NOTICES
DEPARTMENT OF COMMERCE
[C-580-402]
Oil Country Tubular Goods From Korea: Preliminary Affirmative Countervailing
Duty Determination
Wednesday, September 12, 1984
*35836 AGENCY: International Trade Administration, Import Administration,
Commerce.
ACTION: Notice.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies
within the meaning of the Tariff Act of 1930, as amended (the Act), are being provided to
manufacturers, producers, or exporters in Korea of oil country tubular goods (OCTG).
The estimated net subsidy is 0.80 percent ad valorem. Therefore, we are directing the
U.S. Customs Service to suspend liquidation of all entries of OCTG from Korea which are
entered, or withdrawn from warehouse, for consumption on or after the date of
publication of this notice in the Federal Register. The Customs Service shall require a cash
deposit or bond on these products in the amount equal to the estimated net subsidy. If
this investigation proceeds normally, we will make our final determination by November
20, 1984.
EFFECTIVE DATE: September 12, 1984.
FOR FURTHER INFORMATION CONTACT: Barbara Tillman, Rick Herring, Tom Bombelles,
or Vincent Kane, Office of Investigations, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue
NW., Washington, D.C. 20230; telephone: (202) 377-1785; 377-0187; or 377-3174; or
377-5414.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine there is a reasonable basis to
believe or suspect that certain benefits which constitute subsidies within the meaning of
section 701 of the Act are being provided to manufacturers, producers, or exporters in
Korea of oil country tubular goods. The following programs are preliminarily determined
to confer subsidies:
1/8 Export Financing under the Export Financing Regulations
1/8 Long-term Loans Provided Through the National Investment Fund
1/8 Accelerated Depreciation under Article 25 of the "Act Concerning the Regulation of
Tax Reduction and Exemption"
1/8 Tax incentives for Exporters under Articles 22, 23 and 24 of the "Act *35837
Concerning the Regulation of Tax Reduction and Exemption"
1/8 Import Duty Deferrals under Article 36 of the Customs Act of Korea.
We estimate the net subsidy to be 0.80 percent ad valorem.
Case History
On June 13, 1984, we received a petition from Lone Star Steel Company and CF&I Steel
Corporation filed on behalf of the OCTG industry. In compliance with the filing
requirements of section 355.26 of our Regulations (19 CFR 355.26), petitions alleged that
manufacturers, producers, or exporters in Korea of OCTG receive directly or indirectly
benefits which constitute subsidies within the meaning of section 701 of the Act and that
these imports materially injure, or threaten material injury to a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate a
countervailing duty investigation and on July 3, 1984, we initiated an investigation
(49 FR 28291). We stated that we expected to issue a preliminary determination by
September 6, 1984. On August 3, 1984 LTV Steel Company entered this proceeding as a
co-petitioner with Lone Star Steel Company and CF&I Steel Corporation.
Since Korea is a "country under the Agreement" within the meaning of section 701(b) of
the Act an injury determination is required for this investigation. On July 30, 1984, the
U.S. International Trade Commission (ITC) determined that there is a reasonable
indication that these imports materially injure, or threaten material injury to a U.S.
industry (49 FR 31782).
We presented questionnaires concerning the allegations to the government of Korea at its
embassy in Washington, D.C. on July 13 and July 23, 1984. On August 17, August 20 and
August 21, we received replies to these questionnaires. On August 20 we presented a
second supplemental questionnaire to the government of Korea. We received a response
to this questionnaire on August 31. On July 18 and August 20, counsel for petitioners
submitted additional information concerning the alleged subsidies. This information has
been taken into consideration in this preliminary determination.
Scope of Investigation
The products covered by this investigation are oil country tubular goods (OCTG). For the
purpose of this investigation the term "oil country tubular goods" covers hollow steel
products of circular cross-section intended for use in the drilling of oil or gas. These
include oil well casing, tubing, and drill pipe of carbon or alloy steel, whether welded or
seamless, to either American Petroleum Institute (API) or non-API specifications (such
as proprietary), as currently provided for in the Tariff Schedules of the United States,
Annotated (TSUSA) under items 610.3216, 610.3219, 610.3233, 610.3249, 610.3252,
610.3256, 610.3258, 610.3264, 610.3721, 610.3722, 610.3751, 610.3925, 610.3935,
610.4025, 610.4035, 610.4225, 610.4235, 610.4325, 610.4335, 610.4942, 610.4944,
610.4946, 610.4954, 610.4957, 610.4968, 610.4969, 610.4970, 610.5221, 610.5222,
610.5226, 610.5234, 610.5240, 610.5242, 610.5243, 610.5244.
