DEPARTMENT OF COMMERCE

(C-580-818)

Final Affirmative Countervailing Duty Determinations and Final Negative

Critical Circumstances Determinations: Certain Steel Products From Korea

Friday, July 9, 1993

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AGENCY: Import Administration, International Trade Administration, Department of Commerce.

EFFECTIVE DATE: July 9, 1993.

FOR FURTHER INFORMATION CONTACT: Kris Campbell or Jacqueline Arrowsmith, Office of Antidumping Compliance, U.S. Department of Commerce, room 3099, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-4794.

Final Determinations

The Department determines that 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 steel products.

For information on the estimated net subsidies, please see the Suspension of Liquidation section of this notice.

Case History

Since the publication of the preliminary determinations (57 FR 57761 (December 7, 1992)), the following events have occurred. On December 23, 1992, we issued a second supplemental questionnaire, the response to which was received on January 19, 1993. On March 8, 1993, we published in the Federal Register a notice postponing the final determinations in these investigations in accordance with the postponement of the final determinations in the companion antidumping duty investigations (58 FR 12935). On March 16, 1993, we published the preliminary negative determinations of critical circumstances (58 FR 14200). We conducted verification in Korea from March 15, 1993 to March 29, 1993. On April 6, 1993, we discontinued suspension of liquidation (see Suspension of Liquidation section below). Interested party comments were submitted on May 6, 1993 and May 11, 1993. A public hearing was held on May 13, 1993.

In calculating the estimated net subsidies for these determinations, we have taken into account:

(1) Respondents' November 13, 1992 related party responses and November 20, 1992 corrections submission, neither of which was considered for the preliminary determinations;

(2) Various minor corrections submitted by respondents since the preliminary determinations; and

(3) Our findings at verification. See the calculation memo for further details.

Scope of Investigations

The products covered by these investigations, certain flat-rolled steel products, constitute the following four separate "classes or kinds" of merchandise, as found in Appendix 1 to this notice: (1) Certain hot-rolled carbon steel flat products, (2) certain cold-rolled carbon steel flat products, (3) certain corrosion-resistant steel flat products, and (4) certain cut-to-length carbon steel plate.

Injury Test

Because Korea is a "country under the Agreement" within the meaning of section 701(b) of the Act, the U.S. International Trade Commission (ITC) is required to determine whether imports of certain steel products from Korea materially injure, or threaten material injury to, U.S. industries. On August 21, 1992, the ITC preliminarily determined that there is a reasonable indication that industries in the United States are being materially injured or threatened with material injury by reason of imports from Korea of the subject merchandise (57 FR 38064, August 21, 1992).

Respondents

The GOK is a respondent for each class or kind of merchandise subject to these investigations. The following is a list of the selected respondent companies for each class or kind of

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Certain Hot-Rolled Carbon Steel Flat Products:

Pohang Iron & Steel Company (POSCO)

Certain Cold-Rolled Carbon Steel Flat Products:

POSCO, Union Steel Manufacturing Co., and Dongbu Steel Ltd.

Certain Corrosion-Resistant Carbon Steel Flat Products:

POSCO, Union and Dongbu

Certain Cut-To-Length Carbon Steel Plate:

POSCO and Dongkuk Steel Mill Co.

In addition, we have investigated whether subsidies were provided to the following trading companies, which sold subject merchandise during the POI, and related producers and sellers of the subject merchandise: Daewoo Corporation, Hyosung Corporation, Hyundai Corporation, Keoyang Company, Ltd., Samsung Co., Ltd., Ssangyong Corporation, Dongbu Corporation, Dongkuk Industries, Sunkyong Corporation, Korea Iron & Steel Co., Ltd., Kyung Ahn Industries Co., Ltd., Pohang Coil Center Co., Ltd., Pohang Coated Steel Co., Ltd., Pohang Steel Industries Co., Ltd.

Analysis of Programs

Based upon our analysis of the petition, the responses to our questionnaires, verification and comments by interested parties, we determine the following.

General Issues

Several issues raised by interested parties in these investigations and in other countervailing duty investigations of certain steel products from various countries, were not only case-specific, but also general in nature. These included:

- Allocation Issues;

- Denominator Issues;

- Equity Issues;

- Prepension Program Issues;

- Privatization Issues; and

- Restructuring Issues.

The comments submitted by interested parties concerning these issues, in both the general issues briefs and the country-specific briefs, and the Department's positions on each are addressed in the General Issues Appendix, which is attached to Final Affirmative Countervailing Duty Determination: Certain Steel Products from Austria, which is published concurrently with this notice.

Period of Investigation

For purposes of these final determinations, the period for which we are measuring subsidies (the period of investigation (POI)), is calendar year 1991.

Calculation of Country-Wide Rate

In determining the benefits received under the various programs described below, we used the following calculation methodology. We first calculated a country-wide rate for each program. This rate comprised the ad valorem subsidy received by each firm weighted by each firm's share of exports, separately for each class or kind of merchandise, to the United States. The rates for all programs were then summed to arrive at a country-wide rate for each class or kind of merchandise.

Pursuant to 19 CFR 355.20(d), for each class or kind of merchandise, we compared the total ad valorem subsidy received by each firm to the country-wide rate for all programs. There were no cases where the rate for a particular company was significantly different from the country-wide rate.

Equityworthiness

Petitioners have alleged that POSCO was unequityworthy during 1978-80, and, therefore, that equity infusions received during those years were inconsistent with commercial considerations. The Department has previously ruled that POSCO was unequityworthy during these years. See, Final Affirmative Countervailing-Duty Determination: Cold-Rolled Carbon Steel Flat Products from Korea, 49 FR 47284 (1984) ("Flat Products"). The respondents have not challenged this finding. Accordingly, we will adhere to the 1984 determination concerning the unequityworthiness of POSCO during these years.

A. Programs Determined To Be Countervailable

We determine that subsidies are being provided to manufacturers, producers, or exporters in Korea of certain flat-rolled steel products under the following programs:

Government equity infusions bestow a countervailable benefit when they occur on terms inconsistent with commercial considerations. See, s355.44(e) of the Proposed Regulations. In 1984, we determined that POSCO was unequityworthy, i.e., not a reasonable commercial investment, during 1978 and 1980. See, Flat Products at 47286. Neither POSCO nor the Government of Korea contests the Department's previous determination. Because we determined previously that POSCO was unequityworthy in these years and because there is no new information to repudiate this determination, we determine that POSCO was unequityworthy during 1978 and 1980. As such, we determine that the 1978 and 1980 equity infusions from the Government of Korea, through the Ministry of Finance (MOF) and the Korea Development Bank (KDB), bestow a countervailable benefit on POSCO.

To calculate the benefit, we used the grant methodology described in the Equity section of the General Issues Appendix. As the discount rate, we used the three year corporate bond yield on the secondary market, as stated in the "Loans inconsistent with commercial considerations" program, below. We then divided the benefit attributable to the POI by POSCO's total sales. On this basis, we calculated estimated net ad valorem subsidies of 0.16 percent for certain hot-rolled carbon steel products, 0.13 percent for certain cold-rolled carbon steel products, 0.10 percent for certain carbon steel cut-to-length plate, and 0.07 percent for certain corrosion-resistant carbon steel products.

(1) The GOK effectively controls the practices of lending institutions in Korea; (2) long-term loans were provided to the steel industry on a selective basis; and (3) the selective provision of these regulated loans resulted in a countervailable benefit. See Preliminary Affirmative Countervailing Duty Determinations: Certain Steel Products from Korea, 57 FR 57761, 57764 (December 7, 1992). Information submitted for the record subsequent to the preliminary determinations, including information obtained at verification, supports these findings.

As noted in the preliminary determinations, the following institutions play a significant role in the extension of credit in the Korean economy:

a. Bank of Korea

The BOK performs the functions of a central bank, serving as issuer of bank notes and coins, banker to the banking

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b. Development Institutions

Korea Development Bank. The KDB was created by the Korea Development Bank Act in 1954 with capital wholly subscribed by the government. The original purpose was to finance industrial and agricultural projects necessary for economic rehabilitation. The KDB has traditionally supported the development of export industries and of heavy and chemical industries, including the steel industry. Its major financial activities are:

(1) Medium- and long-term loans (more than one year maturity);

(2) Investment in the form of underwriting of corporate bonds and stock; and

(3) Loan payment guarantees to help finance industrial projects.

