[Federal Register Volume 63, Number 221 (Tuesday, November 17, 1998)]
[Notices]
[Pages 63884-63900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30737]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-580-835]
Preliminary Affirmative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination: Stainless Steel Sheet and Strip in
Coils from the Republic of Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: November 17, 1998.
FOR FURTHER INFORMATION CONTACT: Eva Temkin or Christopher Cassel,
Office of CVD/AD Enforcement VI, Import Administration, U.S. Department
of Commerce, Room 4012, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone (202) 482-2786.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
The Department of Commerce (the Department) preliminarily
determines that countervailable subsidies are being provided to certain
producers and exporters of stainless steel sheet and strip in coils
from the Republic of Korea. For information on the estimated
countervailing duty rates, please see the ``Suspension of Liquidation''
section of this notice.
Petitioners
The petition in this investigation was filed by Allegheny Ludlum
Corporation, Armco, Inc., J&L Specialty Steel, Inc., Washington Steel
Division of Bethlehem Steel Corporation, United Steelworkers of
America, AFL-CIO/CLC, Butler Armco Independent Union, and Zanesville
Armco Independent Organization, Inc. (collectively referred to
hereinafter as the ``petitioners'').
Case History
Since the publication of the notice of initiation in the Federal
Register (see Initiation of Countervailing Duty Investigations:
Stainless Steel Sheet and Strip in Coils from France, Italy, and the
Republic of Korea, 63 FR 37539 (July 13, 1998) (Initiation Notice)),
the following events have occurred. On July 17, 1998, we issued
countervailing duty questionnaires to the Government of Korea (GOK),
and the producers/exporters of the subject merchandise. On August 6,
1998, we postponed the preliminary determination of this investigation
until no later than November 9, 1998. (see Notice of Postponement of
Time Limit for Countervailing Duty Investigations: Stainless Steel
Sheet and Strip in Coils from France, Italy, and the Republic of Korea,
63 FR 43140 (August 12, 1998)).
We received responses to our initial questionnaires from the GOK
and three of the five producers of the subject merchandise, Pohang Iron
& Steel Company, Ltd. (POSCO), Inchon Iron & Steel Co., Ltd. (Inchon),
and Dai Yang Metal Co., Ltd. (Dai Yang), on September 10, 1998. Also on
September 10, 1998, we received responses from seven trading companies
that are involved in exporting the subject merchandise to the United
States: POSCO Steel Service & Sales Company, Ltd. (POSTEEL), Hyosung
Corporation (Hyosung), Samsun Corporation (Samsun), Samsung Corporation
(Samsung), Hyundai Corporation (Hyundai), Daewoo Corporation (Daewoo),
and Sunkyong Ltd. (Sunkyong). On October 5, 1998, we issued
supplemental questionnaires to all of the responding parties. We
received their supplemental responses on October 21, 1998.
Scope of Investigation
For purposes of these investigations, the products covered are
certain stainless steel sheet and strip in coils. Stainless steel is an
alloy steel containing, by weight, 1.2 percent or less of carbon and
10.5 percent or more of chromium, with or without other elements. The
subject sheet and strip is a flat-rolled product in coils that is
greater than 9.5 mm in width and less than 4.75mm in thickness, and
that is annealed or otherwise heat treated and pickled or otherwise
descaled. The subject sheet and strip may also be further processed
(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that
it maintains the specific dimensions of sheet and strip following such
processing.
The merchandise subject to this investigation is classified in the
Harmonized Tariff Schedule of the United States (``HTSUS'') at
subheadings: 7219.13.00.30, 7219.13.00.50, 7219.13.00.70,
7219.13.00.80, 7219.14.00.30, 7219.14.00.65, 7219.14.00.90,
7219.32.00.05, 7219.32.00.20, 7219.32.00.25, 7219.32.00.35,
7219.32.00.36, 7219.32.00.38, 7219.32.00.42, 7219.32.00.44,
7219.33.00.05, 7219.33.00.20, 7219.33.00.25, 7219.33.00.35,
7219.33.00.36, 7219.33.00.38, 7219.33.00.42, 7219.33.00.44,
7219.34.00.05, 7219.34.00.20, 7219.34.00.25, 7219.34.00.30,
7219.34.00.35, 7219.35.00.05, 7219.35.00.15, 7219.35.00.30,
7219.35.00.35, 7219.90.00.10, 7219.90.00.20, 7219.90.00.25,
7219.90.00.60, 7219.90.00.80, 7220.12.10.00, 7220.12.50.00,
7220.20.10.10, 7220.20.10.15, 7220.20.10.60, 7220.20.10.80,
7220.20.60.05, 7220.20.60.10, 7220.20.60.15, 7220.20.60.60,
7220.20.60.80, 7220.20.70.05, 7220.20.70.10, 7220.20.70.15,
7220.20.70.60, 7220.20.70.80, 7220.20.80.00, 7220.20.90.30,
7220.20.90.60, 7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and
7220.90.00.80. Although the HTS subheadings are provided for
convenience and Customs purposes, the written description of the
merchandise under investigation is dispositive.
Excluded from the scope of this petition are the following: (1)
sheet and strip that is not annealed or otherwise heat treated and
pickled or otherwise descaled, (2) sheet and strip that is cut to
length, (3) plate (i.e., flat-rolled stainless steel products of a
thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled
sections, rectangular in shape, of a width of not more than 9.5 mm, and
a thickness of not more than 6.35 mm), and (5) razor blade steel. Razor
blade steel is a flat rolled product of stainless steel, not further
worked than cold-rolled (cold-reduced), in coils, of a width of not
more than 23mm and a thickness of 0.266 mm or less, containing, by
weight, 12.5 to 14.5 percent chromium, and certified at the time of
entry to be used in the manufacture of razor blades. See Chapter 72 of
the HTSUS, ``Additional U.S. Note'' 1(d).
The Department has determined that certain specialty stainless
steel products are also excluded from the scope of these
investigations. These excluded products are described below: Flapper
valve steel is defined as stainless steel strip in coils with a
chemical composition similar to that of AISI 420F grade steel and
containing, by weight, between 0.37 and 0.43 percent carbon, between
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent
manganese. This steel also contains, by weight, phosphorus of 0.025
percent or less, silicon of between
[[Page 63885]]
0.20 and 0.50 percent, and sulfur of 0.020 percent or less. The product
is manufactured by means of vacuum arc remelting, with inclusion
controls for sulphide of no more than 0.04 percent and for oxide of no
more than 0.05 percent. Flapper valve steel has a tensile strength of
185 kgf/mm2, plus or minus 10, yield strength of 150 kgf/mm2, plus or
minus 8, and hardness (Hv) of 540, plus or minus 30.
Also excluded is suspension foil, a specialty steel product used,
e.g., in the manufacture of suspension assemblies for computer disk
drives. Suspension foil is described as 302/304 grade or 202 grade
stainless steel of a thickness between 14 and 127 m, with a
thickness tolerance of plus-or-minus 2.01 m, and surface
glossiness of 200 to 700 percent Gs. Suspension foil must be supplied
in coil widths of not more than 407 mm, and with a mass of 225 kg or
less. Roll marks may only be visible on one side, with no scratches of
measurable depth, and must exhibit residual stresses of 2 mm maximum
deflection, and flatness of 1.6 mm over 685 mm length.
Permanent magnet iron-chromium-cobalt alloy stainless strip is also
excluded from the scope of these investigations. This ductile stainless
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10
percent cobalt, with the remainder of iron, in widths of 1.016 to 228.6
mm, and a thickness between 0.0127 and 1.270 mm. It exhibits magnetic
remanence between 9,000 and 12,000 gauss, and a coercivity of between
50 and 300 oersteds. This product is most commonly used in electronic
sensors and is currently available, e.g., under the trade name
``Arnokrome III.'' 1
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\1\ ``Arnokrome III'' is a trademark of the Arnold Engineering
Company.
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Electrical resistance alloy steel is also not included in the scope
of these investigations. This product is defined as a non-magnetic
stainless steel manufactured to American Society of Testing and
Materials (ASTM) specification B344 and containing, by weight, 36
percent nickel, 18 percent chromium, and 46 percent iron, and is most
notable for its resistance to high temperature corrosion. It has a
melting point of 1390 degrees Celsius and displays a creep rupture
limit of 4 kilograms per square millimeter at 1000 degrees Celsius.
This steel is most commonly used in the production of heating ribbons
for circuit breakers and industrial furnaces, and in rheostats for
railway locomotives. The product is currently available, e.g., under
the trade name ``Gilphy 36.'' 2
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\2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
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Finally, certain stainless steel strip in coils used in the
production of textile cutting tools (e.g., carpet knives) is also
excluded. This steel is similar to ASTM grade 440F, but containing
higher levels of molybdenum. This steel contains, by weight, carbon of
between 1.0 and 1.1 percent, sulphur of 0.020 percent or less, and
includes between 0.20 and 0.30 percent copper and cobalt. This steel is
sold under, e.g. the proprietary name GIN4Mo.3
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\3\ ``Gin4Mo'' is the proprietary grade of Hitachi Metals
America, Ltd.
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All interested parties are advised that additional issues
pertaining to the scope of these investigations are still pending.
Furthermore, the exclusions outlined above are subject to further
revision and refinement. The Department plans on notifying interested
parties of its determinations on all scope issues in sufficient time
for parties to comment before the final determination.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations as codified at
19 CFR Part 351 (1998).
Injury Test
Because the Republic of Korea (Korea) is a ``Subsidies Agreement
Country'' within the meaning of section 701(b) of the Act, the
International Trade Commission (ITC) is required to determine whether
imports of the subject merchandise from Korea materially injure, or
threaten material injury to, a U.S. industry. On August 9, 1998, the
ITC announced its preliminary determination finding that there is a
reasonable indication that an industry in the United States is being
materially injured, or threatened with material injury, by reason of
imports from Korea of the subject merchandise (see Certain Stainless
Steel Sheet and Strip from France, Germany, Italy, Japan, the Republic
of Korea, Mexico, Taiwan and the United Kingdom, 63 FR 41864 (August 9,
1998)).
Alignment With Final Antidumping Duty Determination
On July 22, 1998, the petitioners submitted a letter requesting
alignment of the final determination in this investigation with the
final determination in the companion antidumping duty investigation.
See Initiation of Antidumping Investigations: Stainless Steel Sheet and
Strip in Coils From France, Germany, Italy, Japan, Mexico, South Korea,
Taiwan, and the United Kingdom, 63 FR 37521 (July 13, 1998). Therefore,
in accordance with section 705(a)(1) of the Act, we are aligning the
final determination in this investigation with the final determinations
in the antidumping investigations of stainless steel sheet and strip in
coils.
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1997.
Use of Facts Available
Both Sammi Steel Co., Ltd. (Sammi) and Taihan Electric Wire Co.,
Ltd. (Taihan), two producers of subject merchandise, failed to respond
to the Department's questionnaire. Section 776(a)(2) of the Act
requires the use of facts available when an interested party withholds
information that has been requested by the Department, or when an
interested party fails to provide the information requested in a timely
manner and in the form required. In such cases, the Department must use
the facts otherwise available in reaching the applicable determination.
Because Sammi and Taihan failed to submit the information that was
specifically requested by the Department on two separate occasions, and
because the GOK also failed to provide the information requested, we
have based our preliminary determination for these companies on the
facts available. In addition, the Department finds that by not
providing the requested information, respondents have failed to
cooperate to the best of their abilities.
