Commission Regulation (EC) No 619/1999 of 23 March 1999 imposing a provisional countervailing duty on imports of stainless steel wire having a diameter of less than 1 mm originating in India and the Republic of Korea
Date: 1999-03-23
Institutions: European Commission
Subjects: India, import, monetary compensatory amount, originating product, steel, wire

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COMMISSION REGULATION (EC) No 619/1999

of 23 March 1999

imposing a provisional countervailing duty on imports of stainless steel wire
having a diameter of less than 1 mm originating in India and the Republic of
Korea

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 2026/97 of
6 October 1997 on protection against subsidized imports
from countries
the European
not members
Community (1) and in particular Article 12 thereof,

of

(3)

After consulting the Advisory Committee,

Whereas:

A. PROCEDURE

(1)

(2)

the

In June 1998 the Commission announced by a
notice (hereafter ‘notice of initiation') published in
the Official Journal of the European Commu-
anti-subsidy
nities (2)
proceeding with regard to imports
into the
Community of stainless steel fine wire having a
diameter of less than 1 mm originating in India
and the Republic of Korea (hereinafter ‘Korea') and
commenced an investigation.

initiation

an

of

The proceeding was initiated as a result of a
complaint lodged by the European Confederation
of Iron and Steel Industries (EUROFER) on behalf
of Community producers representing a major
proportion of the Community production of SSW.
The complaint contained evidence of subsidization
of the said product, and of material injury resulting
therefrom, which was considered sufficient
to
justify the initiation of a proceeding.

India and Korea that

Prior to the initiation of the proceeding and in
accordance with Article 10(9) of Council Regula-
tion (EC) No 2026/97 (hereinafter referred to as the
‘Basic Regulation'), the Commission notified the
it had
Governments of
received a properly documented complaint alleging
that subsidized imports of SSW originating in India
and Korea are causing material
injury to the
Community industry. Both Governments were
invited for consultations with the aim of clarifying
the situation as regards its contents and arriving at
a mutually agreed solution. The Government of
Korea accepted the offer of consultations which
responsible Commission
were held with the

(1) OJ L 288, 21. 10. 1997, p. 1.
(2) OJ C 199, 25. 6. 1998, p. 3.

services on 12 June 1998 in Brussels. Due note was
taken of the comments made by the Government
of Korea in regard to the allegations contained in
the complaint regarding subsidised imports and
material injury being suffered by the Community
industry.

exporting producers

The Commission officially advised the Community
producers,
and importers
known to be concerned, the representatives of the
exporting countries and the complainant of the
initiation of
it gave the parties
concerned the opportunity to make their views
known in writing and to request a hearing.

the proceeding;

The Government of India (hereinafter ‘GOI') and
Korea (hereinafter ‘GOK'), a number of exporting
producers in India and Korea as well as some
the
producers,
Community made their views known in writing.
All parties who so requested within the time limits
set
initiation were granted a
hearing.

in the notice of

importers

suppliers

and

in

(4)

(5)

The Commission sent questionnaires to all parties
known to be concerned and received replies from
the Governments of India and Korea and a number
of companies in the Community, India and Korea.

The Commission sought and verified all the infor-
mation it deemed necessary for the purpose of a
preliminary determination of
subsidization and
injury, and carried out investigations at the prem-
ises of the following companies:

(a) Community producers

— AB Sandvik Steel, Sandviken, Sweden

— Bekaert N.V., Zwevegem, Belgium

— Gusab Stainless, Mjolby, Sweden

— Sprint-Metal, Paris, France

— Sprint Metal Edelstahlzieherein GmbH,

Hemer, Germany

— Rigby-Maryland Stainless Ltd., Sheffield,

United Kingdom

— Rodacciai S.p.a and Rodasider S.r.l, Bosisio

Parrini, Italy

— Societa Italiana Kanthal S.p.a, Cinisello

Balsamo, Italy

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(b) Government of India

— Ministry of Commerce, New Delhi

— Undersecretariat for Customs, New Delhi

— Ministry of Finance, New Delhi

(c) Exporting producers in India

— Drawmet Wires Pvt. Ltd., Mumbai

— Indore Wire Company Ltd., Indore

— Isinox Steels Ltd., Mumbai

— Kei Industries Limited, New Delhi

— Macro Bars and Wires Pvt. Ltd., Mumbai

— Mukand Ltd., Mumbai

— Raajratna Metal Industries Ltd., Ahmedabad

— Venus Wire Ltd., Mumbai

(d) Government of Korea

— Ministry of Foreign Affairs and Trade

— Ministry of Finance and Economy

— Korea Asset Management Corporation

— Small and Medium Business Administration

— Small and Medium Industry Promotion

Corporation

— Office of National Budget

— Ministry of Maritime Affairs and Fisheries

— Bank of Korea

— The Export-Import Bank of Korea

— The Korea Development Bank

— Industrial Bank of Korea

— Korea Technology Finance Corporation

— The Commercial Bank of Korea, Ltd.

— Pusan Bank

— Korea Electric Power Corporation

(e) Exporting producers in Korea

— Korea Welding Electrode Co. Ltd., Seoul

— Shine Metal Co. Ltd., Pusan

— Dae Sung Rope Mfg. Co. Ltd., Pusan

— Korea Sangsa Co. Ltd., Seoul/Pusan

— Mjung Jin Co. Ltd., Pusan (related company

of Korea Sangsa Co. Ltd.)

— Kowel Special Steel Wire Co., Pusan

— SeAH Metal Products Co. Ltd., Chang Won

(f) Importers

in the Community

related to

exporting Indian producers

— Isibars GmbH, D(cid:129)sseldorf, Germany

— Mukand International Ltd., London, United

Kingdom

(6)

(7)

(8)

(9)

(g) Importers in the Community not related to

exporting producers

— Trio Handels GmbH, Eppstein, Germany

— Bodo Trading GmbH, Dreieich, Germany

The investigation of
subsidization covered the
period from l April 1997 to 31 March 1998 (here-
after referred to as ‘the investigation period'). The
examination of
injury covered the period from
1994 to the end of the investigation period. The
period used in particular for the findings on under-
cutting
above-mentioned investigation
period.

the

is

On 25 June 1998 the Commission initiated an
anti-dumping investigation concerning imports of
the same product originating in Korea (1). This
investigation is still in progress; provisional anti-
dumping duties have been imposed on imports
originating in Korea by means of Commission
Regulation (EC) No 616/1999 (2).

B. PRODUCT UNDER CONSIDERATION AND

LIKE PRODUCT

1. Product under consideration

(hereinafter

The product under consideration is wire of stainless
steel
‘SSW'), containing by weight
2,5 % or more of nickel, other than containing by
weight 28 % or more but no more than 31 % of
nickel and 20 % or more but not more than 22 %
of chromium, having a diameter of less than 1 mm.
This product is currently classifiable within CN
code ex 7223 00 19.

This product is basically defined by its physical
aspect as cold finished wire and its classification
into a specific group of stainless steel grades. SSW
is obtained by shaping wire-rod by operations
which reduce the cross-section of the wire-rod. The
final cross-section is generally round. Several
processes are used to transform wirerod into SSW.
Depending on customer requirements SSW will
have specific mechanical or chemical characteris-
tics (tensile strength, diameter, stainless steel grade)
and surface aspects (bright, mat, coating), which
result in a large number of product types (herein-
after also referred to as references and models).
Despite those differences, all types of SSW are to
be considered as one Product.

SSW with a diameter of less than 1 mm is manu-
factured by wet drawing and obtained by reducing
the diameter through a machine equipped with
multiple oil-lubricated dies. SSW production is

(1) OJ C 199, 25. 6. 1998, p. 8.
(2) See page 1 of this Official Journal.

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substantially more costly than the manufacturing of
bigger sizes (1 mm or more) because it involves
several successive transformation stages to obtain
the required product characteristics and is more
labour-intensive.

(10)

SSW is further transformed by users which manu-
facture, for example, ultrafine filtration elements,
springs, etc. These semi-finished products are then
used in sectors such as the automotive, electro-
mechanical, textile, medical applications, etc.

(11) During the investigation it has been provisionally
found that there are differences in physical charac-
teristics and uses between stainless steel wires with
a diameter of l mm or more on the one hand and
with a diameter of less than l mm on the other
hand. These physical differences relate in particular
to tensile strength, coating and ductability. In addi-
tion, the use of fine wires is largely concentrated in
the field of ultra-fine applications such as medical
and surgery equipment, fine filters etc., while large
wires are mainly used for construction, in the auto-
motive industry and certain mechanical and house-
hold applications. For these reasons it appears that
there is no or only very limited interchangeability
between large
applications.
However, the question whether a clear dividing line
can be drawn between these two products will be
further investigated.

fine wires’

and

— Passbook Scheme

— Duty Entitlement Passbook Scheme

— Export Promotion Capital Goods Scheme

— Export Processing Zones/Export Oriented

Units

— Income Tax Scheme

The first four schemes are based on the Foreign
Trade (Development and Regulation) Act 1992
(effective from 7 August 1992) which repealed the
Imports and Exports Control Act of 1947. The
Foreign Trade Act authorises the GOI to issue noti-
fications regarding export and import policy. These
are summarised in ‘Export and Import Policy'
documents which are issued every five years and
updated every year. Two Export and Import Policy
documents are relevant to the investigation period
of this case i. e. the five-year plans relating to the
years 1992-1997 and 1997-2002.

The last scheme, the Income Tax Scheme, is based
on the Income Tax Act of 1961 which is amended
yearly by the Finance Act.

2. Passbook Scheme (PBS)

2. Like product

(14) One instrument under the Export and Import
Policy involving export-related assistance is the
PBS which entered into force on 30 May 1995.

(12)

the

investigation established that

SSW
The
produced in India and Korea and sold domestically
or exported to the Community and the SSW
produced and sold in the Community by the
complainant Community producers had effectively
identical physical characteristics and uses and were
thus like products within the meaning of Article
1(5) of the ‘Basic Regulation'.

C. SUBSIDIES

I. INDIA

1. Introduction

(a) Eligibility

(15)

The PBS is available to certain categories of ex-
porters i. e. those which manufacture in India and
subsequently export (‘Manufacturer-exporters') and
exporters, whether manufacturers or only traders,
granted an ‘Export House/Trading House/Star
Trading House/SuperStar Trading House certifi-
cate'. The latter category of exporters, which is
defined in the Export and Import Policy document,
has to provide in particular proof of prior export
performance.

(b) Practical implementation

(13) On the basis of the information contained in the
complaint and the replies to the Commission’s
questionnaire,
the Commission investigated the
following five schemes, which allegedly involve the
granting of export subsidies:

(16) Any eligible exporter can apply for a Passbook.
This takes the form of a book in which credit and
debit amounts of duty are entered. It is issued
automatically if the company is a recognised Manu-
facturer-exporter or an approved Export/Trading
House.

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(17) Upon the export of finished goods, the exporter is
eligible to claim credit which can be used to pay
customs duties on subsequent
imports. Various
elements are taken into consideration in calcu-
lating the amount of credit to be granted in accord-
ance with ‘Standard Input/Output norms' which
are issued by the GOI for exported products.
Standard Input/Output norms set out quantities of
normally imported raw materials
required to
the finished product. The
produce one unit of
norms are established by the Special Advance
Licensing Committee on the basis of a technical
analysis of the production process and global stat-
istical
information. By applying the Standard
Input/Output norms, the credit is granted up to an
amount corresponding to the basic customs duty
payable on the normally imported inputs used by
exported
the
is the
product
‘minimum value
The
MVA is the minimum value which the Indian
through indigenously
producer must add (i. e.
sourced inputs/labour
value of
imported inputs in producing the finished goods.

in question. One other element
(MVA).

Indian industry producing the

addition'

to the

costs)

(18)

(19)

The credit granted is entered in the Passbook and
is available to be offset against customs duties due
on future imports of any goods (e.g. raw materials,
capital goods, etc.) except those contained in the
‘Negative List of Imports' as laid out in the Export
and Import Policy. This List sets out goods which
either may not be imported or which may only be
imported after the GOI has issued a special licence
to the importer. The imported goods need not have
any relation to the actual production of
the
exporter and may be sold on the Indian market.

Passbook credits are not transferable. The Passbook
is valid for a period of 2 years from the date of
issue. Any credit at the end of the two-year period
is allowed to be utilised within a period of 12
months thereafter. At the end of the third year, any
unutilised credit lapses. Within this general time-
table there is no time limit for claims for credit to
be made for a particular export transaction.

(20) When all credits in the Passbook have been used,
the Passbook is closed and the Passbook holder has
to pay a fee to the relevant authority.

(21)

It has been argued that the Passbook Scheme is not
countervailable because it is a bona fide duty draw-
back scheme. Article 2(1)(ii) of the Basic Regulation
provides that the exemption of an exported product

from duties/charges shall not be deemed to be a
subsidy provided that it. is granted in accordance
with the provisions of Annexes I to III of the Basic
Regulation. Item (i) of Annex I (the Illustrative List
of Export Subsidies) of that Regulation specifies
that the remission or drawback of import charges
in excess of those levied on imported inputs that
are consumed in the production of the exported
product constitutes an export subsidy. Furthermore,
Annex II to the Basic Regulation requires invest-
igating authorities, in determining whether inputs
are consumed in the production process, to estab-
lish whether
the exporting
the government of
country has in place a system or procedure to
confirm which inputs are consumed in the produc-
tion process of the imported product. In this case,
no such system exists. In fact, the benefit granted
in India to exporters of the products concerned in
the form of Passbook credits is automatically calcu-
lated on the basis of the Standard Input/Output
norms independently of whether inputs have been
imported, duty has been paid on them or whether
the inputs were actually used for export production.

actual

import

Furthermore, the exporter is under no obligation to
inputs or consume the
either
imported goods in the production process under
the PBS. What happens in the PBS, in effect, is that
upon export of a finished product, an exporter is
granted an amount of credit based on the amount
of customs duty which is deemed to have been paid
on normally imported inputs used in producing
the finished product. This credit amount can be
used to offset customs duty due on fixture imports
of any product. A benefit accrues to the exporter in
the form of unpaid customs duty on imports of any
product (whether raw materials or capital goods).
This scheme therefore allows an exporter to import
goods without paying customs duty once it has
previously exported some goods.

