Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determination: Certain Cut-to-Length Carbon-Quality Steel Plate From the Republic of Korea

DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-837]

Preliminary Affirmative Countervailing Duty Determination and

Alignment of Final Countervailing Duty Determination With Final

Antidumping Duty Determination: Certain Cut-to-Length Carbon-Quality

Steel Plate From the Republic of Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 26, 1999.

FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Tipten Troidl, CVD/

AD Enforcement, Office 6, Group II, Import Administration, U.S.

Department of Commerce, Room 4012, 14th Street and Constitution Avenue,

NW, Washington, DC 20230; telephone (202) 482-2786.

PRELIMINARY DETERMINATION: The Department of Commerce (the Department)

preliminarily determines that countervailable subsidies are being

provided to certain producers and exporters of certain cut-to-length

carbon-quality steel plate from the Republic of Korea. For information

on the estimated countervailing duty rates, see the ``Suspension of

Liquidation'' section of this notice.

SUPPLEMENTARY INFORMATION:

Petitioners

The petition in this investigation was filed by Bethlehem Steel

Corporation, U.S. Steel Group, a unit of USX Corporation, Gulf States

Steel, Inc., IPSCO Steel Inc., Tuscaloosa Steel Corporation, and the

United Steelworkers of America (the petitioners).

Case History

Since the publication of the notice of initiation in the Federal

Register (see Notice of Initiation of Countervailing Duty

Investigations: Certain Cut-to-Length Carbon-Quality Steel Plate from

France, India, Indonesia, Italy, and the Republic of Korea, 64 FR 12996

(March 16, 1999) (Initiation Notice)), the following events have

occurred. On March 18, 1999, we issued countervailing duty

questionnaires to the Government of Korea (GOK), and the producers/

exporters of the subject merchandise. On April 29, 1999, we postponed

the preliminary determination of this investigation until no later than

July 16, 1999. See Certain Cut-to-Length Carbon-Quality Steel Plate

from France, India, Indonesia, Italy, and the Republic of Korea:

Postponement of Time Limit for Countervailing Duty Investigations, 64

FR 23057 (April 29, 1999).

We received responses to our initial questionnaires from the GOK

and Pohang Iron & Steel Company, Ltd. (POSCO), and Dongkuk Steel Mill

Co., Ltd. (DSM), producers of the subject merchandise, on May 10, 1999.

In addition, on July 1, 1998 we received responses from four trading

companies which are involved in exporting the subject merchandise to

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

Dongkuk Industries Co., Ltd. (DKI), Hyosung Corporation (Hyosung), and

Sunkyong Ltd. (Sunkyong). On June 9, 1999, we issued supplemental

questionnaires to all of the responding parties and received their

responses on June 28, 1999, and July 1, 1999.

The Department is currently seeking additional information

regarding certain R&D programs used by either POSCO, DSM or their

affiliates, which may have benefitted the producers/exporters of the

subject merchandise.

Scope of Investigation

For purposes of this investigation, the product covered is certain

hot-rolled carbon-quality steel: (1) Universal mill plates (i.e., flat-

rolled products rolled on four faces or in a closed box pass, of a

width exceeding 150 mm but not exceeding 1250 mm, and of a nominal or

actual thickness of not less than 4 mm, which are cut-to-length (not in

coils) and without patterns in relief), of iron or non-alloy-quality

steel; and (2) flat-rolled products, hot-rolled, of a nominal or actual

thickness of 4.75 mm or more and of a width which exceeds 150 mm and

measures at least twice the thickness, and which are cut-to-length (not

in coils).

Steel products to be included in this scope are of rectangular,

square, circular or other shape and of rectangular or non-rectangular

cross-section where such non-rectangular cross-section is achieved

subsequent to the rolling process (i.e., products which have been

``worked after rolling'')--for example, products which have been

beveled or rounded at the edges. Steel products that meet the noted

physical characteristics that are painted, varnished or coated with

plastic or other non-metallic substances are included within this

scope. Also, specifically included in this scope are high strength, low

alloy (HSLA) steels. HSLA steels are recognized as steels with micro-

alloying levels of elements such as chromium, copper, niobium,

titanium, vanadium, and molybdenum.

Steel products to be included in this scope, regardless of

Harmonized Tariff Schedule of the United States (HTSUS) definitions,

are products in which: (1) Iron predominates, by weight, over each of

the other contained elements, (2) the carbon content is two percent or

less, by weight, and (3) none of the elements listed below is equal to

or exceeds the quantity, by weight, respectively indicated:

1.80 percent of manganese, or

1.50 percent of silicon, or

1.00 percent of copper, or

0.50 percent of aluminum, or

1.25 percent of chromium, or

0.30 percent of cobalt, or

0.40 percent of lead, or

1.25 percent of nickel, or

0.30 percent of tungsten, or

0.10 percent of molybdenum, or

0.10 percent of niobium, or

0.41 percent of titanium, or

0.15 percent of vanadium, or

0.15 percent zirconium.

All products that meet the written physical description, and in

which the chemistry quantities do not equal or exceed any one of the

levels listed above, are within the scope of these

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investigations unless otherwise specifically excluded. The following

products are specifically excluded from these investigations: (1)

Products clad, plated, or coated with metal, whether or not painted,

varnished or coated with plastic or other non-metallic substances; (2)

SAE grades (formerly AISI grades) of series 2300 and above; (3)

products made to ASTM A710 and A736 or their proprietary equivalents;

(4) abrasion-resistant steels (i.e., USS AR 400, USS AR 500); (5)

products made to ASTM A202, A225, A514 grade S, A517 grade S, or their

proprietary equivalents; (6) ball bearing steels; (7) tool steels; and

(8) silicon manganese steel or silicon electric steel.

The merchandise subject to this investigation is classified in the

HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,

7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,

7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,

7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,

7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,

7226.91.8000, 7226.99.0000.

Although the HTSUS subheadings are provided for convenience and

Customs purposes, the written description of the merchandise under

investigation is dispositive.

Scope Comments

As stated in our notice of initiation, we set aside a period for

parties to raise issues regarding product coverage. In particular, we

sought comments on the specific levels of alloying elements set out in

the description below, the clarity of grades and specifications

excluded from the scope, and the physical and chemical description of

the product coverage.

On March 29, 1999, Usinor, a respondent in the French antidumping

and countervailing duty investigations and DSM and POSCO, respondents

in the Korean antidumping and countervailing duty investigations

(collectively the Korean respondents), filed comments regarding the

scope of the investigations. On April 14, 1999, the petitioners

responded to Usinor's and the Korean respondents' comments. In

addition, on May 17, 1999, ILVA S.p.A. (ILVA), a respondent in the

Italian antidumping and countervailing duty investigations, requested

guidance on whether certain products are within the scope of these

investigations.

Usinor requested that the Department modify the scope to exclude:

(1) Plate that is cut to non-rectangular shapes or that has a total

final weight of less than 200 kilograms; and (2) steel that is 4'' or

thicker and which is certified for use in high-pressure, nuclear or

other technical applications; and (3) floor plate (i.e., plate with

``patterns in relief'') made from hot-rolled coil. Further, Usinor

requested that the Department provide clarification of scope coverage

with respect to what it argues are over-inclusive HTSUS subheadings

included in the scope language.

The Department has not modified the scope of these investigations

because the current language reflects the product coverage requested by

the petitioners, and Usinor's products meet the product description.

With respect to Usinor's clarification request, we do not agree that

the scope language requires further elucidation with respect to product

coverage under the HTSUS. As indicated in the scope section of every

Department antidumping and countervailing duty proceeding, the HTSUS

subheadings are provided for convenience and Customs purposes only; the

written description of the merchandise under investigation or review is

dispositive.

The Korean respondents requested confirmation whether the maximum

alloy percentages listed in the scope language are definitive with

respect to covered HSLA steels.

