KG Dongbu Steel Co. v. United States , 2024 CIT 38 ( 2024 )

Slip Op. 24-38
UNITED STATES COURT OF INTERNATIONAL TRADE
KG DONGBU STEEL CO., LTD.,
DONGBU STEEL CO., LTD., and
DONGBU INCHEON STEEL CO.,
LTD.,
Plaintiffs,
v.
Before: Jennifer Choe-Groves, Judge
UNITED STATES,
Court No. 22-00047
Defendant,
and
NUCOR CORPORATION and
STEEL DYNAMICS, INC.,
Defendant-Intervenors.
OPINION
[Remanding the U.S. Department of Commerce’s Final Results of Redetermination
Pursuant to Court Order in the countervailing duty review of certain corrosion-
resistant steel products from the Republic of Korea.]
Dated: April 3, 2024
Brady W. Mills, Donald B. Cameron, Julie C. Mendoza, R. Will Planert, Mary S.
Hodgins, Eugene Degnan, Jordan L. Fleischer, Nicholas C. Duffey, and Stephen
Morrison, Morris, Manning & Martin, LLP, of Washington, D.C., for Plaintiffs KG
Dongbu Steel Co., Ltd., Dongbu Steel Co., Ltd., and Dongbu Incheon Steel Co., Ltd.
Court No. 22-00047 Page 2
Claudia Burke, Assistant Director, and Elizabeth Speck, Senior Trial Counsel,
Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of
Washington, D.C., for Defendant United States. With them on the brief were
Brian M. Boynton, Principal Deputy Assistant Attorney General, and Patricia M.
McCarthy, Director. Of Counsel was Ashlande Gelin, Attorney, Office of the
Chief Counsel for Trade Enforcement & Compliance, U.S. Department of
Commerce, of Washington, D.C.
Alan H. Price, Christopher B. Weld, Tessa V. Capeloto, and Adam M. Teslik,
Wiley Rein LLP, of Washington, D.C., for Defendant-Intervenor Nucor
Corporation. Derick G. Holt, Enbar Toledano, Maureen Elizabeth Thorson, Paul A.
Devamithran, Robert Edward DeFrancesco, III, and Theodore P. Brackemyre also
appeared.
Roger B. Schagrin, Christopher T. Cloutier, Elizabeth Jackson Drake, Jeffrey D.
Gerrish, Luke A. Meisner, Michelle R. Avrutin, Nicholas J. Birch, Saad Y.
Chalchal, and William A. Fennell, Schagrin Associates, of Washington, D.C., for
Defendant-Intervenor Steel Dynamics, Inc.
Choe-Groves, Judge: Plaintiffs KG Dongbu Steel Co., Ltd., Dongbu Steel
Co., Ltd., and Dongbu Incheon Steel Co., Ltd. (collectively “KG Dongbu” or
“Plaintiffs”) filed this action challenging the U.S. Department of Commerce’s
(“Commerce”) fourth administrative review of Certain Corrosion-Resistant Steel
Products from the Republic of Korea (“Final Results”), 87 Fed. Reg. 2759 (Dep’t
of Commerce Jan. 19, 2022) (final results and partial rescission of countervailing
duty administrative review; 2019), and the accompanying Issues and Decision
Memorandum for the Final Results and Partial Rescission of the 2019
Administrative Review of the Countervailing Duty Order on Certain Corrosion-
Court No. 22-00047 Page 3
Resistant Steel Products from the Republic of Korea (“IDM”), PR 213.1 The Court
remanded the case to Commerce for reconsideration. KG Dongbu Steel Co., Ltd.
v. United States (“KG Dongbu I”), 47 CIT __, 648 F. Supp. 3d 1353 (2023). Now
before the Court are Commerce’s Final Results of Redetermination Pursuant to
Court Remand (“Remand Redetermination”), ECF Nos. 57-1, 58-1. For the
following reasons, the Court remands the Remand Redetermination.
ISSUES PRESENTED
The Court reviews the following issues:
1. Whether Commerce’s determination on remand that the first
three debt-to-equity restructurings provided a countervailable
subsidy to KG Dongbu was supported by substantial evidence
and in accordance with law;
2. Whether Commerce’s remand determination that the benefits
from the first three debt-to-equity restructurings passed through
to KG Dongbu despite the change in ownership was supported
by substantial evidence and in accordance with law;
3. Whether Commerce’s calculation of the uncreditworthiness
1
Citations to the administrative record reflect the public record (“PR”) and public
remand record (PRR) numbers filed in this case, ECF Nos. 44, 71.
Court No. 22-00047 Page 4
benchmark for purposes of measuring the benefit from KG
Dongbu’s debt-to-equity restructuring was supported by
substantial evidence; and
4. Whether Commerce’s calculation of the uncreditworthy
discount rate for purposes of measuring the benefits from the
debt-to-equity restructurings was supported by substantial
evidence.
BACKGROUND
The Court presumes familiarity with the underlying procedural history of
this case as set forth in KG Dongbu Steel Co., Ltd. v. United States (“KG Dongbu
I”), 47 CIT __, __, 648 F. Supp. 3d 1353, 1356 (2023).
Commerce published its countervailing duty order on July 25, 2016. Certain
Corrosion-Resistant Steel Products from India, Italy, Republic of Korea, and the
People’s Republic of China, 81 Fed. Reg. 48,387 (Dep’t of Commerce July 25,
2016) (countervailing duty order). Commerce initiated an administrative review of
the countervailing duty order on certain corrosion-resistant steel products from the
Republic of Korea (“Korea”) for the period of January 1, 2019 to December 31,
2019, and selected KG Dongbu and Hyundai Steel Company as mandatory
respondents. Initiation of Antidumping and Countervailing Duty Administrative
Reviews, 85 Fed. Reg. 54,983, 54,990‒91 (Dep’t of Commerce Sep. 3, 2020);
Court No. 22-00047 Page 5
Final Results, 87 Fed. Reg. at 2760.
Commerce issued the preliminary results of the administrative review, in
which Commerce calculated a 10.52% subsidy rate for KG Dongbu. Certain
Corrosion-Resistant Steel Products from the Republic of Korea (“Preliminary
Results”), 86 Fed. Reg. 37,740 (Dep’t of Commerce July 15, 2021) (preliminary
results of countervailing duty administrative review; 2019); Decision
Memorandum for the Preliminary Results of the Countervailing Duty
Administrative Review; 2019: Certain Corrosion-Resistant Steel Products from the
Republic of Korea (“PDM”), PR 173. Commerce issued the Final Results of the
administrative review, in which Commerce calculated a 10.51% subsidy rate for
KG Dongbu and assigned the same rate to non-selected companies. Final Results,
87 Fed. Reg. at 2760.
On appeal, Plaintiffs challenged: (1) Commerce’s determination that the first
through third debt-to-equity restructurings provided a countervailable subsidy; (2)
Commerce’s determination that the sale of Dongbu Steel Co., Ltd. (“Dongbu
Steel”) was not arm’s length for fair market value; (3) Commerce’s calculation of
the uncreditworthiness benchmark for purposes of measuring the benefit from KG
Dongbu’s restructured long term loans and bonds; and (4) Commerce’s calculation
of the unequityworthy discount rate for purposes of measuring the benefits from
the equity infusions from government-controlled creditors. Pls.’ Mot. J. Agency
Court No. 22-00047 Page 6
R., ECF Nos. 33, 34; Pls.’ Opening Br., ECF Nos. 33-2, 34-2; Reply Br. Pls.’