(c) Conclusion on PBS

(22)

The PBS is not a permitted remission/drawback or
substitution drawback scheme within the provi-
sions of the Basic Regulation since the Passbook
credit is not calculated in relation to inputs actually
to be consumed in the production process. Further-
more, the exporter is under no obligation to import
goods free of duty which must be consumed in the
production process.

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it were assumed that

the
In any case, even if
scheme in question constituted a remission/draw-
back or substitution drawback scheme, there is no
system or procedure in place to confirm which
inputs are consumed in the production process of
the exported product within the meaning of item
(i) of Annex I and Annexes II and III of the Basic
Regulation. Annex II (II) (5) and Annex III (II) (3)
of that Regulation provide that where it is deter-
the exporting
mined that
country does not have such a system in place, a
further examination by the exporting country based
on actual inputs involved, or actual transactions,
respectively, will normally need to be carried out in
the context of determining whether an excess
payment occurred. The GOI did not carry out such
an examination. Hence, the Commission did not
examine whether there was in fact an excess draw-
back of import charges on inputs consumed in the
production of the exported product.

the government of

The scheme constitutes a subsidy as the financial
contribution by the GOI in the form of duties
foregone on imports confers a benefit upon the
Passbook holder who can import goods duty free
using credits earned on exports. It is a subsidy
contingent in law upon export performance and is
therefore deemed to be specific under Article
3(4)(a) of the Basic Regulation. In addition, the
MVA requirement is considered to require the use
of domestic over imported goods. In this regard,
the PBS is also a specific subsidy within the
meaning of Article 3(4)(b) of the Basic Regulation.

In early 1997, the GOI announced that the PBS
was effectively terminated and credit claims could
no longer be made for export transactions taking
place after 31 March 1997. An exporter may,
however, continue to use a Passbook which has
already been issued, for a period of 3 years after the
date of issue. Additionally, there is no time limit
within which claims for credit must be made for
export transactions made before 31 March 1997.
While the scheme in that form has technically
been terminated, exporters can continue to benefit
from this scheme by importing goods,
free of
credits have been
customs duties, until
exhausted or until 31 March 2000 at the latest. In
these circumstances,
the
scheme can be countervailed.

is considered that

all

it

(23)

(24)

It should also be stressed that the PBS was substi-
tuted by the DEPB (See recitals 26 to 35 below).
The DEPB came into effect when the PBS was
terminated. Although the DEPB is a revised version
of the PBS, it was possible to obtain benefits under
both programmes during the investigation period.

(25)

(d) Calculation of the subsidy amount

The benefit to the exporters has been calculated on
the basis of the amount of customs duty normally
due on imports made during the investigation
period but which remained unpaid under the PBS.
In order to establish the full benefit to the recipient
under this scheme, this amount has been adjusted
by adding interest during the investigation period.
Since the benefits from import duty exemptions
are obtained regularly during the investigation
period, they are equivalent to a series of grants. It is
normal practice to reflect the benefit to the reci-
pient of one-time grants by adding the annual
commercial interest to the nominal amount of the
grant, on the assumption that the grant is consid-
ered to have been made on the first day of the
investigation period. However, in the present case,
it is clear that individual grants can be made at any
time between the first and the last day of
the
instead of
investigation period. Consequently,
adding annual interest to the whole amount, it is
considered appropriate to assume that an average
grant would have been received at the mid-point of
the investigation period, and therefore the interest
should cover a period of six months, equivalent to
the annual commercial rate during the
half of
investigation period in India,
i. e. 7 %. This
amount (i. e. unpaid customs duty plus interest) has
been allocated over total exports during the invest-
igation period.

Seven companies benefited from this
scheme
during the investigation period and obtained sub-
sidies of between 1,4 % and 23,3 %.

3. Duty

Entitlement

Passbook

Scheme

(DEPB)

(26) Another

the Export

instrument under

Import
Policy involving export related assistance is the
DEPB which became effective on 7 April 1997.
The DEPB constitutes the successor to the PBS
which was terminated on 31 March 1997. The
DEPB is of two types:

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— DEPB on pre-export basis

— DEPB on post-export basis

(a) DEPB on pre-export basis

(27)

The DEPB on pre-export basis is available to
manufacturer-exporters (i. e. every manufacturer in
India who exports) or merchant-exporters
(i. e.
traders) linked with manufacturers. To be eligible
the company must have
under
to
exported during a three-year period prior
submitting a claim for credit.

scheme,

this

However, no producer/exporter of
the product
concerned applied for or made use of the DEPB
scheme on pre-export basis. There is therefore no
need for the Commission to assess this part of the
scheme in the context of the investigation.

(b) Eligibility for DEPB on post-export basis

(28)

The DEPB on post-export basis is virtually iden-
tical
to the PBS described above. As explained
above, it has replaced the PBS and is effectively a
substitute programme. It is available to manufac-
turer-exporters (i. e. every manufacturer in India
who exports) or merchant-exporters (i. e. traders).

(c) Practical implementation of DEPB post-export

basis

(29) Under this scheme, any eligible exporter can apply
for credits which are calculated as a percentage of
the value of exported finished products. Such
DEPB rates have been established by the Indian
authorities for most products, including the prod-
ucts concerned, on the basis of the Standard Input/
Output norms. A licence stating the amount of
credit granted is issued automatically.

DEPB on post-export basis allows for the use of
such credits for any subsequent imports (e.g. raw
materials or capital goods) not on the Negative List
of Imports. Such imported goods can be sold on
the domestic market (subject to sales tax) or used
otherwise.

(d) Conclusion on DEPB on post-export basis

(31)

This scheme is clearly contingent upon export
performance. When a company exports goods, it is
granted a credit which can be used to offset
amounts of customs duties due on future imports
of any goods. Like the PBS, it is not a permitted
drawback or substitution drawback scheme for the
same reasons as stated above in recital (22). The
scheme constitutes a subsidy as
the financial
contribution by the GOI in the form of duties
forgone on imports confers a benefit upon a
company which can import goods free of customs
duty. It is a subsidy contingent in law upon export
performance and is therefore deemed to be specific
under Article 3(4)(a) of the Basic Regulation.

(e) Calculation of the subsidy amount for DEPB

post-export basis

(32)

The benefit to the exporters has been calculated in
two separate ways according to the use the
company has made of the DEPB licenses.

(33)

(34)

In the event that the company used the licences to
make duty-free imports, the benefit was calculated
the amount of customs duty
on the basis of
normally due on imports made during the invest-
igation period but which remained unpaid under
the DEPB.

In the event the company sold its licences, the
benefit was calculated on the basis of the amount
of credit granted in the licence regardless of the
sales price of the license. Some companies claimed
that the benefit should be limited to the effective
sales price of the licence which is often less than
the face value of
in the license.
However, this claim cannot be granted since the
sale of a licence at a price less than the face value is
a pure commercial decision which does not alter
the amount of benefit received from the scheme.

the credits

DEPB credits are freely transferable. The DEPB
licence is valid for a period of 12 months from the
date of granting of the licence.

(35)

(30) When all credits have been used, the company has

to pay a fee to the relevant authority.

In order to establish the full benefit to the recipient
under this scheme, this amount has been adjusted
by adding interest of 7 % during the investigation
period; the rate of interest is calculated as described
in recital 25. The amount of subsidy has been
allocated over total exports during the investigation
period.

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scheme
Seven companies benefited from this
during the investigation period and obtained sub-
sidies of between 5,7 % and 14,3 %.

(42)

4. Export Promotion Capital Goods Scheme

(EPCGS)

(36) Another

instrument under

Import
Policy involving export related assistance is the
EPCGS introduced on 1 April 1990 and amended
on 5 June 1995.

the Export

(a) Eligibility

(37)

The EPCGS is available to manufacturer/exporters
(i. e. every manufacturer in India who exports) or
traders). Since 1 April
merchant/exporters (i. e.
1997, manufacturers
linked with Merchant/ex-
porters can also benefit from the scheme.

(b) Practical implementation

(38)

To benefit
from the scheme, a company must
provide to the relevant authorities details of the
type and value of capital goods which are to be
imported. Depending on the level of export
commitment which the company is prepared to
undertake, the company will be allowed to import
capital goods at either a zero rate of duty or a
reduced rate. A licence authorising the import at
preferential rates is issued automatically.

In order to meet
the export obligation, goods
exported must have been produced using the
imported capital goods.

(39) An application fee is payable to obtain a licence.

(c) Conclusion on EPCGS

(40)

(41)

The EPCGS is a countervailable subsidy as the
payment by an exporter of a reduced or zero rate of
duty constitutes a financial contribution by the
GOI, revenue otherwise due is foregone and a
benefit is conferred on the recipient by lowering
the duties payable or fully exempting him from
paying the import duties.

The subsidy is contingent
in law upon export
performance within the meaning of Article 3(4)(a)
of the Basic Regulation, since it cannot be obtained
without a commitment to export goods, and is
therefore deemed to be specific.

(d) Calculation of the subsidy amount

The benefit to the exporters has been calculated on
the basis of the amount of unpaid customs duty
due on imported capital goods by spreading this
amount across a period which reflects the normal
depreciation of such capital goods in the industry
of the product concerned. This period has been
established by using the weighted average (on the
the products
basis of production volume of
concerned) of depreciation periods
for capital
goods actually imported under the EPCGS by each
company,
resulting into a normal depreciation
period of 15,5 years. The amount so calculated
which is attributable to the investigation period has
been adjusted by adding interest during the invest-
igation period in order to establish the full benefit
to the recipient under this scheme. Given the
nature of this subsidy, which is equivalent to a
one-time grant, the commercial interest rate during
the investigation period in India, i. e. 14 % was
considered appropriate. The amount of subsidy has
then been allocated over total exports during the
investigation period.

Four companies availed themselves of this scheme
during the investigation period and obtained sub-
sidies of between 0,1 % and 0,9 %.

5. Export Processing Zones

(EPZ)/Export

Oriented Units (EOU)

(43) Another

instrument under

Import
Policy involving export related assistance is the
EPZ/EOU scheme which was introduced on 22
June 1994.

the Export

The Commission established that no producer of
the product concerned was established in an EPZ
or was an EOU. There is therefore no need for the
Commission to assess this scheme in the context of
the investigation.

6. Income Tax Exemption Scheme (ITES)

(44)

The Income Tax Act 1961 is the legal basis under
which the ITES operates. The Act, which is
amended yearly by the Finance Act, sets out the
basis for the collection of taxes as well as various
exemptions/deductions which can be claimed.
Among the exemptions which can be claimed by
firms are those covered by Sections 10A, 10B and
80HHC of the Act.

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(a) Eligibility

(d) Calculation of the subsidy amount

(45)

Exemption under Section 10A can be claimed by
firms located in Free Trade Zones. Exemption
under Section 10B can be claimed by Export
Oriented Units. Exemption under Section 80HHC
can be claimed by any firm which exports goods.

(b) Practical implementation

(46)

To benefit from the above-mentioned deductions/
exemptions from paying tax, a company will make
the relevant claim when submitting its tax return to
the Tax Authorities at the end of the tax year. The
tax year runs from 1 April to 31 March. The tax
return must be submitted to the authorities by the
following 30 November. The final assessment by
the authorities can take up to 3 years after submit-
ting the tax return. A company can only claim one
of the deductions available under the three sections
mentioned above.

Under Sections 10A, 10B and 80HHC companies
can claim exemption from taxable income for
profits realised on export sales. Only the 80HHC
income tax exemption was used by the companies
during the investigation period.

(c) Conclusion on ITES

(47)

Item (e) of the Illustrative List of export subsidies
(Annex I to the Basic Regulation) refers to the ‘full
or partial exemption . . . related to exports, of direct
taxes' as constituting an export subsidy. Under the
ITES, the GOI confers a financial contribution to
the company by foregoing government revenue in
the form of direct taxes which would otherwise be
due if the income tax exemptions were not claimed
by the
contribution
confers a benefit on the recipient by reducing its
income tax liability.

company. This

financial

(49) Claims for benefit under sections 10A, 10B and
80HHC are made when submitting a tax return at
the end of the tax year. As the tax year in India (1
April to 31 March) is the same as the investigation
period, the benefit was calculated on the effective
income tax exemption during that period. The
benefit to the exporters has therefore been calcu-
lated on the basis of the difference between the
amount of taxes normally due with and without the
benefit of the exemption. Account has been taken
of the fact that some companies are liable to the
payment of Minimum Alternate Tax which is an
alternative method of calculating tax due under the
Income Tax Act. The rate of corporate tax applic-
able during this tax year was 35 %. In order to
establish the full benefit
this
amount has been adjusted by adding interest
during the investigation period. Given the nature of
this subsidy, which is equivalent to a one-time
grant,
rate during the
investigation period in India, i.e. 14 % was consid-
ered appropriate. The amount of subsidy has been
allocated over total exports during the tax year
1997/98.

to the recipient,

the commercial

interest

Three companies availed themselves of this scheme
during the investigation period and obtained bene-
fits of between 1,3 % and 5,9 %. One company,
Drawmet Wires did not provide a copy of
its
income tax return within the deadline established
by the Commission. This company was therefore
considered to be non-cooperating for the ITES, the
in
Commission used best
order not
to give a bonus to non-co-operating
exporters is the highest rate of the co-operating
companies i.e. 5,9 %.

facts available which,

7. Amount of countervailable subsidies

(48)

The subsidy is contingent
in law upon export
performance in the meaning of Article 3(4)(a) of the
Basic Regulation, since it exempts profits from
export sales only, and is therefore deemed to be
specific.

(50)

In view of the above, the total amount of counter-
vailable subsidies
the investigated
for each of
exporters is as follows:

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Passbook

DEPB

EPCGS

Income
Tax

Total

Drawmet Wires

1,4 %

7,1 %

0,2 %

5,9 %

14,5 %

Indore Wire

Isinox Steel

7,7 %

10,7 %

0,9 %

0,0 %

19,3 %

4,3 %

5,8 %

0,0 %

0,0 %

10,1 %

Kei Industries

0,0 %

0,0 %

0,0 %

0,0 %

0,0 %

Macro Bars

Mukand Ltd

Raajratna

Venus Wire

9,6 %

12,6 %

0,0 %

3,2 %

25,4 %

7,5 %

5,7 %

0,0 %

0,0 %

13,2 %

23,3 %

13,7 %

0,0 %

5,9 %

42,9 %

19,8 %

14,3 %

0,0 %

1,3 %

35,4 %

II. KOREA

1. Introduction

and export financing loans. According to the GOK,
the companies received policy loans under the
following programmes:

(51) On the basis of the information contained in the
complaint and the replies to the Commission’s
questionnaire,
invest-
igated the following schemes, which allegedly
involve the granting of countervailable subsidies:

the Commission services

— Basic Structuring Loans for Small and Medium

Enterprises (SMEs)

— Technology Development Business Loan

— Loan Programmes

— Policy Loans (i.e. publicly funded loans)

— Government direction of commercial loans

— Government direction of foreign currency loans

— Export Financing Loans granted by the Export-
Import Bank of Korea (hereinafter ‘EXIM')

— Tax Schemes

— Duty Drawback Scheme

— Supply of Electricity Without Adequate Remu-

neration

— Ad-hoc Subsidies and Equity Infusions

— Debt Forgiveness

Further details of these schemes are set out below.

