Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determination: Stainless Steel Sheet and Strip in Coils from the Republic of Korea

DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-835]

Preliminary Affirmative Countervailing Duty Determination and

Alignment of Final Countervailing Duty Determination With Final

Antidumping Duty Determination: Stainless Steel Sheet and Strip in

Coils from the Republic of Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: November 17, 1998.

FOR FURTHER INFORMATION CONTACT: Eva Temkin or Christopher Cassel,

Office of CVD/AD Enforcement VI, Import Administration, U.S. Department

of Commerce, Room 4012, 14th Street and Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Preliminary Determination

The Department of Commerce (the Department) preliminarily

determines that countervailable subsidies are being provided to certain

producers and exporters of stainless steel sheet and strip in coils

from the Republic of Korea. For information on the estimated

countervailing duty rates, please see the ``Suspension of Liquidation''

section of this notice.

Petitioners

The petition in this investigation was filed by Allegheny Ludlum

Corporation, Armco, Inc., J&L Specialty Steel, Inc., Washington Steel

Division of Bethlehem Steel Corporation, United Steelworkers of

America, AFL-CIO/CLC, Butler Armco Independent Union, and Zanesville

Armco Independent Organization, Inc. (collectively referred to

hereinafter as the ``petitioners'').

Case History

Since the publication of the notice of initiation in the Federal

Register (see Initiation of Countervailing Duty Investigations:

Stainless Steel Sheet and Strip in Coils from France, Italy, and the

Republic of Korea, 63 FR 37539 (July 13, 1998) (Initiation Notice)),

the following events have occurred. On July 17, 1998, we issued

countervailing duty questionnaires to the Government of Korea (GOK),

and the producers/exporters of the subject merchandise. On August 6,

1998, we postponed the preliminary determination of this investigation

until no later than November 9, 1998. (see Notice of Postponement of

Time Limit for Countervailing Duty Investigations: Stainless Steel

Sheet and Strip in Coils from France, Italy, and the Republic of Korea,

63 FR 43140 (August 12, 1998)).

We received responses to our initial questionnaires from the GOK

and three of the five producers of the subject merchandise, Pohang Iron

& Steel Company, Ltd. (POSCO), Inchon Iron & Steel Co., Ltd. (Inchon),

and Dai Yang Metal Co., Ltd. (Dai Yang), on September 10, 1998. Also on

September 10, 1998, we received responses from seven trading companies

that are involved in exporting the subject merchandise to the United

States: POSCO Steel Service & Sales Company, Ltd. (POSTEEL), Hyosung

Corporation (Hyosung), Samsun Corporation (Samsun), Samsung Corporation

(Samsung), Hyundai Corporation (Hyundai), Daewoo Corporation (Daewoo),

and Sunkyong Ltd. (Sunkyong). On October 5, 1998, we issued

supplemental questionnaires to all of the responding parties. We

received their supplemental responses on October 21, 1998.

Scope of Investigation

For purposes of these investigations, the products covered are

certain stainless steel sheet and strip in coils. Stainless steel is an

alloy steel containing, by weight, 1.2 percent or less of carbon and

10.5 percent or more of chromium, with or without other elements. The

subject sheet and strip is a flat-rolled product in coils that is

greater than 9.5 mm in width and less than 4.75mm in thickness, and

that is annealed or otherwise heat treated and pickled or otherwise

descaled. The subject sheet and strip may also be further processed

(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that

it maintains the specific dimensions of sheet and strip following such

processing.

The merchandise subject to this investigation is classified in the

Harmonized Tariff Schedule of the United States (``HTSUS'') at

subheadings: 7219.13.00.30, 7219.13.00.50, 7219.13.00.70,

7219.13.00.80, 7219.14.00.30, 7219.14.00.65, 7219.14.00.90,

7219.32.00.05, 7219.32.00.20, 7219.32.00.25, 7219.32.00.35,

7219.32.00.36, 7219.32.00.38, 7219.32.00.42, 7219.32.00.44,

7219.33.00.05, 7219.33.00.20, 7219.33.00.25, 7219.33.00.35,

7219.33.00.36, 7219.33.00.38, 7219.33.00.42, 7219.33.00.44,

7219.34.00.05, 7219.34.00.20, 7219.34.00.25, 7219.34.00.30,

7219.34.00.35, 7219.35.00.05, 7219.35.00.15, 7219.35.00.30,

7219.35.00.35, 7219.90.00.10, 7219.90.00.20, 7219.90.00.25,

7219.90.00.60, 7219.90.00.80, 7220.12.10.00, 7220.12.50.00,

7220.20.10.10, 7220.20.10.15, 7220.20.10.60, 7220.20.10.80,

7220.20.60.05, 7220.20.60.10, 7220.20.60.15, 7220.20.60.60,

7220.20.60.80, 7220.20.70.05, 7220.20.70.10, 7220.20.70.15,

7220.20.70.60, 7220.20.70.80, 7220.20.80.00, 7220.20.90.30,

7220.20.90.60, 7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and

7220.90.00.80. Although the HTS subheadings are provided for

convenience and Customs purposes, the written description of the

merchandise under investigation is dispositive.

Excluded from the scope of this petition are the following: (1)

sheet and strip that is not annealed or otherwise heat treated and

pickled or otherwise descaled, (2) sheet and strip that is cut to

length, (3) plate (i.e., flat-rolled stainless steel products of a

thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled

sections, rectangular in shape, of a width of not more than 9.5 mm, and

a thickness of not more than 6.35 mm), and (5) razor blade steel. Razor

blade steel is a flat rolled product of stainless steel, not further

worked than cold-rolled (cold-reduced), in coils, of a width of not

more than 23mm and a thickness of 0.266 mm or less, containing, by

weight, 12.5 to 14.5 percent chromium, and certified at the time of

entry to be used in the manufacture of razor blades. See Chapter 72 of

the HTSUS, ``Additional U.S. Note'' 1(d).

The Department has determined that certain specialty stainless

steel products are also excluded from the scope of these

investigations. These excluded products are described below: Flapper

valve steel is defined as stainless steel strip in coils with a

chemical composition similar to that of AISI 420F grade steel and

containing, by weight, between 0.37 and 0.43 percent carbon, between

1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent

manganese. This steel also contains, by weight, phosphorus of 0.025

percent or less, silicon of between

[[Page 63885]]

0.20 and 0.50 percent, and sulfur of 0.020 percent or less. The product

is manufactured by means of vacuum arc remelting, with inclusion

controls for sulphide of no more than 0.04 percent and for oxide of no

more than 0.05 percent. Flapper valve steel has a tensile strength of

185 kgf/mm2, plus or minus 10, yield strength of 150 kgf/mm2, plus or

minus 8, and hardness (Hv) of 540, plus or minus 30.

Also excluded is suspension foil, a specialty steel product used,

e.g., in the manufacture of suspension assemblies for computer disk

drives. Suspension foil is described as 302/304 grade or 202 grade

stainless steel of a thickness between 14 and 127 m, with a

thickness tolerance of plus-or-minus 2.01 m, and surface

glossiness of 200 to 700 percent Gs. Suspension foil must be supplied

in coil widths of not more than 407 mm, and with a mass of 225 kg or

less. Roll marks may only be visible on one side, with no scratches of

measurable depth, and must exhibit residual stresses of 2 mm maximum

deflection, and flatness of 1.6 mm over 685 mm length.

Permanent magnet iron-chromium-cobalt alloy stainless strip is also

excluded from the scope of these investigations. This ductile stainless

steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10

percent cobalt, with the remainder of iron, in widths of 1.016 to 228.6

mm, and a thickness between 0.0127 and 1.270 mm. It exhibits magnetic

remanence between 9,000 and 12,000 gauss, and a coercivity of between

50 and 300 oersteds. This product is most commonly used in electronic

sensors and is currently available, e.g., under the trade name

``Arnokrome III.'' 1

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\1\ ``Arnokrome III'' is a trademark of the Arnold Engineering

Company.

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Electrical resistance alloy steel is also not included in the scope

of these investigations. This product is defined as a non-magnetic

stainless steel manufactured to American Society of Testing and

Materials (ASTM) specification B344 and containing, by weight, 36

percent nickel, 18 percent chromium, and 46 percent iron, and is most

notable for its resistance to high temperature corrosion. It has a

melting point of 1390 degrees Celsius and displays a creep rupture

limit of 4 kilograms per square millimeter at 1000 degrees Celsius.

This steel is most commonly used in the production of heating ribbons

for circuit breakers and industrial furnaces, and in rheostats for

railway locomotives. The product is currently available, e.g., under

the trade name ``Gilphy 36.'' 2

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\2\ ``Gilphy 36'' is a trademark of Imphy, S.A.

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Finally, certain stainless steel strip in coils used in the

production of textile cutting tools (e.g., carpet knives) is also

excluded. This steel is similar to ASTM grade 440F, but containing

higher levels of molybdenum. This steel contains, by weight, carbon of

between 1.0 and 1.1 percent, sulphur of 0.020 percent or less, and

includes between 0.20 and 0.30 percent copper and cobalt. This steel is

sold under, e.g. the proprietary name GIN4Mo.3

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\3\ ``Gin4Mo'' is the proprietary grade of Hitachi Metals

America, Ltd.

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All interested parties are advised that additional issues

pertaining to the scope of these investigations are still pending.

Furthermore, the exclusions outlined above are subject to further

revision and refinement. The Department plans on notifying interested

parties of its determinations on all scope issues in sufficient time

for parties to comment before the final determination.

The 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 (1998).

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 August 9, 1998, the

ITC announced 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 Stainless

Steel Sheet and Strip from France, Germany, Italy, Japan, the Republic

of Korea, Mexico, Taiwan and the United Kingdom, 63 FR 41864 (August 9,

1998)).

Alignment With Final Antidumping Duty Determination

On July 22, 1998, the petitioners submitted a letter requesting

alignment of the final determination in this investigation with the

final determination in the companion antidumping duty investigation.

See Initiation of Antidumping Investigations: Stainless Steel Sheet and

Strip in Coils From France, Germany, Italy, Japan, Mexico, South Korea,

Taiwan, and the United Kingdom, 63 FR 37521 (July 13, 1998). Therefore,

in accordance with section 705(a)(1) of the Act, we are aligning the

final determination in this investigation with the final determinations

in the antidumping investigations of stainless steel sheet and strip in

coils.

Period of Investigation

The period of investigation for which we are measuring subsidies

(the POI) is calendar year 1997.

Use of Facts Available

Both Sammi Steel Co., Ltd. (Sammi) and Taihan Electric Wire Co.,

Ltd. (Taihan), two producers of subject merchandise, failed to respond

to the Department's questionnaire. Section 776(a)(2) of the Act

requires the use of facts available when an interested party withholds

information that has been requested by the Department, or when an

interested party fails to provide the information requested in a timely

manner and in the form required. In such cases, the Department must use

the facts otherwise available in reaching the applicable determination.

