67 FR 1964, January 15, 2002
C-580-835
AR 1
Public Document
DAS II/Office VI
January 8, 2002
MEMORANDUM TO: Faryar Shirzad
Assistant Secretary
for Import Administration
FROM: Bernard T. Carreau
Deputy Assistant Secretary
for AD/CVD Enforcement II
SUBJECT: Issues and Decision Memorandum: Final Results of Countervailing
Duty Administrative Review: Stainless Steel Sheet and Strip in Coils from
the Republic of Korea; POR: 11/17/1998-12/31/1999
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Summary
We have analyzed the briefs and other submissions by the interested
parties in the administrative review of the countervailing duty order on
stainless steel sheet and strip in coils from the Republic of Korea. The
"Subsidies Valuation Methodology" and "Analysis of Programs" sections
below describe the decisions made in this review. Also below is the
"Analysis of Comments" section which contains the Department of Commerce's
(Department) response to the issues raised in the briefs. We recommend
that you approve the positions we have developed in this memorandum.
Subsidies Valuation Methodology
Benchmarks for Long-term Loans and Discount Rates
During the period of review (POR), Inchon Iron and Steel Co. (Inchon) had
both won-denominated and foreign currency-denominated long-term loans
outstanding which had been received from government-owned banks, Korean
commercial banks, overseas banks, and foreign banks with branches in
Korea.
In the Final Negative Countervailing Duty Determination: Stainless Steel
Plate in Coils from the Republic of Korea, 64 FR 15530 (March 31, 1999)
(Plate in Coils) and the Final Affirmative Countervailing Duty
Determination: Stainless Steel Sheet and Strip in Coils from the Repubic
of Korea, 64 FR 30636 (June 8, 1999) (Sheet and Strip), the Department,
for the first time, examined the Government of Korea (GOK)'s direction of
credit policies for the period 1992 through 1997. During the course of
those investigations, the Department determined that the GOK controlled
directly or indirectly the lending practices of most sources of credit in
Korea between 1992 and 1997. In the Final Affirmative Countervailing Duty
Determination: Certain Cut-to Length Carbon-Quality Steel Plate from the
Republic of Korea, 64 FR 73176, 73180 (December 29, 1999) (CTL Plate) the
Department determined that the GOK still exercised substantial control
over lending institutions in Korea during 1998. In addition, as no new
factual information has been placed on the record of this review, we
continue to find direction of credit countervailable through 1999, which
is the POR of the current administrative review.
Based on our findings on this issue in prior investigations, we are using
the following benchmarks to calculate the subsidies attributable to
respondents' long-term loans obtained in the years 1992 through 1999:
(1) For countervailable, foreign-currency denominated loans, we used,
where available, the company-specific weighted-average U.S. dollar-
denominated interest rates on the company's loans from foreign bank
branches in Korea. (See Comment 3: U.S. Dollar Interest Rate Benchmark for
Inchon's Loans).
(2) For countervailable won-denominated long-term loans, where available,
we used the company-specific corporate bond rate on the company's public
and private bonds. We note that this benchmark is based on the decision in
Plate in Coils in which we determined that the GOK did not control the
Korean domestic bond market after 1991, and that domestic bonds may serve
as an appropriate benchmark interest rate. (See Plate in Coils, 64 FR at
15531).
2. Allocation Period
In Sheet and Strip, the Department used for the industry-specific average
useful life (AUL) of assets in determining the allocation period for non-
recurring subsidies using the IRS Tables, which in this case is 15 years
for the steel industry. However, Inchon did not have any non-recurring
subsides during the POR. Thus, allocation has not been necessary in this
review.
3. Attribution (Treatment of Subsidies Received by Trading Companies)
Hyundai Corporation (Hyundai) is a trading company which sells subject
merchandise, including Inchon's merchandise. In accordance with section
351.525(c) of the regulations, we have cumulated the benefits received by
Hyundai and Inchon to calculate the countervailing duty rate applicable to
Inchon.