At this time, no party has presented any evidence to suggest that

these maximum alloy percentages are inappropriate. Therefore, we have

not adjusted the scope language. As in all proceedings, questions as to

whether or not a specific product is covered by the scope should be

timely raised with Department officials.

ILVA requested guidance on whether certain merchandise produced

from billets is within the scope of the current CTL plate

investigations. According to ILVA, the billets are converted into wide

flats and bar products (a type of long product). ILVA notes that one of

the long products, when rolled, has a thickness range that falls within

the scope of these investigations. However, according to ILVA, the

greatest possible width of these long products would only slightly

overlap the narrowest category of width covered by the scope of the

investigations. Finally, ILVA states that these products have different

production processes and than merchandise covered by the scope of the

investigations and therefore are not covered by the scope of the

investigations.

As ILVA itself acknowledges, the particular products in question

appear to fall within the parameters of the scope and, therefore, we

are treating them as covered merchandise for purposes of these

investigations.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the

Act). In addition, unless otherwise indicated, all citations to the

Department's regulations are to the current regulations as codified at

19 CFR part 351 (1998) and to the substantive countervailing duty

regulations published in the Federal Register on November 25, 1998 (63

FR 65348) (CVD Regulations).

Injury Test

Because the Republic of Korea (Korea) is a ``Subsidies Agreement

Country'' within the meaning of section 701(b) of the Act, the

International Trade Commission (ITC) is required to determine whether

imports of the subject merchandise from Korea materially injure, or

threaten material injury to, a U.S. industry. On April 8, 1999, the ITC

published its preliminary determination finding that there is a

reasonable indication that an industry in the United States is being

materially injured, or threatened with material injury, by reason of

imports from Korea of the subject merchandise (See Certain Cut-To-

Length Steel Plate From Czech Republic, France, India, Indonesia,

Italy, Japan, Korea, and Macedonia, 64 FR 17198 (April 8, 1999).

Alignment With Final Antidumping Duty Determination

On July 2, 1999, the petitioners submitted a letter requesting

alignment of the final determination in this investigation with the

final determination in the companion antidumping duty investigation.

See Initiation of Antidumping Duty Investigations: Certain Cut-To-

Length Carbon-Quality Steel Plate from the Czech Republic, France,

India, Indonesia, Italy, Japan, Republic of Korea, and the Former

Yugoslav Republic of Macedonia, 64 FR 12959 (March 16, 1999).

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

aligning the final determination in this investigation with the final

determinations in the antidumping investigations of certain cut-to-

length plate.

Period of Investigation

The period for which we are measuring subsidies (the POI) is

calendar year 1998.

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Subsidies Valuation Information

Allocation Period

Section 351.524(d)(2) of the CVD Regulations states that we will

presume the allocation period for non-recurring subsidies to be the

average useful life (AUL) of renewable physical assets for the industry

concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class

Life Asset Depreciation Range System and updated by the Department of

Treasury. The presumption will apply unless a party claims and

establishes that these tables do not reasonably reflect the AUL of the

renewable physical assets for the company or industry under

investigation, and the party can establish that the difference between

the company-specific or country-wide AUL for the industry under

investigation is significant.

In this investigation, no party to the proceeding has claimed that

the AUL listed in the IRS tables does not reasonably reflect the AUL of

the renewable physical assets for the firm or industry under

investigation. Therefore, according to Sec. 351.524(d)(2) of the CVD

Regulations, we have allocated POSCO and DSM's non-recurring subsidies

over 15 years, the AUL listed in the IRS tables for the steel industry.

Benchmarks for Long-Term Loans and Discount Rates

During the POI, POSCO and DSM had a number of won-denominated and

foreign currency-denominated long-term loans outstanding which the

company 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 the GOK

influenced the practices of lending institutions in Korea and

controlled access to overseas foreign currency loans through 1991. See

Final Affirmative Countervailing Duty Determinations and Final Negative

Critical Circumstances Determinations: Certain Steel Products from

Korea, 58 FR 37328, 37338 (July 9, 1993) (Steel Products from Korea),

and the ``Direction of Credit'' section below. In that investigation,

we determined that the best indicator of a market rate for long-term

loans in Korea was the three-year corporate bond rate on the secondary

market. Also, see Final Negative Countervailing Duty Determination:

Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 15530,

15532 (March 31, 1999) (Plate in Coils), and Final Affirmative

Countervailing Duty Determination: Stainless Steel Sheet and Strip in

Coils from the Republic of Korea, 64 FR 30636, 39641 (June 8, 1999)

(Sheet and Strip). Therefore, in the preliminary determination of the

current investigation, to calculate the benefit which POSCO and DSM

received from direct foreign currency loans and domestic foreign

currency loans obtained prior to 1991 and still outstanding during the

POI, we used as our benchmark the three-year corporate bond rate on the

secondary market. We are also using the three-year corporate bond rate

on the secondary market as the discount rate to determine the benefit

from non-recurring subsidies received prior to 1992.

In Plate in Coils and Sheet and Strip, the Department determined

that the GOK continued to control directly or indirectly the lending

practices of most sources of credit in Korea between 1992 and 1997. In

the current investigation, we preliminarily determine that the GOK

still exercised substantial control over lending institutions in Korea

during the POI. Based on our findings on this issue in prior

investigations, as well as in the current investigation on CTL Plate,

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

we are using the following benchmarks to calculate POSCO's and DSM's

benefit from long-term loans obtained in the years 1992 through 1998:

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

using the company-specific, weighted-average U.S. dollar-denominated

interest rates on the companies' loans from foreign bank branches in

Korea; (2) for countervailable won-denominated loans, where available,

we are using the company-specific three-year corporate bond rate on the

companies' public bonds. Where unavailable, we continue to use a

national average three-year corporate bond rate. In Plate in Coils and

in Sheet and Strip, we found that the Korean domestic bond market was

not controlled by the GOK after 1991, and that domestic bonds serve as

an appropriate benchmark interest rate.

We are also using the three-year company-specific corporate bond

rate as the discount rate to determine the benefit from non-recurring

subsidies received between 1992 and 1998.

Benchmarks for Short-Term Financing

For those programs which require the application of a short-term

interest rate benchmark, we used as our benchmark a company-specific

weighted-average interest rate for commercial won-denominated loans for

the POI. Each respondent provided to the Department its respective

company-specific, short-term commercial interest rate.

Treatment of Subsidies Received by Trading Companies

During the POI, POSCO exported the subject merchandise to the

United States through three trading companies, POSTEEL, Hyosung, and

Sunkyong. DSM exported through one trading company, DKI. POSTEEL is

affiliated with POSCO, and DKI is affiliated with DSM within the

meaning of section 771(33)(E) of the Act because as of December 31,

1998, POSCO owned 95.8 percent of POSTEEL's shares, and DSM owned 51.3

percent of DKI shares. The other trading companies are not affiliated

with either POSCO or DSM. We required that the trading companies

provide responses to the Department with respect to the export

subsidies under investigation. Responses were required from the trading

companies because the subject merchandise may be subsidized by means of

subsidies provided to both the producer and the exporter. All subsidies

conferred on the production and exportation of subject merchandise

benefit the subject merchandise even if it is exported to the United

States by an unaffiliated trading company rather than by the producer

itself. Therefore, the Department calculates countervailable subsidy

rates on the subject merchandise by cumulating subsidies provided to

the producer, with those provided to the exporter. See 19 CFR 351.525.

Under Sec. 351.107 of the Department's Regulations, when the

subject merchandise is exported to the United States by a company that

is not the producer of the merchandise, the Department may establish a

``combination'' rate for each combination of an exporter and supplying

producer. However, as noted in the ``Explanation of the Final Rules''

(the Preamble), there may be situations in which it is not appropriate

or practicable to establish combination rates when the subject

merchandise is exported by a trading company. In such situations, the

Department will make exceptions to its combination rate approach on a

case-by-case basis. See Antidumping Duties; Countervailing Duties;

Final Rule, 62 FR 27296; 27303 (May 19, 1997).