Export-Import Bank of Korea. The Export-Import Bank of Korea was created in 1976 under the authority of the Export-Import Bank of Korea Act. The Export- Import Bank finances exports of capital goods, provides technical services and overseas investments, and extends credit to foreign governments and others for importing goods and technical services from Korea.

c. Commercial Banks

Commercial banks are deposit-money banking institutions established and operated according to the provisions of the General Banking Act as well as to orders, instructions, and regulations issued by the Monetary Board under the Bank of Korea Act. Significant commercial banks include Cho Hung Bank, Commercial Bank of Korea, Korea First Bank, Hanil Bank, and the Bank of Seoul & Trust Co.

d. Specialized Banks

In the early 1960s through the 1980s, the GOK introduced "specialized banks" to facilitate financial support for underdeveloped or strategically important sectors, including the Small & Medium Industry Bank (renamed the Industrial Bank of Korea in 1987), Citizens National Bank, and the Korea Housing Bank. Specialized banks, like commercial banks, function as deposit money banks.

e. Foreign Banks

Beginning in the 1960s, foreign banks were allowed to open branch offices in Korea. As of June, 1990, there were 67 foreign bank branches, including 23 U.S., 14 Japanese, 7 French, and 5 British banks. We learned at verification that although regulations for foreign banks operating in Korea may be different from those that apply to Korean banks, foreign banks are still highly regulated. See Memorandum to File, May 4, 1993, at 2-3 ("Bankers Verification Report").

f. Nonbank Financial Institutions

Nonbank financial institutions (NBFIs) consist of savings institutions including the trust accounts of banking institutions, mutual savings and finance companies, credit unions, mutual credit facilities, and postal savings; investment companies comprising investment and finance companies and merchant banking corporations; and life insurance companies. Bank of Korea, Financial System in Korea, December 1990, at 55. The BOK also includes development institutions, discussed above, in the NBFI category.

Government Control of the Korean Financial System

In the preliminary determinations, we found that the GOK uses a variety of formal and informal means to control the lending practices of government-owned and private commercial banks. Respondents assert that government-owned development and specialized banks, as well as the nominally private banks, which were privatized in the early 1980s, act primarily as commercial banks and are not effectively controlled by the GOK.

We disagree with respondents' claim. Information gathered since the preliminary determinations confirms that the GOK effectively controls long-term lending practices in Korea.

The GOK directly controls a majority of long-term lending in Korea, in the form of: (1) Government provision of long-term fund loans, e.g., National Investment Fund (NIF) loans, Petroleum Business Fund Loans, etc.; and (2) financing of long-term loans through BOK rediscounts. Data published by the BOK that we examined at verification indicate that over half of the long-term loans made by commercial banks were ultimately sourced either through government funds or through government rediscounts. See GOK Verification Report at 10. In these cases, the commercial bank acts only as an intermediary between the customer and the GOK.

Information on the record indicates that the GOK also controls the Korean financial system through several other means:

(1) Control of lending practices pursuant to the authority granted to the GOK under the General Bank Act;

(2) The appointment of banking officials;

(3) Informal intervention in the allocation of loans; and

(4) The strict regulation of interest rates.

1. Control of Long-Term Lending Pursuant to the General Bank Act

The General Bank Act, which, according to documents supplied in the GOK response was last amended on December 31, 1991, and which applies to "all banking institutions operating in the Republic of Korea," provides the GOK's Monetary Board with extensive authority over the allocation of credit, including the authority to disapprove all loans above a specified amount, and the ability to "fix and restrict a total amount of loans or guarantee or acceptance of obligations" with respect to a particular business group.

Respondents contend that GOK controls, as listed in the General Bank Act, are no more extensive than controls that are commonly used by other governments. However, independent reports published by international organizations suggest otherwise. The Organization for Economic Cooperation and Development (OECD), states that "Control by the (Ministry of Finance) goes beyond the mere monitoring and supervisory functions usually exercised by official bodies and has included allocation of financial resources and setting of interest rates." OECD, Financial Market Trends, number 47, October 1990, at 21.

An independent report by the World Bank also confirms the role of the GOK in the allocation of credit. The report states:

The promotion of the (heavy and chemical industries) sector was supported by a broad range of policy instruments, including import protection and fiscal preferences. But the intervention which mattered most, and had the greatest impact on industrial incentives and structure, was the allocation of credit. Government relied heavily on its control of the entire credit system and provided "strategic" industries preferential access at substantially subsidized rates.

World Bank, Korea: Managing the Industrial Transition, 1988, at 39.

Although this report later states that the GOK began to liberalize the financial system in the 1980s, it observes that "* * * large borrowers probably continue to have wider borrowing

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We disagree with respondents' claim that the citation to the regulatory controls listed in the General Bank Act is the "cornerstone" to the Department's finding that the GOK effectively controls long-term lending institutions in Korea. Although these statutory provisions strongly support a finding of government control, they are not the sole, or even primary, basis upon which we make this determination. Other means of control are described below.

2. Appointment of Banking Officials

At verification, BOK officials stated that prior to 1982, Chapter 10, Article 39 of the General Banking Act allowed the government to appoint and dismiss banking officials. This law was amended in 1982 to eliminate this authority except in cases where "remarkable injury" had been caused by the official. See GOK verification report at 8. Respondents cite this amendment in support of their contention that, except in extraordinary circumstances, the GOK no longer has the ability to control the selection of banking officials at private commercial banks.

However, the Korea Development Institute, which is administered and financed by the GOK, reported in 1992 that, notwithstanding the GOK's assertions to the contrary, the GOK still regularly engages in the "selection of bank presidents." Korea Development Institute, "Liberalization of Korean Financial Market," May 1992, at 47. In addition, the majority of interviews that we conducted at verification, including interviews with BOK and MOF officials, demonstrated that the government continues routinely to select, or influence the selection of, bank officials at commercial banks. See GOK Verification Report at 16; see also Bankers Verification Report, May 4, 1993, at 1-2 ("all of the bankers said that either the MOF or the Blue House (the President's residence) exerts substantial influence over the selection of commercial bank presidents"). Therefore, despite the change in law, we conclude that in practice both the ability and the proclivity of the GOK to intervene in the selection of commercial bank officials has not changed.

3. Informal Control Over Loan Allocation

MOF officials, as well as representatives of private banks and nonbank financial institutions, agreed at verification that the GOK exercises influence over lending practices of commercial banks through what the MOF refers to as "moral suasion." All of the officials of private banks that we interviewed said that these practices reflect the reality of "a substantial amount of control by the GOK over the commercial banks in Korea." Bankers Verification Report at 1.

Informal influence by the GOK over lending institutions in Korea extends to the allocation of loans to various sectors within the Korean economy. One of the methods used by the BOK to influence lending is the policy of granting preferential rediscounts (central bank funding of commercial loans) on specified loans. For example, specific regulations provided preferential rediscounts for heavy and chemical industries before 1983. Currently, specific regulations provide for preferential rediscounts to small and medium industries. Apart from formal regulations, the rediscounting mechanism can be used on an informal basis to allocate funds to specific sectors. The GOK informed us that preferential rediscounts are used to encourage lending to the manufacturing sector, even though no law or regulation provides for this preference. GOK Verification Report at 11.

4. Strict Control of Interest Rates

The evidence on the record also indicates that the GOK has determined the allowable interest rates on long-term lending by all commercial lending institutions for virtually the entire period during which the outstanding loans in question were received. This control has been in the form of both strict interest rate equalization, e.g. the 10-10.5 rate applicable to all loans that was in place from 1982-1988, or through what the BOK calls "window guidance," i.e., allowing interest rates to fluctuate within a narrow band of one or two percentage points. In both cases, ceilings were placed on long-term loan interest rates, partially in order to control excessive inflation. Interest rate ceilings on domestic foreign currency loans were also maintained until 1988, and were primarily sourced through government funds (known as the special foreign currency fund) from 1986-1989. GOK Verification Report at 14.

The GOK originally maintained that interest rates were liberalized in December, 1988. However, at verification the BOK and MOF both acknowledged that this liberalization was judged to be a failure and that interest rate ceilings were reinstated months after this attempt at reform.

