Final Negative Countervailing Duty Determination: Stainless Steel Plate in Coils From the Republic of Korea

DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-832]

Final Negative Countervailing Duty Determination: Stainless Steel

Plate in Coils From the Republic of Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: March 31, 1999.

FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Kristen Johnson,

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 not being provided to producers and

exporters of stainless steel plate in coils from the Republic of Korea.

Petitioners

The petition in this investigation was filed by Allegheny Ludlum

Corporation, Armco Inc., J&L Specialty Steel, Inc., Lukens Inc., United

Steel Workers of America, AFL-CIO/CLC, Butler Armco Independent Union,

and Zanesville Armco Independent Organization, Inc. (the petitioners).

Case History

Since the publication of our preliminary determination in this

investigation on September 4, 1998 (63 FR 47253), the following events

have occurred:

We conducted verification of the countervailing duty questionnaire

responses from December 3 through December 18, 1998. Because the final

determination of this countervailing duty investigation was aligned

with the final antidumping duty determination (see 63 FR 47253), and

the final antidumping duty determination was postponed (see 63 FR

59535), the Department on January 13, 1999, extended the final

determination of this countervailing duty investigation until no later

than March 19, 1999 (see 64 FR 2195). On January 27, February 2, 10,

and 12, 1999, the Department released its verification reports to all

interested parties. The Department issued decision memoranda on the

issue of direction of credit by the Government of Korea (GOK) and the

operations of the Korean domestic bond market on March 4 and March 9,

1999, respectively. Petitioners and respondents filed case briefs on

March 5 and 10, 1999, and rebuttal briefs on March 10 and 12, 1999.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

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

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

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

Department's regulations are to the regulations as codified at 19 CFR

Part 351 (April 1998).

Scope of Investigation

For purposes of this investigation, the product covered is certain

stainless steel plate in coils. Stainless steel is an alloy steel

containing, by weight, 1.2 percent or less of carbon and 10.5 percent

or more of chromium, with or without other elements. The subject plate

products are flat-rolled products, 254 mm or over in width and 4.75 mm

or more in thickness, in coils, and annealed or otherwise heat treated

and pickled or otherwise descaled. The subject plate may also be

further processed (e.g., cold-rolled, polished, etc.) provided that it

maintains the specified dimensions of plate following such processing.

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

not in coils, (2) plate that is not annealed or otherwise heat treated

and pickled or otherwise descaled, (3) sheet and strip, and (4) flat

bars.

The merchandise subject to this investigation is currently

classifiable in the Harmonized Tariff Schedule of the United States

(HTS) at subheadings: 7219.11.00.30, 7219.11.00.60, 7219.12.00.05,

7219.12.00.20, 7219.12.00.25, 7219.12.00.50, 7219.12.00.55,

7219.12.00.65, 7219.12.00.70, 7219.12.00.80, 7219.31.00.10,

7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,

7219.90.00.80, 7220.11.00.00, 7220.20.10.10, 7220.20.10.15,

7220.20.10.60, 7220.20.10.80, 7220.20.60.05, 7220.20.60.10,

7220.20.60.15, 7220.20.60.60, 7220.20.60.80, 7220.90.00.10,

7220.90.00.15, 7220.90.00.60, and 7220.90.00.80. Although the HTS

subheadings are provided for convenience and Customs purposes, the

written description of the merchandise under investigation is

dispositive.

Injury Test

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

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

International Trade Commission (ITC) is required to determine whether

imports of the subject merchandise from Korea materially injure, or

threaten material injury to, a U.S. industry. On May 28, 1998, the ITC

published its preliminary determination finding that there is a

reasonable indication that an industry in the United States is being

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

imports from Korea of the subject merchandise (See Certain Stainless

Steel Plate in Coils From Belgium, Canada, Italy, Korea, South Africa,

and Taiwan, 63 FR 29251).

[[Page 15531]]

Period of Investigation

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

calendar year 1997.

Subsidies Valuation Information

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

Pohang Iron & Steel Company, Ltd. (POSCO) had a number of won-

denominated and foreign currency-denominated long-term loans

outstanding which the company received from government-owned banks,

Korean commercial banks, overseas banks, and foreign banks with

branches in Korea. A number of these loans were received prior to 1992.

In the 1993 investigation of Steel Products from Korea, the Department

determined that the GOK influenced the practices of lending

institutions in Korea and controlled access to overseas foreign

currency loans through 1991. See Final Affirmative Countervailing Duty

Determinations and Final Negative Critical Circumstances

Determinations: Certain Steel Products from Korea, 58 FR at 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 the instant investigation, to calculate

the benefit which POSCO received from direct foreign currency loans and

domestic foreign currency loans obtained prior to 1991, and still

outstanding during the POI, we used as our benchmark the three-year

corporate bond rate on the secondary market.

In this investigation, the Department also examined whether the GOK

continued to control and/or influence the practices of lending

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

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

this notice, we are using the following benchmarks to calculate POSCO's

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

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

using POSCO's company-specific, weighted-average U.S. dollar

denominated interest rate on the company's loans from foreign bank

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

are using POSCO's company-specific three-year corporate bond rate. In

the preliminary determination, we used a national average three-year

corporate bond rate. See Preliminary Negative Countervailing Duty

Determination and Alignment of Final Countervailing Duty Determination

with Final Antidumping Duty Determination: Stainless Steel Plate in

Coils from the Republic of Korea, 63 FR 47253, 47254 (September 4,

1998) (Preliminary Determination). We continue to find that the Korean

domestic bond market was not controlled by the GOK during the period

1992 through 1997, and that domestic bonds serve as an appropriate

benchmark interest rate. See Analysis Memorandum on the Korean Domestic

Bond Market, dated March 9, 1999, (public document on file in the

Department's Central Records Unit, Room B-099 (CRU)). On February 5,

1999, POSCO submitted to the Department the company's average interest

rate on corporate bonds for each year 1992 through 1997. See POSCO's

February 5, 1999 Questionnaire Response (QR) (public version on file in

the CRU). Because POSCO was unable to retrieve data on the bond

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

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

issuance fees that POSCO paid in 1997.

We are also using POSCO's three-year company-specific corporate

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

recurring subsidies received between 1992 and 1997.

Benchmarks for Short-Term Financing: For those programs which

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

used as our benchmark a company-specific weighted-average interest rate

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

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

commercial interest rate. During our verification of Samsun Corporation

(Samsun) on December 15, 1998, we learned that the weighted-average,

short-term interest rate which Samsun had earlier submitted to the

Department was incorrect. For the final calculations for this

determination, we have used the interest rate obtained at verification.

Allocation Period: In the past, the Department has relied upon

information from the U.S. Internal Revenue Service (IRS) for the

industry-specific average useful life of assets in determining the

allocation period for non-recurring subsidies. See the General Issues

Appendix (GIA), 58 FR at 37227, which is appended to the Final

Affirmative Countervailing Duty Determination: Certain Steel Products

from Austria, 58 FR 37225 (July 9, 1993). However, in British Steel plc

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

U.S. Court of International Trade (the Court) held that the IRS

information did not necessarily reflect a reasonable period based on

the actual commercial and competitive benefit of the subsidies to the

recipients. In accordance with the Court's remand order, the Department

calculated a company-specific allocation period for non-recurring

subsidies based on the average useful life (AUL) of non-renewable

physical assets. This remand determination was affirmed by the Court on

June 4, 1996. See British Steel plc v. United States, 929 F. Supp. 426,

439 (CIT 1996) (British Steel II). Thus, we are determining the

allocation period for non-recurring subsidies using company-specific

AUL data where reasonable and practicable. See, e.g., Final Results of

Countervailing Duty Administrative Review: Certain Cut-to-Length Carbon

Steel Plate from Sweden, 62 FR 16551 (April 7, 1997).

For the preliminary determination of this investigation, the

Department followed the Court's decision in British Steel I and II.

Using the AUL information which POSCO submitted, we calculated POSCO's

AUL, excluding adjustments for special accelerated depreciation

expenses and a depreciation of salvage value which the company

reported. During verification, we reviewed POSCO's calculation of its

average useful life of assets. In examining the company's calculations,

we learned that the basis of the rates in the GOK's tax depreciation

tables is the Japanese tax depreciation tables which were in existence

at the time the GOK determined the useful life of assets in the 1950's.

In order to determine whether the tax tables provide a reasonable

estimation of POSCO's average useful life of assets, we examined

POSCO's asset ledger. We verified through an examination of POSCO's

asset ledgers that the depreciation schedule used by POSCO does not

represent the actual useful life of the company's assets. See March 1,

1999 Supplement to the POSCO Verification Report, (public version on

file in the CRU). For these reasons, we determine that it is not

appropriate to use POSCO's AUL data to determine the average useful

life of the company's assets. Therefore, for the final determination,

as facts available, we have used the 15-year allocation period as

reported in the IRS depreciation tables for the allocation of POSCO's

non-recurring subsidies.

Treatment of Subsidies Received by Trading Companies: During the

POI, POSCO, the only Korean steel producer of stainless steel plate in

coils, exported the subject merchandise to the United

[[Page 15532]]

States through five trading companies: POSCO Steel Service & Sales

Company, Ltd. (POSTEEL), Hyosung Corporation (Hyosung), Samsun, Samsung

Corporation (Samsung), and Sunkyong Ltd. (Sunkyong). We required that

the five trading companies provide responses to the Department's

questionnaires with respect to the export subsidies under

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

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

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

The other four trading companies are not affiliated with POSCO.

We required responses from the trading companies because the

subject merchandise may be subsidized by means of subsidies provided

separately to the exporter, in addition to any subsidies provided to

the producer. All subsidies conferred on the production and exportation

of the 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.

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

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

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

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

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

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

or practicable to establish combination rates when the subject

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

Department will make exceptions to its combination rate approach on a

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

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

In this investigation, we 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 producer, POSCO. 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/Hyosung or POSCO/Sunkyong or

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

same rate. For these reasons, we have not calculated combination rates

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

the subject merchandise, all of which is produced by POSCO.

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 five 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 POSCO. Thus, for each of

the programs below, the listed ad valorem subsidy rate is cumulative of

any countervailable subsidies received by both the trading companies

and POSCO.

I. Programs Determined To Be Countervailable

A. Direction of Credit

In the 1993 investigation of Steel Products from Korea, the

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

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

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

selective provision of these regulated loans resulted in a

countervailable benefit. See Steel Products from Korea, 58 FR at 37338.

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

the subject merchandise were treated as countervailable. The

determination in that investigation covered all long-term loans

bestowed through 1991.

In the instant investigation, petitioners allege that the GOK

continued to control the practices of lending institutions in Korea

through the POI, and that the steel sector received a disproportionate

share of low-cost, long-term credit, resulting in countervailable

benefits being conferred on the producers/exporters of the subject

merchandise. Petitioners assert, therefore, that the Department should

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

the subject merchandise that were still outstanding during the POI.

1. The GOK's Credit Policies Through 1991

As noted above, we previously found significant GOK control over

the practices of lending institutions in Korea through 1991, the period

investigated in Steel Products From Korea. This finding of control was

determined to be sufficient to constitute a government program and

government action. See Steel Products from Korea, 58 FR at 37342. We

also determined that (1) the Korean steel sector, as a result of the

GOK's credit policies and control over the Korean financial sector,

received a disproportionate share of regulated long-term loans, so that

the program was, in fact, specific, and (2) that the interest rates on

those loans were inconsistent with commercial considerations. Id. at

37343. Thus, we countervailed all long-term loans received by the steel

sector from all lending sources.

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

present new factual information concerning the government's credit

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

in the prior investigation. In the preliminary determination, we stated

that respondents' information did not lead us to change our

determination concerning the GOK's pre-1992 credit policies, as

described in Steel Products From Korea. Moreover, respondents'

arguments in their case brief have also not led us to change our

preliminary determination concerning the GOK's pre-1992 credit

policies. See the discussion under Comment 1, below (``The GOK's Pre-

1992 Credit Policies: New Factual Information Concerning Foreign

Currency Denominated Loans''). On this basis, we continue to find for

this final determination that all regulated long-term loans provided to

the producers/exporters of the subject merchandise through 1991, were

provided to a specific enterprise or industry, or group thereof, within

the meaning of section 771(5A)(D)(iii)(III) of the Act. This finding

conforms with our determination in Steel Products from Korea (see 58 FR

at 37342), which was upheld by the Court of International Trade in

British Steel plc versus United States, 941 F. Supp 119 (CIT 1996)

(British Steel II). Moreover, in accordance with section 771(5)(E)(ii)

of the Act, a benefit has been conferred to the recipient to the extent

that the regulated loans are provided at interest rates less than the

benchmark rates

[[Page 15533]]

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

POSCO was the only producer of the subject merchandise, and POSCO

received long-term loans prior to 1992, that were still outstanding

during the POI. These included loans with both fixed and variable

interest rates. To determine the benefit from the regulated loans with

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

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

POSCO's variable-rate loans, we compared the amount of interest paid

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

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

amounts from the loans attributable to the POI and divided the total

benefit by POSCO's total sales. On this basis, we determine the net

countervailable subsidy to be 0.17 percent ad valorem.