In this investigation, we preliminarily determine that it is not

appropriate to establish combination rates. This determination is based

on two main facts: First, the majority of the subsidies conferred upon

the subject merchandise were received by the producers. Second, the

difference in the levels of subsidies conferred upon the subject

merchandise

[[Page 40448]]

among the individual trading companies is insignificant. Therefore,

combination rates would serve no practical purpose because the

calculated subsidy rate for POSCO/POSTEEL or POSCO/Sunkyong or POSCO

and any of the other trading companies would effectively be the same

rate. For these reasons we are not calculating combination rates in

this investigation. Instead, we have only calculated one rate for each

producer of the subject merchandise, all of which is produced by either

POSCO or DSM.

To include the subsidies received by the trading companies, which

are conferred upon the export of the subject merchandise, in the

calculated ad valorem subsidy rate, we used the following methodology.

For each of the four trading companies, we calculated the benefit

attributable to the subject merchandise and factored that amount into

the calculated subsidy rate for the producer. In each case, we

determined the benefit received by the trading companies for each

export subsidy and weight-averaged the benefit amounts by the relative

share of each trading company's value of exports of the subject

merchandise to the United States. This calculated ad valorem subsidy

was then added to the subsidy calculated for either POSCO or DSM. Thus,

for each of the programs below, the listed ad valorem subsidy rate

includes the countervailable subsidies received by both the trading

companies and either POSCO or DSM.

I. Programs Preliminarily Determined To Be Countervailable

A. Direction of Credit

In the 1993 investigation of Steel Products from Korea, the

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

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

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

selective provision of these regulated loans resulted in a

countervailable benefit. 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 Steel Products from Korea,

58 FR at 37339.

In the Plate in Coils and Sheet and Strip investigations, the

Department examined whether the GOK continued to influence the

practices of lending institutions in Korea between 1992 and 1997. In

this investigation, petitioners allege that the GOK continued to

control the practices of lending institutions in Korea through the POI,

and that the steel sector received a disproportionate share of low-

cost, long-term credit, resulting in countervailable benefits being

conferred on the producers/exporters of the subject merchandise.

Petitioners assert, therefore, that the Department should countervail

all long-term loans received by the producers/exporters of the subject

merchandise that were still outstanding during the POI.

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 Steel Products from Korea, 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 determination in Steel

Products from Korea. Therefore, we continue to determine that the

provision of long-term loans in Korea through 1991 results in a

financial contribution within the meaning of section 771(5)(D)(i) of

the Act. This finding is in conformance with the Statement of

Administrative Action (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, accompanying H.R. 5110

(H.R. Doc. No. 316, Vol. 1, 103d Cong., 2d Sess.) (1994), at 926. In

accordance with section 771(5)(E)(ii) of the Act, a benefit has been

conferred to the recipient to the extent that the regulated loans are

provided at interest rates less than the benchmark rates described

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

We also continue to determine that all regulated long-term loans

provided to the producers/exporters of the subject merchandise through

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

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

This finding is in conformance with our determination in Steel Products

from Korea, 58 FR at 37342, Plate in Coils, 64 FR at 15532 and Sheet

and Strip, 64 FR at 30642.

POSCO and DSM were the only producers of the subject merchandise,

and both companies received long-term loans prior to 1992 that were

still outstanding during the POI. To determine the benefit from the

regulated loans with fixed interest rates, we applied the long-term

loan methodology provided for in Sec. 351.505(c)(3) of the CVD

Regulations and calculated the grant equivalent for the loans. To

determine the benefit from regulated loans with variable interest

rates, we applied the methodology provided for in section 351.505(c)(4)

of the CVD Regulations, and compared the amount of interest paid during

1998 on the regulated loans to the amount of interest that would have

been paid based upon the interest rate on the comparison benchmark

loan. We then summed the benefit amounts from the loans attributable to

the POI and divided the total benefit by each company's respective

total sales. On this basis, we preliminarily determine the net

countervailable subsidy to be 0.10 percent ad valorem for POSCO, and

0.06 percent ad valorem for DSM.

2. The GOK's Credit Policies From 1992 Through 1998

In Plate in Coils and Sheet and Strip, the Department examined the

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

investigations, the Department determined that the GOK continued to

control directly and indirectly the lending practices of most sources

of credit in Korea through 1997. The Department also determined that

the 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

producers/exporters of the subject merchandise to the extent that the

interest rates on the countervailable loans were less than the interest

rates on comparable commercial loans. See section 771(5)(ii) of the

Act. Also see Plate in Coils, 64 FR at 15533, and Sheet and Strip, 64

FR at 30642.

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

present new factual information concerning the

[[Page 40449]]

government's credit policies during the 1992 through 1997 period, which

we would consider along with our finding in the prior investigations.

The GOK has not provided new factual information that would lead us to

change our determination in Plate in Coils and Sheet and Strip.

Therefore, we continue to find lending from domestic banks and from

government-owned banks such as the KDB to be countervailable.

In the current investigation, we examined whether the GOK continued

to control or influence directly or indirectly, the lending practices

of sources of credit in Korea in 1998. Because of the Department's

determination that the GOK controlled and directed credit provided by

domestic banks and government-owned banks during the period 1992

through 1997, the burden of demonstrating that the GOK has changed its

practice of interfering in the financial market is placed, in large

part, upon the respondents. Similarly, when we have determined a

program or a government practice to be not countervailable, petitioners

must come forth with new information or evidence of change

circumstances before the Department will reexamine the

countervailability of that program.

In its questionnaire responses, the GOK asserted that it does not

provide direction or guidance to Korean financial institutions in the

allocation of loans to selected industries. The GOK stated that the

lending decisions and loan distributions of financial institutions in

Korea reflect commercial considerations. The GOK also stated that its

role in the financial sector is limited to monetary and credit policies

as well as bank supervision and examination.

According to the GOK, measures were taken in 1998 to liberalize the

Korean financial sector. For example, in January 1998 the GOK announced

closure of some banks, and in April 1998, launched the Financial

Supervisory Commission (FSC) to monitor the competitiveness of

financial institutions. In June 1998, the Regulation on Foreign

Exchange Controls was amended to further liberalize foreign currency

transactions, and in July, the GOK abolished the limit on purchasing

foreign currency. According to the GOK, it also liberalized access to

foreign loans. For direct foreign loans to Korean companies, the

approval process under Article 19 of the Foreign Investment and Foreign

Capital Inducement Act (FIFCIA) and Article 21 of its enforcement

decree were eliminated and replaced with the Foreign Investment

Promotion Act (FIPA), effective in November 1998. However, during most

of the POI, access to direct foreign loans still required the approval

of the Ministry of Finance and Economy.

Regarding the GOK regulated credit from government-controlled banks

such as the Korea Development Bank (KDB), the GOK reported that the KDB

Act was amended in January 1998, in response to the financial crisis in

1997. According to the GOK, the KDB ended the allocation of funds for

various functional categories, such as R&D, environment, and

technology. All functional loan categories were eliminated and such

loans were consolidated into a single category for facility (equipment)

loans. The GOK also stated that the KDB strengthened its credit

evaluation procedures by developing an objective and systematic credit

evaluation standard to prevent arbitrary decisions on loans and

interest rates. The KDB changed its Credit Evaluation Committee to the

Credit Deliberation Committee (CDC), and gave the CDC the authority to

make lending decisions. As a result, the KDB governor no longer makes

lending decisions without the approval of the CDC. The GOK also stated

that in 1997, the KDB used a system of the prime rate plus a spread for

determining interest rates. Effective January 1, 1998, the KDB

increased the range of the credit spread to provide more flexibility in

determining interest rates based on creditworthiness and allowed the

KDB to increase its profits. However, with respect to the KDB reforms,

no evidence was provided by respondents to demonstrate that the KDB no

longer selectively makes loans to specific firms or activities to

support GOK policies.

