64 FR 69731 December 14, 1999
DEPARTMENT OF COMMERCE
International Trade Administration
[C-580-842]
Preliminary Negative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination: Structural Steel Beams From the
Republic of Korea
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: December 14, 1999.
FURTHER INFORMATION CONTACT: Eric B. Greynolds or Tipten Troidl, Office
of CVD/AD Enforcement VI, Import Administration, U.S. Department of
Commerce, Room 4012, 14th Street and Constitution Avenue, NW,
Washington, D.C. 20230; telephone (202) 482-2786.
Preliminary Determination
The Department of Commerce (the Department) preliminarily
determines that counteravailable subsidies are not being provided to
producers and exporters of structural steel beams from the Republic of
Korea.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition in this investigation was filed by Northwestern Steel
& Wire Co., Nucor-Yamato Steel Co., TXI-Chaparral Steel Co., and the
United Steelworkers of America (the petitioners).
Case History
Since the publication of the notice of initiation in the Federal
Register (see Notice of Initiation of Countervailing Duty
Investigation: Structural Steel Beams From the Republic of Korea, 64 FR
42088, (August 3, 1999) (Initiation Notice)), the following events have
occurred. On July 29, 1999, we issued countervailing duty
questionnaires to the Government of Korea (GOK), and the producers/
exporters of the subject merchandise. On October 4, 1999, we postponed
the preliminary determination of this investigation until no later than
December 6, 1999. See Structural Steel Beams From the Republic of
Korea: Postponement of Preliminary Determination of Countervailing Duty
Investigation, 64 FR 53665 (October 4, 1999).
We received responses to initial questionnaires from the GOK and
Kangwon Industries Ltd. (Kangwon), Inchon Iron and Steel Co., Ltd.
(Inchon), producers of subject merchandise, on September 21, 1999. In
addition, we received responses from three trading companies which are
involved in exporting the subject merchandise to the United States:
Hyosung Corporation (Hyosung), Sampyo Corporation (Sampyo), and Hyundai
Corporation (Hyundai). Dongkuk Steel Mill Co, Ltd. (DSM) and its
trading company, Dongkuk Industries Co., Ltd. (DKI), did not respond to
the initial questionnaire. On October 15, 1999, we issued supplemental
questionnaires to all of the responding parties and to DSM and DKI. We
received responses from Kangwon and Inchon on November 15, 1999. We
received a response to the second questionnaire from DSM and its
trading company DKI on November 19, 1999. On November 19, 1999, we
issued a second supplemental questionnaire to responding parties and
received their responses on November 29, 1999.
Scope of the Investigation
For purposes of this investigation, the products covered are
doubly-symmetric shapes, whether hot-or cold-rolled, drawn, extruded,
formed or finished, having at least one dimension of at least 80 mm
(3.2 inches or more), whether of carbon or alloy (other than stainless)
steel, and whether or not drilled, punched, notched, painted, coasted,
or clad. These products (Structural Steel Beams) include, but are not
limited to, wide-flange beams (W shapes), bearing piles (HP shapes),
standard beams (S or I shapes), and M-shapes.
All products that meet the physical and metallurgical descriptions
provided above are within the scope of this investigation unless
otherwise excluded. The following products, are outside and/or
specifically excluded from the scope of this investigation: Structural
steel beams greater than 400 pounds per linear foot or with a web or
section height (also known as depth) over 40 inches.
The merchandise subject to these investigations is classified in
the Harmonized Tariff Schedule of the United States (HTSUS) at
subheadings: 7216.32.0000, 7216.33.0030, 7216.33.0060, 7216.33.0090,
7216.50.000, 7216.61.0000, 7216.69.0000, 7216.91.0000, 7216.99.0000,
7228.70.3040, 7228.70.6000.
Although the HTSUS subheadings are provided for convenience and
Customs purposes, the written description of the merchandise under
investigation is dispositive.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations as codified at
19 CFR part 351 (1999) and to the substantive countervailing duty
regulations published in the Federal Register on November 25, 1998 (63
FR 65345) (CVD Regulations).
Injury Test
Because the Republic of Korea (Korea) is a ``Subsidies Agreement
Country'' within the meaning of section 701(b) of the Act, the
International Trade Commission (ITC) is required to determine whether
imports of the subject merchandise from Korea materially injure, or
threaten material injury to, a U.S. industry. On September 1, 1999, the
ITC published its preliminary determination finding that there is a
reasonable indication that an industry in the United States is being
materially injured, or threatened with material injury, by reason of
imports from Korea of the subject merchandise (See Certain Structural
Steel Beams From Germany, Japan, Korea, and Spain, 64 FR 47866
(September 1, 1999).
Alignment With Final Antidumping Duty Determination
On November 22, 1999, the petitioners submitted a letter requesting
alignment of the final determination in this investigation with the
final determination in the companion antidumping duty investigation. In
accordance with section 705(a)(1) of the Act, we are aligning the final
determination in this investigation with the final antidumping duty
determinations in the antidumping investigations of structural steel
beams. See Initiation of Antidumping Investigations: Structural Steel
Beams From Germany, Japan, South Korea, and Spain, 64 FR 42084 (August
8, 1999).
[[Page 69732]]
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1998.
Subsidies Valuation Information
Allocation Period
19 CFR 351.524(d)(2) states that we will presume the allocation
period for non-recurring subsidies to be the average useful life (AUL)
of renewable physical assets for the industry concerned, as listed in
the Internal Revenue Service's (IRS) 1977 Class Life Asset Depreciation
Range System and updated by the Department of Treasury. The presumption
will apply unless a party claims and establishes that these tables do
not reasonably reflect the AUL of the renewable physical assets for the
company or industry under investigation, and the party can establish
that the difference between the company-specific or country-wide AUL
for the industry under investigation is significant.
In this investigation, no party to the proceeding has claimed that
the AUL listed in the IRS tables does not reasonably reflect the AUL of
the renewable physical assets for the firm or industry under
investigation. Therefore, according to 19 CFR 351.524(d)(2), we have
allocated all companies' non-recurring subsidies over 15 years, the AUL
listed in the IRS tables for the steel industry.
Benchmarks for Long-Term Loans and Discount Rates:
During the POI, the respondent companies had both won-denominated
and foreign currency-denominated long-term loans outstanding which had
been received from government-owned banks, Korean commercial banks,
overseas banks, and foreign banks with branches in Korea. A number of
these loans were received prior to 1992. In the 1993 investigation of
Steel Products from Korea,1 the Department determined that,
through 1991, the GOK influenced the practices of lending institutions
in Korea and controlled access to overseas foreign currency loans. See
Final Affirmative Countervailing Duty Determinations and Final Negative
Critical Circumstances Determinations: Certain Steel Products from
Korea, 58 FR 37338, 37339 (July 9, 1993) (Steel Products from Korea),
and the ``Direction of Credit'' section below. In that investigation,
we determined that the best indicator of a market rate for long-term
loans in Korea was the three-year corporate bond rate on the secondary
market. Therefore, in the preliminary determination of this
investigation, we used the three-year corporate bond rate on the
secondary market as our benchmark to calculate the benefits which the
respondent companies received from direct foreign currency loans and
domestic foreign currency loans obtained prior to 1992, and still
outstanding during the POI.
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\1\ On October 1, 1999, the United States Court of Appeals for
the Federal Circuit (CAFC) issued a decision regarding Steel
Products from Korea. See AK Steel Corp v. United States, 192 F.3d
(AK Steel, 192 F.3d). The Department has not received specific
instructions on this decision. However, our review of the decision
indicates that the CAFC found that there was not sufficient evidence
on the record of Steel Products from Korea to determine that the GOK
provided credit directly to the Korean steel industry. In this
investigation, we have additional information on the record
indicating that the GOK's direction of credit prior to 1992 provided
a countervailable benefit to the Korean steel industry. Therefore,
the selection of long-term benchmarks cited to in Steel Products
from Korea is appropriate for this current investigation. For
further information on direction of credit prior to 1992, see the
``Direction of Credit'' section of this notice.
