NOTICES
DEPARTMENT OF COMMERCE
Internationaal Trade Administration
[C-580-402]
Final Affirmative Countervailing Duty Determination; Oil Country Tubular Goods
From Korea
Wednesday, November 28, 1984
*46776 AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice.
SUMMARY: We determine that certain benefits which constitute subsidies within the
meaning of the countervailing duty law are being provided to manufacturers,
producers, or exporters in Korea of oil country tubular goods. The net subsidy is 0.53
percent ad valorem. We have notified the United States International Trade Commission
(ITC) of our determination. We are directing the U.S. Customs Service to continue to
suspend liquidation of all entries of oil country tubular goods from Korea that are
entered, or withdrawn from warehouse, for consumption, on or after September 12, 1984,
and to require a cash deposit or bond on entries of these products in the amount equal to
the net subsidy.
EFFECTIVE DATE: November 28, 1984.
FOR FURTHER INFORMATION CONTACT: Barbara Tillman, Rick Herring, or Tom
Bombelles of the 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.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that certain benefits which constitute
subsidies within the meaning of section 701 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. For purposes of this investigation, the following programs are
found to confer subsidies:
Short-term Export Financing under the Export Financing Regulations;
Accelerated Depreciation under Article 25 of the "Act Concerning the Regulation of Tax
Reduction and Exemption"; and
Tax Incentives for Exporters under Articles 22, 23 and 24 of the "Act Concerning the
Regulation of Tax Reduction and Exemption."
We determine the net subsidy to be 0.53 percent ad valorem.
Case History
On June 12, 1984, we received a petition from the Lone Star Steel Company of Dallas,
Texas, and the CF&I Steel Corporation of Pueblo, Colorado, on behalf of the U.S. industry
producing oil country tubular goods. In compliance with the filing requirements of
section 355.26 of our regulations (19 CFR 355.26), the petition alleges that
manufacturers, producers, or exporters in Korea of oil country tubular goods receive,
directly or indirectly, benefits which constitute subsidies within the meaning of section
701 of the Act, and that these imports are materially injuring or threatening material
injury to, a U.S. industry.
We found taht the petition contained sufficient grounds upon which to initiate a
countervailing duty investigation, and on July 3, 1984, we initiated such an
investigation (49 FR 28291). We stated that we expected to issue a preliminary
determination by September 6, 1984. On August 3, 1984, the petition was amended and
the LTV Steel Company of Cleveland, Ohio became co-petitioner. On July 23, 1984,
United States Steel Corporation (U.S. Steel) entered an appearance to become a party to
this proceeding.
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. Therefore, we notified
the ITC of our initiation. On August 8, 1984, the ITC published in the Federal Register
their preliminary determination that there is a reasonable indication that these imports
are materially injuring, or threatening material injury to, a U.S. industry (49 FR 31782).
We presented questionnaires concerning the allegations to the government of Korea in
Washington, D.C., on July 13, July 23 and August 20, 1984. On August 17, August 20,
August 21 and August 30, 1984, we received responses to these questionnaires. On July
18 and August 20, petitioners presented additional information concerning the alleged
subsidies and also alleged new subsidies. On July 9, August 31, and September 5, U.S.
Steel presented additional information concerning the alleged subsidies and also alleged
new subsidies. On September 12, 1984, we published our preliminary determination that
benefits constituting subsidies within the meaning of the countervailing duty law were
being provided to manufacturers, producers, or exporters in Korea of oil country tubular
goods (49 FR 35836).
At the request of both petitioners and respondents, we held a hearing on November 1,
1984, to allow the parties an opportunity to address the issues arising in the investigation.
Both petitioners, respondents, and other interested parties filed briefs before and after
the hearing on these issues. They also filed briefs commenting on our verification.
In its pre-hearing brief filed on October 23, 1984, U.S. Steel made additional allegations of
benefits received by manufacturers and exporters of OCTG. These allegations were (1)
Regional Tax Incentives, (2) Tax incentives for Exporters, and (3) Special Foreign
Exchange Loan System. Since these allegations were made after our preliminary
determination and after the Commerce verification team returned from Korea, the
allegations were made too late to be considered in this investigation. These additional
allegations will be given consideration in the section 751 administrative review of the
order, if an order is issued.
Scope of the Investigation
The products covered by this investigation are oil country tubular goods (OCTG), which
are hollow steel products of circular cross-section intended for use in the drilling of oil or
gas. These products include oil well casing, tubing, and drill pipe of carbon or alloy steel,
whether welded or seamless, manufactured to either American Petroleum Institute (API)
or proprietary specifications. This investigation covers both finished and unfinished oil
country tubular goods.
The provisions of the Tariff Schedules of the United States, Annotated (TSUSA) covering
all steel pipe and tube, including oil country tubular goods, were changed as of April 1,
1984. We have reviewed the classification of *46777 steel pipe and tube by the U.S.
Customs Service and determined that our original listing of the products subject to this
investigation should be amended. As a result of the changes mentioned above, oil country
tubular goods now comprise TSUSA item numbers 610.3216, 610.3219, 610.3233,
610.3242, 610.3243, 610.3249, 610.3252, 610.3254, 610.3256, 610.3258, 610.3262,
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,
610.4955, 610.4956, 610.4957, 610.4966, 610.4967, 610.4968, 610.4969, 610.4970,
610.5221, 610.5222, 610.5226, 610.5234, 610.5240, 610.5242, 610.5243, and
610.5244.
There are five Korean producers of the subject merchandise which exported to the United
States during the period for which we are measuring subsidization: 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 for which we are measuring
subsidization. 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 this
investigation. These principles are described in the Subsidies Appendix attached to the
notice of "Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina: Final
Affirmative Countervailing Duty Determination and Countervailing Duty Order,"
which was published in the April 26, 1984 issue of the Federal Register (49 F.R. 18006).
For purposes of this 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.
Based upon our analysis of the petition, the responses to our questionnaires, comments
filed by petitioners, respondents, and other interested parties to this proceeding, and our
verification, we determine the following:
I. Programs Determined To Confer Subsidies
We 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 alleged 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; and
Preferential Exchange Rates for Export Loans Based on Letter of Credit
Short-term export financing is authorized only through the 1972 Export Financing
Regulations. Our determination with respect to the three other programs is discussed in
the sections on "Programs Determined Not to Confer Subsidies" and "Programs Not in
Existence."
