68 FR 53116, September 9, 2003
DEPARTMENT OF COMMERCE
International Trade Administration
[C-580-835]
Preliminary Results of Countervailing Duty Administrative Review:
Stainless Steel Sheet and Strip in Coils From the Republic of Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of Preliminary Results of Countervailing Duty
Administrative Review.
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SUMMARY: The Department of Commerce (the Department) is conducting an
administrative review of the countervailing duty (CVD) order on
stainless steel sheet and strip in coils from the Republic of Korea for
the period January 1, 2001, through December 31, 2001. For information
on the net subsidy for the reviewed companies, see the ``Preliminary
Results of Review'' section of this notice. Interested parties are
invited to comment on these preliminary results. (See the ``Public
Comment'' section of this notice).
EFFECTIVE DATE: September 9, 2003.
FOR FURTHER INFORMATION CONTACT: Carrie Farley or Darla Brown, Office
of AD/CVD Enforcement VI, Group II, Import Administration, U.S.
Department of Commerce, Room 4012, 14th Street and Constitution Avenue,
NW., Washington, DC 20230; telephone (202) 482-2786.
SUPPLEMENTARY INFORMATION:
Background
On August 6, 1999, the Department published in the Federal Register
the CVD order on stainless steel sheet and strip in coils from the
Republic of Korea. See Amended Final Determination: Stainless Steel
Sheet and Strip in Coils from the Republic of Korea; and Notice of
Countervailing Duty Orders: Stainless Steel Sheet and Strip from
France, Italy and the Republic of Korea, 64 FR 42923 (August 6, 1999)
(Amended Sheet and Strip) On August 6, 2002, the Department published a
notice of opportunity to request an administrative review of this CVD
order. See Antidumping or Countervailing Duty Order, Finding, or
Suspended Investigation; Opportunity to Request Administrative Review,
67 FR 50856 (August 6, 2002). On August 30, 2002, we received a timely
request
[[Page 53117]]
for review of INI Steel Company (INI) \1\ and BNG Steel Co., Ltd. (BNG)
\2\ from petitioners.\3\ Also on August 30, 2002, we received a timely
request for review from INI. On September 20, 2002, the Department
initiated an administrative review of the CVD order on stainless steel
sheet and strip in coils from the Republic of Korea, covering the
period of review (POR) January 1, 2001 through December 31, 2001. See
Initiation of Antidumping and Countervailing Duty Administrative
Reviews, Requests for Revocation in Part and Deferral of Administrative
Reviews, 67 FR 60210 (September 25, 2002). On February 4, 2003, the
Department received questionnaire responses from the Government of
Korea (GOK), INI and BNG. On April 10, 2003, the Department published
in the Federal Register an extension of the preliminary results
deadline. See Stainless Steel Sheet and Strip in Coils from the
Republic of Korea: Extension of Preliminary Results of Countervailing
Duty Administrative Review, 68 FR 17604. On May 21, 2003, we received
supplemental responses from respondents. On July 3 through July 9,
2003, we conducted verification of the responses of INI, BNG, and the
GOK.
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\1\ Formerly known as Inchon Iron and Steel Co. (Inchon). As of
April 2001, Inchon changed its name to INI.
\2\ Formerly known as Sammi Steel Co. (Sammi).
\3\ Allegheny Ludlum, AK Steel Corporation, J&L Speciality
Steel, Inc., Butler-Armco Independent Union, Zanesville Armco
Independent Union, and the United Steelworkers of America, AFL-CIO/
CLC (collectively petitioners).
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In accordance with 19 CFR 351.213(b), this review covers only those
producers or exporters for which a review was specifically requested.
The companies subject to this review are INI and BNG. This review
covers nine programs.
Scope of Review
For purposes of this review, 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 4.75 mm 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 review 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 HTSUS subheadings are provided for convenience and customs
purposes, the Department's written description of the merchandise is
dispositive.
Excluded from the scope of this order 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, with a
prepared edge, rectangular in shape, of a width of not more than 9.5
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 23 mm 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 this order. These
excluded products are described below:
Flapper valve steel is defined as stainless steel strip in coils
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 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 between 210 and 300 ksi, yield
strength of between 170 and 270 ksi, plus or minus 8 ksi, and a
hardness (Hv) of between 460 and 590. Flapper valve steel is most
commonly used to produce specialty flapper valves in compressors.
Also excluded is a product referred to as suspension foil, a
specialty steel product used 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 microns, with a thickness tolerance of plus-or-minus 2.01
microns, 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. The material must exhibit
residual stresses of 2 mm maximum deflection, and flatness of 1.6 mm
over 685 mm length.
Certain stainless steel foil for automotive catalytic converters is
also excluded from the scope of this order. This stainless steel strip
in coils is a specialty foil with a thickness of between 20 and 110
microns used to produce a metallic substrate with a honeycomb structure
for use in automotive catalytic converters. The steel contains, by
weight, carbon of no more than 0.030 percent, silicon of no more than
1.0 percent, manganese of no more than 1.0 percent, chromium of between
19 and 22 percent, aluminum of no less than 5.0 percent, phosphorus of
no more than 0.045 percent, sulfur of no more than 0.03 percent,
lanthanum of between 0.002 and 0.05 percent, and total rare earth
elements of more than 0.06 percent, with the balance iron.
Permanent magnet iron-chromium-cobalt alloy stainless strip is also
excluded from the scope of this order. 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 228.6 mm or less,
and a thickness between 0.127 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
[[Page 53118]]
electronic sensors and is currently available under proprietary trade
names such as ``Arnokrome III.'' \4\
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\4\ ``Arnokrome II'' is a trademark of the Arnold Engineering
Company.
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Certain electrical resistance alloy steel is also excluded from the
scope of this order. 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 under
proprietary trade names such as ``Gilphy 36.'' \5\
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\5\ ``Gilphy 36'' is a trademark of Imphy, S.A.
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Certain martensitic precipitation-hardenable stainless steel is
also excluded from the scope of this order. This high-strength, ductile
stainless steel product is designated under the Unified Numbering
System (UNS) as S45500-grade steel, and contains, by weight, 11 to 13
percent chromium and 7 to 10 percent nickel. Carbon, manganese, silicon
and molybdenum each comprise, by weight, 0.05 percent or less, with
phosphorus and sulfur each comprising, by weight, 0.03 percent or less.
This steel has copper, niobium, and titanium added to achieve aging,
and will exhibit yield strengths as high as 1700 Mpa and ultimate
tensile strengths as high as 1750 Mpa after aging, with elongation
percentages of 3 percent or less in 50 mm. It is generally provided in
thicknesses between 0.635 and 0.787 mm, and in widths of 25.4 mm. This
product is most commonly used in the manufacture of television tubes
and is currently available under proprietary trade names such as
``Durphynox 17.'' \6\
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\6\ ``Durphynox 17'' is a trademark of Imphy, S.A.
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Finally, three specialty stainless steels typically used in certain
industrial blades and surgical and medical instruments are also
excluded from the scope of this order. These include stainless steel
strip in coils used in the production of textile cutting tools (e.g.,
carpet knives).\7\ This steel is similar to ASTM grade 440F, but
containing, by weight, 0.5 to 0.7 percent of molybdenum. The steel also
contains, by weight, carbon of between 1.0 and 1.1 percent, sulfur of
0.020 percent or less and includes between 0.20 and 0.30 percent copper
and between 0.20 and 0.50 percent cobalt. This steel is sold under
proprietary names such as ``GIN4 HI-C.'' The second excluded stainless
steel strip in coils is similar to AISI 420-J2 and contains, by weight,
carbon of between 0.62 and 0.70 percent, silicon of between 0.20 and
0.50 percent, manganese of between 0.45 and 0.80 percent, phosphorus of
no more than 0.025 percent and sulfur of no more than 0.020 percent.
