CIT Again Sends Back Commerce's Decision to Countervail Korean Exporter's D/E Swaps

Judge Jennifer Choe-Groves said Commerce can't reverse its countervailability decisions "absent new information to address fraud or mistake of fact," noting that the agency has twice now failed to "cite any new information or provide a reasonable explanation for its attempted reversal of its prior determinations." The judge also remanded Commerce's decision to pass through benefits from the three debt-to-equity restructurings to KG Dongbu after its ownership changed between the prior three and present reviews, along with the agency's calculation of the company's creditworthiness benchmark and unequityworthy discount rate.

In 2015 and 2016, back when it was just called Dongbu Steel, the Korean company's creditors committee approved debt-to-equity swaps by government-controlled and private banks. In the CVD order's first review, Commerce said the swaps were in line with the typical investment practice of private investors and didn't amount to a countervailable benefit. The second and third reviews told a similar story, in which the agency said that Dongbu Steel was not uncreditworthy, as the petitioners claimed, insofar as two additional swaps made the next two years were not countervailable.

Dongbu Steel's CVD rate in all three reviews was based on "recurring benefits" from prior restructurings of the company's outstanding long-term loans and bonds by its creditors committee.

In 2019, Dongbu Steel was acquired by the KG Consortium and also received a fourth debt-to-equity swap and resructuring of its outstanding long-term loans and bonds. During the 2019 CVD review -- the review at issue in the present case -- Commerce changed course and said that the three debt-to-equity swaps are countervailable, noting that it didn't countervail them in the first three reviews because they were not "significant" under its regulations. Commerce also said that "KG Dongbu did not request that any of the existing subsides be extinguished due to the change in ownership."

Commerce's decision to countervail the debt-to-equity swaps was previously remanded by the trade court on the grounds that the agency failed to justify departing from its standard practice (see 2307100028). Commerce stuck by its decision on remand (see 2310060006).

In the April 3 opinion, Choe-Groves again remanded Commerce's decision, finding that the only basis on which the agency can reexamine the countervailability of the prior debt-to-equity restructurings is "new information." The judge said the agency on remand didn't point to any new information that it hasn't already considered in previously deciding that there were no countervailable benefits in the first three swaps.

Commerce argued that the debt-to-equity swaps in the first four reviews were all countervailable and that the benefits would be passed through and allocated across all four years of the reviews. The agency said the first three restructurings were tied to the present debt-to-equity swap, creating a single subsidy program.

Choe-Groves rejected this claim since the agency already said the first three restructurings provided no benefit. "The Court concludes that Commerce’s determination to pass through or allocate financial benefits to years one through four of the administrative reviews is arbitrary and not supported by substantial evidence," the opinion said.

The agency also explained that it initially failed to analyze the restructurings from the perspective of what a private investor would pay for the shares under its regulations. But Choe-Groves said Commerce "did not adequately articulate the nature of its alleged mistake," ruling that, contrary to Commerce's position, calculating the benefit for the fourth review "had nothing to do with the amounts of benefits from the first three debt-to-equity restructurings that had been calculated for past administrative reviews.”

On remand, Commerce also stuck by its position that KG Dongbu failed to object to the agency's move to pass through Dongbu Steel's subsidies to KG Dongbu, following Dongbu Steel's acquisition, because the company failed to submit the change-in-ownership appendix. KG Dongbu said it shouldn't have been required to submit the appendix, given that Commerce previously said Dongbu Steel wasn't receiving non-recurring subsidies.

Choe-Groves said she agreed with KG Dongbu's claim that it "had no reason to submit the CIO Appendix to challenge Commerce’s baseline presumption regarding non-recurring subsidies based on unforeseeable actions that Commerce would take in the future to attempt to reverse prior concluded administrative reviews.” The court said KG Dongbu cited plenty of evidence seemingly challenging Commerce's "baseline presumption" that the exporter wasn't challenging the pass-through of subsidies to KG Dongbu. Choe-Groves said the agency failed to review this evidence and that "Commerce has yet to determine whether this amounts to substantial evidence of an arm’s length transaction of Dongbu Steel’s assets sold to the KG Consortium.”

The court also sent back Commerce's calculation of both the creditworthiness benchmark and unequityworthy discount rate, in both cases finding that Commerce plainly contradicted its own regulations in picking the variables for the calculations. For instance, in the creditworthiness benchmark calculation, the agency used three years for the term of the loan, while actual evidence shows the term of the loan was six years. Choe-Groves said Commerce must stick to its regulations on remand or provide "cogent" reasoning for using any other calculation.

Brady Mills, counsel for KG Dongbu, said in an email that the company is "very pleased with the decision and believes that the Court correctly found that Commerce’s remand determination had not complied with the Court’s decision and was otherwise unlawful."

(KG Dongbu Steel Co. v. United States, Slip Op. 24-38, CIT # 22-00047, dated 04/03/24; Judge: Jennifer Choe-Groves; Attorneys: Brady Mills of Morris Manning for plaintiffs led by KG Dongbu Steel Co.; Claudia Burke for defendant U.S. government; Alan Price of Wiley Rein for defendant-intervenor Nucor Corp.; Roger Schagrin of Schagrin Associates for defendant-intervenor Steel Dynamics)