Under the Export Financing Regulations, short-term export loans can be provided 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.
To determine whether a subsidy exists with respect to short-term export loans under the
Export Financing Regulations, we must determine whether the export loan progam is
intended to, or operates to, stimulate export rather than domestic sales, or is contingent
on export performance. If there is a preference in a program's operation for export over
domestic sales, we then must find an appropriate way to measure that preference.
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. On June
28, 1982, the Monetary Board established a uniform rate of 10 percent for both export
and domestic short-term financing provided by commercial banks. The interest rate in
effect during the period for which we are measuring subsidization was 10 percent for
short-term export loans. We verified that domestic short-term financing through
commercial banks is the predominant short-term debt instrument in Korea (see, for
example, the Federation of Korean Industries surveys obtained during verification and
the Korean Chamber of Commerce Survey, submitted as Exhibit 13 of the Government of
Korea's response, August 17, 1984, as well as Bank of Korea Monthly Statistical Bulletins).
If all other terms and conditions, as well as the administration, of the domestic and export
loan programs were identical, we would not find that an export subsidy is being conferred
because export loans are not at an interest rate is preferential compared to the interest
rate on the most comparable, predominant short-term debt instrument. However, we
have found that there is a difference in the administration of domestic and export
short-term loans programs. The Bank of Korea (BOK) sets different rediscount ratios for
export and domestic short-term loans. As specified in the BOK's 1983 Annual Report, the
rediscount ratio for export loans is 70 percent of the face value of the loan. The
rediscount ratio on domestic commercial bills is 30 percent of the face value of the loan
for large firms and the heavy and chemical industries. The rediscount ratio for small- and
medium-sized firms is 70 percent. Small- and medium-sized firms are defined as
companies with fewer than 300 employees. None of the steel companies producing the
products under investigation is classified as a small- or medium-sized firm. The
rediscount rate for both domestic and export short-term loans is 5 percent.
The higher rediscount ratio for export loans provides an incentive for banks to provide an
export loan over a domestic loan when lending to a large company. Indeed, the banks' fee
structure, which specifies lower fees on the letters of credit on which the short-term
export loans are based, indicates that the banks encourage these borrowers to use export
financing. Thus, we consider that the higher rediscount ratio for short-term export loans
provides, in effect, a preference for export loans over domestic loans.
Because the most comparable, predominant short-term debt instrument (i.e., the 10
percent rate on short-term domestic bank loans) cannot measure this preference, we
must find an alternative method of quantifying it. We know from the surveys published by
the Korean Chamber of Commerce and by the Federation of Koren Industries and from
the Bank of Korea Statistical Bulletins, that companies do use sources of short-term
financing in addition to bank loans. These sources include investment companies,
commercial *46778 paper and the curb market. Since the rediscount mechanism
operates in such a way as to encourage banks to supply firms short-term export financing
at the expense of the domestic financing, we must conclude that short-term domestic
financing comes from these other sources of financing as well as bank loans.
Therefore, the most appropriate way to measure the preference for export over domestic
loans is to compare the 10 percent rate with a weighted average of short-term domestic
credit. We have chosen this measure because it is the best approximation of what firms
would pay for export financing if there were not a preference within the banking system
for providing loans for export transactions.
The factors used to weight each of the four sources of short-term domestic credit were
based on data from a number of sources, including the monthly Statistical Bulletin of the
Bank of Korea and the surveys published by the Federation of Korean Industries (FKI).
The Statistical Bulletin provides the size of, and interest rates charged on, short-term
financing by banks, investment finance companies and commercial paper. The FKI
surveys provide data on the proportion that curb market loans represent of total
corporate borrowing for working capital. For the curb market interest rate, we have
determined that the most appropriate rate to use is the average monthly rate for 1983 as
published in the Survey conducted by the Korean Chamber of Commerce, provided as
Exhibit 13 to the response submitted by the Government of Korea. This rate is 2.6
percent, which, when compounded, yields an annualized rate of 36.1 percent. We are
using the rate published by the Chamber of Commerce as the most appropriate measure
of the average curb market rate in 1983, because it was the only independently conducted
study or survey of curb market rates that has been entered in the record of this
investigation. We looked extensively for data on these rates at verification. We consider
the Chamber Survey to be the most accurate reflection of average curb market rates
during the period for which we are measuring subsidization.
Using the data from all these sources, we calculated the weighted-average rate that we
have determined is the most appropriate way to measure the preference for export over
domestic loans. Comparing this weighted-average rate to the 10 percent rate on export
loans, we calculate an export subsidy of 0.46 percent ad valorem.
B. 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 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 calculate an export
subsidy of 0.03 percent ad valorem.
C. 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 the 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. Under this Article,
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
Steel Pipe, Korea Steel Pipe, Hyundai Pipe, Kukje, Samsung, and Daewoo received benefits
under these programs in 1983. We determine that these export reserve programs confer
benefits which constitute export subsidies because they provide a deferral of direct taxes
specifically related to export performance.
Because these export reserve funds constitute a deferral of tax liabilities, we treat the tax
savings on these funds as interest-free loans to the corporation. 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. Using this methodology, we calculate a subsidy of 0.04 percent ad valorem.
II. Programs Determined Not to Confer Subsidies
We determine that benefits which constitute subsidies are not being provided to
manufacturers, producers, or exporters in Korea of OCTG, under the following programs:
A. Medium- and Long-Term Credit
Petitioners alleged that OCTG producers, as part of the Korean steel industry, have
received medium- and long-term financing through government direction of credit and
programs designed to finance major or key industries, and that these loans are made on
terms which are inconsistent with commercial considerations.
In order to investigate the first allegation, that credit is directed within the Korean
economy, we have examined whether the Korean government mandates, explicitly or
implicitly, that certain industries or enterprises receive *46779 credit at the expense of
other borrowers. If there are explicit or implicit government mandates that certain
industries or firms receive funds, then we would expect to find this reflected in the
composition of the loan portfolios of all the lending institutions combined. Absent a
finding that these key or major industries receive a disproportionate share of the
medium- and long-term loans available in Korea, we cannot conclude that the Korean
government is directing credit.
Medium- and long-term financing is provided through three types of financial
organizations in Korea:
(1) Commercial banks:
(2) Specialized banks; and
(3) Development institutions (Korea Development Bank and the Export-Import Bank of
Korea).