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

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

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

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

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

preliminarily determined that the GOK continued to control directly and

indirectly the lending practices of most sources of credit in Korea

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

regulated credit from domestic commercial banks and government-

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

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

exporters of the subject merchandise in accordance with section

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

countervailable loans were less than the interest rates on comparable

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

found that POSCO's access to government-regulated foreign sources of

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

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

these sources was found not countervailable. This determination was

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

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

POSCO's loans from these banks served as an appropriate benchmark to

establish whether access to regulated foreign sources of funds

conferred a benefit on respondent. On the basis of that comparison, we

found that there was no benefit. See id. at 18. While some of the

comments we received from the parties have led us to make minor

modifications to our calculations, they have not led us to change the

basic findings detailed in the Credit Memo.

In the preliminary determination we examined, as a separate

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

these loans were countervailable. See Preliminary Determination, 63 FR

at 47256. However, on the basis of our findings detailed in the Credit

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

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

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

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

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

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

the modifications to the calculations discuss in the comments section,

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

countervailable subsidy of less than 0.005 percent ad valorem.

B. GOK Infrastructure Investments at Kwangyang Bay

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

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

We determined that the GOK's provision of infrastructure at Kwangyang

Bay was countervailable because we found POSCO to be the predominant

user of the GOK's investments. The Department has consistently held

that a countervailable subsidy exists when benefits under a program are

provided, or are required to be provided, in law or in fact, to a

specific enterprise or industry or group of enterprises or industries.

See Steel Products from Korea, 58 FR at 37346.

No new factual information or evidence of changed circumstances has

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

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

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

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

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

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

this program in the 1993 investigation, the Department treated the

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

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

incurred.

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

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

infrastructure investments over a 15-year 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 1997, from each of the GOK's yearly investments over the period

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

POSCO's total sales for 1997. On this basis, we determine a net

countervailable subsidy of 0.29 percent ad valorem for the POI.

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 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

[[Page 15534]]

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. Because POSCO was

unable to segregate its production financing applicable to only subject

merchandise exported to the United States, we divided the benefit

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

net countervailable subsidy of less than 0.005 percent ad valorem.

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, Samsun was the only exporter of

the subject merchandise which used 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, 1996, by the corporate tax rate for 1996. 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

less than 0.005 percent ad valorem.

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, Samsun, Samsung, and Sunkyong.

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.

F. 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 used various investment tax credits to reduce its

1996 net tax liability. In Steel Products from Korea, we found that

investment tax credits were not countervailable (see 58 FR at 37351);

however, there were changes in the statute effective in 1995, which

have caused us to revisit the countervailability of the investment tax

credits.

At verification, we received clarification of the particular

investment tax credits which POSCO used in its fiscal year 1996 tax

return which was filed during the POI. We learned that the company 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; and (4) tax credits for temporary

investments under Article 27.

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 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 27 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

[[Page 15535]]

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

1996 fiscal year. POSCO deducted from its 1996 taxes payable, all

remaining credits earned in the years 1992, 1993, 1994, and a portion

of credits earned in 1995. 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 0.18 percent ad valorem.

G. Electricity Discounts under the Requested Load Adjustment Program

Petitioners alleged that POSCO is receiving countervailable

benefits in the form of utility rate discounts. The GOK reported that

during the POI the government-owned Korea Electric Power Company

(KEPCO) provided POSCO with three types of discounts under its tariff

schedule. These three discounts were based on the following rate

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

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

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

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

Adjustment and Summer Vacation and Repair Adjustment discount programs.

The GOK introduced the Requested Load Adjustment (RLA) discount in

1990, to address emergencies in KEPCO's ability to supply electricity.

Under this program, customers with a contract demand of 5,000 KW or

more, who can curtail their maximum demand by 20 percent or suppress

their maximum demand by 3,000 KW or more, are eligible to enter into a

RLA contract with KEPCO. Customers who choose to participate in this

program must reduce their load upon KEPCO's request, or pay a surcharge

to KEPCO.

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

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

Under this program, a basic discount of 440 won per KW is granted

between July 1 and August 31, regardless of whether KEPCO makes a

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

granted 44 companies RLA discounts even though KEPCO did not request

these companies to reduce their respective loads. The GOK reported that

because KEPCO increased its capacity to supply electricity in 1997, it

reduced the number of companies with which it maintained RLA contracts

in 1997. In 1996, KEPCO had entered into RLA contracts with 232

companies.

At the preliminary determination, we found that discounts provided

under the RLA were distributed to a limited number of customers, i.e.,

a total of 44 customers during the POI. Therefore, we preliminarily

determined that the RLA program is de facto specific under section

771(5A)(D)(iii)(I) of the Act. We also stated in the preliminary

determination that, given the information the GOK provided on the

record regarding KEPCO's increased capacity to supply electricity and

the resulting decrease in KEPCO's need to enter into a large number of

RLA contracts during the POI, we would further investigate the de facto

specificity of this discount program at verification. We stated that it

was the GOK's responsibility to demonstrate to the Department on what

basis KEPCO chose the 44 customers with which it entered into RLA

contracts during the POI.

Based on the information which we obtained at verification, we

analyzed whether this electricity discount program is specific in fact

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

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

Department a systematic procedure through which KEPCO selects those

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

stated that KEPCO enters into contracts with those companies which

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

targeted adjustment capacity with those companies which volunteered for

the program, then KEPCO will solicit the participation of large

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

the percentage of 1997 RLA recipients which volunteered for the program

and the percentage of those recipients which were persuaded to

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

discounts provided under the RLA were distributed to a limited number

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

which received RLA electricity discounts during the POI, we determine

that the RLA program is de facto specific under section

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

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

contribution is provided to POSCO under this program within the meaning

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

the government.

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

and are received automatically on a regular and predictable basis

without further government approval, we determine that these discounts

provide a recurring benefit to POSCO. Therefore, we have expensed the

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

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

electricity discounts which POSCO received from KEPCO under the RLA

program during the POI. We then divided that amount by POSCO's total

sales value for 1997. On this basis, we determine a net countervailable

subsidy of less than 0.005 percent ad valorem.

II. Programs Determined To Be Not Countervailable

A. Electricity Discounts Under the Power Factor Adjustment and Summer

Vacation and Repair Adjustment Programs

The GOK reported that KEPCO provided POSCO with three types of

discounts under its tariff schedule during the POI. These three

discounts were based on the following rate adjustment programs in

KEPCO's tariff schedule: (1) Power Factor Adjustment; (2) Summer

Vacation and Repair Adjustment; and (3) Requested Load Adjustment. See

the separate discussion above in regard to the countervailability of

the ``Requested Load Adjustment'' program.

With respect to the Power Factor Adjustment (PFA) program, the GOK

reported that the goal of the PFA is to improve the energy efficiency

of KEPCO's customers which, in turn, provides savings to KEPCO in

supplying electricity to its entire customer base. Customers who

achieve a higher efficiency than the performance standard (i.e., 90

percent) receive a discount on their base demand charge.

The GOK stated that the PFA is not a special program, but a normal

factor used in the calculation of a customer's electricity charge which

was introduced in 1989. The PFA is available to all

[[Page 15536]]

general, educational, industrial, agricultural, midnight power, and

temporary customers who meet the eligibility criteria. The eligibility

criteria are that a customer must: (1) Have a contract demand of 6 KW

or more; (2) have a power factor that exceeds the 90 percent standard

power factor; and (3) have proper facilities to measure its power

factor. If these criteria are met, a customer always receives a PFA

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

600,000 customers were recipients of PFA discounts.

With the aim of curtailing KEPCO's summer load by encouraging

customer vacations or the repair of their facilities during the summer

months, the GOK introduced the Summer Vacation and Repair Adjustment

program (VRA) in 1985. Under this program, a discount of 550 won per KW

is given to customers, if they curtail their maximum demand by more

than 50 percent, or 3,000 KW, through a load adjustment or maintenance

shutdown of their production facilities during the summer months.

The GOK stated that the VRA discount program is available to all

industrial and commercial customers with a contract demand of 500 KW or

more. The GOK stated that the VRA is one of several programs that KEPCO

operates as part of its broad long-term strategy of demand-side

management which includes curtailing peak demand. The GOK submitted

information demonstrating that over eight hundred customers, from a

wide and diverse range of industries, received VRA discounts during the

POI.

We analyzed whether these electricity discount programs are

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

specificity), within the meaning of section 771(5A)(D)(i) and (iii) of

the Act. First, we examined the eligibility criteria contained in the

law. The Regulation on Electricity Supply and KEPCO's Rate Regulations

for Electric Service identify companies within a broad range of

industries as eligible to participate in the electricity discount

programs. With respect to the PFA, all general, educational,

industrial, agricultural, midnight power, and temporary customers who

have the necessary contract demand are eligible to participate in the

discount program. The VRA discount program is available to a wide

variety of companies across all industries, provided that they have the

required contract demand and can reduce their maximum demand by a

certain percentage. Therefore, based on our analysis of the law, we

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

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

We also examined evidence regarding the usage of the discount

electricity programs and found no predominant use by the steel

industry. The information on the record demonstrates that discounts

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

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

respect to the large number of companies and diverse number of

industries which received electricity discounts under these programs

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

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

we determine that the PFA and VRA discount programs are not

countervailable.

B. GOK Infrastructure Investments at Kwangyang Bay Post-1991

The GOK has made the following infrastructure investments at

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

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

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

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

responsibility to provide basic infrastructure facilities throughout

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

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

particular area. The GOK provides services to companies through the use

of the infrastructure facilities and charges fees for the services

based on published tariff rates applicable to all users.

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

Kwangyang Bay, the GOK argues that the construction of the

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

the purpose of developing the Jooam Dam was to meet the rising demand

for water by area businesses and households. The supply capacity of the

Sueochon Dam, which was constructed prior to 1991, cannot meet the

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

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

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

Sueochon Dam. At verification, we obtained information which

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

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

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

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

construction of the Jooam Dam.

The GOK also constructed a container terminal at Kwangyang Bay to

relieve congestion at the Pusan Port and to encourage the further

commercial development of the region. The GOK stated that, given the

nature of the merchandise imported, produced, and exported by POSCO at

Kwangyang Bay, this container terminal cannot be used by POSCO's

operations. According to the responses of the GOK and POSCO and the

information obtained at verification, neither steel inputs nor steel

products can be shipped through the container terminal at Kwangyang

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

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

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

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

by steel producers.

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

stated that this is a general service, public access road available

for, and used by, all residents and businesses in the area of Kwangyang

Bay. According to the GOK, the reason for building the public highway

was not to serve POSCO, but to provide general infrastructure to the

area as part of the GOK's continuing development of the country and to

relieve a transportation bottleneck. At verification, we obtained

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

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

in the Kwangyang Bay area.

Based on the information obtained at verification regarding the

GOK's infrastructure investments at Kwangyang Bay since 1991, we

determine that the GOK's investments in the Jooam Dam, the container

terminal, and the public highway were not made for the benefit of

POSCO. Therefore, we find that these investments are not providing

countervailable benefits to POSCO.

C. Port Facility Fees

In the 1993 investigation of Steel Products from Korea, the

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

but, by law, was required to deed them to the GOK, was exempt from

paying fees for use of the berths. POSCO was the only company entitled

to use the berths at the port facility free of charge. The Department

determined that because this privilege was limited to POSCO, and

because the privilege relieved

[[Page 15537]]

POSCO of costs it would otherwise have had to pay, POSCO's free use of

the berths at Kwangyang Bay constituted a countervailable subsidy. The

Department stated that each exemption from payment of the fees, or

``reimbursement'' to POSCO, creates a countervailable benefit because

the GOK is relieving POSCO of an expense which the company would have

otherwise incurred. See Steel Products from Korea, 58 FR at 37347-348.

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

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

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

accordance with the Harbor Act, POSCO transferred ownership of the

facilities to the GOK.

In return, POSCO received the right to use the port facilities free

of charge, and the ability to charge other users a usage fee until the

company recovers all of its investment costs. At the preliminary

determination, we determined that because POSCO is exempt from paying

port facility fees, which it otherwise would have to pay, and the

government is foregoing revenue that is otherwise due, POSCO's free

usage of the port facilities provided a financial contribution to the

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

preliminarily found that the exemption from paying port facility

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

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

during the POI.

Since our preliminary determination, we have gathered further

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

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

were subsequently transferred to the government. At verification, we

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

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

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

such infrastructure. However, the Harbor Act prohibits a private

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

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

ownership of the infrastructure to the government pursuant to Article

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

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

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

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

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

recovered its cost of constructing the infrastructure, the company must

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

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

industrial sector is eligible to construct infrastructure necessary for

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

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

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

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

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

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

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

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

user fees continues only until the company which built the facility

recaptures its cost of constructing the facility.

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

build infrastructure subject to the Harbor Act requirements, the GOK

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

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

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

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

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

port authority then approves a certain monetary amount for the

infrastructure through a settlement process with the company. A company

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

approved by the port authority.

At verification, we obtained documentation which indicates that

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

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

infrastructure facilities at various ports in Korea, including at

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

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

infrastructure and the ability to collect user fees from other

companies until they recover their respective investment costs. POSCO

was not the only company entitled to use a particular port facility

infrastructure, which it built, free of charge.

