Corrosion-Resistant Carbon Steel Flat Products From the Republic of Korea: Preliminary Results of Countervailing Duty Administrative Review, 52315-52326 [E8-20918]
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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Notices
ITC Notification
In accordance with section 703(f) of
the Act, we will notify the ITC of our
determination. In addition, we are
making available to the ITC all non–
privileged and non–proprietary
information relating to this
investigation. We will allow the ITC
access to all privileged and business
proprietary information in our files,
provided the ITC confirms that it will
not disclose such information, either
publicly or under an administrative
protective order, without the written
consent of the Assistant Secretary for
Import Administration.
In accordance with section 705(b) (2)
of the Act, if our final determination is
affirmative, the ITC will make its final
determination within 45 days after the
Department makes its final
determination.
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Disclosure and Public Comment
17:08 Sep 08, 2008
Jkt 214001
Dated: September 2, 2008.
David M. Spooner,
Assistant Secretary for Import
Administration.
[FR Doc. E8–20922 Filed 9–8–08; 8:45 am]
BILLING CODE 3510–DS–S
DEPARTMENT OF COMMERCE
International Trade Administration
[C–580–818]
Corrosion-Resistant Carbon Steel Flat
Products From the Republic of Korea:
Preliminary Results of Countervailing
Duty Administrative Review
Import Administration,
International Trade Administration,
Department of Commerce.
SUMMARY: The Department of Commerce
(the Department) is conducting an
administrative review of the
countervailing duty (CVD) order on
corrosion-resistant carbon steel flat
products from the Republic of Korea
(Korea) for the period of review (POR)
January 1, 2006, through December 31,
2006. For information on the net
subsidy for each of the reviewed
companies, see the ‘‘Preliminary Results
of Review’’ section of this notice.
Interested parties are invited to
comment on these preliminary results.
See the ‘‘Public Comment’’ section of
this notice.
DATES: Effective Date: September 9,
2008.
FOR FURTHER INFORMATION CONTACT:
Robert Copyak or Gayle Longest, AD/
CVD Operations, Office 3, Import
Administration, International Trade
Administration, U.S. Department of
Commerce, Room 4014, 14th Street and
Constitution Ave., NW., Washington,
D.C. 20230; telephone: (202) 482–2209
and (202) 482–3338, respectively.
SUPPLEMENTARY INFORMATION:
AGENCY:
In accordance with 19 CFR
351.224(b), the Department will disclose
to the parties the calculations for this
preliminary determination within five
days of its announcement. Case briefs
for this investigation must be submitted
no later than one week after the
issuance of the last verification report.
See 19 CFR 351.309(c) (for a further
discussion of case briefs). Rebuttal
briefs, which must be limited to issues
raised in the case briefs, must be filed
within five days after the deadline for
submission of case briefs. See 19 CFR
351.309(d). A list of authorities relied
upon, a table of contents, and an
executive summary of issues should
accompany any briefs submitted to the
Department. Executive summaries
should be limited to five pages total,
including footnotes.
In accordance with 19 CFR
351.310(c), we will hold a public
hearing, if requested, to afford interested
parties an opportunity to comment on
this preliminary determination.
Individuals who wish to request a
hearing must submit a written request
within 30 days of the publication of this
notice in the Federal Register to the
Assistant Secretary for Import
Administration, U.S. Department of
Commerce, Room 1870, 14th Street and
Constitution Avenue, NW, Washington,
DC 20230. Parties will be notified of the
schedule for the hearing and parties
should confirm the time, date, and place
of the hearing 48 hours before the
scheduled time. Requests for a public
hearing should contain: (1) party’s
name, address, and telephone number;
(2) the number of participants; and (3)
to the extent practicable, an
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identification of the arguments to be
raised at the hearing.
This determination is issued and
published pursuant to sections 703(f)
and 777(i) of the Act and 19 CFR
351.221(b)(4).
Background
On August 17, 1993, the Department
published in the Federal Register the
CVD order on corrosion-resistant carbon
steel flat products (CORE) from Korea.
See Countervailing Duty Orders and
Amendments of Final Affirmative
Countervailing Duty Determinations:
Certain Steel Products from Korea, 58
FR 43752 (August 17, 1993). On August
2, 2007, the Department published a
notice of opportunity to request an
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52315
administrative review of this CVD order.
See Antidumping or Countervailing
Duty Order, Finding, or Suspended
Investigation; Opportunity to Request
Administrative Review, 72 FR 42383
(August 2, 2007). On August 31, 2007,
we received a timely request for review
from Pohang Iron and Steel Co. Ltd.
(POSCO) and Dongbu Steel Co., Ltd.
(Dongbu). On September 25, 2007, the
Department published a notice of
initiation of the administrative review of
the CVD order on corrosion-resistant
carbon steel flat products from Korea
covering the POR January 1, 2006,
through December 31, 2006. See
Initiation of Antidumping and
Countervailing Duty Administrative
Reviews and Requests for Revocation in
Part, 72 FR 54428 (September 25, 2007).
On November 2, 2007, the Department
sent its initial questionnaire to POSCO,
Dongbu, and the Government of Korea
(GOK). On December 20, 2007, the
Department received questionnaire
responses from POSCO, Pohang Steel
Co., Ltd. (POCOS, a production affiliate
of POSCO), POSCO Steel Service &
Sales Co., Ltd. (POSTEEL, a trading
company for POSCO),1 and Dongbu. On
January 7, 2008, the Department
received questionnaire responses from
the GOK. On March 4, 2008 and April
7, 2008, we issued supplemental
questionnaires to POSCO and the GOK.
On March 24, 2008 and April 14, 2008,
we received responses to these
supplemental questionnaires.
On April 28, 2008, the Department
published in the Federal Register a
notice of extension of the time period
for issuing the preliminary results. See
Corrosion-Resistant Carbon Steel Flat
Products from the Republic of Korea:
Extension of Time Limit for Preliminary
Results of Countervailing Duty
Administrative Review, 73 FR 22920
(April 28, 2008).
In accordance with 19 CFR
351.213(b), this review covers only
those producers or exporters for which
a review was specifically requested. The
companies subject to this review are
POSCO (and its affiliates POCOS and
POSTEEL) and Dongbu.
Affiliated Companies
In the present administrative review,
record evidence indicates that POCOS is
a majority-owned production affiliate of
POSCO. Under 19 CFR
351.525(b)(6)(iii), if the firm that
received a subsidy is a holding
company, including a parent company
with its own operations, the Department
1 In these preliminary results, unless otherwise
stated, we use POSCO to collectively refer to
POSCO, POCOS, and POSTEEL.
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will attribute the subsidy to the
consolidated sales of the holding
company and its subsidiaries. Thus, we
attributed any subsidies received by
POCOS to POSCO and its subsidiaries,
net of intra-company sales. Dongbu
reported that it is the only member of
the Dongbu group in Korea that was
involved with the sale of subject
merchandise to the United States.
Scope of Order
Products covered by this order are
certain corrosion-resistant carbon steel
flat products from Korea. These
products include flat-rolled carbon steel
products, of rectangular shape, either
clad, plated, or coated with corrosionresistant metals such as zinc, aluminum,
or zinc-, aluminum-, nickel-or ironbased alloys, whether or not corrugated
or painted, varnished or coated with
plastics or other nonmetallic substances
in addition to the metallic coating, in
coils (whether or not in successively
superimposed layers) and of a width of
0.5 inch or greater, or in straight lengths
which, if of a thickness less than 4.75
millimeters, are of a width of 0.5 inch
or greater and which measures at least
10 times the thickness or if of a
thickness of 4.75 millimeters or more
are of a width which exceeds 150
millimeters and measures at least twice
the thickness. The merchandise subject
to this order is currently classifiable in
the Harmonized Tariff Schedule of the
United States (HTSUS) at subheadings:
7210.30.0000, 7210.31.0000,
7210.39.0000, 7210.41.0000,
7210.49.0030, 7210.49.0090,
7210.60.0000, 7210.61.0000,
7210.70.6030, 7210.70.6060,
7210.70.6090, 7210.90.1000,
7210.90.6000, 7210.90.9000,
7212.20.0000, 7212.21.0000,
7212.29.0000, 7212.30.1030,
7212.30.1090, 7212.30.3000,
7212.30.5000, 7212.40.1000,
7212.40.5000, 7212.50.0000,
7212.60.0000, 7215.90.1000, 7215.9030,
7215.90.5000, 7217.12.1000,
7217.13.1000, 7217.19.1000,
7217.19.5000, 7217.20.1500,
7217.22.5000, 7217.23.5000,
7217.29.1000, 7217.29.5000,
7217.30.15.0000, 7217.32.5000,
7217.33.5000, 7217.39.1000,
7217.39.5000, 7217.90.1000 and
7217.90.5000. Although the HTSUS
subheadings are provided for
convenience and customs purposes, the
Department’s written description of the
merchandise is dispositive.
Average Useful Life
Under 19 CFR 351.524(d)(2), we will
presume the allocation period for nonrecurring subsidies to be the average
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useful life (AUL) of renewable physical
assets for the industry concerned as
listed in the Internal Revenue Service’s
(IRS) 1997 Class Life Asset Depreciation
Range System, as updated by the
Department of the Treasury. The
presumption will apply unless a party
claims and establishes that the IRS
tables do not reasonably reflect the
company-specific AUL or the countrywide AUL for the industry under
examination and that the difference
between the company-specific and/or
country-wide AUL and the AUL from
the IRS tables is significant. According
to the IRS tables, the AUL of the steel
industry is 15 years. No interested party
challenged the 15-year AUL derived
from the IRS tables. Thus, in this
review, we have allocated, where
applicable, all of the non-recurring
subsidies provided to the producers/
exporters of subject merchandise over a
15-year AUL.
Subsidies Valuation Information
A. Benchmarks for Short-Term
Financing
For those programs requiring the
application of a won-denominated,
short-term interest rate benchmark, in
accordance with 19 CFR
351.505(a)(2)(iv), we used as our
benchmark an annual average companyspecific weighted-average interest rate
for commercial won-denominated loans
outstanding during the POR. Where no
such benchmark instruments are
available, we used national average
lending rates for the POR, as reported in
the International Monetary Fund’s (IMF)
International Financial Statistics
Yearbook. This approach is in
accordance with 19 CFR
351.505(a)(3)(ii) and the Department’s
practice. See, e.g. , Final Affirmative
Countervailing Duty Determination:
Structural Steel Beams From the
Republic of Korea, 65 FR 41051 (July 3,
2000) (H Beams Investigation), and the
accompanying Issues and Decision
Memorandum (H Beams Decision
Memorandum) at ‘‘Benchmarks for
Short-Term Financing.’’
For Dongbu’s document acceptance
(D/A) loans rediscounted under the
Korean Export Import Bank’s (KEXIM’s)
rediscount program, we used, for
benchmark purposes, Dongbu’s usance
loans issued by commercial banks. See
Coated Free Sheet Paper from the
Republic of Korea: Notice of Final
Affirmative Countervailing Duty
Determination, 72 FR 60639 (October
25, 2007) (CFS Paper Investigation) and
accompanying Issues and Decision
Memorandum at Comment 18 (CFS
Paper Decision Memorandum).
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B. Benchmark for Long-Term Loans
During the POR, POSCO and Dongbu
had outstanding long-term wondenominated and foreign-currency
denominated loans from governmentowned banks and Korean commercial
banks. Based on our findings on this
issue in prior investigations and
administrative reviews, we are using the
following benchmarks to calculate the
subsidies attributable to respondents’
countervailable long-term loans
obtained through 2006:
(1) For countervailable, foreigncurrency denominated loans, pursuant
to 19 CFR 351.505(a)(2), and consistent
with our past practice, our preference is
to use the company-specific, weightedaverage foreign currency-denominated
interest rates on the company’s loans
from foreign bank branches in Korea,
foreign securities, and direct foreign
loans outstanding during the POR. See,
e.g., Final Affirmative Countervailing
Duty Determination: Stainless Steel
Sheet and Strip in Coils from the
Republic of Korea, 64 FR 30636, 30640
(June 8, 1999) (SSSS Investigation).
Where no such benchmark instruments
are available, and consistent with 19
CFR 351.505(a)(3)(ii), as well as our
practice, we relied on the national
average lending rates as reported by the
IMF’s International Financial Statistics
Yearbook. 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, 69 FR 2113 (January
14, 2004), and the accompanying Issues
and Decision Memorandum at
‘‘Benchmarks for Long-Term Loans and
Discount Rates.’’
(2) For countervailable, wondenominated, long-term loans, our
practice is to use the company-specific
corporate bond rate on the company’s
public and private bonds, as we
determined that the GOK did not
control the Korean domestic bond
market after 1991 and that domestic
bonds may serve as an appropriate
benchmark interest rate. See, e.g., Final
Negative Countervailing Duty
Determination: Stainless Steel Plate in
Coils from the Republic of Korea, 64 FR
15530, 15531 (March 31, 1999) (Plate in
Coils Investigation); see also 19 CFR
351.505(a)(2)(ii). Where no such
benchmark instruments are available,
we used the national average of the
yields on three-year corporate bonds, as
reported by the Bank of Korea (BOK),
consistent with 19 CFR 351.505(a)(3)(ii).
We note that the use of the three-year
corporate bond rate from the BOK
follows the approach taken in Plate in
Coils Investigation, in which we
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determined that, absent companyspecific interest information, the
corporate bond rate is the best indicator
of a market rate for won-denominated
long-term loans in Korea. See Plate in
Coils Investigation, 64 FR at 15531; see
also 19 CFR 351.505(a)(3)(ii).
In accordance with 19 CFR
351.505(a)(2)(i), our benchmarks take
into consideration the structure of the
government-provided loans. For
countervailable 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 countervailable
variable-rate loans outstanding during
the POR, 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
instruments are unavailable, we used
interest rates from debt instruments
issued during the POR as our
benchmarks, as such rates better reflect
a variable interest rate that would be in
effect during the POR. This approach is
in accordance with the Department’s
practice. 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).
I. Program Preliminarily Determined
To Confer Subsidies
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A. The GOK’s Direction of Credit
In the Plate in Coils Investigation, 64
FR 15530, 15532–33 (March 31, 1999)
and in the SSSS Investigation, 64 FR
30636, 30641–42 (June 8, 1999), the
Department determined that the GOK
controlled directly and indirectly the
lending practices of most sources of
credit in Korea through 1997.
Furthermore, the Department
determined that the GOK’s regulated
credit from domestic commercial banks
and government-controlled banks such
as the Korea Development bank (KDB)
was specific to the steel industry. In the
Final Affirmative Countervailing Duty
Determination: Certain Cut-to-Length
Carbon-Quality Steel Plate from the
Republic of Korea, 64 FR 73176, 73179
(December 29, 1999) (CTL Plate
Investigation) and in the H Beams
Investigation and H Beams Decision
Memorandum at ‘‘GOKs Credit Policies
from 1992 through 1998,’’ the
Department determined that the GOK’s
directed lending practices continued to
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be specific with respect to the steel
industry through 1998.
In every subsequent CVD
investigation or administrative review of
a Korean steel product covering a period
of investigation (POI) or POR from 2000
to 2005, we provided the GOK an
opportunity to present new factual
information concerning the
government’s credit policies, which we
would consider along with our findings
in prior investigations. For every POI or
POR covering the years 2000 to 2005,
respondents decided not to provide new
information on the GOK’s lending
policies for domestic banks. Therefore,
with respect to each of the years from
2000 to 2005, consistent with section
776 of the Act, we found that the GOK’s
direction of credit policies to the steel
industry continued through the period
2000 to 2005. See, e.g., Notice of Final
Affirmative Countervailing Duty
Determination: Certain Cold-Rolled
Carbon Steel Flat Products From the
Republic of Korea, 67 FR 62102,
(October 3, 2002) (Cold-Rolled
Investigation), and accompanying Issues
and Decision Memorandum at ‘‘GOK
Directed Credit’’ (Cold-Rolled Decision
Memorandum); 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) (SSSS 2004
Review), and accompanying Issues and
Decision Memorandum at ‘‘The GOK’s
Direction of Credit’’ (SSSS 2004 Review
Decision Memorandum); and Notice of
Final Results of Countervailing Duty
Administrative Review: Certain Cut-toLength Carbon-Quality Steel Plate from
the Republic of Korea, 72 FR 38565 (July
13, 2007) (CTL Plate 2007 Review), and
accompanying Issues and Decision
Memorandum at ‘‘The GOK’s Direction
of Credit’’ (CTL Plate 2007 Review
Decision Memorandum).