In addition, there are two government funds through which long-term financing is
provided:
(1) The National Investment Fund; and
(2) The Fund for Expanding Export Facilities.
We have examined the three types of financial organizations and the two government
funds that are the sources of medium- and long-term borrowing in Korea.
Viewing these institutions and funds in the aggregate, we determine that there is no
government direction of medium- and long-term credit to the OCTG producers or to the
broader steel sector. We have found that the lending institutions in Korea, when viewed as
a whole, provide medium- and long-term loans to all sectors and all major industry
groups, indeed to virtually all industries. Notwithstanding that certain of the sources
have been created to provide credit to designated groups of recipients, these groups do
not receive a disproportionate share of the total medium- and long-term credit available
from all sources combined. Moreover, we determine that the OCTG producers and the
broader steel industry do not receive a disproportionate share of funds from all these
sources. Indeed, over the last 15 years, the steel industry has accounted for
approximately 6 to 13 percent of GNP. During the same period the basic metals sector,
which includes steel, has received 5 to 8 percent of medium- and long-term loans.
Although we have found that credit is not directed by the Korean government to OCTG
producers or to the broader steel industry, we must still examine whether particular
medium- and long-term loans from any of the individual institutions or funds confer
benefits which constitute subsidies within the meaning of the countervailing duty law.
In order to determine that medium- and long-term loans are providing benefits which
constitute domestic subsidies, we must find that the program is limited to a specific
enterprise or industry or group of enterprises or industries, and that the loans are
provided on terms inconsistent with commercial considerations. If either of these
conditions is not met, then we cannot find that a domestic subsidy exists.
In making the determination on whether a program is limited to a specific enterprise or
industry or group of enterprises or industries, we have consistently examined whether
there is a de facto, as well as a de jure, limitation. In making the determination of whether
a loan is inconsistent with commercial considerations, we examine whether the
potentially contervailable loan offers more favorable terms than the firm would otherwise
receive.
Based on our verification and information provided by the petitioners, the responses and
the briefs submitted by parties to the proceeding, we have found the following with
respect to each of the three types of financial organizations and the government funds:
1. Commercial Banks
Commercial banks, which until the early 1980's were either government-owned or
government-controlled, consist of seven nationwide or "city" banks, 10 regional or "local"
banks, and the branches of 48 foreign banks. The domestic commercial banks are
authorized by the General Banking Act (G.B.A.) and provide the normal financial services
that are usually offered by banks in all countries. There is no explicit listing in the G.B.A.
that designates certain industries or sectors for receipt of commercial bank credit.
Bank of Korea statistics show the distribution of loans from the deposit money banks
(DMB's). DMB's include both commercial and specialized banks. (Specialized banks are
discussed in the following section.) Examination of the Bank of Korea statistics
demonstrates that during both the 1970's and 1980's all sectors of the economy received
loans through the DMB's and that steel did not receive a disproportionate share.
During verification, we obtained loan statistics directly from Hanil and Cho- Heung, two of
the five largest commercial banks in Korea. The loan statistics are broken down by sector,
major industry group and industry. The sectors are:
Agriculture and forestry;
Mining;
Manufacturing;
Electricity, gas and water;
Construction;
Wholesalers;
Transportation and warehousing; and
Others (including social services).
Each of these sectors is then broken down by major industry group and by industry
within each group. Steel production is included in the primary metals group within the
manufacturing sector. This group includes, in addition to steel, categories for aluminum
and others.
Our review of the loan statistics of these two banks for various years in the 1970's and
1980's shows that all sectors and major industry groups, indeed, virtually all industries,
received loans.
Furthermore, the statistics show that the steel industry did not receive a
disproportionate share of the loans.
2. Specialized Banks
There are seven specialized banks in Korea: Korea Exchange Bank, Medium Industry
Bank, Citizens National Bank, Korea Housing Bank, National Agricultural Cooperatives
Federation, National Federation of Fisheries Cooperatives and Members Cooperatives,
and the National Livestock Cooperative Federation. Each of these banks is set up by its
own Act, and, by their titles, these banks are explicitly chartered to service certain broad
sectors of the Korean economy.
Like commercial banks, specialized banks are deposit money banks and, therefore, are
included in Bank of Korea statistics on DMB loan distribution. As stated previously, the
Bank of Korea statistics show that all sectors and industries have received loans through
the DMB's and that steel has not received a disproportionate share of DMB loans. In
addition, it is clear that the specialized banks have been set up to serve sectors of the
economy besides steel. None has been set up specifically for the steel industry or even for
the manufacturing sector or heavy industry sector. We verified that the steel companies
producing the products under investigation have only a few outstanding long-term loans
from specialized banks and that these loans do not represent a disproportionate share of
the long-term loans funds from specialized banks.
3. Development Institutions
a. Korea Development Bank (KDB). The KDB was established in 1954 to aid in the
reconstruction of the country following the Korean War. Once reconstruction was
completed, the bank shifted its resources to support the development of industries
deemed *46780 important for long-term economic growth. The industries named in the
KDB Enforcement Decree include electric power, coal mining, shipbuilding, iron and steel
manufacturing, semiconductors and overseas marine and/or air transport. In addition to
these industries, KDB also provides loans for agriculture, oil and gas, food and beverage,
textiles, paper and paper products, chemicals, rubber and plastic products, non-metallic
mineral products, fabricated metal products, machinery and equipment, construction,
wholesale and retail trade, communications and financial services. Thus, while there is an
explicit designation that the KDB will service certain industries, it also has provided loans
to borrowers in numerous industries that were not designated.
During the 1970's and 1980's, the KDB accounted for approximately 45 percent of the
medium- and long-term loans available. Prior to the June 1982 equalization of interest
rates, these designated industries were charged a lower interest rate than KDB borrowers
in other industries. The interest rates charged by KDB are set by the Ministry of Finance.
b. Export-Import Bank of Korea. Promulgated by Law No. 2122 in July 1969, the purpose
of the Export-Import Bank of Korea (Eximbank) is "to promote the sound development of
the national economy and economic cooperation with foreign countries by extending the
financial aid required for export and import transactions, overseas investment and the
development of natural resources abroad." The Enforcement Decree for the Act specifies
the "major" raw materials that Eximbank should develop:
Coal, iron ore, cooper, petroleum, and other mined materials;
Timber and other forest materials;
Grains, cotton, sugar, rubber and other agricultural materials; and
Other raw materials deemed necessary to secure stabilized long-term supply for the
economy; however, this should be decided through a state meeting and announced
through the Ministry of Finance.
