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

DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-837]

Final Affirmative Countervailing 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: December 29, 1999.

FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Tipten Troidl,

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

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

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

Final Determination: The Department of Commerce (the Department)

determines that countervailable subsidies are being provided to

producers and exporters of certain cut-to-length carbon-quality steel

plate from the Republic of Korea. For information on the 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 (petitioners).

Case History

Since the publication of our preliminary determination in this

investigation on July 26, 1999 (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, 64 FR

40445 (Preliminary Determination)), the following events have occurred:

On September 13, 1999, we issued supplemental questionnaires to

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

(DSM), and the Government of Korea (GOK). We received the respondents'

questionnaire responses on October 5, 1999. We conducted verification

of the countervailing duty questionnaire responses from October 25

through November 9, 1999. Because the final determination of this

countervailing duty investigation was aligned with the final

antidumping duty determination (see 64 FR 40416), and the final

antidumping duty determination was postponed (see 64 FR 46341), the

Department on August 25, 1999, extended the final determination of this

countervailing duty investigation until no later than December 13, 1999

(see 64 FR 40416). On November 19, 1999, we issued to all parties the

verification reports for POSCO, DSM, and the Meetings with Banking

Experts in Korea. We later issued on November 23, 1999, the

verification report for the GOK. Petitioners and respondents filed case

briefs on November 29, 1999. Rebuttal briefs were submitted to the

Department by petitioners and respondents on December 3, 1999. A public

hearing on the case was held on December 6, 1999.

On November 23, 1999, we discontinued the suspension of liquidation

of all entries of the subject merchandise entered or withdrawn from

warehouse for consumption on or after that date, pursuant to section

703(d) of the Act. See the ``Suspension of Liquidation'' section of

this notice.

Scope of Investigation

The products covered by this scope are 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

[[Page 73177]]

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 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 these investigations 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.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

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

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

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

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

19 CFR Part 351 (1998) 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 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 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 the

Czech Republic, France, India, Indonesia, Italy, Japan, Korea, and

Macedonia; Determinations, 64 FR 17198 (April 8, 1999)).

Period of Investigation

The period of investigation for which we are measuring subsidies

(the POI) is calendar year 1998.

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 section 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,1 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. 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 1992, and still outstanding during the

POI.

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\1\ On October 1, 1999, the United States Court of Appeals for

the Circuit (CAFC) issued a decision regarding Steel Products from

Korea. See AK Steel Corp. v. United States, 192F.3d (AK Steel). The

Department has not received specific instructions from the Court on

how this decision should be implemented. However, our review of the

decision indicates that the CAFC found that there was not sufficient

evidence on the record of Steel Products from Korea to determine

that the GOK provided credit directly to the Korean steel industry.

In this investigation, we have additional information on the record

indicating that the GOK's direction of credit prior to 1992 provided

a countervailable benefit to the Korean steel industry. Therefore,

the selection of long-term benchmarks cited to in Steel Products

from Korea is appropriate for this current investigation. For

further information on direction of credit prior to 1992, see the

``Direction of Credit'' section of this notice.

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In Stainless Steel Plate and Stainless Steel Sheet and

Strip,2 the Department, for the first time, examined the

GOK's direction of credit policies for the period 1992 through 1997.

Based on new information gathered during the course of those

investigations, the Department determined that the GOK controlled

directly or indirectly the lending practices of most sources of credit

in Korea between 1992 and 1997. In the current investigation, we

determine that the GOK still exercised

[[Page 73178]]

substantial control over lending institutions in Korea during the POI.

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\2\ See Final Negative Countervailing Duty Determination:

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

15530, 15532 (March 31, 1999) (Stainless Steel Plate), 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) (Stainless Steel Sheet and Strip).

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Based on our findings on this issue in prior investigations, as

well as in the instant investigation, discussed below in the

``Direction of Credit'' section of this notice, we are using the

following benchmarks to calculate respondents' long-term loans obtained

in the years 1992 through 1998. First, for countervailable, foreign-

currency denominated long-term loans, we used, where available, the

company-specific weighted-average U.S. dollar-denominated interest

rates on the companies' loans from foreign bank branches in Korea.

However, certain companies had foreign currency loans denominated in a

currency other than U.S. dollars but did not have the same type of

currency loans from foreign bank branches in Korea. Because we were

unable to find a similar foreign-currency denominated loan benchmark

within Korea, we used foreign-currency interest rates as reported in

the International Financial Statistics, a publication of the IMF.

Second, for countervailable won-denominated long-term loans, where

available, we used the company-specific corporate bond rate on the

companies' public and private bonds. We note that this benchmark is

based on the decision in Stainless Steel Plate, 64 FR at 15531, in

which we determined that the GOK did not control the Korean domestic

bond market after 1991, and that domestic bonds may serve as an

appropriate benchmark interest rate. Where unavailable, we used the

national average of the yields on three-year corporate bonds as

reported by the Bank of Korea (BOK).

We 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 its respective company-specific,

short-term commercial interest rate to the Department.

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 section 351.107 of the Department's Regulations, when the

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

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

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

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

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

or practicable to establish combination rates when the subject

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

Department will make exceptions to its combination rate approach on a

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

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

In this investigation, we have determined 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 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 Determined To Be Countervailable

A. The GOK's Direction of Credit Policies

1. The GOK's Credit Policies Through 1991

As noted above in the ``Subsidies Valuation'' section of this

notice, on October 1, 1999, the CAFC issued a decision regarding Steel

Products from Korea. See AK Steel. The Department has not received

specific instructions from the Court as to how this decision should be

implemented. However, our review of the decision indicates that the

CAFC found that there was not sufficient evidence on the record of

Steel Products from Korea to determine that the GOK provided credit

directly to the Korean steel industry. Since the time of the final

determination of Steel Products from Korea the URAA was enacted and the

Department developed and codified new substantive countervailing duty

regulations. Under the new statute and regulations and considering the

new information that was not on the record of Steel Products from

Korea, we determine that all loans disbursed to respondent companies

through 1991 are countervailable. For a discussion of this new

information, please see Comments 1 and 2 in the ``Interested Party

Comments'' section of the notice. The provision of long-term loans in

Korea through 1991 results in a financial contribution within the

meaning of section 771(5)(D)(i) of the Act. In accordance with section

771(5)(E)(ii) of the Act, a benefit has

[[Page 73179]]

been conferred on 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.

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, we applied the long-term loan methodology provided for

in section 351.505 of the CVD Regulations. 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

determine the net countervailable subsidy to be 0.12 percent ad valorem

for POSCO, and 0.04 percent ad valorem for DSM.

In the preliminary determination, we stated that the long-term

KExim Bank loans are regulated. Accordingly, these loans are

countervailable as directed credit, and we included these long-term

loans in POSCO's benefit calculations for directed credit. In the

preliminary determination, we concluded that the loans provided to

POSCO from the KExim Bank were export subsidies, and thus divided the

benefit amounts from the loans attributable to the POI by the company's

export sales. During verification, we found that these loans were

provided under the Overseas Resource Development Program, and thus were

not provided to POSCO based upon its export performance. Therefore, for

the purposes of this final determination, we have attributed the

benefit conferred from the KExim Bank loans over POSCO's total sales.

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

In the Stainless Steel Plate and Stainless Steel Sheet and Strip

investigations, the Department determined that the GOK continued to

control directly and indirectly the lending practices of most sources

of credit in Korea through 1997.3 The Department also

determined that the GOK's regulated credit from domestic commercial

banks and government-controlled banks such as the Korea Development

Bank (KDB) was specific to the steel industry. This credit conferred a

benefit on the producers/exporters of the subject merchandise to the

extent that the interest rates on these loans were less than the

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

of the Act. See also Stainless Steel Plate, 64 FR 15530, 15533, and

Stainless Steel Sheet and Strip, 64 FR 30636, 30642.

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\3\ In the Stainless Steel Plate and Stainless Steel Sheet and

Strip investigations, the Department based its affirmative direction

of credit determination for the period 1992 through 1997 on record

evidence covering a time period different than that covered by the

CAFC's decision in AK Steel which was Pre-1992. Moreover, in its

decision, the CAFC did not reject the notion of the GOK directing

credit specifically to the Korean steel industry but rather took

issue with the evidence upon which the Department based its

affirmative finding. Thus, because the Department based its

affirmative direction of credit determination for the years 1992

through 1997 on evidence that was not before the CAFC at the time of

its decision in AK Steel, that case does not preclude a finding of

directed credit during this later time period.

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We provided the GOK with the opportunity to present new factual

information concerning the government's credit policies during the 1992

through 1997 period, which we would consider along with our finding in

the prior investigations. The GOK did not provide new factual

information that would lead us to change our determination in Stainless

Steel Plate and Stainless Steel 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 instant 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, in light of our prior finding

that the GOK controlled and directed credit provided by domestic banks

and government-owned banks during the period 1992 through 1997. The GOK

asserted that it does not provide direction or guidance to Korean

financial institutions in the allocation of loans to selected

industries. The GOK stated that the lending decisions and loan

distributions of financial institutions in Korea reflect commercial

considerations. The GOK also stated that its role in the financial

sector is limited to monetary and credit policies as well as bank

supervision and examination.

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

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

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

Supervisory Commission (FSC) to monitor the competitiveness of

financial institutions. In June 1998, the Regulation on Foreign

Exchange Controls was amended to further liberalize foreign currency

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

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

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

approval process under Article 19 of the Foreign Investment and Foreign

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

decree were eliminated and replaced with the Foreign Investment

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

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

of the Ministry of Finance and Economy.

Regarding the GOK regulated credit from government-controlled banks

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

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

1997. According to the GOK, with the new Act, the KDB no longer

allocates funds for various functional categories; such as R&D,

environment and technology. All functional loan categories were

eliminated and such loans were consolidated into a single category for

facility (equipment) loans. The GOK also stated that the KDB

strengthened its credit evaluation procedures by developing an

objective and systematic credit evaluation standard to prevent

arbitrary decisions on loans and interest rates. The KDB changed its

Credit Evaluation Committee to the Credit Deliberation Committee (CDC),

and gave the CDC the authority to make lending decisions. As a result,

the KDB governor no longer makes lending decisions without the approval

of the CDC. The GOK also stated that in 1997, the KDB used the prime

rate plus a spread for determining interest rates. Effective January 1,

1998, the KDB increased the range of the credit spread to provide more

flexibility in determining interest rates based on creditworthiness and

to allow the KDB to increase its profits. However, respondents did not

provide any evidence to demonstrate that the KDB has discontinued the

practice of selectively making loans to specific firms or activities to

support GOK policies.

In Stainless Steel Plate, 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, which is defined to include the

steel industry.