Supp. Mot. J. Agency R., ECF Nos. 40, 41. Defendant United States
(“Defendant”) and Defendant-Intervenor Nucor Corporation (“Defendant-
Intervenor” or “Nucor”) argued that the Court should sustain the Final Results.
Def.’s Resp. Pls.’ Mot. J. Agency R., ECF Nos. 35, 36; Def.-Interv.’s Resp. Mot. J.
Agency R., ECF Nos. 37, 38, 39.
The Court observed that Commerce had considered the first through third
debt-to-equity restructurings in each of the first three administrative reviews of the
countervailing duty order. KG Dongbu I, 47 CIT at __, 648 F. Supp. 3d at 1358.
In each of the three prior administrative reviews, Commerce had determined that
the debt-to-equity restructurings did not provide a countervailable benefit to KG
Dongbu because private creditors had participated in those debt-to-equity
restructurings and had agreed to swap debt for equity on the same terms as the
government creditors. See Certain Corrosion-Resistant Steel Products from the
Republic of Korea, 84 Fed. Reg. 11,749 (Dep’t of Commerce Mar. 28, 2019) (final
results and partial rescission of countervailing duty administrative review; 2015-
2016) and accompanying Issues and Decision Memorandum; Certain Corrosion-
Resistant Steel Products from the Republic of Korea, 85 Fed. Reg. 15,112 (Dep’t
of Commerce Mar. 17, 2020) (final results of countervailing duty administrative
review; 2017) and accompanying Issues and Decision Memorandum; Certain
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Corrosion-Resistant Steel Products from the Republic of Korea, 86 Fed. Reg.
29,237 (Dep’t of Commerce June 1, 2021) (final results and partial rescission of
countervailing duty administrative review; 2018) and accompanying Issues and
Decision Memorandum. Commerce did not conduct an unequityworthiness
analysis in any of those first three administrative reviews.
The fourth administrative review also involved a fourth debt-to-equity
restructuring. See IDM at 15. Commerce determined that the evidence showed
that private banks had (1) participated in the three debt-to-equity restructurings at
issue, (2) paid the same per share price as the government-controlled policy banks,
and (3) purchased a significant percentage of the shares of debt that were converted
to equity. See generally Countervailing Duty Administrative Review of Certain
Corrosion-Resistant Steel Products from the Republic of Korea: Preliminary
Analysis Memorandum—Equity Infusions (“Equity Infusions Analysis
Memorandum” or “Equity Infusions Analysis Mem.”), P.R. 176; see also PDM at
11‒12. Commerce thus determined that, pursuant to 19 C.F.R. § 351.507(a)(2)(i),
the equity infusions in the fourth debt-to-equity restructuring were inconsistent
with usual investment practices of private investors. Equity Infusions Analysis
Mem. at 13.
During the fourth administrative review, Commerce also re-examined the
first three debt-to-equity restructurings, found that KG Dongbu was
Court No. 22-00047 Page 8
unequityworthy at their respective placements, and determined that the
restructurings had in fact provided a benefit each time to KG Dongbu, as detailed
in the Equity Infusions Analysis Memorandum. Id. at 10‒13. Commerce
determined that the benefits of the first through third debt-to-equity restructurings
were countervailable because Commerce had previously determined that those debt
restructurings satisfied the specificity requirement of countervailability. IDM at
46‒47; see 19 U.S.C. § 1677(5A).
Upon consideration of Plaintiffs’ appeal, this Court concluded that
Commerce had a standard practice of not reexamining the countervailability of a
respondent’s equity infusions absent new information and had not provided a
reasonable explanation for departing from that practice, and the Court remanded
the Final Results for reconsideration or further explanation. KG Dongbu I, 47 CIT
at __, 648 F. Supp. 3d at 1357–59. This Court reasoned that all the information
cited by Commerce regarding the first through third debt-to-equity restructurings
were based on existing record evidence that had been thoroughly considered in the
previous reviews, and that no new information impacted the facts surrounding the
fourth debt-to-equity restructuring. Specifically, “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.” Id. at __,
Court No. 22-00047 Page 9
648 F. Supp. 3d at 1359. The fourth administrative review was based on the same
record as the first through third reviews, and thus Commerce did not provide a
sufficient explanation or cite new substantial evidence to justify departing from the
prior three reviews in the fourth administrative review.
The Court remanded for Commerce to reconsider or further explain: (1) its
determination that the first through third debt-to-equity restructurings provided a
countervailable benefit; (2) its determination that the benefits from the debt-to-
equity restructurings “passed through” to Plaintiffs despite the change in
ownership; (3) whether Commerce’s calculations of the uncreditworthy benchmark
rate are supported by substantial evidence; and (4) whether Commerce’s
calculations of the unequityworthy discount rate are supported by substantial
evidence. Id. at __, 648 F. Supp. 3d at 1357‒61.
Commerce filed its Remand Redetermination maintaining that all of its
original determinations were correct. In summary, Commerce reiterated on
remand that Commerce was attempting to fix in the fourth administrative review a
“mistake” that it had made in the three prior administrative reviews, but Commerce
again failed to cite substantial record evidence or provide an adequate explanation
for departing from its prior determinations that the first three debt-to-equity
restructurings did not provide countervailable benefits. In addition, Commerce
explained on remand that it would assess countervailable benefits as a pass through
Court No. 22-00047 Page 10
for the prior three years of review (despite its prior determinations that Commerce
would not countervail benefits in the first three years of review), plus would assess
countervailable benefits for the fourth year of review, without citing substantial
record evidence or providing an adequate explanation for this change in practice.
Plaintiffs challenged Commerce’s Remand Redetermination in Plaintiffs KG
Dongbu Steel Co., Ltd., Dongbu Steel Co., Ltd., and Dongbu Incheon Steel Co.,
Ltd.’s Comments on Commerce’s Redetermination Pursuant to Court Remand.
Pls.’ Cmts. Commerce’s Redetermination Pursuant Court Remand (“KG Dongbu’s
Cmts.”), ECF Nos. 60, 61. Defendant defended Commerce’s Remand
Redetermination in Defendant’s Response to Plaintiffs’ Comments on Commerce’s
Remand Redetermination. Def.’s Resp. Pls.’ Cmts. Commerce’s Remand
Redetermination (“Def.’s Resp.”), ECF Nos. 65, 66. Nucor filed Comments in
Support of Remand Redetermination. Nucor’s Cmts. Supp. Remand
Redetermination (“Nucor’s Cmts.”), ECF Nos. 67–69.