Because Sammi and Taihan failed to submit the information that was

specifically requested by the Department on two separate occasions, and

because the GOK also failed to provide the information requested, we

have based our preliminary determination for these companies on the

facts available. In addition, the Department finds that by not

providing the requested information, respondents have failed to

cooperate to the best of their abilities.

In accordance with section 776(b) of the Act, the Department may

use an inference that is adverse to the interests of that party in

selecting from among the facts otherwise available when the party has

failed to cooperate by not acting to the best of its ability to comply

with a request for information. Such adverse inference may include

reliance on information derived from (1) the petition; (2) a final

determination in a countervailing duty or an antidumping investigation;

(3) any previous administrative review, new shipper review, expedited

antidumping review, section 753 review, or section 762 review; or (4)

any other information placed on the record. See section 351.308(c) of

the Department's regulations. In the absence of

[[Page 63886]]

information from the GOK and the respondents, we consider the petition,

as well as our findings from the Final Affirmative Countervailing Duty

Determinations and Final Negative Critical Circumstances

Determinations: Certain Steel Products from Korea, 58 FR 37338 (July 9,

1993) (Steel Products from Korea), to be appropriate bases for a facts

available countervailing duty rate calculation.

In Steel Products from Korea, we determined a country-wide ad

valorem subsidy rate of 4.64 percent based on many of the same programs

alleged in this case. Therefore, we are using the highest published ad

valorem rate of 4.64 percent that was calculated in Steel Products from

Korea as representative of the benefits from the industry-wide

subsidies alleged in this petition, and received by the other

respondents in this investigation. In addition, we are also applying a

facts available rate to Sammi and Taihan for a subsidy program newly

reviewed in this investigation, POSCO's two-tiered pricing structure to

domestic customers. We found this program to be countervailable, and

calculated company-specific program rates for Dai Yang and Inchon; as

discussed below, we used Inchon's calculated rate for this program as

adverse facts available for Sammi and Taihan. (A detailed discussion of

this program can be found in the ``Programs Preliminarily Determined to

be Countervailable'' section of this notice.)

Therefore, in Taihan's case, we used the 4.64 rate from Steel

Products from Korea because the subsidy programs alleged in this

investigation, with the exception of the one new allegation, are

virtually identical to the programs for which the 4.64 rate in Steel

Products from Korea was calculated. In addition, in accordance with

section 776(b)(4) of the Act, for the two-tiered pricing program, we

are applying the highest calculated company-specific rate for this

program to Taihan as adverse facts available, 5.51 percent ad valorem,

the company-specific program rate for Inchon. We added this 5.51

percent rate to the 4.64 percent rate (representing the program rates

of the other subsidy allegations) to arrive at a total ad valorem rate

of 10.15 percent as adverse facts available for Taihan.

In Sammi's case, in addition to applying the 4.64 rate from Steel

Products from Korea for most of the programs covered in this

investigation and the 5.51 rate for POSCO's two-tiered pricing

structure, we calculated rates for three other programs that have not

previously been investigated, and which were Sammi-specific subsidy

allegations. These newly alleged programs are: (1) 1992 emergency loans

to Sammi Steel; (2) the ``national subsidy'' provided to Sammi; and (3)

POSCO's purchase of Sammi Specialty Steel for more than adequate

remuneration. There programs are dealt with individually below in the

``Programs Preliminarily Determined to be Countervailable'' section of

this notice. As provided for in the Act, we used the data in the

petition as adverse facts available for the calculation of the program

rates for the 1992 emergency loans to Sammi Steel and the ``national

subsidy'' provided to Sammi. We used information provided in the

petition and in POSCO's questionnaire responses (public version on file

in the Department's Central Records Unit, Room B-099), for the

calculation of the program rate for POSCO's purchase of Sammi Specialty

Steel for more than adequate remuneration. We then added the rates for

these three programs and the rate representing the subsidy conferred by

POSCO's two-tiered pricing structure to the other programs' rate of

4.64 percent ad valorem calculated in Steel Products from Korea, which

is representative of the benefits from the other industry-wide

subsidies alleged in the petition and received by the other

respondents. We thus arrived at a total ad valorem rate of 29.23

percent as adverse facts available for Sammi.

The Statement of Administrative Action accompanying the URAA

clarifies that the information from the petition and prior segments of

the proceeding is ``secondary information.'' See Statement of

Administrative Action, accompanying H.R. 5110 (H.R. Doc. No. 103-316)

(1994) (SAA), at 870. If the Department relies on secondary information

as facts available, section 776(c) of the Act provides that the

Department shall, to the extent practicable, corroborate such

information using independent sources reasonably at its disposal. The

SAA further provides that to corroborate secondary information means

simply that the Department will satisfy itself that the secondary

information to be used has probative value. However, where

corroboration is not practicable, the Department may use uncorroborated

information.

With respect to the programs for which we did not receive

information from cooperative respondents, the information was

corroborated either through the exhibits attached to the petition or by

reviewing determinations in other proceedings in which we found

virtually identical programs in the same country to be countervailable.

Specifically, with respect to Taihan, the programs alleged in the

current investigation were virtually identical to those found to be

countervailable in Steel Products from Korea. We were unable to

corroborate the rate we used for Taihan, because the petition did not

contain countervailing duty rate information for these programs.

Therefore, it was not practicable to corroborate such a rate. However,

we note that the SAA at 870 specifically states that where

``corroboration may not be practicable in a given circumstance,'' the

Department may nevertheless apply an adverse inference. Further, in

Sammi's case, (in addition to the programs from Steel Products from

Korea discussed above), we corroborated the three newly-alleged

programs with the information provided in the petition, i.e., Sammi's

financial statements for years 1993 through 1996, and numerous public

press articles. Specifically, Sammi's financial statements show a line

item entitled ``national subsidy.'' The financial statements further

indicate that Sammi's debt burden was very high and that the company

was not making interest payments that reflected the significant debt

load. This demonstrates that the GOK may have entrusted or directed

government and/or commercial banks to provide the type of emergency

loan package to Sammi in 1992 that was alleged in the Petition.

Moreover, news articles indicate that the GOK was trying to rescue

Sammi, and that this effort included both the emergency loans in 1992

and POSCO's purchase of Sammi Specialty Steel for more than adequate

remuneration.

Additionally, the Department initiated an investigation with

respect to a fourth new allegation, ``Financial Assistance in

Conjunction with the 1997 Sammi Steel Company Bankruptcy.'' see

Initiation Notice. The petitioners allege that the GOK mitigated the

effects of Sammi's bankruptcy with the use of countervailable

subsidies. According to petitioners, when Sammi filed for receivership

in March 1997, the GOK (1) provided grants and other rescue aid which

was directed through a consortium of Sammi's rivals, and (2)

rescheduled Sammi's debt through a combination of loan forgiveness and

reduced interest rate loans.

We requested information concerning this program from the GOK and

Sammi. While Sammi chose not to cooperate in this investigation, the

GOK responded to the Department's questionnaires, stating that there

was no consortium and that there were no grants. The GOK further

stressed that Sammi's debt was addressed in the context of normal

[[Page 63887]]

bankruptcy proceedings. Neither the information in the GOK's response

nor that in the petition is complete enough to make a determination

about this program. Because we have received no information from Sammi,

we do not have sufficient evidence to stop investigating this program.

We will continue to search for information that will enable us to make

a facts available determination about this program in our final

determination.

Subsidies Valuation Information

Benchmarks for Long-term Loans and Discount Rates: In Steel

Products from Korea, we stated that the three-year corporate bond yield

``was the best indicator of a market rate in Korea.'' See 58 FR at

37346. Because the applicable facts of this investigation are virtually

identical to those in Steel Products from Korea, in conformance with

that prior decision, we have used the three-year corporate bond yield

as our long-term benchmark. For variable rate loans for which the

benefit is calculated on the interest payment during the POI, we have

used as our benchmark the three year over-the-counter corporate bond

rate, as reported by the GOK in its September 10, 1998, questionnaire

response (public version on file in the Department's Central Records

Unit, Room B-099). We have also used the three-year corporate bond

yield to calculate the benefit from fixed rate loans provided under the

Energy Savings Fund.

For years in which the companies under investigation have been

deemed uncreditworthy, we calculated the discount rates according to

the methodology described in the General Issues Appendix, which is

appended to the Final Affirmative Countervailing Duty Determination:

Certain Steel Products from Austria, 58 FR 37225, 37227 (July 9, 1993)

(GIA). Specifically, due to the necessary use of adverse facts

available with regard to Sammi, we used the highest commercial bank

loan interest rates available, and added a risk premium equal to 12

percent of the commercial lending rate, in accordance with the

methodology outlined in the GIA.

Benchmarks for Short-Term Financing: For those programs that

require the application of a short-term interest rate benchmark, we

used as our benchmark the company-specific, weighted-average, short-

term interest rates for won-denominated loans for the POI. The three

responding companies provided to the Department their respective

company-specific interest rate.

Allocation Period

In the past, the Department has relied upon information from the

U.S. Internal Revenue Service (IRS) for the industry-specific average

useful life of assets in determining the allocation period for non-

recurring subsidies (IRS Tables). See the GIA. In British Steel plc v.

United States, 879 F. Supp. 1254 (CIT 1995) (British Steel I), the U.S.

Court of International Trade (the Court) held that the IRS information

did not necessarily reflect a reasonable period based on the actual

commercial and competitive benefit of the subsidies to the recipients.

In accordance with the Court's remand order, the Department calculated

a company-specific allocation period for non-recurring subsidies based

on the average useful life (AUL) of non-renewable physical assets. This

remand determination was affirmed by the Court on June 4, 1996. See

British Steel plc v. United States, 929 F. Supp. 426, 439 (CIT 1996)

(British Steel II).

In recent countervailing duty investigations, it has been our

practice to follow the Court's decision in British Steel II, and to

calculate a company-specific allocation period for all countervailable

non-recurring subsidies. In this investigation, the only responding

company for which it was necessary to examine the company-specific AUL

was POSCO, as neither Inchon nor Dai Yang received non-recurring

grants. However, our analysis of the data submitted by POSCO regarding

the AUL of its assets has revealed several problems.

First, POSCO included special accelerated depreciation expenses and

a depreciation of salvage value in its calculated AUL. POSCO reported

that the accelerated depreciation is permitted in accordance with

Korean GAAP for plant and equipment which operate for a standard eight-

hour work day, and for facilities and equipment which operate longer

than a standard eight-hour day. However, since POSCO is a producer of

steel products, it appears to be the company's normal course of

business to operate its facilities longer than a standard eight-hour

day. With respect to the depreciation of salvage values, POSCO stated

that pursuant to changes in Korean tax law as of January 1, 1995,

``companies were permitted to fully depreciate the remaining 10 percent

of the acquisition cost of depreciable assets acquired prior to January

1, 1995 that had not been fully depreciated as of December 31, 1993.''