While the GOK started to plan and implement reforms in the

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

crisis, the record evidence indicates that the GOK previously attempted

reforms of the

[[Page 73180]]

financial system in order to remove or reduce its control and influence

over lending in the country. In the past ten years, the GOK has twice

attempted to reform its financial system. In 1988, the GOK attempted to

deregulate interest rates. However, the government deemed the 1988

liberalization a failure. When the interest rates began to rise, the

GOK canceled the reforms by indirectly pressuring the banks to keep

interest rates low. In the early 1990s, the GOK attempted reforms again

with a four-stage interest rate deregulation plan. Again, the GOK

deemed this attempt to reform the financial system a failure. During

1998 and 1999, the GOK has threatened to cut off credit to Korean

companies unless the companies follow GOK policies. In addition, during

the POI, the GOK took control of five large commercial banks due to the

financial crisis.

Based upon the information on the record and our determinations in

Stainless Steel Plate and Stainless Steel Sheet and Strip, we determine

that the GOK continued to control, directly and indirectly, the lending

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

With respect to foreign sources of credit, in Stainless Steel Plate

and Stainless Steel 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 was 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

during the POI. Petitioners have not provided any new information or

evidence of changed circumstances to cause us to revisit this

determination. Therefore, we continue to determine that credit from

Korean branches of foreign banks were not subject to the government's

control and direction. As such, lending from this source continues to

be not countervailable, and loans from Korean branches of foreign banks

continue to serve as an appropriate benchmark to establish whether

access to regulated foreign sources of funds confer a benefit to

respondents.

With respect to loans provided under the Energy Savings Fund, in

Stainless Steel Plate, 64 FR at 15533, the Department found that these

loans were countervailable as directed credit on the grounds that they

are policy loans provided by banks that are subject to the same GOK

influence as described above. POSCO had Energy Savings Fund loans

outstanding during the POI. Accordingly, these loans are

countervailable as directed credit, and we have included these long-

term loans in POSCO's benefit calculations for directed credit.

In addition, respondents received loans under the Industry

Promotion Fund and the Industry Technology Development Fund. Similar to

our determination with respect to the Energy Savings Fund, loans from

both of these Industry Funds are policy loans provided by banks subject

to the same GOK influence as described above. Therefore, loans from

these two Industry Funds are countervailable as directed credit.

POSCO's affiliates had outstanding loans during the POI from these

Industry Funds. Therefore, we have included these long-term loans in

POSCO's benefit calculations for directed credit.

Both POSCO and DSM received long-term loans from domestic banks and

government-owned banks during the period 1992 to 1998 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 and those with variable interest rates,

we applied the methodology provided for in section 351.505(c)(2) and

section 351.505(c)(4), respectively, of the CVD Regulations, using as

our benchmark the rate described in the ``Subsidies Valuation

Information'' section of the notice, above. 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 determine the net countervailable subsidy to 0.15

percent ad valorem for POSCO, and 0.13 percent ad valorem for DSM.

B. GOK Infrastructure Investment 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 allocation time 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 as 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

1983-1991. We then divided the total benefit attributable to the POI by

POSCO's total sales for 1998. On this basis, we determine a net

countervailable subsidy of 0.23 percent ad valorem for the POI.

C. 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 was the only producer/exporter

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 to POSCO under this program within the meaning of section

771(5)(D)(i) of the Act in the form of a

[[Page 73181]]

loan. 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 rate. Therefore, 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 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. We then divided the

benefit derived from all of POSCO's export loans by the value of the

company's total exports. On this basis, we determine a net

countervailable subsidy of less than 0.005 percent ad valorem for

POSCO.

D. Reserve for Export Loss

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. During the POI, DSM was the only exporter of the

subject merchandise that benefitted from this program.

We determine that the Reserve for Export Loss program constitutes

an export subsidy under section 771(5A)(B) of the Act because 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. The benefit

provided by this program is the tax savings enjoyed by the company.

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.

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, as 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 net countervailable subsidy of

0.02 percent ad valorem for DSM.

E. Reserve for Overseas Market Development

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 overseas expenses or

when the grace period expires. The deferral of taxes owed amounts to an

interest-free loan equal to the company's tax savings. The following

exporters of the subject merchandise used 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 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. The benefit provided by this program is the tax savings enjoyed

by the companies.

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 is detailed

in the ``Subsidies Valuation Information'' section of this notice, we

determine a net countervailable subsidy of 0.01 percent ad valorem for

POSCO and a rate of 0.01 percent ad valorem for DSM.

F. Technical Development Reserve Funds Under Article 8 of TERCL

Article 8 of TERCL allows a company operating in manufacturing or

mining, or in a business prescribed by the Presidential Decree, to

appropriate reserve funds to cover the expenses needed for development

or innovation of technology. These reserve funds are included in the

company's losses and reduces the amount of taxes paid by the company.

Article 8 specifies that capital good and capital intensive companies

can establish a reserve of five percent, while companies in all other

industries are only allowed to establish a three percent reserve.

Because the capital goods industry is allowed to claim a larger tax

reserve under this program than all other manufacturers, we determine

that the Technical Development Reserve Funds is specific under section

771(5A)(D). 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. The benefit provided by this program is the

differential two percent tax savings enjoyed by the companies in the

capital

[[Page 73182]]

goods industry, which includes steel manufacturers.

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

merchandise that benefitted from this program. To determine the benefit

conferred by this program, we first calculated the balance amount of

the reserve as of December 31, 1997, attributable to the company being

allowed to contribute a higher amount to the reserve account. We then

calculated the tax savings by multiplying the calculated balance amount

in the reserve account, by the corporate tax rate for 1997. We treated

the tax savings on these funds as a short-term interest-free loan. As a

benchmark interest rate, we used an affiliated company's weighted-

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

for the POI. On this basis, we determine a net countervailable subsidy

for POSCO of less than 0.005 percent ad valorem.

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, then the company is

authorized to carry them forward for use in subsequent tax years.

During the POI, POSCO claimed various investment tax credits to reduce

its 1997 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 countervailing duty statute

effective in 1995, which have caused us to revisit the

countervailability of the investment tax credits.

POSCO used the following tax credits: (1) tax credits for

investments in facilities for research and experiment under Article

10(1)(a) and Article 10(1)(b); (2) tax credits for investments in

productivity improvement under Article 25; (3) tax credits for specific

facility investments under Article 26; (4) tax credit for Equipment

Investment to Promote Workers' Welfare under Article 88.

Under these TERCL Articles, if a company invested in foreign-

produced facilities (i.e., facilities produced in a foreign country),

the company received a tax credit equal to either three or five percent

of its investment. However, if a company invested in domestically-

produced facilities (i.e., facilities produced in Korea) under the same

Articles, it received a 10 percent tax credit. Under Article 88, a tax

credit can only be claimed if a company is using domestic machines and

materials. 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 received a higher tax credit for

investments made in domestically-produced facilities, we determine that

investment tax credits received under Articles 10(1)(a), 10(1)(b), 25,

26, and 88 constitute import substitution subsidies under section

771(5A)(C) of the Act. In addition, because the GOK is foregoing the

collection of tax revenue otherwise due under this program, we

determine that a financial contribution is provided under section

771(5)(D)(ii) of the Act. The benefit provided by this program is a

reduction in taxes payable. Therefore, we determine that this program

is countervailable.

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

the amount of tax credits POSCO deducted from its taxes payable for the

1997 fiscal year. POSCO deducted from its 1997 taxes payable, credits

earned in the years 1995 and 1996. Therefore, we first determined the

amount of the tax credits claimed which were based upon investments 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 such investments instead of a 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 during the POI. On this basis, we

determine a net countervailable subsidy of 0.32 percent ad valorem for

POSCO. DSM did not claim any tax deductions during the POI through the

use of any of these investment tax credits.

H. Electricity Discounts Under the Requested Load Adjustment Program

The GOK reported that during the POI, the government-owned Korea

Electric Power Company (KEPCO) provided respondents 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 Determined To Be Not

Countervailable'' with respect to the Power Factor Adjustment and

Summer Vacation and Repair Adjustment, and Voluntary Curtailment

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, KEPCO granted 33 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 and 1998. In 1996, KEPCO had

entered into RLA contracts with 232 companies, which was reduced to 44

companies in 1997 and 33 in 1998. 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 under this program within the meaning

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

the government. See Stainless Steel Sheet and Strip, 64 FR at 40454.

Under section 351.524(c) of the CVD regulations, discounts on

electricity will normally be treated as recurring benefits and expensed

in the year of receipt. Therefore, to measure the benefit from this

program, we summed the electricity discounts which POSCO and DSM

received from KEPCO under the RLA program during the POI and divided

that amount by each company's total sales value for 1998. On this

basis, we determine a net countervailable subsidy of less than 0.005

percent ad valorem for POSCO, and a rate less than 0.005 percent ad

valorem for DSM from the RLA discount program.

I. 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

[[Page 73183]]

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 in this case, petitioners provided information to

substantiate their allegation that POSCO and DSM received a specific

benefit under this program because their massive asset revaluations

permitted the companies to substantially increase their depreciation

and, thereby, reduce their income taxes payable. 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

been structured to result in 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.

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, and only 77 companies

revalued their assets in 1989 (at the time the respondents revalued

their assets). In addition to the limited number of companies using

this program, we note that the basic metal sector accounted for 83

percent of the total revaluation surplus amount (book value less

revalued amount), which 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 31, 1999). In

examining the de facto specificity of the program, we recognize the

concern that a tax benefit conferred on a large company might be

disproportionate merely because of the size of the company. However,

based upon the facts of this particular case, this concern is

unfounded. First, given the number of manufacturing companies in Korea

during the effective period of this program's operation, there were

very few companies receiving tax benefits under this program. In

addition, given the number of manufacturers in Korea, there should have

been other large companies relative to the size of POSCO revaluing

assets under this program. However, this is not the case with respect

to this program.

Therefore, based upon the above set of facts, we determine that

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

result 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 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. Based

on clarification of the May 28, 1999 questionnaire responses submitted

by the respondents, we have revised our calculations. We have now used

the additional depreciation in 1997, which resulted from the company's

assets revaluation and multiplied that amount 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 determine a net countervailable subsidy of 0.04 percent

ad valorem for POSCO and a rate of 0.02 percent ad valorem for DSM.

I. Exemption of Bond Requirement for Port Use at Asan Bay

The GOK's overall development plan is published every 10 years,

last published in 1991, and describes the nationwide land development

goals and plans for the balanced development of the country. Under

these plans, the Ministry of Construction and Transportation (MOCAT)

prepares and updates its Asan Bay Area Broad Development Plan. The

Korea Land Development Corporation (KOLAND) is a government investment

corporation that is responsible for purchasing, developing, and selling

land in the industrial sites.

