[Federal Register: April 9, 2007 (Volume 72, Number 67)]
[Notices]
[Page 17507-17521]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ap07-39]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
[C-580-857]
Coated Free Sheet Paper From the Republic of Korea: Preliminary
Affirmative Countervailing Duty Determination
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: The Department of Commerce (``the Department'') preliminarily
determines that countervailable subsidies are being provided to
producers and exporters of coated free sheet paper (``CFS paper'') from
the Republic of Korea (``Korea''). For information on the estimated
subsidy rates, see the ``Suspension of Liquidation'' section of this
notice.
EFFECTIVE DATE: April 9, 2007.
FOR FURTHER INFORMATION CONTACT: Maura Jeffords or Kristen Johnson, AD/
CVD Operations, Office 3, Import Administration, U.S. Department of
Commerce, Room 4014, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230; telephone: (202) 482-3146 and (202) 482-4793,
respectively.
SUPPLEMENTARY INFORMATION:
Background
On October 31, 2006, the Department received the petition filed in
proper form by NewPage Corporation (``petitioner''). This investigation
was initiated on November 20, 2006. See Notice of Initiation of
Countervailing Duty Investigations: Coated Free Sheet Paper from the
People's Republic of China, Indonesia, and the Republic of Korea, 71 FR
68546 (November 27, 2006) (``Initiation Notice''), and accompanying
Initiation Checklist for CVD Petition on CFS paper from Korea (November
20, 2007) (``Initiation Checklist'').\1\ On December 19, 2006,
petitioner timely requested a 65-day postponement of the preliminary
determination for this investigation. On December 22, 2006, the
Department postponed the deadline for the preliminary determination by
65 days to no later than March 30, 2007, in accordance with section
703(c)(1)(A) of the Tariff Act of 1930, as amended (``the Act''). See
Coated Free Sheet Paper from Indonesia, the People's Republic of China
and the Republic of Korea: Notice of Postponement of Preliminary
Determinations in the Countervailing Duty Investigations, 71 FR 78403
(December 29, 2006).
---------------------------------------------------------------------------
\1\ A public version of this and all public Department memoranda
is on file in the Central Records Unit (``CRU''), room B-099 in the
main building of the Commerce Department.
---------------------------------------------------------------------------
Due to the large number of producers and exporters of CFS paper in
Korea, we determined that it is not possible to investigate each
producer or exporter individually and selected four producers/exporters
of CFS paper to be mandatory respondents: EN Paper Mfg. Co., Ltd. (``EN
Paper'') (formerly Shinho Paper Co., Ltd. (``Shinho Paper'')), Kyesung
Paper Co., Ltd. (``Kyesung''), Moorim Paper Co. Ltd. (``Moorim'')
(formerly Shinmoorim Paper Mfg. Co., Ltd.), and Hansol Paper Co., Ltd.
(``Hansol'') (collectively, ``respondents''). See Memorandum from the
Team, through Office Director Melissa Skinner, to Deputy Assistant
Secretary Stephen J. Claeys: Regarding Respondent Selection (December
4, 2006) (``Respondent Selection Memo'').\2\
---------------------------------------------------------------------------
\2\ A public version of this memorandum is available in the CRU.
---------------------------------------------------------------------------
On December 6 and 8, 2006, respondents submitted comments on our
Respondent Selection Memo, in which they argued that the Department
should select an additional mandatory respondent. On December 20, 2006,
we responded to respondents' comments, stating that we would not
deviate from our original decision to investigate four mandatory
respondents in the instant investigation. See Memorandum from Program
Manager Eric B. Greynolds, through Office Director Melissa Skinner, to
Deputy Assistant Secretary Stephen J. Claeys: Regarding Response to
Comments from Interested Parties Regarding Respondent Selection
(December 20, 2006) (``Second Respondent Selection Memorandum'').
On December 14, 2006, we issued our initial questionnaire to the
Government of Korea (``the GOK'') and requested that the GOK forward
the relevant sections of the initial questionnaire to the mandatory
respondents.
On December 14, 2006, petitioner submitted a new subsidy
allegation. On January 3, 2007, we declined to initiate
[[Page 17508]]
on petitioner's new subsidy allegation. See Memorandum from the Team
through Program Manager Eric B. Greynolds, to Office Director Melissa
Skinner: Regarding New Subsidy Allegation (January 3, 2007).
On January 26, 2007, the GOK and respondents submitted their
responses to our initial questionnaire. Also on January 26, 2007,
Hankuk Paper Mfg. Co., Ltd. (``Hankuk'') submitted a voluntary response
to the Department's December 14, 2006, initial questionnaire. Because
Hankuk was not selected as a mandatory respondent, we have not
considered the company's questionnaire response in reaching this
preliminary determination and have not calculated a company-specific
CVD rate for Hankuk.
On February 2, 2007, EN Paper, Kyesung,\3\ and the GOK submitted
their responses to the company-specific allegations. Between February
23 and March 12, 2007, we issued supplemental questionnaires to the GOK
and respondents. Between March 5 and 16, 2007, the GOK and respondents
submitted responses to our supplemental questionnaires.
---------------------------------------------------------------------------
\3\ Kyesung's affiliated company, Namhan Paper Co., Ltd.,
submitted the company's response on February 2, 2007. See ``Cross-
Ownership'' section, below, for more information on Namhan Paper
Co., Ltd.
---------------------------------------------------------------------------
On March 8, 2007, petitioner submitted pre-preliminary comments on
a number of issues, which we have considered in reaching this
preliminary determination. In particular, petitioner argues that,
despite instructions from the Department to report all loan data,
respondents failed to report any of their short-term loans. Petitioner
discusses that in the initial questionnaire, referring to petitioner's
allegations that members of the pulp and paper industry received a
disproportionate share of loans from the Korea Development Bank
(``KDB'') and other GOK-owned entities and that the GOK directed credit
to the pulp and paper industry through its control of lending practices
in Korea, the Department specifically requested the respondents to
answer the items in the Standard Questions and Loan Benchmark and Loan
Guarantee Appendices. Petitioner further claims that the unreported
short-term loans were provided by the GOK for financing the importation
of raw materials as well as the export of finished goods. Petitioner
further claims that the Bank of Korea (``BOK'') administers the trade
financing under the Aggregate Credit Ceiling Loan program.
Respondents submitted rebuttal comments to petitioner's pre-
preliminary comments on March 13 and 20, 2007. Respondents state that
they did not report short-term loan data because petitioner did not
make an allegation concerning short-term lending and the Department
neither initiated on nor asked about short-term loans in the initial
questionnaire. They claim that the Department's Initiation Checklist
makes clear that the investigation on loans from the KDB and other GOK-
owned entities and the GOK's direction of credit to the pulp and paper
industry is limited to the allegation of subsidized long-term loans.
See Initiation Checklist at 7-9, 16-18.
We agree with respondents that the Department's examination of KDB
lending and the GOK's direction of credit, in Korea CVD proceedings,
has focused on long-term lending. However, we find that additional
information regarding the respondents' short-term lending is required
to fully analyze the GOK's provision of these loans. For more
discussion of the short-term loan program, see the section ``Program
For Which More Information Is Required,'' below.
On March 23, 2007, petitioner submitted additional pre-preliminary
comments. Respondents submitted a response to petitioner's additional
comments on March 27, 2007. On March 26, 2007, petitioner submitted a
request, pursuant to section 705(a)(1) of the Act to align the final
determination in this investigation with the companion antidumping
investigations. We will address this request in a separate Federal
Register notice.
Scope of the Investigation
The merchandise covered by this investigation includes coated free
sheet paper and paperboard of a kind used for writing, printing or
other graphic purposes. Coated free sheet paper is produced from not-
more-than 10 percent by weight mechanical or combined chemical/
mechanical fibers. Coated free sheet paper is coated with kaolin (China
clay) or other inorganic substances, with or without a binder, and with
no other coating. Coated free sheet paper may be surface-colored,
surface-decorated, printed (except as described below), embossed, or
perforated. The subject merchandise includes single- and double-side-
coated free sheet paper; coated free sheet paper in both sheet or roll
form; and is inclusive of all weights, brightness levels, and finishes.
The terms ``wood free'' or ``art'' paper may also be used to describe
the imported product.
Excluded from the scope are: (1) Coated free sheet paper that is
imported printed with final content printed text or graphics; (2) base
paper to be sensitized for use in photography; and (3) paper containing
by weight 25 percent or more cotton fiber.
Coated free sheet paper is classifiable under subheadings
4810.13.1900, 4810.13.2010, 4810.13.2090, 4810.13.5000, 4810.13.7040,
4810.14.1900, 4810.14.2010, 4810.14.2090, 4810.14.5000, 4810.14.7040,
4810.19.1900, 4810.19.2010, and 4810.19.2090 of the Harmonized Tariff
Schedule of the United States (``HTSUS''). While HTSUS subheadings are
provided for convenience and customs purposes, our written description
of the scope of this investigation is dispositive.
Scope Comments
In accordance with the preamble to the Department's regulations
(see Antidumping Duties; Countervailing Duties, 62 FR 27296, 27323 (May
19, 1997) (``Preamble'')), in our Initiation Notice we set aside a
period of time for parties to raise issues regarding product coverage,
and encouraged all parties to submit comments within 20 calendar days
of publication of the Initiation Notice.
On December 18, 2006, respondents in the antidumping duty
investigation of CFS from Indonesia submitted timely scope comments on
the administrative record of that investigation. On January 12, 2007,
the Department requested that the respondents file these comments on
the administrative records of all the CFS investigations. See
Memorandum from Alice Gibbons to the File (January 12, 2007). On
January 12, 2007, respondents re-filed these comments on the
administrative record of all the CFS investigations. On January 19,
2007, petitioner filed a response to these comments.
The respondents requested that the Department exclude from its
investigations cast-coated free sheet paper. The Department analyzed
this request, together with the comments from petitioner, and
determined that it is not appropriate to exclude cast-coated free sheet
paper from the scope of these investigations. See Memorandum to Stephen
J. Claeys, Deputy Assistant Secretary for Import Administration:
Regarding Request to Exclude Cast-Coated Free Sheet Paper from the
Antidumping Duty and Countervailing Duty Investigations on Coated Free
Sheet Paper (March 22, 2007).\4\
---------------------------------------------------------------------------
\4\ A copy of this memorandum is available in the CRU.
---------------------------------------------------------------------------
Injury Test
Because Korea is a ``Subsidies Agreement Country'' within the
[[Page 17509]]
meaning of section 701(b) of the Act, the International Trade
Commission (``ITC'') is required to determine whether imports of the
subject merchandise from Korea materially injure, or threaten material
injury to, a U.S. industry. On December 29, 2006, the ITC published its
preliminary determination that there is a reasonable indication that an
industry in the United States is materially injured by reason of
imports from China, Indonesia, or Korea of subject merchandise. See
Coated Free Sheet Paper from China, Indonesia, and Korea, Investigation
Nos. 701-TA-444-446 (Preliminary) and 731-TA-1107-1109 (Preliminary),
71 FR 78464 (December 29, 2006).
Period of Investigation
The period of investigation (``the POI'') for which we are
measuring subsidies is January 1, 2005, through December 31, 2005,
which corresponds to the most recently completed fiscal year for all of
the respondents. See 19 CFR 351.204(b)(2).