The Department’s last determination
of the GOK’s directed credit policies not
based on adverse facts available (AFA)
was in the H Beams Investigation,
which covered calendar year 1998. See
H Beams Decision Memorandum at
‘‘GOK’s Credit Policies from 1992
through 1998.’’ In its June 7, 2000,
memorandum regarding direction of
credit in the H Beams Investigation, the
Department noted that: (1) The history
of GOK intervention in the credit market
from the 1960s into the 1990s including
the Heavy and Chemical Industry (HCI)
promotion program that was introduced
in the 1980s; (2) an IMF Working Paper
that concluded that the GOK continued
to favor priority sectors with credit and
that financial institutions believed that
the government would protect them on
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52317
risky lending on unprofitable projects; 2
(3) a 1999 OECD report that stated that
the GOK exerted immense pressure and
directed much of the country’s lending
activities, often on the basis of political
whim rather than a proper evaluation of
risk; 3 (4) a World Bank study
illustrating Korea’s selective allocation
of credit which also concluded that the
promotion of the steel industry was one
of the top priorities of the GOK; 4 (5) an
Agreement with the IMF in which the
GOK explicitly stated it would stop
directing credit; 5 (6) a Korean
Presidential Commission report on the
government’s pervasive influence and
intervention in the country’s financial
sector; 6 (7) the fact that the Korean steel
industry was one of the top recipients
of KDB lending during the time in
which the KDB was the largest source of
long-time financing in Korea; and (8)
industry-specific costs of borrowing as
reported in the Bank of Korea’s
Financial Statement Analysis and the
steel industry’s access to the foreign
loan market that was controlled by the
GOK. In the H Beams Investigation, the
GOK argued that measures were taken
in 1998 to liberalize the Korean
financial sector. See H Beams Decision
Memorandum at ‘‘GOKs Credit Policies
from 1992 through 1998.’’ However, in
our analysis of the financial reforms for
our final determination, the Department
stated that while the GOK started to
plan and implement reforms in the
2 Borsesztein, Eduardo and Jong-Wha Lee, Credit
Allocation and Financial Crisis in Korea (an
International Monetary Fund Working Paper),
February 1999. See Memorandum to the File from
Eric B. Greynolds, Program Manager, ‘‘Information
Regarding Reforms to the Korean Financial
System,’’ at Attachment 1 (August 11, 2008)
(Direction of Credit Memorandum), a public
document on file in the Central Records Unit, room
1117 of the Main Commerce Building.
3 OECD, Asia and the Global Crisis—The
Industrial Dimension,1999. See Memorandum from
Melissa G. Skinner, Director, Office of CVD/AD
Enforcement VI to Holly A. Kuga, Acting Deputy
Director for Import Administration, ‘‘Direction of
Credit in Korea: Structural Steel Beams from the
Republic of Korea’’ (June 7, 2000), which is on the
record of this administrative review at GOK’s
January 7, 2008 Questionnaire Response at Exhibit
A–2 (Direction of Credit Memorandum for H
Beams).
4 World Bank, Credit Policies and the
Industrialization of Korea, 1995 World Bank Study.
See Direction of Credit Memorandum for H Beams,
which is on the record of this administrative review
at GOK’s January 7, 2008 Questionnaire Response
at Exhibit A–2.
5 See, e.g., December 3, 1997, Letter of Intent of
the Government of Korea to IMF, and December 5,
1997, Republic of Korea IMF Stand-By
Arrangement, which are included as Attachment 2
of the Direction of Credit Memorandum.
6 The Presidential Commission for Financial
Reform, Financial Reform in Korea: The Third
Report, 1997. See Direction of Credit Memorandum
for H Beams, which is on the record of this
administrative review at GOK’s January 7, 2008
Questionnaire Response, at Exhibit A–2.
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financial sector during 1998, the record
evidence indicated that the GOK’s
previous attempts at removing or
reducing its controls and influence over
lending in the country were not
successful. We noted that, in the ten
years prior to 1998, the GOK twice
attempted to reform its financial system.
In 1988, the GOK attempted to
deregulate interest rates. However, the
GOK deemed the 1988 liberalization a
failure because when interest rates
began to rise, the GOK cancelled the
reforms by indirectly pressuring the
banks to keep interest rates low. In the
early 1990s, the GOK attempted reforms
again with a four-stage interest rate
deregulation plan. Again, the GOK
deemed this attempt to reform the
financial system a failure. We also noted
in the H Beams Investigation that,
during 1998 and 1999, despite its
apparent liberalization attempts, the
GOK threatened to cut off credit to
Korean companies unless the companies
followed GOK policies. Id. In addition,
during this period the GOK took control
of five large commercial banks due to
the financial crisis.
Thus, while the Department
acknowledged in the H Beams
Investigation that the GOK was
attempting to make reforms in the
financial sector in 1998 and 1999, we
concluded that the then status of these
reforms was not enough to change our
affirmative direction of credit
determination because: (1) The GOK
had tried twice before within a ten-year
period to implement financial reforms
and failed at each attempt; and (2) the
GOK was undermining its reform
attempts by threatening to cut off
lending to Korean firms and by taking
control of large commercial banks. Id.
Subsequent to our determination in the
H Beams Investigation, the GOK did not
provide any new information on
financial reforms implemented after
1997 in any administrative review of
any outstanding CVD order covering the
Korean steel industry; therefore, the
Department has not revisited our
direction of credit determination with
respect to the steel industry.
During the POR, POSCO and Dongbu
had outstanding loans that were
received prior to and/or during the 2006
POR. As in the prior proceedings, we
requested that the GOK provide
information pertaining to the GOK’s
direction-of-credit policies through
2006.
In its January 7, 2008, questionnaire
response in the instant review, the GOK
provided new information on the issue
of directed credit and the status of
reforms within the financial sector for
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17:08 Sep 08, 2008
Jkt 214001
the period 2002 through 2006.7 Based
on this new information and the reforms
implemented in the Korean financial
sector after the 1997 Financial Crisis,
the GOK concludes that the Department
should now find that the GOK does not
direct credit to the steel industry.
In this administrative review, the
GOK states that, based on the significant
and sweeping reforms of the Korean
financial sector after the 1997 Financial
Crisis, the Department held in Dynamic
Random Access Memory
Semiconductors from the Republic of
Korea: Final Affirmative Countervailing
Duty Determination (DRAMS
Investigation) that the Korean financial
sector did not direct credit to the
semiconductor industry after 1998. See
DRAMS Investigation, 68 FR 37122
(June 23, 2003), and accompanying
Issues and Decision Memorandum at
‘‘Direction of Credit and Other Financial
Assistance’’ (DRAMS Decision
Memorandum). The GOK states that
reforms have continued at a fast pace
since 1998, more banks have been
privatized, and numerous reforms have
been implemented in order to enhance
the financial strength and independence
of the banking sector. The GOK notes
that the Corporate Restructuring
Promotion Act requires banks to
undertake ongoing evaluations of their
customers and their financial health to
avoid insolvency and to take steps to
restructure the debtors that become
credit risks.
The GOK states that when the
Department made its initial finding of
directed credit to the steel industry, the
Department noted that the availability of
long-term lending in Korea was
predominantly controlled by the stateowned KDB. The GOK notes that there
are now numerous sources of long-term
funds available in the Korean market
including loans from commercial banks.
A comparison of outstanding loans from
the KDB and loans sourced from
commercial banks shows that
commercial banks provide the majority
of long-term lending in Korea. See
Government of Korea’s January 7, 2008
Questionnaire Response at Exhibit A–5
(GOK’s January QR). Furthermore, there
are now other means for companies to
finance long-term debt such as issuing
bonds and notes in Korea and
7 The GOK stated that it chose not to respond to
direction of credit questions in previous
administrative reviews of steel products covering
periods after 2000 because of the considerable
burden of responding to the Department’s questions
and the very small impact of the Department’s
finding of directed credit on respondents
(especially given that the aggregate companyspecific subsidy rates were de minimis).
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internationally. See GOK’s January QR
at 8.
According to the questionnaire
response submitted by the GOK in this
administrative review, in the wake of
the 1997 Financial Crisis, the GOK
launched a financial sector restructuring
program aimed at maintaining a
functioning financial system and, at the
same time, making it more marketoriented. Nearly a quarter of Korea’s
financial institutions, including nine of
26 commercial banks at the time, were
ultimately closed. To improve the
supervisory framework, the Financial
Supervisory Commission (FSC), a
unified body covering banking,
insurance, non-banks and the capital
market, was established. The FSC was
established under the Act on
Establishment of Financial Supervisory
Organizations enacted in December
1997 and last amended in 2003, with a
view to contributing to the development
of the national economy by establishing
an orderly and sound credit system. The
FSC supervises financial institutions,
including commercial banks, and takes
regulatory actions in accordance with
the applicable statutes. Other than
general regulatory functions, the FSC
does not intervene in the daily
operations, including credit evaluation
or extensions decisions, of financial
institutions. The FSC’s supervisory
functions in relation to bank’s credit
services are confined to ensuring
compliance with credit limits, the
provision of adequate reserves, and
other ordinary affairs as necessary to
determine the soundness of operation of
the financial institution. Since the
creation of the FSC in 1998, the
Ministry of Finance and Economy’s
authority over the establishment of
banks and the supervision of banks has
shifted to the FSC.
The GOK also states that it does not
intervene in the decision-making
process for the direction or regulation of
credit, or for deposit and lending rates,
which are entirely reserved for the
discretion of individual financial
institutions. As a measure in the course
of prudential regulation, the Financial
Supervisory Service (FSS) issued a
Sample Guideline for Credit Risk
Assessment and a Notification to
Financial Institutions Regarding Risk
Evaluation System for Corporations, for
the purpose of enhancing the risk
evaluation system by individual
financial institutions.8 These documents
8 The FSS was established on January 2, 1999,
under the Act on the Establishment of Financial
Supervisory Organizations by bringing together four
supervisory bodies—Banking Supervisory
Authority, Securities Supervisory Board, Insurance
Supervisory Board, and Non-Bank Supervisory
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provide simple basic guidelines but do
not offer specific details for the banks to
follow in managing their credit
extensions. The GOK states that all
bank-specific policies on lending and
credit evaluation are established by
individual banks.
The GOK states that it does not
provide any guidance with regard to the
commercial interest rates to be charged
for loans by Korean commercial banks.
Specific interest rates to be charged by
financial institutions are only
determined by the respective financial
institution itself. As such, interest rates
differ from bank to bank depending
upon the policies taken by individual
banks, the nature of the loans, the
current conditions of the financial
market, and the creditworthiness of the
borrower.
The Prime Minister’s Decree 408,
enacted in November 2000, sets forth
that the government should not
intervene in the general management of
the banks. Furthermore, the Depositors
Protection Act, revised in January 2000,
in turn sets forth that the officers and
employees who are responsible for the
financial troubles of the financial
institutions should compensate for the
damages personally and individually.
Therefore, the GOK states, not only are
GOK officials prohibited from
intervening in the daily business
operation of the banks, but also any
GOK official making such an attempt
would assume civil and criminal
liability in a personal capacity.
According to the GOK’s questionnaire
response, during 2004 through 2006, no
Korean commercial bank was taken over
or administered by the GOK due to bank
restructurings in Korea. Furthermore,
the GOK has privatized most of the
commercial banks that it took over as a
result of the 1997 Financial Crisis. Many
of these commercials banks, such as SC
First and the Korean Exchange Bank
(KEB), have majority ownership by
foreign interests. For other commercial
banks such as Kookmin, foreign
shareholders are the major shareholders
of the bank. Currently only one
commercial bank, Woori, has majority
ownership by the GOK. According to
the GOK, the Korea Deposit Insurance
Corporation owns approximately 80
percent of Woori.
With respect to other lending sources
found countervailable in prior directed
credit determinations, the National
Authority—into a single supervisory organization.
The primary function of the FSS is examination and
supervision of financial institutions but can extend
to other oversight and enforcement functions as
charged by the Financial Services Commission (the
former Financial Supervisory Commission) and the
Securities and Futures Commission.
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Investment Fund (NIF) was liquidated
on January 2, 2003. The NIF supported
heavy and chemical industries during
the period from 1974 to 1991 by
extending loans raised through the
issuance of national investment bonds
to financial institutions. The GOK also
noted that the Department determined
that access to foreign securities and
direct foreign loans after April 1999 is
no longer countervailable.
Finally, the GOK argues that, in
Coated Free Sheet Paper from the
Republic of Korea: Notice of Preliminary
Affirmative Countervailing Duty
Determination, 72 FR 17507 (April 9,
2007) (CFS Paper Preliminary
Determination), the Department
reaffirmed its finding in the DRAMS
Investigation that: (1) Distinguished
between banks that are government
authorities and banks with some
government ownership (as a result of
the 1997 Financial Crisis) that acted as
commercial banks and (2) measured the
specificity of long-term loans to the
paper sector only with respect to GOKowned banks that were government
authorities. See CFS Paper Preliminary
Determination at 72 FR 17511–17512,
17517. The GOK noted that, in the CFS
Paper Investigation, 72 FR 60639
(October 25, 2007), the specificity test
used by the Department demonstrated
that long-term loans from GOK-owned
banks were not specific to the paper
sector. See CFS Paper Investigation and
CFS Paper Decision Memorandum at
‘‘Long-Term Lending Provided by the
KDB and Other GOK-Owned
Institutions.’’ The GOK states that a
comparable analysis demonstrates that
long-term loans from GOK-owned banks
are not specific to the steel industry
during the POR.
We find that the new information
submitted by the GOK is sufficient to
warrant a re-examination of the
Department’s direction of credit
determination made with respect to the
Korean steel industry. As noted above,
the Department last reviewed new
information in the H Beams
Investigation, in which we stated that,
although the GOK was starting to
implement reforms of the financial
sector, these reforms were, in part,
undermined by the GOK’s taking control
of commercial banks and the fact that
previous attempts at reforms were not
successful. See H Beams Decision
Memorandum at ‘‘GOK’s Credit Policies
from 1992 through 1998.’’
Our determination in the H Beams
Investigation reviewed the attempts of
the GOK to reform the financial sector
in 1998 and 1999. Id. The GOK has now
provided new information on the details
of the financial sector reforms that were
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52319
implemented in the wake of the 1997
Financial Crisis, arguing that these
reforms have removed the controls that
led to the Department’s determination of
direction of bank credit. While the
information submitted by the GOK
supports its arguments regarding
reforms of the banking sector, our
original directed credit determination
relied on independent sources detailing
GOK control and direction of bank
credit. Thus, it is appropriate to also
review those independent sources to
determine if these sources substantiate
the information submitted by the GOK
in this administrative review. However,
before this review of independent
research on GOK financial reforms, it is
important to review the Department’s
determinations regarding directed credit
made in both the DRAMS Investigation
and the CFS Paper Investigation.
In its questionnaire response, the
GOK states that since the directed credit
determination regarding the Korean
steel industry, the Department has
addressed directed credit in
investigations of two non-steel products,
the DRAMS Investigation and the CFS
Paper Investigation, and reached
different conclusions with respect to
directed credit from Korean banks.
In the DRAMS Investigation, the
Department first examined the GOK’s
credit policies through 1998. See
DRAMS Investigation, and DRAMS
Decision Memorandum at ‘‘The GOK’s
Credit Policies Through 1998.’’ The
Department stated that it had found that
the GOK controlled the lending
practices of banks in Korea in prior
cases involving the Korean steel
industry and had determined in the H
Beams Investigation that the GOK
directed credit through 1998. Although
in the DRAMS Investigation the
Department provided the GOK with an
opportunity to present new factual
information concerning the GOK’s
direction of long-term lending through
1998, no new information was
presented. See DRAMS Decision
Memorandum at 12. Therefore, in the
DRAMS Investigation, the Department
determined that the GOK continued to
control, directly and indirectly, the
long-term lending practices of Korean
domestic banks through 1998. See
DRAMS Decision Memorandum at ‘‘The
GOK’s Credit Policies Through 1998.’’
However, the respondents in the
DRAMS Investigation provided new
information with respect to whether the
GOK directed bank credit for the period
1999 through June 30, 2002. See
DRAMS Decision Memorandum at ‘‘The
GOK’s Involvement in the ROK Lending
Sector from 1999 through June 30,
2002.’’ Therefore, the Department
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analyzed this information to determine
whether the GOK continued to direct
credit from domestic banks after 1999.
