Coated Free Sheet Paper From the Republic of Korea: Preliminary Affirmative Countervailing Duty Determination, 17507-17521 [E7-6500]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 72, Number 67 (Monday, April 9, 2007)]
[Notices]
[Pages 17507-17521]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-6500]


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

DEPARTMENT OF COMMERCE

International Trade Administration

[C-580-857]


Coated Free Sheet Paper From the Republic of Korea: Preliminary 
Affirmative Countervailing Duty Determination

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: The Department of Commerce (``the Department'') preliminarily 
determines that countervailable subsidies are being provided to 
producers and exporters of coated free sheet paper (``CFS paper'') from 
the Republic of Korea (``Korea''). For information on the estimated 
subsidy rates, see the ``Suspension of Liquidation'' section of this 
notice.

EFFECTIVE DATE: April 9, 2007.

FOR FURTHER INFORMATION CONTACT: Maura Jeffords or Kristen Johnson, AD/
CVD Operations, Office 3, Import Administration, U.S. Department of 
Commerce, Room 4014, 14th Street and Constitution Avenue, NW., 
Washington, DC 20230; telephone: (202) 482-3146 and (202) 482-4793, 
respectively.

SUPPLEMENTARY INFORMATION: 

Background

    On October 31, 2006, the Department received the petition filed in 
proper form by NewPage Corporation (``petitioner''). This investigation 
was initiated on November 20, 2006. See Notice of Initiation of 
Countervailing Duty Investigations: Coated Free Sheet Paper from the 
People's Republic of China, Indonesia, and the Republic of Korea, 71 FR 
68546 (November 27, 2006) (``Initiation Notice''), and accompanying 
Initiation Checklist for CVD Petition on CFS paper from Korea (November 
20, 2007) (``Initiation Checklist'').\1\ On December 19, 2006, 
petitioner timely requested a 65-day postponement of the preliminary 
determination for this investigation. On December 22, 2006, the 
Department postponed the deadline for the preliminary determination by 
65 days to no later than March 30, 2007, in accordance with section 
703(c)(1)(A) of the Tariff Act of 1930, as amended (``the Act''). See 
Coated Free Sheet Paper from Indonesia, the People's Republic of China 
and the Republic of Korea: Notice of Postponement of Preliminary 
Determinations in the Countervailing Duty Investigations, 71 FR 78403 
(December 29, 2006).
---------------------------------------------------------------------------

    \1\ A public version of this and all public Department memoranda 
is on file in the Central Records Unit (``CRU''), room B-099 in the 
main building of the Commerce Department.
---------------------------------------------------------------------------

    Due to the large number of producers and exporters of CFS paper in 
Korea, we determined that it is not possible to investigate each 
producer or exporter individually and selected four producers/exporters 
of CFS paper to be mandatory respondents: EN Paper Mfg. Co., Ltd. (``EN 
Paper'') (formerly Shinho Paper Co., Ltd. (``Shinho Paper'')), Kyesung 
Paper Co., Ltd. (``Kyesung''), Moorim Paper Co. Ltd. (``Moorim'') 
(formerly Shinmoorim Paper Mfg. Co., Ltd.), and Hansol Paper Co., Ltd. 
(``Hansol'') (collectively, ``respondents''). See Memorandum from the 
Team, through Office Director Melissa Skinner, to Deputy Assistant 
Secretary Stephen J. Claeys: Regarding Respondent Selection (December 
4, 2006) (``Respondent Selection Memo'').\2\
---------------------------------------------------------------------------

    \2\ A public version of this memorandum is available in the CRU.
---------------------------------------------------------------------------

    On December 6 and 8, 2006, respondents submitted comments on our 
Respondent Selection Memo, in which they argued that the Department 
should select an additional mandatory respondent. On December 20, 2006, 
we responded to respondents' comments, stating that we would not 
deviate from our original decision to investigate four mandatory 
respondents in the instant investigation. See Memorandum from Program 
Manager Eric B. Greynolds, through Office Director Melissa Skinner, to 
Deputy Assistant Secretary Stephen J. Claeys: Regarding Response to 
Comments from Interested Parties Regarding Respondent Selection 
(December 20, 2006) (``Second Respondent Selection Memorandum'').
    On December 14, 2006, we issued our initial questionnaire to the 
Government of Korea (``the GOK'') and requested that the GOK forward 
the relevant sections of the initial questionnaire to the mandatory 
respondents.
    On December 14, 2006, petitioner submitted a new subsidy 
allegation. On January 3, 2007, we declined to initiate

[[Page 17508]]

on petitioner's new subsidy allegation. See Memorandum from the Team 
through Program Manager Eric B. Greynolds, to Office Director Melissa 
Skinner: Regarding New Subsidy Allegation (January 3, 2007).
    On January 26, 2007, the GOK and respondents submitted their 
responses to our initial questionnaire. Also on January 26, 2007, 
Hankuk Paper Mfg. Co., Ltd. (``Hankuk'') submitted a voluntary response 
to the Department's December 14, 2006, initial questionnaire. Because 
Hankuk was not selected as a mandatory respondent, we have not 
considered the company's questionnaire response in reaching this 
preliminary determination and have not calculated a company-specific 
CVD rate for Hankuk.
    On February 2, 2007, EN Paper, Kyesung,\3\ and the GOK submitted 
their responses to the company-specific allegations. Between February 
23 and March 12, 2007, we issued supplemental questionnaires to the GOK 
and respondents. Between March 5 and 16, 2007, the GOK and respondents 
submitted responses to our supplemental questionnaires.
---------------------------------------------------------------------------

    \3\ Kyesung's affiliated company, Namhan Paper Co., Ltd., 
submitted the company's response on February 2, 2007. See ``Cross-
Ownership'' section, below, for more information on Namhan Paper 
Co., Ltd.
---------------------------------------------------------------------------

    On March 8, 2007, petitioner submitted pre-preliminary comments on 
a number of issues, which we have considered in reaching this 
preliminary determination. In particular, petitioner argues that, 
despite instructions from the Department to report all loan data, 
respondents failed to report any of their short-term loans. Petitioner 
discusses that in the initial questionnaire, referring to petitioner's 
allegations that members of the pulp and paper industry received a 
disproportionate share of loans from the Korea Development Bank 
(``KDB'') and other GOK-owned entities and that the GOK directed credit 
to the pulp and paper industry through its control of lending practices 
in Korea, the Department specifically requested the respondents to 
answer the items in the Standard Questions and Loan Benchmark and Loan 
Guarantee Appendices. Petitioner further claims that the unreported 
short-term loans were provided by the GOK for financing the importation 
of raw materials as well as the export of finished goods. Petitioner 
further claims that the Bank of Korea (``BOK'') administers the trade 
financing under the Aggregate Credit Ceiling Loan program.
    Respondents submitted rebuttal comments to petitioner's pre-
preliminary comments on March 13 and 20, 2007. Respondents state that 
they did not report short-term loan data because petitioner did not 
make an allegation concerning short-term lending and the Department 
neither initiated on nor asked about short-term loans in the initial 
questionnaire. They claim that the Department's Initiation Checklist 
makes clear that the investigation on loans from the KDB and other GOK-
owned entities and the GOK's direction of credit to the pulp and paper 
industry is limited to the allegation of subsidized long-term loans. 
See Initiation Checklist at 7-9, 16-18.
    We agree with respondents that the Department's examination of KDB 
lending and the GOK's direction of credit, in Korea CVD proceedings, 
has focused on long-term lending. However, we find that additional 
information regarding the respondents' short-term lending is required 
to fully analyze the GOK's provision of these loans. For more 
discussion of the short-term loan program, see the section ``Program 
For Which More Information Is Required,'' below.
    On March 23, 2007, petitioner submitted additional pre-preliminary 
comments. Respondents submitted a response to petitioner's additional 
comments on March 27, 2007. On March 26, 2007, petitioner submitted a 
request, pursuant to section 705(a)(1) of the Act to align the final 
determination in this investigation with the companion antidumping 
investigations. We will address this request in a separate Federal 
Register notice.