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In Plate in Coils and the Final Affirmative Countervailing Duty
Determination: Stainless Steel Sheet and Strip in Coils from the
Republic of Korea, 64 FR 30636 (June 8, 1999), (Sheet and Strip), the
Department, for the first time, examined the GOK's direction of credit
policies for the period 1992 through 1997. Based on new information
gathered during the course of those investigations, the Department
determined that the GOK controlled directly or indirectly the lending
practices of most sources of credit in Korea between 1992 and 1997. In
the current investigation, we preliminarily determine that the GOK
still exercised substantial control over lending institutions in Korea
during the POI.
Based on our findings on this issue in prior investigations, as
well as in the instant investigation, discussed below in the
``Direction of Credit'' section of this notice, we are using the
following benchmarks to calculate respondents' long-term loans obtained
in the years 1992 through 1998: (1) For countervailable, foreign-
currency denominated long-term loans, we used, where available, the
company-specific weighted-average U.S. dollar-denominated interest
rates on the companies' loans from foreign bank branches in Korea. With
respect to Kangwon, the firm did not report any U.S. dollar loans from
foreign bank branches in Korea. Therefore, we had to rely on a U.S.
dollar loan benchmark that is not company-specific, but provides a
reasonable representation of industry practice, to determine whether a
benefit was provided to Kangwon from U.S. dollar loans received from
government banks and Korean domestic banks. Thus, in keeping with the
methodology employed in Sheet and Strip, 64 FR 30636, 30640, we used
the weighted-average interest rates on U.S. dollar loans from foreign
bank branches in Korea received by another respondent in this
investigation, Inchon, as a benchmark for Kangwon's U.S. dollar loans
from government banks and Korean Domestic Banks; (2) For
countervailable won-denominated long-term loans, where available, we
used the company-specific corporate bond rate on the companies' public
and private bonds. We note that this benchmark is based on the decision
in Plate in Coils, 64 FR 15530, 15531, in which we determined that the
GOK did not control the Korean domestic bond market after 1991, and
that domestic bonds may serve as an appropriate benchmark interest
rate. Where unavailable, we used the national average of the yields on
three-year corporate bonds as reported by the Bank of Korea (BOK). We
note that the use of the three-year corporate bond rate from the BOK
follows the approach taken in Plate in Coils, 64 FR 15530, 15532, in
which we determined that, absent company-specific interest rate
information, the corporate bond rate is the best indicator of a market
rate for won-denominated long-term loans in Korea.
We are also using, where available, the company-specific corporate
bond rate as the discount rate to determine the benefit from non-
recurring subsidies received between 1992 and 1998. Where unavailable,
we are using the national average of the three-year corporate bond
rate.
Benchmarks for Short-Term Financing
For those programs that require the application of a short-term
interest rate benchmark, we used as our benchmark a company-specific
weighted-average interest rate for commercial won-denominated loans
outstanding during the POI. Kangwon, Inchon, Hyundai, Hyosung and DKI
reported company-specific, short-term commercials interest rates.
Creditworthiness
As stated in our Initiation Notice, we initiated an investigation
of Kangwon's creditworthiness from 1991 through 1998, to the extent
that nonrecurring grants, long-term loans, or loan guarantees were
provided in those years.
Regarding the period from 1992 through 1998, Kangwon reported that
it issued long-term corporate bonds during each of these years. The
Department's regulations, as well as its past practice,
[[Page 69733]]
indicate that the receipt by a firm of comparable long-term commercial
loans, provided without a government guarantee constitutes dispositive
evidence that the firm is creditworthy. See, 19 CFR 351.505(a)(4)(ii)
and e.g., Final Negative Countervailing Duty Determination and Final
Negative Critical Circumstances Determination: Certain Laminated
Hardwood Trailer Flooring from Canada, 62 FR 5201 (February 4, 1997).
In Plate in Coils, the Department determined that the GOK did not
control the domestic bond market. Therefore, because the domestic bond
market represents a legitimate commercial source of long-term
financing, we preliminarily determine that the issuances of these bonds
provides evidence of Kangwon's creditworthiness during the period 1992
through 1998.
Because we determined that the Korean bond market was controlled
prior to 1992 by the GOK in Steel Products from Korea, we could not use
Kangwon's issuance of bonds to establish whether the company was
creditworthy for the period prior to 1992. Therefore, with respect to
1991, we considered Kangwon's past and present financial health, as
reflected in various financial indicators calculated from the firm's
financial statements and accounts, in making a determination on whether
Kangwon was creditworthy in that year. To this end, we calculated
Kangwon's financial indicators for the years 1988 through 1991. In our
examination of Kangwon's relevant financial ratios, we did not find
that the company would be unable to meet its debt obligations. For more
information on the creditworthiness of Kangwon during 1991, see the
December 6, 1999, memorandum to David Mueller, Director of the Office
of AD/CVD Enforcement VI, a public document on file in the Department's
Central Records Unit, Room B-099. Therefore, based upon our examination
of Kangwon's financial ratios during the years 1988 through 1991, we
preliminarily determine Kangwon to also be creditworthy in 1991.
Treatment of Subsidies Received by Trading Companies
We required responses from trading companies with respect to the
export subsidies under investigation because the subject merchandise
may be subsidized by means of subsidies provided to both the producer
and the exporter of the subject merchandise. All subsidies conferred on
the production and exportation of subject merchandise benefit the
subject merchandise even if it is exported to the United States by an
unaffiliated trading company rather than by the producer itself.
Therefore, the Department calculates countervailable subsidy rates on
the subject merchandise by cumulating subsidies provided to the
producer with those provided to the exporter. See 19 CFR 351.525.
During the POI, Kangwon exported the subject merchandise to the
United States through two trading companies, Hyosung and Sampyo. Inchon
exported subject merchandise through one trading company, Hyundai. DSM
exported subject merchandise through its trading company, DKI. Hyosung,
Sampyo, Hyundai and DKI responded to the Department's questionnaires
with respect to the export subsidies under investigation.
Under 19 CFR 351.107, when subject merchandise is exported to the
United States by a company that is not the producer of the merchandise,
the Department may establish a ``combination'' rate for each
combination of an exporter and supplying producer. However, as noted in
the ``Explanation of the Final Rules'' (the Preamble), there may be
situations in which it is not appropriate or practicable to establish
combination rates when the subject merchandise is exported by a trading
company. In such situations, the Department will make exceptions to its
combination rate approach on a case-by-case basis. See Antidumping
Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27303 (May 19,
1997).
In this investigation, we preliminarily determine that it is not
appropriate to establish combination rates. This preliminary
determination is based on two main facts: First, the majority of
subsidies conferred upon the subject merchandise were received by the
producers. Second, the difference in the levels of subsidies conferred
upon individual trading companies with regard to subject merchandise is
insignificant. Thus, combination rates would serve no practical purpose
because the calculated subsidy rate for any of the producers and a
combination of any of the trading companies would effectively be the
same rate. Instead, we have continued to calculate rates for the
producers of subject merchandise that include the subsidies received by
the trading companies. To reflect those subsidies that are received by
the exporters of the subject merchandise in the calculated ad valorem
subsidy rate, we used the following methodology: For each of the three
trading companies, we calculated the benefit attributable to the
subject merchandise. We then factored that amount into the calculated
subsidy rate for the relevant producer. In each case, we determined the
benefit received by the trading companies for each export subsidy, and
weighted the average of the benefit amounts by the relative share of
each trading company's value of exports of the subject merchandise to
the United States. These calculated ad valorem subsidies were then
added to the subsidies calculated for the producers of subject
merchandise. Thus, for each of the programs below, the listed ad
valorem subsidy rate includes countervailable subsidies received by
both the producing and trading companies.
