DOJ Defends Countervailability of D-to-E Restructuring for Korean Exporter Dongbu

The Commerce Department correctly found that exporter KG Dongbu Steel's debt-to-equity restructurings provided a countervailable benefit, DOJ said in an Oct. 20 reply at the Court of International Trade. Dongbu is challenging the fifth countervailing duty review of corrosion-resistant steel products from Korea and took issue with Commerce's findings of a countervailable benefit to the restructurings as well as the determination that benefits from those swaps passed to Dongbu after an ownership change. The exporter also argued that Commerce incorrectly calculated long-term loan benchmarks (KG Dongbu Steel Co. v. U.S., CIT # 23-00055).

On the debt-to-equity restructuring issue, DOJ argued that Commerce couldn't rely on the prices paid by the private creditors and investors because of the "significant influence" of Korean government-controlled entities, such as the Korea Development Bank, in that debt restructuring.

Dongbu's contention that Commerce couldn't reexamine the countervailability of the prior debt-to-equity swaps because of Commerce’s “established practice” is in error because in both the first and fourth reviews, Commerce reexamined information when circumstances warranted, DOJ said.

Dongbu also claimed the CIT's recent decision regarding the fourth review should apply here. There, the court found that the change in practice was "arbitrary and unlawful" (see 2307100028). "The facts are the same in this appeal, Dongbu" said, urging the court to "reach the same conclusion here." However, in that case, Commerce came back on remand without making changes (see 2310060006). Commerce said that Dongbu was not equity worthy at the time of its debt-to equity conversions and that the equity infusions were "inconsistent with usual investment practice" and conferred a countervailable benefit. DOJ disagreed, noting that the court has not yet made a final decision and the review in question is not identical.

Commerce reasonably concluded that Dongbu failed to rebut the baseline presumption that subsidies, which existed prior to an ownership change, passed through to KG Dongbu Steel, DOJ said. Although Dongbu submitted a change-in-ownership response to Commerce’s questionnaire, the agency said it failed to rebut the presumption with any proof that the subsidy benefits were extinguished by the acquisition.

The department also correctly calculated the uncreditworthy benchmark rate and "unequityworthy" discount rate used for allocating the benefits from long-term loans, bonds and equity infusions, DOJ said. The three-year Korean Won denominated AA rate corporate bond rate published by the Bank of Korea was the only long-term rate available on the record.