Scope of the Investigation

    The merchandise covered by this investigation includes coated free 
sheet paper and paperboard of a kind used for writing, printing or 
other graphic purposes. Coated free sheet paper is produced from not-
more-than 10 percent by weight mechanical or combined chemical/
mechanical fibers. Coated free sheet paper is coated with kaolin (China 
clay) or other inorganic substances, with or without a binder, and with 
no other coating. Coated free sheet paper may be surface-colored, 
surface-decorated, printed (except as described below), embossed, or 
perforated. The subject merchandise includes single- and double-side-
coated free sheet paper; coated free sheet paper in both sheet or roll 
form; and is inclusive of all weights, brightness levels, and finishes. 
The terms ``wood free'' or ``art'' paper may also be used to describe 
the imported product.
    Excluded from the scope are: (1) Coated free sheet paper that is 
imported printed with final content printed text or graphics; (2) base 
paper to be sensitized for use in photography; and (3) paper containing 
by weight 25 percent or more cotton fiber.
    Coated free sheet paper is classifiable under subheadings 
4810.13.1900, 4810.13.2010, 4810.13.2090, 4810.13.5000, 4810.13.7040, 
4810.14.1900, 4810.14.2010, 4810.14.2090, 4810.14.5000, 4810.14.7040, 
4810.19.1900, 4810.19.2010, and 4810.19.2090 of the Harmonized Tariff 
Schedule of the United States (``HTSUS''). While HTSUS subheadings are 
provided for convenience and customs purposes, our written description 
of the scope of this investigation is dispositive.

Scope Comments

    In accordance with the preamble to the Department's regulations 
(see Antidumping Duties; Countervailing Duties, 62 FR 27296, 27323 (May 
19, 1997) (``Preamble'')), in our Initiation Notice we set aside a 
period of time for parties to raise issues regarding product coverage, 
and encouraged all parties to submit comments within 20 calendar days 
of publication of the Initiation Notice.
    On December 18, 2006, respondents in the antidumping duty 
investigation of CFS from Indonesia submitted timely scope comments on 
the administrative record of that investigation. On January 12, 2007, 
the Department requested that the respondents file these comments on 
the administrative records of all the CFS investigations. See 
Memorandum from Alice Gibbons to the File (January 12, 2007). On 
January 12, 2007, respondents re-filed these comments on the 
administrative record of all the CFS investigations. On January 19, 
2007, petitioner filed a response to these comments.
    The respondents requested that the Department exclude from its 
investigations cast-coated free sheet paper. The Department analyzed 
this request, together with the comments from petitioner, and 
determined that it is not appropriate to exclude cast-coated free sheet 
paper from the scope of these investigations. See Memorandum to Stephen 
J. Claeys, Deputy Assistant Secretary for Import Administration: 
Regarding Request to Exclude Cast-Coated Free Sheet Paper from the 
Antidumping Duty and Countervailing Duty Investigations on Coated Free 
Sheet Paper (March 22, 2007).\4\
---------------------------------------------------------------------------

    \4\ A copy of this memorandum is available in the CRU.
---------------------------------------------------------------------------

Injury Test

    Because Korea is a ``Subsidies Agreement Country'' within the

[[Page 17509]]

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 December 29, 2006, the ITC published its 
preliminary determination that there is a reasonable indication that an 
industry in the United States is materially injured by reason of 
imports from China, Indonesia, or Korea of subject merchandise. See 
Coated Free Sheet Paper from China, Indonesia, and Korea, Investigation 
Nos. 701-TA-444-446 (Preliminary) and 731-TA-1107-1109 (Preliminary), 
71 FR 78464 (December 29, 2006).

Period of Investigation

    The period of investigation (``the POI'') for which we are 
measuring subsidies is January 1, 2005, through December 31, 2005, 
which corresponds to the most recently completed fiscal year for all of 
the respondents. See 19 CFR 351.204(b)(2).

Cross-Ownership

    In the instant investigation, we are examining cross-owned 
companies within the meaning of section 771(33) of the Act, whose 
relationship may be sufficient to warrant treatment as a single company 
with a single, combined CVD rate. In the CVD questionnaire, consistent 
with our past practice, the Department defined companies as 
sufficiently related where one company owns five percent or more of the 
other company, or where companies prepare consolidated financial 
statements. The Department has also stated that companies may be 
considered sufficiently related where there are common directors or one 
company performs services for the other company. According to the 
questionnaire, where such companies produce the subject merchandise or 
where such companies have engaged in certain financial transactions 
with the company producing the subject merchandise, the affiliated 
parties are required to respond to the Department's questionnaire.
    In its questionnaire response, Kyesung identified Namhan Paper Co., 
Ltd. (``Namhan'') and Poongman Paper Co., Ltd. (``Poongman'') as its 
affiliated companies that produce and sell subject merchandise. Namhan 
and Poongman merged during the POI. Therefore, Namhan submitted a 
questionnaire response covering the POI that contained data for Namhan 
and Poongman before and after the merger (as one company). Similarly, 
in its questionnaire response, Moorim identified Moorim SP as its 
affiliate that produces and sells subject merchandise. Moorim SP 
submitted a questionnaire response to the Department.
    For the countervailable subsidy benefits enjoyed by Kyesung and 
Namhan/Poongman and Moorim and Moorim SP, we attributed those benefits 
in accordance with 19 CFR 351.525(b)(6)(ii), which states that if two 
(or more) corporations with cross-ownership produce the subject 
merchandise, the Department will attribute the subsidies received by 
either or both companies to the products produced by both companies. 
Therefore, we have preliminarily calculated a single CVD ad valorem 
rate for Kyesung and Moorim, respectively, by dividing the combined 
subsidy benefits for the cross-owned companies by the companies' 
consolidated total sales, or consolidated total export sales, as 
appropriate.