The Asan Bay area was designated as an Industrial Site Development

Area in December 1979. The Asan Bay area consists of five development

sites, (1) Kodai, (2) Wanjung, (3) Woojung, (4) Poseung, and (5) Bukok.

Although Wanjung and Woojung are within the Asan National Industrial

Estate, those properties are not owned by KOLAND.

After the preliminary determination, we requested and received

information regarding the GOK's infrastructure investments at Asan Bay,

which we subsequently verified. At verification, the officials

explained that the GOK had built port berths #1, #2, #3, and #4 in the

Poseung area. We also learned of POSCO's activities at Asan Bay. In

September 1997, POSCO signed a three-year lease agreement with the

Inchon Port Authority (IPA) for the exclusive use of port berth #1,

which was constructed by the GOK, and paid the applicable user fee.

In 1997, the GOK also entered into a lease agreement for the

exclusive use of the other port berths #2, #3, and #4, with

[[Page 73184]]

a consortium of six companies. The consortium of companies was required

to purchase bonds, which the GOK would repay without interest after the

lease expired in 10 years. However, POSCO was not required to purchase

a bond for the exclusive use of port berth #1. See POSCO Verification

Report, public version dated November 19, 1999, on file in the CRU.

We first determine that the waiver of the bond purchase was only

provided to POSCO. Therefore, the program meets the specificity

requirements under section 771(5A)(D) of the Act. In addition, we

determine that the GOK's waiver of the bond purchase requirement for

the exclusive use of port berth #1 by POSCO confers a financial

contribution under section 771(5)(D)(ii) of the Act, because the GOK

foregoes collecting revenue that it normally would collect. We also

determine that because the GOK had to repay the bonds at the end of the

lease term, the bond purchase waiver is equivalent to an interest free

loan for three years, the duration of the lease.

To determine the benefit from the loan, we treated the amount of

the bond as a long-term interest-free loan. We then applied the

methodology provided for in section 351.505(c)(4) of the CVD

Regulations for a long-term fixed rate loan, and compared the amount of

interest that should have been paid during 1998 on the interest free

loan to the amount of interest that would have been paid based upon the

interest rate on a comparable won-denominated benchmark loan. We then

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

determine the net countervailable subsidy to be less than 0.005 percent

ad valorem for POSCO.

J. Price Discount for DSM Land Purchase at Asan Bay

In 1995, DSM purchased land at the Asan Bay Industrial Site, a GOK

constructed industrial estate. DSM began making land payments in 1995

and continued until the last payment in December 1998. The original

total land cost to the KDLC included land, management fees, and land

development costs. During the period of the contract from 1995 to 1998,

a variety of cost and fees changed. For instance, DSM decided to have a

private company perform land development, thus reducing the original

total amount of land cost. Also, the management fee to West Area

Industrial Site Management Corporation (WAISM) was waived and the GOK

further reduced the land price.

During verification, the Department noted a difference between the

total cost of land amount after changes and what DSM actually paid.

This difference occurred because the GOK reduced the amount by percent

and waived a management fee owed to WAISM. Based upon

771(5A)(D)(iii)(I) of the Act, this price reduction was specific to

DSM. As the GOK issued this price reduction, this confers a benefit

under 771(5)(D)(ii) of the Act, because the GOK foregoes revenue that

it normally would collect.

To calculate the benefit from this program, the Department first

took the original amount of the land cost and deducted the amount that

was to be paid to the KLDC for land development, to obtain the new

price of the land. Next, to derive the amount DSM paid for the land, we

took the actual amount and added the prepaid interest. The Department

then took the difference between the new price of the land and the

calculated amount paid by DSM. We treated the difference as a grant as

described in 19 CFR 351.504 of the CVD regulations. Although this

program confers a non-recurring benefit, the amount of the benefit is

less than 0.5 percent of DSM's total sales, therefore, we have expensed

this benefit in the year of receipt, which was the POI, pursuant to

section 351.524(2) of the CVD regulations. On this basis, we have

calculated a net countervailable subsidy rate of 0.48 percent ad

valorem for DSM.

K. POSCO's Dual-Pricing Scheme

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 continued to be a government-controlled

company. See Stainless Steel Sheet and Strip 64 FR at 30642-43. POSCO

sets different prices for the identical product for domestic purchasers

based upon that purchaser's anticipated export performance. See

Stainless Steel Sheet and Strip, 64 FR at 30647. Thus, in selling to

DSM, POSCO charged a domestic price for slab when DSM's finished

product was to be sold in Korea, and a ``local-export'' price for slab

when DSM's finished product was to be exported. In Stainless Steel

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

In Stainless Steel Sheet and Strip, we calculated the benefit

conferred by POSCO's pricing policies under section 351.516 of the CVD

regulations which provides the methodology used to determine price

preferences for inputs used in the production of goods for export.

Therefore, in Stainless Steel Sheet and Strip, and in the preliminary

determination of this investigation, the Department determined the

benefit from this pricing scheme by comparing the difference in the

local-export and domestic prices charged by POSCO.

In comments prior to our preliminary determination, petitioners

argued that POSCO's dual-pricing system is a provision of a good for

less than adequate remuneration under section 771(5)(E)(iv), therefore,

petitioners stated that the Department should analyze this pricing

scheme in accordance with section 351.511 of the CVD regulations. In

our preliminary determination, we stated that we would continue to

analyze this issue for our final determination.

The focus of our analysis in Stainless Steel Sheet and Strip was

whether the GOK, acting through its ownership and control of POSCO, was

setting below-market prices for raw materials used by Korean steel

exporters. Based upon this premise, we determined that this program

should be analyzed under section 351.516 of the CVD regulations to

measure the discriminatory pricing practice between domestic and export

consumption. This was the appropriate methodology to employ based upon

the allegation in Stainless Steel Sheet and Strip that the government

was providing price preferences for inputs used in the production of

goods for export. As noted above, section 351.516 specifies the

methodology to be employed when there are price preferences for inputs

used in the production of goods for export and is based upon Item (d)

of the Illustrative List of Export Subsidies, which is provided for in

Annex I of the Agreement on Subsidies and Countervailing Measures.

In this current investigation, petitioners have argued that the GOK

is controlling both the domestic and export prices of slab, the input

into plate. Petitioners have stated that the same information on the

record that demonstrates that the GOK through its control of POSCO is

setting below-market prices for exporters also supports a conclusion

that a similar pricing policy is followed for POSCO's

[[Page 73185]]

domestic-priced slab sales. Therefore, we must analyze POSCO's dual

pricing scheme based upon the specific allegation in this current

investigation, i.e., the provision of a good or service for less than

adequate remuneration.

Under section 351.511(a)(2), the adequacy of remuneration is to be

determined by comparing the government price to a market determined

price based on actual transactions in the country in question. Such

prices could include prices stemming from actual transactions between

private parties, actual imports, or, in certain circumstances, actual

sales from competitively run government auctions. During the POI, DSM

imported slab; therefore, we are using actual imported prices of slab

as our basis of comparison. Based upon this comparison, we determined

that POSCO's local-export price for slab is sold at less than adequate

remuneration. As a result, a benefit is conferred to DSM under section

771(5)(E)(iv). We have not made a determination with respect to POSCO's

domestic-priced slab sales to DSM because under section 351.525(b)(4)

of the CVD regulations, subsidies tied to a particular market will be

attributed only to the products sold by the firm to that market.

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

compared the quarterly delivered weighted-average price charged by

POSCO to DSM for local export production to the quarterly delivered

duty-exclusive weighted-average price DSM paid for imported slab, by

grade of slab. We used a duty-exclusive price because, consistent with

the prevailing market conditions referred to in section 771(5)(E)(iv)

of the Act, an exporter in Korea is entitled to duty drawback. 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 countervailable subsidy of 0.90 percent ad valorem from

this program during the POI.

L. 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 sale 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 cannot 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 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

enterprises or industries located within a designated geographical

region. See Final Affirmative Countervailing Duty Determination:

Stainless Steel Plate in Coils From Italy, 64 FR 15508, 15516 (March

31, 1999) (funds were regionally specific because they were limited to

certain areas within Italy). We also 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 determine a

net countervailable subsidy of 0.61 percent ad valorem for DSM. POSCO

did not use this program.

M. Research and Development (R&D)

The GOK, through MOCIE, provides R&D grants to support numerous

projects pursuant to the Industrial Development Act, including

technology for core materials, components, and engineering systems, and

resource technology. The program is designed to foster the development

of efficient technology for industrial development. A company may

participate in this program in several ways: (1) a company may perform

its own R&D project, (2) it may participate through the Korea New Iron

and Steel Technology Research Association (KNISTRA), which is an

association of steel companies established for the development of new

iron and steel technology, and/or (3) a company may participate in

another company's R&D project and share R&D costs, along with funds

received from the GOK. To be eligible to participate in this program,

the applicant must meet the qualifications set forth in the basic plan

and must perform R&D as set forth under the Notice of Industrial Basic

Technology Development. Upon completion of the R&D project, the

participating company must repay 50 percent of the R&D grant (30

percent in the case of SME's established within 7 years) to the GOK, in

equal payments over a five-year period. If the R&D project is not

successful, the company must repay the full amount.

This program was not reported until after the Department published

its preliminary determination. We subsequently received information on

this program during verification. However, we are unable to conduct a

complete de facto specificity analysis regarding R&D that respondents

performed with GOK assistance because: (1) A complete breakdown of

projects, company names, sector, grant amount, and the duration of the

projects was not provided until verification, and (2) this data is

primarily in Korean. Therefore, as facts available, we determine that

grants provided directly to respondents and their affiliates that are

steel-related, are specific and thus countervailable. We also determine

that R&D funds through KNISTRA are specific to the steel industry, and

therefore countervailable. These grants also provide a financial

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

Under 19 CFR 351.524, non-recurring benefits are allocated over

time, while recurring benefits are expensed in the year of receipt. In

addition, non-recurring benefits which are less than 0.5 percent of a

company's relevant sales are also expensed in the year of receipt. The

grants provided to respondents did not exceed 0.5 percent of each

company's respective sales. Therefore, regardless of whether this

program provided recurring or non-recurring benefits, the benefits are

expensed in the year of receipt. To determine the benefit from the

grants received through KNISTRA, we first calculated the percent of

each company's contribution to KNISTRA and applied that percent to the

GOK's contribution for each R&D project. We then summed the grants

received by each company through KNISTRA and divided the amount by each

company's respective total sales. To determine the benefit from the

grants provided directly to the companies, we divided the

[[Page 73186]]

amount of the grant by each company's respective consolidated total

sales. Based upon this methodology, we determine that POSCO received a

countervailable subsidy of 0.07 percent ad valorem, and that DSM

received a countervailable subsidy less than 0.005 percent ad valorem.

