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[C-580-403]

Cold-Rolled Carbon Steel Flat-Rolled Products From Korea; Preliminary Affirmative Countervailing Duty Determination; and Carbon Steel Structural Shapes From Korea; Preliminary Negative Countervailing Duty Determination

Tuesday, September 18, 1984

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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 cold- rolled carbon steel flat-rolled products. The estimated net subsidy is 3.81 percent ad valorem. We also preliminarily determine that no benefits which constitutes subsidies within the meaning of the Act are being provided to manufacturers, producers or exporters in Korea of carbon steel

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EFFECTIVE DATE: September 18, 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; 377-3174; or 377-5414.

SUPPLEMENTARY INFORMATION:

Preliminary Determinations

Based upon our investigations, we preliminarily determine that the following programs confer subsidies on the products under investigation:

For cold-rolled carbon steel flat-rolled products, we estimate the net subsidy to be 3.81 percent ad valorem. Therefore, 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 cold-rolled carbon steel flat-rolled products. The estimated net subsidy for carbon steel structural shapes is 0.40 percent ad valorem which is de minimis. Therefore, with respect to carbon steel structural shapes, we preliminarily determine that there is no reason to believe or suspect that certain benefits constituting subsidies within the Act are being provided to manufacturers, producers, or exporters.

Case History

On June 18, 1984, we received a petition from United States Steel Corporation filed on behalf of the carbon steel structural shapes and cold-rolled carbon steel flat-rolled products (shapes and sheet) industries. In compliance with the filing requirements of s 355.26 of our Regulations (19 CFR 355.26), petitioner alleged that manufacturers, producers, or exporters in Korea of shapes and sheet 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 countervailing duty investigations, and on July 3, 1984, we initiated investigations (49 FR 28294). We stated that we expected to issue preliminary determinations by September 11, 1984.

Since Korea is a "country under the Agreement" within the meaning of section 701(b) of the Act, injury determinations are required for these investigations. On August 2, 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 26648).

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. We received another supplemental response on September 4. On July 19, August 31, and September 5, the petitioner submitted additional information concerning the alleged subsidies. This information has been taken into consideration in these preliminary determinations.

Scope of Investigations

The products covered by these investigations are carbon steel stuructural shapes and cold-rolled carbon steel flat-rolled products. The term "carbon steel structural shapes" covers hot-rolled, forged, extruded, or drawn, or cold-formed or cold-finished carbon steel angles, shapes, or sections, not drilled, not punched, and not otherwise advanced, and not conforming completely to the specifications given in the headnotes to Schedule 6, Part 2, Subpart B of the Tariff Schedules of the United States Annotated (TSUSA), for blooms, billets, slabs, wire rods, plates, sheets, strip, wire, rails, joint bars, tie plates, or any tubular products set forth in the TSUSA, having a maximum cross- sectional dimension of 3 inches or more, as currently provided for in items 609.8005, 609.8015, 609.8035, 609.8041, or 609.8045 of the TSUSA. Such products are generally referred to as structural shapes.

The term "cold-rolled carbon steel flat-rolled products" covers the following cold-rolled carbon steel products: Cold-rolled carbon steel flat-rolled products are flat-rolled carbon steel product, whether or not corrugated or crimped; whether or not painted or varnished and whether or not pickled; not cut, not pressed, and not stamped to non-rectangular shape; not coated or plated with metal; over 12 inches in width, and 0.1875 or more in thickness; as currently provided for in item 607.8320 of the TSUSA; or over 12 inches in width and under 0.1875 inch in thickness whether or not in coil; as currently provided for in items 607.8350, 607.8355, or 607.8360 of the TSUSA.

There are three Korean producers of cold-rolled carbon steel flat-rolled products that exported to the United States during the period of investigation: Pohang Iron and Steel Company (POSCO), DongJin Steel Company (DongJin) and Union Steel Manufacturing Company (Union). In addition, six trading companies exported cold-rolled carbon steel flat-rolled products to the United States during the period of investigation: Hyundai Corporation, Kukje- ICC Corporation, Sunkyong Limited, Samsung Company, Ltd., Daewoo Corporation and Hyosung Corporation. Inchon Iron & Steel Company (Inchon) is the only producer of carbon steel structural shapes that exported to the United States during the period of investigation. Of the trading companies, only Hyundai Corporation exported carbon steel structural shapes to the United States during the period of investigation.