JURISDICTION AND STANDARD OF REVIEW
The U.S. Court of International Trade has jurisdiction pursuant to 19 U.S.C.
§ 1516a(a)(2)(B)(iii) and 28 U.S.C. § 1581(c), which grant the Court authority to
review actions contesting the final results of an administrative review of a
countervailing duty order. The Court will hold unlawful any determination found
to be unsupported by substantial record evidence or otherwise not in accordance
Court No. 22-00047 Page 11
with law. 19 U.S.C. § 1516a(b)(1)(B)(i). The Court reviews determinations made
on remand for compliance with the Court’s remand order. Ad Hoc Shrimp Trade
Action Comm. v. United States, 38 CIT 727, 730, 992 F. Supp. 2d 1285, 1290
(2014), aff’d, 802 F.3d 1339 (Fed. Cir. 2015).
DISCUSSION
I. Countervailable Subsidy Overview
A countervailable subsidy exists when a foreign government provides a
financial contribution to a specific industry that confers a benefit upon a recipient
within the industry. 19 U.S.C. § 1677(5); see also Fine Furniture (Shanghai) Ltd.
v. United States, 748 F.3d 1365, 1369 (Fed. Cir. 2014). For equity infusions, a
benefit is conferred if “the investment decision is inconsistent with the usual
investment practice of private investors, including the practice regarding the
provision of risk capital, in the country in which the equity infusion is made.” 19
U.S.C. § 1677(5)(E)(i); see also 19 C.F.R. § 351.507(a)(1) (defining a benefit for
equity infusions).
Commerce considers an equity infusion to be inconsistent with usual
investment practice if the price paid by the foreign government for newly issued
shares is greater than the price paid by private investors for the same (or similar
form of) newly issued shares. 19 C.F.R. § 351.507(a)(2)(i). Commerce does not
consider private sector investor prices if Commerce concludes that private investor
Court No. 22-00047 Page 12
purchases of newly issued shares are not significant. Id. § 351.507(a)(2)(iii).
When significant private sector participation does not exist, Commerce determines
whether the firm funded by the foreign government-provided equity is
equityworthy or unequityworthy at the time of the equity infusion. Id.
§ 351.507(a)(3). A determination that the firm is unequityworthy constitutes a
determination that the equity infusion is inconsistent with the usual investment
practice of private investors, and therefore, that a benefit to the firm exists in the
amount of the equity infusion. Id.; see also id. § 351.507(a)(6).
Commerce considers a firm to be equityworthy if Commerce determines
that, from the perspective of a reasonable private investor examining the firm at the
time the foreign government-provided equity infusion took place, the firm showed
an ability to generate a reasonable rate of return within a reasonable period of time.
Id. § 351.507(a)(4)(i). In making this determination, Commerce considers the
following factors: (A) an objective analysis of the future financial prospects of the
recipient firm; (B) current and past indicators of the recipient firm’s financial
health; (C) rates of return on equity in the three years prior to the foreign
government equity infusion; and (D) private investor equity investment into the
recipient firm. Id. § 351.507(a)(4)(i)(A)–(D). Commerce may focus on the
equityworthyness of a specific project, in appropriate circumstances, rather than
the company as a whole. Id. § 305.507(a)(4)(i).
Court No. 22-00047 Page 13
II. First Through Third Debt-to-Equity Restructurings
Commerce’s Remand Redetermination attempted to explain the rationale for
departing from its previous findings that the first three debt-to-equity restructurings
provided no countervailable subsidy.
Commerce explained that absent new information, Commerce does not
usually re-evaluate prior determinations on countervailability—by which
Commerce means it will not normally revisit prior financial contribution and
specificity determinations absent new information. Remand Redetermination at 6‒
7 (citing Magnola Metallurgy, Inc. v. United States, 508 F.3d 1349 (Fed. Cir.
2007) and PPG Industries, Inc. v. United States, 978 F.2d 1232 (Fed. Cir. 1992)).
Commerce had previously determined that KG Dongbu’s first three debt-to-equity
restructurings, including the debt-to-equity infusions, constituted financial
contributions and were specific; therefore, Commerce was not revisiting those
determinations consistent with its practice. Id. at 7. Because the “amount” of any
benefit conferred to a company can vary between periods of review, Commerce
claimed that it was necessary to examine the “amount” of such benefit in each
period of review, consistent with 19 U.S.C. § 1675(a)(1)(A) and 19 U.S.C.
§ 1677(5)(E). Id.The Remand Redetermination explained that during the fourth
administrative review, the new fourth debt-to-equity infusion caused Commerce to
Court No. 22-00047 Page 14
reevaluate the “total benefit” conferred under the four debt-to-equity restructurings
in order to calculate a single subsidy rate for the debt-to-equity infusion program.
Id. at 22. Commerce claimed that when it re-examined the benefit conferred from
the fourth equity infusion during the period of review, it realized that it “had made
a mistake in the prior review,” specifically that the “prior finding that no benefit
was conferred by the first three debt-to-equity restructurings was inconsistent
with” 19 C.F.R. § 351.507. Id. at 8. In addition, Commerce relied on Nucor
Corporation v. United States (“Nucor”), 45 CIT __, 494 F. Supp. 3d 1377 (2021),
which sustained Commerce’s determination in the 2015‒2016 administrative
review not to use KG Dongbu’s private bank loans as a loan benchmark because
these loans had been provided as part of a government loan program. Id. at 9
(citing Nucor, 45 CIT at __, 494 F. Supp. 3d at 1381). Commerce determined that
using KG Dongbu’s private bank loans as a benchmark for the debt-to-equity
infusions in this administrative review would be inconsistent with its regulations as
well as Nucor. Id. Therefore, Commerce determined in the Remand
Redetermination that Commerce had to reevaluate its “prior determination of the
benefit under the debt-to-equity infusions.” Id.
Regarding the Court’s remand instruction to explain how Commerce’s
determination in this review is supported by substantial evidence, the Remand
Redetermination stated that “Commerce considers an equity infusion to be
Court No. 22-00047 Page 15
inconsistent with usual investment practice if the price paid by the foreign
government for newly issued shares is greater than the price paid by private
investors for the same (or similar form of) newly issued shares,” and it does not
consider private sector investor prices if Commerce concludes that private investor
purchases of newly issued shares are “not significant.” Id. at 10 (citing 19 C.F.R.
§ 351.507(a)(2)(i), (iii)). The Remand Redetermination referred to the Equity
Infusions Analysis Memorandum, which concluded that evidence such as the
underlying agreements and the ownership of KG Dongbu indicated that the Korea
Development Bank, as a government-controlled policy bank, exercised significant
influence over the debt-to-equity restructurings. Id. (citing Equity Infusions
Analysis Mem.).