In Plate in Coils, the Department noted conflicting information

regarding the GOK's direct or indirect influence over the lending

decisions of financial institutions. For example, the GOK policies

appeared to be aimed, in part, at promoting certain sectors of the

economy, such as high technology and small and medium-sized industries

(SMEs).

While the GOK has started to plan and implement reforms in the

financial system during the POI as a result of the 1997 financial

crisis, the record evidence indicates that the GOK has previously

attempted reforms of the financial system in order to remove or reduce

its control and influence over lending in the country. In the past ten

years, the GOK has twice attempted to reform its financial system. In

1988, the GOK attempted to deregulate interest rates. However, the 1988

liberalization was deemed a failure by the government. When the

interest rates began to rise, the GOK canceled the reforms by

indirectly pressuring the banks to keep interest rates low. In the

early 1990s, the GOK attempted reforms again with a four-stage interest

rate deregulation plan. Again, this attempt to reform the financial

system was deemed a failure by the GOK. During 1998 and 1999, the GOK

has threatened to cut off credit to Korean companies unless the

companies follow GOK policies. In addition, during the POI, five large

commercial banks were taken over by the GOK due to the financial

crisis.

Based upon the information on the record and our determinations in

Plate in Coils and Sheet and Strip, we preliminarily determine that the

GOK continued to control directly and indirectly, the lending practices

of domestic banks and government-owned banks through the POI. During

verification, we will closely examine the financial reforms undertaken

by the GOK in 1998. We plan to meet with various individuals

knowledgeable about the financial sector in Korea in order to gather

information on the impact of the GOK's financial liberalization on the

lending practices of Korean banks after 1997. We also plan to gather

information to assist us in determining whether we have appropriately

measured the benefit conferred to the respondent companies by the GOK's

influence over domestic bank and government bank lending.

With respect to foreign sources of credit, in Plate in Coils and

Sheet and Strip, we determined that access to government regulated

foreign sources of credit in Korea did not confer a benefit to the

recipient as defined by 771(5)(E)(ii) of the Act, and, as such, credit

received by respondents from these sources were found not

countervailable. This determination was based upon the fact that credit

from Korean branches of foreign banks was not subject to the

government's control and direction. Thus, respondents' loans from these

banks served as an appropriate benchmark to establish whether access to

regulated foreign sources of credit conferred a benefit on respondents.

On the basis of this comparison, we found that there was no benefit.

Petitioners have provided no new information or evidence of changed

circumstances to cause us to revisit this determination. Therefore, we

continue to determine that credit from Korean branches of foreign banks

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

lending from this source continues to be not countervailable, and loans

from Korean branches of foreign banks continue to

[[Page 40450]]

serve as an appropriate benchmark to establish whether access to

regulated foreign sources of funds confer a benefit to respondents.

During the POI, both POSCO and DSM received long-term loans from

domestic banks and from government-owned banks during the 1992 to 1998

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

with both fixed and variable interest rates. To determine the benefit

from the regulated loans with fixed interest rates, we applied the

methodology provided for in Sec. 351.505(c)(2) of the CVD Regulations,

and to determine the benefit from regulated loans with variable

interest rates, we applied the methodology provided for in

Sec. 351.505(c)(4) of the CVD Regulations. Therefore, for both fixed

and variable rate loans, we calculated the difference in interest

payments for the POI based upon the difference in the amount of actual

interest paid during 1998 on the regulated loan and the amount of

interest that would have been paid on a comparable commercial loan. We

then summed the benefit amounts from the loans attributable to the POI

and divided the total benefit by each company's respective total sales.

On this basis, we preliminarily determine the net countervailable

subsidy to be less than 0.005 percent ad valorem for POSCO, and 0.12

percent ad valorem for DSM.

(a) Loans From the Energy Savings Fund

Established in accordance with Article 51 of the ``Rationalization

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

provides financing at below-market interest rates for investments by

businesses in facilities that rationally and efficiently use energy.

Overall responsibility for the program lies with the Ministry of

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

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

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

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

from special government accounts.

Korean companies obtain financing under this program by submitting

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

applicant's business plans are intended for the rationalization of

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

company's application to a bank. The KEMC will transfer funds to the

bank, which will in turn provide the funds to the applicant. POSCO paid

interest on two Energy Saving Fund loans during the POI. DSM did not

have any of these loans outstanding during the POI.

In Plate in Coils and Sheet and Strip, the Department determined

that the loans provided under the Energy Savings Fund are

countervailable as GOK directed credit. See Plate in Coils, 64 FR at

15533, and Sheet and Strip, 64 FR at 30642. This program provides a

financial contribution within the meaning of section 771(5)(D)(i) of

the Act and, in accordance with section 771(5)(E)(ii) of the Act,

provides a benefit to the recipient based on the difference between the

interest rate on the program loan and the benchmark rate described in

the ``Subsidies Valuation'' section, above.

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

the Department's long-term fixed-rate loan methodology specified in

Sec. 351.505(c)(2) of the CVD Regulations, using as our benchmark the

rate described in the ``Subsidies Valuation Information'' section,

above. We divided the benefit attributable to the POI by POSCO's total

sales during 1998. On this basis, we preliminarily determine the net

countervailable subsidy to be less than 0.005 percent ad valorem for

POSCO. As stated above, DSM did not use this program.

(b) Korean Export-Import Bank Loans (KExim)

KExim provides import and export credits, overseas investment

credits, and guarantees to companies in Korea. The petitioners allege

that through its financing mechanisms, KExim provides low-interest

loans to the steel industry.

The Department previously determined in Steel Products from Korea,

Plate in Coils and Sheet and Strip that all regulated long-term loans

provided to exporters through 1997 are specific and countervailable.

POSCO received a fixed-rate regulated KExim long-term loan prior to

1997, which was outstanding during the POI. DSM did not have any

outstanding KExim loans during the POI. We preliminarily determine that

this program is specific within the meaning of section 771(5A)(B)

because only exporters are eligible to use this program.

To calculate the benefit, we applied the Department's standard loan

methodology for long-term fixed-rate loans as provided for in

Sec. 351.504(c)(2) of the CVD Regulations, using as our benchmark the

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

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

POSCO's total export sales during 1998. On this basis, we preliminarily

determine the net countervailable subsidy to be 0.03 percent ad valorem

for POSCO. As noted earlier, DSM did not use this program.

B. Infrastructure at Kwangyang Bay

Petitioners requested that the Department investigate whether the

GOK's infrastructure development at Kwangyang Bay continues to provide

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

previously determined that the Korean government's infrastructure

development at Kwangyang Bay constituted a specific countervailable

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

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

Because POSCO still produces steel products at Kwangyang Bay, we

requested information on this program to determine whether the GOK has

made additional investments since 1991, at Kwangyang Bay.

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

infrastructure investments at Kwangyang Bay over the period 1984-1991.

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

included: construction of an industrial waterway, construction of a

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

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

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

Kwangyang Bay was countervailable because we found POSCO to be the

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

consistently held that a countervailable subsidy exists when benefits

under a program are provided, or are required to be provided, in law or

in fact, to a specific enterprise or industry or group of enterprises

or industries. See Steel Products from Korea, 58 FR at 37346. No new

factual information or evidence of changed circumstances has been

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

investments at Kwangyang Bay over the period 1984-1991.

In Plate in Coils and Sheet and Strip, we also examined whether GOK

infrastructure investments made at Kwangyang Bay after 1991 provided

countervailable benefits to POSCO. In those investigations, we

determined that additional infrastructure investments made by the GOK

at Kwangyang Bay after 1991 did not provide countervailable benefits to

POSCO. See Sheet and Strip at 30648-49. Thus, post-1991 investments are

not countervailable. Petitioners have not

[[Page 40451]]

provided new factual information or evidence of changed circumstances

to cause the Department to reexamine our determination that post-1991

investments are not countervailable.