Thus, if there is any explicit designation of recipients of loans from the Eximbank, the
designated group is raw material users.
During verification, we examined all export and overseas investment loans awarded from
1976 through 1982. During those seven years, only five loans were awarded to the steel
industry; one in 1979, two in 1980 and two in 1982. None of these five loans were for the
financing of exports of the products under investigation. Also, during each of these years
there were other projects financed in other industries. For example, in 1979, the other
overseas investment loans went to a taxtile plant project, a manufacturing plant project,
fishery development, a cement plant project, and vessel chartering. Thus, the Korea
Eximbank finances projects in a wide number of industries. Moreover, the steel industry
has not received a disproportionate share of Eximbank loan monies.
4. The National Investment Fund
On December 14, 1973, the government of Korea established the National Investment
Fund (NIF) through 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."
In the preliminary determination, we determined that NIF loans were countervailable
export subsidies because one of the express purposes stated in the Act was to help
increase exports and because they were provided at preferential rates.
During verification, we found that there are two types of NIF loans, one to finance
development and one to finance exports on a deferred payment basis. The NIF loans to
finance exports on a deferred payment basis are managed by Eximbank. We verified that
exports of the products under investigation are not eligible to receive NIF loans for
exports on a deferred payment basis and that none of the companies producing OCTG has
financed exports of OCTG through this program.
With respect to the other pool of NIF monies, our examination of loan files, as well as
application and approval documents at the companies, did not reveal any export-related
conditions on these NIF loans. Thus, we now conclude the NIF loans are not export
subsidies.
Despite the fact that NIF loans would not be considered export subsidies, the law
establishing the fund and the enforcement decree explicitly designate certain industries
for receipt of these loans. In addition to "major industries, including the heavy and
chemical industries," the enforcement decree names steel, nonferrous metals,
shipbuilding, machinery, chemicals, electronics, food production, power, mining,
cement, rural manufactured goods, projects to increase rural income, and fishing and
fisheries projects. NIF, loans accounted for 25 to 30 percent of the medium and
long-term loans issued in the 1970's and 1980's.
5. Fund for Expanding Export Facilities
During verification at the companies we found several outstanding long-term loans
received through the "Fund for Expanding Export Facilities." This fund was established in
1973 and abolished in 1982. Eligibility for these loans was limited to manufacturers
building facilities for producing export goods or raw materials and purchasers of
ocean-going vessels used for the fish export industry. Thus, this Act designates exporters
as recipients.
Based on the findings reported above, we determine that because commercial banks and
specialized banks provide medium--and long-term loans to all sectors and industries in
the economy, and because the steel industry did not receive a disproportionate share,
loans from these sources are not limited to a specific enterprise or industry or group of
enterprises or industries and therefore do not provide benefits which constitute
subsidies. Furthermore, based on our review of the Eximbank Act and the Enforcement
Decree, and the distribution of the loans we find that there is no de jure or de facto
limitation to an enterprise or industry or group of enterprises or industries. Accordingly,
we determine that Eximbank loans do not provide benefits which constitute subsidies.
We also determine that loans provided to the OCTG producers through the KDB and the
NIF do not provide benefits which constitute subsidies, because the interest rates paid on
these loans have been equal to the interest rate for all medium--and long-term loans in
Korea since June 1982. Thus, these loans are not on terms inconsistent with commercial
considerations.
To determine whether a loan is inconsistent with commercial considerations, we rely on
the methodology in the Subsidies Appendix for long-term loans to companies considered
creditworthy. As stated in the Appendix, the benechmark for long-term loans in
company-specific, unless the company lacks adequate comparable commercial
experience. If the company lacks comparable commercial experience, we use a national
average long-term loan interest rate.
After finding an appropriate benchmark loan, the next step in determining if a loan was
given on terms *46781 inconsistent with commercial considerations is to calculate the
payment differential between the benchmark loan and the loans at issue. Consistent with
our methodology, when the long- term loans are at variable interest rates, we calculate
the benefit based on the differential between the interest rate for the loan at issue and the
interest rate on the benchmark loans in the year for which we are measuring
subsidization. As stated above, the rates on all medium--and long-term loans were
equalized in 1982. Hence, for the year in which we are measuring subsidization, there is
no interest differential between the loans at issue and the benchmark loans.
We note that using as the benchmark the 1983 interest rate on a variable rate long-term
commercial loan is not a departure from prior practice. In our preliminary
determination, we used a short-term interest rate as the benchmark for NIF loans.
However, we stated that because we needed additional information in order to determine
whether loans from commercial and specialized banks were subsidies, we could not use
those variable rate long-term loans in establishing our benchmark. Thus, because we had
no comparable commercial long-term loan experience with which to compare NIF loans,
we use, as best information available, a short-term rate for purposes of measuring the
benefit conferred by these loans.
Finally, we determined that loans received by the OCTG producers under the Fund for
Expanding Export Facilities do not confer benefits that constitute export subsidies.
Assuming, as we do, that eligibility for these loans is contingent upon export
performance, to quantify any benefit arising from these long-term export-related loans,
we must compare the terms of these loans to the cost of comparable commercial
domestic long-term loans.
We know that all loans from the Fund for Export Facilities that were still outstanding
during the period for which we are measuring subsidization were charged 10 percent
interest after the June 1982 equalization of interest rates. Thus, since June 1982 the cost
to the borrower on these loans is the same as the cost of comparable domestic long-term
loans. As a result, we find that no benefit is conferred by these long-term export-related
loans.
B. 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.
In our preliminary determination, we determined this program to confer a subsidy
because the government of Korea did not provide us with any information demonstrating
that during the period for which we are measuring subsidization this program was not
limited to a specific enterprises or industry or group of enterprise or industries. A
program may be available, in principle, to a wide group of industries, but when there
appears to be some discretion on the part of the government in the granting of benefits
under the program, we must determine that discretion effectively limits the program to
specific enterprises or industries.