Cross-Ownership
In the instant investigation, we are examining cross-owned
companies within the meaning of section 771(33) of the Act, whose
relationship may be sufficient to warrant treatment as a single company
with a single, combined CVD rate. In the CVD questionnaire, consistent
with our past practice, the Department defined companies as
sufficiently related where one company owns five percent or more of the
other company, or where companies prepare consolidated financial
statements. The Department has also stated that companies may be
considered sufficiently related where there are common directors or one
company performs services for the other company. According to the
questionnaire, where such companies produce the subject merchandise or
where such companies have engaged in certain financial transactions
with the company producing the subject merchandise, the affiliated
parties are required to respond to the Department's questionnaire.
In its questionnaire response, Kyesung identified Namhan Paper Co.,
Ltd. (``Namhan'') and Poongman Paper Co., Ltd. (``Poongman'') as its
affiliated companies that produce and sell subject merchandise. Namhan
and Poongman merged during the POI. Therefore, Namhan submitted a
questionnaire response covering the POI that contained data for Namhan
and Poongman before and after the merger (as one company). Similarly,
in its questionnaire response, Moorim identified Moorim SP as its
affiliate that produces and sells subject merchandise. Moorim SP
submitted a questionnaire response to the Department.
For the countervailable subsidy benefits enjoyed by Kyesung and
Namhan/Poongman and Moorim and Moorim SP, we attributed those benefits
in accordance with 19 CFR 351.525(b)(6)(ii), which states that if two
(or more) corporations with cross-ownership produce the subject
merchandise, the Department will attribute the subsidies received by
either or both companies to the products produced by both companies.
Therefore, we have preliminarily calculated a single CVD ad valorem
rate for Kyesung and Moorim, respectively, by dividing the combined
subsidy benefits for the cross-owned companies by the companies'
consolidated total sales, or consolidated total export sales, as
appropriate.
Subsidies Valuation Information
Benchmarks for Loans and Discount Rate
A. Benchmark for Long-Term Loans Issued Through 2005
Pursuant to 19 CFR 351.524(d)(3)(i), the Department will use, when
available, the company-specific cost of long-term, fixed rate loans
(excluding loans deemed to be countervailable subsidies) as a discount
rate for allocating non-recurring benefits over time. Similarly,
pursuant to 19 CFR 351.505(a), the Department will use the actual cost
of comparable borrowing by a company as a loan benchmark, when
available. According to 19 CFR 351.505(a)(2), a comparable commercial
loan is defined as one that, when compared to the loan being examined,
has similarities in the structure of the loan (e.g., fixed interest
rate vs. variable interest rate), the maturity of the loan (e.g.,
short-term vs. long-term), and the currency in which the loan is
denominated.
During the POI, EN Paper (formerly known as Shinho Paper), Hansol,
Kyesung, and Moorim had outstanding long-term won-denominated and
foreign-currency denominated loans from the KDB and other government-
owned financial institutions. For this preliminary determination, we
are using the following benchmarks to calculate the subsidies
attributable to respondents' countervailable long-term loans obtained
in the years 1993 through 2005:
(1) For countervailable, foreign-currency denominated loans for
creditworthy companies, we used, where available, the company-specific
interest rates on the companies' comparable commercial, foreign
currency loans. Where no such benchmark instruments were available,
consistent with 19 CFR 351.505(a)(3)(ii) as well as our methodology in
prior Korea CVD cases, we relied on the prime lending rates as reported
by the IMF's International Financial Statistics Yearbook (``IMF
Yearbook''). See Final Affirmative Countervailing Duty Determination:
Dynamic Random Access Memory Semiconductors from the Republic of Korea,
68 FR 37122 (June 23, 2003) (``DRAMS Investigation''), and accompanying
Issues and Decision Memorandum at ``Discount Rates and Benchmark
Loans'' (``DRAMS Investigation Memorandum'').
(2) For countervailable, won-denominated long-term loans, we used,
where available, the company-specific interest rates on the companies'
comparable commercial, won-denominated loans. If such loans were not
available, we used the company-specific corporate bond rate (for
commercial debt preliminarily found not to be countervailable) on the
companies' won-denominated public and private bonds. See 19 CFR
351.505(a)(3)(iii). Where company-specific rates were not available, we
used the national average of the yields on three-year, won-denominated
corporate bonds, as reported by the Bank of Korea (``BOK''). This
approach is consistent with the Department's past practice. See DRAMS
Investigation Memorandum, at ``Discount Rates and Benchmark Loans.''
(3) For countervailable, won-denominated commercial debt issued by
the KDB, we used, where available, the company-specific corporate bond
rate on the companies' won-denominated public and private bonds. See 19
CFR 351.505(a)(3)(iii). Where company-specific rates were not
available, we used the national average of the yields on three-year,
won-denominated corporate bonds, as reported by the BOK.
Further, in accordance with 19 CFR 351.505(a)(2), our benchmarks
take into consideration the structure of the government-provided loans.
For fixed-rate loans, pursuant to 19 CFR 351.505(a)(2)(iii), we used
benchmark rates issued in the same year that the government loans were
issued. For variable-rate loans outstanding during the POI, pursuant to
19 CFR 351.505(a)(5)(i), our preference is to use the interest rates of
variable-rate lending instruments issued during the year in which the
government loans were issued. Where such benchmark
[[Page 17510]]
instruments were unavailable, we used interest rates from loans issued
during the POI as our benchmark, as such rates better reflect a
variable interest rate that would be in effect during the POI. This
approach is in accordance with the Department's practice in cases with
similar facts. See, e.g., Final Results and Partial Rescission of
Countervailing Duty Administrative Review: Stainless Steel Sheet and
Strip From the Republic of Korea, 68 FR 13267 (March 19, 2003), and
accompanying Issues and Decision Memorandum, at Comment 8; see also 19
CFR 351.505(a)(5)(ii).
In addition, because we preliminarily determined that Poongman was
uncreditworthy in 2004, in accordance with 19 CFR 351.524(d)(3)(ii)
(see ``Creditworthiness'' section, below), we have calculated for
Poongman a long-term uncreditworthy benchmark and discount rate for
2004. According to 19 CFR 351.505(a)(3)(iii), in order to calculate
these rates, the Department must specify values for four variables: (1)
The probability of default by an uncreditworthy company; (2) the
probability of default by a creditworthy company; (3) the long-term
interest rate for creditworthy borrowers; and (4) the term of the debt.
For the probability of default by an uncreditworthy company, we have
used the average cumulative default rates reported for the Caa- to C-
rated category of companies as published in Moody's Investors Service,
``Historical Default Rates of Corporate Bond Issuers, 1920-1997''
(February 1998).
B. Benchmark Discount Rates
Certain programs examined in this investigation require the
allocation of benefits over time. Thus, we have employed the allocation
methodology described under 19 CFR 351.524(d). Pursuant to 19 CFR
351.524(d)(3)(i), we based our discount rate upon data for the year in
which the government agreed to provide the subsidy. Under 19 CFR
351.524(d)(3)(i)(A), our preference is to use the cost of long-term,
fixed-rate loans of the firm in question. Thus, where available, we
used company-specific long-term loan benchmark of corporate bond rates
on public and private bonds. Where those benchmarks are unavailable,
pursuant to 19 CFR 351.524(d)(3)(i)(B), we used the national average of
the yields on three-year corporate bonds, as reported by the BOK.
C. Benchmarks for Short-Term Financing
The benefit calculation for the Export and Import Credit Financing
from the Export-Import Bank of Korea requires the application of a won-
denominated, short-term interest rate benchmark. Absent a company-
specific interest rate, we used as our benchmark the lending rate for
won-denominated loans for the POI, as reported in the IMF Yearbook.
This approach is in accordance with 19 CFR 351.505(a)(3)(ii) and the
Department's practice. See, e.g., Preliminary Results of Countervailing
Duty Administrative Review: Corrosion-Resistant Carbon Steel Flat
Products from the Republic of Korea, 71 FR 53413, 53419 (September 11,
2006) (unchanged at the final results, see Final Results of
Countervailing Duty Administrative Review: Corrosion-Resistant Carbon
Steel Flat Products from the Republic of Korea, 72 FR 119 (January 3,
2007)).
D. Allocation Period
Under 19 CFR 351.524(d)(2)(i), we will presume the allocation
period for non-recurring subsidies to be the average useful life
(``AUL'') of renewable physical assets for the industry concerned, as
listed in the Internal Revenue Service's (``IRS'') 1977 Class Life
Asset Depreciation Range System (``IRS tables''), as updated by the
U.S. Department of the Treasury. The presumption will apply unless a
party claims and establishes that these tables do not reasonably
reflect the AUL of the renewable physical assets for the company or
industry under investigation, and the party can establish that the
difference between the company-specific or country-wide AUL for the
industry under investigation is significant, pursuant to 19 CFR
351.524(d)(2)(ii). For assets used to manufacture products such as CFS
paper, the IRS tables prescribe an AUL of 13 years.
In their questionnaire responses, each respondent company stated
that it would not attempt to rebut the regulatory presumption by
meeting the criteria set forth in 19 CFR 351.524(d)(2)(iii). Thus, for
respondents, we will use the IRS AUL of 13 years to allocate any non-
recurring subsidies for purposes of this preliminary determination.
Further, for non-recurring subsidies, we have applied the ``0.5
percent expense test'' described in 19 CFR 351.524(b)(2). Under this
test, we compare the amount of subsidies approved under a given program
in a particular year to sales (total sales or total export sales, as
appropriate) for the same year. If the amount of subsidies is less than
0.5 percent of the relevant sales, then the benefits are allocated to
the year of receipt rather than allocated over the AUL period.
E. Creditworthiness
The examination of creditworthiness is an attempt to determine if
the company in question could obtain long-term financing from
conventional commercial sources. See 19 CFR 351.505(a)(4). According to
19 CFR 351.505(a)(4)(i), the Department will generally consider a firm
to be uncreditworthy if, based on information available at the time of
the government-provided loan, the firm could not have obtained long-
term loans from conventional commercial sources. In making this
determination, according to 19 CFR 351.505(a)(4)(i), the Department
normally examines the following four types of information: (1) The
receipt by the firm of comparable commercial long-term loans; (2)
present and past indicators of the firm's financial health; (3) present
and past indicators of the firm's ability to meet its costs and fixed
financial obligations with its cash flow; and (4) evidence of the
firm's future financial position.
With respect to item number one above, pursuant to 19 CFR
351.505(a)(4)(ii), in the case of firms not owned by the government,
the receipt by the firm of comparable long-term commercial loans,
unaccompanied by a government-provided guarantee (either explicit or
implicit), will normally constitute dispositive evidence that the firm
is not uncreditworthy. However, according to the preamble to the
Department's CVD regulations, in situations, for instance, where a
company has taken out a single commercial bank loan for a relatively
small amount, where a loan has unusual aspects, or where we consider a
commercial loan to be covered by an implicit government guarantee, we
may not view the commercial loan(s) in question to be dispositive of a
firm's creditworthiness. See Preamble, at 65367.
