August 6, 1998

The Honorable Robert Rubin
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

The Honorable William M. Daley
Secretary
Department of Commerce
14th Street and Constitution Avenue, N.W.
Washington, D.C. 20230

Ambassador Charlene Barshefsky
U.S. Trade Representative
600 17th Street, N.W.
Washington, D.C. 20506

Dear Secretaries Rubin and Daley and Ambassador Barshefsky:

We are writing to ask you to assess the extent to which the Asian nations of Korea, Indonesia, and Thailand are fulfilling their commitments to the International Monetary Fund (IMF). These commitments include ending all government-directed lending, terminating government intervention in corporate governance, selling government-held corporate interests, adoption of internationally accepted accounting principles, and eliminating market access restrictions, subsidies, industrial policies, and other forms of government intervention that caused their economic collapse in the first place.

While Deputy Secretary of the Treasury Lawrence Summers recently commented that the results of Korea's economic reforms have been encouraging, we are concerned that many promised reforms have yet to be implemented. Legislation we have introduced, H.R. 3573, would require you to closely monitor implementation of economic reforms in Korea, Indonesia, and Thailand for as long as IMF assistance is provided.

It was last December that the IMF and the international community committed to provide a total of $111.9 billion to Korea, Indonesia, and Thailand, much of which is to be disbursed in installments upon confirmation that economic reforms are being implemented. As of June 10, 1998, a total of $23.8 billion has been disbursed in response to the currency crises facing these countries.

We are concerned that the pace of reform in Korea, the world's eleventh largest economy, has slowed recently, and the government continues to intervene in the Korean economy in ways that seem to contradict its IMF commitments. For example, the IMF found that "the financial system [in Korea] had been weakened by government interference in the economy and by close linkages between banks and conglomerates." Nevertheless, the government of Korea announced on July 16 that its priority is no longer the liquidation of bankrupt Korean firms, including liquidation of the government's interest in some of Korea's largest corporations. Instead, it "has decided to focus on reviving the nation's economy." To fuel Korea's economic revival, the government announced it "plans to expand budgetary expenditures on a large scale, increasing the combined deficit up to 17.5 trillion won, 4% of Gross Domestic Product (GDP)," rather than expediting sale of its equity interests in more than 108 state-owned corporations.

The wisdom of relying on tax-based deficit spending to resuscitate a dormant economy may be debatable, but the fact that the government's recent announcement contradicts its commitment to the IMF is not. In a Letter of Intent to the IMF dated May 2, 1998, the government of Korea said that its fiscal deficit would be limited to about 2% of GDP in 1998. The government's recent announcement that it now plans to have a deficit of up to 4% of GDP, twice as much as it provided for in its May 2nd letter to the IMF, raises serious questions about the difference between what Korea says it will do and what Korea actually does.

Unquestionably, Korea is in a difficult situation. Its economy is contracting for the first time in 18 years, yet the government's ability to stimulate the economy through spending or monetary policy is severely restricted by the commitments it has made to the IMF.

To fulfill its IMF commitments and to repay foreign creditors, including the IMF, the government must now sell its interests in many of Korea's largest corporations. The government of Korea, directly or through the government-owned Korea Development Bank (KDB), holds huge equity interests in many of Korea's biggest manufacturers and service providers. The Korea Development Bank's holdings include 30% of KIA Motors, 98.8% of Korea General Chemical, 71.2% of Korea Telecom, 10.9% of Daewoo Shipbuilding & Heavy Industries, 43.8% of Korea Heavy Industries, 33.8% of Hosung Heavy Industries, and 17.6% of Asiana Airlines. KDB and the government also hold 26.7% of Pohang Iron and Steel Company, the world's lowest cost steel producer that is also on its way to becoming the world's biggest steel producer.

However, for the government to sell its corporate holdings, it must somehow deal with an estimated 50 trillion won of bad corporate debt that is the root cause of Korea's financial crisis. Many of these nonperforming corporate loans are held by government-owned banks, including the huge government-owned KDB whose activities continue to be guaranteed by the full faith and credit of the Korean government.

