POSCO, Plaintiff v. UNITED STATES, Defendant STEEL DYNAMICS, INC., AK STEEL CORPORATION, ARCELORMITTAL USA LLC, UNITED STATES STEEL CORPORATION, Intervenor-Defendants NUCOR CORPORATION, Intervenor-Defendant-Appellant v. NUCOR CORPORATION, Plaintiff-Appellant AK STEEL CORPORATION, ARCELORMITTAL USA LLC, UNITED STATES STEEL CORPORATION, Intervenor-Plaintiffs v. UNITED STATES, Defendant-Appellee HYUNDAI STEEL COMPANY, POSCO, GOVERNMENT OF KOREA, Intervenor-Defendants
2019-1213
United States Court of Appeals for the Federal Circuit
October 15, 2020
Appeal from the United States Court of International Trade in Nos. 1:16-cv-00225-MAB, 1:16-cv-00226-MAB, Judge Mark A. Barnett.
ROBERT E. DEFRANCESCO, III, Wiley Rein, LLP, Washington, DC, argued for appellant. Also represented by TIMOTHY C. BRIGHTBILL, TESSA V. CAPELOTO, LAURA EL-SABAAWI, ALAN H. PRICE, ADAM MILAN TESLIK, CHRISTOPHER B. WELD.
KELLY A. KRYSTYNIAK, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by JEFFREY B. CLARK, JEANNE DAVIDSON, PATRICIA M. MCCARTHY; EMMA T. HUNTER, Office of the Chief Counsel for Trade Enforcement & Compliance, United States Department of Commerce, Washington, DC.
Before REYNA, TARANTO, and STOLL, Circuit Judges.
This appeal comes to us from the U.S. Court of International Trade. The Trade Court affirmed the U.S. Department of Commerce‘s final affirmative determination in the countervailing duty investigation on certain cold-rolled steel flat products from the Republic of Korea. Plaintiff-Appellant Nucor Corporation challenges Commerce‘s final determination, raising two issues: first, whether Commerce‘s reliance on a preferential-rate standard to determine whether a conferred benefit is a countervailable subsidy is contrary to law and, second, whether Commerce‘s determination that the Government of Korea did not confer a benefit to Korean producers of cold-rolled steel flat products for less than adequate remuneration is contrary to law and unsupported by substantial evidence. We conclude that Commerce‘s final determination is contrary to law and unsupported by substantial evidence. We vacate and remand.
BACKGROUND
A. Countervailable Subsidies
Foreign governments subsidize their domestic industries when they provide financial assistance for the production, manufacture, or exportation of goods.
When Congress enacted the Uruguay Round Agreements Act (“URAA“) in 1994, it changed the definition of what constitutes a benefit conferred. Pub. L. No. 103-465, § 101, 108 Stat. 4809, 4814 (codified as
After enactment of the URAA, Commerce sought to develop a methodology for determining “adequacy of remuneration.”2 Commerce noted “[p]articular problems . . . in applying the [adequate-remuneration] standard when the government is the sole supplier of the good or service in the country or within the area where the respondent is
located.”3 Commerce found that these problems arise because “there may be no alternative market prices available” to use as a benchmark in its analysis. Steel Wire Rod from Trinidad and Tobago, 62 Fed. Reg. at 55,006. To address these problems, Commerce developed a three-tier methodology to evaluate adequacy of remuneration.
B. The Investigation
On July 28, 2015, Commerce received requests for initiation of countervailing duty (“CVD“) investigations on imports of certain cold-rolled steel flat products (“cold-rolled steel” or “CRS“) from several countries including the Republic of Korea (“Korea“). See J.A. 1269. Countervailing duty petitions were filed on behalf of AK Steel Corporation,
ArcelorMittal USA EEC, Nucor Corporation, Steel Dynamics, Inc., and United States Steel Corporation (collectively, “Petitioners“). See id. Petitioners alleged that the Government of Korea provided countervailable subsidies to Korean producers of CRS, and that imports of CRS from Korea were materially injuring, or threatening material injury to, an industry in the United States.4 J.A.