The corporate bond market is controlled in a similar fashion. Interest rates on primary issues of corporate bonds were controlled for virtually the entire period that we are investigating; the first stage of interest rate liberalization of corporate bond rates did not begin until November, 1991. BOK 1991 Annual Report at 18. Interest rates on corporate bonds are further depressed by government issues of monetary stabilization bonds (MSBs) with below-market interest rates, which are sold mainly to financial institutions by coercion. Sang-Woo Nam, Korea's Financial Reform Since the Early 1980s, Korea Development Institute, March 1992. The KDB's practice of selling below-market KDB bonds in return for KDB loans (discussed in GOK Verification Report at 20) has the same effect.

Respondents do not deny that the GOK extensively regulates long-term interest rates; rather, they contend that government regulation of interest rates is:

(1) A common practice in all countries, and

(2) Irrelevant to a countervailing duty investigation unless the regulation provides a preference to specific groups or industries.

With respect to the first argument, we agree that virtually all governments maintain some minimal form of control over allowable interest rates, for example, by setting discount rates, through open market operations, and by limiting allowable rates under usury laws. However, the control by the GOK over interest rates in Korea is different than that exerted by most governments. For example, the Federal Reserve in the United States influences bank lending rates by raising and lowering the discount rate (the rate charged to member banks) or by changing reserve requirements. These policies affect the cost of funds to banks. The cost of funds to consumers, or bank lending rates, find their own level--the market-clearing rate--given the cost of funds to banks. By contrast, in Korea, the GOK regulates the bank lending rates directly without regard to the cost of funds to banks. At a controlled interest rate below market levels, banks are not willing to supply sufficient funds, and excess demand is created.

Given the excess demand for long-term funds at the regulated rates in Korea, i.e., interest rates will immediately increase if the government-

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Concerning the argument that government regulation is irrelevant absent selectivity, we note that the question of government control is a separate issue from the question of whether any benefits resulting from this control have been selectively provided to the steel industry. The selectivity issue is addressed below.

Finally, petitioners have placed on the record a considerable body of evidence suggesting that the tendency in Korea toward control by the GOK over commercial banks is continuing. The current head of the Bank of Korea, Mr. Cho Soon, noted in 1991 that the Korean financial system remains the area where what he refers to as Korea's "rigged price system" remains most evident. Department of Treasury Memorandum, April 1, 1991, at 1. Numerous business journals have reported on this topic. For example, in April, 1992, The Economist stated, "Officials at the all powerful finance ministry tell bankers to whom they should lend money. As a result big and politically favored companies get their loans at regulated rates." The Economist, April 4, 1992, at 100.

The weight of the evidence accordingly leads us to conclude that the GOK controls the long-term lending institutions in Korea. This finding of government control is sufficient to establish a government program, defined as "any government act or practice" in s355.2(r) of our regulations, concerning long-term lending in Korea. It also constitutes "government action" for the purposes of s771(5)(A)(ii) of the Act (requiring domestic subsidies to be "provided or required by government action"). Respondents argue to the contrary that we must find a specific government policy to provide or require the alleged benefits as a prerequisite to a specificity analysis. Respondents cite Cold-Rolled Steel Flat Products from Korea for the proposition that a government action "which does not target benefits or otherwise effectively predetermine the provision of benefits to an industry or limited group of industries is not a subsidy." 49 FR 36538, 36545 (September 18, 1984). Respondents argue, for example, that KDB loans made from the KDB's own funds, as opposed to KDB loans sourced from government programs such as the NIF, should not be considered to be directed by the GOK.

We disagree with respondents concerning the elements that are necessary in order to determine the existence of a government program. The regulations do not require a finding of a "purposeful government action" as a prerequisite to conducting a specificity analysis. See, Final Affirmative Countervailing Duty Determination: Certain Softwood Lumber Products from Canada, 57 FR 22570, 22580-22581 (May 28, 1992) (neither "purposeful government action" nor government "targeting" is necessary in order to establish a government act or practice). To do so would be effectively to read a de jure requirement into the analysis of whether there is a government program, which would vitiate the purpose of the 1988 "Special rule" (the de facto test), discussed in the Selectivity section below.

Having determined that GOK control of long-term lending in Korea constitutes a government act or practice, we turn to the issue of whether this control provided selective benefits to respondents.

Selectivity of Loans Provided To the Steel Industry

The period during which long-term loans outstanding during the POI were received by respondents is 1977-1991. Accordingly, we must examine long-term lending patterns in this period in order to determine whether respondents have selectively benefitted from the GOK's control of the Korean financial system.

Initially, we note that respondents acknowledge that all export industry facility loans (EIFLs), as well as the KDB's special facility loans (SFLs), were contingent upon export, and are therefore export subsidies to the extent they are provided at preferential rates.

At verification, officials from the BOK, MOF, and KDB stated that the steel industry was one of the major beneficiaries of the GOK's Heavy and Chemical Industry (HCI) promotion program. The policy behind this program was to develop certain priority sectors, using government-funded and directed financial assistance as a primary form of support. GOK officials noted that the steel industry was a favored industry under HCI and was specifically listed as a priority industry in government lending guidelines, such as those of the KDB and NIF, until the early 1980s.

Respondents maintain, however, that any financial preferences for the steel industry, with the exception of certain export incentives such as export industry facility loans, were terminated by 1985. In support of this contention, respondents reference changes in the above-noted lending guidelines that eliminated de jure preferences to the steel industry. For instance, the KDB Act, Section 1, Article 18(1), which specifically lists the iron and steel industry as an industry to which the KDB will lend when funds are not readily available elsewhere, was amended by adding Article 18(2), which provides that industries "other than those prescribed in Subparagraph 1" may borrow from the KDB. The KDB business plan was also changed so that the iron and steel industry was not specifically named as a priority industry. Similarly, the NIF lending guidelines were changed in 1984 so that industries, including iron and steel, that formerly were specifically listed in the NIF guidelines were not able to receive funds due solely to their status as priority industries, but instead received NIF loans on the basis of their need for purchases of domestically produced machinery.

In determining whether an industry has selectively received benefits from a government act or practice, we are obligated to investigate both de jure and de facto evidence of preferential treatment. Section 771(5)(B) of the Act, which codified the de facto test, states in relevant part:

* * * the administering authority, in each investigation, shall determine whether the bounty, grant, or subsidy in law or in fact is provided to a specific enterprise or industry, or group of enterprises or industries. Nominal general availability, under the terms of the law, regulation, program or rule establishing a bounty, grant, or subsidy, of the benefits thereunder is not a basis for determining that the bounty, grant, or subsidy is not, or has not been, in fact provided to a specific enterprise or industry, or group thereof.

19 U.S.C. 1677(5)(B).

Accordingly, we must determine whether, despite the removal of certain de jure preferences provided to the steel industry, there has been a de facto change in the patterns of lending to this industry from the time of the HCI drive, which GOK officials acknowledged was a period during which the GOK actively favored the steel industry as a priority industry through the provision of subsidized long-term financing.

Section 355.43(b)(2) of the Department's regulations directs us, when investigating whether a government act or practice provides de facto selective benefits to respondents, to consider:

(1) The number of enterprises, industries, or groups thereof that actually use the program;

(2) Whether there are dominant users of a program;

(3) Whether certain enterprises, industries, or group thereof received

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(4) The extent to which the government exercises discretion in conferring benefits under a program.

The facts in this case do not show that the program has been selectively limited to a small number of users; likewise, there is no dominant user of the program. However, if the lending patterns to the steel industry have not changed since the HCI drive, i.e., if the GOK continued to target the steel industry for government-controlled long-term loans during the POI, a finding of de facto specificity may be made, if the steel industry receives a disproportionate share of the benefits.

An appropriate test for measuring whether the Korean steel industry has continued to receive a disproportionate share of the benefits from government controlled long-term loans is to compare the share of long-term loans held by the steel industry over the relevant time period (1977-1991) with the share of gross domestic product (GDP) accounted for by this industry. As petitioners note, the volume or proportion of loans received by the steel industry, must be compared with some objective benchmark in order to determine disproportionality.

In this case, comparing the steel industry's share of long-term loans with its share of GDP is an appropriate measure of disproportionality. The program under investigation, government controlled long-term lending in Korea, is a "nationwide program," i.e., a program in which virtually every segment of the economy in the market naturally participates to some extent. Accordingly, given the broad, nationwide nature of this program, share of GDP is an appropriate point of comparison because it is a reasonable and objective nationwide measure of the expected share of restricted credit, all else being equal.