— Fishing Net Production Operation (Facility)

Loan

— Environment Pollution Prevention Loan

— Science and Technology Promotion Fund

— National Investment Fund

— National Housing Fund

— SMEs Start-up and Promotion Fund

— Industrial Accident Prevention Fund

2. Loan programmes

— Agricultural and Fishery Products Price Stabil-

isation Fund

(a) General

— Informationalization Promotion Fund Loan

(52)

In its questionnaire response, the GOK stated that
between 1980 and March 1998,
the responding
companies and related companies used short-term
and long term policy loans, foreign currency loans

— Technology Innovation Special Loan

— Special Facility Loans

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— Export Industry Facility Loans

— Industrial Development Fund Loan

(53) With regard to government direction of foreign
currency loans,
the GOK stated that Korean
companies have three options for obtaining foreign
currency:

— domestic foreign currency loans from domestic

financial institutions

— direct

foreign currency loans from foreign-

based financial institutions

— direct financing from foreign capital markets.

(54)

funds,

the co-
From the above categories of
operating companies only used domestic foreign
currency loans. According to the GOK, the Guide-
lines issued by the Ministry of Finance for the
approval of foreign currency loans apply only to
direct foreign currency loans and it was claimed
that the GOK did not have any influence in the
lending decisions of domestic financial institutions
(see recital 133 below).

(58)

the

‘Heavy

and Chemical

(55) Concerning the government direction of commer-
cial loans, the GOK stated that during the applica-
tion of
Industry
Programme' (HCI) between 1973 and 1982, enter-
prises in the heavy and chemical industries were
given priority in credit allocation by financial insti-
tutions. Additionally, key sectors (including steel)
interest
received
on
In the questionnaire
domestic currency loans.
response the GOK stated that, since the abolition
of this programme in 1982, the GOK had not been
involved in the lending decision of commercial
banks. Even the regulation of
interest rates, of
which the Bank of Korea (BOK) was in charge, had
been liberalised in 1991 and the Interest Limitation
Act setting an interest ceiling of 25 % was abol-
ished on 31 December 1997.

preferential

rates

(56) With regard to export financing loans granted by
EXIM, the GOK stated that three types of loans
were used by the co-operating exporters:

— Export Finance Loans

for production of

exported goods

— Export loans for production of capital goods for

SMEs

— Foreign Investment Credit

(57)

loans granted by
The GOK confirmed that all
in compliance with the OECD
EXIM were
Arrangement
for Officially
on Guidelines
Supported Export Credits and that Korean export

credit practice was in conformity with international
undertakings since the interest rate on domestic
currency loans was based on commercial market
rates and foreign currency loans were based on
borrowing interest rates plus a reasonable mark-up.

(b) Calculation of subsidy amount in the case of

loans

The subsidy is the difference between the amount
of interest paid on the loan during the investigation
period and the interest normally payable on a
loan during the same
comparable commercial
period. The comparable loan should be a loan of a
similar amount with a similar repayment period
actually obtained by the recipient from a repres-
entative private bank operating on the domestic
market. For the purposes of this investigation, loans
were categorised, on the one hand, into loans with
a principal of up to 200 million won, 200 to 400
million won, 400 to 600 million won, 600 to 800
million won and exceeding 800 million won and,
on the other hand, into short-term (duration of up
to one year), medium-term (between one and up to
4 years) and long term loans (exceeding 4 years). If
there was no comparable commercial loan granted
to the company in the respective category, it was
considered that the appropriate benchmark would
be the average interest rate paid on commercial
loans to the other co-operating exporters with a
similar
and repayment period. The
resulting difference is the benefit to the company
under the preferential loan which is countervailed.
If there are no interest payments during the invest-
igation period because the loan was repaid before
the investigation period, it must be first determined
whether the loan was used for the acquisition of
fixed assets. If the answer is yes, the total amount of
benefit must be allocated over the average depreci-
ation period in the steel industry in accordance
with
Article 7(3) of the Basic Regulation, which is 7
years in the case of the stainless steel wire industry
in Korea. The amount which relates to the invest-
igation period is the countervailable benefit to the
company. If the loan was only used for operational
purposes and was paid back before the invest-
igation period, there is no countervailable benefit
to the company during the investigation period.

amount

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Official Journal of the European Communities

24. 3. 1999

(59)

(60)

(61)

(62)

If the grace period under the loan both for repay-
ment of principal and interest is longer than such
grace periods for a comparable commercial loan
during the investigation period, there is a subsidy
which confers a benefit to the company in the
form of an interest free loan. The interest free loan
is considered to be granted for a period which
represents the difference between the actual grace
period for the loan in question and the grace
period for a comparable commercial loan for the
amount of payments of
interest or principal
normally due during that period. If there are no
interest or principal payments during the invest-
igation period because the loan was repaid before
the same analysis as
the investigation period,
explained in the above recital applies.

Similarly, if loan repayments have been deferred, in
a manner which does not reflect normal commer-
cial practice, such deferrals constitute an interest-
free loan and the amount of subsidy is calculated as
above.

If loan repayments are forgiven, in a manner which
does not reflect normal commercial practice, the
forgiven amount is treated as a grant.

to the
In order to encompass the full benefit
for any amount as calculated above,
company,
the average commercial
interest was added at
interest
rate in Korea during the investigation
period, i. e. 13,35 %. The full subsidy amount is
allocated over total export sales if the subsidy is
contingent upon export performance, in all other
cases it is allocated over total turnover.

P r o g r a m m e s

u s e d

b y
p o r t e r s

c o - o p e r a t i n g

e x -

from public funds.
from state-owned banks or
Additionally, the rules for eligibility and procedures
are issued by government agencies or state-owned
banks. Secondly, these loans are granted at interest
rates which are generally lower than rates applic-
able to comparable commercial loans and thereby
confer a benefit on the recipient in the meaning of
Article 2(2) of the Basic Regulation. Unless in-
dicated otherwise, these conditions are fulfilled for
each policy loan described below.

(64)

(65)

Regarding the issue of grace periods and deferral of
loan repayments referred to in recitals 59 and 60
above,
the Commission has provisionally deter-
mined that any benefits accruing thereunder are
negligible. Finally, it was found that no repayments
of policy loans to be made by the co-operating
exporters were forgiven.

Some of the policy loan programmes were ter-
minated before the investigation period but loans
under these programmes were still outstanding in
the investigation period. Since the companies
under investigation received benefits in the invest-
igation period and will continue to receive benefits
in the future, it is considered that these programme
should be countervailed in accordance with Article
17 of the Basic Regulation.

(i) Basic Structuring Loans for SMEs (BSL-SME)

(66)

The legal basis for this loan programme is the
Regulation on Basic Structuring Loans for Small
and Medium Enterprises which entered into force
on 15 March 1994 and its implementing Operation
Plans. The programme was terminated in 1996 and
only interest and principal repayments are still
collected under outstanding loans.

(c) Policy Loans

finding on countervailability of policy

(a) Eligibility

General
loans

(63) All policy loans

share two common features.
Firstly, policy loans involve a financial contribution
by the government
in the meaning of Article
2(1)(a)(i) of the Basic Regulation since the payment
of loans constitutes a direct transfer of funds either

(67)

The BSLSME is available for SMEs for certain activ-
ities such as the construction of production facili-
ties or purchase of domestically-made machinery
either for the production of export merchandise or
for the production of import substitution materials
or parts.

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(b) Practical Implementation

(b) Practical Implementation

(68)

In order to obtain a loan, a company must apply to
a commercial bank which then disburses the loan
which is provided from funds which were distrib-
uted by the Ministry of Finance and Economy
(MOF) through the Industrial Bank of Korea (IBK).

(74) A company applies to the president of the National
Federation Fisheries Cooperative (NFFC)
after
recommendation of the president of the Fishing
Net Corporation (FNC) and the NFFC then
disburses the loan.

(c) Conclusion on BSL-SME

(c) Conclusion on FNPL

(69)

The loans are financial contributions by the
government and confer a benefit to the recipient as
explained above in recital 63.

for

(70) One of the purposes of the loan programme is to
provide funding for building facilities
the
production of goods for export. Hence, the scheme
is contingent upon export performance and there-
fore specific in the meaning of Article 3(4) of the
Basic Regulation. The scheme is also contingent
upon the use of domestic over imported goods
since one of the conditions is that the loans can be
used only for the purchase of domestically-made
machinery, and for production facilities for import
substitution materials and parts. This
scheme
constitutes therefore an import substitution subsidy
and is therefore specific within the meaning of
Article 3(4) of the Basic Regulation and counter-
vailable.

(75)

The loans are financial contributions by the
government and confer a benefit to the recipient as
explained above in recital 63. Concerning the attri-
bution of the subsidy to the product concerned, the
cheap loans allow the producers of fishing nets,
which are also producers of the product concerned,
to reduce their overall cost of financing which also
benefits the product concerned.

(76)

Since the loans are furthermore specific to the
fishing net industry, the programme is a counter-
vailable subsidy in the meaning of Article 3(2) of
the Basic Regulation.

(d) Calculation of the subsidy amount

(77)

The subsidy must be calculated as explained above
in recitals 58 to 62. One company benefited from
this programme and received subsidies of 0,14 %.

(d) Calculation of the subsidy amount

(71)

The subsidy amount
is calculated as explained
above in recitals 58 to 62. One company benefited
from this programme and received subsidies of
0,06 %.

(78)

(ii) Fishing Net Production Loan (FNPL)

(72)

This scheme is based on Article 11 of the Special
Act on Development of Agricultural and Fishing
implementing regulations and
Villages and its
guidelines. The programme was established in
January 1994.

(a) Eligibility

(73) Companies which produce fishing nets are eligible
for loans to finance the production of fishing nets.
Some of these companies also produce the product
concerned.

(iii) SMEs Start-up and Promotion Fund Loans

(SME-SPFL)

The legal basis for this scheme is the Promotion of
Small and Medium Enterprises and Encouragement
of Purchase of their Products Act of 22 December
1994 as amended and it implementing regulations
and guidelines. The scheme in its current form
commenced in 1996.

(a) Eligibility

(79)

There are three categories of eligibility:

— Loans for start-up of SMEs (Type A loans). The
co-operating exporters did not receive Type A
loans.

— Loans

for

structural

improvement of SMEs
(Type B loans). Type B loans are available for
SMEs except for companies in the agricultural,
forestry and fisheries sector. Loans can be used
for certain projects such as automation, tech-
nical development and operation normalisation.

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— Loans for development of local SMEs (Type C
loans). These loans can be obtained by SMEs
located in each local government area. Detailed
guidelines for the operation of the fund are
determined by the local government. Under the
Kyung Sang South Province SME Support Fund
Establishment and Operation Bylaw, funds can
be obtained by SMEs to be used for certain
projects such as change of equipment and
improvement. According to the
structural
Pusan Metropolitan City SMEs Support Fund
Establishment and Operation Bylaw, SMEs can
apply for loans for inter alia structural adjust-
ment and business conversion.

inter alia,

Support Fund Establishment and Operation Bylaw
are specific. The Pusan Metropolitan City SMEs
Support Fund Establishment and Operation Bylaw,
however, contains an export requirement since it
‘export
loans to,
limits the use of
promotion business of conversion from rented
factory to self factory'. Therefore, Type C loans
granted under the authority of
that Bylaw are
specific since they are contingent upon export
performance. Hence, it is considered that Type B
loans and Type C loans granted under the Kyung
Sang South Province SME Support Fund Establish-
ment and Operation Bylaw are not specific and are
therefore not countervailablc. Type C loans granted
under the Pusan Metropolitan City SMEs Support
Fund Establishment and Operation Bylaw are
specific and countervailable.

(b) Practical Implementation

(80)

To obtain a Type B loan, the company submits an
application to a commercial bank which then
forwards it
to the Small and Medium Industry
Promotion Corporation for review and approval.
With regard to Type C loans, the company applies
directly to the local government which approves it
if it fulfils the eligibility criteria. After obtaining
the approval, the commercial bank pays out the
loan.

(d) Calculation of the subsidy amount

(84)

The amount of the subsidy under Type C loans
granted under the Pusan Metropolitan City SMEs
Support Fund Establishment and Operation Bylaw
is calculated as explained above in recitals 58 to 62.
Three companies
this
scheme and obtained subsidies of from 0,02 % to
0,14 %.

received benefits under

(c) Conclusion on SME-SPFL

(iv) Special Facility Loans (SFL)

(81)

The loans involve financial contributions by the
government and confer a benefit to the recipient as
explained above in recital 63.

(85)

(82) With regard to Type B loans, no evidence was

found that the scheme is specific.

The legal basis of this programme is the ‘Operation
Guideline of Special Facilities Loans'
and it
commenced in 1989. Under this programme the
IBK and the Korea Development Bank (KDB)
provide loans directly to companies or provide
funds to companies through commercial banks.

(83) Concerning Type C loans, the Basic Guidelines of
Local SME Support issued by the Office of Small
and Medium Enterprises which applies to all Type
C loans, and the Kyung Sang South Province SME
Support Fund Establishment and Operation Bylaw
applicable for that particular region do not contain
any export or import substitution requirements.
Additionally,
the
eligibility to certain sectors of the economy. No
evidence was found that Type C loans granted on
the basis of the Basic Guidelines of Local SME
Support and the Kyung Sang South Province SME

these Guidelines do not

limit

(a) Eligibility

(86)

For loans administered by the IBK, only SMEs are
eligible. Loans administered by the KDB can also
be obtained by large companies. To be eligible,
the manufacturing
companies must be part of
industry (including computer software industry).
Funds cannot be used for the purchase of imported
foreign machinery. Loans can be used only for the

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purpose of production facilities of export mer-
chandise and/or import substitution materials or
merchandise (‘Export Industry Equipment Loans'),
investment
in R&D (‘Research & Development
Loans') and industries designated by the MOF in
consultation with other
agencies
(‘High Technology Facility Loans').

government

(b) Practical Implementation

(87) Companies apply for a Special Facility Loan to the
IBK, the KDB or any commercial bank. If the loan
is administered by the KDB (for certain SMEs and
large companies), approval of the KDB must be
obtained by the commercial bank. Then the loan is
paid out by the bank to the company.