In August 2015, Commerce initiated a CVD investigation on CRS from Korea. See J.A. 1269-1274; see also J.A. 109, J.A. 346-376. The period of investigation encompassed January 1 to December 31, 2014. J.A. 1269. Commerce selected POSCO and Hyundai Steel Co., Ltd., as mandatory “respondents” for the investigation. J.A. 13034. Commerce issued questionnaires requesting that the Korean government provide information about the Korean electricity industry and market, including the Korea Electric Power Corporation (“KEPCO“), which is a state-owned
entity and the sole provider of electricity in Korea. J.A. 13075, J.A. 1293, J.A. 12769.
In its questionnaire responses, the Korean government explained that electricity is generated by “[i]ndependent power generators, community energy systems, and KEPCO‘s six subsidiaries.” See J.A. 18. The Korean government further explained that all electricity generated in Korea, including that of private generators, must be sold to KEPCO in a wholesale market known as the Korea Power Exchange (“KPX“), which is wholly owned by KEPCO and its six subsidiaries. J.A. 1300, J.A. 3137. KEPCO then sells electricity to end users based on a tariff schedule that provides different rates for classes of consumers including industrial, residential, agricultural, and business users. J.A. 4437-4449. The Korean government noted that the prices in KEPCO‘s tariff schedule are established in consultation with other Korean-government agencies, through a “lengthy deliberative process” that seeks the approval of the Ministry of Trade, Industry, and Energy, the Ministry of Strategy and Finance, and the Korea Energy Regulatory Commission. J.A. 1296, J.A. 3111. While KEPCO and other government entities establish the ultimate prices to end users, the basis of these prices is the cost of KEPCO‘s purchases from the KPX. J.A. 13083. The Korean government reported in its questionnaire response that KPX is a wholly owned subsidiary of KEPCO and that all sales of electricity in Korea are administered by KPX. See J.A. 18 n.17 (citing the Korean government‘s questionnaire response, Ex. E-3 at 31); see also J.A. 3111 (Ex. E-3, KEPCO Form 20-F, explaining that KEPCO “wholly own[s]” KPX).
In its preliminary determination, Commerce found that KEPCO, through its six subsidiaries, generates the “substantial majority of the electricity produced in Korea.” J.A. 12769. Commerce found that the Korean government regulates and approves electricity tariffs charged by KEPCO. Id. Commerce further found that the Korean government “exercises significant control over KEPCO
through its majority ownership and pursues government policy objectives through KEPCO‘s business and operations.” Id. Commerce therefore determined that KEPCO is an authority of the Korean government and that the Korean government is providing to producers of CRS “a financial contribution in the form of the provision of a good or service.” Id. To determine whether that financial contribution constitutes a “benefit,” Commerce conducted a Tier 3 analysis.
If the rate charged is consistent with the standard pricing mechanism and the company under investigation is, in all other respects, essentially treated no differently than other companies and industries which purchase comparable amounts of electricity, then there is no benefit.
Id. (citing Pure Magnesium & Alloy Magnesium from Canada, 57 Fed. Reg. 30,946 (Dep‘t Commerce July 13, 1992) (Magnesium from Canada)).
Commerce conducted verification of the Korean government‘s questionnaire responses in March 2016, but it did not verify the Korean government‘s provision of electricity for less than adequate remuneration. See J.A. 13075. Rather, Commerce relied on the verification it previously conducted in its investigation of corrosion-resistant steel (“CORE“) from Korea, which is the subject of
Nucor Corporation‘s (“Nucor“) appeal in Nucor Corporation v. United States, 927 F.3d 1243 (Fed. Cir. 2019).5
In its Final Determination, Commerce determined that, “consistent with 19 § CFR 351.511 and Magnesium from Canada,” the Korean government provided respondents no benefit “because the prices charged to these respondents under the applicable industrial tariff were consistent with KEPCO‘s standard pricing mechanism.” J.A. 13079 (Issue and Memorandum Decision accompanying Countervailing Duty Investigation of Certain Cold-Rolled Steel Flat Products from the Republic of Korea, 81 Fed. Reg. 49,943 (Dep‘t Commerce July 29, 2016) (final affirmative determination, 2014)). Commerce found no evidence in the record suggesting that that respondents received preferential treatment over other industrial users of electricity that purchase comparable amounts of electricity. Id.
