Exporter Tells CIT Commerce Illegally Switched Practice on Countervailability of D-to-E Swaps
The Commerce Department failed to explain its "abrupt change in practice" from its past decision finding that exporter KG Dongbu Steel's debt-to-equity restructurings were not countervailable, Dongbu argued in a July 21 opening brief at the Court of International Trade. The exporter relied on the trade court's recent opinion finding in a separate case also brought by Dongbu in which the court agreed and said that the change in practice was "arbitrary and unlawful" (see 2307100028). "The facts are the same in this appeal" on the 2020 review of the CVD order on corrosion-resistant steel products from South Korea, and the court "should reach the same conclusion here" (KG Dongbu Steel Co. v. United States, CIT # 23-00055).
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The brief also said evidence shows that the benefits from any supposed subsidies from the debt-to-equity swaps were "extinguished by the fair market value paid by the KG Consortium in its purchase of Dongbu in an arm's-length transaction." Commerce committed a host of analytical errors that undercuts its conclusion, the exporter said.
For instance, Commerce centered on the fact that Dongbu's creditors agreed to "interest rate reductions, loan extensions, and an additional fourth D/E swap," finding that this shows the sale was not for fair market value as the creditors did not seek the highest sale price. Dongbu said this shows a "fundamental misunderstanding of the impact of these concurrent subsidies" on sales price since concurrent subsidies increase the value and increase the price the buyer pays.
Dongbu added that Commerce illegally set the uncreditworthy benchmark rate used to measure Dongbu's benefit taken from outstanding six-year loans and bonds by using three-year default rates instead of the rates based on the loans' terms. "Commerce’s claims that the three-year period is 'consistent' with the creditworthy benchmark interest rate and therefore should be used in its calculations in place of the loan term or the [average useful life] period contradicts the express requirements of its own regulations, and is not ... supported by substantial evidence and is otherwise not in accordance with law," the brief said.