I. Programs Preliminarily Determined To Be Countervailable
A. The GOK's Direction of Credit Policies
1. The GOK's Credit Policies Through 1991
As noted above in the ``Subsidies Valuation Section'' of this
notice, on October 1, 1999, the CAFC issued a decision regarding Steel
Products from Korea. See AK Steel , 192 F.3d. The Department has not
received specific instructions on this decision. However, our review of
the decision indicates that the CAFC found that there was not
sufficient evidence on the record of Steel Products from Korea to
determine that the GOK provided credit directly to the Korean steel
industry. Nevertheless, information placed on the record of this
proceeding supports and indicates that the GOK's direction of credit
provided a countervailable benefit to the steel industry. See
Memorandum to Holly Kuga from David Mueller RE: Direction of Credit
Pre-1991 dated December 6, 1999, and placed on file in the Central
Records Unit, Room B-099 of the Department of Commerce. Thus, based on
this information, which includes new information that was not on the
record of Steel Products from Korea, we preliminarily determine that
all loans disbursed to respondent companies through 1991 are
countervailable. Therefore, we continue to determine that the provision
of long-term loans in Korea through 1991 results in a financial
contribution within the meaning of section 771(5)(D)(i) of the Act. In
accordance with section 771(5)(E)(ii) of the Act, a benefit has been
conferred to the recipient to the extent that the regulated loans are
provided at interest rates less than the benchmark rates described
under the ``Subsidies Valuation Information'' section, above.
Kangwon received long-term fixed and variable loans that were
outstanding during the POI. Because the terms, grace
[[Page 69734]]
periods, and repayment schedules of Kangwon's long-term fixed rate
loans differed from those of the long-term fixed rate benchmark, we
applied the methodology provided for in 19 CFR 351.505(c)(3).
Specifically, to derive the benefit, we performed the following: (1) We
calculated the net present values of the repayment streams; (2) We
subtracted the net present value figures from the original loan
amounts; and (3) We allocated the differences (i.e., the grant
equivalents) to the POI using the methodology provided for in 19 CFR
351.524(d)(1). To determine the benefit from the loans with variable
interest rates, we applied the methodology provided for in 19 CFR
351.505(c)(4). Therefore, for Kangwon and DSM's variable rate loans, we
calculated the difference in interest payments for the POI based upon
the difference in the amount of actual interest paid during 1998 on the
regulated loans and the amount of interest that would have been paid on
a comparable commercial loan. Having derived the benefit amounts
attributable to the POI for Kangwon's and DSM's fixed and variable rate
loans, we then summed the benefit amounts from the loans and divided
the total benefit by the companies' respective total sales. On this
basis, we preliminarily determine the net countervailable subsidy to be
0.09 percent ad valorem for Kangwon and 0.06 percent ad valorem for
DSM. Inchon did not have any pre-1992 loans outstanding during the POI.
2. The GOK's Credit Policies From 1992 Through 1998
In the Plate in Coils and Sheet and Strip investigations, the
Department determined that the GOK continued to control directly and
indirectly the lending practices of most sources of credit in Korea
through 1997.\2\ The Department also determined that the GOK's
regulated credit from domestic commercial banks and government-
controlled banks such as the Korea Development Bank (KDB) was specific
to the steel industry. This credit conferred a benefit on the
producers/exporters of the subject merchandise to the extent that the
interest rates on the countervailable loans were less than the interest
rates on comparable commercial loans. See section 771(5)(ii) of the
Act. See also Plate in Coils, 64 FR 15530, 15533, and Sheet and Strip,
64 FR 30636, 30642.
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\2\ In the Plate in Coils and Sheet and Strip investigations,
the Department based its affirmative direction of credit
determination for the period 1992 through 1997 on record evidence
covering a time period different than that covered by the CAFC's
decision in Steel Products from Korea which was Pre-1991. Moreover,
in its decision, the CAFC did not reject the notion of the GOK
directing credit specifically to the Korean steel industry but
rather took issue with the evidence upon which the Department based
its affirmative finding. Thus, because the Department based its
affirmative direction of credit determination for the years 1992
through 1997 on evidence that was not before the CAFC at the time of
its decision in AK Steel, that case does not preclude a finding of
directed credit during this later time period.
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We provided the GOK with the opportunity to present new factual
information concerning the government's credit policies during the 1992
through 1997 period, which we would consider along with our finding in
the prior investigations. The GOK did not provide new factual
information that would lead us to change our determination in Plate in
Coils and Sheet and Strip. Therefore, we continue to find lending from
domestic banks and from government-owned banks such as the KDB to be
countervailable.
In this investigation, petitioners allege that the GOK continued to
control the practices of lending institutions in Korea through the POI,
and that the steel sector received a disproportionate share of low-
cost, long-term credit, resulting in countervailable benefits being
conferred on the producers/exporters of the subject merchandise.
Petitioners assert, therefore, that the Department should countervail
all long-term loans received by the producers/exporters of the subject
merchandise that were still outstanding during the POI.
We examined whether the GOK continued to control or influence
directly or indirectly, the lending practices of sources of credit in
Korea in 1998, in light of our prior finding that the GOK controlled
and directed credit provided by domestic banks and government-owned
banks during the period 1992 through 1997. In its questionnaire
responses, the GOK asserted that it does not provide direction or
guidance to Korean financial institutions in the allocation of loans to
selected industries. The GOK stated that the lending decisions and loan
distributions of financial institutions in Korea reflect commercial
considerations. The GOK also stated that its role in the financial
sector is limited to monetary and credit policies as well as bank
supervision and examination.
According to the GOK, measures were taken in 1998 to liberalize the
Korean financial sector. For example, in January 1998 the GOK announced
closure of some banks, and in April 1998, launched the Financial
Supervisory Commission (FSC) to monitor the competitiveness of
financial institutions. In June 1998, the Regulation on Foreign
Exchange Controls was amended to further liberalize foreign currency
transactions, and in July, the GOK abolished the limit on purchasing
foreign currency. According to the GOK, it also liberalized access to
foreign loans. For direct foreign loans to Korean companies, the
approval process under Article 19 of the Foreign Investment and Foreign
Capital Inducement Act (FIFCIA) and Article 21 of its enforcement
decree were eliminated and replaced with the Foreign Investment
Promotion Act (FIPA), effective in November 1998. However, during most
of the POI, access to direct foreign loans still required the approval
of the Ministry of Finance and Economy.
Regarding the GOK regulated credit from government-controlled banks
such as the Korea Development Bank (KDB), the GOK reported that the KDB
Act was amended in January 1998, in response to the financial crisis in
1997. According to the GOK, with the new Act the KDB no longer
allocates funds for various functional categories; such as R&D,
environment and technology. All functional loan categories were
eliminated and such loans were consolidated into a single category for
facility (equipment) loans. The GOK also stated that the KDB
strengthened its credit evaluation procedures by developing an
objective and systematic credit evaluation standard to prevent
arbitrary decisions on loans and interest rates. The KDB changed its
Credit Evaluation Committee to the Credit Deliberation Committee (CDC),
and gave the CDC the authority to make lending decisions. As a result,
the KDB governor no longer makes lending decisions without the approval
of the CDC. The GOK also stated that in 1997, the KDB used the prime
rate plus a spread for determining interest rates. Effective January 1,
1998, the KDB increased the range of the credit spread to provide more
flexibility in determining interest rates based on creditworthiness and
to allow the KDB to increase its profits. However, respondents did not
provide any evidence to demonstrate that the KDB has discontinued the
practice of selectively making loans to specific firms or activities to
support GOK policies.
In Plate in Coils, the Department noted conflicting information
regarding the GOK's direct or indirect influence over the lending
decisions of financial institutions. For example, the GOK policies
appeared to be aimed, in part, at promoting certain sectors of the
economy, such as high technology and small and medium-sized industries
(SMEs).
