Debt/Equity Swaps Not Countervailable, South Korea CORE Exporter Says in Complaint

The Commerce Department's decision to deem countervailable exporter Dongbu Steel's debt-for-equity swaps was unsupported, and violated the agency's own standard practice of not reexamining subsidy programs that were previously found non-countervailable without any new information, Dongbu Steel said in a March 17 complaint at the Court of International Trade (KG Dongbu Steel Co. v. United States, CIT #22-00047).

The exporter is challenging a countervailing duty administrative review on corrosion-resistant steel products from South Korea in which Dongbu Steel served as a mandatory respondent. In the original CVD investigation, Dongbu Steel got hit with a 1.19% CV duty rate based on benefits from the 2014 restructuring of its long-term loans and bonds by its creditors. In 2015 and 2016, though, Dongbu Steel's creditors committee greenlighted debt for equity swaps by both government-controlled and private commercial banks.

In the CV duty investigation, and following two CVD reviews, Commerce hit Dongbu Steel with a CVD rate based on its restructuring benefits over the petitioner's objections that Dongbu Steel was uncreditworthy. The agency continuously found that the debt for equity swaps were consistent with the usual investment practice of private investors and didn't confer a benefit to Dongbu Steel. Commerce changed its tune in the third review, finding the debt for equity swaps countervailable. In its complaint, Dongbu Steel says this change was made without any new record evidence.

Dongbu Steel contests Commerce's decision that the debt for equity swaps were countervailable, to pass through the swaps' benefits to KG Dongbu Steel despite a change of ownership in the next review and to calculate the uncreditworthy benchmark for the purpose of measuring the benefits of Dongbu Steel's restructured long-term loans and bonds.

"Commerce improperly calculated the uncreditworthy benchmark for purposes of measuring the benefits from Dongbu Steel’s restructured long-term loans and bonds," the brief said. "Similarly, Commerce improperly calculated the uncreditworthy discount rate for purposes of measuring the benefits from the equity infusions from government-controlled creditors."