This investigation includes OCTG that are in both finished or unfinished condition.
There are five Korean producers of the subject merchandise which exported to the United
States during the period of investigation: Hyundai Pipe Company (Hyundai Pipe), Korea
Steel Pipe Company (Korea Steel), Pusan Steel Pipe Company (Pusan), DongJin Steel
Company (DongJin), and Union Steel Manufacturing Company (Union). In addition, there
are five trading companies which exported the subject merchandise to the United States
during the period of investigation. The trading companies are the Hyundai Corporation,
Kukje-ICC Corporation, Sunkyong Limited, Samsung Co., Ltd., and Daewoo Corporation.
Analysis of Programs
Throughout this notice, we refer to general principles applied to the facts of the current
investigation. These general principles are described in detail in the "Subsidies Appendix"
to the "Final Affirmative Countervailing Duty Determination and Order: Cold-Rolled
Carbon Steel Flat-Rolled Products from Argentina" published in the Federal Register on
April 26, 1984 (49 FR 18006). For purposes of this preliminary determination, we are
calculating a country- wide rate. The period for which we are measuring subsidization is
the 1983 calendar year which corresponds to the most recent fiscal year for each of the
Korean producers and exporters.
Consistent with our practice in preliminary determinations, where a response to an
allegation denies the existence of a program, receipt of benefits under a program, or
eligibility of a company or industry under a program, and the Department has no
persuasive evidence showing that the response is incorrect, we accept the response for
purposes of the preliminary determination. All such responses are subject to rigorous
verification. If the response cannot be supported at verification, and the program is
otherwise countervailable, the program will be considered a subsidy in the final
determination.
Based upon our analysis to date of the petition, the additional information filed by
petitioners and the responses to our questionnaires, we preliminarily determine the
following:
I. Programs Preliminarily Determined To Confer Subsidies
We preliminarily determine that subsidies are being provided to manufacturers,
producers, or exporters in Korea of OCTG under the following programs:
A. Short-Term Export Financing Under the Export Financing Regulations
Petitioners allege that the producers and exporters in Korea of OCTG receive preferential
short-term export financing under the following programs:
Export Loans under the 1972 Regulations for Export Financing
Export Loans provided under the Foreign Trade Act
Deferred Payment Export Loans
Preferential Exchange Rates for Export Loans Based on Letter of Credit.
According to the response of the government of Korea, short-term export financing is
authorized through the Export Financing Regulations. These Regulations, which were
promulgated by the Monetary Board in 1972, were last amended in November 1983. The
Bank of Korea establishes the guidelines for the implementation of these regulations and
the commercial banks administer the export financing program.
Eligibility for short-term export financing is limited to the following:
1/8 Exporters in receipt of letters of credit;
1/8 Exporters concluding documents of acceptance or documents against payment
contracts;
1/8 Exporters purchasing local supplies;
1/8 Exporters stockpiling raw materials;
1/8 Exporters with certificates based on past export performance;
1/8 Producers of raw materials for export; and
1/8 Companies awarded domestic projects based on international public tender.
The maximum term of short-term export loans is 90 days. These loans, unlike short-term
domestic financing, cannot be rolled over.
Prior to June 28, 1982 short-term export loans provided under the Export Financing
Regulations were charged a lower interest rate than short-term domestic loans. From
June 28, 1982 until January 23, 1984 the Monetary Board *35838 established a uniform
rate of 10 percent for both export and domestic short-term financing provided by
commercial banks. Since January 1984 the Monetary Board has been liberalizing the
interest rate structure by allowing banks to lend at lower than the uniform rate depending
on the creditworthiness of the company. The interest rate in effect during the period for
which we are measuring subsidization was 10 percent for short-term export loans.
In order to determine whether short-term export financing under the Export Financing
Regulations provides benefits which constitute export subsidies to the producers and
exporters of OCTG, we must compare the 10 percent rate to the appropriate benchmark.