In accordance with section 776(b) of the Act, the Department may
use an inference that is adverse to the interests of that party in
selecting from among the facts otherwise available when the party has
failed to cooperate by not acting to the best of its ability to comply
with a request for information. Such adverse inference may include
reliance on information derived from (1) the petition; (2) a final
determination in a countervailing duty or an antidumping investigation;
(3) any previous administrative review, new shipper review, expedited
antidumping review, section 753 review, or section 762 review; or (4)
any other information placed on the record. See section 351.308(c) of
the Department's regulations. In the absence of
[[Page 63886]]
information from the GOK and the respondents, we consider the petition,
as well as our findings from the Final Affirmative Countervailing Duty
Determinations and Final Negative Critical Circumstances
Determinations: Certain Steel Products from Korea, 58 FR 37338 (July 9,
1993) (Steel Products from Korea), to be appropriate bases for a facts
available countervailing duty rate calculation.
In Steel Products from Korea, we determined a country-wide ad
valorem subsidy rate of 4.64 percent based on many of the same programs
alleged in this case. Therefore, we are using the highest published ad
valorem rate of 4.64 percent that was calculated in Steel Products from
Korea as representative of the benefits from the industry-wide
subsidies alleged in this petition, and received by the other
respondents in this investigation. In addition, we are also applying a
facts available rate to Sammi and Taihan for a subsidy program newly
reviewed in this investigation, POSCO's two-tiered pricing structure to
domestic customers. We found this program to be countervailable, and
calculated company-specific program rates for Dai Yang and Inchon; as
discussed below, we used Inchon's calculated rate for this program as
adverse facts available for Sammi and Taihan. (A detailed discussion of
this program can be found in the ``Programs Preliminarily Determined to
be Countervailable'' section of this notice.)
Therefore, in Taihan's case, we used the 4.64 rate from Steel
Products from Korea because the subsidy programs alleged in this
investigation, with the exception of the one new allegation, are
virtually identical to the programs for which the 4.64 rate in Steel
Products from Korea was calculated. In addition, in accordance with
section 776(b)(4) of the Act, for the two-tiered pricing program, we
are applying the highest calculated company-specific rate for this
program to Taihan as adverse facts available, 5.51 percent ad valorem,
the company-specific program rate for Inchon. We added this 5.51
percent rate to the 4.64 percent rate (representing the program rates
of the other subsidy allegations) to arrive at a total ad valorem rate
of 10.15 percent as adverse facts available for Taihan.
In Sammi's case, in addition to applying the 4.64 rate from Steel
Products from Korea for most of the programs covered in this
investigation and the 5.51 rate for POSCO's two-tiered pricing
structure, we calculated rates for three other programs that have not
previously been investigated, and which were Sammi-specific subsidy
allegations. These newly alleged programs are: (1) 1992 emergency loans
to Sammi Steel; (2) the ``national subsidy'' provided to Sammi; and (3)
POSCO's purchase of Sammi Specialty Steel for more than adequate
remuneration. There programs are dealt with individually below in the
``Programs Preliminarily Determined to be Countervailable'' section of
this notice. As provided for in the Act, we used the data in the
petition as adverse facts available for the calculation of the program
rates for the 1992 emergency loans to Sammi Steel and the ``national
subsidy'' provided to Sammi. We used information provided in the
petition and in POSCO's questionnaire responses (public version on file
in the Department's Central Records Unit, Room B-099), for the
calculation of the program rate for POSCO's purchase of Sammi Specialty
Steel for more than adequate remuneration. We then added the rates for
these three programs and the rate representing the subsidy conferred by
POSCO's two-tiered pricing structure to the other programs' rate of
4.64 percent ad valorem calculated in Steel Products from Korea, which
is representative of the benefits from the other industry-wide
subsidies alleged in the petition and received by the other
respondents. We thus arrived at a total ad valorem rate of 29.23
percent as adverse facts available for Sammi.
The Statement of Administrative Action accompanying the URAA
clarifies that the information from the petition and prior segments of
the proceeding is ``secondary information.'' See Statement of
Administrative Action, accompanying H.R. 5110 (H.R. Doc. No. 103-316)
(1994) (SAA), at 870. If the Department relies on secondary information
as facts available, section 776(c) of the Act provides that the
Department shall, to the extent practicable, corroborate such
information using independent sources reasonably at its disposal. The
SAA further provides that to corroborate secondary information means
simply that the Department will satisfy itself that the secondary
information to be used has probative value. However, where
corroboration is not practicable, the Department may use uncorroborated
information.
With respect to the programs for which we did not receive
information from cooperative respondents, the information was
corroborated either through the exhibits attached to the petition or by
reviewing determinations in other proceedings in which we found
virtually identical programs in the same country to be countervailable.
Specifically, with respect to Taihan, the programs alleged in the
current investigation were virtually identical to those found to be
countervailable in Steel Products from Korea. We were unable to
corroborate the rate we used for Taihan, because the petition did not
contain countervailing duty rate information for these programs.
Therefore, it was not practicable to corroborate such a rate. However,
we note that the SAA at 870 specifically states that where
``corroboration may not be practicable in a given circumstance,'' the
Department may nevertheless apply an adverse inference. Further, in
Sammi's case, (in addition to the programs from Steel Products from
Korea discussed above), we corroborated the three newly-alleged
programs with the information provided in the petition, i.e., Sammi's
financial statements for years 1993 through 1996, and numerous public
press articles. Specifically, Sammi's financial statements show a line
item entitled ``national subsidy.'' The financial statements further
indicate that Sammi's debt burden was very high and that the company
was not making interest payments that reflected the significant debt
load. This demonstrates that the GOK may have entrusted or directed
government and/or commercial banks to provide the type of emergency
loan package to Sammi in 1992 that was alleged in the Petition.
Moreover, news articles indicate that the GOK was trying to rescue
Sammi, and that this effort included both the emergency loans in 1992
and POSCO's purchase of Sammi Specialty Steel for more than adequate
remuneration.
Additionally, the Department initiated an investigation with
respect to a fourth new allegation, ``Financial Assistance in
Conjunction with the 1997 Sammi Steel Company Bankruptcy.'' see
Initiation Notice. The petitioners allege that the GOK mitigated the
effects of Sammi's bankruptcy with the use of countervailable
subsidies. According to petitioners, when Sammi filed for receivership
in March 1997, the GOK (1) provided grants and other rescue aid which
was directed through a consortium of Sammi's rivals, and (2)
rescheduled Sammi's debt through a combination of loan forgiveness and
reduced interest rate loans.
We requested information concerning this program from the GOK and
Sammi. While Sammi chose not to cooperate in this investigation, the
GOK responded to the Department's questionnaires, stating that there
was no consortium and that there were no grants. The GOK further
stressed that Sammi's debt was addressed in the context of normal
[[Page 63887]]
bankruptcy proceedings. Neither the information in the GOK's response
nor that in the petition is complete enough to make a determination
about this program. Because we have received no information from Sammi,
we do not have sufficient evidence to stop investigating this program.
We will continue to search for information that will enable us to make
a facts available determination about this program in our final
determination.
Subsidies Valuation Information
Benchmarks for Long-term Loans and Discount Rates: In Steel
Products from Korea, we stated that the three-year corporate bond yield
``was the best indicator of a market rate in Korea.'' See 58 FR at
37346. Because the applicable facts of this investigation are virtually
identical to those in Steel Products from Korea, in conformance with
that prior decision, we have used the three-year corporate bond yield
as our long-term benchmark. For variable rate loans for which the
benefit is calculated on the interest payment during the POI, we have
used as our benchmark the three year over-the-counter corporate bond
rate, as reported by the GOK in its September 10, 1998, questionnaire
response (public version on file in the Department's Central Records
Unit, Room B-099). We have also used the three-year corporate bond
yield to calculate the benefit from fixed rate loans provided under the
Energy Savings Fund.
For years in which the companies under investigation have been
deemed uncreditworthy, we calculated the discount rates according to
the methodology described in the General Issues Appendix, which is
appended to the Final Affirmative Countervailing Duty Determination:
Certain Steel Products from Austria, 58 FR 37225, 37227 (July 9, 1993)
(GIA). Specifically, due to the necessary use of adverse facts
available with regard to Sammi, we used the highest commercial bank
loan interest rates available, and added a risk premium equal to 12
percent of the commercial lending rate, in accordance with the
methodology outlined in the GIA.
Benchmarks for Short-Term Financing: For those programs that
require the application of a short-term interest rate benchmark, we
used as our benchmark the company-specific, weighted-average, short-
term interest rates for won-denominated loans for the POI. The three
responding companies provided to the Department their respective
company-specific interest rate.
Allocation Period
In the past, the Department has relied upon information from the
U.S. Internal Revenue Service (IRS) for the industry-specific average
useful life of assets in determining the allocation period for non-
recurring subsidies (IRS Tables). See the GIA. In British Steel plc v.
United States, 879 F. Supp. 1254 (CIT 1995) (British Steel I), the U.S.
Court of International Trade (the Court) held that the IRS information
did not necessarily reflect a reasonable period based on the actual
commercial and competitive benefit of the subsidies to the recipients.
In accordance with the Court's remand order, the Department calculated
a company-specific allocation period for non-recurring subsidies based
on the average useful life (AUL) of non-renewable physical assets. This
remand determination was affirmed by the Court on June 4, 1996. See
British Steel plc v. United States, 929 F. Supp. 426, 439 (CIT 1996)
(British Steel II).
In recent countervailing duty investigations, it has been our
practice to follow the Court's decision in British Steel II, and to
calculate a company-specific allocation period for all countervailable
non-recurring subsidies. In this investigation, the only responding
company for which it was necessary to examine the company-specific AUL
was POSCO, as neither Inchon nor Dai Yang received non-recurring
grants. However, our analysis of the data submitted by POSCO regarding
the AUL of its assets has revealed several problems.
First, POSCO included special accelerated depreciation expenses and
a depreciation of salvage value in its calculated AUL. POSCO reported
that the accelerated depreciation is permitted in accordance with
Korean GAAP for plant and equipment which operate for a standard eight-
hour work day, and for facilities and equipment which operate longer
than a standard eight-hour day. However, since POSCO is a producer of
steel products, it appears to be the company's normal course of
business to operate its facilities longer than a standard eight-hour
day. With respect to the depreciation of salvage values, POSCO stated
that pursuant to changes in Korean tax law as of January 1, 1995,
``companies were permitted to fully depreciate the remaining 10 percent
of the acquisition cost of depreciable assets acquired prior to January
1, 1995 that had not been fully depreciated as of December 31, 1993.''
See POSCO's September 10, 1998, questionnaire response at 8 (public
version on file in the Cental Records Unit of the Department of
Commerce, Room B-099). However, while POSCO stated that the
depreciation of this salvage value is included in the amounts for
regular depreciation for 1995 through 1997, we do not have sufficient
information to determine how to treat this salvage value in calculating
POSCO's AUL. Further, we note that POSCO's calculations of its AUL show
an item for ``Revaluations,'' a term which is not explained in the
response.
Based on the concerns outlined above, we preliminarily determine
that POSCO's calculation of its company-specific AUL should not be used
to determine the appropriate allocation period for non-recurring
subsidies. Rather, for purposes of this preliminary determination, we
are using 15 years as set out in the IRS Tables. We intend to request
clarification and additional information concerning POSCO's AUL data
during the course of this investigation.
While we have not used POSCO's company-specific AUL because of the
concerns outlined above, even if we were to use the company-specific
data submitted by POSCO, the facts of this case pose additional
concerns and possible inconsistencies. In particular, this
investigation covers countervailable non-recurring subsidies
benefitting POSCO, i.e., GOK infrastructure investments at Kwangyang
Bay. These same non-recurring subsidies to the same company were
previously found countervailable in Certain Steel Products From Korea.
See 58 FR at 37346. In that investigation, the Department allocated the
benefits from these GOK investments over 15 years based on information
from the U.S. Internal Revenue Service (IRS) for the industry-specific
average useful life of assets. Under current Department practice,
previously allocated subsidies within the same proceeding are not given
a new allocation period. Rather, it is our policy to retain the
allocation period originally established for the subsidies in
subsequent administrative reviews of the same preceding.