See POSCO's September 10, 1998, questionnaire response at 8 (public

version on file in the Cental Records Unit of the Department of

Commerce, Room B-099). However, while POSCO stated that the

depreciation of this salvage value is included in the amounts for

regular depreciation for 1995 through 1997, we do not have sufficient

information to determine how to treat this salvage value in calculating

POSCO's AUL. Further, we note that POSCO's calculations of its AUL show

an item for ``Revaluations,'' a term which is not explained in the

response.

Based on the concerns outlined above, we preliminarily determine

that POSCO's calculation of its company-specific AUL should not be used

to determine the appropriate allocation period for non-recurring

subsidies. Rather, for purposes of this preliminary determination, we

are using 15 years as set out in the IRS Tables. We intend to request

clarification and additional information concerning POSCO's AUL data

during the course of this investigation.

While we have not used POSCO's company-specific AUL because of the

concerns outlined above, even if we were to use the company-specific

data submitted by POSCO, the facts of this case pose additional

concerns and possible inconsistencies. In particular, this

investigation covers countervailable non-recurring subsidies

benefitting POSCO, i.e., GOK infrastructure investments at Kwangyang

Bay. These same non-recurring subsidies to the same company were

previously found countervailable in Certain Steel Products From Korea.

See 58 FR at 37346. In that investigation, the Department allocated the

benefits from these GOK investments over 15 years based on information

from the U.S. Internal Revenue Service (IRS) for the industry-specific

average useful life of assets. Under current Department practice,

previously allocated subsidies within the same proceeding are not given

a new allocation period. Rather, it is our policy to retain the

allocation period originally established for the subsidies in

subsequent administrative reviews of the same preceding.

We note here that in the concurrent investigation of stainless

steel sheet and strip in coils from France, the Department

preliminarily determined that it is more appropriate to continue

allocating non-recurring subsidies over the company-specific AUL of 14

years, which was calculated as a result of British Steel II. Although

this was a company-specific AUL, it was the AUL applied in a prior

investigation of the same subsidies to the same company that are

currently being examined in the investigation of stainless steel sheet

and strip in coils from France. The issue we

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are presented with is whether the allocation period, once established

for a subsidy to a company, should change in different proceedings. If

the allocation period did not change across proceedings, the same GOK

infrastructure investments described above will be allocated over 15

years in both the current investigation and in the recently initiated

administrative review of Certain Steel From Korea. That review covers

calendar year 1997. However, if we were to adopt different allocation

periods for different proceedings, the same subsidy to the same company

would be allocated over different periods, since POSCO calculated an

AUL of 9 years, assuming the calculation presented by and based on

company-specific data was accepted by the Department. Thus, the same

subsidy to the same company would have different allocation periods

across separate proceedings: 15 years in Certain Steel and 9 years in

this investigation.

We encourage parties to comment on this issue and whether an

alternative approach may be more appropriate. One option may be to

retain the allocation period of a subsidy previously investigated in a

prior investigation, rather than assign a new company-specific

allocation period based on company-specific AUL data. As described

above, this would conform with our practice in administrative reviews

of the same countervailing duty order. Alternatively, an additional

option would be to determine an individual AUL for each year in which a

non-recurring subsidy is provided to a company, rather than to

determine a company-specific AUL for non-recurring subsidies that could

change with each investigation and result in different allocation

periods for the same subsidy, as detailed above. We also welcome any

additional comments on this issue not raised above.

This investigation also includes non-recurring grants to Sammi that

have not been previously investigated. However, because we have no

information from Sammi, we are basing the countervailing duty rate for

Sammi on the facts available. Thus, as facts available, we are using

the 15 years as set out in the U.S. Internal Revenue Service's Class

Life Asset Depreciation Range System (for a more detailed discussion

see the GIA).

Treatment of Subsidies Received by Trading Companies: We required

responses from the trading companies because the subject merchandise

may be subsidized by means of subsidies provided to both the producer

and the exporter of the subject merchandise. Subsidies conferred on the

production and exportation of subject merchandise benefit the subject

merchandise even if the merchandise 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. During the POI, POSCO and

Inchon exported subject merchandise to the United States through

trading companies. We required that the trading companies provide

responses to the Department with respect to the export subsidies under

investigation. One of the trading companies, POSTEEL, is affiliated

with POSCO within the meaning of section 771(33)(E) of the Act because

POSCO owned 95.3 percent of POSTEEL's shares as of December 31, 1997.

The other trading companies are not affiliated with POSCO.

Additionally, according to its response, Inchon is affiliated with one

of the trading companies, Hyundai. This reported affiliation is based

upon cross-shareholdings and common board members within the Hyundai

group. The trading company, Hyundai, did respond to the Department's

questionnaire concerning subsidies that it had received during the POI.

However, because the status of affiliation does not affect the

calculated subsidy rate for Inchon for the purpose of including

subsidies provided to trading companies in Inchon's rate, we have not

made a determination of the affiliation of Inchon and Hyundai within

the meaning of section 771(33)(E) of the Act.

Under section 351.107 of the Department's Regulations, when the

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 determination is based

on two main facts: first, the majority of the 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 the subject merchandise is insignificant.

Combination rates would serve no practicable purpose because the

calculated subsidy rate for a producer and a combination of any of the

trading companies would effectively be the same rate. For these reasons

we are not calculating combination rates in this investigation.

Instead, the rates that we have calculated for the producers of

subject merchandise 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 seven

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.

Creditworthiness

As stated in our Initiation Notice, we initiated an investigation

of Inchon's creditworthiness from 1991 through 1997, and of Sammi's

creditworthiness from 1990 to 1997, to the extent that nonrecurring

grants, long-term loans, or loan guarantees were provided in those

years.

When the Department examines whether a company is creditworthy, it

is essentially attempting to determine if the company in question could

obtain commercial financing at commonly available interest rates. If a

company receives comparable long-term financing from commercial

sources, that company will normally be considered creditworthy. In the

absence of comparable commercial borrowing, the Department examines the

following factors, among others, to determine whether or not a firm is

creditworthy:

[[Page 63889]]

1. Current and past indicators of a firm's financial health

calculated from that firm's financial statements and accounts.

2. The firm's recent past and present ability to meet its costs and

fixed financial obligations with its cash flow.

3. Future financial prospects of the firm including market studies,

economic forecasts, and projects or loan appraisals.

For a more detailed discussion of the Department's creditworthiness

criteria, see, e.g., Final Affirmative Countervailing Duty

Determinations: Certain Steel Products from France, 58 FR 37304 (July

9, 1993) (Certain Steel from France); and Final Affirmative

Countervailing Duty Determinations: Certain Steel Products from the

United Kingdom, 58 FR 37393 (July 9, 1993).

Inchon

In accordance with the Department's past practice, 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, 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). During the years under investigation, Inchon

received numerous loans from both government-owned and private banks.

Because petitioners also alleged that Inchon received government-

directed credit, we have also looked at Inchon's bond issuances as

comparable commercial financing. Even if the existence of these loans

does not, on its own, constitute dispositive evidence that the firm is

creditworthy, it is evidence that Inchon was capable of managing its

long-term debt obligations.

In addition, we considered Inchon's present and past financial

health, as reflected in various financial indicators calculated from

the firm's financial statements and accounts, in making our

determination. To this end, we calculated Inchon's financial indicators

for the years 1988 through 1996. In our examination of Inchon's

relevant financial ratios, we did not find that the company would be

unable to meet its debt obligations. Furthermore, Inchon's financial

health remained relatively stable over the years examined, without the

appearance of any significant deterioration.

Although a number of the financial indicators were found to be weak

during certain years, the medium- and long-term indicators do not

support a determination that Inchon was uncreditworthy in any of the

years examined. Furthermore, while there is a possibility that Inchon's

long-term commercial financing (e.g. bonds) may not be dispositive

evidence of creditworthiness because of government direction of credit,

it serves as further evidence that Inchon was capable of meeting its

long-term debt obligations. Based on these observations, we

preliminarily find that Inchon was creditworthy for the years under

investigation. See Creditworthiness Memorandum, on file in the public

file of the Central Records Unit of the Department of Commerce, Room B-

099.

Sammi

Because Sammi and the GOK chose not to respond with regard to this

allegation, we used the information and financial data provided in the

petition as the facts available in accordance with section 776(b) of

the Act. (For further discussion, see the ``Facts Available'' section

of this notice.) Petitioners alleged that Sammi was uncreditworthy

during the period of 1983 through 1997 (although we deemed it

appropriate to investigate only the 1990 through 1997 time period). See

Initiation Notice. To illustrate the deterioration of Sammi's financial

health, petitioners provided press articles and debt and profit ratios

for the years of 1990 to 1996 based on the company's financial data.

See the June 10, 1998, Petition at Exhibit 11 and 13, and their June

24, 1998, submission at Attachment 3. Based on this information, it

appears that the company was nearly insolvent, as Sammi had shown a

profit only once since 1991 and lacked strong future prospects. We

reviewed the financial data of Sammi that was provided in the petition.

The data indicate that, during the years 1990 through 1997, Sammi was

not in good financial condition. The company's current ratio, quick

ratio, and times interest earned ratios were low, indicating that Sammi

may have had difficulty servicing new debt. In addition, the company's

profit margins were low or negative. Further, it appears from such

documentation that Sammi was having increasing difficulty in meeting

its financial obligations.

In many cases, the Department considers a company to be

creditworthy if it is able to procure commercial loans. However, in

this case, the company's ability to obtain commercial loans is unclear,

as information provided by petitioners indicates that the GOK may have

been directing commercial banks to provide emergency financing to Sammi

in order to avoid the company's bankruptcy. Based on this information,

we preliminarily determine that Sammi was uncreditworthy from 1990

through 1997.

I. Programs Preliminarily Determined To Be Countervailable

A. Direction of Credit

In the 1993 investigation of Steel Products from Korea, the

Department determined (1) that the GOK influenced the practices of

lending institutions in Korea; (2) that the GOK regulated long-term

loans provided to the steel industry on a selective basis; and (3) that

the selective provision of these regulated loans resulted in a

countervailable benefit. Accordingly, all long-term loans received by

the producers/exporters of the subject merchandise were treated as

countervailable. The determination in that investigation covered all

long-term loans bestowed through 1991. See 58 FR at 37339.

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 the conferral of countervailable

benefits 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.

1. The GOK's Credit Policies Through 1991. As noted above, we

previously found significant GOK control over the practices of lending

institutions in Korea through 1991, the period investigated in Steel

Products From Korea. This finding of control was determined to be

sufficient to constitute a government program and government action.

See 58 FR at 37342. We also determined that (1) the Korean steel

sector, as a result of the GOK's credit policies and control over the

Korean financial sector, received a disproportionate share of regulated

long-term loans, so that the program was, in fact, specific, and (2)

that the interest rates on those loans were inconsistent with

commercial considerations. Id. at 37343. Thus, we countervailed all

long-term loans received by the steel sector from all lending sources.

