Final Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils From the Republic of Korea

DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-835]

Final Affirmative Countervailing 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: June 8, 1999.

FOR FURTHER INFORMATION CONTACT: Eva Temkin or Richard Herring, 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.

Final Determination

The Department of Commerce (the Department) 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 our preliminary determination in this

investigation on November 17, 1998 (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, 63 FR 63884

(Preliminary Determination)), the following events have occurred:

[[Page 30637]]

We conducted verification of the countervailing duty questionnaire

responses from February 2 through February 12, 1999. In addition,

portions of the questionnaire responses were verified from December 3

through December 18, 1998, during our verification of the

countervailing duty investigation of Stainless Steel Plate in Coils

from Korea. Because the final determination of this countervailing duty

investigation was aligned with the final antidumping duty determination

(see 63 FR at 63885), and the final antidumping duty determination was

postponed (see 64 FR 137), the Department on January 13, 1999, extended

the final determination of this countervailing duty investigation until

no later than May 19, 1999 (see 64 FR 2195). On January 27, February 2,

10, and 12, April 12 and 13, 1999, the Department released its

verification reports to all interested parties.

The Department issued decision memoranda on the issue of direction

of credit by the Government of Korea (GOK) and the operations of the

Korean domestic bond market on March 4 and March 9, 1999, respectively,

during the countervailing duty investigation of Stainless Steel Plate

in Coils from the Republic of Korea. See Final Negative Countervailing

Duty Determination: Stainless Steel Plate in Coils from the Republic of

Korea, 64 FR 15530, 15533 (March 31, 1999) (Stainless Steel Plate from

Korea). These memoranda were placed on the record in this investigation

on March 31, 1999. Petitioners and respondents filed case briefs on

April 21, 1999, and rebuttal briefs were filed on April 28, 1999.

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 (April 1998).

Scope of Investigation

We have made minor corrections to the scope language excluding

certain stainless steel foil for automotive catalytic converters and

certain specialty stainless steel products in response to comments by

interested parties.

For purposes of this investigation, 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 4.75 mm 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 (HTS) 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 Department's written description of the merchandise under

investigation is dispositive.

Excluded from the scope of this investigation 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, with a prepared edge, rectangular in shape, of a width of not

more than 9.5 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 23 mm 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 HTS, ``Additional

U.S. Note'' 1(d).

In response to comments by interested parties, the Department has

determined that certain specialty stainless steel products are also

excluded from the scope of this investigation. These excluded products

are described below.

Flapper valve steel is defined as stainless steel strip in coils

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 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 between 210 and 300 ksi, yield

strength of between 170 and 270 ksi, plus or minus 8 ksi, and a

hardness (Hv) of between 460 and 590. Flapper valve steel is most

commonly used to produce specialty flapper valves in compressors.

Also excluded is a product referred to as suspension foil, a

specialty steel product used 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 microns, with a thickness tolerance of plus-or-minus 2.01

microns, 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. The material must exhibit

residual stresses of 2 mm maximum deflection, and flatness of 1.6 mm

over 685 mm length.

Certain stainless steel foil for automotive catalytic converters is

also excluded from the scope of this investigation. This stainless

steel strip in coils is a specialty foil with a thickness of between 20

and 110 microns used to produce a metallic substrate with a honeycomb

structure for use in automotive catalytic converters. The steel

contains, by weight, carbon of no more than 0.030 percent, silicon of

no more than 1.0 percent, manganese of no more than 1.0 percent,

chromium of between 19 and 22 percent, aluminum of no less than 5.0

percent, phosphorus of no more than 0.045 percent, sulfur of no more

than 0.03 percent, lanthanum of less than

[[Page 30638]]

0.002 or greater than 0.05 percent, and total rare earth elements of

more than 0.06 percent, with the balance iron.

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

excluded from the scope of this investigation. 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 228.6 mm or less,

and a thickness between 0.127 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 under proprietary trade names such

as ``Arnokrome III.'' 1

---------------------------------------------------------------------------

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

Company.

---------------------------------------------------------------------------

Certain electrical resistance alloy steel is also excluded from the

scope of this investigation. 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 under

proprietary trade names such as ``Gilphy 36.'' 2

---------------------------------------------------------------------------

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

---------------------------------------------------------------------------

Certain martensitic precipitation-hardenable stainless steel is

also excluded from the scope of this investigation. This high-strength,

ductile stainless steel product is designated under the Unified

Numbering System (``UNS'') as S45500-grade steel, and contains, by

weight, 11 to 13 percent chromium, and 7 to 10 percent nickel. Carbon,

manganese, silicon and molybdenum each comprise, by weight, 0.05

percent or less, with phosphorus and sulfur each comprising, by weight,

0.03 percent or less. This steel has copper, niobium, and titanium

added to achieve aging, and will exhibit yield strengths as high as

1700 Mpa and ultimate tensile strengths as high as 1750 Mpa after

aging, with elongation percentages of 3 percent or less in 50 mm. It is

generally provided in thicknesses between 0.635 and 0.787 mm, and in

widths of 25.4 mm. This product is most commonly used in the

manufacture of television tubes and is currently available under

proprietary trade names such as ``Durphynox 17.'' 3

---------------------------------------------------------------------------

\3\ ``Durphynox 17'' is a trademark of Imphy, S.A.

---------------------------------------------------------------------------

Finally, three specialty stainless steels typically used in certain

industrial blades and surgical and medical instruments are also

excluded from the scope of this investigation. These include stainless

steel strip in coils used in the production of textile cutting tools

(e.g., carpet knives).4 This steel is similar to AISI grade

420 but containing, by weight, 0.5 to 0.7 percent of molybdenum. The

steel also contains, by weight, carbon of between 1.0 and 1.1 percent,

sulfur of 0.020 percent or less, and includes between 0.20 and 0.30

percent copper and between 0.20 and 0.50 percent cobalt. This steel is

sold under proprietary names such as ``GIN4 Mo.'' The second excluded

stainless steel strip in coils is similar to AISI 420-J2 and contains,

by weight, carbon of between 0.62 and 0.70 percent, silicon of between

0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent,

phosphorus of no more than 0.025 percent and sulfur of no more than

0.020 percent. This steel has a carbide density on average of 100

carbide particles per 100 square microns. An example of this product is

``GIN5'' steel. The third specialty steel has a chemical composition

similar to AISI 420 F, with carbon of between 0.37 and 0.43 percent,

molybdenum of between 1.15 and 1.35 percent, but lower manganese of

between 0.20 and 0.80 percent, phosphorus of no more than 0.025

percent, silicon of between 0.20 and 0.50 percent, and sulfur of no

more than 0.020 percent. This product is supplied with a hardness of

more than Hv 500 guaranteed after customer processing, and is supplied

as, for example, ``GIN6''.5

---------------------------------------------------------------------------

\4\ This list of uses is illustrative and provided for

descriptive purposes only.

\5\ ``GIN4 Mo,'' ``GIN5'' and ``GIN6'' are the proprietary

grades of Hitachi Metals America, Ltd.

---------------------------------------------------------------------------

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 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)).

Period of Investigation

The period of investigation for which we are measuring subsidies

(the POI) is calendar year 1997.

Use of Facts Available

As discussed in our preliminary determination, 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. See Preliminary Determination. Since the preliminary

determination in this investigation we have not been presented with new

information on this issue. Therefore, we have continued to find that

Sammi and Taihan each have failed to cooperate to the best of their

abilities, and, in accordance with 776(b) of the Act, have continued to

apply an adverse facts available (AFA) rate to these two companies.

This rate was based on the petition, as well as our findings in 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), and

additional findings in this proceeding.

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

examined 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 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

[[Page 30639]]

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, 2.36 percent ad valorem,

the company-specific program rate for Inchon. We added this 2.36

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 7.00 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 2.36 rate for POSCO's two-tiered pricing

structure, we calculated a rate for one other program that was not

previously investigated: POSCO's purchase of Sammi Specialty Steel.

This program is addressed below in the ``Programs Determined to be

Countervailable'' section of this notice. We used information provided

in the petition, in the verification reports of POSCO and the

Government of Korea, in POSCO's questionnaire responses, and additional

information placed on the record of this investigation, for the

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

Steel. We then added the rate calculated for this program 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 59.30 percent as adverse facts available for Sammi.

Petitioners also alleged that Sammi benefitted from two other

company-specific subsidies: (1) A ``national subsidy'' and (2) 1992

emergency loans. With respect to the alleged ``national subsidy,'' we

have not deviated from the methodology established in the Preliminary

Determination. We continue to treat this ``national subsidy'' as a

grant bestowed upon Sammi, and employ the Department's grant

methodology. See 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). Because

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

Sammi's 1993 sales, the subsidy was expensed in the year of receipt.

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

The petitioners also alleged 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. In our preliminary determination we

calculated a separate subsidy rate for this allegation. However, we

have reconsidered this facts available calculation in this final

determination. In Steel Products from Korea, we investigated the

allegation that the GOK directs banks in Korea to provide loans to the

steel industry. This program was determined to be countervailable, and

a calculated subsidy rate for this program is included as part of the

facts available rate applied in this determination. Because we have

already accounted for the subsidy provided by the GOK's direction of

credit in our facts available rate taken from Steel Products from

Korea, we have not calculated an additional subsidy rate for this

allegation.

The Statement of Administrative Action accompanying the URAA

clarifies that 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 uncooperative 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 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.

Additionally, the Department initiated an investigation with

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

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

petitioners alleged 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 were 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 no grants were provided to Sammi. The GOK

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

normal bankruptcy proceedings. In our preliminary determination we

calculated no benefit from this program, but we stated we would

continue to seek information that would enable us to make a facts

available determination about this program in our final determination.

Therefore, during our verification of POSCO, we examined various

accounts of POSCO to determine whether POSCO provided any assistance to

Sammi

[[Page 30640]]

similar to that alleged by petitioners. We did not find a provision of

assistance to Sammi or write-off of Sammi's debt by POSCO. In addition,

during our verification of the Government of Korea, we examined Sammi's

Bankruptcy Reorganization Plan, which included Sammi's 1997 balance

sheet and income statement. Our examination of these documents revealed

no government assistance to Sammi in the form of grants or write-off of

debt. Therefore, we have not calculated a subsidy rate for this

allegation. However, because Sammi did not respond to our request for

information, we will continue to examine this allegation in any

subsequent administrative review.

Subsidies Valuation Information

Benchmarks for Long-term Loans and Discount Rates: During the POI,

the respondent companies had both won-denominated and foreign currency-

denominated long-term loans outstanding which had been received from

government-owned banks, Korean commercial banks, overseas banks, and

foreign banks with branches in Korea. A number of these loans were

received prior to 1992. In the 1993 investigation of Steel Products

from Korea, the Department determined that, through 1991, the GOK

influenced the practices of lending institutions in Korea and

controlled access to overseas foreign currency loans. See Certain Steel

Products from Korea, 58 FR at 37338, and the ``Direction of Credit''

section below. In that investigation, we determined that the best

indicator of a market rate for long-term loans in Korea was the three-

year corporate bond rate on the secondary market. Therefore, in the

final determination of this investigation, we used the three-year

corporate bond rate on the secondary market as our benchmark to

calculate the benefits which the respondent companies received from

direct foreign currency loans and domestic foreign currency loans

obtained prior to 1991, and still outstanding during the POI. These

rates were 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).