To determine the benefit from the GOK's investments made from the

1984 through 1991 period to POSCO that are attributable to 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 determine the benefit conferred to POSCO 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 used in Steel Products

from Korea. We then summed the benefits received by POSCO during 1998,

from each of the GOK's yearly investments over the period 1984-1991. We

then divided the total benefit attributable to the POI by POSCO's total

sales for 1998. On this basis, we preliminary determine a net

countervailable subsidy of 0.22 percent ad valorem for POSCO. DSM did

not receive a benefit from this program.

C. Asset Revaluation Pursuant to TERCL Article 56(2)

This provision under Article 56(2) of the Tax Exemption and

Reduction Control Act (TERCL) allowed companies making an initial

public offering between January 1, 1987, and December 31, 1990, to

revalue their assets without meeting the requirement in the Asset

Revaluation Act of a 25 percent change in the wholesale price index

since the company's last revaluation. In Steel Products from Korea,

after verification, petitioners submitted additional information, which

according to them, indicated that POSCO's revaluation may have been

significantly greater than that of the other companies that revalued.

Because the information submitted by petitioners was untimely, it was

rejected; however, we requested additional information on the subject.

The additional information submitted by petitioners contained data on

the amount of assets revalued of only 45 of the 207 companies that

revalued pursuant to Article 56(2). It was unclear from petitioners'

data which companies revalued pursuant to Article 56(2) and which

revalued in accordance with the general provisions of the Asset

Revaluation Act. Because of these shortcomings, and because the

information was submitted too late for verification, we were unable to

draw conclusions with respect to the relative benefit derived by POSCO

from this program. Since there was no evidence of de jure or de facto

selectivity concerning the timing of POSCO's revaluation or the method

of POSCO's revaluation under the Asset Revaluation Act, the Department

determined this program to be not countervailable. See Steel Products

from Korea, 58 FR at 37351.

In the petition, petitioners provided information to substantiate

their allegation that POSCO and DSM received a benefit under this

program because their massive asset revaluations permitted the

companies to substantially increase their depreciation and, thereby,

reduce their income taxes payable. In support of their allegation,

petitioners provided a chart listing 197 companies that were eligible

for revaluation of their assets pursuant to this program. The chart

illustrates that POSCO's revaluation accounted for 54 percent of the

total amount of asset revaluation by companies that were eligible to

revalue under Article 56(2). Furthermore, according to petitioners'

data, the 14 companies in the basic metals industry that used this

program accounted for 67 percent of the total amount of asset

revaluations under Article 56(2). Based on this new information, the

Department initiated a reexamination of the countervailability of this

program and solicited information regarding the usage of this program.

Because the enabling legislation does not expressly limit access to

the subsidy to an enterprise or industry, or group thereof, the program

is not de jure specific within the meaning of section 771(5A)(D)(i) of

the Act. Although the regulation itself does not expressly limit the

access to this law to a specified group or industry, it does place

restrictions on the time period and eligibility criteria which may have

caused de facto limitations on the actual usage of this tax program.

For example, Article 56(2) was enacted on November 28, 1987, and

applied only to companies making an initial public offering from

January 1, 1987 until the provision was abolished effective December

31, 1990. Pursuant to Article 56(2), companies listed on the Korea

Stock Exchange between January 1, 1987 and December 31, 1988 (as was

the case with POSCO) had until December 31, 1989 to revalue their

assets. A company that listed its stock after December 31, 1988 had to

revalue its assets prior to being listed on the stock exchange.

Therefore, based upon the eligibility criteria of the program, Article

56(2) effectively limited usage of this program to only the 316

companies that were newly listed on the Korean Stock Exchange during

the three years the program was in place rather than the 15 to 24

thousand manufacturers in operation in Korea during that period.

According to section 771(5A)(D)(iii), a subsidy is de facto

specific if one of the following factors exist: (1) The actual

recipients of the subsidy, whether considered on an enterprise or

industry basis, are limited in number; (2) An enterprise or industry is

a predominant user of the subsidy; (3) An enterprise or industry

receives a disproportionately large amount of the subsidy; or (4) The

manner in which the authority providing the subsidy has exercised

discretion in the decision to grant the subsidy indicates that an

enterprise or industry is favored over others.

Information on the record of the current investigation shows that

during the period 1987-1990, there were between 14,988 and 24,073

manufacturing companies operating in Korea. A requirement for

participation in this program was that companies had to make an initial

public offering between January 1, 1987 and December 31, 1990. DSM

listed its initial public offering in May 1988 and revalued its assets

under Article 56(2) in July 1988. POSCO listed its initial public

offering in June 1988 and revalued its assets under Article 56(2) in

January 1989. According to the GOK's July 1, 1999 questionnaire

response, 77 companies revalued their assets in 1989. The basic metal

sector accounted for 83 percent of the total revaluation surplus amount

(book value less revalued amount). POSCO's revaluation surplus

accounted for 91 percent of the basic metal sector revaluation surplus,

and 75 percent of the total revaluation surplus. While we recognize

that many factors can affect the relative size of tax benefits claimed

under programs (e.g., company size, value of assets, timing of

investments, management decisions, capital intensiveness, labor

intensiveness), the record evidence indicates that the basic metal

industry was a dominant user of this program in 1988/89. See, e.g.,

Stainless Steel Plate in Coils from South Africa, 64 FR 15553 (March

1999). Therefore, we preliminarily determine that this program is

specific, within the meaning of 771(5A)(D)(iii). As a result

[[Page 40452]]

of the increase in the value of depreciable assets resulting from the

asset revaluation, the companies were able to lower their tax

liability. Therefore, we also preliminarily determine that the program

provides a financial contribution within the meaning of section

771(5)(D)(ii), because by allowing companies to reduce their income tax

liability, the GOK has foregone revenue that is otherwise due.

The benefit from this program is not the amount of the revaluation

surplus, but rather the impact of the difference that the revaluation

of depreciable assets has on a company's tax liability each year.

However, respondents did not provide this information, and stated that

the depreciation expense resulting from the asset revaluation would

involve a detailed, item-by-item comparison of thousands of items, and

that it would be difficult for them to distinguish between the

remaining benefit from revaluation under Article 56(2), and revaluation

pursuant to normal procedures of the Asset Revaluation Act. Therefore,

we have calculated the benefit from this program by determining the

surplus amount of the revaluation of assets authorized under the

program for each company and divided the total revaluation surplus by

15, the AUL we are using in this investigation. We then multiplied the

amount of the revaluation surplus attributable to the POI by the tax

rate applicable to the tax return filed in the POI, and divided the

benefit for each company by their respective total sales during the

POI. On this basis, we preliminarily determine a net countervailable

subsidy of 0.50 percent ad valorem for POSCO and 0.23 percent ad

valorem for DSM.

D. Short-term Export Financing

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

financing program was countervailable in Steel Products from Korea, 58

FR at 37350. Petitioners allege that this program may also benefit the

producers and/or exporters of the subject merchandise. In this

investigation, the GOK reports that the BOK, under the ``Detailed Rules

of Trade Financing Related to the Aggregate Ceiling Loans'' (Detailed

Rules), provides discounts on foreign trade bills to commercial banks,

which, in turn, extend short-term loans to exporters. Under the

aggregate credit ceiling system established in 1994, the BOK allocates

a credit ceiling every month to each commercial bank, including

branches of Korean and foreign banks. This ceiling is based on each

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

loans, foreign trade financing, and loans for the production of parts

and material. These banks then provide loans to exporters using the

funds received from the BOK and funds generated from their own sources

to discount trade bills.

There are two types of trade financing: Production financing and

raw material financing. A bank provides production financing when a

company needs funds for the production of export merchandise or the

production of raw materials used in the production of exported

merchandise. A bank extends raw material financing to exporters which

require financing for the importation or local purchase of raw

materials used in the production of exported merchandise.