Analysis of Programs

Throughout this notice, we refer to general principles applied to the facts of the current investigations. These general principles are described in detail in the

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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 determinations.

Petitioner alleges that POSCO is both unequityworthy and uncreditworthy. Although we did not initate on these specific allegations, we did request information in our questionnaries in order to review these allegations in accordance with the guidelines set out in the Subsidies Appendix. Even though government equity infusions into POSCO were found in the 1982 Final Affirmative Countervailing Duty Determinations: Certain Steel Products from Korea (47 FR 57535) not to be on terms inconsistent with commercial considerations, our standards have been revised by the Subsidies Appendix, and, thus, we must reexamine these allegations in these investigations.

We have consistently held that government provision of equity does not per se confer a subsidy. Government equity purchases bestow contervailable benefits only when they occur on terms inconsistent with commercial considerations. When there is no market-determined price for equity, it is necessary to determine whether the company is a reasonable commercial investment. POSCO's shares are not publicly traded; therefore, we must determine whether POSCO is equityworthy. To make this preliminary determination, we reviewed and assessed POSCO's financial statements from 1972 through 1983. We also examined studies submitted by the government of Korea. In analyzing the financial statements, we considered the information from the viewpoint of an investor. Accordingly, the Department considered accounting principles and practices, the accounting methods employed by the company, and the impact of such methods on company's overall financial results. After taking into consideration the accounting practices and methods, we examined the following ratios:

Rate of return on equity;

Debt to tangible net worth;

Percent of foreign-denominated debt;

Cash flow to principal repayment; and

Current ratio.

Based on our review of POSCO's financial statements and the responses by both POSCO and the government, we preliminarily determine that the government's equity infusions into POSCO were on terms inconsistent with commercial considerations from 1978 through 1980.

With respect to the allegation that POSCO is uncreditworthy, we preliminarily determine that POSCO has been and continues to be creditworthy. In making this determination, we focused on the ability of the company to meet its interest obligations. In addition, an important measure of creditworthiness is whether foreign lenders are lending significant amounts of funds to the company. Accordingly, we also examined the percentage of POSCO's outstanding loans that are foreign loans.

Based upon analysis to date of the petition, the additional information filed by petitioner and the responses to our questionnaries, we preliminarily determine the following:

1. Programs Preliminarily Determined to Confer Subsidies

We preliminarily determine that subsidies are being provided to manufactures, producers, or exporters in Korea of shapes and sheet under the following programs:

A. Short-Term Export Financing Under the Export Financing Regulations
Petitioner alleges that the producers and exporters in Korea of shapes and sheet 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:

Exporters in receipt of letters of credit;

Exporters concluding documents of acceptance or documents against payment contracts;

Exporters purchasing local supplies;

Exporters stockpiling raw materials;

Exporters with certificates based on past export performance;

Producers of raw materials for export; and

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 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 shapes and sheet, 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. Petitioner argues 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

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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 petitioner 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, the 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 by respondents. Respondents alleged the curb market was to small in size to use, is principally used by small and risky firms, and is tainted by elements 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 interest 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 charges 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 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 percent. Using the data from all of these sources, we calculated a weighted-average short-term commerical rate. Applying this weighted-average as the benchmark we calulate an estimated subsidy of 0.24 percent ad valorem for carbon steel structural shapes and 0.27 percent ad valorem for cold-rolled carbon steel flat-rolled products. The statistics and information upon which we based our calculation of the national average commerical rate are subject to verification. During our verification we will also investigate further any and all programs or policies which may serve to increase or decrease the effective interest rate for borrowers. Any additional information submitted by petitoner and respondents which is verified will be considered for the final determinations.

With respect to petitioner's other allegations that preferential short-term export financing is also 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 programs 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 construction 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 commerical experience. If a company lacks adequate comparable commerical 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 commerical experience with which to compare NIF loans. Therefore, for purposes of these preliminary determinations, 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 commerical 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 subsides. For NIF loans, we calculate an estimated subsidy of 0.14 percent ad valorem for carbon steel structual shapes and 0.36

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C. Government Equity Infusions Into POSCO
Petitioner alleges that equity infusions into POSCO by the government of Korea are on terms inconsistent with commercial considerations. As discussed in the "Analysis of Programs" section, we preliminarily determine that POSCO was not a reasonable commercial investment (was unequityworthy) from 1978 through 1980, and, thus the government equity infusions in each of those years were on terms inconsistent with commercial considerations. Therefore, we preliminarily determine that these infusions confer benefits which constitute a subsidy. To calculate the benefit, we followed the rate of return shortfall methodology outlined in the Subsidies Appendix and found an estimated subsidy of 0.46 percent ad valorem for cold-rolled carbon steel flat-rolled products.