Subsidies Valuation Information

Benchmarks for Loans and Discount Rate

A. Benchmark for Long-Term Loans Issued Through 2005
    Pursuant to 19 CFR 351.524(d)(3)(i), the Department will use, when 
available, the company-specific cost of long-term, fixed rate loans 
(excluding loans deemed to be countervailable subsidies) as a discount 
rate for allocating non-recurring benefits over time. Similarly, 
pursuant to 19 CFR 351.505(a), the Department will use the actual cost 
of comparable borrowing by a company as a loan benchmark, when 
available. According to 19 CFR 351.505(a)(2), a comparable commercial 
loan is defined as one that, when compared to the loan being examined, 
has similarities in the structure of the loan (e.g., fixed interest 
rate vs. variable interest rate), the maturity of the loan (e.g., 
short-term vs. long-term), and the currency in which the loan is 
denominated.
    During the POI, EN Paper (formerly known as Shinho Paper), Hansol, 
Kyesung, and Moorim had outstanding long-term won-denominated and 
foreign-currency denominated loans from the KDB and other government-
owned financial institutions. For this preliminary determination, we 
are using the following benchmarks to calculate the subsidies 
attributable to respondents' countervailable long-term loans obtained 
in the years 1993 through 2005:
    (1) For countervailable, foreign-currency denominated loans for 
creditworthy companies, we used, where available, the company-specific 
interest rates on the companies' comparable commercial, foreign 
currency loans. Where no such benchmark instruments were available, 
consistent with 19 CFR 351.505(a)(3)(ii) as well as our methodology in 
prior Korea CVD cases, we relied on the prime lending rates as reported 
by the IMF's International Financial Statistics Yearbook (``IMF 
Yearbook''). See Final Affirmative Countervailing Duty Determination: 
Dynamic Random Access Memory Semiconductors from the Republic of Korea, 
68 FR 37122 (June 23, 2003) (``DRAMS Investigation''), and accompanying 
Issues and Decision Memorandum at ``Discount Rates and Benchmark 
Loans'' (``DRAMS Investigation Memorandum'').
    (2) For countervailable, won-denominated long-term loans, we used, 
where available, the company-specific interest rates on the companies' 
comparable commercial, won-denominated loans. If such loans were not 
available, we used the company-specific corporate bond rate (for 
commercial debt preliminarily found not to be countervailable) on the 
companies' won-denominated public and private bonds. See 19 CFR 
351.505(a)(3)(iii). Where company-specific rates were not available, we 
used the national average of the yields on three-year, won-denominated 
corporate bonds, as reported by the Bank of Korea (``BOK''). This 
approach is consistent with the Department's past practice. See DRAMS 
Investigation Memorandum, at ``Discount Rates and Benchmark Loans.''
    (3) For countervailable, won-denominated commercial debt issued by 
the KDB, we used, where available, the company-specific corporate bond 
rate on the companies' won-denominated public and private bonds. See 19 
CFR 351.505(a)(3)(iii). Where company-specific rates were not 
available, we used the national average of the yields on three-year, 
won-denominated corporate bonds, as reported by the BOK.
    Further, in accordance with 19 CFR 351.505(a)(2), our benchmarks 
take into consideration the structure of the government-provided loans. 
For fixed-rate loans, pursuant to 19 CFR 351.505(a)(2)(iii), we used 
benchmark rates issued in the same year that the government loans were 
issued. For variable-rate loans outstanding during the POI, pursuant to 
19 CFR 351.505(a)(5)(i), our preference is to use the interest rates of 
variable-rate lending instruments issued during the year in which the 
government loans were issued. Where such benchmark

[[Page 17510]]

instruments were unavailable, we used interest rates from loans issued 
during the POI as our benchmark, as such rates better reflect a 
variable interest rate that would be in effect during the POI. This 
approach is in accordance with the Department's practice in cases with 
similar facts. See, e.g., Final Results and Partial Rescission of 
Countervailing Duty Administrative Review: Stainless Steel Sheet and 
Strip From the Republic of Korea, 68 FR 13267 (March 19, 2003), and 
accompanying Issues and Decision Memorandum, at Comment 8; see also 19 
CFR 351.505(a)(5)(ii).
    In addition, because we preliminarily determined that Poongman was 
uncreditworthy in 2004, in accordance with 19 CFR 351.524(d)(3)(ii) 
(see ``Creditworthiness'' section, below), we have calculated for 
Poongman a long-term uncreditworthy benchmark and discount rate for 
2004. According to 19 CFR 351.505(a)(3)(iii), in order to calculate 
these rates, the Department must specify values for four variables: (1) 
The probability of default by an uncreditworthy company; (2) the 
probability of default by a creditworthy company; (3) the long-term 
interest rate for creditworthy borrowers; and (4) the term of the debt. 
For the probability of default by an uncreditworthy company, we have 
used the average cumulative default rates reported for the Caa- to C-
rated category of companies as published in Moody's Investors Service, 
``Historical Default Rates of Corporate Bond Issuers, 1920-1997'' 
(February 1998).
B. Benchmark Discount Rates
    Certain programs examined in this investigation require the 
allocation of benefits over time. Thus, we have employed the allocation 
methodology described under 19 CFR 351.524(d). Pursuant to 19 CFR 
351.524(d)(3)(i), we based our discount rate upon data for the year in 
which the government agreed to provide the subsidy. Under 19 CFR 
351.524(d)(3)(i)(A), our preference is to use the cost of long-term, 
fixed-rate loans of the firm in question. Thus, where available, we 
used company-specific long-term loan benchmark of corporate bond rates 
on public and private bonds. Where those benchmarks are unavailable, 
pursuant to 19 CFR 351.524(d)(3)(i)(B), we used the national average of 
the yields on three-year corporate bonds, as reported by the BOK.
C. Benchmarks for Short-Term Financing
    The benefit calculation for the Export and Import Credit Financing 
from the Export-Import Bank of Korea requires the application of a won-
denominated, short-term interest rate benchmark. Absent a company-
specific interest rate, we used as our benchmark the lending rate for 
won-denominated loans for the POI, as reported in the IMF Yearbook. 
This approach is in accordance with 19 CFR 351.505(a)(3)(ii) and the 
Department's practice. See, e.g., Preliminary Results of Countervailing 
Duty Administrative Review: Corrosion-Resistant Carbon Steel Flat 
Products from the Republic of Korea, 71 FR 53413, 53419 (September 11, 
2006) (unchanged at the final results, see Final Results of 
Countervailing Duty Administrative Review: Corrosion-Resistant Carbon 
Steel Flat Products from the Republic of Korea, 72 FR 119 (January 3, 
2007)).
D. Allocation Period
    Under 19 CFR 351.524(d)(2)(i), we will presume the allocation 
period for non-recurring subsidies to be the average useful life 
(``AUL'') of renewable physical assets for the industry concerned, as 
listed in the Internal Revenue Service's (``IRS'') 1977 Class Life 
Asset Depreciation Range System (``IRS tables''), as updated by the 
U.S. Department of the Treasury. The presumption will apply unless a 
party claims and establishes that these tables do not reasonably 
reflect the AUL of the renewable physical assets for the company or 
industry under investigation, and the party can establish that the 
difference between the company-specific or country-wide AUL for the 
industry under investigation is significant, pursuant to 19 CFR 
351.524(d)(2)(ii). For assets used to manufacture products such as CFS 
paper, the IRS tables prescribe an AUL of 13 years.
    In their questionnaire responses, each respondent company stated 
that it would not attempt to rebut the regulatory presumption by 
meeting the criteria set forth in 19 CFR 351.524(d)(2)(iii). Thus, for 
respondents, we will use the IRS AUL of 13 years to allocate any non-
recurring subsidies for purposes of this preliminary determination.
    Further, for non-recurring subsidies, we have applied the ``0.5 
percent expense test'' described in 19 CFR 351.524(b)(2). Under this 
test, we compare the amount of subsidies approved under a given program 
in a particular year to sales (total sales or total export sales, as 
appropriate) for the same year. If the amount of subsidies is less than 
0.5 percent of the relevant sales, then the benefits are allocated to 
the year of receipt rather than allocated over the AUL period.
E. Creditworthiness
    The examination of creditworthiness is an attempt to determine if 
the company in question could obtain long-term financing from 
conventional commercial sources. See 19 CFR 351.505(a)(4). According to 
19 CFR 351.505(a)(4)(i), the Department will generally consider a firm 
to be uncreditworthy if, based on information available at the time of 
the government-provided loan, the firm could not have obtained long-
term loans from conventional commercial sources. In making this 
determination, according to 19 CFR 351.505(a)(4)(i), the Department 
normally examines the following four types of information: (1) The 
receipt by the firm of comparable commercial long-term loans; (2) 
present and past indicators of the firm's financial health; (3) present 
and past indicators of the firm's ability to meet its costs and fixed 
financial obligations with its cash flow; and (4) evidence of the 
firm's future financial position.
    With respect to item number one above, pursuant to 19 CFR 
351.505(a)(4)(ii), in the case of firms not owned by the government, 
the receipt by the firm of comparable long-term commercial loans, 
unaccompanied by a government-provided guarantee (either explicit or 
implicit), will normally constitute dispositive evidence that the firm 
is not uncreditworthy. However, according to the preamble to the 
Department's CVD regulations, in situations, for instance, where a 
company has taken out a single commercial bank loan for a relatively 
small amount, where a loan has unusual aspects, or where we consider a 
commercial loan to be covered by an implicit government guarantee, we 
may not view the commercial loan(s) in question to be dispositive of a 
firm's creditworthiness. See Preamble, at 65367.
    In the Initiation Notice, we indicated that we would investigate 
Shinho Paper's creditworthiness for the period 1998 through 2005, and 
Poongman's creditworthiness for 2004. As discussed in the March 29, 
2007, memorandum entitled ``Shinho Paper's Equityworthiness and 
Creditworthiness,'' we preliminarily determined Shinho Paper to be 
creditworthy each year from 1998 through 2005 (a copy of this 
memorandum is available in the CRU). Regarding Poongman, we 
preliminarily determine Poongman to be uncreditworthy in 2004. See 
Memorandum to the File Regarding Poongman's Creditworthiness (March 29, 
2007), which is available in the