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

revisited our preliminary determination that POSCO's exemption from

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

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

grouping of private sector companies representing a wide cross-section

of the economy have made a large number of investments in

infrastructure facilities at various ports in Korea, including numerous

investments at Kwangyang Bay. Those companies which built

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

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

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

until they recover their respective investment costs. POSCO is one of a

large number of companies from a diverse range of industries to use

this program. Accordingly, we determine that this program is not

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

that this program is not countervailable.

III. Programs Determined To Be Not Used

Based on the information provided in the responses and the results

of verification, we determine that the companies under investigation

either did not apply for or receive benefits under the following

programs during the POI:

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

Foreign Investment and Foreign Capital Inducement Act

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

C. Export Industry Facility Loans and Special Facility Loans

D. Export Insurance Rates Provided by the Korean Export Insurance

Corporation

E. Excessive Duty Drawback

Petitioners alleged that under the Korean Customs Act, Korean

producers/exporters may have received an excessive abatement,

exemption, or refund of import duties payable on raw materials used in

the production of exported goods. The Department has found that the

drawback on imported raw materials is countervailable when the raw

materials are not consumed in the production of the exported item and,

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

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

received excessive duty drawback because they received duty drawback at

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

used. See

[[Page 15538]]

Steel Products from Korea, 58 FR at 37349.

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

to imported raw materials that are physically incorporated into the

finished merchandise. Items used to produce a product, but which do not

become physically incorporated into the final product, do not qualify

for duty drawback. We confirmed that the National Technology Institute

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

and subsidy-materials that are physically incorporated into the final

product are eligible for duty drawback.

We verified that the NTI routinely conducts surveys of producers of

exported products to obtain their raw material input usage rate for

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

compiles a standard usage rate table for imported raw material inputs

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

eligibility. In determining an input usage rate for a raw material, the

NTI factors recoverable scrap into the calculation. In addition, the

loss rate for each imported input is reflected in the input usage rate.

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

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

drawback regime. We further verified that the NTI most recently

completed a survey of POSCO in 1993, and because POSCO is the only

producer of the subject merchandise, the standard input usage rate

table for the subject merchandise is based on POSCO's actual production

data.

We also confirmed during our verification of POSCO that there is no

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

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

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

usage rate of the imported materials. POSCO pays import duties based on

the rate applicable to and the price of the imported raw material.

POSCO then receives duty drawback based on the amount of that material

consumed in the production of the finished product according to the

standard input usage rate. Accordingly, the rate at which POSCO

receives duty drawback is the amount of import duty paid on the amount

of input consumed in producing the finished exported product.

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

not received duty drawback on imported raw materials that were not

physically incorporated in the production of exported merchandise. As

in Steel Products from Korea, we also determine that POSCO

appropriately factored recovered scrap into its calculated usage rates

and that the duty drawback rate applicable to POSCO takes into account

recoverable scrap. See Steel Products from Korea, 58 FR at 37349.

Therefore, we determine that POSCO has not received excessive duty

drawback.

VI. Program Determined To Be Terminated

Unlimited Deduction of Overseas Entertainment Expenses

We verified that Article 18-2(5) of the Corporation Tax Law which

provided for unlimited deductions of overseas entertainment expenses

was repealed by the revisions to the law dated December 29, 1995. In

calculating their 1996 income tax (which was filed during the POI)

Korean exporters could no longer deduct overseas entertainment expenses

without any limits.

Interested Party Comments

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

Information Concerning Foreign Currency-Denominated Loans. Respondents

assert that the Department ignored new factual information on the

record of this proceeding concerning domestic foreign currency loans.

Specifically, respondents submitted information indicating that from

1986 through 1988, interest rates on domestic foreign currency loans

were only subject to an interest rate ceiling, and that after 1988,

banks and other financial institutions were free to set the interest

rates on these loans subject only to the ceiling established by the

Interest Limitation Act. Respondents claim that the Department ignored

this information and incorrectly assumed that the reimposition of

interest rate ceilings on Korean won loans after a failed attempt at

liberalization in 1988, also applied to domestic foreign currency

loans. Respondents further state that the Department found at

verification that the interest rate liberalization program applied

solely to lending rates in Korean won. Therefore, respondents state,

for all domestic foreign currency loans received prior to 1992, there

is no basis for the Department's determination that interest rates on

these loans were regulated and that these loans provided

countervailable subsidies.

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

direct foreign loans provided a countervailable subsidy was correct and

supported by the evidence on the record. Petitioners further state that

respondents have provided no new evidence to disprove this finding and

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

determination.

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

respondents in their brief concerning interest rates on domestic

foreign currency loans was in fact considered by the Department in

Steel Products From Korea. The discussion addressing the GOK's strict

control of interest rates specifically states that ``[i]nterest rate

ceilings on domestic foreign currency loans were also maintained until

1988.'' See Steel Products From Korea, 58 FR at 37341. Thus, the

Department considered the fact that the de jure controls over domestic

foreign currency loans were removed after 1988, in reaching its

conclusion that these loans continued to be subject to indirect GOK

influence. Moreover, respondents' contention that ``window guidance''

(i.e., the GOK's indirect control over interest rates) applied only to

domestic won loans is also without merit. The Department examined this

issue and reached the opposite conclusion in Steel Products From Korea.

Also, in this investigation, independent bankers stated that ``interest

rates were once again regulated until the early 1990s, through a system

of `window guidance.' '' Under this system commercial banks were

effectively directed by the government not to raise interest rates

above a certain level. While this statement is contained within the

discussion of the failed 1988 liberalization plan, the bankers did not

distinguish between domestic and foreign rates of lending by domestic

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

guidance'' over financial institutions' loan rates, the Presidential

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

the Department's finding in Steel Products From Korea took into account

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

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

1996) (British Steel II). For these reasons our finding concerning the

countervailability of pre-1992 foreign currency denominated loans from

domestic sources remains unchanged in this final determination.

Comment 2: The GOK's Pre-1992 Credit Policies: Whether Direct

Foreign Loans Constitute a Financial Contribution Within the Meaning of

the Act. According to respondents, the only government regulation of

direct foreign loans consisted of an interest rate ceiling. Respondents

state that the GOK could not, under its regulations, direct

[[Page 15539]]

or induce foreign lenders to provide loans to POSCO; nor could it

regulate (and reduce) the interest rates these lenders would charge on

such loans. Rather, these loans were negotiated directly between

foreign banks and POSCO without the GOK's direct or indirect

involvement. As such, respondents' state that the Department's

preliminary finding that direct foreign loans are countervailable is in

conflict with the ``financial contribution'' standard of section

771(5)(D)(i) of the Act. Respondents assert that direct foreign loans

from foreign banks do not constitute countervailable subsidies because

there is no government financial contribution. Respondents further

claim that the Department did not explain in its preliminary

determination how loans from foreign sources could constitute a

financial contribution by the GOK. Moreover, respondents state that

these loans do not meet the ``entrusts or directs'' standard of the

Act, because (1) they can not be characterized as a contribution that

``would normally be vested in the government,'' and (2) the requirement

that the practice of lending by the foreign entity ``does not differ in

substance from practices normally followed by the government'' is not

met in this instance. Furthermore, because access to direct foreign

loans was restricted by the GOK on the basis of a borrowers' ability to

access the market without a government or bank guarantee, POSCO would

have been able to receive direct foreign loans at the interest rates

obtained on its own and without government involvement.

Respondents also address the Department's assertion in the new

countervailing duty regulations (and the Statement of Administrative

Action) that its indirect subsidy standard remains unchanged under the

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

specifically referring to the indirect subsidy practices countervailed

in Steel Products from Korea.1 Respondent's state that to

simply subsume direct foreign loans from foreign entities within the

broad claim of an unchanged indirect subsidy standard (and the

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

simplistic and legally in error.''

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

\1\ Countervailing Duties; Final Rule, 63 65348, 349 (November

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

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

Petitioners dispute respondents' assertion that the GOK's control

over access to direct foreign loans does not constitute a financial

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

this question has been answered by the SAA, which specifically

references the Department's indirect subsidy findings in Steel Products

From Korea to illustrate that the indirect subsidy standard includes

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

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

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

that the Department preliminarily has found in the Credit Memo that the

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

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

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

arguments concerning this issue have been fully answered by the

Congress through its approval of the SAA and the CVD Final Rule

2 In Steel Products From Korea, the finding of government

control was determined to be sufficient to constitute a government

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

preliminary determination, we did not revisit that prior determination,

and also found that the subsidy identified meets the standard for a

subsidy as defined by the post-URAA Act. Preliminary Determination, 63

FR at 47255.

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

\2\ Although the CVD Final Rule are not controlling in this

investigation, they do represent a statement of the Department's

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

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

While respondents contend that subsuming GOK-controlled access to

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

unchanged indirect subsidy standard is ``overly simplistic and legally

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

Congress intended the specific types of indirect subsidies found to be

countervailable in Steel Products From Korea to continue to be covered

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

countervailable duty regulations are equally clear on this issue, the

preamble of which confirms that the standard for finding indirect

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

than the prior U.S. standard for finding an indirect subsidy as

described in Steel Products from Korea.'' See CVD Final Rule, 63 FR at

65349. For these reasons, we have not changed our preliminary

determination concerning the countervailability of pre-1992 direct

foreign loans.

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

Foreign Loans Are Not Countervailable Pursuant to the Transnational

Subsidies Rule. Respondents assert that pursuant to the so-called

``transnational subsidies rule,'' funds provided from sources outside a

country under investigation are not countervailable. Specifically,

respondents state that section 701(a)(1) of the Act applies only to

subsidies provided by the government of the country in question or an

institution located in, or controlled by, that country. In support of

this contention, respondents cite North Star Steel v. United States,

824 F. Supp. 1074 (CIT 1993) (North Star), in which the Court upheld

the Department's determination that an Inter-American Development Bank

loan guaranteed by the Government of Argentina on behalf of the

recipient was not subject to the countervailing duty law. In

particular, the CIT stated that ``[t]his determination is consistent

with the purpose of the countervailing duty law, which is ``intended to

offset the unfair competitive advantage that foreign producers would

otherwise enjoy from * * * subsidies paid by their government.' ''

North Star, 824 F. Supp. at 1079 (quoting Zenith Radio Corp. v. United

States, 437 U.S. 443, 456 (1978)). Respondents also cite a case in

which the Department refused to initiate an investigation of private,

foreign co-financing of a World bank project, stating that ``[f]or the

same reasons (applicable to funds from the World Bank), a loan granted

by a group of Japanese banks and insurance companies (in the

Philippines) * * * would not be countervailable.'' See Initiation of

Countervailing Duty Investigation: Certain Textiles and Textile

Products from the Philippines, 49 FR 34381 (1984). Petitioners assert

that the Department's determination does not contravene the

transnational subsidy rule because the subsidy in this case is based on

controlled access to credit, and not on a differential in interest

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

source outside of Korea is irrelevant. According to petitioners, the

case law cited by respondents does not involve situations in which a

foreign government conferred countervailable subsidies by controlling

access to third country financial sources. In addition, petitioners

note that these cases predate the changes in the statute that expressly

recognize indirect subsidies provided through private actors.

Department's Position: Respondents' assertion concerning the

transnational subsidies rule is without merit. Respondents made this

same argument in Steel Products From Korea (see, 58 FR at 37344). In

upholding the

[[Page 15540]]

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

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

direct foreign loans was in conflict with the transnational subsidies

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

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

investigation because those cases deal with funds from foreign

governments or international lending or development institutions. This

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

access to funds from overseas private sources of credit.

More specifically, however, the Department rejected respondents'

argument in Steel Products From Korea, because the benefit alleged was

not the actual funding of direct foreign loans, but rather the

``preferential access to loans that are not generally available to

Korean borrowers.'' Steel Products From Korea, 58 FR at 37344. The GOK

was found to control this access and because the steel industry

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

preferential access was found to confer a countervailable benefit on

the steel industry.

Nothing argued by respondents in this investigation would lead us

to change that prior determination concerning direct foreign loans.

Therefore, our preliminary determination remains unchanged.

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

Determine the Benefit From Foreign Currency-Denominated Loans.

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

benchmark to calculate the countervailable benefit from POSCO's

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

According to respondents, the Department's long established methodology

is to compare countervailable loans with a benchmark in the same

currency. Respondents cite the Final Affirmative Countervailing Duty

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

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

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

Respondents also note that this standard was articulated in the Final

Affirmative Countervailing Duty Determination: Cold-rolled Carbon Steel

Flat-rolled Products from Argentina, 49 FR 18006 (1984) (Cold-Rolled

Steel From Argentina). In that case, the Department stated:

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

the country concerned in an investigation, the benchmark is selected

from interest rates applicable to loans denominated in the same

currency as the loan under consideration (where possible, interest

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

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

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

foreign currency and converted at an exchange rate applicable for

each year. Id. at 18019.

Respondents contend that this policy was reiterated in the

Department's new regulations, the preamble to which refers to the

currency of the loans as one of ``the three most important

characteristics'' in determining the benchmark. CVD Final Rule, 63 FR

at 65363. Thus, respondents assert that the Department (1) did not

consider any other commercially-viable alternatives (such as those

rates ``in other countries''); (2) ignored any reference to its long-

standing policy of comparing loans in the same currency; and (3)

provided no explanation for abandoning that policy. Accordingly,

respondents state that the Department must revise its calculation of

the benefit from foreign currency-denominated loans, using a benchmark

that is in conformance with its policy and regulations.