This steel has a carbide density on average of 100 carbide particles
per square micron. An example of this product is ``GIN5'' steel. The
third specialty steel has a chemical composition similar to AISI 420 F,
with carbon of between 0.37 and 0.43 percent, molybdenum of between
1.15 and 1.35 percent, but lower manganese of between 0.20 and 0.80
percent, phosphorus of no more than 0.025 percent, silicon of between
0.20 and 0.50 percent, and sulfur of no more than 0.020 percent. This
product is supplied with a hardness of more than Hv 500 guaranteed
after customer processing, and is supplied as, for example, ``GIN6.''
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\7\ This list of uses is illustrative and provided for
descriptive purposes only.
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Same Person Test for Sammi
In the previous administrative review, covering the period calendar
year 2000, we acknowledged that Sammi's name was changed to BNG in
March 2002. However, we declared that we were not conducting any type
of entity review or successor-in-interest test in that review. We
stated that we would examine the facts related to Sammi in the 2001
administrative review (see Final Results and Partial Rescission of
Countervailing Duty Administrative Review: Stainless Steel Sheet and
Strip from the Republic of Korea, 68 FR 13267 (March 19, 2003) (2000
Sheet and Strip) and accompanying Issues and Decision Memorandum (2000
Sheet and Strip Decision Memo) at page 3 and Comment 2).
On December 6, 2000, Inchon became Sammi's majority shareholder
when it completed its purchase of 68.4 percent of Sammi's shares. In
the instant administrative review, we are conducting the ``same person
test'' to determine whether Sammi was the same entity before and after
Inchon's purchase of the majority of Sammi's shares.\8\
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\8\ On June 23, 2003, the Department published a notice that our
practice regarding the ``same person test'' would be modified. See
Notice of Final Modification of Agency Practice Under Section 123 of
the Uruguay Round Agreements Act, 68 FR 37125. In that notice, we
announced the prospective application of a new privatization
methodology that would supercede the ``same person test.'' We
further stated that the new methodology would only apply to segments
of proceedings initiated on or after June 30, 2003.
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In making the ``person'' determination, where appropriate and
applicable, we analyze factors such as (1) continuity of general
business operations, including whether the successor holds itself out
as the continuation of the previous enterprise, as may be indicated,
for example, by use of the same name, (2) continuity of production
facilities, (3) continuity of assets and liabilities, and (4) retention
of personnel. See Acciai Speciali Terni S.p.A. v. United States, 206
F.Supp.2d 1344, 1350 (CIT 2002); Final Negative Countervailing Duty
Determination: Certain Cold-Rolled Carbon Steel Flat Products From
Argentina, 67 FR 62106 (October 3, 2002) and the accompanying Issues
and Decision Memorandum, at Section II, ``Change in Ownership.'' No
single factor will necessarily provide a dispositive indication of any
change in the entity under analysis.
Regarding the first criterion, after Inchon's majority purchase of
Sammi's shares, Sammi's general business operations continued as
before. Sammi's name also remained the same.\9\ Moreover, Sammi's
production facilities remained unchanged. With respect to its assets
and liabilities, Sammi experienced no changes after Inchon's December
6, 2000, share purchase. Finally, Sammi's personnel was retained after
the share purchase. See BNG's August 21, 2003, submission at Attachment
3, pages 7, 8, and 10.
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\9\ Sammi changed its name to BNG in March 2002.
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Therefore, we preliminarily determine that Sammi was the same
``person'' after Inchon became Sammi's majority shareholder.
Furthermore, we preliminarily determine that any allocable subsidies
received by Sammi prior to Inchon's share acquisition continue to
benefit the post-share-acquisition Sammi.
BNG and Cross-Ownership With INI
According to section 351.525(b)(6)(vi) of the Department's
regulations, cross-ownership exists between two corporations where one
corporation can use or direct the individual assets of the other
corporation in essentially the same ways it can use its own assets.
Normally, this standard will be met where there is a majority voting
ownership interest between two corporations. On December 6, 2000,
Inchon became the majority shareholder of Sammi with 68 percent of
Sammi's shares. The Department's regulations acknowledge that control
can be exercised by one corporation over
[[Page 53119]]
another even when that one corporation does not hold majority voting
ownership. See Countervailing Duties; Final Rule, 63 FR 65348, 65401
(November 25, 1998), preamble to CVD Regulations. The percentage of
shares, therefore, is not a dispositive indicator of cross-ownership
between companies. Accordingly, it is also possible, under certain
extraordinary circumstances, that a corporation holding majority
ownership in another corporation may not be in a position to exercise
control over that corporation's assets. From March 19, 1997 until March
23, 2001, Sammi was under court receivership. Thus, Sammi was in
receivership throughout the entire POR under examination in the
previous administrative review. In the previous review, we therefore
examined the circumstances surrounding Sammi's court receivership to
determine whether Inchon could use or direct Sammi's assets as its own.
Under Korea's Company Reorganization Act, the authority for
management control (e.g., the right to operate the company's business,
management, and disposition of the company's property) rests
exclusively with the court or with the receiver appointed by the court.
The information on the record of the previous review demonstrated that
the control of Sammi and the ability to use and direct the company's
assets were held by the court and the court-appointed receiver
throughout the previous POR. Therefore, we found that while Inchon held
68 percent of Sammi's shares, it was not in the position to control
Sammi's assets during the POR and into 2001. See 2000 Sheet and Strip
Decision Memo at Comment 3. In this review, we examined the relative
positions of Sammi and Inchon and found that, after the end of Sammi's
court receivership, Inchon was in a position to control Sammi's assets
as its own. Therefore, we find preliminarily that cross ownership, as
defined under section 351.525(b)(6)(vi) of the CVD Regulations, did
exist between INI and Sammi during the instant POR. Consequently, for
the purpose of these preliminary results, the Department will calculate
one rate for INI/BNG, in accordance with section 351.525(b)(6)(ii).
Subsidies Valuation Information
Benchmarks for Long-term Loans: During the POR, INI and Sammi had
both won-denominated and foreign currency-denominated long-term loans
outstanding which they received from government-owned banks, Korean
commercial banks, overseas banks, and foreign banks with branches in
Korea.
With respect to foreign sources of credit, in Final Negative
Countervailing Duty Determination: Stainless Steel Plate in Coils from
the Republic of Korea, 64 FR at 15533 (March 31, 1999) (Plate in
Coils), and Final Affirmative Countervailing Duty Determination:
Stainless Steel Sheet and Strip in Coils from the Republic of Korea, 64
FR at 30642 (June 8, 1999) (Sheet and Strip), we determined that access
to foreign currency loans from Korean branches of foreign banks (e.g.,
branches of U.S.-owned banks operating in Korea) did not confer
countervailable subsidies to the recipient as defined by section 771(5)
of Tariff Act of 1930, as amended by the Uruguay Round Agreements Act
(URAA) effective January 1, 1995 (the Act), and, as such, credit
received by respondents from these sources was found not to be
countervailable. We based this decision upon the fact that credit from
Korean branches of foreign banks was not subject to the government's
control and direction. Thus, in Plate in Coils and Sheet and Strip, we
determined that respondents' loans from these banks could serve as an
appropriate benchmark to establish whether access to regulated sources
of foreign-denominated credit conferred a benefit on respondents. As
such, we preliminarily determine that lending from Korean branches of
foreign banks continues to be not countervailable. Consequently, where
available, loans from Korean branches of foreign banks continue to
serve as an appropriate benchmark to establish whether access to
regulated foreign currency loans from domestic banks confers a benefit
upon respondents.
