
under subheadings 8542.21.8005 and 8542.21.8021 through 8542.21.8029 of 
the Harmonized Tariff Schedule of the United States (``HTSUS''). The 
memory modules containing DRAMS from the ROK, described above, are 
currently classifiable under subheadings 8473.30.10.40 or 8473.30.10.80 
of the HTSUS. Although the HTSUS subheadings are provided for 
convenience and customs purposes, the Department's written description 
of the scope of this investigation remains dispositive.

Injury Test

    Because the ROK is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Tariff Act of 1930, as amended by the 
Uruguay Round Agreements Act effective January 1, 1995 (``the Act''), 
the International Trade Commission (``ITC'') is required to determine 
whether imports of the subject merchandise from the ROK materially 
injure, or threaten material injury to, a U.S. industry. On December 
13, 2002, the ITC made its preliminary determination that there is a 
reasonable indication that an industry in the United States is being 
materially injured by reason of imports from the ROK of the subject 
merchandise. See Drams and Dram Modules from Korea, 67 FR 79148 
(December 27, 2002).

Subsidies Valuation Information

Allocation Period

    Pursuant to 19 CFR 351.524(b), non-recurring subsidies are 
allocated over a period corresponding to the average useful life 
(``AUL'') of the renewable physical assets used to produce the subject 
merchandise. Section 351.524(d)(2) of the Department's regulations 
creates a rebuttable presumption that the AUL will be taken from the 
U.S. Internal Revenue Service's

[[Page 16768]]

1977 Class Life Asset Depreciation Range System (the ``IRS Tables''). 
For DRAMS, the IRS Tables prescribe an AUL of 5 years. None of the 
responding companies or interested parties disputed this allocation 
period. Therefore, we have used the 5-year allocation period for all 
respondents. See, also, February 24, 2003 memorandum to the file 
entitled ``Average Useful Life,'' which is on file in the Department's 
CRU.

Discount Rates and Benchmarks for Loans

    Pursuant to 19 CFR 351.524(d)(3)(i), the Department will use, when 
available, the company-specific cost of long-term, fixed-rate loans 
(excluding loans deemed to be countervailable subsidies) as a discount 
rate for allocating non-recurring benefits over time. Similarly, 
pursuant to 19 CFR 351.505(a), the Department will use the actual cost 
of comparable borrowing by a company as a loan benchmark, when 
available. Section 351.505(a)(2) of the Department's regulations 
defines a comparable commercial loan as one that, when compared to the 
loan being examined, has similarities in the structure of the loan 
(e.g., fixed interest rate v. variable interest rate), the maturity of 
the loan (e.g., short-term v. long-term), and the currency in which the 
loan is denominated. In instances where no applicable company-specific 
comparable commercial loans are available, 19 CFR 351.505(a)(3)(ii) 
allows the Department to use a national average interest rate for 
comparable commercial loans.
    Hynix and SEC reported that they had the following types of loans 
outstanding from the GOK or GOK-owned banks, ROK financial 
institutions, overseas creditors, or foreign banks with branches in the 
ROK during the POI: (1) Long-term fixed- and variable-rate foreign 
currency loans; (2) Long-term fixed- and variable-rate won-denominated 
loans; (3) short-term fixed-rate won-denominated loans; and (4) short-
term fixed-rate foreign currency loans. Some of these loans were 
received prior to 1992. Hynix also received non-recurring benefits 
during the POI, as discussed in the ``Analysis of Programs'' section, 
below.
    We are using the following benchmarks and discount rates for this 
preliminary determination:
Discount Rates and Benchmarks for Long-Term Loans
    The Department has previously determined that the GOK directed the 
lending practices of financial institutions in the ROK through 1991. 
See, e.g., Final Affirmative Countervailing Duty Determinations and 
Final Negative Critical Circumstances Determinations: Certain Steel 
Products from Korea, 58 FR 37338, 37339 (July 9, 1993) (``Certain 
Steel''); Final Affirmative Countervailing Duty Determination: 
Structural Steel Beams from the Republic of Korea, 65 FR 41051 (July 3, 
2000) (``Structural Beams''); and Final Affirmative Countervailing Duty 
Determination: Certain Cold-Rolled Carbon Steel Flat Products from the 
Republic of Korea, 67 FR 62102 (October 3, 2002) (``Cold-Rolled 
Steel''). Given the GOK's direction of banks, we determined that the 
best indicator of the commercial, long-term borrowing rate in the ROK 
through 1991 was the three-year corporate bond rate on the secondary 
market. No party in this proceeding has submitted new evidence that 
would lead us to reconsider this benchmark. Therefore, for the 
preliminary determination, we are using the three-year corporate bond 
rate on the secondary market as our benchmark to calculate the benefits 
which the respondent companies received from domestic won-denominated 
loans obtained prior to 1992 that were still outstanding during the 
POI.
    In subsequent determinations, the Department found that the GOK 
controlled directly or indirectly the lending practices of most sources 
of credit in the ROK between 1992 and 2000. See, e.g., Final Negative 
Countervailing Duty Determination: Stainless Steel Plate in Coils from 
the Republic of Korea, 64 FR 15530 (March 31, 1999) (``Plate in 
Coils''); Final Affirmative Countervailing Duty Determination: Certain 
Cut-to-Length Carbon-Quality Steel Plate from the Republic of Korea, 64 
FR 73276 (December 29, 1999) (``CTL Plate''); and Structural Beams. In 
Plate in Coils, the Department further determined that the GOK does not 
exercise direct or indirect control over ROK branches of foreign 
commercial banks. Also, in Cold-Rolled Steel, we found that, subsequent 
to April 1999, companies no longer needed approval from the GOK to 
access direct foreign loans or issue foreign securities. Thus, we found 
that these types of loans were not countervailable and, thus, also 
normally represented an appropriate benchmark.
    As explained below in the ``Direction of Credit and Other Financial 
Assistance'' discussion in the ``Analysis of Programs'' section, based 
upon these earlier findings and updated information, we have 
preliminarily determined in this investigation that: (1) The GOK still 
exercised substantial control over most lending institutions in the ROK 
from 1992 through 1998, and (2) that the GOK directed credit to Hynix 
during the period January 1999 through June 30, 2002. Moreover, 
consistent with our determinations in Plate in Coils and Cold-Rolled 
Steel, we continue to find that the government did not exercise direct 
or indirect control over ROK branches of foreign commercial banks, 
direct foreign loans obtained after April 1999, and foreign securities 
issued after April 1999. Thus, we have generally continued to utilize 
such loans as benchmarks for SEC and Hynix, when available.
    Based on the above, we are using the following benchmarks for the 
preliminary determination to calculate the benefits conferred by GOK-
directed long-term loans obtained since 1992 which are still 
outstanding during the POI:
    [sbull] For countervailable foreign-currency denominated long-term 
loans for creditworthy companies, we used, where available, the 
company-specific, weighted-average interest rates on the companies' 
comparable commercial foreign currency loans from foreign bank branches 
in the ROK. If this type of benchmark was unavailable, then, consistent 
with past cases (see, e.g., Cold-Rolled Steel), we relied on lending 
rates as reported by the International Monetary Fund's (``IMF'') 
International Financial Statistics Yearbook.
    [sbull] For countervailable won-denominated long-term loans for 
creditworthy companies, we used the company-specific corporate bond 
rate on the companies' won-denominated public and private bonds, where 
available. Use of this benchmark is consistent with Plate in Coils, 64 
FR at 15531, in which we determined that the GOK did not control the 
ROK domestic bond market after 1991. Where company-specific rates were 
not available, we used the national average of the yields on three-year 
won-denominated corporate bonds as reported by the Bank of Korea 
(``BOK''). We note that the use of the three-year corporate bond rate 
from the BOK follows the approach taken in Plate in Coils, 64 FR at 
15532, in which we determined that, absent company-specific interest 
rate information, the won-denominated corporate bond rate is the best 
indicator of the commercial long-term borrowing rate for won-
denominated loans in the ROK.
    [sbull] Finally, because we have preliminarily determined that 
Hynix was uncreditworthy from January 1, 2000 through June 30, 2002 in 
accordance with 19 CFR 351.524(d)(3)(ii) (see, infra section on 
``Creditworthiness''), we have calculated

[[Page 16769]]

for Hynix only long-term uncreditworthy benchmarks and discount rates 
for 2000 through June 30, 2002. According to 19 CFR 351.505(a)(3)(iii), 
in order to calculate these rates, the Department must specify values 
for four variables: (1) The probability of default by an uncreditworthy 
company; (2) the probability of default by a creditworthy company; (3) 
the long-term interest rate for creditworthy borrowers; and (4) the 
term of the debt. For the probability of default by an uncreditworthy 
company, we have used the average cumulative default rates reported for 
the Caa-to C-rated category of companies as published in Moody's 
Investors Service, ``Historical Default Rates of Corporate Bond 
Issuers, 1920-1997'' (February 1998). For the probability of default by 
a creditworthy company, we used the cumulative default rates for 
investment grade bonds as published in Moody's Investor Service, 
``Statistical Tables of Default Rates and Recovery Rates'' (February 
1998). For the long-term interest rate that would be paid by a 
creditworthy company, we are using (1) the national average of the 
three-year ROK won corporate bond rate as published by the BOK for won-
denominated foreign currency loans and for the discount rate, and (2) 
the IMF's International Financial Statistics Yearbook for foreign-
currency denominated long-term loans. For the term of the debt, we used 
5 years because all of the non-recurring subsidies examined were 
allocated over a 5-year period, as discussed in the ``Allocation 
Period'' section, above.
Benchmarks for Short-Term Loans
    As discussed below in the ``Direction of Credit and Other Financial 
Assistance'' section, we have found that the GOK directed credit for 
all loans to Hynix during the POI. Thus, we cannot rely on Hynix'' 
company-specific commercial won-or foreign currency-denominated loans 
outstanding during the POI as our benchmark. Instead, for those 
programs requiring the application of a short-term, fixed, won-or 
foreign currency-denominated interest rate benchmark, we used the money 
market rates as reported in the IMF's International Financial 
Statistics in accordance with 19 CFR 351.505(a)(3)(ii).

Equityworthiness

    Section 771(5)(E)(i) of the Act and 19 CFR 351.507 state that, in 
the case of a government-provided equity infusion, a benefit is 
conferred if an equity investment decision is inconsistent with the 
usual investment practice of private investors. According to 19 CFR 
351.507, the first step in determining whether an equity investment 
decision is inconsistent with the usual investment practice of private 
investors is examining whether, at the time of the infusion, there was 
a market price for similar, newly-issued equity. If so, the Department 
will consider an equity infusion to be inconsistent with the usual 
investment practice of private investors if the price paid by the 
government for newly-issued shares is greater than the price paid by 
private investors for the same, or similar, newly-issued shares.
    If actual private investor prices are not available, then, pursuant 
to 19 CFR 351.507(a)(3)(i), the Department will determine whether the 
firm funded by the government-provided infusion was equityworthy or 
unequityworthy at the time of the equity infusion. In making the 
equityworthiness determination, pursuant to 19 CFR 351.507(a)(4), the 
Department will normally determine that a firm is equityworthy if, from 
the perspective of a reasonable private investor examining the firm at 
the time the government-provided equity infusion was made, the firm 
showed an ability to generate a reasonable rate of return within a 
reasonable time. To do so, the Department normally examines the 
following factors: (1) Objective analyses of the future financial 
prospects of the recipient firm; (2) current and past indicators of the 
firm's financial health; (3) rates of return on equity in the three 
years prior to the government equity infusion; and (4) equity 
investment in the firm by private investors.
    Section 351.507(a)(4)(ii) of the Department's regulations further 
stipulates that the Department will ``normally require from the 
respondents the information and analysis completed prior to the 
infusion, upon which the government based its decision to provide the 
equity infusion.'' Absent an analysis containing information typically 
examined by potential private investors considering an equity 
investment, the Department will normally determine that the equity 
infusion provides a countervailable benefit. This is because, before 
making a significant equity infusion, it is the usual investment 
practice of private investors to evaluate the potential risk versus the 
expected return, using the most objective criteria and information 
available to the investor.
    The equityworthiness analysis relating to Hynix' debt-to-equity 
conversions as part of the Hynix October 2001 Restructuring program is 
located in the ``Analysis of Programs'' section, below.