As specified in the Subsidies Appendix, the benchmark for short-term loans is the most
appropriate national average commercial method of short-term financing. Petitioners
argue that the unofficial money (or curb) market establishes the appropriate market
interest rate. The government of Korea's response contends that short-term loans from
Korean commercial banks represent the most comparable commercial financing. Based
upon our review and analysis of information submitted by both petitioners and
respondents and upon our research of the credit and interest rate structure in Korea, we
preliminarily determine that the most appropriate national average commercial rate
consists of a weighted-average of the interest rates charged by all sources of short-term
commercial financing in Korea. These sources include: commercial banks, financing
companies, commercial paper and the curb market. Using a weighted-average is
comparable to what we did in our final affirmative determination in Cold-Rolled Carbon
Steel Flat-Rolled Products from Argentina (49 FR 18006), in which we determined that a
weighted average of the regulated and unregulated interest rates best represented the
national average commercial rate.
We did not select the curb market as the sole source for our benchmark because, contrary
to petitioner's allegations, the curb market was not the "normal" source of commercial
funds for many Korean companies and cannot be construed as a "national average."
Although the information provided by petitioners establishes that use of the curb market
is not limited to small and high-risk firms and that nearly all Korean firms borrow on the
curb market at least occasionally, their evidence does not show that it is the dominant or
normal source of funds for most companies. Indeed, to the contrary, the evidence
suggests that the importance of the curb market is declining. Most firms normally would
go to commercial banks or to foreign capital markets for financing. They would use the
curb market only occasionally and generally for very short periods when they had a
pressing liability and were temporarily unable to get access to standard commercial
sources of funds. (See in particular, Korea Chamber of Commerce Survey, June 1984,
Exhibit 13 of the Government of Korea's response, August 17, 1984.)
We also did not use the interest rate on short-term borrowing from commercial banks as
the sole benchmark as urged respondents. Respondents alleged the curb market was too
small in size to use, is principally used by small and risky firms, and is tainted by element
of illegality.
First, the size as reported to Korean tax authorities is highly suspect given the reported
wide incidence of tax evasion by those lending in the curb market. Independent evidence
suggests it is significantly greater in size than the percentage of 0.65 reported in the
response. Second, although small and high-risk firms may be the dominant users of the
curb market, the evidence shows that virtually all companies use it at times. Thus, it is a
normal, albeit not dominant, source of commercial financing for many companies. Third,
the curb market is not illegal. What is illegal is the apparently widespread tax evasion
which is associated with nonreporting of interest earned by those lending in the curb
market. Accordingly, we disagree with respondent's arguments concerning use of the
curb market rate in determining the benchmark.
The factors used to weight each of the four intrest rates were based on data from a number
of sources, including the monthly Statistical Bulletin of the Bank of Korea and a research
report prepared by the Korean Economic Research Institute. The Statistical Bulletin
provides the size of, and interest rates charged on, short-term financing by banks, finance
companies and commercial paper. The Economic Research institute report provides data
on the size of the curb market in Korea.
For the curb market interest rate, we reviewed studies and articles from a variety of
sources. We chose a rate of 3 percent per month as representative. This rate was
compounded to yield an annualized rate of 42.6%. Using the data from all of these
sources, we calculated a weighted-average short-term commercial rate. Applying this
weighted-average as the benchmark we calculate an estimated subsidy of 0.56 percent ad
valorem. The statistics and information upon which we based our calculation of the
national average commercial rate are subject to verification. Any additional information
submitted by petitioners and respondents whch is verified will be considered for the final
determination.
With respect to petitioner's other allegations that other preferential short- term export
financing is provided through the Foreign Trade Act, through a deferred payment
program and through preferential exchange rates for export loans based on letters of
credit, these program are discussed in the section "Programs Preliminarily Determined
Not to Confer Subsidies."
B. Long-Term Loans Through the National Investment Fund
On December 14, 1973, the government of Korea promulgated the National Investment
Fund Act (Law No. 2635). The stated "purpose of this Act is to prescribe necessary
matters for the establishment and effective management of the National Investment Fund
on the bases of extensive nationwide savings efforts and participation, to secure and
supply the investment and loan funds needed to promote the construcion of major
industries, including the heavy and chemical industries, as well as to help increase
exports." Since one of the two stated purposes of the Act is to help increase exports, we
preliminarily determine that National Investment Fund (NIF) loans constitute export
subsidies if they are provided at preferential rates. As outlined in the Subsidies Appendix,
the appropriate benchmark for long-term loans will be company- specific, unless the
company lacks adequate comparable commercial experience. If a company lacks
adequate comparable commercial experience, we use a national average loan interest
rate. As discussed in the section "Programs For Which Additional Information Is Needed,"
we have determined that we need additional information on long-term loans through both
specialized banks and commercial banks before determining whether such loans
themselves constitute a subsidy. Because such loans are the only other comparable
financing to NIF loans, and because we have not made a determination with respect to
these loans, we do not consider that there is comparable commercial experience with
which to compare NIF loans. Therefore, for purposes of this preliminay *35839
determination we are using a national average rate for our benchmark. Because NIF
long-term loans have variable interest rates, we do not perform present value
calculations. Instead, we compare the interest rate paid by each company to the national
average commercial rate for short-term loans during the period for which we are
measuring subsidization. Using the weighted-average rate that we calculated for
short-term export financing under the Export Financing Regulations as the benchmark,
we find that the interest rates on NIF loans are preferential and as such confer benefits
which constitute export subsidies. For NIF loans, we calculate an estimated subsidy of
0.03 percent of ad valorem.