D. Special Depreciation Under the "Act Concerning the Regulation of Tax Reduction and Exemption
In our questionnarie, we requested information on a program that permits accelerated depreciation under Article 25 of the "Act Concerning the Regulation of Tax Reduction and Exemption." Article 25 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. As discussed in the section "Programs Preliminary Determined Not To Be Used," no producers of shapes and sheet claimed accelerated depreciation under Article 25. However, POSCO did claim "special" depreciation under Article 11 of "The Act Concerning the Regulation of Tax Reduction and Exemption." This special depreciation is provided to "a domestic person carrying on an important industry." Because we have no evidence in the record of these investigations that this special depreciation for "important" industries is not limited to a specific enterprise or industry or group of enterprises or industries, we preliminarily determine that it constitutes a subsidy. POSCO is the only company producing any of the products under investigation that claimed this special depreciation.

To calculate the benefits from the special 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 all sales in 1983 to determine an estimated subsidy of 2.36 percent ad valorem for cold- rolled carbon steel flat-rolled products.

E. 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, 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 of when the one- year grace period expires. We preliminarily determine that these export reserve programs confer benefits which constitute export subsidies because they provide a deferral of direct taxes specifically realted to exports. Only certain trading companies exporting cold-rolled steel flat-rolled products used these programs during the period for which we are measuring subsidization.

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 0.03 percent ad valorem for cold-rolled carbon steel flat-rolled products.

F. 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 each deferral of duty, that is still outstanding during the period for which we are measuring subsidization, as an interest-free loan. 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 0.02 percent ad valorem for carbon steel structural shapes and 0.03 percent ad valorem for cold-rolled carbon steel flat-rolled products.

G. Reductions in Port Charges
"Designated companies" under the Iron & Steel Industry Rehabilitation Order are eligible on a case-by-case basis to receive discounts from regular utility and port rates. In its response, the

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H. Tariff Reductions on Plant and Equipment
Petitioner alleges that the government of Korea allows reductions of import duties for certain industries on certain goods designated by the Ministry of Finance. Under Article 28 (Duty Abatement for Important Industries) of the Customs Act, "Customs duty may be abated with respect to goods which are designated by the notice of the Ministry of Finance from among machinery equipment for the use of such industries as designated by an Ordinance of the Ministry of Finance from among those falling under any of the following Subparagraphs * * * which cannot be properly manufactured domestically * * *" The industries listed in the subparagraphs include the chemical industry, primary metal manufacture, general machinery manufacturer, manufacture of electric instruments, manufacture of transportation machinery, manufacture of scientific instruments, manufacture of machine parts and electric railroad transportation. Because these tariff reductions or abatements require designation and are not automatically available, and beause we do not know at this time whether all or just one of the industries listed has been designated, we preliminarily determine that this program is limited to a specific enterprise or industry or group of enterprises or industries. The amount of the tariff reduction or abatement is treated as a grant. As described above, because the total amount of grants (i.e., reductions in port charges plus tariff reductions on plant and equipment) received by POSCO is less than 0.5 percent of total sales, we allocated the benefit to the year of receipt and calculate an estimated subsidy of 0.27 percent ad valorem on cold-rolled carbon steel flat-rolled products.

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 shapes and sheet, under the following programs:

A. Certain 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:

Petitioner alleges 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 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 shapes and sheet.

Petitioner alleges that Korean producers and exporters of shapes and sheet benefit from deferred payment of loans used to finance shapes and sheet 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 these investigations. Therefore, we preliminarily determine there is no program offering deferred payment export loans that provides countervailable benefits to shapes and sheet producers or exporters.

3. Preferential Exchange Rates for Export Loans

Petitioner alleges that producers and exporters of shapes and sheet receive preferential exchange rates for export loans based on letters of credit. Petitioner alleges 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 shapes and sheet producers and exporters.

B. Medium- and Long-Term Export Financing
Petitioner alleges that Korean exporters receive preferential medium- and long-term financing from the Export-Import Bank of Korea to finance exports of shapes and sheet. According to respondents, the Export-Import Bank of Korea does not provide loans to the steel industry to finance the exports of shapes and sheet. Respondents also state that the Korean Development Bank does not provide medium- or long-term export financing. Except for NIF loans which are discussed in the section "Programs Preliminarily Determined to Confer Subsidies," we preliminarily determine that there are no other programs offering medium- and long-term export loans to shapes and sheet producers or exporters.