In this investigation, we provided the GOK with the opportunity to

present new factual information concerning the government's credit

policies prior to 1992, which we would consider along with our finding

in the prior investigation. The GOK has not

[[Page 63890]]

provided new factual information that would lead us to change our

determination in Steel Products from Korea. Therefore, we preliminarily

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. This finding is in conformance with the SAA,

which states that ``section 771(5)(B)(iii) encompasses indirect subsidy

practices like those which Commerce has countervailed in the past, and

that these types of indirect subsidies will continue to be

countervailable.'' SAA at 925. 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'' section,

above.

We also preliminarily determine that all regulated long-term loans

provided to the producers/exporters of the subject merchandise through

1991 were provided to a specific enterprise or industry, or group

thereof, within the meaning of section 771(5A)(D)(iii)(III) of the Act.

This finding is in conformance with our determination in Steel Products

from Korea. See 58 FR at 37342.

POSCO, Inchon and Dai Yang all received long-term loans prior to

1992 that were still outstanding during the POI. These included loans

with both fixed and variable interest rates for all three responding

companies. To determine the benefits from the regulated loans with

fixed interest rates, we applied the Department's standard long-term

loan methodology and calculated the grant equivalent for the loans. For

the variable-rate loans, we compared the amount of interest paid during

the POI on the regulated loans to the amount of interest that would

have been paid at the benchmark rate. We then summed the benefit

amounts from all of the loans attributable to the POI and divided the

total benefit by each company's total sales. On this basis, we

determine the countervailable subsidy rates to be 0.15 percent ad

valorem for POSCO, 0.04 percent ad valorem for Inchon, and 0.06 percent

ad valorem for Dai Yang.

2. The GOK's Credit Policies From 1992 Through 1997. We have also

examined the GOK's credit policies during the period 1992 through 1997.

Because of the complexity of this issue and the conflicting information

on the record, which we discuss below, we will continue to seek

additional information on whether the GOK's practices during this

period confer a countervailable subsidy. After we collect additional

information and conduct verification, we will prepare an analysis

memorandum addressing the countervailability of the GOK's credit

policies during this period and provide all parties with an opportunity

to comment on our analysis.

In its questionnaire responses, the GOK asserts that there was no

government policy to direct long-term credit to the Korean steel

industry during the period 1992 through 1997, and that it was not

involved in the lending activities of Korean financial institutions.

The GOK states that the lending decisions and loan distributions of

financial institutions in Korea reflect commercial considerations. The

GOK states that its role in the financial sector is limited to monetary

and credit policies as well as bank supervision and examination.

Evidence submitted to the Department by the GOK indicates that some

deregulatory measures affecting the Korean financial sector have been

taken since 1991. These include a four-stage interest rate deregulation

plan that, according to the GOK, virtually eliminated all government

control over deposit and lending rates in Korean won. For example,

rates on corporate bonds and all bank loans, other than those assisted

by Bank of Korea (BOK) rediscounts, were deregulated by November 1993.

Also, information submitted to the Department by the GOK indicates that

there have been reforms to the process by which commercial bank

presidents are selected. The reforms include a procedure, implemented

in 1993, whereby bank chairmen are selected by committees consisting of

shareholder representatives, corporate clients, and ex-bank presidents.

In 1997, the GOK further amended the Banking Act to prescribe that a

candidate for bank president, recommended by a candidate recommendation

committee, must be elected by an affirmative vote of a two-thirds

majority of the non-permanent directors of the bank.

However, other information in the record indicates that the GOK may

still exert substantial influence over the lending decisions of

financial institutions. For example, recent GOK policies appear to be

aimed, in part, at promoting certain sectors of the economy, such as

high technology and small and medium sized enterprises (SMEs). See,

e.g., ``KDB Financial Support for Korean Industries,'' from the Korea

Development Bank appended to ``Memorandum From Case Analyst to File,

Re: Articles on Korean Financial System'' (on file in the public file

of the Central Records Unit of the Department of Commerce, Room B-099)

(``Korean Financial System Memo''). Other official information on the

record appears to suggest that the GOK may have continued the practice

of directing credit after 1991. Independent commentators have also

noted the GOK's continued involvement in the financial system. See,

e.g., Deep Pockets, ``The Economist'' (May 3, 1997), appended to Korean

Financial System Memo; Financing Foreign Operations, South Korea, The

Economist Intelligence Unit, 1997, page 20 (1997), appended to Korean

Financial System Memo; The Korean Economy in 1997: Crisis and Response,

by Thomas Byrne, appended to Korean Financial System Memo.

As noted above, in light of this conflicting information, at

verification and during the course of this proceeding, we will gather

additional information in order to make a determination as to whether

credit provided after 1991 is countervailable. During verification, we

plan to meet with various individuals who are knowledgeable about the

financial sector in Korea in order to gather information about the

differences between the GOK's credit policies in the 1980s and the

1990s; the lending practices of government-owned banks and of

commercial lending institutions; the role of securities (public and

corporate bonds) in the financial system; and the impact of the GOK's

financial liberalization on the lending practices of Korean banks after

1991.

B. Loans From the Energy Savings Fund

Established in accordance with Article 51 of the ``Rationalization

of Energy Utilization Act'' (Energy Use Act), the Energy Saving Fund

provides financing at below-market interest rates for investment by

businesses in facilities that rationally and efficiently use energy.

Overall responsibility for the program lies with the Ministry of

Industry and Energy (MIE), but the operation and management of the

program is entrusted to the Korea Energy Management Corporation (KEMC).

While the Energy Use Act was repealed in 1995, the MIE, under the new

``Energy Use Rationalization Act,'' provides financing for this program

from special government accounts.

Korean companies obtain financing under this program by submitting

an application to the KEMC. If the KEMC is satisfied that the

applicant's business plans are intended for the rationalization of

energy use, it will then issue a recommendation, and forward the

company's application to a

[[Page 63891]]

bank. The KEMC will transfer funds to the bank, which will in turn

provide the funds to the applicant. The interest rate charged under the

Energy Saving Fund was set at 7.0 percent. POSCO and Inchon paid

interest on Energy Saving Fund (ESF) loans during the POI, and the

interest rates paid by the companies were less than the 7.0 percent

rate prescribed by the program. POSCO received two ESF loans, both in

1994, and both at interest rates below 7.0 percent. Inchon also

received two ESF loans, one before 1992 and one after 1992. The pre-

1992 ESF loan was at a rate below the prescribed interest rate set by

the program.

We preliminarily determine that the program provides a financial

contribution within the meaning of section 771(5)(D)(i) of the Act and,

in accordance with section 771(5)(E)(ii) of the Act, provides a benefit

to the recipient based on the difference between the interest rate on

the program loan and the benchmark rate described in the ``Subsidies

Valuation'' section, above. We also preliminarily determine that the

loans provided to POSCO and the pre-1992 loan made to Inchon were

specific within the meaning of section 771(5A)(D)(iii)(IV) of the Act,

because the interest rates charged to POSCO and Inchon were less than

the program interest rate prescribed by the program's regulations. We

note that the ESF loan received by Inchon before 1992 would also be

found to be countervailable under our determination in the 1993

investigation of Steel Products from Korea that the GOK directed credit

to the steel industry. See also the ``Direction of Credit'' section in

this preliminary determination.

To calculate the benefit from the Energy Savings Loans, we employed

the Department's standard long-term loan methodology, using as our

benchmark the rate described in the ``Subsidies Valuation'' section of

the notice, above. We divided the benefit attributable to the POI by

each company's total sales during 1997. On this basis, we preliminarily

determine the countervailable subsidy to be less than 0.005 percent ad

valorem for POSCO and for Inchon.

We have not yet made a determination on whether the post-1992 ESF

loan provided to Inchon is countervailable. According to the

information provided by the GOK and Inchon, the interest rate on the

post-1992 loan is in accordance with the prescribed rates under the ESF

program. Thus, we must make a specificity determination on the ESF

program under section 771(5A)(D) of the Act. The information on the

record regarding the specificity of the ESF program is inconclusive.

Therefore, we are seeking additional information on this program and

will make our determination of the specificity of the program in our

final determination. We will offer all interested parties an

opportunity to comment on any additional factual information obtained

concerning this program.

C. 1992 ``Emergency Loans'' to Sammi Steel

The petition alleges that in 1992 the GOK directed a package of 132

billion won in ``emergency loans'' to Sammi in order to save the

company from bankruptcy. Because Sammi and the GOK chose not to respond

with regard to this allegation, we used the information and data

provided in the petition as adverse facts available, in accordance with

section 776(b) of the Act. This information, in conjunction with our

finding that Sammi was uncreditworthy during the year in question,

indicates that Sammi was the recipient of a government-directed

emergency loan package in 1992, and that this loan package provided a

financial contribution in accordance with section 771(5)(D)(i) of the

Act. In addition, because this emergency loan package was only provided

to Sammi, we preliminary determine that the program is specific under

section 771(5A)(D) of the Act.

Under section 771(5)(E)(ii) of the Act, the benefit from a

countervailable loan is based upon the difference between the amount

the recipient of the loan pays on the loan and the amount the recipient

would pay on a comparable commercial loan that the recipient could

actually obtain on the market. Because the loans in question are part

of a government-directed emergency loan package to forestall Sammi's

bankruptcy, it is reasonable to assume that the company would not have

been able to actually obtain alternative financing absent the

participation of the government. Therefore, for this preliminary

determination, as facts available, we are treating these emergency

loans of 132 billion won as interest-free loans which are rolled over

from year to year. A review of Sammi's 1996 financial statements

indicate that the company is paying little interest on outstanding

debt, interest that may not have been sufficient to cover even its

short-term debt. Thus, we are calculating the benefit from these

interest-free loans using the Department's standard long-term variable

rate loan methodology. To calculate the benefit from this program

during the POI, we took the amount of the loans, 132 billion won, and

calculated the amount of interest that would have been paid on that

amount. As facts available, we have used as a benchmark interest rate

the highest available commercial loan rate, plus a risk premium. For a

more detailed discussion, see the ``Subsidies Valuation'' section of

this notice. We divided the benefit attributable to the POI by Sammi's

total sales during 1996. We used the sales figure reported in Sammi's

1996 financial statements as a proxy for the 1997 sales because we do

not have any information of the value of Sammi's sales for the POI. On

this basis, we preliminarily determine the countervailable subsidy

conferred to be 3.18 percent ad valorem.

Petitioners have argued that under the application of adverse facts

available, with no other information on the record, the emergency loans

received by Sammi should be treated as grants. However, for the

purposes of this preliminary determination, it is appropriate to treat

this emergency loan package as loans. When this program was initially

alleged, it was alleged that the GOK had provided a large amount of

money to Sammi in the form of loans. See the June 10, 1998, Petition at

page 56 (public version on file in the public file of the Central

Records Unit of the Department of Commerce, Room B-099). Moreover, the

information provided in the petition which was the basis for the

Department's initiation of an investigation into this program,

describes this program as a loan package. See the June 10, 1998

Petition at Exhibit 8 (public version on file in the public file of the

Central Records Unit of the Department of Commerce, Room B-099).