Petitioners dispute respondents' benchmark argument, stating that

respondents focused solely on currency and ignored the underlying

principle of what the benchmark is intended to measure, namely the

financing the company could have obtained on the market in lieu of the

government-provided loans. In Steel Products From Korea, the Department

had to determine what interest rate the company would have had to pay

absent the GOK's policy and control over lending sources. Petitioners

state that, because prior to 1992, all sources of foreign currency-

denominated credit were found to be controlled by the GOK, these

sources ``in other countries'' could not serve as a benchmark because

they would not have been available to POSCO but for the approval by the

Ministry of Finance and Economy (MOFE). Therefore, petitioners state,

the Department chose the 3-year corporate bond rate. Record evidence in

the current investigation also indicates that the bond market is the

only commercial source (i.e., free from GOK control) of long-term

funding in Korea. Thus, petitioners assert, domestic bond rates reflect

the most comparable, commercial financing that a company could obtain

in the market absent the GOK's direction of credit and, therefore, are

the most appropriate benchmark for POSCO's foreign currency loans and

bonds both pre-and post-1992.

Department's Position: Respondents' arguments concerning the

Department's methodology for measuring benefits from countervailable

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

is true that in most instances we measure the benefit from

countervailable foreign currency loans by comparing such loans with a

benchmark denominated in the same currency, provided the borrower would

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

the context of the Korean financial system prior to 1992, this

methodology is not appropriate. Specifically, in Steel Products From

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

denominated credit were subject to the government's control and

direction. Therefore, these sources of foreign currency credit,

including overseas markets, could not serve as an appropriate

benchmark, as they were also found to be countervailable. In the

absence of such a benchmark, the Department had to determine the rate

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

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

Products From Korea, 58 FR at 37346. Respondents assert that the

Department did not consider any other commercially viable alternatives.

Respondents ignore, however, the fact that the corporate bond yield on

the secondary market was the only alternative, unregulated source and

commercially viable source of financing in Korea. Accordingly, this was

the only viable benchmark with which to measure the benefit from

government-regulated sources of credit. Nothing argued by respondents

in this investigation has led us to change our determination in Steel

Products From Korea. Therefore, our finding concerning POSCO's pre-1992

foreign currency-denominated long-term loans remains unchanged in this

final determination.

Comment 5: Post-1991 GOK Credit Policies: Whether Foreign Currency

Loans From Domestic Branches of Foreign Banks are Countervailable.

According to petitioners, the Department incorrectly found that

domestic branches of foreign banks were not controlled and directed by

the GOK. Petitioners state that the Department, in reaching its

conclusion, relied only on a lack of any substantive discussion in the

record concerning the influence of the GOK on foreign banks as

affirmative evidence that no such controls exist. Petitioners further

assert that there is little, if any, meaningful discussion

[[Page 15541]]

about the direct or indirect influence of GOK regulations and policies

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

verification reports. Petitioners assert that record evidence in fact

shows that foreign banks are subject to the same GOK controls and

direction that applied to domestic commercial banks.

According to petitioners, the Department's assumption that, absent

evidence to the contrary, GOK controls or influence over foreign

commercial banks do not exist, is legally impermissible. In support,

petitioners cite Al Tech Specialty Steel v. United States, where the

CIT ruled that the Department may not simply infer the truth of certain

facts from lack of any contradictory evidence on the record; rather,

the Department is required to support or authenticate with record

evidence (i.e., verify) any factual assertion on which it relies. Slip

Op. 98-136 at 9 (CIT 1998). Petitioners state that, in this case, the

Department has violated that principle by failing to gather and verify

the necessary facts in support of the conclusion reached. As such, the

Department's conclusion is not based on substantial evidence on the

record.

Petitioners further claim that the Department ignores record

evidence that demonstrates GOK control over foreign banks in Korea. For

example, petitioners state that foreign commercial banks are included

within the OECD's analysis of commercial banks in its 1996 report. OECD

Economic Surveys: Korea 1996 at 41-42, submitted at Exhibit 20 of the

March 31, 1998 Petition, on file in the CRU. Petitioners also claim

that the Presidential Reports and the 1998 OECD Report recognize that

foreign banks operating in Korea were subject to excessive control.

Petitioners further state that the relevant banking legislation that

restricts domestic commercial banks also restricts domestic branches of

foreign banks operating in Korea. In particular, petitioners cite to

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

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

provisions of these laws.

According to petitioners, foreign commercial banks must be subject

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

interest rates from increasing. Petitioners point out that POSCO's

interest rates from foreign commercial banks were lower than the

company's rates for foreign securities. According to petitioners, risk-

averse, profit-motivated foreign commercial banks would only charge

such low interest rates in the Korean market if GOK policies restricted

either the interest rates or borrowers' access to credit from those

banks.

Moreover, petitioners state that foreign commercial banks in Korea

could not have satisfied POSCO's demand for funds. In Steel Products

From Korea, the Department specifically found that POSCO was unable to

raise the large sums of money necessary for its credit needs from

domestic banks. See Steel Products From Korea, 58 FR at 37345 (quoting,

``the domestic foreign loan market could not have adequately supplied

POSCO with the volume of, and/or terms of payment on, loans that POSCO

required.'') Petitioners note that foreign bank branches in Korea were

responsible for less than 4 percent of total lending. OECD 1996 Survey

at 42. According to petitioners, this is a direct result of government

controls over the market.

Even if domestic branches of foreign commercial banks were not

regulated by the GOK, petitioners state that they would be

``inescapably influenced by the controls on every other sector of the

banking industry.'' As such, they could not behave in a free market

manner. For example, foreign banks would be no less influenced than

their Korean counterparts by the lead of the Korean Development Bank

and the Bank of Korea to extend credit to certain government favored

projects. In light of the GOK's complete dominance over the financial

system, petitioners state that it would be impossible for foreign

commercial banks to operate free of the same constraints and influences

that domestic banks were subject to.

Respondents assert that the record evidence cited by petitioners

amounts to (1) generalities and speculation about the operation of the

Korean banking system, and (2) lists of normal regulatory provisions of

how banks must operate in Korea and basic foreign exchange controls

applicable to them. Respondents contend that this ``evidence'' was not

relied upon by the Department in its finding of control and direction

of credit from GOK-owned and domestic commercial banks, and has no

relevance with respect to direction of credit to the steel industry.

Respondents also note that petitioners fail to reveal any record

evidence which betrays the means by which the GOK controls the lending

of foreign bank branches so as to direct credit where the GOK allegedly

intends it to go, such as to the steel industry. For example, the

Department cited the bank ownership rules and the GOK's intervention in

the appointment of banking officials as means by which the government

could influence domestic bank lending practices. Respondents note that

foreign banks, in contrast, are wholly-owned by their parent banks and

appoint their own officials. Thus, this was not a way in which the GOK

could influence their lending decisions. Respondents also indicate that

foreign banks' most important source of funds is from their head

offices, which provide them with both greater autonomy from the Korean

banking system and a lower cost of funds than available to Korean

commercial banks which, due to their credit ratings, borrow at rates

that are comparable to the rates POSCO can obtain on its own.

Respondents dismiss as empty speculation and unsupported inference

petitioners claim that even if foreign bank branches were not regulated

in the same manner as domestic banks, they would have nonetheless been

``influenced by the biases and controls built into the tightly

controlled financial system.'' Respondents assert that such speculation

is contradicted by the same OECD report cited by petitioners, which

states that in the midst of a faltering economy, the foreign banks

reportedly reduced their exposure. This indicates, respondents state,

that foreign banks were acting not in a copycat manner, but prudently,

and consistent with the GOK's view of the role of foreign banks in

Korea, which ``play a leading role in motivating domestic banks to

improve their banking practices and managerial skills.'' GOK July 1,

1998, Questionnaire Response, Exhibit A-7 at 32, on file in the CRU.

Respondents also reject petitioners' theory that foreign commercial

banks' lending rates were lower than those of POSCO's foreign

securities because GOK policies required them to charge such low rates.

According to respondents, the rational explanation for this

differential is market competition, of which they state there is clear

record evidence. Specifically, respondents cite POSCO's loan documents

collected as verification exhibits. One of these, a domestic foreign

currency loan from the Seoul branch of Chase Manhattan Bank, states

that POSCO chose Chase as the lead bank for the loan because it offered

the lowest rate compared to two other foreign bank branches.

Respondents state that there is no evidence of government control of

interest rates or direction of credit by these banks with respect to

this loan. Rather, the banks all competed to provide funds to POSCO at

relatively low rates and chose to lend to POSCO because they saw it as

good business and a solid asset in their portfolio. To conclude

otherwise, respondents state, is to suggest that the

[[Page 15542]]

GOK can somehow manage the terms of a syndicated loan. Respondents

state that this and other record evidence indicates that the GOK does

not, and does not need to, influence these banks to lend to POSCO.

Rather, as was repeatedly noted at verification, and specifically noted

in the Bankers Verification Report, ``POSCO is one of the best

companies in Korea and most commercial banks would like to lend to the

company.'' Memorandum For David Mueller, Meetings with Commercial and

Investment Banks and Research Institutes, 8 (February 2, 1999), on file

in the CRU (Bankers Report).

Department's Position: Petitioners' contention that record evidence

establishes that the Korean branches of foreign banks were subject to

the same GOK controls and direction that applied to domestic commercial

banks is not supported by the record. The record evidence cited by

petitioners does not amount to GOK control and direction of these

institutions' operations and lending practices.

First, the 1996 and 1998 OECD reports do not support petitioners'

arguments. While the 1996 OECD report discusses funding levels by

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

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

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

attributing responsibility for that weakness partly to the government's

direct and indirect intervention in the operations of commercial banks,

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

the report discusses the inability of domestic commercial banks, after

their privatization, to ``develop the autonomy (from the government)

needed in a market economy.''

Petitioners reliance on the reports issued by the Presidential

Commission for Financial Reform, quoted by the Department in the Credit

Memo, is equally misplaced. The section of the Presidential Report

titled ``Deregulation of Access to Foreign Capital Markets,'' cited by

petitioners refers to regulations governing access to foreign capital

markets, not regulations governing foreign currency-denominated loans

from domestic branches of foreign banks in Korea.\3\ Regulations

governing access to foreign capital markets are quite separate from

those governing domestic branches of foreign banks in Korea. To the

extent that the Presidential Commission addressed domestic foreign

currency loans, it addressed the lifting of restrictions on the usage

of these funds, which is limited mostly to the importation of machinery

from abroad. This has nothing to do with any GOK controls over the

operations of domestic branches of foreign banks.

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

\3\ Financial Reform in Korea: The First Report (Presidential

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

Report, on file in the CRU.

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

Petitioners also support their argument with the contention that

foreign banks are subject to some of the same regulatory provisions

contained in the General Bank Act that govern domestic commercial

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

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

GOK continued to influence the lending practices of these domestic

commercial banks indirectly, in part because these banks did not

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

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

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

credit in accordance with policy objectives. Also, the corporate

governance structure of Korea's commercial banks (weak ownership

structure, lack of autonomy in appointing banking officials) only

contributed to their weakness vis-a-vis the government. The fact that

the GOK's indirect involvement in commercial banking operations

continued into the 1990s merely exacerbated this problem. See Credit

Memo at 8-9. Foreign banks in Korea, however, were not subject to this

same influence. Their source of funds was from their head offices and,

as respondents correctly illustrate, the appointment of their senior

officials was not subject to influence by the GOK. Petitioners proffer

no evidence that foreign banks in Korea were ``inescapably influenced

by the controls on every other sector of the banking industry.''

Rather, they speculate that these banks would be no less influenced

than their Korean counterparts by the lead of the Korean Development

Bank and the Bank of Korea to extend credit to certain government-

favored projects. This is not a conclusion reached by any of the

commercial bankers at verification, and petitioners do not point to any

evidence that would support this contention.

The fact that foreign banks in Korea did not account for a

significant amount of total lending in Korea is not sufficient evidence

to lead us to conclude that POSCO would not have been able to raise

sufficient funds from this source. Rather, the record shows that

benchmarks of foreign banks in Korea were a significant source of

POSCO's borrowing, and credit from these banks was not regulated by the

GOK. For these reasons, we disagree with petitioners' arguments that

funding from domestic branches of foreign banks cannot serve as an

appropriate benchmark to measure any potential benefit from regulated

foreign currency-denominated sources of credit, e.g., foreign

securities from abroad.

Comment 6: Post-1991 GOK Credit Policies: Whether POSCO's Access To

Foreign Securities Markets Results in Countervailable Benefits.

According to petitioners, extensive record evidence, in particular the

Department's findings at verification, shows that access to foreign

sources of funds, including foreign securities, was strictly controlled

by the GOK through the POI. Petitioners state that the Department in

its Credit Memo recognized this control.

In addition, petitioners claim that the GOK's control over access

to foreign funds constitutes a financial contribution within the

meaning of the Act, in particular, the ``entrusts or directs'' standard

of section 771(5)(B)(iii) of the Act. That this type of indirect

program meets this standard was clearly stated in the SAA, petitioners

note, which specifically referenced the Department's findings in Steel

Products From Korea as an application of the ``entrusts or directs''

standard. Because the interest rates on foreign securities are lower

than the rates charged on unregulated sources of credit in Korea, the

GOK in effect is controlling access to preferential interest rates.