Based on this analysis, the Department
determined in the DRAMS Investigation
that the GOK only directed credit to a
group of companies that were part of the
Hyundai group, including DRAMs
manufacturer, Hynix. Id.
In the CFS Paper Investigation, the
Department stated that, although the
GOK exerted broad control over lending
through 1998 that resulted in credit
being directed specifically to strategic
industries such as steel and
semiconductors, there was not sufficient
information to conclude that the paper
industry was designated as a strategic
industry by the GOK and, thus, a
beneficiary of directed credit. See CFS
Paper Decision Memorandum at
‘‘Direction of Credit to the Pulp and
Paper Sector.’’ In CFS Paper
Investigation, the Department also
separately examined the provision of
long-term lending provided by the KDB
and other GOK-owned institutions, and
found that KDB lending was not specific
to the paper industry. See CFS Paper
Decision Memorandum at ‘‘Long-Term
Lending Provided by the KDB and Other
GOK-Owned Institutions.’’
Our review of independent research
on the post-financial crisis reforms
within the Korean financial and banking
sector, as discussed further below,
support the statements made by the
GOK in this review. Our review also
provided no evidence of continued GOK
systemic control of banking credit
within Korea, including banking credit
directed towards the Korean steel
industry.
In the period after the 1997 Financial
Crisis and leading up to 2002, the GOK
implemented a number of reforms in the
financial sector. As noted by many
experts, the Korean financial sector was
long characterized by government
intervention and a discretionary
implementation of rules where the GOK
played a crucial role in credit resource
allocation.9 The Korean banking sector
suffered due to inefficient internal
management and GOK intervention in
the financial sector prevented the
development of market discipline.
Furthermore, selective credit allocation
by the government resulted in an
inefficient and distorted financial
system.10
9 Kyung Tae Lee and Inkoo Lee, ‘‘Crisis, Reforms,
and Structural Changes in the Korean Economy,’’
October 6, 2007, at 4. See Direction of Credit
Memorandum, at Attachment 3.
10 Takatoshi Ito and Yuko Hashimoto, ‘‘Banking
Restructuring in Asia: Crisis Management in the
Aftermath of the Asian Financial Crisis and
Prospects for Crisis Prevention—Korea,’’ February 5,
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The GOK controlled the allocated
financial resources by managing both
the commercial banks and the stateowned special banks.11
As discussed in the GOK’s
questionnaire response, after the 1997
Financial Crisis, the GOK implemented
a number of reforms of the financial
sector, many at the behest of the IMF.
The GOK actively implemented the
IMF’s suggested reforms, which
included structural reforms of the
financial system.12 For example, the
GOK introduced a new financial
supervisory system to prevent moral
hazard. As discussed above, the FSS
was created in an attempt to overcome
inconsistent treatment of different
institutions and to meet international
standards of financial supervision.13
The GOK increased the independence of
the Bank of Korea (BOK) from the
Ministry of Finance and Economy
(MOFE), and stripped the regulatory
powers out of both the BOK and MOFE
and located them in an independent
regulatory agency.14
Korea’s progress in strengthening its
supervision of financial institutions was
especially significant; Korean
commercial banks adopted Westernstyle board governance systems, where
the majority of board members are
outside directors.15 During the
restructuring process, the GOK pursued
a policy of encouraging the entry of
foreign banks and all the regulatory
obstacles that stood in the way of
foreign entry were eased.16 The IMF has
noted that the Korean banking system
was transformed after the 1997
Financial Crisis and noted that Korean
banks strengthened their commercial
orientation, allowing them to refocus
2007, at 17. See Direction of Credit Memorandum,
at Attachment 4.
11 Jahyeong Koo and Sherry L. Kiser, ‘‘Recovery
from a Financial Crisis: The Case of South Korea,’’
Economic and Financial Review, Fourth Quarter
2001, Federal Reserve Bank of Dallas, at 25. See
Direction of Credit Memorandum, at Attachment 5.
12 Jai S. Mah, ‘‘The Restructuring in the PostCrisis Korean Economy,’’ November 2003. See
Direction of Credit Memorandum at Attachment 6.
13 Kyung Tae Lee and Inkoo Lee, ‘‘Crisis, Reforms,
and Structural Changes in the Korean Economy,’’
October 6, 2007, at 4. See Direction of Credit
Memorandum, at Attachment 3.
14 Stephan Haggard and Andrew MacIntyre, ‘‘The
Politics of Moral Hazard: The Origins of Financial
Crisis in Indonesia, Korea and Thailand,’’ August
1999. See Direction of Credit Memorandum, at
Attachment 7.
15 Dr. Janet Yellen, President and CEO of the
Federal Reserve Bank of San Francisco, ‘‘The Asian
Financial Crisis Ten Years Later: Assessing the Past
and Looking to the Future (Speech),’’ February 6,
2007. See Direction of Credit Memorandum at
Attachment 8.
16 Soo-Myung Kim, Ji-Young Kim and Hoon-Tae
Ryoo, ‘‘Restructuring and Reforms in the Banking
Industry,’’ BIS Papers No. 28 at 267. See Direction
of Credit Memorandum, at Attachment 9.
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their activities on their most profitable
lending activities.17 The long-held belief
that ‘‘banks never fail because the
government will bail them out’’ faded
away.18 The reforms that were
implemented by the GOK after the 1997
Financial Crisis changed the ways banks
were operated as well as the patterns of
the asset allocation behavior of banking
institutions.19 The IMF concluded that
since the Financial Crisis, the GOK
accelerated its shift towards a marketoriented development strategy and that
direct credit was abolished.20
Based on the Department’s decision
on Korean directed credit policies in
both the DRAMS Investigation and the
CFS Paper Investigation, the
information submitted by the GOK in
this review regarding directed credit
and reforms in the financial sector for
the period 2002–2006, and our
substantiation of this submitted
information through independent
research, we determine that the GOK no
longer has a systemic practice of
directing credit within the Korean
financial sector and that directed credit
within the Korean steel industry ended
as of 2002.
With regard to the period prior to
2002, the GOK provided some
information regarding its lending
policies, and Dongbu and POSCO
reported receiving long-term loans prior
to 2002. However, even assuming that
the GOK’s actions during this period
constituted direction of credit, any
potential benefit to Dongbu and POSCO
during this POR is less than 0.005
percent. As explained in Coated Free
Sheet Paper from the People’s Republic
of China: Final Determination of
Countervailing Duty Investigation, 72 FR
60645 (October 25, 2007) (CFS Paper
from China Investigation), and
accompanying Issues and Decision
Memorandum at ‘‘Purchases at Prices
that Constitute More than Adequate
Remuneration’’ (CFS Paper from China
Decision Memorandum), where the
countervailable subsidy rate for a
program is less than 0.005 percent, the
program is not included in the total
CVD rate. Hence, we preliminarily find
17 International Monetary Fund (IMF), ‘‘IMF
Country Report No. 04/44,’’ February 2004, at 6. See
Direction of Credit Memorandum at Attachment 10.
18 Soo-Myung Kim, Ji-Young Kim and Hoon-Tae
Ryoo, ‘‘Restructuring and Reforms in the Banking
Industry,’’ BIS Papers No. 28 at 259. See Direction
of Credit Memorandum, at Attachment 11.
19 Eui-Gak Hwang, ‘‘Banking Sector Restructuring
in Korea After the 1997–1998 Crisis,’’ at 13. See
Direction of Credit Memorandum, at Attachment
12.
20 International Monetary Fund (IMF), ‘‘IMF
Country Report No. 05/49,’’ February 2005, at 5. See
Direction of Credit Memorandum, at Attachment
13.
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that any long-term loans provided prior
to 2002 and outstanding during the POR
did not confer a measurable benefit to
Dongbu or POSCO during the POR.
Accordingly, it is unnecessary to make
a finding as to the countervailability of
the GOK’s Direction of Credit program
prior to 2002 for this administrative
review.
Therefore, for purposes of this review,
we determine that there is no directed
credit to the Korean steel industry from
2002. This decision is restricted to the
post-2001 period that was addressed by
the GOK in its questionnaire response.
Furthermore, our determination in this
review does not change the decision
that was made by the Department in
DRAMS Investigation that there may
still be instances in which the GOK may
attempt to influence bank decisions on
an ad hoc basis such as the governmentled financial restructuring of Hynix.
Accordingly, loans that were issued to
the respondents from private Korean
commercial banks and governmentowned banks from January 1, 2002,
onward are not countervailable. We note
that, as described below, we are still
examining loans provided by the KDB,
as it is a government policy bank.
We have decided to modify our
treatment of commercial banks with
government ownership with respect to
the finding of a financial contribution
under section 771(5)(B)(i) of the Act. In
both the DRAMS Investigation and the
CFS Paper Investigation, we accorded
different treatment under this section of
the Act to government-owned banks that
were commercial banks and those
government-owned banks that acted as
policy or specialized banks. Upon
further review, we have determined
that, with respect to determining
whether a government-owned bank is a
public entity or authority under the
CVD law, it is more appropriate to focus
solely on the issue of government
ownership and control. This treatment
of government-owned commercial banks
is consistent with our treatment of all
other government-owned entities, such
as government-owned manufacturers,
utility companies, and service
providers. Furthermore, this treatment
of government-owned commercial banks
is also more consistent with 19 CFR
351.505(a)(2)(ii) and 351.505(a)(6)(ii).
Thus, a government-owned or
controlled bank, be it a commercial
bank or a policy bank, is considered a
public entity or authority under the Act.
This modification of our treatment of
government-owned commercial banks
has no effective impact on our directed
credit determination, but it provides
uniformity of treatment for all
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17:08 Sep 08, 2008
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government-owned entities and is more
consistent with our regulations.
As discussed above, we are only
countervailing directed credit provided
prior to January 1, 2002. In accordance
with 19 CFR 351.505(c)(2) and (4), we
calculated the benefit for each fixedand variable-rate loan received from
GOK-owned or -controlled banks to be
the difference between the actual
amount of interest paid on the directed
loan during the POR and the amount of
interest that would have been paid
during the POR 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 currencydenominated loans, we converted the
benefits into Korean won using
exchange rates obtained from the BOK.
We then summed the benefits from each
company’s long-term fixed-rate and
variable-rate won-denominated loans.
To calculate the net subsidy rate, we
divided the companies’ total benefits by
their respective total f.o.b. sales values
during the POR, as this program is not
tied to exports or a particular product.
In calculating the net subsidy rate for
POSCO, we removed from the
denominator sales made between
affiliated parties.21 On this basis, we
preliminarily determine the subsidy rate
under the direction of credit program to
be less than 0.005 percent ad valorem
for POSCO and less than 0.0005 percent
ad valorem for Dongbu.
B. Asset Revaluation Under Article 56(2)
of the Tax Reduction and Exemption
Control Act (TERCL)
Under Article 56(2) of the TERCL, the
GOK permitted companies that made an
initial public offering between January
1, 1987, and December 31, 1990, to
revalue their assets at a rate higher than
the 25 percent required of most other
companies under the Asset Revaluation
Act. The Department has previously
found this program to be
countervailable. For example, in the
CTL Plate Investigation, the Department
determined that this program was de
facto specific under section
771(5A)(D)(iii) of the Act because the
actual recipients of the subsidy were
limited in number and the basic metal
industry was a dominant user of this
program. See CTL Plate Investigation, 64
FR at 73183. We also determined that a
financial contribution was provided in
the form of tax revenue foregone
21 For POSCO, we also removed intra-company
sales from the denominators of the net subsidy rate
calculations of the other programs found
countervailable in these preliminary results. This
step was not necessary for Dongbu.
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52321
pursuant to section 771(5)(D)(ii) of the
Act. Id. The Department further
determined that a benefit was conferred
within the meaning of section 771(5)(E)
of the Act on those companies that were
able to revalue their assets under TERCL
Article 56(2) because the revaluation
resulted in participants paying fewer
taxes than they would otherwise pay
absent the program. Id. No new
information, evidence of changed
circumstances, or comments from
interested parties were presented in this
review to warrant any reconsideration of
the countervailability of this program.
The benefit from this program is the
difference that the revaluation of
depreciable assets has on a company’s
tax liability each year. Evidence on the
record indicates that, in 1989, POSCO
made an asset revaluation that increased
its depreciation expense. Dongbu
reported that it did not use this program
during the POR. To calculate the benefit
to POSCO, we took the additional
depreciation listed in the tax return
filed during the POR, which resulted
from the company’s asset revaluation,
and multiplied that amount by the tax
rate applicable to that tax return. We
then divided the resulting benefit by
POSCO’s total f.o.b. sales. On this basis,
we preliminarily determine the net
countervailable subsidy to be 0.02
percent ad valorem for POSCO. This
program was not used by Dongbu.
C. Research and Development (R&D)
Grants Under the Industrial
Development Act (IDA)
The GOK, through the Ministry of
Commerce, Industry, and Energy
(MOCIE), provides R&D grants to
support numerous projects pursuant to
the IDA, including technology for core
materials, components, engineering
systems, and resource technology. The
IDA is designed to foster the
development of efficient technology for
industrial development. To participate
in this program a company may: (1)
Perform its own R&D project, (2)
participate through the Korea New Iron
and Steel Technology Research
Association (KNISTRA), which is an
association of steel companies
established for the development of new
iron and steel technology, and/or (3)
participate in another company’s R&D
project and share R&D costs, along with
funds received from the GOK. To be
eligible to participate in this program,
the applicant must meet the
qualifications set forth in the basic plan
and must perform R&D as set forth
under the Notice of Industrial Basic
Technology Development. If the R&D
project is not successful, the company
must repay the full amount.
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In the H Beams Investigation, the
Department determined that through
KNISTRA the Korean steel industry
receives funding specific to the steel
industry. Therefore, given the nature of
KNISTRA, the Department found
projects under KNISTRA to be specific.
See Preliminary Negative Countervailing
Duty Determination with Final
Antidumping Duty Determination:
Structural Steel Beams From the
Republic of Korea, 64 FR 69731, 69740
(December 14, 1999) (unchanged in the
final determination and the H Beams
Decision Memorandum, at ‘‘R&D Grants
Under the Korea New Iron & Steel
Technology Research Association
(KNISTRA)’’). Further, we found that
the grants constituted a financial
contribution under section 771(5)(D)(i)
of the Act in the form of a grant, and
bestowed a benefit under section
771(5)(E) of the Act in the amount of the
grant. Id. No new factual information or
evidence of changed circumstances has
been provided to the Department with
respect to this program. Therefore, we
preliminarily continue to find that this
program is de jure specific within the
meaning of section 771(5A)(D)(i) of the
Act and constitutes a financial
contribution and confers a benefit under
sections 771(5)(D)(i) and 771(5)(E) of the
Act, respectively.
Dongbu reported that it did not use
the program during the POR. POSCO
reported receiving grants through
KNISTRA during the POR; however, it
claims that the research grants it
received under the program are tied to
non-subject merchandise. Upon review
of the information submitted by the
GOK and POSCO, we preliminarily
determine that certain grants are tied to
non-subject merchandise, and thus, we
did not include these grants in our
benefit calculations. See the GOK’s
January 4, 2008, Questionnaire
Response, at Exhibit G–6; POSCO’s
April 18, 2008, Supplemental
Questionnaire Response; and POSCO’s
May 8, 2008, Supplemental
Questionnaire Response.
However, POSCO also reported
receiving certain other grants related to
new technologies that can be applicable
for both inputs of subject merchandise
as well as subject merchandise. See
POSCO’s December 20, 2007,
Questionnaire Response, at Exhibit 6;
and ‘‘Memorandum to the File through
Eric Greynolds, ‘‘Factual Information
Regarding the Steel Production Process’’
(September 2, 2008). Some of these R&D
grants were examined in previous
reviews of this case and found to
provide countervailable benefits to
POSCO. See Corrosion-Resistant Carbon
Steel Flat Products from the Republic of
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17:08 Sep 08, 2008
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Korea: Final Results of Countervailing
Duty Administrative Review, 73 FR 2444
(January 15, 2008) (2005 CORE from
Korea), and the accompanying Issues
and Decision Memorandum at Comment
2 (2005 CORE from Korea Decision
Memorandum). In this administrative
review, as in the previous
administrative review of this case, there
is nothing on the record that
demonstrates that the R&D projects in
question could not be used in the
production of subject merchandise or
that this new technology is limited to
the development of non-subject
merchandise. Therefore, we find in
these preliminary results, as in prior
reviews, that the R&D grants in question
provide a countervailable benefit to
POSCO during the 2006 POR.