II. Programs Determined To Be Not Countervailable

A. Electricity Discounts under Power Factor Adjustment, Summer Vacation

and Repair Adjustment, and Voluntary Curtailment Adjustment Programs

In Stainless Steel 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 Stainless Steel Sheet and Strip 64 FR 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. 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

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 determine that the VCA program is not de facto

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

determine that the VCA program is not countervailable.

B. Port Facility Fees

In Stainless Steel 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 Stainless Steel Sheet and Strip at 30649.

C. GOK Infrastructure Investments at Kwangyang Bay Post-1991

In Stainless Steel Plate, 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. Id. at 15536.

III. Programs Determined To Be Not Used

Based on the information provided in the questionnaire responses

and the results of our verification, we 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. Export Insurance Rates Provided By The Korean Export Insurance

Corporation

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

H. Scrap Reserve Fund

I. Excessive Duty Drawback

IV. Program Determined Not To Exist

Free Trade Zones (FTZ) at Pusan and Kwangyang

Interested Party Comments

Comment 1: CAFC's Decision in AK Steel With Respect to Domestic Loans

Respondents state that subsequent to the Department's preliminary

determination, the CAFC ruled on the issue of direction of credit and

foreign loans, and reversed the Court of International Trade's (CIT)

affirmation of the Department's decision in Steel Products from Korea

that the GOK's direction of credit provided a countervailable benefit

to the Korean steel industry. See AK Steel. Respondents conclude that

based upon the CAFC's decision, the Department must reverse its finding

in the preliminary determination regarding the countervailability of

the direction of credit.

Petitioners argue that, although the CAFC has reversed certain

aspects of the CIT's decision affirming the Department's determination

in Steel Products from Korea, the ultimate disposition of that decision

has no impact upon the Department's ability to countervail the domestic

loans in this investigation, because the record in this proceeding

contains new evidence that was not before the CAFC in AK Steel.

Petitioners claim that this new evidence clearly establishes a

proximate causal nexus between the GOK's control of the financial

system (control which POSCO and the GOK denied, but which the CAFC

affirmed) and the benefit of low cost credit to the Korean steel

industry. Moreover, according to petitioners, the CAFC's decision

pertained only to the lack of a casual nexus for an indirect subsidy

finding, i.e., private loans directed or induced by government action,

which were received after the end of the de jure preferences for steel,

and does not impact upon loans received directly from government

sources such as the Korean

[[Page 73187]]

Development Bank, or any loans received prior to 1987.

Department's Position

A large portion of the comments submitted by petitioners and

respondents dealt with the AK Steel decision and its relationship to

our preliminary determination that the GOK directed credit to the steel

industry. The CAFC decision was based upon the Department's

determination in Steel Products from Korea that the GOK provided a

countervailable benefit to the Korean steel industry through its

direction and influence over the provision of credit to selected

industries. The decision in Steel Products from Korea covered the GOK's

direction of credit polices through 1991. In subsequent investigations,

Stainless Steel Plate and Stainless Steel Sheet and Strip, which were

completed during 1999, the Department determined that the GOK also

directed credit to selected industries during the period 1992 through

1997. The CAFC ruling in AK Steel does not cover the GOK's directed

lending policies after 1991.

As we noted earlier, the Department has not received specific

instructions from the Court on the AK Steel decision. However, our

review of that decision indicates that the CAFC found that there was

not sufficient evidence on the record of Steel Products from Korea to

determine that the GOK provided directed domestic credit to the Korean

steel industry between 1985, the year the GOK removed de jure lending

preferences to the steel industry, and 1991. With respect to pre-1992

foreign loans, the CAFC found that the Department did not establish

that the terms of the foreign loans, which were provided through the

GOK's control of preferential access to foreign lending, were on

``terms inconsistent with commercial considerations'' as required by

the then governing statute. Since the final determination of Steel

Products from Korea, Congress enacted a new statute and in 1998, the

Department codified new substantive countervailing duty regulations.

Below, we address the issue of the GOK's control over domestic credit.

The Department's position with respect to access to foreign lending is

addressed in ``Comment 2''.

Based upon our reading of AK Steel, the CAFC did not reject the

notion of the GOK directing credit specifically to the Korean steel

industry, but rather took issue with the evidence upon which the

Department based its affirmative finding. Information which is on the

record of this investigation, which was not in the record of Steel

Products from Korea, indicates that the GOK directed credit to the

Korean steel industry through 1991.

In its decision in AK Steel, it appears that the CAFC focused on

the importance of Korea's second integrated steel mill at Kwangyang

Bay, and noted the key role that project played in the Department's

decision that the GOK was directing credit to the steel industry.

Indeed the CAFC stated:

If Commerce is correct in describing Kwangyang Bay as

essentially a government project, Commerce can plausibly contend

that a de jure preference program was replaced with a de facto

system under which industry credit requirements and supplies were

both managed by the government. If that premise is incorrect,

however, the aggressive targeting theory is clearly unsupported.

Based upon a review of the evidence, the CAFC decided that the

information on the record of Steel Products from Korea did not support

the Department's decision. Therefore, we have reviewed the record of

the instant investigation to determine whether there is new evidence on

this record to support a conclusion that Kwangyang Bay was essentially

a government project. Based upon this review, additional information is

on the record of this current investigation to support a determination

that the GOK directed credit to the steel industry.

In a speech in March 1981, Korean President Chun Doo Hwan stated

that despite the stagnation plaguing steel industries in other

countries, Korea intended to expand its steelmaking

capacity.4 In this speech marking the completion of POSCO's

fourth phase of construction at Pohang, President Chun stated that his

government will give special emphasis to Korea's steel industry and

promised to carry on the work of building a second integrated steel

plant in Korea. The speech from President Chun was on the record on AK

Steel, however, the CAFC questioned the relevance of excerpts from his

speech because the speech took place before any construction began at

Kwangyang Bay. Information on the record of the current investigation

places the speech in context of the time frame of the actual decision

to build a second integrated steel mill at Kwangyang Bay. At the time

of President Chun's speech, POSCO Chairman Park Tae Joon, stated that

an evaluation of sites for the second integrated steel plant would be

completed in July of 1981, at which time the government would make its

final decision. Information on this record also shows that in November

1981, the government selected Kwangyang Bay as the site of the

country's second integrated steel works and that groundbreaking for the

construction of the Kwangyang steel works began in 1982.

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

\4\ Supporting evidence on this record has been cited in the

December 13, 1999 Memorandum to David Mueller from Team, which is on

file in the CRU.

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

In addition, information from the 1995 KOSA (the Korea Iron and

Steel Association) Yearbook reports that the GOK originally designated

Asan Bay as the second integrated steel manufacturing site in 1979, but

put off construction of the second integrated steel at Asan Bay in

1980, before designating Kwangyang Bay as the site for the construction

of the steel mill. According to the publication Business Korea, the GOK

has been criticized for showing favoritism towards POSCO. The

publication noted that POSCO was given free hand with millions of

dollars in foreign loans for the construction of the Kwangyang steel

mill in the late 1980's. This publication also noted that in 1991 when

the GOK was following a tight fiscal policy, foreign loans coming into

the country were virtually halted. However, even when the GOK was

cutting off the supply of foreign funds, POSCO's application to bring

in US$200 million in foreign currency was quickly approved by the

government.

Information on the record includes statements from bankers in Korea

reporting that through the late 1980's the government directed funds to

specially designated sectors such as the steel sector. See Memorandum

on Meetings with Commercial and Investment Banks and Research

Institutes in the Countervailing Duty Investigation of Stainless Steel

Plate in Coils from the Republic of Korea dated February 2, 1999

(February Banker Verification Report). This verification report was

provided in petitioner's February 25, 1999 ``Amendment to Petition'' of

this current investigation. The February Banker Verification Report

also provides information of the role of the Korean Development Bank

(KDB) in support of the Korean steel industry. The KDB is and has been

since its inception the predominant source of long-term lending in

Korea and is used by the government to support GOK industrial policies.

According to Korean banking experts, the steel industry directly

benefitted from preferential access to KDB lending, and the KDB is

still known for preferring the semiconductor, shipbuilding, and steel

industries. In addition, other information on the record shows that

even in the 1990's the KDB has channeled billions of dollars into

[[Page 73188]]

sectors favored by the GOK's industrial policies, including the steel

industry. During our verification in this investigation, we examined

internal KDB loan approvals for DSM and POSCO. According to the KDB's

loan approval documents, both POSCO and DSM were ``nationally important

industr[ies].'' See GOK Verification Report at page 4.

These same financial experts also stated that the GOK can influence

commercial bank lending decisions by using the KDB. Korean financial

experts stated that when the KDB decides to fund a project, it may be

considered as a guarantee from the government. Projects funded by the

KDB are receiving tacit government approval for that project, and thus

an implicit guarantee is provided to commercial banks in Korea to

follow the KDB's lead. See February Banker Verification Report at 7.

A review of respondents' outstanding loans which were received

before 1992, demonstrates the importance of the KDB financing to the

steel industry. A substantial portion of POSCO's pre-1992 outstanding

loans are either from the KDB or guaranteed by the KDB. In addition,

almost all of DSM's pre-1992 outstanding loans are from the KDB.

In addition, further information on the GOK's direction of credit

policies came to light after Korea's 1997 financial crisis. Portions of

this information are now on the record of this current investigation.

The GOK has acknowledged to the IMF that it has directed lending in the

financial sector. As noted above, banking experts and other analysts

have stated that the GOK has used the KDB as a tool for directing

credit to strategic industries such as steel. Other observers of the

Korean financial system have concluded that the GOK has used commercial

banks to funnel money into favored industries, and that the GOK has

directed banks to provide lending to ``promising'' industries. These

experts have concluded that the GOK's directed lending policies have

helped build Korea's formidable steel industry.

As noted above, the CAFC decision in AK Steel was based upon the

evidence of the record on the Steel Products from Korea investigation.

As detailed above, there is additional information on the record of

this current investigation, which in conjunction with prior case

precedent, supports a determination that the GOK has directed credit to

the steel industry prior to 1992, the period covered by the AK Steel

decision.

Comment 2: CAFC's Decision in AK Steel With Respect to Foreign Loans

Respondents state that subsequent to the Department's preliminary

determination, the CAFC issued its findings on the issue of foreign

loans, and reversed the Court of International Trade's (CIT)

affirmation of the Department's decision that the GOK's direction of

credit provided a countervailable benefit to the Korean steel industry

in Steel Products from Korea. See AK Steel. Respondents conclude that

based upon the CAFC's decision, the Department must reverse its finding

in the preliminary determination regarding the countervailability of

the foreign loans.