C. Accelerated Depreciation
Article 25 of the "Act Concerning the Regulation of Tax Reduction and Exemption"
permits a firm earning more than 50 percent of its total proceeds in a business year from
foreign exchange to increase its normal depreciation by 30 percent. If the corporation
has received less than 50 percent of its total proceeds from foreign exchange, it can still
claim some accelerated depreciation, determined by a formula based on the firm's foreign
exchange earnings and total business earnings. Of the firms investigated, only Pusan used
accelerated depreciation under this program. Because the use of accelerated depreciation
is contingent upon export performance, we preliminarily determine that this program
confers benefits which constitute export subsidies.
To calculate the benefits from the accelerated depreciation program for the period in
which we are measuring subsidization (calendar year 1983), we determined the tax
savings received in 1983 based on the accelerated depreciation which had been deducted
from the 1982 income taxes payable in 1983. The amount of tax savings received under
this program was divided by the total value of exports in 1983 to determine an estimated
subsidy of 0.07 percent ad valorem.
D. Tax Incentives for Exporters
Articles 22, 23, and 24 of the "Act Concerning the Regulation of Tax Reduction and
Exemption" provide for the deduction from taxable income of a number of different
reserves relating to export activities. These reserves cover export losses, overseas
market development and price fluctuation losses. Under Article 22, a corporation may
establish a reserve amounting to one percent of foreign exchange earnings, or 50 percent
of net income in the applicable period, whichever is smaller. If certain export losses
occur, they are offset from the reserve fund. If there are no offsets for export losses, the
reserve is returned to the income account and taxed, after a one-year grace period, over
a three-year period.
Under Article 23 governing overseas market development, a corporation may establish a
reserve fund amounting to one percent of its foreign exchange earnings in the export
business for the respective business year. Expenses incurred in developing overseas
markets are offset from the reserve fund. Like the export loss reserve fund, if there are no
offsets for expenses, the reserve is returned to the income account and taxed, after a
one-year grace period, over a three-year period.
A price fluctuation reserve fund may be established under Article 24. A corporation may
establish reserves equivalent to five percent of the book value of the products and works
in progress which will be exported by the close of the business year. This reserve may be
used to offset losses incurred from the fluctuation of prices for export goods. These losses
may be offset by returning an amount equivalent to the losses to the income account. If
not so utilized, the reserve is returned to the income account the following business year.
The balance in all three reserve funds is not subject to corporate tax, although all moneys
in the reserve funds are eventually reported as income and subject to corporate tax
either when they offset export losses or when the one- year grace period expires. Pusan,
Korea Steel, Kukje, Samsung, and Daewoo received benefits under these programs in
1983. We preliminarily determine that these export reserve programs confer benefits
which constitute export subsidies because they provide a deferral of direct taxes
specifically related to exports.
Because these export reserve funds are a one-year deferral of tax liabilities, we treat them
as an interest free loan to the corporation equivalent to the tax savings on these funds.
Accordingly, we have quantified the benefits from the reserve funds by calculating the
amount of tax savings and then applying a rate of interest which the firm would have had
to pay for a short-term loan. We are using the weighted-average rate calculated for
short-term export financing (supra). Using this benchmark, we calculate an estimated
subsidy of 0.09 percent ad valorem.
E. Import Duty Deferrals
Article 36 of the Customs Act of Korea permits the Ministry of Finance to designate an
industry as eligible to pay customs duties on an installment basis, rather than upon entry.
Prior to 1984, only "important" industries designated by the Ministry of Finance were
eligible for import duty deferrals. The steel industry was allowed to make installment
payments on import duties for a two-and-a-half to three year period. Because duty
deferrals prior to 1984 were provided only to "important" industries designated by the
Ministry of Finance, and because the respondents did not provide any information to
show that during 1983 this program was not limited to a specific enterprise or industry or
group of enterprises or industries, we preliminarily determine that these duty deferrals
are countervailable.