In addition, in the instant review
POSCO provided information on several
R&D projects for which 2006 is the first
year that a grant was received. The
GOK’s and POSCO’s information with
respect to the R&D projects initially
funded in 2006 indicates that some of
these grants are tied specifically to nonsubject merchandise. See GOK’s January
4, 2008, Questionnaire Response, at
Exhibit G–6; POSCO’s April 18, 2008,
Supplemental Questionnaire Response
at page 1 and Exhibit G–10; and
POSCO’s May 8, 2008, Supplemental
Questionnaire Response, at page 2.
Therefore, we did not include the grants
that are tied to non-subject merchandise
in our calculations in these preliminary
results. With respect to the other R&D
grants related to projects initially
funded in 2006, there is no information
provided in POSCO’s questionnaire
responses that demonstrates that the
new technologies developed in this R&D
project are limited to non-subject
merchandise and could not be used to
develop a hot-rolled technology for the
subject merchandise. See POSCO’s
April 18, 2008, Supplemental
Questionnaire Response at pages 1 and
2 and Exhibit G–10, and POSCO’s May
8, 2008, Supplemental Questionnaire at
pages 1 and 2. Moreover, with respect
to another project initially funded in
2006, we find that this project involves
developing methods that could be
applicable to inputs to both subject
merchandise and non-subject
merchandise. Under 19 CFR
351.525(b)(5), if a subsidy is tied to the
production or sale of a particular
product, the Department will attribute
the subsidy only to that product. But,
under sub-paragraph (ii), if a subsidy is
tied to the production of an input
product, then the Department will
attribute the subsidy to both the input
and downstream products produced by
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a corporation, where the input is
primarily dedicated to downstream
products. Accordingly, we have
attributed the grant related to a
production process that can be used as
an input into the production of subject
merchandise to POSCO’s total sales.
To determine the benefit from the
grants that POSCO received through
KNISTRA, we calculated the GOK’s
contribution for each R&D project. Next,
in accordance with 19 CFR
351.524(b)(2), we determined whether
to allocate the non-recurring benefit
from the grants over POSCO’s AUL by
dividing the approved amount by
POSCO’s total sales in the year of
approval. Because the approved
amounts were less than 0.5 percent of
POSCO’s total sales in the year of
receipt, we expensed the grants to the
year of receipt. Next, to calculate the net
subsidy rate, we divided the portion of
the benefit allocated to the POR by
POSCO’s total f.o.b. sales during the
POR. On this basis, we preliminarily
determine POSCO’s net subsidy rate
under this program to be 0.01 percent
ad valorem.
D. Exemption of VAT on Imports of
Anthracite Coal
Under Article 106 of Restriction of
Special Taxation Act (RSTA), imports of
anthracite coal are exempt from the
value added tax (VAT). In the ColdRolled Investigation, we determined that
the program is de jure specific under
section 771(5A)(D)(i) of the Act. Because
the GOK allows for only a few items to
be exempt from VAT, the items allowed
to be imported without paying VAT are
limited. See Cold-Rolled Decision
Memorandum at ‘‘Exemption of VAT on
Imports of Anthracite Coal.’’ We also
determined that the VAT exemptions
under the program constitute a financial
contribution under section 771(5)(D)(ii)
of the Act, as the GOK is not collecting
revenue otherwise due, and that the
exemptions confer a benefit under
section 771(5)(E) of the Act equal to the
amount of the VAT that would have
otherwise been paid if not for the
exemption. No new information,
evidence of changed circumstances, or
comments from interested parties were
presented in this review to warrant any
reconsideration of the countervailability
of this program. Therefore, we
preliminarily continue to find that this
program is de jure specific within the
meaning of section 771(5A)(D)(i) of the
Act because it is limited, constitutes a
financial contribution in the form of
forgone revenue under section
771(5)(D)(ii) of the Act, and confers a
benefit in the amount of the revenue
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foregone within the meaning of
771(5)(E) of the Act.
Dongbu reported that it did not use
the program during the POR. POSCO
imported anthracite coal during the POR
and, therefore, received a benefit in the
amount of the VAT that it should have
otherwise paid if not for the exemption.
To determine POSCO’s benefit from the
VAT exemption on these imports, we
calculated the amount of VAT that
would have been due absent the
program on the total value of anthracite
coal POSCO imported during the POR.
We then divided the amount of this tax
benefit by POSCO’s total f.o.b. sales.
Based on this methodology, we
preliminarily determine the POSCO
received a countervailable subsidy of
0.06 percent ad valorem.
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E. Other Subsidies Related to
Operations at Asan Bay: Provision of
Land and Exemption of Port Fees Under
Harbor Act
1. Provision of Land
As explained in the Cold-Rolled
Investigation, the GOK’s overall
development plan is published every 10
years and describes the nationwide land
development goals and plans for the
balanced development of the country.
Under these plans, the Ministry of
Construction and Transportation
(MOCAT) prepares and updates its Asan
Bay Area Broad Development Plan. See
Cold-Rolled Decision Memorandum at
‘‘Provision of Land at Asan Bay.’’ The
Korea Land Development Corporation
(Koland) is a government investment
corporation that is responsible for
purchasing, developing, and selling
land in the industrial sites. Id.
In the Cold-Rolled Investigation, we
verified that the GOK, in setting the
price per square meter for land at the
Kodai Industrial Estate, removed the 10
percent profit component from the price
charged to Dongbu. Id. In the ColdRolled Investigation, we further
explained that companies purchasing
land at Asan Bay must make payments
on the purchase and development of the
land before the final settlement.
However, in the case of Dongbu, we
found that the GOK provided an
adjustment to Dongbu’s final payment to
account for ‘‘interest earned’’ by the
company for the pre-payments. Id.
POSCO reported that it did not use this
program.
In the Cold-Rolled Investigation, we
determined that the price discount and
the adjustment of Dongbu’s final
payment to account for ‘‘interest
earned’’ by the company on its prepayments were countervailable
subsidies. Specifically, the Department
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determined that they were specific
under section 771(5A)(D)(iii)(I) of the
Act, as they were limited to Dongbu. Id.
Further, the Department found the price
discount and the price adjustment for
‘‘interest earned’’ constituted financial
contributions in the form of grants
under section 771(5)(D)(i) of the Act and
conferred benefits in the amount of
grants within the meaning of section
771(5)(E) of the Act. Id. No new
information, evidence of changed
circumstances, or comments from
interested parties were presented in this
review to warrant any reconsideration of
the countervailability of this program.
Therefore, we preliminarily continue to
find that this program is de facto
specific within the meaning of section
771(5A)(D)(iii)(I) of the Act because it is
limited to Dongbu, constitutes a
financial contribution in the form of
grants under sections 771(5)(D)(i), and
confers a benefit in the amount of the
price discount and the price adjustment
within the meaning of 771(5)(E) of the
Act.
Consistent with the Cold-Rolled
Investigation, we have treated the land
price discount and the interest earned
refund as non-recurring subsidies. Id. In
accordance with 19 CFR 351.524(b)(2),
because the grant amounts were more
than 0.5 percent of the company’s total
sales in the year of receipt, we applied
the Department’s standard grant
methodology, as described under 19
CFR 351.524(d)(1), and allocated the
subsidies over a 15-year allocation
period. See the ‘‘Average Useful Life’’
section above. To calculate the benefit
from these grants, we used as our
discount rate the rates described above
in the ‘‘Subsidies Valuation
Information’’ section. We then summed
the benefits received by Dongbu during
the POR. We calculated the net subsidy
rate by dividing the total benefit
attributable to the POR by Dongbu’s
total f.o.b. sales for the POR. On this
basis, we determine a net
countervailable subsidy rate for Dongbu
of 0.20 percent ad valorem for the POR.
2. Exemption of Port Fees Under the
Harbor Act
Under the Harbor Act, companies are
allowed to construct infrastructure
facilities at Korean ports; however, these
facilities must be deeded back to the
government. Because the ownership of
these facilities reverts to the
government, the government
compensates private parties for the
construction of these infrastructure
facilities. Because a company must
transfer to the government its
infrastructure investment, under the
Harbor Act, the GOK grants the
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52323
company free usage of the facility and
the right to collect fees from other users
of the facility for a limited period of
time. 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.
In the Cold-Rolled Investigation, the
Department found that Dongbu received
free use of harbor facilities at Asan Bay
based upon both its construction of a
port facility as well as a road that the
company built from its plant to its port.
See Cold-Rolled Decision Memorandum
at ‘‘Dongbu’s Excessive Exemptions
under the Harbor Act.’’ The Department
also determined that Dongbu received
an exemption of harbor fees for a period
of almost 70 years under this program.
See id.
In the Cold-Rolled Investigation, the
Department found the exemption from
the fees to be a countervailable subsidy.
No new information, evidence of
changed circumstances, or comments
from interested parties were presented
in this review to warrant any
reconsideration of the countervailability
of this program. Thus, we preliminarily
continue to find that the program is
countervailable and is specific under
section 771(5A)(D)(iii)(I) of the Act
because the excessive exemption period
of 70 years is limited to Dongbu.
Moreover, we preliminarily determine
that the GOK is foregoing revenue that
it would otherwise collect by allowing
Dongbu to be exempt from port charges
for up to 70 years and, thus, the program
constitutes a financial contribution
within the meaning of section
771(5)(D)(ii) of the Act. Further, we
preliminarily determine that the
exemptions confer a benefit under
section 771(5)(E) of the Act in the
amount of the port charges that were not
collected.
In the Cold-Rolled Investigation, the
Department treated the program as a
recurring subsidy and determined that
the benefit is equal to the average yearly
amount of harbor fee exemptions
provided to Dongbu. Id. For purposes of
these preliminary results, we have
employed the same benefit calculation.
To calculate the net subsidy rate, we
divided the average yearly amount of
exemptions by Dongbu’s total f.o.b. sales
for the POR. On this basis, we
preliminarily determine that Dongbu’s
net subsidy rate under this program is
0.02 percent ad valorem.
E. Short-Term Export Financing
KEXIM supplies two types of shortterm loans for exporting companies,
short-term trade financing and
comprehensive export financing.
KEXIM provides short-term loans to
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Korean exporters who manufacture
export goods under export contracts.
The loans are provided up to the
amount of the bill of exchange or
contracted amount less any amount
already received. For comprehensive
export financing loans, KEXIM supplies
short-term loans to any small or
medium-sized company, or any large
company that is not included in the five
largest conglomerates based on their
comprehensive export performance. To
obtain the loans, companies must report
their export performance periodically to
KEXIM for review. Comprehensive
export financing loans cover from 50 to
90 percent of the company’s export
performance; however, the maximum
loan amount is restricted to 30 billion
won. In Steel Products from Korea, the
Department determined that the GOK’s
short-term export financing program
was countervailable. See Final
Affirmative Countervailing Duty
Determinations and Final Negative
Critical Circumstances Determinations:
Certain Steel Products From Korea, 58
FR 37338, 37350 (July 9, 1993) (Steel
Products from Korea); see also, ColdRolled Decision Memorandum at
‘‘Short-Term Export Financing.’’ No
new information, evidence of changed
circumstances, or comments from
interested parties were presented in this
review to warrant any reconsideration of
the countervailability of this program.
Therefore, we continue to find this
program countervailable. Specifically,
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(D)(i) of the Act and
confers a benefit within the meaning of
section 771(E)(ii) of the Act. POCOS,
POSCO’s affiliate, and Dongbu reported
using short-term export financing
during the POR.
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 the respective company’s total
exports. On this basis, we determine the
net subsidy rate to be less than 0.005
percent ad valorem for POSCO and less
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than 0.005 percent ad valorem for
Dongbu.
II. Program Preliminarily Determined
Not To Confer a Benefit During the POR
A. Reserve for Research and Manpower
Development Fund Under RSTA Article
9 (Formerly Article 8 of TERCL)
On December 28, 1998, the TERCL
was replaced by the Tax Reduction and
Exemption Control Act (RSTA).
Pursuant to this change in law, TERCL
Article 8 is now identified as RSTA
Article 9. Apart from the name change,
the operation of RSTA Article 9 is the
same as the previous TERCL Article 8
and its Enforcement Decree.
This program allows a company
operating in manufacturing or mining,
or in a business prescribed by the
Presidential Decree, to appropriate
reserve funds to cover expenses related
to the development or innovation of
technology. These reserve funds are
included in the company’s losses and
reduce the amount of taxes paid by the
company. Under this program, capital
goods companies and capital intensive
companies can establish a reserve of five
percent of total revenue, while
companies in all other industries are
only allowed to establish a three-percent
reserve.
In a prior segment of this proceeding,
we determined that this program is
specific under section 771(5A)(D)(i) of
the Act because the capital goods
industry is allowed to claim a larger tax
reserve under this program than all
other manufacturers. See Certain
Corrosion-Resistant Carbon Steel Flat
Products from the Republic of Korea:
Preliminary Results of Countervailing
Duty Administrative Review, 72 FR
51602, 51607–08 (2005 Preliminary
Results of CORE from Korea)
(unchanged in 2005 CORE from Korea.
We also determined that this program
provides a financial contribution within
the meaning of section 771(5)(D)(ii) of
the Act in the form of revenue forgone
and that it provides a benefit under
section 771(5)(E) of the Act to the extent
that companies in the capital goods
industry, which includes steel
manufacturers, pay less in taxes than
they would absent the program. Id. In
2005 Preliminary Results of CORE from
Korea, we continued to find the program
countervailable, but found that the
companies under investigation only
contributed to the reserve at the lower
three-percent rate. Therefore, we found
no countervailable benefit because the
companies contributed at the lower rate,
which was available to any Korean
company. Id. No new information, or
evidence of changed circumstances, was
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presented in this review to warrant
reconsideration of the approaches
adopted in the 2005 Preliminary Results
of CORE from Korea.
In this administrative review, POSCO
and POCOS each reported contributing
to the reserve at the three-percent rate
during the POR. We continue to find
this program to be potentially
countervailable. However, as each
company contributed to the reserve at
the lower three-percent rate, and in light
of the Department’s approach in 2005
Preliminary Results of CORE from
Korea, we preliminarily determine that
no countervailable benefits were
conferred under this program during the
POR. Dongbu reported that it did not
use this program during the POR.
B. Long-Term Lending Provided by the
KDB and Other GOK-Owned Institutions
From 2002 to 2006
In the CFS Paper Investigation, we
found that long-term loans issued by
such GOK institutions as the KDB
constitute a financial contribution
within the meaning of section
771(5)(D)(i) of the Act and a benefit
under section 771(5)(E) of the Act to the
extent that interest payments on the
government loans are lower than what
would have been paid on comparable
commercial loans. Regarding specificity,
we found that long-term loans from the
KDB are not de jure specific within the
meaning of sections 771(5A)(D)(i) and
(ii) of the Act because (1) they are not
based on exportation, (2) they are not
contingent on the use of domestic goods
over imported goods, and (3) the
legislation and/or regulations do not
expressly limit access to the subsidy to
an enterprise or industry, or groups
thereof, as a matter of law. We then
examined whether such loans were
specific as a matter of fact under section
771(5A)(D)(iii) of the Act, that is,
whether the program is de facto
specific. We found that there was no
evidence indicating that these loans
were de facto specific. See CFS Paper
Decision Memorandum at ‘‘Long-Term
Lending Provided by the KDB and Other
GOK-Owned Institutions.’’
Dongbu reported receiving long-term
loans from a GOK-owned bank after
2001. However, upon calculating the
benefit to Dongbu during the POR by
applying the benchmark interest rates
described above, we preliminarily
determine that any potential benefit to
Dongbu during this POR is less than
0.005 percent As explained in CFS from
China Investigation and CFS from China
Decision Memorandum, where the
countervailable subsidy rate for a
program is less than 0.005 percent, the
program is not included in the total
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CVD rate. Hence, we preliminarily find
that these loans do not confer a
measurable benefit to Dongbu.
Accordingly, it is unnecessary to make
a finding as to the countervailability of
this program for this POR. We will
include an examination of this program
in a future administrative review.
POSCO and POSCOS reported that they
did not receive any such lending after
2001.