For years in which the companies under investigation have been

deemed uncreditworthy, we calculated the discount rates according to

the methodology described in the 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.

In this investigation, the Department also examined whether the GOK

continued to control and/or influence the practices of lending

institutions in Korea between 1992 and 1997. Based on our findings,

discussed below in the ``Direction of Credit'' section of this notice,

we are using the following benchmarks to calculate the companies'

benefit from long-term loans obtained in the years 1992 through 1997:

(1) For countervailable, foreign-currency denominated loans, we are

using, where available, company-specific, weighted-average U.S. dollar-

denominated interest rates on the companies' loans from foreign bank

branches in Korea; and (2) for countervailable won-denominated loans,

where available, we are using company-specific three-year corporate

bond rates. Where unavailable, we continue to use a national average

three-year corporate bond rate on the secondary market, consistent with

our preliminary determination. We are also using three-year company-

specific corporate bond rates, where applicable, as discount rates to

determine the benefit from non-recurring subsidies received between

1992 and 1997.

We continue to find that the Korean domestic bond market was not

controlled by the GOK during the period 1992 through 1997, and that

domestic bonds serve as an appropriate benchmark interest rate. See

Analysis Memorandum on the Korean Domestic Bond Market, dated March 9,

1999 (public document on file in the Department's Central Records Unit,

Room B-099 (CRU)). On February 5, 1999, POSCO, Inchon, and Dai Yang

submitted information in response to the Department's request for the

companies' average interest rate on corporate bonds for each year 1992

through 1997. See POSCO's February 5, 1999 questionnaire response,

Inchon's February 5, 1999 questionnaire response, and Dai Yang's

February 5, 1999 questionnaire response (public versions on file in the

CRU). Dai Yang had no corporate bonds (other than a previously reported

convertible bond) issued during the period 1992-1997; therefore, we

continue to use the national-average three-year corporate bond rate as

a benchmark for this company. Additionally, Inchon had not issued any

bonds prior to 1997; thus, we continue to use the national-average

three-year corporate bond rates as a benchmark for Inchon between 1992

and 1996. Because POSCO was unable to retrieve data on the bond

issuance fees the company paid in the years 1992 through 1996, we have

added to the average interest rate for each of those years the bond

issuance fees that POSCO paid in 1997.

Dai Yang did not have U.S. dollar loans from foreign bank branches

in Korea. Therefore, we had to rely on a dollar loan benchmark that is

not company-specific, but provides a reasonable representation of

industry practice, to determine whether a benefit was provided to Dai

Yang from dollar loans received from government banks and Korean

domestic banks. Our first alternative was to use a national-average

benchmark, but we were unable to identify a national-average dollar

benchmark from foreign bank branches in Korea. Therefore, we used the

interest rates on dollar loans from foreign bank branches in Korea

received by another respondent in this investigation, Inchon, as a

benchmark for Dai Yang's dollar loans from government banks and Korean

domestic banks. For a further discussion on our selection of a dollar-

loan benchmark for Dai Yang, see Comment 9.

Benchmarks for Short-Term Financing: For those programs which

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

used as our benchmark company-specific weighted-average interest rates

for commercial won-denominated loans for the POI. Each respondent

provided to the Department its respective company-specific, short-term

commercial interest rate.

Allocation Period: In the Preliminary Determination, we allocated

nonrecurring subsidies received by POSCO and Sammi over 15 years. (No

other company received nonrecurring subsidies.) We invited interested

parties to comment on this allocation period. We received no objections

from the interested parties on the use of a 15 year allocation period.

Therefore, for the reasons specified in the Preliminary Determination

and in the Final Negative Countervailing Duty Determination: Stainless

Steel Plate in Coils From the Republic of Korea, 64 FR 15530, 15531

(March 31, 1999), we continue to determine that the appropriate

allocation period is 15 years for this investigation.

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

[[Page 30641]]

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.

We continue to find that 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, responded to the Department's

questionnaire concerning subsidies that it had received during the POI.

In the current proceeding, the status of affiliation does not affect

the inclusion of subsidies provided to trading companies in the

respondents' calculated subsidy rates. Therefore, we are not making a

determination of affiliation of Inchon and Hyundai within the meaning

of section 771(33) 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 the Preliminary Determination of this investigation, we

determined that it was not appropriate to establish combination rates.

This determination was 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. As no new information has been presented since the

Preliminary Determination which would cause us to reconsider this

methodology, we are not calculating combination rates in the final

determination of this investigation.

Instead, we have continued to calculate rates for the producers of

subject merchandise that include the subsidies received by the trading

companies. To reflect those subsidies that are received by the

exporters of the subject merchandise in the calculated ad valorem

subsidy rate, we used the following methodology: for each of the 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 discussed in the Preliminary Determination, 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. In the Preliminary Determination, we found Inchon to be

creditworthy, but we found Sammi to be uncreditworthy for the years

1990 through 1997. We received no comments from the interested parties

relating to our analysis of Inchon's and Sammi's creditworthiness.

Thus, for the reasons specified in the Preliminary Determination, we

determine that Inchon is creditworthy and that Sammi is uncreditworthy

for the years 1990 through 1997. See Preliminary Determination, 63 FR

at 63888.

I. Programs 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 provided new factual

information that would lead us to change our

[[Page 30642]]

determination in Steel Products from Korea. Therefore, we 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 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

consistent 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 remained 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 0.17 percent ad

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

ad valorem for Dai Yang.

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

The Department's preliminary analysis of the GOK's credit policies

from 1992 through 1997 is contained in the March 4, 1999, Memorandum

Re: Analysis Concerning Post 1991 Direction of Credit, on file in the

CRU (Credit Memo). As detailed in the Credit Memo, the Department

preliminarily determined that the GOK continued to control directly and

indirectly the lending practices of most sources of credit in Korea

through the POI. The Department also preliminarily determined that GOK-

regulated credit from domestic commercial banks and government-

controlled banks such as the Korea Development Bank (KDB) was specific

to the steel industry. This credit conferred a benefit on the producer/

exporters of the subject merchandise in accordance with section

771(5)(E)(ii) of the Act, because the interest rates on the

countervailable loans were less than the interest rates on comparable

commercial loans. See Credit Memo at 15-17. Finally, we preliminarily

found that access to government-regulated foreign sources of credit in

Korea did not confer a benefit to the recipient, as defined by section

771(5)(E)(ii) of the Act, and, as such, credit received by respondents

from these sources was found not countervailable. This determination

was based on the fact that credit from Korean branches of foreign banks

were not subject to the government's control and direction. Thus,

respondents' loans from these banks served as an appropriate benchmark

to establish whether access to regulated foreign sources of funds

conferred a benefit on the respondents. On the basis of that

comparison, we found that there was no benefit. See id. at 18. The

comments we received from the parties have not led us to change the

basic findings detailed in the Credit Memo.

In the preliminary determination we examined, as a separate

program, loans provided under the Energy Savings Fund, and found that

these loans were countervailable. See Preliminary Determination, 63 FR

at 63890. However, on the basis of our findings detailed in the Credit

Memo, we now determine that these loans are countervailable as directed

credit, rather than as a separate program. These loans are policy loans

provided by banks that are subject to the same GOK influence that is

described in the Credit Memo. Accordingly, they are countervailable as

directed credit, and we have included these loans in our benefit

calculations. Thus, on the basis of our finding in the credit memo, and

the modifications to the calculations discussed in the comments

section, below, for the GOK's post-1991 credit policies, we determine

the countervailable subsidy rates to be less than 0.005 percent ad

valorem for POSCO, less than 0.005 percent ad valorem for Inchon, and

0.08 percent ad valorem for Dai Yang.

B. Purchase of Sammi Specialty Steel Division by POSCO

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 provided a countervailable

benefit to Sammi.

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

Sammi did not respond to the Department's questionnaires. POSCO has

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

of response 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 determination, we have relied, in

part, 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 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. The shareholdings of the GOK are

approximately ten times larger than the next largest shareholder.

Indeed, the next two largest shareholders of POSCO are domestic banks,

the credit of which has been determined to be directed by the GOK (see

the ``Direction of Credit'' section of this notice). In order to

further maintain its control over POSCO, the GOK has enacted a law, as

well as placed into the Articles of Incorporation of POSCO, a

requirement that no individual shareholder except the GOK can exercise

voting rights in excess of three percent of the company's common stock.

According to POSCO, the GOK intends to maintain the individual

ownership limit of three percent until the end of 2001.

In addition, the Chairman of POSCO is appointed by the GOK. The

Chairman of POSCO during the POI was the former Deputy Prime Minister

and the Minister of the GOK's Economic

[[Page 30643]]

Planning Board, and was appointed as POSCO's chairman by the Korean

president. Half of POSCO's outside directors are appointed by the GOK

and the Korean Development Bank (three by the GOK and one by the

government-owned KDB.) During the POI, the appointed directors of POSCO

included a Minister of Finance, the Vice Minister of the Ministry of

Commerce and Industry, the Minister of the Ministry of Science and

Technology, and a Member of the Bank of Korea's Monetary Board. POSCO

is also one of three companies designated a ``Public Company'' by the

GOK. One of the other ``Public Companies'' is the state-run utility

company, KEPCO.

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 purchase price

of 719.4 billion won 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. Ostensibly, Sammi used the proceeds from

the sale to pay debts owed by its other divisions.

Because no information was provided by Sammi with respect to this

program, as facts available the determination of the countervailability

of this program was based upon information gathered from POSCO, the

GOK, information provided in the petition, and from public documents

regarding POSCO's purchase of Sammi which have been placed on the

record of this investigation. This information indicates that POSCO

purchased the speciality steel division of Sammi Steel as the result of

government pressure. The current Chairman of POSCO has confirmed that

the POSCO purchase of Sammi's speciality steel division was the result

of outside political pressure. The Chairman characterized POSCO's

decision in 1997 to purchase the production facilities from Sammi in an

attempt by the government to prevent Sammi's bankruptcy as ``a

mistake.'' At the time of the Sammi purchase, the Chairman of POSCO had

been appointed by the former president. In addition, at the time of the

purchase, a POSCO director stated that the decision to purchase Sammi's

speciality steel division ``transcends economic merit.'' Internal

proprietary documents of POSCO (which are on the record in this

investigation) echo this statement. At the time of the purchase, the

company was operating at less than 60 percent of its capacity. In

addition, Sammi had shown a profit only once since 1991 and lacked

strong future prospects. See Memorandum to the File Re: Source

Documents on Government Control of POSCO, Sammi Purchase by POSCO, and

POSCO Pricing (Source Document Memo).

Internal government auditors also examined POSCO's purchase of the

Sammi speciality steel division. A report issued by the Board of Audit

and Inspection (BAI) criticized POSCO's purchase of the Sammi plant.

The BAI found fault with POSCO's investment decision resulting from

poor feasibility studies. The BAI noted that, according to POSCO's own

internal business plan, the internal rate of return (IRR) of new

investments should be over 10 percent. However, the BAI noted that

POSCO did not even examine Sammi's IRR when it decided to purchase the

Sammi plant. The BAI concluded that Sammi's IRR is much lower than the

minimum required by POSCO's own internal regulations for new

investments. The BAI also stated that, in estimating the future profits

and losses of an investment, POSCO's own internal regulations state

that it should assume an investment's prices would remain constant for

15 years. However, as the BAI noted with respect to the Sammi purchase,

POSCO assumed that prices would increase two percent a year. Thus,

profit from the purchase was overestimated. POSCO's deviation from its

own internal regulations on estimating future profit and loss resulted

in calculations that anticipated profits from the Sammi investment

within four years of the purchase date. If POSCO had followed its own

internal regulations, it would have expected to incur losses on its

purchase of Sammi for an additional 14 years.