Under these circumstances, conflicts of interest would not simply appear possible, but almost inevitable. For example, it is the government-owned KDB that will decide who gets to buy KIA Motors in which KDB holds a 30% equity interest and in which the government recently announced a capital increase of $760 million. KDB is also one of KIA's largest creditors, holding more than $1 billion in nonperforming loans to KIA. KDB has already announced that it will write off only 55% of KIA's bad debt and that the other 45% will have to be assumed by KIA's purchaser under rescheduled terms. How can the government-owned KDB choose a purchaser and not be heavily influenced by its desire to protect the government's interests?

Recent events in Korea cast further doubt on the government's commitment to terminate government-directed lending and subsidies as well as government intervention in corporate governance. When the government of Korea earlier this year set up its Financial Supervisory Commission (FSC) to control and oversee the separation of banking from government intervention and the restructuring of its financial institutions, it carefully prohibited the FSC from having any jurisdiction over the government-owned KDB. This makes it possible for the government to continue using KDB to pursue its own industrial and trade policies.

Furthermore, the government of Korea appears to continue to lend its bankrupt firms money and to influence their corporate decisions, rather than proceeding immediately with their liquidation. According to KDB's own admission, in 1997, it borrowed "a total of 308 billion won from the government to fund government-designated projects...a 15.4 percent hike over the previous year." In addition, the government reportedly has put tremendous pressure on the highly competitive Pohang Iron and Steel Company to take over two of its most inefficient bankrupt competitors, Hanbo Steel Company and Sammi Steel Company.

We must also express great concern over the extent to which government influence has extended into banking. Under government pressure, Korea's larger, more stable banks are being pressured to take over Korea's failed banks, with assurances that the government will assume responsibility for nonperforming loans. Yet, when the Commercial Bank of Korea and Hanil Bank recently announced a merger, reports were that the government may only buy back half of the banks' nonperforming loans, presumably leaving these banks with considerable responsibility for their nonperforming loans.

We are concerned that this policy of merging unhealthy entities with healthy entities may only spread the infection that has brought about Korea's financial and economic crisis--especially if the burden of nonperforming loans is not eliminated.

In addition to wielding influence over what should be private sector, market-based decisions, the government has developed a mechanism to allow bankrupt Korean companies to continue operations under restructured loans, perhaps to increase the value of these entities and thereby to better protect the equity interests of the government and other shareholders. Under this plan, nonperforming corporate loans held by Korean commercial banks can be assumed by the wholly government-owned KDB whose losses, by law, must be offset by the Korean government. This plan has been opposed by the Asian Development Bank, and furthermore, it is totally inconsistent with Korea's IMF commitment to end government-directed lending. It also squarely contradicts legislation being considered by the House Appropriations Committee which specifically states that "no government subsidized support or tax privileges will be provided to bail out individual corporations...."

We are concerned that Korea has not made a clean and definitive break with its past practices of government intervention in what should be private commercial and financial matters. Our concerns are not relieved by statements that Administration officials are "encouraged" by Korea's progress in implementing economic reforms. Korea has institutions and policies that enable the government to intervene in commercial lending and in corporate governance. We want you to tell us what Korea has done and is doing to restructure its institutions and to change its policies, so that government intervention in the private economy is minimized and Korean markets are open to U.S. and other foreign competitors.

We have a number of questions, which are attached. We request that you provide us with your full and complete responses to them, no later than close of business on Wednesday, September 2, 1998. Thank you for your cooperation, and if you have any questions concerning our request, please call Bruce Gwinn at 226-3400.

Sincerely,

JOHN D. DINGELL
MEMBER OF CONGRESS

JOHN P. MURTHA
MEMBER OF CONGRESS

RALPH REGULA
MEMBER OF CONGRESS

The Korea Development Bank (KDB) is Korea's government-owned bank established to promote industrial growth. According to the Bank's mission statement, KDB enjoys "100% government ownership [as] enshrined in the KDB Act." In fact, if annual net losses are unable to be offset by the bank's reserves, "the deficit shall be offset by the government". Article 44 of the KDB Act even guarantees KDB's unconditional solvency. Although KDB posted its first net loss of 54.6 billion won in 1997, it still managed, according to KDB Governor Young-Tae Kim, to continue its "basic strategy of . . . expansion."

