Commerce Maintains Methodology in Korean Steel CVD Case Despite Federal Circuit Opinion

The Commerce Department continues to hold that the South Korean government did not provide a countervailable subsidy to producers of hot-rolled steel through cheap electricity and that the agency came to this conclusion in a legal way, despite a decision by the U.S. Court of Appeals for the Federal Circuit to the contrary. In June 10 remand results in the Court of International Trade, Commerce explained why the Federal Circuit was mistaken in its ruling and why it used the appropriate methodology in determining that no benefit was conferred between the Korean government and producers POSCO and Hyundai Steel (POSCO v. United States, CIT #16-00227).

Commerce initially received a petition from several producers alleging that Korean steel producers were receiving a countervailable benefit through the provision of electricity. To investigate, the agency qestioned the Korean government about the Korean electricity industry and market, which included the Korean Electricity Corporation (KEPCO) and the Korean Power Exchange, an entity owned by KEPCO. Commerce claims it conducted a "tier three analysis" to examine how KEPCO calculated its electricity tariff prices for each classification of customer through its price setting system.

By including costs and return on investment in its electricity prices, KEPCO did not treat Korean producers differently from other electricity users and charged the producers a tariff rate that was in line with their customer classification level, Commerce said. The agency issued a final determination saying as much and assigning 58.68% and 3.89% countervailing duty rates to POSCO and Hyundai, respectively.

CIT sustained this final determination on Sept. 11, 2018, after a challenge from POSCO. The case was then brought to the Federal Circuit, where the appellate court held that Commerce's benefit analysis and failure to investigate the role of KPX in the Korean electricity market was contrary to law.

In its remand redetermination, Commerce said the appeals court's opinion mischaracterized many of the facts in the countervailing duty case. For one, Commerce said it actually did request information about KPX's electricity generation costs from the Korean government. The Federal Circuit also faulted Commerce for not establishing KPX as an "authority" -- a distinction the agency actually claims it did make since "KPX is wholly-owned by KEPCO." Since Commerce found KEPCO to be an authority in the electricity market, KPX would also be defined as an authority, the agency said.

The Federal Circuit also held that Commerce should not have relied on a "preferential price analysis" to determine if KEPCO sold electricity to Korean producers at a less than normal rate rather than the legally required analytic standard. However, this was not the analysis Commerce used, the agency said. "The finding that KEPCO’s provision of electricity to the respondent steel companies did not constitute a countervailable subsidy was based on Commerce’s analysis of 'fair-market principles,'" Commerce said. "Commerce did not rely on the absence of price discrimination, but instead relied on the fact that KEPCO fully covered its cost in the industrial rates charged to the respondent steel companies."