In the Initiation Notice, we indicated that we would investigate
Shinho Paper's creditworthiness for the period 1998 through 2005, and
Poongman's creditworthiness for 2004. As discussed in the March 29,
2007, memorandum entitled ``Shinho Paper's Equityworthiness and
Creditworthiness,'' we preliminarily determined Shinho Paper to be
creditworthy each year from 1998 through 2005 (a copy of this
memorandum is available in the CRU). Regarding Poongman, we
preliminarily determine Poongman to be uncreditworthy in 2004. See
Memorandum to the File Regarding Poongman's Creditworthiness (March 29,
2007), which is available in the
[[Page 17511]]
CRU. Therefore, pursuant to 19 CFR 351.505(a)(3)(iii), we derived an
``uncreditworthy'' benchmark interest rate and used it to calculate the
benefit that Poongman received from debt that was forgiven in 2004. For
information on Poongman, see the ``Poongman's Restructuring'' section
below.
F. Equityworthiness
Section 771(5)(E)(i) of the Act and 19 CFR 351.507 state that, in
the case of a government-provided equity infusion, a benefit is
conferred if an equity investment decision is inconsistent with the
usual investment practice of private investors. According to 19 CFR
351.507, the first step in determining whether an equity investment
decision is inconsistent with the usual investment practice of private
investors is examining whether, at the time of the infusion, there was
a market price for similar, newly issued equity. If so, the Department
will consider an equity infusion to be inconsistent with the usual
investment practice of private investors if the price paid by the
government for newly issued shares is greater than the price paid by
private investors for the same, or similar, newly issued shares. See 19
CFR 351.507(a)(2)(i).
If actual private investor prices are not available, then, pursuant
to 19 CFR 351.507(a)(3)(i), the Department will determine whether the
firm funded by the government-provided infusion was equityworthy or
unequityworthy at the time of the equity infusion. In making the
equityworthiness determination, pursuant to 19 CFR 351.507(a)(4), the
Department will normally determine that a firm is equityworthy if, from
the perspective of a reasonable private investor examining the firm at
the time the government-provided equity infusion was made, the firm
showed an ability to generate a reasonable rate of return within a
reasonable time. To do so, the Department normally examines the
following factors: (1) Objective analyses of the future financial
prospects of the recipient firm; (2) current and past indicators of the
firm's financial health; (3) rates of return on equity in the three
years prior to the government equity infusion; and (4) equity
investment in the firm by private investors.
Section 351.507(a)(4)(ii) of the Department's regulations further
stipulates that the Department will ``normally require from the
respondents the information and analysis completed prior to the
infusion, upon which the government based its decision to provide the
equity infusion.'' Absent an analysis containing information typically
examined by potential private investors considering an equity
investment, the Department will normally determine that the equity
infusion provides a countervailable benefit. This is because, before
making a significant equity infusion, it is the usual investment
practice of private investors to evaluate the potential risk versus the
expected return, using the most objective criteria and information
available to the investor.
In the Initiation Notice, we indicated that we would investigate
Shinho Paper's equityworthiness for the period 1998 through 2005, and
Poongman's equityworthiness for 2004. As discussed in the March 29,
2007, memorandum entitled ``Shinho Paper's Equityworthiness and
Creditworthiness'' (which is on file in the CRU), we preliminarily
determine that Shinho Paper was equityworthy each year from 1998
through 2005. For information on Poongman, see the ``Poongman's
Restructuring'' section, below.
I. Programs Preliminarily Determined To Be Countervailable
A. Long-Term Lending Provided by the KDB and Other GOK-Owned Institutions
Petitioner alleges that lending by the KDB to the Korean paper
sector was a financial contribution, which provided a benefit and was
specific to the paper sector. Petitioner also argues that in addition
to the KDB, the Industrial Bank of Korea, National Agricultural
Cooperative Federation, the National Federation of Fisheries, and the
Export-Import Bank be treated as governmental authorities, consistent
with our approach in DRAMS Investigation. See Petition for the
Imposition of Countervailing Duties from Petitioners to the Department
at 15 (October 31, 2006) (``Petition''). Petitioner alleges that GOK
lending by these various government entities was specific to the paper
industry. In its allegation, petitioner suggests that the Department
adopt a methodology under which the amount of the paper sector's share
of KDB loans is compared to the paper sector's contribution to the
total manufacturing output in Korea. According to petitioner, where
this analysis shows that the amount of the paper sector's loans from
the KDB exceeds that sector's share of Korean manufacturing output, the
Department should find that the paper sector received a
disproportionate share of KDB loans, i.e., which is therefore specific
under section 771(5A)(D)(iii) of the Act. See Petition, at 17-18.
As explained above, the Department preliminarily agrees that KDB
and other GOK lending institutions provide a financial contribution to
the Korea paper sector under section 771(5)(D)(i) of the Act. We also
preliminarily determine that KDB lending to the paper sector was
specific in accordance with section 771(5A)(D)(iii)(III) of the Act
because the paper sector received a disproportionate share of KDB loans
between 1999 and 2005 when compared to that sector's contribution to
the overall Korean Gross Domestic Product (``GDP'').\5\ See Memorandum
to the File Regarding Analysis of Korea Paper Sector's share of KDB
Lending (March 29, 2007) (``KDB Memorandum''). While the record is not
adequately developed regarding loans provided to the paper sector by
other GOK lending institutions, there is no reason to believe that the
lending patterns of these other government lending institutions would
be different than the lending pattern of the KDB, the country's leading
supplier of long-term funds to domestic corporations over the period.
---------------------------------------------------------------------------
\5\ In reporting economic activity that contributes to the
Korean GDP, the BOK does not report a category particular just to
the paper sector. The paper sector's contribution to GDP is
contained within the category ``wood, paper, publishing, and
printing.'' Therefore, to conduct our GDP analysis, we are using
this broad category. To the extent that we could, we combined the
lending data for ``wood, paper, publishing, and printing'' to
achieve an ``apples-to-apples'' comparison between share of GDP and
share of loans for this sector. See KDB Memorandum, for more
discussion.
---------------------------------------------------------------------------
With regard to KDB's lending to the paper sector in the years 1993
through 1998, we do not have on the record KDB-specific lending data
for these years. The GOK reported that the KDB no loner maintains
lending data for newly issued loans for this period either in
electronic or paper form. See GOK's questionnaire response at 26
(January 26, 2007) and at 16 (March 6, 2007). However, for the years
1993 through 1998, we have on the record data on the total lending to
the paper sector, encompassing loans from the KDB, other GOK financial
institutions, and commercial banks. See GOK's questionnaire response at
page 20 and Exhibits 6 and 7 (January 26, 2007). We, therefore,
examined the paper sector's share of total lending to the paper
sector's share of GDP in each of those years. We find that the record
indicates that the paper sector received a disproportionate share of
total lending in each year 1993 through 1998 when compared to the
sector's contribution to the overall Korean GDP, and that this can
serve as a reasonable proxy for the KDB-specific lending data. Given
the finding that the paper sector received a
[[Page 17512]]
disproportionate share of KDB loans in each year 1999 through 2005, and
the lending trend identified for the paper sector 1993 through 1998, we
also preliminarily determine that the paper sector received a
disproportionate share of KDB loans between 1993 and 1998, and that
this lending was specific in accordance with section
771(5A)(D)(iii)(III) of the Act.
The comparison between KDB lending received by the paper sector and
the paper sector's contribution to the GDP of Korea is consistent with
the Department's approach in Plate in Coils. See Final Negative
Countervailing Duty Determination: Stainless Steel Plate in Coils From
the Republic of Korea, 64 FR 15530 (March 31, 1999) (``Plate in
Coils''); see also Memorandum from David Mueller to Holly A. Kuga:
Regarding Analysis Concerning Direction of Credit, Subject:
Countervailing Duty Investigation (March 4, 1998).\6\
---------------------------------------------------------------------------
\6\ A copy of this public document has been placed on the record
of this review.
---------------------------------------------------------------------------
In accordance with 19 CFR 351.505(c)(2) and (4), for each
respondent, we calculated the benefit for each fixed- and variable-rate
loan received from the KDB and other GOK lending institutions, as well
as commercial debt issued by KDB where relevant, to be the difference
between the actual amount of interest paid on the government loan
during the POI and the amount of interest that would have been paid
during the POI at the benchmark interest rate. We conducted our benefit
calculations using the benchmark interest rates described in the
``Subsidies Valuation Information'' section, above. For foreign
currency-denominated loans, we converted the benefits into Korean won
using the appropriate exchange rate. For each company, we then summed
the benefits from the long-term fixed-rate and variable-rate won-
denominated loans, and commercial debt issued by KDB where relevant,
and divided that amount by each company's total sales values for the
POI. We preliminarily determine the net countervailable subsidy rates
to be, for: Hansol 1.01 percent ad valorem, Kyesung 0.01 percent ad
valorem, and Moorim 0.02 percent ad valorem.
B. Poongman's Restructuring
Petitioner alleges that Poongman, a CFS-producing affiliate of
Kyesung, received countervailable benefits from the GOK through
extensions of debt maturities in 2002 and 2004, and a debt-for-equity
swap in 2004. See Petition, at 67-69. Petitioner states that the KDB,
owned/controlled by the GOK, was the main participant in the debt-for-
equity swap. Petitioner further alleges that Poongman was
unequityworthy and uncreditworthy in 2004. They base their allegation
of Poongman's unequityworthiness and uncreditworthiness on its
financial statements and its creditors' assessments. Therefore,
petitioner argues that the GOK conferred a benefit upon Poongman,
within the meaning of sections 771(5)(E)(i) and (ii) of the Act, in the
form of a government equity infusion and a loan. Petitioner further
alleges that the debt-for-equity swap and the extensions of debt
maturities constitute government financial contributions within the
meaning of section 771(5)(D)(i) of the Act. In addition, petitioner
alleges that this program is specific under section 771(5A)(D)(iii) of
the Act, as this transaction was limited to Poongman. Pursuant to the
Corporate Restructuring Promotion Act (``CRPA''), Korea's statutory
framework for debt restructurings, Poongman's creditors performed a
biannual credit assessment of the company in 2001.\7\ As a result of
this assessment, Poongman received a `B' rating, which allowed it to go
through self-restructuring, rather than through the formal CRPA
process. See GOK's questionnaire response at pages 2 and 19 (February
2, 2007). Pursuant to the self-restructuring, in 2002, Poongman was
granted an extension on the debt maturities for some of its KDB loans
that were coming due. No other creditors besides the KDB granted the
extensions during this period. As discussed further below, the interest
owed as a result of this extension was forgiven and resulted in the
provision of a countervailable subsidy.
---------------------------------------------------------------------------
\7\ The CRPA was enacted in September 2001, to help stabilize
the financial and corporate sectors recovering from the 1997
financial crisis by allowing for corporate restructurings with more
transparency and promptness. Its intent is to give greater
responsibility to the creditors in resolving the fate of non-
performing debt in the market by implementing a corporate risk
rating system and conducting regular credit risk assessments on
companies receiving 50 billion won or more in credit.
