Preliminary Negative Countervailing Duty Determination; Certain Stainless Steel Cooking Ware From the Republic of Korea

Thursday, April 24, 1986

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ACTION: Notice.

SUMMARY: We preliminarily determine that no benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in the Republic of Korea (Korea) of certain stainless steel cooking ware. The estimated net subsidy is 0.232 percent ad valorem. This rate is de minimis, and therefore our preliminary countervailing duty determination is negative. We have notified the United States International Trade Commission (ITC) of our determination.

If this investigation proceeds normally, we will make our final determination by June 30, 1986.

EFFECTIVE DATE: April 24, 1986.

FOR FURTHER INFORMATION CONTACT:Rick Herring, David Levine, or Gary Taverman, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 377-0187, 377-8498, or 377-0161.

SUPPLEMENTARY INFORMATION:

Preliminary Determination

Based upon the questionnaire responses, we preliminarily determine that the following programs are countervailable:

- Short-Term Export Financing under the Export Financing Regulations and Foreign Trade Financing Regulations;
- Tax Incentives for Exporters under Articles of the "Act Concerning the Regulation of Tax Reduction and Exemption"; and
- Unlimited Deduction of Overseas Entertainment Expenses under Article 18-2 of the Corporation Tax Law.

We preliminarily determine the estimated net subsidy to be 0.232 percent ad valorem. Although we have determined these programs to be countervailable, the respondents received de minimis benefits during the review period, calendar year 1985. Therefore, we preliminarily determine that no 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 certain stainless steel cooking ware.

Case History

On January 21, 1986, we received a petition filed in proper form by the Fair Trade Committee of the Cookware Manufacturers Association on behalf of the U.S. industry which manufactures certain stainless steel cooking ware. In compliance with the filing requirements of section 355.26 of the Commerce Regulations (19 CFR 355.26), the petition alleged that manufacturers, producers, or exporters in Korea of certain stainless

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We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on February 10, 1986, we initiated an investigation (51 FR 6019). We stated that we expected to issue a preliminary determination by April 16, 1986.

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 March 4, 1986, the ITC determined that there is a reasonable indication that imports of certain stainless steel cooking ware from Korea materially injure, or threaten material injury to, a U.S. industry (51 FR 9541).

We presented questionnaires concerning the petitioner's allegations to the government of Korea at its embassy in Washington, DC on February 20, 1986. We received the responses to our questionnaires on March 26, 1986. There are seven Korean producers of the subject merchandise which accounted for over 75 percent of the exports to the United States during the period of review. They are Kyung Dong Industrial Company, Ltd., Namil Metal Company, Ltd., Il Shin Company, Ltd., Hai Dong Stainless Ind. Co., Woo Sung Company, Ltd., Dae Sung Industrial Company, Ltd., and Bum Koo Corporation. For the producers identified above, these trading companies account for substantially all of their trading company sales of the subject merchandise to the United States during the review period: Sammi Corporation, Daewoo Corporation, Korea Trading International Company, Samsung Company, Ltd., Haitali International, Inc., Sunkyong Company, Ltd., Daewonsa Corporation, Hyundai Corporation, G.I. Corporation, Ssang Yong Corporation, and Dong Chang Company.

Scope of Investigation

The products covered by this investigation are all non-electric cooking ware of stainless steel which may have one or more layers of aluminum, copper, or carbon steel for more even heat distribution. These products are provided for in item number 653.94 of the Tariff Schedules of the United States (TSUS). The products covered by this investigation are skillets, fry pans, omelette pans, sauce pans, double boilers, stock pots, sauce pots, dutch ovens, casseroles, steamers, and other stainless steel vessels, all for cooking on stove top burners, except tea kettles. Excluded from the scope of investigation are stainless steel oven ware and stainless steel kitchen ware, which also are included under the 653.94 TSUS classification.

Analysis of Programs

Throughout this notice we refer to certain general principles applied to the facts of the current investigation. These general 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 Order," which was published in the Federal Register on April 26, 1984 (49 FR 18006).

Consistent with our practice in preliminary determinations, where a response to an allegation denies the existence of a program, receipt of benefits, 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 verification. If the response cannot be supported at verification, and the program is otherwise countervailable, the program will be considered a subsidy in the final determination.

For purposes of this preliminary determination, the period for which we are measuring subsidies (the review period) is calendar year 1985. Based upon our analysis of the petition and the responses to our questionnaires, we preliminarily determine the following:

I. Programs Preliminarily Determined To Be Countervailable

We preliminarily determine that the following programs provide countervailable benefits to manufacturers, producers, or exporters in Korea of certain stainless steel cooking ware:

The Export Financing Regulations were promulgated on February 25, 1982. On October 17, 1985, these regulations were terminated with the creation of the Foreign Trade Financing Regulations. These latter regulations provide the guidelines for short-term financing. Export financing takes the form of loans on bills related to export sales transactions. Eligibility is based upon presentation of export documents or upon past export performance. Export loans based on past performance may not exceed 90 days, while loans based on specific export documents may not exceed 180 days and are limited to the terms of the applicable letter of credit. During our review period, the rate of interest charged on short-term export financing remained constant at ten percent, which was the ceiling established by the governor of the Bank of Korea.