In addition to noting that POSCO failed to follow its own internal

regulations in its purchase of Sammi's speciality steel division, the

BAI found other fundamental problems with the purchase of Sammi's

Changwon facility. The BAI stated that at the time of the purchase of

the Changwon plant, there was both oversupply and overproduction in the

speciality steel industry. The BAI noted that, while supply at the time

of the purchase was 240 million tons, the demand for speciality steel

was only 110 million tons. Therefore, the BAI concluded that there was

no reason for POSCO's ``hasty'' undertaking of Sammi's ``old

equipment.'' The BAI also stated that because POSCO contracted to

purchase the Sammi facility without clarifying the state of the

equipment and labor force, the Changwon Tax Office and Labor Committee

may require POSCO to pay an additional 80 billion won for both Sammi

employees' retirement, and unforeseen tax consequences and

administrative litigation. The BAI report also stated that POSCO paid

Sammi 21.4 billion won for steel-making techniques that were already

either developed by POSCO or widely used in the steel industry.

The information on the record demonstrates that POSCO is a

government-controlled entity; that POSCO's decision to purchase the

Sammi speciality steel division was the result of government pressure;

that Sammi was in poor financial straits; that POSCO failed to follow

its own internal regulations regarding new investments when making the

investment decision to purchase Sammi; and that, overall, the purchase

of Sammi did not make good economic sense. For these reasons, the

Department determines that POSCO's purchase of the Sammi speciality

steel division provided a countervailable benefit and a financial

contribution to Sammi under section 771(5)(D) of the Act. In accordance

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

is specific to Sammi.

During verification of POSCO's questionnaire response, POSCO

officials stated that Sammi was also trying to sell its specialty steel

division to other companies. However, as Sammi has refused to cooperate

in this investigation, we have no information as to whether any

potential investor expressed an interest in purchasing Sammi's

speciality steel division for any price. As adverse facts available, we

are assuming that were it not for POSCO's purchase, Sammi's Changwon

facility would not have been sold to a commercial investor due to the

poor financial condition of the company and the overcapacity in the

stainless steel market at the time of the POSCO purchase. In addition,

according to POSCO's own internal guidelines regarding new investments,

POSCO should not have purchased Sammi's Changwon facility. Further

information on the record also demonstrates that the decision to

purchase the stainless steel facility from Sammi was based upon

political and government influence in order to provide funds to Sammi

to forestall its eventual bankruptcy. The information on the record

indicates that, absent the GOK's control of POSCO and its influence on

POSCO's decision to purchase the Changwon facility, Sammi would not

have been able to sell its stainless steel division; therefore, we

consider the full amount of the purchase price paid to Sammi by POSCO

to constitute a countervailable benefit.

To calculate the benefit to Sammi from this purchase, we treated

the amount of the purchase price, 719.4 billion won, as a non-recurring

grant

[[Page 30644]]

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 52.30 percent ad valorem for Sammi for this

program during the POI.

C. GOK Pre-1992 Infrastructure Investments at Kwangyang Bay

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

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

We determined that the GOK's provision of infrastructure 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.

To calculate the benefit conferred during the POI, we applied the

Department's standard grant methodology and allocated the GOK's

infrastructure investments over a 15-year period. See the allocation

period discussion under the ``Subsidies Valuation Information''

section, above. We used as our discount rate the three-year corporate

bond rate on the secondary market, the same rate 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 determine a net countervailable

subsidy of 0.29 percent ad valorem for the POI.

D. 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, 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 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 on the recipient to the extent that the EIFLs are provided at

interest rates less than the benchmark rates described under the

``Subsidies Valuation'' section, above. We note that this program is

also countervailable due to the GOK's direction of credit; however, we

have separated this program from direction of credit because it is an

export subsidy, and therefore requires a different benefit calculation.

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 dollar-

denominated long term benchmark interest rate as discussed in the

``Subsidies Valuation'' section, above. 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 determine that Dai Yang received from

this program during the POI a countervailable subsidy of 0.08 percent

ad valorem.

E. Short-Term Export Financing

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

financing program was countervailable in Steel Products from Korea (see

58 FR at 37350). During the POI, POSCO and Dai Yang were the only

producers or exporters of the subject merchandise that used export

financing.

In accordance with section 771(5A)(B) of the Act, this program

constitutes an export subsidy because receipt of the financing is

contingent upon export performance. A financial contribution is

provided under this program within the meaning of section 771(5)(D)(i)

of the Act in the form of a loan. To determine whether this export

financing program confers a countervailable benefit to POSCO and Dai

Yang, we compared the interest rate POSCO and Dai Yang paid on the

export financing received under this program during the POI with the

interest rate each company 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 rate

paid by POSCO and Dai Yang on their export financing is a discounted

rate. Therefore, it was necessary to derive a discounted benchmark

interest rate from POSCO's and Dai Yang's company-specific weighted-

average interest rate for short-term won-denominated commercial loans.

We compared this discounted benchmark interest rate to the interest

rates charged on the export financing and found that the program

interest rates were lower than the benchmark rate. In accordance with

section 771(5)(E)(ii) of the Act, we determine that this program

confers a countervailable benefit because the interest rates charged on

the loans were less than what POSCO and Dai Yang 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

rate. 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 POSCO and Dai

Yang were unable to segregate their export financing applicable only to

subject merchandise exported to the United States, we divided the

benefit derived from the loans by total exports. On this basis, we

determine a net countervailable subsidy of less than 0.005 percent ad

valorem for POSCO, and 0.04 percent ad valorem for Dai Yang.

[[Page 30645]]

F. Reserve for Export Loss--Article 16 of the TERCL

Under Article 16 of the Tax Exemption and Reduction Control Act

(TERCL), a domestic person engaged in a foreign-currency earning

business can establish a reserve amounting to the lesser of one percent

of foreign exchange earnings or 50 percent of net income for the

respective tax year. Losses accruing from the cancellation of an export

contract, or from the execution of a disadvantageous export contract,

may be offset by returning an equivalent amount from the reserve fund

to the income account. Any amount that is not used to offset a loss

must be returned to the income account and taxed over a three-year

period, after a one-year grace period. All of the money in the reserve

is eventually reported as income and subject to corporate tax either

when it is used to offset export losses or when the grace period

expires and the funds are returned to taxable income. The deferral of

taxes owed amounts to an interest-free loan in the amount of the

company's tax savings. This program is only available to exporters.

During the POI, 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 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 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 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.

G. 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 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 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 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.

H. 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, changes in the statute effective in 1995 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

[[Page 30646]]

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 determine that investment tax

credits received under Articles 10, 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 determine that a financial contribution is

provided under section 771(5)(D)(ii) of the Act. Therefore, we

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 determine a countervailable subsidy of 0.18 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.

I. Electricity Discounts Under the Requested Load Adjustment Program

Petitioners alleged that the respondents are receiving

countervailable benefits in the form of utility rate discounts. The GOK

reported that during the POI the government-owned electricity provider,

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

Determined To Be Not Countervailable'' with respect to the Power Factor

Adjustment and Summer Vacation and Repair Adjustment discount programs.

The GOK introduced the Requested Load Adjustment (RLA) 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. During the POI, both POSCO and Inchon participated in this

program.

The RLA discount is provided based upon a contract of two months,

normally July and August when the demand for electricity is greatest.

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 request

these companies to reduce their respective loads. The GOK reported 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 had entered into RLA contracts with 232

companies.

At the preliminary determination, 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. Therefore, we determined that

the RLA program is de facto specific under section 771(5A)(D)(iii)(I)

of the Act. We also stated in the preliminary determination that, 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 would further investigate the de facto specificity of this

discount program at verification. We stated that it was the GOK's

responsibility to demonstrate to the Department on what basis KEPCO

chose the 44 customers with which it entered into RLA contracts during

the POI.

Based on the information which we obtained at verification, we

analyzed whether this electricity discount program is specific in fact

(de facto specificity), within the meaning of section 771(5A)(D)(iii)

of the Act. We find that the GOK failed to demonstrate to the

Department a systematic procedure through which KEPCO selects those

customers with which it enters into RLA contracts. The GOK simply

stated that KEPCO enters into contracts with those companies which

volunteer for the discount program. If KEPCO does not reach its

targeted adjustment capacity with those companies which volunteered for

the program, then KEPCO will solicit the participation of large

companies. We note that KEPCO was unable to provide to the Department

the percentage of 1997 RLA recipients which volunteered for the program

and the percentage of those recipients which were persuaded to

cooperate in the program. Therefore, we continue to find that the

discounts provided under the RLA were distributed to a limited number

of users. Given the data with respect to the small number of companies

which received RLA electricity discounts during the POI, we determine

that the RLA program is de facto specific under section

771(5A)(D)(iii)(I) of the Act. The benefit provided under this program

is a discount on a company's monthly electricity charge. A financial

contribution is provided to POSCO and Inchon under this program within

the meaning of section 771(5)(D)(ii) of the Act in the form of revenue

foregone by the government.

Because the electricity discounts are not ``exceptional'' benefits

and are received automatically on a regular and predictable basis

without further government approval, we determine that these discounts

provide a recurring benefit to POSCO and Inchon. Therefore, 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 POSCO's

and Inchon's total sales value for 1997.

[[Page 30647]]

On this basis, we determine a net countervailable subsidy of less than

0.005 percent ad valorem for both POSCO and Inchon.

J. 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. Moreover, under the terms of this

loan, the regional government (that of Ansan City) paid a portion of

the interest. Although this Ansan City-administered program is only

available to small- and medium-sized enterprises, the loan approval

criteria indicates that export performance is also an important

criterion for approval. Applications for these loans are evaluated on a

point system. The applicant receives 10 out of a possible 100

``points'' if it is a promising small and medium size business.

However, the applicant can also receive 10 points if its exports

comprise over twenty percent of its total sales. In addition, an

applicant can garner 10 points if it is involved in overseas market

development. Therefore, two of the criteria of loan approval are based

upon export performance.

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. Dai Yang did meet the criteria of

having over twenty percent of sales in export markets, and so may have

qualified based on these export criteria. Further, pursuant to section

351.514 of the Department's regulations (63 FR at 65381), Dai Yang did

not demonstrate that it was approved to receive these benefits solely

under non-export criteria. Thus, after examination of this program, we

determine that Dai Yang's receipt of this loan 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 determine this program to be

countervailable.

In the Preliminary Determination, we treated this loan as a short-

term loan because it is rolled over annually with a revised interest

rate. However, record evidence indicates that all of the interest rates

for the life of the loan were set at the time the loan was approved.

Thus, we believe that it is more reasonable to measure the benefit from

this loan using the Department's long-term fixed rate loan methodology.

We used 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 exports during 1997. On this

basis, we determine the countervailable subsidy attributable to Dai

Yang during the POI to be 0.04 percent ad valorem.

K. 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 POSCO to 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.

We verified that 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.

POSCO's local export prices are provided to those domestic customers

that purchase steel for further processing into products that are

exported. During the POI, POSCO sold hot-rolled stainless steel coil,

which is the main input in the subject merchandise, to Dai Yang and

Inchon, which used the coil to produce subject merchandise sold both as

exports and in the domestic market. POSCO is the only Korean producer

of hot-rolled stainless steel coil.

