CIT Sends Back Commerce's Deviation From Finding on Countervailability of D-to-E Restructuring

The Commerce Department failed to explain its deviation from its past decision finding that exporter KG Dongbu Steel's first through third debt-to-equity restructurings were not countervailable, the Court of International Trade said in a July 7 opinion. Judge Jennifer Choe-Groves ruled that the evidence Commerce cited in justifying the past decision did not directly deal with these three restructurings and is thus "not a sufficient explanation to justify departing from its standard practice." Choe-Groves also sent back Commerce's uncreditworthy benchmark rate because the department failed to address potentially contradictory evidence as part of the 2019 administrative review of the countervailing duty order on corrosion-resistant steel goods from South Korea.

"KG Dongbu is pleased with the decision and believes that the Court correctly identified the flaws in Commerce’s decision and remanded for Commerce to address these flaws," Brady Mills, counsel for KG Dongbu, said in an email.

Choe-Groves first held that Commerce has a clear standard practice regarding the reexaminations, or lack thereof, of the countervailability of KG Dongbu's equity infusions, which the agency in the 2018 review said were not countervailable. The court noted that Commerce's standard CVD questionnaire language says that absent new information warranting a reexamination, the agency will not re-evaluate past decisions on countervailability. To depart from its past practice, Commerce must give a "reasonable explanation" -- something it did not do in the present case, the judge said.

In deciding to review the countervailability of the restructurings, Commerce cited information on the company's fourth restructuring as grounds to reexamine the first three. "The Court notes that the record evidence cited by Commerce as justification for its deviation from its past practice does not deal directly with the first through third debt-to-equity restructurings and is not a sufficient explanation to justify departing from its standard practice," Choe-Groves said. As a result, the court sent the decision back for reconsideration. Given this finding, the judge also sent back the decision so that Commerce can review whether it was also backed by substantial evidence.

The question of whether the debt-to-equity restructuring benefits pass-through to KG Dongbu due to a change in ownership was also sent back to Commerce. KG Dongbu said evidence shows its change in ownership occurred at arm's length so that any of the supposed subsidies from the first three restructurings were "extinguished." The government said Commerce "presumes that a non-recurring subsidy benefits a recipient 'over the average useful life of the relevant assets,'" and that a respondent can rebut this notion by "proving that a change in ownership occurred in which the previous owner sold all or substantially all of a company or its assets in an arm's length sale for fair market value." This point was also remanded due to the judge's order concerning Commerce's departure from its past practice.

KG Dongbu further challenged Commerce's application of its formula for calculating the uncreditworthy benchmark rate. The exporter claimed its outstanding long-term loans and bonds were restructured, creating new six-year loans and bonds warranting a departure from the three-year interest rate used by the agency. The U.S. said Commerce used the proper three-year rate because "no other interest rates were available." Choe-Groves ruled that despite this claim, KG Dongbu cited "potentially contrary" evidence showing the repayment date of outstanding loans was extended by five years.

"Thus, the Court observes that the record evidence seemingly indicates that the loan term might be closer to six years and not three years, and Commerce should at least consider the record evidence and further substantiate the loan term used in its redetermination," the opinion said. Given this finding, Choe-Groves also sent back Commerce's discount rates in finding the amount of the benefit in each year of the 15-year allocation periods for the "average useful life of the relevant assets."

(KG Dongbu Steel Co. v. U.S., Slip Op. 23-98, CIT #22-00047, dated 07/07/23, Judge Jennifer Choe-Groves. Attorneys: Brady Mills of Morris Manning for plaintiffs led by KG Dongbu; Claudia Burke for defendant U.S. government; Alan Price of Wiley Rein for defendant-intervenor Nucor Corp.; Jeffrey Gerrish of Schagrin Associates for defendant-intervenor Steel Dynamics)