During the POI, POSCO was the only producer/exporter of the subject

merchandise that received short-term export financing. DSM did not have

any short-term export financing under this program during the POI.

POSCO reports that the company entered into a credit ceiling loan

agreement with a commercial bank in accordance with Articles 12 and 13

of the Detailed Rules to receive financing. The loan agreement outlines

the maximum amount of credit which POSCO is eligible to receive, the

period covered by the loan agreement, the applicable interest rate, and

the penalty interest rate. POSCO states that when the company purchases

raw materials from a supplier on a letter of credit basis, the supplier

presents the letter of credit to POSCO's bank for payment. The bank, in

turn, pays the purchase price to the supplier and debits the trade loan

against POSCO's line of credit. POSCO pays the full amount of each

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

production to sales. Interest is paid by POSCO against each trade loan

at the time the loans are received. POSCO reported that the company

paid all of its export financing during the POI in a timely manner and

incurred no overdue interest penalties. In accordance with section

771(5A)(B) of the Act, we preliminary determine that this program

constitutes an export subsidy because receipt of the financing is

contingent upon export performance. In order to determine whether this

export financing program confers a countervailable benefit to POSCO, we

compared the interest rate POSCO paid on the export financing received

under this program during the POI with the interest rate POSCO 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 on its export financing is a discounted rate. Therefore,

it was necessary to derive from POSCO's company-specific weighted-

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

a discounted benchmark interest rate. 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 rates. Therefore, in accordance with section 771(5)(E)(ii) of

the Act, we preliminarily determine that this program provides a

countervailable benefit because the interest rates charged on the loans

were less than what POSCO would have had to pay on a comparable short-

term commercial loan. See Plate in Coils, 64 FR at 15533, and Sheet and

Strip, 64 FR at 30644. We also preliminarily determine that a financial

contribution is provided to POSCO under this program within the meaning

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

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 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. We then divided the benefit derived from

all of the loans on which interest was paid during the POI by total

exports. On this basis, we preliminarily determine that POSCO received

from this program during the POI a net countervailable subsidy of less

than 0.005 percent ad valorem.

We also requested information on whether POSCO or DSM received

short-term export financing under two additional programs: (1) A 1998

emergency support package unveiled by the GOK which included $4 billion

in trade financing, and (2) a 1998 short-term export financing program

operated by the Korean Export-Import Bank. According to both the

responses of POSCO and DSM, these programs were not used.

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

Under Article 16 of the TERCL, a domestic person engaged in a

foreign-currency earning business can establish a reserve amounting to

the lesser of one

[[Page 40453]]

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, DKI, a trading company, was the only

exporter of the subject merchandise which claimed benefits under this

program.

We preliminarily determine that the Reserve for Export Loss program

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

because the use of the program is contingent upon export performance.

We also preliminarily determine that this program provides a financial

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

the form of a loan. See Plate in Coils, 64 FR at 15534, and Sheet and

Strip, 64 FR at 30645.

To determine the benefit conferred by this program, we calculated

the tax savings by multiplying the balance amount of the reserve as of

December 31, 1997, by the corporate tax rate for 1997. We treated the

tax savings on these funds as a short-term interest-free loan. See 19

CFR 351.509. Accordingly, to determine the benefit, the amount of tax

savings was multiplied by the company's 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, above, we preliminarily determine a net countervailable

subsidy of 0.02 percent ad valorem for DSM. POSCO did not benefit from

this program because it did not export the subject merchandise through

DKI during the POI.

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

Article 17 of the TERCL allows a domestic person engaged in a

foreign trade business to establish a reserve fund equal to one percent

of its foreign exchange earnings from its export business for the

respective tax year. Expenses incurred in developing overseas markets

may be offset by returning, from the reserve to the income account, an

amount equivalent to the expense. Any part of the fund that is not

placed in the income account for the purpose of offsetting overseas

market development expenses must be returned to the income account over

a three-year period, after a one-year grace period. As is the case with

the Reserve for Export Loss, the balance of this reserve fund is not

subject to corporate income tax during the grace period. However, all

of the money in the reserve is eventually reported as income and

subject to corporate 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 were entitled to claimed benefits under this program during

the POI: Hyosung, POSTEEL, Sunkyong, and DKI.

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. See 19 CFR 351.509.

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. Using the methodology for

calculating subsidies received by trading companies, which also is

detailed in the ``Subsidies Valuation Information'' section, above, we

preliminarily calculate a net countervailable subsidy of 0.01 percent

ad valorem for POSCO, and 0.01 percent ad valorem for DSM.

G. 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, POSCO,

and DSM used various investment tax credits received under the TERCL to

reduce their net tax liability. In Steel Products from Korea, we found

that investment tax credits were not countervailable (see 58 FR at

37351); however, there were changes in the statute effective in 1995,

which caused us to revisit the countervailability of the investment tax

credits. See Plate in Coils, 64 FR at 15534, and Sheet and Strip, 64 FR

at 30645.

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

1997 income tax return which was filed during the POI: (1) Tax credits

for investments in equipment to develop technology and manpower under

Article 10; (2) tax credits for investment in productivity improvement

facilities under Article 25; and (3) tax credits for investment in

specific facilities under Article 26. DSM only claimed or used tax

credits for technology and manpower development expenses under Article

9 and tax credits under Article 25 in its fiscal year 1997 income tax

return which was filed during the POI. For certain of these tax

credits, a company normally calculates its authorized tax credit based

upon 3 or 5 percent of its investment, i.e., the company receives

either a 3 or 5 percent tax credit. However, if a company makes the

investment in domestically-produced facilities under these Articles, it

receives a 10 percent tax credit. The investment tax credit was amended

to eliminate the rate differential between domestic and foreign-made

facilities for investments that are made after December 31, 1997.

However, the differential rate remains in effect for investments made

prior to that date, and tax credits on these investments can be carried

forward beyond the POI.

Under section 771(5A)(C) of the Act, a program that is contingent

upon the use of domestic goods over imported goods is specific, within

the meaning of the Act. In Sheet and Strip, we examined the use of

investment tax credits under Articles 9, 10, 18, 25, 26, 27, and 71. In

that case, we determined that investment tax credits received under

Articles 10, 18, 25, 26, 27, and 71 constituted import substitution

subsidies under section 771(5A)(C) of the Act, because Korean companies

received a higher tax credit for investments made in domestically-

produced facilities under these Articles. In addition, because the GOK

foregoes collecting tax revenue otherwise due under this program, we

also determined that a financial contribution is provided under section

771(5)(D)(ii) of the Act. We did not countervail the use of Article 9

because a higher tax credit was not allowed for investments made in

domestically-produced facilities. See Sheet and Strip at 30645-46.

In this investigation, POSCO claimed investment tax credits under

Articles

[[Page 40454]]

10, 25, and 26. Therefore, we preliminarily determine that these tax

credits provided POSCO with a countervailable benefit. Petitioners have

also alleged that POSCO used investment tax credits under Article 88

and that this tax credit also constitutes an import substitution

subsidy because a higher credit is received if more domestically-

produced goods are used. However, we have insufficient information on

the record at this time to make this determination, but we will further

examine Article 88 at verification.

DSM was entitled to claim investment tax credits under Articles 9

and 25 during the POI. However, DSM did not use the tax credits to

reduce its tax liability during the POI. Instead, the company carried

forward the tax credits which can be used in the future. Because DSM

did not claim the investment tax credits on its tax return which was

filed during the POI, we preliminarily determine that DSM did not use

this program during the POI.