(c) Conclusion on SFL

(88)

The loans involve financial contributions by the
government and confer a benefit to the recipient as
explained above in recital 63. Eligibility for funds is
inter alia limited to the financing of production
facilities of goods for export. Hence the scheme is
an export subsidy and specific. It is also limited to
purchases of domestic machinery and one of the
allowed usages of the loans is the financing of
import substitution ma-
production facilities of
terials or merchandise. Therefore, the scheme is
also contingent upon the use of domestic over
imported goods and therefore specific. In any case,
since eligibility is limited to the manufacturing
the programme is specific to certain
industry,
enterprises within the meaning of Article 3(2) of
the Basic Regulation and therefore countervailable.

(v) Export Industry Facility Loans (EIFL)

(a) General

(90)

The legal basis of this programme is the Bank of
Korea Act and the Regulation for Administration
of Facility Loans for Export Industries and Import
Substitution of Basic Materials and Parts Industries
enacted on 11 September 1986. As of 1 January
1991, no new loans were extended to large com-
panies and companies which were part of a busi-
ness group. The programme was abolished also for
SMEs
as of March 1994. Even though the
programme has been terminated as of March 1994,
loans of 115 million US$ are still outstanding.

(b) Eligibility

(91) Until 1 January 1991, all companies which were
part of the manufacturing industry could apply for
these loans for the purpose of investing in equip-
ment for the production of goods for export or for
the production of import substitution basic ma-
terials and parts. The eligible project also had to be
used for construction or enlargement of a produc-
tion facility, purchase of domestically produced
machinery and technology development
facility
and inducement of technology. As of 1 January
1991 only SMEs fulfilling the above conditions
were eligible for this programme.

(c) Practical Implementation

(92) A company could apply for a loan under this
programme to any commercial bank which granted
the loan after it confirmed the compliance with the
eligibility criteria. The BOK provided the funds
needed to pay out the loans by a re-discounting
facility operated between the BOK and the lending
institutions under this programme.

(d) Calculation of the subsidy amount

(d) Conclusion on EIFL

(89)

The amount of the subsidy must be calculated as
explained above in recitals 58 to 62. Three com-
panies received benefits under this scheme and
obtained subsidies of up to 0,32 %.

(93)

The loans involve financial contributions by the
government and confer a benefit to the recipient as
explained above in recital 63. The subsidy is
contingent upon export performance and upon the
use of domestic over imported goods and therefore
specific.

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(e) Calculation of the subsidy amount

(d) Calculation of the subsidy amount

(94)

The amount of
the subsidy is calculated as
explained above in recitals 58 to 62. Four com-
panies received benefits under this scheme and
obtained subsidies of up to 0,56 %.

(99)

The amount of
the subsidy is calculated as
explained above in recitals 58 to 62. One company
received benefits under this scheme and obtained
subsidies of 0,08 %.

(vi) Industrial Development Fund Loan (IDFL)

(95)

The legal basis of this programme is Article 17 of
the Industrial Development Act of 8 January 1986
and its implementing regulations and guidelines.

(a) Eligibility

(96)

Loans are available for the purpose of improvement
of productivity and high value-added enterprises
(operated by the Ministry of Trade and Industry,
the Footwear Association,
the Korea Textiles
Industry Federation and the Machinery Industry
Promotion Association), rationalisation of distribu-
tion sector (operated by the Industrial Advance-
ment Administration) and Foundation Project of
SMEs (operated by certain designated commercial
and state-owned banks, in particular the Industrial
Bank of Korea). Eligible projects are newly or
extended construction of factory or the investment
in domestic equipment to produce goods for export
or materials and parts as announced by the GOK.

(b) Practical Implementation

(97) A company can apply for a loan under

this
programme to a designated commercial or state-
owned bank. Except
‘Foundation
for
Project of SMEs,' the granting of the loan by the
bank requires the permission of the Ministry of
Trade and Industry.

loans for

(c) Conclusion of IDFL

(98)

The loans involve financial contributions by the
government and confer a benefit to the recipient as
explained above in recital 63. Eligible projects
require the use of domestic goods for the construc-
tion of production facilities for export goods. The
contingent upon export
subsidy
performance and upon the use of domestic over
imported goods and therefore specific and counter-
vailable.

therefore

is

vii) Technology Development

Business

Loan

(TDBL)

(100) This scheme is based on the Technology Develop-
ment Promotion Act and its implementing regula-
tion and guidelines. The programme was
ter-
minated in 1995 but payments on outstanding
loans are still collected.

(a) Eligibility

(101) The following projects are eligible: Industry funda-
tech-
technology development Projects,
mental
nology development support by Korea Electric
Power Corporation (KEPCO), technology develop-
ment support by the Ministry of Telecommunica-
tion and development support by the KDB.

(b) Practical Implementation

(102)

If a company intends to develop a production tech-
nology for certain specified uses for each sector as
notified by the Ministry of Trade and Industry, it
can apply for a loan which is then granted if the
project fulfils the criteria.

(c) Conclusion on TDBL

(103) The loans are financial contributions by the
government and confer a benefit to the recipient as
explained above in recital 63. Loans under this
programme are available to industries which invest
in certain projects. The Ministry of Trade and
Industry issues guidelines to which are annexed,
sector by sector, detailed lists of priority projects
(e.g.
technology development').
Accordingly, only companies in certain sectors
investing in certain projects will benefit from this
programme. The programme is therefore consid-
ered to be specific within the meaning of Article
3 (2)(a) of the Basic Regulation.

‘cold drawing

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(d) Calculation of the subsidy amount

(104) The amount of

the subsidy is calculated as
explained above in recitals 58 to 62. A ‘technology
co-operating
loan granted to a
development'
exporter, which could not be classified more
precisely on the basis of the information submitted,
was considered within the framework of
this
programme. The company received benefits under
this scheme and obtained subsidies of 0,02 %.

(viii) Science and Technology Promotion Fund

(STPF)

(105) This programme is based on the Science and Tech-
nology Promotion Act and its Enforcement Decree.
The Fund was established in 1992.

(a) Eligibility

(106) Loans under this programme are available to all
industries which invest in the following projects:
Leading
projects,
follow-up research and development projects,
improvement research and development projects
and industrial projects using new technology
methods.

development

technology

(b) Practical Implementation

(107) Loan applications are submitted to the Korea
Technology Banking Corporation (KTBC) which
manages the fund. The KTBC has the power to
accept or reject applications for loans. The Ministry
of Science and Technology sets the interest rates at
which companies must repay loans from this fund.

(108) The Ministry decides from time to time on priority
projects for investment in R & D. Industry would
be aware in advance of such priority projects for
which financing would be more readily available.
No information has been provided on the criteria
used by the Ministry in deciding upon priority
projects.

invest in certain projects. However, as stated above,
the Ministry of Science and Technology maintains
a certain discretion in deciding on priority projects.
Accordingly, only companies investing in certain
from this programme. The
projects will benefit
programme is therefore considered to be specific
within the meaning of Article 3(2)(c) of the Basic
Regulation.

(d) Calculation of the subsidy amount

(110) The amount of

the subsidy is calculated as
explained above in recitals 58 to 62. One company
received benefits under this scheme and obtained
subsidies of 0,15 %.

P o l i c y l o a n s n o t c o n s i d e r e d t o b e c o u n -
t e r v a i l a b l e

(ix) Environment Pollution Prevention Loan (EPPL)

(111) Since the benefits conferred under this scheme are
considered to be negligible, the countervailability
of this programme was not further investigated.

(x) National Housing Fund (NHF)

(112) There is no evidence that the subsidy is specific to
certain enterprises within the meaning of Article 3
of the Basic Regulation. Since the subsidy is not
specific, it is considered not to be countervailable.

(xi) Informationalization Promotion Fund Loan

(IPFL)

(113) There is no evidence that the subsidy is specific to
certain enterprises within the meaning of Article 3
of the Basic Regulation because it is generally avail-
able to all companies without restriction. Since the
subsidy is not specific, it is considered not to be
countervailable.

(c) Conclusion on STPF

(109) The loans involve financial contributions by the
government and confer a benefit to the recipient as
explained above in recital 63. Loans under this
industries which
programme are available to all

(xii) Technology Innovation Special Loan (TISL)

(114) There is no evidence that the subsidy is specific to
certain enterprises within the meaning of Article 3
the Basic Regulation since the limitation to
of
SMEs is based on objective and neutral criteria.
Since the subsidy is not specific, it is considered
not to be countervailable.

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(xiii) Loan Programme for SME Export Promotion
Loan Relating to IMF (SME-EPL-IMF)

(115) The interest rate for these loans was generally not
lower than interest rates for similar commercial
loans. Since no benefits were conferred under this
scheme, its countervailability was not further in-
vestigated.

(119) CXIM-SM is available to SME’s that export capital
goods ‘greatly devoted to the national economy' as
determined by Article 45 of
the Internal Loan
Regulation (these products are the same as the ones
‘manufactured
the EXIM-EC’s
defined under
products').

P o l i c y

l o a n s n o t u s e d b y

c o - o p e r a t i n g

e x p o r t e r s i n t h e i n v e s t i g a t i o n p e r i o d

(xiv) National Investment Fund

(xv) Agricultural and Fishery Products Price Stabil-

isation Fund

(xvi) Industrial Accident Prevention Fund

(d) Export Financing Loans

(116) EXIM is a state-owned bank under the supervision
of the MOF. EXIM was established in July 1976
under the Export-Import Bank of Korea Act to
facilitate the development of the national economy
and economic co-operation with foreign countries
by providing medium and long-term loans for
export and import transactions, overseas investment
and the exploitation of natural resources abroad.
The co-operating exporters used the following
schemes:

— Export Credit (EXIM-EC),

— Foreign Investment Credit

(EXIM-FIC), and

— Export

loans for SME’s that export capital

goods (EXIM-SM).

(b) Practical Implementation

EXIM-EC

(120) EXIM reviews applications for an export credit on a
transaction-by-transaction basis. Applicants have to
export goods or produce goods destined for export
and must have a Master Letter of Credit (LC) from
a foreign buyer, or a contract with a Korean
for
company that has a LC, as a requirement
obtaining an export loan. Export credits are either
pre-shipment based or post-shipment based.

(121) Pre-shipment based export credits are given in the
form of a loan to finance the production of ‘manu-
factured products' destined for export. The interest
rate for a foreign currency loan is floating at
London Interbank Offered Rate (LIBOR). The
interest rate for a loan denominated in Won is
floating,
rate of
fluctuating with the prime
commercial banks. Interest has to be paid monthly,
with the first payment taking place one month
after receiving the loan. The principal has to be
repaid within two years from the day of receiving
the loan.

(a) Eligibility

(117)

In general,
the programmes are available to all
companies that are currently exporting or investing
abroad. EXIM-EC is available to all companies that
export capital goods and other products falling
the specification ‘manufactured products'
under
determined by Article 13 of
the Presidential
Enforcement Decree of the Export-Import Bank of
Korea Act.

(118) EXIM-FIC is available to all companies that make

foreign investments.

(122) Post-shipment based export credits are loans to
finance the deferred payment of exported ‘manu-
factured products'. These loans are considered
long-term loans (longer than 2 years) and therefore
have to follow the OECD-guidelines as
from
January 1997. The OECD distinguishes between
Category l and 2 countries. The latter refers to
developing countries. The interest rate is fixed and
has to match at least the lowest rate provided by
the OECD guidelines. Interest has to be paid at the
end of every 6th month after receiving the loan. The
principal of a Category 1 loan has to be repaid
within 8.5 years from the day of receiving the loan
and the principal of a Category 2 loan has to be
repaid within 10 years.

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EXIM-FIC

(123) Applicants have to submit to EXIM a business plan
for the planned investment abroad. If the applica-
tion is accepted, the applicant can obtain a foreign
investment credit up to 90 % of the total invest-
ment. The interest rate of foreign investment loans
can be either fixed against swap rate (i. e. the rate of
foreign currency funds in the international finan-
cial market) plus
risk
premium and term charge) or variable against
LIBOR plus spread.

spread (composed of

EXIM-SM

(124) EXIM judges applicants not on their present export
performance (as for EXIM-EC) but on their export
performance over
the past 2 years. When an
application is approved by EXIM, the SME can get
a credit up to 90 % of the total investment needed
to produce and export the expected exports during
the lending period. The maximum credit amount
an SME can get from EXIM will be 1/3 of total
export sales of the previous year. The interest rates
are floating at prime rate plus spread composed of
risk premium and term charge. The prime rate is
the prime rate used by commercial banks, the risk
premium and term charges are calculated by EXIM
on an individual basis per SME. The principal has
to be repaid at once at the end of the loan period
(bullet loan).

sector. This analysis showed that EXIM-EC loans
on pre-shipment basis, EXIM-FIC and EXIM-SM
loans were granted at interest rates which were
generally lower than comparable commercial loans,
thereby conferring a benefit on the recipient of the
loans.

(127) EXIM-EC on pre-shipment basis and EXIM-SM are
contingent upon export performance and therefore
specific within the meaning of Article 3(4)(a) of the
Basic Regulation. EXIM-FIC is available only to
companies which invest abroad. This criterion is
not considered to be neutral
favours
companies which invest abroad over companies
which do not. Since the eligibility is therefore not
based on neutral criteria, it is specific to certain
enterprises within the meaning of Article 3(2)(b) of
the Basic Regulation. Hence, EXIM-EC on pre-
shipment basis, EXIM-SM and EXIM-FIC are
considered specific and countervailable.

since it

(128)

is furthermore provisionally determined that
It
EXIM-EC on pre-shipment basis does not
fall
under item (k) of Annex I of the Basic Regulation
since only export financing with a duration of two
years or more can normally be regarded as ‘export
credits' in the meaning of that provision since this
is the definition of the OECD Arrangement on
Guidelines for Officially Supported Export Credits.
This provision is also not applicable to EXIM-SM
or EXIM-FIC since these loans are not used for
export transactions but for the investment in facil-
ities for export production or foreign investment,
respectively.