---------------------------------------------------------------------------
Following another credit assessment in 2002, the KDB classified
Poongman as a credit risk company and demanded it perform self-
restructuring in accordance with Article 10.3 of the CRPA. See id. at
Exhibit K-1; see also GOK's questionnaire response at page 16 (March
16, 2007). As a result, Poongman engaged the services of a management
consulting company to provide a financial analysis. The record facts
further indicate that the management consulting company provided a
report based on commercial considerations which served as the basis for
the restructuring of Poongman and its merger with Namhan. See Namhan's
questionnaire response at Exhibit L-20 (February 2, 2007) and Exhibit
L-44 (March 13, 2007).
In June 2004, Poongman's restructuring package was agreed to by
Poongman's creditors and Namhan. This package included an agreement
that Poongman would merge with Namhan, Poongman's creditors would swap
Poongman's debt in exchange for shares in Namhan, and Poongman's
creditors would extend Poongman's remaining debt maturities.
Subsequently, Poongman's board of directors approved the restructuring
package on June 8, 2004, and the debt-for-equity swap was made. Due to
volatile market conditions, and not due to any changes to the terms of
the merger, the merger did not take effect until July 31, 2005, when
Poongman's stocks were swapped for Namhan's stocks.
In a past review involving a Korean corporate restructuring, the
Department found that in a debt-for-equity swap that was conditioned on
a merger of a non-equityworthy company (Kangwon) with an equityworthy
company (Inchon), the creditors of the non-equityworthy company were
effectively exchanging their debt for equity in the equityworthy
company. In that case, Kangwon merged into Inchon, with Inchon being
the post-merger company. See Final Results of Countervailing Duty
Administrative Review: Stainless Steel Sheet and Strip in Coils from
the Republic of Korea, 69 FR 2113 (January 14, 2004) (``Stainless
Steel''), and accompanying Issues and Decision Memorandum at Comment 3.
In Stainless Steel, the Department found that the terms of the merger
and the debt-for-equity swap were part of the same agreement and that
the legal requirements for the agreement had been fulfilled before the
debt-for-equity swap took place. Id. Moreover, there was no allegation
that Inchon was not equityworthy, and the Department found that the
record evidence regarding Inchon's financial status provided no reason
to question its equityworthiness. Id. Consequently, the Department
concluded that the equityworthiness of Kangwon, the non-equityworthy
company, was not relevant to the determination of whether a benefit was
conferred. Id.
In this case, we find that the debt-to-equity swap was agreed to by
Poongman's creditors on the condition that the merger with Namhan would
occur, and that the share issuance price would be the market price.
Moreover, we find that the terms of the merger and
[[Page 17513]]
the swap were part of the same agreement that was approved by
Poongman's board of directors. Based on record evidence, and consistent
with Stainless Steel, we preliminarily find that, because the swap and
the extension of debt maturities took place on the condition of
Poongman's merger into Namhan, Poongman's creditors were effectively
exchanging their debt for equity in Namhan, an equityworthy company.
In looking to the post-merger entity as the reference for analyzing
equityworthiness and creditworthiness, the Department takes due
consideration of the specific facts of the case. In the instant
investigation, the record evidence shows Namhan to be a larger,
financially more stable company relative to Poongman. In addition,
petitioner has not alleged that Namhan was an unequityworthy or
uncreditworthy company during the relevant time period. Thus, in
accordance with section 771(5)(E)(i) of the Act, we find that the
decision by Poongman's creditors to swap debt for equity in Namhan was
not inconsistent with the usual practice of private investors and did
not confer a benefit to Poongman. Therefore, we preliminarily find that
the debt-for-equity swap and the debt maturity extensions that occurred
in 2004, on condition of the merger with Namhan are not
countervailable.
However, with regard to the forgiveness of interest owed as
discussed earlier, we preliminarily find that this forgiveness of debt
constitutes the provision of a financial contribution. In addition, we
preliminarily find that it was specific to Poongman within the meaning
of section 771(5A)(D)(iii) of the Act, in that it was limited to one
company. As such, we preliminarily determine the net countervailable
subsidy to be 0.49 percent ad valorem.
C. Export and Import Credit Financing From the Export-Import Bank of Korea (“KEXIM”)
The Department has previously determined that the GOK's short-term
export financing program is countervailable. See e.g., Preliminary
Results of Countervailing Duty Administrative Review: Corrosion-
Resistant Carbon Steel Flat Products from the Republic of Korea, 71 FR
53413, 53419 (September 11, 2006), (unchanged at the final results, see
Final Results of Countervailing Duty Administrative Review: Corrosion-
Resistant Carbon Steel Flat Products from the Republic of Korea, 72 FR
119 (January 3, 2007)); see also 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). No new
information from interested parties has been presented in this
investigation to warrant a reconsideration of the countervailability of
this program. Therefore, we preliminarily find that this program is
countervailable.
We preliminarily determine that the program is specific, pursuant
to section 771(5A)(B) of the Act, because receipt of the financing is
contingent upon exporting. In addition, we preliminarily determine that
the export financing constitutes a financial contribution in the form
of a loan within the meaning of section 771(5)(D)(i) of the Act and
confers a benefit within the meaning of section 771(5)(E)(ii) of the
Act. During the POI, Hansol was the only respondent that received
export financing from the KEXIM.
Pursuant to 19 CFR 351.505(a)(1), to calculate the benefit under
this program, we compared the amount of interest paid under the program
to the amount of interest that would have been paid on a comparable
commercial loan. As our benchmark, we used the short-term interest
rates discussed above in the ``Subsidies Valuation Information''
section. To calculate the net subsidy rate, we divided the benefit by
the f.o.b. value of Hansol's total exports for 2005. On this basis, we
preliminarily determine the net countervailable subsidy rate for Hansol
to be 0.13 percent ad valorem.
D. Sale of Pulp for Less Than Adequate Remuneration
Donghae Pulp Company (``DP'') is the sole domestic producer/
supplier of chemical pulp to the Korean pulp and paper industry. DP
sells one type of chemical pulp to CFS producers, specifically bleached
woodcraft pulp from the broadleaf trees. The key input into the
production of CFS paper is chemical pulp, which respondents either
import or purchase domestically from DP. During the POI, all
respondents purchased chemical pulp directly from DP.\8\
---------------------------------------------------------------------------
\8\ DP sells chemical pulp directly to end-users. There are no
distributors of chemical pulp in Korea.
---------------------------------------------------------------------------
DP was originally Daehan Chemical Pulp (``DCP''), established in
January 1974, under the laws of the Republic of Korea, as a government-
funded enterprise to manufacture and sell chemical pulp. DCP changed
its name to DP in June 1977, and in 1987, the GOK sold its interest in
DP to several companies that were end users of chemical pulp. Since
June 1989, the shares of DP have been listed on the Korea Stock
Exchange. In April 1998, DP declared bankruptcy and applied to the
court for company reorganization. Soon thereafter, DP began operating
under court receivership.\9\ In September 1999, as part of the
reorganization, the shares of some companies were retired without
compensation.\10\ In November 1999, the shares of the remaining
shareholders were consolidated and the creditors swapped their debt for
equity shares in DP. As a result of this debt-to-equity conversion, KDB
became DP's largest shareholder. Officials from the KDB are directors
on DP's board of directors.
---------------------------------------------------------------------------
\9\ During the POI, DP remained in court receivership.
\10\ Specifically, as part of DP's reorganization, the shares of
Kyesung, Namhan, Poongman, Moorim, Moorim SP, and Hankuk Paper Co.,
Ltd. were retired without any compensation.
---------------------------------------------------------------------------
Respondents argue that, since DP is in court receivership, the GOK
does not control DP or direct it to sell chemical pulp to Korean CFS
producers for less than adequate remuneration. In support of their
argument, respondents discuss that in an earlier Korean CVD
administrative review, the Department found that because Sammi Steel
Co., Ltd. (``Sammi'') was in court receivership, Inchon Iron & Steel
Co., Ltd., although a major shareholder, was not able to control
Sammi's assets. See Final Results and Partial Rescission of
Countervailing Duty Administrative Review: Stainless Steel Sheet and
Strip from the Republic of Korea, 68 FR 13267 (March 19, 2003), and
accompanying Issues and Decision Memorandum at Comment 3 (``Sheet and
Strip 2003'').
However, contrary to respondents'' argument concerning Sheet and
Strip 2003, the facts of this instant investigation in which we are
examining DP are distinct from the facts that we examined with regard
to Sammi's court receivership. Specifically, in Sheet and Strip 2003,
we examined Sammi's court receivership in the context of cross-
ownership and the attribution of benefits, whereas, in this instant
investigation, we are examining whether DP should be considered a GOK
entity for purposes of examining whether a countervailable benefit is
being provided. Id.
In order to assess whether an entity such as DP should be regarded
as the government for purposes of a CVD proceeding, the Department
considers the following factors to be relevant: (1) The government's
ownership; (2) the government's presence on the entity's board of
directors; (3) the government's control over the entity's activities;
(4)
[[Page 17514]]
the entity's pursuit of governmental policies or interests; and (5)
whether the entity is created by statute. See, e.g., Final Affirmative
Countervailing Duty Determinations: Pure Magnesium and Alloy Magnesium
from Canada, 57 FR 30946, 30954 (July 13, 1992); Final Affirmative
Countervailing Duty Determination: Certain Fresh Cut Flowers from the
Netherlands, 52 FR 3301, 3302, 3310 (February 3, 1987); and Final
Affirmative Countervailing Duty Determination: Stainless Steel Sheet
and Strip in Coils from the Republic of Korea, 64 FR 30636, 30642-30643
(June 8, 1999) (``Sheet and Strip 1999'').
We preliminarily find DP to be a government authority under section
771(5)(B)(i) of the Act. DP was established by the GOK in 1974 to
address the government's interest in establishing a domestic
manufacturer and supplier of chemical pulp to the paper industry. DP is
majority-owned by the KDB, a government-owned financial institution
that also has presence on DP's board of directors. We do not believe
that DP's court receivership status overrides the factors considered by
the Department, which are outlined above.
Further, this finding that DP is a government authority is
consistent with prior determinations by the Department. For example,
the Department determined that the actions of Pohang Iron and Steel
Company, Ltd. (``POSCO'') should be considered as actions of the GOK
because POSCO was a government-owned company. At that time, the GOK was
POSCO's largest shareholder. See id., at 30642-30643.
Further, we preliminarily find that DP's provision of chemical pulp
constitutes a financial contribution because it is the provision of a
good as defined in section 771(5)(D)(iii) of the Act. We also
preliminarily find that the provision of chemical pulp is specific in
accordance with section 771(5A)(D)(iii)(I) of the Act because it is
limited to the pulp and paper industry.
To determine whether there is a benefit from the provision of a
good, the Act specifies that the Department must examine whether the
good was provided for less than adequate remuneration. According to
section 771(5)(E) of the Act, the adequacy of remuneration with respect
to a government's provision of a good shall be determined in relation
to prevailing market conditions for the good being provided or the
goods being purchased in the country which is subject to the
investigation or review. Prevailing market conditions include price,
quality, availability, marketability, transportation, and other
conditions of purchase or sale. Section 351.511 of the Department's
regulations sets forth, in order of preference, the benchmarks that we
will examine in determining the adequacy of remuneration. As discussed
under 351.511(a)(2)(i), the first preference is to compare the
government price to a market-determined price resulting from actual
transactions within the country, including imports. In this case, as DP
is the only domestic supplier of chemical pulp, there is no domestic
price that can serve as a benchmark price. However, the respondents
imported chemical pulp comparable, in terms of quality and quantity, to
that purchased from DP during the POI.