II. Analysis of Programs
A. Programs Previously Determined to Confer Subsidies
The GOK's Direction of Credit
Inchon received long-term fixed and variable rate loans from GOK
owned/controlled institutions during the years 1993 through 1999 that were
outstanding during the POR. In order to determine whether these GOK
directed loans conferred a benefit, we compared the interest rates on the
directed loans to the benchmark interest rates detailed in the "Subsidies
Valuation Information" section of this notice.
The repayment schedules of these loans did not remain constant during the
lives of the respective loans. Therefore, for the final results, we have
calculated the benefit from these loans using the Department's variable
rate methodology. We first derived the benefit amounts attributable to the
POR for the company's fixed and variable rate loans, and then summed the
benefit amounts from the loans and divided the total benefit by Inchon's
total f.o.b. sales value during the POR. On this basis, we determine the
net countervailable subsidy to be 1.83 percent ad valorem for Inchon.
Article 17 of the Tax Exemption and Reduction Control Act (TERCL):
Reserve for Overseas Market Development
The Department found this program to constitute a countervailable export
subsidy under section 771(5A)(B) of the Act, in CTL Plate, 64 FR at 73181
and in the Preliminary Results and Partial Rescission of Countervailing
Duty Administrative Review: Stainless Steel Sheet and Strip in Coils from
the Republic of Korea, 66 FR 47008, 47012 (September 10, 2001)
(Preliminary Results). No new information has been provided by respondents
to warrant a change since the preliminary results. Using the methodology
for calculating subsidies received by the trading company, as detailed in
the "Subsidies Valuation Information" section above, we calculate a
countervailable subsidy of less than 0.005 percent ad valorem for Inchon.
Electricity Discounts under the Requested Loan Adjustment Program (RLA)
In the original investigation of Sheet and Strip, the Department found
this program specific under section 771(5A)(D)(iii)(I) of the Act, as the
discounts were distributed to a limited number of customers. (See 64 FR at
30646). No new information has been provided to warrant reconsideration of
this determination. In addition, we found that a benefit is provided.
Therefore, we continue to find this program countervailable. As the
electricity discounts are recurring benefits, we have expensed the benefit
from this program in the year of receipt. To calculate the benefit
provided under this program we summed the electricity discounts which
Inchon received from KEPCO under the RLA program during the POR. We then
divided this amount by Inchon's total f.o.b. sales values for 1999. On
this basis, we determine a net countervailable subsidy of less than 0.005
percent ad valorem for Inchon.
POSCO's Provision of Steel Inputs for Less than Adequate Remuneration
In the Preliminary Results, the Department determined that POSCO charged
Inchon less than adequate remuneration for hot-rolled coils, an input used
to produce subject merchandise. (See 66 FR 47012). No new information has
been provided since the preliminary results to warrant a change in this
determination. As the Department continues to find this program specific
to Inchon, and that the government through POSCO provided a financial
contribution the Department calculated the benefit received by Inchon
consistent with section 351.511(a)(2) of the CVD Regulations. As noted in
the Preliminary Results, we continue to compare the price that Inchon paid
to POSCO for hot-rolled coils to the prices that it paid for imports of
the input. (Id.). The Department determines that there was an error in the
preliminary calculations and corrected this error for the final results.
(See Comment 1: Ministerial Errors). We compared Inchon's quarterly
delivered weight-average price it paid to POSCO for the hot-rolled coils
to the quarterly delivered weight-average price it paid for imported hot-
rolled coils, by grade and making due allowances for factors affecting
comparability. We multiplied this price difference by the total amount of
hot-rolled coil that Inchon purchased from POSCO during the POR. We then
divided this amount by the f.o.b. value of merchandise produced using hot-
rolled coils. On this basis we determine that Inchon received a
countervailable subsidy of 2.38 percent ad valorem rate for this program.
B. Programs Determined to Be Not Used
1. Article 16 of the TERCL: Reserve for Export Loss
2. Investment Tax Credits under Article 10, 18, 25, 26, 27 and 71 of
TERCL
3. Loans from the National Agricultural Cooperation Federation
4. Tax Incentives for Highly-Advanced Technology Businesses under the
5. Foreign Investment and Foreign Capital Inducement Act
6. Reserve for Investment under Article 43-5 of TERCL
7. Export Insurance Rates Provided by the Korean Export Insurance
Corporation
8. Special Depreciation of Assets on Foreign Exchange Earnings
9. Excessive Duty Drawback
10. Short-Term Export Financing
11. Export Industry Facility Loans
No new information, evidence of changed circumstances, or comments from
interested parties were received on these programs. Therefore, we continue
to determine that these programs were not used by the respondents in this
review.