Based on our findings on this issue in prior investigations, we are
using the following benchmarks to calculate the subsidies attributable
to respondent's long-term loans obtained in the years 1991 through
2001:
(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.
(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, 64 FR at 15531, in which we
determined that the GOK did not control the Korean domestic bond market
after 1991, and that domestic bonds may serve as an appropriate
benchmark interest rate. Where unavailable, we used a company-specific
corporate bond rate from the national average of the yields on three-
year corporate bonds, as reported by the Bank of Korea (BOK). We note
that the use of the three-year corporate bond rate from the BOK follows
the approach taken in Plate in Coils, in which we determined that,
absent company-specific interest rate information, the corporate bond
rate is the best indicator of a market rate for won-denominated long-
term loans in Korea. Id.
Benchmarks for Short-Term Financing: For those programs that
require the application of a short-term won-denominated interest rate
benchmark, we used as our benchmark a company-specific weighted-average
interest rate for commercial won-denominated loans outstanding during
the POR.
Treatment of Subsidies Received by Trading Companies: We required
responses from trading companies because the subject merchandise may
benefit from 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 a 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 POR, INI exported subject merchandise to the
United States through a trading company, Hyosung Corporation (Hyosung).
We required the trading company to provide a response to the Department
with respect to the export subsidies under review.
Under section 351.107(b)(1) 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 Preamble to the
regulations, 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. See Antidumping Duties;
Countervailing Duties; Final Rule, 62 FR 27296, 27303 (May 19, 1997).
In such situations, the Department will make exceptions to its
combination rate approach on a case-by-case basis. Id.
[[Page 53120]]
We preliminarily determine that it is not appropriate to establish
combination rates, with respect to this review. This determination is
based on two main facts: first, the majority of the subsidies conferred
upon the subject merchandise were received by the producer; second, the
level of subsidies conferred upon the individual trading company with
regard to the subject merchandise is insignificant.
Instead, we have continued to calculate a rate for the producers of
subject merchandise that includes the subsidies received by the trading
company. To reflect those subsidies that are received by the exporter
of the subject merchandise in the calculated ad valorem subsidy rate,
we first calculated the benefit attributable to the subject merchandise
from subsidies received by the trading company. Next, we factored that
amount into the calculated subsidy rate for the relevant producer. We
then added these calculated ad valorem subsidies to the subsidies
calculated for INI/BNG. Thus, for each of the programs below, the
listed ad valorem subsidy rate includes countervailable subsidies
received by both the producer and the trading company.
I. Programs Conferring Subsidies
1. The GOK's Direction of Credit
The Department previously determined in the Final Affirmative
Countervailing Duty Determination: Structural Steel Beams from the
Republic of Korea, 65 FR 41051 (July 3, 2000) (H-beams), and
accompanying Issues and Decision Memorandum (H-Beams Decision Memo) at
section ``The GOK's Credit Policies through 1991,'' that the provision
of long-term loans via the GOK's direction of credit policies was
specific to the Korean steel industry through 1991 within the meaning
of section 771(5A)(D)(iii) of the Act. Also in H-Beams, we determined
that the provision of these long-term loans through 1991 provided a
financial contribution that resulted in the conferral of a benefit,
within the meaning of sections 771(5)(D)(i) and 771(5)(E)(ii) of the
Act, respectively. Id.
In Plate in Coils, 64 FR at 15332, and in Sheet and Strip, 64 FR at
30641, the Department examined the GOK's direction of credit policies
for the period 1992 through 1997. Based on new information gathered in
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 H-beams, the Department also determined that the GOK continued
to control directly and indirectly the lending practices of most
sources of credit in Korea through 1998, and that the GOK's regulated
credit from domestic commercial banks and government-controlled banks
such as the Korea Development Bank (KDB) was specific to the steel
industry. Furthermore, the Department determined in H-Beams that these
regulated loans conferred a benefit on the producer of the subject
merchandise to the extent that the interest rates on these loans were
lower than the interest rates on comparable commercial loans, within
the meaning of section 771(5)(E)(ii) of the Act. In the Final
Affirmative Countervailing Duty Determination: Certain Cut-to-Length
Carbon-Quality Steel Plate From the Republic of Korea, 64 FR 73176 at
73180, (December 29, 1999) (CTL Plate) the Department determined that
the GOK continued to control, directly and indirectly, the lending
practices of sources of credit in Korea in 1998, and the Department
made a similar finding for 1999. See also Final Results and Partial
Rescission of Countervailing Duty Administrative Review: Stainless
Steel Sheet and Strip in Coils from the Republic of Korea, 67 FR 1964
(January 15, 2002) (1999 Sheet and Strip) and accompanying Issues and
Decision Memorandum (1999 Sheet and Strip Decision Memo) at ``the GOK's
Direction of Credit'' section.
In the 1999 Sheet and Strip Decision Memo at ``The GOK's Direction
of Credit'' section, we found that the GOK had control over the lending
institutions during 1999. In the Notice of Final Affirmative
Countervailing Duty Determination: Certain Cold-Rolled Carbon Steel
Flat Products From the Republic of Korea, 67 FR 62102 (October 3, 2002)
(Cold-Rolled), and accompanying Issues and Decision Memorandum (Cold-
Rolled Decision Memo) at ``The GOK Directed Credit'' section, the
Department found that the GOK continued to exert control over the
lending institutions during 2000.
In the instant proceeding we asked the GOK for information
pertaining to the GOK's direction of credit policies for 2001. The GOK
did not provide any additional information stating that, ``the legal
costs to further contest this issue in this review overshadow any
possible benefit.'' See the GOK's February 4, 2003, questionnaire
response. As such, because the necessary information to determine
whether the GOK has continued its direction of credit policies from
2000 through 2001 is not available on the record, the Department must
base its determination on facts otherwise available. See section 776(a)
of the Act. Moreover the GOK's willful refusal to supply this
information, which involves the GOK's own policies, demonstrates its
failure to cooperate to the best of its ability. See section 77b(b) of
the Act. Accordingly, the statue authorizes the Department to employ an
adverse inference in selecting among facts otherwise available. See id.
Drawing from our determination on this issue in the previous
administrative review, we preliminarily find that the GOK's direction
of credit policies continued from 2000 through 2001, the POR. In
addition, absent information indicating otherwise, we preliminarily
find that lending from domestic banks and from government-owned banks,
such as the KDB, continues to be countervailable through 2001.
INI and Sammi received long-term fixed and variable rate loans from
GOK owned/controlled institutions 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.
Won-Denominated Loans: Regarding the calculation of the benefit on
countervailable, long-term fixed-rate loans, in past cases the
Department has employed the ``grant equivalent'' methodology, as
described in section 351.505(c)(3) of the CVD Regulations, when the
government-provided loan and the comparison loan have dissimilar grace
periods or maturities, or where the repayment schedules are different
(e.g., declining balance versus annuity style).