We note here that in the concurrent investigation of stainless
steel sheet and strip in coils from France, the Department
preliminarily determined that it is more appropriate to continue
allocating non-recurring subsidies over the company-specific AUL of 14
years, which was calculated as a result of British Steel II. Although
this was a company-specific AUL, it was the AUL applied in a prior
investigation of the same subsidies to the same company that are
currently being examined in the investigation of stainless steel sheet
and strip in coils from France. The issue we
[[Page 63888]]
are presented with is whether the allocation period, once established
for a subsidy to a company, should change in different proceedings. If
the allocation period did not change across proceedings, the same GOK
infrastructure investments described above will be allocated over 15
years in both the current investigation and in the recently initiated
administrative review of Certain Steel From Korea. That review covers
calendar year 1997. However, if we were to adopt different allocation
periods for different proceedings, the same subsidy to the same company
would be allocated over different periods, since POSCO calculated an
AUL of 9 years, assuming the calculation presented by and based on
company-specific data was accepted by the Department. Thus, the same
subsidy to the same company would have different allocation periods
across separate proceedings: 15 years in Certain Steel and 9 years in
this investigation.
We encourage parties to comment on this issue and whether an
alternative approach may be more appropriate. One option may be to
retain the allocation period of a subsidy previously investigated in a
prior investigation, rather than assign a new company-specific
allocation period based on company-specific AUL data. As described
above, this would conform with our practice in administrative reviews
of the same countervailing duty order. Alternatively, an additional
option would be to determine an individual AUL for each year in which a
non-recurring subsidy is provided to a company, rather than to
determine a company-specific AUL for non-recurring subsidies that could
change with each investigation and result in different allocation
periods for the same subsidy, as detailed above. We also welcome any
additional comments on this issue not raised above.
This investigation also includes non-recurring grants to Sammi that
have not been previously investigated. However, because we have no
information from Sammi, we are basing the countervailing duty rate for
Sammi on the facts available. Thus, as facts available, we are using
the 15 years as set out in the U.S. Internal Revenue Service's Class
Life Asset Depreciation Range System (for a more detailed discussion
see the GIA).
Treatment of Subsidies Received by Trading Companies: We required
responses from the trading companies because the subject merchandise
may be subsidized by means of subsidies provided to both the producer
and the exporter of the subject merchandise. Subsidies conferred on the
production and exportation of subject merchandise benefit the subject
merchandise even if the merchandise is exported to the United States by
an unaffiliated trading company rather than by the producer itself.
Therefore, the Department calculates countervailable subsidy rates on
the subject merchandise by cumulating subsidies provided to the
producer with those provided to the exporter. During the POI, POSCO and
Inchon exported subject merchandise to the United States through
trading companies. We required that the trading companies provide
responses to the Department with respect to the export subsidies under
investigation. One of the trading companies, POSTEEL, is affiliated
with POSCO within the meaning of section 771(33)(E) of the Act because
POSCO owned 95.3 percent of POSTEEL's shares as of December 31, 1997.
The other trading companies are not affiliated with POSCO.
Additionally, according to its response, Inchon is affiliated with one
of the trading companies, Hyundai. This reported affiliation is based
upon cross-shareholdings and common board members within the Hyundai
group. The trading company, Hyundai, did respond to the Department's
questionnaire concerning subsidies that it had received during the POI.
However, because the status of affiliation does not affect the
calculated subsidy rate for Inchon for the purpose of including
subsidies provided to trading companies in Inchon's rate, we have not
made a determination of the affiliation of Inchon and Hyundai within
the meaning of section 771(33)(E) of the Act.
Under section 351.107 of the Department's Regulations, when the
subject merchandise is exported to the United States by a company that
is not the producer of the merchandise, the Department may establish a
``combination'' rate for each combination of an exporter and supplying
producer. However, as noted in the ``Explanation of the Final Rules''
(the Preamble), there may be situations in which it is not appropriate
or practicable to establish combination rates when the subject
merchandise is exported by a trading company. In such situations, the
Department will make exceptions to its combination rate approach on a
case-by-case basis. See Antidumping Duties; Countervailing Duties;
Final rule, 62 FR 27296, 27303 (May 19, 1997).
In this investigation, we preliminarily determine that it is not
appropriate to establish combination rates. This determination is based
on two main facts: first, the majority of the subsidies conferred upon
the subject merchandise were received by the producers; second, the
difference in the levels of subsidies conferred upon individual trading
companies with regard to the subject merchandise is insignificant.
Combination rates would serve no practicable purpose because the
calculated subsidy rate for a producer and a combination of any of the
trading companies would effectively be the same rate. For these reasons
we are not calculating combination rates in this investigation.
Instead, the rates that we have calculated for the producers of
subject merchandise include the subsidies received by the trading
companies. To reflect those subsidies that are received by the
exporters of the subject merchandise in the calculated ad valorem
subsidy rate, we used the following methodology. For each of the seven
trading companies, we calculated the benefit attributable to the
subject merchandise. We then factored that amount into the calculated
subsidy rate for the relevant producer. In each case, we determined the
benefit received by the trading companies for each export subsidy, and
weighted the average of the benefit amounts by the relative share of
each trading company's value of exports of the subject merchandise to
the United States. These calculated ad valorem subsidies were then
added to the subsidies calculated for the producers of subject
merchandise. Thus, for each of the programs below, the listed ad
valorem subsidy rate includes countervailable subsidies received by
both the producing and trading companies.
Creditworthiness
As stated in our Initiation Notice, we initiated an investigation
of Inchon's creditworthiness from 1991 through 1997, and of Sammi's
creditworthiness from 1990 to 1997, to the extent that nonrecurring
grants, long-term loans, or loan guarantees were provided in those
years.
When the Department examines whether a company is creditworthy, it
is essentially attempting to determine if the company in question could
obtain commercial financing at commonly available interest rates. If a
company receives comparable long-term financing from commercial
sources, that company will normally be considered creditworthy. In the
absence of comparable commercial borrowing, the Department examines the
following factors, among others, to determine whether or not a firm is
creditworthy:
[[Page 63889]]
1. Current and past indicators of a firm's financial health
calculated from that firm's financial statements and accounts.
2. The firm's recent past and present ability to meet its costs and
fixed financial obligations with its cash flow.
3. Future financial prospects of the firm including market studies,
economic forecasts, and projects or loan appraisals.
For a more detailed discussion of the Department's creditworthiness
criteria, see, e.g., Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from France, 58 FR 37304 (July
9, 1993) (Certain Steel from France); and Final Affirmative
Countervailing Duty Determinations: Certain Steel Products from the
United Kingdom, 58 FR 37393 (July 9, 1993).
Inchon
In accordance with the Department's past practice, the receipt by a
firm of comparable long-term commercial loans, provided without a
government guarantee constitutes dispositive evidence that the firm is
creditworthy. See, e.g., Final Negative Countervailing Duty
Determination and Final Negative Critical Circumstances Determination:
Certain Laminated Hardwood Trailer Flooring from Canada, 62 FR 5201
(February 4, 1997). During the years under investigation, Inchon
received numerous loans from both government-owned and private banks.
Because petitioners also alleged that Inchon received government-
directed credit, we have also looked at Inchon's bond issuances as
comparable commercial financing. Even if the existence of these loans
does not, on its own, constitute dispositive evidence that the firm is
creditworthy, it is evidence that Inchon was capable of managing its
long-term debt obligations.
In addition, we considered Inchon's present and past financial
health, as reflected in various financial indicators calculated from
the firm's financial statements and accounts, in making our
determination. To this end, we calculated Inchon's financial indicators
for the years 1988 through 1996. In our examination of Inchon's
relevant financial ratios, we did not find that the company would be
unable to meet its debt obligations. Furthermore, Inchon's financial
health remained relatively stable over the years examined, without the
appearance of any significant deterioration.
Although a number of the financial indicators were found to be weak
during certain years, the medium- and long-term indicators do not
support a determination that Inchon was uncreditworthy in any of the
years examined. Furthermore, while there is a possibility that Inchon's
long-term commercial financing (e.g. bonds) may not be dispositive
evidence of creditworthiness because of government direction of credit,
it serves as further evidence that Inchon was capable of meeting its
long-term debt obligations. Based on these observations, we
preliminarily find that Inchon was creditworthy for the years under
investigation. See Creditworthiness Memorandum, on file in the public
file of the Central Records Unit of the Department of Commerce, Room B-
099.
Sammi
Because Sammi and the GOK chose not to respond with regard to this
allegation, we used the information and financial data provided in the
petition as the facts available in accordance with section 776(b) of
the Act. (For further discussion, see the ``Facts Available'' section
of this notice.) Petitioners alleged that Sammi was uncreditworthy
during the period of 1983 through 1997 (although we deemed it
appropriate to investigate only the 1990 through 1997 time period). See
Initiation Notice. To illustrate the deterioration of Sammi's financial
health, petitioners provided press articles and debt and profit ratios
for the years of 1990 to 1996 based on the company's financial data.
See the June 10, 1998, Petition at Exhibit 11 and 13, and their June
24, 1998, submission at Attachment 3. Based on this information, it
appears that the company was nearly insolvent, as Sammi had shown a
profit only once since 1991 and lacked strong future prospects. We
reviewed the financial data of Sammi that was provided in the petition.
The data indicate that, during the years 1990 through 1997, Sammi was
not in good financial condition. The company's current ratio, quick
ratio, and times interest earned ratios were low, indicating that Sammi
may have had difficulty servicing new debt. In addition, the company's
profit margins were low or negative. Further, it appears from such
documentation that Sammi was having increasing difficulty in meeting
its financial obligations.
In many cases, the Department considers a company to be
creditworthy if it is able to procure commercial loans. However, in
this case, the company's ability to obtain commercial loans is unclear,
as information provided by petitioners indicates that the GOK may have
been directing commercial banks to provide emergency financing to Sammi
in order to avoid the company's bankruptcy. Based on this information,
we preliminarily determine that Sammi was uncreditworthy from 1990
through 1997.
I. Programs Preliminarily Determined To Be Countervailable
A. Direction of Credit
In the 1993 investigation of Steel Products from Korea, the
Department determined (1) that the GOK influenced the practices of
lending institutions in Korea; (2) that the GOK regulated long-term
loans provided to the steel industry on a selective basis; and (3) that
the selective provision of these regulated loans resulted in a
countervailable benefit. Accordingly, all long-term loans received by
the producers/exporters of the subject merchandise were treated as
countervailable. The determination in that investigation covered all
long-term loans bestowed through 1991. See 58 FR at 37339.
In this investigation, petitioners allege that the GOK continued to
control the practices of lending institutions in Korea through the POI,
and that the steel sector received a disproportionate share of low-
cost, long-term credit, resulting in the conferral of countervailable
benefits on the producers/exporters of the subject merchandise.
Petitioners assert, therefore, that the Department should countervail
all long-term loans received by the producers/exporters of the subject
merchandise that were still outstanding during the POI.
1. The GOK's Credit Policies Through 1991. As noted above, we
previously found significant GOK control over the practices of lending
institutions in Korea through 1991, the period investigated in Steel
Products From Korea. This finding of control was determined to be
sufficient to constitute a government program and government action.
See 58 FR at 37342. We also determined that (1) the Korean steel
sector, as a result of the GOK's credit policies and control over the
Korean financial sector, received a disproportionate share of regulated
long-term loans, so that the program was, in fact, specific, and (2)
that the interest rates on those loans were inconsistent with
commercial considerations. Id. at 37343. Thus, we countervailed all
long-term loans received by the steel sector from all lending sources.