D. ``National Subsidy'' to Sammi

The petitioners allege that in 1993 Sammi received a ``national

subsidy'' in the amount of 39 million won. They provide the company's

1993 financial statement, which has an entry for the alleged subsidy,

although the nature of the subsidy is not explained. Neither Sammi nor

the GOK submitted any information to the record explaining this

subsidy. Therefore, in accordance with 776(b) of the Act, we used the

information provided in the petition. We find this program to be

countervailable because this subsidy was given only to Sammi, and thus,

it is specific under section 771(5A)(D) of the Act, and a financial

contribution was provided to Sammi under section 771(5)(D)(ii) of the

Act.

Because no other information was provided, we are treating this

``national subsidy'' as a grant bestowed upon

[[Page 63892]]

Sammi. In order to calculate the rate for this program, we employed the

Department's grant methodology. See GIA, 58 FR at 37225-31. However,

because the total amount of the national subsidy is less than 0.50

percent of Sammi's 1993 sales, we have expensed the grant in the year

of receipt. Thus, there is no benefit under this program during the

POI.

E. Purchase of Sammi Specialty Steel Division for More than Adequate

Remuneration

In February 1997, POSCO purchased the specialty steel bar and pipe

division of Sammi for 719.4 billion won. This division became POSCO's

Changwon facility. Petitioners alleged that POSCO was directed by the

government to purchase the Sammi Specialty Steel Division as a matter

of national interest as opposed to one of economic merit. Petitioners

alleged that the GOK used its ownership in POSCO as a vehicle for the

subsidization of Sammi. Thus, petitioners allege that POSCO's purchase

of the Sammi Specialty Steel Division was for more than adequate

remuneration.

As noted in the ``Use of Facts Available'' section of this notice,

Sammi refused to respond to the Department's questionnaires. POSCO has

provided certain documents relevant to this purchase, but Sammi's

refusal to respond to our questionnaires means that significant

portions of information required by the Department to analyze this

program have not been provided. Thus, in making this preliminary

determination, we have relied on both information provided by POSCO and

information provided in the petition with respect to this allegation.

In accordance with section 776(b) of the Act, the Department may use an

inference that is adverse to the interest of a party when selecting

from facts otherwise available when the party has failed to cooperate

with a request for information. As discussed in the ``Use of Facts

Available'' section, we determined that Sammi has failed to cooperate

by not answering the Department's questionnaire.

Based on the information on the record, we preliminarily determine

that the actions of POSCO should be considered as an action of the GOK

because POSCO is a government-controlled company. During the POI, the

GOK was the largest shareholder of POSCO. We also note that POSCO is

one of three companies designated as a ``Public Company'' by the GOK.

One of the other ``Public Companies'' is the state-run utility company,

KEPCO. This determination that POSCO should be treated as a government-

owned provider of a good or service is consistent with other cases

involving the provision of a good or service by government-owned

companies. See, e.g., Final Affirmative Countervailing Duty

Determination: Steel Wire Rod from Venezuela, 62 FR 55014 (October 22,

1997).

Over the course of this investigation, we have reviewed numerous

documents that relate to this purchase, including the valuation studies

and the purchase contract between POSCO and Sammi. The amount paid by

POSCO was significantly higher than the value defined by POSCO's own

interim valuation report. Ostensibly, Sammi used the proceeds from the

sale to pay debts owed by its other divisions. It appears as though the

purchase price agreed upon by POSCO and Sammi included money both for

the assets that POSCO was purchasing and for the repayment of debt

associated with these assets. See POSCO's October 21, 1998,

supplemental questionnaire response at Exhibit F-12, public version on

file in the public file of the Central Records Unit of the Department

of Commerce, Room B-099.

According to section 771(5)(E) of the Act, the adequacy of

remuneration with respect to a government's provision of a good or

service shall be determined in relation to prevailing market conditions

for the good or service being provided or the goods being purchased in

the country which is subject to the investigation or review. Because no

information was provided by Sammi with respect to this program, as

facts available the adequacy of remuneration was based on a comparison

of the value and profitability of Sammi's bar and pipe division, as

described in POSCO's valuation report, with the actual purchase price.

On this basis, the Department preliminarily determines that POSCO made

this purchase for more than adequate remuneration, thereby conferring a

benefit under section 771(5)(E)(iv) of the Act. In accordance with

section 771(5A)(D)(i) of the Act, we find that this program is specific

to Sammi.

To calculate a countervailing duty rate for this purchase, we

treated the excessive remuneration, i.e., the amount paid for Sammi by

POSCO in excess of POSCO's own valuation, as a non-recurring grant and

allocated it over the average useful life of assets in the industry.

For a discussion of the AUL, see the ``Subsidies Valuation'' section of

this notice. Based on this methodology, we calculated a countervailable

subsidy of 15.90 percent ad valorem for Sammi for this program during

the POI.

F. Kwangyang Bay

Petitioners requested that the Department investigate whether the

GOK's infrastructure development at Kwangyang Bay continues to provide

a countervailable subsidy to POSCO's steel production. The Department

previously determined that the Korean government's infrastructure

development at Kwangyang Bay constituted a specific countervailable

subsidy to POSCO, because POSCO was found to be the predominant user of

the infrastructure. See Steel Products from Korea, 58 FR at 37346-47.

Because POSCO still produces steel products at Kwangyang Bay, we

requested information on this program to determine whether the GOK has

made additional investments since 1991, at Kwangyang Bay.

1. GOK Infrastructure Investments at Kwangyang Bay Pre-1992. In

Steel Products from Korea, the Department investigated the GOK's

infrastructure investments at Kwangyang Bay over the period 1983-1991.

During this period of time, the GOK's investments at Kwangyang Bay

included: construction of an industrial waterway, construction of a

railroad station, construction of a road to Kwangyang Bay, dredging of

the harbor, and construction of three finished goods berths. We

determined that the GOK's provision of infrastructure to POSCO at

Kwangyang Bay was countervailable because we found POSCO to be the

predominant user of the GOK's investments. The Department has

consistently held that a countervailable subsidy exists when 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. See Steel Products from Korea, 58 FR at 37346.

No new factual information or evidence of changed circumstances has

been provided to the Department with respect to the GOK's

infrastructure investments at Kwangyang Bay over the period 1983-1991.

Therefore, to determine the benefit from the GOK's investments to POSCO

during the POI, we relied on the calculations performed in the 1993

investigation of Steel Products from Korea, which were placed on the

record of this investigation by POSCO. In measuring the benefit from

this program in the 1993 investigation, the Department treated the

GOK's costs of constructing the infrastructure at Kwangyang Bay as

untied, non-recurring grants in each year in which the costs were

incurred. The Department used as its discount rate the three-year

corporate bond rate

[[Page 63893]]

on the secondary market, which was the average cost of long-term fixed

rate debt in Korea at that time.

We applied the Department's standard grant methodology and then

allocated the GOK's infrastructure investments over a 15-year time

period as described in the ``Allocation'' section of the notice, above.

We used as our discount rate the three-year corporate bond rate on the

secondary market used in Steel Products from Korea. We then summed the

benefits received by POSCO during 1997, from each of the GOK's yearly

investments over the period 1983-1991. We then divided the total

benefit attributable to the POI by POSCO's total sales for 1997. On

this basis, we preliminarily determine a countervailable subsidy of

0.29 percent ad valorem for the POI for POSCO.

2. GOK Infrastructure Investments at Kwangyang Bay Post-1991. The

GOK has made the following additional infrastructure investments at

Kwangyang Bay since 1991: construction of a road from Kwangyang to

Jinwol, construction of a container terminal, and construction of the

Jooam Dam. The GOK states that pursuant to Article 29 of the Industrial

Sites and Development Act, it is the national and local governments'

responsibility to provide basic infrastructure facilities throughout

the country, and the nature of the infrastructure depends on the

specific needs of each area and/or the types of industries located in a

particular area. Depending upon the type of infrastructure built, the

GOK provides services to companies through the use of the

infrastructure facilities and charges fees for these services based on

published tariff rates applicable to all users.

With respect to the GOK's post-1991 infrastructure investments at

Kwangyang Bay, the GOK argues that the construction of the

infrastructure was not for the benefit of POSCO. The GOK reports that

the purpose of developing the Jooam Dam, which was fully constructed in

1993, was to meet the rising demand for water by area businesses and

households. The supply capacity of the Sueochon dam, which was

constructed prior to 1991, could not meet the area's water needs and

therefore a second dam at Kwangyang Bay was built. The GOK further

reports that the construction of the Jooam Dam did not benefit POSCO

because POSCO receives all of its water supply from the Sueochon Dam.

In Steel Products from Korea, we determined that POSCO was the

predominant user of the Sueochon Dam, and on this basis treated the

government's full investment costs for constructing that dam as

countervailable subsidies benefitting POSCO.

The GOK developed the container terminal according to the Kwangyang

Container Terminal Development Plan. The purpose of the container

terminal was to provide another major southern port with a container

terminal in order to relieve congestion at Pusan, and to encourage the

further commercial development of the region. The GOK states that,

given the nature of the merchandise imported, produced, and exported by

POSCO at Kwangyang Bay, this container terminal cannot be used by

POSCO's operations. According to the responses from the GOK and POSCO,

neither steel products nor steel inputs are shipped through the

container terminal at Kwangyang Bay, nor, given the nature of those

products, would they be shipped through the container terminal.

The road from Kwangyang to Jinwol was constructed in 1993. The road

between the two cities is a by-pass route constructed to relieve a

transportation bottleneck in the area. The GOK states that this is a

general service, public access road available for, and used by, all

residents and businesses in the area of Kwangyang Bay. According to the

GOK response, the reason for building the public highway was not to

serve POSCO, but to provide general infrastructure to the area as part

of the GOK's continuing development of the country.

Based on the information on the record regarding the GOK's

infrastructure investments at Kwangyang Bay since 1991, we

preliminarily determine that these investments are not providing

countervailable benefits to POSCO. However, we will further investigate

the GOK's infrastructure investments at verification to ascertain

whether or not, in fact, the facilities were built for POSCO's benefit.

G. Port Facility Fees

The GOK reports in its September 10, 1998, questionnaire response

that, since 1991, POSCO has built new port facilities at Kwangyang Bay,

at the company's own expense. However, since titles to port facilities

must be transferred to the GOK in accordance with Article 17-1 of the

Harbor Act, POSCO had to revert these facilities to the GOK. In return,

POSCO has the right to use the port facilities free of charge, and can

charge other users a usage fee until the company recovers all of its

investment costs.