According to Commerce, this meant that private creditors on the creditors
councils were considering how best to limit their losses instead of evaluating the
reasonableness of the rate of return on any equity they were considering investing
in the company in each debt-to-equity restructuring. Id. Commerce claimed that
its practice of analyzing the significance of private investor participation focused
on the perspective of an outside investor, not an existing investor that was simply
trying to minimize its losses. Id. at 11. Because of the percentage of shares owned
by government-controlled creditors compared to private creditors, Commerce
determined that the participation of KG Dongbu’s private creditors in the first,
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second, and third equity infusions was not significant. Id. Accordingly,
Commerce determined that it could not “rely on the prices paid by the private
creditors on the creditors councils for the purpose of determining a benchmark.”
Id.
An administrative agency generally has authority to reconsider its decisions
if there is no specific statutory limitation to do so. Tokyo Kikai Seisakusho, Ltd. v.
United States, 529 F.3d 1352, 1360 (Fed. Cir. 2008) (“[C]ourts have uniformly
concluded that administrative agencies possess inherent authority to reconsider
their decisions, subject to certain limitations, regardless of whether they possess
explicit statutory authority to do so.” (citations omitted)). Commerce must still
provide a reasonable explanation for treating similar situations differently, in this
instance based on its own standard. See SKF USA Inc. v. United States (“SKF
USA”), 263 F.3d 1369, 1382 (Fed. Cir. 2001) (“[A]n agency action is arbitrary
when the agency offer[s] insufficient reasons for treating similar situations
differently.” (quoting Transactive Corp. v. United States, 91 F.3d 232, 237 (D.C.
Cir. 1996) (alteration in original))). Commerce’s Remand Redetermination does
not satisfy that standard.
The only reason for Commerce to re-examine the countervailability of the
prior debt-to-equity restructurings is “new information,” according to its own
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statements. See, e.g., Administrative Review of Certain Corrosion-Resistant Steel
Products from the Republic of Korea: Countervailing Duty Questionnaire (“Initial
Questionnaire”), Section III at III-1, PR 22‒23 (“Absent new information
warranting a program reexamination, we will not reevaluate prior determinations
regarding the countervailability of programs. This includes determinations that
previously examined programs are or are not countervailable.”). Commerce on
remand points to no new information on the record that it has not already
considered in its prior final determinations that there were no countervailable
benefits in KG Dongbu’s first three debt-to-equity restructurings.
The Court observes that Commerce has failed twice, in the Final Results and
the Remand Redetermination, to cite any new information or provide a reasonable
explanation for its attempted reversal of its prior determinations in three completed
administrative reviews in which Commerce determined before that the same debt-
to-equity restructurings currently under review provided no countervailable
benefits. Without citing any new record evidence or providing a reasonable
explanation, Commerce simply states that it “made a mistake” and now determines
that countervailable benefits were conferred during the past three administrative
reviews. Commerce’s determination is not supported by substantial evidence
because it does not satisfy the standard in SKF USA (requiring Commerce to
provide a reasonable explanation for treating similar situations differently). SKF
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USA, 263 F.3d at 1382. The Court holds that Commerce’s determination that the
same debt-to-equity restructurings in the prior three administrative reviews are
now countervailable is arbitrary and not supported by substantial evidence.
In addition, Commerce determined here that the debt-to-equity restructurings
in the first through fourth administrative reviews were countervailable and the
financial benefits would be “passed through” and allocated across all four years of
the administrative reviews. See Remand Redetermination at 22. The Equity
Infusions Analysis Memorandum analyzed the first through third debt-to-equity
restructurings as integral financial parts from the past that are tied to the fourth
debt-to-equity swap, such that there is a single subsidy program. See Equity
Infusions Analysis Mem. at 9 (“In this review, Commerce is analyzing four debt-
to-equity conversions because the conversions are non-recurring and attributed to
the average-useful-life (AUL) period.”). Commerce has already determined,
however, that the first three debt-to-equity restructurings of that “program”
provided no benefit for KG Dongbu. There are therefore no benefits from those
first three debt-to-equity restructurings to be included, or re-examined, in
Commerce’s calculations of the fourth debt-to-equity restructuring. The Court
concludes that Commerce’s determination to pass through or allocate financial
benefits to years one through four of the administrative reviews is arbitrary and not
supported by substantial evidence, given Commerce’s prior completed
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administrative reviews determining that no countervailable benefits were conferred
during years one through three.
The statute requires Commerce to “review and determine the amount of any
net countervailable subsidy.” 19 U.S.C. § 1675(a)(1)(A). If Commerce
determines in a prior administrative review that there has been no benefit (i.e., no
“amount”), and no new information is presented in a subsequent administrative
review, such as fraud or mistake of fact, that would call into question that prior
determination, then the prior determination equates to a determination of no
countervailable subsidy. Whether or not Commerce made a mistake in its prior
analyses, the facts of the prior reviews remain the same in this administrative
review. In other words, regardless of whether Commerce had to calculate “a single
subsidy rate for the debt-to-equity infusion program,” those prior final
determinations of “no benefit” based on record evidence were carried over into
Commerce’s calculus for the fourth administrative review in the absence of new
information relating to those prior determinations. KG Dongbu explains this more
succinctly:
The need to recalculate the amount of benefit in each review is only
necessary in cases where Commerce has previously found the program
to be countervailable. Only then is Commerce calculating a new benefit
“amount” in each review. However, in cases such as this one where
Commerce had consistently found that the first three [debt-to-equity
restructurings] did not provide a countervailable subsidy there was no
need to recalculate any benefit because there was none.
Court No. 22-00047 Page 20
KG Dongbu’s Cmts. at 4.
Defendant argues that Commerce had “good cause” to re-examine the first
through third debt-to-equity restructurings because it “needed to correct a mistake
that it had realized that it made in a prior review.” Def.’s Resp. at 7. Commerce
claimed that it did not analyze the first through third debt-to-equity restructurings
correctly from the perspective of what a private investor would pay for shares
consistent with 19 C.F.R. § 351.507(a)(2)(i). See Remand Redetermination at 8‒
12. The Court concludes that Commerce did not adequately articulate the nature of
its alleged mistake. Commerce simply and summarily determined (without citing
substantial evidence) in this fourth administrative review that “[p]rivate creditors
on the creditors councils did not evaluate the reasonableness of the rate of return
on any equity they were considering investing in the company in each debt-to-
equity conversion,” but the private creditors were rather “considering how best to
limit their losses.” Id. at 10. Their participation in the first through third debt-to-
equity restructurings, therefore, was “not significant,” resulting in Commerce
undertaking an equityworthiness analysis. Id. at 11. The Court concludes that
Commerce failed to provide a reasonable explanation and failed to cite new
information or a mistake of fact regarding the first three administrative reviews
Court No. 22-00047 Page 21
that would warrant reversing Commerce’s prior final determinations that the first
three debt-to-equity restructurings resulted in no countervailable benefits.