To calculate the benefit under this program, for each respondent,
we compared the monthly delivered weighted-average price, after all
discounts, paid to DP for chemical pulp to the calculated monthly
delivered weighted-average import price paid to foreign suppliers of
chemical pulp. We determined the monthly price difference and then
multiplied the difference by the quantity of chemical pulp purchased
from DP in each respective month of the POI. We next summed the price
savings realized by each company and divided that amount by each
company's total sales value for the POI. On this basis, we
preliminarily determine the net countervailable subsidy from this
program for the respondents to be: 0.08 percent ad valorem for EN
Paper, 0.62 percent ad valorem for Hansol, 0.09 percent ad valorem for
Kyesung, and 0.02 percent ad valorem for Moorim.
E. Sales of Pulp From Raw Material Reserve for Less Than Adequate Remuneration
The Korean Public Procurement Service (``PPS''),\11\ established in
January 1949, is a government procurement agency that stockpiles
certain raw materials (e.g., aluminum, copper, and nickel), basic
necessities (e.g., salt), and industrial use materials (e.g., chemical
pulp and natural rubber) using government funds. PPS facilitates the
short- and long-term supply of goods and seeks to stabilize consumer
prices, pursuant to the Government Procurement Act.
---------------------------------------------------------------------------
\11\ The PPS is a subsidiary agency of the Ministry of Finance
and Economy.
---------------------------------------------------------------------------
Each year the PPS formulates a storage plan in accordance with the
economic policies of the GOK. The release of stored items is carried
out in accordance with the yearly plan. The GOK reported that prices
for released items are determined based on the cost and market price at
home and abroad and that in certain circumstances could be released for
a price lower than the purchase price. The PPS publically announces the
stockpile release sales via its website and sells directly to end
users. During the POI, PPS sold chemical pulp, some of which was
purchased by Moorim SP.
We preliminarily find that PPS's provision of chemical pulp
constitutes a financial contribution because it is the provision of a
good as defined in section 771(5)(D)(iii) of the Act. We also
preliminarily find this provision of chemical pulp to be specific in
accordance with section 771(5A)(D)(iii)(I) of the Act because it is
limited to end users of pulp or entities associated with end users of
pulp.
To determine whether there is a benefit from the provision of a
good, the Act specifies that the Department must examine whether the
good was provided for less than adequate remuneration. According to
section 771(5)(E) of the Act, the adequacy of remuneration with respect
to a government's provision of a good shall be determined in relation
to prevailing market conditions for the good being provided or the
goods being purchased in the country which is subject to the
investigation or review. Prevailing market conditions include price,
quality, availability, marketability, transportation, and other
conditions of purchase or sale. Section 351.511 of the Department's
regulations sets forth, in order of preference, the benchmarks that we
will examine in determining the adequacy of remuneration. As discussed
under 19 CFR 351.511(a)(2)(i), the first preference is to compare the
government price to a market-determined price resulting from actual
transactions within the country, including imports. As discussed above
under ``Sale of Pulp for Less Than Adequate Remuneration,'' DP, a
government-owned entity, is the only domestic producer of pulp. As
such, there are no market-determined domestic prices for chemical pulp
available to serve as a benchmark. Moorim SP, however, did have imports
of chemical pulp during the POI.
To calculate the benefit under this program, we compared the price
that Moorim SP paid to PPS for chemical pulp and the import price that
Moorim paid to a foreign supplier for comparable chemical pulp. We
determined the price differential and then multiplied that differential
by the quantity of pulp purchased from PPS. We next divided the price
savings by the company's total sales value for the POI. On this basis,
we preliminarily determine the net countervailable
[[Page 17515]]
subsidy for Moorim to be less than 0.005 percent ad valorem.
F. Reduction in Taxes for Operating in Regional and National Industrial Complexes
Under Article 46 of the Industrial Cluster Development and Factory
Establishment Act (``ICDFE Act''), a state or local government may
provide tax exemptions as prescribed by the Restriction of Special
Taxation Act. In accordance with this authority, Article 276 of the
Local Tax Act provides that entities that acquire real estate in a
designated industrial complex for the purpose of constructing new
buildings or enlarging existing facilities are eligible for
acquisition, registration, and property tax exemptions. Property taxes
are reduced by either 50 or 100 percent for five years from the date
the tax liability becomes effective. The 100 percent property tax
exemption applies to land, buildings, or facilities located in
industrial complexes outside of the Seoul metropolitan area. The GOK
established the tax exemption program under Article 276 in December
1994, to provide incentives for companies to relocate from populated
areas in the Seoul metropolitan region to industrial sites in less
populated parts of the country. During the POI, Namhan received a
property tax exemption under Article 276 for the enlargement of its
manufacturing facility located in the Chongup Industrial Complex, which
is designated under the ICDFE Act.
In prior Korea cases, the Department has determined that local tax
exemptions provide countervailable subsidies. See, e.g., Final Results
and Partial Rescission of Countervailing Duty Administrative Review:
Stainless Steel Sheet and Strip in Coils from the Republic of Korea, 68
FR 13267 (March 19, 2003), and accompanying Issues and Decision
Memorandum at ``Inchon's Local Tax Exemption;'' and Final Affirmative
Countervailing Duty Determination: Certain Cold-Rolled Carbon Steel
Flat Products from the Republic of Korea, 67 FR 62102 (October 3,
2002), and accompanying Issues and Decision Memorandum at ``Local Tax
Exemption on Land Outside of Metropolitan Area.'' No new information
from interested parties has been presented in this investigation to
warrant a reconsideration of the countervailability of this program.
Consistent with those prior determinations, in the instant
investigation, the Department preliminarily determines that the
property tax exemption that Namhan received is regionally specific
under section 771(5A)(D)(iv) of the Act, as being limited to an
enterprise or industry located within a designated geographical region.
We preliminarily determine that a financial contribution is provided
under section 771(5)(D)(ii) of the Act, in the form of revenue
foregone. A benefit is conferred in the form of a tax exemption.
To calculate the benefit, we divided Namhan's property tax
exemption by the company's total sales value for 2005. On this basis,
we preliminarily determine the net countervailable subsidy under this
program to be less than 0.005 percent ad valorem.
II. Programs Preliminarily Determined To Not Provide Countervailable
Benefits During the POI
A. Duty Drawback on Non-Physically Incorporated Items and Excess Loss Rates
The Korean duty drawback system is administered by the Customs
Policy Division of the Ministry of Finance and Economy (``MOFE''). The
Act on Special Cases Concerning the Refundment of Customs Duties, Etc.,
Levied on Raw Materials for Export (``Act on Customs Duties'') governs
the duty drawback program. Under the Korean duty drawback system, for a
company to receive duty drawback the imported material must be
physically incorporated into merchandise that is exported within two
years from the time the input material is imported. There is no import
duty on chemical pulp, the most important raw material used to produce
CFS paper. Therefore, CFS producers are not eligible to claim duty
drawback on imports of chemical pulp. CFS producers, however, can seek
duty drawback for import duties paid on other materials used in the
production of CFS paper, e.g., clay, latex, starch, pigment, and
talcum. Each material has its own single import duty rate.
The GOK states that under the duty drawback system only import
duties can be refunded; no other import fees (e.g., value added tax,
customs brokerage, unloading charges, etc.) are eligible for drawback.
To seek a drawback of import duties, the company must file with its
local Customs office an application, import permits, export permits,
and a statement of accounts for the required amount (see below for a
discussion of this statement). A company can seek a refund of duties
through either a company-specific method or fixed amount refund method
(see below for a discussion of the two duty drawback methods). If the
documentation is in order, the Customs office refunds the applicable
duty amount.
Under section 351.519(a)(1)(i) of the Department's regulations, in
the case of drawback of import charges, a benefit exists to the extent
that the amount of the remission or drawback exceeds the amount of
import charges on imported inputs that are consumed in the production
of the exported product, making normal allowance for waste. Section
351.519(a)(4)(i) states that the entire amount of such remission or
drawback will confer a benefit, unless the Department determines that
the government in question has in place and applies a system or
procedure to confirm which inputs are consumed in the production of the
exported products and in what amounts, and the system or procedure is
reasonable, effective for the purposes intended, and is based on
generally accepted commercial practices in the country of export.
The GOK submitted information on the system that Korean Customs has
in place to monitor which inputs are consumed in the production of the
exported products and in what amounts. As noted, there are two duty
drawback methods used in Korea: (i) The company-specific method, and
(ii) the fixed amount refund method. Under the company-specific method,
a company's duty drawback is based upon its ``statement of accounts for
the required amount.'' This statement, which contains a formula
specific to each company, demonstrates the amounts of import duty paid
on imports and the amount of imports used to produce the exported
product.\12\
---------------------------------------------------------------------------
\12\ Specifically, the duty drawback amount is calculated
according to the following two-step formula:
(1) Required Quantity = Export Quantity * Required Per Unit
Quantity. The ``required per unit quantity'' is determined by each
company's production experience. This usage rate is determined based
on the company's prior fiscal year experience. The GOK reported that
if the usage rate changes from one year to the next, the company
must repot its revised usage rate.
(2) Duty Drawback Amount = Total Import Duty Paid * Required
Quantity/Total Import Quantity.
---------------------------------------------------------------------------
The Customs Services' Examination Department, which is located in
the five local Customs offices, examines the reasonableness and
accuracy of the required quantity reported in the company's statement.
The GOK reported that this process is an examination of the documents
submitted because there is no issue regarding the usage rate for the
imported raw materials. The GOK explained that all of the imported
inputs for which the respondents claimed and received duty drawback are
consumed in the production process (i.e., clay, latex, starch, pigment,
and talcum) and, therefore, there is no loss rate regarding the usage
of these inputs in the claims
[[Page 17516]]
for duty drawback. The GOK also reported that the company-specific
formula is subject to verification by the local Customs authority if,
for example, the ratio calculated by the company is higher than the
ratio calculated by other companies in the same industry for the same
product. During the POI, EN Paper, Hansol, Moorim Paper, Moorim SP, and
Namhan used the company-specific method.
Under the fixed amount refund method, the Korea Customs Service
sets a fixed amount refund rate by harmonized schedule (``HS'') code
number of items for export.\13\ This fixed refund amount is calculated
on the basis of the average refund amount of duties or the average paid
tax amount on the raw materials for export, in accordance with Article
16 (simplified fixed amount refund) of the Act on Customs Duties. The
GOK reported that Korean Customs reviews the fixed amount of refund
annually based on the prior year's experience. Specifically, Korean
Customs calculates and determines the fixed duty refund rates each year
based on its company-specific duty drawback application database. To
that end, Korean Customs collects all duty drawback applications for
the prior 12 months and calculates the per-unit duty drawback amount by
each HS code. Korean Customs then selects the duty drawback
applications for which the per-unit duty drawback amount is less than
the average calculated in order to prevent the fixed amount refund from
exceeding the company-specific methods. Korean Customs recalculates an
average duty drawback amount based on these below-average applications.