In this investigation, we provided the GOK with the opportunity to
present new factual information concerning the government's credit
policies prior to 1992, which we would consider along with our finding
in the prior investigation. The GOK has not
[[Page 63890]]
provided new factual information that would lead us to change our
determination in Steel Products from Korea. Therefore, we preliminarily
determine that the provision of long-term loans in Korea through 1991
results in a financial contribution within the meaning of section
771(5)(D)(i) of the Act. This finding is in conformance with the SAA,
which states that ``section 771(5)(B)(iii) encompasses indirect subsidy
practices like those which Commerce has countervailed in the past, and
that these types of indirect subsidies will continue to be
countervailable.'' SAA at 925. In accordance with section 771(5)(E)(ii)
of the Act, a benefit has been conferred to the recipient to the extent
that the regulated loans are provided at interest rates less than the
benchmark rates described under the ``Subsidies Valuation'' section,
above.
We also preliminarily determine that all regulated long-term loans
provided to the producers/exporters of the subject merchandise through
1991 were provided to a specific enterprise or industry, or group
thereof, within the meaning of section 771(5A)(D)(iii)(III) of the Act.
This finding is in conformance with our determination in Steel Products
from Korea. See 58 FR at 37342.
POSCO, Inchon and Dai Yang all received long-term loans prior to
1992 that were still outstanding during the POI. These included loans
with both fixed and variable interest rates for all three responding
companies. To determine the benefits from the regulated loans with
fixed interest rates, we applied the Department's standard long-term
loan methodology and calculated the grant equivalent for the loans. For
the variable-rate loans, we compared the amount of interest paid during
the POI on the regulated loans to the amount of interest that would
have been paid at the benchmark rate. We then summed the benefit
amounts from all of the loans attributable to the POI and divided the
total benefit by each company's total sales. On this basis, we
determine the countervailable subsidy rates to be 0.15 percent ad
valorem for POSCO, 0.04 percent ad valorem for Inchon, and 0.06 percent
ad valorem for Dai Yang.
2. The GOK's Credit Policies From 1992 Through 1997. We have also
examined the GOK's credit policies during the period 1992 through 1997.
Because of the complexity of this issue and the conflicting information
on the record, which we discuss below, we will continue to seek
additional information on whether the GOK's practices during this
period confer a countervailable subsidy. After we collect additional
information and conduct verification, we will prepare an analysis
memorandum addressing the countervailability of the GOK's credit
policies during this period and provide all parties with an opportunity
to comment on our analysis.
In its questionnaire responses, the GOK asserts that there was no
government policy to direct long-term credit to the Korean steel
industry during the period 1992 through 1997, and that it was not
involved in the lending activities of Korean financial institutions.
The GOK states that the lending decisions and loan distributions of
financial institutions in Korea reflect commercial considerations. The
GOK states that its role in the financial sector is limited to monetary
and credit policies as well as bank supervision and examination.
Evidence submitted to the Department by the GOK indicates that some
deregulatory measures affecting the Korean financial sector have been
taken since 1991. These include a four-stage interest rate deregulation
plan that, according to the GOK, virtually eliminated all government
control over deposit and lending rates in Korean won. For example,
rates on corporate bonds and all bank loans, other than those assisted
by Bank of Korea (BOK) rediscounts, were deregulated by November 1993.
Also, information submitted to the Department by the GOK indicates that
there have been reforms to the process by which commercial bank
presidents are selected. The reforms include a procedure, implemented
in 1993, whereby bank chairmen are selected by committees consisting of
shareholder representatives, corporate clients, and ex-bank presidents.
In 1997, the GOK further amended the Banking Act to prescribe that a
candidate for bank president, recommended by a candidate recommendation
committee, must be elected by an affirmative vote of a two-thirds
majority of the non-permanent directors of the bank.
However, other information in the record indicates that the GOK may
still exert substantial influence over the lending decisions of
financial institutions. For example, recent GOK policies appear to be
aimed, in part, at promoting certain sectors of the economy, such as
high technology and small and medium sized enterprises (SMEs). See,
e.g., ``KDB Financial Support for Korean Industries,'' from the Korea
Development Bank appended to ``Memorandum From Case Analyst to File,
Re: Articles on Korean Financial System'' (on file in the public file
of the Central Records Unit of the Department of Commerce, Room B-099)
(``Korean Financial System Memo''). Other official information on the
record appears to suggest that the GOK may have continued the practice
of directing credit after 1991. Independent commentators have also
noted the GOK's continued involvement in the financial system. See,
e.g., Deep Pockets, ``The Economist'' (May 3, 1997), appended to Korean
Financial System Memo; Financing Foreign Operations, South Korea, The
Economist Intelligence Unit, 1997, page 20 (1997), appended to Korean
Financial System Memo; The Korean Economy in 1997: Crisis and Response,
by Thomas Byrne, appended to Korean Financial System Memo.
As noted above, in light of this conflicting information, at
verification and during the course of this proceeding, we will gather
additional information in order to make a determination as to whether
credit provided after 1991 is countervailable. During verification, we
plan to meet with various individuals who are knowledgeable about the
financial sector in Korea in order to gather information about the
differences between the GOK's credit policies in the 1980s and the
1990s; the lending practices of government-owned banks and of
commercial lending institutions; the role of securities (public and
corporate bonds) in the financial system; and the impact of the GOK's
financial liberalization on the lending practices of Korean banks after
1991.
B. Loans From the Energy Savings Fund
Established in accordance with Article 51 of the ``Rationalization
of Energy Utilization Act'' (Energy Use Act), the Energy Saving Fund
provides financing at below-market interest rates for investment by
businesses in facilities that rationally and efficiently use energy.
Overall responsibility for the program lies with the Ministry of
Industry and Energy (MIE), but the operation and management of the
program is entrusted to the Korea Energy Management Corporation (KEMC).
While the Energy Use Act was repealed in 1995, the MIE, under the new
``Energy Use Rationalization Act,'' provides financing for this program
from special government accounts.
Korean companies obtain financing under this program by submitting
an application to the KEMC. If the KEMC is satisfied that the
applicant's business plans are intended for the rationalization of
energy use, it will then issue a recommendation, and forward the
company's application to a
[[Page 63891]]
bank. The KEMC will transfer funds to the bank, which will in turn
provide the funds to the applicant. The interest rate charged under the
Energy Saving Fund was set at 7.0 percent. POSCO and Inchon paid
interest on Energy Saving Fund (ESF) loans during the POI, and the
interest rates paid by the companies were less than the 7.0 percent
rate prescribed by the program. POSCO received two ESF loans, both in
1994, and both at interest rates below 7.0 percent. Inchon also
received two ESF loans, one before 1992 and one after 1992. The pre-
1992 ESF loan was at a rate below the prescribed interest rate set by
the program.
We preliminarily determine that the program provides a financial
contribution within the meaning of section 771(5)(D)(i) of the Act and,
in accordance with section 771(5)(E)(ii) of the Act, provides a benefit
to the recipient based on the difference between the interest rate on
the program loan and the benchmark rate described in the ``Subsidies
Valuation'' section, above. We also preliminarily determine that the
loans provided to POSCO and the pre-1992 loan made to Inchon were
specific within the meaning of section 771(5A)(D)(iii)(IV) of the Act,
because the interest rates charged to POSCO and Inchon were less than
the program interest rate prescribed by the program's regulations. We
note that the ESF loan received by Inchon before 1992 would also be
found to be countervailable under our determination in the 1993
investigation of Steel Products from Korea that the GOK directed credit
to the steel industry. See also the ``Direction of Credit'' section in
this preliminary determination.
To calculate the benefit from the Energy Savings Loans, we employed
the Department's standard long-term loan methodology, using as our
benchmark the rate described in the ``Subsidies Valuation'' section of
the notice, above. We divided the benefit attributable to the POI by
each company's total sales during 1997. On this basis, we preliminarily
determine the countervailable subsidy to be less than 0.005 percent ad
valorem for POSCO and for Inchon.
We have not yet made a determination on whether the post-1992 ESF
loan provided to Inchon is countervailable. According to the
information provided by the GOK and Inchon, the interest rate on the
post-1992 loan is in accordance with the prescribed rates under the ESF
program. Thus, we must make a specificity determination on the ESF
program under section 771(5A)(D) of the Act. The information on the
record regarding the specificity of the ESF program is inconclusive.
Therefore, we are seeking additional information on this program and
will make our determination of the specificity of the program in our
final determination. We will offer all interested parties an
opportunity to comment on any additional factual information obtained
concerning this program.
C. 1992 ``Emergency Loans'' to Sammi Steel
The petition alleges that in 1992 the GOK directed a package of 132
billion won in ``emergency loans'' to Sammi in order to save the
company from bankruptcy. Because Sammi and the GOK chose not to respond
with regard to this allegation, we used the information and data
provided in the petition as adverse facts available, in accordance with
section 776(b) of the Act. This information, in conjunction with our
finding that Sammi was uncreditworthy during the year in question,
indicates that Sammi was the recipient of a government-directed
emergency loan package in 1992, and that this loan package provided a
financial contribution in accordance with section 771(5)(D)(i) of the
Act. In addition, because this emergency loan package was only provided
to Sammi, we preliminary determine that the program is specific under
section 771(5A)(D) of the Act.
Under section 771(5)(E)(ii) of the Act, the benefit from a
countervailable loan is based upon the difference between the amount
the recipient of the loan pays on the loan and the amount the recipient
would pay on a comparable commercial loan that the recipient could
actually obtain on the market. Because the loans in question are part
of a government-directed emergency loan package to forestall Sammi's
bankruptcy, it is reasonable to assume that the company would not have
been able to actually obtain alternative financing absent the
participation of the government. Therefore, for this preliminary
determination, as facts available, we are treating these emergency
loans of 132 billion won as interest-free loans which are rolled over
from year to year. A review of Sammi's 1996 financial statements
indicate that the company is paying little interest on outstanding
debt, interest that may not have been sufficient to cover even its
short-term debt. Thus, we are calculating the benefit from these
interest-free loans using the Department's standard long-term variable
rate loan methodology. To calculate the benefit from this program
during the POI, we took the amount of the loans, 132 billion won, and
calculated the amount of interest that would have been paid on that
amount. As facts available, we have used as a benchmark interest rate
the highest available commercial loan rate, plus a risk premium. For a
more detailed discussion, see the ``Subsidies Valuation'' section of
this notice. We divided the benefit attributable to the POI by Sammi's
total sales during 1996. We used the sales figure reported in Sammi's
1996 financial statements as a proxy for the 1997 sales because we do
not have any information of the value of Sammi's sales for the POI. On
this basis, we preliminarily determine the countervailable subsidy
conferred to be 3.18 percent ad valorem.
Petitioners have argued that under the application of adverse facts
available, with no other information on the record, the emergency loans
received by Sammi should be treated as grants. However, for the
purposes of this preliminary determination, it is appropriate to treat
this emergency loan package as loans. When this program was initially
alleged, it was alleged that the GOK had provided a large amount of
money to Sammi in the form of loans. See the June 10, 1998, Petition at
page 56 (public version on file in the public file of the Central
Records Unit of the Department of Commerce, Room B-099). Moreover, the
information provided in the petition which was the basis for the
Department's initiation of an investigation into this program,
describes this program as a loan package. See the June 10, 1998
Petition at Exhibit 8 (public version on file in the public file of the
Central Records Unit of the Department of Commerce, Room B-099).
D. ``National Subsidy'' to Sammi
The petitioners allege that in 1993 Sammi received a ``national
subsidy'' in the amount of 39 million won. They provide the company's
1993 financial statement, which has an entry for the alleged subsidy,
although the nature of the subsidy is not explained. Neither Sammi nor
the GOK submitted any information to the record explaining this
subsidy. Therefore, in accordance with 776(b) of the Act, we used the
information provided in the petition. We find this program to be
countervailable because this subsidy was given only to Sammi, and thus,
it is specific under section 771(5A)(D) of the Act, and a financial
contribution was provided to Sammi under section 771(5)(D)(ii) of the
Act.