The share of benefits to share of gross domestic product test was used in the 1984 steel investigations, and in the preliminary determinations in this case. In 1984, the Department found that medium- and long-term loans were not provided to the iron and steel industry on a selective basis. See, Final Affirmative Countervailing Duty Determination: Cold-Rolled Carbon Steel Flat Products From Korea; and Final Negative Countervailing Duty Determination; Carbon Steel Structural Shapes From Korea, 49 FR 47284, 47289 (1984) ("Steel Products"). In that investigation, we compared the share of loans received by the basic metals sector (of which respondents state the iron and steel industry is the predominant group) with the share of GNP accounted for by this sector. We determined that, "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 * * * received 5 to 8 percent of medium- and long-term loans," (Id.) and that therefore the iron and steel industry did not receive a disproportionate amount of loans.

In the current investigations petitioners and respondents agree that our disproportionality test in 1984 significantly overestimated the percentage of GNP/GDP comprised by the steel industry. The GOK has also supplied figures that demonstrate that this industry has received a volume of loans over the last 15 years that in percentage terms has consistently remained two to four times higher than the share accounted for by iron and steel in the country's GDP.

Respondents acknowledge that, despite the removal of the majority of the de jure lending preferences to the steel industry in the early 1980s, the pattern of long-term lending to the steel industry remains largely unchanged. See Respondent Case Brief, May 6, 1993, at 26-27. In fact, while the basic metals industry's share of GDP has remained relatively constant at approximately 2-2.5 percent since the early to mid-1980s, the industry's share of long-term loans has actually risen slightly since the de jure preferences were terminated at this time. This trend is characteristic of both long-term Korean won loans and domestic foreign currency loans (i.e., foreign loans received from banks in Korea, which the GOK has controlled during the relevant period through regulated interest rates and ceilings on lending amounts).

It is especially true concerning the largest source of long-term lending in the country, the Korea Development Bank. The basic metals industry's share of long-term (equipment) loans from the KDB more than doubled from the date of the termination of de jure key industry targeting (via the above-noted change in the KDB business plan in 1985) to the POI. In 1991 alone, this industry received over 20 percent of new KDB loans to the manufacturing sector.

We note that Article 18(1), which specifically lists the iron and steel industry as a priority industry, is still included in the KDB Act. We were told by the KDB at verification that, at least until the 1985 change in the KDB business plan, industries specifically named in Article 18(1) received preferential access to KDB funds, despite the addition of Article 18(2), which nominally allows all other industries access to KDB loans. In addition, at verification we found that the interest rate on KDB loans to POSCO was not always in accordance with the KDB's lending guidelines, and that POSCO had received KDB funds at a lower interest rate than its KDB credit rating would justify.

Respondents contend that the share of GDP test does not take into account the fact that certain industries consume more fixed capital per unit of output, and also have higher levels of investment, and will therefore require more loans. Respondents compare the iron and steel industry, which they assert consumes a high amount of fixed capital relative to other industries and is therefore a "capital-intensive" industry, with the textiles industry, which they maintain is not a capital-intensive industry.

As noted in the preliminary determinations, we used the data supplied by respondents, which were taken from various Bank of Korea Economic Statistics Yearbooks from 1976-1991, to confirm that the iron and steel industry consumes more fixed capital relative to its share of GDP than the textiles industry, and may therefore be considered more capital-intensive. We also analyzed certain industries, such as electricity, gas and water, that are more capital-intensive than the iron and steel industry according to the statistics provided by the GOK. We then compared the percentage of loans received by each industry to its share of GDP.

Following the argument advanced by the GOK and respondents, we would expect to find a positive correlation between the capital-intensity of an industry and the amount of loans received by that industry. For instance, we would expect the textiles industry to receive a smaller percentage of loans in proportion to its share of GDP than the iron and steel industry. However, the data supplied by the GOK failed to demonstrate conclusively this correlation between the relative capital-intensity of an industry and the amount of loans it received relative to its share of GDP. Although certain capital-intensive industries received a higher proportion of loans relative to their share of GDP, certain other industries that were more capital-intensive than the iron and steel industry received a smaller proportion of loans to GDP and vice-versa.

Respondents further argue that the fact that the steel industry raises a large portion of its funds internally (e.g., through paid-in capital and retained earnings) relative to other Korean companies suggests that the GOK is not

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Finally, respondents object to our position in the preliminary determinations that the fact that the steel industry did not have any long-term loans outstanding during the POI from NBFIs is further evidence of government direction of regulated long-term credit. As noted in the preliminary determinations, NBFIs are somewhat less regulated than deposit-money banks, and the interest rates charged on NBFI loans are correspondingly higher.

Respondents state that NBFI loans are not relevant to our investigation of long-term lending practices in Korea because NBFIs are not viable sources of long-term financing. At verification, we found conflicting information concerning the feasibility of financing on a long-term "rollover" basis with NBFI funds. The MOF said that this was not an alternative to borrowing on a long-term basis (see GOK Verification Report at 15), but information from our meetings with independent bankers suggested otherwise (see Bankers Verification Report at 7). While we agree that NBFIs are not a viable source for all of the steel industry's long-term lending needs, we are not persuaded that the industry would not have resorted, at least to some degree, to NBFIs for long- term loans absent government direction of credit.

Petitioners also allege that the Korean government, through the Ministry of Finance (MOF), has provided the steel industry with preferential access to direct foreign loans. At verification, the MOF acknowledged that, as part of the GOK's economic policy, it exercises oversight of foreign capital through the Foreign Capital Inducement Act particularly with respect to balance of payments concerns, but stated that the guidelines for approval do not indicate selective treatment for respondents. The MOF states that it does not currently approve direct foreign currency loans; however, the respondent steel companies had extensive foreign loans outstanding during the POI that had to be approved by the MOF.

The MOF periodically issues guidelines in accordance with the "Loan Contract" section of the Foreign Capital Inducement Act. The MOF explained at verification that a company must be able to negotiate a direct foreign currency loan with the creditor at or below a set ceiling established by the MOF. If the company cannot negotiate a loan with an interest rate below the ceiling, it cannot borrow on foreign currency markets.

The MOF maintains that its guidelines concerning the ceiling rate apply equally to all companies. However, at verification, the MOF acknowledged that in the mid-1980s it intentionally lowered the allowable ceiling so that in effect very few companies would be allowed to receive direct foreign loans. The MOF stated that this was done in order to force most companies to borrow foreign currency domestically in order to recycle the current account surplus that existed at the time, and in order to protect Korea's international credit standing by only permitting the most creditworthy companies to borrow directly on foreign capital markets. See GOK Verification Report at 12. Virtually all of the direct foreign loans held by respondents during the POI were attributable to POSCO. The MOF stated that POSCO is able to borrow extensively on foreign currency markets because it is a creditworthy company that is able to negotiate loans at or below the MOF ceiling.

As noted in the section above (Loans inconsistent with commercial considerations), in determining whether a government policy may be considered to constitute selective treatment for purposes of the countervailing duty law, the Department is required to determine whether benefits are provided to a specific enterprise or industry, or group of enterprises or industries, on either a de jure or a de facto basis. See section 771(5)(A) of the Act. We must accordingly analyze whether there are any de jure preferences to the steel industry in the direct foreign loan approval process, and also whether this approval process has resulted in the conferral of de facto selective benefits to the respondent steel companies.

The MOF direct foreign loan guidelines specifically list the iron and steel industry as an "eligible business," along with several other major industries including the automotive, electronic components, and machinery industries. At verification, the MOF explained that these industries were only listed as "examples" of industries that could borrow abroad, and noted that the last category in the guidelines included "any other project," although the project would have to be a necessity.

The data submitted by respondents, which we further examined at verification, suggest that the GOK has not treated the steel industry as merely an example of an industry that may borrow on direct foreign capital markets, but has instead enforced its guidelines in a manner that provides the steel industry with de facto selective treatment under this program. The steel industry has received a volume of direct foreign loans that is overwhelmingly higher than that received by any other industry in Korea. According to foreign loan borrowing statistics supplied by the GOK, the iron and steel industry has received approximately 60 percent of all direct foreign loans to the manufacturing sector since 1985, and over 40 percent of all direct foreign loans to all industries since this time.

Respondents have not contested the fact that since 1985 the GOK has permitted the iron and steel industry to borrow on foreign loan markets to a far greater extent than any other segment of the manufacturing sector, and they have submitted data that corroborate this proposition. Nor have they denied that foreign loans are generally provided at interest rates significantly below the prevailing effective rates in Korea. Respondents' argument that the foreign loans in question do not provide a countervailable benefit rests instead on the observation that the benefit was not provided by the GOK (which did not supply the funds to the steel industry) but was instead provided by the foreign lenders. The GOK cites s355.44(o) of the Proposed Regulations in support of its contention that the Department will not find a benefit to be countervailable if it is provided by an international institution and not by the government of the country in which the subject merchandise is produced or from which the merchandise is exported.