[[Page 17511]]

CRU. Therefore, pursuant to 19 CFR 351.505(a)(3)(iii), we derived an 
``uncreditworthy'' benchmark interest rate and used it to calculate the 
benefit that Poongman received from debt that was forgiven in 2004. For 
information on Poongman, see the ``Poongman's Restructuring'' section 
below.
F. Equityworthiness
    Section 771(5)(E)(i) of the Act and 19 CFR 351.507 state that, in 
the case of a government-provided equity infusion, a benefit is 
conferred if an equity investment decision is inconsistent with the 
usual investment practice of private investors. According to 19 CFR 
351.507, the first step in determining whether an equity investment 
decision is inconsistent with the usual investment practice of private 
investors is examining whether, at the time of the infusion, there was 
a market price for similar, newly issued equity. If so, the Department 
will consider an equity infusion to be inconsistent with the usual 
investment practice of private investors if the price paid by the 
government for newly issued shares is greater than the price paid by 
private investors for the same, or similar, newly issued shares. See 19 
CFR 351.507(a)(2)(i).
    If actual private investor prices are not available, then, pursuant 
to 19 CFR 351.507(a)(3)(i), the Department will determine whether the 
firm funded by the government-provided infusion was equityworthy or 
unequityworthy at the time of the equity infusion. In making the 
equityworthiness determination, pursuant to 19 CFR 351.507(a)(4), the 
Department will normally determine that a firm is equityworthy if, from 
the perspective of a reasonable private investor examining the firm at 
the time the government-provided equity infusion was made, the firm 
showed an ability to generate a reasonable rate of return within a 
reasonable time. To do so, the Department normally examines the 
following factors: (1) Objective analyses of the future financial 
prospects of the recipient firm; (2) current and past indicators of the 
firm's financial health; (3) rates of return on equity in the three 
years prior to the government equity infusion; and (4) equity 
investment in the firm by private investors.
    Section 351.507(a)(4)(ii) of the Department's regulations further 
stipulates that the Department will ``normally require from the 
respondents the information and analysis completed prior to the 
infusion, upon which the government based its decision to provide the 
equity infusion.'' Absent an analysis containing information typically 
examined by potential private investors considering an equity 
investment, the Department will normally determine that the equity 
infusion provides a countervailable benefit. This is because, before 
making a significant equity infusion, it is the usual investment 
practice of private investors to evaluate the potential risk versus the 
expected return, using the most objective criteria and information 
available to the investor.
    In the Initiation Notice, we indicated that we would investigate 
Shinho Paper's equityworthiness for the period 1998 through 2005, and 
Poongman's equityworthiness for 2004. As discussed in the March 29, 
2007, memorandum entitled ``Shinho Paper's Equityworthiness and 
Creditworthiness'' (which is on file in the CRU), we preliminarily 
determine that Shinho Paper was equityworthy each year from 1998 
through 2005. For information on Poongman, see the ``Poongman's 
Restructuring'' section, below.

I. Programs Preliminarily Determined To Be Countervailable

A. Long-Term Lending Provided by the KDB and Other GOK-Owned 
Institutions

    Petitioner alleges that lending by the KDB to the Korean paper 
sector was a financial contribution, which provided a benefit and was 
specific to the paper sector. Petitioner also argues that in addition 
to the KDB, the Industrial Bank of Korea, National Agricultural 
Cooperative Federation, the National Federation of Fisheries, and the 
Export-Import Bank be treated as governmental authorities, consistent 
with our approach in DRAMS Investigation. See Petition for the 
Imposition of Countervailing Duties from Petitioners to the Department 
at 15 (October 31, 2006) (``Petition''). Petitioner alleges that GOK 
lending by these various government entities was specific to the paper 
industry. In its allegation, petitioner suggests that the Department 
adopt a methodology under which the amount of the paper sector's share 
of KDB loans is compared to the paper sector's contribution to the 
total manufacturing output in Korea. According to petitioner, where 
this analysis shows that the amount of the paper sector's loans from 
the KDB exceeds that sector's share of Korean manufacturing output, the 
Department should find that the paper sector received a 
disproportionate share of KDB loans, i.e., which is therefore specific 
under section 771(5A)(D)(iii) of the Act. See Petition, at 17-18.
    As explained above, the Department preliminarily agrees that KDB 
and other GOK lending institutions provide a financial contribution to 
the Korea paper sector under section 771(5)(D)(i) of the Act. We also 
preliminarily determine that KDB lending to the paper sector was 
specific in accordance with section 771(5A)(D)(iii)(III) of the Act 
because the paper sector received a disproportionate share of KDB loans 
between 1999 and 2005 when compared to that sector's contribution to 
the overall Korean Gross Domestic Product (``GDP'').\5\ See Memorandum 
to the File Regarding Analysis of Korea Paper Sector's share of KDB 
Lending (March 29, 2007) (``KDB Memorandum''). While the record is not 
adequately developed regarding loans provided to the paper sector by 
other GOK lending institutions, there is no reason to believe that the 
lending patterns of these other government lending institutions would 
be different than the lending pattern of the KDB, the country's leading 
supplier of long-term funds to domestic corporations over the period.
---------------------------------------------------------------------------