Analysis of Comments
Comment 1: Ministerial Errors
Respondents argue that the Department made two ministerial errors in its
Preliminary Results when calculating the benefit from Inchon's purchases
of hot-rolled stainless steel coil from POSCO. First, respondents maintain
that with respect to the second quarter of 1999, the Department failed to
compare quarterly weighted-average prices as stated in its Preliminary
Results. Specifically, during the second quarter of 1999, there were no
imports of 300 series products. Therefore, respondents argue that, as was
done for 400 series products when there were no imports in the fourth
quarter of 1999, the Department should compare the quarterly weighted-
average price of Inchon's purchases of 300 series products in the second
quarter with the quarterly weighted-average price of Inchon's imports of
the same product in the previous quarter. Instead, the Department compared
the quarterly weighted-average price of Inchon's purchases from POSCO in
the second quarter with the weighted-average price of Inchon's imports in
March 1999.
Secondly, respondents argue that in the third quarter of 1999, the
Department incorrectly calculated the quarterly weighted-average import
price for 400 series products. In particular, respondents maintain that
when the Department summed the total quantity of imports of 400 series
products in July, it inadvertently included an amount for March imports.
Respondents urge the Department to correct these ministerial errors when
calculating the benefit to Inchon from purchases of hot-rolled stainless
steel coil from POSCO for the final results.
Petitioners reject respondents' argument that the Department made a
ministerial error in its benefit calculation when it compared quarterly
weighted-average prices in the second quarter of 1999. Petitioners argue
that a review of the calculations reveals that the Department applied the
same methodology for both 300 and 400 series products. Specifically,
petitioners assert that the error Inchon refers to is not clerical in
nature; instead, respondents disagree with the Department's calculation
methodology. In support of their position, petitioners purport that the
Department's methodology for the 300 and 400 series products used pricing
data for the month closest to the quarter in which the data was missing as
most representative of the pricing trend for the following quarter. For
example, petitioners cite to page 45 of the August 31, 2001 Memorandum
Accompanying the Calculations for the Preliminary Countervailing Duty
Determination: Stainless Steel Sheet and Strip in Coils from the Republic
of Korea (Period of Review 1999), in which the Department stated that it
used the import data from March for the second quarter 300 series values
because the March data is the closest month to the quarter and used the
import data from July for comparison for the fourth quarter 400 series.
Because pricing data for the month closet to the quarter in which the data
was missing is most representative of the pricing trend for the following
quarter, petitioners argue that this methodology appropriately measures
adequacy of remuneration based on comparability.
Department's Position: We agree with respondents that in the Preliminary
Results we stated that we were comparing quarterly delivered weighted-
average prices from POSCO to quarterly delivered weighted-average import
prices, for both the 300 and 400 series. However, with respect to
purchases of the 300 series during the second quarter, there was no
comparison price available as Inchon did not have any imports of this
series during that time period. The Department has revisited this
calculation for the final results and has determined that the best
surrogate value would be the quarter prior to the quarter in which a
benchmark does not exist, rather than the month before. As the Department
is using quarterly weight-averaged prices, it is most to compare those
prices to quarterly, rather than monthly, benchmark prices. The fact that
the benchmark is a best-available surrogate does not alter this
conclusion. The Department also agrees with respondents' statement that it
included an extra month in determining the third quarter value. We have
corrected this ministerial error for the final calculation of this program.
Comment 2: Program-wide Change
Respondents maintain that POSCO's privatization after the POR and prior
to the issuance of the Preliminary Results constitutes a program-wide
change that should be taken into consideration when calculating the cash
deposit rate for the final results. Respondents argue that the GOK
provided abundant evidence that POSCO has eliminated its two-tiered
pricing policy during the POR and that POSCO was fully privatized in
October 2000. Respondents remind us that section 351.526(a)(1) of the
Department's regulations states that a program-wide change is one which
occurs subsequent to the POR and before the preliminary results of an
administrative review. Respondents assert that POSCO's privatization,
completed in October 2000, constitutes exactly such a change.