During the verification, we found that twenty-four industries were eligible to receive duty
deferrals including industries as disparate as mining, cement, fertilizers, chemicals,
machine tools, steel works, and plywood. Once an industry is considered eligible, each
company within the industry may request deferral status by submitting an application to
the Tariff Administration Office of the Office of Customs Administration. We examined this
program to determine if only certain companies within each of the twenty- four industries
had their application for duty deferral status approved. We found that in practice there
appears to be no limitation to the companies within the twenty-four industries which
receive duty referrals, and that any company which applies is granted that status.
Therefore, we determine that this program is not limited to a specific enterprise or
industry or group of enterprises or industries, and, therefore, does not constitute a
subsidy.
C. Investment Tax Credit
Petitioners alleged that producers and exporters of OCTG may receive preferential tax
benefits under Article 72 of the "Act of 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 the 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
determine that this program does not constitute a subsidy.
D. Subsidized Steel Inputs
Petitioners alleged 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), a manufacturer of hot-rolled coil, blooms, and billets. Petitioners
alleged that subsidies received by POSCO on those products may be 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
whom we have never found to be subsidized. We verified that the price paid by DongJin to
POSCO was comparable to the price DongJin paid to its foreign supplier for hot-rolled coil.
Furthermore, no rebates or discounts are received from POSCO on these purchases.
Consequently, we determine that DongJin receives no competitive benefit through its
purchases of inputs from POSCO.
Section 613 of the Trade and Tariff Act of 1984, signed by the President on October 30,
codifies the standards for determining upstream subsidies. This section generally codifies
Department practice. Our investigation was consistent with both Department practice and
the newly codified standards.
E. Equity Infusions into DongJin
In their July 18 submission, 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. DongJin was established on October 27, 1982, by POSCO. At the time of
DongJin's formation, POSCO invested funds in order to provide cash for the purchase of
the assets of Illsin Steel Company and working capital for DongJin's future operations.
POSCO also guaranteed the notes of DongJin used for the purchase of Illsin's assets.
Illsin Steel Company was a bankrupt company, owned and operated by it two major
creditors, Korea Exchange Bank (KEB) and Commercial Bank of Korea (CBK). In
accordance with Korean law, at the time of bankruptcy the courts foreclosed upon Illsin's
assets and offered the assets for sale at public *46782 auction. Because there were no
other bidders for the assets at the appraised value or above, the banks, which were the
highest bidders, purchased the assets at auction. These assets were then sold to DongJin
for cash and notes.
According to the banks: (1) The price offered by DongJin was the highest price which they
could obtain, (2) the banks' operations of Illsin were resulting in a cash drain on them, and
(3) it was in the bank's interest to sell the assets as a package, so as not to significantly
decrease the value of the total package. Because there were no bidders, at auction, which
would have paid the appraised value of the assets, and because it was in the banks' interest
to minimize their losses, the sale of Illsin by the banks can be characterized as a distress
sale.
Although the banks were eager to sell, the purchase of Illsin's assets by DongJin presented
certain advantages to POSCO. Illsin had been a major supplier to POSCO. POSCO had
knowledge and management expertise to operate Illsin and under the circumstances
might negotiate terms which could make the venture economically attractive. The terms
negotiated required a minimal amount of cash and notes, some of which were at zero
interest rate.
To determine whether POSCO's equity infusion into DongJin was on terms inconsistent
with commercial considerations, we analyzed the terms compared to ordinary
commercial considerations. The Department did not find this transaction inconsistent
with commercial considerations for the following reasons.
First, POSCO did not receive government funds during 1982 and, therefore, POSCO's
investment in DongJin could not have been a pass through from the government. Second,
we found no evidence that the government directed the banks to sell the assets to DongJin
on favorable terms. Third, the cash investment into a newly created subsidiary by a
parent company, and the guaranteeing of subsidiary's notes, when the subsidiary is still a
"shell" organization, are normal business practices. Fourth, because of the commercial
advantages to both the seller and the purchaser in this transaction, and the apparent lack
of interest by any other party to purchase Illsin's assets, we determine that the
transaction was not on terms inconsistent with commercial considerations. Moreover, we
do not consider POSCO's guarantee of DongJin's notes payable to be a subsidy, because no
evidence has been submitted that a parent company's guarantee of a wholly-owned
subsidiary's loan is inconsistent with commercial considerations.
111. Programs Determined Not To Be Used
We have 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 Port Charges
Petitoners alleged that "designated companies" under the Iron and Steel Industry
Rehabilitation Order are eligible on a case-by-case-basis to receive discounts on port
rates. We verified that the rates charged to, and paid by, OCTG producers and exporters
for use of ports are the same as those charged to all other users.
B. Tariff Reductions on Imported Plant and Equipment
Petitioners alleged that the government of Korea allows reductions of import duties for
certain industries on certain items designated by the Ministry of Finance. We verified that
none of the OCTG producers or exporters received tariff reductions on imported plant
and equipment.
C. Free Export Zone Program
Petitioners alleged that producers and exporters of OCTG receive tax benefits based upon
location in a free export zone. We verified that none of the producers or exporters of
OCTG is located in a Free Export Zone.
D. Foreign Capital Inducement Law
Petitioners alleged that OCTG producers and exporters may be receiving financial and tax
benefits under the Foreign Capital Inducement Law. The producers and exporters of
OCTG are not eligible for any benefits under this program because they have no foreign
ownership.
E. Export Credit Insurance
Petitioners alleged that the government of Korea provides annual contributions to an
export insurance program. We verified that export credit insurance was not used to
insure exports of OCTG to the United States.
F. Port Facilities
Petitioners alleged 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. 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.
G. Training Aid
Petitioners alleged that the steel industry has received training aid from the government
of Korea. We verified that the steel companies producing the products under
investigation have not received training grants or other training funds from the
government of Korea.
H. Financial and Technical Assistance for Raw Material Purchases
Under the Iron and Steel Promotion Act financial and technical assistance to purchase
raw materials is authorized. However, we found no evidence that steel companies
producing the products under investigation receive assistance from the government in
purchasing raw materials.
I. Preferential Utility Rates
Petitioners alleged 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 charges. Under Article 7 of the Iron and Steel Industry Promotion Act reductions
on utility charges are authorized. The steel industry made a request to the Korean Electric
Company seeking reduced rates but the Electric Company turned down the request and
the reductions were never granted. We also found no evidence that the steel companies
producing the products under investigation received reductions or other assistance on
any other utility rates.