As noted earlier, POSCO is a government-controlled company. (See

the discussion relating to government control of POSCO in the program

``Purchase of Sammi Speciality Steel Division by POSCO''.) POSCO sets

different prices for the identical product for domestic purchases based

upon the purchasers' anticipated export performance. Therefore, when

POSCO sells hot-rolled stainless steel coil to Dai Yang and Inchon to

be used to manufacture subject merchandise which is exported, POSCO

charges a lower price than the price charged on the identical hot-

rolled stainless steel coil sold to the companies for manufacturing

subject merchandise to be sold in the domestic market. Because POSCO

charges a lower price based upon export performance, this pricing

policy constitutes an export subsidy under section 771(5A)(B) of the

Act. Because exporters are charged a lower price, this program also

provides a financial contribution to the exporters under section

771(5)(D).

The benefit from this type of export subsidy is based upon the

difference in the price charged to exporters and the price charged for

domestic consumption. The only exception is for pricing programs which

fall under Item (d) of the Illustrative List of Export Subsidies, which

is provided for in Annex I of the Agreement on Subsidies and

Countervailing Measures.6 Item (d) allows governments to

maintain a program which provides different prices based upon export or

domestic consumption if certain strict criteria are met by the

government. However, POSCO's dual pricing policy does not fit within

the parameters of the Item (d) exception. Therefore, the benefit from

this program is based upon the difference between the prices charged by

POSCO for export and the prices charged by POSCO for domestic

consumption.

---------------------------------------------------------------------------

\6\ A subsidy arises under Item (d) from the provision by

governments or their agencies either directly or indirectly through

government-mandated schemes, of imported or domestic products or

services for use in the production of export goods, on terms or

conditions more favourable than for provision of like or directly

competitive products or services for use in the production of goods

for domestic consumption, if (in the case of products) such terms or

conditions are more favorable than those commercially available on

world markets to their exporters.

---------------------------------------------------------------------------

To determine the value of the benefit under this program, we

compared the monthly weighted-average price charged by POSCO to Dai

Yang and Inchon for domestic production to the monthly weighted-average

price charged by POSCO to respondents for export production, by grade

of hot-rolled coil. We then divided the amount of the price savings by

the value of exports of the subject merchandise during the POI. On this

basis, we determine that Dai Yang received a countervailable subsidy of

0.87 percent ad valorem from this program, and that Inchon received a

countervailable subsidy of 2.36 percent ad valorem from this program

during the POI.

II. Programs Determined To Be Not Countervailable

A. Electricity Discounts Under the Power Factor Adjustment and Summer

Vacation and Repair Adjustment Programs

KEPCO provided three types of discounts under its tariff schedule

during the POI. These three discounts were based on the following rate

[[Page 30648]]

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

reported 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.

We verified 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 automatically receives a PFA

discount on its monthly electricity invoice. During the POI, over

600,000 customers were recipients of 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

program (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.

The VRA discount program is available to all industrial and

commercial customers with a contract demand of 500 KW or more. 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. We verified that over eight hundred customers, from a wide

and diverse range of industries, received VRA discounts during the POI.

We analyzed whether these electricity discount programs are

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

specificity), within the meaning of section 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 identify 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. 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, based on our analysis of the law, we

determine that the PFA and VRA electricity programs are not de jure

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

We also examined evidence regarding the usage of the discount

electricity programs and found no predominant use by the steel

industry. The information on the record demonstrates that discounts

under the PFA and VRA are distributed to a large number of firms in a

wide variety of industries. Therefore, after analyzing the data with

respect to the large number of companies and diverse number of

industries which received electricity discounts under these programs

during the POI, we determine that the PFA and VRA programs are not de

facto specific under section 771(5A)(D)(iii) of the Act. Accordingly,

we determine that the PFA and VRA discount programs are not

countervailable.

B. GOK Infrastructure Investments at Kwangyang Bay Post-1991

The GOK has made the following 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 stated 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. The GOK provides services to companies through the use

of the infrastructure facilities and charges fees for the 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 reported that

the purpose of developing the Jooam Dam 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, cannot meet the

area's water needs and, therefore, a second dam in the Kwangyang Bay

area was built. The GOK further reported that the Jooam Dam does not

benefit POSCO because POSCO receives all of its water supply from the

Sueochon Dam. At verification, we obtained information which

demonstrates that the Jooam Dam's water pipe line connects neither to

the Sueochon Dam nor to POSCO's steel mill at Kwangyang Bay.

Accordingly, POSCO cannot source any of its water supply from the Jooam

Dam and, therefore, the company is not benefiting from the GOK's

construction of the Jooam Dam.

The GOK also constructed a container terminal at Kwangyang Bay to

relieve congestion at the Pusan Port and to encourage the further

commercial development of the region. The GOK stated 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 of the GOK and POSCO and the

information obtained at verification, neither steel inputs nor steel

products can be shipped through the container terminal at Kwangyang

Bay. Given the nature of steel inputs (e.g., bulk products like scrap)

and finished steel products (e.g., bundled bars and plate), products

such as these would or could not be loaded or unloaded from a ship

through a container terminal and, therefore, the facility is not used

by steel producers.

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

stated 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, 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 and to

relieve a transportation bottleneck. At verification, we obtained

information on the road and learned that, in fact, it is utilized by

both industries in the area to transport goods and by residents living

in the Kwangyang Bay area.

Based on the information obtained at verification regarding the

GOK's infrastructure investments at

[[Page 30649]]

Kwangyang Bay since 1991, we determine that the GOK's investments in

the Jooam Dam, the container terminal, and the public highway were not

made for the benefit of POSCO. Therefore, we find that these

investments are not providing countervailable benefits to POSCO.

C. Port Facility Fees

In the 1993 investigation of Steel Products from Korea, the

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

but, by law, was required 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 subsidy. 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 which the company would have otherwise incurred. See Steel

Products from Korea, 58 FR at 37347-348.

With respect to the instant investigation, since 1991, POSCO, at

its own expense, has built new port facilities at Kwangyang Bay.

Because title to port facilities must be deeded to the GOK in

accordance with the Harbor Act, POSCO transferred ownership of the

facilities to the GOK. In return, POSCO received the right to use the

port facilities free of charge, and the ability to charge other users a

usage fee until the company recovers all of its investment costs. At

the preliminary determination, we determined that because POSCO is

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

pay, and the government is foregoing revenue that is otherwise due,

POSCO's free usage of the port facilities provided a financial

contribution to the company within the meaning of section 771(5)(D)(ii)

of the Act. We also found that the exemption from paying port facility

charges is specific under section 771(5A)(D)(iii) of the Act, because

POSCO was the only company exempt from paying these port facility fees

during the POI. During verification, we discovered that Inchon also

participated in this program.

Since our preliminary determination, we have gathered further

information with respect to the Harbor Act and the number and types of

companies which have built infrastructure which, as required by law,

were subsequently transferred to the government. At verification, we

learned that, because the government does not have sufficient funds to

construct all of the infrastructure a company may need to operate its

business, the GOK allows a company to construct, at its own expense,

such infrastructure. However, the Harbor Act prohibits a private

company from owning certain types of infrastructure, such as ports.

Therefore, the company, upon completion of the project, must deed

ownership of the infrastructure to the government pursuant to Article

17-1 of the Harbor Act. Because a company must transfer to the

government its infrastructure investment, the GOK, under Articles 17-3

and 17-4 of the Harbor Act, grants the company free usage of the

facility and the right to collect fees from other users of the facility

until the company recovers its investment cost. Once a company has

recovered its cost of constructing the infrastructure, the company must

pay the same usage fees as other users of the infrastructure facility.

We verified that under the Harbor Act, any company within any

industrial sector is eligible to construct infrastructure necessary for

the operation of its business provided that it receives approval by the

Administrator of the Maritime and Port Authority to build the facility.

We learned that if the ownership of the infrastructure, which the

company built, must transfer to the government, then the company, by

law, has the right to free usage of that facility and the ability to

collect fees from other users of the facility. The right of free usage

and the ability to collect user fees are granted to every company which

has to deed facilities to the GOK. The free usage and collection of

user fees continues only until the company which built the facility

recaptures its cost of constructing the facility.

Further, at verification we learned that in permitting a company to

build infrastructure subject to the Harbor Act requirements, the GOK

has in place a procedure for approving a company's investment costs and

for monitoring the company's free usage and collection of user fees.

Because the GOK allows a company, for a period of time, to use for free

the infrastructure it built, the GOK, through the respective port

authority, reviews each infrastructure project to assess the cost. The

port authority then approves a certain monetary amount for the

infrastructure through a settlement process with the company. A company

can only receive free usage of a facility up to the monetary amount

approved by the port authority.

At verification, we obtained documentation which indicates that

since 1991, a diverse grouping of private sector companies across a

broad range of industrial sectors have made a number of investments in

infrastructure facilities at various ports in Korea, including at

Kwangyang Bay. In each case, the company which built the infrastructure

was required to transfer it to the GOK, and received free usage of the

infrastructure and the ability to collect user fees from other

companies until they recover their respective investment costs. POSCO

and Inchon were not the only companies entitled to use a particular

port facility infrastructure, which it built, free of charge.

As a result of the information obtained at verification, we have

revisited our preliminary determination that POSCO's exemption from

paying port facility charges is specific under section 771(5A)(D)(iii)

of the Act. As discussed above, we verified that since 1991, a diverse

grouping of private sector companies representing a wide cross-section

of the economy have made a large number of investments in

infrastructure facilities at various ports in Korea, including numerous

investments at Kwangyang Bay. Those companies which built

infrastructure that was transferred to the GOK, as required by the

Harbor Act, received free usage of the infrastructure and the ability

to collect user fees from other companies which use the facilities,

until they recover their respective investment costs. POSCO and Inchon

are only two of a large number of companies from a diverse range of

industries to use this program. Accordingly, we determine that this

program is not specific under section 771(5A)(D)(iii) of the Act.

Therefore, we find that this program is not countervailable.

III. Programs Determined To Be Not Used

Based on the information provided in the responses and the results

of verification, we determine that the companies under investigation

either did not apply for or receive benefits under the following

programs during the POI:

[[Page 30650]]

A. Tax Incentives for Highly-Advanced Technology Businesses under the

Foreign Investment and Foreign Capital Inducement Act

B. Reserve for Investment under Article 43-5 of TERCL

C. Export Insurance Rates Provided by the Korean Export Insurance

Corporation

D. Special Depreciation of Assets on Foreign Exchange Earnings

E. Excessive Duty Drawback

Petitioners alleged that under the Korean Customs Act, Korean

producers/exporters may have received 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 consumed in the production of the exported item and,

therefore, the amount of duty drawback is excessive. In Steel Products

from Korea, we determined that certain Korean steel producers/exporters

received excessive duty drawback because they received duty drawback at

a rate that exceeded the rate at which imported inputs were actually

used. See Steel Products from Korea, 58 FR at 37349.

At verification, we learned that the refund of duties only applies

to imported raw materials that are 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. We confirmed that the National Technology Institute

(NTI) maintains a materials list for each product, and only materials

that are physically incorporated into the final product are eligible

for duty drawback.

We verified that the NTI routinely conducts surveys of producers of

exported products to obtain their raw material input usage rate for

manufacturing one unit of output. With this information, the NTI

compiles a standard usage rate table for imported raw material inputs

which is used to calculate a producer/exporter's duty drawback

eligibility. 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.