Respondents further maintain that since POSCO is no longer government
owned and POSCO is the only producer of hot-rolled coil in Korea, it
follows that Inchon's purchases of hot-rolled coil from POSCO no longer
involve a government provision of a good to Inchon for less than adequate
remuneration. In this way, respondents argue, the Department cannot
measure the change in the amount of the countervailable subsidy provided
under the program, as specified in section 351.526(a)(2) of the
Department's regulations.
Respondents further argue that pursuant to section 351.526(b)(1), a
program-wide change is not limited to an individual firm. Respondents
point out that in one sense, the program only involved one firm, POSCO,
but actually the Department treated POSCO not as a company, but as the
equivalent of the GOK. Thus, respondents assert, the program ended when
the government sold its shares in POSCO. On the other hand, respondents
maintain that the program involved all of POSCO's domestic customers, and,
therefore, the privatization of POSCO resulted in the termination of a
program applicable to all of POSCO's domestic customers.
Respondents point out that although the Department's regulations at
section 351.526(b)(2) require that a program-wide change be effectuated by
an official act, there was no official government act of the kind
mentioned in the Department's regulations establishing the program in the
first place. Thus, respondents argue, the official act required by the
Department's regulations should be consistent with the nature of the
program. In this case, they argue, the official act terminating the
program (i.e., the government provision of a good for less than adequate
remuneration) occurred when the KDB sold off the final portion of its
shares of POSCO, ending the GOK's ownership and control of POSCO. After
this event, respondents argue, POSCO's sales to its customers, including
Inchon, can no longer be characterized as the government provision of a
good. In addition, respondents argue that they have submitted on the
record of the instant review substantial evidence, consisting of press
articles, of POSCO's privatization. Respondents also state that the
Department never issued a supplemental questionnaire to the GOK requesting
any additional documentation regarding POSCO's privatization.
Additionally, respondents remind the Department that the issue in front
of it is not the privatization nor change in ownership that is subject to
the Department's privatization methodology. Rather, it is the Department's
finding that POSCO, through government ownership of a portion of POSCO's
shares, was acting as the government and providing a good (i.e., hot-
rolled stainless steel coil) to Inchon for less than adequate
remuneration. Thus, respondents maintain, the fact that POSCO's
privatization severed the link between POSCO and the government eliminated
the potential provision of a good to Inchon for less than adequate
remuneration.
Petitioners, in their case brief, urge the Department to affirm its
preliminary finding that POSCO sold hot-rolled coil to Inchon for less
than adequate remuneration during the POR. As evidence, petitioners point
to POSCO's delivered prices, which they profess were lower than the
delivered prices of imported hot-rolled stainless steel coil as reported
by Inchon, even after taking into account differences in edge finish and
grade.
Petitioners also maintain that the Department correctly determined that
POSCO's privatization does not constitute a program-wide change and should
uphold this conclusion in the final results. Petitioners cite to section
351.526(b)(1) of the Department's regulations, which state that a program-
wide change is not limited to an individual firm or firms. Therefore,
petitioners conclude, a change in the ownership or status of a company
does not qualify as a program-wide change, as it relates only to the
individual firm in question. On this basis alone, petitioners state, the
regulations do not apply.
Moreover, petitioners maintain that the evidence submitted by the GOK on
the record is inadequate to support its claim that a program-wide change
has occurred. Petitioners argue that press articles do not provide
sufficient, official documentation to demonstrate a program-wide change.
Petitioners assert that the facts in the instant review and the preceding
investigation indicate that the influence of the GOK extends even to
private enterprises in which the GOK holds no ownership, as reflected in
the government's ability to direct credit through private banks in Korea.
Finally, petitioners argue that to the extent that POSCO's privatization
has any bearing on the Department's treatment of the provision of hot-
rolled coil to Inchon, this should be addressed using the change in
ownership analysis, and not through the regulation governing program-wide
changes.