1. According to its mission statement, the KDB "plays a central role in the Government's strategy for economic development, [with] no plans for privatization." However, the IMF's economic reform program, set forth in the $58 billion Korean bailout package, calls for Korea to "dismantle the nontransparent and inefficient ties among the government, banks, and businesses." Is not the Korean government's unwillingness to privatize KDB inconsistent with its IMF commitments to restructure the Korean financial sector and to end government-directed lending?

2. According to KDB, despite the fact that other Korean banks were forced to refrain from lending amid the financial crisis and IMF intervention, "in 1997, total new loans granted by KDB reached 11,974 billion won, which represents a 42.7 percent increase over [1996]" as KDB "strove to remain committed to its mission" amid the "treacherous environment" of the financial crisis.
   • How was KDB able to get funds to continue lending when Korean commercial banks were not?
   • Have you assessed the extent to which KDB's corporate and other lending decisions in 1997 and 1998 were market-based versus government-directed?
   • The Korean government, through the KDB, holds significant equity shares in a considerable number of Korean corporations. Does a conflict of interest exist in having the government-owned KDB make lending decisions concerning corporations in which the government either directly or through KDB holds significant ownership interest?
   • In your view, is it necessary for the government-owned KDB to sell its corporate equity interests to bring government-directed lending in Korea to an end? If not, why not?
   • Can you tell us whether KDB has provided capital to failing Korean companies during the past year to prevent them from otherwise going into bankruptcy?

3. According to KDB, in 1997, it borrowed "a total of 308 billion won from the government to fund government-designated projects." This amount represents a "15.4 percent hike over the previous year."
   • Is this not an open admission that the government-owned KDB continues to engage in government-directed lending?
   • What were these "government-designated projects"?
   • Does this government-directed lending create an unfair competitive advantage, enabling Korean corporations to finance commercial activities that the private marketplace otherwise would not?

4. According to the KDB, "the Bank also managed the special-purpose funds totaling 436 billion won, up 38.8 percent from the year before." KDB identifies these funds as being "tailored to supporting . . . strategic industries."
   • Does KDB's statement concerning its support for "strategic industries" directly contradict Deputy Secretary of Treasury Summers claim that Korea has ended the "flow of subsidized credits into key industries [that] compete with American producers"?
   • Specifically, of the 436 billion won in special-purpose funds managed by KDB, 42 billion won were allocated to the "Special Industry Supporting Fund." Exactly what "strategic" industries does this fund support?
   • Does the government-owned KDB's management of these special funds to support "strategic industries" violate the Subsidies Code or other provisions of the WTO?

5. The KDB says that to help Korea's ailing commercial banks liquidate failed loans, the "KDB made policy investments in a government fund to absorb such loans." Both the Asian Development Bank and the World Bank objected to KDB's loans for this purpose. Is this not inconsistent with Deputy Secretary of Treasury Summers' claim that "policy-based lending in Korea" has ended?

6. Currently, KDB's mission statement contains the following description of its activities: "the Korea Development Bank . . . provide[s] loans or credit for development of key sectors . . . with government funds."
   • Does KDB's extension of government loans to key industrial sectors continue to place an unfair burden on U.S. and other foreign competitors seeking to compete in the Korean and world markets?
   • What actions have you taken to ensure that Korea stops its practice of government-directed lending and subsidies to Korean corporations?
   • Is it possible to say that Korea has ended government-directed lending as long as KDB's mission remains to "...provide loans or credit for development of key sectors...with government funds."?

7. Korea's commitments to the IMF include a commitment to eliminate government interference in corporate governance. According to KDB, its ownership interest in Korean corporations include: 30% of KIA Motors; 14.1% of POSCO (the nation's largest steel producer); 10.9% of Daewoo Shipbuilding & Heavy Industries; 33.8% of Hosung Heavy Industries; 43.8% of Korea Heavy Industries (Hanjung); and 98.8% of Korea General Chemical.
   • How is the KDB's continued holding of these ownership interests consistent with the IMF goal of dismantling the "inefficient ties among the government, banks, and businesses"?
   • Is there any way that Korea's commitment to independent corporate governance could be fulfilled without the government, directly or through KDB, selling its interest in these corporations?