Finally, petitioners assert that access to foreign securities was

provided on a specific basis to export and priority sectors in Korea.

According to petitioners, statistics show that companies with

substantial export earnings were given preferential access to foreign

securities issuances. Therefore, petitioners claim that access to this

source of funding is contingent, at least in part, on export

performance. Even if the Department were to find that this access is

not export contingent, petitioners argue that access was nonetheless de

facto specific to the basic metals industry, which issued a

disproportionate amount of foreign securities by Korean firms between

1992 and 1997.

Respondents dispute petitioners claim that access to foreign

securities constitutes a financial contribution within the meaning of

the Act, stating that petitioners' interpretation of the ``entrust or

directs'' standard is unreasonable. Respondents state that this

standard cannot encompass private actions by independent foreign

parties that are consistent with market-oriented

[[Page 15543]]

behavior at market-determined interest rates.

Respondents cite to Zenith Radio Corp. v. United States, 437 U.S.

443, 456 (1978), and section 701(a)(1) of the Act, for the proposition

that the countervailing duty law does not apply to funds independently

provided by foreign entities at market rates. Moreover, respondents

note, the ``entrusts or directs'' standard on which petitioners rely

includes the qualifier statement that such a practice ``would normally

be vested in the government.'' According to respondents, this language

is directed at circumstances where the government controls the provider

of the benefit and used the provider as a surrogate for government

functions. In this case, respondents argue, foreign securities markets,

and the interest rates set therein, are not controlled by the GOK.

Therefore, respondents state, the ``entrusts or directs'' standard of

the Act does not apply to foreign securities issuances.

Respondents also state that petitioners provide no legal standard

for a countervailable benefit from foreign securities issuances because

none exists. Specifically, respondents state that because foreign

securities issuances are essentially unregulated ``commercial loans''

with market-determined interest rates not subject to GOK influence, no

comparison with ``a comparable commercial loan,'' within the meaning of

section 771(5)(E)(ii) of the Act, is necessary to determine whether a

benefit was conferred. According to respondents, this is supported by

Article 14 of the SCM Agreement which states that it is a ``loan by a

government'' that is to be compared to a commercial loan.

Respondents next assert that even without the GOK's approval

regulations, POSCO would have obtained access to these foreign sources

of funds. According to respondents, it is POSCO's excellent credit

rating that allowed it to ``get practically unrestricted access to

these funds.'' Bankers Report at 10.

Respondents also take issue with petitioners' characterization of

interest rates on foreign currency-denominated bonds as

``preferential,'' which is based on the assertion that the appropriate

comparison for these foreign-currency bonds issued in foreign markets

is to domestic-currency bonds issued in the Korean market. However,

respondents note that the Department rejected the comparison of foreign

currency-denominated bonds to the interest rates on bonds issued in

Korean won in its Credit Memo. As argued by respondents in Comment 4,

above, the Department's own policy and regulations require, for

benchmark purposes, the comparison of interest rates on loans under

investigation be with a benchmark in the same currency. According to

respondents, interest rates in different currencies are not directly

comparable.

To illustrate the problem of making benchmark comparisons across

currencies, respondents explain that if the Department were to adopt

petitioners' methodology, it would find that bonds issued at market

rates in Japanese yen provided greater subsidies (because of a greater

interest rate differential) than bonds issued at market rates in U.S.

dollars for no other reason than that the market interest rates for

Japanese yen are lower. Respondents also note an additional problem

with comparing the cost of funds in different currencies, namely the

sometimes drastic change in the rates of exchange between currencies

over the life of loans. Respondents explain that while the rate of

change and even the direction of change may be unpredictable, the

consequences of such changes can be considerable, as illustrated by the

sharp depreciation in the exchange rate of the Korean won in late 1997.

This depreciation made all liabilities, such as loans in foreign

currencies incurred before the drop, far more costly than companies

originally could have anticipated.

Department's Position. In the Credit Memo, we stated that there are

three elements required to find a potential subsidy countervailable:

(1) A financial contribution is made by a government or public body;

(2) a benefit is conferred on the recipient; and (3) it is specific. If

one of these three elements is not met, the subsidy is not

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

we examined whether a benefit has been conferred on the recipient,

POSCO, from foreign securities issued in overseas markets. We also

preliminarily determined that POSCO's access to government-regulated

foreign sources of credit did not confer a benefit to the recipient, as

defined by section 771(5)(E)(ii) of the Act, and, as such, is not

countervailable. See Credit Memo at 18. As discussed in Comment 5,

above, we continue to find that branches of foreign banks are not

subject to the GOK's control and direction. Therefore, we continue to

find that POSCO's access to government-regulated foreign sources of

credit did not confer a benefit to the recipient, because the rates

obtained on foreign securities, even though limited in access, were not

less than foreign currency loans available to POSCO in Korea. As such,

there is no need to address the specific comments raised by petitioners

and respondents above.

Comment 7: Post-1991 GOK Credit Policies: Whether POSCO's Direct

Foreign Loans Received in 1997 Should be Countervailed in This

Investigation. Petitioners argue that the Department incorrectly found

in its preliminary determination that there was no benefit to POSCO

from regulated direct foreign loans received in 1997. According to

petitioners, the Department did not examine direct foreign loans

received in 1997, because the company ``did not pay interest on these

loans until after the POI.'' According to petitioners, the Department

should determine that the benefit to POSCO and the financial

contribution are received in the year of the receipt of the loan rather

than the year the interest is paid. Petitioners contend that this is

consistent with the Department's policy on the valuation of subsidies

as it was applied in this case for pre-1992 loans.

Respondents argue that contrary to petitioners' contentions, the

interest rates on these loans are variable. Therefore, respondents

contend that the Department correctly did not examine these loans,

because no interest was paid during the POI. According to respondents,

this approach is consistent with the Department's variable rate loan

methodology.

Department's Position. We agree with respondents' contention that

petitioners have incorrectly characterized these loans as fixed rate

loans. Because these loans have variable interest rates, our

methodology is to calculate the benefit at the time the interest on the

loan is paid. For these reasons, we have not changed our preliminary

findings concerning direct foreign loans received by POSCO in 1997.

Comment 8: Post-1991 GOK Credit Policies: The Appropriate Benchmark

Interest Rate for POSCO's Long-Term Financing. Petitioners assert that,

even if the Department determines in the final determination that the

GOK's control over foreign commercial banks in Korea is not sufficient

to constitute direction for purposes of section 771(5)(B)(iii) of the

Act, the Department should conclude that the interest rates charged by

those banks are not appropriate benchmarks. Petitioners claim that the

maturity and the structure of the foreign bank loans, the other factors

(apart from currency) the Department treats as being of primary

importance, are not comparable commercial instruments to POSCO's

foreign securities. Petitioners assert that the Department in its

comparison has ignored this. Therefore, the Department should use the

corporate bond rate as a source of capital apparently not under the

GOK's direction.

[[Page 15544]]

Respondents' arguments concerning domestic branches of foreign

banks, and the appropriate use of lending rates from these banks, are

summarized under Comment 6, above. Respondents also dismiss

petitioners' contention that bonds issued in domestic currency are more

comparable in terms of their maturity and structure than the foreign

currency benchmark chosen by the Department. Respondents note that

domestic currency bonds are of shorter duration than POSCO's domestic

foreign currency loans, which generally have maturities of five years

or more. While petitioners correctly note that domestic and foreign

bonds are similar in terms of structure (i.e., fixed rate), respondents

assert that this one common criterion is not a superior or sufficient

basis for departing from the Department's long-standing practice of

comparing loans with benchmarks in the same currency.

Department's Position. The fact that the maturity and structure of

foreign securities may not be identical to long-term lending rates from

foreign banks in Korea is not a reason to reject these rates as

benchmarks and default to the won-denominated three-year corporate bond

rate. In fact, contrary to petitioners's assertion, in terms of

duration, foreign securities are closer in structure to long-term

foreign currency loans from Korean branches of foreign banks than to

domestic bonds, which have a maturity of three years, shorter than the

duration of POSCO's foreign securities. As outlined by respondents, it

is appropriate to compare government-regulated credit to a benchmark

denominated in the same currency, if such a benchmark is available.

This is in accordance with Department policy and past practice. See

e.g., CVD Final Rule, 63 FR at 65363; see also, Certain Apparel from

Thailand, 50 FR at 9824 (quoting, ``benchmark must be applicable to

loans denominated in the same currency as the loans under

consideration),'' and Cold-Rolled Steel From Argentina, 49 FR at 18019

(quoting, ``the benchmark is selected from interest rates applicable to

loans denominated in the same currency as the loan under

consideration''). For these reasons, we have not changed our benchmark

in this final determination.

Comment 9: Post-1991 GOK Credit Policies: Errors in POSCO's Loan

Calculations. Petitioners claim that the Department understated the

benefit conferred upon POSCO. First, petitioners state the Department

applied the 1997 benchmark to all of POSCO's outstanding loans, which

contradicts Department policy of using a fixed rate benchmark for

variable rate loans in the year the loan was provided if a variable

rate was not extended (19 CFR 351.505(a)(2)(iii) (1998)). Petitioners

next state that the Department failed to include the relevant fees in

the benchmark interest rate. Citing the Department's regulations,

petitioners explain that it is appropriate to compare the effective

interest rate on the government-provided loan, with an effective rate

benchmark (19 CFR 355.44(8); 19 CFR 351.505(a)(1)(1998)). Because POSCO

failed to provide fee information between 1992 and 1996, the Department

should, petitioners state, apply the 1997 fee to all previous years;

alternatively, the Department should use the higher of the company-

specific rate and the national average in each year between 1992 and

1996, as adverse facts available. Finally, petitioners note several

minor calculation errors that they state the Department should correct,

i.e., a ``negative benefit'' from one loan, which then was deducted

from the total benefit provided to POSCO through these loans, and the

exclusion of another loan from the Department's calculations.

Department's Position. We agree with the corrections recommended by

petitioners. For the fees, we have applied 1997 fee to all years, as

suggested by petitioners. See also the discussion under Comment 13,

below.

Comment 10: Post-1991 GOK Credit Policies: Whether POSCO Received

Disproportionate Benefits From GOK Regulated Long-Term Loans. According

to respondents, the Department's Credit Memo analyzes lending to the

basic metals sector as a whole but fails to directly analyze lending to

POSCO, the producer of the subject merchandise. This analysis,

respondents state, does not take into account the fact that POSCO

borrowed very little from commercial banks during this period and its

borrowings from the KDB declined and then stopped completely after

1995, so that POSCO's share of long-term loans was at or lower than its

share of GDP during this whole period.

Rather than addressing this data, respondents assert that the

Department merely relies on the GDP test to demonstrate that loans were

provided disproportionately to the steel industry.

According to respondents, the GDP test was not a sufficient measure

of disproportionality for the Department (citing British Steel I, 879

F. Supp. at 1323), and the Court was also unconvinced by the

Department's finding of disproportionality in Steel Products from

Korea. The Court remanded the case to the Department on the basis that

``Commerce does not sufficiently explain in the Korean Final

Determination the connection between the government de facto program

and the steel industries' alleged preferential access to specific

sources of credit.'' British Steel I, 879 F. Supp at 1325. Respondents

note that the Department was upheld by the Court on its finding only

after making additional claims that there was ``aggressive targeting''

of lending to POSCO for the construction of POSCO's Kwangyang mill. \4\

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

\4\ See Final Results of Redetermination Pursuant to Court

Remand, British Steel plc v. United States, Consol. Ct. No. 93-

0900550-CVD at 49-50(April 20, 1995) (Remand); British Steel PLC v.

United States, 914 F. Supp. 119, 130 (CIT 1995) (British Steel II)

(``the nature of the nexus Commerce found in this case (was)

purposeful targeting'').

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

Respondents characterize the Department's conclusion of

disproportionate use by the steel industry as ``collective guilt,''

whereby even one long-term loan to POSCO, no matter how small, would be

countervailable if the steel industry as a whole had received a

disproportionately large share of long-term loans. However, respondents

state that the appropriate legal standard is whether a domestic subsidy

``is a specific subsidy, in law or in fact, to an enterprise or

industry * * * .'' (quoting section 771(5A)(D) of the Act). Because

POSCO is ``an enterprise, as defined by the statute, and constitutes

``the industry'' for which the Department must make a determination

concerning the existence of a domestic subsidy from the purported

directed credit, the Department must find that the subsidy is not

specific to POSCO.

Respondents further assert that if the Department has sufficient

data to determine whether a company received disproportionate benefits

under a program, it must use that data. The fact that other companies'

benefits were disproportionate, respondents state, can not be ascribed

to a company whose benefits were not. Respondents link this analysis to

certain Department methodologies that are also based on company-

specific data, including benchmarks, average useful life of depreciable

assets calculations, and the calculation of company-specific

countervailing duty rates.

According to petitioners, respondents' contention that the

Department must examine whether disproportionate benefits have been

provided to POSCO is a misinterpretation of the law. In particular,

petitioners state that the statute dictates that the Department will

find de facto specificity when either an enterprise or an industry

receives disproportionate benefits. The record, petitioners note, shows

that the Korean iron and steel industry received a disproportionate

amount of a subsidy. See, e.g., Credit Memo at 15-16.