Petitioners argue that although the CAFC has reversed certain

aspects of the CIT's decision affirming the Department's determination

in Steel Products from Korea, the ultimate disposition of that decision

has no impact upon the Department's ability to countervail the foreign

loans in this investigation, because the record in this proceeding

contains new evidence that is not before the CAFC in AK Steel.

Department Position

First, we note that the CAFC in AK Steel did not disagree with our

determination that the GOK controlled the provision of foreign loans

and that a disproportionate share of those foreign loans were provided

to the steel industry. The CAFC, instead, based its decision on the

statutory language as to when a loan provides a countervailable

subsidy. In AK Steel, the CAFC stated the Department characterized the

foreign loans as subsidies on the ground that preferential access to

those loans benefitted the Korean steel industry. The CAFC concluded

that this was an inadequate basis under the then governing statute for

determining that the foreign loans constituted subsidies. Under the

statute in effect during the period pertinent to Steel Products from

Korea, 19 U.S.C. 1677(5)(a)(ii)(1) required that for a loan to be

countervailable it must be provided ``on terms inconsistent with

commercial considerations.'' The CAFC concluded that the Department did

not provide evidence to demonstrate the legal requirement that the

foreign loans were provided on ``terms inconsistent with commercial

considerations.''

Since the investigation of Steel Products from Korea, Congress has

amended the statute. With the enactment of the URAA in 1995, section

771(5)(E)(ii) of the Act provides that the standard for determining

whether a benefit has been provided is ``in the case of a loan, if

there is a difference between the amount the recipient of the loan pays

on the loan and the amount the recipient would pay on a comparable

commercial loan that the recipient could actually obtain on the

market.'' Therefore, to determine in this current investigation whether

the foreign loans received by POSCO and DSM are countervailable, the

Department must apply the standards set forth under section

771(5)(E)(ii) of the Act.

As noted above, the CAFC did not disagree with our conclusion that

the GOK controlled the access to foreign loans, which were made on

terms more favorable than the loans available in the Korean domestic

market. Absent GOK approval, a company could not borrow foreign loans

and would have to obtain financing in the more expensive, domestic

market. Under section 771(5)(E)(ii), a loan program provides a

countervailable benefit to the extent that the costs of the loan

provided under the government program is lower than the cost of a loan

the recipient could actually obtain on the market. Absent the approval

from the GOK to participate in this program, a Korean company would be

unable to obtain foreign lending and would only be able to obtain loans

in the Korean market. Therefore, under section 771(5)(E)(ii) of the

Act, the foreign loans received by DSM and POSCO are countervailable to

the extent that the interest rates on these foreign loans are less than

the interest rates the companies could actually obtain in the Korean

financial market. Based upon the statutory requirements set forth under

771(5)(E)(ii), we continue to find these loans countervailable.

Comment 3: Long-Term Won-Denominated Loan Benchmark Methodology

Petitioners argue that the long-term loan benchmark that the

Department used to calculate the benefit to POSCO from its won-

denominated loans received in 1998 is at odds with the Department's

Regulations and the Department's POSCO Verification Report. First, the

applicable regulation governing the choice of long-term loan benchmark

in section 351.505(a)(2)(iii), states that: in selecting a comparable

loan, the Department will normally use a loan the terms of which were

established during or immediately before, the year in which the terms

of the government-provided loan were established.

Second, to apply this regulatory objective, the Department must

consider POSCO's borrowing experience and developments in the Korean

financial

[[Page 73189]]

market in 1998. Petitioners state that according to the Department's

POSCO Verification Report, POSCO did not issue bonds or foreign

securities before August 1998 due to the financial crisis in Korea.

Instead, POSCO turned to subsidized long-term loans. However, late in

1998, after the financial crisis subsided and corporate-bond interest

rates declined, POSCO returned to the corporate bond market in August

1998. Thus, petitioners argue that the Department cannot use POSCO's

post-crisis borrowing experience as a benchmark to measure the benefit

from the government's subsidized loans to POSCO during the crisis

period. Therefore, petitioners argue that the Department should use a

monthly benchmark comparison and, during months when POSCO did not

issue corporate bonds, the Department should use the Bank of Korea's

corporate bond index.

Respondents counter that petitioners' cite to section

351.505(a)(2)(iii), is an unequivocal twist in the standard choices the

Department uses for comparable benchmarks. Respondents state that the

Department used a benchmark in the year that the KDB loan was given in

its preliminary determination. Therefore, they argue that petitioners'

argument that the Department should use data from a different part of

the year, as its benchmark, is an attempt to manipulate a subsidy

calculation, and should be rejected by the Department.

Department's Position

Petitioners' proposed methodology for selecting the long-term loan

benchmark for the government-provided won-denominated loans is

inappropriate in this investigation. The Department's regulations state

that the Department will select an interest rate benchmark from the

year in which the terms of the government-provided loan were

established. See section 351.505(a)(2)(iii) of the CVD regulations. The

interest rate benchmark selected in this investigation reflects the

rate at which POSCO could borrow in the same currency during the year

in which the government-provided loan was given. Petitioners have not

provided sufficient evidence to dictate a change in the Department's

policy. Furthermore, we used the same methodology of selecting the

interest rate benchmarks in Stainless Steel Sheet and Strip and

Stainless Steel Plate.

Comment 4: Subsidies Received by Affiliates

Petitioners state that the Department instructed respondents to

identify all affiliated companies, and further instructed certain

affiliated companies to provide complete questionnaire responses.

Petitioners argue that all of these affiliated companies fall under the

definition of mandatory respondents because they supply an input

product that is primarily dedicated to the production of the subject

merchandise or have otherwise engaged in financial transactions with

respondents. Therefore, petitioners argue that all subsidies received

by these affiliates are attributable to the subject merchandise and

should be countervailed.

Respondents counter that while they do not disagree in principle

with petitioners, they disagree with the methodology that the

Department should employ in allocating any subsidies found to be

received by these affiliated parties. Respondents counter that the

Department should determine the total ad valorem benefit of all

relevant subsidies received by each affiliated party and, based on the

portion of each affiliate's sales to the respondent company as a

percentage of their total sales, calculate the amount of subsidy

applicable to the respondents through their purchases from these

affiliates.

Department's Position

During this period of investigation, certain of POSCO's and DSM's

affiliates have received subsidies under investigated programs which

benefit the respondents' steel production, including the production of

subject merchandise. For example, certain of POSCO's affiliates have

received benefits under certain R&D loan and grant programs. To

quantify the benefit from these programs, we have calculated the ad

valorem subsidy rate by dividing the program benefit by POSCO's total

consolidated sales which includes the total sales of POSCO as well as

its affiliates. This methodology is consistent with section 351.525 of

the CVD regulations.

Comment 5: Exemption of Bond Requirement for Port Use at Asan Bay

Petitioners argue that on more than one occasion, POSCO did not

respond truthfully regarding its activity at Asan Bay, until the

Department discovered the truth as verification. According to

petitioners, these misrepresentations constitute a failure by POSCO to

act to the best of its ability. Therefore, they argue, as facts

available, the Department should find that (1) POSCO received a

specific benefit from the GOK's expenditures on infrastructure at Asan

Bay, and that (2) POSCO received a specific subsidy because the company

never paid the bond requested by the GOK for POSCO's exclusive use of

port berth #1, or (3) at a minimum the Department should use the

highest previously calculated rate for infrastructure provided in

Korea.

Respondents counter that the issues raised in this investigation

regarding Asan Bay were always framed by petitioners and the Department

in the context of infrastructure. Respondents claim that a warehouse,

unloading equipment and a coil service are not traditionally considered

infrastructure and POSCO has not built any infrastructure to date.

Furthermore, respondents counter that some of the facilities built in

the dockyard area, such as the coil service center and equipment used

in the unloading of cargo were reverted to the GOK, for which POSCO is

being compensated through free usage until full recovery of its

expenditures, pursuant to relevant provisions of the Harbor Act.

Respondents claim that in Stainless Steel Plate, the Department

determined that the program by which companies build facilities at

ports that are reverted to the GOK, and then are allowed free usage and

the right to collect fees from other users until fully compensated for

their costs, does not constitute a countervailable subsidy.

Respondents also counter that petitioners are wrong with respect to

the facts concerning POSCO's exclusive use of port berth #1.

Respondents claim that POSCO signed an agreement to purchase bonds on

the same terms as the companies that obtained the rights to exclusive

use of port berths #2, #3, and #4 through an open bidding process;

however, POSCO was not permitted to follow through on the agreement,

and has instead been required to either build port berth #5 or pay for

the construction costs of port berth #1, and receive compensation

through free use until it recovers its costs. Therefore, respondents

counter that instead of POSCO benefitting from a financial contribution

by not being required to purchase the bond, it is being required to

incur a far larger outlay of expenses for the construction of port

berth #5.

Department's Position

During verification, we found that other companies which received

exclusive use of port berths at Asan Bay were required to purchase a

bond through the GOK. POSCO was not required to purchase the bond

because it was going to build port berth #5. POSCO's argument that it

was required to build a port berth is not germane to the analysis as to

whether the

[[Page 73190]]

exemption from the bond requirement provided POSCO with a

countervailable subsidy. When POSCO builds the port berth, which will

revert back to the GOK under the provisions of the Harbor Act, POSCO

will be compensated for its expenditures through free usage of that

newly-built port berth until full recovery of its costs under the same

Harbor Act. As POSCO has correctly noted, the Department has found this

practice under the Harbor Act not countervailable. See the discussion

of the ``Port Facility Fees'' in Stainless Steel Sheet and Strip, 64 FR

at 30649.

Therefore, based upon the information gathered during verification,

the issue is whether POSCO received a benefit from the bond exemption.

Because POSCO was the only company to receive this exemption, the

program is specific to POSCO under section 771(5A)(D) of the Act. In

addition, a financial contribution was provided to POSCO under section

771(5)(D)(ii). Therefore, we determine that POSCO received a

countervailable benefit when it was not required to purchase a bond for

the exclusive use of the port berth at Asan Bay.

Comment 6: Highly Advanced National Project Fund (HANP)

Petitioners state that although the GOK claimed that it was unaware

of the existence of HANP, an exhibit provided by the GOK in the same

response explicitly referenced the HANP. Petitioners also state that at

verification, the Department found that a subsidiary of POSCO received

a HANP grant. Therefore, petitioners argue that because the parties

failed to act to the best of their ability to comply with a request for

information, the Department is required to apply facts available, and

determine that the HANP program conferred a specific benefit to POSCO.