We treat the deferral of duty as an interest-free loan during the period in which the
payment of the duty is outstanding. To quantify the benefit from this program, we take the
amount of duty deferred and apply a rate of interest the firm would have had to pay for a
loan of comparable size and duration from commercial sources. Because the interest rates
on long-term loans in Korea are variable, we consider that the appropriate benchmark is
the corporate bond rate during the year in which duties were deferred. Using this
benchmark, we calculate an estimated subsidy of 0.05 percent ad valorem.
II. Programs Preliminarily Determined Not To Confer a Subsidy
We preliminarily determine that benefits which constitute subsidies are not being
provided to manufacturers, producers, or exporters in Korea of OCTG, under the
following programs:
A. Certain Short-Term Export Financing
As discussed in the section "Programs Preliminarily Determined to Confer Subsidies", we
found short-term export loans under the Export Financing Regulations to be
countervailable. However, for the reasons discussed below, we find that certain other
short-term export financing through the Foreign Trade Act, through deferred payment
export loans or through preferential exchange rates for export loans are not
countervailable:
1. Export Financing under the Foreign Trade Act. Petitioners allege that the government
of Korea provides the steel industry with preferential short- term export financing under
the Foreign Trade Act. According to the response of the government of Korea, the
Foreign Trade Act was repealed on January 16, 1967. The government of Korea further
states that short-term export financing is *35840 not provided under the Foreign Trade
Transactions Act. This law sets forth general trade procedures such as import-export
licensing, and does not provide export financing. Since export loans are not provided
under the Foreign Trade Transactions Act, we preliminarily determine that this Act does
not confer a countervailable benefit to producers or exporters of OCTG.
2. Deferred Payment Export Loans. Petitioners allege that Korean producers and
exporters of OCTG benefit from deferred payment of loans used to finance OCTG exports.
According to the response of the government of Korea, there is no program offering
deferred payment of export loans. Export loans are limited to a period of 90 days, except
for certain exempted items which are not subject to this investigation. Therefore, we
preliminarily determine there is no program offering deferred payment export loans that
provides countervailable benefits to OCTG producers or exporters.
3. Preferential Exchange Rates for Export Loans. Petitioners allege that producers and
exporters of OCTG receive preferential exchange rates for export loans based on letters of
credit. Petitioners allege that the exchange rate used for loans based on letters of credit
was ten percent more favorable to Korean exporters than the actual exchange rate.
According to the response of the government of Korea, there is no preferential exchange
rate used to convert export financing. For export loans granted under the Export
Financing Regulations, a Won/U.S. dollar conversion factor which is lower than the
official exchange rate is utilized merely to establish a ceiling on export financing.
For example, on loans for raw material imports the loan principal is determined by a fixed
rate of W530/USD multiplied by the U.S. dollar value of the corresponding letter of
credit. Therefore, we preliminarily determine that there is no program of preferential
exchange rates for export loans that provides countervailable benefits to OCTG producers
and exporters.
B. Medium- and Long-Term Export Financing
Petitioners allege that Korean exporters receive preferential medium- and long-term
financing from the Export-Import Bank of Korea to finance exports of OCTG. According to
respondents, the Export-Import Bank of Korea does not provide loans to the steel
industry to finance the exports of OCTG. Respondents also state that the Korean
Development Bank does not provide medium- or long- term export financing. Therefore,
we preliminarily determine that there is no program offering medium- and long-term
export loans that provides countervailable benefits to OCTG producers or exporters.
C. Investment Tax Credit
Petitioners allege that producers and exporters of OCTG may receive preferential tax
benefits under Article 72 of the "Act Concerning the Regulation of Tax Reduction and
Exemption" which provides for a temporary investment tax credit when the government
deems it necessary for adjustment of economic activities. During the period from January
1, 1982 through December 31, 1982 Article 57-2 was the enforcement decree for Article
72. Article 57-2 specifies that the investment tax credit was available for the acquisition
of fixed assets used directly for manufacturing or mining business. Consistent with past
practice, programs available to all industries in the manufacturing and mining sectors are
not limited to "a specific enterprise or industry, or group of enterprises or industries", and
thus do not provide domestic subsidies. Since the tax credit is not contingent on export
performance, it does not provide an export subsidy. Thus, we preliminarily determine
that this program does not constitute a subsidy on the products under investigation
during the period for which we are measuring subsidization.
