POSCO v. United States, No. 17-00137 (Ct. Int'l Trade 2018)

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Slip Op. 18- UNITED STATES COURT OF INTERNATIONAL TRADE POSCO, Plaintiff, NUCOR CORPORATION, Consolidated Plaintiff, ARCELORMITTAL USA LLC and SSAB ENTERPRISES LLC, Plaintiff-Intervenors, Before: Gary S. Katzmann, Judge Consol. Court No. 17-00137 PUBLIC VERSION v. UNITED STATES, Defendant, and SSAB ENTERPRISES LLC, NUCOR CORPORATION, ARCELORMITTAL USA LLC and POSCO, Defendant-Intervenors. OPINION [Plaintiff’s motion for judgment on the agency record is granted in part and Commerce’s Final Results are remanded consistent with this opinion.] Dated: 'HFHPEHU Brady W. Mills and Ragan W. Updegraff, Morris, Manning & Martin LLP, of Washington, DC, argued for plaintiff and defendant-intervenor POSCO. With them on the brief were Donald B. Cameron, Julie C. Mendoza, R. Will Planert, Mary S. Hodgins, Eugene Degnan, and Sarah S. Sprinkle. Christopher Weld and Adam M. Teslik, Wiley Rein, LLP, of Washington, DC, argued for consolidated plaintiff and defendant-intervenor Nucor Corporation. With them on the joint brief was Alan H. Price and John Herrmann, Kelley Drye & Warren, LLP, of Washington, DC, for plaintiff-intervenor & defendant-intervenor ArcelorMittal USA LLC; Roger B. Schagrin and Consol. Court Number 17-00137 PUBLIC VERSION Page 2 Christopher Cloutier, Schagrin Associates, of Washington DC, for plaintiff-intervenor and defendant-intervenor SSAB Enterprises LLC. Stephen C. Tosini, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for defendant United States. With him on the brief were Chad A. Readler, Acting Assistant Attorney General, Jeanne E. Davidson, Director, Tara K. Hogan, Assistant Director, and Vito S. Solitro, Attorney. Of counsel on the brief was Rezza Karamloo, Attorney, Office of the Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce, of Washington, DC. Katzmann, Judge: The issue of the provision of electricity and other benefits by foreign government entities to producers without adequate remuneration and the resulting lower price of imports has generated intense heat in the ongoing litigation under American laws designed to promote a level playing field for American goods in the domestic marketplace. More generally, the Department of Commerce’s (“Commerce”) adequate remuneration and adverse facts available methodologies have been at the center of such fair trade remedy disputes. Before the court is the challenge to Commerce’s final affirmative determination in the countervailing subsidy investigation of certain carbon and alloy steel cut-to-length (“CTL”) plate 1 from Korea. Certain Carbon and Alloy Steel Cut-To-Length Plate From the Republic of Korea: Final Affirmative Countervailing Duty Determination and Final Negative Critical Circumstances Determination, 82 Fed. Reg. 16,341 (Dep’t Commerce Apr. 4, 2017), P.R. 505 and accompanying Issues and Decision Memorandum (“IDM”) (Mar. 29, 2017), P.R. 497. Plaintiff POSCO, a producer and exporter of CTL plate from Korea, contests multiple aspects of Commerce’s application of adverse facts available (“AFA”) and asks the court to remand the Final Determination. POSCO’s Br., Nov. 9, 2017, ECF Nos. 42, 45. Consolidated Plaintiff Nucor Corporation (“Nucor”), an American steel 1 For purposes of this investigation, Commerce defined CTL plate as “certain carbon and alloy steel hot-rolled or forged flat plate products not in coils, whether or not painted, varnished, or coated with plastics or other non-metallic substances.” Final Determination, 82 Fed. Reg. at 16,343. Consol. Court Number 17-00137 PUBLIC VERSION Page 3 producer, contests various other aspects of Commerce’s determination -- particularly its conclusion that POSCO did not benefit from subsidized electricity -- and also requests that this court remand the Final Determination. Nucor’s Br., Nov. 9, 2017, ECF Nos. 43–44, 46–47. Defendant the United States (“the Government”) asks the court to sustain Commerce’s decision in its entirety. Def.’s Br., Mar. 23, 2018, ECF Nos. 52–53. The court sustains the Final Determination in part and remands Commerce’s countervailability determination for POSCO MTech’s research and development grants and Commerce’s application of the highest AFA rate for reconsideration. BACKGROUND I. Legal Background. To empower Commerce to offset economic distortions caused by countervailable subsidies and dumping, Congress enacted the Tariff Act of 1930. 