    \5\ In reporting economic activity that contributes to the 
Korean GDP, the BOK does not report a category particular just to 
the paper sector. The paper sector's contribution to GDP is 
contained within the category ``wood, paper, publishing, and 
printing.'' Therefore, to conduct our GDP analysis, we are using 
this broad category. To the extent that we could, we combined the 
lending data for ``wood, paper, publishing, and printing'' to 
achieve an ``apples-to-apples'' comparison between share of GDP and 
share of loans for this sector. See KDB Memorandum, for more 
discussion.
---------------------------------------------------------------------------

    With regard to KDB's lending to the paper sector in the years 1993 
through 1998, we do not have on the record KDB-specific lending data 
for these years. The GOK reported that the KDB no loner maintains 
lending data for newly issued loans for this period either in 
electronic or paper form. See GOK's questionnaire response at 26 
(January 26, 2007) and at 16 (March 6, 2007). However, for the years 
1993 through 1998, we have on the record data on the total lending to 
the paper sector, encompassing loans from the KDB, other GOK financial 
institutions, and commercial banks. See GOK's questionnaire response at 
page 20 and Exhibits 6 and 7 (January 26, 2007). We, therefore, 
examined the paper sector's share of total lending to the paper 
sector's share of GDP in each of those years. We find that the record 
indicates that the paper sector received a disproportionate share of 
total lending in each year 1993 through 1998 when compared to the 
sector's contribution to the overall Korean GDP, and that this can 
serve as a reasonable proxy for the KDB-specific lending data. Given 
the finding that the paper sector received a

[[Page 17512]]

disproportionate share of KDB loans in each year 1999 through 2005, and 
the lending trend identified for the paper sector 1993 through 1998, we 
also preliminarily determine that the paper sector received a 
disproportionate share of KDB loans between 1993 and 1998, and that 
this lending was specific in accordance with section 
771(5A)(D)(iii)(III) of the Act.
    The comparison between KDB lending received by the paper sector and 
the paper sector's contribution to the GDP of Korea is consistent with 
the Department's approach in Plate in Coils. See Final Negative 
Countervailing Duty Determination: Stainless Steel Plate in Coils From 
the Republic of Korea, 64 FR 15530 (March 31, 1999) (``Plate in 
Coils''); see also Memorandum from David Mueller to Holly A. Kuga: 
Regarding Analysis Concerning Direction of Credit, Subject: 
Countervailing Duty Investigation (March 4, 1998).\6\
---------------------------------------------------------------------------

    \6\ A copy of this public document has been placed on the record 
of this review.
---------------------------------------------------------------------------

    In accordance with 19 CFR 351.505(c)(2) and (4), for each 
respondent, we calculated the benefit for each fixed- and variable-rate 
loan received from the KDB and other GOK lending institutions, as well 
as commercial debt issued by KDB where relevant, to be the difference 
between the actual amount of interest paid on the government loan 
during the POI and the amount of interest that would have been paid 
during the POI at the benchmark interest rate. We conducted our benefit 
calculations using the benchmark interest rates described in the 
``Subsidies Valuation Information'' section, above. For foreign 
currency-denominated loans, we converted the benefits into Korean won 
using the appropriate exchange rate. For each company, we then summed 
the benefits from the long-term fixed-rate and variable-rate won-
denominated loans, and commercial debt issued by KDB where relevant, 
and divided that amount by each company's total sales values for the 
POI. We preliminarily determine the net countervailable subsidy rates 
to be, for: Hansol 1.01 percent ad valorem, Kyesung 0.01 percent ad 
valorem, and Moorim 0.02 percent ad valorem.

B. Poongman's Restructuring

    Petitioner alleges that Poongman, a CFS-producing affiliate of 
Kyesung, received countervailable benefits from the GOK through 
extensions of debt maturities in 2002 and 2004, and a debt-for-equity 
swap in 2004. See Petition, at 67-69. Petitioner states that the KDB, 
owned/controlled by the GOK, was the main participant in the debt-for-
equity swap. Petitioner further alleges that Poongman was 
unequityworthy and uncreditworthy in 2004. They base their allegation 
of Poongman's unequityworthiness and uncreditworthiness on its 
financial statements and its creditors' assessments. Therefore, 
petitioner argues that the GOK conferred a benefit upon Poongman, 
within the meaning of sections 771(5)(E)(i) and (ii) of the Act, in the 
form of a government equity infusion and a loan. Petitioner further 
alleges that the debt-for-equity swap and the extensions of debt 
maturities constitute government financial contributions within the 
meaning of section 771(5)(D)(i) of the Act. In addition, petitioner 
alleges that this program is specific under section 771(5A)(D)(iii) of 
the Act, as this transaction was limited to Poongman. Pursuant to the 
Corporate Restructuring Promotion Act (``CRPA''), Korea's statutory 
framework for debt restructurings, Poongman's creditors performed a 
biannual credit assessment of the company in 2001.\7\ As a result of 
this assessment, Poongman received a `B' rating, which allowed it to go 
through self-restructuring, rather than through the formal CRPA 
process. See GOK's questionnaire response at pages 2 and 19 (February 
2, 2007). Pursuant to the self-restructuring, in 2002, Poongman was 
granted an extension on the debt maturities for some of its KDB loans 
that were coming due. No other creditors besides the KDB granted the 
extensions during this period. As discussed further below, the interest 
owed as a result of this extension was forgiven and resulted in the 
provision of a countervailable subsidy.
---------------------------------------------------------------------------

    \7\ The CRPA was enacted in September 2001, to help stabilize 
the financial and corporate sectors recovering from the 1997 
financial crisis by allowing for corporate restructurings with more 
transparency and promptness. Its intent is to give greater 
responsibility to the creditors in resolving the fate of non-
performing debt in the market by implementing a corporate risk 
rating system and conducting regular credit risk assessments on 
companies receiving 50 billion won or more in credit.
---------------------------------------------------------------------------