Korean Customs then determines and announces the per-unit fixed amount
refund after rounding upwards. The GOK provided the calculation
performed to set the fixed amount of duty refund for the subject
merchandise.\14\ See GOK's questionnaire response at Exhibit E-7 (March
16, 2007). During the POI, Kyesung and Poongman used the fixed amount
refund method.
---------------------------------------------------------------------------
\13\ The Korean Customs Service calculates a fixed refund rate
when it is necessary to simplify the refund procedure for customs
duties on certain export items having an extraordinary production
process (e.g., when two or more products are produced simultaneously
using one raw material or export or when the exported goods are
produced by a small and medium enterprise).
\14\ The fixed amount of duty refunded per 10,000 KRW of FOB
export value is 70 (which is the per-unit duty refund) for subject
merchandise. The HS code is 4810.19-1000.
---------------------------------------------------------------------------
Each respondent submitted to the Department documentation
demonstrating a sample calculation of duty drawback, which was applied
for during the POI. Based on that information, there is no evidence, at
this time, to suggest that the duty drawback program provided to the
respondent companies a refund of import duties on materials that were
not physically incorporated into exported products or excessive refund
amounts. Therefore, we preliminarily determine that respondents did not
receive, under the duty drawback program, countervailable benefits
during the POI. However, at verification we will further examine each
company's duty drawback applications and refunded amounts to ensure
that a countervailable benefit was not conferred under the program. In
addition, we will further examine the system at verification to
determine whether it adequately meets the standards for non-
countervailability set forth in 19 CFR 351.519(a)(4).
B. Cleaner Production Development Project \15\
The Cleaner Production Development Project (``CPDP'') of the Korea
National Cleaner Production Center (``KNCPC'') is a research and
development (``R&D'') program. The GOK reported that the government and
companies make cash and in-kind contributions to a research institution
and then share the results of the project. The CPDP was established in
1995, under the Act on the Promotion of the Conversion into
Environment-Friendly Industrial Structure and its Enforcement Decree.
The KNCPC, with the support of the Ministry of Commerce, Industry and
Energy (``MOCIE''), finances and manages the cleaner production
technology development projects that seek to prevent or reduce the
generation of waste during product designing, manufacture, delivery,
use, and disposal. Specifically, MOCIE decides which projects will be
approved and the level of the GOK's contribution to the project,
according to criteria specified in the Guidelines for the CPDP
Operation. The GOK's monetary contribution depends on the type of
project (general or common), the entity in charge (company, research
institution, or university), and whether the project is a collaboration
of companies and research institutions or a project being conducted by
a single entity. The GOK states that the purpose of this collaboration
is to allow for the sharing of the results of the R&D project.
---------------------------------------------------------------------------
\15\ In its allegation concerning the ``Funding for Technology
Development and Recycling Program,'' petitioner alleged that the GOK
provides support to the pulp and paper industry for clean technology
development and enhancement of used-paper recycling systems. See
Initiation Checklist at ``Funding for Technology Development and
Recycling Program.'' Also, in its allegation, petitioner alleged a
connection between the IBF and the CPDP. The GOK reported, however,
that the IBF is a loan program and the CPDP is an R&D support
program. We preliminarily find no relationship between the IBF and
CPDP and, therefore, are treating them as two separate programs.
---------------------------------------------------------------------------
The GOK reported that a diverse grouping of industries has
participated in the CPDP and received R&D funds from the GOK, including
paper companies. Specifically, Namhan participated with another company
and a research institution in a project. Namhan reported that the GOK
approved the R&D funding for the project prior to the POI.
We preliminarily determine that this funding is a non-recurring
grant under 19 CFR 351.524(c)(2)(ii) because receipt of the assistance
is not automatic, requiring the express approval of the GOK. Therefore,
in accordance with 19 CFR 351.524(b)(2), we have applied the ``0.5
percent expense test.'' \16\ The calculation demonstrates that the
total funding amount approved (i.e., GOK's total contribution to the
project) is less than 0.5 percent of Namham's 2003 total sales. As
such, we have expensed the benefit in the year of receipt, 2003.
Therefore, because the CPDP did not confer a benefit to Namhan during
the POI, we preliminarily find that we need not conduct a specificity
analysis of this program.
---------------------------------------------------------------------------
\16\ for more information, see ``Allocation Period,'' above.
---------------------------------------------------------------------------
III. Programs Preliminarily Determined To Not Be Countervailable
A. Direction of Credit to the Pulp and Paper Sector
Petitioner alleges that the GOK directed credit to the pulp and
paper sector using various means. See Initiation Notice. Petitioner
cites prior countervailing duty cases where the Department has found
direction of credit to the steel \17\ and
[[Page 17517]]
semiconductor \18\ industries as well as to an individual semiconductor
producer \19\ to support its allegation that the GOK similarly directed
credit to the paper sector because, petitioner argues, the paper sector
was a strategic sector like steel and semiconductors. See Initiation
Notice, at 40.
---------------------------------------------------------------------------
\17\ See Final Affirmative Countervailing Duty Determination:
Structural Steel Beams From the Republic of Korea, 65 FR 41051,
(July 3, 2000) (''S-Beams'') (from 1985 through 1991); Final
Negative Countervailing Duty Determination: Stainless Steel Plate in
Coils From the Republic of Korea, 64 FR 15530 (March 31, 1999)
(''Steel Plate in Coils'') (from 1992 through 1997); 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) (''Sheet and Strip'') (for 1999);
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'') (for 2000);
Final Results of Countervailing Duty Administrative Review:
Stainless Steel Sheet and Strip in Coils from the Republic of Korea,
69 FR 2113, (January 14, 2004) (''Sheet and Strip 2001 Review'')
(for 2001).
\18\ See DRAMS Investigation Memorandum (through 1998).
\19\ See DRAMS Investigation Memorandum, at 14-15 (through June
30, 2002); and Issues and Decision Memorandum for the Final Results
in the First Administrative Review of the Countervailing Duty Order
on Dynamic Random Access Memory Semiconductors from the Republic of
Korea, 71 FR 14174 (March 21, 2006) (``DRAMS First Review
Memorandum'') (through 2003).
---------------------------------------------------------------------------
In prior determinations, the Department found that the GOK
continued to control, directly and indirectly, the long-term lending
practices of most sources of credit in Korea through 1998. See Plate in
Coils and Final Affirmative Countervailing Duty Determination: Certain
Cut-to-Length Carbon-Quality Steel Plate From the Republic of Korea, 64
FR 73176 (December 29, 1999) (''CTL Plate'') for our findings. Although
we determined that the GOK directed the provision of loans by Korean
banks in Plate in Coils and Sheet and Strip, we concluded that loans
from Korean branches of foreign banks (i.e., branches of U.S. and
foreign-owned banks operating in Korea) did not confer countervailable
subsidies. This determination was based upon our finding that credit
from branches of foreign banks was not subject to the government's
control and direction. Additionally, because these loans were not
directed or controlled by the GOK, we used them as benchmarks to
establish whether loans from domestic banks conferred a benefit upon
respondents. In S-Beams and CTL Plate, the Department found that the
GOK directed credit to ``strategic'' industries, such as steel,
automobiles, and consumer electronics, throughout the 1970s, 1980s, and
1990s. In S-Beams, we found that, after the removal of the de jure
preferences for ``strategic'' industries in 1985, the GOK continued to
direct a disproportionate amount of lending to steel sector by
examining the percentage of loans received by the steel sector in
proportion to the steel sector's contribution to GDP. In DRAMS
Investigation, we determined that the GOK continued to direct credit
through 1998 to the semiconductor sector because it was a strategic
sector.
The Department has also addressed GOK direction of credit in the
years subsequent to 1998. The GOK argued in the DRAMS Investigation
that the post-1997 financial reforms instituted following the Korean
financial crisis led to the liberalization of the Korean financial
sector, resulting in the GOK not directing credit provided by domestic
and government-owned banks since 1998. The GOK placed new information
on the record during the DRAMS Investigation to support its claim that
the GOK did not direct credit between 1999 and June 30, 2002. In DRAMS
Investigation, the Department distinguished between banks that are
themselves government authorities within the meaning of section
771(5)(B) of the Act and commercial banks that are not considered to be
government authorities. In CTL Plate and S-Beams, we found that,
although changes had been made to the legislation regulating
government-controlled specialized banks, such as the KDB, in the
aftermath of the financial crisis, the respondents did not provide any
evidence to demonstrate that the KDB has discontinued its practice of
selectively making loans to the steel sector. Record evidence from
those investigations indicate that the KDB and other specialized banks,
such as the Industrial Bank of Korea, continue to be government
authorities within the meaning of section 771(5)(B) of the Act. Hence,
the financial contributions they made fall within section 771(5)(B)(i)
of the Act. As for the commercial banks in which the GOK owned a
majority or minority stake, the Department determined that these
entities are not GOK authorities within the meaning of section
771(5)(B) of the Act. These banks act as commercial banks, and
temporary GOK ownership of the banks due to the financial crisis is
not, by itself, indicative that these banks are GOK authorities.
Direction of Credit Specific to the Pulp and Paper Sector
A significant amount of evidence has been placed on the record by
petitioner to support its allegation. In addition to the evidence
contained in the petition filed on October 31, 2006, the Department
sought and received additional information on direction of credit from
petitioner. See Submissions on behalf of NewPage on November 6 and 9,
2006. Petitioner alleges that ``directed lending to the Korean coated
free sheet producers was specific because the GOK targeted the Korean
paper industry as an industry selected for export growth and
competitiveness * * * within the meaning of section 771(5A)(D)(iii)(I-
IV).'' See Petition, at 43. Under section 771 (5A)(D)(iii)(I-IV) of the
Act, a subsidy is de facto specific where (1) the actual recipients,
either on an enterprise or industry basis are limited in number; (2) a
recipient, on an enterprise or industry level, is a predominant user of
the subsidy; (3) a recipient, on an enterprise of industry level,
receives a disproportionately large amount of the subsidy; or (4) the
manner in which the authority provides the subsidy involves discretion
which indicates that the recipient industry or enterprise is favored
over others.
Petitioner cites to various news articles, GOK/KDB publications and
KDB's status as a government lender to support its direction of credit
allegation. See Petition, at 39-43. In S-Beams, the Department found
that direction of credit was specific to the steel industry because the
Korea steel sector received a disproportionate amount of directed
credit. See Final Affirmative Countervailing Duty Determination:
Structural Steel Beams from the Republic of Korea, 65 FR 41051 (July 3,
2000), and accompanying Issues and Decision Memorandum, at ``Direction
of Credit,'' section (POI 1998). In the DRAMS Investigation, the
Department found direction of credit specific to Hynix and the Hyundai
Group companies from 1999 through mid-2002. See DRAMS Investigation
Memorandum, at ``Comment 2: Specificity Relating to Direction of
Credit.'' In the first administrative review of DRAMS, the Department
continued to find direction of credit specific to Hynix through 2003.
See DRAMS First Review Memorandum. In the second administrative review
of DRAMS, based on record facts particular to Hynix, the Department
found that the GOK no longer directed credit to Hynix in 2004. See
Dynamic Random Access Memory Semiconductors from the Republic of Korea:
Final Results of Countervailing Duty Administrative Review, 72 FR 7015
(February 14, 2007), and accompanying Issues and Decision Memorandum at
``GOK Entrustment or Direction of Debt Reductions,'' section.