Creditworthiness

    The examination of creditworthiness is an attempt to determine if 
the company in question could obtain long-term financing from 
conventional commercial sources. See 19 CFR 351.505(a)(4). According to 
19 CFR 351.505(a)(4)(i), the Department will generally consider a firm 
to be uncreditworthy if, based on information available at the time of 
the government-provided loan, the firm could not have obtained long-
term loans from conventional commercial sources. In making this 
determination, according to 19 CFR 351.505(a)(4)(i), the Department 
normally examines the following four types of information: (1) The 
receipt by the firm of comparable commercial long-term loans; (2) 
present and past indicators of the firm's financial health; (3) present 
and past indicators of the firm's ability to meet its costs and fixed 
financial obligations with its cash flow; and (4) evidence of the 
firm's future financial position.
    With respect to item number one, above, pursuant to 19 CFR 
351.505(a)(4)(ii), in the case of firms not owned by the government, 
the receipt by the firm of comparable long-term commercial loans, 
unaccompanied by a government-provided guarantee (either explicit or 
implicit), will normally constitute dispositive evidence that the firm 
is not uncreditworthy. However, according to the Preamble to the 
Department's regulations, in situations, for instance, where a company 
has taken out a single commercial bank loan for a relatively small 
amount, where a loan has unusual aspects, or where we consider a 
commercial loan to be covered by an implicit government guarantee, we 
may not view the commercial loan(s) in question to be dispositive of a 
firm's creditworthiness. (See Countervailing Duties; Final Rule, 63 FR 
65348, 65367 (November 28, 1998) (``Preamble'').)
    In the Initiation Notice, we indicated that we would investigate 
Hynix'' creditworthiness in 2000 through 2002. As discussed in the 
March 31, 2003 memorandum entitled ``Creditworthiness'' 
(``Creditworthiness Memo'') (which is on file in the Department's CRU), 
we have found Hynix to be uncreditworthy in 2000 through June 2002. 
Therefore, we have used an uncreditworthy benchmark rate in calculating 
the benefit from loans received during this time period, and have also 
used an uncreditworthy discount rate in calculating any non-

[[Page 16770]]

recurring benefits received by Hynix that were allocable to the POI.

Analysis of Programs

    Based upon our analysis of the petition and the responses to our 
questionnaires, we determine the following:

I. Programs Preliminarily Determined to Be Countervailable

A. Direction of Credit and Other Financial Assistance
The GOK's Credit Policies Through 1998
    As discussed above in the ``Discount Rates and Benchmarks for 
Loans'' section, the Department has examined the issue of whether the 
GOK controlled the lending practices of banks in the ROK in past cases. 
For the period through 1991, we determined that the GOK's direction of 
credit policies resulted in countervailable subsidies to the ROK steel 
industry. See, e.g., Certain Steel, CTL Plate, and Structural Beams. In 
subsequent determinations, the Department found that the GOK continued 
to control, directly and indirectly, the long-term lending practices of 
most sources of credit in the ROK through 1998. See Plate in Coils and 
CTL Plate for our findings regarding 1997 and 1998, respectively.
    Although we determined that the GOK directed the provision of loans 
by ROK banks in Plate in Coils and the Final Affirmative Countervailing 
Duty Determination: Stainless Steel Sheet and Strip in Coils from the 
Republic of Korea, 64 FR 30636, 30639 (June 8, 1999) (``Sheet and 
Strip''), we concluded that loans from Korean branches of foreign banks 
(i.e., branches of U.S. and foreign-owned banks operating in Korea) did 
not confer countervailable subsidies. This determination was based upon 
our finding that credit from ROK branches of foreign banks was not 
subject to the government's control and direction. Additionally, 
because these loans were not directed or controlled by the GOK, we used 
them as benchmarks to establish whether loans from domestic banks 
conferred a benefit upon respondents.
    We provided the respondents in the current proceeding an 
opportunity to present new factual information concerning the GOK's 
direction of long-term lending during this previously-examined period. 
No party contested or provided new information challenging the 
Department's findings prior to 1998. Moreover, although certain 
respondents indicated that they were challenging the Department's 
finding for 1998, the respondents have not provided any new information 
that has not already been closely examined in past proceedings (e.g., 
CTL Plate and Structural Beams). Therefore, we preliminarily determine 
that the GOK controlled, directly and indirectly, the long-term lending 
practices of most sources of lending in the ROK through 1998, with the 
exception of loans from Korean branches of foreign banks, as noted 
above, and, consequently, that the GOK entrusted and directed these 
banks to make loans as directed by the GOK.

Specificity

    In the above-cited proceedings, we determined that government-
directed loans provided a countervailable subsidy to the ROK steel 
industry. For the reasons explained below, we have preliminarily 
determined in this proceeding that the GOK also directed loans to the 
semiconductor industry through 1998.
    In Structural Beams and CTL Plate, the Department found that the 
GOK directed credit to ``strategic'' industries, such as steel, 
automobiles, and consumer electronics, throughout the 1970s, 1980s, and 
1990s. In 1976, it was clear that the semiconductor industry was one of 
the GOK's ``strategic'' industries and was designated to receive 
special treatment from the GOK, including loans. For example, in its 
Fourth Five-Year Plan, the GOK stated that ``the electronics industry 
will be promoted as a major export industry through the development of 
new technology products and the expansion of overseas sales activities 
* * * Semiconductors, computers and related items have been selected as 
strategic products.''
    This plan gave rise to the publicly financed Korea Institute of 
Electronics Technology (``KIET''). The KIET's primary function was to 
plan and coordinate semiconductor research and development; import, 
assimilate, and disseminate foreign technologies; provide technical 
assistance to Korean firms; and conduct market research. According to 
an October 1991 study, KIET essentially jump-started the semiconductor 
industry in the ROK and paved the way for SEC, HEI, and Goldstar 
Electron to enter the market as major DRAMS producers. In addition, the 
Heavy and Chemical Industry plans of 1974 and 1976 identified six 
strategic industries (chemicals, electronics, machinery, non-ferrous 
metals, and steel) which the GOK would support financially to ``raise 
the selected industries'' competitiveness and, consequently, to 
increase their exports.''
    For the next two decades, the semiconductor industry was repeatedly 
identified in national economic and development plans, as well as in 
industry promotion plans, as a ``strategic'' industry that would 
receive ``a wide range of fiscal and financial investment incentives.'' 
Other examples of such policies include the Fifth Five-Year Economic 
and Social Development Plan (1981) and the Sixth Five-Year Economic and 
Social Development Plan (1986).
    In Structural Beams, we found that, after the removal of the de 
jure preferences for ``strategic'' industries in 1985, the GOK 
continued to channel billions of dollars in lending into sectors 
favored by the government's industrial policies. We also found that, 
throughout the 1990s, ``bankers in Korea {believed{time}  that the 
{Korea Development Bank (``KDB''){time}  is still known for preferring 
the semiconductor, shipbuilding, and steel industries.'' (See 
Structural Beams June 7, 2000 memorandum to the file, ``Direction of 
Credit in Korea: Structural Steel Beams from the Republic of Korea,'' 
the public version of which is included as an appendix to the March 31, 
2003 memorandum entitled ``Direction of Credit Citations'' (``Direction 
Citations Memo''), which is on file in the Department's CRU.)
    In this investigation, there is substantial evidence illustrating 
the GOK's continued favoritism toward the semiconductor industry well 
after 1985. The GOK's Seven Year High Technology Development Plan 
(1990) (``Seven Year Plan'') called for U.S. Dollar (``USD'') 1.83 
billion for the development of semiconductors, tax incentives to 
encourage private-sector investment, and the building of an industrial 
estate for the assembly of semiconductors, computers, and optical 
equipment. The Seven Year Plan also identified 16 and 64 megabit DRAMS 
for development through government-industry cooperation. Under the 
Seven Year Plan, the Highly Advanced National program (``HAN'') was 
established to support the production of 256 megabit DRAMS by 1996 and 
one gigabit DRAMS by 2000 with USD 4.9 billion in government 
expenditures through 2001.
    In 1994, the Ministry of Trade, Industry, and Energy (``MOTIE'') 
announced its selection of five strategic investment sectors 
(semiconductors, liquid crystal displays (``LCD''), aircraft, 
satellites, and machine tools) to receive government support. ``As for 
the semiconductor industry, 46.9 billion won will be spent on {research 
and development (``R&D''){time}  for a 256-{megabit{time}  DRAM this 
year and 20

[[Page 16771]]

billion won for LCD research. Of these amounts, 19.2 billion won and 10 
billion won, respectively, will be extended from the government budget. 
By 1997, a total of 195.4 billion won * * * are to be invested in 
{semiconductors{time} .'' In a July 1997 interview, the Director 
General of the Electronics, Textile, and Chemical Industry Bureau of 
MOTIE stated, ``{t{time} he government's long-term strategy calls for 
{the ROK{time}  becoming the world's largest producer of semiconductor 
chips in the year 2010.''
    Moreover, in Structural Beams, we found that the KDB provided a 
significant amount of the lending to ``strategic'' industries, such as 
steel, throughout the 1990s. Therefore, as in Structural Beams, in the 
instant investigation we reviewed a list of the largest recipients of 
KDB financing within the manufacturing sector in 1992 through 1997 as 
part of our specificity analysis. For this investigation, we requested 
similar information regarding the distribution of loans to industry 
sectors by specific institutions, including the KDB, and the Korean 
financial sector as a whole. The GOK provided information for 1997 and 
1998 for broad industry sectors such as ``Pulp, Paper, and Paper 
Products,'' and ``Radio, Television, and Communication Equipment,'' 
which includes semiconductors. The GOK stated that it was unable to 
provide loan information on a more specific basis. Because this 
information does not cover the period we are examining in full, and 
because it is overly broad to use in our normal specificity analyses 
under 771(5A) of the Act, we intend to seek more detailed information 
during verification with respect to lending distribution in the ROK.
    Notwithstanding the limited KDB lending data, we find that there is 
sufficient information on the record demonstrating the GOK's 
designation of the semiconductor industry as a ``strategic'' industry. 
Specifically, the GOK's national economic and development plans, as 
well as industry promotion plans, from the late 1970s through 1998, 
identified the semiconductor industry as a ``strategic'' industry.
    Therefore, based on the above information, we preliminarily 
determine that the GOK directed credit specifically to the 
semiconductor industry through 1998 within the meaning of section 
771(5A) of the Act.
The GOK's Involvement in the ROK Lending Sector from 1999 Through June 
30, 2002
    The Department has also addressed GOK direction of credit in the 
years subsequent to 1998. In the Final Results and Partial Rescission 
of Countervailing Duty Administrative Review: Stainless Steel Sheet and 
Strip in Coils From the Republic of Korea, 67 FR 1964 (January 15, 
2002) and Cold-Rolled Steel, we provided the respondents with an 
opportunity to present new factual information concerning the 
government's credit policies in 1999 and 2000, respectively. No party 
provided any new information on the GOK lending policies for domestic 
banks in either case. Therefore, we determined in those cases that 
long-term lending from domestic commercial banks and from specialized 
banks, such as the KDB, was directed by the GOK in 1999 and 2000, 
respectively.
    Additionally, with respect to direct foreign loans (i.e., loans 
from offshore banks) and offshore foreign securities issued by ROK 
companies, we found that, subsequent to April 1999, companies no longer 
needed approval from the GOK to access direct foreign loans or to issue 
foreign securities. See Cold-Rolled Steel. Thus, we determined that 
these loans were not directed or controlled by the GOK, and could serve 
as benchmarks. No party has challenged this past finding.
    In the instant investigation, the petitioner has alleged that the 
GOK continued to influence and direct the practices of lending 
institutions in the ROK through the POI, and that the semiconductor 
sector received a disproportionate share of the benefits provided 
pursuant to this direction, resulting in the conferral of 
countervailable benefits on the producers/exporters of the subject 
merchandise. The petitioner has also alleged that, if the Department 
does not find that the semiconductor industry received a 
disproportionate share of financing during this period, this directed 
credit was specific to Hynix. The petitioner asserts, therefore, that 
the Department should countervail all loans and benefits from GOK 
owned/controlled/directed institutions that were received by the 
producers/exporters of the subject merchandise, or all loans and 
benefits received specifically by Hynix, obtained during this period 
that were outstanding during the POI.
    We provided the respondents in this proceeding an opportunity to 
present new factual information concerning the GOK's credit practices 
from 1999 through June 30, 2002 which we would consider along with our 
findings in the above-noted prior investigations. Certain respondents 
challenged the Department's prior direction of credit findings for 1999 
and 2000. Parties in this investigation also presented information 
concerning the GOK's role in the ROK financial lending sector from 2001 
through June 30, 2002.
    Because of the Department's prior determinations that the GOK 
controlled and directed credit provided by most ROK banks through 2000, 
discussed above, the burden of demonstrating that the GOK has changed 
its practices is placed, in large part, upon the respondents. Moreover, 
with respect to 1999 and 2000, because the Department has previously 
found that the GOK directed credit provided by most ROK banks in those 
years, new information or evidence of changed circumstances must be 
presented before the Department will revise or change its previous 
findings.
    In its response, the GOK argued that the post-1997 financial 
reforms instituted following the ROK financial crisis have led to the 
liberalization of the ROK financial sector, and that the GOK did not 
direct credit provided by domestic and government-owned banks from 1998 
through the end of the POI. The GOK has also placed new information on 
the record to support its claim. As noted above, the Department has 
already addressed the impact of these reforms in 1998 in CTL Plate and 
Structural Beams. However, for the subsequent period, the GOK has 
submitted new information which we have analyzed to determine whether 
the GOK continued to direct credit from 1999 through June 30, 2002.
    In our analysis, we have distinguished between banks that are 
themselves government authorities within the meaning of section 
771(5)(B) of the Act and commercial banks that are not considered to be 
government authorities. In CTL Plate and Structural Beams, we found 
that, although changes had been made to the legislation regulating 
government-controlled specialized banks, such as the KDB, in the 
aftermath of the financial crisis, the respondents did not provide any 
evidence to demonstrate that the KDB has discontinued its practice of 
selectively making loans to specific firms or activities to support GOK 
policies.
    Record evidence from the instant investigation indicates that the 
KDB and other specialized banks, such as the Industrial Bank of Korea 
(``IBK''), continue to be government authorities within the meaning of 
section 771(5)(B)