Respondents counter that the program at issue is the government provision
of a good, through POSCO, for less than adequate remuneration, which the
Department found to exist because POSCO was a government-owned and
controlled company and acted as the government when selling inputs to
downstream customers. Moreover, respondents maintain that the program does
not involve a single firm, but rather all of POSCO's numerous domestic
customers, rebutting petitioners' claim that the program only applies to
one company.
Furthermore, respondents dispute petitioners' idea that the Department's
privatization methodology should be applied in this situation. Respondents
argue that because the change in ownership methodology concerns subsidies
to the company that was privatized, i.e., POSCO, this methodology has no
bearing on the question of whether there is any remaining subsidy to
Inchon through the government provision of a good for less than adequate
remuneration. Respondents point out that since the Department was
measuring the amount of the subsidy to Inchon, any subsidies that POSCO
may have received were irrelevant to its calculations of the subsidy to
Inchon.
Respondents moreover rebut petitioners' statement that the influence of
the GOK extends even to private enterprises in which the GOK holds no
ownership. Respondents state that a private company cannot be found to act
as the government in providing a good for less than adequate remuneration
unless there is a specific determination that the government directed the
company to act on its behalf. Therefore, respondents assert, there is no
reason to continue to find that a program still exists simply because a
privatized POSCO still sells hot-rolled stainless steel coil to Inchon.
In their rebuttal brief, petitioners argue that the privatization of
POSCO did not automatically end the ability of the GOK to influence
POSCO's pricing practices. Petitioners maintain that although the
ownership of POSCO may have changed during the POR, the facts demonstrate
that POSCO's pricing practices did not. Moreover, petitioners assert that
in no instance has the Department treated an ownership change as a program-
wide change.
Department's Position: In our Preliminary Results, we found that POSCO's
elimination of its two-tiered pricing system did not impact the
determination made in CTL Plate that the GOK, through its ownership and
control of POSCO, set prices of steel inputs used by the Korean steel
industry at prices less than adequate remuneration (see 66 FR at 47012).
In the instant review, respondents provided information on the change in
POSCO's pricing policy between its inputs sold for domestic consumption
and inputs sold for exportation. This information regarding the two-tiered
pricing system is not relevant to the analysis of whether POSCO sold
inputs used to produce subject merchandise at less than adequate
remuneration, under section 351.511 of the CVD Regulations. As determined
in CTL Plate, the program at issue is the provision of inputs at less than
adequate remuneration, not POSCO's two-tiered pricing system (see CTL
Plate, 64 FR 73176 at 73185). Therefore, POSCO's elimination of its two-
tiered pricing system does not qualify as a program-wide change as POSCO
only eliminated the price difference between domestic and export prices
and did not terminate or change its practice of selling inputs at less
than adequate remuneration.
Respondents also argue that POSCO's privatization constitutes a program-
wide change. This is a complex issue that requires many layers of
analysis. First, under section 351.526(b)(2) of the CVD Regulations, a
program-wide change is effectuated by an official act, such as a statute,
regulation or decree. Respondents have presented only newspaper articles
of the sale, and not direct evidence of an official act. This information
is insufficient to uphold section 351.526(b)(2) of the CVD Regulations.
Second, the Department disagrees with respondents' contention that a
change in government ownership signals a change in government control.
Under section 771(5)(B)(iii) of the Act, a subsidy occurs when an
authority "entrusts or directs a private entity to make a financial
contribution, if providing the contribution would normally be vested in
the government and the practice does not differ in substance from
practices normally followed by governments". Despite the apparent sale by
the GOK of a portion of its ownership in POSCO, there is insufficient
evidence on the record to conclude that the GOK has not directed POSCO to
make a financial contribution, i.e., a sale for less than adequate
remuneration. The GOK has a long history in the creation and control of
POSCO. The extensive GOK assistance in the construction of the integrated
steel mills at Pohang and Kwangyang Bay is an example of the strong ties
between the GOK and POSCO. Because of this history and ties between the
GOK and POSCO, the recent partial change in ownership, as reported in the
news articles, must be carefully analyzed. The record in this case does
not contain sufficient evidence for us to analyze these complex issues.