[[Page 69735]]
While the GOK started to plan and implement reforms in the
financial system during the POI as a result of the 1997 financial
crisis, the record evidence indicates that the GOK previously attempted
reforms of the financial system in order to remove or reduce its
control and influence over lending in the country. In the past ten
years, the GOK has twice attempted to reform its financial system. In
1988, the GOK attempted to deregulate interest rates. However, the
government deemed the 1988 liberalization a failure. When the interest
rates began to rise, the GOK canceled the reforms by indirectly
pressuring the banks to keep interest rates low. In the early 1990s,
the GOK attempted reforms again with a four-stage interest rate
deregulation plan. Again, the GOK deemed this attempt to reform the
financial system a failure. During 1998 and 1999, the GOK has
threatened to cut off credit to Korean companies unless the companies
follow GOK policies. In addition, during the POI, the GOK took control
of five large commercial banks due to the financial crisis.
Based upon the information on the record and our determinations in
Plate in Coils and Sheet and Strip, we preliminarily determine that the
GOK continued to control directly and indirectly, the lending practices
of domestic banks and government-owned banks through the POI.
With respect to foreign sources of credit, in Plate in Coils and
Sheet and Strip, we determined that access to government regulated
foreign sources of credit in Korea did not confer a benefit to the
recipient as defined by 771(5)(E)(ii) of the Act, and, as such, credit
received by respondents from these sources were found not
countervailable. This determination was based upon the fact that credit
from Korean branches of foreign banks was not subject to the
government's control and direction. Thus, respondents' loans from these
banks served as an appropriate benchmark to establish whether access to
regulated foreign sources of credit conferred a benefit on respondents.
On the basis of this comparison, we found that there was no benefit.
Petitioners have not provided any new information or evidence of
changed circumstances to cause us to revisit this determination.
Therefore, we continue to determine that credit from Korean branches of
foreign banks were not subject to the government's control and
direction. As such, lending from this source continues to be not
countervailable, and loans from Korean branches of foreign banks
continue to serve as an appropriate benchmark to establish whether
access to regulated foreign sources of funds confer a benefit to
respondents.
With respect to loans provided under the Energy Savings Fund, in
Plate in Coils, 64 FR 15330, 15533, the Department found that these
loans were countervailable as directed credit on the grounds that they
are policy loans provided by banks that are subject to the same GOK
influence as described above. Inchon and Kangwon reported Energy
Savings Fund loans outstanding during the POI. Accordingly, the loans
are countervailable as directed credit, and we have included these
long-term, fixed-rate loans in Inchon's and Kangwon's benefit
calculations for directed credit.
Similarly, loans provided under the Science and Technology
Promotion Fund, are disbursed by the Korea Technology Bank, a GOK
owned/controlled bank. We preliminarily find that these long-term fixed
rate loans are provided by banks subject to GOK influence and,
therefore, are countervailable as directed credit.
With respect to loans that Kangwon received under the industry
technology development fund, Kangwon stated in its questionnaire
response that these loans were for a research and development project
that was tied to non-subject merchandise. Thus, for the purposes of
this preliminary determination, we have not included these loans in our
subsidy calculations. We note that Kangwon's questionnaire response on
this matter will be subject to verification.
Inchon, Kangwon and DSM received long-term fixed and variable rate
loans from GOK owned/controlled institutions during the years 1992
through 1998 that were outstanding during the POI. In order to
determine whether these GOK directed loans conferred a benefit, we
employed the same methodologies described in the ``GOK's Credit
Policies Through 1991'' section of this notice. Having derived the
benefit amounts attributable to the POI for the companies' fixed and
variable rate loans, we then summed the benefit amounts from the loans
and divided the total benefit by each company's respective total sales.
On this basis, we preliminarily determine the net countervailable
subsidy to be 0.02 percent ad valorem for Inchon, 0.57 percent ad
valorem for Kangwon and 0.12 percent ad valorem for DSM.
B. Debt Restructuring for Kangwon
In late 1997, Korea experienced a foreign exchange crisis that
sharply increased the cost of foreign currency loans in won terms and
greatly decreased the availability of domestic, won-denominated loans.
This external crisis placed many Korean corporations in jeopardy. As a
result, the International Monetary Fund (IMF) coordinated a $58 billion
loan package in the form of Stabilization Assistance Loans (SAL) aimed
at bolstering the Korean economy. In order to receive the SALs, the GOK
had to agree to certain terms. Among these terms was the financial
restructuring of the corporate sector, in which companies voluntarily
submitted to corporate workouts. To implement these reforms, the GOK
adopted a method of debt restructuring recommended by the IMF called
the ``London Approach,'' a corporate restructuring program first
developed by the Bank of England. Under the London Approach, the
central bank establishes a set of basic principles that govern how
banks respond when one of their corporate customers faces serious
financial difficulty. The main elements of this approach are as
follows: First, banks should remain supportive of those companies that
are facing financial difficulties. While a bank should be concerned
with their level of exposure, it must keep a company's facilities in
place and should not appoint receivers. Second, decisions about a
company's longer term future should only be made on the basis of
comprehensive information, which is shared among all the banks facing
exposure and other parties to the workout. Third; banks should work
together to reach a collective view on whether and on what terms a
company should be eligible for financial restructuring. The fourth and
final factor specifies that the seniority of claims should continue but
be tempered by an element of ``shared pain,'' (i.e., equal treatment
for all creditors of a single category). Additionally, among the tenets
of the London Approach is that authorities should not guarantee the
survival of businesses nor should they influence what companies or
industries be preserved. Rather, the London Approach attempts to lay
down a framework for securing an orderly and well-informed decision on
whether and on what terms a company is worth supporting.
In order to implement the London Approach, the GOK, through the FSC
developed three agreements especially designed for the debt
restructuring process: The Agreement of Financial Institutions for
Promoting Corporate Restructuring (Corporate Restructuring Agreement),
the Enforcement Regulations of the Corporate Restructuring Agreement,
and the
[[Page 69736]]
Operational Guideline for Workout Agreements. A total of 205 financial
institutions agreed to adhere to these agreements by December 31, 1998.
Under these agreements, the FSC adopted principles similar to those
under the London Approach such as the sharing of lost principal by
creditor banks and the minimization of lost principal.
Under the corporate financial restructuring program, the workouts
were divided by corporate groups. The FSC identified the lead bank,
normally the group's largest creditor, as the bank responsible for
negotiating the terms of any corporate workout. The lead bank sent
letters of introduction to companies in the group describing the types
of companies that were targets for the restructuring program and
inviting those companies to submit to the restructuring program.
Applicants were then reviewed by a selection committee appointed by the
lead banks, and were selected based upon the likelihood of success.
In July of 1998, the FSC selected the Kangwon Group, of which
Kangwon is a member, to participate in the debt restructuring program.
Chohung Bank is the largest creditor of the Kangwon Group and, thus,
was selected to be the lead bank. Responding to Chohung's initial
letter of introduction, Kangwon, along with three other members of the
Kangwon group, petitioned for consideration as candidates for the
workout program. Accordingly, Chohung, along with the other creditors,
held a series of creditor conferences during which they established the
terms of the debt restructuring. These meetings culminated in a debt
restructuring contract between participating Kangwon Group companies
and their creditors. This contract was signed on December 22, 1998.
As a result of the debt restructuring, principal and interest
payments were suspended on many of Kangwon's loans. In addition, with
the exception of policy loans, public and private bonds and foreign
securities, the repayment dates of all long-term loans were extended.
The debt restructuring also created for Kangwon three additional types
of long-term loans. First, many of Kangwon's short-term loans (Type 1
Loans) were converted into long-term loans with maturity dates of
December 31, 2001. Second, Kangwon received new three-year loans for
operating capital (Type II Loans). Third, with respect to Kangwon's
previously disbursed long-term loans (Type III Loans), the unpaid
interest that accrued prior to the applicable date of the workout
agreement, October 18, 1998, was converted into new three-year loans
with maturity dates of December 31, 2001. Under the plan, no debt was
written off and no debt nor did any debt-for-equity swaps occurred.