2 Sioux Honey Ass’n v. Hartford Fire Ins. Co., 672 F.3d 1041, 1046 (Fed. Cir. 2012); ATC Tires Private Ltd. v. United States, 42 CIT __, __, 322 F. Supp. 3d 1365, 1366 (2018). Under the Tariff Act’s framework, Commerce may -either upon petition by a domestic producer or of its own initiative -- begin an investigation into potential countervailable subsidies and, if appropriate, issue orders imposing duties on the subject merchandise. Sioux Honey, 672 F.3d at 1046; ATC Tires, 322 F. Supp. 3d at 1366–67; 19 U.S.C. §§ 1671, 1673. Commerce determines that a countervailable subsidy exists where a foreign 2 Further citations to the Tariff Act of 1930, as amended, are to the relevant provision of Title 19 of the U.S. Code, 2012 edition. Citations to 19 U.S.C. § 1677e, however, are not to the U.S. Code 2012 edition, but to the unofficial U.S. Code Annotated 2018 edition. The current U.S.C.A. reflects the amendments made to 19 U.S.C. § 1677e (2012) by the Trade Preferences Extension Act of 2015, Pub. L. No. 114–27, § 502, 129 Stat. 362, 383–84 (2015). The TPEA amendments are applicable to all determinations made on or after August 6, 2015, and therefore, are applicable to this proceeding. See Dates of Application of Amendments to the Antidumping and Countervailing Duty Laws Made by the Trade Preferences Extension Act of 2015, 80 Fed. Reg. 46,793, 46,794 (Dep’t Commerce Aug. 6, 2015). Consol. Court Number 17-00137 PUBLIC VERSION Page 4 government provides a financial contribution, a benefit is thereby conferred, and the subsidy is specific. 19 U.S.C. § 1677(5). A “financial contribution” includes “the direct transfer of funds, such as grants, loans, and equity infusions, or the potential direct transfer of funds or liabilities, such as loan guarantees” and “foregoing or not collecting revenue that is otherwise due.” 19 U.S.C. § 1677(5)(D)(i)–(ii). In cases where an authority makes a financial contribution through the provision of goods or services, a benefit occurs when those goods or services “are provided for less than adequate remuneration.” 19 U.S.C. § 1677(5)(E)(iv). The adequacy of remuneration “shall be determined in relation to prevailing market conditions for the good or service being provided” in the relevant country. 19 U.S.C. § 1677(5)(E). Prevailing market conditions include “price, quality, availability, marketability, transportation, and other conditions of purchase or sale.” Id. If Commerce determines that the goods or services are provided for less than adequate remuneration, “a benefit shall normally be treated as conferred,” whereas a benefit will not be found if adequate remuneration is received. 19 U.S.C. § 1677(5)(E)(iv). Commerce’s regulations set forth three ways to measure the adequacy of remuneration. 19 C.F.R. § 351.511. Commerce “will normally seek to measure the adequacy of remuneration by comparing the government price to a market-determined price for the good or service resulting from actual transactions in the country in question.” 19 C.F.R. § 351.511(a)(2)(i). When market prices are not available, Commerce “compar[es] the government price to a world market price where it is reasonable to conclude that such price would be available to purchasers in the country in question.” 19 C.F.R. § 351.511(a)(2)(ii). If a world market price is also unavailable, then Commerce “will normally measure the adequacy of remuneration by assessing whether the government price is consistent with market principles.” 19 C.F.R. § 351.511(a)(2)(iii). The last approach, known as a “Tier 3” benchmark, may be particularly appropriate “for such goods or Consol. Court Number 17-00137 PUBLIC VERSION Page 5 services as electricity, land leases, or water, and the circumstances of each case vary widely.” See Countervailing Duties, 63 Fed. Reg. 65,348, 65,378 (Dep’t Commerce Nov. 25, 1998) (“CVD Preamble”). Factors Commerce uses to assess whether the government price is consistent with market principles include the government’s price-setting philosophy, costs, or possible price discrimination among recipients of the good or service. Id.; 19 C.F.R. § 351.511(a)(2)(iii). When either necessary information is not available on the record, or a respondent (1) withholds information that has been requested by Commerce, (2) fails to provide such information by Commerce’s deadlines for submission of the information or in the form and manner requested, (3) significantly impedes an antidumping proceeding, or (4) provides information that cannot be verified, then Commerce shall “use the facts otherwise available in reaching the applicable determination.” 