At verification, the GOK confirmed that the factoring of reusable scrap

into usage rates is done routinely for all products under Korea's duty

drawback regime.

We also confirmed during our verification that there is no

difference in the rate of import duty paid and the rate of drawback

received. The rate of import duty is based on the imported materials

and the rate of drawback depends on the exported merchandise and the

usage rate of the imported materials. The companies pay import duties

based on the rate applicable to and the price of the imported raw

material. The companies 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 rate at

which the respondents receive duty drawback is the amount of import

duty paid on the amount of input consumed in producing the finished

exported product.

Based on the information on the record, we determine that the

respondents have not received duty drawback on imported raw materials

that were not physically incorporated in the production of exported

merchandise. As in Steel Products from Korea, we also determine that

the respondents appropriately factored recovered scrap into its

calculated usage rates and that the duty drawback rate applicable to

the respondents takes into account recoverable scrap. See Steel

Products from Korea, 58 FR at 37349. Therefore, we determine that the

respondents have not received excessive duty drawback.

IV. Programs Determined To Be Terminated

Based on information provided by the GOK, we 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.

Interested Party Comments

Comment 1: The GOK's Pre-1992 Credit Policies: New Factual Information

Concerning Foreign Currency-Denominated Loans

Respondents assert that the Department ignored new factual

information on the record of this proceeding concerning domestic

foreign currency loans. Specifically, respondents submitted information

indicating that from 1986 through 1988, interest rates on domestic

foreign currency loans were only subject to an interest rate ceiling,

and that after 1988, banks and other financial institutions were free

to set the interest rates on these loans subject only to the ceiling

established by the Interest Limitation Act. Respondents claim that the

Department ignored this information and incorrectly assumed that the

reimposition of interest rate ceilings on Korean won loans after a

failed attempt at liberalization in 1988 also applied to domestic

foreign currency loans.

Respondents further state that the Department found at verification

that the interest rate liberalization program applied solely to lending

rates in Korean won. Therefore, for all domestic foreign currency loans

received prior to 1992, there is no basis for the Department's

determination that interest rates on these loans were regulated and

that these loans provided countervailable subsidies.

According to petitioners, the Department's finding that pre-1992

direct foreign loans provided a countervailable subsidy was correct and

supported by the evidence on the record. Petitioners contend that the

issue at hand is the GOK's control over access to the foreign loans,

not control of the interest rate. Petitioners further state that

respondents have provided no new evidence to disprove this finding and

nothing in the new law is contrary to either the Department's 1993

determination, or the determination in Stainless Steel Plate from

Korea.

Department's Position: The alleged ``new'' information cited by

respondents in their brief concerning interest rates on domestic

foreign currency loans was considered by the Department in Steel

Products From Korea, and again in Stainless Steel Plate from Korea. The

discussion addressing the GOK's strict control of interest rates

specifically states that ``[i]nterest rate ceilings on domestic foreign

currency loans were

[[Page 30651]]

also maintained until 1988.'' See Steel Products From Korea, 58 FR at

37341. Thus, the Department considered the fact that the de jure

controls over domestic foreign currency loans were removed after 1988

in reaching its conclusion that these loans continued to be subject to

indirect GOK influence. Respondents' contention that ``window

guidance'' (i.e., the GOK's indirect control over interest rates)

applied only to domestic won loans is also without merit.

The Department examined this question and reached the opposite

conclusion in Steel Products From Korea. The Department reiterated this

conclusion in Stainless Steel Plate from Korea, where it also noted

that independent bankers had stated that ``interest rates were once

again regulated until the early 1990s, through a system of ``window

guidance.'''' Under this system commercial banks were effectively

directed by the government not to raise interest rates above a certain

level. While this statement is contained within the discussion of the

failed 1988 liberalization plan, the bankers did not distinguish

between domestic and foreign rates of lending by domestic commercial

banks. Finally, in calling for the prohibition of ``window guidance''

over financial institutions'' loan rates, the Presidential Commission

did not refer only to won-denominated rates. As noted above, the

Department's findings in Steel Products From Korea took into account

respondents' ``new'' information. This finding has since been upheld by

the Court in British Steel plc v. United States, 941 F. Supp 119 (CIT

1996) (British Steel II), and by the Department in its final

determination of Stainless Steel Plate from Korea. For these reasons

our finding concerning the countervailability of pre-1992 foreign

currency denominated loans from domestic sources remains unchanged in

this final determination.

Comment 2: Post-1991 GOK Credit Policies: Whether POSCO Received Long-

Term Loans From Korean Banks At Favorable Interest Rates

Respondents contend that, according to the Department's own

calculations in Stainless Steel Plate from Korea, POSCO did not receive

a benefit from favorable interest rates from regulated and directed

sources of credit during the 1992-1997 period, and hence there is no

countervailable subsidy in this time period. Respondents propose that

the ``minuscule benefits'' found are merely a result of rounding errors

caused by the use of weighted-average benchmarks during a period of

fluctuating interest rates. Alternatively, the insignificant benefit

found in the Stainless Steel Plate from Korea determination may have

resulted from variations in the LIBOR base rate on all of these loans.

Respondents do not argue with the Department's use of three-year

corporate bonds as representative of the long-term market rate for won

loans in Korea.

Petitioners rebuttal argument is twofold. As an initial matter, the

calculations from Stainless Steel Plate from Korea that are cited by

respondents contain an error. When this error is corrected, it becomes

apparent that there was a benefit to POSCO from its long-term won-

denominated loans. Secondly, even if this benefit is minimal, it falls

within the rubric of the GOK's direction of credit, and was therefore

properly countervailed.

Department's Position: As detailed in the Credit Memo, we have

determined that access to government-regulated foreign sources of

credit did not confer a benefit to POSCO, as defined by section

771(5)(E)(ii) of the Act, and, as such, credit received by respondents

from these sources was found not countervailable. Petitioners' argument

that this decision was based on a calculation error is based on an

incorrect characterization of these loans as fixed rate loans. Because

these loans have variable interest rates, our methodology is to

calculate the benefit at the time the interest on the loan is paid. For

these reasons, we find that there was no benefit from direct foreign

loans received by POSCO in 1997.

Comment 3: The GOK's Pre-1992 Credit Policies: Whether Direct Foreign

Loans Constitute a Financial Contribution Within the Meaning of the Act

According to respondents, the only government regulation of direct

foreign loans consisted of an interest rate ceiling. Respondents state

that the GOK could not, under its regulations, direct or induce foreign

lenders to provide loans to POSCO; nor could it regulate (and reduce)

the interest rates these lenders would charge on such loans. Rather,

these loans were negotiated directly between foreign banks and POSCO

without the GOK's direct or indirect involvement. As such, respondents'

state that the Department's preliminary finding that direct foreign

loans are countervailable is in conflict with the ``financial

contribution'' standard of section 771(5)(D)(i) of the Act. Respondents

assert that direct foreign loans from foreign banks do not constitute

countervailable subsidies because there is no government financial

contribution. Respondents further claim that the Department did not

explain in its preliminary determination how loans from foreign sources

could constitute a financial contribution by the GOK.

Moreover, respondents state that these loans do not meet the

``entrusts or directs'' standard of the Act, because (1) they can not

be characterized as a contribution that ``would normally be vested in

the government,'' and (2) the requirement that the practice of lending

by the foreign entity ``does not differ in substance from practices

normally followed by the government'' is not met in this instance.

Furthermore, because access to direct foreign loans was restricted by

the GOK on the basis of a borrowers' ability to access the market

without a government or bank guarantee, POSCO would have been able to

receive direct foreign loans at the interest rates obtained on its own

and without government involvement.

Respondents also address the Department's assertion in the new

countervailing duty regulations (and the Statement of Administrative

Action) that its indirect subsidy standard remains unchanged under the

``financial contribution'' standard of the Post-Uruguay Round law,

specifically referring to the indirect subsidy practices countervailed

in Steel Products from Korea.7 Respondents state that to

simply subsume direct foreign loans from foreign entities within the

broad claim of an unchanged indirect subsidy standard (and the

endorsement in the SAA of Steel Products From Korea) is ``overly

simplistic and legally in error.''

---------------------------------------------------------------------------

\7\ Countervailing Duties; Final Rule, 63 FR 65348, 65349

(November 25, 1998) (CVD Final Rule); SAA at 926.

---------------------------------------------------------------------------

Petitioners dispute respondents' assertion that the GOK's control

over access to direct foreign loans does not constitute a financial

contribution, within the meaning of the Act. Petitioners state that

this question has been addressed by the SAA, which specifically

references the Department's indirect subsidy findings in Steel Products

From Korea to illustrate that the indirect subsidy standard includes

the GOK's control over access to direct foreign loans. Petitioners

contend that to accept respondents' argument would be to repudiate the

interpretation of the statute in the SAA. Petitioners note, moreover,

that the Department preliminarily found in the Credit Memo that the

GOK's control over the Korean financial system continued through the

POI and included the control of access to direct foreign loans.

Department's Position: As petitioners correctly note, respondents'

arguments concerning this issue have been fully

[[Page 30652]]

addressed by the Congress through its approval of the SAA and the CVD

Final Rule.8 In Steel Products From Korea, the finding of

government control was determined to be sufficient to constitute a

government program and government action, as defined by the Act.

Moreover, in the preliminary determination, we did not revisit that

prior determination, and also found that the subsidy identified meets

the standard for a subsidy as defined by the post-URAA Act. Preliminary

Determination, 63 FR at 63890.

---------------------------------------------------------------------------

\8\ Although the CVD Final Rule is not controlling in this

investigation, it does represent a statement of the Department's

practice and interpretations of the Act, as amended by the URAA.

---------------------------------------------------------------------------

While respondents contend that subsuming GOK-controlled access to

direct foreign loans from foreign entities within the SAA's claim of an

unchanged indirect subsidy standard is ``overly simplistic and legally

in error,'' the clear and unambiguous language of the SAA is that

Congress intended the specific types of indirect subsidies found to be

countervailable in Steel Products From Korea to continue to be covered

by the Act, as amended by the URAA. The Department's final

countervailing duty regulations are equally clear on this issue: the

preamble confirms that the standard for finding indirect subsidies

countervailable under the URAA-amended law ``is no narrower than the

prior U.S. standard for finding an indirect subsidy as described in

Steel Products from Korea.'' See CVD Final Rule, 63 FR at 65349. For

these reasons, we have not changed our preliminary determination

concerning the countervailability of pre-1992 direct foreign loans.

Comment 4: The GOK's Pre-1992 Credit Policies: Benchmark Applied to

Determine the Benefit From Foreign Currency-Denominated Loans

Respondents challenge the Department's use of a won-denominated

benchmark to calculate the countervailable benefit from POSCO's

outstanding pre-1992 long-term foreign currency-denominated loans.

According to respondents, the Department's long established methodology

is to compare countervailable loans with a benchmark in the same

currency. Respondents cite the Final Affirmative Countervailing Duty

Determination: Certain Apparel from Thailand, 50 FR 9818, 9824 (1985),

which states that, the ``benchmark must be applicable to loans

denominated in the same currency as the loans under consideration.''