D. Import Duty Reduction and Exemption for Raw Materials
Petitioners allege that producers and exporters of OCTG receive a reduction or exemption
of import duties on iron ore and coal. The 1983 Tariff Schedules of Korea show that
imports of iron ore and coal were not subject to any import duties. Therefore, we
determine that there is no program providing a reduction or exemption of import duties
on iron ore and coal that provides countervailable benefits to OCTG producers or
exporters.
E. Subsidized Steel Inputs
Petitioners allege that DongJin may benefit from subsidies received by its parent
company. Until 1984, DongJin was a wholly-owned subsidiary of Pohang Iron & Steel
Company (POSCO), manufacturer of hot-rolled coil, blooms and billets. Petitioners allege
that subsidies received by POSCO on those products may be being passed on to DongJin.
DongJin's raw material for OCTG is J-55 grade of hot-rolled steel coil. During 1983,
DongJin purchased this product from POSCO and from an unrelated foreign supplier. The
price paid by DongJin to POSCO was comparable to the price DongJin paid to its foreign
supplier for hot-rolled coil. Furthermore, DongJin has informed us that no rebates or
discounts are received from POSCO on these purchases. Consequently, we preliminarily
determine that DongJin receives no countervailable benefits through its purchases of
inputs from POSCO.
III. Programs Preliminarily Determined Not To Be Used
We have preliminarily determined that OCTG manufacturers, producers, or exporters in
Korea do not use the following programs that were identified in the notice of "Initiation of
Countervailing Duty Investigation of OCTG from Korea":
A. Preferential Utility Rates and Port Charges
Petitioners allege that "designated companies" under the Iron and Steel Industry
Rehabilitation Order are eligible on a case-by-case-basis to receive discounts from
regular utility and port rates. According to the responses, the rates charged to OCTG
producers and exporters for utilities and the use of ports are the same as those charged to
all other industrial users. In its response, the government states that this program under
the Iron and Steel Industry Rehabilitation Order was never implemented.
B. Tariff Reductions on Imported Plant and Equipment
Petitioners allege that the government of Korea allows reductions of import duties for
certain industries on certain items designated by the Ministry of Finance. According to
the responses of the government of Korea and the companies, this program was not used
by OCTG producers or exporters.
C. Free Export Zone Program
Petitioners allege that producers and exporters of OCTG receive tax benefits based upon
location in a free export zone. According to the responses of the government of Korea,
the producers and the trading companies, no OCTG manufacturer or exporter is located in
a free export zone.
D. Foreign Capital Inducement Law
Petitioners allege that OCTG producers and exporters may be receiving financial and tax
benefits under the Foreign Capital Inducement Law. According to the responses, no
benefits have been received under this program.
*35841 E. Export Insurance
Petitioners allege that the government of Korea provides annual contributions to an
export insurance program. According to the responses, export insurance was not used
for exports of OCTG to the United States.
F. Steel Industry Development Scheme
Petitioners allege that the Korean Ministry of Commerce and Industry is sponsoring a
steel industry development scheme in which the government will spend 210 billion won
on POSCO's (DongJin's parent company) plant expansion project.
According to the response of the government of Korea, the Ministry of Trade and
Commerce is not sponsoring such a scheme. POSCO's recent plant expansion was financed
through retained earnings and foreign and domestic bank loans.
G. Training Aid
Petitioners allege that the steel industry has received training aid from the government of
Korea. According to the response of the government of Korea and the OCTG producers,
the steel industry has never received training grants.
H. Wage Controls
Petitioners allege that the government of Korea controls wages for government- run firms
such as POSCO, resulting in lower production costs for this segment of Korean industry. It
is further alleged that DongJin may benefit from government wage controls by virtue of
its status as a wholly-owned subsidiary of POSCO. According to the response of the
government of Korea, wages in Korea are not controlled by the government for private or
state-owned enterprises. In addition, DongJin states in its response that the government
does not control, in any way, the wages it pays to its employees.
I. Port Facilities
Petitioners allege that the government of Korea is constructing a port at Kwangyang Bay
to facilitate the importation of coal and iron ore. It is further alleged that POSCO, and
therefore its subsidiary, DongJin, will benefit from this port. According to the response of
the government of Korea and the steel companies, POSCO, not the government, is
constructing the port facilities. The port is scheduled for completion in 1987 and will not
be used by any producer that exported OCTG to the United States during the period for
which we are measuring subsidization.
