Global Steel Trade; Structural Problems and Future Solutions

through an “instant penalty system” under which sales outlets were penalized for distributing competing
producers’ products. These distribution practices allowed Posteel to restrict sales outlets from handling
competitors products which had the effect of restricting commercially driven, market-based trade in the
domestic steel market.
The KFTC finding further found that “Posteel uses its position in business dealings to force sales outlets to
follow transaction terms determined by [Posteel] and the customer on linked and transfer sales.” Posteel
forced its sales outlets to adhere to the following transaction terms:
• A margin rate of 1 to 2 percent.
• Deferred interest payments on transaction loans.
• Conditions on guarantees.
Posteel threatened to fine sales outlets which violated these transaction terms. The KFTC cautioned that in
the course of a “normal” transaction,
POSCO’s (Posteel’s) transferring its own customers to sales outlets and demanding that they deal
with these customers according to transaction terms set by POSCO itself abuses its position in the
transaction. It is an unfair activity that imposes a handicap on the parties to the transaction. 52
The KFTC report cautions that POSCO’s control over the distribution sector has increased, which opens
the possibility that “new entrants and competitors will be sealed off from the market.” While the Korean
government failed to heed all the warnings present in the KFTC report, it did move to dissolve many of
POSCO’s shares in the sales outlets and distributors. 53 POSCO continues to maintain its monopolistic
position and, as of July 2000, still had over 95 percent ownership in Posteel. 54
POSCO’s Pricing Practices. In spite of POSCO’s market dominance in a number of basic steel products,
POSCO has not benefitted from high domestic prices. The principal reason is the Korean government’s price
stabilization policies which required POSCO to maintain low, stable domestic steel prices. The government
has acknowledged that it had a policy to set POSCO’s hot-rolled coil prices as low as possible to “cultivate a
strong and growing domestic market for its products.” 55 This policy was assisted with a three-tiered pricing
system, which served different markets: domestic prices in Korean won for products that would be consumed
in Korea; direct export prices in U.S. dollars or Japanese yen; and local export prices in U.S. dollars. Local
export prices were provided to those domestic customers who purchased steel for further processing into
products that were exported. The Commerce Department found this pricing system to constitute an export
subsidy in the countervailing duty investigation of stainless steel sheet and strip in coils, which covered the
period 1997, because a different price was charged to customers based upon export performance. 56 The
Korean government has stated that POSCO’s tiered pricing structure was officially discontinued in 1999. The
Commerce Department has not had the occasion to review POSCO’s pricing practices to verify the
termination of the tiered structure in a countervailing duty proceeding.
POSCO Maintains Its Monopolistic Position
The KFTC was also concerned about POSCO’s market dominance and warned that the company has the
potential to abuse its position. The KFTC was particularly concerned that the privatization of POSCO,
which has been an ongoing process by the Korean government, would simply create an unregulated private
monopoly. The KFTC’s findings led it to the following recommendations for restructuring the blast furnace
sector, i.e., POSCO, including:
• Splitting POSCO’s two integrated plants (Pohang and Kwangyang) into two companies so that the
privatization of POSCO does not create a private monopoly.
92 Global Steel Trade: Structural Problems and Future Solutions