Petitioners allege that the GOK influenced the banks' decision to
select Kangwon for a restructuring. Petitioners further allege that the
restructured loans and newly issued loans that came out of the workout
were carried out on terms inconsistent with comparable commercial
practices and, thus, conferred a benefit upon Kangwon. Petitioners
further allege that pursuant to section 771(5B)(iii) of the Act, the
GOK's involvement in the debt restructuring constitutes a financial
contribution in which the GOK directed private banks to restructure
Kangwon's debt.
Regarding previously disbursed long-term loans that were later
refinanced under the restructuring program (Type III Loans), we
preliminarily determine that they are specific and confer a benefit
because they only converted interest due on loans originally provided
during a period in which we determined that the GOK directed credit
specifically to the Korean Steel Industry. For more information, see
the ``Direction of Credit'' section of this notice.
With respect to the new Type I and II loans provided under the debt
restructuring program, we analyzed whether they were countervailable
within the relevant provisions of section 771(5) of the Act.
Specifically, the Act states that a subsidy shall be deemed to exist
provided that its meets all three of the following criteria: (1) There
is a financial contribution by a government or any public entity within
the territory of that government, (2) a benefit is conferred and (3)
the subsidy meets the specificity criteria under section 771(5A) of the
Act.
In order to determine whether the previously issued short-term
loans that were converted to long-term loans (Type I Loans) and the new
long-term loans issued under Kangwon's debt restructuring (Type II
Loans) conferred a subsidy upon Kangwon, we analyzed whether they were
specific in law (de jure specific), or in fact (de facto specific),
within the meaning of section 771(5A)(D) (i) and (iii) of the Act.
First, we examined the eligibility criteria that governed the debt
restructuring program.
According to the GOK's questionnaire response, each corporate
group's lead bank in conjunction with an independent selection
committee determined the eligibility for participation in debt
restructuring. Among the criteria listed in the Operational Guidelines
for the Workout Agreement, prospective workout candidates had to
demonstrate: that their core business was viable and stable, that
credit obligations were not excessive relative to their sales and
profitability, that the company had the ability to maintain the normal
payment of interest and business transactions on the restructured debt,
that credit obligations did not greatly exceed those of other workout
candidates, and that the company had a history of timely and sound
financial transactions. Thus, based on the fact that the criteria
enumerated in the Operational Guidelines for the Workout Agreement do
not explicitly limit eligibility to a specific enterprise or industry
or group, we find that the Type I and II loans provided under the debt
restructuring program are not de jure specific within the meaning of
section 771(5A)(D)(iii) of the Act.
We then examined data on the distribution of companies that were
restructured under the program to determine whether the debt
restructuring program meets the criteria for de facto specificity under
section 771(5A)(D)(iii) of the Act. In its questionnaire response, the
GOK provided a chart listing the industries involved in debt
restructuring programs. The industries that participated in the debt
restructuring program ranged across the entire economic spectrum from
basic metals, textiles, construction, telecommunications, electronics,
and chemicals to the hotel and restaurant industry. The construction
industry received the largest percentage of debt restructurings with 16
percent followed by the chemicals industry with 13 percent. With
respect to the basic metals companies, they represented only 6 percent
of the companies selected. Thus, based on the fact that a broad range
of industries participated in the program and the basic metals industry
was not a dominant user, we preliminarily find that this program, as it
pertains to Type I and II loans, is not de facto specific.
Additionally, because the Type I and Type II loans do not meet the
specificity criteria under section 771(5A) of the Act, we preliminarily
determine that the loans do not confer a subsidy and, thus, are not
countervailable. We note that because these loans are not specific, it
is not necessary to analyze whether these loans constitute a financial
contribution or confer a benefit, within the meaning of section 771(5)
of the Act.
As with the loans found countervailable in the ``GOK's Direction
[[Page 69737]]
of Credit Policies'' section of this notice, we calculated the benefit
attributable to the variable-rate, Type III loans by following the
methodology provided for in 19 CFR 351.505(c)(4). Having derived the
benefit amounts attributable to the POI for Kangwon's loans, we summed
the benefit amounts from the loans and divided the total benefit by the
company's total sales. On this basis, we preliminarily determine the
net countervailable subsidy to be less than 0.005 percent ad valorem
for Kangwon.
C. Reserve for Export Loss--Article 16 of the TERCL
Under Article 16 of the Tax Exemption and Reduction Control Act
(TERCL), a domestic person engaged in a foreign-currency earning
business can establish a reserve amounting to the lesser of one percent
of foreign exchange earnings or 50 percent of net income for the
respective tax year. Losses accruing from the cancellation of an export
contract, or from the execution of a disadvantageous export contract,
may be offset by returning an equivalent amount from the reserve fund
to the income account. Any amount that is not used to offset a loss
must be returned to the income account and taxed over a three-year
period, after a one-year grace period. All of the money in the reserve
is eventually reported as income and subject to corporate tax either
when it is used to offset export losses or when the grace period
expires and the funds are returned to taxable income. The deferral of
taxes owed amounts to an interest-free loan in the amount of the
company's tax savings. This program is only available to exporters.
During the POI, Inchon and DKI claimed benefits under this program.
We preliminarily determine that the Reserve for Export Loss program
constitutes an export subsidy under section 771(5A)(B) of the Act,
because the use of the program is contingent upon export performance.
We also preliminarily determine that this program provides a financial
contribution within the meaning of section 771(5)(D)(i) of the Act in
the form of a loan. See Plate in Coils, 64 FR 15530, 15534, and Sheet
and Strip, 64 FR 30636, 30645.
To determine the benefit conferred by this program, we calculated
the tax savings by multiplying the balance amount of the reserve as of
December 31, 1997, by the corporate tax rate for 1997. We treated the
tax savings on these funds as a short-term interest-free loan. See 19
CFR 351.509. Accordingly, to determine the benefit, we multiplied the
amount of tax savings by Inchon's and DKI's respective weighted-average
interest rate for short-term won-denominated commercial loans for the
POI, as described in the ``Subsidies Valuation Information'' section,
above. With respect to DKI, we used the methodology for calculating
subsidies received by trading companies, which is also detailed in the
``Subsidies Valuation'' section of this notice, to calculate the
benefit for the DKI. We then divided the benefit by each companies'
respective total export sales. On this basis, we calculated a
countervailable subsidy of 0.05 percent ad valorem for Inchon and 0.05
percent ad valorem for DKI.
D. Reserve for Overseas Market Development Under TERCL Article 17
Article 17 of the TERCL allows a domestic person engaged in a
foreign trade business to establish a reserve fund equal to one percent
of its foreign exchange earnings from its export business for the
respective tax year. Expenses incurred in developing overseas markets
may be offset by returning, from the reserve to the income account, an
amount equivalent to the expense. Any part of the fund that is not
placed in the income account for the purpose of offsetting overseas
market development expenses must be returned to the income account over
a three-year period, after a one-year grace period. As is the case with
the Reserve for Export Loss, the balance of this reserve fund is not
subject to corporate income tax during the grace period. However, all
of the money in the reserve is eventually reported as income and
subject to corporate income tax either when it offsets export losses or
when the grace period expires. The deferral of taxes owed amounts to an
interest-free loan equal to the company's tax savings. This program is
only available to exporters. Hyosung and Hyundai claimed benefits under
this program during the POI.
In Sheet and Strip, 64 FR 30636, 30645, we determined that this
program constituted an export subsidy under section 771(5A)(B) of the
Act because the use of the program is contingent upon export
performance. We also determine that this program provided a financial
contribution within the meaning of section 771(5)(D)(i) of the Act in
the form of a loan. No new information or evidence of changed
circumstances has been presented to cause us to revisit this
determination. Thus, we preliminarily determine that this program
constitutes a countervailable export subsidy.