    Following another credit assessment in 2002, the KDB classified 
Poongman as a credit risk company and demanded it perform self-
restructuring in accordance with Article 10.3 of the CRPA. See id. at 
Exhibit K-1; see also GOK's questionnaire response at page 16 (March 
16, 2007). As a result, Poongman engaged the services of a management 
consulting company to provide a financial analysis. The record facts 
further indicate that the management consulting company provided a 
report based on commercial considerations which served as the basis for 
the restructuring of Poongman and its merger with Namhan. See Namhan's 
questionnaire response at Exhibit L-20 (February 2, 2007) and Exhibit 
L-44 (March 13, 2007).
    In June 2004, Poongman's restructuring package was agreed to by 
Poongman's creditors and Namhan. This package included an agreement 
that Poongman would merge with Namhan, Poongman's creditors would swap 
Poongman's debt in exchange for shares in Namhan, and Poongman's 
creditors would extend Poongman's remaining debt maturities. 
Subsequently, Poongman's board of directors approved the restructuring 
package on June 8, 2004, and the debt-for-equity swap was made. Due to 
volatile market conditions, and not due to any changes to the terms of 
the merger, the merger did not take effect until July 31, 2005, when 
Poongman's stocks were swapped for Namhan's stocks.
    In a past review involving a Korean corporate restructuring, the 
Department found that in a debt-for-equity swap that was conditioned on 
a merger of a non-equityworthy company (Kangwon) with an equityworthy 
company (Inchon), the creditors of the non-equityworthy company were 
effectively exchanging their debt for equity in the equityworthy 
company. In that case, Kangwon merged into Inchon, with Inchon being 
the post-merger company. See Final Results of Countervailing Duty 
Administrative Review: Stainless Steel Sheet and Strip in Coils from 
the Republic of Korea, 69 FR 2113 (January 14, 2004) (``Stainless 
Steel''), and accompanying Issues and Decision Memorandum at Comment 3. 
In Stainless Steel, the Department found that the terms of the merger 
and the debt-for-equity swap were part of the same agreement and that 
the legal requirements for the agreement had been fulfilled before the 
debt-for-equity swap took place. Id. Moreover, there was no allegation 
that Inchon was not equityworthy, and the Department found that the 
record evidence regarding Inchon's financial status provided no reason 
to question its equityworthiness. Id. Consequently, the Department 
concluded that the equityworthiness of Kangwon, the non-equityworthy 
company, was not relevant to the determination of whether a benefit was 
conferred. Id.
    In this case, we find that the debt-to-equity swap was agreed to by 
Poongman's creditors on the condition that the merger with Namhan would 
occur, and that the share issuance price would be the market price. 
Moreover, we find that the terms of the merger and

[[Page 17513]]

the swap were part of the same agreement that was approved by 
Poongman's board of directors. Based on record evidence, and consistent 
with Stainless Steel, we preliminarily find that, because the swap and 
the extension of debt maturities took place on the condition of 
Poongman's merger into Namhan, Poongman's creditors were effectively 
exchanging their debt for equity in Namhan, an equityworthy company.
    In looking to the post-merger entity as the reference for analyzing 
equityworthiness and creditworthiness, the Department takes due 
consideration of the specific facts of the case. In the instant 
investigation, the record evidence shows Namhan to be a larger, 
financially more stable company relative to Poongman. In addition, 
petitioner has not alleged that Namhan was an unequityworthy or 
uncreditworthy company during the relevant time period. Thus, in 
accordance with section 771(5)(E)(i) of the Act, we find that the 
decision by Poongman's creditors to swap debt for equity in Namhan was 
not inconsistent with the usual practice of private investors and did 
not confer a benefit to Poongman. Therefore, we preliminarily find that 
the debt-for-equity swap and the debt maturity extensions that occurred 
in 2004, on condition of the merger with Namhan are not 
countervailable.
    However, with regard to the forgiveness of interest owed as 
discussed earlier, we preliminarily find that this forgiveness of debt 
constitutes the provision of a financial contribution. In addition, we 
preliminarily find that it was specific to Poongman within the meaning 
of section 771(5A)(D)(iii) of the Act, in that it was limited to one 
company. As such, we preliminarily determine the net countervailable 
subsidy to be 0.49 percent ad valorem.

C. Export and Import Credit Financing From the Export-Import Bank of 
Korea (``KEXIM'')

    The Department has previously determined that the GOK's short-term 
export financing program is countervailable. See e.g., Preliminary 
Results of Countervailing Duty Administrative Review: Corrosion-
Resistant Carbon Steel Flat Products from the Republic of Korea, 71 FR 
53413, 53419 (September 11, 2006), (unchanged at the final results, see 
Final Results of Countervailing Duty Administrative Review: Corrosion-
Resistant Carbon Steel Flat Products from the Republic of Korea, 72 FR 
119 (January 3, 2007)); see also Final Affirmative Countervailing Duty 
Determination: Certain Cut-to-Length Carbon-Quality Steel Plate From 
the Republic of Korea, 64 FR 73176, 73180 (December 29, 1999). No new 
information from interested parties has been presented in this 
investigation to warrant a reconsideration of the countervailability of 
this program. Therefore, we preliminarily find that this program is 
countervailable.
    We preliminarily determine that the program is specific, pursuant 
to section 771(5A)(B) of the Act, because receipt of the financing is 
contingent upon exporting. In addition, we preliminarily determine that 
the export financing constitutes a financial contribution in the form 
of a loan within the meaning of section 771(5)(D)(i) of the Act and 
confers a benefit within the meaning of section 771(5)(E)(ii) of the 
Act. During the POI, Hansol was the only respondent that received 
export financing from the KEXIM.
    Pursuant to 19 CFR 351.505(a)(1), to calculate the benefit under 
this program, we compared the amount of interest paid under the program 
to the amount of interest that would have been paid on a comparable 
commercial loan. As our benchmark, we used the short-term interest 
rates discussed above in the ``Subsidies Valuation Information'' 
section. To calculate the net subsidy rate, we divided the benefit by 
the f.o.b. value of Hansol's total exports for 2005. On this basis, we 
preliminarily determine the net countervailable subsidy rate for Hansol 
to be 0.13 percent ad valorem.

D. Sale of Pulp for Less Than Adequate Remuneration

    Donghae Pulp Company (``DP'') is the sole domestic producer/
supplier of chemical pulp to the Korean pulp and paper industry. DP 
sells one type of chemical pulp to CFS producers, specifically bleached 
woodcraft pulp from the broadleaf trees. The key input into the 
production of CFS paper is chemical pulp, which respondents either 
import or purchase domestically from DP. During the POI, all 
respondents purchased chemical pulp directly from DP.\8\
---------------------------------------------------------------------------

    \8\ DP sells chemical pulp directly to end-users. There are no 
distributors of chemical pulp in Korea.
---------------------------------------------------------------------------

    DP was originally Daehan Chemical Pulp (``DCP''), established in 
January 1974, under the laws of the Republic of Korea, as a government-
funded enterprise to manufacture and sell chemical pulp. DCP changed 
its name to DP in June 1977, and in 1987, the GOK sold its interest in 
DP to several companies that were end users of chemical pulp. Since 
June 1989, the shares of DP have been listed on the Korea Stock 
Exchange. In April 1998, DP declared bankruptcy and applied to the 
court for company reorganization. Soon thereafter, DP began operating 
under court receivership.\9\ In September 1999, as part of the 
reorganization, the shares of some companies were retired without 
compensation.\10\ In November 1999, the shares of the remaining 
shareholders were consolidated and the creditors swapped their debt for 
equity shares in DP. As a result of this debt-to-equity conversion, KDB 
became DP's largest shareholder. Officials from the KDB are directors 
on DP's board of directors.
---------------------------------------------------------------------------