(c) Conclusion on Export Financing Loans

(d) Calculation of the subsidy amount

(125) There is a financial contribution by the Govern-
ment since EXIM is a state-owned bank.

(129) The amount of

the subsidy is calculated as
explained above in recitals 58 to 62. Four com-
panies received benefits under this scheme and
obtained subsidies between 0,07 % and 2,19 %.

(126) For the loans used by the co-operating exporters,
interest rates are calculated either on the basis of
LIBOR, SWAP or on the prime rate of commercial
banks adjusted with risk premiums and term
charges. According to information provided by the
co-operating exporters, EXIM-EC loans on post-
shipment basis were not used in the investigation
period. In order to review whether there was a
benefit conferred under the other programmes, a
comparison was made with comparable commer-
cial loans obtained by the respective co-operating
exporter, or, if no such information was available,
with comparable commercial
loans obtained by
other co-operating exporters which are considered
to be in the same financial situation and the same

L o a n

P r o g r a m m e s

n o t

u s e d

b y

c o -

o p e r a t i n g e x p o r t e r s

(e) Government direction of commercial loans

(130) The complainant alleged that companies receive
long-term credit financing at preferential interest
rates from commercial banks which grant loans as
directed by the Government of Korea.

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24. 3. 1999

loans

regarding commercial

(131) No conclusive evidence was found of government
involvement in lending decisions of commercial
banks
to the co-
-operating exporters. There is anecdotal evidence
that, at least in the recent past, the government had
a certain role in providing financial resources in
particular to big Korean companies, the chaebols.
The co-operating exporters, however, are all SMEs
and no company-specific evidence for such govern-
loans could be
ment direction of commercial
found. Hence, it is considered that the co-operating
exporters did not receive any countervailable bene-
fits from commercial loans granted by commercial
banks.

in

steel

producers/exporters

these
stainless
proceedings and those not used by them. Unless
otherwise stated, the legal basis for all of the tax
deferrals/credits is the Tax Exemption and Reduc-
tion Control Law (TERCL). The TERCL was
enacted in 1964. To obtain tax deferrals/credits, a
claim must be made on the tax return and accom-
panied by supporting documents. There is no sep-
arate application or approval process for receiving
any provision of TERCL. A
benefits under
company is liable for corporation tax on its income
during the financial year.

(f) Government direction of foreign currency loans

(132)

In the complaint it was alleged that the Korean
government allowed selected industries preferential
access to foreign currency loans at low interest
rates. In the course of the investigation it was veri-
fied that
foreign currency
financing for
the co-operating exporters were
foreign currency loans granted by domestic banks.

the only source of

in the case of

(133) The rules on such foreign currency loans indicate
that,
foreign currency loans by
commercial banks, there is no financial contribu-
tion of the government involved since the loans are
privately funded and the government plays no
formal
the
commercial banks or the setting of interest rates.
There was also no evidence found, at least with
regard to the co-operating exporters, indicating any
involvement of government officials in
informal
the banks’
lending decisions concerning foreign
currency loans.

role in the lending decisions of

(134) Therefore, it is considered that the co-operating
exporters did not receive any countervailable bene-
fits from foreign currency loans.

(136) A ‘Minimum Tax System' operates

in Korea
whereby, when a company has taxable income, a
minimum tax at the rate of 12 % (10 % in the case
of SMEs) of the taxable income before deduction of
any tax incentives, or the normal tax due after
deduction of incentives, whichever is the larger, is
payable. These rates have been increased to 15 %
and 12 % respectively with effect from 1 January
1998.

(b) Calculation of subsidy amounts in the case of

taxes

(137)

In the case of tax reserves, the subsidy is calculated
as follows: A reserve functions as a tax deferral
system and such tax deferral is to be regarded as an
interest-free loan. The amount of subsidy should
therefore be calculated as the amount of interest
that the company would have to pay on a compar-
able commercial
loan during the investigation
period i.e. an amount equivalent to the amount of
tax deferred.
this would mean that
amounts of taxes deferred in tax years prior to that
falling within the investigation period should also
be included in the amount of the loan to the extent
that they have not been fully repaid.

In effect,

3. Tax Programmes

(138)

In the case of tax credits, the amount of subsidy
should be calculated as the amount of tax which
remains unpaid in the form of a grant.

(a) General

(135)

In its response to the Commission’s questionnaire
in these proceedings, the Government of Korea
(GOK) set out details of various provisions of the
tax legislation from which Korean producers/
exporters may benefit. An analysis of these provi-
sions is set out below and has been split into two
parts i.e. those provisions used by the co-operating

(139)

to the
In order to encompass the full benefit
for any amount as calculated above,
company,
the average commercial
interest was added at
interest
rate in Korea during the investigation
period, i.e. 13,35 %. The full subsidy amount is
allocated over total export sales if the subsidy is
contingent upon export performance, in all other
cases it is allocated over total turnover.

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L 79/79

T a x p r o g r a m m e s u s e d b y

c o - o p e r a t i n g

e x p o r t e r s

(i) General

finding of countervailability of

tax

programmes

nesses are eligible for this tax deferral when they
have incurred expenditure in the development and
innovation of new technology. On this basis, there-
fore, it is obvious that a large number of Korean
enterprises are not eligible for benefits under this
tax deferral. The provisions of
this Article are
therefore considered to be specific and therefore
countervailable in accordance with the provisions
of Article 3(2)(a) of the Basic Regulation.

(140) For all

tax programmes discussed below,

the
following statement applies: In the case of reserves,
the programme can be considered a tax deferral
system since a certain amount is deducted from the
taxable income and must be added back to the
taxable income after a two or three year grace
period in equal amounts over three years. There is a
financial contribution by the GOK in the form of
taxes deferred and a benefit accrues to the recipient
the exporting producer concerned) by not
(i.e.
having to pay a certain amount of taxes until a later
date. Form the recipient’s point of view,
the
is an interest-free loan. Concerning tax
deferral
credits,
there is a financial contribution by the
GOK in the from of taxes foregone and a benefit
accrues to the recipient (i.e. the exporting producer
concerned) by not having to pay a certain amount
of taxes.

(ii) Article 8 (Reserve for Technology Development)

(141) Under Article 8 of TERCL, certain companies are
allowed to establish a ‘Reserve for Technology
Development'. A reserve of 3 % of
the total
revenue of the current tax year, or 5 % in the case
of companies in the capital goods industry (which
includes the stainless steel industry) or technology
intensive
established under
Article 8 when expenditure is incurred in the
development of new technology. Amounts put in
reserve under this provision must be added back to
the taxable income after a three-year grace period
in equal amounts over three years.

industry, may be

(a) Eligibility

(142) Eligible companies are those involved in manufac-
turing, mining and certain other business such as
construction and engineering.

(c) Calculation of the subsidy amount

(144) The amount of the subsidy must be calculated as
explained above in recitals 137 to 139. One
company received benefits under this scheme and
obtained subsidies of 0,03 %.

(iii) Article 16 (Reserve for Export Loss)

(145) Under Article 16 of TERCL, certain companies are
allowed to establish a ‘Reserve for Export Loss' at
the level of 1 % of the value of export sales or
50 % of taxable income resulting from export sales,
whichever is the lesser. Amounts put in reserve
under this provision must be added back to the
taxable income after a two-year grace period in
equal amounts over three years. This provision will
no longer be effective from 1 January 1999.

(a) Eligibility

(146) All exporting companies, with the exception of the
shipbuilding industry, are eligible to establish
reserves under this provision.

(b) Conclusion on Article 16

(147) This reserve constitutes a financial contribution by
the government and confers a benefit to the re-
cipient as explained above in recital 140. As this
reserve is contingent upon export performance, it is
specific under the provisions of Article 3(4)(a) of
the Basic Regulation, and therefore, countervail-
able.

(b) Conclusion on Article 8

(c) Calculation of the subsidy amount

(143) This reserve constitutes a financial contribution by
the government and confers a benefit to the re-
cipient as explained above in recital 140. Only
manufacturing, mining and certain other busi-

(148) The subsidy amount

should be calculated as
explained above in recitals 137 to 139. Even
though this provision is no longer effective after 1

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Official Journal of the European Communities

24. 3. 1999

January 1999, benefits will continue to accrue to
exporters for a number of years thereafter. In these
circumstances,
it is considered that the benefits
accruing thereunder in the investigation period
should be countervailed. Three companies received
benefits under this scheme and obtained subsidies
of between 0,05 %and 0,09 %.

exporters for a number of years thereafter. In these
circumstances,
it is considered that the benefits
accruing thereunder in the investigation period
should be countervailed. Four companies received
benefits under this scheme and obtained subsidies
of from 0,02 % to 0,13 %.

(iv) Article 17 (Reserve for Overseas Market Devel-

opment)

(v) Article 7 (Special Reduction and Exemption of
Tax Amount for Small and Medium Manufac-
turing Industry, etc.)

(149) Under Article 17 of TERCL, certain companies are
allowed to establish a ‘Reserve for Overseas Market
Development'. Amounts put in reserve under this
provision must be added back to the taxable
income after a two-year grace period in equal
amounts over three years. This provision will no
longer be effective from 1 January 1999.

(153) This provision was not alleged in the complaint but
discovered during the verification of
two co-
operating exporters. Under Article 7 of TERCL,
certain SMEs can use this tax credit which is the
equivalent of 20 % of the income tax or corporate
tax on any income from the business.

(a) Eligibility

(a) Eligibility

(150) All exporting companies, with the exception of
those in the shipbuilding industry, are eligible to
establish reserves under this provision at the level
of 1 % of the value of export sales. For companies
which (i) are SMEs, (ii) are exporters of machines,
shoes and textile products or (iii) export to certain
countries/regions, an additional 1 % of the value of
exports may be granted. If any of the companies
under (i) to (iii) above exports under its own trade-
mark, a further 1 % may be added i.e. a total
reserve of up to 3 % of the value of exports is
possible.

(b) Conclusion on Article 17

(151) This reserve constitutes a financial contribution by
the government and confers a benefit to the re-
cipient as explained above in recital 140. To estab-
lish the reserve under this Article, a company must
have had export sales doing the relevant tax year.
As this reserve is, therefore, contingent upon export
performance, it is specific under the provisions of
Article 3(4)(a) of the Basic Regulation, and there-
fore, countervailable.

(154) Any SME operating a manufacturing industry,
secondary communication business, research and
development business, engineering business, a data
processing and computer operation-related busi-
ness or physical distribution industry is eligible for
claiming this provision.

(b) Conclusion on Article 7

(155) This tax credit constitutes a financial contribution
by the government and confers a benefit to the
recipient as explained above in recital 140. Only
SMEs in the above-mentioned industries/businesses
are eligible for this tax credit. By the nature of
these eligibility criteria,
is inevitable that a
limited number of companies will benefit from the
tax credit. In the light of the above, the provisions
of this Article are considered to be specific and
therefore countervailable in accordance with the
provisions of Article 3(2)(a) of the Basic Regulation.

it

(c) Calculation of the subsidy amount

(c) Calculation of the subsidy amount

(152) The subsidy amount

should be calculated as
explained above in recitals 137 to 139. Even
though this provision is no longer effective after l
January 1999, benefits will continue to accrue to

(156) The subsidy amount

should be calculated as
explained above in recitals 137 to 139. Two com-
panies availed themselves of
scheme and
obtained subsidies of 0,09 % and 0,18 %.

this

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L 79/81

(vi) Article 25 (Tax credit for investment in Facilities

for Increasing Productivity)

of this Article are considered to be specific and
therefore countervailable in accordance with the
provisions of Article 3(2)(a) of the Basic Regulation.

(157) Article 25 of TERCL allows a company to receive a
tax credit of 5 % of the amount invested in certain
productivity-improving facilities. The amount of
tax credit is deducted from the total amount of
corporate tax due to be paid. Until 31 December
1996, the rates of credit had been 3 % tax credit for
imported productivity-improving facilities, 10 %
for productivity-improving facilities
tax credit
sourced domestically and 15 % tax credit
for
productivity-improving facilities sourced domest-
ically by SMEs.

(162)

from 31 December 1996,

In addition, prior to the change in the rates of
credit
investments in
domestic facilities attracted a higher rate of credit
than imported facilities. As companies may opt to
benefit from the rates in force prior to that date for
investment projects commenced before then, the
provisions of
this Article are considered to be
specific and therefore countervailable also in
accordance with the provisions of Article 3(4)(b) of
the Basic Regulation.

(158) Where an investment project commenced before
31 December 1996 but was not completed until
after that date, a company may choose whether to
claim a credit based on the credit rates applicable
before or after that date.

(159) Article 25 of TERCL provides that this tax credit
will only be available for investments made up
until 31 December 1998. However, the GOK has
stated that this, and other provisions of TERCL
which would run until 31 December 1998, would
probably be renewed by the Korean National
Assembly before that date. No further information
on this issue was provided.

(a) Eligibility

in

(160) Any company involved in the manufacturing or
mining industries is eligible for the tax credit for
productivity-
investments
improving facilities: Facilities for process improve-
ment and automation, advanced technology equip-
ment, facilities for improving obsolete facilities and
rationalisation facilities as prescribed by the Indus-
trial Development Act.

following

the

(c) Calculation of the subsidy amount

(163) The subsidy amount

should be calculated as
explained above in recitals 137 to 139. One
company received benefits under this scheme and
obtained subsidies of 0,21 %.

(vii) Article 23 (Reserve for Overseas Investment

Loss)

(164) Under Article 23 of TERCL, certain companies are
allowed to establish a ‘Reserve for Overseas Invest-
ment Loss'. Amounts put in reserve under this
provision must be added back to the taxable
income after a two-year grace period in equal
amounts over three years. This provision is no
longer effective from 1 January 1998.

(a) Eligibility

(165) Any Korean company which invests in shares in a
to operate a
foreign company or remits capital
business in a foreign country,
is permitted to
deduct 20 % of the amount of foreign investment
in that fiscal year from its taxable income.