8. Asia Pulse reported on March 31, 1998, that the Korean government established the Financial Supervisory Commission (FSC), a commission which is "authorized with all rights to approve, supervise, restrict, and review the country's entire financial institutions except [emphasis added] the three state-invested banks . . . [including] Korea Development Bank." Although the FSC is a reportedly "independent authority," several government officials are members of the commission. Do you consider the FSC to be an effective instrument for fulfilling Korea's IMF commitment to end government- directed lending, even though it has no jurisdiction over KDB and the other government-owned banks?

9. The Korean government announced on July 14, 1998, that it has "decided to focus on reviving the nation's economy during the latter half of the year," rather than continuing to put its "emphasis [on] the liquidation of nonviable sectors." Does this recent announcement that liquidation is no longer the government's priority signal the perpetuation of government intervention in corporate management?

10. It is our understanding that the executive leadership of the Korea Development Bank is entirely made up of individuals that are appointed by the government.
    • Is this, in fact, correct?
    • Is the government-owned and government-run KDB an easy conduit through which government policy-based lending could be extended to key industries, especially when the KDB board is appointed by the government?
    • Specifically, what actions is the U.S. taking to promote the privatization of KDB?
    Automobiles

    Sale of KIA Motors

11. Deputy Secretary Summers said that the "end of policy-based lending in Korea" and an end to the "flow of subsidized credits into key industries [that] compete with American producers has been a long sought policy goal for the United States." Yet on July 13, 1998, the Agence France Presse reported that the Korean government "decided Monday [July 12, 1998] to seek a capital increase of one trillion won (760 million dollars) for KIA Motors Corp. before the . . . firm is sold off," in addition to government plans to "issue new stock worth about 500 billion won for Asia Motors [a subsidiary of KIA]."
    • Is the government's recent announcement inconsistent with Korea's commitment to conduct fair and transparent sales of its bankrupt entities and to eliminate government-directed lending and government interference in corporate management? Does it violate the Subsidies Code and other provisions of the World Trade Organization?
    • What is the source of the funds that are to be made available to KIA and Asia Motors?
    • Are any funds acquired through the $58 billion IMF package being used to finance this subsidy?

12. Furthermore, in the same article, the Agence France Presse reported that "KIA will be turned over to a bidder offering to buy a stake in excess of 51%."
    • Is this, in fact, correct?
    • Would this create a situation whereby the Korean government could possibly maintain its 30% share in the company?
    • If so, would government retention of its ownership interest in KIA undermine Korea's ability to fulfill its IMF commitment to eliminate government interference in corporate management?

13. The Associated Press reported on July 6, 1998, that "the state-run Korea Development Bank . . . has nearly $1 billion in non-performing loans to KIA" and only two weeks earlier reported that "the government is KIA's largest stockholder, with a 30 percent stake." It was also reported that KIA's former chairman was arrested for embezzling $37 million, allegedly "using some of the money to bribe politicians so he could take out bank loans and keep the company afloat". Does a conflict of interest exist in the fact that as both KIA's largest shareholder and its largest creditor, the Korean government, through KDB, will select KIA's purchaser, while at the same time it could offer special loans or subsidies to purchasers to protect the government's equity interest and to minimize the government's loan losses?

14. Did the Korean government, directly or indirectly through KDB or any other financial institution, provide KIA Motors with any sort of loan or provide any other assistance to the company since December 4, 1997, the date of the first disbursement of IMF assistance?
    • If so, how much was provided and over what time period were the funds made available to KIA?
    • If such loans or assistance were provided, would this violate Korea's IMF and WTO obligations to abolish subsidies?

15. Given the problems facing the Korean government, can you be certain that no IMF funds were used to assist KIA Motors?

16. It is our understanding that the bankrupt KIA Motors will be offered for sale in a supposedly "transparent" and market-based manner; yet, the government-owned KDB, as KIA's largest shareholder and biggest creditor, will decide who buys KIA.
    • What action is the U.S. taking to monitor this sale and to ensure that the Korean government's equity and credit interests in KIA do not influence KDB's selection of a purchaser?
    • What monitoring will occur to investigate potential bidders and their sources of capital, in order to ensure that the government has not encouraged domestic Korean bidders by financing them directly or indirectly, through loans or credit?
    • Are you confident that potential Korean bidders will not receive subsidized credit to purchase KIA?