In the 1993 investigation of Steel Products from Korea, the

Department found that POSCO, which built port berths at Kwangyang Bay,

but, by law, had to deed them to the GOK, was exempt from paying fees

for use of the berths. POSCO was the only company entitled to use the

berths at the port facility free of charge. The Department determined

that because this privilege was limited to POSCO, and because the

privilege relieved POSCO of costs it would otherwise have had to pay,

POSCO's free use of the berths at Kwangyang Bay constituted a

countervailable benefit. The Department stated that each exemption from

payment of the fees, or ``reimbursement'' to POSCO, creates a

countervailable benefit because the GOK is relieving POSCO of an

expense the company would have otherwise incurred. See Steel Products

from Korea, 58 FR at 37347-348.

With respect to the present investigation, because POSCO remains

exempt from paying port facility fees which it otherwise would have to

pay, and therefore the government is not collecting revenue that it is

otherwise due, we preliminarily determine that POSCO's free use of the

port facilities provides a financial contribution to the company within

the meaning of section 771(5)(D)(ii) of the Act. We also preliminarily

find that the exemption from paying port facility charges is a specific

subsidy under section 771(5A)(D)(iii)(IV) of the Act, because POSCO was

the only company exempt from paying port facility fees during the POI.

Because the exemption of the port facility fees are not

``exceptional'' benefits and are received automatically on a regular

and predictable basis without further government approval, we

preliminarily determine that this fee exemption provides a recurring

benefit to POSCO. Therefore, we have expensed the benefit from this

program in the year of receipt. See GIA, 58 FR at 37226. To measure the

benefit which POSCO received during the POI for the free use of the

facilities, we calculated the amount of the fees which POSCO would have

had to pay for the use of the facilities during the POI. We then

divided this benefit amount by POSCO's total sales for the POI. On this

basis, we preliminarily determine that POSCO received a countervailable

subsidy of 0.03 percent ad valorem during the POI.

H. Export Industry Facility Loans

In Steel Products from Korea, 58 FR at 37328, the Department

determined that export industry facility loans (EIFLs) are contingent

upon export, and are therefore export subsidies to the extent that they

are provided at preferential rates. In this investigation,

[[Page 63894]]

we provided the GOK with the opportunity to present new factual

information concerning these EIFLs, which we would consider along with

our finding in the prior investigation. The GOK has not provided new

factual information that would lead us to change our determination in

Steel Products from Korea. Therefore, 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 preliminarily

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. In accordance with section 771(5)(E)(ii) of the Act, a benefit

has been conferred to the recipient to the extent that the EIFLs are

provided at interest rates less than the benchmark rates described

under the ``Subsidies Valuation'' section, above.

Dai Yang was the only respondent with outstanding loans under this

program during the POI. To calculate the benefit conferred by this

program, we compared the actual interest paid on the loan with the

amount of interest that would have been paid at the applicable

benchmark interest rate. When the interest that would have been paid at

the benchmark rate exceeds the interest that was paid at the program

interest rate, the difference between those amounts is the benefit. We

divided the benefits derived from the loans by total export sales. On

this basis, we preliminarily determine that Dai Yang received from this

program during the POI a countervailable subsidy of 0.04 percent ad

valorem.

I. Short-Term Export Financing

The Department determined that the GOK's short-term export

financing program was countervailable in Steel Products from Korea, 58

FR at 37350. Petitioners allege that this program may also have

benefitted the producers and/or exporters of the subject merchandise.

In this investigation, the GOK reports that the BOK, under the

``Detailed Rules of Trade Financing Related to the Aggregate Ceiling

Loans'' (Detailed Rules), provides discounts on foreign trade bills to

commercial banks, which, in turn, extend short-term loans to exporters.

Under the aggregate credit ceiling system established in 1994, the BOK

allocates a credit ceiling every month to each commercial bank,

including branches of Korean and foreign banks. This ceiling is based

on each bank's loan performance, i.e., each bank's discounting of

commercial loans, foreign trade financing, and loans for the production

of parts and material. These banks then provide loans to exporters

using the funds received from the BOK and funds generated from their

own sources to discount trade bills.

There are two types of trade financing: production financing and

raw material financing. A bank provides production financing when a

company needs funds for the production of export merchandise or the

production of raw materials used in the production of exported

merchandise. A bank extends raw material financing to exporters which

require financing for the importation or local purchase of raw

materials used in the production of exported merchandise.

During the POI, POSCO and Dai Yang both received export financing.

These two companies report that they entered into credit ceiling loan

agreements with commercial banks in accordance with Articles 12 and 13

of the Detailed Rules to receive production financing. The loan

agreements outlined the maximum amount of credit which POSCO and Dai

Yang were eligible to receive, the periods covered by the loan

agreements, the applicable interest rates, and the penalty interest

rates.

When the exporting company purchases raw materials from a supplier

on a letter of credit basis, the supplier presents the letter of credit

to the exporter's bank for payment. The bank, in turn, pays the

purchase price to the supplier and debits the trade loan against the

exporter's line of credit. The exporter pays the full amount of each

trade loan after about 90 days, which is the average period from

production to sales. Interest is paid by the exporter against each

trade loan at the time the loans are received. Both Dai Yang and POSCO

reported that they paid all of their export financing during the POI in

a timely manner and incurred no overdue interest penalties.

In accordance with section 771(5A)(B) of the Act, we preliminary

determine that this program constitutes an export subsidy because

receipt of the financing is contingent upon export performance. A

financial contribution is provided to Dai Yang and POSCO under this

program within the meaning of section 771(5)(D)(i) of the Act. In order

to determine whether this export financing program confers a

countervailable benefit to Dai Yang and POSCO, we compared the interest

rate the companies paid on the export financing received under this

program during the POI with the interest rate they would have paid on a

comparable short-term commercial loan. See discussion above in the

``Subsidies Valuation Information'' section with respect to short-term

loan benchmark interest rates.

Because loans under this program are discounted (i.e., interest is

paid up-front at the time the loans are received), the effective rates

paid by POSCO and Dai Yang on their export financing are discounted

rates. Therefore, it was necessary to derive from company-specific

weighted-average interest rates for short-term won-denominated

commercial loans, a discounted benchmark interest rate. We compared

this discounted benchmark interest rate to the discounted interest

rates charged on the export financing and found that the program

interest rates were lower than the benchmark rates. Therefore, in

accordance with section 771(5)(E)(ii) of the Act, we preliminarily

determine that this program confers countervailable benefits because

the interest rates charged on the loans were less than what POSCO would

have had to pay on a comparable short-term commercial loan.

To calculate the benefit conferred by this program, we compared the

actual interest paid on the loans with the amount of interest that

would have been paid at the applicable discounted benchmark interest

rates. When the interest that would have been paid at the benchmark

rate exceeded the interest that was paid at the program interest rate,

the difference between those amounts is the benefit. Because neither

POSCO nor Dai Yang was able to segregate their production financing

applicable to only subject merchandise exported to the United States,

we divided the benefits derived from the loans by total exports. On

this basis, we preliminarily determine that POSCO received from this

program during the POI a countervailable subsidy of less than 0.005

percent ad valorem, and that Dai Yang received a countervailable

subsidy of 0.04 percent ad valorem during the POI.

J. 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

[[Page 63895]]

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, Dai Yang, Inchon, Samsun, Samsung, Sunkyong,

and Daewoo used this program. Although POSCO did not use this program

during the POI, its exports of the subject merchandise were shipped

through trading companies which did use this program during the POI

(Samsun, Samsung, Sunkyong, and Daewoo). Neither Inchon nor Dai Yang

shipped through any trading companies that received benefits from this

program, although both Inchon and Dai Yang received benefits as

exporters.

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.

To determine the benefits conferred by this program, we calculated

the tax savings by multiplying the balance amounts of the reserves as

of December 31, 1996, by the corporate tax rate for 1996. We treated

the tax savings on these funds as short-term interest-free loans.

Accordingly, to determine the benefits, the amounts of tax savings were

multiplied by the companies' weighted-average interest rates for short-

term won-denominated commercial loans for the POI, described in the

``Subsidies Valuation Information'' section, above. Using the

methodology for calculating subsidies received by trading companies,

which also is detailed in the ``Subsidies Valuation Information''

section of this notice, we preliminarily determine a countervailable

subsidy of less than 0.005 percent ad valorem attributable to POSCO, a

subsidy of 0.15 percent ad valorem for Inchon, and a countervailable

subsidy of 0.01 percent ad valorem attributable to Dai Yang.

K. Reserve for Overseas Market Development--Article 17 of the TERCL

Article 17 of the TERCL operates in a manner similar to Article 16,

discussed above. This provision 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 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. The following exporters of the subject

merchandise received benefits under this program during the POI: Dai

Yang, Hyosung, Hyundai, POSTEEL, Samsun, Samsung, and Sunkyong, and

Daewoo. Although Inchon and POSCO did not use this program during the

POI, these companies' exports of the subject merchandise were shipped

through trading companies which did use this program during the POI:

Inchon shipped through Hyundai, and POSCO shipped through Hyosung,

POSTEEL, Samsun, Samsung, and Sunkyong, and Daewoo. Dai Yang did not

ship through trading companies during the POI.

We preliminarily determine that the Reserve for Overseas Market

Development 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.

To determine the benefits conferred by this program during the POI,

we employed the same methodology used for determining the benefit from

the Reserve for Export Loss program. 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, described in

the ``Subsidies Valuation Information'' section above. Using the

methodology for calculating subsidies received by trading companies,

which also is detailed in the ``Subsidies Valuation Information''

section of this notice, we preliminarily calculate a countervailable

subsidy of 0.01 percent ad valorem for this program during the POI for

POSCO, 0.01 percent ad valorem for Inchon, and 0.01 percent ad valorem

for Dai Yang.

L. Investment Tax Credits

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. During the POI, the

respondents used various investment tax credits received under the

TERCL to reduce their net tax liability. In Steel Products from Korea,

we found that investment tax credits were not countervailable (see 58

FR at 37351); however, there were changes in the statute effective in

1995 which have caused us to revisit the countervailability of the

investment tax credits.

POSCO claimed or used the following tax credits in its fiscal year

1996 income tax return which was filed during the POI: (1) tax credits

for investments in facilities for research and experimental use and

investments in facilities for vocational training or assets for

business to commercialize new technology under Article 10; (2) tax

credits for vocational training under Article 18; (3) tax credits for

investment in productivity improvement facilities under Article 25; (4)

tax credits for investment in specific facilities under Article 26; (5)

tax credits for temporary investment under Article 27; and (6) tax

credits for specific investments under Article 71 of TERCL. Inchon

claimed or used: (1) tax credits for investments in technology and

human resources under Article 9; and (2) tax credits for investment in

productivity improvement facilities under Article 25. Dai Yang also

claimed or used tax credits under Articles 9 and 25.

For these specific tax credits, a company normally calculates its

authorized tax credit based upon three or five percent of its

investment, i.e., the company receives either a three or five percent

tax credit. However, if a company makes the investment in domestically-

produced facilities under these Articles, it receives a 10 percent tax

credit. Under section 771(5A)(C) of the Act, which became effective on

January 1, 1995, a program that is contingent upon the use of domestic

goods over imported goods is specific, within the meaning of the Act.

