Commerce Decides Not to Countervail Korean Exporter's D/E Restructurings on Remand

The Commerce Department dropped the subsidy rate for exporter KG Dongbu Steel Co. from 10.52% to 5.89% after deciding on remand not to countervail the company's three debt-to-equity restructurings. The trade court remanded Commerce's decision in the 2019 administrative review of the countervailing duty order on corrosion-resistant steel products from South Korea to countervail the restructurings after declining to countervail them in the preceding three CVD reviews (see 2404040043) (KG Dongbu Steel Co. v. United States, CIT # 22-00047).

Commerce made the decision "under respectful protest" since it disagrees with the court that "benefit cannot be re-evaluated during each" review period. Without new information, Commerce doesn't "normally re-evaluate the financial contribution or specificity elements of a countervailable subsidy," but "with respect to benefit," the U.S. Court of Appeals for the Federal Circuit "has recognized that Commerce can revisit any potential benefits received during the administrative" review period, the remand said.

In 2015 and 2016, when it was just called Dongbu Steel, the Korean company's creditors committee approved debt-to-equity swaps by government-controlled and private banks. In the first CVD review, Commerce said the swaps were in line with the typical investment practice of private investors and didn't amount to a countervailable benefit. The second and third reviews largely proceeded the same way.

In 2019, the KG Consortium acquired Dongbu Steel, which also received a fourth debt-to-equity swap and restructuring of its outstanding long-term loans and bonds. During the 2019 CVD review, Commerce changed course and said the three debt-to-equity swaps are countervailable, noting it had not countervailed them in the first three reviews because they were not "significant" under its regulations.

In its decision, the trade court said Commerce can't reverse its countervailability decisions "absent new information to address fraud or mistake of fact." Pursuant to this analysis, the agency decided not to countervail the debt-to-equity restructurings, finding "no other basis on the record to conclude that a benefit was conferred."

During the review, the agency used three-year Korean won-denominated AA-rate corporate bonds from the Bank of Korea to calculate the uncreditworthy interest rate as part of the benefit calculation for long-term loans and bonds Dongbu received from the Creditor Bank Committee. In so doing, it rejected the use of a six-year rate.

On remand, Commerce revised the interest rate to "coincide with the number of years of each bond or loan’s duration and applied the appropriate uncreditworthy benchmark interest rate to the bonds or loans which had remaining balances during the" review period.

Lastly, the agency reconsidered the uncreditworthy discount rate. In the review, Commerce said the use of a "discount rate for uncreditworhty companies" was "appropriate for the allocation of the benefit conferred by the fourth equity infusion." The court said Commerce's regulations specify that the agency will "allocate the benefit amount conferred by an equity infusion (a nonrecurring subsidy) over the same time period as the non-recurring subsidy" -- something it failed to do here.

As a result, the agency reconsidered its calculation of the discount rate, using 15 years, based on the average useful life period of the case, to calculate the default rates to set the uncreditworthy discount rate. This was applied to KG Dongbu's fourth equity infusion.