19 U.S.C. § 1677e(a). This subsection thus provides Commerce with a methodology to fill informational gaps when necessary or requested information is missing from the administrative record. See Nippon Steel Corp. v. United States, 337 F.3d 1373, 1381 (Fed. Cir. 2003). Commerce “may use an inference that is adverse to the interests of that party in selecting from among the facts otherwise available” if it “finds that an interested party has failed to cooperate by not acting to the best of its ability to comply with a request for information.” 19 U.S.C. § 1677e(b)(1)(A). Commerce may apply an adverse inference for a respondent’s “failure to cooperate to the best of [its] ability, regardless of motivation or intent.” Nippon Steel, 337 F.3d at 1382. A respondent’s failure to cooperate to “the best of its ability” is “determined by assessing whether [it] has put forth its maximum effort to provide Commerce with full and complete answers to all inquiries.” Id. To meet this standard, importers must “conduct prompt, careful, and comprehensive investigations of all relevant records that refer or relate to the imports in question to the full extent of the importers’ ability to do so.” Id. Consol. Court Number 17-00137 PUBLIC VERSION II. Page 6 Factual and Procedural Background. Domestic producers of CTL3 filed petitions with Commerce and the United States International Trade Commission on April 7, 2016, alleging that an industry in the United States was materially injured or threatened with material injury due to certain carbon and alloy steel CTL plate product imports that were being subsidized or sold at less than fair value. Certain Carbon and Alloy Steel Cut-to-Length Plate from Austria, Belgium, Brazil, the People’s Republic of China, France, the Federal Republic of Germany, Italy, Japan, the Republic of Korea, South Africa, Taiwan, and Turkey: Petitions for the Imposition of Antidumping and Countervailing Duties (Apr. 8, 2016), P.R. 1–29, C.R. 1–30. Commerce initiated a countervailing duty investigation of CTL plate from Korea on April 28, 2016. Certain Carbon and Alloy Steel Cut-to-Length Plate from Brazil, the People’s Republic of China, and the Republic of Korea: Initiation of Countervailing Duty Investigations, 81 Fed. Reg. 27,098 (Dep’t Commerce May 5, 2016), P.R. 59. Commerce selected POSCO and POSCO Daewoo Corporation (collectively, “POSCO”) as mandatory respondents. 4 Respondent Selection Memorandum (Dep’t Commerce May 31, 2016), P.R. 102, 3 Collectively, Nucor Corporation, ArcelorMittal USA LLC, and SSAB Enterprises LLC. 4 In countervailing duty investigations, Commerce may select mandatory respondents pursuant to 19 U.S.C. § 1677f-1(e)(2), which provides: If [Commerce] determines that it is not practicable to determine individual countervailable subsidy rates [in investigations or administrative reviews] because of the large number of exporters or producers involved in the investigation or review, [Commerce] may— (A) determine individual countervailable subsidy rates for a reasonable number of exporters or producers by limiting its examination to— (i) a sample of exporters or producers that the administering authority determines is statistically valid based on the information available to the administering authority at the time of selection, or Consol. Court Number 17-00137 PUBLIC VERSION Page 7 C.R. 44. On June 1, 2016, Commerce issued its initial questionnaire to the Government of Korea (“GOK”) and POSCO, which required POSCO to report, among other things, a list of trading companies that exported POSCO-produced CTL plate to the United States during the period of investigation (“POI”) and to identify any cross-owned affiliates. Letter to the Government of Korea Regarding the Initial Countervailing Duty Questionnaire (Dep’t Commerce June 1, 2016), P.R. 99; Letter to POSCO Regarding the Initial Countervailing Duty Questionnaire (Dep’t Commerce June 1, 2016), P.R. 100; Letter to Daewoo International Corp. Regarding the Initial Countervailing Duty Questionnaire (Dep’t Commerce June 1, 2016), P.R. 101; Initial Countervailing