Moreover, because a government owned bank continues to own 3.11 percent of
POSCO, there is evidence indicating that the GOK continues to maintain
some ownership over POSCO. (See Memorandum to the File, RE: Industrial
Bank of Korea's Shares in POSCO, dated January 3, 2002.)
Based upon the lack of sufficient evidence on the record and the GOK's
ties to POSCO, we cannot determine, based upon the record before us, that
there has been a program-wide change.
We note that we are currently conducting the second administrative review
of the original order of Sheet and Strip, and we will continue to examine
developments in this program in that administrative review.
Comment 3: U.S. Dollar Interest Rate Benchmark for Inchon's Loans
Petitioners argue that although the Department correctly countervailed
the GOK's direction of credit through the POR, it erred in its benefit
calculation for this program by applying the wrong benchmark to certain of
Inchon's long-term loans. Specifically, petitioners maintain that the
Department calculated a composite benchmark for 1999 of U.S. dollar-
denominated loans undertaken in several different years from foreign banks
to compare with Inchon's U.S. dollar loans from Korean banks. For Inchon's
won-denominated loans, on the other hand, the Department calculated an
annual weighted-average benchmark to compare with the preferential loans.
This methodology, petitioners assert, resulted in differing treatment of
Inchon's won-denominated and U.S. dollar-denominated loans and is contrary
to Department practice.
Citing to section 351.505(a)(2)(iii) of the Department's regulations,
petitioners state that for long-term loans, both fixed and variable rate,
the Department normally compares the government loan with a benchmark
loan, the terms of which were established during or immediately before the
year in which the terms of the government-provided loan were established.
Therefore, petitioners assert, even though the actual applied interest
rate on variable rate loans fluctuates, the Department's practice
recognizes that the term for the loan is essentially established at the
time the loan is undertaken.
For the final results of review, petitioners urge the Department to
calculate a distinct U.S. dollar benchmark for each year in which U.S.
dollar loans were undertaken from foreign banks to compare with the U.S.
dollar loans provided under the GOK's direction of credit from Korean
banks. For years in which Inchon received U.S. dollar-denominated loans
from Korean banks, but not from foreign banks, petitioners urge the
Department to use the average yield to maturity on selected long-term
corporate bonds as reported by the U.S. Federal Reserve, as it did in the
Final Affirmative Countervailing Duty Determination: Certain Stainless
Steel Wire Rod from Italy, (Wire Rod from Italy) 63 FR 40474 (July 29,
1998).
Moreover, petitioners argue that although Inchon reported that it had an
A1 credit rating throughout most of the 1992-1999 period, Inchon did not
indicate which years it received this rating and did not support its
statements with any documentation. Therefore, petitioners advocate that
the Department apply the Federal Reserve's BAA credit rating to calculate
Inchon's benchmark.
Respondents counter that the Department's regulations provide for some
flexibility, on a case-by-case basis, to reasonably address circumstances
such as these where all of the relevant factors are not found for every
government loan received. Respondents maintain that, under these specific
circumstances, the Department's use of a composite benchmark would be
consistent with the Department's regulations concerning the calculation of
the benefit from long-term variable interest rates loans, as set out in
section 351.505(c)(4).
Moreover, respondents point out that the methodology applied by the
Department in the instant review is the same as that used in the final
determination in the original investigation for the instant case as well
as all of the countervailing duty investigations of Korean steel products
that took place during 1998-2000.
Furthermore, respondents argue that in comparing a government loan with a
benchmark loan on the terms prescribed by petitioners, it would have been
necessary for the Department to request data on the effective rates of
both the government loans and the benchmark loans in the year of receipt
of those loans, in order to determine the applicable interest rate
differentials at the time of the receipt of the government loans which
would then be applicable over the life of the government loans. However,
the Department only requested and received data on the effective interest
rates of the government loans and the benchmark loans during the POR.
Respondents point out that the interest rates on all of those loans
consist mostly of the variable base rate, plus a small fixed spread;
therefore, they maintain, comparing the effective interest rates on
government loans and the benchmark loans during the POR will not yield a
substantially different result than from a comparison of the effective
interest rates on the loans in the year of receipt.