    \9\ During the POI, DP remained in court receivership.
    \10\ Specifically, as part of DP's reorganization, the shares of 
Kyesung, Namhan, Poongman, Moorim, Moorim SP, and Hankuk Paper Co., 
Ltd. were retired without any compensation.
---------------------------------------------------------------------------

    Respondents argue that, since DP is in court receivership, the GOK 
does not control DP or direct it to sell chemical pulp to Korean CFS 
producers for less than adequate remuneration. In support of their 
argument, respondents discuss that in an earlier Korean CVD 
administrative review, the Department found that because Sammi Steel 
Co., Ltd. (``Sammi'') was in court receivership, Inchon Iron & Steel 
Co., Ltd., although a major shareholder, was not able to control 
Sammi's assets. See Final Results and Partial Rescission of 
Countervailing Duty Administrative Review: Stainless Steel Sheet and 
Strip from the Republic of Korea, 68 FR 13267 (March 19, 2003), and 
accompanying Issues and Decision Memorandum at Comment 3 (``Sheet and 
Strip 2003'').
    However, contrary to respondents'' argument concerning Sheet and 
Strip 2003, the facts of this instant investigation in which we are 
examining DP are distinct from the facts that we examined with regard 
to Sammi's court receivership. Specifically, in Sheet and Strip 2003, 
we examined Sammi's court receivership in the context of cross-
ownership and the attribution of benefits, whereas, in this instant 
investigation, we are examining whether DP should be considered a GOK 
entity for purposes of examining whether a countervailable benefit is 
being provided. Id.
    In order to assess whether an entity such as DP should be regarded 
as the government for purposes of a CVD proceeding, the Department 
considers the following factors to be relevant: (1) The government's 
ownership; (2) the government's presence on the entity's board of 
directors; (3) the government's control over the entity's activities; 
(4)

[[Page 17514]]

the entity's pursuit of governmental policies or interests; and (5) 
whether the entity is created by statute. See, e.g., Final Affirmative 
Countervailing Duty Determinations: Pure Magnesium and Alloy Magnesium 
from Canada, 57 FR 30946, 30954 (July 13, 1992); Final Affirmative 
Countervailing Duty Determination: Certain Fresh Cut Flowers from the 
Netherlands, 52 FR 3301, 3302, 3310 (February 3, 1987); and Final 
Affirmative Countervailing Duty Determination: Stainless Steel Sheet 
and Strip in Coils from the Republic of Korea, 64 FR 30636, 30642-30643 
(June 8, 1999) (``Sheet and Strip 1999'').
    We preliminarily find DP to be a government authority under section 
771(5)(B)(i) of the Act. DP was established by the GOK in 1974 to 
address the government's interest in establishing a domestic 
manufacturer and supplier of chemical pulp to the paper industry. DP is 
majority-owned by the KDB, a government-owned financial institution 
that also has presence on DP's board of directors. We do not believe 
that DP's court receivership status overrides the factors considered by 
the Department, which are outlined above.
    Further, this finding that DP is a government authority is 
consistent with prior determinations by the Department. For example, 
the Department determined that the actions of Pohang Iron and Steel 
Company, Ltd. (``POSCO'') should be considered as actions of the GOK 
because POSCO was a government-owned company. At that time, the GOK was 
POSCO's largest shareholder. See id., at 30642-30643.
    Further, we preliminarily find that DP's provision of chemical pulp 
constitutes a financial contribution because it is the provision of a 
good as defined in section 771(5)(D)(iii) of the Act. We also 
preliminarily find that the provision of chemical pulp is specific in 
accordance with section 771(5A)(D)(iii)(I) of the Act because it is 
limited to the pulp and paper industry.
    To determine whether there is a benefit from the provision of a 
good, the Act specifies that the Department must examine whether the 
good was provided for less than adequate remuneration. According to 
section 771(5)(E) of the Act, the adequacy of remuneration with respect 
to a government's provision of a good shall be determined in relation 
to prevailing market conditions for the good being provided or the 
goods being purchased in the country which is subject to the 
investigation or review. Prevailing market conditions include price, 
quality, availability, marketability, transportation, and other 
conditions of purchase or sale. Section 351.511 of the Department's 
regulations sets forth, in order of preference, the benchmarks that we 
will examine in determining the adequacy of remuneration. As discussed 
under 351.511(a)(2)(i), the first preference is to compare the 
government price to a market-determined price resulting from actual 
transactions within the country, including imports. In this case, as DP 
is the only domestic supplier of chemical pulp, there is no domestic 
price that can serve as a benchmark price. However, the respondents 
imported chemical pulp comparable, in terms of quality and quantity, to 
that purchased from DP during the POI.
    To calculate the benefit under this program, for each respondent, 
we compared the monthly delivered weighted-average price, after all 
discounts, paid to DP for chemical pulp to the calculated monthly 
delivered weighted-average import price paid to foreign suppliers of 
chemical pulp. We determined the monthly price difference and then 
multiplied the difference by the quantity of chemical pulp purchased 
from DP in each respective month of the POI. We next summed the price 
savings realized by each company and divided that amount by each 
company's total sales value for the POI. On this basis, we 
preliminarily determine the net countervailable subsidy from this 
program for the respondents to be: 0.08 percent ad valorem for EN 
Paper, 0.62 percent ad valorem for Hansol, 0.09 percent ad valorem for 
Kyesung, and 0.02 percent ad valorem for Moorim.

E. Sales of Pulp From Raw Material Reserve for Less Than Adequate 
Remuneration

    The Korean Public Procurement Service (``PPS''),\11\ established in 
January 1949, is a government procurement agency that stockpiles 
certain raw materials (e.g., aluminum, copper, and nickel), basic 
necessities (e.g., salt), and industrial use materials (e.g., chemical 
pulp and natural rubber) using government funds. PPS facilitates the 
short- and long-term supply of goods and seeks to stabilize consumer 
prices, pursuant to the Government Procurement Act.
---------------------------------------------------------------------------

    \11\ The PPS is a subsidiary agency of the Ministry of Finance 
and Economy.
---------------------------------------------------------------------------