However, the benefit that is alleged with respect to direct foreign borrowings is preferential access to loans that are not generally available to Korean borrowers, not the actual funding of these loans. It is the GOK that is providing this preferential access, and this preference confers a countervailable benefit to the extent that the iron and steel industry has available a significantly greater volume of funds at lower interest rates than it would have absent this government preference. The disparity between foreign and won interest rates, and the resultant limitation of access to direct foreign loans, has been noted by the GOK financed Korea Development Institute. See Korea's Financial Reform in the Early 1980s, Sang-Woo Nam, March 1992, at 53-54 (discussing the "large disparities (that) exist in the cost of borrowing between domestic and foreign markets," and the "(limitation by the GOK) of foreign borrowing to

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Respondents further argue that a comparison of direct foreign loans received by the steel industry with all direct foreign loans received by other industries is too narrow, since Korean companies can also borrow foreign currency through: (1) Indirect foreign currency loans through banks in Korea (i.e., domestic foreign currency loans) and (2) foreign currency securities on the international market. Respondents state that during the relevant period all Korean companies had access to foreign currency through one or more of these instruments, and that in each year the respondents had foreign currency loans outstanding, the amount of domestic foreign currency loans exceeded the amount of direct foreign currency loans. Accordingly, respondents argue that the relevant de facto test is to compare the steel industry's foreign borrowings with the total pool of foreign currency sources in Korea.

We do not agree that the correct standard of comparison includes all three sources of foreign currency. Regarding domestic foreign currency loans, the GOK stated at verification that, unlike the direct foreign loan market, the domestic foreign loan market could not have adequately supplied POSCO with the volume of, and/or terms of payment on, loans that POSCO required during the mid to late 1980s for construction of its Kwangyang Bay mill. GOK Verification Report at 14. Moreover, loan information submitted by respondents indicates that direct foreign loans are provided on terms that are more favorable than those of domestic foreign currency loans.

With respect to the issuance of foreign currency securities, the MOF stated at verification that, starting in 1986, funds raised through this form of financing had to be invested abroad or used to repay foreign debt in order to prevent excessive inflation in Korea. Considering that a primary purpose of direct foreign borrowing, both in general and specifically with respect to POSCO's construction of the Kwangyang Bay mill, is for purchases of imported capital equipment, foreign currency securities cannot be regarded as a fungible substitute for direct foreign loans.

Accordingly, we are not factoring in domestic foreign currency loans or foreign currency securities into our analysis of the selectivity of this program. The preponderance of evidence stated above suggests that the steel industry is the dominant beneficiary of this program and therefore has received de facto selective treatment in the form of preferential access to foreign loans.

Based on the sum of this evidence, we determine that the GOK has provided the steel industry with preferential access to medium- and long-term credit from government and commercial banking institutions. Since we find that the GOK has directed long-term credit to the steel industry, we do not reach petitioners' argument that GOK restriction of long-term interest rates to below-market levels, coupled with the fact that the steel industry borrows a significantly larger percentage of long-term loans than it accounts for in the country's GDP, provides this industry with a selective benefit.

Analysis and Measurement of the Benefit

The benefit we have identified relates to preferential access to specific sources of credit. It is not access to credit per se, but the relative access to those long-term credit markets that offer favorable interest rates compared with the rates prevailing in other long-term credit markets. In the case of domestically available loans, the more favorable credit markets are those that offer government-regulated interest rates. The more favorable credit markets for long-term foreign currency loans are those that offer loans from foreign banks at world market rates. The less favorable credit markets are those that offer loans from such less regulated or unregulated sources as NBFIs, the curb market, and domestic foreign currency lenders.

The existence of more favorable and less favorable credit markets is to a large extent the result of actions taken by the GOK. The dichotomy in the interest rates among the various credit markets in Korea has created excess demand for loans in the more favorable credit markets. The competition for access to these favorable credit markets means that while some industries may have complete access to the favorable markets, others will be locked out either partially or completely from them. This does not mean that all industries that have access to the more favorable markets receive a countervailable benefit because, due to their number and variety, industries that have such access constitute more than a group of enterprises or industries. Rather, it is only those industries that have disproportionate access to the favorable markets that enjoy a specifically provided benefit, within the meaning of the Act.

As a result of our investigation, we have found that the GOK has intervened in the market to direct credit available in the favorable markets to the steel industry. In the case of access to favorable domestic credit markets, we have based this determination on the disproportionate share of government-regulated loans obtained by the steel industry in relation to that industry's share of GDP. In the case of access to favorable foreign credit markets, we have based this determination on the disproportionate share of foreign loans obtained by the steel industry in relation to all other industries.

Companies that cannot obtain sufficient credit on the more favorable markets must turn to the less favorable ones. Similarly, if a company were not specifically targeted by the GOK to have special access to favorable credit markets, it would have to turn to the less favorable markets to obtain credit. Absent government targeting of specific industries, all industries would compete on an equal footing for the scarce credit available on the favorable markets. However, there would be insufficient capital available for all of the industries' needs because banks would only be willing to supply a limited amount of credit at the government-regulated, below-market interest rates. For the remainder of their credit needs, industries would have to resort to the less favorable markets. Thus, the average cost of credit to the industries would be somewhere between the rates available on the two types of markets.

In the preliminary determinations, we used a composite benchmark consisting of interest rates on loans from commercial banks, NBFIs, and the curb market. Petitioners argue that the curb market is the best representative of the true market rate in Korea, as well as a large and viable source of funding for the companies under investigation. Petitioners further state that NBFI interest rates are too regulated to represent the market rate, but acknowledge that these rates represent a "middle ground" between GOK regulated rates and curb market rates.

Evidence on the record, including our findings at verification, does not support the use of interest rates from either NBFIs or the curb market as part of a benchmark for long-term loan rates for the companies under investigation. There is conflicting information on the record as to whether NBFIs lend in substantial quantities on a long-term basis, and we found at verification that the curb market is not a viable source of long-term loans for large manufacturing firms. Rather, the evidence suggests that the three-year

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Petitioners argue that non-payment of compensating balances on loans received by respondents should be taken into account in determining the extent to which the long-term loans in question should be countervailed. Petitioners claim that compensating balances are generally required in Korea, and contend that since all respondents reported that they do not pay compensating balances the benchmark should include the effective interest cost of maintaining compensating balances.

We disagree with petitioners. The information on the record is inconclusive concerning which companies pay compensating balances, and does not support a finding that the GOK has selectively intervened to prevent banks from requiring compensating balances from respondents. Accordingly, we are not factoring compensating balances into the benchmark.

Regarding direct foreign currency loans, because the steel industry, absent MOF approval, would not have access to direct foreign currency loans, and because we find that domestic foreign currency loans are countervailable as directed credit, we are using a local (won) currency benchmark (the yield on three-year corporate bonds on the secondary market).

On this basis, we calculated estimated net ad valorem subsidies of 3.64 percent for certain hot-rolled carbon steel products, 2.94 percent for certain cold-rolled carbon steel products, 2.82 percent for certain carbon steel cut- to-length plate, and 1.83 percent for certain corrosion-resistant carbon steel products.

Respondents acknowledge that the GOK had a significant role in providing infrastructure at Kwangyang Bay. However, they argue that the provision of infrastructure is a function of the government both generally and through the country-wide system of industrial estates, and therefore its provision was not specific to POSCO and should not have been countervailed. See Respondents' Case Brief (May 6, 1993) and Respondents' Rebuttal Brief (May 11, 1993).

After examining all of the information on the record and analyzing all of the comments, we determine that the GOK's provision of infrastructure to POSCO at the Kwangyang Bay Industrial Estate is countervailable.

We have consistently held that selective treatment and a potential countervailable benefit exist where benefits under a program are provided, or are required to be provided, in law or in fact, to a specific enterprise or industry or group of enterprises or industries. With regard to infrastructure we used the three-prong test described in s355.43(b)(4) of the Department's Proposed Regulations to determine whether such infrastructure is specific. The provision of basic infrastructure does not confer a countervailable subsidy when the following three conditions are met: (1) The government does not limit who moves into the area where the infrastructure has been built, (2) the infrastructure that has been built is in fact used by more than a specific industry or enterprise, or group of enterprises or industry, and (3) those that locate there have equal access or receive the benefits of the infrastructure on the basis of neutral criteria. Conversely, in the absence of an affirmative finding for each of the three prongs, we will determine that the infrastructure is specific.