Respondents also note that this standard was articulated in the Final

Affirmative Countervailing Duty Determination: Cold-rolled Carbon Steel

Flat-rolled Products from Argentina, 49 FR 18006 (April 26, 1984)

(Cold-Rolled Steel From Argentina). In that case, the Department

stated:

[f]or loans denominated in a currency other than the currency of the

country concerned in an investigation, the benchmark is selected

from interest rates applicable to loans denominated in the same

currency as the loan under consideration (where possible, interest

rates on loans in that currency in the country where the loan was

obtained; otherwise, loans in that currency in other countries, as

best evidence). The subsidy for each year is calculated in the

foreign currency and converted at an exchange rate applicable for

each year. Id. at 18019.

Respondents contend that this policy was reiterated in the Department's

new regulations, the preamble to which refers to the currency of the

loans as one of ``the three most important characteristics'' in

determining the benchmark. CVD Final Rule, 63 FR at 65363. Thus,

respondents assert that the Department (1) did not consider any other

commercially-viable alternatives (such as those rates ``in other

countries''); (2) ignored any reference to its long-standing policy of

comparing loans in the same currency; and (3) provided no explanation

for abandoning that policy. Accordingly, respondents state that the

Department must revise its calculation of the benefit from foreign

currency-denominated loans, using a benchmark that is in conformance

with its policy and regulations.

Petitioners dispute respondents' benchmark argument, stating that

the Department clearly rejected this argument in Stainless Steel Plate

from Korea. While petitioners do not dispute that it is the

Department's preference to use a benchmark in the same currency, the

Department made clear in the final determination of Stainless Steel

Plate from Korea that such a comparison was not appropriate when it

reaffirmed its determination from Steel Products from Korea.

Department's Position: Respondents' arguments concerning the

Department's methodology for measuring benefits from countervailable

foreign currency-denominated long-term loans are partially correct. As

stated in the Stainless Steel Plate from Korea determination, it is

true that in most instances we measure the benefit from countervailable

foreign currency loans by comparing such loans with a benchmark

denominated in the same currency, provided the borrower would otherwise

have had access to such foreign currency loans. However, in the context

of the Korean financial system prior to 1992, this methodology is not

appropriate. 64 FR at 15540. Specifically, in Steel Products From

Korea, the Department found that all sources of foreign currency-

denominated credit were subject to the government's control and

direction, and were countervailable. Therefore, these sources of

foreign currency credit, including overseas markets, could not serve as

an appropriate benchmark, and the Department had to determine the rate

that companies would have had to pay absent government control. That

rate was the corporate bond yield on the secondary market. See Steel

Products From Korea, 58 FR at 37346; and Stainless Steel Plate from

Korea, 64 FR at 15540.

Respondents assert that the Department did not consider any other

commercially viable alternatives. Respondents ignore, however, the fact

that the corporate bond yield on the secondary market was the only

alternative, unregulated, and commercially viable source of financing

in Korea. Accordingly, this was the only viable benchmark with which to

measure the benefit from government-regulated sources of credit. None

of respondents' arguments in this investigation have led us to change

our determination in Steel Products From Korea, which was reiterated in

Stainless Steel Plate from Korea. Therefore, our finding concerning

POSCO's pre-1992 foreign currency-denominated long-term loans remains

unchanged in this final determination.

Comment 5: The GOK's Pre-1992 Credit Policies: Whether Direct Foreign

Loans Are Not Countervailable Pursuant to the Transnational Subsidies

Rule

Respondents assert that pursuant to the so-called ``transnational

subsidies rule,'' funds provided from sources outside a country under

investigation are not countervailable. Specifically, respondents state

that section 701(a)(1) of the Act applies only to subsidies provided by

the government of the country in question or an institution located in,

or controlled by, that country. In support of this contention,

respondents cite North Star Steel v. United States, 824 F. Supp. 1074

(CIT 1993) (North Star), in which the Court upheld the Department's

determination that an Inter-American Development Bank loan guaranteed

by the Government of Argentina on behalf of the recipient was not

subject to the countervailing duty law. In particular, the CIT stated

that ``[t]his determination is consistent with the purpose of the

countervailing duty law, which is `intended to offset the unfair

competitive advantage that foreign

[[Page 30653]]

producers would otherwise enjoy from * * * subsidies paid by their

government.' '' North Star, 824 F. Supp. at 1079 (quoting Zenith Radio

Corp. v. United States, 437 U.S. 443, 456 (1978)). Respondents also

cite a case in which the Department refused to initiate an

investigation of private, foreign co-financing of a World Bank project,

stating that ``[f]or the same reasons [applicable to funds from the

World Bank], a loan granted by a group of Japanese banks and insurance

companies [in the Philippines] * * * would not be countervailable.''

See Initiation of Countervailing Duty Investigation: Certain Textiles

and Textile Products from the Philippines, 49 FR 34381 (August 30,

1984).

Petitioners assert that the Department's determination does not

contravene the transnational subsidy rule because the subsidy in this

case is based on controlled access to credit, and not on a differential

in interest rates. The fact that the payment of the funds comes from a

private source outside of Korea is irrelevant. According to

petitioners, the case law cited by respondents does not involve

situations in which a foreign government conferred countervailable

subsidies by controlling access to third country financial sources. In

addition, petitioners note that these cases predate the changes in the

statute that expressly recognize indirect subsidies provided through

private actors.

Department's Position: Respondents' assertion concerning the

transnational subsidies rule is incorrect. Respondents made this same

argument in Steel Products From Korea (see 58 FR at 37344) and in

Stainless Steel Plate from Korea (see 64 FR at 15539). In upholding the

Department's determination in Steel Products From Korea, the Court did

not find in any way that the Department's determination with respect to

direct foreign loans was in conflict with the transnational subsidies

rule, as argued by respondents in that prior investigation. The cases

cited by respondents are also not relevant to the facts of this

investigation because those cases deal with funds from foreign

governments or international lending or development institutions. This

investigation, however, concerns the Korean government's control over

access to funds from overseas private sources of credit.

More specifically, however, the Department rejected respondents'

argument both in Steel Products From Korea and in Stainless Steel Plate

from Korea because the benefit alleged was not the actual funding of

direct foreign loans, but rather the ``preferential access to loans

that are not generally available to Korean borrowers.'' Steel Products

From Korea, 58 FR at 37344; Stainless Steel Plate from Korea, 64 FR at

15539. The GOK was found to control this access and because the steel

industry received a disproportionate share of these low-cost funds,

this preferential access was found to confer a countervailable benefit

on the steel industry. Nothing argued by respondents in this

investigation would lead us to change these prior determinations

concerning direct foreign loans. Therefore, our preliminary

determination remains unchanged.

Comment 6: Post-1991 GOK Credit Policies: Whether Foreign Currency

Loans from Domestic Branches of Foreign Banks are Countervailable

Petitioners argue that, contrary to its decision in Stainless Steel

Plate from Korea, the Department should find countervailable access to

foreign currency loans extended by foreign bank branches located in

Korea. Petitioners contend that the same conditions which led the

Department to find the existence of direction of credit for domestic

bank sources are present in the case of foreign currency loans extended

by foreign bank branches in Korea. Moreover, there is no affirmative

evidence to justify overturning the 1993 determination of GOK control

over domestic branches of foreign banks. Petitioners assert that the

Department mistakenly relied on a lack of any substantive discussion in

the record concerning the influence of the GOK on foreign banks as

affirmative evidence that no such controls exist. According to

petitioners, there is little, if any, meaningful discussion about the

direct or indirect influence of GOK regulations and policies on the

operation of foreign banks in Korea in the record, including the

verification reports. Thus, petitioners argue that the Department does

not have a basis for its determination in Stainless Steel Plate from

Korea that foreign currency loans from branches of foreign banks in

Korea are not countervailable.

Petitioners argue that pursuant to the Court of International

Trade's (CIT) recent ruling in Al Tech Specialty Steel Corp. v. United

States, the Department may not infer the truth of certain facts from

lack of any contradictory evidence on the record, and so may not

conclude that, absent evidence to the contrary, the GOK did not exert

improper controls or influence over foreign commercial

banks.9 Rather, petitioners argue that the Department is

required to support or authenticate with record evidence (i.e., verify)

any factual assertion on which it relies. Slip Op. 98-136 at 9 (CIT

1998). Petitioners state that, in this case, the Department has

violated that principle by failing to gather and verify the necessary

facts in support of the conclusion reached.

---------------------------------------------------------------------------

\9\ Slip Op. 98-136 at 9, 1998 WL 661461 (Ct. Int'l Trade Sept.

24, 1998)(``After having failed to uncover evidence to corroborate

Isibar's statement on the industry standard, Commerce should then

have either concluded that the claim was unverifiable or continued

the investigative process until corroborating evidence was

obtained'').

---------------------------------------------------------------------------

Moreover, petitioners assert that what little record evidence is

available demonstrates that GOK control over foreign banks in Korea is

equivalent to that over Korean domestic banks. The petitioners argue

that, according to record evidence, foreign commercial banks and

domestic banks are on an ``equal footing,'' and must therefore be

subject to the same controls. In particular, petitioners cite to the

General Bank Act, the Bank of Korea Act, and the Foreign Exchange

Management Law, noting that foreign banks are also subject to the

provisions of these laws. Petitioners also refer to the Department's

finding that the BOK and MOFE have equal authority to control and

monitor all banks, and acted a manner such that, ``[t]o a significant

extent, these institutions [BOK and MOFE] continued to intervene

directly and indirectly in the lending activities of commercial

banks.'' Directed Credit Memo at 6.

Petitioners assert that because the Department found that foreign

banks were controlled indirectly by the GOK in Steel Products from

Korea, and because the Department did not find any practical changes in

the GOK's indirect role on lending rates and appointment of bank

officials between 1991 and 1997, there is no evidence to support the

conclusion that these controls ceased to exist for foreign banks.

Specifically, petitioners argue that the GOK maintained indirect

control over foreign banks in two ways: (1) By influencing lending

rates; and (2) by influencing the appointment of bank officials. With

regard to lending rates, petitioners argue that (as indicated in the

Presidential Report) foreign commercial banks must be subject to the

same ``window guidance'' as domestic commercial banks to prevent

interest rates from increasing. See Presidential Report at 29.

According to petitioners, risk-averse, profit-motivated foreign

commercial banks would only charge such low interest rates in the

Korean

[[Page 30654]]

market if GOK policies restricted either the interest rates or

borrowers' access to credit from those banks. Moreover, petitioners

maintain instead that there is not sufficient evidence to determine

that foreign banks were without GOK influence in the selection of bank

officials at Korean branches.

In rebuttal, respondents argue that the petitioners' cite to Al

Tech is not pertinent. The reasoning of Al Tech does not logically

extend to this case because there is no evidence to support a

conclusion of direction and control over Korean branches of foreign

banks. Respondents advance that the record evidence, including meetings

with commercial bankers, incontrovertibly indicates that there is no

Korean government control of these banks. Rather, petitioners resort to

using generalities and speculation about the operation of the Korean

banking system and its provisions, which pertain neither to direction

of credit to the steel industry, nor to the Department's de facto

finding of direction of credit. Respondents also reject petitioners

argument because petitioners do not present any evidence of the means

by which the GOK controlled or directed the lending practices of these

foreign bank branches, in contrast to the Department's findings

regarding the domestic commercial banks. Rather, foreign banks' most

important source of funds is their head offices; this provides them

with both greater autonomy from the Korean banking system and a lower

cost of funds than that available to Korean commercial banks.

Respondents note that petitioners' focus on government controls on the

inflow of foreign funds is misplaced, as the GOK is primarily concerned

with the domestic money supply, while the inflow of foreign currency is

linked to the use of these funds.