To determine the benefit conferred by this program during the POI,
we employed the same methodology used for determining the benefit from
the Reserve for Export Loss program under Article 16 of the TERCL. We
used as our benchmark interest rate, each company's respective
weighted-average interest rate for short-term won-denominated
commercial loans for the POI, as described in the ``Subsidies Valuation
Section'' above. Using the methodology for calculating subsidies
received by trading companies, which is also detailed in the
``Subsidies Valuation'' section of this notice, we calculated a benefit
for the two trading companies. We then divided the benefit by each
trading companies' respective total export sales. On this basis, we
calculated a countervailable subsidy of less than 0.005 percent ad
valorem for Kangwon and Inchon and a subsidy of 0.02 percent ad valorem
for DSM.
E. Investment Tax Credits under Article 25 of the TERCL Act
Under the TERCL, companies in Korea are allowed to claim investment
tax credits for various kinds of investments. If the tax credits cannot
all be used at the time they are claimed, the company is authorized to
carry them forward for use in later tax years. In Steel Products from
Korea, we found that investment tax credits were not countervailable
(see Steel Products from Korea, 58 FR 37338, 37351); however, there
were changes in the statute effective in 1995, which caused us to
revisit the countervailable status of the investment tax credits. See
Plate in Coils, 64 FR 15530, 15534, and Sheet and Strip, 64 FR 30636,
30645.
Inchon claimed or used tax credits under Article 25 in its fiscal
year 1997 income tax return which was filed during the POI and DSM
claimed Article 25 for its 1997 fiscal year income tax return. Under
Article 25, a company normally calculates its authorized tax credit
based upon 3 or 5 percent of its investment, i.e., the company receives
either a 3 or 5 percent tax credit. However, if a company makes the
investment in domestically-produced facilities under Article 25, it
receives a 10 percent tax credit. Though the investment tax credit was
amended to eliminate the rate differential between domestic and
foreign-made facilities for investments that are made after December
31, 1997, the differing rate remains in effect for investments made
prior to that date. Moreover, Article 25 tax credits on these
investments can be carried forward beyond the POI.
Under section 771(5A)(C) of the Act, a program that is contingent
upon the use of domestic goods over imported goods is specific, within
the meaning of the Act. In Sheet and Strip, we
[[Page 69738]]
examined the use of investment tax credits under Article 25. See Sheet
and Strip, 64 FR 30636, 30645. In that case, we determined that
investment tax credits received under Article 25 constituted import
substitution subsidies under section 771(5A)(C) of the Act, because
Korean companies received a higher tax credit for investments made in
domestically-produced facilities under this Article. In addition,
because the GOK foregoes collecting tax revenue otherwise due under
this program, we also determined that a financial contribution is
provided under section 771(5)(D)(ii) of the Act.
As stated above, Inchon and DSM claimed investment tax credits
under Articles 25. Therefore, we preliminarily determine that these tax
credits provided Inchon with a countervailable benefit. DSM was
entitled to claim investment tax credits under Article 25 during the
POI. However, DSM did not use the tax credits to reduce its tax
liability during the POI. Instead, the company carried forward the tax
credits which can be used in the future. Because DSM did not claim the
investment tax credits on its tax return which was filed during the
POI, we preliminarily determine that DSM did not use this program
during the POI.
To calculate the benefit to Inchon from this tax credit program, we
determined the value of the tax credits Inchon deducted from its taxes
payable for the 1997 fiscal year. In Inchon's 1997 income tax return
filed during the POI, it deducted from its taxes payable, credits
earned prior to and during 1997, which were carried forward and used in
the POI. We first determined those tax credits which were claimed based
upon the investment in domestically-produced facilities. We then
calculated the additional amount of tax credits received by the company
because it earned tax credits of 10 percent on investments in
domestically-produced facilities rather the regular 3 or 5 percent tax
credit. Next, we calculated the amount of the tax savings received
through the use of these tax credits during the POI, and divided that
amount by Inchon's total sales for the POI. On this basis, we
preliminarily determine a net countervailable subsidy of 0.07 percent
ad valorem for Inchon.
F. Asset Revaluation Pursuant to TERCL Article 56(2)
This provision under Article 56(2) of the Tax Exemption and
Reduction Control Act (TERCL) allowed companies making an initial
public offering between January 1, 1987, and December 31, 1990, to
revalue their assets without meeting the requirement in the Asset
Revaluation Act of a 25 percent change in the wholesale price index
since the company's last revaluation. In Steel Products from Korea,
after verification, petitioners submitted additional information which,
according to them, indicated that certain steel companies revaluation
may have been significantly greater than that of the other companies
that revalued. Because the information submitted by petitioners was
untimely, it was rejected; however, we requested additional information
on the 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 Article 56(2). It was unclear 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 for verification, we were unable to
draw conclusions with respect to the relative benefit derived by steel
companies from this program. Since there was no evidence of de jure or
de facto selectivity concerning the timing of these steel companies'
revaluation or the method of revaluation under the Asset Revaluation
Act, the Department determined this program to be not countervailable.
See Steel Products from Korea, 58 FR 37338, 37351.
The Department is currently reviewing Asset Revaluation under
Article 56(2) in the Cut-to-Length Plate case. Based upon information
provided in that case, and subsequent findings, there is information to
substantiate the allegation that Inchon and DSM received a benefit
under this program because their massive asset revaluations permitted
the companies to substantially increase their depreciation and,
thereby, reduce their income taxes payable. In the Cut-to-Length Plate,
petitioners provided a chart listing 197 eligible companies for
revaluation of their assets pursuant to this program. The chart
illustrates that 14 companies in the basic metals industry that used
this program accounted for 67 percent of the total amount of asset
revaluations under Article 56(2). Based on this new information, the
Department initiated a reexamination of the countervailability of this
program and solicited information regarding the usage of this program.
Because the enabling legislation does not expressly limit access to
the subsidy to an enterprise or industry, or group thereof, the program
is not de jure specific within the meaning of section 771(5A)(D)(i) of
the Act. Although the regulation itself does not expressly limit the
access to this law to a specified group or industry, it does place
restrictions on the time period and eligibility criteria which may have
caused de facto limitations on the actual usage of this tax program.
For example, Article 56(2) was enacted on November 28, 1987, and
applied only to companies making an initial public offering from
January 1, 1987 until the provision was abolished effective December
31, 1990. Pursuant to Article 56(2), companies listed on the Korea
Stock Exchange between January 1, 1987 and December 31, 1988, 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. Therefore, based upon the eligibility
criteria of the program, Article 56(2) effectively limited usage of
this program to only the 316 companies that were newly listed on the
Korean Stock Exchange during the three years the program was in place
rather than the 15 to 24 thousand manufacturers in operation in Korea
during that period. Kangwon revalued in 1976 and therefore was not
allowed to revalue under Article 56(2).
According to section 771(5A)(D)(iii) of the Act, a subsidy is de
facto specific if one of the following factors exist: (1) The actual
recipients of the subsidy, whether considered on an enterprise or
industry basis, are limited in number; (2) An enterprise or industry is
a predominant user of the subsidy; (3) An enterprise or industry
receives a disproportionately large amount of the subsidy; or (4) The
manner in which the authority providing the subsidy has exercised
discretion in the decision to grant the subsidy indicates that an
enterprise or industry is favored over others.
Information on the record of the current investigation indicates
that during the period 1987-1990, there were between 14,988 and 24,073
manufacturing companies operating in Korea. As a requirement for
participation in this program, companies had to make an initial public
offering between January 1, 1987 and December 31, 1990. DSM listed its
initial public offering in May 1988 and revalued its assets under
Article 56(2) in July 1988. Inchon listed its initial public offering
in May 1987 and revalued its assets under Article 56(2) in April 1989.
According to the GOK's July 1, 1999 questionnaire response, 77
companies revalued their assets in 1989. The basic metal sector
accounted for 83 percent of the total revaluation surplus amount (book
value less revalued amount). The record evidence indicates that the
basic
[[Page 69739]]
metal industry was a dominant user of this program in 1988 through
1989. See, e.g., Stainless Steel Plate in Coils from South Africa, 64
FR 15553 (March 1999). Therefore, we preliminarily determine that this
program is specific, within the meaning of 771(5A)(D)(iii) of the Act.