C. D/A Loans Issued by the KDB and
Other Government-Owned Banks
In the CFS Investigation, the
Department determined that D/A loans
from the KDB and other governmentowned banks constitute a financial
contribution in the form of a direct
transfer of funds within the meaning of
section 771(5)(D)(i) of the Act. In
addition, we determined that such loans
confer a benefit, in accordance with
section 771(5)(E)(ii) of the Act, to the
extent the amount exporters pay under
the program is less than the amount
they would pay on comparable
commercial loans they could obtain on
the market. Because receipt of D/A loans
is contingent upon export performance,
we also determined that D/A loans from
the KDB and other government-owned
banks are specific within the meaning of
section 771(5A)(B) of the Act. See CFS
Paper Decision Memorandum at ‘‘D/A
Loans Issued by KDB and Other
Government-Owned Banks.’’
Dongbu reported receiving short-term
D/A financing from a governmentowned bank during the POR. To
calculate the benefit, we compared the
amount of interest paid on the
government loans to the amount of
interest that would have been paid on
comparable commercial short-term
financing that could have been obtained
on the market. See 19 CFR 351.505(a).
We calculated the benefit to Dongbu by
applying the benchmark interest rates
described above. 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 respondents on their D/A loans
is a discounted rate. Therefore, it was
necessary to derive a discounted
benchmark interest rate from
respondents’ respective companyspecific weighted-average interest rates
for short-term commercial loans.
Because the benchmark interest rate was
lower than the interest rates paid by
Dongbu, we calculated a net subsidy
rate of 0.00 percent ad valorem for
Dongbu. Therefore, as explained above,
it is unnecessary to make a finding as to
the countervailability of this program
for this POR. POSCO and POCOS did
not report any D/A financing from
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government-owned banks during the
POR. We will include an examination of
this program in a future administrative
review.
D. Document Acceptance (D/A)
Financing Provided Under KEXIM’s
Trade Rediscount Program
Under section 771(5)(B)(iii) of the Act,
a subsidy can be found whenever the
government ‘‘makes a payment to a
funding mechanism to provide a
financial contribution, or entrusts or
directs a private entity to make a
financial contribution* * * to a person
and a benefit is thereby conferred.’’ In
the CFS Investigation, we determined
that KEXIM’s trade bill rediscount
program constitutes a payment to a
funding mechanism because the
rediscount ceiling KEXIM provides to
banks participating under the program
is contingent on banks subsequently
lending the funds to exporters. Section
771(5)(B)(iii) of the Act also states that
financial contributions from funding
mechanisms can be a subsidy only if
providing the contribution would
normally be vested in the government
and the practice does not differ in
substance from practices normally
followed by the government. This is the
‘‘government subsidy function’’ prong of
an indirect financial contribution. Here,
the banks are performing a government
subsidy function and, therefore, their
loans can qualify as subsidies.
Therefore, we find that loans from banks
under the rediscount program constitute
financial contributions within the
meaning of section 771(5)(D)(i) of the
Act and confer a benefit upon exporters,
in accordance with section 771(5)(E)(ii)
of the Act, to the extent the amount
exporters pay under the program is less
than the amount they would pay on
comparable commercial loans they
could obtain on the market. Because
receipt of the loans is contingent upon
export performance, we also determine
that KEXIM’s rediscount program is
specific within the meaning of section
771(5A)(B) of the Act. We further found
that subsidies on the loans under
KEXIM’s trade bill rediscount program
are tied to sales of subject merchandise
to the United States in accordance with
19 CFR 351.525(b)(4) and (5).
Accordingly, we limited our benefit
calculations to D/A loans issued on
sales of subject merchandise to the
United States. See CFS Paper Decision
Memorandum at ‘‘Export Loans by
Commercial Banks Under KEXIM’s
Trade Bill Rediscounting Program.’’
Dongbu reported receiving short-term
D/A financing from commercial banks
that participated in KEXIM’s Trade
Rediscount Program during the POR. To
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52325
calculate the benefit to Dongbu under
this program, we compared the amount
that Dongbu paid on all of its D/A loans
from commercial banks outstanding
during the POI to the amount it would
pay on comparable commercial shortterm financing that it could obtain on
the market. See 19 CFR 351.505(a). We
calculated the benefit to Dongbu by
applying the benchmark interest rates
described above. 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 respondents on their D/A loans
is a discounted rate. Because the
benchmark interest rate was lower than
the interest rates paid by Dongbu, we
calculated a net subsidy rate of 0.00
percent ad valorem for Dongbu.
Therefore, as explained above, it is
unnecessary to make a finding as to the
countervailability of this program for
this POR. POSCO and POCOS did not
report any D/A financing from
commercial banks during the POR. We
will include an examination of this
program in a future administrative
review.
III. Programs Preliminarily Determined
To Be Not Used
A. Overseas Resources Development
Program
The GOK enacted the Overseas
Resource Development Business Act in
order to establish the foundation for
ensuring the long-term secure supply of
essential energy and major material
minerals, which are mostly imported
because of scarce domestic resources.
Pursuant to Article 11 of this Act, the
Ministry of Commerce, Industry and
Energy (MOCIE) annually announces its
budget and the eligibility criteria to
obtain an overseas resource
development (ORD) loan. Any company
that meets the eligibility criteria may
apply for an ORD loan to MOCIE. The
eligibility criteria for receiving an ORD
loan are that the loan should be used for
surveying, exploration, development,
production, engineering services and
financing for the development of
overseas natural resources. The
applicant submits its ORD plans to
MOCIE in accordance with the Overseas
Resources Development Business Act.
MOCIE requests that the Korean
Resources Corporation (KORES), a
public corporation that is wholly owned
by the GOK, conduct an eligibility
review, feasibility study and credit
evaluation. KORES was established in
1967 and has assumed a direct role in
establishing and implementing the
GOK’s resources development policy,
whose purpose is to secure mineral
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resources for Korea. In the selection
process, KORES uses a loan evaluation
committee to select the recipients based
on the criteria for the project to develop
strategic minerals (e.g., bituminous coal,
uranium, iron ore, copper, zinc, nickel,
etc.), including co-development with
resource-owning countries, mining right
of minerals, etc. KORES provides the
evaluation result and its
recommendation to MOCIE. If the result
and recommendation are favorable,
MOCIE approves the loan application
and provides funds to KORES. KORES
then lends the funds to the company for
foreign resource development.
During the POR, POSCO reported in
its December 20, 2007, Questionnaire
Response that it received ORD loans.
POSCO’s loans were related to an
investment in a nickel mine. Nickel is
not an input used in the production of
subject merchandise. Therefore, we
preliminarily determine that POSCO did
not use this program with respect to the
subject merchandise during the POR.
We will continue to examine this
program in future reviews.
B. Reserve for Investment (Special Cases of
Tax for Balanced Development Among
Areas Under TERCL Articles 41–45)
C. Electricity Discounts Under the Requested
Loan Adjustment Program
D. Electricity Discounts Under the
Emergency Load Reductions Program
E. Export Industry Facility Loans and
Specialty Facility Loans
F. Reserve for Export Loss Under TERCL
Article 16
G. Reserve for Overseas Market Development
Under TERCL Article 17
H. Reserve for Export Loss Under TERCL
Article 22
I. Exemption of Corporation Tax on Dividend
Income from Overseas Resources
Development Investment Under TERCL
Article 24
J. Tax Credits for Temporary Investments
Under TERCL Article 27
K. Tax Credits for Specific Investments
Under TERCL Article 71
L. RSTA Article 94: Equipment Investment to
Promote Worker’s Welfare Under TERCL
Article 88
M. Equipment Investment to Promote
Worker’s Welfare Under TERCL Article 88
N. Emergency Load Reduction Program
O. Local Tax Exemption on Land Outside of
a Metropolitan Area
P. Short-Term Trade Financing Under the
Aggregate Credit Ceiling Loan Program
Administered by the Bank of Korea
Q. Industrial Base Fund
R. Excessive Duty Drawback
S. Private Capital Inducement Act
T. Social Indirect Capital Investment Reserve
Funds Under TERCL Article 28
U. Energy-Savings Facilities Investment
Reserve Funds Under TERCL Article 29
V. Scrap Reserve Fund
W. Special Depreciation of Assets on Foreign
Exchange Earnings
X. Export Insurance Rates Provided by the
Korean Export Insurance Corporation
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Y. Loans from the National Agricultural
Cooperation Federation
Z. Tax Incentives from Highly Advanced
Technology Businesses Under the Foreign
Investment and Foreign Capital
Inducement Act
Preliminary Results of Review
In accordance with 19 CFR
351.221(b)(4)(i), we calculated an
individual subsidy rate for each of the
producer/exporters subject to this
administrative review. For the period
January 1, 2006, through December 31,
2006, we preliminarily determine the
net subsidy rate for POSCO to be 0.09
percent ad valorem and for Dongbu to
be 0.22 percent ad valorem, both of
which are de mimimis. See 19 CFR
351.106(c)(1).
The Department intends to issue
assessment instructions to U.S. Customs
and Border Protection (CBP) 15 days
after the date of publication of the final
results of this review. If the final results
remain the same as these preliminary
results, the Department will instruct
CBP to liquidate without regard to
countervailable duties all shipments of
subject merchandise produced by
POSCO and Dongbu, entered, or
withdrawn from warehouse, for
consumption from January 1, 2006
through December 31, 2006. The
Department will also instruct CBP not to
collect cash deposits of estimated
countervailing duties on shipments of
the subject merchandise produced by
POSCO and Dongbu, entered, or
withdrawn from warehouse, for
consumption on or after the date of
publication of the final results of this
review.
We will instruct CBP to continue to
collect cash deposits for non-reviewed
companies at the most recent companyspecific or country-wide rate applicable
to the company. Accordingly, the cash
deposit rates that will be applied to
companies covered by this order, but
not examined in this review, are those
established in the most recently
completed administrative proceeding
for each company. These rates shall
apply to all non-reviewed companies
until a review of a company assigned
these rates is requested.
Public Comment
Pursuant to 19 CFR 351.224(b), the
Department will disclose to parties to
the proceeding any calculations
performed in connection with these
preliminary results within five days
after the date of the public
announcement of this notice. Pursuant
to 19 CFR 351.309, interested parties
may submit written comments in
response to these preliminary results.
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
Unless otherwise indicated by the
Department, case briefs must be
submitted within 30 days after the
publication of these preliminary results.
See 19 CFR 351.309(c)(1)(ii). Rebuttal
briefs, which are limited to arguments
raised in case briefs, must be submitted
no later than five days after the time
limit for filing case briefs, unless
otherwise specified by the Department.
See 19 CFR 351.309(d)(1). Parties who
submit argument in this proceeding are
requested to submit with the argument:
(1) A statement of the issue; and (2) a
brief summary of the argument. Parties
submitting case and/or rebuttal briefs
are requested to provide the Department
copies of the public version on disk.
Case and rebuttal briefs must be served
on interested parties in accordance with
19 CFR 351.303(f). Also, pursuant to 19
CFR 351.310(c), within 30 days of the
date of publication of this notice,
interested parties may request a public
hearing on arguments to be raised in the
case and rebuttal briefs. Unless the
secretary specifies otherwise, the
hearing, if requested, will be held two
days after the date for submission of
rebuttal briefs.
Pursuant to 19 CFR 351.305(b)(4),
representatives of parties to the
proceeding may request disclosure of
proprietary information under
administrative protective order no later
than 10 days after the representative’s
client or employer becomes a party to
the proceeding, but in no event later
than the date the case briefs, under 19
CFR 351.309(c)(i), are due. The
Department will publish the final
results of this administrative review,
including the results of its analysis of
issues raised in any case or rebuttal brief
or at a hearing.
These preliminary results of review
are issued and published in accordance
with sections 7519(a)(1) and 777(i)(1) of
the Act and 19 CFR 351.221(b)(4).
Dated: September 2, 2008.
David M. Spooner,
Assistant Secretary for Import
Administration.
[FR Doc. E8–20918 Filed 9–8–08; 8:45 am]
BILLING CODE 3510–DS–P
E:\FR\FM\09SEN1.SGM
09SEN1
Agencies
[Federal Register Volume 73, Number 175 (Tuesday, September 9, 2008)]
[Notices]
[Pages 52315-52326]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-20918]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
[C-580-818]
Corrosion-Resistant Carbon Steel Flat Products From the Republic
of Korea: Preliminary Results of Countervailing Duty Administrative
Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: The Department of Commerce (the Department) is conducting an
administrative review of the countervailing duty (CVD) order on
corrosion-resistant carbon steel flat products from the Republic of
Korea (Korea) for the period of review (POR) January 1, 2006, through
December 31, 2006. For information on the net subsidy for each of the
reviewed companies, see the ``Preliminary Results of Review'' section
of this notice. Interested parties are invited to comment on these
preliminary results. See the ``Public Comment'' section of this notice.
DATES: Effective Date: September 9, 2008.
FOR FURTHER INFORMATION CONTACT: Robert Copyak or Gayle Longest, AD/CVD
Operations, Office 3, Import Administration, International Trade
Administration, U.S. Department of Commerce, Room 4014, 14th Street and
Constitution Ave., NW., Washington, D.C. 20230; telephone: (202) 482-
2209 and (202) 482-3338, respectively.
SUPPLEMENTARY INFORMATION:
Background
On August 17, 1993, the Department published in the Federal
Register the CVD order on corrosion-resistant carbon steel flat
products (CORE) from Korea. See Countervailing Duty Orders and
Amendments of Final Affirmative Countervailing Duty Determinations:
Certain Steel Products from Korea, 58 FR 43752 (August 17, 1993). On
August 2, 2007, the Department published a notice of opportunity to
request an administrative review of this CVD order. See Antidumping or
Countervailing Duty Order, Finding, or Suspended Investigation;
Opportunity to Request Administrative Review, 72 FR 42383 (August 2,
2007). On August 31, 2007, we received a timely request for review from
Pohang Iron and Steel Co. Ltd. (POSCO) and Dongbu Steel Co., Ltd.
(Dongbu). On September 25, 2007, the Department published a notice of
initiation of the administrative review of the CVD order on corrosion-
resistant carbon steel flat products from Korea covering the POR
January 1, 2006, through December 31, 2006. See Initiation of
Antidumping and Countervailing Duty Administrative Reviews and Requests
for Revocation in Part, 72 FR 54428 (September 25, 2007). On November
2, 2007, the Department sent its initial questionnaire to POSCO,
Dongbu, and the Government of Korea (GOK). On December 20, 2007, the
Department received questionnaire responses from POSCO, Pohang Steel
Co., Ltd. (POCOS, a production affiliate of POSCO), POSCO Steel Service
& Sales Co., Ltd. (POSTEEL, a trading company for POSCO),\1\ and
Dongbu. On January 7, 2008, the Department received questionnaire
responses from the GOK. On March 4, 2008 and April 7, 2008, we issued
supplemental questionnaires to POSCO and the GOK. On March 24, 2008 and
April 14, 2008, we received responses to these supplemental
questionnaires.
---------------------------------------------------------------------------
\1\ In these preliminary results, unless otherwise stated, we
use POSCO to collectively refer to POSCO, POCOS, and POSTEEL.
---------------------------------------------------------------------------
On April 28, 2008, the Department published in the Federal Register
a notice of extension of the time period for issuing the preliminary
results. See Corrosion-Resistant Carbon Steel Flat Products from the
Republic of Korea: Extension of Time Limit for Preliminary Results of
Countervailing Duty Administrative Review, 73 FR 22920 (April 28,
2008).
In accordance with 19 CFR 351.213(b), this review covers only those
producers or exporters for which a review was specifically requested.
The companies subject to this review are POSCO (and its affiliates
POCOS and POSTEEL) and Dongbu.
Affiliated Companies
In the present administrative review, record evidence indicates
that POCOS is a majority-owned production affiliate of POSCO. Under 19
CFR 351.525(b)(6)(iii), if the firm that received a subsidy is a
holding company, including a parent company with its own operations,
the Department
[[Page 52316]]
will attribute the subsidy to the consolidated sales of the holding
company and its subsidiaries. Thus, we attributed any subsidies
received by POCOS to POSCO and its subsidiaries, net of intra-company
sales. Dongbu reported that it is the only member of the Dongbu group
in Korea that was involved with the sale of subject merchandise to the
United States.