Petitioners also argue that the benefit should be treated as a grant

and amortized using the mid-year convention.

Respondents counter that this grant received by POSCO's subsidiary

was not originally reported because the GOK and POSCO were unaware of

the HANP program. According to respondents, the program is commonly

referred to by the GOK as the G-7 project, and the company received the

R&D under the STEP 2000 project. Respondents also counter that the

grant which was received in 1994 would have been expensed in the year

of receipt, pursuant to section 351.524(b)(2) of the Department

regulations, because the subsidy is less than 0.5 percent ad valorem.

Department's Position

Although the HANP project, as argued by respondents is known by

different names, a POSCO affiliated subsidiary did receive a GOK grant

which should have been reported in their response. However, because

this grant was provided in 1994, and the calculated subsidy was less

than 0.5 percent ad valorem, it is expensed in the year of receipt in

accordance with section 351.524(b)(2) of the CVD regulations.

Therefore, no benefit was provided to POSCO from this program during

the POI.

Comment 7: Steel Campaign for the 21st Century

Petitioners argue that the GOK's claim that this program is a

private initiative organized by the Korea Iron and Steel Association

(KOSA), a trade organization with no government involvement and no

participation by respondents, has been demonstrated to be false.

According to petitioners, record evidence indicates that the GOK and

the respondents are active participants in the Campaign. A KOSA report

identifies the Ministry of Trade, Industry and Economy (MOTIE) as

providing ``fiscal and tax support,'' and the respondents as receiving

substantial benefits from various R&D projects. The KOSA report also

states that the Campaign funds R&D so as to boost exports and create

import substitution savings. Petitioners further state that a program

entitled ``Korean Industry in the 21st Century,'' which was never

disclosed to the Department in questionnaire responses, was discovered

by the Department at verification.

Petitioners also argue that, given respondents' repeated denials,

and their not acting to the best of their ability, the Department

should use facts available, and find that this program provides an

import substitution subsidy, which is specific, and therefore

countervailable.

Respondents counter that this is a private initiative by the Korean

steel industry, under the auspices of the Korea Iron and Steel

Association (KOSA), the industry trade association. Respondents also

counter that if there were any benefits specifically offered under this

program, one would expect that there would be explicit mention and some

attempt at quantification, just as other parts of the report mention.

Respondents also counter that if import substitution is done

economically and without government involvement, it is a perfectly

normal strategy for increasing revenues, and state that petitioners

offer no evidence of any specific government involvement in this

program.

Department's Position

At the GOK's verification, we obtained a document entitled ``Vision

and Development Strategy of Korean Industry in the 21st Century.'' We

were unable to determine whether there is a relationship between this

program that is administered by MOCIE and the Steel Campaign for the

21st Century, which respondents' claim is handled through KOSA.

However, we did not find any benefits given to respondents under either

of these programs during the POI.

Comment 8: Whether Assets Revaluation Pursuant to TERCL Article 56(2)

Is Countervailable

Petitioners argue that in its preliminary determination, the

Department properly countervailed a program which permitted POSCO and

DSM to revalue their assets at an earlier time than would otherwise be

allowed, and that the Department should maintain its position in the

final determination.

Respondents argue that the Department erred in its preliminary

determination that asset revaluation pursuant to TERCL Article 56(2)

was de facto specific to the basic metals sector, and in its

calculation of the benefit. According to respondents, this

determination cannot stand because the Department examined this program

in Steel Products from Korea based on the same record evidence in this

case, which the CAFC affirmed in AK Steel. Respondents also counter

that in Steel Products from Korea, the Department analyzed and rejected

petitioners' theory of dominant or disproportionate use based on the

percentage change in the value of a company's assets after revaluation.

Respondents claim that in defending the Department's decision to use

this methodology before the CAFC, the Department argued that the

domestic producers erroneously contend that percentage change

information contained within the record is not relevant in the

disproportionality analysis, and that with respect to a tax program, it

easily enables the Department to distinguish between general and

specifically targeted tax schemes without penalizing companies due to

their profits or size. Respondents also argue that the CAFC also

considered and rejected petitioners arguments on (1) dominant or

disproportionate share of the benefit conferred based on a percentage

basis rather than on an absolute basis, and (2) the Department's

reliance on the information contained in the Korea Listed Companies

Association (KLCA) report.

[[Page 73191]]

Respondents also argue that if the Department continues to

countervail the asset revaluation, the benefit from the asset

revaluation program, was calculated incorrectly, which reflects the

Department's misunderstanding of the data reported in respondents' May

28, 1999 questionnaire responses. Respondents claim that its May 28,

1999 responses were clarified at verification; therefore, the

Department should take the additional depreciation in 1997 as a result

of asset revaluation pursuant to TERCL 56(2), and multiply that by the

corporate tax rate of 30.8 percent to obtain POSCO's total tax savings

in fiscal year 1997.

Petitioners also counter that while they do agree with respondents

that the Department's methodology does not accurately reflect the

benefit received by respondents in any given year, they argue that

respondents' proposed methodology does not accurately represent the

true benefits either. According to petitioners, benefits received in

fiscal years 1990-1993 should be amortized using their mid-year grant

allocation methodology, and benefits received in fiscal years 1994-1998

should be expensed in the year of receipt. Petitioners also counter

that the benefits are exceptional because the recipient cannot expect

to receive additional subsidies under the same program on an on-going

basis from year to year, the program is not automatic, and because this

program is undoubtedly tied to the companies' capital structure and

capital assets.

Department's Position

We disagree with respondents that the Department should not

reconsider the specificity determination made in Steel Products from

Korea. In Steel Products from Korea, there was not sufficient

information on the record to indicate that POSCO revalued more of its

assets than is generally allowed under Korean law. We noted in that

case that the Department had rejected specificity information submitted

by petitioners, because it was untimely. In the absence of 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 instant investigation, petitioners have timely submitted

information that warrants reconsideration of this program by the

Department. Information on this record shows that during the period

1987-1990, companies making an initial public offering were allowed to

revalue their assets pursuant to Article 56(2). There were between

14,988 and 24,073 manufacturing companies operating in Korea at that

time. However, only 77 companies revalued their assets in 1989, the

same year in which POSCO revalued its assets. The basic metal sector

accounted for 83 percent of the total revaluation surplus, of which

POSCO's revaluation accounted for 91 percent. 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. We also note that the GOK enacted

Article 56(2) on November 28, 1987, and it listed POSCO shares on the

Korean Stock Exchange in 1988. POSCO was also, by far, the largest

beneficiary under this program.

After clarification of the assets revalued by respondents at

verification, we agree with petitioners and respondents that the

Department did not properly calculate the benefits from this program in

its preliminary determination. However, we disagree with the

calculation methodology suggested by petitioners. Petitioners' approach

to allocating subsidies was presented to the Department during the

comment period of the CVD Regulations. See CVD Regulations, 63 FR at

65399. In finalizing its CVD Regulations, the Department considered and

chose not to adopt the methodology proposed by petitioners. We continue

to follow our policy as explained in the preamble to the CVD

Regulations. Further, petitioners' methodology combines allocating some

benefits over time and expensing other benefits in the year of receipt,

two different methodologies.

However, we disagree with petitioners that this program provides

exceptional non-recurring benefits. While there may be instances where

these types of benefits could be found to be non-recurring, in this

case, that is not possible because the total value of the benefit

cannot be determined at the point of the revaluation. This is because

the benefit is not the amount of the revaluation surplus, but rather

the impact of the difference the revaluation of depreciable assets has

on a company's tax liability in each year. Therefore, based on

verification of the respondents questionnaire responses, we have used

the additional depreciation in 1997, as a result of the asset

revaluation pursuant to 56(2), and multiplied that amount by the

applicable tax rate in 1997. We then divided the benefit for each

company by their respective total sales during the POI.

Comment 9: Countervailability of TERCL Investment Tax Credits

Petitioners argue that Articles 8, 9 and 10 fall under Section 2 of

the TERCL, which provides tax benefits for companies engaged in R&D

activities. Petitioners also argue that the Department previously found

Article 10 countervailable, and it should also find Article 8,

technical development reserve funds, and Article 9, technology for

manpower development expenses, specific and therefore countervailable.

Petitioners argue that Article 8 is specific because it is limited to

the manufacturing and mining industries, and it provides for a varying

level of benefit to industries. Petitioners argue that Article 9 is

also limited on its face to the manufacturing and mining industries.

Petitioners argue that Article 11 confers a type of import

substitution subsidy by granting greater tax benefits for patent rights

sold or leased domestically rather than abroad, which encourages

domestic production as a substitute for importation. Petitioners also

claim that Article 88 provides tax credits to companies that build or

purchase qualified assets for employee welfare. Petitioners argue that

Article 88 is specific because the tax deduction is limited to

investments in domestically-produced machines and materials.

Regarding Articles 8 and 9, respondents counter that since the

manufacturing sector, by itself, covers a very broad and non-specific

range of industries, there is no basis for finding these programs

specific. Respondents also counter that petitioners have not cited to

any Department precedent for the proposition that participation in such

a program, in and of itself, mandates a finding of specificity.

Respondents further counter that petitioners have not offered any

reasons for the Department to reverse its finding in Stainless Steel

Sheet and Strip, 64 FR at 30646, that Article 9 is not countervailable.

With respect to Article 11, respondents counter that this program

was investigated in Stainless Steel Plate, and the Department did not

countervail it. Respondents also counter that since the tax incentive

is earned for transferring or leasing either a patent right or

technical know-how, it is difficult to construe how this fits under the

rubric of import substitution.

[[Page 73192]]

Finally, with respect to Article 88, respondents counter that this

program had been reported and explained in Stainless Steel Plate, and

that the Department did not countervail this program in that

investigation. Respondents also counter that there is no apparent basis

for arguing that the benefit received has any bearing on the production

of subject or other merchandise, or in this case that investments in

worker housing provide any competitive benefit to POSCO.

Department's Position

Regarding Article 8, this article provides a higher tax credit to

the capital goods industry than to other manufacturers. Therefore, we

determine that the difference in the tax credit provided to the capital

goods industry and the tax credit rate provided to all other industries

to be a countervailable subsidy. However, we disagree with petitioners

argument with respect to Article 9. We previously determined in

Stainless Steel Sheet and Strip that this program is not

countervailable. Petitioners have provided no additional evidence or

information to suggest that a program provided to all manufacturing and

mining industries is specific under CVD law.

With respect to Article 11, we agree with respondents that this

program is not an import substitution subsidy as argued by petitioners.