With regard to the first prong, the GOK acknowledges that it limits who moves into particular industrial estates, but argues that the Korean industrial estate system as a whole should be analyzed and not the individual estate in question. The GOK asserts that because all companies in all industries have access to an industrial estate, the government does not limit access. The GOK contends that it uses "objective criteria" such as climate, labor supply, and pollution control to guide the placement of industries within the industrial estate system. The GOK further argues that it provides infrastructure at all industrial estates, and that "the infrastructure provided at Kwangyang * * * is representative of the type and scope of services that the government typically provides to industrial estates." Respondents' Case Brief (May 6, 1993). Moreover, the GOK states that "every industry in Korea has access to an industrial estate." Respondents' Case Brief (May 6, 1993).

For purposes of determining the existence of a countervailable benefit under the governmental provision of infrastructure, we normally examine the limitations with regard to the particular industrial estate under investigation. Respondents suggest that the Department should examine the provision of infrastructure within the Korean industrial estate system.

While we are not rejecting the possibility of examining an industrial estate within a national industrial estate system, the burden is on the respondent to provide the information necessary to explain and document how a specific industrial estate fits within the national system. In this case, respondents have made numerous assertions about the nature of the national industrial estate system but have failed to provide the Department with the information necessary to analyze the provision of infrastructure at the Kwangyang Industrial Estate within the context of Korea's industrial estate system. For example, they have not provided information on the extent of actual government investment in other existing industrial estates, the number and identity of the industries located in all of the industrial estates, and the relative use made by the industries in those estates. Without this information, we are unable to determine the relative importance, in terms of financial commitment and actual use, of the Kwangyang Bay facility within the industrial estate system. We can only examine Kwangyang Bay based on the information in the record.

The GOK claims that its practice of designating industrial estates for particular types of industries is a means of allocating space efficiently and enforcing zoning requirements. However, the GOK limited which industries moved into the Kwangyang Bay Industrial Estate. The GOK stated that "certain industries are considered inappropriate for Kwangyang Bay." See GOK Questionnaire Response at 50. The Industry Basic Placement Plan shows that GOK guidance extended beyond

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With regard to the second prong, both POSCO and the GOK report that POSCO is the primary user of the infrastructure at Kwangyang Bay. Only eight out of 52 other companies located in the Kwangyang Industrial Estate use the Kwangyang port facilities. See GOK questionnaire response, at Exhibit D-10. In addition, the GOK states: "the vast majority of the goods shipped in and out of the port are by POSCO." GOK questionnaire response, at 53.

The construction of the Kwangyang Steel Works caused a shortage of industrial water, which prompted the Ministry of Construction to construct a second dam in the area and to expand the pipe facilities. While the construction and improvement of the waterway was for the benefit of both potential and existing users in the Kwangyang Bay area as well as POSCO, the facts on the record suggest that had POSCO not constructed the Kwangyang Steel Works, there would have been no need for the expansion of the industrial waterway in the Kwangyang area.

The GOK also built a road to the site and a railroad to a station near POSCO's facility. POSCO is the dominant user of both the road to the site and the railroad station near its facility. See GOK Questionnaire Response at 50.

Based on all of this information, we determine that the infrastructure is used primarily by POSCO, not by more than a specific enterprise or industry, or group of enterprises or industries. Therefore, the second prong is not met.

With respect to the third prong, equal access on the basis of neutral criteria, we determine that the information on the record is not conclusive. However, because the nature of the infrastructure provided to POSCO at the Kwangyang Bay Industrial Estate fails at least two out of the three prongs of our test, we determine that the provision of infrastructure is specific.

Both petitioners and respondents suggest that Carbon Steel Wire Rod From Saudi Arabia; Final Affirmative Countervailing Duty Determination, (Carbon Steel Wire Rod) supports their arguments. See 51 FR 4206, (February 3, 1986). Respondents suggest that Carbon Steel Wire Rod has set a precedent for examining an industrial estate within the framework of a national system. Although we examined an industrial estate that was not under investigation in Carbon Steel Wire Rod, we did not base our determination on this information. With regard to the first prong, we stated that "the Saudi government does not limit who can locate in any of the industrial estates, including Jubail, and that basic infrastructure is not countervailable as a regional bounty or grant." The methodology in Carbon Steel Wire Rod supports our analysis of Kwangyang Bay Industrial Estate as an individual estate, because our finding was based on the specific industrial estate in question, Jubail. However, in our analysis of Kwangyang, unlike our analysis of Jubail, we determined that Kwangyang Industrial Estate did not meet the first prong of our three-prong test.

With regard to the second prong, we stated in Carbon Steel Wire Rod: "We found no evidence that any of the primary, light, or support industries in Jubail has (sic) been or is (sic) being prohibited from using any of the infrastructure facilities in Jubail * * *. We also ascertained that a wide variety of enterprises and industries use the infrastructure in Jubail." Id. at 4211. In contrast, we found that POSCO is the primary user of all infrastructure at Kwangyang Bay Industrial Estate.

Finally, in Carbon Steel Wire Rod, we found that "the infrastructure in Jubail is available on equal terms for use by all companies and industries locate(d) in that industrial estate." Id. at 4211. In this case, we found that the information on the record was inconclusive with respect to whether industries had equal access to the facilities at the Kwangyang Bay industrial estate.

For these reasons, we conclude that our determination with respect to the provision of infrastructure at Kwangyang Bay industrial estate is consistent with that made in Carbon Steel Wire Rod.

To measure the benefit, we used the grant methodology as described in s 355.49(b)(1) of the Proposed Rules. We treated the costs of constructing the infrastructure incurred by the GOK as nonrecurring grants in each year in which the costs were incurred. We did not use the cost of POSCO's long-term fixed- rate debt listed in s355.44(2)(i) of the Proposed Rules as the first-choice discount rate because we have found virtually all of POSCO's long-term loans countervailable. Instead, we used the average cost of long-term fixed-rate debt in Korea, the three-year corporate bond rate on the secondary market, the second choice listed in s355.44(2)(i) of the Proposed Rules. We then divided the benefit attributable to the POI by POSCO's total sales. On this basis, we calculated estimated net ad valorem subsidies of 0.74 percent for certain hot- rolled carbon steel products, 0.58 percent for certain cold-rolled carbon steel products, 0.44 percent for certain carbon steel cut-to-length plate, and 0.30 percent for certain corrosion-resistant carbon steel products.

Dockyard Fees

Petitioners alleged that respondents benefitted from preferential port charges as part of the Iron and Steel Industry Rehabilitation Order. We determine that respondents did not receive preferential port charges under this program because the program was terminated in 1986. However, during the course of our investigation, we discovered that POSCO enjoys the use of 15 berths in the Kwangyang Bay port facility at no charge. The GOK normally charges a user fee, or dockyard fee, for the use of berths at all of Korea's ports. We countervailed this benefit in the preliminary determinations.

In both their case brief and their rebuttal brief, petitioners assert that the Department ruled correctly in the preliminary determination by countervailing the benefit from the free use of fifteen port berths. See, Petitioners' Case Brief, (May 6, 1993), and Petitioners' Rebuttal Brief (May 11, 1993). Respondents claim that POSCO's exemption from dockyard fees is based on a statutory provision that entitles a company that built port berths and then deeded them back to the government to an exemption of dockyard fees. In addition, the provision gives the company the right to collect fees up to the amount of the investment. See, Respondents' Case Brief (May 6, 1993). Therefore, according to respondents, the GOK is merely reimbursing POSCO for expenses POSCO incurred to build the berths.

Both POSCO and the GOK reported in their questionnaire responses that POSCO uses 15 berths (eight raw material and seven finished goods berths) free of charge, and that POSCO is the only company located in Kwangyang Bay Industrial Estate that does not pay dockyard fees for the use of these berths. Other users of these berths are required to pay POSCO berthing fees as set out in the GOK tariff schedules. Because this privilege is limited to POSCO and because the privilege relieves the company of costs it would otherwise have had to pay

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The provision of infrastructure at Kwangyang Bay and the exemption from payment of dockyard fees are two separate programs. Even if we viewed the non- payment of dockyard fees as repayment by the government for POSCO's assumption of the costs of constructing the berths, we would still find the exemption to be countervailable. If the government had paid for the costs of construction of berths dedicated solely or principally to POSCO's use, we would have found such government expenditures to constitute a countervailable infrastructure subsidy to POSCO, just as we are finding the three berths actually built by the GOK to be part of the overall infrastructure benefit to POSCO.