(b) Conclusion on Article 25

(b) Conclusion on Article 23

(161) This tax credit constitutes a financial contribution
by the government and confers a benefit to the
recipient as explained above in recital 140. Only
manufacturing or mining industries are eligible for
this tax credit when they have invested in certain
productivity-improving equipment. By the nature
of these eligibility criteria, it is inevitable that a
limited number of companies will benefit from the
tax credit. In the light of the above, the provisions

(166) This reserve constitutes a financial contribution by
the government and confers a benefit to the re-
cipient as explained above in recital 140. As the
provisions of
this Article are limited to those
Korean companies which invest abroad, the provi-
sions of this Article are considered to be specific
within the meaning of Article 3 of the Basic Regu-
lation and therefore countervailable.

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24. 3. 1999

(c) Calculation of the subsidy amount

(167) The subsidy amount

should be calculated as
explained above in recitals 137 to 139. One co-
operating exporter availed itself of this scheme and
obtained a benefit of 0,12 %.

(viii) Article 5 (Special Tax Credit for SMEs)

(168) The complainant did not make any allegations
concerning this provision of TERCL. During the
verification visit
the government
to the GOK,
authorities reported that this tax credit had been
obtained by one of the co-operating exporters. The
exporter concerned also provided information on
its use of this tax credit. In these circumstances, the
Commission has examined the countervailability of
the provision.

(169) Article 5 of TERCL allows a company to receive a
tax credit of 3 % of the value of investments in
imported machines, or 5 % of the value of domest-
ically produced machines. Since 10 April 1998, a
rate of 3 % applies to investments in all machines
whether imported or domestically produced.

(a) Eligibility

(170) All small and medium enterprises are eligible to

obtain this tax credit.

(b) Conclusion on Article 5

(171) This tax credit constitutes a financial contribution
by the government and confers a benefit to the
recipient as explained above in recital 140. Prior to
the change in the rates of credit from 10 April
1998, investments in domestic machinery attracted
a higher rate of credit than imported machinery. As
companies may opt to benefit from the rates in
force prior to that date for investment projects
commenced before then,
this
Article are considered to be specific and therefore
countervailable in accordance with the provisions
of Article 3(4)(b) of the Basic Regulation.

the provisions of

(c) Calculation of the subsidy amount

(172) The amount of subsidy should be calculated as the
amount of tax which remains unpaid, in excess of
the standard 3 % tax credit, in the form of a grant
and should be calculated as explained above in

recitals 137 to 139. One company received benefits
under
scheme and obtained subsidies of
0,01 %.

this

(ix) Article 27 (Temporary Investment Tax Credit)

(173) This provision was not alleged in the complaint but
discovered during the verification of
two co-
-operating exporters. During the verification visit to
the GOK,
the government authorities did not
report that this tax credit had been obtained by any
of
exporters
co-operating exporters. The
concerned, however, provided information on its
use of this tax credit. In these circumstances, the
Commission has examined the countervailability of
the provision.

the

(174) Under Article 72 of TERCL as effective during the
tax year of 1993/1994, a manufacturing or mining
industry investing in facilities could claim 10 % of
domestically purchased machinery or 3 % of
imported machinery. In 1994 the number of this
Article was changed to Article 27 of TERCL
without changing the nature of the provision. The
different rates of credit for imported and domestic
machinery were removed in 1996.

(a) Eligibility

(175) Any company involved in the manufacturing or
mining industries is eligible for the tax credit for
investments in facilities.

(b) Conclusion on Article 27

(176) This tax credit constitutes a financial contribution
by the government and confers a benefit to the
recipient as explained above in recital 140. Only
manufacturing or mining industries are eligible for
this tax credit when they have invested in certain
productivity-improving equipment. By the nature
of these eligibility criteria, it is inevitable that a
limited number of companies will benefit from the
tax credit. In the light of the above, the provisions
of this Article are considered to be specific and
therefore countervailable in accordance with the
provisions of Article 3(2)(a) of the Basic Regulation.

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Official Journal of the European Communities

L 79/83

(177)

In addition, prior to the change in the rates of
credit in 1996, investments in domestic facilities
attracted a higher rate of credit
than imported
facilities. As companies may opt to benefit from
the rates in force prior to that date for investment
projects commenced before then, the provisions of
this Article are considered to be specific and there-
fore countervailable also in accordance with the
provisions of Article 3(4)(b) of the Basic Regulation.

certain service industries are eligible for this tax
credit when they have invested in manpower and
technology development. By the nature of these
eligibility criteria,
it is inevitable that a limited
number of companies will benefit from the tax
credit. In the light of the above, the provisions of
this Article are considered to be specific and there-
fore countervailable in accordance with the provi-
sions of Article 3(2)(a) of the Basic Regulation.

(c) Calculation of the subsidy amount

(c) Calculation of the subsidy amount

(178) The subsidy amount

should be calculated as
explained above in recitals 137 to 139. Two com-
panies availed themselves of
scheme and
obtained a benefit of 0,03 % and 0,19 %.

this

(182) The subsidy amount

should be calculated as
explained above in recitals 137 to 139. Two com-
panies availed themselves of
scheme and
obtained a benefit of 0,02 % and 0,08 %.

this

(x) Article 9 (Tax credit for Technology & Manpower

Development Expenses

(179) Under Article 9 of TERCL, certain companies are
able to obtain a tax credit for expenses incurred in
the development of
technology and manpower.
The tax credit can be calculated either as 5 % of
expenses incurred for technology and manpower
development during the tax year (15 % in the case
of SMEs and 10 % for a company other than an
SME for technology transfer to an SME), or 50 % of
the expenses for technology and manpower devel-
opment incurred in the tax year which exceeds the
average technology and manpower development
expenses
immediately
during
preceding two years. Tax credits claimed but not
used in a particular tax year may be carried forward
for the following seven years.

incurred

the

(a) Eligibility

(180) This tax credit is available to the following types of
businesses: manufacturing, mining, construction,
engineering, data processing and computer-related
warehousing,
telecommunications,
businesses,
industrial waste disposal,
sewage disposal or
product design.

T a x p r o g r a m m e

c o n s i d e r e d n o t

t o b e

c o u n t e r v a i l a b l e

(xi) Corporation Tax, Article 18-2: entertainment

expenses

(183) Article 18-2 of the Corporation Tax Act provides
for the deduction of a certain amount of entertain-
ment expenses from taxable income.

(a) Eligibility

(184) All companies are eligible to obtain this tax deduc-

tion.

(b) Conclusion on Article 18-2

(185) As all companies are eligible to claim allowances
for entertainment expenses without any different
limits applying to overseas and domestic expenses,
this provision of the Act is considered not to be
specific and thus not to be countervailable.

T a x p r o g r a m m e s n o t u s e d b y c o - o p e r a t i n g
e x p o r t e r s

(b) Conclusion on Article 9

(xii) Article

14

(Reserve

for

Investment

and

Financing Loss)

(181) This tax credit constitutes a financial contribution
by the government and confers a benefit to the
recipient as explained above in recital 140. Only
manufacturing, mining industries, construction and

(xiii) Article 15 (Exemption from Income Tax for

Foreign Engineer or Technician)

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(xiv) Article 19 (Reserve for Overseas Business Loss)

(xv) Article 20 (Deduction Overseas Business)

(xvi) Article 10 (Tax Credit/Special depreciation for
Investment in Facilities for Development of
Technology & Manpower)

(xvii) Corporation Tax Law, Article 24-3 (Double

Taxation)

(xviii) Article 26 (Tax Credit
Specific Equipment)

for Investment

in

(186) As

the

provisions

above-mentioned
of
programmes have not been used by the co-
operating exporters, the countervailability of these
provisions has not been examined.

the

4. Duty Drawback Scheme

(187) The legal basis for this scheme is the ‘Act on
special cases concerning the refund of customs
duties, etc. levied on raw materials for export' and
the ‘Enforcement decree of the act', both of which
entered into force on 1 July 1997.

(a) Eligibility

(188) The duty drawback system is available to all manu-
facturer-exporters in Korea. To be eligible under
this scheme, the company must have either directly
imported raw materials and paid the applicable
customs duties, or purchased on the Korean
domestic market, raw materials previously imported
(or raw materials processed in Korea but incorpor-
for which the supplier
ating imported inputs),
issued, under customs supervision, a special certi-
ficate transferring to the purchaser the right to
benefit from the duty drawback (these transactions
are known as ‘local letter of credit' purchases). The
company must then export goods, in the produc-
tion of which, the imported raw materials have
been consumed.

(b) Practical implementation

(189) Upon importation of raw materials, the importer
pays customs duties. After subsequent exportation
of the processed goods (obtained from foreign raw
materials directly imported by the manufacture-r-
exporter acting as an importer or domestically
bought under a ‘local letter of credit'), the manufac-
turer-exporter is entitled to make a duty drawback
application to the Customs service. For the calcula-
tion of the amount to be refunded, there are two
systems in force:
the individual duty drawback
(available to all operators), and the fixed amount

refund, which is only available to small and
medium enterprises (SMEs) having received as duty
drawback less than 100 Million Won during the
previous year (this system is also applicable to
production
‘goods
process').

extraordinary

having

an

the fixed amount

(190) During the investigation period, out of seven SSW
five
manufacturer-exporters having co-operated,
used the individual duty drawback system, while
one availed itself of
refund
system. Within the framework of the individual
duty drawback system, manufacturer-exporters may
in theory calculate their own raw material input
usage rate (which should factor for recoverable
scrap). In practice, manufacturers prefer to co-
operate with the National Institute of Technology
& Quality (NITQ) with a view to establishing
‘uniform usage rates'. These yield rates, which
factor for recoverable scrap, are regularly subjected
to surveys. A ‘uniform usage rate' is established for
each raw material consumed in the production of
the exported output and consists of a formula
stating what quantity of a given raw material is
necessary for producing one unit of a given output.
The refundable duty is then calculated on the basis
of the duty actually paid on the corresponding raw
materials. The five SSW manufacturer-exporters
having availed themselves of
this system were
found to have an actual yield rate very close to the
standard rate established by the NITQ.

(191) The ‘fixed amount refund system' is of a different
nature as it directly establishes the duty amount to
be refunded. For that purpose, the customs author-
ities calculate the ratio ‘duty drawback obtained'
over ‘total export value' of the manufacturer-ex-
porters using the individual duty drawback system.
The calculation is re-done every year on the basis
of data available from the preceding year.

(c) Conclusion on Duty Drawback Scheme

(192) A distinction should be made in this respect
between the individual duty drawback system and
the fixed amount refund system. Within the frame-
work of the individual duty drawback system, the
GOK was found to have in place and to apply a
procedure to confirm which inputs are consumed
in the production of the exported product and in
what amounts. It was accordingly concluded that
the Korean individual duty drawback system in
force during the investigation period does not
provide for an excessive refund of import charges
and therefore does not constitute a subsidy,
in
accordance with item (i) of Annex I of the Basic
Regulation.

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(193) Under

refund system,

the fixed amount

the
refunded amount of import charges is not calcu-
lated in relation to inputs actually consumed in the
production process by the manufacturer-exporter
concerned (but rather as a lump sum based on
overall data). Furthermore, there is no system or
procedure in place to confirm which inputs are
consumed in the production process of
the
exported product and in what amounts. Annex
II(II)(5) and Annex III(II)(3) of the Basic Regulation
provide that, where it
the
government of the exporting country does not have
such a system in place, a further examination by
the exporting country based on actual
inputs
involved, or actual transactions, respectively, will
normally need to be carried out in the context of
determining whether an excess payment occurred.
The GOK did not carry out such an examination.
therefore, examine
The Commission did not,
whether there was in fact an excess drawback of
import charges on inputs consumed in the produc-
tion of the exported product.

is determined that

(194) The Korean fixed amount duty drawback system
constitutes a subsidy as the financial contribution
by the GOK in the form of refunded duties confers
a direct benefit upon the recipient. It is a subsidy
contingent in law upon export performance (it is
an export subsidy according to the provisions of
item (i) of Annex I to the Basic Regulation) and is
therefore deemed to be specific under Article
3(4)(a) of the Basic Regulation.

(d) Calculation of the subsidy amount

(195) The benefit to the exporters has been calculated on
the basis of the amount of customs duty refunded
during the investigation period and treated as a
recurring grant. The commercial borrowing rate in
Korea during the investigation period of 13,35 %
has been added to the face amount of the grant.
The amount of benefit has been allocated over total
exports during the
investigation period. One
company availed of this scheme during the invest-
igation period and obtained a benefit of 1,15 %.

5. Supply of Electricity Without Adequate

Remuneration

(196) The investigation established that the co-operating
SSW manufacturer-exporters paid their electricity
charges due in the investigation period. It was
considered appropriate to further investigate the

conditions under which electricity was supplied to
them,
in particular with a view to determining
whether they benefited from any discounts/incen-
tives.

(197)

It was found that under the tariff schedule of Korea
Electric Power Corporation (KEPCO), three types
of discounts were available during the investigation
period:

— the power factor adjustment (PFA),

— the summer vacation and repair adjustment

(SVRA), and

— the regulation load adjustment (RLA).

(198) It was found that, during the investigation period,
the co-operating SSW manufacturer-exporters only
benefited from the PFA and the SVRA.

(i) Power factor adjustment (PFA)

(a) Eligibility

(199) This

scheme is available to all customers of
KEPCO whose contract demand is at least of 6kW.

(b) Conclusion on PFA

(200) The PFA is not limited to certain enterprises and
therefore not specific and countervailable.

(ii) Summer Vacation and Repair Adjustment

(SVRA)

(a) Eligibility

(201) This scheme is available in Korea to all customers
of KEPCO whose contract demand is at least of
500kW.

(b) Conclusion on SVRA

(202) The access to the benefit granted under the SVRA
program is limited to certain enterprises with a
relatively high consumption. However, the program
is available to a wide variety of companies across all
industries and the benefit so granted is conditional
upon the achievement of an objectively measured
target. It was accordingly concluded that KEPCO’s
SVRA program in force during the investigation
period does not constitute a specific and counter-
vailable subsidy.

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6. Ad-hoc Subsidies and Equity Infusion

7. Debt Forgiveness by the Korea Asset

Management Corporation (KAMCO)

(203) The Commission examined the alleged availability
of ad-hoc subsidies (such as equity infusions, loans/
credits provided by government
institutions on
favourable conditions and the provision of financial
assistance to large companies on an ad-hoc basis) to
steel producers.

(204)

It was found that none of the co-operating ex-
porters received any of the abovementioned ad-hoc
subsidies.