Scope of Order
Products covered by this order are certain corrosion-resistant
carbon steel flat products from Korea. These products include flat-
rolled carbon steel products, of rectangular shape, either clad,
plated, or coated with corrosion-resistant metals such as zinc,
aluminum, or zinc-, aluminum-, nickel-or iron-based alloys, whether or
not corrugated or painted, varnished or coated with plastics or other
nonmetallic substances in addition to the metallic coating, in coils
(whether or not in successively superimposed layers) and of a width of
0.5 inch or greater, or in straight lengths which, if of a thickness
less than 4.75 millimeters, are of a width of 0.5 inch or greater and
which measures at least 10 times the thickness or if of a thickness of
4.75 millimeters or more are of a width which exceeds 150 millimeters
and measures at least twice the thickness. The merchandise subject to
this order is currently classifiable in the Harmonized Tariff Schedule
of the United States (HTSUS) at subheadings: 7210.30.0000,
7210.31.0000, 7210.39.0000, 7210.41.0000, 7210.49.0030, 7210.49.0090,
7210.60.0000, 7210.61.0000, 7210.70.6030, 7210.70.6060, 7210.70.6090,
7210.90.1000, 7210.90.6000, 7210.90.9000, 7212.20.0000, 7212.21.0000,
7212.29.0000, 7212.30.1030, 7212.30.1090, 7212.30.3000, 7212.30.5000,
7212.40.1000, 7212.40.5000, 7212.50.0000, 7212.60.0000, 7215.90.1000,
7215.9030, 7215.90.5000, 7217.12.1000, 7217.13.1000, 7217.19.1000,
7217.19.5000, 7217.20.1500, 7217.22.5000, 7217.23.5000, 7217.29.1000,
7217.29.5000, 7217.30.15.0000, 7217.32.5000, 7217.33.5000,
7217.39.1000, 7217.39.5000, 7217.90.1000 and 7217.90.5000. Although the
HTSUS subheadings are provided for convenience and customs purposes,
the Department's written description of the merchandise is dispositive.
Average Useful Life
Under 19 CFR 351.524(d)(2), 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) 1997 Class Life Asset Depreciation
Range System, as updated by the Department of the Treasury. The
presumption will apply unless a party claims and establishes that the
IRS tables do not reasonably reflect the company-specific AUL or the
country-wide AUL for the industry under examination and that the
difference between the company-specific and/or country-wide AUL and the
AUL from the IRS tables is significant. According to the IRS tables,
the AUL of the steel industry is 15 years. No interested party
challenged the 15-year AUL derived from the IRS tables. Thus, in this
review, we have allocated, where applicable, all of the non-recurring
subsidies provided to the producers/exporters of subject merchandise
over a 15-year AUL.
Subsidies Valuation Information
A. Benchmarks for Short-Term Financing
For those programs requiring the application of a won-denominated,
short-term interest rate benchmark, in accordance with 19 CFR
351.505(a)(2)(iv), we used as our benchmark an annual average company-
specific weighted-average interest rate for commercial won-denominated
loans outstanding during the POR. Where no such benchmark instruments
are available, we used national average lending rates for the POR, as
reported in the International Monetary Fund's (IMF) International
Financial Statistics Yearbook. This approach is in accordance with 19
CFR 351.505(a)(3)(ii) and the Department's practice. See, e.g. , Final
Affirmative Countervailing Duty Determination: Structural Steel Beams
From the Republic of Korea, 65 FR 41051 (July 3, 2000) (H Beams
Investigation), and the accompanying Issues and Decision Memorandum (H
Beams Decision Memorandum) at ``Benchmarks for Short-Term Financing.''
For Dongbu's document acceptance (D/A) loans rediscounted under the
Korean Export Import Bank's (KEXIM's) rediscount program, we used, for
benchmark purposes, Dongbu's usance loans issued by commercial banks.
See Coated Free Sheet Paper from the Republic of Korea: Notice of Final
Affirmative Countervailing Duty Determination, 72 FR 60639 (October 25,
2007) (CFS Paper Investigation) and accompanying Issues and Decision
Memorandum at Comment 18 (CFS Paper Decision Memorandum).
B. Benchmark for Long-Term Loans
During the POR, POSCO and Dongbu had outstanding long-term won-
denominated and foreign-currency denominated loans from government-
owned banks and Korean commercial banks. Based on our findings on this
issue in prior investigations and administrative reviews, we are using
the following benchmarks to calculate the subsidies attributable to
respondents' countervailable long-term loans obtained through 2006:
(1) For countervailable, foreign-currency denominated loans,
pursuant to 19 CFR 351.505(a)(2), and consistent with our past
practice, our preference is to use the company-specific, weighted-
average foreign currency-denominated interest rates on the company's
loans from foreign bank branches in Korea, foreign securities, and
direct foreign loans outstanding during the POR. See, e.g., Final
Affirmative Countervailing Duty Determination: Stainless Steel Sheet
and Strip in Coils from the Republic of Korea, 64 FR 30636, 30640 (June
8, 1999) (SSSS Investigation). Where no such benchmark instruments are
available, and consistent with 19 CFR 351.505(a)(3)(ii), as well as our
practice, we relied on the national average lending rates as reported
by the IMF's International Financial Statistics Yearbook. 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, 69 FR 2113 (January 14, 2004), and the
accompanying Issues and Decision Memorandum at ``Benchmarks for Long-
Term Loans and Discount Rates.''
(2) For countervailable, won-denominated, long-term loans, our
practice is to use the company-specific corporate bond rate on the
company's public and private bonds, as we determined that the GOK did
not control the Korean domestic bond market after 1991 and that
domestic bonds may serve as an appropriate benchmark interest rate.
See, e.g., Final Negative Countervailing Duty Determination: Stainless
Steel Plate in Coils from the Republic of Korea, 64 FR 15530, 15531
(March 31, 1999) (Plate in Coils Investigation); see also 19 CFR
351.505(a)(2)(ii). Where no such benchmark instruments are available,
we used the national average of the yields on three-year corporate
bonds, as reported by the Bank of Korea (BOK), consistent with 19 CFR
351.505(a)(3)(ii). We note that the use of the three-year corporate
bond rate from the BOK follows the approach taken in Plate in Coils
Investigation, in which we
[[Page 52317]]
determined that, absent company-specific interest information, the
corporate bond rate is the best indicator of a market rate for won-
denominated long-term loans in Korea. See Plate in Coils Investigation,
64 FR at 15531; see also 19 CFR 351.505(a)(3)(ii).
In accordance with 19 CFR 351.505(a)(2)(i), our benchmarks take
into consideration the structure of the government-provided loans. For
countervailable 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 countervailable variable-
rate loans outstanding during the POR, 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 instruments are
unavailable, we used interest rates from debt instruments issued during
the POR as our benchmarks, as such rates better reflect a variable
interest rate that would be in effect during the POR. This approach is
in accordance with the Department's practice. 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).
I. Program Preliminarily Determined To Confer Subsidies
A. The GOK's Direction of Credit
In the Plate in Coils Investigation, 64 FR 15530, 15532-33 (March
31, 1999) and in the SSSS Investigation, 64 FR 30636, 30641-42 (June 8,
1999), the Department determined that the GOK controlled directly and
indirectly the lending practices of most sources of credit in Korea
through 1997. Furthermore, the Department determined that the GOK's
regulated credit from domestic commercial banks and government-
controlled banks such as the Korea Development bank (KDB) was specific
to the steel industry. In the Final Affirmative Countervailing Duty
Determination: Certain Cut-to-Length Carbon-Quality Steel Plate from
the Republic of Korea, 64 FR 73176, 73179 (December 29, 1999) (CTL
Plate Investigation) and in the H Beams Investigation and H Beams
Decision Memorandum at ``GOKs Credit Policies from 1992 through 1998,''
the Department determined that the GOK's directed lending practices
continued to be specific with respect to the steel industry through
1998.
In every subsequent CVD investigation or administrative review of a
Korean steel product covering a period of investigation (POI) or POR
from 2000 to 2005, we provided the GOK an opportunity to present new
factual information concerning the government's credit policies, which
we would consider along with our findings in prior investigations. For
every POI or POR covering the years 2000 to 2005, respondents decided
not to provide new information on the GOK's lending policies for
domestic banks. Therefore, with respect to each of the years from 2000
to 2005, consistent with section 776 of the Act, we found that the
GOK's direction of credit policies to the steel industry continued
through the period 2000 to 2005. See, e.g., Notice of Final Affirmative
Countervailing Duty Determination: Certain Cold-Rolled Carbon Steel
Flat Products From the Republic of Korea, 67 FR 62102, (October 3,
2002) (Cold-Rolled Investigation), and accompanying Issues and Decision
Memorandum at ``GOK Directed Credit'' (Cold-Rolled Decision
Memorandum); 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) (SSSS 2004 Review), and
accompanying Issues and Decision Memorandum at ``The GOK's Direction of
Credit'' (SSSS 2004 Review Decision Memorandum); and Notice of Final
Results of Countervailing Duty Administrative Review: Certain Cut-to-
Length Carbon-Quality Steel Plate from the Republic of Korea, 72 FR
38565 (July 13, 2007) (CTL Plate 2007 Review), and accompanying Issues
and Decision Memorandum at ``The GOK's Direction of Credit'' (CTL Plate
2007 Review Decision Memorandum).
The Department's last determination of the GOK's directed credit
policies not based on adverse facts available (AFA) was in the H Beams
Investigation, which covered calendar year 1998. See H Beams Decision
Memorandum at ``GOK's Credit Policies from 1992 through 1998.'' In its
June 7, 2000, memorandum regarding direction of credit in the H Beams
Investigation, the Department noted that: (1) The history of GOK
intervention in the credit market from the 1960s into the 1990s
including the Heavy and Chemical Industry (HCI) promotion program that
was introduced in the 1980s; (2) an IMF Working Paper that concluded
that the GOK continued to favor priority sectors with credit and that
financial institutions believed that the government would protect them
on risky lending on unprofitable projects; \2\ (3) a 1999 OECD report
that stated that the GOK exerted immense pressure and directed much of
the country's lending activities, often on the basis of political whim
rather than a proper evaluation of risk; \3\ (4) a World Bank study
illustrating Korea's selective allocation of credit which also
concluded that the promotion of the steel industry was one of the top
priorities of the GOK; \4\ (5) an Agreement with the IMF in which the
GOK explicitly stated it would stop directing credit; \5\ (6) a Korean
Presidential Commission report on the government's pervasive influence
and intervention in the country's financial sector; \6\ (7) the fact
that the Korean steel industry was one of the top recipients of KDB
lending during the time in which the KDB was the largest source of
long-time financing in Korea; and (8) industry-specific costs of
borrowing as reported in the Bank of Korea's Financial Statement
Analysis and the steel industry's access to the foreign loan market
that was controlled by the GOK. In the H Beams Investigation, the GOK
argued that measures were taken in 1998 to liberalize the Korean
financial sector. See H Beams Decision Memorandum at ``GOKs Credit
Policies from 1992 through 1998.'' However, in our analysis of the
financial reforms for our final determination, the Department stated
that while the GOK started to plan and implement reforms in the
[[Page 52318]]
financial sector during 1998, the record evidence indicated that the
GOK's previous attempts at removing or reducing its controls and
influence over lending in the country were not successful. We noted
that, in the ten years prior to 1998, the GOK twice attempted to reform
its financial system. In 1988, the GOK attempted to deregulate interest
rates. However, the GOK deemed the 1988 liberalization a failure
because when interest rates began to rise, the GOK cancelled the
reforms by indirectly pressuring the banks to keep interest rates low.
In the early 1990s, the GOK attempted reforms again with a four-stage
interest rate deregulation plan. Again, the GOK deemed this attempt to
reform the financial system a failure. We also noted in the H Beams
Investigation that, during 1998 and 1999, despite its apparent
liberalization attempts, the GOK threatened to cut off credit to Korean
companies unless the companies followed GOK policies. Id. In addition,
during this period the GOK took control of five large commercial banks
due to the financial crisis.
---------------------------------------------------------------------------
\2\ Borsesztein, Eduardo and Jong-Wha Lee, Credit Allocation and
Financial Crisis in Korea (an International Monetary Fund Working
Paper), February 1999. See Memorandum to the File from Eric B.
Greynolds, Program Manager, ``Information Regarding Reforms to the
Korean Financial System,'' at Attachment 1 (August 11, 2008)
(Direction of Credit Memorandum), a public document on file in the
Central Records Unit, room 1117 of the Main Commerce Building.
\3\ OECD, Asia and the Global Crisis--The Industrial
Dimension,1999. See Memorandum from Melissa G. Skinner, Director,
Office of CVD/AD Enforcement VI to Holly A. Kuga, Acting Deputy
Director for Import Administration, ``Direction of Credit in Korea:
Structural Steel Beams from the Republic of Korea'' (June 7, 2000),
which is on the record of this administrative review at GOK's
January 7, 2008 Questionnaire Response at Exhibit A-2 (Direction of
Credit Memorandum for H Beams).
\4\ World Bank, Credit Policies and the Industrialization of
Korea, 1995 World Bank Study. See Direction of Credit Memorandum for
H Beams, which is on the record of this administrative review at
GOK's January 7, 2008 Questionnaire Response at Exhibit A-2.
\5\ See, e.g., December 3, 1997, Letter of Intent of the
Government of Korea to IMF, and December 5, 1997, Republic of Korea
IMF Stand-By Arrangement, which are included as Attachment 2 of the
Direction of Credit Memorandum.
\6\ The Presidential Commission for Financial Reform, Financial
Reform in Korea: The Third Report, 1997. See Direction of Credit
Memorandum for H Beams, which is on the record of this
administrative review at GOK's January 7, 2008 Questionnaire
Response, at Exhibit A-2.
---------------------------------------------------------------------------
Thus, while the Department acknowledged in the H Beams
Investigation that the GOK was attempting to make reforms in the
financial sector in 1998 and 1999, we concluded that the then status of
these reforms was not enough to change our affirmative direction of
credit determination because: (1) The GOK had tried twice before within
a ten-year period to implement financial reforms and failed at each
attempt; and (2) the GOK was undermining its reform attempts by
threatening to cut off lending to Korean firms and by taking control of
large commercial banks. Id. Subsequent to our determination in the H
Beams Investigation, the GOK did not provide any new information on
financial reforms implemented after 1997 in any administrative review
of any outstanding CVD order covering the Korean steel industry;
therefore, the Department has not revisited our direction of credit
determination with respect to the steel industry.
During the POR, POSCO and Dongbu had outstanding loans that were
received prior to and/or during the 2006 POR. As in the prior
proceedings, we requested that the GOK provide information pertaining
to the GOK's direction-of-credit policies through 2006.
In its January 7, 2008, questionnaire response in the instant
review, the GOK provided new information on the issue of directed
credit and the status of reforms within the financial sector for the
period 2002 through 2006.\7\ Based on this new information and the
reforms implemented in the Korean financial sector after the 1997
Financial Crisis, the GOK concludes that the Department should now find
that the GOK does not direct credit to the steel industry.
---------------------------------------------------------------------------
\7\ The GOK stated that it chose not to respond to direction of
credit questions in previous administrative reviews of steel
products covering periods after 2000 because of the considerable
burden of responding to the Department's questions and the very
small impact of the Department's finding of directed credit on
respondents (especially given that the aggregate company-specific
subsidy rates were de minimis).
---------------------------------------------------------------------------
In this administrative review, the GOK states that, based on the
significant and sweeping reforms of the Korean financial sector after
the 1997 Financial Crisis, the Department held in Dynamic Random Access
Memory Semiconductors from the Republic of Korea: Final Affirmative
Countervailing Duty Determination (DRAMS Investigation) that the Korean
financial sector did not direct credit to the semiconductor industry
after 1998. See DRAMS Investigation, 68 FR 37122 (June 23, 2003), and
accompanying Issues and Decision Memorandum at ``Direction of Credit
and Other Financial Assistance'' (DRAMS Decision Memorandum). The GOK
states that reforms have continued at a fast pace since 1998, more
banks have been privatized, and numerous reforms have been implemented
in order to enhance the financial strength and independence of the
banking sector. The GOK notes that the Corporate Restructuring
Promotion Act requires banks to undertake ongoing evaluations of their
customers and their financial health to avoid insolvency and to take
steps to restructure the debtors that become credit risks.