In 2000 Sheet and Strip Decision Memo, the Department revised its
application of the grant equivalent methodology discussed in
351.505(c)(3) of the CVD Regulations. We note that section
351.505(c)(2) of the CVD Regulations states that the Department ``will
normally calculate the subsidy amount to be assigned to a particular
year by calculating the difference in interest payments for that year
(i.e., the difference between the interest paid by the firm in that
year on the government-provided loan and the interest the firm would
have paid on the comparison loan).'' We also note that, in reference to
paragraph (c)(2), the Preamble of the Department's CVD Regulations
states that in situations where the benefit from a long-term, fixed-
rate loan stems solely from a concessionary interest rate, it is not
necessary to engage in the grant equivalent methodology. See 63 FR at
65369. Thus, the CVD Regulations and
[[Page 53121]]
the Preamble direct the Department to default to a simple comparison of
interest payments made during the POR when calculating the benefit from
a long-term, fixed-rate loan.
The Preamble goes on to describe those situations in which the
Department shall deviate from the ``simple, default methodology,'' and
instead employ the grant equivalent methodology. The Preamble states
that, ``[b]ecause a firm may derive a benefit from special repayment
terms, in addition to any benefit derived from a concessional interest
rate,'' the Department will calculate the benefit using the grant
equivalent methodology. See 63 FR at 65369.
There is no information on the record of these preliminary results
that indicates that either INI or Sammi derived a benefit from any
special repayment terms (i.e., abnormally long grace periods or
maturities, etc.) on their long-term, fixed-rate loans. Therefore, in
accordance with section 351.505(c)(2) of the CVD Regulations, we are
calculating the benefit that INI and Sammi received on their long-term,
fixed-rate loans by comparing the amount of interest paid on the loan
during the POR to the amount of interest that would have been paid
during the POR on a comparable, commercial loan. Thus, to calculate the
countervailable subsidy benefit, we first derived the benefit amounts
attributable to the POR for each company's fixed and variable rate
loans and then summed the benefit amounts from the loans.
Foreign Currency Denominated Loans: Neither INI nor Sammi had
foreign currency denominated loans outstanding during this POR which
could be used for benchmark purposes. Sammi did provide information
pertaining to a foreign currency denominated bond. We have determined
that this information may serve as a benchmark for INI's foreign
currency denominated loans issued in 2001; however, this information is
unsuitable for use as a benchmark for INI's loans received prior to
2001. Therefore, for loans issued before 2001, we have used the same
benchmark rates as those applied in 2000 Sheet and Strip. See INI's
February 4, 2003 Questionnaire Response, Exhibit A-4.
To determine the total benefit for all directed credit, we added
the benefit derived from foreign currency loans to the benefit derived
from won denominated loans and divided the total benefit by INI/BNG's
total f.o.b. sales value during the POR. On this basis, we
preliminarily determine the countervailable subsidy to be 0.24 percent
ad valorem for INI/BNG.
B. Article 16 of the Tax Exemption and Reduction Control Act (TERCL):
Reserve for Export Losses
Under Article 16 of the TERCL, a domestic person engaged in a
foreign-currency earning business can establish a reserve amounting to
the lesser of one percent of foreign exchange earnings or 50 percent of
net income for the respective tax year. Losses accruing from the
cancellation of an export contract, or from the execution of a
disadvantageous export contract, may be offset by returning an
equivalent amount from the reserve fund to the income account. Any
amount that is not used to offset a loss must be returned to the income
account and taxed over a three-year period, after a one-year grace
period. All of the money in the reserve is eventually reported as
income and subject to corporate tax either when it is used to offset
export losses or when the grace period expires and the funds are
returned to taxable income. The deferral of the payment of taxes owed
is equivalent to an interest-free loan in the amount of the company's
tax savings. This program is only available to exporters. According to
information provided by respondents, this program was terminated on
April 10, 1998, and no new funds could be placed in this reserve after
January 1, 1999. However, INI still had an outstanding balance in this
reserve during the POR. Sammi did not use this program.
In Sheet and Strip, 64 FR at 30645, we determined that this program
was specific as it constituted an export subsidy under section
771(5A)(B) of the Act because the use of the program is contingent upon
export performance. We also determined that this program provided a
financial contribution within the meaning of section 771(5)(D)(i) of
the Act in the form of a loan. See 64 FR 30645. No new information or
evidence of changed circumstances has been presented to cause us to
revisit this determination. Thus, we preliminarily determine that this
program constitutes a countervailable export subsidy.
In 2000 Sheet and Strip, we revised our benefit calculation for
this program when a company is in a tax loss position. Previously, the
Department had only calculated a benefit based on the deferral of the
tax payment; however, when a company returns tax reserves to taxable
income while in a tax loss situation, the GOK is forgoing tax revenue.
Therefore, the Department now calculates an additional benefit from
this program when a company returns tax reserves to taxable income
while in a tax loss situation. See the 2000 Sheet and Strip Decision
Memo at the ``Article 16 of the Tax Exemption and Reduction Control Act
(TERCL): Reserve for Export Losses'' section. As neither INI nor Sammi
was in a tax loss situation during the POR, this methodology is not
applicable.
To determine the benefit conferred on INI by this program, we
calculated the tax savings by multiplying the balance amount of the
reserve as of December 31, 2000, as filed during the POR, by the
corporate tax rate for 2000. We treated the tax savings on these funds
as a short-term interest-free loan. See 19 CFR 351.509. Accordingly, to
determine the benefit, we multiplied the amount of tax savings for INI
by the weighted-average interest rate on INI's short-term won-
denominated commercial loans for the POR, as described in the
``Subsidies Valuation Information'' section, above. We then divided the
benefit by INI/BNG's total f.o.b. export sales. On this basis, we
preliminarily calculated a countervailable subsidy of less than 0.005
percent ad valorem for INI/BNG.
3. Article 17 of the TERCL: Reserve for Overseas Market Development
Under Article 17 of the TERCL, a domestic person engaged in a
foreign trade business is allowed 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 in three yearly installments, after a two-year grace period.
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 tax payment amounts to an interest-free loan equal to the company's
tax savings. This program is only available to exporters. Neither INI
nor Sammi used this program during the POR; however, INI exported
subject merchandise through Hyosung, which used this program during the
POR.
In CTL Plate, 64 FR at 73181, we determined that the Reserve for
Overseas Market Development program is specific under section
771(5A)(B) of the Act because use of the program is contingent upon
export performance. We also determined that this program provides a
financial contribution within
[[Page 53122]]
the meaning of section 771(5)(D)(i) of the Act in the form of a loan.
The benefit provided by this program is the tax savings enjoyed by the
companies. Respondents have not provided any new information to warrant
reconsideration of this determination. Therefore, we continue to find
this program countervailable.
To determine the benefit conferred by this program, we calculated
the tax savings by multiplying the balance amount of the reserve as of
December 31, 2000, by the corporate tax rate for 2000. We treated the
tax savings on these funds as a short-term interest-free loan.
Accordingly, to determine the benefit, we multiplied the amount of tax
savings by Hyosung's weighted-average interest rate for short-term won-
denominated commercial loans for the POR. Using the methodology for
calculating subsidies received by trading companies, which also is
detailed in the ``Subsidies Valuation Information'' section of this
notice, we calculate a countervailable subsidy of less than 0.005
percent ad valorem for INI/BNG.
4. Technical Development Fund (RSTA Article 9, Formerly TERCL Article
8)
On December 28, 1998, the TERCL was replaced by the Tax Reduction
and Exemption Control Act (RSTA). Pursuant to this change in law, TERCL
Article 8 is now identified as RSTA Article 9. Apart from the name
change, the operation of RSTA Article 9 is the same as the previous
TERCL Article 8 and its Enforcement Decree.
This program allows a company operating in manufacturing or mining,
or in a business prescribed by the Presidential Decree, to appropriate
reserve funds to cover expenses related to the development or
innovation of technology. These reserve funds are included in the
company's losses and reduce the amount of taxes paid by the company.