(205) The main purpose of

the

establishment of
KAMCO was
to liquidate the non-performing
loans from financial institutions. The services of
KAMCO are, as such, only available to financial
institutions. It was found that, up to the end of the
investigation period,
the co-operating exporters
were meeting their loan repayments. There was
accordingly no involvement by KAMCO in the
affairs of these companies. The countervailability of
the operations of KAMCO was, accordingly, not
further investigated.

8. Amount of countervailable subsidies

Loans
(export)

Loans
(other)

Tax
(export)

Tax
(other)

Duty
drawback

Total
Subsidy

0,54

1,63

0,09

0,17

0,88

0,01

0

0,15

0

0

0,34

0

0,06

0,08

0

0,55

0,15

0,25

0

0,03

2,21

0,18

0,02

0

0

1,15

0

0

0

0

0,97

2,78

0,85

0,57

0,91

2,41

— other Community producers which are not
complainants, and did not co-operate in the
proceeding but did not oppose to it.

Korea Welding

Shine Metal Products

Dae Sung Rope Mfg.
Co. Ltd

Korea Sangsa Co. Ltd/
Mjung Jin Co. Ltd

Kowel Special Steel
Wire Co.

SeAH Metal Products
Co. Ltd

D. INJURY

1. Definition of the Community industry

Community industry

Community Producers

(206) The Community production within the meaning of
Article 9(1)(a) of the Basic Regulation is constituted
by:

— producers on behalf of which the complaint
was
lodged and which co-operated in the
investigation, (‘the co-operating complainants'),

— producers on behalf of which the complaint
was lodged and which did not cooperate in the
investigation,
(‘the non co-operating complai-
nants'), and

(207) The co-operating complainants fulfil the require-
ments of representativeness within the meaning of
Article 10(8) of the Basic Regulation, since they
account
total
Community production of the product concerned
and are
the
Community industry within the meaning of Article
9(1) of the same Regulation.

therefore deemed to constitute

than 75 % of

for more

the

2. Preliminary remark: Competition aspects

(208)

In the course of the investigation, certain exporting
producers have argued that all data submitted by
the Community industry within the framework of

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the current proceeding would be unreliable as a
result of
the ‘alloy
the uniform application of
surcharge' system and it would, therefore, not be
possible to conduct any accurate injury analysis
anti-subsidy
the
within
proceeding.

framework

the

of

(209) These exporting producers based their allegations
on the findings set out in a Commission Decision
‘Alloy surcharge') (1) which stated that
(IV/35.814,
the Community producers of stainless steel — flat
products — have modified ‘in a concerted fashion
the reference values used to calculate the alloy
surcharge, a practice having the object and effect of
restricting and distorting competition within the
common market'.

(210) The exporting producers acknowledged the fact
that the above decision related to flat products (as
opposed to long products, such as stainless steel
wires), but they argued that, firstly a concerted prac-
tice also existed for the product concerned and,
secondly, that even if such a practice would not be
established for the product concerned, the existing
flat products would have a
illegal practice for
synergy or downstream effect on the product
concerned.

(211) As SSW are not produced, for technical reasons,
from flat products, any downstream effect of the
concerted practice found for flat products on SSW
flat
is doubtful. Furthermore,
products and of SSW are, to a large extent, not
identical and the number of SSW producers is
significantly higher than that of flat steel producers.

the producers of

(212)

In this respect, while the exporting producers
concerned have filed a complaint (IV/E-1/37.271)
with DG IV on 5 October 1998, there has been no
investigation opened by DG IV concerning the
alleged infringement of Article 85 of the EC Treaty
with respect to the product concerned. Indeed, this
complaint is in fact an extension of the complaint
concerning stainless
(likewise
belonging to the category of long products) filed
with DG IV on 3 February 1998 (IV/E-1/36.930)
for which an investigation likewise has not been
initiated.

steel bright bars

(213)

In accordance with the above-mentioned Decision,
the application of an alloy surcharge system could
only be illegal if it were applied in a concerted
investigation has
the current
manner. However,

(1) Commission Decision 98/247/ECSC (OJ L 100/55 1998).

shown that there is no uniform application of the
alloy surcharge by the Community industry: some
companies apply it for all their customers or only
for some of them, others do not apply it at all.

(214) Furthermore, it was noted that — when comparing
the sales prices of the members of the Community
industry among themselves — the sales prices for
identical references varied. Finally, even where it is
applied, the alloy surcharge constitutes only a small
percentage in the total price of
the product
concerned.

(215) The Commission therefore concludes that there is
no evidence that the injury data collected be unreli-
able as a result of the application of the ‘alloy
surcharge'.

3. Community consumption

(216) For the purpose of the assessment of the apparent
Community consumption of SSW, the Commis-
sion relied on data on the sales volume of the
product concerned in the Community provided by
the Community industry and EUROFER. These
data have been added to import figures established
on the basis of
the data submitted by the co-
operating exporting producers from the countries
concerned, as well as on Eurostat.

consumption of

total Community

(217) During the period 1994 to the investigation period,
the
SSW
expressed in tonnes amounted to 17 171 in 1994,
20 045 in 1995, 17 857 in 1996, 20 088 in 1997,
and 21 810 during the investigation period. Thus,
Community
product
concerned increased by 27 % between 1994 and
the investigation period.

consumption

the

of

4. Cumulation

(218)

It has been argued that the imports of SSW from
Korea should not be cumulated with those from
India as the conditions laid down in Article 8(4) of
fulfilled. It was
the Basic Regulation were not
argued that
the product
the import volume of
concerned was negligible, and that the conditions
of competition in terms of market shares and
prices were sharply different between the Korean
and the Indian imports. The following has been
provisionally established.

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(219) First,

the amounts of countervailable subsidies
established for both countries concerned are more
than de minimis and the volume of imports from
both countries is likewise not negligible within the
meaning of Articles 10(11) and 14(4) of the Basic
Regulation.

(220) Second, imported products are alike in all respects,
interchangeable and marketed in the Community
under similar commercial and pricing policies.
With respect to the imported products by compar-
ison to the Community manufactured products,
they are likewise alike in all respects, interchange-
able and marketed in the Community under the
same conditions.

(221) Therefore, all conditions of Article 8(4) of the Basic
Regulation being fulfilled,
is provisionally
considered that Korean imports should be assessed
cumulatively with the Indian imports
the
purpose of the injury analysis.

for

it

The export prices at a customer-delivered level
have been obtained by adding to the export CIF
values a reasonable percentage covering insurance
and freight costs from the Community border to
the final customer (1).

(226) The exporting countries’ country-wide undercut-
ting margins have been calculated on the basis of a
weighted average of
the undercutting margins
found for the co-operating exporting producers.

U n d e r c u t t i n g m a r g i n

(227) The

following weighted average undercutting

margins have been found:

— India: on weighted average 26 % (with indi-
vidual undercutting margins ranging between
10 % and 51,4 %)

— Korea: on weighted average 12,1 % (with indi-
vidual undercutting margins ranging between
10,6 % and 31,1 %).

5. Import volume and market share of sub-

sidized imports

7. Situation of the Community industry

(222) The subsidized imports in tonnes developed as
follows: 1 210 in 1994, 1 992 in 1995, 3 036 in
1996, 4 422 in 1997, and 5 132 during the invest-
igation period, which corresponds to an overall
increase of 324 %, representing in the investigation
period nearly 4,5 times the volume of imports in
1994.

(223) The market shares of imports from the countries
concerned have also significantly and steadily
increased as follows: 7 % in 1994, 10 % in 1995,
17 % in 1996, 22 % in 1997 and 23 % in the
investigation period, which corresponds
to an
overall increase of 228 %, over the period 1994 to
the investigation period.

6. Prices of the subsidized imports

(a) Price evolution

(224) The average price of the exporting producers in
ECU per kg have evolved as follows: 4,27 in 1994,
increasing up to 4,95 in 1995, and steadily
decreasing from that time onwards to 4,7 in 1996,
4,52 in 1997 and 4,51 in the investigation period.

(b) Price undercutting

M e t h o d o l o g y

(225) With respect to price undercutting, sales prices of
matching models, both for
the Community
industry and the exporting producers, established
on a customer-delivered basis, have been compared.

(a) Production

(228) Total production in tonnes of

the Community
industry evolved as follows: 12 664 in 1994, 14 289
in 1995, 11 651 in 1996, 12 915 in 1997 and
14 138 in the investigation period, with an overall
increase of 11 %. Thus, it followed the evolution of
the market, reflecting the exceptional market situa-
tion in 1995, the ensuing decrease and the upward
trend of the market during the investigation period.

(b) Capacity utilisation

(229) The capacity utilisation rate of the Community
industry reached its peak in 1995 (89,1 %) and has
significantly decreased in 1996 (69,9 %). Although
its has started to recover towards the investigation
period (80,5 %), it did not reach the previous levels.

(c) Sales volume

(230) The sales of the Community industry remained
relatively stable between 1994 and the investigation
period (slightly increasing from 11 312 to 11 884
tonnes), although they reflect to a certain extent the
above mentioned exceptional market situation in
1995 (12 511 tonnes) and during the investigation
period (11 884 tonnes). However,
they did not
follow the expansion of the apparent Community
consumption, which increased by 27 % between
1994 and the investigation period, whilst sales of
the Community industry only went up by 5 %
during the same period of time.

(1) No custom duty is

applied as exports of

concerned from India and Korea benefit
system.

the product
from the GSP

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(d) Market shares

igation period), they did not however reach the
earlier levels.

(231) The steady decrease of the market share of the
Community industry by 12 percentage points
between 1994 and the investigation period (from
66 % to 54 %) shows that the Community industry
did not benefit in terms of market shares from the
expansion of the Community consumption or from
the exceptional situation of the market in 1995
(with a decreasing market share in 1995 of 62 %
and 58 % in 1996) and during the investigation
period, strongly suffering from the increase of
subsidized imports and not being able to recover its
earlier market position.

(e) Prices

originating

in Korea

(232) The average sales prices per kg of the Community
industry increased between 1994 (5,04 ECU), 1995
(5,78 ECU) and 1996 (5,86 ECU). Low-priced
imports
substantially
increased as from 1996 and the majority of the
members of the Community industry maintained
their prices whilst others followed the low prices of
subsidized imports and reduced them. As from
1996 and until the investigation period, average
prices of the Community industry have substan-
tially decreased (5,21 in 1997 and 5,19 in the
investigation period), which indicates
the
Community industry has
suffered from price
depression. In addition, the Community industry,
as a reaction to the increase of low-priced imports,
had no choice but to stop production and sales of
certain standard product models, privileging some
market niches where prices (but also costs of
production) were higher and direct competition
from Korean imports was less pronounced. There-
fore,
it can be assumed that the price decrease
would have been even more accentuated if the
Community industry had kept on manufacturing
all product references.

that

(f) Employment

(233) The Community industry’s workforce has steadily
decreased as from 1995, when the market situation
led to a significant
the workforce
directly linked to the product concerned within the
Community. Indeed, it increased from 499 in 1994
to 566 in 1995 and went down since then to 521 in
the investigation period.

increase of

(g) Investments

(234)

Investments, which had come to a peak in 1995
(4 592 KECU),
significantly decreased in 1996
(1 498 KECU). Although they increased again in
1997 (2 532 KECU and 2 481 during the invest-

(h) Profitability

(235) The profitability of the Community industry went
down between 1994 (3,6 %) and the investigation
period (– 0,06 %) even though its development
reflects likewise the positive situation of 1995
(8,5 %). However,
the Community industry is
suffering losses in spite of the above-mentioned
improvement of the market situation at the end of
and during the investigation
1997 (– 0,8 %)
period. Indeed, it can be assumed that the trend
would have been even worse if the Community
industry had kept on producing and selling those
models
to the most aggressive pricing
policy of the exporting producers from the coun-
tries concerned.

subject

8. Conclusion on injury

the market developments

(236) Between 1994 and the investigation period, the
sales of
the Community industry remained rel-
atively stable. Even if they reflected to a certain
in 1995 and
extent
slightly increased towards the investigation period,
following a strong decrease in 1996, they did not
follow the expansion of the Community consump-
i.e. by 27 %,
tion which substantially increased,
from 17 171 tonnes to 21 810 tonnes during the
same period of time. This resulted in a continuous
drop of the Community industry’s market share.

(237) Despite a certain increase of the production of the
Community industry and its relatively stable sales
volume and prices, its profitability went down to
losses between 1994 and the investigation period,
not benefiting from the expanding market situation
during that time.

(238)

It
the
is therefore provisionally concluded that
Community industry has suffered material injury.

E. CAUSATION

1. Effect of the subsidized imports

(239) The significant increase of the volume (+ 324 %)
and of the market shares (from 7 % to 23 %) of the
subsidized imports between 1994 and the invest-
igation period as well as the substantial undercut-
ting found (12,1 % on weighted average for Korea
and 26 % on weighted average for India) coincided
the
with the deterioration of
Community industry in terms of loss of market
shares, price depression as well as deteriorating
profitability.

the situation of

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(240) The market

for SSW within the Community
expanded by 27 % between 1994 and the end of
the investigation period. Nevertheless,
the sales
volume of the Community industry, even though
reflecting to a certain extent the evolution of the
market, only increased by 5 %, not following that
expansion. By contrast, the imports from the coun-
tries concerned considerably increased (+ 324 %)
over
the same period, and their market share
increased by 120 % between 1995 and 1997. This
coincided with the downward trend of the situation
of
the Community industry, which lost market
shares and had to lower both its investments and its
prices as from 1996, resulting in financial losses in
1997.

in 1996,

the majority of

(241) When faced with low-priced imports originating in
India and Korea,
the
Community producers tried to maintain their sales
prices, whereas a few others reduced them. Both
strategies resulted in a negative impact on profit-
ability either directly (lower prices) or indirectly
(high prices led to lower sales volume resulting in
higher production costs per ton). As from 1996, all
Community producers substantially lowered their
sales prices, which had a further negative impact on
their profitability, even though they tried to
concentrate on certain market niches to avoid
being affected even more strongly by the effects of
the subsidized imports. This clearly shows the price
sensitivity of the market and the important impact
of the price undercutting practised by the Indian
and Korean producers.

2. Effect of other factors

(242)

In accordance with Article 8(7) of the Basic Regula-
tion,
the Commission has examined whether
factors other than the subsidized imports from the
countries concerned might have had an effect on
the situation of
the Community industry, with
particular regard to the role of other Community
producers not co-operating in the investigation and
of imports from other countries.