IV. Programs for Which Additional Information Is Needed
We determine that additional information is needed on the following programs.
A. Medium- and Long-Term Government Financing
Petitioners allege that the steel industry has received preferential financing through
Korean banks based on the government direction of credit and programs geared to
providing loans to strategic industries. In Korea, two major groups of domestic
institutions provide long-term financing: official financial institutions and commercial
banks. The official institutions that have been involved in financing the steel industry
include the Korea Development Bank (KDB), the Korean Exchange Bank (KEB), and the
Export-Import Bank of Korea. With respect to commercial banks, until 1981 the
government was the majority shareholder in each of these institutions. In addition, the
government established the National Investment Fund (NIF) in 1973, through which
long-term financing is made available to heavy and chemical industries, electronics and
electric power industries and projects aimed at increasing food production. We have
discussed long-term loans through the NIF in the section on "Programs Preliminarily
Determined to Confer Subsidies."
For each of the official banks, the government has identified certain industries and sectors
as priority sectors. These "designated" industries and sectors include shipbuilding,
energy, iron and steel, electronics, non-ferrous metals, petro-chemicals, automobile
manufacturing, machinery, aviation, agriculture and fisheries. With regard to the
commercial banks, the government has not officially designated priority industries:
however, national industrial and economic policies, as outlined in Korea's five-year plans
and other official publications, do identify and designate certain industries for priority
development. These are generally the same industries designated for the official financial
institutions.
In previous determinations we have found that a subsidy exists where the government
directs banks to lend funds to certain industries or groups of industries on terms
inconsistent with commercial considerations or at preferential rates (see Final
Affirmative Countervailing Duty Determination, Carbon Steel Wire Rod from Spain, 49
FR 19551, 19553). The issue presented here is whether the 11 disparate sectors
designated as priority sectors can be said to constitute "a specific enterprise or industry
or group of enterprises or industries" within the scope of section 771(5)(B) of the Act, or
whether this grouping is too large. If too large, then by definition there is not subsidy
(assuming no priority industry receives a disproportionate share of credit from the
banks). In prior determinations we have found programs available to the entire
agricultural sector to be available to more than a specific group of industries and thus not
countervailable (see Final Negative Countervailing Duty Determination, Fresh
Asparagus from Mexico, 48 FR 21618). Likewise, a program available to all extractive
industries was not a subsidy (see Final Affirmative Countervailing Duty
Determinations, Certain Steel Products from France, (47 FR 39332). Even more to the
point, in the Suspension of Countervailing Duty Investigation, Carbon Steel Wire Rod
from Brazil, 47 FR 42399), we found that FINAME loans were available to a wide variety
of sectors in Brazil. We said in that determination: "While the steel industry is one of the
chief recipients, this appears to be warranted in view of the capital requirements of a large
capital intensive industry. Other large capital- intensive industries have received loans in
similar proportions. In addition, numerous other sectors also received loans from
FINAME during this period."
Reliance on the Final Affirmative Countervailing Duty Determination, Certain Steel
Products from Brazil, (49 FR 17988), as contrary precedent is inappropriate. Exemption
from the IPI tax was found countervailable because even though nominally available to
14 product sectors, we found that only specific companies producing certain priority
products and having approved expansion projects received the exemption. The
exemption was not even available to all steel companies. Thus, consistent with past
precedent, we would find that the range of sectors identified by the government of Korea
for priority development is too broad to constitute a group of industries. However, this
does not end our inquiry.
As implied in the Brazilian rod determination and as stated in the Final Affirmative
Countervailing Duty Determination, Certain Steel Products from Korea, (47 FR
57535), even if a program on its face is not limited to "a specific enterprise or industry or
group of enterprises or industries," we look to see if it was selective in its implementation
(i.e., if the steel companies received a disproportionate share of the long-term loans). For
*35842 example in the Final Negative Countervailing Duty Determination in
Fireplace Mesh Panels from Taiwan, (48 FR 11305), we said that a program ". . . which
does not target benefits or otherwise effectively predetermine the provision of benefits to
an industry or a limited group of industries . . .". is not a subsidy. Accordingly, we must
analyze whether the designated industry under investigation has received a
disproportionate share of available credit and whether there are different interest rates
being charged each of the designated industries.