C. Investment Tax Credit
In our notice of initiation, we stated that we would investigate whether producers and exporters of shapes and sheet 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 ws 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.

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According to the responses of the government and the producers, no such supports, neither administrative nor financial, exist to help the steel industry purchase or otherwise secure raw materials. Therefore, we preliminarily determine that there is no program of finanical support for raw material purchases that provides countervailable benefits to shapes and sheet producers.

III. Programs Preliminarily Determined Not To Be Used

We have preliminarily determined that shapes and sheet manufacturers, producers, or exporters in Korea do not use the following programs that were identified in the notice of "Initiation of Countervailing Duty Investigations; Carbon Steel Structural Shapes and Cold-Rolled Carbon Steel Flat-Rolled Products from Korea":

B. Foreign Capital Inducement Law
In our notice of initiation, we stated that we would investigation whether shapes and sheet 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.

C. Export Insurance
Petitioner alleges 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 shapes and sheet to the United States.

D. Steel Industry Development Scheme
Petitioner alleges 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 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.

E. Training Aid
Petitioner alleges that the steel industry has received training aid from the government of Korea. According to the response of the government of Korea and the shapes and sheet producers, the steel industry has never received training grants.

F. Wage Controls
Petitioner alleges 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. 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, POSCO states in its response that the government does not control, in any way, the wages it pays to its employees.

G. Accelerated Depreciation Under Article 25 of the "Act Concerning the Regulation of Tax Reduction and Exemption"
In our questionnaire, we requested information on the program of accelerated depreciation under Article 25 of the "Act Concerning the Regulation of Tac Reduction and Exemption." Article 25 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. According to the responses, producers of shapes or sheet did not claim accelerated depreciation under Article 25 in their 1983 tax returns. Therefore, we preliminarily determine that this program was not used 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
Petitioner alleges 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 inthe section on "Programs

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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 no 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 Countevailing 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 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). A number of the loans to shapes and sheet 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 shapes and sheet. 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.

In its August 31, 1984 submission, petitioner alleged that the government of Korea provided international loan repayment guarantees through the Korean Development Bank. In our original questionnaire dated July 13, 1984, we asked the government of Korea and the producers whether any loans outstanding in 1983 had received any guarantees. According to respondents, no guarantees were provided for any loans outstanding in 1983 to any of the producers and exporters under investigation. During our verification we intend to seek additional information on any loan guarantee programs provided to Korean industry by the Korean Development Bank and any other bank(s).

B. Equity Infusions Into DongJin
In an ongoing investigation regarding oil county tubular goods (OCTG) from Korea, petitioners alleged that POSCO, the parent company of DongJin, received government equity infusions on terms inconsistent with commercial considerations and that this equity subsidy may have been passed through POSCO to DongJin. We were not aware until receipt of the responses in the shapes and sheet investigations that DongJin was a producer of sheet as well as OCTG. Therefore, we are incorporating the allegation by the OCTG petitioners regarding equity infusions into DongJin into these investigations of shapes and sheet.

In order 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

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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 determinations. As previously stated, we will not accept any statements in the responses that cannot be verified in our final determinations.

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 cold-rolled carbon steel flat-rolled products which are entered, or withdrawn from warehouse, for consumption, on or after the date of publication of this notice in the Federal Register, and to require a cash deposit or bond, for each such entry of the merchandise in the amount of 3.81 percent ad valorem. This suspension will remain in effect until further notice. As discussed above, our preliminary determination with respect to carbon steel structural shapes is negative; therefore, we are not directing the U.S. Customs Service to supend liquidation of entries of carbon steel structural shapes.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the ITC of our determinations. In addition, we are making available to the ITC all nonprivileged and nonconfidential information relating to these investigations. 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 determinations are 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 determinations.

Public Comment

In accordance with s 355.35 of the Commerce Department Regulations, if requested, we will hold a public hearing to afford interested parties an opportunity to comment on these preliminary determinations at 9:00 a.m. on October 29, 1984 at the U.S. Department of Commerce, Room 5611, 14th Street and Constitution 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 within 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 11, 1984.

Alan F. Holmer,

Deputy Assistant Secretary for Import Administration.