17. Who holds the debt in KIA?
    • To what extent is the debt government backed, as opposed to privately backed debt?
    • What share of KIA's outstanding debt is held by banks in which the Korean government holds ownership interest?

18. To what extent are you confident that the sale of KIA will be conducted appropriately and transparently, as well as free from government interference?

19. It has been reported that in recent years the Korean auto industry has expanded tremendously, both in Korea and other countries. For example, Hyundai lists plants from India and Russia to Botswana and Turkey that are slated for start-up in 1998. Likewise, Daewoo has scheduled investments in Poland, Ukraine, India, and Iran for 1998.
    • With the country in dire financial circumstances, what is the source of the funds these firms are obtaining to finance these major overseas investments?
    • Were any of these investments supported, directly or indirectly, by the Korean government?

20. Has the Korean government, directly or through KDB and other government banks, provided loans to Korean automakers for expansion, working capital, or any other purpose during the past five years? If so, would these circumstances warrant a USTR investigation and an IMF inquiry into Korea's financing of key industries and corporations, especially in areas in which the government, directly or indirectly holds equity interests?
    Trade Barriers

21. As the fifth largest auto-producing nation in the world, Korea imports fewer automobiles than any other auto-producing country. According to the USTR, imports accounted for 0.8% of the auto market in 1996, and fell further to 0.7% in 1997. In the face of myriad burdensome and restrictive barriers to the market, the "Big Three" U.S. automakers (General Motors, Ford, Chrysler) reported sales of only 4400 cars in 1996. In 1997, sales of imported passenger cars dropped by 21%. As sales of Korean automobiles have saturated the domestic market, the Korean auto industry has promoted an aggressive export policy; in 1997, 57% of the cars produced in Korea were exported, up 6.3% from 1996.

    In your opinion, in light of a foreign auto market share in Korea (currently less than 1%), what steps must Korea take to "speed up trade liberalization measures" and to remove restrictive market barriers?

22. Do you anticipate any considerable change over the next 12 months in the foreign share of Korea's auto market and the number of Korean auto exports?

23. Automobiles imported into Korea currently face an applied tariff rate of eight percent, as compared to the U.S. rate of 2.5%. Would you consider Korea's tariff unduly high, and thus, a burden on foreign imports?

24. It is our understanding that Korea has an "bound" tariff rate of 80% on auto imports, and thus, could impose a tariff as high as 80% on imported automobiles.
    • Has the U.S. requested that Korea bind its tariff at a lower level on autos?
    • If so, at what level?
    • If not, why not?

25. In your opinion, would a Korean "bound" tariff of 8% on automobiles, with a subsequent timetable for a gradual reduction of the tariff to U.S. levels be more consistent with the IMF's call for Korea to enact "trade liberalization measures"?

26. Currently, Korea calculates its automobile taxes based on the landed value of a vehicle plus the amount of the tariff. In order to lower the cost to Korean consumers of imported vehicles, has the U.S. asked Korea to restructure its system of automobile taxation so that the amount of the tariff is no longer included in determining the value of the automobile for tax purposes? If not, would you consider making such a request of Korea in the future?

27. In addition to the 8% tariff, automobiles imported into Korea are subject to eight separate taxes, at least one of which imposes higher taxes on cars with large engines. As most U.S. auto manufacturers market autos with larger engines, would you agree that Korea's system of taxation has a discriminatory impact on U.S. automakers?

28. As the Korean auto industry has expanded into foreign markets, what has the Korean government done to diversify and open its own auto market to foreign competition?

29. With the U.S.-Korean 1995 Memorandum of Understanding (MOU) on autos, Korea agreed to reduce taxes prejudicial to imported automobiles, particularly, in two specific tax categories.
    • What were these two categories of taxes, and what, if anything, has Korea done to reduce these taxes?
    • Has Korea fully complied with its commitment in the Memorandum of Understanding to reduce its auto taxes?