Because no other information was provided, we are treating this
``national subsidy'' as a grant bestowed upon
[[Page 63892]]
Sammi. In order to calculate the rate for this program, we employed the
Department's grant methodology. See GIA, 58 FR at 37225-31. However,
because the total amount of the national subsidy is less than 0.50
percent of Sammi's 1993 sales, we have expensed the grant in the year
of receipt. Thus, there is no benefit under this program during the
POI.
E. Purchase of Sammi Specialty Steel Division for More than Adequate
Remuneration
In February 1997, POSCO purchased the specialty steel bar and pipe
division of Sammi for 719.4 billion won. This division became POSCO's
Changwon facility. Petitioners alleged that POSCO was directed by the
government to purchase the Sammi Specialty Steel Division as a matter
of national interest as opposed to one of economic merit. Petitioners
alleged that the GOK used its ownership in POSCO as a vehicle for the
subsidization of Sammi. Thus, petitioners allege that POSCO's purchase
of the Sammi Specialty Steel Division was for more than adequate
remuneration.
As noted in the ``Use of Facts Available'' section of this notice,
Sammi refused to respond to the Department's questionnaires. POSCO has
provided certain documents relevant to this purchase, but Sammi's
refusal to respond to our questionnaires means that significant
portions of information required by the Department to analyze this
program have not been provided. Thus, in making this preliminary
determination, we have relied on both information provided by POSCO and
information provided in the petition with respect to this allegation.
In accordance with section 776(b) of the Act, the Department may use an
inference that is adverse to the interest of a party when selecting
from facts otherwise available when the party has failed to cooperate
with a request for information. As discussed in the ``Use of Facts
Available'' section, we determined that Sammi has failed to cooperate
by not answering the Department's questionnaire.
Based on the information on the record, we preliminarily determine
that the actions of POSCO should be considered as an action of the GOK
because POSCO is a government-controlled company. During the POI, the
GOK was the largest shareholder of POSCO. We also note that POSCO is
one of three companies designated as a ``Public Company'' by the GOK.
One of the other ``Public Companies'' is the state-run utility company,
KEPCO. This determination that POSCO should be treated as a government-
owned provider of a good or service is consistent with other cases
involving the provision of a good or service by government-owned
companies. See, e.g., Final Affirmative Countervailing Duty
Determination: Steel Wire Rod from Venezuela, 62 FR 55014 (October 22,
1997).
Over the course of this investigation, we have reviewed numerous
documents that relate to this purchase, including the valuation studies
and the purchase contract between POSCO and Sammi. The amount paid by
POSCO was significantly higher than the value defined by POSCO's own
interim valuation report. Ostensibly, Sammi used the proceeds from the
sale to pay debts owed by its other divisions. It appears as though the
purchase price agreed upon by POSCO and Sammi included money both for
the assets that POSCO was purchasing and for the repayment of debt
associated with these assets. See POSCO's October 21, 1998,
supplemental questionnaire response at Exhibit F-12, public version on
file in the public file of the Central Records Unit of the Department
of Commerce, Room B-099.
According to section 771(5)(E) of the Act, the adequacy of
remuneration with respect to a government's provision of a good or
service shall be determined in relation to prevailing market conditions
for the good or service being provided or the goods being purchased in
the country which is subject to the investigation or review. Because no
information was provided by Sammi with respect to this program, as
facts available the adequacy of remuneration was based on a comparison
of the value and profitability of Sammi's bar and pipe division, as
described in POSCO's valuation report, with the actual purchase price.
On this basis, the Department preliminarily determines that POSCO made
this purchase for more than adequate remuneration, thereby conferring a
benefit under section 771(5)(E)(iv) of the Act. In accordance with
section 771(5A)(D)(i) of the Act, we find that this program is specific
to Sammi.
To calculate a countervailing duty rate for this purchase, we
treated the excessive remuneration, i.e., the amount paid for Sammi by
POSCO in excess of POSCO's own valuation, as a non-recurring grant and
allocated it over the average useful life of assets in the industry.
For a discussion of the AUL, see the ``Subsidies Valuation'' section of
this notice. Based on this methodology, we calculated a countervailable
subsidy of 15.90 percent ad valorem for Sammi for this program during
the POI.
F. Kwangyang Bay
Petitioners requested that the Department investigate whether the
GOK's infrastructure development at Kwangyang Bay continues to provide
a countervailable subsidy to POSCO's steel production. The Department
previously determined that the Korean government's infrastructure
development at Kwangyang Bay constituted a specific countervailable
subsidy to POSCO, because POSCO was found to be the predominant user of
the infrastructure. See Steel Products from Korea, 58 FR at 37346-47.
Because POSCO still produces steel products at Kwangyang Bay, we
requested information on this program to determine whether the GOK has
made additional investments since 1991, at Kwangyang Bay.
1. GOK Infrastructure Investments at Kwangyang Bay Pre-1992. In
Steel Products from Korea, the Department investigated the GOK's
infrastructure investments at Kwangyang Bay over the period 1983-1991.
During this period of time, the GOK's investments at Kwangyang Bay
included: construction of an industrial waterway, construction of a
railroad station, construction of a road to Kwangyang Bay, dredging of
the harbor, and construction of three finished goods berths. We
determined that the GOK's provision of infrastructure to POSCO at
Kwangyang Bay was countervailable because we found POSCO to be the
predominant user of the GOK's investments. The Department has
consistently held that a countervailable subsidy exists when benefits
under a program are provided, or are required to be provided, in law or
in fact, to a specific enterprise or industry or group of enterprises
or industries. See Steel Products from Korea, 58 FR at 37346.
No new factual information or evidence of changed circumstances has
been provided to the Department with respect to the GOK's
infrastructure investments at Kwangyang Bay over the period 1983-1991.
Therefore, to determine the benefit from the GOK's investments to POSCO
during the POI, we relied on the calculations performed in the 1993
investigation of Steel Products from Korea, which were placed on the
record of this investigation by POSCO. In measuring the benefit from
this program in the 1993 investigation, the Department treated the
GOK's costs of constructing the infrastructure at Kwangyang Bay as
untied, non-recurring grants in each year in which the costs were
incurred. The Department used as its discount rate the three-year
corporate bond rate
[[Page 63893]]
on the secondary market, which was the average cost of long-term fixed
rate debt in Korea at that time.
We applied the Department's standard grant methodology and then
allocated the GOK's infrastructure investments over a 15-year time
period as described in the ``Allocation'' section of the notice, above.
We used as our discount rate the three-year corporate bond rate on the
secondary market used in Steel Products from Korea. We then summed the
benefits received by POSCO during 1997, from each of the GOK's yearly
investments over the period 1983-1991. We then divided the total
benefit attributable to the POI by POSCO's total sales for 1997. On
this basis, we preliminarily determine a countervailable subsidy of
0.29 percent ad valorem for the POI for POSCO.
2. GOK Infrastructure Investments at Kwangyang Bay Post-1991. The
GOK has made the following additional infrastructure investments at
Kwangyang Bay since 1991: construction of a road from Kwangyang to
Jinwol, construction of a container terminal, and construction of the
Jooam Dam. The GOK states that pursuant to Article 29 of the Industrial
Sites and Development Act, it is the national and local governments'
responsibility to provide basic infrastructure facilities throughout
the country, and the nature of the infrastructure depends on the
specific needs of each area and/or the types of industries located in a
particular area. Depending upon the type of infrastructure built, the
GOK provides services to companies through the use of the
infrastructure facilities and charges fees for these services based on
published tariff rates applicable to all users.
With respect to the GOK's post-1991 infrastructure investments at
Kwangyang Bay, the GOK argues that the construction of the
infrastructure was not for the benefit of POSCO. The GOK reports that
the purpose of developing the Jooam Dam, which was fully constructed in
1993, was to meet the rising demand for water by area businesses and
households. The supply capacity of the Sueochon dam, which was
constructed prior to 1991, could not meet the area's water needs and
therefore a second dam at Kwangyang Bay was built. The GOK further
reports that the construction of the Jooam Dam did not benefit POSCO
because POSCO receives all of its water supply from the Sueochon Dam.
In Steel Products from Korea, we determined that POSCO was the
predominant user of the Sueochon Dam, and on this basis treated the
government's full investment costs for constructing that dam as
countervailable subsidies benefitting POSCO.
The GOK developed the container terminal according to the Kwangyang
Container Terminal Development Plan. The purpose of the container
terminal was to provide another major southern port with a container
terminal in order to relieve congestion at Pusan, and to encourage the
further commercial development of the region. The GOK states that,
given the nature of the merchandise imported, produced, and exported by
POSCO at Kwangyang Bay, this container terminal cannot be used by
POSCO's operations. According to the responses from the GOK and POSCO,
neither steel products nor steel inputs are shipped through the
container terminal at Kwangyang Bay, nor, given the nature of those
products, would they be shipped through the container terminal.
The road from Kwangyang to Jinwol was constructed in 1993. The road
between the two cities is a by-pass route constructed to relieve a
transportation bottleneck in the area. The GOK states that this is a
general service, public access road available for, and used by, all
residents and businesses in the area of Kwangyang Bay. According to the
GOK response, the reason for building the public highway was not to
serve POSCO, but to provide general infrastructure to the area as part
of the GOK's continuing development of the country.
Based on the information on the record regarding the GOK's
infrastructure investments at Kwangyang Bay since 1991, we
preliminarily determine that these investments are not providing
countervailable benefits to POSCO. However, we will further investigate
the GOK's infrastructure investments at verification to ascertain
whether or not, in fact, the facilities were built for POSCO's benefit.
G. Port Facility Fees
The GOK reports in its September 10, 1998, questionnaire response
that, since 1991, POSCO has built new port facilities at Kwangyang Bay,
at the company's own expense. However, since titles to port facilities
must be transferred to the GOK in accordance with Article 17-1 of the
Harbor Act, POSCO had to revert these facilities to the GOK. In return,
POSCO has the right to use the port facilities free of charge, and can
charge other users a usage fee until the company recovers all of its
investment costs.
In the 1993 investigation of Steel Products from Korea, the
Department found that POSCO, which built port berths at Kwangyang Bay,
but, by law, had to deed them to the GOK, was exempt from paying fees
for use of the berths. POSCO was the only company entitled to use the
berths at the port facility free of charge. The Department determined
that because this privilege was limited to POSCO, and because the
privilege relieved POSCO of costs it would otherwise have had to pay,
POSCO's free use of the berths at Kwangyang Bay constituted a
countervailable benefit. The Department stated that each exemption from
payment of the fees, or ``reimbursement'' to POSCO, creates a
countervailable benefit because the GOK is relieving POSCO of an
expense the company would have otherwise incurred. See Steel Products
from Korea, 58 FR at 37347-348.
With respect to the present investigation, because POSCO remains
exempt from paying port facility fees which it otherwise would have to
pay, and therefore the government is not collecting revenue that it is
otherwise due, we preliminarily determine that POSCO's free use of the
port facilities provides a financial contribution to the company within
the meaning of section 771(5)(D)(ii) of the Act. We also preliminarily
find that the exemption from paying port facility charges is a specific
subsidy under section 771(5A)(D)(iii)(IV) of the Act, because POSCO was
the only company exempt from paying port facility fees during the POI.
Because the exemption of the port facility fees are not
``exceptional'' benefits and are received automatically on a regular
and predictable basis without further government approval, we
preliminarily determine that this fee exemption provides a recurring
benefit to POSCO. Therefore, we have expensed the benefit from this
program in the year of receipt. See GIA, 58 FR at 37226. To measure the
benefit which POSCO received during the POI for the free use of the
facilities, we calculated the amount of the fees which POSCO would have
had to pay for the use of the facilities during the POI. We then
divided this benefit amount by POSCO's total sales for the POI. On this
basis, we preliminarily determine that POSCO received a countervailable
subsidy of 0.03 percent ad valorem during the POI.