As a result of the increase in the value of depreciable assets
resulting from the asset revaluation, the companies lowered their tax
liability. Therefore, we also preliminarily determine that the program
provides a financial contribution within the meaning of section
771(5)(D)(ii) of the Act, by allowing companies to reduce their income
tax liability, the GOK has foregone revenue that is otherwise due.
The benefit from this program is not the amount of the revaluation
surplus, but rather the impact of the difference that the revaluation
of depreciable assets has on a company's tax liability each year.
However, respondents did not provide this information, and stated that
the depreciation expense resulting from the asset revaluation would
involve a detailed, item-by-item comparison of thousands of items, and
that it would be difficult for them to distinguish between the
remaining benefit from revaluation under Article 56(2), and revaluation
pursuant to normal procedures of the Asset Revaluation Act. Therefore,
we have calculated the benefit from this program by determining the
surplus amount of the revaluation of assets authorized under the
program for each company subtracting out land, as land is not a
depreciable asset, and divided the total revaluation surplus by 15, the
AUL we are using in this investigation. We then multiplied the amount
of the revaluation surplus attributable to the POI by the tax rate
applicable to the tax return filed in the POI, and divided the benefit
for each company by their respective total sales during the POI. On
this basis, we preliminarily determine a net countervailable subsidy of
0.21 percent ad valorem for Inchon and 0.08 percent ad valorem for DSM.
G. Electricity Discounts Under the Requested Load Adjustment Program
Petitioners alleged that Korean steel producers are being charged
utility rates at less than adequate remuneration and, hence, the
production of the subject merchandise is receiving countervailable
benefits from this subsidy. Petitioners further alleged that producers
of subject merchandise are receiving these countervailable benefits in
the form of utility rate discounts.
The GOK reports that during the POI, the government-owned Korea
Electric Power Company (KEPCO) provided Kangwon and DSM with
electricity discounts. Under the program, the discounts are based, in
part, on the companies' monthly maximum power demands.
With respect to the Requested Load Adjustment (RLA) program, the
GOK introduced the discount in 1990, to address emergencies in KEPCO's
ability to supply electricity. Under this program, customers with a
contract demand of at least 5,000 kilowatts (kW), that are able to
curtail their maximum demand by 20 percent or that are able to suppress
their maximum demand by at least 3,000 kW, are eligible to enter into a
RLA contract with KEPCO. Customers who choose to participate in this
program must reduce their electricity consumption upon KEPCO's request,
or pay a surcharge to KEPCO.
Customers can apply for this program between May 1 and May 15 of
each year. If KEPCO approves the application, KEPCO and the customer
enter into a contract with respect to the RLA discount. The RLA
discount is provided based upon a contract for two months, normally
July and August. Under this program, a basic discount of 440 won per kW
is granted between July 1 and August 31, regardless of whether KEPCO
makes a request for a customer to reduce its load. During the POI,
KEPCO granted 33 companies RLA discounts even though KEPCO did not need
to request that these companies reduce their respective loads. The GOK
reports that because KEPCO increased its capacity to supply electricity
in 1997, it reduced the number of companies with which it maintained
RLA contracts in 1997 and 1998. In 1996, KEPCO entered into RLA
contracts with 232 companies, which was reduced to 44 companies in 1997
and 33 in 1998.
In Sheet and Strip, 64 FR 30636, 30646, we found the RLA program
countervailable because the discounts provided under this program were
distributed to a limited number of users. No new information or
evidence of changed circumstances have been provided to the Department
to warrant a reconsideration of that determination. Therefore, we
continue to find the RLA program countervailable.
Because the electricity discounts are not ``exceptional'' benefits
and are received automatically on a regular and predictable basis
without further government approval, we preliminarily determine that
these discounts provide a recurring benefit to Kangwon. See 19 CFR
351.524(a). Therefore, we have expensed the benefit from this program
in the year of receipt. See Sheet and Strip, 30636 at 30646. To measure
the benefit from these programs, we summed the electricity discounts
that Kangwon and DSM received from KEPCO under the RLA program during
the POI. We then divided the total RLA discount amount Kangwon and DSM
received by each companies' respective total sales for the POI. On this
basis, we preliminarily determine a net countervailable subsidy of 0.01
percent ad valorem for Kangwon and less than 0.005 percent ad valorem
for DSM under the RLA discount program.
H. Scrap Reserve Fund
The Scrap Reserve Fund is administered by the Supply Administration
(SA), a GOK agency that purchases certain industries' inputs to
production and then makes the inputs available to producers on credit.
During the POI, the SA purchased and made available on credit such
commodities as scrap metal, non-ferrous and scarce metals (aluminum,
ferrosilicon, etc.), forest products (pulp, rubber, etc.), and
environmental materials (chip board, steel billet, etc.). In order to
reduce the burden on Kangwon and DSM of holding large inventories
during the POI, the SA purchased steel scrap on behalf of the companies
and then provided them with a five-month repayment option in the form
of a loan.
Because the Scrap Reserve Fund is available only for a relatively
limited number of materials, and the use of steel scrap is largely
limited to the steel industry, we preliminarily determine that this
program is specific under section 771(5A) of the Act.
Next, in order to determine whether the loans constituted a
financial contribution and conferred a benefit within the statutory
provisions, we employed the same short-term loan methodology used for
determining the benefit from the Reserve for Export Loss program under
Article 16 of the TERCL. We used as our benchmark interest rate, each
company's respective weighted-average interest rate for short-term won-
denominated commercial loans for the POI, as described in the
``Subsidies Valuation Section'' above. Having derived the benefit
amounts attributable to the POI for Kangwon's Scrap Reserve Fund loans,
we then summed the benefit amounts from the loans and divided the total
benefit by Kangwon's total sales. For DSM we followed the same
calculation methodology except we reduced total sales by the amount of
plate sales. We followed this methodology because scrap is not an input
in DSM's plate production. On this basis, we preliminarily determine
the net countervailable subsidy to be
[[Page 69740]]
0.03 percent ad valorem for Kangwon and 0.01 percent ad valorem for
DSM.
I. Export Industry Facility Loans
In Steel Products from Korea, 58 FR 37338, 37328, the Department
determined that export industry facility loans (EIFLs) are contingent
upon export, and are therefore subsidies to the extent that they are
provided at preferential rates. The decision in Steel Products from
Korea was later reaffirmed in Sheet and Strip, 64 FR 30636, 30644. In
this investigation, the GOK did not provide any new factual information
that would lead us to change our treatment of this program. Therefore,
for the purposes of this preliminary determination, we continue to find
that EIFLs are provided on the basis of export performance and are
export subsidies under section 771(5A)(B) of the Act. We also determine
that the provision of loans under this program results in a financial
contribution within the meaning of section 771(5)(D)(i) of the Act
because the loan was disbursed by the KDB, an institution that,
according to information submitted on the record of this proceeding,
had a policy of directing loans specifically to the Korean steel
industry. For more information, see the ``Direction of Credit'' section
of this notice. In accordance with section 771(5)(E)(ii) of the Act, a
benefit has been conferred on the recipient to the extent that the
EIFLs are provided at interest rates less than the benchmark rates
described under the ``Subsidies Valuation'' section of this notice. We
note that this program is also countervailable due to the GOK's
direction of credit; however, we have separated this program from
direction of credit because it is an export subsidy, and therefore
requires a different benefit calculation. Kangwon was the only
respondent with an outstanding loan under this program during the POI.
To calculate the benefit conferred by this program, we compared the
actual interest paid on the loan-term fixed interest rate loan with the
amount of interest that would have been paid at the applicable dollar-
denominated long-term benchmark interest rate. However, because the
terms, grace periods, and repayment schedule of Kangwon's long-term
fixed rate EIFL loan differed from those of the long-term fixed rate
benchmark, we applied the methodology provided for in 19 CFR
351.505(c)(3). We note that this methodology is described in detail in
the ``The GOK's Credit Policies through 1991'' section of this notice.