In this investigation, the Department is analyzing whether the GOK
directed credit to the paper sector during the relevant time periods as
it had done earlier to the steel and semiconductor sectors. We
preliminarily determine that there was no GOK direction of credit
specific to the paper industry that would provide a benefit during the
POI. As noted above, the Department has found that the GOK exerted
broad control of lending in Korea through 1998 and that this resulted
in credit being directed specifically to such ``strategic'' sectors as
the steel and semiconductor industries. However, although the paper
industry was an important part of the Korean economy,
[[Page 17518]]
we find that the record evidence in the instant investigation is not
sufficient to support a conclusion that the paper industry was likewise
a ``strategic'' sector to which, consequently, credit was specifically
directed by the GOK through its wide control of lending.
For the period subsequent to 1998, we examined the paper sector
using the two-part test articulated in the DRAMS Investigation, i.e.,
whether the GOK had a governmental policy favoring that sector and,
whether record evidence establishes a pattern of practices by the GOK
to act upon that policy to entrust or direct creditors to provide
financial contributions to the paper sector. In evaluating the record
in this investigation, we do not find that the evidence supports a
finding that a GOK policy existed favoring the paper sector during the
relevant period. There are no government statements stating that the
paper sector is a critical or strategic economic sector of the Korean
economy. There are also no statements by Korean officials claiming any
paper company was ``too big to fail.'' Nor do we find sufficient
evidence to support a finding that the GOK acted on any policy to
entrust or direct the paper sector's creditors to make financial
contributions to the paper sector. Consequently, we preliminarily
determine that there was no government entrustment or direction of
private creditors, and no direction of credit, specific to the paper
sector that is comparable to the earlier direction of credit to the
steel and semiconductor sectors.
B. Restructuring of Shinho Paper
As outlined in the Initiation Notice and the Initiation Checklist,
the Department is examining the various forms of financial assistance
provided to Shinho Paper through restructuring of Shinho Paper from
1998 to 2005. This financial assistance included debt-to-equity swaps,
conversions of convertible bonds to equity, the extension of debt
maturities, reductions of interest obligations, and new loans. Because
Shinho Paper received assistance directly from GOK-owned public lending
institutions, we preliminarily determine that these institutions
provided Shinho Paper financial contributions.
EN Paper reported that its predecessor company, Shinho Paper, was a
member of the Shinho Group, a conglomerate of 28 companies that were
engaged in the manufacture of paper, steel pipes, petrochemicals,
electronics, and machinery, as well as financing, transportation, and
construction. In late 1997, during Korea's financial crisis, the Shinho
Group began experiencing financial difficulties and applied for
emergency loans from its creditor banks. On February 23, 1998, the
Shinho Group and Korea First Bank (``KFB''), the main creditor bank of
the Shinho Group, entered into an agreement, undertaking to reduce the
Shinho's Group's debt-to-equity ratios by mergers or disposition/
liquidation of member companies or other assets. On July 9, 1998, the
Shinho Group applied to the KFB for a ``corporate workout'' program
pursuant to the Corporate Restructuring Agreement (``CRA''). On July
14, 1998, a Creditors Council was formed for the purpose of overseeing
the restructuring of the Shinho Group. On July 16, 1998, the Creditors
Council held its first meeting and composed three Creditors Councils--
one for Shinho Paper, one for Shinho Petrochemical Co., Ltd., and one
for Dongyang Steel Pipe Ltd. On July 17, 1998, Samil Accounting
Corporation and PricewaterhouseCoopers were appointed to conduct
separate ``workout'' plans for these three core companies.
On September 17, 1998, Samil Accounting Corporation and
PricewaterhouseCoopers submitted the ``workout'' plan for Shinho Paper.
On October 24, 1998, the Creditors Council approved a restructuring
plan that was based on that evaluation. On December 11, 1998, the KFB
and the Shinho Group entered into an Agreement of Corporate
Restructuring to implement the plan.
The KFB proposed a second restructuring plan for Shinho Paper to
the Creditors Council on November 2, 1999. Santong Accounting
Corporation was hired to conduct an evaluation of the company, and on
January 14, 2000, a second ``workout'' plan was submitted to the
Creditors Council. After some revisions, the committee approved the
plan on March 4, 2000.
On September 15, 2001, Korea's Corporate Restructuring Promotion
Act came into effect. Younghwa Accounting Corporation was then
appointed to evaluate the financial condition of Shinho Paper and the
progress it was making under its ``workout'' plan. On January 3, 2002,
the accounting firm submitted its review to the Creditors Council. The
Creditors Council approved the plan in early 2002.
EN Paper reported that, as of December 21, 2002, Shinho Paper faced
de-listing from the Korea Stock Exchange because its stock price had
fallen below the required minimum level. As a result, on June 11, 2003,
Shinho Paper conducted a reverse stock conversion to reduce the number
of shares and increase the price per remaining share. On November 3,
2002, the Creditors Council decided to sell the shares of Shinho Paper
and appointed KDB-Lone Star as the financial advisor to evaluate the
value of the company and conduct the sale.
In April 2004, Aram Financial Service Inc. was selected as the
winner of the bidding process, and on November 15, 2004, a Stock
Purchase Agreement for Shinho Paper was signed. Thereafter, Shinho
Paper secured a new large syndicated loan and a new credit ceiling for
letters of credit. EN Paper reported that the funds from this new
syndicated loan were used to repay outstanding loans in full, and that,
with the takeover by Aram Financial Service Inc. and the repayment of
its outstanding loans, Shinho Paper graduated from the restructuring
plan in December 2004.
Financial Contribution
As discussed above, we preliminarily determine there was not
direction of credit to the paper industry during these periods. See the
Direction of Credit to the Pulp and Paper Industry section, above. We
also preliminarily determine that information on the record does not
support a finding that the GOK entrusted or directed other creditor
banks to participate in financial restructuring plans, which involved
providing credit and other financial assistance to Shinho Paper, in
order to assist Shinho Paper through its financial difficulties. We
reach this preliminary determination on the basis of a two-part test.
First, we examined whether the GOK had in place a governmental
policy to support Shinho Paper's financial restructuring and to prevent
the company's failure. Among the evidence cited by petitioners was an
article from the Korea Herald indicating that the GOK promoted mergers
and acquisitions in seven ``overcrowded'' industries, including
petrochemicals and steel. See Petitioner's submission of pre-
preliminary comments, at 91 (March 8, 2007) (``Pre-Prelim Comments),
and Petitioner's submission at Exhibit B-12 (November 6, 2007).
Although these two industries are two of the ``core businesses'' of the
Shinho Group for which ``workout'' plans were undertaken, there is no
indication from the articles provided by petitioner that restructuring
the Shinho Group or Shinho Paper was a policy goal. Additionally,
petitioners argued that KFB, one of Shinho's lead creditors, was
instructed to keep Shinho Bank from liquidation. Although the article
provided by petitioners in support of this argument states that Shinho
Paper is in the process of normalization through debt restructuring, it
does not
[[Page 17519]]
provide evidence of the entrustment or direction. See Pre-Prelim
Comments, at 91 and Exhibit 25. At this point in the investigation, the
record does not support a finding that the GOK had a governmental
policy in place with respect to either the Shinho Group or Shinho
Paper.
We next examined whether the GOK engaged in a pattern of practices
to entrust or direct Shinho Paper's creditors to provide financial
contributions to Shinho Paper. In undertaking this examination, as we
did in DRAMs Investigation, we considered whether there was evidence
that the GOK influenced financial dealings through entrustment or
direction of Shinho Paper's creditors. One of the many factors we
considered in making this decision in DRAMs Investigation was whether
the Creditors Council established to oversee and administer the
bailouts was dominated by GOK-owned or -controlled lending
institutions. We preliminarily do not find the same dominance here that
we did in DRAMs Investigation. Therefore, we preliminarily determine
that the record does not support a conclusion that the Creditors
Councils established to oversee and administer the bailouts of Shinho
Paper were dominated by GOK-owned or -controlled lending institutions.
Additionally, we preliminarily determine that the GOK did not
engage in the various types of actions that we found indicative of
entrustment or direction in DRAMs Investigation. For example, there is
insufficient evidence that GOK officials attended meetings of Shinho's
creditors, that the GOK coerced or threatened Shinho's creditors to
participate in the restructurings, or that the GOK used Shinho's lead
bank to effectuate a policy of bailing out Shinho, among other things.
See DRAMS Investigation Memorandum, at Comment 1. Thus, the evidence on
the record is insufficient to demonstrate the existence of a GOK policy
or pattern of practices to entrust or direct creditors to provide
financial assistance to Shinho Paper.
Benefit
a. Debt-to-Equity Swaps and Conversion of Convertible Bonds to Equity
Under the first Shinho Paper ``workout'' plan, the Creditors
Council authorized for Shinho Paper debt-to-equity swaps and conversion
of debt to convertible bonds. Under the second ``workout'' plan, the
Creditors Council authorized for Shinho Paper additional debt-to-equity
swaps and approved conversion of convertible bonds to equity. Under the
third ``workout'' plan, the Creditors Council again authorized debt-
for-equity swaps. EN Paper reported the total amount of debt,
convertible bonds, and unpaid interest bonds that was swapped for
equity.
To determine whether these conversions of debt and convertible
bonds to equity conferred a benefit on Shinho Paper, we followed the
methodology described in 19 CFR 351.507. According to 19 CFR 351.507,
the first step in determining whether an equity investment decision is
inconsistent with the usual investment practice of private investors is
examining whether, at the time of the infusion, there was a market
price paid by private investors for similar newly issued equity.
Because private banks that participated in the restructuring converted
debt to equity at the same time and terms as the GOK lending
institutions, we preliminarily determine that there is evidence on the
record that the price paid by the GOK lending institutions was a market
price paid by private investors. See 19 CFR 351.507(a)(2).
Consequently, we preliminary determine that the debt-to-equity swaps by
the GOK lending institutions were conducted consistent with usual
investment practice of private investors and thus do not provide a
benefit to Shinho Paper. See 19 CFR 351.507(a).
We note that, as outlined in the Initiation Checklist, petitioner
alleged Shinho Paper received additional debt forgiveness from
reductions or eliminations of interest obligations and debt writeoffs
which respondents explain are accounting adjustments pertaining to the
numerous debt-for-equity swaps and conversions of convertible bonds to
equity. As noted above, EN Paper reported that, in additional to unpaid
principal, unpaid interest was also converted to equity. However, EN
Paper also reported that the total amount of debt, convertible bonds,
and unpaid interest that was converted to equity was less than the
total amount approved for conversion by the Creditors Council. At
verification, we will examine whether any unpaid interest was forgiven
as a result of Shinho Paper's restructuring process and whether EN
Paper provided a complete reporting of its debt and bond conversions.
Accordingly, it is unnecessary to reach findings with regard to
financial contribution or specificity.
b. Extension of Debt Maturities
As tenets of the ``workout'' plans, the Creditors Council approved
reductions in interest rates for Shinho Paper's outstanding loans and
bonds, and evidence on the record indicates that Shinho Paper also
received such extensions of debt maturities. However, most of Shinho
Paper's debt and bond obligations was either forgiven through the
equity conversions described above or paid off prior to the POI with
funds from the syndicated loan that Shinho Paper received in late 2004.