H. Export Industry Facility Loans
In Steel Products from Korea, 58 FR at 37328, the Department
determined that export industry facility loans (EIFLs) are contingent
upon export, and are therefore export subsidies to the extent that they
are provided at preferential rates. In this investigation,
[[Page 63894]]
we provided the GOK with the opportunity to present new factual
information concerning these EIFLs, which we would consider along with
our finding in the prior investigation. The GOK has not provided new
factual information that would lead us to change our determination in
Steel Products from Korea. Therefore, we continue to find that EIFLs
are provided on the basis of export performance and are export
subsidies under section 771(5A)(B) of the Act. We also preliminarily
determine that the provision of loans under this program results in a
financial contribution within the meaning of section 771(5)(D)(i) of
the Act. In accordance with section 771(5)(E)(ii) of the Act, a benefit
has been conferred to the recipient to the extent that the EIFLs are
provided at interest rates less than the benchmark rates described
under the ``Subsidies Valuation'' section, above.
Dai Yang was the only respondent with outstanding loans under this
program during the POI. To calculate the benefit conferred by this
program, we compared the actual interest paid on the loan with the
amount of interest that would have been paid at the applicable
benchmark interest rate. When the interest that would have been paid at
the benchmark rate exceeds the interest that was paid at the program
interest rate, the difference between those amounts is the benefit. We
divided the benefits derived from the loans by total export sales. On
this basis, we preliminarily determine that Dai Yang received from this
program during the POI a countervailable subsidy of 0.04 percent ad
valorem.
I. Short-Term Export Financing
The Department determined that the GOK's short-term export
financing program was countervailable in Steel Products from Korea, 58
FR at 37350. Petitioners allege that this program may also have
benefitted the producers and/or exporters of the subject merchandise.
In this investigation, the GOK reports that the BOK, under the
``Detailed Rules of Trade Financing Related to the Aggregate Ceiling
Loans'' (Detailed Rules), provides discounts on foreign trade bills to
commercial banks, which, in turn, extend short-term loans to exporters.
Under the aggregate credit ceiling system established in 1994, the BOK
allocates a credit ceiling every month to each commercial bank,
including branches of Korean and foreign banks. This ceiling is based
on each bank's loan performance, i.e., each bank's discounting of
commercial loans, foreign trade financing, and loans for the production
of parts and material. These banks then provide loans to exporters
using the funds received from the BOK and funds generated from their
own sources to discount trade bills.
There are two types of trade financing: production financing and
raw material financing. A bank provides production financing when a
company needs funds for the production of export merchandise or the
production of raw materials used in the production of exported
merchandise. A bank extends raw material financing to exporters which
require financing for the importation or local purchase of raw
materials used in the production of exported merchandise.
During the POI, POSCO and Dai Yang both received export financing.
These two companies report that they entered into credit ceiling loan
agreements with commercial banks in accordance with Articles 12 and 13
of the Detailed Rules to receive production financing. The loan
agreements outlined the maximum amount of credit which POSCO and Dai
Yang were eligible to receive, the periods covered by the loan
agreements, the applicable interest rates, and the penalty interest
rates.
When the exporting company purchases raw materials from a supplier
on a letter of credit basis, the supplier presents the letter of credit
to the exporter's bank for payment. The bank, in turn, pays the
purchase price to the supplier and debits the trade loan against the
exporter's line of credit. The exporter pays the full amount of each
trade loan after about 90 days, which is the average period from
production to sales. Interest is paid by the exporter against each
trade loan at the time the loans are received. Both Dai Yang and POSCO
reported that they paid all of their export financing during the POI in
a timely manner and incurred no overdue interest penalties.
In accordance with section 771(5A)(B) of the Act, we preliminary
determine that this program constitutes an export subsidy because
receipt of the financing is contingent upon export performance. A
financial contribution is provided to Dai Yang and POSCO under this
program within the meaning of section 771(5)(D)(i) of the Act. In order
to determine whether this export financing program confers a
countervailable benefit to Dai Yang and POSCO, we compared the interest
rate the companies paid on the export financing received under this
program during the POI with the interest rate they would have paid on a
comparable short-term commercial loan. See discussion above in the
``Subsidies Valuation Information'' section with respect to short-term
loan benchmark interest rates.
Because loans under this program are discounted (i.e., interest is
paid up-front at the time the loans are received), the effective rates
paid by POSCO and Dai Yang on their export financing are discounted
rates. Therefore, it was necessary to derive from company-specific
weighted-average interest rates for short-term won-denominated
commercial loans, a discounted benchmark interest rate. We compared
this discounted benchmark interest rate to the discounted interest
rates charged on the export financing and found that the program
interest rates were lower than the benchmark rates. Therefore, in
accordance with section 771(5)(E)(ii) of the Act, we preliminarily
determine that this program confers countervailable benefits because
the interest rates charged on the loans were less than what POSCO would
have had to pay on a comparable short-term commercial loan.
To calculate the benefit conferred by this program, we compared the
actual interest paid on the loans with the amount of interest that
would have been paid at the applicable discounted benchmark interest
rates. When the interest that would have been paid at the benchmark
rate exceeded the interest that was paid at the program interest rate,
the difference between those amounts is the benefit. Because neither
POSCO nor Dai Yang was able to segregate their production financing
applicable to only subject merchandise exported to the United States,
we divided the benefits derived from the loans by total exports. On
this basis, we preliminarily determine that POSCO received from this
program during the POI a countervailable subsidy of less than 0.005
percent ad valorem, and that Dai Yang received a countervailable
subsidy of 0.04 percent ad valorem during the POI.
J. Reserve for Export Loss `` Article 16 of the TERCL
Under Article 16 of the Tax Exemption and Reduction Control Act
(TERCL), a domestic person engaged in a foreign-currency earning
business can establish a reserve amounting to the lesser of one percent
of foreign exchange earnings or 50 percent of net income for the
respective tax year. Losses accruing from the cancellation of an export
contract, or from the execution of a disadvantageous export contract,
may be offset by returning an equivalent amount from the reserve fund
to the income account. Any amount that is not used to offset a loss
must be returned to the income account and taxed over a
[[Page 63895]]
three-year period, after a one-year grace period. All of the money in
the reserve is eventually reported as income and subject to corporate
tax either when it is used to offset export losses or when the grace
period expires and the funds are returned to taxable income. The
deferral of taxes owed amounts to an interest-free loan in the amount
of the company's tax savings. This program is only available to
exporters. During the POI, Dai Yang, Inchon, Samsun, Samsung, Sunkyong,
and Daewoo used this program. Although POSCO did not use this program
during the POI, its exports of the subject merchandise were shipped
through trading companies which did use this program during the POI
(Samsun, Samsung, Sunkyong, and Daewoo). Neither Inchon nor Dai Yang
shipped through any trading companies that received benefits from this
program, although both Inchon and Dai Yang received benefits as
exporters.
We preliminarily determine that the Reserve for Export Loss program
constitutes an export subsidy under section 771(5A)(B) of the Act
because the use of the program is contingent upon export performance.
We also preliminarily determine that this program provides a financial
contribution within the meaning of section 771(5)(D)(i) of the Act in
the form of a loan.
To determine the benefits conferred by this program, we calculated
the tax savings by multiplying the balance amounts of the reserves as
of December 31, 1996, by the corporate tax rate for 1996. We treated
the tax savings on these funds as short-term interest-free loans.
Accordingly, to determine the benefits, the amounts of tax savings were
multiplied by the companies' weighted-average interest rates for short-
term won-denominated commercial loans for the POI, described in the
``Subsidies Valuation Information'' section, above. Using the
methodology for calculating subsidies received by trading companies,
which also is detailed in the ``Subsidies Valuation Information''
section of this notice, we preliminarily determine a countervailable
subsidy of less than 0.005 percent ad valorem attributable to POSCO, a
subsidy of 0.15 percent ad valorem for Inchon, and a countervailable
subsidy of 0.01 percent ad valorem attributable to Dai Yang.
K. Reserve for Overseas Market Development--Article 17 of the TERCL
Article 17 of the TERCL operates in a manner similar to Article 16,
discussed above. This provision allows a domestic person engaged in a
foreign trade business to establish a reserve fund equal to one percent
of its foreign exchange earnings from its export business for the
respective tax year. Expenses incurred in developing overseas markets
may be offset by returning from the reserve, to the income account, an
amount equivalent to the expense. Any part of the fund that is not
placed in the income account for the purpose of offsetting overseas
market development expenses must be returned to the income account over
a three-year period, after a one-year grace period. As is the case with
the Reserve for Export Loss, the balance of this reserve fund is not
subject to corporate income tax during the grace period. However, all
of the money in the reserve is eventually reported as income and
subject to corporate tax either when it offsets export losses or when
the grace period expires. The deferral of taxes owed amounts to an
interest-free loan equal to the company's tax savings. This program is
only available to exporters. The following exporters of the subject
merchandise received benefits under this program during the POI: Dai
Yang, Hyosung, Hyundai, POSTEEL, Samsun, Samsung, and Sunkyong, and
Daewoo. Although Inchon and POSCO did not use this program during the
POI, these companies' exports of the subject merchandise were shipped
through trading companies which did use this program during the POI:
Inchon shipped through Hyundai, and POSCO shipped through Hyosung,
POSTEEL, Samsun, Samsung, and Sunkyong, and Daewoo. Dai Yang did not
ship through trading companies during the POI.
We preliminarily determine that the Reserve for Overseas Market
Development program constitutes an export subsidy under section
771(5A)(B) of the Act because the use of the program is contingent upon
export performance. We also preliminarily determine that this program
provides a financial contribution within the meaning of section
771(5)(D)(i) of the Act in the form of a loan.
To determine the benefits conferred by this program during the POI,
we employed the same methodology used for determining the benefit from
the Reserve for Export Loss program. We used as our benchmark interest
rate, each company's respective weighted-average interest rate for
short-term won-denominated commercial loans for the POI, described in
the ``Subsidies Valuation Information'' section above. Using the
methodology for calculating subsidies received by trading companies,
which also is detailed in the ``Subsidies Valuation Information''
section of this notice, we preliminarily calculate a countervailable
subsidy of 0.01 percent ad valorem for this program during the POI for
POSCO, 0.01 percent ad valorem for Inchon, and 0.01 percent ad valorem
for Dai Yang.
L. Investment Tax Credits
Under the TERCL, companies in Korea are allowed to claim investment
tax credits for various kinds of investments. If the tax credits cannot
all be used at the time they are claimed, the company is authorized to
carry them forward for use in later tax years. During the POI, the
respondents used various investment tax credits received under the
TERCL to reduce their net tax liability. In Steel Products from Korea,
we found that investment tax credits were not countervailable (see 58
FR at 37351); however, there were changes in the statute effective in
1995 which have caused us to revisit the countervailability of the
investment tax credits.
POSCO claimed or used the following tax credits in its fiscal year
1996 income tax return which was filed during the POI: (1) tax credits
for investments in facilities for research and experimental use and
investments in facilities for vocational training or assets for
business to commercialize new technology under Article 10; (2) tax
credits for vocational training under Article 18; (3) tax credits for
investment in productivity improvement facilities under Article 25; (4)
tax credits for investment in specific facilities under Article 26; (5)
tax credits for temporary investment under Article 27; and (6) tax
credits for specific investments under Article 71 of TERCL. Inchon
claimed or used: (1) tax credits for investments in technology and
human resources under Article 9; and (2) tax credits for investment in
productivity improvement facilities under Article 25. Dai Yang also
claimed or used tax credits under Articles 9 and 25.