Because only exporters are eligible for these loans, we determine that they are countervailable to the extent that they are provided at preferential rates. As specified in the Subsidies Appendix, we used the most appropriate national average commercial method of short-term financing as the benchmark rate for short-term loans.

During 1985, the interest rate on domestic short-term loans was allowed to vary from 10 to 11.5 percent. During our verification of Offshore Platform Jackets and Piles from Korea, we were told by the Bank of Korea, the Korea Development Bank, and two commercial banks that, although the interest rate is allowed to vary from 10 to 11.5 percent, commercial banks will usually charge the ceiling rate of 11.5 percent on all their lending. Therefore, we preliminarily determine that the average interest rate for short-term domestic financing is 11.5 percent. Comparing that benchmark interest rate to the interest rate charged on short-term export loans, we preliminarily determine that the export loans are provided on preferential terms, and thus constitute an export subsidy.

To determine the benefit provided under this program, we based our calculations on total export loans because the companies were unable to segregate specific loans to the products under investigation. We calculated the total amount of interest the companies would have paid at 11.5 percent on their short-term export loans and subtracted from that amount the actual amount of interest the companies paid at ten percent on their short-term export loans. We then allocated the difference over total export sales to calculate an estimated subsidy in the amount of 0.224 percent ad valorem.

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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 or 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, contingent upon exports, of direct taxes. Because these export reserve funds constitute a deferral of tax liabilities, we treat the tax savings on these funds as short- term interest-free loans. Accordingly, we have quantified the benefits from the reserve funds by calculating the amount of tax savings and applying a rate of interest which the firm would have had to pay for a short-term loan (11.5 percent). Using this benchmark, we calculated an estimated subsidy of 0.005 percent ad valorem.

Under Article 18-2 of the Corporation Tax Act and supporting legislation, entertainment expenses for domestic clients and foreign clients ("overseas entertainment expenses") are eligible to be deducted from taxable income. The amount which can be deducted for domestic entertainment expenses is subject to a ceiling according to an established formula and depending on the amount of any overseas entertainment expenses claimed. There is no cap on overseas entertainment expenses. Because entertainment expense deductions are unlimited only for overseas clients, we preliminarily determine that this program confers benefits which constitute export subsidies, to the extent that the overseas expenses claimed are greater than those which would have been allowed using the domestic cap formula.

To calculate the benefit from this program for the review period, we took the amount of overseas entertainment expenses claimed in the companies' tax returns filed in 1985 exceeding the domestic cap. For those companies which did not provide their domestic cap amount, we took the amount of overseas entertainment expenses claimed exceeding the amount of domestic entertainment expenses claimed. We then divided that amount by the total value of exports in 1985, and calculated an estimated subsidy of 0.003 percent ad valorem.

II. Programs Preliminarily Determined Not To Be Used

We preliminarily determine that manufacturers, producers, or exporters in Korea of certain stainless steel cooking ware did not use the following programs:

A. Tariff Reductions on Plant and Equipment Petitioner alleges that certain Korean manufacturers receive special tariff reductions on imported plant and equipment. Article 28 of the Customs Law allows for reductions of import duties for certain industries on particular items designated by the Ministry of Finance. According to the responses of the government of Korea and the Korean companies, producers of the subject merchandise are not eligible for tariff reductions because Article 28 specifies that only machinery used in the production of machines and machine parts, and machinery used in the manufacture of electronic goods are eligible for this program.

B. Free Export Zone Program
Petitioner alleges that firms located in free export zones receive certain tax incentives such as exemptions on corporate, residence, defense, and property taxes. According to the responses of the government of Korea and the Korean companies, no stainless steel cooking ware producers or trading companies selling cooking ware are located in the free export zones.

D. Export Guarantees from the KXMB
Petitioner alleges that producers of the subject merchandise receive advance payment export guarantees and performance export guarantees from the KXMB. According to the response of the government of Korea, the KXMB only provides such guarantees for exports of large capital goods and projects, and no guarantees are offered for sales of consumer goods such as stainless steel cooking ware.

E. Accelerated Depreciation
Petitioner alleges that producers of the subject merchandise receive accelerated depreciation benefits. 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. According to the responses,

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Verification

In accordance with sections 776(a) of the Act, we will verify data used in making our final determination.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all non- privileged and non-confidential information relating to this investigation. We will allow the ITC access to all privileged and confidential information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration.

If our final determination is affirmative, the ITC will determine whether these imports materially injure, or threaten material injury to a U.S. industry within 75 days after the Department makes its final deternation.

Public Comment

In accordance with s 355.35 of the Commerce Regulation, if requested, we will hold a public hearing to afford interested parties an opportunity to comment on this preliminary determination at 10:00 a.m. on June 4, 1986 at the U.S. Department of Commerce, Room 3708, 14th Street and Constitution Avenue NW., Washington, DC 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 after publication of this notice. 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 with at least 10 copies of the confidential version and seven copies of the non- confidential version must be submitted to the Deputy Assistant Secretary by May 1986. Oral presentations will be limited to issues raised in the briefs. In accordance with 19 CFR 355.33(d) and 19 CFR 355.34, written views will be considered if received not less than 30 days before the final determination or, if a hearing is held, within 10 days after the hearing transcript is available.

This notice is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).

Gilbert B. Kaplan,

Deputy Assistant Secretary for Import Administration

April 16, 1986.