Under this program, capital goods and capital intensive companies can
establish a reserve of five percent of total revenue, while companies
in all other industries are only allowed to establish a three percent
reserve.
In CTL Plate, 64 FR at 73181, we determined that this program is
specific because the capital goods industry is allowed to claim a
larger tax reserve under this program than all other manufacturers. We
also determined that this program provides a financial contribution
within the meaning of section 771(5)(D)(i) of the Act in the form of a
loan. The benefit provided by this program is the differential tax
savings enjoyed by the companies in the capital goods industry, which
includes steel manufacturers. Id. No new information, or evidence of
changed circumstances, were presented in this review to warrant
reconsideration of the countervailability of this program. Therefore,
we continue to find this program to be countervailable. Sammi did not
use this program. Record evidence indicates that INI did not contribute
funds to this reserve during the POR, but it did carry a balance. Thus,
to calculate the benefit on the balance, we compared the amount of
taxes that it would have paid if it had only claimed the three percent
tax reserve with the amount of taxes actually paid on tax reserve
amount as claimed under the five percent reserve limit. Next, we
calculated the amount of the tax savings earned through the use of this
tax reserve during the POR and divided that amount by INI/BNG's total
f.o.b. sales during the POR. On this basis, we preliminarily determine
a net countervailable subsidy of less than 0.005 percent ad valorem for
INI/BNG.
5. Asset Revaluation: TERCL Article 56(2)
Under Article 56(2) of the TERCL, the GOK permitted companies that
made an initial public offering between January 1, 1987, and December
31, 1990, to revalue their assets at a rate higher than the 25 percent
required of most other companies under the Asset Revaluation Act. In
CTL Plate, we found this program countervailable due to the fact that
it is specific and provides a financial contribution by allowing
companies to reduce their income tax liability. See 64 FR at 73183. No
new information, or evidence of changed circumstances, were presented
in this review to warrant reconsideration of the countervailability of
this program.
To calculate the benefit from the program we reviewed the effect
that the difference in the revaluation of depreciable assets had on
INI's tax liability each year. Sammi did not use this program. We
multiplied the additional depreciation in the tax return filed during
the POR, which resulted from the company's asset revaluation, by the
tax rate applicable to that tax return. We then divided the benefit by
INI/BNG's total f.o.b. sales. Accordingly, we preliminarily determine
that the net countervailable subsidy for this program is less than
0.005 percent ad valorem for INI/BNG.
6. Investment Tax Credits
Under Korean tax laws, companies are allowed to claim investment
tax credits for various kinds of investments. If the investment tax
credits cannot all be used at the time they are claimed, then the
company is authorized to carry them forward for use in subsequent
years. Until December 28, 1998, these investment tax credits were
provided under the TERCL. On that date, the TERCL was replaced by the
Restriction of Special Taxation Act (RSTA). Pursuant to this change in
the law, investment tax credits received after December 28, 1998, were
provided under the authority of RSTA.
During the POR, INI earned or used tax credits for investments in
productivity increasing ``facilities'' (RSTA Article 24, previously
TERCL Article 25) and investments in specific ``facilities'' (RSTA
Article 25, previously TERCL Article 26). Sammi did not use either
program. Under these programs, if a company invested in foreign-
produced ``facilities,'' the company received a tax credit equal to
either three or five percent of its investment. However, if a company
invested in domestically-produced ``facilities,'' it received a ten
percent tax credit. Under section 771(5A)(C) of the Act, a program that
is contingent upon the use of domestic goods over imported goods is
specific, within the meaning of the Act. Because Korean companies
received a higher tax credit for investments made in domestically-
produced ``facilities,'' in CTL Plate, 63 FR at 73182, we determined
that these investment tax credits constituted import substitution
subsidies under section 771(5A)(C) of the Act. In addition, because,
under this program, the GOK forewent the collection of tax revenue
otherwise due, we determined that a financial contribution is provided
under section 771(5)(D)(ii) of the Act. The benefit provided by this
program was a reduction in taxes payable. Therefore, we determined that
this program was countervailable.
In Cold-Rolled, we found that RSTA Article 24 (previously TERCL
Article 25) was altered on April 10, 1998, eliminating the distinction
between domestic and imported goods; therefore, any credits received
after that date were not countervailable. However, we continue to find
the use of investment tax credits earned on domestic investments made
before April 10, 1998, to be countervailable.
INI claimed tax credits under RSTA Article 24 and RSTA Article 25
for investments that originated when there was a distinction between
purchasing domestic ``facilities'' and imported ``facilities.'' To
calculate the benefit from these investment tax credits, we examined
the amount of tax credits INI deducted from its taxes payable for the
2000 fiscal year income tax return, which was filed during the POR. We
[[Page 53123]]
first determined the amount of the tax credits claimed which were based
upon investments in domestically-produced and specific ``facilities.''
We then calculated the additional amount of tax credits received by the
company because it earned tax credits of ten percent on such
investments instead of a three or five percent tax credit. Next, we
calculated the amount of the tax savings earned through the use of
these tax credits during the POR and divided that amount by INI/BNG's
total f.o.b. sales during the POR. On this basis, we preliminarily
determine a net countervailable subsidy of 0.03 percent ad valorem for
INI/BNG.
7. Electricity Discounts Under the Requested Load Adjustment Program
(RLA)
With respect to the Requested Load Adjustment (RLA) program, the
GOK introduced this discount in 1990 to address emergencies in the
supply of electricity by the government-owned electricity provider,
Korea Electric Power Company (KEPCO). 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 an 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 POR,
KEPCO and INI entered into a contract pursuant to which KEPCO granted
INI electricity discounts under this program.
In Sheet and Strip, 64 FR at 30646, the Department found this
program to be specific under section 771(5A)(D)(iii)(I) of the Act
because the discounts were distributed to a limited number of
customers. Moreover, we found that a financial contribution was
provided within the meaning of section 771(5)(D)(ii) of the Act in the
form of revenue forgone by the government.
INI did receive discounts during the POR; therefore, we find that a
financial contribution is provided to INI under this program, within
the meaning of section 771(5)(D)(ii) of the Act, in the form of revenue
foregone by the government. Sammi did not use this program. The benefit
provided under this program is a discount on a company's monthly
electricity charges. Respondents have not provided any new information
to warrant reconsideration of this determination. Therefore, we
continue to find this program countervailable.
Because the electricity discounts provide recurring benefits, we
have expensed the benefit from this program in the year of receipt. To
measure the benefit from this program, we summed the electricity
discounts which INI received from KEPCO under the RLA program during
the POR. We then divided that amount by INI/BNG's total f.o.b. sales
value for 2001. On this basis, we preliminarily determine a net
countervailable subsidy of 0.01 percent ad valorem for INI/BNG.
8. Purchase of Sammi Specialty Steel Division by POSCO
In Sheet and Strip, the Department found that POSCO's 1997 purchase
of Sammi's bar and pipe division constituted a countervailable subsidy.
We determined that, at the time of the purchase, POSCO's actions were
directed by the GOK and that this purchase was not made according to
commercial considerations. This decision was based on information from
POSCO, the petition, and other publicly available information, as Sammi
did not participate in the investigation. See Sheet and Strip, 64 FR at
30638 and 30642. Sammi has, however, fully participated in this review
and has provided new information that allows us to reexamine our
earlier adverse facts available determination.