To calculate the benefit to POSCO from this tax credit program, we

determined the value of the tax credits POSCO deducted from its taxes

payable for the 1997 fiscal year. In POSCO's 1997 income tax return

filed during the POI, it deducted from its taxes payable, credits

earned in the years 1995 and 1996, which were carried forward and used

in the POI. We first determined those tax credits which were claimed

based upon the investment in domestically-produced facilities. We then

calculated the additional amount of tax credits received by the company

because it earned tax credits of 10 percent on investments in

domestically-produced facilities rather the regular 3 or 5 percent tax

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

through the use of these tax credits during the POI, and divided that

amount by POSCO's total sales for the POI. On this basis, we

preliminarily determine a net countervailable subsidy of 0.30 percent

ad valorem for POSCO.

H. Electricity Discounts Under the Requested Load Adjustment Program

Petitioners alleged that POSCO is being charged utility rates at

less than adequate remuneration and, hence, the production of the

subject merchandise is receiving countervailable benefits from this

subsidy. Petitioners alleged that POSCO is receiving these

countervailable benefits in the form of utility rate discounts.

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

Electric Power Company (KEPCO) provided POSCO and DSM with four types

of discounts under its tariff schedule. These four discounts were based

on the following rate adjustment programs in KEPCO's tariff schedule:

(1) Power Factor Adjustment; (2) Summer Vacation and Repair Adjustment;

(3) Requested Load Adjustment; and (4) Voluntary Curtailment

Adjustment. (See the discussion below in ``Programs Preliminarily

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

Adjustment, Summer Vacation and Repair Adjustment, and the Voluntary

Curtailment Porgram discount programs.)

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

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

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

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

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

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

who choose to participate in this program must reduce their load upon

KEPCO's request, or pay a surcharge to KEPCO.

Customers can apply for this program between May 1 and May 15 of

each year. If KEPCO finds the application in order, KEPCO and the

customer enter into a contract with respect to the RLA discount. The

RLA discount is provided based upon a contract for two months, normally

July and August. Under this program, a basic discount of 440 won per kW

is granted between July 1 and August 31, regardless of whether KEPCO

makes a request for a customer to reduce its load. During the POI,

KEPCO granted 33 companies RLA discounts even though KEPCO did not need

to request these companies to reduce their respective loads. The GOK

reports that because KEPCO increased its capacity to supply electricity

in 1997, it reduced the number of companies with which it maintained

RLA contracts in 1997 and 1998. In 1996, KEPCO entered into RLA

contracts with 232 companies, which was reduced to 44 companies in 1997

and 33 in 1998.

In Sheet and Strip, we found the RLA program countervailable

because the discounts provided under this program were distributed to a

limited number of users. See Sheet and Strip at 30646. No new

information or evidence of changed circumstances have been provided to

the Department to warrant a reconsideration of that determination.

Therefore, we continue to find the RLA program countervailable.

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

and are received automatically on a regular and predictable basis

without further government approval, we preliminarily determine that

these discounts provide a recurring benefit to POSCO and DSM. See 19

CFR 351.524(a). Therefore, we have expensed the benefit from this

program in the year of receipt. See Sheet and Strip at 30646. To

measure the benefit from these programs, we summed the electricity

discounts which POSCO and DSM received from KEPCO under the RLA program

during the POI. We then divided the total RLA discount amount each

company received by their total sales for 1998. On this basis, we

preliminarily determine a net countervailable subsidy of less than

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

valorem for DSM from the RLA discount program.

I. POSCO's Two-Tiered Pricing Structure to Domestic Customers

POSCO maintains three different pricing systems which serve

different markets: domestic prices in Korean won for products that will

be consumed in Korea, direct export prices in U.S. dollars or Japanese

yen, and local export prices in U.S. dollars. According to POSCO's

response, local export prices are provided to those domestic customers

who purchase steel for further processing into products that are

exported. POSCO is the only Korean producer of slabs, which is the main

input into the subject merchandise. During the POI, POSCO sold slab to

DSM for products that will be consumed in Korea, as well as slab to

produce exports of the subject merchandise.

During the POI, POSCO was a government-controlled company. See

Sheet and Strip at 30642-43. POSCO sets different prices for the

identical product for domestic purchasers based upon that purchaser's

anticipated export performance. Domestic purchasers which use the raw

material to produce a product for export are charged a lower price than

those domestic purchasers which do not export. See Sheet and Strip, 64

FR at 30647. In Sheet and Strip, we found this pricing scheme to be an

export subsidy under section 771(5A)(B) of the Act, which provides a

financial contribution under this program under section 771(5)(D) of

the Act.

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

[[Page 40455]]

Annex I of the Agreement on Subsidies and Countervailing

Measures.1 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. See

19 CFR 351.516. Based on the information in the record, it does not

appear that POSCO's dual pricing policy is being set directly or

indirectly through the application of a consistent method for

calculating the difference between the higher domestic and lower

international price of slab available to Korean exporters. See Final

Results of Redetermination Pursuant to the Court Remand Creswell

Trading Co. v. U.S., Slip.-Op. 94-65, which is publicly available in

Central Records Unit (CRU) (Room B-099 of the Main Commerce Building)

(Case No. 533-063), (in which the Department found in Certain Iron-

Metal Casting from India that the Indian government, under the IPRS

program maintained ``a clearly defined and consistently applied

methodology for calculating the difference between the higher domestic

and lower international price of pig iron available to Indian

exporters'') at 3. We will further investigate POSCO's pricing policies

at verification. We preliminarily determine that 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.

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\1\ 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.

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

Petitioners argued in a July 12, 1999 submission that POSCO's dual-

pricing system is a provision of a good for less than adequate

remuneration, and the Department should therefore analyze such pricing

in accordance with Sec. 351.511 of the CVD Regulations. In Sheet and

Strip, we did not analyze POSCO's dual-pricing under the adequate

remuneration standard. While we have not modified our analysis in this

preliminary determination from our recent final determination in Sheet

and Strip, we intend to review the applicability of Sec. 351.511 of the

CVD Regulations for purposes of the final determination in this

investigation and, therefore, we are requesting comments on the

appropriate standard to apply to this dual-pricing scheme.

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

compared the monthly weighted-average price charged by POSCO to DSM for

domestic production to the monthly weighted-average price charged by

POSCO to DSM for export production. Where monthly comparison prices

were not available, we used quarterly weighted-average prices. 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

DSM received a net countervailable subsidy of 0.09 percent ad valorem

from this program during the POI.

J. Special Cases of Tax for Balanced Development Among Areas (TERCL

Article 43)

TERCL Article 43 allows a company to claim a tax reduction or

exemption for income gained from the disposition of factory facilities

when relocating from a large city to a local area (e.g., Seoul

Metropolitan area to a place outside the Seoul Metropolitan area). On

December 29, 1995, DSM sold land from its Pusan factory and within

three years from the sales date began production at its Pohang plant.

In accordance with Article 16, paragraph 7 of the Addenda to the TERCL,

DSM was entitled to receive an exemption on its income tax for the

resulting capital gain.

Payment for the Pusan facilities is on a long-term installment

basis, therefore, the income tax on the capital gain is payable when

DSM actually receives payment or transfers the title of ownership. The

capital gain in the tax year can not exceed DSM's total taxable income.

The maximum tax savings permitted is 100 percent of the taxable income;

however, this program is also subject to the minimum tax. This program

does not allow carrying forward of unused benefits in future years.

We preliminarily determine that the TERCL Article 43, for Special

Cases of Tax for Balanced Development Among Areas is specific within

the meaning of section 771(5A)(D)(iv) of the Act, because the program

is limited to an enterprise or industry located within a designated

geographical region. See also Iron-Metal Castings from Mexico, 48 FR

8834 (1983) (Fonei Loan program was regionally specific where available

to all companies outside of Mexico City), and Final Affirmative

Countervailing Duty Determination: Stainless Steel Plate in Coils From

Italy, 64 FR 15508, 15516 (funds were regionally specific because they

were limited to certain areas within Italy). We also preliminarily

determine that Article 43 provides a financial contribution within the

meaning of section 771(5)(D)(ii), because the GOK foregoes revenue that

is otherwise due by granting this tax credit.