Duty Questionnaire (Dep’t Commerce June 1, 2016) at 2–3, P.R. 103. Commerce uses such information to determine whether any subsidies received by cross-owned companies should be attributed to POSCO. See 19 C.F.R. § 351.525(b)(6), (c). Commerce subsequently required the unaffiliated company Hyundai Corporation (“Hyundai”) and two of POSCO’s cross-owned supply companies -- POSCO M-Tech (“M-Tech”) and POSCO Chemtech (“Chemtech”) -- to submit questionnaire responses. First Suppl. Questionnaire for POSCO (Dep’t Commerce June 28, 2016), P.R. 142; Second Suppl. Questionnaire for POSCO (Dep’t Commerce July 8, 2016), P.R. 155. The questionnaire requested information on government subsidies received by Chemtech, M-Tech, and Hyundai. All three companies responded to Commerce’s questionnaires. Hyundai Corp.’s Initial Questionnaire Resp. (July 13, 2016), P.R. 156–58; POSCO Chemtech’s Initial Questionnaire Resp. (July 18, 2016), (ii) exporters and producers accounting for the largest volume of the subject merchandise from the exporting country that the administering authority determines can be reasonably examined; or (B) determine a single country-wide subsidy rate to be applied to all exporters and producers. Consol. Court Number 17-00137 PUBLIC VERSION Page 8 P.R. 247–51, C.R. 252–60; POSCO M-Tech’s Initial Questionnaire Resp. (July 25, 2016), P.R. 256–69, 267–73. Nucor also filed deficiency comments on the GOK’s initial questionnaire response regarding Commerce’s previous investigations of the GOK’s provision of electricity for less than adequate remuneration. Nucor alleged that previous investigations improperly ignored the role of the Korean Power Exchange (“KPX”) in the Korean electricity market and this failure, according to Nucor, negatively impacted any analysis of whether Korean electricity prices were set in accordance with market principles. Letter from Wiley Rein LLP to Sec’y Commerce, re: Certain Carbon and Alloy Steel Cut-to-Length Plate from the Republic of Korea: Comments on the Government of Korea’s Initial Questionnaire Response (Aug. 3, 2016) at 1–15, P.R. 278–80, C.R. 291–93. Pertinent to this appeal, Nucor urged Commerce to request a full questionnaire from a company called POSCO Energy to determine whether a cross-owned supplier relationship between POSCO and POSCO Energy existed. Id. at 1–6. Nucor also provided Commerce with a schedule of KPX “system marginal prices” that Commerce could potentially use in its analysis. Letter from Wiley Rein LLP to Sec’y Commerce, re: Certain Carbon and Alloy Steel Cut-to-Length Plate from the Republic of Korea: Submission of Factual Information – Benchmark Data (Aug. 8, 2016), P.R. 283–86. On September 14, 2016, Commerce issued its Preliminary Determination. Certain Carbon and Alloy Steel Cut-to-Length Plate From the Republic of Korea: Preliminary Negative Determination, 81 Fed. Reg. 63,168 (Dep’t Commerce Sept. 14, 2016), P.R. 373, and accompanying Preliminary Decision Memorandum (“PDM”), P.R. 360. The Preliminary Determination found “no information on the record that POSCO is treated differently from other industrial users of electricity that purchase comparable amounts of electricity because the rates Consol. Court Number 17-00137 PUBLIC VERSION Page 9 paid were from the applicable tariff schedule applicable to all industrial users” and found no benefit as a result. PDM at 29. On November 2, 2016, Commerce released the verification agenda for the GOK, which stated that the deadline for filing factual information was November 2, 2016. Verification Agenda for the Government of Korea (Nov. 2, 2016) at 4 n.2, P.R. 444. POSCO submitted additional factual information that same day, stating that Chemtech had received a small amount of port usage grants from the Pohang Youngil Port. POSCO’s Submission of Additional Factual Information (Rejected & Retained Document) (Nov. 2, 2016) at 2, P.R. 447, C.R. 424. Two days later, Commerce rejected this submission but indicated that POSCO could resubmit the information “accompanied by a written explanation identifying the subsection of 19 CFR 351.102(b)(21) under which the information is being submitted.” 