[[Page 16772]]

of the Act. The term ``authority'' is defined in section 771(5)(B) of 
the Act as ``a government of a country or any public entity within the 
territory of the country.'' As stated in the Preamble to the 
Department's regulations, ''* * * we intend to continue our 
longstanding practice of treating most government-owned corporations as 
the government itself.'' See Preamble, 63 FR 65402.
    In order to assess whether an entity such as the KDB should be 
considered to be the government for purposes of countervailing duty 
investigations, the Department has in the past considered the following 
factors to be relevant: (1) Government ownership; (2) the government's 
presence on the entity's board of directors; (3) the government's 
control over the entity's activities; (4) the entity's pursuit of 
governmental policies or interests; and (5) whether the entity is 
created by statute. See, e.g., Final Affirmative Countervailing Duty 
Determinations: Pure Magnesium and Alloy Magnesium from Canada, 57 FR 
30946, 30954 (July 13, 1992); Final Affirmative Countervailing Duty 
Determination: Certain Fresh Cut Flowers from the Netherlands, 52 FR 
3301, 3302, 3310 (February 3, 1987); and Sheet and Strip, 64 FR 30642-
43.
    According to the BOK in a February 2002 report on ROK financial 
institutions, most of the specialized banks are government-controlled 
banks. With regard to the KDB, all of the KDB's shares are held by the 
GOK. Additionally, according to the KDB Act, the KDB's purpose is ``the 
supply and management of major industrial funds to promote industrial 
development and the advancement of the national economy.'' All of KDB's 
senior management and its auditor are appointed by the ROK President or 
the Ministry of Finance and Economy (``MOFE''). KDB's annual business 
plan must be approved on an annual basis by the MOFE, and the KDB is 
supervised by the MOFE (except for prudential supervision, which is 
carried out by the Financial Supervisory Commission (``FSC'')). Any net 
losses suffered by the KDB are covered by the GOK according to Article 
44 of the KDB Act.
    The purpose of the IBK is ``to promote independent economic 
activities for small and medium enterprises and to enhance their 
economic status in the national economy.'' The majority of the IBK's 
shares are held by the GOK. The IBK's top officials are appointed by 
the ROK President or by a GOK ministry. According to the IBK Act, one 
of the IBK's activities is to ``perform business entrusted by the 
Government and public entities,'' and to ``achieve the purpose of the 
bank {as noted above{time}  with the approval of the relevant 
Minister.'' The IBK's annual business plan and operations manual 
(including its lending methods) must be approved by the relevant 
minister. Any annual losses suffered by the IBK are covered by the GOK.
    Based on this information and our past findings, we preliminarily 
determine that the KDB and the other specialized banks, such as the 
IBK, are government authorities. Hence, the financial contributions 
they made fall within section 771(5)(B)(i) of the Act.
    As for the commercial banks in which the GOK owned a majority or 
minority stake, there is no evidence currently on the record that these 
entities are GOK authorities within the meaning of section 771(5)(B) of 
the Act. These banks act as commercial banks, and temporary GOK 
ownership of the banks due to the financial crisis is not, by itself, 
indicative that these banks are GOK authorities. Therefore, we must 
determine whether these banks, as well as other ROK lenders, were 
directed or entrusted by the GOK to provide funds to the respondents 
during the period 1999 through the end of the POI. See section 
771(5)(B)(iii) of the Act.
    In late 1997, the financial crisis that had been plaguing many 
countries in Asia came to a head in the ROK. A severe foreign exchange 
crisis, coupled with a sharp increase in interest rates and a drop in 
economic output, caused many large companies to be unable to meet their 
debt obligations and liquidity needs. As a result, many companies 
experienced serious financial difficulties, and many banks were 
weakened by the rapid increase in non-performing loans, a situation 
that threatened the stability of the financial system itself.
    According to the GOK, this financial crisis in late 1997 brought 
about many market-oriented changes in the financial sector in the ROK. 
For example, as discussed in CTL Plate and Structural Beams, in January 
1998, the GOK announced closure of some banks, and in April 1998, it 
launched the FSC which, according to the GOK, is a central government 
organization established for the purpose of consolidating and improving 
the GOK's monitoring and supervision of financial institutions. (The 
FSC's authority was later expanded to also cover specialized banks.) 
According to the GOK, these changes were part of a larger package of 
reforms including legal, regulatory, and policy changes intended to 
transform the ROK financial sector into a better managed, better 
supervised, and more market-oriented sector of the economy.
    As part of these reforms, in the period 1999 through 2002, several 
commercial banks in the ROK were closed or merged with other banks. The 
closure of weak financial institutions was, according to the GOK, one 
of the most dramatic policy changes in the ROK. The GOK also points to 
the opening of the financial markets to foreign ownership and 
investment as another major change. For example, majority ownership of 
Korea First Bank (``KFB'') was sold to a foreign investor, and shares 
in other banks, such as Korea Exchange Bank (``KEB''), were sold to 
foreign investors. Additionally, the GOK worked to tighten rules on 
accounting and best practices by applying international standards.
    Finally, as noted above, the GOK implemented many new laws, 
regulations, and practices with regard to the financial system. In May 
1999, the KDB Act was amended to entrust the FSC with regulatory 
oversight of KDB's financial prudentiality. In January 2000, the 
Depositor Protection Act was revised to ensure that officers and 
employees of financial institutions that are responsible for financial 
troubles of their employer can be required to compensate the financial 
institution for damages. The Bank Act was also revised to set forth 
procedures for the licensing and supervision of banks. In March 2000, 
the KDB enforcement decree was amended to expand to the KDB the loan 
exposure limits that applied to other banks. In October 2000, the 
Corporate Restructuring Vehicle Act was enacted to facilitate the 
resolution of bad loans held by financial institutions. The Financial 
Holding Company Act was also enacted, which established financial 
holding companies in the ROK for the first time. In November 2000, 
Prime Minister's Decree, Instruction No. 408 (``Prime Minister's 
Decree''), was issued, stating that government officials at financial 
supervisory organizations, such as the MOFE and the FSC, were not to 
interfere in the operations of commercial and specialized banks.
    In December 2000, the Public Funds Management Act was enacted to 
enhance transparency in the use of public funds. The Depositor 
Protection Act was also revised to allow the Korea Deposit Insurance 
Corporation (``KDIC'') to request information directly from banks, and 
to request assistance from the FSC if a financial institution looks as 
if it may become insolvent. In September 2001, the Corporate 
Restructuring Promotion Act (``CRPA'') was enacted to allow creditor 
banks to initiate prompt restructuring measures against potentially 
insolvent companies and to provide a more formal framework

[[Page 16773]]

for creditor financial institutions to work together. In April 2002, 
the Banking Act was revised to relax restrictions placed on bank 
ownership.
    As is evidenced by the above-noted changes in the ROK financial 
system since the 1997 financial crisis, the GOK has taken many steps to 
reform the financial system in the ROK, steps for which the GOK has 
been widely praised. However, despite the changes noted above, events 
in the ROK financial system have led the GOK to continue its 
involvement there. Specifically, in the aftermath of the financial 
crisis, many corporations have suffered from liquidity problems, 
especially as loans and other debt incurred during or after the 
financial crisis have begun to mature. These financial problems in the 
corporate sector necessarily have had a great impact on the creditors 
holding the outstanding liabilities of these corporations. Because many 
banks have suffered their own liquidity crises in light of the troubles 
in the corporate sector due to their debt holdings in these troubled 
companies, record evidence indicates that the GOK has inevitably had to 
stay closely involved in the financial system in order to ensure 
stability while corporate restructuring continues, and that the GOK's 
role exceeded the understandable function of financial supervision.
    For example, record evidence indicates that the GOK had to inject 
trillions of won into ROK banks to keep them solvent following the 
financial crisis. According to an August 2001 Bank for International 
Settlements paper, this type of support was ``inevitable and necessary 
in order to ensure the soundness of the financial system and to prevent 
systematic risk in the process of financial sector restructuring.'' As 
a result of these recapitalizations, many commercial banks have been 
nationalized by the GOK, and the GOK has become (and continued to be 
throughout the POI) the majority owner of several of the large ROK 
commercial banks, including Seoul Bank, the banks under the Woori 
Financial Holding Company umbrella (including Peace, Kwangju, and 
Kyongnam banks), Woori Bank (formerly Hanvit Bank), and Cho Hung Bank 
(although we note that there is conflicting information on the record 
with respect to bank ownership by the GOK during the POI). Moreover, in 
2001, the BOK increased the aggregate credit ceiling in order to 
provide more funds to financial institutions to encourage the financial 
institutions to provide loans to the corporate sector. In doing so, the 
BOK also adjusted the method of allocation in such a way as to supply 
more aggregate credit at low interest rates to financial institutions 
that expanded corporate lending.
    While we do not contend that the GOK's ownership of ROK banks is by 
itself dispositive of the GOK's involvement in the banks' lending 
decisions, banks that are owned, in whole or in part, by the GOK are 
subject to the influence of their majority or minority shareholders. 
This point was made, for example, by a Morgan Stanley executive 
director and ROK chief, who stated in a September 2001 Asiamoney 
article regarding ongoing discussions relating to a potential debt-for-
equity swap involving Hynix and its creditors (which eventually took 
place in Hynix's October 2001 restructuring) that ``if creditor banks 
go down that road, there would be speculation that the decision was 
made in conjunction with the government.'' He continued, 
``{a{time} lthough Hynix argues that the creditors arrived at their 
decision {to participate in the debt-to-equity conversion{time}  purely 
on economic grounds, the fact that most of them are state-owned does 
infer government intervention.'' Thus, the GOK's ownership position in 
certain banks indicates that the GOK does have an impact on lending 
decisions of certain government-owned banks.
    Along with its increased ownership in the banks, the GOK's dual 
role as owner and regulator can also be seen as evidence of the GOK's 
influence over bank lending decisions. For instance, in July 2001 
articles in the International Herald Tribune and the New York Times, 
Stanley Fischer, an IMF official who was an architect of the IMF's 
restructuring plan in the ROK, was quoted as saying that the GOK needed 
to get itself out of the financial sector and should stop supporting 
failing banks and corporations. With regard to the GOK, he stated that 
``they have got to get themselves out of the financial sector'' and 
that ``{t{time} here is a conflict of interest between the government 
as an owner and the government as a supervisor.'' This view was also 
reflected in the August 2, 2001 IMF Public Information Notice (No. 01/
79), which is included as an appendix to the Direction Citations Memo 
on file in the Department's CRU. In the notice, which was prepared as 
part of the IMF's post-crisis monitoring program, IMF directors 
expressed concern that ``the role of the government as part-owner and 
supervisor of financial institutions, coupled with a significant role 
as guarantor of corporate debt, would hinder the pace of restructuring 
and risk impeding the development of a sound commercial banking system 
and a thriving capital market.'' There is also evidence on the record 
that the GOK has given authoritative instructions to financial 
institutions, including those involved in supporting Hynix. According 
to a November 2001 paper prepared by a World Bank employee, ``press 
reports that the {Financial Supervisory Service (``FSS'') (the FSC's 
enforcement body){time}  had instructed creditor banks to classify 
Hynix loans as normal further highlight the conflicts of interest that 
can arise when a financial supervisor is tasked with managing 
corporate/financial sector restructuring in a systemic crisis.'' The 
same World Bank report states that ``it is reported in the press that 
the FSS--in contravention of its duty to safeguard the soundness of 
{the ROK's{time}  financial sector--has been pressuring financial 
institutions to extend credits to distressed companies as promised in 
{out-of-court{time}  workout {Memoranda of Understanding 
(``MOU''){time} .''
    Additional information on the record suggests that the corporate 
restructuring mechanism for distressed firms in the ROK would continue 
to require additional reforms to ensure that corporate workouts are 
conducted on commercial terms and without government intervention. In 
particular, the IMF took issue with the ROK's record with ``out-of-
court'' workouts, suggesting that greater reliance should be put on 
court-supervised insolvency in order to accelerate the restructuring of 
distressed companies, and stressing the need for additional insolvency 
reform. In this context, the IMF directors ``urged the authorities to 
refrain from pushing creditors into bailing out troubled companies * * 
*.'' See February 1, 2001 IMF Public Information Notice (No. 01/8), 
which is included as an appendix to the Direction Citations Memo on 
file in the Department's CRU. The directors noted that some government 
intervention in the financial markets may have been justified as long 
as these measures were transitory, kept distortions to a minimum, were 
limited to viable firms with temporary problems, and avoided the 
perception that some companies are ``too big too fail.'' Id. The 
Directors concluded that the basic restructuring framework was largely 
in place, but that it was now critical ``for the government to step 
back from intervening in the operation of markets and economic decision 
making, and instead rely in the future on markets in imposing 
discipline.'' Id.
    Even a year later, the IMF directors found that, while some 
progress in corporate restructuring had been made,