Under an import substitution program, the government provides an

incentive to a domestic company to favor domestic consumption over

export consumption. For example, in certain of these investment tax

credits, the GOK provides Korean companies with a higher tax deduction

if they purchase domestically-manufactured machines rather than

purchasing imported machinery. This type of program is the classic

example of an import substitution program because it seeks to influence

the behavior of the party seeking to purchase a good or service.

Article 11 does not operate in this fashion. There is no incentive

provided to a domestic company by the GOK to purchase patent rights

from a domestic company as opposed to a foreign company. Any benefit

from this program would confer to a company for not exporting its

technology, not to a company which is purchasing the technology.

Finally, we have determined that Article 88 is specific because the

tax deduction is limited to investments in domestically-produced

machines and materials, and as such is an import substitution subsidy

under section 771(5A)(C) of the Act.

Comment 10: Countervailability of Tax Programs TERCL Article 23

Petitioners argue that although the Department failed to initiate

an investigation into Article 23, the Department must reconsider its

prior decision, especially in light of the European Union's recent

findings that this same program was countervailable and specific.

Petitioners also argue that this program is an export incentive, as the

amount of the allowable loss is limited to a set percentage of foreign

exchange receipts from overseas business, and is limited to exporters.

Respondents counter that Article 23 was found not countervailable

in Steel Products from Korea. Moreover, respondents state that Article

23 permits creation of a reserve for overseas investment losses and not

a deduction of income from an overseas business, which is covered under

Article 20, as argued by petitioners.

Department's Position

We disagree with petitioners that the Department must reconsider

its prior decision of not initiating an investigation on Article 23

given the European Union's recent findings that this same program was

countervailable and specific. The Department must base its decisions on

U.S. CVD law. (For example, in the referenced EU decision cited by

petitioners, it appears that the EU found Korean tax reserves provided

to all manufacturing and mining industries to meet the standards of de

jure specificity.) We also disagree with petitioners that this program

is an export incentive and limited to only exporters. The foreign

exchange in question under this tax reserve is foreign receipts earned

from an overseas business. Therefore, the income is not earned on

exports from Korea. Furthermore, a non-exporter may also be able to

earn foreign exchange from an overseas business.

Comment 11: Electricity Discount Programs

Petitioners argue that the Department incorrectly determined that

the Voluntary Curtailment Adjustment (VCA) program was not

countervailable. Petitioners argue that in its de facto specificity

analysis, the Department relied solely on one criterion. According to

petitioners, there is no indication of how the Department conducted its

specificity analysis of dominant or disproportionate use of this

program. Petitioners argue that the steel industry received an

overwhelming 51 percent of the total benefit during the POI, which is

specific, and thus countervailable. Petitioners also argue that this

analysis is consistent with Department practice.

Petitioners also argue that record evidence demonstrates that KEPCO

provides electricity subsidies through discriminatory pricing schedules

for certain industries, such as the steel industry. They argue that the

manufacturing and mining industries receive a lower rate than do other

industries in Korea, and therefore, a countervailable subsidy is

bestowed on these industries.

Respondents counter that petitioners misstate the nature of the

Department's specificity analysis. They state that the Department

analyzed the detailed breakdown of the number of companies in each

sector that used the program, and properly found that this program was

used by a wide variety of industry sectors, and that the respondents

were not dominant or disproportionate users. Respondents also counter

that petitioners ignore the fact that (1) steel companies tend to be

very large consumers of electricity, so it would be expected that their

savings from this program are relatively high, and (2) in order to

qualify for VCA savings, steel companies have to curtail relatively

more electricity usage than other sectors.

Respondents also counter that KEPCO's varying rate schedules to

different types of industries with different electricity use patterns

do not give rise to countervailable subsidies for those industries with

lower per unit rates. Moreover, according to respondents, a cursory

examination of KEPCO's rate schedule shows that there are considerable

variations in the rates applicable to users, including manufacturers,

that have different requirements as to voltage level and contract

demand.

Department's Position

The examination of electricity tariffs is a complicated issue.

However, tariff rates that are applicable to manufacturing and mining

industries would generally not be found countervailable. We have

recognized in prior cases that electricity tariffs are generally based

upon the type and amount of consumption of electricity, and have not

countervailed utility rates solely because the rates are provided to

large consumers. See e.g., Pure and Alloy Magnesium from Canada, 57 FR

30946 (July 13, 1992); Oil Country Tubular Goods from Argentina, 62 FR

32307 (June 13, 1997). Therefore, we did not simply analyze one

specificity criterion to reach a determination that the VCA program is

not countervailable, as argued by petitioners, but analyzed

[[Page 73193]]

the specificity of this program in light of established Department

practice regarding the countervailability of utility programs. As noted

by the above-cited case precedent, the fact that certain companies are

necessarily large consumers of electricity does not make an electricity

program providing tariff reductions to those companies countervailable.

KEPCO has established a program whereby electricity customers who use

general, educational, or industrial services with a contract demand of

at least 1,000 kw can volunteer to reduce their consumption during peak

summer periods (July 15--August 31) in exchange for a discount during

that period. Based upon our review of the KEPCO customers that

volunteered for this program, we found that there were a large number

of volunteers from across a wide range of industries. We also found

that steel companies were not the dominant or disproportionate

volunteers for this program.

Comment 12: Private Capital Inducement Act (PCIA)

Petitioners argue that, in their petition, they provided evidence

that POSCO had received government subsidies under the PCIA related to

the construction of coal-fired power co-generation facilities at

Kwangyang Bay. Petitioners argue that POSCO obfuscated the Department's

repeated requests for information on this program. According to

petitioners, if POSCO and the GOK had been honest regarding the

cogeneration facilities at Kwangyang, the investigation would have

taken a different track. Petitioners claim it was not until

verification that the Department discovered this misrepresentation.

Respondents counter that contrary to petitioners claim, the

petition merely noted that POSCO had plans to build four power plants

(two using coal and two using LNG as the power sources) and indicated

that they are being built pursuant to the PICA. Respondents claim that

it reported that POSCO did not use the PCIA program, which the GOK

confirmed. Respondents also counter that in subsequent responses, POSCO

and the GOK clarified the nature of POSCO's electric power projects in

response to the Department's questions. Furthermore, respondents

counter that the Department verified that POSCO did not receive any

loans for construction of these plants, nor was there evidence of

government contributions for the development of these plants.

Department's Position

At verification we examined the published list of approved PCIA

projects during our meetings with GOK officials. An examination of this

published list revealed that there were no POSCO approved PICA

projects. In addition, during our verification of POSCO, we reviewed

the company's accounts and its corporate financing. During this

examination of POSCO's records, we did not find any evidence that POSCO

received any loans for construction of these plants, nor was there any

evidence of government contributions for the development of these

plants.

Comment 13: DSM's Denominator

Petitioners assert that the denominator used for DSM is overstated.

Petitioners note that at verification the Department concluded that

certain materials, such as: other products, (non-subject merchandise

purchased and resold) and sub-materials, (products purchased from

outside vendors as intended for production materials but were resold

without being used in the production) were included in DSM's sales

denominator. Petitioners explain that the statute requires the

Department to countervail subsidies bestowed upon the manufacture,

production, or export of the subject merchandise; the other products

and sub-materials which were not manufactured, produced or exported by

the respondent. Therefore, petitioners argue that these amounts should

be excluded from the sales denominator.

Department's Position

According to the General Issues Appendix, attached to the Final

Determination of Sales at Less Than Fair Value: Certain Cold-Rolled

Carbon Steel Flat Products from Argentina, 58 FR 37062 (July 9, 1993)

(GIA), it is the Department's aim to ``capture every part of the sales

transaction that could benefit from subsidies'' in the total sales

denominator. GIA, 58 FR at 37237. Moreover, it is the Department's

long-standing position that production subsidies are tied to a

company's domestic production. See 351.525 of the CVD Regulations. The

presumption that the subsidies at issue are tied to domestic production

has not in any way been rebutted by respondents, and respondents have

not attempted to show that DSM's ``merchandise'' sales should

appropriately be included in the sales denominator. We, therefore,

determine that the appropriate sales denominator is the total of DSM's

domestically produced merchandise, and we have excluded DSM's

``merchandise'' sales, as these are not sales of goods produced by the

company. The Department also verified that DSM included other items

which were not produced, manufactured or exported in total sales. As

applied to ``merchandise sales'' the Department will remove the value

of ``other products,'' and ``sub-materials'' from total sales.

Comment 14: Tax Exemption for Locating at Asan Bay

Petitioners state that DSM received a countervailable benefit from

the exemption of taxes related to its purchase of land at Asan Bay. DSM

entered a purchasing agreement in 1995, and closed the deal in 1998;

however, DSM did not register the land until 1999. Petitioners note

that DSM benefitted from this tax exemption for 1998. Petitioners

suggest treating this amount as a grant or as an interest free loan.

Respondents refute petitioners allegation, based upon the fact that

taxes are only due upon registration of the title for land purchase

after the settlement. Notification of settlement was on January 7,

1999, which required DSM to enter into the settlement agreement by

January 30, 1999. Based upon the dates of notification and settlement

agreement, taxes were not due during the POI.

Department Position

The date of settlement on the land purchased at the Asan Bay was

December 31, 1998. After the final settlement, DSM registered title of

the land in June of 1999. Under Korean law when title is registered

companies are required to pay certain taxes including the registration

tax, the education tax, and acquisition tax. However, land purchased in

industrial estates is exempt from these taxes. We verified that these

taxes are due at the time the title is registered with the court and

that DSM received these exemptions on June 30, 1999, which is outside

the period of investigation. Under section 351.509(b) of the CVD

regulations, the benefit from a tax exemption is the date on which the

recipient would otherwise have had to pay the taxes associated with the

exemption. We verified that this date is in 1999. Therefore, no benefit

is provided under this program during the POI. If this investigation

results in a countervailing duty order, we will review this issue in a

subsequent administrative review if one is requested.

[[Page 73194]]

Comment 15: Price Discount for DSM Land Purchase at Asan Bay

Petitioners state that DSM received a countervailable benefit from

paying a discounted price for its land at Asan Bay. Petitioners note

that a difference in cost of the land and the amount that DSM paid

exists; and this reduction in cost of the land reflects a benefit from

the GOK to DSM. This deduction also included the removal of a

management fee that was to be paid by DSM. Petitioners point out that

DSM had a contract with West Area Industrial Site Management Corp

(WAIMC) and was obligated to pay a management fee; however, DSM did not

end up paying this fee. Rather the management fee was waived.

Petitioners argue that since the GOK sold land to DSM for less than the

official price available to other purchasers, the GOK has provided a

financial contribution.

