Commerce Ignored Past Findings on Countervailability of Debt-Equity Swaps, CVD Respondent Says

The exporter is challenging a countervailing duty administrative review on corrosion-resistant steel products from South Korea in which Dongbu served as a mandatory respondent. In the original CVD investigation, Dongbu Steel was assessed a 1.19% CV duty rate based on benefits from the 2014 restructuring of its long-term loans and bonds by its creditors. In 2015 and 2016, though, Dongbu Steel's creditors committee greenlighted debt for equity swaps by both government-controlled and private commercial banks.

In the CVD investigation, and following two CVD reviews, Commerce hit Dongbu with a CVD rate based on its restructuring benefits over the petitioner's objections that Dongbu was uncreditworthy. The agency continuously found that the debt for equity swaps were consistent with the usual investment practice of private investors and didn't confer a benefit to Dongbu Steel. Commerce changed its tune in the third review, finding the debt for equity swaps countervailable. In its complaint, Dongbu said this change was made without any new record evidence (see 2203170074).

Dongbu contests Commerce's decision that the debt for equity swaps were countervailable, to pass through the swaps' benefits to KG Dongbu Steel despite a change of ownership in the next review and to calculate the uncreditworthy benchmark for the purpose of measuring the benefits of Dongbu Steel's restructured long-term loans and bonds.

Replying to arguments from the U.S., Dongbu said that in a separate CVD case, "Commerce defended its decision that private investor participation was significant and thus there was no benefit from the D/E swaps. ... This fact was pointed out by Plaintiffs in order to refute Commerce’s implication that it had never fully investigated the countervailability of Dongbu’s D/E swaps (and that it was doing so in the first instance in this case). ... For Defendant to now assert that Commerce never conducted a 'fulsome analysis' before and that its 'reconsideration of the countervailability of the debt-to equity conversions is reasonable because it is being done in the first instance,' is not credible."

The U.S., and CVD petitioner Nucor Corp., both argued that the reexamination of the first three debt-to-equity swaps is justified since the agency must take another look at the benefit in each successive administrative review since the purpose of the reviews is to find the amount of any net countervailable subsidy. "This is highly misleading," Dongbu said. Commerce said in the 2018 review that while it continues to find the equity infusions gave no benefit to Dongbu, it may re-examine the issue for the next review if no new record evidence requires this type of examination. "Commerce thus tied the possible re-examination of the benefit issue specifically to the presence of new record evidence -- and there was no such new evidence here to warrant a re-examination," the brief said.

"In sum, Commerce reversed its consistent practice of not re-examining the countervailability of a program, in this case Dongbu’s first three D/E swaps, in the absence of new information and failed to provide a reasonable explanation for ignoring its practice. Compounding this error is the fact that Commerce also ignored its consistent findings in all prior reviews that private investor participation was significant and thus no benefit was provided in the first three D/E swaps."