[[Page 16774]]

the corporate sector remained ``beleaguered'' by the continued 
operation of loss-making companies. In particular, the directors 
``stressed that the orderly exit of nonviable companies should be 
accelerated, and that state-owned banks, in particular, need to accept 
reductions on their claims, including by allowing a company to be 
liquidated if losses become unmanageable.'' See February 12, 2002 IMF 
Public Information Notice (No. 02/09), which is included as an appendix 
to the Direction Citations Memo on file in the Department's CRU.
    The GOK has claimed that the GOK-owned banks make their lending and 
credit decisions based on commercial criteria. However, there is 
information on the record indicating that the GOK continues to direct, 
and otherwise apply pressure to, certain ROK lenders with regard to 
their lending and credit decisions. Specifically, there are numerous 
reports on the record that indicate that the GOK was involved in 
certain bank lending and credit decisions during the POI to ensure that 
debt-ridden companies, particularly Hynix and other current or former 
Hyundai Group affiliates, would have access to financing or other funds 
provided by the banks.
    For example, in September 2002, an ROK National Assembly member 
chastised the GOK in a press statement for compelling financial 
institutions to support the Hyundai Group and Hynix since the beginning 
of Hyundai's liquidity crisis in mid-2000. The report stated 
``{f{time} or two years following the outbreak of liquidity crisis in 
the Hyundai Group, the government of Dae-Joong Kim has provided 
astronomical sums of special support to the Hyundai Group, amounting to 
a total of 33.6 trillion won by mobilizing the resources of financial 
and government-run institutions.''
    A January 2001 Wall Street Journal article states that ROK banks 
have ``been more accustomed to following government orders than making 
sound credit decisions.'' It further states that, when KFB (a bank that 
is 51 percent foreign-owned) refused to participate in a GOK debt 
restructuring program (that was focused primarily on Hyundai Group 
companies) at the request of the FSS, the FSS applied pressure to KFB 
and ``strongly urged'' KFB to participate in the plan lest it risk 
losing some of its clients. Commenting on this, an executive at a GOK-
owned bank said that the nationalized banks were ``green with envy,'' 
as ``nobody wants to increase their exposure to these corporations that 
still have a long way to get their acts together.'' The article states 
that the FSS asked creditor banks to participate in this program, and 
only KFB refused.
    An April 2001 Korea Herald article notes that the FSS threatened to 
fine Hana Bank if it failed to provide emergency liquidity to Hyundai 
Petrochemical, which was a part of the Hyundai Group that was going 
through the corporate workout process. In a June 2001 Dow Jones 
International news article, it was reported that KorAm Bank reversed 
its decision not to participate in the Hynix June 2001 convertible bond 
offering after the FSS warned of a possible sanction against KorAm if 
it did not participate. In February 2001, the managing director at UBS 
Warburg in Seoul stated that ``the impression that we get is that while 
the government claims {the banks{time}  are totally independent, 
behind-the-scenes pressure is being applied so that they lend to 
certain entities.'' In July 2001, with regard to corporate 
restructuring packages, an official at the MOFE stated that ``we've 
decided to force all creditor financial institutions {both local and 
foreign{time}  to take part in {creditor{time}  meetings in order to 
prevent some of them from refusing to attend and pursuing their own 
interests by taking advantage of bailout programs.''
    According to a July 2002 Institutional Investor International 
article, ``{{time} among the biggest concerns is the true extent of 
banking independence. Yes, there are plenty of signs that this autonomy 
holds sway--notably, KFB's stance toward the chaebol.'' The article 
continues, stating that although GOK officials state that there is no 
government pressure at all, not everyone is convinced. ``The government 
has changed its policies quite a bit, but it still may assert 
influence,'' said a Credit Suisse First Boston (``CSFB'') senior 
economist in Hong Kong. ``Nobody can rule out intervention.'' According 
to a March 2002 New York Times article, ``{m{time} any analysts say 
that privatization is needed to foster management independence and 
lending discipline. ``There's a suspicion that the government mucks 
around with the banks,'' said an analyst at the IMF. With one-quarter 
of Korean companies losing money, he said, banks often face political 
pressure to keep them on life support.'' Finally, an April 2001 Korea 
Times article notes: ``{W{time} hether the Kim administration likes it 
or not, the Korean banks are now under tight state control. The 
government jawboned banks to bail out insolvent firms, including 
Hyundai Engineering and Construction {(``HEC''){time} . The 
independence of the central bank was compromised, as the {BOK{time}  
must get approval for its budget from the {MOFE{time} .''
    (For a more detailed list of record information on the issue of 
direction, see Direction Citations Memo, noted above, which is on file 
in the Department's CRU.)
    Moreover, although the GOK states that it has taken affirmative 
measures, such as the Prime Minister's Decree, to ensure that 
government officials at financial supervisory organizations do not 
interfere in the operations of commercial and specialized banks, record 
evidence indicates that GOK interference has continued, in some 
instances, and that the de jure measures contain sufficient ambiguities 
which would allow the GOK to become involved in the banking system. For 
instance, the Prime Minister's Decree at Article 5 states that the 
financial supervisory agencies can request cooperation from financial 
institutions for the purpose of the stability of the financial market, 
or to attain the goals of financial policies. As noted above, the 
financial system in the ROK has been going through a crisis that could 
be the type of situation in which this exception would be applied. A 
further exception that would allow GOK influence over the banks is 
included in Article 6 of the Prime Minister's Decree. Article 6 states 
that ``the Minister of MOFE and KDIC shall, unless they exercise their 
rights as shareholders of any of the Financial Institutions, procure 
that the Financial institution, which was invested by the {GOK{time}  
or KDIC, can be operated independently under the direction of the Board 
of Directors thereof'' (emphasis added). As noted above, because the 
GOK is part-owner in many commercial banks, an exercise of its 
shareholder rights could allow the GOK an opportunity to become 
involved in the operations of the banks.
    Finally, Article 17 of the Public Fund Oversight Special Act 
stipulates that when the GOK provides public funds to a financial 
institution (such as the recapitalization of a bank as occurred several 
times during this period), the GOK will enter into an MOU which will 
set financial soundness, profitability, and asset quality targets, and 
will consist of a detailed implementation plan for implementation of 
these targets. Pursuant to Article 14, the GOK will review the 
implementation of this plan on a quarterly basis. The GOK in this 
manner can be directly involved in the fiscal operations of the bank.
    Thus, although record evidence does indicate that the GOK's 
financial system reforms have been positive and are beginning to take 
hold, evidence on the

[[Page 16775]]

record indicates that, in certain instances, these reforms have yet to 
fully erase the GOK's direction of the banks, nor have they prevented 
the GOK from acting, through financial institutions involved in the ROK 
market, to ensure that Hynix received necessary financing. Therefore, 
based on the above, we preliminarily find that the GOK directed the 
lending and credit practices of certain sources of credit in the ROK 
from 1999 through June 2002 in limited situations, including the case 
of Hynix, as discussed below.
    Before addressing the issue of whether credit is directed to a 
specific enterprise or industry in the ROK, we note that, in past 
cases, we have found that loans from ROK branches of foreign banks are 
not subject to the direction of the GOK. (See, e.g., Plate in Coils and 
Cold-Rolled Steel.) Specifically, we found that loans from Citibank 
were not directed by the GOK. (See, e.g., Plate in Coils memorandum 
dated March 4, 1999, ``Analysis Concerning Post 1991 Direction of 
Credit,'' which is included as an appendix to the Direction Citations 
Memo on file in the Department's CRU.) Based on these past findings, we 
have preliminarily determined that the lending and credit practices of 
Citibank are not directed by the GOK. However, we intend to seek 
further information with regard to Citibank prior to the final 
determination.

Specificity

    As discussed above, we have preliminarily determined that the GOK 
directed credit to the semiconductor industry through 1998. However, 
for the period 1999 through June 30, 2002, record evidence in this 
proceeding indicates that the GOK directed or provided loans and other 
benefits to a specific company or group of companies. The group of 
companies to which the GOK directed or provided loans during this 
period comprises companies that continue to be or were part of the 
Hyundai Group, including one of the respondents in this proceeding, 
Hynix.
    As evidenced by many of the articles cited above regarding GOK 
direction of credit in this period, many of the statements that were 
made relating to government instructions to, and pressure on, banks 
related to financing for Hyundai Group companies or Hynix, or programs, 
such as the Fast Track program, discussed below, that were directed to 
Hyundai Group companies.
    For example, as discussed above, in September 2002, a National 
Assembly member spoke out against the GOK's direction of credit to the 
Hyundai Group companies. However, National Assembly members were not 
the only ones speaking of this practice. The official response to the 
National Assembly Report from President Kim's office was as follows: 
``{w{time} e are doing what is deemed necessary to save companies 
leading the country's strategic industries.'' Another Blue House 
official said in January 2001 that ``Hyundai is different from Daewoo. 
Its semiconductors and constructions are Korea's backbone industries. 
These firms hold large market shares of their industries, and these 
businesses are deeply-linked with other domestic companies. Thus, these 
firms should not be sold off just to follow market principles.''
    In January 2001, the Korea Times stated that ``cash-starved 
{Korean{time}  companies claimed that the government's measures were 
only aimed at certain larger companies such as {Hyundai Merchant 
Marine, Co. Ltd (``HMM''){time} , HEI, and Korea Industrial 
Development.'' According to a March 2001 article in the Korea Herald, 
``{o{time} nce again, the government appears to have backtracked on 
reform pledges, as it allegedly forced creditors to extend trillions of 
won in fresh financial aid to three Hyundai Group firms--{HEI, 
HEC{time} , and Hyundai Petrochemical.'' And in May 2001, a senior KEB 
official stated that ``{i{time} f Hynix is placed under receivership, 
Korea's exports will be severely battered {because{time}  Hynix 
accounts for 4 percent of exports. As far as I know, the government is 
now working out a series of powerful measures to ensure the survival of 
Hynix Semiconductor.''
    The National Assembly member, quoted above, charged that the GOK 
provided ``astronomical sums of special support to the Hyundai Group, 
amounting to a total of 33.6 trillion won by mobilizing the resources 
of financial and government-run institutions'' from May 2000 to June 
2002. The National Assembly Report relied on data relating to the 
corporate restructuring measures taken by the following Hyundai Group 
companies from May 2000 through June 2002: HEC, Hynix, Hyundai 
Petrochemical Co., Ltd., and HMM (collectively, ``Hyundai Group''). 
During this period, ROK financial institutions participated in the 
Hyundai Group's restructuring measures, which included new loans, 
equity swaps, the acceleration of debt acquisition, the extension of 
debt maturities, convertible bond purchases, and debt exemptions for a 
total of 244,106 billion won; the total for Hynix was 120,017 billion 
won. During the same period, GOK authorities (the KDB and the Export-
Import Bank of Korea, among others) provided support to the Hyundai 
Group totaling 115,365 billion won (Hynix data is not reported 
separately from these figures). Hynix' share of restructuring measures 
from financial institutions accounted for nearly 50 percent of the 
Hyundai Group's total.
    In considering whether this program was de facto specific, we are 
mindful of other scenarios where there have been debt restructuring 
programs in situations of national financial difficulty. For example, 
in the Final Affirmative Countervailing Duty Determination: Certain 
Hot-Rolled Carbon Steel Flat Products From Thailand, 66 FR 50410 
(October 3, 2001) (``Thai Hot-Rolled Steel''), the Department found 
that a debt restructuring program was not specific to the respondent 
steel company because it was not limited to an enterprise or industry. 
There, the evidence showed that the program was broadly available 
across many industries, and the Department's evaluation showed that 
there was no predominant user or disproportionate share of the program, 
as well as other factors. (See Thai Hot-Rolled Steel, 66 FR 50410 and 
accompanying September 21, 2001 Decision Memorandum at Section 
III.A.4.) By contrast, here we find a number of indicators of ROK 
activity specifically focused on aiding Hynix and the Hyundai Group of 
companies.
    Because record evidence indicates that the GOK's actions with 
respect to its direction of credit were specific to current or former 
Hyundai Group companies, we preliminarily find that this program is 
specific for Hynix pursuant to section 771(5A)(D)(iii)(I) of the Act. 
Further, we preliminarily determine that the GOK did not direct credit 
to SEC or the semiconductor industry as a whole during this period. 
Therefore, we preliminarily determine that any loans or other benefits 
provided to SEC during this period pursuant to the allegations of 
direction of credit are not countervailable according to section 771(5) 
of the Act.
Specific Financial Contributions Made Pursuant to the GOK's Direction 
of Credit
    Having preliminarily determined that the GOK directed credit to the 
semiconductor industry through 1998, and to Hynix subsequently, we now 
examine the financial contributions made by the directed financial 
institutions and the benefits conferred by those financial 
contributions.