For these specific tax credits, a company normally calculates its
authorized tax credit based upon three or five percent of its
investment, i.e., the company receives either a three or five percent
tax credit. However, if a company makes the investment in domestically-
produced facilities under these Articles, it receives a 10 percent tax
credit. Under section 771(5A)(C) of the Act, which became effective on
January 1, 1995, a program that is contingent upon the use of domestic
goods over imported goods is specific, within the meaning of the Act.
Because Korean companies receive a higher tax credit for investments
made in domestically-produced facilities, we preliminarily determine
that investment tax credits received under Articles 10,
[[Page 63896]]
18, 25, 26, 27, and 71 constitute import substitution subsidies under
section 771(5A)(C) of the Act. In addition, because the GOK foregoes
collecting tax revenue otherwise due under this program, we also
preliminarily determine that a financial contribution is provided under
section 771(5)(D)(ii) of the Act. Therefore, we preliminarily determine
this program to be countervailable.
To calculate the benefit from this tax credit program, we examined
the amount of tax credit the companies deducted from their taxes
payable for the 1996 fiscal year. In its fiscal year 1996 income tax
return filed during the POI, POSCO deducted from its taxes payable,
credits earned in the years 1992 through 1995, which were carried
forward and used in the POI in addition to POSCO's 1996 deduction. We
first determined the amount of the tax credits claimed which were based
upon the investment in domestically-produced facilities. We then
calculated the additional amount of tax credits received by the company
because it earned tax credits of 10 percent on investments in
domestically-produced facilities rather than the regular three or five
percent tax credit. Next, we calculated the amount of the tax savings
earned through the use of these tax credits during the POI and divided
that amount by POSCO's total sales for the POI. Neither Inchon nor Dai
Yang carried forward any tax credits from previous years. Therefore, to
calculate their rates we calculated the additional amount of the tax
savings earned on investments in domestically-produced facilities and
divided that amount by each company's total sales for the POI. On this
basis, we preliminarily determine a countervailable subsidy of 0.27
percent ad valorem to POSCO, 0.06 percent ad valorem to Inchon, and
0.41 percent ad valorem to Dai Yang from this program during the POI.
M. Electricity Discounts Under the Requested Load Adjustment Program
Petitioners alleged that the respondents are being charged utility
rates at less than adequate remuneration and, hence, the production of
the subject merchandise is receiving countervailable benefits from this
subsidy. Petitioners alleged that the respondents are receiving these
countervailable benefits in the form of utility rate discounts.
The GOK reports that during the POI the government-owned KEPCO
provided the respondents with three types of discounts under its tariff
schedule. These three discounts were based on the following rate
adjustment programs in KEPCO's tariff schedule: (1) Power Factor
Adjustment; (2) Summer Vacation and Repair Adjustment; and (3)
Requested Load Adjustment. (See the discussion below in ``Programs
Preliminarily Determined To Be Not Countervailable'' with respect to
the Power Factor Adjustment and Summer Vacation and Repair Adjustment
discount programs.)
With respect to the Requested Load Adjustment (RLA) program, the
GOK introduced this discount in 1990, to address emergencies in KEPCO's
ability to supply electricity. Under this program, customers with a
contract demand of 5,000 KW or more, who can curtail their maximum
demand by 20 percent or suppress their maximum demand by 3,000 KW or
more, are eligible to enter into a RLA contract with KEPCO. Customers
who choose to participate in this program must reduce their load upon
KEPCO's request, or pay a surcharge to KEPCO.
Customers can apply for this program between May 1 and May 15 of
each year. If KEPCO finds the application in order, KEPCO and the
customer enter into a contract with respect to the RLA discount. The
RLA discount is provided based upon a contract for two months, normally
July and August. Under this program, a basic discount of 440 won per KW
is granted between July 1 and August 31, regardless of whether KEPCO
makes a request for a customer to reduce its load. During the POI,
KEPCO granted 44 companies RLA discounts even though KEPCO did not need
to request these companies to reduce their respective loads. The GOK
reports that because KEPCO increased its capacity to supply electricity
in 1997, it reduced the number of companies with which it maintained
RLA contracts in 1997. In 1996, KEPCO entered into RLA contracts with
232 companies.
We analyzed whether this electricity discount program is specific
in law (de jure specificity), or in fact (de facto specificity), within
the meaning of sections 771(5A)(D)(i) and (iii) of the Act. First, we
examined the eligibility criteria contained in the law. The Regulation
on Electricity Supply and KEPCO's Rate Regulations for Electric Service
identified companies within a broad range of industries as being
eligible to participate in the electricity discount programs. The RLA
discount program is available to a wide variety of companies across all
industries, provided that they have the required contract demand and
can reduce their maximum demand by a certain percentage. We
preliminarily find that the RLA electricity program is not de jure
specific under section 771(5A)(D)(i) of the Act because the regulation
does not explicitly limit eligibility of the program.
We next examined data on the distribution of assistance under the
RLA to determine whether the electricity discount program meets the
criteria for de facto specificity under section 771(5A)(D)(iii) of the
Act. We found that discounts provided under the RLA were distributed to
a limited number of customers, i.e., a total of 44 customers during the
POI. Given the data with respect to the small number of companies which
received RLA electricity discounts during the POI, we preliminarily
determine that the RLA program is de facto specific under section
771(5A)(D)(iii)(I) of the Act.
Because the electricity discounts are not ``exceptional'' benefits
and are received automatically on a regular and predictable basis
without further government approval, we preliminarily determine that
these discounts provide a recurring benefit to POSCO and Inchon; Dai
Yang did not receive benefits under this program. We have expensed the
benefit from this program in the year of receipt. See GIA, 58 FR at
37226. To measure the benefit from this program, we summed the
electricity discounts which POSCO and Inchon received from KEPCO under
the RLA program during the POI. We then divided that amount by each
company's total sales value for 1997. On this basis, we preliminarily
determine that POSCO and Inchon each received a countervailable subsidy
of less than 0.005 percent ad valorem from this discount program during
the POI.
Given the information the GOK provided on the record regarding
KEPCO's increased capacity to supply electricity and the resulting
decrease in KEPCO's need to enter into a large number of RLA contracts
during the POI, we will further investigate the de facto specificity of
this discount program at verification. It is the GOK's responsibility
to demonstrate to the Department the basis on which KEPCO chose the 44
customers with which it entered into the RLA contracts during the POI.
N. Loans From the National Agricultural Cooperation Federation
According to Dai Yang's September 10, 1998, questionnaire response,
the company received a loan administered by the National Agricultural
Cooperation Federation (NACF). The loan was given at an interest rate
which is below the benchmark interest rate described in the ``Subsidies
Valuation'' section of the notice, above. Moreover,
[[Page 63897]]
under the terms of this loan, the regional government (that of Ansan
City) paid a portion of the interest. Although Dai Yang claims that
this program is only available to small- and medium-sized enterprises,
the loan approval criteria indicates otherwise. Applications for these
loans are evaluated on a point system. The applicant receives 5 out of
a possible 100 ``points'' if it is a ``promising small & medium size
business.'' However, the most heavily weighed factor in the approval of
a loan application is the applicant's ``ratio of exports sales to total
sales.'' With the exception of the evaluation item ``enterprise
ability,'' which is weighted at 15 points, the export sales factor
accounts for twice as many points as any other ranking factor. Under
section 771(5A)(B) of the Act, an export subsidy is a subsidy that is,
in law or in fact, contingent upon export performance, alone or as one
of two or more conditions. After examination of this program, we
preliminary determine this program to be a de facto export subsidy
pursuant to section 771(5A)(B) of the Act. In addition, by paying a
portion of the interest on the loan, the actions of the Ansan City
government confer a benefit in accordance with section 771(5)(E)(ii) of
the Act. Therefore, we preliminarily determine this program to be
countervailable.
We preliminarily determine that this loan should be treated as a
short-term loan because it is rolled over annually with a revised
interest rate. To calculate the benefit conferred under this program,
we employed the Department's short-term loan methodology, using as our
benchmark the rate described in the ``Subsidies Valuation'' section of
the notice, above. We divided the benefit calculated in the POI by Dai
Yang's total sales during 1997. On this basis, we preliminarily
determine the countervailable subsidy attributable to Dai Yang during
the POI to be 0.01 percent ad valorem.
O. POSCO's Two-Tiered Pricing Structure to Domestic Customers
In our supplemental questionnaire, we requested information from
POSCO and the other respondents regarding an allegation that the GOK
mandates that POSCO subsidize local manufacturers by selling them steel
at 30 percent below the international market price. In response to this
allegation, POSCO stated that no such program exists. However, in its
response, POSCO provided information regarding its pricing structure in
the domestic and export markets.
POSCO maintains three different pricing systems which serve
different markets: domestic prices in Korean won for products that will
be consumed in Korea, direct export prices in U.S. dollars or Japanese
yen, and local export prices in U.S. dollars. According to POSCO's
response, local export prices are provided to those domestic customers
who purchase steel for further processing into products that are
exported.
POSCO is the only Korean producer of hot-rolled stainless steel
coil, which is the main input in the subject merchandise. During the
POI, POSCO sold hot-rolled stainless steel coil to domestic producers
of subject merchandise, including Dai Yang and Inchon, which used this
input to produce exports of the subject merchandise. However, a portion
of the domestic demand for this product is met through imports,
primarily from Japan. According to its response, POSCO determines its
domestic prices for hot-rolled stainless steel coil with reference to
the price of imports. Since imports are subject to import duties, POSCO
sets its domestic price in Korean won to compete with the duty-
inclusive import price. However, for domestic customers, such as Dai
Yang and Inchon, purchasing hot-rolled stainless steel coil to be
manufactured for export, POSCO sets the local export price at slightly
below the duty-exclusive import price because such imports are eligible
for duty drawback.
As noted earlier, POSCO is a government-controlled company. POSCO
sets different prices for the identical product for domestic purchasers
based upon that purchaser's anticipated export performance. Domestic
purchasers which use the raw material to produce a product for export
are charged a lower price than those domestic purchasers which do not
export. Therefore, this pricing scheme is an export subsidy under
section 771(5A)(B) of the Act. A financial contribution is also
provided under this program under section 771(5)(D)(iii) of the Act.
Under section 771(5)(E)(iv) of the Act, a benefit from the
provision of a good or a service is provided when the good is provided
for less than adequate remuneration. The adequacy of remuneration is
determined in relation to prevailing market conditions for the good
being purchased in the country which is subject to the investigation.
Prevailing market conditions include price, quantity, availability,
marketability, transportation, and other conditions of purchase or
sale.
In their supplemental questionnaire responses, Dai Yang and Inchon
provided their delivered prices of hot-rolled stainless steel coil used
to produce the subject merchandise during the POI. These data included
delivered prices of the input sourced from both POSCO and foreign
suppliers. To determine the benefit under this program, we compared the
prices charged by POSCO for the input to the prices charged by the
foreign suppliers. We then divided the amount of the price savings by
the value of exports of the subject merchandise during the POI. For the
purposes of this preliminary determination, we consider it appropriate
to calculate the benefit in this way because POSCO sets its prices to
domestic purchasers based upon import prices. Thus, the use of Dai
Yang's and Inchon's input prices provide a reasonable basis for
determining the difference in POSCO's prices to domestic consumers for
domestic consumption and POSCO's prices to domestic producers for
export consumption. On this basis, we preliminarily determine that Dai
Yang received no benefit from this program, and that Inchon received a
countervailable subsidy of 5.51 percent ad valorem from this program
during the POI.