Respondents moreover assert that utilizing a composite benchmark allows
the Department to use a benchmark based on actual variable-rate loans
received by Inchon for all of the variable-rate government loans it
received, rather than switching in some years (i.e., those when Inchon did
not receive a U.S. dollar-denominated loan from a foreign bank in Korea)
to an alternative benchmark where the rates are determined by numerous
factors other than Inchon's own creditworthiness and its demonstrated
ability to raise funds in the commercial market.
Respondents also point out that in Wire Rod from Italy, the Department
used a 1992 benchmark rate to compare to a loan whose terms were
determined in 1992. Moreover, respondents state that there is no evidence
in the Wire Rod from Italy determination indicating that, in using a fixed
long-term bond rate as a benchmark, the Department was applying it to a
variable interest rate long-term loan.
Respondents further argue that for the years which Inchon had no long-
term loan from a foreign bank in Korea to serve as a benchmark loan,
petitioners propose that the Department depart from its regulations
governing the selection of benchmarks, specifically that of using a
comparable commercial loan that the firm could actually obtain on the
market (see section 351.505(a)(1) of the Department's regulations).
Additionally, respondents argue that by proposing a fixed-rate benchmark
for variable-rate loans, petitioners ignore the fact that, over time, the
variable component of the interest rate on the government loan may rise or
fall substantially, producing a result that in some years may
significantly overstate the benefit conferred at the time the loan was
received and in other years may result in the Department finding no
countervailable benefit when, in fact, at the time the government loan was
received the commercial rates available were higher than the interest rate
received on the government loan.
Finally, respondents rebut petitioners' claim that Inchon's A1 credit
rating is not supported on the record. Respondents point out that reports
and data on Inchon's creditworthiness were provided on the record,
including a public exhibit with a summary of Inchon's credit rating during
the years 1992-1998 in Exhibit S-8 of Inchon's September 10, 1998 response
to the instant order's investigation.
Department's Position: The Department agrees with petitioners' contention
that an incorrect benchmark was used to calculate the benefit of U.S.
dollar denominated variable rate loans. To calculate the preliminary
results, the Department used a single weight-average composite benchmark
to compare all of Inchon's outstanding U.S. dollar denominated loans for
the POR. The Department agrees with petitioners' argument that this
approach is inconsistent with section 351.505(a)(2)(iii) of the CVD
Regulations. For the years which the Department has company-specific
variable interest rate information, a weight-averaged benchmark is used to
compare like years. However, Inchon did not have company-specific
benchmark information for all of the years in which it received loans and
had outstanding balances during the POR. Therefore, consistent with
section 351.505(a)(5)(ii) of the CVD Regulations, which states that, "if
the Secretary is unable to make the comparison described in paragraph
(a)(5)(i) of this section or if the comparison described in paragraph
(a)(5)(i) of this section would yield an inaccurate measure of the
benefit, the Secretary may modify the method described in paragraph
(a)(5)(i) of this section." As the Department is unable to make an
accurate comparison of loans with the same agreement years which also have
outstanding balances, we calculated a weight-average of all benchmark
loans outstanding during the POR as the benchmark rate for the years in
which there is no company-specific information, consistent with
351.505(a)(5)(ii) of the CVD Regulations.
Regarding petitioners' suggestion that the Department apply a similar
practice as was used in Wire Rod from Italy, the Department disagrees. In
Wire Rod from Italy, the Department used the average yield to maturity on
selected long-term corporate bonds as reported by the U.S. Federal
Reserve. In the instant review, the Department determines that using
company-specific information provides a better commercial benchmark.
Therefore, the Department is using as the benchmark Inchon's company-
specific weight-averaged rate for those years in which Inchon did not have
a comparable commercial loans.
Recommendation
Based on our analysis of the comments received, we recommend adopting all
of the above positions. If these recommendations are accepted, we will
publish the final results of review and the final net subsidy rates for
the reviewed producers/exporters of the subject merchandise in the Federal
Register.
________ ________
Agree Disagree
_____________________
Faryar Shirzad
Assistant Secretary
for Import Administration
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