[[Page 16776]]

1. Hynix Financial Restructuring and Recapitalization

    In the fall of 2000, because of the weakness in the ROK financial 
system in the wake of the 1997 financial crisis, many companies, like 
HEI, were continuing to have trouble securing financing for their 
operations or to refinance maturing debt. HEI, specifically, had 
serious looming financial troubles, with several trillion won in short-
term debt that was coming due in 2001.
    According to Hynix, and as further discussed below, the first step 
taken by HEI and its financial advisors, Citibank and Salomon Smith 
Barney (``SSB''), was to work with HEI's creditors to borrow funds to 
meet immediate liquidity needs. These funds were arranged for in 
December 2000 in the form of a won 800 billion syndicated bank loan, 
which was organized by Citibank. Hynix reports that this was a stop-gap 
measure to cover certain immediate financial needs while a more 
comprehensive restructuring and recapitalization plan was being 
developed and implemented. At the same time, HEI was also nominated by 
its creditors to participate in a new GOK program starting in January 
2001, the KDB Fast Track Debenture Program (discussed in greater detail 
below). Also in January 2001, Hynix arranged with its creditors to 
secure an increase in its documents against acceptance (``D/A'') line 
of credit from USD 800 million to USD 1.4 billion.
    In March 2001, as part of its corporate restructuring, HEI changed 
its name to Hynix. This step was taken in advance of its official 
August 2001 separation from the Hyundai chaebol. At the same time, a 
group of Hynix' 17 major creditors formed the first Hynix Creditors' 
Financial Institution Council (``Creditors'' Council''). According to 
the GOK, this Creditors' Council was based on the corporate workout 
process established by the GOK in June 1998 pursuant to the Corporate 
Restructuring Act (``CRA''), which was an informal agreement that 
comprised 210 ROK financial institutions. Under the CRA, the FSC would 
identify the lead creditor of the troubled corporation (normally the 
financial institution with the most outstanding debt). The lead 
creditor, which would be responsible for negotiating any corporate 
work-out terms, headed the Creditors' Council, a council made up of the 
troubled corporation's creditor banks. (In September 2001, the CRA was 
replaced by the CRPA, a more formal mechanism under ROK law which 
codified the corporate workout methods that were being utilized under 
the CRA.) However, although this Creditors' Council was based on the 
CRA councils, according to the GOK, it was not part of the CRA program 
but was a voluntary agreement among Hynix' creditors based on 
experience acquired while pursuing other workout agreements.
    Hynix and SSB presented this Creditors' Council with an overall 
restructuring proposal for Hynix. This proposal included 
recapitalization in the form of a won 1 trillion convertible bond 
issuance and an issuance of USD 1.25 billion in common shares in the 
form of Global Depository Shares (``GDS''), and rescheduling and 
restructuring of Hynix' debt through maturity extensions and greater 
availability of short-term debt instruments. Hynix and its creditors 
formally agreed to this restructuring plan in May 2001. As a result, in 
June 2001, Hynix issued won 994.1 billion in convertible bonds, 
borrowed won 5.9 billion in the form of a separate loan, participated 
in a successful USD 1.25 billion GDS issuance on foreign and domestic 
capital markets, and had many of its maturing debts rescheduled or 
refinanced. Hynix also was able to continue to access short-term usance 
and overdraft financing.
    Despite these restructuring efforts, by summer of 2001, it became 
apparent that more restructuring would be necessary due to the 
unexpectedly prolonged downturn in the DRAMS market and Hynix' 
continuing financial troubles. Thus, Hynix and its advisors worked with 
Hynix' creditors to develop a new restructuring package that was 
adopted in October 2001. As part of this package, which was negotiated 
pursuant to the new CRPA, Hynix' new CRPA Council developed three 
options for Hynix' creditors: (1) For creditors that agreed to extend 
new loans, the creditors could convert D/A balances to general long-
term loans, swap convertible bonds and unsecured loans to new 
convertible bonds (which would be subsequently converted into equity), 
and refinance or extend the remaining loans; (2) creditors that did not 
agree to extend new loans, but did agree to the debt-to-equity 
conversion, could convert all of their secured loans and 28 percent of 
their unsecured loans into the convertible bonds that would 
subsequently be swapped for equity, with the remainder of the unsecured 
loans to be forgiven; (3) creditors that did not agree to either new 
loans or the debt-to-equity conversion could exercise their appraisal 
rights for all of their secured debt and 25 percent of their unsecured 
debt based on Hynix' liquidation value as of September 31, 2001 (as 
established by an external consultant), and have the remainder of the 
debt forgiven. The various creditors of Hynix selected among these 
options, with the result that won 2.993 trillion in debt was swapped 
for equity on December 6, 2001, won 1.45 trillion in debt was forgiven, 
some new loans were issued, and numerous loans were extended or 
refinanced.
    As discussed above in the ``Direction of Credit and Other Financial 
Assistance section, we have preliminarily determined that the GOK 
directed Hynix' creditor banks to participate in these restructuring 
programs and to provide credit and other funds to Hynix in order to 
assist it through its financial difficulties. As indicated in the 
overview of the Hynix restructurings, the financial assistance provided 
to Hynix by its creditors took various forms. We preliminarily 
determine that these different means of supporting Hynix were financial 
contributions as described in section 771(5)(D) of the Act. 
Specifically, the loans, convertible bonds, extensions of maturities 
(which we view as new loans), D/A financing, usance financing, 
overdraft lines, debt forgiveness, and debt-for-equity swaps are direct 
transfers of funds from the GOK-directed financial institutions to 
Hynix. (See section 771(5)(D)(i) of the Act.)
    We determined the benefits to Hynix from the various instruments as 
follows:
    [sbull] For the long-term loans and new bonds that were issued as 
part of the restructuring program, we compared the interest rates on 
the directed long-term loans and new bonds to the benchmark interest 
rates detailed in the ``Subsidies Valuation Information'' section, 
above, in accordance with section 771(5)(E)(ii) of the Act. For the 
period January 2000 through June 2002, we used an uncreditworthy 
benchmark rate because we determined that Hynix was uncreditworthy 
during this period (as discussed above in the ``Creditworthiness'' 
section and the accompanying Creditworthiness Memo). For long-term 
variable-rate loans, the repayment schedules of these loans did not 
remain constant during the lives of the respective loans. Therefore, we 
have calculated the benefit from these loans using the Department's 
variable rate methodology as described in 19 CFR 351.505(a)(5) and 19 
CFR 351.505(c)(4). For long-term fixed-rate loans and bonds, consistent 
with Cold-Rolled Steel, we calculated the benefit using the 
Department's standard fixed-rate methodology specified in 19 CFR 
351.505(c)(2). We summed these benefits to determine the total benefit

[[Page 16777]]

during the POI from the long-term loans and bonds.
    [sbull] For short-term loans, we calculated the benefit using the 
methodology specified in 19 CFR 351.505(c)(1) and (2). We summed these 
benefits to determine the total benefit during the POI from these 
short-term loans.
    We treated the D/A financing as short-term debt. According to 
record information, this form of debt involved the discounting of 
receivables. Because we did not have the imputed interest rate on this 
type of debt, we assumed, as gap-filling facts available, that the 
interest rate was the same as the short-term rate on Hynix' other 
short-term debt that was denominated in the same currency. To calculate 
the benefit, we compared this short-term rate to the benchmark short-
term rate.
    Also, regarding the usance financing and overdraft lines, the 
ceilings and terms for both types of credit are normally renegotiated 
on an annual basis. However, as part of the May and October 
restructuring packages, both the usance and overdraft ceilings were 
extended for a longer period than the normal one-year agreement. For 
instance, in the May package, both the usance and overdraft credit 
lines were extended from December 2001 to June 30, 2003. The lines were 
further extended in the October package to December 2004.
    Because the ceilings and terms were extended beyond one year and it 
is unclear at this point whether these loans could be outstanding for 
greater than one year, we treated these loans as long-term loans on the 
assumption that the loans could be outstanding for greater than one 
year. For the period before the extensions (January through April 
2001), we treated these loans as short-term loans.