Finally, respondents point out that the GOK does not, and does not

need to, influence these banks to lend to POSCO. Respondents reiterate

that POSCO is one of the best companies in Korea, and, given POSCO's

strong credit rating and reputation, most commercial banks would like

to lend to the company.

Department's Position: First, we note that petitioners make the

statement that because the Department found government control over

domestic branches of foreign banks in our 1993 decision in Steel

Products from Korea that it is incumbent on the Department to rely on

affirmative evidence that this control has been repealed. Petitioners

argue that the record evidence in this investigation provides no

affirmative evidence of any such repeal. Petitioners are incorrect.

First, we must make the basic point that the specific GOK control of

domestic branches of foreign banks during the period 1992 through 1997,

which is at issue here, was not examined in Steel Products from Korea.

As such, there is no ``affirmative evidence'' to ``repeal.'' In

addition, in Steel Products from Korea, our determination of GOK

control was based on the entirety of the financial system in Korea as

existed pre-1992. In this current investigation, we determined that the

more appropriate basis of examination of direction of credit after 1991

is an analysis of GOK control with respect to each aspect of the

different types of commercial banks in Korea, including domestic banks

and foreign bank branches.

More importantly, with respect to petitioners' argument on this

issue, as a matter of law, the countervailability of the GOK's control

over domestic branches of foreign banks during the period 1992 through

1997, which was not examined in the 1993 decision in Steel Products

from Korea, can only be based upon the information on the record in

this current investigation. As detailed above and explained in the

Credit Memo, the information on the record in this investigation

demonstrates that while the GOK controls domestic commercial banks it

does not control branches of foreign banks in Korea.

Petitioners' contention that record evidence establishes that the

Korean branches of foreign banks were subject to the same GOK controls

and direction that applied to domestic commercial banks is not

supported by the record. The record evidence cited by petitioners does

not amount to GOK control and direction of these institutions'

operations and lending practices.

The 1996 and 1998 OECD reports do not support petitioners'

arguments. While the 1996 OECD report discusses funding levels by

foreign banks in Korea, nowhere does that report state that these banks

were subject to the GOK's control or direction. Moreover, the 1998 OECD

Report, in discussing the weakness of the Korean banking system, and in

attributing responsibility for that weakness partly to the government's

direct and indirect intervention in the operations of commercial banks,

mentions only domestic commercial banks, not foreign banks. In fact,

the report discusses the inability of domestic commercial banks, after

their privatization, to ``develop the autonomy [from the government]

needed in a market economy.''

Contrary to their arguments, petitioners' reliance on the reports

issued by the Presidential Commission for Financial Reform, quoted by

the Department in the Credit Memo, is equally misplaced. The section of

the Presidential Report titled ``Deregulation of Access to Foreign

Capital Markets,'' cited by petitioners, refers to regulations

governing access to foreign capital markets, not regulations governing

foreign currency-denominated loans from domestic branches of foreign

banks in Korea.10 Regulations governing access to foreign

capital markets are quite separate from those governing domestic

branches of foreign banks in Korea. To the extent that the Presidential

Commission addressed domestic foreign currency loans, it addressed the

lifting of restrictions on the usage of these funds, which is limited

mostly to the importation of machinery from abroad. This has nothing to

do with any GOK controls over the operations of domestic branches of

foreign banks.

---------------------------------------------------------------------------

\10\ Financial Reform in Korea: The First Report (Presidential

Report I) at 22 (April 1997), Exhibit MOFE-9 of the MOFE

Verification Report, on file in the CRU.

---------------------------------------------------------------------------

Petitioners also support their argument with the contention that

foreign banks are subject to some of the same regulatory provisions

contained in the General Bank Act that govern domestic commercial

banks. However, the Department's analysis in the Credit Memo did not

rely on these regulatory provisions but on the record evidence that the

GOK continued to influence the lending practices of these domestic

commercial banks indirectly, in part because these banks did not

develop autonomy from the government. As we explained in the Credit

Memo, the weakness of domestic banks vis-a-vis the government was in

part an outgrowth of the government's historical role in allocating

credit in accordance with policy objectives. Also, the corporate

governance structure of Korea's commercial banks (weak ownership

structure, lack of autonomy in appointing banking officials)

contributed to their weakness vis-a-vis the government. The fact that

the GOK's indirect involvement in commercial banking operations

continued into the 1990s exacerbated this problem. See Credit Memo at

8-9. Foreign banks in Korea, however, were not subject to this same

influence. Their sources of funds were their head offices and, as

respondents correctly illustrate, appointment of their senior officials

was not subject to influence by the GOK. Moreover, there is no evidence

that the GOK played a role in the distribution of these funds by the

Korean branches. Petitioners proffer no evidence that foreign banks in

Korea were

[[Page 30655]]

``inescapably influenced by the controls on every other sector of the

banking industry.'' Rather, they speculate that these banks would be no

less influenced than their Korean counterparts by the lead of the

Korean Development Bank and the Bank of Korea to extend credit to

certain government-favored projects. This is not a conclusion reached

by any of the commercial bankers at verification, and petitioners do

not point to any evidence that would support this contention. We also

note that petitioners' view of the GOK's motivation to control foreign

sources of money to keep interest rates from falling is not consistent

with one of the alleged methods of control, i.e., limits on interest

rates through ``window guidance.''

The fact that foreign banks in Korea did not account for a

significant amount of total lending in Korea is not sufficient evidence

to lead us to conclude that POSCO would not have been able to raise

sufficient funds from this source. Rather, the record shows that loans

from foreign banks in Korea were a significant source of POSCO's

borrowing, and credit from these banks was not controlled by the GOK.

Petitioners have correctly argued that the Department is required

to support or authenticate with record evidence factual assertions

relied upon in our final determinations. Indeed, section 782(i) of the

Act requires the Department to verify the information used in making a

final determination. In this investigation, petitioners alleged that

the GOK controlled the allocation of credit in Korea during the years

1992 through 1997. Therefore, once a credible allegation was made, the

responsibility of the Department was to solicit and develop factual

information to determine whether the GOK was directing credit during

those years. In this investigation, the Department properly examined

individually the various sources of long-term credit in Korea. This

examination included, among other sources, loans from foreign banks

with branches in Korea.

Because of the complexity of this issue, a government's control and

its allocation of credit within its borders, the Department conducted

four days of meetings with commercial and investment banks and with

economic and financial research institutes in Korea. During this

intensive four-day period with experts in the operation of the

commercial credit market in Korea, we focused on all aspects of the

alleged GOK control of banks in Korea, including its alleged control of

foreign banks. In these meetings we sought information on the aspects

and measures used by the government in its control of credit and

financial institutions in Korea. Information provided to us by these

banking and financial experts on the measures used by the GOK to

control banks and allocate credit in the Korean financial market was

summarized in our Bankers Report.

Based in large part on the information which was gathered during

these meetings, we determined that the actions of the GOK in the Korean

financial system support the conclusion that the GOK controls credit

through both government-owned banks, such as the Korean Development

Bank, and Korean domestic banks; however, no similar control was found

for foreign banks operating in Korea. As noted in the facts detailed

above, and in the Credit Memo, our determination that the GOK does not

control the lending decisions and allocation of credit of foreign banks

operating in Korea is supported by the information on the record in

this investigation.

Comment 7: Post-1991 GOK Credit Policies: Whether POSCO's Access to

Foreign Securities Markets Results in Countervailable Benefits

According to petitioners, extensive record evidence, in particular

the Department's findings at verification, shows that access to foreign

sources of funds, including foreign securities, was strictly controlled

by the GOK through the POI. Petitioners assert that, as recognized by

POSCO, the MOFE restricted access to foreign securities markets with

the purpose of maintaining low levels of cost of funds for certain

companies. Petitioners state that interest rates on foreign credit

markets were five to seven percentage points lower than those on

domestic foreign currency loans, and petitioners charge that the GOK's

goal of preventing inflationary effects necessitated the maintenance of

this interest rate differential. In addition, petitioners claim that

the GOK's control over access to foreign funds constitutes a financial

contribution within the meaning of the Act, in particular, the

``entrusts or directs'' standard of section 771(5)(B)(iii) of the Act.

Respondents note that in the recent Stainless Steel Plate from

Korea final determination, the Department determined that POSCO's

alleged ``preferential access'' to regulated foreign sources of funds

did not confer a benefit. They state that the record evidence in this

case also supports a finding that access to foreign securities did not

confer a benefit to POSCO. Respondents also dispute petitioners' claim

that access to foreign securities constitutes a financial contribution

within the meaning of the Act, stating that petitioners' interpretation

of the ``entrust or directs'' standard is unreasonable. Respondents

state that this standard cannot encompass private actions by

independent foreign parties that are consistent with market-oriented

behavior at market-determined interest rates.

Department's Position: In the Credit Memo, we stated that there are

three elements required to find a potential subsidy countervailable:

(1) A financial contribution is made by a government or public body;

(2) a benefit is conferred on the recipient; and (3) the subsidy is

specific. If one of these three elements is not met, the subsidy is not

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

we examined whether a benefit has been conferred on the recipient,

POSCO, from foreign securities issued in overseas markets. We also

preliminarily determined that POSCO's access to government-regulated

foreign sources of credit did not confer a benefit to the recipient, as

defined by section 771(5)(E)(ii) of the Act, and, as such, is not

countervailable. See Credit Memo at 18. As discussed in Comment 5,

above, we continue to find that branches of foreign banks are not

subject to the GOK's control and direction. Therefore, we continue to

find that access to government-regulated foreign sources of credit did

not confer a benefit, because the rates obtained on foreign securities,

even though access to them was limited, were not less than those on

foreign currency loans available to respondent companies in Korea. As

such, there is no need to address the additional comments raised by

petitioners and respondents above.

Comment 8: Whether Lending From Domestic Branches of Foreign Commercial

Banks Is an Appropriate Benchmark for Long-term Financing

Petitioners dispute the Department's decision in Stainless Steel

Plate from Korea that because the GOK did not control or direct credit

provided by the domestic branches of foreign commercial banks, the

interest rate on certain such loans is an appropriate benchmark for

determining the benefit from (1) foreign currency loans from Korean

commercial banks extended post-1991 and (2) foreign securities

offerings. Petitioners argue that since record evidence establishes the

GOK's control of credit from domestic branches of foreign commercial

banks, the Department must use an alternative benchmark from an

uncontrolled

[[Page 30656]]

domestic source. Petitioners assert that the Department should instead

continue to apply the methodology established in Steel Products from

Korea (1993), and use the domestic corporate bond rate.

Respondents claim that there is substantial evidence on the record

to support the Department's finding that the GOK neither controls nor

directs the operations of foreign commercial banks. Therefore, loans

from these banks are appropriate as benchmark commercial loans.

Department's Position: We have determined that the GOK does not

control credit from domestic branches of foreign banks. See Comments 5

and 6, above. Because these uncontrolled foreign banks provided foreign

currency loans, interest rates on these loans are the appropriate

benchmarks to use in calculating the benefit from foreign currency

loans provided to the respondents from government-owned banks and

government-controlled domestic banks. For the reasons discussed in

Comment 6, we disagree with petitioners' arguments that funding from

domestic branches of foreign banks cannot serve as an appropriate

benchmark to measure any potential benefit from regulated foreign

currency-denominated sources of credit, e.g., foreign securities from

abroad.