(a) Other Community producers

(243) The exporting producers stated that in view of the
sales volumes and marked shares of the other non-
complaining Community producers, these produ-
cers might have contributed to the injury suffered
by the Community industry. However,
in this
respect, it was noted that the sales volume of these
other Community producers remained more or less
stable between 1994 and the investigation period
(and actually decreased from 1995 to the invest-
igation period by 21 %). In addition their market
from 23 % to
share substantially decreased,

i.e.

16 % from 1994 to the investigation period. This
clearly shows that they did not benefit from the
expansion of the Community market either. As to
their sales prices, no information is available as to
the
the existence of any price undercutting of
Community industry’s sales prices, although taking
into account the transparency of the market for
SSW,
the non-co-operating
Community producers are more likely to have
trend than the Community
followed a similar
industry. The
should therefore be
rejected.

is concluded that

argument

it

(b) Imports from third countries

(244) The exporting producers also alleged that imports
from third countries,
in particular Switzerland,
might have contributed to the injury suffered by
the Community industry.

(245)

Imports
from Siwtzerland remained stable in
volume and their market share was also stable
between 1994 and the
investigation period,
accounting for 3 % of
the total Community
consumption during that period, whereas imports
from the countries concerned went up from 7 % to
23 % during the same period. As to prices, no
indication of
the
Community industry’s sales prices was found in the
course of the investigation. As far as other third
countries are concerned, for individual countries,
sales volumes and small market shares (from 2 %
in 1994 to 3 % during the investigation period)
also remained stable during the same period of
time and there is no indication of price undercut-
ting of
the Community industry’s sales prices,
either. The argument should therefore be rejected.

any price undercutting of

(c) Other

to

(246) The Commission also examined whether other
than the above-mentioned might have
factors
contributed
the
Community industry, in particular, a contraction in
in the patterns of
demand or
consumption, developments in technology and the
export performance
the
Community industry.

and productivity of

changes

suffered

injury

the

the

by

(247) As to the development of demand and the changes
in the pattern of consumption, it has been previ-
ously established that
for SSW has
expanded between 1994 and the investigation
period and that the Community industry did not
benefit from this expansion, whilst the exporting
producers substantially increased their sales volume
and market share.

the market

24. 3. 1999

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Official Journal of the European Communities

L 79/91

(248)

the Community industry,

In relation to the developments in technology and
productivity of
it has
been established that the Community industry has
tried to maintain its production and investment
levels between 1994 and the investigation period in
order not
to lose competitiveness. Its level of
exports has been stable over the period taken into
consideration and the Community industry’s sales
have proved to be more profitable in export
markets than on the Community market.

(249) Thus, it can be concluded that the effect of other
factors than the subsidized imports were not such
as to break the causal link between the subsidized
imports and the material
injury suffered by the
Community industry therefrom.

3. Conclusion on causation

(250)

In view of the above, it is provisionally concluded
that the subsidized imports have caused material
injury to the Community industry.

F. COMMUNITY INTEREST

1. General comment

(251) For the investigation of Community interest, the
Commission examined two scenarios, i.e. the most
likely effects in the event that anti-subsidy meas-
ures were imposed and that the most likely effects
in the event that no such measures were taken. In
this context, particular consideration was given to
the effect that countervailing duties, if any, would
have on the Community industry, on suppliers of
the raw material and on users of
the product
concerned.

2. Community

and
industry
Community producers

other

(a) General

(252) The Community industry has proven to be a struc-
turally viable industry, able to adapt its product
range to the changing competitive conditions on
the market and to concentrate on market niches
where there was less competition from subsidized
imports from countries concerned.

(253) Despite this structurally viable background, it can
however not be excluded that this industry would
reduce its manufacturing activities for the product
concerned in the Community if no measures

against subsidized imports were taken. This conclu-
sion is justified in view of the duration of the
deteriorating profitability situation suffered due to
subsidized imports. Indeed, without measures, the
price-depressive effect of the subsidized imports
will
the
Community industry to regain a satisfactory margin
of profitability.

to frustrate

efforts of

continue

all

(b) Employment

(254) The situation of

the Community industry has
steadily deteriorated since 1995. Should this trend
continue, the Community industry might be forced
to stop production in the Community, and around
500 jobs directly linked to the product concerned
would be endangered in the Community. On the
the imposition of measures would
other hand,
enable this
industry to maintain and further
develop its activities in the Community.

(c) R&D

(255) The product concerned requires continuous invest-
ments in R&D, mainly related to the production
process, i.e. to the development of environmentally
friendly and energy-saving manufacturing techno-
logies. In this respect, the Community industry had
to reduce substantially its investments and this
negative trend will continue if no measures are
taken.

3. Unrelated importers

(256) Limited co-operation was obtained from unrelated
concerned in the
the product
co-operating companies,
the
investment

importers of
Community. For
neither employment nor significant
were directly related to the product concerned.

(257) This justifies the provisional conclusion that coun-
tervailing duties, if any, will most likely not have a
decisive impact on the unrelated importers.

4. Suppliers

(258) The following 6 suppliers co-operated in the
investigation and the data they submitted were
verified by the Commission:

— Acciaierie Valbruna s.r.l, Vicenza, Italy

— Acciaierie Bolzano s.r.l, Bolzano, Italy

— Cogne Acciai Speciali, Aosta, Italy

— Fagersta Stainless AB, Fagersta, Sweden

L 79/92

EN

Official Journal of the European Communities

24. 3. 1999

— Roldan SA, Madrid, Spain

— Ugine Savoie Imphy, Ugine, France

lead to an overall major price increase for SSW in
the Community.

(259) Two other replies were received from suppliers of
the Community industry, Avesta Sheffield Ltd
(Sheffield, United Kingdom) and Krupp Edelstahl-
profile (Siegen, Germany).

(260) These suppliers raised the argument

that

they
suffered both from direct competition from third
countries’ imports of wire rod, which had substan-
tially increased during the last years, and from the
upstream effect of the subsidized imports of the
product concerned. Indeed, since competition for
stainless steel wires was fierce,
the Community
industry had tried to find cheaper suppliers for the
raw material, sourcing as a consequence in coun-
tries outside the Community, i.e. Korea, India and
Taiwan, and had exerted price pressure on its
suppliers in order to secure low raw material prices.

(261) Countervailing duties on the product concerned
would help the Community suppliers of stainless
steel wire rod to improve their deteriorating
economic situation and to regain profitability,
which would enable them to carry out the neces-
sary investments.

5. Users

(262) Users are wires processors whose semi-finished
products are used afterwards in construction, in the
automotive industry, for domestic appliances, for
medical purposes, etc. Out of the 60 questionnaires
sent, only four replies were received:

— Bever GmbH, Kirchhunden, Germany

— Tucai SA, Barcelona, Spain

— Tubiflex, Orbassano, Italy

6. Competition and trade distorting effects

(264) As to trade effects of possible countervailing duties,
although the product concerned is being exported
by the Community industry to other third coun-
tries, it is not exported to the countries concerned
due, amongst others, to the high import duties
existing in these countries for SSW. Furthermore,
the
due to the current
Community market is one of the few open markets
where demand for steel remains strong.

international

situation,

(265) With respect to the effects of possible measures on
competition in the Community, some interested
parties have argued that duties would lead to the
producers
disappearance
concerned from the Community market,
thus
considerably weakening competition, and to an
increase of the prices for SSW.

exporting

the

of

(266)

In view of the above-mentioned market position of
the exporting producers, the relatively low duties
proposed, the large number of producers in the
Community as well as the transparency of
the
market,
it can be concluded that Community
producers will continue to have a considerable
number of strong competitors on the Community
market. Thus, users will also in future benefit from
the choice of different suppliers of the product
concerned.

(267) Finally, certain interested parties have argued that
it could not be in the interest of the Community to
impose measures taking into account
the afore
mentioned alleged practices in the calculation of
the alloy surcharge. In this respect reference is
made to the comments made under recitals (208)
seq.

— Max Rhodius GmbH, Weissenburg, Germany

7. Conclusion on Community interest

(263) The limited co-operation justifies the provisional
conclusion that countervailing duties, if any, will
most likely not have a decisive impact on the user
industry, either because this raw material is not a
significant cost factor for them or because their
production of downstream products relating to
SSW only accounts for a small proportion of their
total production. Furthermore, it is expected that,
given the relatively moderate duty rates proposed
for the exporting producers concerned, the high
number of competing producers located in the
Community, and the existence of imports from
other third countries, the measures are not likely to

(268) Given the above reasons, it is provisionally consid-
ered that there are no compelling reasons against
the imposition of countervailing duties.

G. PROVISIONAL DUTY

(269) On the basis of the conclusions on subsidization,
injury, causal
link and Community interest, the
Commission considers it necessary to adopt provi-
sional countervailing measures.

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EN

Official Journal of the European Communities

L 79/93

(270) For the purpose of determining the level of these
measures,
the
subsidy margins found and of the amount of duty
necessary to eliminate the injury sustained by the
Community industry.

the Commission took account of

(271) To that effect, the Commission considered that the
prices of subsidized imports should be increased to
a non-injurious level. The necessary price increase
was determined on the basis of a comparison of the
weighted average import price used to establish
price undercutting, as outlined in recital (225) et
subseq. with the non-injurious price of different
references or models by the Community industry.
The non-injurious price has been obtained by
adding to the sales price of
the Community
loss and by further
industry its average actual
adding a profit margin of 5 %. This profit margin
corresponds to what has been found as a minimum
necessary in earlier cases for this type of industry.
Any difference resulting from this comparison was
then expressed as a percentage of the total CIF
import value.

— Shine Metal Co. Ltd, Pusan

2,7 %

— Dae Sung Rope Mfg. Co. Ltd,

Pusan

0 %

— Korea Sangsa Co. Ltd, Seoul/Pusan

0 %

— Mjung Jin Co. Ltd, Pusan

— Kowel Special Steel Wire Co.

— SeAH Metal Products Co. Ltd,

Chang Won

0 %

0 %

2,4 %

(273)

In order to avoid granting a bonus for non-co-
operation, it was considered appropriate to establish
the duty rate for the non-co-operating companies
as the sum of the highest rate established per indi-
vidual subsidy programme for the co-operating
companies, i.e. 48,9 % for Indian producers and
6 % for Korean producers, since both these rates
are lower than the highest injury margin found for
a co-operating exporter in the respective country.

(272)

In accordance with Article 12(1) of the Basic Regu-
lation the duty rate should correspond to the
amount of subsidy, unless the injury margin is
lower. The following rates of duty therefore apply
for the co-operating producers:

(274)

(a) India

— Drawmet Wires Pvt Ltd, Mumbai

14,5 %

— Indore Wire Company Ltd, Indore

19,3 %

— Isinox Steels Ltd, Mumbai

10,1 %

H. FINAL PROVISION

In the interests of sound administration, a period
should be fixed within which the interested parties
which made themselves known within the time
limit specified in the notice of initiation may make
their views known in writing and request a hearing.
Furthermore, it should be stated that the findings
made for the purposes of this Regulation are provi-
sional and may have to be reconsidered for the
purposes of any definitive duty,

— Kei Industries Limited, New Delhi

0 %

HAS ADOPTED THIS REGULATION:

— Macro Bars and Wires Pvt Ltd,

Mumbai

— Mukand Ltd, Mumbai

— Raajratna Metal Industries Ltd,

Ahmedabad

— Venus Wire Ltd, Mumbai

25,4 %

13,2 %

42,9 %

35,4 %

(b) Korea

— Korea Welding Electrode Co. Ltd,

Seoul

0 %

Article 1

1.
A provisional countervailing duty is hereby imposed
on imports of wire of stainless steel with a diameter of
less than l mm containing by weight 2,5 % or more of
nickel, excluding wire containing by weight 28 % or
more but no more than 31 % of nickel and 20 % or
more but no more than 22 % of chromium, falling within
CN code ex 7223 00 19 (TARIC code 7223 00 19.10) and
originating in India and Korea.

The rate of duty applicable to the net

2.
Community-frontier price, before duty,
follows:

free-at-
shall be as

L 79/94

EN

Official Journal of the European Communities

24. 3. 1999

Indian Manufacturers

Rate of duty
(%)

Taric additional
code

Drawmet Wires Pvt Ltd, Mumbai

Isinox Steels Ltd, Mumbai

Mukand Ltd, Mumbai

Indore Wire Company Ltd, Indore

Raajratna Metal Industries Ltd, Ahmedabad

Venus Wire Industries Ltd, Mumbai

Kei Industries Ltd, New Delhi

Macro Bars and Wires Pvt Ltd, Mumbai

All other Indian companies

14,5

10,1

13,2

19,3

42,9

35,4

0

25,4

48,9

A001

A002

A003

A004

A005

A006

A007

A008

A999

Korean Manufacturers

Rate of duty (%)

Taric additional code

Korea Welding Electrode Co. Ltd, Seoul

Shine Metal Co. Ltd, Pusan

Dae Sung Rope Mfg. Co. Ltd, Pusan

Korea Sangsa Co. Ltd, Seoul

Myung Jin Co. Ltd, Kyoungbuk

Kowel Special Steel Wire Co. Ltd, Kyungnam

SeAH Metal Products Co. Ltd, Kyungnam

All other Korean companies

0

2,7

0

0

0

0

2,4

6

A013

A014

A015

A016

A017

A018

A019

A999

Unless otherwise specified, the provisions in force concerning customs duties shall

3.
apply.

4.
The release for free circulation in the Community of the product referred to in
paragraph l shall be subject to the provision of a security, equivalent to the amount of the
provisional duty.

Article 2

Without prejudice to Article 30 of Regulation (EC) No 2026/97, the interested parties
which made themselves known within the time limit specified in the notice of initiation
may make known their views in writing and apply to be heard orally by the Commission
within 15 days of the date of entry into force of this Regulation.

Pursuant to Article 31(4) of Regulation (EC) No 2026/97, the parties concerned may
comment on the application of this Regulation within one month of the date of its entry
into force.

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Official Journal of the European Communities

L 79/95

Article 3

This Regulation shall enter into force on the day following that of its publication in the
Official Journal of the European Communities.

Article 1 of this Regulation shall apply for a period of four months.

This Regulation shall be binding in its entirety and directly applicable in all Member
States.

Done at Brussels, 23 March 1999.

For the Commission

Leon BRITTAN

Vice-President