Any need to recalculate a benefit amount for each review is inapplicable for
this particular program. Unlike determining the amount of a benefit under a
subsidy program that changes year to year, the benefit determination to be
calculated here for the fourth administrative review had nothing to do with the
amounts of benefits from the first three debt-to-equity restructurings that had been
calculated for past administrative reviews. Commerce usually allocates a non-
recurring benefit, such as the debt-to-equity restructurings in this case, over a
number of years that correspond to the average useful life allocation period. 19
C.F.R. § 351.524(b).
Commerce’s attempt to rely on the existence of the fourth debt-to-equity
restructuring as the basis for why it had to reconsider the benefit element for the
first three debt-to-equity restructurings is unpersuasive. More specifically,
Commerce argues that it was required to calculate a benefit for the entire debt-to-
equity restructuring program and that its “benefit calculation for [the 2019
administrative review] is a single rate which includes benefits conferred for all four
of the equity infusions.” Remand Redetermination at 23. The fact that Commerce
added up the benefit amounts for each of the four debt-to-equity restructurings to
arrive at a total benefit from the debt-to-equity restructuring program, however, did
Court No. 22-00047 Page 22
not change the fact that separate benefit amounts were calculated for each debt-to-
equity restructuring, as detailed in Commerce’s final calculations data. See Final
Results Calculation for KG Dongbu Steel Co., Ltd. and Dongbu Incheon Steel Co.,
Ltd. (“Final Calculations Mem.”), PR 214. Commerce did not need to revisit its
prior determinations that there were no benefits from the first three debt-to-equity
restructurings just because Commerce found that there was a benefit from the
fourth debt-to-equity restructuring.
Commerce’s reliance on Nucor is also unpersuasive. Nucor concerned
whether the loans by the private commercial banks on the creditors committee
constituted “comparable commercial loans” for purposes of 19 C.F.R.
§ 351.505(a)(2). Nucor, 45 CIT __, 494 F. Supp. 3d at 1380. Nucor’s remand was
not concerned with whether private investor participation was significant for
purposes of equity infusions considered under 19 C.F.R. § 351.507(a)(2)(iii),
which is a separate regulation and separate consideration. In the Nucor litigation,
Commerce defended its determination that private investor participation was
significant and thus there were no countervailable benefits from the first three
debt-to-equity restructurings. See Nucor Corp. v. United States, Consol. Court No.
19-00042, Def.’s Mem. Opp’n Pl.’s Consol. Pls.’ R. 56.2 Mot. J. Agency at 19‒22,
ECF Nos. 59, 60. The Court is not convinced that Commerce’s prior
determinations of no countervailable benefits in three administrative reviews were
Court No. 22-00047 Page 23
“mistakes.” It appears that Commerce’s purported “mistakes” are excuses for
Commerce’s abrupt change in agency practice here in the fourth administrative
review.
As for Commerce’s determination that the private investor participation was
not “significant” in the first three debt-to-equity restructurings, Commerce claimed
that its practice “is to conduct the analysis from the perspective of an outside
investor, and not an existing investor that is simply trying to minimize its losses.”
Remand Redetermination at 11. Further:
If [Commerce] determines that the firm was equityworthy, [Commerce]
will apply paragraph (a)(5) of [19 C.F.R. § 351.507] to determine
whether the equity infusion was inconsistent with the usual investment
practice of private investors. A determination by [Commerce] that the
firm was unequityworthy will constitute a determination that the equity
infusion was inconsistent with usual investment practice of private
investors . . . .
Id. (quoting 19 C.F.R. § 351.507(a)(3)).
Here, however, Commerce determined that the debt-to-equity infusion was
inconsistent with the usual investment practice of private investors in order to
determine that KG Dongbu was unequityworthy. Commerce’s regulation provides
that it “will not use private investor prices . . . if [it] concludes that private investor
purchases of newly issued shares are not significant.” 19 C.F.R.
§ 351.507(a)(2)(iii). Commerce created this “significant investment” standard
when promulgating 19 C.F.R. § 351.507(a)(2)(iii) by stating that it was keeping its
Court No. 22-00047 Page 24
practice of considering “the volume of a firm’s traded shares to be so low as to
preclude the use of [private investor] shares as a benchmark.” Countervailing
Duties, 62 Fed. Reg. 8818, 8832 (Dep’t of Commerce Feb. 26, 1997) (notice of
proposed rulemaking and request for public comments).
Substantial evidence does not support Commerce’s remand determination
that private investor participation in the first three debt-to-equity restructurings was
not significant. Based on the same record evidence, Commerce determined in the
prior administrative reviews that the private creditors in the debt-to-equity swaps
were significant. Equity Infusions Analysis Mem. at 4‒8. Commerce also reached
the same conclusion in a separate proceeding that involved comparable private
investor participation. See Coated Free Sheet Paper from the Republic of Korea,
72 Fed. Reg. 60,639 (Dep’t of Commerce Oct. 25, 2007) (notice of final
affirmative countervailing duty determination) and accompanying Issues and
Decision Memorandum at 47.
The Court notes that the first three administrative reviews are complete, and
it is arbitrary for Commerce to revisit and attempt to reverse the determinations in
those completed administrative reviews retroactively without citing new evidence.
Commerce may address any relevant evidence in the fourth administrative review
before the Court, and any determinations made with respect to the fourth
administrative review must be supported by substantial evidence and in accordance
Court No. 22-00047 Page 25
with law. Commerce may not attempt to reverse the countervailability
determinations on the first three administrative reviews in this case absent new
information to address fraud or mistake of fact. In addition, Commerce may not
pass through the purportedly countervailable benefits to the first three years
without substantial new evidence to justify such calculations.
The Court holds that Commerce’s remand redetermination with respect to
the countervailability of the debt-to-equity restructurings is unsupported by
substantial evidence and is remanded for further consideration in accordance with
this Opinion.
III. Pass-Through of Benefits from First Three Debt
Restructurings
The Court also remanded the issue of whether substantial evidence supports
Commerce’s determination that a change in ownership extinguished any alleged
subsidies from the first through third debt-to-equity restructurings to KG Dongbu.
KG Dongbu I, 47 CIT at __, 648 F. Supp. 3d at 1360.
In its Remand Redetermination, Commerce repeated its position that KG
Dongbu’s failure to submit the Change-in-Ownership Appendix (“CIO Appendix”)
was fatal. Remand Redetermination at 12‒13. Commerce cited to its instructions
in the Initial Questionnaire requesting the submission of a CIO Appendix if the
respondent wanted to challenge the baseline presumption that non-recurring
Court No. 22-00047 Page 26
subsidies continued to benefit the recipient even after a change in ownership. Id. at
12. Without a response to the questions in the CIO Appendix, Commerce
purported to follow its “practice to presume that any benefits to the company will
also pass through as a benefit to the new owners.” Id. at 13. Further, Commerce
argued that because KG Dongbu stated that it did not wish to challenge the
baseline presumption and did not provide a response to the CIO Appendix, KG
Dongbu’s response relieved Commerce of the obligation to consider the record
evidence showing that the alleged non-recurring subsidies from the first three debt-
to-equity restructurings were extinguished. Id. at 13‒14. The Court concludes that
Commerce’s explanation is not reasonable and is not responsive to the prior
remand Order.