30. USTR reported in its 1998 National Trade Estimate Report on Foreign Trade Barriers that Korea has increased taxes "incrementally since April 1996" on sport utility vehicles, an especially competitive U.S. product. Are these tax increases on sport utility vehicles consistent with the U.S. understanding of what Korea's obligations are under the 1995 MOU on autos?

31. USTR further reports that other trade obstacles include "redundant vehicle testing beyond the initial type approval certification process," whose "duplicative procedures" incur further costs for foreign manufacturers. What has Korea done to reduce these unnecessary testing and approval requirements?

32. The Korean government has reportedly threatened initiation of tax audits against individuals who buy imported automobiles. Although this practice appears to have been abandoned due to international pressures, what steps has Korea taken to combat what appears to be the officially promoted bias against the purchase of imported vehicles?

33. Under its obligations with the IMF, Korea agreed to institute "trade liberalization measures." Have Korea's attempts to fulfill this obligation with respect to the auto industry been effective?
    U.S. Action

34. What is the status of the USTR's "Super 301" investigation into import barriers to Korea's auto market, and what are its findings to date?

35. Does the USTR plan to take its "Super 301" case on auto trade problems with Korea to the World Trade Organization for dispute settlement?

36. What circumstances might lead the USTR not to take its case to the WTO?

37. What has USTR specifically asked Korea to do to resolve the current trade complaints in its Super 301 case on autos? Has Korea responded to any of USTR's demands?
    Steel

    The Korean steel industry has recently received intense scrutiny as a result of developments with the Hanbo Steel Corporation, formerly the nation's second largest steelmaker. The Korean government announced in January 1997 that it would provide $670 million to the Hanbo Steel Corporation in order to sustain its operations, only one of many capital infusions into this ailing corporation made by the Korean government. The government reportedly then engaged in directly funding Hanbo's creditors to further sustain the steelmaker. Subsequently, as subsidies continued and investigations into Hanbo ensued, Hanbo's two chairmen, Chung Tai-soo and Chung Bo-keun, were both convicted of fraud and bribery in June 1997 in connection with government loans to the corporation. Amid continued allegations by U.S. and international steel interests of Korean wrongdoing, the USTR initiated a "Super 301" case on Korean steel in October 1997.

    Although insolvent since January 1997 and placed in court receivership since August 1997, Hanbo has reportedly continued operating with the government of Korea funding the "financially failed Hanbo Steel with nearly $6 billion in subsidies," "since 1993," as the PR Newswire reported on July 8, 1998. Since July 1997, several auctions have been held to sell Hanbo, but Hanbo's creditors have refused to permit its sale. Another sale will reportedly occur in the upcoming months.

    Sale of Hanbo Steel

38. Currently, what is the Korean government's ownership interest in Hanbo Steel?
    • If such interest exists, will the Korean government's share in Hanbo be sold in the forthcoming sale of the corporation?
    • What share of Hanbo's outstanding debt is held by banks in which the Korean government holds an ownership interest?

39. The PR Newswirereported on July 8, 1998, that "the South Korean government may not allow a sale of Hanbo's assets to maximize returns without preconditions [emphasis added]," a situation which might "create another subsidies problem." What preconditions is the Korean government contemplating imposing on the sale?

40. It is our understanding that at least three auctions have been held in an attempt to sell Hanbo, all of which have ended unsuccessfully, because Hanbo's creditors have demanded that purchasers assume much of the company's debt. American Metal Market reported in both October 1997 and June 1998 on offers made by POSCO, Korea's largest steelmaker; Hanbo's creditors dismissed POSCO's offers of 2 trillion won as being insufficient. It would seem that Hanbo's creditors may be attempting to manipulate the sale price to cover bad debts.
    • In your opinion, will Hanbo's creditors continue to demand that bidders assume Hanbo's debts, as opposed to simply writing off the debts and pursuing a straightforward, equitable sale?
    • In your opinion, should Hanbo's creditors be responsible for deciding who may purchase this bankrupt firm?
    • Has any progress been made in the establishment of an orderly Korean bankruptcy system, whereby an independent party, not under the control of creditors or shareholders, makes decisions concerning payment of claims and the sale and distribution of assets?
    • Do you consider the forthcoming sale of Hanbo, in which its creditors are dictating the conditions of sale, to be consistent with a Korean commitment to the IMF to implement serious corporate bankruptcy reform?