[[Page 15545]]

Accordingly, petitioners assert that the Department correctly found

that POSCO, as a member of the iron and steel industry, has benefitted

from the GOK's direction of credit in the form of access to preferred

sources of credit.

In petitioners' view, the fact that POSCO may have received only

one loan, as argued by respondents, is irrelevant. When a company

receives a subsidy that confers a benefit that is de facto specific to

its industry, that subsidy is countervailable. According to

petitioners, the very purpose of the specificity analysis is to

determine whether certain companies benefit when an enterprise or

industry receive a de jure or de facto specific subsidy.

Petitioners also reject respondents assertion that POSCO's long-

term loans declined during the 1992-97 period, because this is

irrelevant to whether such loans were subsidies, specific to the steel

industry, and countervailable as to POSCO. Moreover, petitioners state,

the quantification of the subsidy rate for individual companies and the

calculation of the amount of the benefit are unrelated to the

specificity to a particular industry.

Petitioners further assert that the record in this investigation

demonstrates disproportionality and targeting of the steel industry in

the post-1992 period, in the same manner that was established in Steel

Products From Korea. For example, petitioners refer to the lending

practices of the Korea Development Bank as a demonstration of the GOK's

policy of directed credit and the disproportionate lending to the steel

sector. Petitioners also note that the KDB's business plans and lending

guidelines, which are negotiated with and subject to the MOFE's final

approval, reflect the GOK's policy objectives. Petitioners also cite

statements by Korean bankers that the KDB's ``business plans'' serve as

lending models for other banks in the Korean market, and that KDB

funded projects represent an implicit guarantee for other domestic

banks to follow the KDB's lead. Thus, petitioners state, the KDB is an

important tool for the GOK's direction of credit in the Korean

financial system, and record statistics illustrate that the iron and

steel or basic metals sectors received a disproportionate amount of the

KDB's lending.

Department's Position: We disagree with respondents' arguments. The

fact that POSCO borrowed very little from those sources of credit that

were found to be de facto specific to the steel industry during the

relevant period is irrelevant. The clear language of the statute is

that a subsidy is specific when ``an enterprise or an industry receives

a disproportionately large amount of the subsidy.'' Section

771(5A)(D)(iii)(III) of the Act (emphasis added). Thus, when a subsidy

is specific to an industry, even if it is not specific to an enterprise

that is part of that industry, the Department will find that subsidy to

be countervailable, even if the actual subsidy to the enterprise is

very small. While respondents may characterize this approach as

``collective guilt,'' the Department has in numerous cases found

countervailable relatively small subsidies to a respondent firm on the

basis of disproportionate use by the industry to which the respondent

belongs. Indeed, this is not an unusual fact pattern for de facto

specificity findings, for example under large research and development

programs. As such it is not surprising that under respondents'

suggested approach, the Department would rarely find a subsidy to be de

facto, because subsidies under a program are frequently not received on

a disproportionate basis by an enterprise. Finally, we agree with

petitioners that respondents' attempt to link certain methodologies

that are conducted on a company-specific basis to the specificity

analysis is also without merit. The quantification of the benefit is

simply not germane to the Department's analysis concerning specificity.

Comment 11: Post-1991 GOK Credit Policies: Whether Long-Term Loans

From the KDB Were Provided at Favorable Interest Rates. Respondents

argue that the Department incorrectly used a domestic won-denominated

benchmark to calculate the benefit from POSCO's countervailable foreign

currency-denominated loans from domestic sources, including the KDB.

Respondents' reasons for the appropriateness of comparing, in

accordance with the Department's own policy and regulations, the

interest rates on loans under investigation with a benchmark in the

same currency, are discussed above under Comment 4. Respondents further

note that the Department asserted and applied this principle in its

Credit Memo when it compared the interest rates on POSCO's foreign

securities with the interest rates on POSCO's foreign currency loans

from foreign banks in Korea, which were found not to be not controlled

or directed by the GOK during the years 1992 and 1997.

Accordingly, respondents assert, the Department should have used

the dollar-based interest rates on these loans from foreign banks as

benchmarks for POSCO's foreign currency loans from Korean banks. If

this were done, the Department would find that there was no benefit to

POSCO from the foreign currency loans it received from domestic banks,

including the KDB. All of the loans at issue were variable rate loans,

based on a spread above a base rate of either LIBOR or the KDB's own

rate. This proves, respondents state, that loans from the KDB had

become too expensive for POSCO compared to the alternatives.

Petitioners note that they have previously noted the errors in the

Department's preliminary finding (that foreign banks in Korea are not

subject to the GOK's control and direction and, therefore, the foreign

bank interest rates are not an appropriate benchmark). See Comment 5,

above. Therefore, petitioners state, the Department must not use this

rate as a benchmark to determine the benefit from POSCO's access to

foreign currency loans. Moreover, petitioners argue that the currency

in which the loan is denominated is only one factor that the Department

examines in determining an appropriate benchmark. The Department also

examines the structure, maturity, principle amount, and availability of

funds of the potential benchmark compared to the subsidized loan. Based

on all these criteria, the Department should use the corporate bond

rate in Korea as the only appropriate available benchmark. Accordingly,

the Department should use the domestic corporate bond rate as the

benchmark for all long-term financing. In so doing, the Department

should find in its final determination that POSCO's foreign currency

loans do provide a quantifiable and countervailable benefit.

Department's Position. We agree with respondents that the

appropriate benchmark to use to determine the benefit from POSCO's

foreign currency-denominated loans from the KDB and domestic commercial

banks are the interest rates from unregulated foreign banks in Korea.

As discussed under Comment 8, above, it is appropriate to compare

countervailable foreign currency-denominated loans to a benchmark in

the same currency. Accordingly, we have revised our calculations to

reflect this change.

Comment 12: Average Useful Life. Petitioners note that, in the

preliminary determination, the Department used a 12-year AUL, based on

several adjustments to POSCO's calculations for certain special

depreciation charges. They assert that the calculated AUL for POSCO

remains distorted, however, in a way that cannot be rectified and,

therefore, it should not be used in the final determination.

Petitioners argue that the Department should use the 15-

[[Page 15546]]

year allocation period found in the IRS depreciation tables as the AUL

for the final determination.

Petitioners state that POSCO's reported AUL remains distorted

because of the company's revaluation of property, plant, and equipment

under the Asset Revaluation Law. They argue that the information

gathered at verification suggests that POSCO's AUL does not reflect the

actual useful life of its assets, because assets which had been fully

depreciated several years before remained in service. The Department,

therefore, should reject POSCO's reported AUL, in accordance with its

practice regarding distorted company-specific data. See, e.g., Final

Affirmative Countervailing Duty Determination: Steel Wire Rod From

Germany, 62 FR 54990, 54991 (Oct. 22, 1997) (Steel Wire Rod From

Germany).

According to respondents, in applying an AUL for POSCO of 12 years

at the preliminary determination, instead of the 9 years calculated by

POSCO, the Department misunderstood the nature of the special

depreciation claimed by POSCO and, therefore, disallowed it when

performing its own AUL calculation. Respondents state that, at

verification, POSCO explained and demonstrated the legal basis for the

reported salvage value, special depreciation, and 1989 revaluation.

Therefore, having addressed the Department's concerns, the Department

should use POSCO's calculation of its AUL for allocating the benefits

from any non-recurring subsidies.

In response to petitioners' argument, respondents state that any

misunderstanding the Department manifested in the preliminary

determination concerning POSCO's company-specific AUL data was resolved

at verification. Therefore, petitioners' allegation of distortions with

the company's data is incorrect. Further, they assert that the company-

specific AUL data provided by POSCO permits calculation of an

allocation period that is more reflective of any commercial and

competitive benefit to POSCO than the arbitrary 15-year IRS period.

Department's Position. We agree with petitioners that it is not

appropriate to use POSCO's AUL data to determine the average useful

life of the company's assets. During verification, we reviewed POSCO's

calculation of the company's average useful life of assets. In

examining the company's calculations, we learned that the basis of the

rates in the GOK's tax depreciation tables is the Japanese tax

depreciation tables which were in existence at the time the GOK

determined the useful life of assets in the 1950's. In order to

determine whether the tax tables provide a reasonable estimation of

POSCO's average useful life of assets, we examined POSCO's asset

ledgers. We verified through an examination of POSCO's asset ledgers

that the depreciation schedule used by POSCO does not represent the

actual useful life of the company's assets. Therefore, we determine

that it is not appropriate to use POSCO's AUL data. The available data

does not permit the calculation of an accurate company-specific AUL in

this investigation. In previous cases, the Department has recognized

instances in which the company-specific AUL information cannot be used

based on distortions in the data. See, e.g., Steel Wire Rod from

Germany, 62 FR at 54991. Therefore, for the final determination, we

used the 15-year allocation period as reported in the IRS depreciation

tables for the allocation of POSCO's non-recurring subsidies.

Comment 13: Long-Term Interest Rate Benchmark. Petitioners state

that POSCO failed to provide to the Department information on the fees

applied to its bonds prior to 1997, stating that ``the data on the bond

issuance fees for the prior years (i.e., 1992-1996) are difficult to

retrieve from POSCO's records.'' Petitioners note that the Department's

practice is to include all fees associated with debt obligations in

order to compare effective interest rates on the subsidized loan or

bond with an effective rate benchmark.

Petitioners assert that POSCO did not demonstrate that it was

unable to provide the requested information; it merely asserted that

providing the information would be ``difficult.'' Accordingly,

petitioners argue that the Department should find that POSCO did not

act to the best of its ability to provide fee information for the 1992-

1996 period and apply adverse facts available. As adverse facts

available, petitioners argue that the Department should use the higher

of (1) the national average rate or (2) add the percentage fees that

POSCO reported in 1997, for each of the bonds issued in the years 1992

through 1996.

Respondents state that in POSCO's submission to the Department

regarding the company's bond issuances, POSCO stated that ``the average

percentage cost of bond issuance fees is essentially the same for all

years.'' Respondents contend that POSCO was clearly suggesting to the

Department that adding the 1997 percentage fees to the average

effective interest rates on its corporate bonds for each of the prior

years was appropriate given that the relatively small bond issuance

fees were difficult to obtain for the period 1992 through 1996.

Department's Position. In their submissions to the Department,

respondents concede that the bond issuance fees which POSCO paid in

1997, are the appropriate basis for the adjustment to construct a long-

term interest rate benchmark for the years 1992 through 1996.

Therefore, in constructing the long-term interest rate benchmarks for

the final determination, we have added to POSCO's average interest rate

on its corporate bonds for each year 1992 through 1996, the bond

issuance fees POSCO paid in 1997. See ``Benchmarks for Long-term Loans

and Discount Rates'' section above for a further discussion of the

Department's analysis.

Comment 14: Energy Savings Fund Loans. In their case brief,

petitioners argue that while the Department accurately derived the

grant equivalent for each of POSCO's Energy Savings Fund Loans (ESF

loans), it miscalculated its allocation of the grant benefits by (1)

not using the life of the loan as the allocation period, and (2) not

starting the allocation of the loans in 1994. Petitioners assert that

the Department should correct these errors in the final determination.

Petitioners also state that the Department is correct in

countervailing the ESF loans provided to POSCO as the preferred terms

of the loans were specific to POSCO and provided a benefit. Further, as

policy loans, the ESF loans were monitored and implemented by the GOK.

The GOK, in keeping with its policy of maintaining stringent controls

on the Korean financial system, controlled the ESF loan program and

determined the maximum interest rate for ESF loans. Therefore, the

Department should affirm its preliminary determination that the ESF

loans are countervailable because (1) the loans provided a benefit to

POSCO, and (2) the loans were specific, in that POSCO was the only

recipient of the preferential rate.

Respondents note that in the preliminary determination, the

Department found that POSCO received two ESF loans and that the

interest rates paid by POSCO on these loans were less than the 7.0

percent rate purportedly prescribed by the program. On this basis, the

Department determined that these loans to POSCO were specific and,

thus, countervailable. However, based on the Department's findings at

verification with respect to the maximum interest rate prescribed by

the program and the interest rates charged to POSCO, the respondents

contend that

[[Page 15547]]

the Department should revisit its preliminary determination.

Respondents claim that the record evidence demonstrates that POSCO

was treated in accordance with the lending guidelines set by the Korea

Energy Management Corporation (KEMC), and in accordance with the

commercial lending practices of the Korea Exchange Bank (KEB).

Respondents state that while POSCO did receive an interest rate

slightly lower than the ceiling amount set by the KEMC, this rate was

set based upon the KEB's desire to induce future business from POSCO,

and not upon any government-directed preferential basis. Moreover, the

respondents state that the record demonstrates that ESF loans were not

specifically provided to POSCO, as 80 percent of the ESF loans

recommended by the KEMC each year were for small-and medium-size

enterprises, not for POSCO or the steel industry. Accordingly, the

Department should determine that ESF loans are not specific and thus

not countervailable.

Department's Position. In the preliminary determination, we treated

the ESF Loans as a separate program because, at that time, we required

additional information on the GOK's credit policies during the period

1992 through 1997. As noted above in the ``Direction of Credit''

analysis section, we have determined that the GOK maintained direct

control over many sources of long-term credit, including lending from

government-owned and/or controlled banks during the years 1992 through

1997. We, therefore, find that all loans, including policy loans, such

as the ESF loans, which POSCO received from government-owned and

controlled banks are countervailable.