We previously determined that POSCO was a government-controlled
company at the time it purchased Sammi's bar and pipe facility. See
Sheet and Strip 64 FR 30642. See also Section III, Part A of this
notice for more information concerning government control of POSCO. No
new information has been provided requiring the Department to revisit
its prior determination that POSCO was GOK-controlled at the time it
purchased Sammi's facility. Therefore, we are considering POSCO's
payment for Sammi's bar and pipe facility equivalent to a payment by
the government for this facility. This payment by the government
constitutes a financial contribution under section 771(5)(D)(iv) of the
Act.
During this review, we provided the GOK the opportunity to present
information about other similar facility purchases during the time
period of POSCO's purchase of Sammi's bar and pipe facility. See the
May 21, 2003 GOK Supplemental Questionnaire Response (GOK
Supplemental), Question E1. The list provided by the GOK in response to
the Department's question refers only to purchases of entire steel
companies, as opposed to individual assets or facilities. See GOK
Supplemental, Exhibit O-1. In addition, we note that POSCO was not
among the purchasers listed. Thus, we have no record evidence that
another purchase of this nature was made by POSCO or any other
government entity. Therefore, we preliminarily find that this sale was
specific to Sammi within the meaning of section 771(5A)(D)(i) of the
Act.
A benefit is conferred where the government purchases goods at more
than adequate remuneration. See Section 771(5)(E)(iv) of the Act. As
used in the Act, the term ``good'' is expansive, encompassing more than
just moveable property. See Notice of Final Affirmative Countervailing
Duty Determination and Final Negative Critical Circumstances
Determination: Certain Softwood Lumber Products From Canada, 67 FR
15545 (April 2, 2002), and accompanying Issues and Decision Memorandum,
at ``Financial Contribution'' section. The definition of ``goods''
includes all property or possessions, and saleable commodities. See id.
Accordingly, we preliminarily determine that Sammi's bar and pipe
facility is a ``good.''
The next issue is whether POSCO purchased Sammi's bar and pipe
facility at more than adequate remuneration. The Department is guided
by section 351.511(a)(2) of the regulations. Due to the absence of
evidence of either a market-determined price for this facility in Korea
or a world market-price, we are determining the benefit provided by
this program by evaluating whether POSCO's purchase price for this good
is consistent with market principles, as described in section
351.511(a)(2)(iii) of the regulations.
In Sheet and Strip, we determined that the purchase of Sammi's bar
and pipe facility by POSCO conveyed a countervailable benefit to Sammi.
See Sheet and Strip and accompanying Issues and Decision Memorandum at
``Purchase of Sammi Specialty Steel Division''. While this decision was
based on adverse facts available, the information on the record remains
largely the same. In Sheet and Strip, we relied heavily on a report
issued by the Korean Board of Audit and Inspection (BAI) which
criticized POSCO's purchase of the plant. In addition it noted that
POSCO did not adhere to its
[[Page 53124]]
own internal guidelines when evaluating this purchase, as well as
several instances of items for which POSCO overpaid. See August 7,
2003, Verification Report for BNG in the Countervailing Duty
Administrative Review of Stainless Steel Sheet and Strip from the
Republic of Korea (BNG Verification Report) at page 3 and Exhibit B-9.
What new information we have received merely serves to confirm our
earlier finding. In the opinion of the bankers with whom we spoke, the
process in which Sammi and POSCO participated for the sale of Sammi's
bar and pipe division was dissimilar to the typical sale approach in
terms of timing, number of bidders, and internal approval. See August
7, 2003, Meeting with Private Bankers in the Countervailing Duty
Administrative Review of Stainless Steel Sheet and Strip from the
Republic of Korea, at page 2. Based on record evidence, we find that
POSCO purchased this facility for more than adequate remuneration.
Therefore, we preliminarily find that, to the extent that this purchase
was made for more than adequate remuneration, it conferred a
countervailable benefit to Sammi within the meaning of section
771(5)(E)(iv).
We used record evidence to calculate the amount POSCO overpaid for
this facility. The BAI report cites several items which POSCO should
have known were worth less than the value attached to them by valuation
studies and includes the BAI's valuation of these items. See BNG
Verification Report, Exhibit B-9. These items include overpayment for
technologies which POSCO already possessed, not accounting correctly
for certain tax breaks, and the purchase of land not required by the
purchase agreement. We are using the sum of these amounts as the
benefit for this program. The Department invites parties to comment on
the benefit calculation for this program.
Therefore, in accordance with section 771(5)(A) of the Act, we
determine that this program conferred a countervailable benefit to
Sammi. On this basis, we preliminarily determine a net countervailable
subsidy of 0.28 percent ad valorem for INI/BNG.
II. Programs Preliminarily Determined To Be Not Used
A. Investment Tax Credits Under RSTA Articles 11, 30, and 94 and
TERCL Articles 24, 27, 71.
B. Loans From the National Agricultural Cooperation Federation.
C. Tax Incentives for Highly-Advanced Technology Businesses under
the Foreign Investment and Foreign Capital Inducement Act.
D. Reserve for Investment under Article 43-5 of TERCL.
E. Export Insurance Rates Provided by the Korean Export Insurance
Corporation.
F. Special Depreciation of Assets on Foreign Exchange Earnings.
G. Excessive Duty Drawback.
H. Short-Term Export Financing.
I. Export Industry Facility Loans.
J. Research and Development.
K. Local Tax Exemption on Land Outside of Metropolitan Area.
III. Programs Preliminarily Determined To Be Not Countervailable
A. POSCO's Provision of Steel Inputs for Less Than Adequate
Remuneration
In 2000 Sheet and Strip, we found that POSCO's provision of steel
inputs for less than adequate remuneration was countervailable on the
basis that the GOK, through POSCO, provided a financial contribution.
However, we noted at Comments 9 and 10 of the 2000 Sheet and Strip
Decision Memo that we would analyze POSCO's privatization in the course
of the instant administrative review.
In the instant review, we preliminarily find that the evidence
relied upon in the previous determinations has changed, and, therefore,
the Department's earlier finding is no longer applicable. Specifically,
in previous determinations, the Department concluded that the GOK
controlled POSCO on the basis of a number of factors, including: (1)
The GOK was the largest shareholder, (2) the GOK enacted a law that
restricted individual shareholders from exercising voting rights in
excess of three percent of the company's common share and the inclusion
of a similar restriction in POSCO's Articles of Incorporation, (3)
POSCO was designated as a ``public company,'' (4) POSCO's chairman and
half of POSCO's outside directors were appointed by the GOK, and (5)
POSCO's chairman and several of POSCO's appointed directors were former
senior government officials.
With respect to the first factor, during the POR, the GOK no longer
was the largest owner of POSCO's shares. During 2001, the largest GOK-
owned holder of POSCO's shares was the Industrial Bank of Korea (IBK),
the only entity with GOK ownership that held more than one percent of
POSCO's shares during this period. The IBK held 3.12 percent of POSCO's
common shares as of December 31, 2001. The single largest shareholder
of POSCO's shares at the end of 2001 was POSTECH, with 3.14 percent.
POSTECH is a technical university owned by POSCO. With respect to the
second and third factors, POSCO's designation as a ``public company''
was removed on September 26, 2000, which also removed the restriction
on an individual shareholder's voting rights. However, the latter
became effective during the POR on March 16, 2001, when the clause
included in POSCO ``s Articles of Incorporation restricting individual
ownership was officially removed at the General Shareholders Meeting.
Regarding the fourth and fifth factors, in March 1999, POSCO
revised its Articles of Incorporation, establishing new procedures for
selecting members of the Board of Directors (BOD), assuring the
independence and transparency of the selection process. During the
General Meeting of Shareholders, held on March 17, 2000, two outside
directors who were former government employees resigned. During the
POR, none of the standing directors on POSCO's BOD were former
government employees or officials, while two of eight outside directors
were former government employees or officials. Moreover, while POSCO's
current chairman is the same individual that was appointed by the
President of Korea, he was subsequently reappointed by the shareholders
in March 2001.