Programs Not In Existence
We determine that the following programs are not in existence or have been abolished:
A Preferential Exchange Rates for Export Loans
Petitioners alleged that producers and exporters of OCTG receive preferential exchange
rates for export loans based on letters of credit. Petitioners alleged that the exchange rate
used for loans based on letters of credit was 10 percent more favorable to Korean
exporters than the actual exchange rate. 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 when a loan is received against a letter *46783 of credit.
Therefore, we determine that there is no program of preferential exchange rates for
export loans that provides countervailable benefits to OCTG producers and exporters.
B. Export Financing under the Foreign Trade Transaction Act
Petitioners alleged that the government of Korea provides the steel industry with
preferential short-term export financing under the Foreign Trade Transaction Act. The
foreign Trade Transactions Act has been repealed and was not in effect during the period
for which we are measuring subsidization.
C. Steel Industry Development Scheme
Petitioners alleged that the Korean Ministry of Trade 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. At verification we
established that the Ministry of Trade and Industry is not sponsoring such a scheme.
D. Wage Controls
Petitioners alleged 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. The rates paid by DongJin
to its workers are comparable to the rates paid by other steel manufacturers. We also
found no evidence that the government of Korea has a wage control system under which
DongJin must operate.
E. Joint Facilities for Industrial Complexes Scheme
Petitioners alleged in their August 20 submission that the government of Korea was
providing funding for joint facilities in industrial complexes, and that the steel industry
was one of the industries targeted for such funding. In 1981 such a program was discussed
between the Federation of Small and Medium Industry Cooperatives and the government
of Korea. The project was to be located near Kimpo Airport in Seoul. However, in January
1982 the proposed project was cancelled due to lack of funding.
F. Equipment Funds for Export Strategy Industries and Funding for Industrialization of
New Technology
The Ministry of Trade and Industry (MTI) is presently studying proposals concerning
these two projects but there has been no final decision on whether to set them up. The
Korea Development Bank has received a loan from the Asian Development Bank to fund
one of the programs. However, we verified that the ony industries eligible to receive loans
from this fund are companies producing machines and machine parts.
G. Assistance for Trading Comnpanies
In their August 20 submission petitioners alleged that the government of Korea provided
benefits to trading companies by allowing them to increase their foreign exchange
holding and by allowing them to increase their reserve funds to cover export losses in
foreign markets. With regard to the first allegation, trading companies are authorized to
maintain foreign currency accounts of over $300,000 dollars. However, we found no
evidence that other companies are limited in their foreign exchange holdings or any other
evidence to suggest that this allowance for foreign exchange holding provides a
countervailable benefit to trading companies. Regarding the allegation on export
reserves, we verified at the trading companies that there are no special provisions
allowing them to claim additional export loss reserves. Even if there were such
provisions, we have verified all the outstanding export reserves held by the trading
companies.
Petitioners Comments
Comment 1: Petitioners argue that the commercial bank interest rate, which was averaged
with other rates to compute the benchmark, is not a free market rate and, therefore
should not have been used in determining a benchmark. In support of their contention
they cite Department practice as reflected in prior proceedings and in the Subsidies
Appendix where "commercial" interest rates were used as benchmarks or where
market-determined prices were sought.
DOC Position: We disagree. Petitioners are reading our prior determinations and the
Subsidies Appendix too narrowly. For example, in seeking a "commercial" benchmark
interest rate, we are seeking the alternative financing that is available to the firm in the
lending marketplace of that country. We are asking if the interest rate paid on the
allegedly preferential loan is less than what the average firm in that country would
otherwise be paying. Similarly, in looking to market prices, we are seeking the prices that
exist in that country's marketplace.
Typically, the marketplace is not the perfectly competitive market envisaged by
economists. Instead, it is the commercial environment facing the firm. The commercial
environment includes any distortions to relative prices that arise from government
actions such as government regulation of the banking system, tax systems, customs
duties or minimum wage laws. So long as profit-maximizing firms compete within that
system, a marketpalce exists and our benchmarks for identifying and valuing subsidies
are prices in that marketplace.
Comment 2: Petitioners argue that the benchmark interest rate used in the Department's
preliminary determination, a weighted average of the interest rates charged by all
sources of short-term commercial financing in Korea, does not reflect what a company
would pay a normal commercial lender and is thus inconsistent with the principles
enunciated by the Department for quantifying subsidies. Petitioners further argue that it
is the curb market's unregulated interest rate which reflects the real cost of credit in
Korea, and thus, pursuant to the principles enunciated in the Department's Subsidies
Appendix, the curb market interest rate should be used as the benchmark interest rate in
this case.
DOC Position: The Department believes that the correct benchmark for short-term
lending normally is the most comparable, predominant form of short- term financing in
the country under investigation. However, as explained in the section of the notice on
"Short-Term Export Financing Under the Export Financing Regulations", the Department
has found an incentive for banks to lend for export transactions at the expense of
domestic financing. Using best information available, the Department has measured this
preference for export lending by comparing the cost of export loans with the
weighted-average cost of all forms of short-term domestic financing.
In the case of long-term loans, the Department has followed its standard practice of
comparing the terms of loans under examination with the terms of comparable
commercial long-term loans (see the section of the notice on "Medium- and Long-Term
Credit"). In reaching these determinations, we believe we have been faithful to the
principles enunciated in our Subsidies Appendix.
Comment 3: Petitioners contend that, assuming arguendo, the weighted-average
benchmark is the correct benchmark, the Department's weighted-average benchmark
understates the proportional size of the curb market and *46784 overstates the
proportional size of bank credit as sources of domestic credit.
DOC Position: As explained in the section of the notice on "Short-term Export Financing
Under the Export Financing Regulations," we are using a weighted- average of short-term
domestic financing costs in order to quantify the banking system's preference for export
loans. This weighted-average credit pool comprises short-term domestic bank credit,
investment and finance company credit, commercial paper, and the curb market. Our
weights are based on the most reliable data entered in the record of this investigation,
including the Bank of Korea's Monthly Statistical Bulletin, the Federation of Korean
Industries' biannual surveys of corporate financing, and the Korea Chamber of
Commerce's annual survey of the curb market.
Comment 4: Petitioners contend that Korean medium-and long-term financing is a
countervailable benefit because it is made available only to specially- designated priority
sectors, to specific subgroups within those sectors, and, in particular, to the steel
industry.