41. What action is the U.S. taking to monitor the sale of Hanbo Steel to ensure equity and transparency for foreign investors/bidders?

42. Are you confident that potential purchasers will not receive subsidized credit to purchase Hanbo?

43. What actions is the U.S. taking to require Korea to conform to internationally accepted accounting principles, including full financial disclosure, and the periodic reporting of earnings profits, liabilities, and expenses of Korean corporations?
    Past Government Subsidies

44. As reported by numerous news agencies, did the Korean government, in fact, extend nearly $5.8 billion cumulatively in subsidies and directed loans to the Hanbo Steel Corporation from 1993 through August 1997?

45. Did the Korean government ever fund any of Hanbo's creditor banks? If so, over what period of time?

46. If the Korean government did fund Hanbo or its creditors, what were the conditions and timetable under which these $5.8 billion in loans/subsidies extended to Hanbo Steel were to be repaid?
    • What is Hanbo's record of compliance with the timetable for repaying the previously referenced loans?
    • Have they been fully repaid?
    • Would the subsidies extended to Hanbo and its creditors violate the Subsidies Code or other provisions of the World Trade Organization?

47. American Metal Market, along with the New York Times, reported on January 30, 1997, that the Korean government "would infuse $670 million into Hanbo to allow it to continue operations." Over what period of time was the $670 million, as announced by the government in January 1997, actually made available to Hanbo?
    • Under what timetable were these funds disbursed?
    • Was the full $670 million disbursed?
    • Is there a requirement that this money be repaid?

48. What were the sources of the $5.8 billion in subsidies and directed loans made available to Hanbo from 1993 through 1997?
    • Did they originate from government tax revenues?
    • To what extent did the Korean government manipulate the money supply to furnish funds to keep Hanbo afloat?
    • Was the Korean government's handling of the Hanbo situation at all responsible for Korea's current financial situation?
    Post IMF Assistance

49. How much of the aforementioned $670 million was made available to Hanbo Steel after December 4, 1997, the date on which IMF assistance to Korea commenced?

50. Have any government subsidies, including loans by government-backed banks, directly or indirectly, been extended to Hanbo Steel at any time since its bankruptcy in January 1997? If so, what was the source of these funds?

51. Does the record of government loans to Hanbo Steel violate the tenets of the IMF bailout package, which include the elimination of government-directed lending?

52. What specific measures have the U.S. and IMF taken to ensure the elimination of government involvement in the forthcoming sale of Hanbo Steel?
    U.S. Action

53. What is the status of the "Super 301" Korean steel investigation initiated by USTR?

54. Does USTR plan to take the "Super 301" case to the World Trade Organization for dispute settlement?

55. Under what circumstances could you envision the USTR not taking its "Super 301" on Korean steel to the WTO?

    INDONESIA

    Automobiles

56. Washington Post reported on June 26, 1998, that the new agreement struck between the IMF and Indonesia would guarantee another $4 billion to $6 billion in additional loans "beyond the $43 billion set aside for stabilizing the economy under a program worked out in April." It was further reported in the same article that as part of the agreement, "subsidies for food, fuel, and other commodities . . . will be permitted to remain until the Indonesian economy has recovered."
    • Specifically, what are these "other commodities" whose subsidies will be allowed to remain?
    • Do these "other commodities" include the "National Car"?

57. According to the new IMF agreement, "food, fuel, and other commodities . . . will be permitted to remain until the Indonesian economy has recovered". What will be the IMF criteria for determining that the Indonesian economy has, in fact, recovered?

58. Despite the official end to the PT Timor Putra National's privileges as manufacturer of the National Car under the National Car Program, which featured tax and tariff exemptions in addition to subsidies for using local products, it is our understanding that the Timor car, headed by former President Suharto's brother still enjoys its status as the National Car. If so, does this designation discourage the purchase of foreign cars and create an "unfair playing field" for foreign auto importers and manufacturers, whether through an implicit anti-import bias or direct domestic promotion?

59. Has Indonesia completely fulfilled its obligations to the WTO and IMF with regard to its auto industry? If not, in what ways has it failed to fulfill its commitments?
    
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