5 Rejection of POSCO’s Submission of Additional Factual Information (Nov. 4, 2016), P.R. 452. POSCO resubmitted the Chemtech port usage grant information on November 7, 2016. POSCO’s Resubmission of Factual Information (Rejected Document) (Nov. 7, 2016), P.R. 456. Commerce rejected this resubmission on November 10, 2016, stating that it “contain[ed] untimely filed new factual information relating to a previously unreported subsidy program received by POSCO Chemtech” and further noted that “this new factual information falls under 19 CFR 351.102(b)(21)(i) as being responsive to the Department’s initial questionnaire, and should have been submitted by July 18, 2016,” the due date for POSCO’s initial questionnaire response. 6 Rejection of POSCO’s Resubmission of Additional Factual Information (Nov. 10, 2016), P.R. 459. 5 19 C.F.R. § 351.102(b)(21) identifies and defines types of factual information parties and Commerce may submit during an investigation. 6 19 C.F.R. § 351.102(b)(21)(i) provides that “factual information” parties may submit during an investigation includes “[e]vidence, including statements of fact, documents, and data submitted Consol. Court Number 17-00137 PUBLIC VERSION Page 10 Commerce then conducted verification of POSCO, POSCO Energy, M-Tech, Chemtech, and Hyundai. Verification Report for POSCO (Jan. 10, 2017) at 1, P.R. 469, C.R. 475; Verification Report for Hyundai Corp. (Jan. 10, 2017) at 1, P.R. 470. Relevant here, Commerce observed in its Verification Report that: (1) verification of M-Tech’s tax returns revealed deductions from taxable income related to R&D grants received by two companies acquired by M-Tech; and (2) Chemtech’s port usage grants were not considered minor corrections, and could not be submitted as such at verification. POSCO Verification Report at 2–3. Commerce also noted that Hyundai submitted its 2015 income tax return instead of its 2014 income tax return filed in 2015, and that due to Hyundai’s reliance on the wrong tax return, it failed to report its usage of RSTA Article 22 during the POI. Hyundai Verification Report at 2. Additionally, subsequent to the Preliminary Determination, Commerce placed facts on the record and issued a supplemental questionnaire to POSCO regarding its relationship with POSCO Energy. Memorandum from Yasmin Bordas, Sr. Int’l Trade Compliance Analyst, AD/CVD Operations, Off. VI, to the File, re: Countervailing Duty Investigation of Certain Carbon and Alloy Steel Cut-to-Length Plate from the Republic of Korea: Placing Information on the Record (Sept. 21, 2016), P.R. 390; Letter from Morris, Manning & Martin, LLP to Sec’y Commerce, re: Certain Carbon and Alloy Steel Cut-to-Length Plate from the Republic of Korea, Case No. C-580-888: Sixth Supplemental Questionnaire Response (Oct. 4, 2016), P.R. 415, C.R. 417. POSCO’s response provided details about POSCO and POSCO Energy’s relationship. 7 Commerce either in response to initial and supplemental questionnaires, or, to rebut, clarify, or correct such evidence submitted by any other interested party.” 7 Namely, that [[ ]]. POSCO’s Sixth Suppl. Questionnaire Resp. at 1, 4, Ex. 38. Consol. Court Number 17-00137 PUBLIC VERSION Page 11 confirmed this information at verification. 8 Commerce issued its Final Determination on April 4, 2017. Applying a “standard pricing mechanism” analysis drawn from the 1993 investigation of Magnesium from Canada, Commerce found that no benefit was conferred by the provision of electricity. IDM at 32–33. Specifically, Commerce did not attribute electricity subsidies received by POSCO Energy to POSCO, “because the electricity is sold to KPX, and not to POSCO directly.” Id. at 24. Commerce applied AFA to POSCO for: (1) Chemtech’s failure to timely report the port usage grants; (2) M-Tech’s failure to report the R&D grants received by the companies it had acquired; and (3) Hyundai’s failure to report its use of RSTA Article 22. Id. at 11. To establish rates for these programs, Commerce stated that it used its standard CVD AFA methodology and selected the 1.05 percent rate established for a tax credit program in Washers from Korea as M-Tech and Hyundai’s AFA rate, and a 1.64 percent rate established for an export insurance program in Refrigerators from Korea for Chemtech’s port usage grants. Id. at 14–15, 18–19. Because it had failed to request additional information from Chemtech regarding its R&D grants, Commerce did not apply AFA in that respect. Id. at 47. POSCO’s final CVD rate was 4.31 percent. Final Determination, 82 Fed. Reg. at 16,342. POSCO subsequently commenced this action challenging Commerce’s