DOC Position: As explained in the section of the notice on "Medium- and Long- term
Credit," we found no evidence that the Governmnt of Korea directs medium- and
long-term credit.
Respondents' Comments
Comment 1: Respondents argue that the Department was incorrect in not using the
interest rate for short-term borrowings from commercial banks as the most appropriate
national average commercial method of short-term financing. Bill discounts, overdrafts,
and general term loans are the domestic equivalents of short-term export financing, and
are the alternative financing to export loans. Department precedent has always been to
select the most comparable and commonly used alternative source of financing in a given
country.
DOC Position: We agree that the correct benchmark for short-term lending normally is the
most comparable, predominant form of short-term financing in the country under
investigation. However, as explained in the section of the notice on "Short-Term Export
Financing Under the Export Financing Regulations", the Department has found an
incentive for banks to lend for export transactions at the expense of domestic financing.
Using best information available, the Department has measured this preference for export
lending by comparing the cost of export loans with the weighted-average cost of all forms
of short-term domestic financing.
Comment 2: Respondents contend that the Department was incorrect in determining that
long-term loans provided by the National Investment Fund (NIF) constitute export
subsidies. NIF loans are in no way contingent on export performance. Respondents
further contend that NIF loans are also not domestic subsidies because they are generally
available. In any case, given the Department's methodology for evaluating long-term
variable rate loans, no new NIF loans or NIF loans outstanding have been at preferential
interest rates since NIF rates were equalized with the commercial bill discount rate in late
1981.
DOC Position: We agree that NIF loans do not constitute an export subsidy. We have also
found that they do not constitute a domestic subsidy because interest rates on NIF loans
during the period under investigation were not on terms inconsistent with commercial
considerations. The correct long-term benchmark rate, however, is not that which exists
on short-term commercial bills; rather, it is the rate on comparable commercial
long-term borrowing. This is the benchmark we used in determining that NIF loans did
not constitute subsidies.
Comment 3: Respondents note in their comments on the Government Verification Report
that, in the Ministry of Trade and Industry's requirements submission for NIF loans, a
number of different companies from industries other than steel are listed and that not
only steel companies were specifically listed.
DOC Position: We agree that companies from other industries were listed in the
submissions.
Comment 4: Respondents argue in their comments on the DongJin Verification Report
that the sale of assets by the banks to POSCO was incorrectly characterized as a loan. They
argue that the transaction between POSCO and the banks is a purchase contract between
the owners of the assets (the banks) and the purchaser (POSCO).
DOC Position: Our determination with respect to this transaction is set forth in the section
of the notice on "Equity Infusions in DongJin."
Comment 5: Respondents note in their comments on the DongJin Verification Report,
that the charges paid for opening letters of credit are unrelated to the short-term loans
themselves.
DOC Position: As discussed in the section of the notice on "Short-term Export Financing
Under the Export Financing Regulations," we consider that the fee structure, which
specifies lower charges for opening those letters of credit used to purchase imports of raw
materials which are then used in export production, to be a manifestation of the
preference built into the government's rediscount mechanism on short-term export
loans. We consider that we have captured any benefit from this fee structure in our
comparison of the weighted- average interest rate on domestic loans with the 10 percent
interest rate on export loans.
Comment 6: Respondents argue in their comments on the Government Verification
Report that the central bank rediscount mechanism was established to ensure that
financing reached the productive sector of the economy by tying the financing to
commodities and transactions, and that the volume of domestic financing under this
mechanism far exceeds export financing if overdrafts and general term loans are
included. They also argue that because domestic commercial bills finance 100 percent of
the bills value, while export loans are eligible for only 80 percent, the rediscount
mechanism does not alter the value of financing reaching the borrower.
DOC Position: We disagree. In 1983, the volume of short-term domestic financing eligible
for rediscount at the Bank of Korea was less than the volume of short-term export
financing eligible for rediscount at the Bank of Korea. We believe this is a manifestation of
the preference for export financing over domestic financing. Although a large company's
domestic transactions are eligible for financing equal to 100 percent of transaction value,
the bank which provides this financing may only rediscount 30 percent of that 100
percent at the Bank of Korea. At the same time, although all firms' export transactions are
only eligible for financing equal to 80 percent of transactions value, the bank which
provides this financing can rediscount 70 percent of the 80 percent at the Bank of Korea.
Thus, the Bank of Korea supplies credit which covers only 30 percent of the value of a
domestic transaction as compared to 56 percent of the value of an export transaction.
This preference for export credit is a subsidy, and we have countervailed it (see the
section of this notice entitled. "Short-term Export Financing Under the Export Financing
Regulations.")
Comments by U.S. Steel, a Party to the Proceeding
Comment 1: U.S. Steel argues that the weighted-average benchmark interest rate used by
the Department in its preliminary determination greatly understated the subsidy from
government provided/directed loans *46785 because it included the commercial bank
interest rate, which is a heavily subsidized rate, available only to a select few
government-preferred industries. U.S. Steel contends that the commercial bank rate
should not be included in the weighted-average benchmark because it is not a market
rate. Thus, its use contravenes the Department's standard requirement that the
benchmark be a market interest rate. U.S. Steel further contends that because Korean
commercial banks lend (1) at well below market interest rates, (2) only to a selected few
government-preferred, priority sectors, and (3) without considering borrower
creditworthiness, commercial banks cannot be considered " normal commerical lenders."
This too contravenes standards Department policy which states that loan benchmarks
represent what a company would pay a normal commercial lender.
DOC Position: See our responses to petitioners' Comment 1 and Comment 2.
Comment 2: U.S. Steel contends that, even if it were proper to include the commercial
bank interest rate in the Department's weighted-average benchmark, the benchmark still
understated the subsidy from government provided/directed loans because the size of
the commercial bank sector has been greatly overstated relative to the private (curb)
loan market.
DOC Position: See our response to petitioners' Comment 3.
Comment 3: Petitioner contends that exporters and/or steel producers benefit from a
lower effective interest rate on domestic bank loans because they, unlike other
borrowers, are not subject to compensating balance requirements.
DOC Position: Bank of Korea regulations specifically prohibit domestic banks from
requiring compensating balances. During verfication, we found no evidence that domestic
bank loans require compensating balances of other borrowers, while not requiring them
of exporters and/or steel producers.