We know that during 1983, (1) the steel industry did not receive loans in greater
proportion than its share of the GNP, and (2) all industries, whether designated or not,
were charged a 10 percent interest rate on their long-term loans. However, we know that
during the 1970's priority sectors were charged lower interest rates than non-priority
sectors. These interest differentials were reduced starting in mid-1980 and were
eliminated on June 28, 1982 (Korea Exchange Bank, Monthly Review (November 1983) at
6-7; Exhibit 12 to the petition of United States Steel Corporation, petitioner in an ongoing
investigation involving structural shapes and cold-rolled carbon steel flat- rolled
products from Korea). A number of the loans to OCTG producers that were outstanding in
1983 were provided in the 1970's. We have no information on the record showing that in
the 1970's the steel industry did receive a disproportionate share of available credit or
that it was charged a more preferential interest rate than other industries. Accordingly,
we cannot determine at this time whether a subsidy was provided. We are seeking
additional information on these two issues.
In addition, we requested information as to whether the government of Korea channels
interest rate subsidies in the form of assistance to meet interest obligations through the
National Investment Fund (NIF) and the Korean Development Bank (KDB) to producers of
OCTG. According to its response, the government of Korea does not provide any
assistance to the steel industry in meeting its interest obligations. However, we intend to
seek additional information with regard to this issue.
B. Government Provision of Equity
In their July 18 submission, petitioners alleged that POSCO, the parent company of
DongJin received government equity infusions on terms consistent with commercial
considerations and that this equity subsidy may have been passed through POSCO to
DongJin. In order to determine whether any equity investment made by POSCO into
DongJin is a subsidy, we must, as a threshold matter, determine whether the infusion was
on terms inconsistent with commercial considerations.
The circumstances of DongJin's formation, and POSCO's equity infusion into it, are quite
complex. According to the responses, DongJin was established on October 27, 1982 by
POSCO. POSCO made a seed money equity infusion into DongJin at that time. DongJin was
apparently formed to purchase the assets and inventory of a former steel company, Illsin.
Illsin had been declared bankrupt in May, 1982. In accordance with Korean bankruptcy
law, the courts foreclosed upon Illsin's assets in order to settle accounts with creditors,
and sold these assets to two banks. These banks, in turn, offered the assets for sale to all
purchasers as required by Korean banking regulations. DongJin purchased the assets.
The Subsidies Appendix states that to be "equityworthy" a company must show the ability
to generate a reasonable rate of return within a reasonable period of time. We have
insufficient information on the record to determine whether DongJin meets this standard
at the time POSCO made its equity infusion. We are seeking additional information on this
issue.
Verification
In accordance with section 776(a) of the Act, we will verify the data used in making our
final determination. As previously stated, we will not accept any statement in the
response that cannot be verified in our final determination.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service
to suspend liquidation of all entries of oil country tubular goods from Korea which are
entered, or withdraw from warehouse, for consumption, on or after the date of
publication of this notice in the Federal Register. The Customs Service shall require a cash
deposit or the posting of a bond for each such entry of this merchandise in the amount of
0.80 percent ad valorem., This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determination.
In addition, we are making available to the ITC all nonprivileged and nonconfidential
information relating to this investigation. We will allow the ITC access to all privileged
and confidential 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 Deputy Assistant Secretary for Import Administration.
If our final determination is affirmative, the ITC will make its determination of whether
these imports materially injure, or threaten material injury to a U.S. industry within 45
days after our final determination.
Public Comment
In accordance with § 355.35 of the Commerce Department Regulations, if requested, we
will hold a public hearing to afford interested parties an opportunity to comment on this
preliminary determination at 10:00 a.m. on October 26, 1984 at the U.S. Department of
Commerce, Room 6802, 14th Street and Constitutional Avenue, NW., Washington, D.C.
20230. Individuals who wish to participate in the hearing must submit a request to the
Deputy Assistant Secretary for Import Administration, Room B099, at the above address
with 10 days of this notice's publication. Requests should contain: (1) The party's name,
address, and telephone number; (2) the number of participants; (3) the reason for
attending; and (4) a list of the issues to be discussed. In addition, prehearing briefs in at
least 10 copies must be submitted to the Deputy Assistant Secretary by October 22, 1984.
Oral presentations will be limited to issues raised in the briefs. All written views should be
filed in accordance with 19 CFR 355.34, within 30 days of this notice's publication, at the
above address and in at least 10 copies.
Dated: September 6, 1984.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 84-24104 Filed 9-11-84; 8:45 am]
BILLING CODE 3510-DS-M