Final Determination, and Commerce’s application of AFA in particular. Compl., June 2, 2017, ECF No. 8 Notably, that [[ ]] and that [[ ]]. Memorandum from Yasmin Bordas, Sr. Int’l Trade Compliance Analyst, Off. VI, AD/CVD Operations and John Corrigan, Int’l Trade Compliance Analyst, Off. VI, AD/CVD Operations, Through Brian C. Davis, Program Manager, Off. VI, AD/CVD Operations, to the File, re: Countervailing Duty Investigation of Certain Carbon and Alloy Steel Cut-to-Length Plate from the Republic of Korea: Verification of the Questionnaire Responses of POSCO (Jan. 10, 2017) at 11–16, P.R. 469, C.R. 475. Consol. Court Number 17-00137 PUBLIC VERSION Page 12 6. Nucor also brought an action challenging Commerce’s determination with regards to the attribution of electricity subsidies. Case No. 17-00156, Compl., July 21, 2017, ECF No. 9. On August 2, 2017, POSCO and Nucor’s actions were consolidated. Order, ECF No. 31. Nucor filed its opening brief on November 9, 2017, ECF Nos. 43–44, 46–47, as did POSCO, ECF Nos. 42, 45. The Government responded to both Nucor and POSCO on March 23, 2018. Def.’s Br., ECF Nos. 52–53. POSCO filed its response to Nucor on the same day, POSCO’s Resp., ECF Nos. 54, 56, ad did Nucor, Nucor’s Resp., ECF Nos. 55, 57–58. On May 4, 2018, both POSCO and Nucor filed their replies. POSCO’s Reply, ECF Nos. 61, 63; Nucor’s Reply, ECF Nos. 62, 64–65. This court heard oral argument on October 24, 2018. ECF No. 70. JURISDICTION AND STANDARD OF REVIEW The court has jurisdiction over this action pursuant to 28 U.S.C. § 1581(c) and 19 U.S.C. § 1516a(a)(2)(A)(i)(I) and (a)(2)(B)(ii). The standard of review in this action is set forth in 19 U.S.C. § 1516a(b)(l)(B)(i): “[t]he court shall hold unlawful any determination, finding or conclusion found . . . to be unsupported by substantial evidence on the record, or otherwise not in accordance with law[.]” DISCUSSION I. Provision of Electricity. A. Standard Pricing Mechanism Analysis. Nucor contends that Commerce’s determination that the provision of electricity conferred no benefit is not supported by substantial evidence and is contrary to law. Specifically, Nucor argues that Commerce’s use of the standard pricing mechanism analysis from Magnesium from Canada is inconsistent with the Uruguay Round Agreements Act (“URAA”) amendments to United States countervailing duties law. Nucor’s Br. at 9. Furthermore, Nucor alleges that Consol. Court Number 17-00137 PUBLIC VERSION Page 13 Commerce failed to address its arguments and did not explain its determination in light of opposing evidence on the record. Id. The court concludes that Commerce’s determination was supported by substantial evidence and in accordance with law. As discussed above, Commerce’s regulations set forth three ways to measure the adequacy of remuneration. 19 C.F.R. § 351.511. See supra, p. 4. In this investigation, Commerce relied on the Tier 3 benchmark to determine whether Korea’s electric authority, KEPCO, provided electricity “for less than adequate remuneration.” To evaluate KEPCO’s price-setting philosophy for its standard pricing mechanism, Commerce utilized the framework developed in Pure Magnesium Alloy and Alloy Magnesium from Canada, 57 Fed. Reg. 30,946, 30,954 (Dep’t Commerce July 13, 1992). Nucor alleges that Commerce’s use of this framework was impermissible because the Magnesium from Canada analysis relies on evidence of preferential pricing (i.e., pricing discrimination among recipients), and the URAA makes clear that adequacy of remuneration “replaces” preferential pricing as the standard for determining provision of a benefit. Nucor’s Br. at 11 (citing the Statement of Administrative Action, H.R. Doc. No. 103-316, col. 1 (1994) at 927, reprinted in 1994 U.S.C.C.A.N. 4040, 4240 (“SAA”)). According to Nucor, Commerce recognizes that “it may not rely on the preferentiality standard alone to determine adequacy of remuneration.” Id. at 12. When promulgating its current regulations, Nucor notes that Commerce explained that its new approach to benchmarks under the adequate remuneration standard “addresses the concerns . . . about potentially continuing the use of the preferentiality standard by shifting the focus of our inquiry toward whether the government employed market principles in setting prices.” Id. at 12– 13 (quoting CVD Preamble, 64 Fed. Reg. at 65,378 (emphasis added by