Comment 4: U.S Steel argues that the Korean government allocates the heavily subsidized
credit of the "tightly government controlled-banking system" to select priority, export
industries. All others must rely on the curb market for funds. Commercial bank loans
have especially focused on the Korean steel industry, and loan decisions are based on
political, not creditworthiness considerations. U.S. Steel contends that commercial bank
loans were not generally available either prior to or during 1983-1984.
DOC Position: For an explanation of our treatment of medium- and long-term loans, see
the section of this notice entitled "Medium- and Long-term Credit".
Comment 5: U.S. Steel contends that the National Investment Fund (NIF) provides
preferential loans to steel producers.
DOC Position: The Department has found that NIF loans do not constitute subsidies during
the period for which we are measuring subsidization (see the section of this notice entitled
"Medium- and Long-Term Credit").
Comment 6: U.S. Steel contends that the NIF provided loans to steel producers at interest
rates below those paid on NIF deposits. This differential in the cost of their funds and the
return on their funds was assumed by the government, and constitutes an additional
subsidy to steel producers.
DOC Position: During the period for which we are measuring subsidization, interest rates
on long-term variable-rate NIF loans outstanding were not below interest rates on
long-term variable-rate NIF deposits outstanding. Therefore, no government assumption
of interest charges is indicated during the period for which we are measuring
subsidization.
Comment 7: U.S. Steel argues that the respondent's non-responsiveness to questions in
the Department's questionnaire concerning both commercial banks and NIF dictates that
the Department make all inferences against respondents.
DOC Position: The Department has found respondents responsive to our requests for
information throughout this investigation considering the time constraints under which
all parties were operating. Furthermore, we obtained information on the commercial
banks and NIF during our verification and U.S. Steel was given an opportunity to
comment on the reports of our verification which discuss commercial banks and the NIF
in detail.
Comment 8: U.S. Steel argues that Korean Development Bank (KDB) loans are not
generally available and should therefore be countervailed.
DOC Position: The Department has found that KDB loans do not constitute subsidies
during the period for which we are measuring subsidization (see the section of this notice
entitled "Medium- and Long-Term Credit").
Comment 9: U.S. Steel contends that Korean steel producers benefit from government
loan guarantees.
DOC Position: In the course of our investigation we determined that loan guarantees from
both government-owned and privately-owned financial institutions are a standard
commercial practice in Korea. The Bankers' Association sets the guarantee fees, and all
Korean banking institutions charge those fees. The fee structure for loan guarantees does
not differentiate by industry or class of transaction (i.e.: export or domestic). It does
distinguish between won and foreign currency loans. As explained at verification by both
foreign and Korean bankers, foreign banks, unlike Korean banks, cannot require collateral
on their loans. Thus, foreign bankers generally require a loan guarantee. Korean banks
usually require guarantees when a company has no unpledged collateral. We found that
the steel companies producing the products under investigations paid the fees specified
by the Bankers' Association for those guarantees that they had on their domestic and
foreign currency loans. Thus, we do not consider that these guarantees are on terms
inconsistent with commercial considerations.
Comment 10: U.S. Steel contends that the Department's verification reports indicate that
preferential port charges for exports exist in Korea, based on the per ton differential in
port charges for exporting, importing and domestic shipping.
DOC Position: The Korea Maritime and Port Administration (KMPA) establishes the rates
for port charges. Rates vary according to port also to the type of port activity. Port
charges are higher for importers than for exporters: however, the charges for domestic
shipping are the lowest. For the port at Pusan the rate is 22 cents a ton for exporting, 37
cents a ton for importing, and 68 won a ton for shipping to another Korean port. The rate
of 68 won for domestic shipping is much lower than the 22 cents a ton rate charged to
exporters. Since an exporting activity is not favored over a domestic activity, we find no
countervailable benefit being provided to producers or exporters of OCTG.
Comment 11: U.S. Steel notes that the Department's verification report on DongJin
indicates that opening charges on letters of credit for loans for purchasing foreign raw
materials for domestic use are higher than for loans purchasing foreign raw materials for
export use. They consider this to be an export subsidy.
DOC Position: We believe that we have captured any benefit to short-term export loans
provided by this fee structure in our calculation of the subsidy on the short-term export
loans. For further discussion of this issue, see *46786 our response to respondents'
Comment 5.
Comment 12: U.S. Steel contends that Pohang Iron and Steel Company's (POSCO) equity
infusions into DongJin are a countervailable subsidy because no private investor would
have been willing to invest in DongJin.
DOC Position: Our determination with respect to the formation of, and equity investment
in, DongJin is set forth in the section entitled "Equity infusions into DongJin."
Verification
In accordance with section 776(a) of the Act, we verified the information used in making
our final determination. Commerce officials spent from September 18 to October 17
verifying the information submitted by the government of Korea and by the companies
under investigation, and gathering additional information to be used in our final
determination. During this verification we followed normal verification procedures
including inspection of documents and ledgers, and tracing the information in the
responses to source documents, accounting ledgers, and to financial statements.
Suspension of Liquidation
In accordance with section 703(d) of the Act, on September 12, 1984 we instructed the
U.S. Customs Service to suspend liquidation of all entries of oil country tubular goods
from Korea (49 FR 35836). As of the date of publication of this notice in the Federal
Register, the liquidation of all entries, or withdrawals from warehouse, for consumption
of this merchandise will continue to be suspended and the Customs Service shall require a
cash deposit or bond for each such entry of this merchandise in the amount of 0.53
percent ad valorem. This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 705(d) 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.
The ITC will make its determination whether these imports materially injure, or threaten
material injury to, a U.S. industry within 45 days of the publication of this notice.
If the ITC determines that material injury or the threat of material injury does not exist,
this proceeding will be terminated and all estimated duties deposited or securities posted
as a result of the suspension of liquidation will be refunded or cancelled. If, however, the
ITC determines that such injury does exist, we will issue a countervailing duty order,
directing the Customs Service to assess countervailing duties on all entries of OCTG
from Korea entered, or withdrawn from warehouse, for consumption on or after the
suspension of liquidation date, equal to the net subsidy amount indicated in the
"Suspension of Liquidation" section of this notice.
This notice is published pursuant to section 705(d) of the Act (19 U.S.C. 1771(d)).
William T. Archey
Acting Assistant Secretary for Trade Administration.
November 20, 1984.
[FR Doc. 84-31195 Filed 11-27-84; 8:45 am]
BILLING CODE 3510-05-M