Given that the KEB, the bank from which POSCO received the ESF

loans, is a government-owned bank, and the fact that loans under the

ESF program are government policy loans, we have determined that it is

not appropriate to treat the ESF loans as a separate program.

Accordingly, ESF loans are countervailable based upon our analysis of

the GOK's direction of credit. See ``Direction of Credit'' section

above for a further discussion of the Department's analysis. The

benefit from the ESF loans is included in the benefit calculation under

the ``Direction of Credit'' program. In determining the benefit the

loans provided to POSCO during the POI, we used the life of the loan as

the allocation period and began the allocation in 1994, for the final

calculations.

Comment 15: The GOK's Pre-1992 Investments Constitute Non-

Countervailable ``General Infrastructure''. Respondents state that in

the preliminary determination, the Department relied exclusively upon

its decision in Steel Products from Korea, to find that the GOK's

investments at Kwangyang Bay during the period 1983-1991, provided

countervailable subsidies to POSCO. Respondents note that the final

determination of Steel Products from Korea, however, was made under the

Pre-Uruguay Round law and on a different factual record. Therefore, in

order to carry out its statutory mandate, the Department must apply the

Post-Uruguay Round law to the facts presented in this instant

investigation, and revisit its preliminary determination. Under section

771(5)(B) of the Act, there is now a requirement that a financial

contribution must be provided by the government in order for a

countervailable subsidy to exist. Respondents further argue that under

section 771(5)(D)(iii) of the Act, the term ``financial contribution''

does not include the provision of general infrastructure.

Respondents state that, although the Department's administrative

determinations, and the statute itself, are silent as to the definition

of ``general infrastructure'' under the new law, the Department's new

CVD regulations are instructive. Respondents note that Sec. 351.511(d)

of the new regulations defines ``general infrastructure'' as

``infrastructure that is created for the broad societal welfare of a

country, region, state, or municipality.'' See CVD Final Rules.

Respondents explain that the GOK has established a system of

national industrial estates as part of a broad plan for the efficient

development of Korea. The Kwangyang Bay industrial estate, one of 200

industrial estates, was established under this national industrial

estate program. They contend that when analyzed within the context of

this national industrial estate system that is planned, created, and

administered under central government control, it becomes obvious that

these infrastructure investments constitute ``general infrastructure.''

They assert that the record evidence demonstrates that these

infrastructure investments are: (1) Generally available to all

industries and companies in Korea, and (2) are provided to aid public

welfare by advancing the economic development of Korea. Further, they

note, as stated in Article 1 of the Industrial Sites and Development

Act, ``The purpose of this Act is to promote the balanced development

of national land and sustained industrial progress through the

efficient supply of industrial locations and appropriate placement of

industry, thereby contributing to the sound development of the national

economy.'' Therefore, respondents argue that under the Post-Uruguay

Round law and the basic standard for general infrastructure articulated

in Sec. 351.511(d) of the new regulations, the GOK's pre-1992

infrastructure investments at Kwangyang Bay constitute non-

countervailable ``general infrastructure.''

Petitioners note that the Department in the past has found that the

Kwangyang Bay investments do not constitute general infrastructure. See

Preliminary Determination, 63 FR at 47257, and Steel Products from

Korea, 58 FR at 37346-47. Petitioners note that in Steel Products from

Korea, the Department found that because the infrastructure provided to

POSCO at the Kwangyang Bay Industrial Estate failed at least two of the

three prongs of the infrastructure test, the provision of the

infrastructure is specific. Petitioners argue that POSCO remains the

primary user of the Kwangyang Bay port facilities, accounting for

approximately 40 percent of all incoming and outgoing traffic between

1992 and 1997 and, therefore the Department should affirm its

preliminary finding.

Department's Position. Respondents are correct when they assert

that general infrastructure is not considered to be a financial

contribution under 771(5)(D)(iii) of the Act. However, they are

incorrect when they state that the infrastructure development at

Kwangyang Bay constitutes general infrastructure. As respondents have

acknowledged, the statute is silent as to the definition of ``general

infrastructure;'' however, they note that the Department's new CVD

regulations are instructive. See CVD Final Rules, 63 FR at 65412. While

the new CVD regulations are not applicable to this case because this

investigation was initiated before the effective date of these

regulations, we are referring to them, in part, for guidance as to what

constitutes ``general infrastructure.''

The new CVD regulations define general infrastructure as

``infrastructure that is created for the broad societal welfare of a

country, region, state or municipality.'' Thus, any infrastructure that

does not satisfy this public welfare concept is not general

infrastructure and is potentially countervailable. Therefore, the type

of infrastructure per se is not dispositive of whether the government

provision constitutes ``general infrastructure.'' Rather, the key issue

is whether the infrastructure is developed for the benefit of the

society as a whole. For example, interstate highways, schools, health

care facilities, sewage systems, or police protection

[[Page 15548]]

would constitute general infrastructure if we found that they were

provided for the good of the public and were available to all citizens

and members of the public. Infrastructure, such as industrial parks and

ports, special purpose roads, and railroad spur lines that do not

benefit society as a whole, does not constitute general infrastructure

within the meaning of the new CVD regulations, and is countervailable

if the infrastructure is provided to a specific enterprise or industry

and confers a benefit.

The infrastructure provided at Kwangyang Bay was not provided for

the good of the general public; instead, it was built to support POSCO;

therefore, it does not constitute ``general infrastructure.'' It is

clear from the record that the infrastructure provided for POSCO's

benefit at Kwangyang Bay is de facto specific, and that POSCO is the

dominant user. See Steel Products From Korea, 53 FR at 37346-47.

Therefore, the infrastructure at Kwangyang Bay is countervailable.

Indeed, the ``Explanation of the Final Rules'' (the Preamble) to the

new CVD regulations, which respondents assert are instructive on this

issue, specifically cites to the infrastructure provided at Kwangyang

Bay in Steel Product From Korea as an example of industrial parks,

roads, rail lines, and ports that do not constitute ``general

infrastructure,'' and which are countervailable when provided to a

specific enterprise or industry. See CVD Final Rules, 63 FR at 65378-

79.

Comment 16: GOK's Pre-1992 Investments Are Not Countervailable

Because They Are ``Tied' To Kwangyang Bay. Respondents state that, in

the preamble to the new regulations, the Department has adopted the

practice of attributing subsidies that can be ``tied'' to particular

products to those products. See CVD Final Rules, 63 FR at 65400. With

respect to the instant investigation, respondents argue that the

alleged subsidies are ``tied'' to the products that are produced at

POSCO's Kwangyang Bay facility. Since the subject merchandise is not

produced at the Kwangyang Bay facility, the subject merchandise does

not benefit in any way from the allegedly subsidized general

infrastructure at Kwangyang Bay. Respondents contend that it would run

counter to the Department's practice, and common sense, to attribute

countervailable benefits to products that cannot benefit from the

alleged subsidies. They also note that under the Department's past

practice, where a subsidy is ``tied'' only to non-subject merchandise,

that subsidy is not attributed to the merchandise under investigation.

See Final Results of Countervailing Duty Administrative Review: Certain

Iron-Metal Castings from India, 62 FR 32297, 32302 (June 13, 1997).

Respondents argue that the Department was faced with a similar

factual situation as the instant case in the Final Affirmative

Countervailing Duty Determination: Iron Ore Pellets from Brazil, (see,

51 FR 21961, 21966 (June 17, 1986) (Iron Ore Pellets from Brazil)). In

that case, petitioners argued that infrastructure and regional tax

benefits provided to the Carajas mine project should be attributed to

the respondent even though respondent did not produce (or intend to

produce) subject merchandise at the Carajas mine project. The

Department rejected petitioners' argument finding that the

infrastructure and tax benefits were, by definition, only for the

Carajas mine project. Because the respondent did not produce subject

merchandise at the Carajas mine project, the Department did not

consider this program countervailable with respect to subject

merchandise.

Respondents contend that, rather than directly addressing the fact

that the alleged subsidies are tied to Kwangyang Bay, the Department

has instead mis-cited to its earlier finding in Steel Products from

Korea. They note that in the preliminary determination of the instant

investigation the Department claims that the alleged subsidy in Steel

Products from Korea was treated as ``untied.'' However, respondents

state that nowhere in Steel Products from Korea does it state that the

alleged subsidy was being treated as ``untied.'' In fact, respondents

state that the issue of whether the subsidies were tied or untied never

arose in that investigation because the subject merchandise was

produced at both of POSCO's steel facilities and, therefore, it was

unnecessary for the Department to characterize the alleged subsidy as

either ``tied'' or ``untied.'' They argue that in mischaracterizing its

finding in Steel Products from Korea, the Department is attempting to

bootstrap that finding into the instant investigation.

In their rebuttal brief, petitioners reject the respondents'

argument that the Department is attempting to bootstrap its finding in

Steel Products from Korea into the instant investigation. In Steel

Products from Korea, petitioners state that the Department, by dividing

the benefit attributable to the POI by POSCO's total sales, clearly

treated the grants as untied benefits. See Steel Products from Korea,

58 FR at 37347. Therefore, petitioners argue the Department should

continue to find Kwangyang Bay infrastructure investments ``untied'' in

the final determination.

Department's Position. First, we note that the attribution, or

``tying,'' of a subsidy to a particular product or market is a long-

standing policy of the Department, not one recently adopted in the new

CVD regulations. Also, it has been the practice of the Department to

attribute the benefit conferred from an ``untied'' domestic subsidy to

the recipient's total sales. (This is how the subsidy rate was

calculated for the Kwangyang Bay subsidy in Steel Products from Korea.)

By contrast, if the subsidy was, for example, tied to export

performance, then the Department would only attribute the benefit of

the subsidy to the recipient's export sales.

Respondents' argument that the infrastructure subsidy provided to

POSCO is tied to only certain of POSCO's production is flawed. Part of

respondents' argument rests upon the premise that a regional subsidy

can be tied to only the subsidy recipient's production in that region.

If this allocation methodology were adopted and the Department tied

regional subsidies to production in a particular region, the Department

would essentially be forced to calculate factory-specific subsidy

rates. In addition, if such a methodology were applied, then foreign

companies could easily escape collection of countervailing duties by

selling the production of a subsidized region domestically, while

exporting from a facility in an unsubsidized region. This allocation

methodology has been clearly rejected by the Department. See, e.g.,

Final Negative Countervailing Duty Determination: Fresh Atlantic Salmon

from Chile, 63 FR 31437, 31445-46 (June 9, 1998) (stating, ``[T]he

Department does not tie the benefits of federally provided regional

programs to the product produced in the specified regions.'') Indeed,

the Department has explicitly rejected this argument in the new CVD

regulations cited by respondents in support of their argument on this

issue. See CVD Final Rules, 63 FR at 65404. The infrastructure

development at Kwangyang Bay provided a benefit to POSCO and, as

discussed further below, the benefit from the subsidy is untied and is

attributed to POSCO's total sales.

Respondents' argument is also flawed because respondents have

misinterpreted the attribution methodology. Attribution of the benefit

of a subsidy is based upon the information available at the time of

bestowal. The concept of ``tying'' a

[[Page 15549]]

subsidy at the time of bestowal can be traced back to Certain Steel

Products from Belgium. See Final Affirmative Countervailing Duty

Determination: Certain Steel Products from Belgium, 47 FR 39304, 39317

(September 7, 1982). At the time of bestowal of the subsidy conferred

by the Kwangyang Bay infrastructure, the benefit of the subsidy was to

POSCO, not to a specific product line. Thus, the benefit cannot be tied

to any specific product, but instead, is an untied benefit provided by

the GOK to POSCO. See Final Results of Redetermination Pursuant to

Court Remand (April 20, 1995) in British Steel PLC, v. United States

Slip Op. 95-17 (February 9, 1995) at 35 and 36. Once it is determined

that an untied subsidy has been provided to a firm, the Department will

attribute that untied subsidy to the firm's total sales, even if the

products produced by the firm differ significantly from the time when

the subsidy was provided. The Department will not examine whether

product lines have been expanded or terminated since the time of the

subsidy's bestowal.

Finally, we note that respondents' reliance on Iron Ore Pellets

from Brazil is misplaced. First, in both Iron Ore Pellets from Brazil

and in the Kwangyang Bay subsidy at issue in this investigation, the

determination of attribution of a subsidy was made at the time of

bestowal, which is consistent with Department policy. Thus, in both

cases, the Department applied the same standard in determining whether

a subsidy was tied or untied. Second, the subsidy alleged in Iron Ore

Pellets from Brazil was alleged to have been provided to an input into

the subject merchandise, an issue distinct from the issue in the

instant investigation. We further note that the treatment of input

subsidies at issue in Iron Ore Pellets from Brazil has changed since

1986. See e.g., Sec. 351.525(b)(6)(iv) of the CVD Final Rules and Final

Results of Countervailing Duty Administrative Review: Industrial

Phosphoric Acid from Israel, 63 FR at 13626 (March 20, 1998). Thus, if

the identical subsidy issue cited in Iron Ore Pellets from Brazil were

before the Department today, it is uncertain whether the same decision

would be made in 1999 as was made in 1986.