Nucor)). Furthermore, Nucor states that Commerce has recognized that the preferentiality analysis “cannot be said to Consol. Court Number 17-00137 PUBLIC VERSION Page 14 measure adequate remuneration” and “is no longer sufficient to say that the government does not discriminate among buyers” in its more recent investigations. Id. at 12 (quoting Softwood Lumber Products from Canada, 66 Fed. Reg. 43,186, 43,196 (Dep’t Commerce Aug. 17, 2001) (emphasis added by Nucor)). “Rather . . . [Commerce] must determine whether the government is receiving adequate remuneration, i.e., a market-based price.” Id. (quoting Softwood Lumber, 66 Fed. Reg. at 43,196). For these reasons, Nucor alleges that Commerce’s use of the Magnesium from Canada standard pricing analysis was contrary to law. These arguments are unpersuasive. When reviewing Commerce’s construction of the trade statute, this court follows the two-step Chevron framework. See Apex Frozen Foods Private Limited v. United States, 862 F.3d 1337, 1344 (Fed. Cir. 2017); Maverick Tube Corporation v. United States, 41 CIT __, __, 273 F. Supp. 3d 1293, 1305 (2017) (quoting Xiping Opeck Food Co. v. United States, 38 CIT __, __, 34 F. Supp. 3d 1331, 1342 (2014)). Under the first step, if Congress’ intent under the statute is clear, then the court “must give effect to the unambiguously expressed intent of Congress.” Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842–43 (1983). If “the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Id. at 843 (footnote omitted). “Chevron requires us to defer to the agency’s interpretation of its own statute as long as that interpretation is reasonable.” Stanley Works (Langfang) Fastening Systems Co., Ltd. v. United States, 41 CIT __, __, 279 F. Supp. 3d 1172, 1185 (2017) (quoting Koyo Seiko Co., Ltd. v. United States, 36 F.3d 1565, 1573 (Fed. Cir. 1994)). “Furthermore, the court affords Commerce significant deference in ‘[a]ntidumping and [CVD] determinations involv[ing] complex economic and accounting decisions of a technical Consol. Court Number 17-00137 PUBLIC VERSION Page 15 nature[.]” Nucor Corp. v. United States, 42 CIT __, __, 286 F. Supp. 3d 1364, 1370 (quoting Fujitsu General Ltd. v. United States, 88 F.3d 1034, 1039 (Fed. Cir. 1996) (citation omitted)); see also PSC VSMPO-Avisma Corp. v. United States, 688 F.3d 751, 764 (Fed. Cir. 2012). To be afforded deference, however, “Commerce’s methodological approach must be a ‘reasonable means of effectuating the statutory purpose’ and its conclusions must be supported by substantial evidence.” Nucor, 286 F. Supp. 3d at 1370–71 (quoting Ceramica Regiomontana, S.A. v. United States, 10 CIT 499, 404–05, 636 F. Supp. 961, 966 (1986) (citations omitted), aff’d, 810 F.2d 1137, 1138–39 (Fed. Cir. 1987)); see also CS Wind Vietnam Co. v. United States, 832 F.3d 1367, 1377 (Fed. Cir. 2016) (“The requirement of explanation presumes the expertise and experience of the agency and still demands an adequate explanation in the particular matter.” (citing Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 167–68 (1962))). Congress’ intent regarding the use of preferential pricing as part of Commerce’s analysis is unclear. Aside from a non-exhaustive list of “prevailing market conditions,” which include “price, quality, availability, marketability, transportation, and other conditions of purchase or sale,” the statute gives no guidance as to how Commerce should interpret the adequacy of remuneration language, and neither the Statement of Administrative Action (“SAA”) 9 nor legislative history elucidate this issue. See 19 U.S.C. 1677(5)(E); SAA at 912–13; Maverick Tube, 273 F. Supp. 3d at 1306; see also POSCO v. United States, 42 CIT __, __, 296 F. Supp. 3d 1320, 1355 (2018). Despite Nucor’s contentions otherwise, the relevant Statement of Administrative Action does not clarify the definition of “adequate remuneration;” indeed, it merely provides the 9 The SAA “shall be regarded as an authoritative expression by the United States concerning the interpretation and application of the Uruguay Round Agreements and this Act in any judicial proceeding in which a question arises concerning such interpretation or application.” 