EN Paper reported GOK lending institution long-term capital leases
outstanding during the POI which had been restructured as a result of
decrees by the Creditors Council. For these long-term leases, we
followed the methodology described at 19 CFR 351.505 to determine
whether the amount a firm pays on a government-provided loan is less
than the amount the firm would pay on a comparable commercial loan that
the firm could actually obtain on the market. As indicated in the
Initiation Checklist, petitioners alleged that Shinho was
uncreditworthy from 1998 to 2005. To determine whether use of an
uncreditworthy benchmark interest rate was necessary, we examined
whether there was evidence on the record indicating that Shinho Paper
could not have obtained comparable long-term loans from conventional
commercial sources. We preliminarily determine that, because the terms
and rate structure decreed by the Creditors Council applied to long-
term capital leases held by all of the lenders that participated in the
restructuring, including lenders that are not GOK lending institutions,
Shinho Paper was creditworthy during the year that the new loan
structure was applied. See 19 CFR 351.505(a)(4)(ii).
The record evidence indicates that, upon the decree of the
Creditors Council, both the government and commercial creditors
received the same interest rate and structure for their long-term
capital leases. Further, the record evidence does not indicate that the
lending provided by the commercial creditors was accompanied by a
government guarantee. Therefore, pursuant to 9 CFR 351.505(a), we
preliminarily determine that the GOK lending institution capital leases
outstanding during the POI do not provide a benefit to Shinho Paper.
Accordingly, it is unnecessary to reach findings with regard to
financial contribution or specificity.
c. New Loans
For the large syndicated loan received by Shinho Paper during 2004,
which was used to repay Shinho's creditors, including GOK lending
institutions, we followed the methodology described at
[[Page 17520]]
19 CFR 351.505 to determine whether the amount Shinho paid on the
government-provided loans was less than the amount Shinho would
otherwise have to pay on a comparable commercial loan that Shinho could
actually obtain on the market. The record evidence indicates that all
lenders, i.e., both the government and commercial creditors,
participated in the syndicated loan on the same terms, such as the
interest rate and structure of the loan. Further, the record evidence
does not indicate that the lending provided by the commercial creditors
was accompanied by a government guarantee. Consequently, we
preliminarily find that the participation of commercial creditors in
the syndicated loan provides sufficient indication that Shinho received
the loan on commercial terms. Therefore, we preliminarily determine
that the contributions provided by the GOK lending institutions in the
syndicated loan do not provide a benefit to Shinho Paper. Accordingly,
it is unnecessary to reach findings with regard to financial
contribution or specificity.
IV. Programs for Which More Information Is Required
A. Industrial Base Fund \20\
---------------------------------------------------------------------------
\20\ In its allegation concerning the ``Funding for Technology
Development and Recycling Program,'' petitioner alleged that the GOK
provides support to pulp and paper producers through the Industrial
Base Fund. See Initiation Checklist at ``Funding for Technology
Development and Recycling Program.''
---------------------------------------------------------------------------
The Industrial Base Fund (``IBF''), established in 1986,\21\
provides policy loans pursuant to the: (1) Promotion of Small and
Medium Enterprises and Encouragement of Purchase of their Products Act,
(2) Industrial Development Act, and (3) Guidelines for IBF Operation.
The purpose of the IBF is to contribute to strengthening the
competitiveness and productivity of national industries through the
development of a strong industrial base in Korea. IBF funding is
provided to companies that expand their facilities and make investments
in projects as provided in the IBF Plan. MOCIE manages and supervises
the operation of the IBF.
---------------------------------------------------------------------------
\21\ The IBF was originally named the ``Manufacturing Industry
Development Fund.'' The name of the fund was changed in 1999,
because the Manufacturing Industry Development Act was amended to
become the Industrial Development Act.
---------------------------------------------------------------------------
The IBF consists of eight separate parts,\22\ one of which, the
Promotion of Industrial Parts and Material, provided loans to Namhan.
No other respondent received loans from the IBF. The GOK reported that
the goal of the Promotion of Industrial Parts and Material is to
provide long-term loans to companies in order to support the
enhancement of the capacity of the facility, productivity, factory
automation, and product development. Namhan received loans for the
purchase of equipment applicable to both subject and non-subject
merchandise.
---------------------------------------------------------------------------
\22\ IBF program consists of the following eight parts: (1)
Promotion of Industrial Parts and Material; (2) Rationalization of
Logistics; (3) Establishment of Environment-Friendly Industrial
Base; (4) Development of Intellectual Industry; (5) Activation of
Industrial Complex; (6) Development of Regional Industry; (7)
Cooperation among Large, Medium, and Small Enterprises; and (8)
Establishment of Information System.
---------------------------------------------------------------------------
The GOK reported that, to apply for a loan, a company must submit a
business plan application, which requests information on the company
and the investment project. The GOK provided a copy of a blank
application with some English translation. See GOK questionnaire
response at Exhibit I-4 (January 26, 2007). Petitioner submitted to the
Department their translation of the ``effects of investment'' section
of the business plan application. See Pre-Prelim Comments, at Exhibit
128. Petitioner states that the complete translation of the ``effects
of investment'' section of the application includes a request for
information on the project's ``export effects'' and ``saleable effect
of import substitution.'' See id. at page 81 and Exhibit 128.
Petitioner, therefore, argues that the IBF program is an export subsidy
under section 771(5A)(B) of the Act. We note that the IBF program could
also be considered an import substitution subsidy under section
771(5A)(C) of the Act.
The Department was able to verify independently that the respondent
did not provide a complete translation of this section of the
application and that petitioner's translation is accurate with respect
to the request for information on exports and import substitution in
the ``effects of investment'' section of the application. See
Memorandum to the File Regarding the IBF (March 29, 2007).\23\
---------------------------------------------------------------------------
\23\ A copy of this memorandum is available in CRU.
---------------------------------------------------------------------------
While the application form may request such information, we find
that the record is not adequately developed with information on how the
GOK uses that information in its decision-making and whether the GOK,
either in whole or in part, approves IBF loans based on a project's
``export effects'' and ``saleable effect of import substitution.''
Therefore, we will be seeking more information about the IBF program
from the GOK and Namhan. However, we note that the burden is on the
respondents to demonstrate that approval to receive benefits was made
solely under non-export-related criteria. Therefore, the application
materials themselves may be dispositive, although we will seek further
information before making such a determination. See Preamble, 63 FR
65381.
B. Short-Term Financing Under the Aggregate Credit Ceiling Loan
As discussed in the ``Background'' section, petitioner, in its pre-
preliminary comments, claims that respondents have received a
significant amount of short-term lending, which was provided by the GOK
for financing the importation of raw materials as well as the export of
finished goods. Petitioner further claims that the BOK administers the
trade financing under the Aggregate Credit Ceiling Loan (``ACCL'')
program. Because the Department did not initiate on the ACCL program,
there is limited information on the record of this investigation
concerning respondents' use of the program and short-term loans
outstanding during the POI. Therefore, we find that additional
information regarding the respondents' short-term lending is required
to fully analyzed the GOK's provision of these loans. Therefore, we
will issue soon after this preliminary determination a supplemental
questionnaire to respondent companies and the GOK concerning the ACCL
and short-term lending during the POI.
V. Programs Preliminarily Determined To Be Not Used
We preliminarily determine that the producers/exporters of CFS
paper did not apply for or receive benefits during the POI under the
programs listed below:
A. Export Industry Facility Loans \24\
---------------------------------------------------------------------------
\24\ In the Final Affirmation Countervailing Duty Determination:
Stainless Steel Sheet and Strip in Coils from the Republic of Korea,
the Department found that the GOk terminated the Export Industry
Facility Loan program in 1994 (64 FR 30636,, 30662 (June 8, 1999),
at Comment 19). However, this long-term loan program can provide
residual benefits.
---------------------------------------------------------------------------
B. Tax Programs under Restriction of Special Taxation Act (“RSTA”)
1. RSTA Article 71.
2. RSTA Article 60.
3. RSTA Article 63-2.
For purposes of this preliminary determination, we have relied on
the GOK and respondents' responses to preliminarily determine non-use
of these programs. During the course of verification, the Department
will examine whether these programs were,
[[Page 17521]]
`
in fact, used by respondents during the POI.
Verification
In accordance with section 782(i) of the Act, we will verify the
information submitted prior to making our final determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
determined individual rates for EN Paper, Hansol, Kyesung, and Moorim.
The ``All Others'' rate is Hansol's CVD subsidy rate, because all other
company rates are below de minimis. Pursuant to 705(c)(5)(A)(i) of the
Act, we do not include de minimis subsidy rates in the ``All Others''
calculation. The rates are summarized below:
------------------------------------------------------------------------
Producer/Exporter Subsidy rate
------------------------------------------------------------------------
EN Paper............................... 0.08 ad valorem.
Hansol................................. 1.76 ad valorem.
Kyesung (and its affiliate Namhan)..... 0.59 ad valorem.
Moorim (and its affiliate Moorim SP)... 0.04 ad valorem.
All Others Rate........................ 1.76 ad valorem.
------------------------------------------------------------------------
In accordance with section 703(d)(1)(B) of the Act, we are
directing U.S. Customs and Border Protection (``CBP'') to suspend
liquidation of all entries of the subject merchandise from Korea, which
are entered or withdrawn from warehouse, for consumption on or after
the date of the publication of this notice in the Federal Register, and
to require a cash deposit or the posting of a bond for such entries of
the merchandise in the amounts indicated above. This suspension will
remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and non-proprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Assistant Secretary for Import Administration.
In accordance with section 705(b)(2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Notification of Parties
In accordance with 19 CFR 351.224(b), the Department will disclose
to the parties the calculations for this preliminary determination
within five days of its announcement. Unless otherwise notified by the
Department, interested parties may submit case briefs within 50 days of
the date of publication of the preliminary determination in accordance
with 19 CFR 351.309(c)(i). As part of the case brief, parties are
encouraged to provide a summary of the arguments not to exceed five
pages and a table of statutes, regulations, and cases cited. Rebuttal
briefs, which must be limited to issues raised in the case briefs, must
be filed within five days after the case brief is filed. See 19 CFR
351.309(d).
In accordance with 19 CFR 351.310(c), we will hold a public
hearing, if requested, to afford interested parties an opportunity to
comment on this preliminary determination. Individuals who wish to
request a hearing must submit a written request within 30 days of the
publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14th Street and Constitution Avenue, NW., Washington, DC 20230.
Parties will be notified of the schedule for the hearing and parties
should confirm by telephone the time, date, and place of the hearing 48
hours before the scheduled time. Requests for a public hearing should
contain: (1) Party's name, address, and telephone number; (2) the
number of participants; and, (3) to the extent practicable, an
identification of the arguments to be raised at the hearing.
This determination is issued and published pursuant to sections
703(f) and 777(i) of the Act.
Dated: March 29, 2007.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E7-6500 Filed 4-6-07; 8:45 am]
BILLING CODE 3510-DS-P