The GOK states that when the Department made its initial finding of
directed credit to the steel industry, the Department noted that the
availability of long-term lending in Korea was predominantly controlled
by the state-owned KDB. The GOK notes that there are now numerous
sources of long-term funds available in the Korean market including
loans from commercial banks. A comparison of outstanding loans from the
KDB and loans sourced from commercial banks shows that commercial banks
provide the majority of long-term lending in Korea. See Government of
Korea's January 7, 2008 Questionnaire Response at Exhibit A-5 (GOK's
January QR). Furthermore, there are now other means for companies to
finance long-term debt such as issuing bonds and notes in Korea and
internationally. See GOK's January QR at 8.
According to the questionnaire response submitted by the GOK in
this administrative review, in the wake of the 1997 Financial Crisis,
the GOK launched a financial sector restructuring program aimed at
maintaining a functioning financial system and, at the same time,
making it more market-oriented. Nearly a quarter of Korea's financial
institutions, including nine of 26 commercial banks at the time, were
ultimately closed. To improve the supervisory framework, the Financial
Supervisory Commission (FSC), a unified body covering banking,
insurance, non-banks and the capital market, was established. The FSC
was established under the Act on Establishment of Financial Supervisory
Organizations enacted in December 1997 and last amended in 2003, with a
view to contributing to the development of the national economy by
establishing an orderly and sound credit system. The FSC supervises
financial institutions, including commercial banks, and takes
regulatory actions in accordance with the applicable statutes. Other
than general regulatory functions, the FSC does not intervene in the
daily operations, including credit evaluation or extensions decisions,
of financial institutions. The FSC's supervisory functions in relation
to bank's credit services are confined to ensuring compliance with
credit limits, the provision of adequate reserves, and other ordinary
affairs as necessary to determine the soundness of operation of the
financial institution. Since the creation of the FSC in 1998, the
Ministry of Finance and Economy's authority over the establishment of
banks and the supervision of banks has shifted to the FSC.
The GOK also states that it does not intervene in the decision-
making process for the direction or regulation of credit, or for
deposit and lending rates, which are entirely reserved for the
discretion of individual financial institutions. As a measure in the
course of prudential regulation, the Financial Supervisory Service
(FSS) issued a Sample Guideline for Credit Risk Assessment and a
Notification to Financial Institutions Regarding Risk Evaluation System
for Corporations, for the purpose of enhancing the risk evaluation
system by individual financial institutions.\8\ These documents
[[Page 52319]]
provide simple basic guidelines but do not offer specific details for
the banks to follow in managing their credit extensions. The GOK states
that all bank-specific policies on lending and credit evaluation are
established by individual banks.
---------------------------------------------------------------------------
\8\ The FSS was established on January 2, 1999, under the Act on
the Establishment of Financial Supervisory Organizations by bringing
together four supervisory bodies--Banking Supervisory Authority,
Securities Supervisory Board, Insurance Supervisory Board, and Non-
Bank Supervisory Authority--into a single supervisory organization.
The primary function of the FSS is examination and supervision of
financial institutions but can extend to other oversight and
enforcement functions as charged by the Financial Services
Commission (the former Financial Supervisory Commission) and the
Securities and Futures Commission.
---------------------------------------------------------------------------
The GOK states that it does not provide any guidance with regard to
the commercial interest rates to be charged for loans by Korean
commercial banks. Specific interest rates to be charged by financial
institutions are only determined by the respective financial
institution itself. As such, interest rates differ from bank to bank
depending upon the policies taken by individual banks, the nature of
the loans, the current conditions of the financial market, and the
creditworthiness of the borrower.
The Prime Minister's Decree 408, enacted in November 2000, sets
forth that the government should not intervene in the general
management of the banks. Furthermore, the Depositors Protection Act,
revised in January 2000, in turn sets forth that the officers and
employees who are responsible for the financial troubles of the
financial institutions should compensate for the damages personally and
individually. Therefore, the GOK states, not only are GOK officials
prohibited from intervening in the daily business operation of the
banks, but also any GOK official making such an attempt would assume
civil and criminal liability in a personal capacity.
According to the GOK's questionnaire response, during 2004 through
2006, no Korean commercial bank was taken over or administered by the
GOK due to bank restructurings in Korea. Furthermore, the GOK has
privatized most of the commercial banks that it took over as a result
of the 1997 Financial Crisis. Many of these commercials banks, such as
SC First and the Korean Exchange Bank (KEB), have majority ownership by
foreign interests. For other commercial banks such as Kookmin, foreign
shareholders are the major shareholders of the bank. Currently only one
commercial bank, Woori, has majority ownership by the GOK. According to
the GOK, the Korea Deposit Insurance Corporation owns approximately 80
percent of Woori.
With respect to other lending sources found countervailable in
prior directed credit determinations, the National Investment Fund
(NIF) was liquidated on January 2, 2003. The NIF supported heavy and
chemical industries during the period from 1974 to 1991 by extending
loans raised through the issuance of national investment bonds to
financial institutions. The GOK also noted that the Department
determined that access to foreign securities and direct foreign loans
after April 1999 is no longer countervailable.
Finally, the GOK argues that, in Coated Free Sheet Paper from the
Republic of Korea: Notice of Preliminary Affirmative Countervailing
Duty Determination, 72 FR 17507 (April 9, 2007) (CFS Paper Preliminary
Determination), the Department reaffirmed its finding in the DRAMS
Investigation that: (1) Distinguished between banks that are government
authorities and banks with some government ownership (as a result of
the 1997 Financial Crisis) that acted as commercial banks and (2)
measured the specificity of long-term loans to the paper sector only
with respect to GOK-owned banks that were government authorities. See
CFS Paper Preliminary Determination at 72 FR 17511-17512, 17517. The
GOK noted that, in the CFS Paper Investigation, 72 FR 60639 (October
25, 2007), the specificity test used by the Department demonstrated
that long-term loans from GOK-owned banks were not specific to the
paper sector. See CFS Paper Investigation and CFS Paper Decision
Memorandum at ``Long-Term Lending Provided by the KDB and Other GOK-
Owned Institutions.'' The GOK states that a comparable analysis
demonstrates that long-term loans from GOK-owned banks are not specific
to the steel industry during the POR.
We find that the new information submitted by the GOK is sufficient
to warrant a re-examination of the Department's direction of credit
determination made with respect to the Korean steel industry. As noted
above, the Department last reviewed new information in the H Beams
Investigation, in which we stated that, although the GOK was starting
to implement reforms of the financial sector, these reforms were, in
part, undermined by the GOK's taking control of commercial banks and
the fact that previous attempts at reforms were not successful. See H
Beams Decision Memorandum at ``GOK's Credit Policies from 1992 through
1998.''
Our determination in the H Beams Investigation reviewed the
attempts of the GOK to reform the financial sector in 1998 and 1999.
Id. The GOK has now provided new information on the details of the
financial sector reforms that were implemented in the wake of the 1997
Financial Crisis, arguing that these reforms have removed the controls
that led to the Department's determination of direction of bank credit.
While the information submitted by the GOK supports its arguments
regarding reforms of the banking sector, our original directed credit
determination relied on independent sources detailing GOK control and
direction of bank credit. Thus, it is appropriate to also review those
independent sources to determine if these sources substantiate the
information submitted by the GOK in this administrative review.
However, before this review of independent research on GOK financial
reforms, it is important to review the Department's determinations
regarding directed credit made in both the DRAMS Investigation and the
CFS Paper Investigation.
In its questionnaire response, the GOK states that since the
directed credit determination regarding the Korean steel industry, the
Department has addressed directed credit in investigations of two non-
steel products, the DRAMS Investigation and the CFS Paper
Investigation, and reached different conclusions with respect to
directed credit from Korean banks.
In the DRAMS Investigation, the Department first examined the GOK's
credit policies through 1998. See DRAMS Investigation, and DRAMS
Decision Memorandum at ``The GOK's Credit Policies Through 1998.'' The
Department stated that it had found that the GOK controlled the lending
practices of banks in Korea in prior cases involving the Korean steel
industry and had determined in the H Beams Investigation that the GOK
directed credit through 1998. Although in the DRAMS Investigation the
Department provided the GOK with an opportunity to present new factual
information concerning the GOK's direction of long-term lending through
1998, no new information was presented. See DRAMS Decision Memorandum
at 12. Therefore, in the DRAMS Investigation, the Department determined
that the GOK continued to control, directly and indirectly, the long-
term lending practices of Korean domestic banks through 1998. See DRAMS
Decision Memorandum at ``The GOK's Credit Policies Through 1998.''
However, the respondents in the DRAMS Investigation provided new
information with respect to whether the GOK directed bank credit for
the period 1999 through June 30, 2002. See DRAMS Decision Memorandum at
``The GOK's Involvement in the ROK Lending Sector from 1999 through
June 30, 2002.'' Therefore, the Department
[[Page 52320]]
analyzed this information to determine whether the GOK continued to
direct credit from domestic banks after 1999. Based on this analysis,
the Department determined in the DRAMS Investigation that the GOK only
directed credit to a group of companies that were part of the Hyundai
group, including DRAMs manufacturer, Hynix. Id.
In the CFS Paper Investigation, the Department stated that,
although the GOK exerted broad control over lending through 1998 that
resulted in credit being directed specifically to strategic industries
such as steel and semiconductors, there was not sufficient information
to conclude that the paper industry was designated as a strategic
industry by the GOK and, thus, a beneficiary of directed credit. See
CFS Paper Decision Memorandum at ``Direction of Credit to the Pulp and
Paper Sector.'' In CFS Paper Investigation, the Department also
separately examined the provision of long-term lending provided by the
KDB and other GOK-owned institutions, and found that KDB lending was
not specific to the paper industry. See CFS Paper Decision Memorandum
at ``Long-Term Lending Provided by the KDB and Other GOK-Owned
Institutions.''
Our review of independent research on the post-financial crisis
reforms within the Korean financial and banking sector, as discussed
further below, support the statements made by the GOK in this review.
Our review also provided no evidence of continued GOK systemic control
of banking credit within Korea, including banking credit directed
towards the Korean steel industry.
In the period after the 1997 Financial Crisis and leading up to
2002, the GOK implemented a number of reforms in the financial sector.
As noted by many experts, the Korean financial sector was long
characterized by government intervention and a discretionary
implementation of rules where the GOK played a crucial role in credit
resource allocation.\9\ The Korean banking sector suffered due to
inefficient internal management and GOK intervention in the financial
sector prevented the development of market discipline. Furthermore,
selective credit allocation by the government resulted in an
inefficient and distorted financial system.\10\
---------------------------------------------------------------------------
\9\ Kyung Tae Lee and Inkoo Lee, ``Crisis, Reforms, and
Structural Changes in the Korean Economy,'' October 6, 2007, at 4.
See Direction of Credit Memorandum, at Attachment 3.
\10\ Takatoshi Ito and Yuko Hashimoto, ``Banking Restructuring
in Asia: Crisis Management in the Aftermath of the Asian Financial
Crisis and Prospects for Crisis Prevention--Korea,'' February 5,
2007, at 17. See Direction of Credit Memorandum, at Attachment 4.
---------------------------------------------------------------------------
The GOK controlled the allocated financial resources by managing
both the commercial banks and the state-owned special banks.\11\
---------------------------------------------------------------------------
\11\ Jahyeong Koo and Sherry L. Kiser, ``Recovery from a
Financial Crisis: The Case of South Korea,'' Economic and Financial
Review, Fourth Quarter 2001, Federal Reserve Bank of Dallas, at 25.
See Direction of Credit Memorandum, at Attachment 5.
---------------------------------------------------------------------------
As discussed in the GOK's questionnaire response, after the 1997
Financial Crisis, the GOK implemented a number of reforms of the
financial sector, many at the behest of the IMF. The GOK actively
implemented the IMF's suggested reforms, which included structural
reforms of the financial system.\12\ For example, the GOK introduced a
new financial supervisory system to prevent moral hazard. As discussed
above, the FSS was created in an attempt to overcome inconsistent
treatment of different institutions and to meet international standards
of financial supervision.\13\ The GOK increased the independence of the
Bank of Korea (BOK) from the Ministry of Finance and Economy (MOFE),
and stripped the regulatory powers out of both the BOK and MOFE and
located them in an independent regulatory agency.\14\
---------------------------------------------------------------------------
\12\ Jai S. Mah, ``The Restructuring in the Post-Crisis Korean
Economy,'' November 2003. See Direction of Credit Memorandum at
Attachment 6.
\13\ Kyung Tae Lee and Inkoo Lee, ``Crisis, Reforms, and
Structural Changes in the Korean Economy,'' October 6, 2007, at 4.
See Direction of Credit Memorandum, at Attachment 3.
\14\ Stephan Haggard and Andrew MacIntyre, ``The Politics of
Moral Hazard: The Origins of Financial Crisis in Indonesia, Korea
and Thailand,'' August 1999. See Direction of Credit Memorandum, at
Attachment 7.
---------------------------------------------------------------------------
Korea's progress in strengthening its supervision of financial
institutions was especially significant; Korean commercial banks
adopted Western-style board governance systems, where the majority of
board members are outside directors.\15\ During the restructuring
process, the GOK pursued a policy of encouraging the entry of foreign
banks and all the regulatory obstacles that stood in the way of foreign
entry were eased.\16\ The IMF has noted that the Korean banking system
was transformed after the 1997 Financial Crisis and noted that Korean
banks strengthened their commercial orientation, allowing them to
refocus their activities on their most profitable lending
activities.\17\ The long-held belief that ``banks never fail because
the government will bail them out'' faded away.\18\ The reforms that
were implemented by the GOK after the 1997 Financial Crisis changed the
ways banks were operated as well as the patterns of the asset
allocation behavior of banking institutions.\19\ The IMF concluded that
since the Financial Crisis, the GOK accelerated its shift towards a
market-oriented development strategy and that direct credit was
abolished.\20\
---------------------------------------------------------------------------
\15\ Dr. Janet Yellen, President and CEO of the Federal Reserve
Bank of San Francisco, ``The Asian Financial Crisis Ten Years Later:
Assessing the Past and Looking to the Future (Speech),'' February 6,
2007. See Direction of Credit Memorandum at Attachment 8.
\16\ Soo-Myung Kim, Ji-Young Kim and Hoon-Tae Ryoo,
``Restructuring and Reforms in the Banking Industry,'' BIS Papers
No. 28 at 267. See Direction of Credit Memorandum, at Attachment 9.
\17\ International Monetary Fund (IMF), ``IMF Country Report No.
04/44,'' February 2004, at 6. See Direction of Credit Memorandum at
Attachment 10.
\18\ Soo-Myung Kim, Ji-Young Kim and Hoon-Tae Ryoo,
``Restructuring and Reforms in the Banking Industry,'' BIS Papers
No. 28 at 259. See Direction of Credit Memorandum, at Attachment 11.
\19\ Eui-Gak Hwang, ``Banking Sector Restructuring in Korea
After the 1997-1998 Crisis,'' at 13. See Direction of Credit
Memorandum, at Attachment 12.
\20\ International Monetary Fund (IMF), ``IMF Country Report No.
05/49,'' February 2005, at 5. See Direction of Credit Memorandum, at
Attachment 13.
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Based on the Department's decision on Korean directed credit
policies in both the DRAMS Investigation and the CFS Paper
Investigation, the information submitted by the GOK in this review
regarding directed credit and reforms in the financial sector for the
period 2002-2006, and our substantiation of this submitted information
through independent research, we determine that the GOK no longer has a
systemic practice of directing credit within the Korean financial
sector and that directed credit within the Korean steel industry ended
as of 2002.
With regard to the period prior to 2002, the GOK provided some
information regarding its lending policies, and Dongbu and POSCO
reported receiving long-term loans prior to 2002. However, even
assuming that the GOK's actions during this period constituted
direction of credit, any potential benefit to Dongbu and POSCO during
this POR is less than 0.005 percent. As explained in Coated Free Sheet
Paper from the People's Republic of China: Final Determination of
Countervailing Duty Investigation, 72 FR 60645 (October 25, 2007) (CFS
Paper from China Investigation), and accompanying Issues and Decision
Memorandum at ``Purchases at Prices that Constitute More than Adequate
Remuneration'' (CFS Paper from China Decision Memorandum), where the
countervailable subsidy rate for a program is less than 0.005 percent,
the program is not included in the total CVD rate. Hence, we
preliminarily find
[[Page 52321]]
that any long-term loans provided prior to 2002 and outstanding during
the POR did not confer a measurable benefit to Dongbu or POSCO during
the POR. Accordingly, it is unnecessary to make a finding as to the
countervailability of the GOK's Direction of Credit program prior to
2002 for this administrative review.