Debt-to-Equity Swaps

    As discussed above, as part of the October 2001 restructuring 
package, certain of Hynix' creditors swapped some of their outstanding 
debt for equity. To determine whether these equity purchases conferred 
a benefit on Hynix, we followed the methodology described in 19 CFR 
351.507.
    According to 19 CFR 351.507, the first step in determining whether 
an equity investment decision is inconsistent with the usual investment 
practice of private investors is examining whether, at the time of the 
infusion, there was a market price paid by private investors for 
similar newly-issued equity. However, pursuant to 19 CFR 
351.507(a)(iii), if a private investor's purchases of newly issued 
shares is not significant, the Department will not use the market price 
paid by the private investor for comparison purposes.
    According to record information, Hynix was involved in a GDS 
issuance in June 2001 that was spearheaded by SSB. According to Hynix, 
the GDS issuance was oversubscribed by 1.5 times, which is a testament 
to its success. The GDSs were priced at twelve USD each and were 
equivalent to five shares of Hynix common stock.
    In April 2001, prior to the GDS issuance, SSB issued a report on 
Hynix stating that it expected DRAMS prices to stabilize at USD 2.40 in 
the second quarter of 2001 and begin to rebound in the third quarter of 
2001. In addition, SSB touted, ``Hynix should offer tremendous 
potential upside to new and existing equity holders as the market 
improves this year.'' However, shortly thereafter, SSB's positive 
forecasts proved to be the exact opposite of what happened to Hynix and 
the worldwide DRAMS market.
    By July 2001, DRAMS prices had fallen 75 percent from their July 
2000 levels, reaching USD 1.10. Morgan Stanley Dean Witter (``MSDW'') 
stated in a July 2001 equity report on Hynix, ``{i{time} n view of the 
weakness in DRAMS fundamentals, the company's loss of competitiveness 
in the DRAMS business by not investing effectively, and its huge debt, 
which will likely continue to impair shareholders' value, we see no 
reason to be positive on the stock.'' MSDW slashed its earnings per 
share projections for Hynix by 51 percent for 2001, and 604 percent for 
2002, based on this assessment.
    Echoing MSDW's concerns, CSFB, in July 2001, increased its forecast 
of Hynix' net losses from won 2.5 trillion to won 3.9 trillion for 
2001, and from won 1.7 trillion to won 2.4 trillion for 2002. In August 
2001, despite the worsening of the DRAMS market and Hynix' financial 
state, SSB continued to see Hynix in a positive light. SSB, however, 
revised its 2001 revenue estimates for Hynix to won 4.3 trillion, down 
from Hynix' own revenue estimates of won 8.7 trillion made in April 
2001.
    By September of 2001, investors worldwide voiced their pessimism 
towards the DRAMS market in the stock exchanges. According to Dow Jones 
International, by September 2001, Hynix' GDSs had lost 72 percent of 
their issuance value, a loss of USD 900 million to investors. By 
October of 2001, the DRAMS market had changed dramatically from 
January, and even June, 2001. According to the Wall Street Journal, 
DRAMS prices were below cost industry-wide. In an October 8, 2001, 
article, the Wall Street Journal stated, ``{a{time} lthough chip makers 
worldwide are taking a loss with each chip they sell, Hynix, according 
to industry analysts, is in the worst financial shape. In early 
September, Hynix' future looked shaky. Now, as the global economic 
outlook gets grimmer, {Hynix'{time}  looks worse.''
    Because of the extreme differences in the condition of the global 
DRAMS market as a whole, and Hynix' financial state at the time of the 
two equity infusions, we do not believe that the GDS issuance in June 
2001 supports a conclusion that the October 2001 equity purchase (i.e., 
debt-to-equity conversion) was consistent with the usual investment 
practices of private investors (see section 771 (5)(E)(i) of the Act). 
Clearly, the earlier, rosy expectations for a rebound in DRAM demand 
and prices, which were necessary for Hynix to improve its position, 
were not bourne out. Therefore, we have not considered the GDS issuance 
in our analysis of the usual investment practices of private investors. 
Nor have we used the prices paid for the GDS as a measure of what a 
private investor would pay for Hynix' stock in October 2001.
    Citibank was one of Hynix' creditors that opted to swap debt for 
equity in the October 2001 debt restructuring. As discussed above, we 
have preliminarily determined that Citibank's participation in the 
Hynix restructuring was not directed by the GOK. Therefore, we must 
consider whether Citibank's decision to swap debt for equity 
demonstrates that the other creditors' decision to swap their debt for 
equity was consistent with the private investor standard in section 771 
(5)(E)(i) of the Act.
    Pursuant to 19 CFR 351.507(a)(2)(3), if a private investor's 
purchases of newly issued shares are not significant, the Department 
will not use the market price paid by the private investor for 
comparison purposes. Although we cannot reveal the actual portion of 
the equity purchase accounted for by Citibank because it is 
proprietary, we preliminarily determine that Citibank's purchase was 
insignificant.
    In discussing the requirement in 19 CFR 351.507(a)(2)(3), ``the 
amount of shares purchased by a private investor must be significant in 
order to provide an appropriate benchmark,'' the Preamble refers to 
Small Diameter Circular Seamless Carbon and Alloy Steel Standard, Line 
and Pressure Pipe from Italy, 60 FR 31992, 31994 (June 19, 1995) 
(``Pipe from Italy''). In Pipe from Italy, the Government of Italy 
(``GOI''), and numerous private investors participated in the same 
equity issuance. The GOI purchased 81.6

[[Page 16778]]

percent of the shares, while private investors purchased the remaining 
18.4 percent, at the same price. The Department, in Pipe from Italy, 
considered the private investors' participation in the equity issuance 
significant and, therefore, did not find the GOI's equity infusion 
inconsistent with the usual investment practice of private investors. 
The portion of equity obtained by Citibank in Hynix' October 
restructuring was less than the private investors' participation in 
Pipe from Italy.
    Because we did not have actual private investor prices to use as a 
comparison to the price paid by Hynix' other creditors, we examined 
other indicators of Hynix' equityworthiness, pursuant to 19 CFR 
351.507(a)(4). From 1997 through 2001, Hynix reported losses in every 
year except 1999. In 2000, Hynix' net income was negative 28 percent 
and in 2001, its net income was negative 127 percent. Based on Hynix' 
financial statements, its return on equity was negative in 1998 
(negative 6 percent), 1999 (negative 3 percent), 2000 (negative 40 
percent), and 2001 (negative 97 percent). MSDW estimated Hynix' return 
on equity for 2002 at negative 76 percent. Additionally, for the years 
1997 through 2001, Hynix' debt-to-equity ratios ranged from 688 percent 
in 1997 to 129 percent in 2001. These figures clearly demonstrate 
Hynix' poor condition throughout the late 1990s and through 2001.
    Based on these indicators, we preliminarily determine that Hynix 
was unequityworthy at the time of the October 2001 debt-to-equity swap. 
In accordance with 19 CFR 351.507(a)(6), we have treated the amount of 
equity purchased by Hynix' creditors, other than Citibank, as a grant.
    As discussed above, Hynix' October restructuring package included 
the conversion of won 2.99 trillion in convertible bonds, and secured 
and unsecured loans into new convertible bonds which carried an 
obligation to convert the bonds into equity. These bonds were issued on 
December 6, 2001. Because the new convertible bonds carried a 
conversion obligation, Hynix recorded the debt-to-equity swap as a 
capital adjustment in its 2001 financial statements. Therefore, we have 
treated the benefit as having been provided to Hynix in 2001.
    In accordance with 19 CFR 351.507(c), we allocated the benefit of 
the debt-to-equity conversion over the AUL using the uncreditworthy 
discount rate as described in the ``Subsidies Valuation Information'' 
section, above.

Debt Forgiveness

    Under 19 CFR 351.508(c), the benefit conferred by a debt 
forgiveness is the amount of the debt forgiven. To calculate the 
benefit to Hynix received during the POI from the October 2001 debt 
forgiveness, we allocated the entire amount of debt forgiven over the 
AUL using an uncreditworthy discount rate.

KDB ``Fast Track'' Debenture Program

    In the aftermath of the 1997 financial crisis, many ROK companies 
had to borrow heavily to service their USD-denominated debts, which 
soared as the value of the won plummeted against the USD. Many 
companies did so through corporate bond issues, most of which were set 
to mature in late 2000 and 2001. However, when it came time for these 
bonds to mature, difficulties in the financial market, including 
unwillingness by investors to invest in the bond market due to 
heightened risk, especially in companies with poor credit ratings, made 
it difficult for many companies to refinance or service their maturing 
bonds. Moreover, many financial institutions could not extend further 
financing to companies because of loan exposure limits put in place 
following the financial crisis.
    Due to this situation, many ROK companies, especially those with 
below-investment grade bond ratings, were left with serious liquidity 
problems. Furthermore, the won 65 trillion in corporate bonds coming 
due in 2001 threatened to overwhelm the capital markets. Therefore, the 
GOK instituted several programs to try to address this situation. In 
June 2000, the GOK established the Collateralized Bond Obligation 
(``CBO'') and Collateralized Loan Obligation (``CLO'') programs in 
order to support the refinancing of corporate bonds. Through these 
programs, the GOK purchased debentures and loans from ROK companies, 
repackaged them into portfolios that included many bonds from different 
companies, and sold securities backed by those bonds and loans to 
investors with a partial guarantee from the Korea Credit Guarantee Fund 
(``KCGF''). No more than 10 percent of the debt of any one company 
could be placed into a single bundle of bonds or loans. According to 
the GOK, any company with maturing bonds was eligible to participate in 
the CBO and CLO programs.
    Because many companies had much greater debt than could be handled 
by each CBO/CLO portfolio due to the 10 percent exposure limit, the GOK 
created the KDB Fast Track or Debenture Program to address this 
problem. Under the Fast Track program, which was administered by the 
KDB, companies selected to participate in this program first had to 
redeem 20 percent of their bonds that were maturing in 2001; the 
remaining 80 percent of the maturing bonds were purchased by the KDB, 
and were subsequently replaced with new bonds issued by the 
participating companies. Of the bonds purchased by the KDB that were 
replaced by new issues, 10 percent of the new bonds issued were kept by 
the KDB, 20 percent of each new issue was purchased by the company's 
creditors (a blanket waiver was issued by the GOK in order to allow the 
creditors to surpass their loan exposure limits), and the remaining 70 
percent of each new issue was bundled with other bonds and sold as CBOs 
or CLOs (which were partially guaranteed by the KCGF). As part of the 
agreement that had to be signed by the participating companies, each 
company was required to purchase a certain percentage of its 
subordinated bonds bundled with other bonds in the CBOs and CLOs (three 
percent in the case of a CBO, and five percent for a CLO). The program 
ceased to operate at the end of 2001.
    According to the GOK, in order to participate in the Fast Track 
program, companies had to be nominated by their Creditors' Councils. 
Companies eligible to participate in this program, as established in 
Article 8 of the Creditor Financial Institutions and Corporate Credit 
Guarantee Fund Council Agreement to Facilitate Bond Offerings, are 
those that (1) are experiencing temporary liquidity problems due to a 
large-scale maturation of corporate bonds but have the ability to 
redeem at least 20 percent of those bonds; (2) are nominated by their 
Creditors' Council; and (3) that are not distressed companies that are 
undergoing corporate reorganization or workout programs. According to 
record evidence, only six companies participated in this program, four 
of which were current or former Hyundai affiliates.
    Hynix was selected to participate in the Fast Track program in 
January 2001. According to Hynix, won 1.208 trillion of its bonds were 
refinanced through this program. Of this total, the KDB purchased won 
120.8 billion (or 10 percent) of the maturing bonds, the creditor banks 
purchased won 241.6 billion (or 20 percent) of the maturing bonds, and 
the CBO/CLO funds purchased 70 percent of the remaining new issues, won 
845.6 billion. Upon incorporation into the CBO and CLO funds, Hynix 
then repurchased back the specified proportion of the subordinate bonds 
through the CBOs and CLOs.

[[Page 16779]]

Hynix participated in the program only until August 2001.
    As discussed above, we have preliminarily determined that the GOK's 
direction of credit was specific to Hynix and other current or former 
Hyundai Group companies. Additionally, we preliminarily determine that 
the Fast Track program was de facto specific within the meaning of 
section 771(5A)(D)(iii)(I) of the Act because the participants in this 
program were limited in number. However, we preliminarily determine 
that the bonds that were placed in the CBO and CLO funds as part of 
this program did not provide a countervailable subsidy to Hynix 
because, according to record information, those programs were available 
to anyone with maturing bonds that wanted to participate and we have 
found no evidence of de jure or de facto specificity in the application 
of the program.
    To determine the benefit received by Hynix as a result of the Fast 
Track program, we compared the interest rates on the directed bonds to 
the benchmark interest rates detailed in the ``Subsidies Valuation 
Information'' section, above. We calculated the benefit from these 
bonds using the Department's standard fixed-rate methodology described 
in 19 CFR 351.505(c)(2). We summed these benefits to determine the 
total benefit during the POI.

2. Other Loans Provided From 1999 Through the POI

    With the exceptions noted below, for all other loans obtained by 
Hynix during this period that were outstanding during the POI, we 
calculated the benefit using the methodology described above for the 
Hynix restructuring loans.
    Hynix stated in its questionnaire responses that it obtained Long-
Term Usance loans, as well as loans under the Fund for Promotion of 
Informatization and the Fund for Promotion of Defense Industry, during 
this period that were outstanding during the POI. Hynix reported that 
these loans were for projects involving non-subject merchandise. Thus, 
for the purposes of this preliminary determination, we have not 
included these loans in our benefit calculations for Hynix. We note 
that Hynix'' questionnaire responses on this matter will be subject to 
verification.

