Commerce Lifted 'Form Over Substance' in Finding Venture Was Not Gov't Authority, AD Petitioner Argues

The Commerce Department erred by finding that Krakatau POSCO -- a joint venture between a private South Korean steel company and an Indonesian government-owned firm -- was not a government authority, leading Commerce to find its provision of cut-to-length steel plate below cost was not countervailable, the Wind Tower Trade Coalition said. Arguing against the U.S. and exporter Kenertec Power System, the coalition said in a June 29 reply brief at the U.S. Court of Appeals for the Federal Circuit that by making its decision, the agency "elevated form over substance, frustrated the intent of the CVD law, and allowed Indonesia's wind tower producer to receive subsidies and escape duties" (PT. Kenertec Power System v. U.S., CIT Consol. #20-03687).

The case concerns the countervailing duty investigation on utility-scale wind towers from Indonesia in which Indonesia's sole exporter to the U.S., Kenertec, served as the sole mandatory respondent. In the CVD petition, the coalition alleged that Kenertec bought cut-to-length steel plate below cost. Kenertec said in the investigation that it only bought the plate from Krakatau POSCO.

The question then became whether Krakatau POSCO was a government authority and "entrusted and directed" the joint venture that sold cut-to-length plate below cost. Commerce said that it wasn't -- a position upheld by the trade court since the joint venture was 70% owned by the private Korean company POSCO (see 2112280046).

The Wind Tower Trade Coalition now contests this finding at the Federal Circuit, arguing in an opening brief that Commerce disregarded contrary evidence, made unsupported conclusions and "failed to articulate a satisfactory explanation for its action" (see 2203300055). In particular, Commerce failed to look at evidence that the Indonesian government, through the state-owned Krakatau Steel, exercised control of Krakatau POSCO through its board of directors and board of commissioners, the brief said.

The coalition continued these arguments in its reply brief, telling the appellate court that Commerce and Kenertec "fail to recognize the significance of Krakatau POSCO's board of commissioners." The U.S. said that Commerce considered the makeup of the board, which the coalition says has an all-powerful president position occupied by Krakatau, and found that the board of directors, and not the commissioners, had organizational control of the joint venture.

"Yet merely reciting Commerce's unsupported conclusions does not render them reasonable," the brief said. "Kenertec too inappropriately downplays the importance of Krakatau POSCO's [board of commissioners], stating it that it has only 'decidedly advisory functions.' Yet both Defendant and Kenertec fail to acknowledge that the [board of commissioners] sits atop the [board of directors] in Krakatau POSCO' s management structure. Critically, the [board of commissioners] can even call a General Shareholders meeting on its own, if it recommends that the [board of directors] do so and the [board of directors] does not."

The U.S. said that Commerce adequately addressed evidence revealing that certain long-term investment and operational decisions needed approval from 80% of shareholders, and the record shows that POSCO owns 70% of the venture's shares with Krakatau owning only 30%. The coalition, though, says that this number was intentionally set at 80% so that Krakatau had veto power where it didn't agree with POSCO, giving the company another means to exert control over the venture.

The coalition further argued that Kenertec was "misleading and incorrect" when it claimed that the board of directors hypotheticals are speculative. " The board has six directors, two which are nominated by Krakatau. Decisions are made by an approving vote of 50% of the board, but if a five-member quorum is not reached, the meeting is postponed by a day, and postponed meetings can establish a quorum with three members. In this case, Krakatau can exert control by passing measures with its two directors.

"Like the CIT before it, Kenertec inaccurately dismisses this very real set of facts as 'hypothetical' and 'speculative,'" the brief said. "Contrary to that characterization, Krakatau POSCO's management structure was specifically designed to permit this control by Krakatau Steel. Indeed, it is carefully outlined in the company's Articles of Association."

The coalition then said that Commerce illegally abandoned its original position, which found that the Indonesian government influenced Krakatau POSCO's decision-making to make products for use in downstream industries to back the government's priorities. "Based on unsupported and contradictory claims regarding the same information at verification, Commerce abandoned its original position and reached a determination that was not reasonable, supported by substantial evidence, or in accordance with law," the brief said.