Commerce justified its reliance on a preferentiality standard despite the amendment of the Trade statute to replace preferential rate with adequate remuneration. J.A. 13079–80. Commerce opined that its regulations regarding the provision of a good or service, especially
market prices over price discrimination—i.e., the creation of Tiers 1–3. Id. Commerce suggested that a price discrimination analysis alone may be sufficient to assess adequate remuneration. J.A. 13081.
Commerce also addressed Petitioners’ allegations that Commerce‘s analysis of
Nucor appealed Commerce‘s final determination to the Trade Court. J.A. 13132-13181.
C. U.S. Court of International Trade
On appeal, Nucor argued that Commerce‘s final determination is unlawful for three reasons. First, Nucor contended that Commerce erred in using preferentiality to determine whether a benefit was conferred to Korean producers of CRS. J.A. 13154. Second, Nucor argued that Commerce unreasonably excluded cost recovery when interpreting “adequate remuneration.” J.A. 13160. Third, Nucor alleged that Commerce ignored arguments and evidence (e.g., that Commerce failed to account for KPX‘s role in setting KEPCO‘s tariff schedule) demonstrating that Korean electricity-price setting does not follow market principles. J.A. 13168-13174.
The trial court rejected all three challenges and found that Commerce‘s CVD determination was supported by substantial evidence and otherwise not contrary to law. J.A. 5–81. This appeal ensued. We have jurisdiction under
DISCUSSION
We review decisions of the Trade Court de novo. Boomerang Tube LLC v. United States, 856 F.3d 908, 912 (Fed. Cir. 2017). We apply the same standard of review used by the Trade Court in reviewing Commerce‘s determinations. See
We address two issues on appeal: first, whether Commerce erred as a matter of law when it based its benefit-conferred analysis on a preferential-rate standard, and second, whether substantial evidence supports Commerce‘s finding that the Korean government does not provide a countervailable subsidy to respondents. Because Commerce‘s final determination is unsupported by substantial evidence and contrary to law, we vacate and remand.
A. Adequate Remuneration
Commerce failed to properly measure less-than-adequate remuneration under post-URAA principles.
In Nucor, we addressed essentially the same issues raised in this appeal, including Commerce‘s reliance on the pre-URAA preferential-rate standard. 927 F.3d 1243. We rejected Commerce‘s “broad theory” that “if the foreign government authority engaged in a uniform, non-discriminatory, tariffed practice of charging a price so low that the authority consistently lost large sums of money in a way no private seller could sustain, sales pursuant to that practice would not be properly viewed as for ‘less than adequate
remuneration.‘” Id. at 1249. We concluded that the plain language of
Our decision in Nucor issued on June 21, 2019, after the parties filed their briefs in this appeal. On June 26, 2019, Commerce filed a citation of supplemental authority advising the court of the Nucor decision and explaining that “Nucor‘s opening brief filed in this appeal is substantially identical to Nucor‘s opening brief filed in [Nucor].” ECF No. 39. Commerce also explained that the Nucor decision “pertains to nearly the entirety of [its] brief filed in this appeal on March 29, 2019.” Id. In its response, Nucor clarified that the issue of “whether Commerce may lawfully apply an analysis of ‘preferential rates’ to measure ‘adequate remuneration‘” is identical in both cases. ECF No. 40. We conclude that Commerce‘s position on preferentiality here is identical to its position in Nucor and that our decision in Nucor rejecting Commerce‘s use of the preferentiality standard applies to this appeal.
As in Nucor, Commerce‘s use of the pre-URAA preferential-rates standard in this case is inconsistent with the adequate-remuneration standard under
In Nucor, we highlighted the Statement of Administrative Action, which provides that preferentiality be replaced with the new standard of less-than-adequate remuneration. 927 F.3d at 1252 (citing Uruguay Round Agreements Act, Statement of Administrative Action, H.R. Doc. No. 103–316, vol. 1, at 927 (1994) (“SAA“)). We noted that “[t]his authoritative interpretation confirms what the statutory language, in its ordinary and in-context meaning, entails. It makes clear that the new standard rests on a concept different from mere lack of preferentiality.” Id. Thus, the words used in the statute, understood in their ordinary sense, make it unreasonable that lack of discrimination is sufficient to establish adequacy of remuneration. See id. at 1250.
Consistent with our holding in Nucor, we hold that Commerce‘s reliance on a preferential-rate standard is inconsistent with the Trade statute, in particular with the less-than-adequate-remuneration requirement, and is therefore contrary to law.