We then divided the benefit derived from the loan by Kangwon's total
export sales. On this basis, we preliminarily determine the net
countervailable subsidy to be 0.10 percent ad valorem for Kangwon.
J. Special Cases of Tax for Balanced Development Among Areas (TERCL
Article 43)
TERCL Article 43 allows a company to claim a tax reduction or
exemption for income gained from the disposition of factory facilities
when relocating from a large city to a rural area. On December 29,
1995, DSM sold land from its Pusan factory and, within three years from
the sales date, began production at its Pohang plant. In accordance
with Article 16, paragraph 7 of the Addenda to the TERCL, DSM was
entitled to receive an exemption on its income tax for the capital
gain. No other respondent company used this program.
Payment for the Pusan facilities is on a longer-term installment
basis, the income tax on the capital gain is payable when DSM actually
receives payment or transfers the title of ownership. The capital gain
in the tax year can not exceed DSM's total taxable income. The maximum
tax savings permitted is 100 percent of the taxable income; however,
this program is also subject to the minimum tax. This program does not
allow carrying forward of unused benefits in future years.
We preliminarily determine that the TERCL Article 43, for Special
Cases of Tax for Balanced Development Among Areas, is regionally
specific. This program is specific within the meaning of 771(5)(D)(iv)
of the Act, because the program is limited to an enterprise or industry
located within a designated geographical region. We also preliminarily
determine that this program provides a financial contribution within
the meaning of section 771(5)(D)(ii), because the GOK foregoes revenue
that is otherwise due by granting this tax credit.
To calculate the benefit from this tax credit program, we examined
the amount of the tax credit DSM deducted from its taxes payable for
the 1997 fiscal year. In DSM's 1997 income tax return filed during the
POI, it deducted from its taxes payable, credits earned in 1997. Next,
we calculated the amount of the tax savings earned and divided that
amount by DSM's total sales during POI. Using this methodology, we
preliminarily determined a countervailable subsidy of 0.59 percent ad
valorem for DSM.
K. R&D Grants under The Korea New Iron & Steel Technology Research
Association (KNISTRA)
The Korea New Iron & Steel Technology Research Association
(KNISTRA) is an association of steel companies established for the
development of new iron and steel technology. KNISTRA is a member based
R&D agency that supports R&D projects through private and public
contributions. KNISTRA acts as a coordinating organization for R&D.
While individual companies provide a portion of the funding, the GOK
also contributes funds to these projects.
If the research is deemed successful, 50 percent of the GOK's
contribution will be repaid in proportionate amounts from each
individual participating company. Inchon, Kangwon and DSM are all
members of KNISTRA and participated in an R&D project during the POI.
The current project can be connected with the production of subject
merchandise. This project began in 1995, and continued in 1996 and 1998
(POI).
The Department preliminarily determines that through KNISTRA the
Korean steel industry receives funding specific to the steel industry.
Therefore, given the nature of the agency, the Department finds
projects under KNISTRA to be specific. Since most companies normally
fund R&D programs to enhance their own technology, we determine that
GOK funding to KNISTRA relieves companies of this obligation.
Therefore, GOK's grants are a financial contribution under section
771(5)(D)(i) of the Act which provide a benefit to the recipient in the
amount of the grant. Therefore, we determine that the KNISTRA grants
constitute countervailable subsidies within the meaning of section
771(5) of the Act.
Under 19 CFR 351.524, non-recurring benefits are allocated over
time, while recurring benefits are expensed in the year of receipt. In
addition, non-recurring benefits which are less than 0.5 percent of a
company's relevant sales are also expensed in the year of receipt. The
grants received by respondents did not exceed 0.5 percent of each
companies sales. Therefore, regardless of whether this program provides
recurring or non-recurring benefits, the benefits are expensed in the
year of receipt. Therefore, we summed the grants received by each
company under this program and divided the amount by each companies'
respective total sales. On this basis, we preliminarily determined a
countervailable subsidy rate of less than
[[Page 69741]]
0.005 percent ad valorem for Inchon, Kangwon, and DSM.
II. Programs Preliminarily Determined To Be Not Used
Based on the information provided in the questionnaire response, we
preliminarily determine that the companies under investigation either
did not apply for, or receive benefits under the following programs
during the POI:
A. Private Capital Inducement Act
B. Tax Credit in Equipment to Develop Technology and Manpower Under
Article 10 of the TERCL Act
C. Tax Credits for Vocational Training Under Article 18 of the TERCL
D. Exemptions of Corporate Tax on Dividend Income from Overseas
Resources Development Resources Act Under Article 24 of the TERCL
E. Tax Credits for Investments in Specific Facilities Under Article 26
of the TERCL
F. Tax Credits for Temporary Investments Under Article 27 of the TERCL
G. Social Indirect Capital Investment Reserve Funds Under Article 28 of
the TERCL
H. Energy-Savings Facilities Investment Reserve Funds Under Article 29
of the TERCL
I. Tax Credits for Specific Investments Under Article 71 of the TERCL
J. Mining Investment Reserve Funds Under Article 95 of the TERCL
K. Grants Under the Technology Development Promotion Act
L. Highly Advanced National Project Fund Industry Technology
Development Fund
M. Short-Term Export Financing
N. Korean Export-Import Bank Loans
O. Tax Incentives for Highly Advanced Technology Businesses
P. Special Depreciation of Assets Based on Foreign Exchange Earnings
Q. Steel Campaign for the 21st Century
R. Excessive Duty Drawback
S. Reserve for Investment
T. Export Insurance Rates By The Korean Export Insurance Corporation
U. Special Cases of Tax for Balanced Development among Areas (TERCL
Articles 41, 42, 44, and 45)
V. Reserve for Investment
W. Overseas Resource Development Loan
Verification
In accordance with section 782(d)(1)(A)(i) of the Act, we will
verify the information submitted by respondents prior to making our
final determination.
Summary
In accordance with section 703(d)(1)(A)(i) of the Act, we
calculated individual subsidy rates for Inchon, Kangwon, and DSM, the
manufacturers of the subject merchandise. We preliminarily determine
that the total estimated net countervailable subsidy rates are 0.35 ad
valorem for Inchon, 0.80 percent ad valorem for Kangwon, and 0.93
percent ad valorem for DSM, which are de minimis. Therefore, we
preliminarily determine that no countervailable subsidies are being
provided to the production or exportation of structural steel beams in
Korea.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged and nonproprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary 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 Assistant Secretary for Import Administration.
If our final determination is affirmative, the ITC will make its
final determination within 75 days after the Department makes its final
determination.
Public Comment
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held 57 days from the date of publication of the preliminary
determination at the U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230. Individuals who wish to
request a hearing must submit a written request within 30 days of the
publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14th Street and Constitution Avenue, NW, Washington, DC 20230.
Parties should confirm by telephone the time, date, and place of the
hearing 48 hours before the scheduled time.
Requests for a public hearing should contain: (1) The party's name,
address, and telephone number; (2) the number of participants; and, (3)
to the extent practicable, an identification of the arguments to be
raised at the hearing. In addition, six copies of the business
proprietary version and six copies of the nonproprietary version of the
case briefs must be submitted to the Assistant Secretary no later than
50 days from the date of publication of the preliminary determination.
As part of the case brief, parties are encouraged to provide a summary
of the arguments not to exceed five pages and a table of statutes,
regulations, and cases cited. Six copies of the business proprietary
version and six copies of the non-proprietary version of the rebuttal
briefs must be submitted to the Assistant Secretary no later than 5
days from the date of filing of the case briefs. An interested party
may make an affirmative presentation only on arguments included in that
party's case or rebuttal briefs. Written arguments should be submitted
in accordance with 19 CFR 351.309 and will be considered if received
within the time limits specified above.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: December 6, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-32398 Filed 12-13-99; 8:45 am]
BILLING CODE 3510-DS-P