In light of these changes, we preliminarily determine that the GOK
did not control POSCO during the POR. As such, we also preliminarily
find that absent GOK control over POSCO, there is no longer a
government financial contribution as defined by section 771(D)(iii) of
the act, and, therefore, that this program is no longer
countervailable.
B. Electricity Discounts Under the Voluntary Electric Power Savings
Adjustment Program
We examined at verification the voluntary electric power savings
adjustment (VEPS) program, Article 107-2 of the Regulation on Optional
Electricity Supply. This program is associated with the VRA program
previously examined by the Department and found not countervailable.
See Sheet and Strip at 30647. The goal of the VEPS program is to reduce
customers' electricity usage during the summer months, when demand is
normally high. Under this program, KEPCO gives discount incentives to
general, industrial, and educational customers with a contract maximum
demand per month (MDM) of 1000 kilowatts (kW) or more who reduce their
electricity usage during peak season (i.e., summer).
[[Page 53125]]
KEPCO forecasts the dates in the peak season, usually July and August,
when each participating company could curtail its usage. For a company
to receive discounts under this program, the company would have to
decrease its usage by 20 percent or more over 30 minutes on the
contracted dates. The total average for all of the contracted dates
must be 20 percent or more and the curtailed period must be over five
days or five 30-minute periods, or units, to receive the discount. The
discount amount is calculated on the actual curtailment of power. KEPCO
calculates the actual power usage during 10 a.m. to 12 p.m. on the day
the reduction is to take place. KEPCO then calculates the actual usage
during 2 p.m. to 4 p.m. that same day. By comparing these two
measurements, KEPCO is able to determine if the company reduced its
power usage by the required amount. If the company curtails its power
for at least 5 units, KEPCO will determine the total power reduction
and then calculate the discount based on this amount. The discount will
then be applied to the following month's electricity bill. If the
company determines that it does not want to reduce its power on the
dates specified, the company would not receive the discount.
We analyzed whether the VEPS program is specific in law (de jure
specificity), or in fact (de facto specificity), within the meaning of
section 771(5A)(D)(i) and (iii) of the Act. First, we examined the
eligibility criteria contained in the law. The Regulation on
Electricity Supply and KEPCO's Rate Regulations for Electric Service
identify companies within a broad range of industries as eligible to
participate in the electricity discount programs. With respect to the
VEPS, all general, educational, and industrial customers who have the
necessary contract demand are eligible to participate in the discount
program. Therefore, based on our analysis of the law, we preliminarily
determine that the VEPS electricity program is not de jure specific
under section 771(5A)(D)(i) of the Act.
We also examined evidence regarding the usage of the VEPS program
and found no predominant use by the steel industry. The information on
the record demonstrates that discounts under the VEPS are distributed
to a large number of firms in a wide variety of industries. See August
7, 2003, Verification Report for the GOK in the Countervailing Duty
Administrative Review of Stainless Steel Sheet and Strip from the
Republic of Korea (GOK Verification Report) at pages 6-7. Therefore,
after analyzing the data with respect to the large number of companies
and diverse number of industries which received electricity discounts
under this program during the POR, we determine that the VEPS program
is not de facto specific under section 771(5A)(D)(iii) of the Act.
Accordingly, we preliminarily find that the VEPS program is not
countervailable.
C. Kangwon's Debt-to-Equity Swap
Petitioners allege that Kangwon Industries Ltd. (Kangwon) received
a countervailable benefit through a debt-for-equity swap and that the
benefit is attributable to INI. See the April 18, 2003, New Subsidy
Allegation Memorandum from the team to Melissa Skinner, Director,
Office of AD/CVD Enforcement VI, which is on file in the Department's
central records unit (CRU). Specifically, petitioners state that on
March 15, 2000, Kangwon merged with Inchon. At the same time as the
merger, a substantial number of Kangwon's creditors agreed to forgive
Kangwon's debt in exchange for shares in Kangwon. Petitioners state
that record evidence indicates that the GOK owned or controlled many of
the banks that participated in the swap.\10\ Furthermore, petitioners
allege that Kangwon was unequityworthy in 2000, the year of the debt-
for-equity swap. They base their allegation of Kangwon's
unequityworthiness on the fact that the company was found
uncreditworthy in 1998. See Final Affirmative Countervailing Duty
Determination of Structural Steel Beams from the Republic of Korea, 65
FR 41051 (July 3, 2000) and accompanying Issues and Decision
Memorandum.
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\10\ See the April 19, 2000, Memorandum to Melissa Skinner, Re:
Verification Report for Kangwon Industries, Ltd. in the
Countervailing Duty Investigation of Structural Steel Beams from the
Republic of Korea (Kangwon Verification Report), which is on the
record of the instant administrative review.
---------------------------------------------------------------------------
Petitioners argue that the GOK-owned banks' decision to participate
in the swap was inconsistent with the usual investment practice of
private investors, and, therefore, conferred a benefit upon Kangwon and
its parent company, Inchon, within the meaning of section 771(5)(E)(i)
of the Act, in the form of a government equity infusion, as the equity
for which the debt was exchanged was worthless at the time of its
issuance. Petitioners further allege that the debt-for-equity swap
constitutes a government financial contribution within the meaning of
section 771(5)(D)(ii) of the Act in the form of revenue foregone. In
addition, they allege that this program is specific under section
771(5A)(D)(iii)(IV) of the Act, as this transaction was limited to
Kangwon.
On June 26, 1999, Kangwon and Inchon entered into a memorandum of
understanding (MOU) regarding the merger. On July 27, 1999, Kangwon and
Inchon established a task force team to carry out the merger. On
October 15, 1999, at the 8th Creditor Financial Institutions'
Conference (Creditors' Conference) the creditors voted on seven agenda
items that detailed the different financial transactions and
agreements, as well as Kangwon's merger with Inchon. Five of these
seven items passed with the required 75 percent approval of creditors
who were signatories to the CRA. On November 1, 1999, at the 9th
Creditors' Conference, the final two agenda items were approved. Then,
on November 2, 1999, the BOD of both Inchon and Kangwon met to approve
the merger, and the two companies entered into the merger agreement. On
December 14, 1999, Kangwon's shareholders met and approved the merger,
and on January 7, 2000, Inchon's shareholders met and approved the
merger. On January 12, 2000, the debt-to-equity swap was made. The
financial transactions completing the merger were executed on March 15,
2000, and Kangwon's stocks were swapped for Inchon's stocks. On March
16, 2000, Inchon reported the merger to the Korean Stock Exchange. On
July 31, 2000, the companies entered into the supplemental agreement
for the merger, which included additional financial guarantees.
We examined this issue at length during verification (see GOK
Verification Report and the August 7, 2003, Verification Report for INI
in the CVD Administrative Review of Stainless Steel Sheet and Strip
from the Republic of Korea (INI Verification Report)). We found that
the debt-to-equity swap was agreed to by Kangwon's creditors on the
condition that the merger was completed, that an interest rate
adjustment on Kangwon's outstanding debt would be considered, that the
share issuance price should be the market price, and that Inchon could
not choose the loan types that would be converted to equity. See INI
Verification Report at 5. Moreover, we found that the terms of the
merger and the swap were part of the same agreement, i.e., the 1999
Merger Agreement was approved by Inchon's and Kangwon's BOD at the same
time. Based on record evidence and information collected during
verification we preliminarily find that, because the swap took place on
the condition of the merger's completion, Kangwon's creditors were
effectively exchanging their debt for equity in
[[Page 53126]]
Inchon, an equityworthy company. Thus, in accordance with Section 771
(5)(E)(i) of the Act, we find that this investment decision is not
inconsistent with the usual practice of private investors and did not
confer a benefit to Kangwon. Therefore, we preliminarily find this
program to be not countervailable.