B. Cost Recovery
Commerce‘s cost-recovery analysis is limited to a discussion of KEPCO‘s costs. See J.A. 13081–83. The limited analysis does not support its conclusion that electricity prices paid to KEPCO by respondents are consistent with prevailing market conditions because Commerce failed to evaluate KPX‘s impact on the Korean electricity market.
In Nucor, Plaintiff Nucor argued that Commerce erred by limiting the analysis to the prices that KEPCO charged in relation to its costs, which included the price paid to KPX, instead of considering the adequacy (less-than-adequate remuneration)
exhaust this argument at the agency level.” Id. As a result, the Trade Court affirmed Commerce‘s final determination on this point. We agreed that Nucor failed to exhaust its KPX-related arguments and, as a result, our decision also did not address the KPX issue. Id.
In this appeal, Nucor again argues that Commerce erred by failing to consider KPX‘s impact on KEPCO‘s pricing. See Appellant Br. 36–47; see also J.A. 71–73 (Trade Court opinion rejecting Nucor‘s argument); J.A. 12898–914 (Nucor‘s Case Brief to Commerce addressing KPX‘s impact on KEPCO‘s electricity pricing). The government does not raise an exhaustion argument in this case, and we conclude that Nucor preserved this issue for appeal. Cf. Novosteel SA v. United States, 284 F.3d 1261, 1274 (Fed. Cir. 2002) (applying the waiver doctrine but explaining that a party preserves an issue for appeal where it exhausts that issue before an administrative agency “so as to give a court the proper basis to review that issue on appeal“).
Here, the administrative record does not support Commerce‘s determination that KEPCO is the only relevant entity for purposes of analyzing costs. J.A. 13083. To the contrary, evidence in the record suggests that KPX has a significant impact on KEPCO‘s pricing, and that Commerce failed to adequately investigate and consider KPX‘s impact on the Korean electricity market. For example, the record shows that all electricity generated in Korea must be sold to KEPCO by KPX (J.A. 1300, 3137); KPX is wholly owned by KEPCO and its six electricity-generation subsidiaries (id.); KEPCO bases its prices on the cost of its purchases from the KPX (see J.A. 13083); and KPX‘s pricing accounts for upwards of 90% of KEPCO‘s total cost (see Nucor, 927 F.3d at 1259 (Reyna, J., dissenting) (citing J.A. 8316, Letter from Yoon & Yang LLC to Sec‘y Commerce, re: Countervailing Duty Investigation: Certain Corrosion-Resistant Steel Products (CORE) from the Republic of Korea: Response to 2nd Supplemental Questionnaire (Oct. 15, 2015))). That KPX‘s pricing constitutes a
significant portion of KEPCO‘s total cost makes it implausible that Commerce adequately investigated Korea‘s prevailing market condition for electricity without a thorough understanding of the costs associated with generating and acquiring that electricity.
Yet, Commerce did not request information regarding KPX‘s cost of electricity generation such as variable fuel prices, the construction and maintenance costs of a standard electricity generation unit, and the fixed costs of producing electricity (e.g., constructing facilities to generate electricity). Instead, Commerce determined that only the costs to KEPCO, not the costs associated with the generators themselves, were relevant to price because KEPCO purchases electricity through KPX, which purchases from the generators. See J.A. 13083. Commerce‘s determination that KPX was not relevant to its analysis leaves unresolved whether a benefit was conferred by way of the price charged by KPX to KEPCO. See
The government argues that “[n]othing in the statute requires Commerce to consider how the authority acquired the good or service that was later provided to respondents.” Appellee Br. 35 (citation and internal quotation marks
government‘s own questionnaire responses. See
The government‘s argument assumes that KPX is not, itself, an authority of the Korean government. That assumption, however, is unsupported by the evidence. Under
CONCLUSION
We have considered the government‘s remaining arguments and find them unpersuasive. Because Commerce
improperly based its benefit-conferred analysis on a “preferential price” standard, we conclude that Commerce‘s final determination is contrary to law. In addition, Commerce‘s failure to investigate and include KPX‘s generation costs in its analysis renders its final determination unsupported by substantial evidence. We vacate and remand for further proceedings consistent with this opinion.
VACATED AND REMANDED
COSTS
Costs to Appellant.