3. Loans Provided Prior to 1999

    As explained above, the Department has preliminarily determined 
that the GOK directed credit to the semiconductor industry in the 
period through 1998. We further determine that these GOK-directed loans 
to Hynix and SEC are financial contributions as described in section 
771(5)(D)(i) of the Act.
    The directed loans received by Hynix and SEC through 1998 that were 
outstanding during the POI were long-term fixed- and variable-rate 
foreign currency loans and long-term fixed- and variable-rate won-
denominated loans. In order to determine whether a benefit was received 
by Hynix or SEC as a result of the long-term loans that were received 
through 1998 (with the exception of those noted below), we compared the 
interest rates on the directed loans to the benchmark interest rates 
detailed in the ``Subsidies Valuation Information'' section, above. For 
long-term variable-rate loans, the repayment schedules of these loans 
did not remain constant during the lives of the respective loans. 
Therefore, we have calculated the benefit from these loans using the 
Department's variable rate methodology as described in 19 CFR 
351.505(a)(5) and 19 CFR 351.505(c)(4). For long-term fixed-rate loans, 
consistent with Cold-Rolled Steel, we calculated the benefit using the 
methodology specified in 19 CFR 351.505(c)(2). We summed the benefit 
amounts during the POI to determine the total benefit for each company.
    Hynix reported that it did not directly receive loans under the 
Energy Savings Fund (``ESF'') (loans made from this fund are discussed 
in Plate in Coils, 64 FR 15533, and Structural Beams, 65 FR 41051 and 
accompanying July 3, 2000 Decision Memorandum at page 12, Section 
I.A.2). The GOK, on the other hand, reports that Hynix did in fact 
maintain an outstanding ESF loan balance during the POI. The basis for 
Hynix' claim that it did not participate in the ESF program is that 
funding for Hynix projects was disbursed to third-party energy savings 
companies (``ESCOs''), which completed the Hynix ESF projects under 
contract.
    The record indicates that Hynix and the ESCOs submitted 
applications jointly to the Korea Energy Management Corporation in 
order to obtain ESF funding. Information concerning these transactions 
is not on the record, and, accordingly, we are not making a 
determination concerning Hynix ESF loans at this time. Instead, we will 
request further information on this matter during the course of this 
proceeding and will make a finding on this matter in the final 
determination.
    SEC reported that certain loans received under the Science and 
Technology Promotion Fund prior to 1999 were tied to non-subject 
merchandise (loans made from this fund are discussed in Structural 
Beams, 65 FR 41051 and accompanying July 3, 2000 Decision Memorandum at 
page 13). Furthermore, both Hynix and SEC stated in their questionnaire 
responses that their loans from the Fund for Promotion of 
Informatization and the Fund for Industrial Technology Development that 
were obtained during this time period were for projects involving non-
subject merchandise. Thus, for the purposes of this preliminary 
determination, we have not included these loans in our benefit 
calculations. We note that Hynix'' and SEC's questionnaire responses on 
this matter will be subject to verification.
Countervailable Subsidy Rates for Hynix and SEC
    We used the above mentioned methodologies to calculate the benefit 
from all of the financial contributions discussed above, and summed the 
benefit amounts from all financial contributions. We then divided the 
total benefit by each respective company's total sales values during 
the POI. On this basis, we determine the net countervailable subsidy to 
be 57.23 percent ad valorem for Hynix and 0.01 percent ad valorem for 
SEC.
B. Tax Programs Under the Tax Reduction and Exemption Control Act 
(``TERCL'') and/or the Restriction of Special Taxation Act (``RSTA'')
    Under ROK tax laws, ROK companies are allowed to claim tax credits 
for various kinds of investments. If the investment tax credits cannot 
be used entirely during the year they are claimed, then the company may 
carry them forward for use in subsequent years. Until December 28, 
1998, these investment tax credits were provided under the TERCL. On 
that date, the TERCL was replaced by the RSTA. Pursuant to this change 
in the law, tax credits based on eligible investments made after 
December 28, 1998 were provided under the authority of RSTA.
    In past proceedings, the Department found that companies that 
invested in domestically-produced facilities (i.e., facilities produced 
in the ROK) received higher tax credits than companies that invested in 
foreign-produced facilities under these programs. See CTL Plate, 64 FR 
73182. Under section 771(5A)(C) of the Act, subsidies that are 
contingent upon the use of domestic goods over imported goods are 
specific. Accordingly, the Department determined that the higher tax 
credits for investments made in domestically-produced facilities 
constituted import substitution subsidies under section 771(5A)(C) of 
the Act. In addition, because the GOK had foregone the collection of 
tax revenue otherwise due

[[Page 16780]]

under this program, the Department determined that a financial 
contribution was provided as described in section 771(5)(D)(ii) of the 
Act, with a benefit to the recipients in the amount of the tax savings 
pursuant to section 771(5)(E) of the Act and 19 CFR 351.509(a)(1). 
Therefore, the Department determined that this program was 
countervailable. See CTL Plate, 64 FR 73182.
    In Cold-Rolled Steel, the Department found that changes had been 
made in the manner in which at least some of these investment tax 
credits are determined. See Cold-Rolled Steel, 67 FR 62102, and the 
accompanying September 18, 2002 Decision Memorandum at page 12, Section 
I.F. Pursuant to amendments made to the TERCL on April 10, 1998, the 
distinction between investments in domestic and imported goods was 
eliminated for certain programs, including the Tax Credit for 
Investment in Facilities for Productivity Enhancement (Article 24 of 
RSTA) and the Tax Credit for Investment in Specific Facilities (Article 
25 of RSTA). Accordingly, the Department determined that tax credits 
received under these programs for investments made after April 10, 1998 
are no longer countervailable. However, companies can still carry 
forward and use the tax credits for investments earned under the 
countervailable aspects of the TERCL program before the April 10, 1998 
amendment to the tax law. Consistent with Cold-Rolled Steel, the 
Department continues to find countervailable the use of investment tax 
credits earned on investments made before April 10, 1998.
    The specific Articles under the TERCL and the RSTA that we are 
investigating in the instant investigation are discussed separately 
below:
Temporary Tax Credit for Investment (Article 26 of RSTA)
    The tax credit program under Article 26 of RSTA was enacted to 
promote investment in facilities during periods of economic slowdown. 
It provides a tax credit equal to ten percent of the investments made 
by companies in certain eligible industries specified in the 
implementing Presidential Decree, which includes the computer industry. 
Article 26 of RSTA was not among the programs found in Cold-Rolled 
Steel to have eliminated the import substitution advantage for eligible 
investments made after April 10, 1998.
    Hynix reported no taxable income for the POI and, therefore, 
claimed no credits and received no benefits under this tax program. SEC 
claimed credits and received tax benefits under this program in its 
2001 tax return for tax year 2000, but not in its 2002 tax return for 
tax year 2001.
    As discussed above, we found in CTL Plate that tax programs offered 
as part of the RSTA and the TERCL bestowed a financial contribution in 
the form of foregone revenue, as described in section 771(5)(D)(ii) of 
the Act, with a benefit to the recipients in the amount of the tax 
savings pursuant to section 771(5)(E) of the Act and 19 CFR 
351.509(a)(1). Moreover, as discussed above, we determined in CTL Plate 
and Cold-Rolled Steel that tax benefits offered through the RSTA and 
the TERCL are de jure specific pursuant to section 771(5A)(C) of the 
Act, to the extent that they are contingent upon the use of domestic 
goods over imported goods. As noted above, this Article of the RSTA was 
not one of the programs for which the distinction between domestic and 
foreign-produced merchandise was eliminated. Therefore, because ROK 
companies received a higher tax credit for investments made in 
domestically-produced facilities, we preliminarily find that this 
program is specific pursuant to section 771 (5A)(C) of the Act. Thus, 
we preliminarily determine that this program conferred countervailable 
subsidies upon SEC during the POI.
    In calculating the benefit for SEC, consistent with 19 CFR 
351.524(c)(1), we treated the tax savings as a recurring benefit and 
divided the tax savings received by SEC during the POI by SEC's total 
sales during the POI. On this basis, we preliminarily determine that a 
countervailable benefit of 0.15 percent ad valorem exists for SEC under 
this program.
C. Electricity Discounts Under the Requested Load Adjustment (``RLA'') 
Program
    The GOK introduced an electricity discount under the RLA program in 
1990 to address emergencies in the Korea Electric Power Company's 
(``KEPCO'') ability to supply electricity. Under this program, 
customers with a contract demand of 5000 kilowatts or more who can 
curtail their maximum demand by 20 percent or suppress their maximum 
demand by 3000 kilowatts or more are eligible to enter into a RLA 
contract with KEPCO. Customers who choose to participate in this 
program must reduce their load upon KEPCO's request, or pay a surcharge 
to KEPCO.
    Customers can apply for this program between May 1 and May 15 of 
each year. If KEPCO finds the application in order, KEPCO and the 
customer enter into a contract with respect to the RLA discount. The 
RLA discount is provided based upon a contract for two months, normally 
July and August. Under this program, a basic discount of 440 won per 
kilowatt is granted between July 1 and August 31, regardless of whether 
KEPCO makes a request for a customer to reduce its load.
    During the POI, SEC received an RLA discount for July and August 
2001. Hynix did not participate in the program during the POI.
    The Department has previously found this program to be 
countervailable. See Sheet and Strip, 64 FR 30636, and Cold-Rolled 
Steel, 67 FR 62102 and accompanying September 23, 2002 Decision 
Memorandum at page 18, Section I.M. Specifically, we found this program 
specific under section 771(5A)(D)(iii)(I) of the Act because the 
discounts were distributed to a limited number of customers. A 
financial contribution is provided within the meaning of section 
771(5)(D)(ii) of the Act in the form of revenue foregone by the 
government, with the benefit being a discount on the company's monthly 
electricity charge. No party has provided any new information to 
warrant reconsideration of this determination. Therefore, we 
preliminarily determine this program to be countervailable pursuant to 
section 771(5) of the Act.
    Consistent with Sheet and Strip and Cold-Rolled Steel, because the 
electricity discounts provide recurring benefits, we have expensed the 
benefit from this program in the year of receipt. To measure the 
benefit from this program, we summed the electricity discounts which 
SEC received from KEPCO under the RLA program during the POI. We then 
divided that amount by SEC's total sales value for the POI. On this 
basis, we determine a net countervailable subsidy of 0.00 percent ad 
valorem for SEC.
D. Operation G-7/HAN Program
    Under the Framework Act on Science and Technology, the GOK made 
direct financial contributions in the form of interest-free loans to 
respondent companies under the Operation G-7/HAN Program. These loans 
were provided as matching funds in support of the Next Generation 
Semiconductor Technology Project from 1993 through 1997 through the 
Ministry of Science and Technology (``MOST''), the Ministry of 
Commerce, Industry, and Energy, and other administrative authorities.
    Both Hynix and SEC report that they had loans that were outstanding 
during the POI under this program.
    We preliminarily determine that this program is specific within the 
meaning of section 771(5A)(D)(i) of the Act because it is limited to 
the

[[Page 16781]]

semiconductor industry. In addition, we preliminarily determine that a 
financial contribution was provided under section 771(5)(D)(i) of the 
Act in the form of direct loans from the GOK. Finally, pursuant to 
section 771(5)(E) of the Act, we preliminarily determine that the 
benefit conferred by this program is the difference between the amount 
the companies paid on the loans and the amount the companies would pay 
on comparable commercial loans.
    Consistent with section 771(5)(D)(i) of the Act and 19 CFR 
351.505(c)(2), we calculated the benefit from these loans by comparing 
the interest actually paid on the loans during the POI to what the 
companies should have paid during the POI. We used as our benchmarks 
the rates described in the ``Discount Rates and Benchmarks for Loans'' 
section, above. We then divided the total benefit from the loans for 
each company by the company's total sales in the POI to calculate the 
total countervailable subsidy. On this basis, we preliminarily 
determine that countervailable benefits of 0.14 percent ad valorem and 
0.01 percent ad valorem exist for Hynix and SEC, respectively.
E. 21st Century Frontier R&D Program
    The 21st Century Frontier R&D program is a GOK program established 
in 2000 that provides loans to semiconductor manufacturers in the form 
of matching funds for research and development to overcome the 
technological limits of next-generation semiconductor technology, among 
other goals. The GOK made direct financial contributions under this 
program in the form of interest-free loans through the MOST and other 
administrative authorities.
    SEC claims that it did not receive any loans under this program. 
Hynix reports that it had loans outstanding during the POI under this 
program.
    We preliminarily determine that this program is specific within the 
meaning of section 771(5A)(D)(i) of the Act, because it is limited to 
the semiconductor industry. In addition, we preliminarily determine 
that a financial contribution was provided under section 771(5)(D)(i) 
of the Act in the form of direct loans from the GOK. Finally, pursuant 
to section 771(5)(E) of the Act, we preliminarily determine that the 
benefit conferred by this program is the difference between the amount 
the companies paid on the loan and the amount the companies would pay 
on comparable commercial loans.
    Consistent with section 771(5)(D)(i) of the Act, we calculated the 
benefit from these loans by comparing the interest actually paid on the 
loans during the POI to what the companies should have paid during the 
POI. We used as our benchmarks the benchmarks discussed in the 
``Discount Rates and Benchmarks for Loans'' section above. We then 
divided the total benefit from the loans for each company by the 
company's total sales in the POI to calculate the total countervailable 
subsidy. On this basis, we preliminarily determine that a 
countervailable benefit of 0.00 percent ad valorem exists for Hynix.