KG Dongbu contends that, first, at the time that it responded to Commerce’s
Initial Questionnaire and subsequent supplemental questionnaires, all of the
subsidies that Commerce had found in prior reviews with respect to KG Dongbu
were from other programs that provided recurring subsidies. See KG Dongbu’s
Cmts. at 11. KG Dongbu argues that Commerce had not found benefits from any
programs in which the benefit was calculated based on the allocation of a non-
recurring subsidy received in the average useful life period to current and future
reviews. Id. KG Dongbu also asserts that this necessarily means that even though
Dongbu Steel had been acquired by the KG Consortium, the question of whether
Court No. 22-00047 Page 27
there were any programs that provided non-recurring benefits that may have passed
through to KG Dongbu was not an issue at the time of the questionnaire response
process. Id. at 11‒12. KG Dongbu asserts further that it was not required to
predict that Commerce would change its mind in the 2019 administrative review
and would determine retroactively that the first through third debt-to-equity
restructurings conferred non-recurring benefits to KG Dongbu. Id. at 12. The
Court agrees with KG Dongbu’s argument that KG Dongbu had no reason to
submit the CIO Appendix to challenge Commerce’s baseline presumption
regarding non-recurring subsidies based on unforeseeable actions that Commerce
would take in the future to attempt to reverse prior concluded administrative
reviews.
Second, KG Dongbu argues that for Commerce to claim that it “properly
presumed that any non-recurring benefit would pass through to the new owners”
because KG Dongbu did not initially challenge the baseline presumption by
submitting a CIO Appendix is to elevate form over substance. KG Dongbu’s
Cmts. at 13. The fact that KG Dongbu did not submit a CIO Appendix does not
necessarily mean that there was no other record evidence to challenge Commerce’s
baseline presumption. Id. If the record reflects that an arm’s length transaction
took place at fair market value, the baseline presumption is rebutted, regardless of
the absence of a CIO Appendix. Id. at 13‒14.
Court No. 22-00047 Page 28
Pursuant to 19 U.S.C. § 1677(5)(F), Commerce presumes that a non-
recurring subsidy will benefit a recipient over the average useful life of the relevant
assets and Commerce thus allocates the subsidy over that allocation. 19 U.S.C.
§ 1677(5)(F); Notice of Final Modification of Agency Practice Under Section 123
of the Uruguay Round Agreements Act (“Final Modification”), 68 Fed. Reg.
37,125, 37,127 (Dep’t of Commerce June 23, 2003). A respondent may rebut the
presumption, however, by demonstrating that a change in ownership occurred in
which the former owner sold all or substantially all of a company or its assets, and
that the sale was an arm’s length transaction for fair market value. Final
Modification, 68 Fed. Reg. at 37,127. In such situations, the subsidy is reflected in
the fair market price of the arm’s length transaction and the pre-sale subsidy is
extinguished (i.e., does not pass through) as to the new owner. In the Final
Modification, Commerce listed four factors that it would analyze when
determining whether the transaction price in an acquisition was arm’s length and
for fair market value: (1) whether an objective analysis was performed in
determining the appropriate sales price; (2) whether any artificial barriers to entry
were imposed on potential purchasers that could artificially suppress demand for,
or the purchase of, the company; (3) whether the highest bid was accepted; and (4)
whether there were committed investment requirements that could serve as a
barrier to entry or distort the value that bidders were willing to pay. Id.
Court No. 22-00047 Page 29
KG Dongbu claims that record evidence demonstrates that all of these
elements are met, and that Commerce failed to consider the record evidence. Id. at
15‒17. First, regarding the objective analysis factor, KG Dongbu claims that: (1)
PricewaterhouseCoopers independently analyzed the acquisition proposal from the
KG Consortium, including the acquisition price in Scenario 3; (2)
PricewaterhouseCoopers compared the proposal with alternative scenarios that
assumed the creditors council either made no changes to Dongbu Steel’s pre-
acquisition structure or liquidated Dongbu Steel; and (3) based on its analysis,
PricewaterhouseCoopers concluded that the KG Consortium’s proposal had the
highest value to the creditors council of the available alternative scenarios and
posed less risk than liquidating Dongbu Steel. Id. at 15 (citations omitted). KG
Dongbu claims that this was an objective analysis.
Second, KG Dongbu claims that there were no artificial barriers to entry
because: (1) there was a publication in a newspaper on January 7, 2019,
publicizing an investment attraction announcement for an open bidding process
that provided equal access and free competition for all interested parties; (2) the
purpose of the transaction was the acquisition by a third party of newly issued
common stock that would result in the transfer of corporate management rights;
and (3) potential investors that submitted the confidentiality agreement form and
revealed an intention to bid received a Preliminary Bidding Guide and a Teaser
Court No. 22-00047 Page 30
Memorandum containing private and confidential information of Dongbu Steel to
assist the recipient in making a decision on whether to pursue a further analysis of
Dongbu Steel and submit a preliminary bidding proposal. Id. at 14‒15 (citations
omitted).
Third, KG Dongbu also claims that (1) the highest bid was accepted in this
bidding process; (2) potential investors showed interest by signing confidentiality
agreements and were allowed access to Dongbu Steel’s confidential information;
(3) Dongbu Steel’s financial and business information was provided for the
valuation and to determine a reasonable investment amount to take over Dongbu
Steel; and (4) because the financial information covered the period through
September 2018, it fully reflected Dongbu Steel’s financial condition after the first
three debt-to-equity restructurings. Id. at 16‒17. KG Dongbu explains the bidding
and selection process that led to its assumption of Dongbu Steel, including the
evaluation of proposed investment amounts, financial and business plans, and
capacity to close the deal as well as the KG Consortium’s appointment of an
independent accounting firm to analyze Dongbu Steel’s financial situation before
the KG Consortium’s preparation of its business restructuring plan and submission
of its final bidding proposal on March 4, 2019. Id. KG Dongbu argues that the
KG Consortium paid in full for the new shares before it assumed control of
Dongbu Steel. Id. at 17.
Court No. 22-00047 Page 31
Fourth, KG Dongbu argues that there were no committed investment
requirements that could serve as a barrier to entry or distort the value that bidders
were willing to pay. Id.
Commerce has not reviewed this record evidence and made any
determinations. Commerce has yet to determine whether this amounts to
substantial evidence of an arm’s length transaction of Dongbu Steel’s assets sold to
the KG Consortium. The Court remands this issue for further explanation or
reconsideration in accordance with this Opinion.