The exemption from payment of the dockyard fees, with or without government funding of the construction of the 15 berths, constitutes a separate benefit to POSCO over and above any potential benefit from the actual construction of the berths. As it happens, there is naturally no countervailable benefit to POSCO resulting from the construction of the 15 berths because POSCO funded the construction itself. The GOK cannot claim that the exemption from payment of the dockyard fees is an "offset" to a countervailable benefit because there is no countervailable benefit per se from the construction of the 15 berths; nor can the GOK claim the exempted dockyard fees are an "offset" to some hardship POSCO incurred as a result of building the berths itself. After all, POSCO built the berths for its own benefit and, as we discussed earlier, even if the GOK had built them for POSCO, we would have countervailed the construction funding as a specific infrastructure benefit.

Each exemption from payment of the dockyard fees, or "reimbursement" to POSCO, creates a countervailable benefit as it occurs because the GOK is relieving POSCO of an expense the company would have otherwise incurred. This is true regardless of whether we consider the relieved expense to be construction funding or a generally applicable user fee.

To measure the benefit, we determined the amount that POSCO would have had to pay for the use of the berths during the period of investigation from information provided in respondents' January 19, 1993 supplemental response. We then divided this benefit by POSCO's total sales. On this basis, we calculated estimated net ad valorem subsidies of 0.01 percent for certain hot- rolled carbon steel products, 0.01 percent for certain cold-rolled carbon steel products, and less than 0.005 percent for certain carbon steel cut-to-length plate and certain corrosion-resistant carbon steel products.

The following producers and exporters of the subject merchandise received benefits under this program during the POI: Dongbu, POSCO, Union, Daewoo, Dongbu Corporation, and Dongkuk Industries.

We determine that this export reserve program confers a benefit that constitutes an export subsidy because it provides a deferment, contingent upon export performance, of direct taxes. To calculate the benefit conferred by this program, we followed the methodology that was previously used in Industrial Belts and Components and Parts Thereof, Whether Cured or Uncured, From the Republic of Korea: Final Negative Countervailing Duty Determination, 54 FR 15513, 15515 (1989) ("Industrial Belts") and in Certain Stainless Steel Cooking Ware from the Republic of Korea: Final Affirmative Countervailing Duty Determination, 51 FR 42687 (1986) ("Cooking Ware"). We calculated the tax savings by multiplying the amount maintained in the reserves by the companies' corporate tax rates. We treated the tax savings on these funds as short-term interest-free loans. Accordingly, to determine the benefit, the amount of the companies' tax savings was multiplied by a short-term benchmark provided by respondents (12.5 percent). We also used this methodology with respect to benefits provided by the reserve for overseas market development and calculated an ad valorem rate for these two programs (see below).

The following producers and exporters of the subject merchandise received benefits under this program during the POI: Dongbu, Union, Daewoo, Dongbu Corporation, Dongkuk Industries, Hyosung, Hyundai, Samsung, Ssangyong, and Sunkyong.

We determine that this export reserve program confers a benefit that constitutes an export subsidy because it provides a deferment, contingent upon export performance, of direct taxes. The benefits from this program were calculated using the same methodology as that used for the reserve for export loss. On this basis, we calculated the estimated net ad valorem subsidies the combined benefits from both reserves of 0.02 percent for certain hot-rolled carbon steel products, 0.04 percent for certain cold-rolled carbon steel products, 0.02 percent for certain carbon steel cut-to-length plate, and 0.09 percent for certain corrosion-resistant carbon steel products.

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The GOK acknowledges that only domestic entertainment expenses are subject to a ceiling, which is based on the amount of a company's paid-in capital and its sales volume. The following trading companies claimed overseas entertainment expenses during the relevant tax year: Daewoo, Dongbu Corporation, Hyosung, Hyundai, Samsung, Ssangyong, and Sunkyong. The only producer of the subject merchandise that claimed this expense during the relevant tax year was Union. Respondents argue that, to the extent that this program provides any countervailable benefits, they should be measured by the difference between the overseas entertainment expenses claimed and the capped expenses claimed in the domestic market.

Because entertainment expense deductions are unlimited only for export business activities, we determine that this program confers benefits that constitute countervailable subsidies. To calculate the countervailable benefit from this program, we determined the amount of entertainment expenses that would have been allowed if overseas entertainment expenses had not been factored out of the cap formula. We then subtracted this amount from the total amount of domestic and overseas entertainment expenses actually claimed and multiplied the result by the corporate income tax rate provided by respondents.

On this basis, we calculated estimated net ad valorem subsidies of less than 0.005 percent for all classes or kinds.

Because this reserve provides benefits to only those industries that use certain production facilities outside of metropolitan Seoul, we determine that this program is a regional subsidy, as described at s355.43(b)(3) of our regulations. We measured the benefit as follows.

We calculated the tax savings by multiplying the amount maintained in the reserves by POSCO's corporate tax rate of 39.75 percent. We treated the tax savings on these funds as short-term interest-free loans, and multiplied the amount of POSCO's tax savings by a short-term benchmark provided by respondents (12.5 percent). On this basis we calculated estimated net ad valorem subsidies of 0.04 percent for certain hot-rolled carbon steel products, 0.03 percent for cold-rolled carbon steel products, 0.02 percent for certain cut-to-length plate, and 0.02 percent for certain corrosion-resistant carbon steel products.

The GOK contends that, although all producers subject to this investigation qualified for and received drawback of duties on imported inputs, these rebates applied only to inputs that are physically incorporated into the exported merchandise.

In addition, respondent steel producers stated that, with respect to the subject merchandise, they did not receive any duty drawback for items that were not physically incorporated into the finished product.

With respect to the allegation that respondent companies received duty drawback on recoverable or resalable scrap, the GOK states that the Industrial Advancement Administration (IAA) factors recoverable scrap into the calculation of the usage rates based on the economic value of the scrap, and that this is done for all products under Korea's duty drawback regime. The IAA periodically (approximately every three years) conducts surveys of producers of exported products in order to obtain raw material input usage rates for manufacturing one unit of output. In situations where production methods are similar and technology relatively stable, the IAA issues an average input usage rate. However, the GOK states that if a producer becomes appreciably more efficient than the average, it is supposed to use its own rate. Otherwise, if it is inspected and found to be overcompensated for its duty drawback, it is liable for a penalty assessment. In addition, since POSCO operates the only integrated steel mill in Korea, POSCO's actual production records are used for those inputs that are used only by POSCO at an earlier stage of production.

The Department has previously determined that duty drawback is allowed for certain products that are not physically incorporated into the exported items under the Korean duty drawback system. See, Stainless Steel Cooking Ware, 51 FR 42867, 42870 (1986). Accordingly, in our supplemental questionnaire we asked the GOK whether the standard cited in the IAA's internal guidelines, whereby only physically incorporated raw materials are eligible for drawback, applies to all products exported from Korea or is limited to the subject merchandise. The GOK responded that this standard applies to all merchandise exported from Korea and that it was issued in April, 1985.

Consistent with the Subsidies Code of the General Agreement on Tariffs and Trade, the Department does not consider duty drawback provided on goods that are physically incorporated into the exported product, making normal allowance for waste, to be a countervailable subsidy. See, s355.44(i)(4)(i) of the Department's Proposed Regulations. Respondents have stated, and our verification confirmed, that none of the producers subject to this investigation received duty drawback on inputs that were not physically incorporated into the exported product. The GOK has further stated that it prevents the receipt of drawback on excessive waste/scrap by factoring recoverable scrap into the calculation of the usage rates based on the economic value of the scrap. Our verification confirmed that POSCO, the only company having integrated steel-making facilities, appropriately factored recovered scrap into its calculated usage rates. None of the producers we verified, except Union and PSI, received excessive duty drawback. We did not find that duty drawback by POSCO was excessive. However, we found that PSI claimed and received duty drawback at a rate that exceeded the rate at which imported inputs were actually used. We also found at verification that, for some of its cold-rolled steel products, Union claimed duty drawback at the higher, standard rates when it should have claimed duty drawback at its own usage rate, which was lower than the standard.