II. Programs Preliminarily Determined to Be Not Countervailable

Tax Programs Under the TERCL and/or the RSTA
1. Reserve for Research and Human Resources Development (formerly 
Technological Development Reserve) (Article 9 of RSTA/formerly, Article 
8 of TERCL)
    Article 8 of the TERCL permits an ROK company operating in 
manufacturing or mining, or in a business prescribed by a Presidential 
Decree, to set aside funds into a reserve account to cover a company's 
planned expenditure for the ``development or innovation'' of 
technology. These funds are reported as a loss in the current taxable 
year, thus reducing the company's tax liability. Article 8 specifies 
that capital goods producers and technology-intensive companies can 
establish a reserve of up to five percent of revenue, while companies 
in other industries are limited to a three percent reserve. After a 
two-year grace period, funds set aside for the reserve must be 
allocated as income over a three-year period.
    Hynix established a fund in 1996, and evenly distributed the fund 
as taxable income in years 1999 through 2001. SEC created a reserve 
under this program in 1999; it did not allocate any portion of this 
fund as taxable income through the end of the POI.
    In CTL Plate, 64 FR 73181, we determined that this program was 
countervailable for companies that could claim a five percent tax 
reserve, but not for companies that could claim a three percent tax 
reserve. Both Hynix and SEC claim that they are only eligible for the 
three percent tax reserve. Therefore, we preliminarily determine that 
this program is not countervailable with respect to Hynix and SEC 
because neither was eligible for the countervailable reserve.
2. Tax Credit for Research and Human Resources Development Expenses 
(Article 10 of RSTA/Article 9 of TERCL)
    Article 10 of the RSTA replaced Article 9 of the TERCL at the 
beginning of 2001. It provides a tax credit for certain qualifying 
expenses related to research and human resources development 
(``R&HRD''), deductible from individual or corporate income tax. Under 
Article 9 of the TERCL, the credit was limited to certain mining, 
manufacturing, or other businesses (including computer companies), as 
specified by the implementing Presidential Decree. Under Article 10 of 
the RSTA, however, eligibility was extended to all domestic businesses, 
except for those in real estate or consumptive services. There are two 
methods for calculating the credit, under which the amount is equal to 
either (1) 50 percent of the amount by which the R&HRD expense incurred 
for the relevant tax year exceeds the yearly average of R&HRD expenses 
incurred over the four years preceding the tax year; or (2) 15 percent 
of R&HRD expenses for the tax year. Persons other than small and medium 
enterprises, however (e.g., large corporations) may claim credits only 
pursuant to the first method.
    Hynix claims it was not eligible for this program during the POI 
and, hence, claimed no tax credits and received no benefits under the 
program during the POI. SEC claimed credits and received tax benefits 
under this program in its tax returns for 2000 and 2001, which were 
applicable to its tax liabilities during the POI.
    Based on the record evidence, we find no indication that this 
program is specific on any basis under section 771(5A). Therefore, we 
preliminarily determine that benefits received under this program are 
not countervailable.
3. Tax Credit for Investment in Facilities for Productivity Enhancement 
(Article 24 of RSTA/Article 25 of TERCL)
    Article 24 of the RSTA, which is the Tax Credit for Investment in 
Facilities for Productivity Enhancement, provides tax credits for 
investments in specified capital equipment. We have previously 
determined that tax credits received pursuant to these investment 
programs for investments made after April 10, 1998 are not 
countervailable because a distinction between investment in domestic 
versus foreign-made goods was eliminated. See Final Results and Partial 
Rescission of Countervailing Duty Administrative Review: Stainless 
Steel Sheet and Strip From the Republic of Korea, 68 FR 13267 (March 
19, 2003) and accompanying March 10, 2003 Decision Memorandum at page 
11, Section III.A.8.
    Both SEC and Hynix claimed exemptions under Article 24 of the RSTA. 
All of SEC's tax credits resulted

[[Page 16782]]

from investments made after April 10, 1998. Therefore, we preliminarily 
conclude that SEC did not receive countervailable benefits under this 
program. Additionally, Hynix reported no taxable income for the POI 
and, therefore, claimed no credits and received no benefits under this 
tax program.
4. Tax Credit for Investment in Facilities for Special Purposes 
(Article 25 of RSTA)
    Article 25 of the RSTA provides tax credits equal to three percent 
of the company's investment in specified facilities related to, among 
other things, environmental and health and safety measures. The credits 
are deducted from the company's corporate income tax liability. Article 
25 of the RSTA was among the programs found in Cold-Rolled Steel to 
have eliminated the import substitution tax advantage for eligible 
investments made after April 10, 1998. Thus, tax credits based on 
investments made after that date are not countervailable.
    Hynix reported no taxable income for the POI and, therefore, 
claimed no credits and received no benefits under this tax program. SEC 
claimed credits under this program in its 2001 tax return for tax year 
2000, but not in its 2002 tax return for tax year 2001. However, SEC 
reports that all tax credits it earned under the program for the POI 
were based on investments made after April 10, 1998. Moreover, SEC 
reports that it did not carry forward any tax credits from years prior 
to April 10, 1998. Therefore, we preliminarily find that neither Hynix 
nor SEC received a benefit from this program during the POI.

III. Programs Preliminarily Determined Not To Have Been Used

    Based on the information provided in the responses, we determine no 
responding companies applied for or received benefits under the 
following programs during the POI:
A. Short-Term Export Financing
B. Tax Programs Under the TERCL and/or the RSTA
1. Reserve for Overseas Market Development (formerly, Article 17 of 
TERCL)
2. Reserve for Export Loss (formerly, Article 16 of TERCL)
3. Tax Exemption for Foreign Technicians (Article 18 of RSTA)
4. Reduction of Tax Regarding the Movement of a Factory That Has Been 
Operated for More Than Five Years (Article 71 of RSTA)
C. Tax Reductions or Exemption on Foreign Investments under Article 9 
of the Foreign Investment Promotion Act (``FIPA'')/FIPA (Formerly 
Foreign Capital Inducement Law)
D. Duty Drawback on Non-Physically Incorporated Items and Excessive 
Loss Rates
E. Export Insurance
    The Korean Export Insurance Corporation (``KEIC'') was established 
pursuant to the Export Insurance Act of 1968 for the purpose of 
providing export insurance. Insurance policies issued to ROK companies 
through this program provide protection from risks such as payment 
refusal and buyer's breach of contract. Claims are paid from the Export 
Insurance Fund, which is managed by the KEIC and is funded by 
contributions from the GOK and the private sector via premium payments. 
The KEIC determines premium rates by considering numerous factors, 
including the creditworthiness of the importing party and the term of 
the policy. Hynix and SEC both participated in this program during the 
POI.
    To determine whether an export insurance program provides a 
countervailable benefit, we first examine whether premium rates charged 
are adequate to cover the program's long-term operating costs and 
losses. See 19 CFR 351.520(a)(1). In doing so, the Department will 
analyze both the viability of the program and the overall commercial 
health of the entity operating the program. In examining whether rates 
are manifestly inadequate, the Department will examine a five-year 
period, POI inclusive. See Preamble, 63 FR at 65385.
    The GOK reports that the KEIC export insurance program has 
experienced operating losses for all of these years, and that the GOK 
has been covering the losses incurred by this program. Therefore, we 
preliminarily determine that the premium rates that are being charged 
are inadequate pursuant to 19 CFR 351.520(a)(1). If the Department 
determines that premium rates are inadequate, pursuant to 19 CFR 
351.520(a)(2), the benefit amount is calculated as the net amount of 
compensation received (compensation received less premium fees paid). 
Thus, consistent with the Final Affirmative Countervailing Duty 
Determination: Carbon Steel Butt-Weld Pipe Fittings From Israel, 60 FR 
10569, 10571 (February 27, 1995), we examined export insurance 
expressly related to DRAMS exported to the United States. SEC did not 
make any claims or receive any pay-outs from the KEIC related to DRAMS 
during the POI; Hynix reported that it also did not receive any pay-
outs during the POI. Therefore, we preliminarily determine that neither 
SEC nor Hynix received a countervailable benefit pursuant to this 
program within the meaning of section 771(5)(E) of the Act during the 
POI.

IV. Program Preliminarily Determined To Not Exist

    Based on the information provided in the responses, we 
preliminarily determine that the following program does not exist:
Won 680 Billion Bond Guarantee

V. Programs for Which We Did Not Make a Preliminary Determination

    As noted above, because we received several new subsidy allegations 
from the petitioner only 40 days prior to this preliminary 
determination, and were not able to initiate an investigation of two of 
these programs until four weeks before the preliminary determination 
(as discussed in the New Subsidy Allegations Memo), we had insufficient 
time prior to this preliminary determination to properly analyze the 
data and information submitted in response to these new programs. 
However, we will make a finding on the following new programs in the 
final determination:
A. Import Duty Reduction for Cutting Edge Products
B. Permission for Hynix and SEC To Build in Restricted Area

Verification

    In accordance with section 782(i)(1) of the Act, we will verify the 
information submitted by the respondents prior to making our final 
determination.

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we 
calculated an individual rate for each manufacturer of the subject 
merchandise. We preliminarily determine the total estimated net 
countervailable subsidy rates for Hynix and SEC to be the following:

------------------------------------------------------------------------
                                                             Net subsidy
                     Producer/Exporter                           rate
                                                              (percent)
------------------------------------------------------------------------
Samsung Electronics Co., Ltd...............................         0.16
Hynix Semiconductor Inc. (formerly, Hyundai Electronics            57.37
 Industries Co., Ltd.).....................................
All Others.................................................        57.37
------------------------------------------------------------------------

    In accordance with sections 777A(e)(2)(B) and 705(c)(5)(A) of the 
Act, we have set the ``all others'' rate as

[[Page 16783]]

Hynix' rate because the rate for SEC, the only other investigated 
company, is de minimis.
    Pursuant to section 703(d) of the Act, we are directing the U.S. 
Customs Service to suspend liquidation of all entries of DRAMS from the 
ROK (except for entries from SEC) that are entered, or withdrawn from 
warehouse, for consumption on or after the date of the publication of 
this notice in the Federal Register, and to require a cash deposit or 
bond for such entries of the merchandise (except for entries from SEC) 
in the amounts indicated above. Entries from SEC are not subject to 
this suspension of liquidation because we have preliminarily determined 
its rate to be de minimis. This suspension will remain in effect until 
further notice.

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all nonprivileged and nonproprietary information relating to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under an administrative protective order, without the written consent 
of the Assistant Secretary for Import Administration.
    In accordance with section 705(b)(3) of the Act, if our final 
determination is affirmative, the ITC will make its final determination 
within 45 days after the Department makes its final determination.

Public Comment

    Case briefs for this investigation must be submitted no later than 
one week after the issuance of the last verification report. Rebuttal 
briefs must be filed within five days after the deadline for submission 
of case briefs. A list of authorities relied upon, a table of contents, 
and an executive summary of issues should accompany any briefs 
submitted to the Department. Executive summaries should be limited to 
five pages total, including footnotes.
    Section 774 of the Act provides that the Department will hold a 
public hearing to afford interested parties an opportunity to comment 
on arguments raised in case or rebuttal briefs, provided that such a 
hearing is requested by an interested party. If a request for a hearing 
is made in this investigation, the hearing will tentatively be held two 
days after the deadline for submission of the rebuttal briefs at the 
U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., 
Washington, DC 20230. Parties should confirm by telephone the time, 
date, and place of the hearing 48 hours before the scheduled time.
    Interested parties who wish to request a hearing, or to participate 
if one is requested, must submit a written request to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, within 30 days of the publication of this notice. Requests should 
contain: (1) The party's name, address, and telephone number; (2) the 
number of participants; and (3) a list of the issues to be discussed. 
Oral presentations will be limited to issues raised in the briefs.
    This determination is published pursuant to sections 703(f) and 
777(i) of the Act.

    Dated: March 31, 2003.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 03-8409 Filed 4-4-03; 8:45 am]
BILLING CODE 3510-DS-P