Because Korean companies receive a higher tax credit for investments

made in domestically-produced facilities, we preliminarily determine

that investment tax credits received under Articles 10,

[[Page 63896]]

18, 25, 26, 27, and 71 constitute import substitution subsidies under

section 771(5A)(C) of the Act. In addition, because the GOK foregoes

collecting tax revenue otherwise due under this program, we also

preliminarily determine that a financial contribution is provided under

section 771(5)(D)(ii) of the Act. Therefore, we preliminarily determine

this program to be countervailable.

To calculate the benefit from this tax credit program, we examined

the amount of tax credit the companies deducted from their taxes

payable for the 1996 fiscal year. In its fiscal year 1996 income tax

return filed during the POI, POSCO deducted from its taxes payable,

credits earned in the years 1992 through 1995, which were carried

forward and used in the POI in addition to POSCO's 1996 deduction. We

first determined the amount of the tax credits claimed which were 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 than the regular three or five

percent tax credit. Next, we calculated the amount of the tax savings

earned through the use of these tax credits during the POI and divided

that amount by POSCO's total sales for the POI. Neither Inchon nor Dai

Yang carried forward any tax credits from previous years. Therefore, to

calculate their rates we calculated the additional amount of the tax

savings earned on investments in domestically-produced facilities and

divided that amount by each company's total sales for the POI. On this

basis, we preliminarily determine a countervailable subsidy of 0.27

percent ad valorem to POSCO, 0.06 percent ad valorem to Inchon, and

0.41 percent ad valorem to Dai Yang from this program during the POI.

M. Electricity Discounts Under the Requested Load Adjustment Program

Petitioners alleged that the respondents 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 alleged that the respondents are receiving these

countervailable benefits in the form of utility rate discounts.

The GOK reports that during the POI the government-owned KEPCO

provided the respondents with three types of discounts under its tariff

schedule. These three discounts were based on the following rate

adjustment programs in KEPCO's tariff schedule: (1) Power Factor

Adjustment; (2) Summer Vacation and Repair Adjustment; and (3)

Requested Load Adjustment. (See the discussion below in ``Programs

Preliminarily Determined To Be Not Countervailable'' with respect to

the Power Factor Adjustment and Summer Vacation and Repair Adjustment

discount programs.)

With respect to the Requested Load Adjustment (RLA) program, the

GOK introduced this discount in 1990, to address emergencies in KEPCO's

ability to supply electricity. Under this program, customers with a

contract demand of 5,000 KW or more, who can curtail their maximum

demand by 20 percent or suppress their maximum demand by 3,000 KW or

more, are eligible to enter into a RLA contract with KEPCO. Customers

who choose to participate in this program must reduce their load 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 finds the application in order, 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 44 companies RLA discounts even though KEPCO did not need

to request these companies to 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. In 1996, KEPCO entered into RLA contracts with

232 companies.

We analyzed whether this electricity discount program is specific

in law (de jure specificity), or in fact (de facto specificity), within

the meaning of sections 771(5A)(D)(i) and (iii) of the Act. First, we

examined the eligibility criteria contained in the law. The Regulation

on Electricity Supply and KEPCO's Rate Regulations for Electric Service

identified companies within a broad range of industries as being

eligible to participate in the electricity discount programs. The RLA

discount program is available to a wide variety of companies across all

industries, provided that they have the required contract demand and

can reduce their maximum demand by a certain percentage. We

preliminarily find that the RLA electricity program is not de jure

specific under section 771(5A)(D)(i) of the Act because the regulation

does not explicitly limit eligibility of the program.

We next examined data on the distribution of assistance under the

RLA to determine whether the electricity discount program meets the

criteria for de facto specificity under section 771(5A)(D)(iii) of the

Act. We found that discounts provided under the RLA were distributed to

a limited number of customers, i.e., a total of 44 customers during the

POI. Given the data with respect to the small number of companies which

received RLA electricity discounts during the POI, we preliminarily

determine that the RLA program is de facto specific under section

771(5A)(D)(iii)(I) of the Act.

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 POSCO and Inchon; Dai

Yang did not receive benefits under this program. We have expensed the

benefit from this program in the year of receipt. See GIA, 58 FR at

37226. To measure the benefit from this program, we summed the

electricity discounts which POSCO and Inchon received from KEPCO under

the RLA program during the POI. We then divided that amount by each

company's total sales value for 1997. On this basis, we preliminarily

determine that POSCO and Inchon each received a countervailable subsidy

of less than 0.005 percent ad valorem from this discount program during

the POI.

Given the information the GOK provided on the record regarding

KEPCO's increased capacity to supply electricity and the resulting

decrease in KEPCO's need to enter into a large number of RLA contracts

during the POI, we will further investigate the de facto specificity of

this discount program at verification. It is the GOK's responsibility

to demonstrate to the Department the basis on which KEPCO chose the 44

customers with which it entered into the RLA contracts during the POI.

N. Loans From the National Agricultural Cooperation Federation

According to Dai Yang's September 10, 1998, questionnaire response,

the company received a loan administered by the National Agricultural

Cooperation Federation (NACF). The loan was given at an interest rate

which is below the benchmark interest rate described in the ``Subsidies

Valuation'' section of the notice, above. Moreover,

[[Page 63897]]

under the terms of this loan, the regional government (that of Ansan

City) paid a portion of the interest. Although Dai Yang claims that

this program is only available to small- and medium-sized enterprises,

the loan approval criteria indicates otherwise. Applications for these

loans are evaluated on a point system. The applicant receives 5 out of

a possible 100 ``points'' if it is a ``promising small & medium size

business.'' However, the most heavily weighed factor in the approval of

a loan application is the applicant's ``ratio of exports sales to total

sales.'' With the exception of the evaluation item ``enterprise

ability,'' which is weighted at 15 points, the export sales factor

accounts for twice as many points as any other ranking factor. Under

section 771(5A)(B) of the Act, an export subsidy is a subsidy that is,

in law or in fact, contingent upon export performance, alone or as one

of two or more conditions. After examination of this program, we

preliminary determine this program to be a de facto export subsidy

pursuant to section 771(5A)(B) of the Act. In addition, by paying a

portion of the interest on the loan, the actions of the Ansan City

government confer a benefit in accordance with section 771(5)(E)(ii) of

the Act. Therefore, we preliminarily determine this program to be

countervailable.

We preliminarily determine that this loan should be treated as a

short-term loan because it is rolled over annually with a revised

interest rate. To calculate the benefit conferred under this program,

we employed the Department's short-term loan methodology, using as our

benchmark the rate described in the ``Subsidies Valuation'' section of

the notice, above. We divided the benefit calculated in the POI by Dai

Yang's total sales during 1997. On this basis, we preliminarily

determine the countervailable subsidy attributable to Dai Yang during

the POI to be 0.01 percent ad valorem.

O. POSCO's Two-Tiered Pricing Structure to Domestic Customers

In our supplemental questionnaire, we requested information from

POSCO and the other respondents regarding an allegation that the GOK

mandates that POSCO subsidize local manufacturers by selling them steel

at 30 percent below the international market price. In response to this

allegation, POSCO stated that no such program exists. However, in its

response, POSCO provided information regarding its pricing structure in

the domestic and export markets.

POSCO maintains three different pricing systems which serve

different markets: domestic prices in Korean won for products that will

be consumed in Korea, direct export prices in U.S. dollars or Japanese

yen, and local export prices in U.S. dollars. According to POSCO's

response, local export prices are provided to those domestic customers

who purchase steel for further processing into products that are

exported.

POSCO is the only Korean producer of hot-rolled stainless steel

coil, which is the main input in the subject merchandise. During the

POI, POSCO sold hot-rolled stainless steel coil to domestic producers

of subject merchandise, including Dai Yang and Inchon, which used this

input to produce exports of the subject merchandise. However, a portion

of the domestic demand for this product is met through imports,

primarily from Japan. According to its response, POSCO determines its

domestic prices for hot-rolled stainless steel coil with reference to

the price of imports. Since imports are subject to import duties, POSCO

sets its domestic price in Korean won to compete with the duty-

inclusive import price. However, for domestic customers, such as Dai

Yang and Inchon, purchasing hot-rolled stainless steel coil to be

manufactured for export, POSCO sets the local export price at slightly

below the duty-exclusive import price because such imports are eligible

for duty drawback.

As noted earlier, POSCO is a government-controlled company. POSCO

sets different prices for the identical product for domestic purchasers

based upon that purchaser's anticipated export performance. Domestic

purchasers which use the raw material to produce a product for export

are charged a lower price than those domestic purchasers which do not

export. Therefore, this pricing scheme is an export subsidy under

section 771(5A)(B) of the Act. A financial contribution is also

provided under this program under section 771(5)(D)(iii) of the Act.

Under section 771(5)(E)(iv) of the Act, a benefit from the

provision of a good or a service is provided when the good is provided

for less than adequate remuneration. The adequacy of remuneration is

determined in relation to prevailing market conditions for the good

being purchased in the country which is subject to the investigation.

Prevailing market conditions include price, quantity, availability,

marketability, transportation, and other conditions of purchase or

sale.

In their supplemental questionnaire responses, Dai Yang and Inchon

provided their delivered prices of hot-rolled stainless steel coil used

to produce the subject merchandise during the POI. These data included

delivered prices of the input sourced from both POSCO and foreign

suppliers. To determine the benefit under this program, we compared the

prices charged by POSCO for the input to the prices charged by the

foreign suppliers. We then divided the amount of the price savings by

the value of exports of the subject merchandise during the POI. For the

purposes of this preliminary determination, we consider it appropriate

to calculate the benefit in this way because POSCO sets its prices to

domestic purchasers based upon import prices. Thus, the use of Dai

Yang's and Inchon's input prices provide a reasonable basis for

determining the difference in POSCO's prices to domestic consumers for

domestic consumption and POSCO's prices to domestic producers for

export consumption. On this basis, we preliminarily determine that Dai

Yang received no benefit from this program, and that Inchon received a

countervailable subsidy of 5.51 percent ad valorem from this program

during the POI.

II. Program Preliminarily Determined To Be Not Countervailable

Electricity Discounts Under Power Factor Adjustment and Summer Vacation

and Repair Adjustment Programs

As noted above, the GOK reported that KEPCO provided the

respondents with three types of discounts under its tariff schedule

during the POI. These three discounts were based on the following rate

adjustment programs in KEPCO's tariff schedule: (1) Power Factor

Adjustment; (2) Summer Vacation and Repair Adjustment; and (3)

Requested Load Adjustment. (See the separate discussion above in regard

to the countervailability of the Requested Load Adjustment program.)