Comment 17: The Department Erred In Treating The Alleged Benefit To

POSCO As A Grant. Respondents note that, in the preliminary

determination, the Department determined that the GOK's costs of

constructing the infrastructure at Kwangyang Bay constituted grants to

POSCO. In treating these costs as grants to POSCO, respondents argue,

the Department has ignored the fact that the GOK owns these facilities

and charges POSCO the normal user fees for the services provided. They

assert that it is erroneous as a matter of law and contrary to

Department precedent to countervail as grants infrastructure that the

respondent does not own and where normal user fees are paid to use the

infrastructure services. (Citing, sections 771(5)(D)(i) and (E)(iv) of

the Act, and the Final Affirmative Countervailing Duty Determination:

Industrial Phosphoric Acid from Israel, 52 FR 25447, 25451 (July 7,

1987) (Industrial Phosphoric Acid from Israel).)

Respondents contend that rather than treating the infrastructure

investments as grants, the Department should have analyzed the issue as

one of whether the infrastructure services were provided ``for less

than adequate remuneration,'' citing section 771(5)(E)(iv) of the Act.

They note that adequacy of remuneration is the new statutory provision

for determining whether the government's provision of a good or service

constitutes a countervailable subsidy. According to section 771(5)(E)

of the Act, the adequacy of remuneration with respect to a government's

provision of a good or service shall be determined in relation to

prevailing market conditions (i.e., price, quality, availability,

marketability, transportation, and other conditions of purchase or

sale) for the good or service being provided or the goods being

purchased in the country which is subject to the investigation or

review.

Respondents state that the Department addressed a similar issue in

Industrial Phosphoric Acid from Israel. At issue in that case were

certain rail lines built (and owned) by the Israeli government for

``the almost exclusive use of a few chemical companies. See Industrial

Phosphoric Acid from Israel, 52 FR at 25447. The Department recognized

that any benefit to be derived from the infrastructure was related to

the use of that infrastructure, and since the respondent in question

paid for such use, the question was whether the payments for such use

were higher or lower than those paid by other users for similar

services. The Department determined that the rates paid were not

preferential and, therefore, that no benefit or subsidy existed.

Respondents also state that in Certain Steel Products from Brazil,

the Department applied a similar analysis. In that case, the Department

determined that ``The fees charged . . . reflected standard fees

applied to all users of port facilities, thus, they are non-specific.''

Final Affirmative Countervailing Duty Determination: Certain Steel

Products from Brazil, 58 FR at 37295 (July 9, 1993) (Certain Steel

Products from Brazil), and Final Affirmative Countervailing Duty

Determination: Carbon Steel Wire Rod from Trinidad and Tobago, 49 FR

480, 486 (Jan. 4, 1984) (Carbon Steel Wire Rod from Trinidad and

Tobago).

Respondents argue, in the alternative, that if the Department

continues to treat these benefits as ``grants,'' then these grants must

be pro-rated based upon the actual benefit to POSCO. They note that the

GOK provided information on the use of these facilities and, where

possible, POSCO's portion of the total usage during the POI. Since

POSCO is not the only company that benefits from the infrastructure

investments at Kwangyang Bay, the Department cannot simply attribute

the entire benefit from the GOK's infrastructure investments to POSCO.

The benefit found must be allocated proportionate to POSCO's use of

these facilities at Kwangyang Bay during the POI.

In their rebuttal brief, petitioners state that respondents are

blurring the distinction between the original provision of specific

infrastructure investments and the adequacy of remuneration of fees

charged for the future use of the infrastructure. In addition,

petitioners argue that the investment grants should not be ``pro-

rated'' based on POSCO's use of the facilities, because POSCO is the

dominant beneficiary. Petitioners note that in Steel Products from

Korea, the Department determined that Kwangyang Bay was specifically

designed for POSCO. See Steel Products from Korea, 58 FR at 37347.

Department's Position. The Kwangyang Bay infrastructure subsidy

under investigation in Steel Products from Korea and in this

investigation is not the fee charged by the government for use of rail

and port facilities, as was the issue in the cases cited by

respondents. Indeed, we found an alleged program providing

``preferential'' port charges to the Korean steel industry not to exist

in Steel Products from Korea. Therefore, the cases cited by respondents

are not relevant to the treatment of the Kwangyang Bay subsidy.

The benefit under this subsidy program to POSCO was the creation of

Kwangyang Bay to support POSCO's construction of its second integrated

steel mill. The building of this infrastructure to support POSCO's

expansion, which was planned years before POSCO commenced production at

Kwangyang Bay, was the benefit

[[Page 15550]]

countervailed in Steel Products from Korea and in this investigation.

Thus, the benefit conferred by this subsidy program to POSCO, and the

benefit that must be measured, is the construction of these facilities,

rather than the fees charged to POSCO for their use. Therefore, it is

reasonable to measure the benefit from this program by treating the

costs of constructing the Kwangyang Bay facilities for POSCO as

nonrecurring grants.

In addition, we also disagree with respondents' argument that we

pro-rate this subsidy between POSCO and to other companies currently

located at Kwangyang Bay. Again, respondents have misinterpreted the

nature of the benefit. The infrastructure at Kwangyang Bay was built to

support POSCO's expansion and its creation of its second integrated

steel mill. Therefore, the program is a subsidy provided to POSCO, and

the benefit from the program is properly attributed to POSCO.

Comment 18: POSCO'S Exemption From Port Facility Fees. Respondents

note that in the preliminary determination, the Department determined

that POSCO's exemption from paying port facility fees provides a

countervailable subsidy to POSCO. In reaching this conclusion,

respondents argue that the Department incorrectly determined that: (1)

A ``financial contribution'' had been provided to POSCO because it was

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

pay; and (2) that the subsidy was ``specific'' because POSCO was the

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

Respondents also argue that in reaching this preliminary determination,

the Department failed to address section 771(5)(B) of the Act, which

requires that a government action must confer a benefit in order to be

considered a countervailable subsidy.

As to the ``financial contribution'' requirement, the respondents

argue that but for the existence of a law (i.e., Article 17-1 of the

Harbor Act) compelling POSCO to cede title to the port facilities it

built to the GOK, the issue of these fees would not arise because POSCO

would simply own the facilities outright (and not have to pay fees to

itself). Because POSCO ceded title to the port facilities to the GOK,

the Department claims that a benefit arises because POSCO does not

currently pay fees to use the facilities it built. Respondents,

however, argue that the GOK is merely recognizing POSCO's costs and the

statutorily-authorized payment for construction costs incurred by a

private party. Therefore, according to respondents, the port fee

exemption does not constitute a ``financial contribution'' under the

new law.

Moreover, respondents state that the Department verified that port

fee exemptions are not limited to companies at Kwangyang Bay. Rather,

this program is commonly used by the GOK with respect to all ports in

Korea as a means of encouraging private companies to raise the capital

to develop port facilities throughout the country. Respondents also

argue that this verified information demonstrates that fee exemptions,

i.e., free usage, was not specific to POSCO because a variety of

companies which built and reverted port facilities to the GOK under

Article 17(1) of the Harbor Act received comparable exemptions.

Therefore, the Department should find that POSCO's exemption from port

fees does not constitute a countervailable subsidy.

Petitioners argue that the benefit conferred upon POSCO is the fact

that at the end of its fee exemption and fee collection period, POSCO

will have paid nothing to use the facilities which furthered the

company's business interests. Moreover, petitioners argue that more

than half of the fee exemptions provided at Kwangyang Bay were

conferred upon POSCO. Petitioners assert that under the Department's de

facto specificity analysis, POSCO has been the predominant beneficiary

of fee exemptions at Kwangyang Bay.

Department's Position. We agree with respondents that the port fee

exemption is not specific to POSCO because POSCO was not the only

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

verification, we obtained information which indicated that port fee

exemptions are not limited to companies at Kwangyang Bay. Moreover, the

verified information demonstrates that fee exemptions were not specific

to POSCO as a large number of companies from a diverse and broad range

of industries built and transferred port facilities to the GOK under

Article 17(1) of the Harbor Act received comparable exemptions. For a

further discussion of the Department's analysis see the section ``Port

Facilities Fees'' above.

Comment 19: Port Facility Fees Collected by POSCO. Petitioners

state that in the preliminary determination the Department failed to

countervail port facility fees which POSCO collected from other users

during the POI. Petitioners state that in addition to the revenues

foregone by the GOK for POSCO's free use of the facilities, the GOK

authorized POSCO to collect fees from other users. They note that the

Department confirmed at verification, the amount of fees which POSCO

collected from other users during the POI. Petitioners argue that as

with the exemption of port fees, POSCO has received a financial

contribution that is recurring and specific to POSCO since no other

company is eligible for this benefit with regard to these facilities.

Therefore, in the final determination, the Department should

countervail fees collected by POSCO.

Respondents state that Article 17(3) of the Harbor Act and the

Regulations on 20-year Repayment of Investment provide that companies

shall be reimbursed for their investments through the temporary

exemption from paying port facility fees and the right to collect fees

from other users. They assert that the fees collected from other users

simply serve as an additional form of reimbursement permitted by the

GOK until POSCO recoups its investment costs. They stress that this

option is available to all companies that revert port facilities to the

GOK. Moreover, as argued in POSCO's case brief, these fees do not

constitute a financial contribution or benefit to POSCO.

Department's Position. The Department disagrees with petitioners

and finds that the fees which POSCO collected from other users of the

infrastructure facilities which the company build are not

countervailable. For the same reasons as outlined above in the

Department's Position to Comment 18, we determine that POSCO's ability

to collect fees from other users is not specific under section

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

At verification, we learned that Article 17(3) of the Harbor Act

and the companion Presidential Decree provide that companies shall be

reimbursed for their investments through the temporary exemption from

paying port facility fees and the right to collect fees from other

users. All companies which build infrastructure that has to be

transferred to the GOK receive free usage of the infrastructure and the

ability to collect user fees from other companies which use the

facilities, until the investment cost of the facility is recovered. The

fees which POSCO collected from other users simply serve as an

additional form of reimbursement permitted by the GOK until POSCO

recoups its investment costs. This option is available to all companies

that transfer port facilities to the GOK. Because, POSCO was only one

of a large number of companies from a diverse and broad range of

industries which was authorized to collect users fees, we determine

that this program is not specific under section 771(5A)(D)(iii) of the

Act. See the ``Port

[[Page 15551]]

Facilities Fees'' section above for a further discussion of the

Department's analysis.

Comment 20: Adjustment of the Gross Countervailable Subsidy from

the Investment Tax Credits. Respondents do not dispute the Department's

preliminary finding that certain investment tax credits received by

POSCO conferred countervailable subsidies during the POI, because the

level of benefits received was contingent upon the use of domestic

goods instead of imported goods. However, as a result of verification,

the respondents argue that the Department needs to adjust the gross

subsidy amounts calculated for certain years. In the preliminary

determination, the Department noted that POSCO deducted from its tax

return for fiscal year 1996 (filed during the POI in 1997) tax credits

earned in the years 1992 through 1995, which had been carried forward

and used in fiscal year 1996. As discussed in the preliminary

determination, the Department ``calculated the additional amount of tax

credits received by the company because it earned tax credits of 10

percent on investments in domestically-produced facilities' rather than

at the regular rates for the respective tax credits. The Department

then calculated the portion of the total tax credits earned in each

year attributable to the 10 percent rate and applied that percentage to

the total of all tax credits claimed for that year during fiscal year

1996. On this basis, the Department calculated the countervailable

subsidy from these investment tax credits for the POI.

Respondents presume that the Department chose this methodology for

calculating the amount of the countervailable tax credits attributable

to fiscal year 1996, because, although it knew the total amount of the

tax credits from each year that were used in fiscal year 1996, it could

not determine for every year which tax credits were being used.

Respondents note that this problem was resolved at verification when

POSCO provided a detailed breakdown, by TERCL article, of the amounts

claimed for each tax credit in fiscal year 1996. With this verified

information, they state, the Department need only determine the amount

to be allocated to fiscal year 1996, for one tax credit earned in 1992,

Article 26, and for one tax credit earned in 1995, Article 25.

Respondents propose that in calculating the benefit conferred by the

investment tax credits, the Department should use the subsidy amounts

calculated in the Department's August 28, 1998 Calculation Memo for

Article 71 in 1993, Articles 10(1)(a), 25, 26 and 27 in 1994, and

Articles 10(1)(a), 10(1)(b) and 26 in 1995, in conjunction with the

allocable amounts for Article 26 in 1992 and Article 25 in 1995, to

calculate the total gross subsidy from investment tax credits which

POSCO used in its fiscal year 1996 tax return.

Department's Position. We agree that, as a result of the

information obtained at verification with respect to those specific

investment tax credits which POSCO utilized in its 1996 tax return, the

calculations for determining the benefit conferred by the investment

tax credits during the POI should be revised. However, we disagree with

the respondents' proposed methodology for calculating the benefit.

Respondents have not demonstrated to the Department that their proposed

methodology would more accurately calculate the benefit POSCO received

through the use of investment tax credits, than the methodology

employed by the Department in the preliminary determination.

As discussed above in the section ``Investment Tax Credits,'' to

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

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

199

This text is long and has been trimmed here. Open the source document for the complete record.