Therefore, for purposes of this review, we determine that there is
no directed credit to the Korean steel industry from 2002. This
decision is restricted to the post-2001 period that was addressed by
the GOK in its questionnaire response. Furthermore, our determination
in this review does not change the decision that was made by the
Department in DRAMS Investigation that there may still be instances in
which the GOK may attempt to influence bank decisions on an ad hoc
basis such as the government-led financial restructuring of Hynix.
Accordingly, loans that were issued to the respondents from private
Korean commercial banks and government-owned banks from January 1,
2002, onward are not countervailable. We note that, as described below,
we are still examining loans provided by the KDB, as it is a government
policy bank.
We have decided to modify our treatment of commercial banks with
government ownership with respect to the finding of a financial
contribution under section 771(5)(B)(i) of the Act. In both the DRAMS
Investigation and the CFS Paper Investigation, we accorded different
treatment under this section of the Act to government-owned banks that
were commercial banks and those government-owned banks that acted as
policy or specialized banks. Upon further review, we have determined
that, with respect to determining whether a government-owned bank is a
public entity or authority under the CVD law, it is more appropriate to
focus solely on the issue of government ownership and control. This
treatment of government-owned commercial banks is consistent with our
treatment of all other government-owned entities, such as government-
owned manufacturers, utility companies, and service providers.
Furthermore, this treatment of government-owned commercial banks is
also more consistent with 19 CFR 351.505(a)(2)(ii) and
351.505(a)(6)(ii). Thus, a government-owned or controlled bank, be it a
commercial bank or a policy bank, is considered a public entity or
authority under the Act.
This modification of our treatment of government-owned commercial
banks has no effective impact on our directed credit determination, but
it provides uniformity of treatment for all government-owned entities
and is more consistent with our regulations.
As discussed above, we are only countervailing directed credit
provided prior to January 1, 2002. In accordance with 19 CFR
351.505(c)(2) and (4), we calculated the benefit for each fixed- and
variable-rate loan received from GOK-owned or -controlled banks to be
the difference between the actual amount of interest paid on the
directed loan during the POR and the amount of interest that would have
been paid during the POR 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 exchange rates obtained from the BOK. We then summed the benefits
from each company's long-term fixed-rate and variable-rate won-
denominated loans.
To calculate the net subsidy rate, we divided the companies' total
benefits by their respective total f.o.b. sales values during the POR,
as this program is not tied to exports or a particular product. In
calculating the net subsidy rate for POSCO, we removed from the
denominator sales made between affiliated parties.\21\ On this basis,
we preliminarily determine the subsidy rate under the direction of
credit program to be less than 0.005 percent ad valorem for POSCO and
less than 0.0005 percent ad valorem for Dongbu.
---------------------------------------------------------------------------
\21\ For POSCO, we also removed intra-company sales from the
denominators of the net subsidy rate calculations of the other
programs found countervailable in these preliminary results. This
step was not necessary for Dongbu.
---------------------------------------------------------------------------
B. Asset Revaluation Under Article 56(2) of the Tax Reduction and
Exemption Control Act (TERCL)
Under Article 56(2) of the TERCL, the GOK permitted companies that
made an initial public offering between January 1, 1987, and December
31, 1990, to revalue their assets at a rate higher than the 25 percent
required of most other companies under the Asset Revaluation Act. The
Department has previously found this program to be countervailable. For
example, in the CTL Plate Investigation, the Department determined that
this program was de facto specific under section 771(5A)(D)(iii) of the
Act because the actual recipients of the subsidy were limited in number
and the basic metal industry was a dominant user of this program. See
CTL Plate Investigation, 64 FR at 73183. We also determined that a
financial contribution was provided in the form of tax revenue foregone
pursuant to section 771(5)(D)(ii) of the Act. Id. The Department
further determined that a benefit was conferred within the meaning of
section 771(5)(E) of the Act on those companies that were able to
revalue their assets under TERCL Article 56(2) because the revaluation
resulted in participants paying fewer taxes than they would otherwise
pay absent the program. Id. No new information, evidence of changed
circumstances, or comments from interested parties were presented in
this review to warrant any reconsideration of the countervailability of
this program.
The benefit from this program is the difference that the
revaluation of depreciable assets has on a company's tax liability each
year. Evidence on the record indicates that, in 1989, POSCO made an
asset revaluation that increased its depreciation expense. Dongbu
reported that it did not use this program during the POR. To calculate
the benefit to POSCO, we took the additional depreciation listed in the
tax return filed during the POR, which resulted from the company's
asset revaluation, and multiplied that amount by the tax rate
applicable to that tax return. We then divided the resulting benefit by
POSCO's total f.o.b. sales. On this basis, we preliminarily determine
the net countervailable subsidy to be 0.02 percent ad valorem for
POSCO. This program was not used by Dongbu.
C. Research and Development (R&D) Grants Under the Industrial
Development Act (IDA)
The GOK, through the Ministry of Commerce, Industry, and Energy
(MOCIE), provides R&D grants to support numerous projects pursuant to
the IDA, including technology for core materials, components,
engineering systems, and resource technology. The IDA is designed to
foster the development of efficient technology for industrial
development. To participate in this program a company may: (1) Perform
its own R&D project, (2) participate through the Korea New Iron and
Steel Technology Research Association (KNISTRA), which is an
association of steel companies established for the development of new
iron and steel technology, and/or (3) participate in another company's
R&D project and share R&D costs, along with funds received from the
GOK. To be eligible to participate in this program, the applicant must
meet the qualifications set forth in the basic plan and must perform
R&D as set forth under the Notice of Industrial Basic Technology
Development. If the R&D project is not successful, the company must
repay the full amount.
[[Page 52322]]
In the H Beams Investigation, the Department determined that
through KNISTRA the Korean steel industry receives funding specific to
the steel industry. Therefore, given the nature of KNISTRA, the
Department found projects under KNISTRA to be specific. See Preliminary
Negative Countervailing Duty Determination with Final Antidumping Duty
Determination: Structural Steel Beams From the Republic of Korea, 64 FR
69731, 69740 (December 14, 1999) (unchanged in the final determination
and the H Beams Decision Memorandum, at ``R&D Grants Under the Korea
New Iron & Steel Technology Research Association (KNISTRA)''). Further,
we found that the grants constituted a financial contribution under
section 771(5)(D)(i) of the Act in the form of a grant, and bestowed a
benefit under section 771(5)(E) of the Act in the amount of the grant.
Id. No new factual information or evidence of changed circumstances has
been provided to the Department with respect to this program.
Therefore, we preliminarily continue to find that this program is de
jure specific within the meaning of section 771(5A)(D)(i) of the Act
and constitutes a financial contribution and confers a benefit under
sections 771(5)(D)(i) and 771(5)(E) of the Act, respectively.
Dongbu reported that it did not use the program during the POR.
POSCO reported receiving grants through KNISTRA during the POR;
however, it claims that the research grants it received under the
program are tied to non-subject merchandise. Upon review of the
information submitted by the GOK and POSCO, we preliminarily determine
that certain grants are tied to non-subject merchandise, and thus, we
did not include these grants in our benefit calculations. See the GOK's
January 4, 2008, Questionnaire Response, at Exhibit G-6; POSCO's April
18, 2008, Supplemental Questionnaire Response; and POSCO's May 8, 2008,
Supplemental Questionnaire Response.
However, POSCO also reported receiving certain other grants related
to new technologies that can be applicable for both inputs of subject
merchandise as well as subject merchandise. See POSCO's December 20,
2007, Questionnaire Response, at Exhibit 6; and ``Memorandum to the
File through Eric Greynolds, ``Factual Information Regarding the Steel
Production Process'' (September 2, 2008). Some of these R&D grants were
examined in previous reviews of this case and found to provide
countervailable benefits to POSCO. See Corrosion-Resistant Carbon Steel
Flat Products from the Republic of Korea: Final Results of
Countervailing Duty Administrative Review, 73 FR 2444 (January 15,
2008) (2005 CORE from Korea), and the accompanying Issues and Decision
Memorandum at Comment 2 (2005 CORE from Korea Decision Memorandum). In
this administrative review, as in the previous administrative review of
this case, there is nothing on the record that demonstrates that the
R&D projects in question could not be used in the production of subject
merchandise or that this new technology is limited to the development
of non-subject merchandise. Therefore, we find in these preliminary
results, as in prior reviews, that the R&D grants in question provide a
countervailable benefit to POSCO during the 2006 POR.
In addition, in the instant review POSCO provided information on
several R&D projects for which 2006 is the first year that a grant was
received. The GOK's and POSCO's information with respect to the R&D
projects initially funded in 2006 indicates that some of these grants
are tied specifically to non-subject merchandise. See GOK's January 4,
2008, Questionnaire Response, at Exhibit G-6; POSCO's April 18, 2008,
Supplemental Questionnaire Response at page 1 and Exhibit G-10; and
POSCO's May 8, 2008, Supplemental Questionnaire Response, at page 2.
Therefore, we did not include the grants that are tied to non-subject
merchandise in our calculations in these preliminary results. With
respect to the other R&D grants related to projects initially funded in
2006, there is no information provided in POSCO's questionnaire
responses that demonstrates that the new technologies developed in this
R&D project are limited to non-subject merchandise and could not be
used to develop a hot-rolled technology for the subject merchandise.
See POSCO's April 18, 2008, Supplemental Questionnaire Response at
pages 1 and 2 and Exhibit G-10, and POSCO's May 8, 2008, Supplemental
Questionnaire at pages 1 and 2. Moreover, with respect to another
project initially funded in 2006, we find that this project involves
developing methods that could be applicable to inputs to both subject
merchandise and non-subject merchandise. Under 19 CFR 351.525(b)(5), if
a subsidy is tied to the production or sale of a particular product,
the Department will attribute the subsidy only to that product. But,
under sub-paragraph (ii), if a subsidy is tied to the production of an
input product, then the Department will attribute the subsidy to both
the input and downstream products produced by a corporation, where the
input is primarily dedicated to downstream products. Accordingly, we
have attributed the grant related to a production process that can be
used as an input into the production of subject merchandise to POSCO's
total sales.
To determine the benefit from the grants that POSCO received
through KNISTRA, we calculated the GOK's contribution for each R&D
project. Next, in accordance with 19 CFR 351.524(b)(2), we determined
whether to allocate the non-recurring benefit from the grants over
POSCO's AUL by dividing the approved amount by POSCO's total sales in
the year of approval. Because the approved amounts were less than 0.5
percent of POSCO's total sales in the year of receipt, we expensed the
grants to the year of receipt. Next, to calculate the net subsidy rate,
we divided the portion of the benefit allocated to the POR by POSCO's
total f.o.b. sales during the POR. On this basis, we preliminarily
determine POSCO's net subsidy rate under this program to be 0.01
percent ad valorem.
D. Exemption of VAT on Imports of Anthracite Coal
Under Article 106 of Restriction of Special Taxation Act (RSTA),
imports of anthracite coal are exempt from the value added tax (VAT).
In the Cold-Rolled Investigation, we determined that the program is de
jure specific under section 771(5A)(D)(i) of the Act. Because the GOK
allows for only a few items to be exempt from VAT, the items allowed to
be imported without paying VAT are limited. See Cold-Rolled Decision
Memorandum at ``Exemption of VAT on Imports of Anthracite Coal.'' We
also determined that the VAT exemptions under the program constitute a
financial contribution under section 771(5)(D)(ii) of the Act, as the
GOK is not collecting revenue otherwise due, and that the exemptions
confer a benefit under section 771(5)(E) of the Act equal to the amount
of the VAT that would have otherwise been paid if not for the
exemption. No new information, evidence of changed circumstances, or
comments from interested parties were presented in this review to
warrant any reconsideration of the countervailability of this program.
Therefore, we preliminarily continue to find that this program is de
jure specific within the meaning of section 771(5A)(D)(i) of the Act
because it is limited, constitutes a financial contribution in the form
of forgone revenue under section 771(5)(D)(ii) of the Act, and confers
a benefit in the amount of the revenue
[[Page 52323]]
foregone within the meaning of 771(5)(E) of the Act.
Dongbu reported that it did not use the program during the POR.
POSCO imported anthracite coal during the POR and, therefore, received
a benefit in the amount of the VAT that it should have otherwise paid
if not for the exemption. To determine POSCO's benefit from the VAT
exemption on these imports, we calculated the amount of VAT that would
have been due absent the program on the total value of anthracite coal
POSCO imported during the POR. We then divided the amount of this tax
benefit by POSCO's total f.o.b. sales. Based on this methodology, we
preliminarily determine the POSCO received a countervailable subsidy of
0.06 percent ad valorem.
E. Other Subsidies Related to Operations at Asan Bay: Provision of Land
and Exemption of Port Fees Under Harbor Act
1. Provision of Land
As explained in the Cold-Rolled Investigation, the GOK's overall
development plan is published every 10 years and describes the
nationwide land development goals and plans for the balanced
development of the country. Under these plans, the Ministry of
Construction and Transportation (MOCAT) prepares and updates its Asan
Bay Area Broad Development Plan. See Cold-Rolled Decision Memorandum at
``Provision of Land at Asan Bay.'' The Korea Land Development
Corporation (Koland) is a government investment corporation that is
responsible for purchasing, developing, and selling land in the
industrial sites. Id.
In the Cold-Rolled Investigation, we verified that the GOK, in
setting the price per square meter for land at the Kodai Industrial
Estate, removed the 10 percent profit component from the price charged
to Dongbu. Id. In the Cold-Rolled Investigation, we further explained
that companies purchasing land at Asan Bay must make payments on the
purchase and development of the land before the final settlement.
However, in the case of Dongbu, we found that the GOK provided an
adjustment to Dongbu's final payment to account for ``interest earned''
by the company for the pre-payments. Id. POSCO reported that it did not
use this program.
In the Cold-Rolled Investigation, we determined that the price
discount and the adjustment of Dongbu's final payment to account for
``interest earned'' by the company on its pre-payments were
countervailable subsidies. Specifically, the Department determined that
they were specific under section 771(5A)(D)(iii)(I) of the Act, as they
were limited to Dongbu. Id. Further, the Department found the price
discount and the price adjustment for ``interest earned'' constituted
financial contributions in the form of grants under section
771(5)(D)(i) of the Act and conferred benefits in the amount of grants
within the meaning of section 771(5)(E) of the Act. Id. No new
information, evidence of changed circumstances, or comments from
interested parties were presented in this review to warrant any
reconsideration of the countervailability of this program. Therefore,
we preliminarily continue to find that this program is de facto
specific within the meaning of section 771(5A)(D)(iii)(I) of the Act
because it is limited to Dongbu, constitutes a financial contribution
in the form of grants under sections 771(5)(D)(i), and confers a
benefit in the amount of the price discount and the price adjustment
within the meaning of 771(5)(E) of the Act.
Consistent with the Cold-Rolled Investigation, we have treated the
land price discount and the interest earned refund as non-recurring
subsidies. Id. In accordance with 19 CFR 351.524(b)(2), because the
grant amounts were more than 0.5 percent of the company's total sales
in the year of receipt, we applied the Department's standard grant
methodology, as described under 19 CFR 351.524(d)(1), and allocated the
subsidies over a 15-year allocation period. See the ``Average Useful
Life'' section above. To calculate the benefit from these grants, we
used as our discount rate the rates described above in the ``Subsidies
Valuation Information'' section. We then summed the benefits received
by Dongbu during the POR. We calculated the net subsidy rate by
dividing the total benefit attributable to the POR by Dongbu's total
f.o.b. sales for the POR. On this basis, we determine a net
countervailable subsidy rate for Dongbu of 0.20 percent ad valorem for
the POR.
2. Exemption of Port Fees Under the Harbor Act
Under the Harbor Act, companies are allowed to construct
infrastructure facilities at Korean ports; however, these facilities
must be deeded back to the government. Because the ownership of these
facilities reverts to the government, the government compensates
private parties for the construction of these infrastructure
facilities. Because a company must transfer to the government its
infrastructure investment, under the Harbor Act, the GOK grants the
company free usage of the facility and the right to collect fees from
other users of the facility for a limited period of time. 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.
In the Cold-Rolled Investigation, the Department found that Dongbu
received free use of harbor facilities at Asan Bay based upon both its
construction of a port facility as well as a road that the company
built from its plant to its port. See Cold-Rolled Decision Memorandum
at ``Dongbu's Excessive Exemptions under