With respect to the Power Factor Adjustment (PFA) program, the GOK

reports that the goal of the PFA is to improve the energy efficiency of

KEPCO's customers which, in turn, provides savings to KEPCO in

supplying electricity to its entire customer base. Customers who

achieve a higher efficiency than the performance standard (i.e., 90

percent) receive a discount on their base demand charge. Therefore, any

customer who installs a proper facility to measure its power factor and

achieves a power factor greater than 90 percent receives a discount on

its demand charge.

[[Page 63898]]

The GOK states that the PFA is not a special program, but a normal

factor used in the calculation of a customer's electricity charge which

was introduced in 1989. The PFA is available to all general,

educational, industrial, agricultural, midnight power, and temporary

customers who meet the eligibility criteria. The eligibility criteria

are that a customer must: (1) have a contract demand of 6 KW or more,

(2) have a power factor that exceeds the 90 percent standard power

factor, and (3) have proper facilities to measure its power factor. If

these criteria are met, a customer always receives a PFA discount on

its monthly electricity invoice. According to the response of the GOK,

there are no limitations on the types of customers or industries which

can receive the PFA discounts from KEPCO. During the POI there were

over 600,000 recipients of the PFA discounts.

With the aim of curtailing KEPCO's summer load by encouraging

customer vacations or the repair of their facilities during the summer

months, the GOK introduced the Summer Vacation and Repair Adjustment

(VRA) in 1985. Under this program, a discount of 550 won per KW is

given to customers, if they curtail their maximum demand by more than

50 percent, or 3,000 KW, through a load adjustment or maintenance

shutdown of their production facilities during the summer months.

Eligible customers apply for a VRA discount during the period June 1 to

June 15 of each year. If KEPCO finds the application in order, KEPCO

and the customer prepare a contract with respect to the discount.

The GOK states that this discount program is available to all

industrial and commercial customers with a contract demand of 500 KW or

more. The GOK states that the VRA is one of several programs that KEPCO

operates as part of its broad long-term strategy of demand-side

management which includes curtailing peak demand, and is the most

effective of these programs. The GOK submitted information

demonstrating that hundreds of KEPCO customers, from a wide and diverse

range of industries, received VRA discounts during the POI.

We analyzed whether these two electricity discount programs are

specific in law (de jure specificity), or in fact (de facto

specificity), within the meaning of sections 771(5A)(D)(i) and (iii) of

the Act. First, we examined the eligibility criteria contained in the

law. The Regulation on Electricity Supply and KEPCO's Rate Regulations

for Electric Service identified companies within a broad range of

industries as eligible to participate in the electricity discount

programs. With respect to the PFA, all general, educational,

industrial, agricultural, midnight power, and temporary customers who

have the necessary contract demand are eligible to participate in the

discount program. Likewise, the VRA discount program is available to a

wide variety of companies across all industries, provided that they

have the required contract demand and can reduce their maximum demand

by a certain percentage. Therefore, we preliminarily determine that the

electricity programs are not de jure specific under section

771(5A)(D)(i) of the Act.

We then examined data on the distribution of assistance under these

programs to determine whether the electricity discount programs meet

the criteria for de facto specificity under section 771(5A)(D)(iii) of

the Act. We found that discounts provided under the PFA and VRA were

distributed to a large number of firms in a wide variety of industries.

Given the data with respect to the large number of companies and

industries which received electricity discounts under these programs

during the POI, we preliminarily determine that the PFA and VRA

programs are not de facto specific under section 771(5A)(D)(iii) of the

Act. Therefore, we preliminarily determine that the PFA and VRA

discount programs are not countervailable.

III. 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 did not receive benefits under the following

programs during the POI:

A. Excessive Duty Drawback

Petitioners alleged that under the Korean Customs Act, Korean

exporters may have been receiving an excessive abatement, exemption, or

refund of import duties payable on raw materials used in the production

of exported goods. The Department has found that the drawback on

imported raw materials is countervailable when the raw materials are

not physically incorporated into the exported item, and therefore, the

amount of duty drawback is excessive. In Steel Products from Korea, we

determined that certain Korean steel producers received excessive duty

drawback because they received duty drawback at a rate that exceeded

the rate at which imported inputs were actually used. See 58 FR at

37349.

The GOK reports that under Article 3 of The Act on Special Cases

concerning the Refundment of Customs Duties, etc. Levied on Raw

Materials for Export, the refund of duties only applies to imported raw

materials that are consumed, i.e., physically incorporated, into the

finished merchandise. Items used to produce a product, but which do not

become physically incorporated into the final product, do not qualify

for duty drawback. POSCO is one of the producer/exporters of the

subject merchandise to receive duty drawback for inputs consumed in the

production of the subject merchandise which was subsequently exported

during the POI. The raw materials imported by POSCO to produce the

subject merchandise that were eligible for duty drawback are nickel,

chrome, and stainless steel scrap. During the POI, Inchon and Dai Yang

received duty drawback on imports of hot-rolled stainless steel coils

which were consumed in the production of the subject merchandise.

The GOK states that in order to determine the appropriate amount of

duty drawback a producer/exporter is eligible to receive, the National

Technology Institute (NTI) routinely conducts surveys of producers of

exported products to obtain their raw material input usage rate for

manufacturing one unit of output. In determining an input usage rate

for a raw material, the NTI factors recoverable scrap into the

calculation. In addition, the loss rate for each imported input is

reflected in the input usage rate. The GOK states that the factoring of

reusable scrap into usage rates is done routinely for all products

under Korea's duty drawback regime. The NTI maintains a materials list

for each product, and only materials and sub-materials that are

physically incorporated into the final product are eligible for duty

drawback. The NTI then compiles this information into a standard usage

rate table which is used to calculate a producer/exporter's duty

drawback eligibility. The GOK explains that because POSCO is the

primary producer of subject merchandise, the NTI's most recently

completed survey (from 1993), consisted of requesting information from

POSCO.

The GOK states that there is no difference in the companies' rates

of import duty paid and their rates of drawback received. The rates of

import duty are based on the imported materials and the rates of

drawback depend on the exported merchandise and the usage rate of the

imported materials. POSCO, Inchon, and Dai Yang pay import duties based

on the rates applicable to the prices of the

[[Page 63899]]

imported raw material. They then receive duty drawback based on the

amount of that material consumed in the production of the finished

product according to the standard input usage rate. Accordingly, the

rates at which POSCO, Inchon, and Dai Yang receive duty drawback are

the amounts of import duty paid on the amount of input consumed in

producing the finished product.

In the current investigation, the GOK and the companies report that

POSCO, Inchon, and Dai Yang have not received duty drawback on imported

raw materials that were not consumed in the production of exported

merchandise. They also state that the applicable duty drawback rates

are calculated in a manner which accounts for recoverable scrap. Based

on the duty drawback studies provided in the response, the GOK has

factored recoverable scrap into the calculation of input usage rates.

In Steel Products from Korea, we found that when recoverable scrap is

factored into the usage rate, the relevant loss and waste rates are not

excessive. Based on these factors, we preliminarily determine that

POSCO, Inchon, and Dai Yang have not received excessive duty drawback.

B. Tax Incentives for Highly-Advanced Technology Businesses

under the Foreign Investment and Foreign Capital Inducement Act.

C. Reserve for Investment under Article 43-5 of TERCL.

D. Export Insurance Rates Provided by the Korean Export

Insurance Corporation. 1E. Special Depreciation of Assets on Foreign

Exchange Earnings.

IV. Programs Preliminarily Determined Not To Exist

Based on information provided by the GOK, we preliminarily

determine that the following program does not exist:

Unlimited Deduction of Overseas Entertainment Expenses

In Steel Products from Korea, 58 FR at 37348-49, the Department

determined that this program conferred benefits which constituted

countervailable subsidies because the entertainment expense deductions

were unlimited only for export business activities. In the present

investigation, the GOK reported that Article 18-2(5) of the Corporate

Tax Law, which provided that Korean exporters could deduct overseas

entertainment expenses without any limits, was repealed by the

revisions to the law dated December 29, 1995. According to the GOK,

beginning with the 1996 fiscal year, a company's domestic and overseas

entertainment expenses are deducted within the same aggregate sum

limits as set by the GOK. As a result of the revision to the law,

overseas entertainment expenses are now treated in the same fashion as

domestic expenses in calculating a company's income tax. Therefore, we

determine that this program is no longer in existence.

Verification

In accordance with section 782(i)(1) of the Act, we will verify the

information submitted by respondents prior to making our final

determination.

Suspension of Liquidation

In accordance with section 703(d)(1)(A)(i) of the Act, we have

calculated individual rates for each of the companies under

investigation.

In accordance with section 703(d) of the Act, we are directing the

U.S. Customs Service to suspend liquidation of all entries of stainless

steel sheet and strip from the Republic of Korea, which are entered or

withdrawn from warehouse, for consumption on or after the date of the

publication of this notice in the Federal Register, and to require a

cash deposit or bond for such entries of the merchandise in the amounts

indicated below. Since the estimated preliminary net countervailing

duty rates for POSCO and Dai Yang are de minimis, these two companies

will be excluded from the suspension of liquidation. This suspension

will remain in effect until further notice.

In accordance with section 705(5)(A)(ii) of the Act, the all others

rate is the rate calculated for Inchon. We preliminarily determine that

the total estimated net countervailable subsidy rates for POSCO and Dai

Yang are 0.75 percent ad valorem and 0.58 percent ad valorem,

respectively, which is de minimis. Therefore, we preliminarily

determine that no countervailable subsidies are being provided to POSCO

or Dai Yang for their production or exportation of stainless steel

sheet and strip in coils.

Company Ad Valorem Rate

[In Percent]

------------------------------------------------------------------------

Net

Producer/Exporter subsidy

rate

------------------------------------------------------------------------

POSCO........................................................ 0.75

Inchon....................................................... 5.77

Dai Yang..................................................... 0.58

Sammi........................................................ 29.23

Taihan....................................................... 10.15

All Others Rate.............................................. 5.77

------------------------------------------------------------------------

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, Import Administration.

In accordance with section 705(b)(2) of the Act, if our final

determination is affirmative, the ITC will make its final determination

within 45 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 this preliminary

determination, at the U.S. Department of Commerce, 14th Street and

Constitution Avenue N.W., Washington, D.C. 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, N.W., Washington, D.C.

20230. Requests for a public hearing should contain: (1) the party's

name, address, and telephone number; (2) the number of participants;

(3) the reason for attending; and (4) a list of the issues to be

discussed. An interested party may make an affirmative presentation

only on arguments included in that party's case brief and may make a

rebuttal presentation only on arguments included in that party's

rebuttal brief. Parties should confirm by telephone the time, date, and

place of the hearing 48 hours before the scheduled time.

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

publication of this notice. 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

nonproprietary version of the rebuttal briefs must be submitted to the

Assistant Secretary no later than 55 days from the publication of this

notice.

[[Page 63900]]

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: November 9, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-30737 Filed 11-16-98; 8:45 am]

BILLING CODE 3510-DS-P