    Each year the PPS formulates a storage plan in accordance with the 
economic policies of the GOK. The release of stored items is carried 
out in accordance with the yearly plan. The GOK reported that prices 
for released items are determined based on the cost and market price at 
home and abroad and that in certain circumstances could be released for 
a price lower than the purchase price. The PPS publically announces the 
stockpile release sales via its website and sells directly to end 
users. During the POI, PPS sold chemical pulp, some of which was 
purchased by Moorim SP.
    We preliminarily find that PPS's provision of chemical pulp 
constitutes a financial contribution because it is the provision of a 
good as defined in section 771(5)(D)(iii) of the Act. We also 
preliminarily find this provision of chemical pulp to be specific in 
accordance with section 771(5A)(D)(iii)(I) of the Act because it is 
limited to end users of pulp or entities associated with end users of 
pulp.
    To determine whether there is a benefit from the provision of a 
good, the Act specifies that the Department must examine whether the 
good was provided for less than adequate remuneration. According to 
section 771(5)(E) of the Act, the adequacy of remuneration with respect 
to a government's provision of a good shall be determined in relation 
to prevailing market conditions for the good being provided or the 
goods being purchased in the country which is subject to the 
investigation or review. Prevailing market conditions include price, 
quality, availability, marketability, transportation, and other 
conditions of purchase or sale. Section 351.511 of the Department's 
regulations sets forth, in order of preference, the benchmarks that we 
will examine in determining the adequacy of remuneration. As discussed 
under 19 CFR 351.511(a)(2)(i), the first preference is to compare the 
government price to a market-determined price resulting from actual 
transactions within the country, including imports. As discussed above 
under ``Sale of Pulp for Less Than Adequate Remuneration,'' DP, a 
government-owned entity, is the only domestic producer of pulp. As 
such, there are no market-determined domestic prices for chemical pulp 
available to serve as a benchmark. Moorim SP, however, did have imports 
of chemical pulp during the POI.
    To calculate the benefit under this program, we compared the price 
that Moorim SP paid to PPS for chemical pulp and the import price that 
Moorim paid to a foreign supplier for comparable chemical pulp. We 
determined the price differential and then multiplied that differential 
by the quantity of pulp purchased from PPS. We next divided the price 
savings by the company's total sales value for the POI. On this basis, 
we preliminarily determine the net countervailable

[[Page 17515]]

subsidy for Moorim to be less than 0.005 percent ad valorem.

F. Reduction in Taxes for Operating in Regional and National Industrial 
Complexes

    Under Article 46 of the Industrial Cluster Development and Factory 
Establishment Act (``ICDFE Act''), a state or local government may 
provide tax exemptions as prescribed by the Restriction of Special 
Taxation Act. In accordance with this authority, Article 276 of the 
Local Tax Act provides that entities that acquire real estate in a 
designated industrial complex for the purpose of constructing new 
buildings or enlarging existing facilities are eligible for 
acquisition, registration, and property tax exemptions. Property taxes 
are reduced by either 50 or 100 percent for five years from the date 
the tax liability becomes effective. The 100 percent property tax 
exemption applies to land, buildings, or facilities located in 
industrial complexes outside of the Seoul metropolitan area. The GOK 
established the tax exemption program under Article 276 in December 
1994, to provide incentives for companies to relocate from populated 
areas in the Seoul metropolitan region to industrial sites in less 
populated parts of the country. During the POI, Namhan received a 
property tax exemption under Article 276 for the enlargement of its 
manufacturing facility located in the Chongup Industrial Complex, which 
is designated under the ICDFE Act.
    In prior Korea cases, the Department has determined that local tax 
exemptions provide countervailable subsidies. See, e.g., Final Results 
and Partial Rescission of Countervailing Duty Administrative Review: 
Stainless Steel Sheet and Strip in Coils from the Republic of Korea, 68 
FR 13267 (March 19, 2003), and accompanying Issues and Decision 
Memorandum at ``Inchon's Local Tax Exemption;'' and Final Affirmative 
Countervailing Duty Determination: Certain Cold-Rolled Carbon Steel 
Flat Products from the Republic of Korea, 67 FR 62102 (October 3, 
2002), and accompanying Issues and Decision Memorandum at ``Local Tax 
Exemption on Land Outside of Metropolitan Area.'' No new information 
from interested parties has been presented in this investigation to 
warrant a reconsideration of the countervailability of this program. 
Consistent with those prior determinations, in the instant 
investigation, the Department preliminarily determines that the 
property tax exemption that Namhan received is regionally specific 
under section 771(5A)(D)(iv) of the Act, as being limited to an 
enterprise or industry located within a designated geographical region. 
We preliminarily determine that a financial contribution is provided 
under section 771(5)(D)(ii) of the Act, in the form of revenue 
foregone. A benefit is conferred in the form of a tax exemption.
    To calculate the benefit, we divided Namhan's property tax 
exemption by the company's total sales value for 2005. On this basis, 
we preliminarily determine the net countervailable subsidy under this 
program to be less than 0.005 percent ad valorem.

II. Programs Preliminarily Determined To Not Provide Countervailable 
Benefits During the POI

A. Duty Drawback on Non-Physically Incorporated Items and Excess Loss 
Rates

    The Korean duty drawback system is administered by the Customs 
Policy Division of the Ministry of Finance and Economy (``MOFE''). The 
Act on Special Cases Concerning the Refundment of Customs Duties, Etc., 
Levied on Raw Materials for Export (``Act on Customs Duties'') governs 
the duty drawback program. Under the Korean duty drawback system, for a 
company to receive duty drawback the imported material must be 
physically incorporated into merchandise that is exported within two 
years from the time the input material is imported. There is no import 
duty on chemical pulp, the most important raw material used to produce 
CFS paper. Therefore, CFS producers are not eligible to claim duty 
drawback on imports of chemical pulp. CFS producers, however, can seek 
duty drawback for import duties paid on other materials used in the 
production of CFS paper, e.g., clay, latex, starch, pigment, and 
talcum. Each material has its own single import duty rate.
    The GOK states that under the duty drawback system only import 
duties can be refunded; no other import fees (e.g., value added tax, 
customs brokerage, unloading charges, etc.) are eligible for drawback. 
To seek a drawback of import duties, the company must file with its 
local Customs office an application, import permits, export permits, 
and a statement of accounts for the required amount (see below for a 
discussion of this statement). A company can seek a refund of duties 
through either a company-specific method or fixed amount refund method 
(see below for a discussion of the two duty drawback methods). If the 
documentation is in order, the Customs office refunds the applicable 
duty amount.
    Under section 351.519(a)(1)(i) of the Department's regulations, in 
the case of drawback of import charges, a benefit exists to the extent 
that the amount of the remission or drawback exceeds the amount of 
import charges on imported inputs that are consumed in the production 
of the exported product, making normal allowance for waste. Section 
351.519(a)(4)(i) states that the entire amount of such remission or 
drawback will confer a benefit, unless the Department determines that 
the government in question has in place and applies a system or 
procedure to confirm which inputs are consumed in the production of the 
exported products and in what amounts, and the system or procedure is 
reasonable, effective for the purposes intended, and is based on 
generally accepted commercial practices in the country of export.
    The GOK submitted information on the system that Korean Customs has 
in place to monitor which inputs are consumed in the production of the 
exported products and in what amounts. As noted, there are two duty 
drawback methods used in Korea: (i) The company-specific method, and 
(ii) the fixed amount refund method. Under the company-specific method, 
a company's duty drawback is based upon its ``statement of accounts for 
the required amount.'' This statement, which contains a formula 
specific to each company, demonstrates the amounts of import duty paid 
on imports and the amount of imports used to produce the exported 
product.\12\
---------------------------------------------------------------------------

    \12\ Specifically, the duty drawback amount is calculated 
according to the following two-step formula:
    (1) Required Quantity = Export Quantity * Required Per Unit 
Quantity. The ``required per unit quantity'' is determined by each 
company's production experience. This usage rate is determined based 
on the company's prior fiscal year experience. The GOK reported that 
if the usage rate changes from one year to the next, the company 
must repot its revised usage rate.
    (2) Duty Drawback Amount = Total Import Duty Paid * Required 
Quantity/Total Import Quantity.
---------------------------------------------------------------------------

    The Customs Services' Examination Depa