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

the amount of the tax credit DSM deducted from its taxes payable for

the 1997 fiscal year. In DSM's 1997 income tax return filed during the

POI, it deducted from its taxes payable, credits earned in 1997. Next,

we calculated the amount of the tax savings and divided that amount by

DSM's total sales during POI. Using this methodology, we preliminarily

determine a net countervailable subsidy of 0.59 percent ad valorem for

DSM. POSCO did not use this program.

II. Programs Preliminarily Determined To Be Not Countervailable

A. Electricity Discounts Under Power Factor Adjustment, Summer Vacation

and Repair Adjustment, and Voluntary Curtailment Adjustment Programs

In Sheet and Strip, we determined that the Power Factor Adjustment,

and the Summer Vacation and Repair Adjustment programs are not

countervailable because the discounts under these programs are

distributed to a large number of firms in a wide variety of industries.

See Sheet and Strip at 30647-48.

Regarding the Voluntary Curtailment Adjustment (VCA) program, KEPCO

introduced this discount in 1995, to provide a stable supply of

electricity and to improve energy efficiency by reducing demand during

periods of peak consumption that occur during the summer. Under this

program, customers who use general, educational or industrial services

with a contract demand of 1,000 kw or more, and who arrange with KEPCO

a curtailment period of five or more days (or times) during the July

15-August 31 period, are eligible to enter into a VCA contract with

KEPCO. Customers who choose to participate in this program must curtail

demand by 20 percent or more on the basis of the average daily demand

during 10 a.m.-12 p.m., or by 3,000 kw.

Customers can apply for this program until June 15 of each year. If

KEPCO finds the application in order, KEPCO approves the application.

After approval, KEPCO and the customer enter into a contract with

respect to the VCA discount. Under this program, a basic discount of

110 won per kw is granted between July 15 and August 31.

We analyzed whether the VCA discount program is 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.

[[Page 40456]]

First, we examined the eligibility criteria contained in the law. The

Regulation on Electricity Supply and KEPCO's Rate Regulations for

Electric Service identified companies within a broad range of

industries as being eligible to participate in the electricity discount

programs. The VCA discount program is available to numerous companies

across all industries, provided that they have the required contract

demand and can reduce their maximum demand by a certain percentage.

Therefore, we preliminarily determine that the VCA electricity programs

is not de jure specific under section 771(5A)(D)(i) of the Act because

the regulation does not explicitly limit eligibility of the program.

We next examined data on the distribution of assistance under the

VCA program to determine whether the electricity discount program meets

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

the Act. We found that discounts provided under the VCA program were

distributed to a large number of customers, across a wide range of

industries. Given the data with respect to the large number of

companies and industries which received VCA electricity discounts, and

the fact that POSCO and DSM were not dominant or disproportionate users

of this program, we preliminarily determine that the VCA program is not

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

we preliminarily determine that the VCA program is not countervailable.

B. Port Facility Fees

In Sheet and Strip, we determined that this program is not

countervailable because a diverse and large group 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. See

Sheet and Strip at 30649.

C. GOK Infrastructure Investments at Kwangyang Bay Post-1991

In Plate in Coils, we determined that this program is not

countervailable because the GOK's investments at Kwangyang Bay since

1991, in the Jooam Dam, the container terminal, and the public highway

were not specific to POSCO. Id. at 15536. The respondents state that

there have been no additional infrastructure investments at Kwangyang

Bay during the POI.

III. Programs Preliminarily Determined To Be Not Used

Based on the information provided in the questionnaire response, we

preliminarily determine that the companies under investigation either

did not apply for, or receive, benefits under the following programs

during the POI:

A. Special Cases of Tax for Balanced Development Among Areas (TERCL

Articles 41, 42, 44 and 45)

B. Private Capital Inducement Act (PCIA)

C. Social Indirect Capital Investment Reserve Funds (Art. 28)

D. Energy-Savings Facilities Investment Reserve Funds (Art. 29)

E. Industry Promotion and Research and Development Subsidies

1. Highly Advanced National Project Fund

2. Steel Campaign for the 21st Century

F. Overseas Resource Development Programs

G. Export Insurance Rates Provided By The Korean Export Insurance

Corporation

H. Export Industry Facility Loans (EIFL) and Specialty Facility Loans

I. Scrap Reserve Fund

J. Excessive Duty Drawback

IV. Program Preliminarily Determined Not To Exist

Free Trade Zones (FTZ) at Pusan and Kwangyang

The GOK states that at this time, there are only two FTZs in Korea.

One is located in Masan and the other is in Iksan. Therefore, we

preliminarily determine that this program does not exist.

Verification

In accordance with section 782(i)(1) of the Act, we will verify the

information submitted by respondents prior to making our final

determination.

Suspension of Liquidation

In accordance with section 703(d)(1)(A)(i) of the Act, we

calculated an individual subsidy rate for POSCO, and DSM, manufacturers

of the subject merchandise. We preliminarily determine that the total

estimated net countervailable subsidy rate is 1.16 percent ad valorem

for POSCO and 1.12 percent ad valorem for DSM. The All Others rate is

1.14 ad valorem percent, which is the weighted-average of the rates for

both companies.

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

Company Net subsidy rate

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

POSCO............................... 1.16% Ad Valorem.

DSM................................. 1.12% Ad Valorem.

All Others.......................... 1.14% Ad Valorem.

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

In accordance with section 703(d) of the Act, we are directing the

U.S. Customs Service to suspend liquidation of all entries of certain

cut-to-length carbon-quality steel from Korea, which are entered or

withdrawn from warehouse, for consumption on or after the date of the

publication of this notice in the Federal Register, and to require a

cash deposit or bond for such entries of the merchandise in the amounts

listed above. This suspension will remain in effect until further

notice.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the

ITC of our determination. In addition, we are making available to the

ITC all nonprivileged and nonproprietary information relating to this

investigation. We will allow the ITC access to all privileged and

business proprietary information in our files, provided the ITC

confirms that it will not disclose such information, either publicly or

under an administrative protective order, without the written consent

of the Assistant Secretary for Import Administration.

If our final determination is affirmative, the ITC will make its

final determination within 75 days after the Department makes its final

determination.

Public Comment

In accordance with 19 CFR 351.310, we will hold a public hearing,

if requested, to afford interested parties an opportunity to comment on

this preliminary determination. The hearing is tentatively scheduled to

be held 57 days from the date of publication of the preliminary

determination at the U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW, Washington, DC 20230. Individuals who wish to

request a hearing must submit a written request within 30 days of the

publication of this notice in the Federal Register to the Assistant

Secretary for Import Administration, U.S. Department of Commerce, Room

1870, 14th Street and Constitution Avenue, NW, Washington, DC 20230.

Parties should confirm by telephone the time, date, and place of the

hearing 48 hours before the scheduled time.

Requests for a public hearing should contain: (1) The party's name,

address, and telephone number; (2) the number of participants; and, (3)

to the extent practicable, an identification of the arguments to be

raised at the hearing. In

[[Page 40457]]

addition, six copies of the business proprietary version and six copies

of the nonproprietary version of the case briefs must be submitted to

the Assistant Secretary no later than 50 days from the date of

publication of the preliminary determination. As part of the case

brief, parties are encouraged to provide a summary of the arguments not

to exceed five pages and a table of statutes, regulations, and cases

cited. Six copies of the business proprietary version and six copies of

the non-proprietary version of the rebuttal briefs must be submitted to

the Assistant Secretary no later than 5 days from the date of filing of

the case briefs. An interested party may make an affirmative

presentation only on arguments included in that party's case or

rebuttal briefs. Written arguments should be submitted in accordance

with 19 CFR 351.309 and will be considered if received within the time

limits specified above.

This determination is published pursuant to sections 703(f) and

777(i) of the Act.

Dated: July 16, 1999.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 99-18857 Filed 7-23-99; 8:45 am]

BILLING CODE 3510-DS-P