C. Debt Forgiveness Provided to Sammi by KAMCO
Sammi received debt forgiveness as part of a workout plan agreed to
by Sammi's creditors while Sammi was under court receivership from
March 18, 1997 until March 23, 2001. KAMCO, a government-owned entity,
was Sammi's lead creditor during a portion of Sammi's time under court
receivership. In the previous review, petitioners argued that even
though this debt forgiveness occurred in the context of bankruptcy
proceedings, the debt forgiveness was specific. See 2000 Sheet and
Strip Decision Memo at Comment 7. They cited a newspaper article which
stated that the workout plan, in which the debt forgiveness was
included, was the first such plan in which KAMCO, acting as the lead
creditor, had participated in a merger and acquisition (M&A) agreement.
In 2000 Sheet and Strip, we did not examine this program as we were
not examining information pertaining to Sammi. However, we indicated
that we would examine this program in the instant review. At
verification we examined KAMCO's actions as Sammi's lead creditor
compared with its actions in other similar situations. The typical
return that KAMCO generated on its sale of Sammi's non-performing loans
(NPLs) was similar to, and even slightly higher, than the typical
return that KAMCO generates on its sale of NPLs. See GOK Verification
Report at 5. Furthermore, the exact amount of debt forgiven was
determined by the purchase offers which Sammi received and not by
KAMCO. Id. The public bidding process was also carried out by Solomon
Smith Barney, an independent consultancy.
In addition, we requested information pertaining to KAMCO's
participation in M&A agreements while acting as lead creditor for
companies under court receivership. See GOK Verification Report,
Exhibit KAM-1. Based on this information, the debt forgiveness agreed
to by KAMCO with respect to Sammi's workout plan was similar to the
debt forgiveness agreed to with respect to other companies in court
receivership where KAMCO was the lead creditor. Therefore, we find that
KAMCO's debt forgiveness to Sammi is not specific within the meaning of
Section 771(5A)(D)(iii) of the Act.
Furthermore, it is the Department's practice to find that debt
forgiveness in the context of bankruptcy, is not countervailable. See
Final Affirmative Countervailing Duty Determination and Final Negative
Critical Circumstances Determination Carbon and Certain Alloy Steel
Wire Rod from Germany, 67 FR 55808 (August 30, 2002) and accompanying
Decision Memo at Comment 6. We find no evidence on the record that
Sammi received special or differential treatment in the bankruptcy
process. Therefore, we preliminarily find that KAMCO's debt forgiveness
to Sammi is not countervailable in accordance with section 771(5)(A) of
the Act.
Preliminary Results of Review
In accordance with 19 CFR 351.221(b)(4)(i), we calculated an
individual subsidy rate for the producer/exporter subject to this
administrative review. For the period January 1, 2001 through December
31, 2001, we preliminarily determine the net subsidy for INI/BNG to be
0.56 percent ad valorem.
If the final results of this review remain the same as these
preliminary results, the Department intends to instruct the U.S. Bureau
of Customs and Border Protection (BCBP) to assess countervailing duties
as indicated above. The Department also intends to instruct BCBP to
collect cash deposits of estimated countervailing duties as indicated
above as a percentage of the f.o.b. invoice price on all shipments of
the subject merchandise from reviewed companies, entered, or withdrawn
from warehouse, for consumption on or after the date of publication of
the final results of this review.
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as
provided for in section 777A(e)(2)(B) of the Act. The requested review
will normally cover only those companies specifically named. See 19 CFR
351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which
a review was not requested, duties must be assessed at the cash deposit
rate, and cash deposits must continue to be collected, at the rate
previously ordered. As such, the countervailing duty cash deposit rate
applicable to a company can no longer change, except pursuant to a
request for a review of that company. See Federal-Mogul Corporation and
The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993)
(interpreting 19 CFR 353.22(e), the antidumping regulation on automatic
assessment, which is identical to 19 CFR 351.212(c)(ii)(2)). Therefore,
the cash deposit rates for all companies except those covered by this
review will be unchanged by the results of this review.
We will instruct the BCBP to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order will be the rate for that company established in the most
recently completed administrative proceeding conducted under the URAA.
If such a review has not been conducted, the rate established in the
most recently completed administrative proceeding pursuant to the
statutory provisions that were in effect prior to the URAA amendments
is applicable. See Final Affirmative Countervailing Duty Determination:
Stainless Steel Sheet and Strip in Coils from the Republic of Korea, 64
FR 30636, at 30664 (June 8, 1999). These rates shall apply to all non-
reviewed companies until a review of a company assigned these rates is
requested. In addition, for the period January 1, 2001 through December
31, 2001, the assessment rates applicable to all non-reviewed companies
covered by this order are the cash deposit rates in effect at the time
of entry.
Upon completion of this administrative review, the Department will
determine, and BCBP shall assess, countervailing duties on all
appropriate entries. In accordance with 19 CFR 351.212(b)(2), we have
calculated a company-specific assessment rate for merchandise subject
to this review. The Department will issue appropriate assessment
instructions directly to the BCBP within 15 days of publication of the
final results of review. If these preliminary results are adopted in
the final results of review, we will direct the BCBP to assess the
resulting assessment rates against the entered customs values for the
subject merchandise on each of the company's entries during the review
period.
Public Comment
Pursuant to 19 CFR 351.224(b), the Department will disclose to
parties to the proceeding any calculations
[[Page 53127]]
performed in connection with these preliminary results within five days
after the date of the public announcement of this notice. Pursuant to
19 CFR 351.309, interested parties may submit written comments in
response to these preliminary results. Unless otherwise indicated by
the Department, case briefs must be submitted within 30 days after the
publication of these preliminary results. Rebuttal briefs, which are
limited to arguments raised in case briefs, must be submitted no later
than five days after the time limit for filing case briefs, unless
otherwise specified by the Department. Parties who submit argument in
this proceeding are requested to submit with the argument: (1) a
statement of the issue, and (2) a brief summary of the argument.
Parties submitting case and/or rebuttal briefs are requested to provide
the Department copies of the public version on disk. Case and rebuttal
briefs must be served on interested parties in accordance with 19 CFR
351.303(f). Also, pursuant to 19 CFR 351.310, within 30 days of the
date of publication of this notice, interested parties may request a
public hearing on arguments to be raised in the case and rebuttal
briefs. Unless the Secretary specifies otherwise, the hearing, if
requested, will be held two days after the date for submission of
rebuttal briefs.
Representatives of parties to the proceeding may request disclosure
of proprietary information under administrative protective order no
later than 10 days after the representative's client or employer
becomes a party to the proceeding, but in no event later than the date
the case briefs, under 19 CFR 351.309(c)(ii), are due. The Department
will publish the final results of this administrative review, including
the results of its analysis of issues raised in any case or rebuttal
brief or at a hearing.
This administrative review is issued and published in accordance
with sections 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1)
and 19 U.S.C. 1677f(i)(1)).
Dated: September 2, 2003.
James J. Jochum,
Assistant Secretary for Import Administration.
[FR Doc. 03-22943 Filed 9-8-03; 8:45 am]