IV. Calculation of the Uncreditworthiness Benchmark
KG Dongbu challenges Commerce’s calculation of the uncreditworthy
benchmark rate. KG Dongbu’s Cmts. at 17‒21; see 19 C.F.R. § 351.505(a)(3)(iii);
19 C.F.R. § 351.524(d). Familiarity with the formula, as transcribed in the prior
Opinion,2 is presumed. See KG Dongbu I, 47 CIT at __, 648 F. Supp. 3d at 1361.
௡
ሺͳ െ ‫ݍ‬௡ ሻ൫ͳ ൅ ݅௙ ൯ ଵൗ
2
“ ݅௕ ൌ ሾ ൘
ሺͳ െ ‫݌‬௡ ሻሿ െ ͳ
௡
where:
n = the term of the loan;
ib = the benchmark interest rate for uncreditworthy companies;
if = the long-term interest rate that would be paid by a creditworthy
company;
pn = the probability of default by an uncreditworthy company within n
years; and
qn = the probability of default by a creditworthy company within n
years.”
Court No. 22-00047 Page 32
This Court previously noted that the extension of the repayment date on KG
Dongbu’s loans was to December 31, 2025, and that the fifteen-year average useful
life of the equity infusions contradicted Commerce’s Final Results. Id.
In its Remand Redetermination, Commerce continued to use three years for
the term of the loan variable and the creditworthy and uncreditworthy default rates
because there was allegedly no information on the record regarding a six-year
interest rate for a comparable commercial loan and the loans that KG Dongbu
received cannot constitute “comparable commercial loans” pursuant to 19 C.F.R.
§ 351.505(a)(2). Remand Redetermination at 17. Specifically, Commerce
reiterated on remand that in its Final Results, it determined that while there were
some private commercial banks involved in the debt restructuring of KG Dongbu,
the restructuring of its debt was not overseen by those private banks. Id. at 15‒16.
Instead, the debt restructuring was controlled by the Creditor Bank Committee
(“CBC”), which in turn was controlled by Korean government policy banks such
as the Korea Development Bank. Id. at 16. Therefore, Commerce determined that
See 19 C.F.R. § 351.505(a)(3)(iii). This uncreditworthy interest rate formula thus
has four variables: (1) the term of the loan in question (“n”); (2) the long-term
interest rate paid by a creditworthy company; (3) the probability of default of a
creditworthy company in “n” years; and (4) the probability of default of an
uncreditworthy company in “n” years.
Court No. 22-00047 Page 33
the record of this case did not warrant any change from prior administrative
reviews. Id.More specifically, Commerce determined that the loans from private
creditors on the CBC could not be construed as “comparable commercial loans”
and used as a commercial benchmark under 19 U.S.C. § 1677(5)(E)(ii) and 19
C.F.R. § 351.505(a)(2), because the CBC was controlled by government policy and
special purpose banks. Id. Commerce used a three-year AA-rated Korean Won
interest rate, published by the Bank of Korea as the long-term interest rate paid by
a creditworthy company because it was the only long-term interest rate available
on the record. Id. Commerce alleged that no other long-term Korean Won interest
rates were provided on the record by interested parties in this review. Id.Furthermore, Commerce explained that:
[T]he plain language of the [Preamble to Commerce’s regulation]
dictates that Commerce use the term of the benchmark (in this case,
[three] years, from the [three]-year [Korean Won] AA-Corporate Bond
Rate from Bank of Korea) to identify both the probability of default by
a creditworthy company, and the probability of default by an
uncreditworthy company from the Moody’s “Average Cumulative
Issuer-Weighted Global Default Rates, 1920-2010” table. Otherwise,
if Commerce used the probability of default by an uncreditworthy
company within six years for variables pn and qn respectively, as the
Plaintiffs suggests, the variables would not be on the same basis as the
term of the baseline benchmark used for variable if (i.e., [three] years).
This would be contrary to Commerce’s intention in providing a formula
to calculate the benchmark interest rate for an uncreditworthy company,
as set out in the Preamble.
Court No. 22-00047 Page 34
Id. at 34 (citing Countervailing Duties, 63 Fed. Reg. 65,348, 65,365 (Dep’t of
Commerce Nov. 25, 1998)).
The Court concludes that Commerce’s explanation is arbitrary. Commerce’s
determination on remand to use three years for the term of the loan in variable “n”
and the length of time within which creditworthy and uncreditworthy companies
may default for variables “pn” and “qn” is contrary to the plain language of its
regulations. See 19 C.F.R. § 351.505(a)(3)(iii). Commerce’s explanation does not
justify ignoring the plain language of its own regulations, and there is no rational
basis for ignoring the actual evidence on the record regarding the term of the loan
(i.e., six years) and substituting a pretend term for the sake of consistency. See,
e.g., Ereğli Demir ve Çelik Fabrikalari T.A.Ş. v. United States (“Ereğli Demir”),
43 CIT __, __, 415 F. Supp. 3d 1216, 1230 (2019) (“Commerce’s determination in
the remand proceeding is inconsistent with the plain language of the regulation
and, thus, merits no deference.”); Guangzhou Jangho Curtain Wall Sys. Eng’g Co.
v. United States, 40 CIT __, __, 181 F. Supp. 3d 1265, 1280 (2016) (“Commerce’s
per se restriction of its scope ruling to a particular interested party rather than to a
particular product is contrary to the plain language of the regulation.”); Thomas
Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (“The agency’s interpretation
must be given controlling weight unless it is plainly erroneous or inconsistent with
the regulation.” (quotations omitted)).
Court No. 22-00047 Page 35
Commerce’s regulation specifies that if it finds that a firm that received a
government provided long-term loan was uncreditworthy, it will “normally”
calculate the interest rate “where: n = the term of the loan.” 19 C.F.R.
§ 351.505(a)(3)(iii). The final countervailing duty regulations specify the selection
of the default rates used in calculating an uncreditworthy benchmark, explaining
that Commerce:
. . . will use the average cumulative default rate for the number of years
corresponding to the length of the loan, as reported in Moody’s study
of historical corporate bond default rates. In other words, we would use
a five-year default rate for a five-year loan, as a [fifteen]-year default
rate for a [fifteen]-year loan, and so forth. We believe that using a
default rate that is directly linked to the term of the loan is a better
reflection of the risk associated with long- term lending to
uncreditworthy borrowers.
Countervailing Duties, 63 Fed. Reg. at 65,365 (emphasis added). In other words, it
is the rate that is to be linked to the term of the loan. It is not the other way around.
Commerce’s rule addresses that the default rate is a measurement of risk and
the level of risk for a company to default within “n” years, which can only be
properly calculated using the actual term of the new loan at issue, in this case for
KG Dongbu, six years. See id. However, Commerce introduced abnormality into
the equation by imposing, through unnecessary substitution, a condition that was
directly at odds with clear evidence of record. Commerce has not articulated a
rational basis to ignore an actual data point in favor of a three-year term unrelated
Court No. 22-00047 Page 36
to the term of the actual loan. Its calculation thus contradicts the plain language of
its own regulations as to the appropriate period for the applicable default rates.