Respondents refute petitioners allegation that DSM received a

countervailing benefit from the management fee being waived for the

land purchase at Asan Bay. First, the purchase agreement was not final

until the last payment and title transfer. Second, the fee was waived

between the original purchase agreement and the revised 1997 agreement,

and there is no legal provision for collecting a management fee. Third,

DSM does not have an obligation to pay this fee.

Department Position

DSM began making land payments in 1995 and continued until the last

payment in December 1998. The original total land cost to the KDLC

included land, management fees and land development costs. During

verification, the Department noted a difference between the total cost

of land amount compared to the amount that DSM actually paid. This

difference occurred because the GOK reduced the purchase price of the

land, waived the management fee, and deducted the land development

costs. We determine that the purchase price reduction of the land, and

the waiver of the fee are specific to DSM and thus countervailable. We

also determine that the deduction of the land development costs is not

countervailable, because the development was contracted out to another

company. Hence, the GOK was not entitled to payment for developing the

land.

Comment 16: Infrastructure at Asan Bay

Petitioners state that the industrial estate at Asan Bay benefits

the steel industry, and the Department should follow the methodology

used for Kwangyang Bay. Petitioners state that DSM has received a

benefit from the infrastructure built at Asan Bay by the GOK, such as:

roads, industrial water conduits, electricity, transmission lines, and

port facilities. This expenditure relieves DSM from the financial

liability it would otherwise have to bear. Petitioners state that the

value of land DSM purchased increases with the addition of

infrastructure, and therefore, DSM receives a benefit by the amount

that the land appreciates.

Respondents argue that DSM does not have a facility at Asan Bay,

rather they concluded the settlement agreement in 1999. Respondents

state that DSM has only purchased land, and the land in question is

still undeveloped, therefore, DSM is not receiving any benefits for any

infrastructure at Asan Bay.

Department Position

We verified that DSM does not have any facilities at Asan Bay.

Therefore, during the POI, the company is not benefitting from any of

the GOK developed infrastructure at Asan Bay. Because there is no

benefit to DSM during the POI, we need not address the specificity

arguments raised by petitioners. With respect to petitioners' novel

argument that DSM is accruing a benefit from the Asan Bay

infrastructure based on an increase in the value of its land holdings

at Asan Bay we note that (1) there is no evidence on the record to

indicate that land prices are appreciating at Asan Bay, and (2)

assuming that the Department were to adopt such a methodology, the

benefit would accrue to DSM at the point in which the land is sold.

Comment 17: Excessive Duty Drawback

Petitioners argue that DSM received a countervailable subsidy from

claiming excessive duty drawback. DSM receives duty drawback from

certain materials used in the production of subject merchandise.

Drawback must be claimed on the amount of an input product consumed in

production, if there is a drawback on wastage, then it is considered

excessive. The GOK maintains ``standard input usage tables,'' prepared

by the National Institute of Technology and Quality (NITQ) based upon

POSCO's 1990 production data. DSM used the standard input usage rate

from these tables in its duty drawback calculations. Petitioners argue

that DSM is not as efficient as POSCO and by DSM using POSCO usage

chart demonstrates excessive duty drawback. Petitioners state that DSM

used a higher standard rate rather than its own, less efficient usage

rate. Being able to use a higher standard rate and claim a greater

percentage of imported inputs as incorporated into the subject

merchandise constitutes a financial contribution, for the GOK has

foregone revenue which is would have otherwise received.

Respondents claim that duty drawback is based on the standard usage

rate applicable when a company imports slab as an input for plate for

export, and can only be claimed when matching imports of slab for paid

import duties. Based upon the context of how the Korean duty drawback

operates, there were no over-rebates of import duties.

Department's Position

We have determined this program not to be used because DSM did not

receive excessive duty drawback. We verified that the amount of duty

drawback received by DSM is based directly on the duty actually paid by

DSM at the time of importation of slab. The argument that DSM is a less

efficient producer than POSCO does not negate the fact that DSM did not

receive excessive duty drawback. Indeed, it supports a determination

that DSM did not receive excessive drawback. This is because a less

efficient producer would have a higher wastage rate, i.e., it would

require more of the imported slab to produce the same quantity of

exported plate. However, the amount of drawback is determined by the

NITQ's standard usage rate, which according to petitioner, is based

upon a more efficient producer's lower wastage rate. Therefore, DSM

would not receive the duty drawback on the additional amount of

imported slab it requires to produce the same quantity of exported

plate as the more efficient producer.

Comment 18: Tariff Rate Quota on Slab

Petitioners claim that during 1998, the tariff rate for imported

slab was lowered from 8 percent to 1 percent during the first half of

1998 and up to 3 percent for the second half of the year. According to

petitioners, this program is limited by the number of products and

therefore is specific. A reduction in tariff rate for imported slab

constitutes a financial contribution because the GOK foregoes revenue

it would otherwise receive. Petitioners suggest calculating this

benefit by taking the difference between the import duty actually paid

on imported slabs (1 to 3 percent) and the usual duty (8 percent). The

Department should allocate this sum to only the production of the

subject merchandise.

Respondents argue that duties on imported slab are paid upon import

and rebated upon export (whether at normal or reduced rates). If a

lower duty is

[[Page 73195]]

initially charged upon import then the company receives the rebate of

that lower import duty at the time of export. No import duties are

ultimately paid on imported slab that is eventually exported. A subsidy

could only arise if normal import duty rates were refunded on exports

for slab that had paid the lower duty rate upon import.

Department's Position

First, we note that petitioners made this allegation in a July 8,

1999 submission to the Department. Thus, we rejected this allegation as

being untimely as set forth in section 351.301(d)(4)(i)(A) of the

Department's regulations, and we declined to examine this allegation in

this current investigation. See ``Memorandum to David Mueller from the

Team Re: New Subsidy Allegation in Countervailing Duty Investigation of

Certain Cut-to-Length Carbon Quality Steel Plate from Korea'' dated

August 11, 1999, which is on file in the CRU. Furthermore, we note that

petitioners have failed to demonstrate how a temporary reduction in a

tariff rate for slab would confer a benefit upon the export of subject

merchandise. Regardless of whether the tariff rate is one percent or

eight percent the full amount of the tariff would be returned to the

respondents through the duty drawback system when the imported slab is

manufactured into plate and then exported as subject merchandise.

Comment 19: Scrap Reserve Fund

Petitioners argue that the GOK provides low-interest or no-interest

financing through the scrap reserve fund, thus affording a financial

subsidy to DSM. They further observe that the financial contribution

benefits all of DSM's production, not strictly subject merchandise.

Since the scrap reserve fund is limited to only those producers of

steel that have the capability of using scrap, this program is

specific.

Respondents state that the loans are directly tied to the purchase

of scrap. The scrap reserve fund involves specific purchases of scrap

that were not used to produce slab, the input into the subject

merchandise. As a result, there is no possibility that these purchases

will ever be used to produce slab.

Department Position

The Department verified DSM's scrap reserve fund. The Department

verified that DSM purchased all of its slab used in the production of

plate. Therefore, DSM does not use scrap in the production of plate.

Based upon 19 CFR 351.525(b)(5)(ii), if a subsidy is tied to production

of an input product then the Secretary will attribute the subsidy to

both the input and the downstream products produced by a corporation.

Since scrap is tied to slab and DSM does not produce slab, the

Department finds this program not tied to subject merchandise and

therefore not countervailable.

Verification

In accordance with section 782(i) of the Act, we verified the

information used in making our final determination. We followed

standard verification procedures, including meeting with the government

and company officials, and examining relevant accounting records and

original source documents. Our verification results are outlined in

detail in the public versions of the verification reports, which are on

file in the CRU of the Department of Commerce (Room B-099).

Suspension of Liquidation

In accordance with section 705(c)(1)(B)(i) of the Act, we have

calculated an individual rate for each company investigated. We

determine that the total estimated net countervailable subsidy is 2.21

percent ad valorem for DSM. We determine that the total estimated net

countervailable subsidy is 0.95 percent ad valorem for POSCO, which is

de minimis. Therefore, we determine that no countervailable subsidies

are being provided to POSCO for its production or exportation of

certain cut-to-length carbon-quality steel plate.

In accordance with section 705(c)(5)(A)(i) of the Act, we have

calculated an all-others rate which is ``an amount equal to the

weighted-average countervailable subsidy rates established for

exporters and producers individually investigated, excluding any zero

and de minimis countervailable subsidy rates and any rates determined

entirely under section 776.'' On this basis, we determine that the all-

others rate is 2.21 percent ad valorem, which is the rate calculated

for DSM.

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

Company Net subsidy rate

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

POSCO................................... 0.95% ad valorem.

DSM..................................... 2.21% ad valorem.

All Others.............................. 2.21% ad valorem.

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

In accordance with our preliminary affirmative determination, we

instructed the U.S. Customs Service to suspend liquidation of all

entries of certain cut-to-length carbon-quality from Korea, which were

entered or withdrawn from warehouse, for consumption on or after July

26, 1999, the date of the publication of our preliminary determination

in the Federal Register. In accordance with section 703(d) of the Act,

we instructed the U.S. Customs Service to discontinue the suspension of

liquidation for merchandise entered on or after November 23, 1999, but

to continue the suspension of liquidation of entries made between July

26, 1999 and November 22, 1999.

We will reinstate suspension of liquidation under section 706(a) of

the Act for all entries except for POSCO if the ITC issues a final

affirmative injury determination and will require a cash deposit of

estimated countervailing duties for such entries of merchandise in the

amounts indicated above. If the ITC determines that material injury, or

threat of material injury, does not exist, this proceeding will be

terminated and all estimated duties deposited or securities posted as a

result of the suspension of liquidation will be refunded or canceled.

ITC Notification

In accordance with section 705(d) of the Act, we will notify the

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

ITC all non-privileged and non-proprietary information related 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 the ITC determines that material injury, or threat of material

injury, does not exist, these proceedings will be terminated and all

estimated duties deposited or securities posted as a result of the

suspension of liquidation will be refunded or canceled. If, however,

the ITC determines that such injury does exist, we will issue a

countervailing duty order.

Return or Destruction of Proprietary Information

In the event that the ITC issues a final negative injury

determination, this notice will serve as the only reminder to parties

subject to Administrative Protective Order (APO) of their

responsibility concerning the destruction of proprietary information

disclosed under APO in accordance with 19 CFR 351.305(a)(3). Failure to

comply is a violation of the APO.

This determination is published pursuant to sections 705(d) and

777(i) of the Act.

[[Page 73196]]

Dated: December 13, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-33233 Filed 12-28-99; 8:45 am]

BILLING CODE 3510-DS-P