Comment 9: Dai Yang's Long-Term Interest Rate Benchmark for Dollar-

Denominated Loans

Respondents argue that, absent loans by Korean branches of foreign

banks, the Department should use the average interest rates charged on

domestic foreign currency loans from Korean branches of foreign banks

to POSCO and Inchon as a benchmark for calculating the benefit from Dai

Yang's domestic foreign currency loans. Respondents note that the use

of this industry-specific data would be in line with the Department's

policy of using industry-specific benchmarks when company-specific

benchmarks were not available. Alternatively, respondents assert that

the Department may use data solely from Inchon if the Department

determines that to be more appropriate.

Petitioners reject the use of an ``industry-specific'' benchmark,

as proposed by Dai Yang. While respondents cite to the Department's

1989 Proposed Regulations in support of this practice, there is no such

standard established in the 1997 Proposed Regulations, which indicates

that the Department will use a national average rate absent company-

specific benchmark information. Moreover, petitioners suggest the

impracticality of this suggestion, as the stated purpose of a benchmark

rate is to reflect the ``amount the firm would pay on a comparable

commercial loan(s) that the firm could actually obtain on the market.''

19 C.F.R. 351.505(a)(1) (emphasis added). Given the varied financial

status of firms, there is no reason to believe that one firm's rates

are an acceptable surrogate for another firm. Therefore, the Department

should use the national average interest rate benchmark to determine

the benefit on all long-term financing, loans and bonds.

Department's Position: While petitioners are correct that it is the

Department's practice to use a national average interest rate benchmark

when company-specific rates are unavailable, we were unable to locate a

national average rate for domestic branches of foreign banks, or any

other appropriate surrogate national average rate in this case.

Additionally, it is the Department's long-standing practice to compare

countervailable foreign currency-denominated loans to a benchmark in

the same currency, as discussed in Comment 7 above, making the use of

the won-denominated interest rate benchmark, as suggested by

petitioners, inappropriate in this circumstance. See e.g., CVD Final

Rule, 63 FR at 65363; see also, Certain Apparel from Thailand, 50 FR at

9824 (``benchmark must be applicable to loans denominated in the same

currency as the loans under consideration),'' and Cold-Rolled Steel

From Argentina, 49 FR at 18019 (``the benchmark is selected from

interest rates applicable to loans denominated in the same currency as

the loan under consideration'').

In the past, where the Department has found that a company-specific

factor is a reasonable representation of industry practice, we have

used such information as the most appropriate surrogate. See Final

Affirmative Countervailing Duty Determination: Certain Stainless Steel

Wire Rod from Italy, 63 FR 40474, 40477 (July 29, 1998). As stated in

the Department's CVD Final Rule, 63 FR at 65408, section

351.505(a)(2)(i), ``* * * the Secretary normally will place primary

emphasis on similarities in the structure of the loans (e.g., fixed

interest rate v. variable interest rate), the maturity of the loans

(e.g., short-term v. long-term), and the currency in which the loans

are denominated.'' Based on the similarities in the circumstances and

structure of Inchon's and Dai Yang's lending practices, we find that

the rate calculated from Inchon's loans by Korean branches of foreign

banks is the most appropriate benchmark.

Comment 10: Inchon's Long-Term Loan Benchmark

Respondents propose that, consistent with the recent Stainless

Steel Plate from Korea final determination and its regulations, the

Department should use the interest rates on Inchon's long-term foreign

currency loans from Korean branches of foreign banks to calculate a

company-specific weighted-average U.S. dollar-denominated benchmark

rate for Inchon. If the Department finds that Inchon's domestic foreign

currency loans and direct foreign loans constitute directed credit, it

should then use this calculated company-specific benchmark for

calculating the benefits conferred upon Inchon.

In rebuttal, petitioners contend that the methodology used to

calculate POSCO's company-specific weighted average dollar denominated

benchmark interest rate, which Inchon proposes to continue using in

this investigation, deviates substantially from the Department's

established policy. It is the Department's practice to use a benchmark

that is based on the year in which a long-term loan obligation was

assumed. However, the methodology used by the Department understated

the benefit to producers of subject merchandise by failing to

countervail certain loans.

Department's Position: Consistent with the Department's long-term

policy, and with the methodology established in the final determination

of Stainless Steel Plate from Korea, it is appropriate to calculate a

company-specific weighted-average U.S. dollar-denominated benchmark

based on loans extended by Korean branches of foreign banks to

calculate the benefit to Inchon from domestic foreign currency loans

and direct foreign loans.

Petitioners argue that this is inconsistent with the Department's

practice of using a benchmark based on the year in which a loan was

received. While petitioners are correct that this is the Department's

standard practice, in this case, annual information was not available.

Moreover, it is also the Department's standard practice to compare

government-regulated credit to a benchmark denominated in the same

currency, if such a benchmark is available, as discussed in Comment 7,

above. This is in accordance with Department policy and past practice.

See e.g., CVD Final Rule, 63 FR at 65363; see also, Certain Apparel

from Thailand, 50 FR at 9824 (quoting, ``benchmark must be applicable

to loans denominated in the same currency as the loans under

consideration),'' and Cold-Rolled Steel From Argentina, 49

[[Page 30657]]

FR at 18019 (quoting, ``the benchmark is selected from interest rates

applicable to loans denominated in the same currency as the loan under

consideration''). Therefore, we believe that the benchmark calculation

methodology determined in Stainless Steel Plate from Korea is the most

reasonable surrogate.

Comment 11: Post-1991 GOK Credit Policies: Whether POSCO Received

Disproportionate Benefits From GOK-Regulated Long-Term Loans

Respondents argue the Department erred when it determined that all

producers of the subject merchandise received a disproportionate share

of long-term loans, in spite of POSCO's demonstration, according to the

Department's own GDP test, that it did not. Respondents indicate that

it is within the Department's authority to address, on a company-

specific basis, those companies that may have received a

disproportionate share of long-term loans; however, it is not within

the Department's authority to generalize the impact of benefits

received by specific companies onto an entire industry, thereby finding

disproportionality against a company whose loan shares were

demonstrably not disproportionate.

Respondents state that the appropriate legal standard is whether a

domestic subsidy ``is a specific subsidy, in law or in fact, to an

enterprise or industry * * *.'' (quoting section 771(5A)(D) of the

Act). Because POSCO is ``an enterprise'' as defined by the statue, and

constitutes ``the industry'' for which the Department must make a

determination concerning the existence of a domestic subsidy from the

purported directed credit, the Department must find that the subsidy is

not specific to POSCO.

According to petitioners, respondents' contention that the

Department must examine whether disproportionate benefits have been

provided to POSCO is a misinterpretation of the law. In particular,

petitioners state that the statute dictates that the Department will

find de facto specificity when either an enterprise or an industry

receives disproportionate benefits. The record, petitioners note, shows

that the Korean iron and steel industry received a disproportionate

amount of a subsidy.

Department's Position: We disagree with respondents' arguments. The

fact that POSCO borrowed very little from those sources of credit that

were found to be de facto specific to the steel industry during the

relevant period is irrelevant. The clear language of the statute is

that a subsidy is specific when ``an enterprise or an industry receives

a disproportionately large amount of the subsidy.'' Section

771(5A)(D)(iii)(III) of the Act (emphasis added). Thus, when a subsidy

is specific to an industry, even if it is not specific to an enterprise

that is part of that industry, the Department will find that subsidy to

be countervailable, even if the actual subsidy to the enterprise is

very small.

While respondents may characterize this approach as ``collective

guilt,'' the Department has in numerous cases found countervailable

relatively small subsidies to a respondent firm on the basis of

disproportionate use by the industry to which the respondent belongs.

See, e.g., Final Affirmative Countervailing Duty Determination: Certain

Steel Products from Brazil, 58 FR 37295, 37299 (July 9, 1993) (Certain

Steel from Brazil). Indeed, this is not an unusual fact pattern for de

facto specificity findings under, for example, large research and

development programs. As such it is not surprising that under

respondents' suggested approach, the Department would rarely find a

subsidy to be de facto specific, because subsidies under a program are

frequently not received on a disproportionate basis by a single

enterprise. Finally, we agree with petitioners that respondents'

attempt to link certain methodologies that are conducted on a company-

specific basis to the specificity analysis is also without merit. The

quantification of the benefit is simply not germane to the Department's

analysis concerning specificity.

Comment 12: Countervailability of POSCO's Two-Tiered Pricing System

Respondents argue that POSCO's pricing decisions are not influenced

by the GOK, and that the pricing structure in question is consistent

with commercial considerations and is widely used by companies in

numerous industries in Korea. RespondentsThey state that two-tiered

pricing has evolved as a natural response to market competition:

because the competing imports are eligible for duty drawback, companies

in Korea must set local export prices to compete with duty-exclusive

import prices. Otherwise, respondents claim, POSCO would lose business

to competing importers. Further, respondents argue that the

Department's methodology used in the preliminary determination was

based upon the flawed assumption that there are no major differences

between different hot-rolled stainless coils, and that the Department

failed to consider quality and terms-of-sale differences in its price

comparisons as required under section 771(5)(E)(iv) of the Act, which

sets forth the standards for determining the adequacy of remuneration.

Petitioners agree with the Department's preliminary determination

that POSCO supplied exporters of subject merchandise with

preferentially priced hot-rolled stainless steel coil, and that this

practice constitutes a countervailable export subsidy. Petitioners

state that the Department should continue to use import prices for hot-

rolled stainless steel coil as the benchmark for calculating the

benefit conferred by this program, consistent with the Department's

practice of using the world market price as a benchmark. As an

alternative, petitioners propose the use of a weighted-average of the

home market prices and import prices as the benchmark price.

Petitioners rebut respondents' argument that POSCO's pricing system

is consistent with commercial considerations, and disagree with

respondents' claim that this pricing schemeystem is necessary in order

for POSCO to compete with foreign competitors. Petitioners maintain

that the attribution of commercial benefits to a subsidy program such

as this one is irrelevant, as commercial considerations--such as the

loss of business--do not mitigate the countervailability of such

subsidies. Moreover, the language of the statute states that the

adequacy of remuneration will be measured ``in relation to prevailing

market conditions * * * for goods purchased in the country which is

subject to the investigation.'' Therefore, POSCO's competition with

imported material is also immaterial.

Department's Position: Because POSCO, a government-owned entity,

charged lower prices to respondent companies for inputs that were used

to produce subject merchandise for export, this program constitutes an

export subsidy in accordance with section 771(5A)(B) of the Act. We

disagree with respondents' claim that there was no GOK control or

intervention in POSCO's pricing decisions. As discussed in the

``Programs Determined to be Countervailable'' section of this notice,

we have determined that the actions of POSCO are the actions of the GOK

because POSCO is a government-controlled company. Respondents also

indicate that POSCO has no incentive to sell to its competitors at

subsidized prices. However, as discussed above, POSCO is a government-

controlled company, and record evidence indicate that the GOK does

influence POSCO's pricing decisions. See Source Document Memo.

The parties have put forth numerous arguments explaining how the

benefit

[[Page 30658]]

from this program should be determined under the guidelines of the

adequacy of remuneration standard established in section 771(5)(E)(iv)

of the Act. However, the adequacy of remuneration standard is not

relevant to the program at issue. The program at issue is one in which

POSCO charges different prices to Korean steel manufac

This text is long and has been trimmed here. Open the source document for the complete record.