In the absence of substantial evidence to the contrary, the term of the
restructured long-term loans and bonds is six years, and the term of the loan
(variable “n”) and default rates (“pn” and “qn”) used in the calculation must match
the actual six-year term of KG Dongbu’s loans and bonds. Commerce’s decision
to ignore the plain requirements of its regulation renders its decision not in
accordance with law. See Ereğli Demir, 43 CIT at __, 415 F. Supp. 3d at 1230.
Apart from the rate (variable “if”) that Commerce concluded is proper, on
remand, if Commerce reaches this issue again, it must either revise the calculation
of the uncreditworthy benchmark rate (quotient “ib”) by using the six-year term and
default rates on the record for variables “n,” “pn,” and “qn” as set out in the plain
language of its regulations, or provide cogent reasoning for adopting any other
alternative calculation.
V. Calculation of the Unequityworthy Discount Rate
KG Dongbu challenges Commerce’s calculation of the uncreditworthy
benchmark rate. KG Dongbu’s Cmts. at 17‒20.
After Commerce determines that a company receives a benefit through an
equity infusion and that the firm is unequityworthy, it will calculate the amount of
the benefit as equal to the amount of the equity infusion. 19 C.F.R.
Court No. 22-00047 Page 37
§ 351.507(a)(4), (6). Commerce’s regulation specifies that Commerce will then
allocate the benefit amount conferred by an equity infusion (a non-recurring
subsidy) over the same time period as the non-recurring subsidy, in accordance
with 19 C.F.R. § 351.524(d). See 19 C.F.R. § 351.507(c) (“The benefit conferred
by an equity infusion shall be allocated over the same time period as a non-
recurring subsidy.”).
19 C.F.R. § 351.524(d)(1) sets out the formula to be used for allocating non-
recurring benefits over time:
‫ݕ‬ ‫ݕ‬
൅ ቂ‫ ݕ‬െ ቀ ቁ ሺ݇ െ ͳሻቃ ݀
‫ܣ‬௞ ൌ ݊ ݊
ͳ൅݀
Where:
Ak = the amount of the benefit allocated to year k,
y = the face value of the subsidy,
n = the [average useful life] . . . ,
d = the discount rate . . . , and
k = the year of allocation, where the year of receipt = 1 and 1≤k ≤n.
19 C.F.R. § 351.524(d)(1).
19 C.F.R. § 351.524(d)(3)(ii) then sets out an exception for selecting the
discount rate for uncreditworthy firms. For such firms, Commerce “will use as a
discount rate the interest rate described in 19 C.F.R. § 351.505(a)(3)(iii)” (i.e., it
will use the same formula for the calculation of the uncreditworthy benchmark
interest rate described above in section III of this Opinion). 19 C.F.R.
Court No. 22-00047 Page 38
§ 351.524(d)(3)(ii). In other words, the regulations require that Commerce
calculate the unequityworthy discount rate (listed as variable “d” in 19 C.F.R.
§ 351.524(d)(1)) using the formula from 19 C.F.R. § 351.505(a)(3)(iii), but it must
use the average useful life period as variable “n” as specified in 19 C.F.R.
§ 351.524(d).
When the creditor’s committee met and approved the restructuring of KG
Dongbu’s loans, the maturity date of the loans was extended until 2025. See KG
Dongbu’s Cmts. at 19. The term of KG Dongbu’s restructured loans is six years,
from the 2019 extension until the loans mature in 2025. The term of average
useful life allocation period for non-recurring subsidies is fifteen years. Id. The
probabilities of default by creditworthy and uncreditworthy companies on six-year
and fifteen-year loans are on the record. Id. The Court also agrees that the
information necessary to calculate the uncreditworthy benchmark rate and
unequityworthy discount rate pursuant to the plain language of 19 C.F.R.
§ 351.505(a)(3)(iii)—the six-year term of KG Dongbu’s restructured loans, the
fifteen-year average useful life of the equity infusions, and the probabilities of
default by creditworthy and uncreditworthy companies for six- and fifteen-year
periods—is on the record.
Because the average useful life period in this case is fifteen years,
Commerce allocated the amounts of the 2015, 2016, 2018, and 2019 government
Court No. 22-00047 Page 39
equity infusions on that basis pursuant to 19 C.F.R. § 351.507(c) and 19 C.F.R.
§ 351.524(b) and (d)(1). Equity Infusions Analysis Mem. at 21. However, in
determining the amount of the benefit in each year of the fifteen-year allocation
period, Commerce calculated the discount rates (variable “d” in Commerce’s
equation) based on a three-year period, and in so doing it applied the formula from
19 C.F.R. § 351.505(a)(3)(iii) incorrectly, as discussed above for the
uncreditworthy benchmark interest rate. See IDM at 41‒42, 59. Commerce’s
regulation and preamble to Commerce’s regulations are clear that the default rates
should be tied to the term of the loan or, in the case of an equity benefit, to the
same period as a non-recurring subsidy, i.e., the fifteen-year average useful life
period. See 19 C.F.R. § 351.524(d)(2); 19 C.F.R. § 351.507(c) (“The benefit
conferred by an equity infusion shall be allocated over the same time period as a
non-recurring subsidy.”).
Thus, the “n” variable (number of years) in the formula for calculating the
unequityworthy discount rates should match the fifteen-year allocation period, just
as the “n” variable for calculating an uncreditworthy benchmark interest rate must
match the term of the uncreditworthy loan. Because Commerce’s Remand
Redetermination contradicts the plain language of Commerce’s regulations,
Commerce’s determination is not in accordance with law. See Ereğli Demir, 43
CIT at __, 415 F. Supp. 3d at 1230. On further remand, Commerce must either
Court No. 22-00047 Page 40
revise the calculation of the unequityworthy discount rates by using the fifteen-
year average useful life period and default rates for variables “n,” “pn,” and “qn” as
set forth in the regulations, or provide cogent reasoning for adopting any
alternative calculation.
CONCLUSION
Accordingly, it is hereby
ORDERED that Commerce’s amended Final Results of Redetermination
Pursuant to Court Remand, ECF Nos. 57, 58, are remanded to Commerce for
reconsideration consistent with this Opinion; and it is further
ORDERED that this case shall proceed according to the following schedule:
(1) Commerce shall file the remand determination on or before July 3, 2024;
(2) Commerce shall file the administrative record on or before July 17, 2024;
(3) Comments in opposition to the remand determination shall be filed on or
before September 6, 2024;
(4) Comments in support of the remand determination shall be filed on or
before October 7, 2024; and
Court No. 22-00047 Page 41
(5) The joint appendix shall be filed on or before October 22, 2024.
/s/ Jennifer Choe-Groves
Jennifer Choe-Groves, Judge
Dated: April 3, 2024
New York, New York