II. Program Preliminarily Determined To Be Not Countervailable
Electricity Discounts Under Power Factor Adjustment and Summer Vacation
and Repair Adjustment Programs
As noted above, the GOK reported that KEPCO provided the
respondents with three types of discounts under its tariff schedule
during the POI. These three discounts were based on the following rate
adjustment programs in KEPCO's tariff schedule: (1) Power Factor
Adjustment; (2) Summer Vacation and Repair Adjustment; and (3)
Requested Load Adjustment. (See the separate discussion above in regard
to the countervailability of the Requested Load Adjustment program.)
With respect to the Power Factor Adjustment (PFA) program, the GOK
reports that the goal of the PFA is to improve the energy efficiency of
KEPCO's customers which, in turn, provides savings to KEPCO in
supplying electricity to its entire customer base. Customers who
achieve a higher efficiency than the performance standard (i.e., 90
percent) receive a discount on their base demand charge. Therefore, any
customer who installs a proper facility to measure its power factor and
achieves a power factor greater than 90 percent receives a discount on
its demand charge.
[[Page 63898]]
The GOK states that the PFA is not a special program, but a normal
factor used in the calculation of a customer's electricity charge which
was introduced in 1989. The PFA is available to all general,
educational, industrial, agricultural, midnight power, and temporary
customers who meet the eligibility criteria. The eligibility criteria
are that a customer must: (1) have a contract demand of 6 KW or more,
(2) have a power factor that exceeds the 90 percent standard power
factor, and (3) have proper facilities to measure its power factor. If
these criteria are met, a customer always receives a PFA discount on
its monthly electricity invoice. According to the response of the GOK,
there are no limitations on the types of customers or industries which
can receive the PFA discounts from KEPCO. During the POI there were
over 600,000 recipients of the PFA discounts.
With the aim of curtailing KEPCO's summer load by encouraging
customer vacations or the repair of their facilities during the summer
months, the GOK introduced the Summer Vacation and Repair Adjustment
(VRA) in 1985. Under this program, a discount of 550 won per KW is
given to customers, if they curtail their maximum demand by more than
50 percent, or 3,000 KW, through a load adjustment or maintenance
shutdown of their production facilities during the summer months.
Eligible customers apply for a VRA discount during the period June 1 to
June 15 of each year. If KEPCO finds the application in order, KEPCO
and the customer prepare a contract with respect to the discount.
The GOK states that this discount program is available to all
industrial and commercial customers with a contract demand of 500 KW or
more. The GOK states that the VRA is one of several programs that KEPCO
operates as part of its broad long-term strategy of demand-side
management which includes curtailing peak demand, and is the most
effective of these programs. The GOK submitted information
demonstrating that hundreds of KEPCO customers, from a wide and diverse
range of industries, received VRA discounts during the POI.
We analyzed whether these two electricity discount programs are
specific in law (de jure specificity), or in fact (de facto
specificity), within the meaning of sections 771(5A)(D)(i) and (iii) of
the Act. First, we examined the eligibility criteria contained in the
law. The Regulation on Electricity Supply and KEPCO's Rate Regulations
for Electric Service identified companies within a broad range of
industries as eligible to participate in the electricity discount
programs. With respect to the PFA, all general, educational,
industrial, agricultural, midnight power, and temporary customers who
have the necessary contract demand are eligible to participate in the
discount program. Likewise, the VRA discount program is available to a
wide variety of companies across all industries, provided that they
have the required contract demand and can reduce their maximum demand
by a certain percentage. Therefore, we preliminarily determine that the
electricity programs are not de jure specific under section
771(5A)(D)(i) of the Act.
We then examined data on the distribution of assistance under these
programs to determine whether the electricity discount programs meet
the criteria for de facto specificity under section 771(5A)(D)(iii) of
the Act. We found that discounts provided under the PFA and VRA were
distributed to a large number of firms in a wide variety of industries.
Given the data with respect to the large number of companies and
industries which received electricity discounts under these programs
during the POI, we preliminarily determine that the PFA and VRA
programs are not de facto specific under section 771(5A)(D)(iii) of the
Act. Therefore, we preliminarily determine that the PFA and VRA
discount programs are not countervailable.
III. Programs Preliminarily Determined To Be Not Used
Based on the information provided in the questionnaire response, we
preliminarily determine that the companies under investigation either
did not apply for or did not receive benefits under the following
programs during the POI:
A. Excessive Duty Drawback
Petitioners alleged that under the Korean Customs Act, Korean
exporters may have been receiving an excessive abatement, exemption, or
refund of import duties payable on raw materials used in the production
of exported goods. The Department has found that the drawback on
imported raw materials is countervailable when the raw materials are
not physically incorporated into the exported item, and therefore, the
amount of duty drawback is excessive. In Steel Products from Korea, we
determined that certain Korean steel producers received excessive duty
drawback because they received duty drawback at a rate that exceeded
the rate at which imported inputs were actually used. See 58 FR at
37349.
The GOK reports that under Article 3 of The Act on Special Cases
concerning the Refundment of Customs Duties, etc. Levied on Raw
Materials for Export, the refund of duties only applies to imported raw
materials that are consumed, i.e., physically incorporated, into the
finished merchandise. Items used to produce a product, but which do not
become physically incorporated into the final product, do not qualify
for duty drawback. POSCO is one of the producer/exporters of the
subject merchandise to receive duty drawback for inputs consumed in the
production of the subject merchandise which was subsequently exported
during the POI. The raw materials imported by POSCO to produce the
subject merchandise that were eligible for duty drawback are nickel,
chrome, and stainless steel scrap. During the POI, Inchon and Dai Yang
received duty drawback on imports of hot-rolled stainless steel coils
which were consumed in the production of the subject merchandise.
The GOK states that in order to determine the appropriate amount of
duty drawback a producer/exporter is eligible to receive, the National
Technology Institute (NTI) routinely conducts surveys of producers of
exported products to obtain their raw material input usage rate for
manufacturing one unit of output. In determining an input usage rate
for a raw material, the NTI factors recoverable scrap into the
calculation. In addition, the loss rate for each imported input is
reflected in the input usage rate. The GOK states that the factoring of
reusable scrap into usage rates is done routinely for all products
under Korea's duty drawback regime. The NTI maintains a materials list
for each product, and only materials and sub-materials that are
physically incorporated into the final product are eligible for duty
drawback. The NTI then compiles this information into a standard usage
rate table which is used to calculate a producer/exporter's duty
drawback eligibility. The GOK explains that because POSCO is the
primary producer of subject merchandise, the NTI's most recently
completed survey (from 1993), consisted of requesting information from
POSCO.
The GOK states that there is no difference in the companies' rates
of import duty paid and their rates of drawback received. The rates of
import duty are based on the imported materials and the rates of
drawback depend on the exported merchandise and the usage rate of the
imported materials. POSCO, Inchon, and Dai Yang pay import duties based
on the rates applicable to the prices of the
[[Page 63899]]
imported raw material. They then receive duty drawback based on the
amount of that material consumed in the production of the finished
product according to the standard input usage rate. Accordingly, the
rates at which POSCO, Inchon, and Dai Yang receive duty drawback are
the amounts of import duty paid on the amount of input consumed in
producing the finished product.
In the current investigation, the GOK and the companies report that
POSCO, Inchon, and Dai Yang have not received duty drawback on imported
raw materials that were not consumed in the production of exported
merchandise. They also state that the applicable duty drawback rates
are calculated in a manner which accounts for recoverable scrap. Based
on the duty drawback studies provided in the response, the GOK has
factored recoverable scrap into the calculation of input usage rates.
In Steel Products from Korea, we found that when recoverable scrap is
factored into the usage rate, the relevant loss and waste rates are not
excessive. Based on these factors, we preliminarily determine that
POSCO, Inchon, and Dai Yang have not received excessive duty drawback.
B. Tax Incentives for Highly-Advanced Technology Businesses
under the Foreign Investment and Foreign Capital Inducement Act.
C. Reserve for Investment under Article 43-5 of TERCL.
D. Export Insurance Rates Provided by the Korean Export
Insurance Corporation. 1E. Special Depreciation of Assets on Foreign
Exchange Earnings.
IV. Programs Preliminarily Determined Not To Exist
Based on information provided by the GOK, we preliminarily
determine that the following program does not exist:
Unlimited Deduction of Overseas Entertainment Expenses
In Steel Products from Korea, 58 FR at 37348-49, the Department
determined that this program conferred benefits which constituted
countervailable subsidies because the entertainment expense deductions
were unlimited only for export business activities. In the present
investigation, the GOK reported that Article 18-2(5) of the Corporate
Tax Law, which provided that Korean exporters could deduct overseas
entertainment expenses without any limits, was repealed by the
revisions to the law dated December 29, 1995. According to the GOK,
beginning with the 1996 fiscal year, a company's domestic and overseas
entertainment expenses are deducted within the same aggregate sum
limits as set by the GOK. As a result of the revision to the law,
overseas entertainment expenses are now treated in the same fashion as
domestic expenses in calculating a company's income tax. Therefore, we
determine that this program is no longer in existence.
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated individual rates for each of the companies under
investigation.
In accordance with section 703(d) of the Act, we are directing the
U.S. Customs Service to suspend liquidation of all entries of stainless
steel sheet and strip from the Republic of Korea, which are entered or
withdrawn from warehouse, for consumption on or after the date of the
publication of this notice in the Federal Register, and to require a
cash deposit or bond for such entries of the merchandise in the amounts
indicated below. Since the estimated preliminary net countervailing
duty rates for POSCO and Dai Yang are de minimis, these two companies
will be excluded from the suspension of liquidation. This suspension
will remain in effect until further notice.
In accordance with section 705(5)(A)(ii) of the Act, the all others
rate is the rate calculated for Inchon. We preliminarily determine that
the total estimated net countervailable subsidy rates for POSCO and Dai
Yang are 0.75 percent ad valorem and 0.58 percent ad valorem,
respectively, which is de minimis. Therefore, we preliminarily
determine that no countervailable subsidies are being provided to POSCO
or Dai Yang for their production or exportation of stainless steel
sheet and strip in coils.
Company Ad Valorem Rate
[In Percent]
------------------------------------------------------------------------
Net
Producer/Exporter subsidy
rate
------------------------------------------------------------------------
POSCO........................................................ 0.75
Inchon....................................................... 5.77
Dai Yang..................................................... 0.58
Sammi........................................................ 29.23
Taihan....................................................... 10.15
All Others Rate.............................................. 5.77
------------------------------------------------------------------------
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, Import Administration.
In accordance with section 705(b)(2) 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
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held 57 days from the date of publication of this preliminary
determination, at the U.S. Department of Commerce, 14th Street and
Constitution Avenue N.W., Washington, D.C. 20230. Individuals who wish
to request a hearing must submit a written request within 30 days of
the publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14th Street and Constitution Avenue, N.W., Washington, D.C.
20230. Requests for a public hearing should contain: (1) the party's
name, address, and telephone number; (2) the number of participants;
(3) the reason for attending; and (4) a list of the issues to be
discussed. An interested party may make an affirmative presentation
only on arguments included in that party's case brief and may make a
rebuttal presentation only on arguments included in that party's
rebuttal brief. Parties should confirm by telephone the time, date, and
place of the hearing 48 hours before the scheduled time.
In addition, six copies of the business proprietary version and six
copies of the nonproprietary version of the case briefs must be
submitted to the Assistant Secretary no later than 50 days from the
publication of this notice. As part of the case brief, parties are
encouraged to provide a summary of the arguments not to exceed five
pages and a table of statutes, regulations, and cases cited. Six copies
of the business proprietary version and six copies of the
nonproprietary version of the rebuttal briefs must be submitted to the
Assistant Secretary no later than 55 days from the publication of this
notice.
[[Page 63900]]
Written arguments should be submitted in accordance with 19 CFR 351.309
and will be considered if received within the time limits specified
above.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: November 9, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-30737 Filed 11-16-98; 8:45 am]
BILLING CODE 3510-DS-P