Accordingly, we have calculated the countervailable benefits received by Union and PSI by applying to each company's total drawback claim for the POI the ratio of the excessive amount of the claimed usage rate to the total usage rate. On this basis we calculated estimated net ad valorem subsidies of

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In its response to the questionnaire, the GOK stated that the Iron and Steel Industry Rehabilitation Order was terminated in 1986. The steel companies also stated that they did not receive discounts under the Order. In response to further questions by the Department, the GOK stated that no other laws conferred discounts on the iron and steel industry, and POSCO stated that it did not receive any other utility discounts. The respondents also stated, and we verified, that the steel producers paid electricity and water charges at rates specified in published utility rate charts, except that certain discounts were applied to electricity charges for some companies. At verification, we found that all steel producers in fact did receive discounts on their electricity charges. Because these discounts were not reported, and since we therefore had no information to verify with respect to whether the discounts were selectively provided, we determine that, as BIA, these discounts are selectively provided.

At verification, we found that steel producers received two types of discounts. One discount is known as a "power factor" discount and usually ranges from zero to five percent of the base charge for electricity usage. This type of discount was received by POSCO and Dongbu. A second discount was received by POSCO and POCOS in certain months when the companies limited their power usage in response to requests from the power company (KEPCO) to do so. The latter discount was provided for in a written agreement between POSCO and KEPCO.

To measure the benefit from these discounts, we calculated the ratio of the discounts received to total electricity charges in the months examined at verification and applied this ratio to each company's total electricity expenses for the POI. For each company, we then divided this total benefit for the POI by the company's total sales. On this basis, we calculated estimated net ad valorem subsidies of 0.03 percent for certain hot-rolled carbon steel products, 0.03 percent for certain cold-rolled carbon steel products, 0.05 percent for certain carbon steel cut-to-length products and 0.02 percent for certain corrosion-resistant carbon steel products.

To measure the benefit, we compared the interest paid on these loans during the POI with the interest that would have been paid using the benchmark short- term interest rate supplied by respondents (12.5 percent). On this basis, we calculated estimated net ad valorem subsidies of less than 0.005 percent for all classes or kinds.

We determine that the following programs do not provide subsidies to manufacturers, producers, or exporters in Korea of certain flat-rolled steel products.

In our preliminary determination, we categorized government assistance for the construction of POSCO's integrated steel mill at Kwangyang Bay as an item for which we needed more information. The GOK and POSCO assert that the majority of the land (about 70 percent) was acquired through the process of land reclamation. See, POSCO's Verification report at 13. POSCO was able to reclaim land from the Kwangyang Bay pursuant to the Public Water Surface Reclamation Law. See, POSCO's Verification Exhibit GOK-19. POSCO obtained GOK approval and paid the costs for land reclamation. There is no evidence on record to suggest that the GOK accorded POSCO preferential treatment in allowing POSCO to reclaim the land.

The majority of the remaining land was purchased from private land owners through the local government, which served as POSCO's agent. At verification, we examined independent studies and other documentation which showed that POSCO had paid the market value for the purchased land. Accordingly, we determine that no subsidy for land has been provided to POSCO.

The GOK states that Article 110-3 of the Local Tax Act exempted POSCO from the two percent tax on immovable property while in effect. The GOK further notes that POSCO was not eligible for the general exemption for companies that relocate to rural areas. POSCO states that it benefitted from this law between 1983 and 1987, when it was acquiring land and buildings for its Kwangyang facility. According to POSCO, the exemption expired on December 31, 1987, although the law was not formally terminated until a year later. Since 1987, POSCO has paid tax on all acquisitions. According to the GOK, the benefit from this program was immediate since the tax that did not have to be paid was due when the property was acquired. The GOK further states that no successor laws have been passed since the termination of this provision that confer an exemption on POSCO from the acquisition tax.

At verification, we examined the calculations of the acquisition tax that would have been paid on the property acquired between 1983 and 1987, had POSCO been required to pay it. We also examined POSCO's records and determined that POSCO has paid the acquisition tax on all immovable property since January of 1988. Because this tax exemption was nonrecurring, there was no benefit during the POI.

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We initially investigated whether the Korean government provided POSCO with a specific exemption from the requirements for asset revaluation by allowing POSCO to revalue in 1982 and 1988/1989, despite the fact that Korea's wholesale prices increased by only 5.09 percent in the interim--less than the required 25 percent. Respondents provided the following information, which we subsequently verified, concerning TERCL Article 56(2) and its application to POSCO's revaluation.

POSCO was partially privatized in 1988, a process that culminated in the listing of POSCO's shares on the Korea Stock Exchange on June 10, 1988. Article 56-2 was enacted on November 28, 1987, and applied to all companies making an initial public offering from January 1, 1987 until the provision was abolished effective December 31, 1990. The GOK notes that during this period 316 companies were newly listed on the Korea Stock Exchange, of which 207 revalued their assets under Article 56(2). Pursuant to this Article, companies that listed on the Korea Stock Exchange between January 1, 1987 and December 31, 1988 (as was the case with POSCO) had until December 31, 1989 to revalue their assets. A company that listed its stock after December 31, 1988 had to revalue its assets prior to being listed on the stock exchange. The GOK argues that POSCO acted in accordance with this provision because it listed its shares in June of 1988, and the results of the investigation report on its revaluation were reported to the GOK on September 29, 1989.

We preliminarily determined that the timing of the revaluation was not granted on a selective basis, due to the fact that companies in a wide variety of industries, e.g., fishing, food and beverages, textiles, leather goods, wood products, chemicals, petroleum, and mineral products, among others, also revalued under TERCL Article 56-2. We stated, however, that we required further information concerning the magnitude of the revaluation and whether the methodology used in the revaluation was performed in accordance with standard Korean accounting principles.

From the information available on the record, it appears that POSCO did not revalue more of its assets than is generally allowed under Korean law. The Asset Revaluation Act allows assets to be revalued if they are: (1) Actually used for carrying out the business purposes of the company; and (2) capable of being depreciated/amortized under Korea's tax laws. In addition, non- depreciable/amortizable assets purchased on or before December 31, 1983, may be revalued only once. In the case of POSCO's 1989 revaluation, the vast majority of the revaluation surplus (the newly revalued amount of assets subject to revaluation minus their former value) resulted from increases in the value of machinery and equipment. Revaluation of such assets is permissible under the relevant laws, and there is no evidence that the GOK intervened to allow POSCO to revalue more assets than other firms are allowed to revalue.

After verification, petitioners submitted additional information indicating, according to them, that POSCO's revaluation may have been significantly greater than that of the other companies that revalued. Because the information was untimely, we returned it but requested additional information on this subject. The additional information submitted by petitioners contained data on the amount of assets revalued of only 45 of the 207 companies that revalued pursuant to TERCL Article 56(2). Furthermore, it was not clear from petitioners' data which companies revalued pursuant to Article 56(2) and which revalued in accordance with the general provisions of the Asset Revaluation Act. Because of these shortcomings, and because the information was submitted too late in the proceeding for us to verify, we can draw no conclusions with respect to the relative benefit derived by POSCO from this program.

Accordingly, we reaffirm our holding that POSCO was not provided with a selective exemption from the 25 percent requirement in the Asset Revaluation Act. In addition, we determine that the GOK did not provide preferential treatment to POSCO concerning the method of the revaluation. Since there is no evidence of de jure or de facto selectivity concerning the timing of POSCO's revaluation under TERCL Article 56(2) or the method of POSCO's revaluation under the Asset Revaluation Act, we determine that this program is not countervailable.

With the exception of the reserve for investment (discussed above as a countervailable subsidy), we found no evidence at verification that these tax programs are not used by a wide variety of industries. Therefore, we determine that these programs are not selectively provided to the steel industry.

C. Programs Determined Not To Be Used

We determine that the following programs were not used by manufacturers, producers, or exporters in Korea of certain flat-rolled steel products:

1. Tax Incentive for a Factory Located in an Agricultural and Industrial Area.
2. Special Depreciation as a Tax Deductible Cost Contingent on Exports.
3. Export Credit from the Export-Import Bank of Korea.

D. Programs Determined Not To Exist

1. Preferential Port Charges--Iron and Steel Industry Rehabilitation Order.
2. Preferential Utility Rates--Iron and Steel Industry Rehabilitation Order.
3. Insurance Benefits.