19 U.S.C. § 3512(d). Consol. Court Number 17-00137 PUBLIC VERSION Page 16 same definition. SAA at 912–13. The court thus turns to the second Chevron step, and concludes that Commerce’s interpretation of the statute is reasonable. The statute directs Commerce to evaluate adequate remuneration based on “prevailing market conditions . . . in the country which is subject to the investigation or review,” which is what Commerce did here. While the first two prongs of 19 C.F.R. § 351.511(a)(2) privilege the use of market-determined prices in Commerce’s adequate remuneration analysis, when dealing with state-controlled markets -- and particularly, state monopolies over the provision of utilities -“government prices [may be] the most reasonable surrogate for market-determined prices,” and thus a preferentiality analysis would be appropriate. CVD Preamble, 63 Fed. Reg. at 65,378. As this court in Maverick Tube persuasively summarized: In a state-controlled monopolistic market, it is reasonable to determine the adequacy of remuneration by first examining how the state sets its rates, as the state (and not necessarily supply-and-demand) controls price and availability. If the state does use a standard pricing mechanism to set its rates (i.e., if its prices are set by a consistent discernable method), it is also reasonable for Commerce to determine the adequacy of remuneration by examining whether respondents received a preferential rate when compared to those entities receiving a rate set by the standard pricing mechanism. As noted, the statute directs Commerce to determine if a benefit is present by determining whether a good or service is provided “for less than adequate remuneration.” Adequate remuneration is to be measured by “prevailing market conditions . . . in the country which is subject to the investigation or review.” 19 U.S.C. § 1677(5)(E). The statute does not direct Commerce to create a fictional model market or (as shall be seen) to audit KEPCO’s books to determine if it covers its costs. The statute directs Commerce to judge the adequacy of remuneration based on market conditions that actually exist in Korea. That the Korean electricity market is controlled by a state run monopoly does not change the statute. 273 F. Supp. 3d at 1306–07. Nucor contends that such an interpretation defeats Congress’ intent to shift the focus of inquiry from preferentiality to adequate remuneration. Nucor’s Br. at 16–17. However, the court finds that “Commerce’s tier-based approach to determining adequate remuneration ‘accomplishes Consol. Court Number 17-00137 PUBLIC VERSION Page 17 the post-URAA preference for market-based prices.’” POSCO, 296 F. Supp. 3d at 1355 (quoting Maverick Tube, 273 F. Supp. 3d at 1309); see also Nucor, 286 F. Supp. 3d at 1373 (“The statute sets a standard of adequate remuneration . . . and the regulation explicates that standard in a variety of contexts.” (citations omitted)). Commerce crafted its tier-based approach based on its experience administering the new statutory provision, CVD Preamble, 63 Fed. Reg. at 65,377, and “grappling with how best to apply the adequate remuneration standard in the context of government monopolies,” POSCO, 296 F. Supp. 3d at 1356 (citing Maverick Tube, 273 F. Supp. 3d at 1298); see also Steel Wire Rod From Trinidad and Tobago: Final Affirmative Countervailing Duty Determination, 62 Fed. Reg. 55,003, 55,006 (Dep’t Commerce Oct. 22, 1997) (noting the “[p]articular problems [that] can arise when the government is the sole supplier of the good or service in the country or within the area where the respondent is located”); Steel Wire Rod From Germany: Final Affirmative Countervailing Duty Determination, 62 Fed. Reg. 54,990, 54,994 (Dep’t Commerce Oct. 22, 1997) (noting that Commerce may need to “examine other options” when there is no free market-derived benchmark with which to compare the government price). “The resulting regulation emphasizes domestic and world market prices (Tier 1 and 2 analyses) while permitting consideration of other factors, such as price-setting and price discrimination (in a Tier 3 analysis), when market-based prices are unavailable.” POSCO, 296 F. Supp. 3d at 1356 (citations omitted); see 19 C.F.R. § 351.511 (privileging the use of market-based comparators where available); CVD Preamble, 63 Fed. Reg. at 65,377–79. Crucially, “Nucor’s assertion that Commerce’s reliance on a standard pricing mechanism analysis is unlawful post-URAA lacks merit because it ignores the entirety of Commerce’s regulatory changes and Commerce’s separate consideration of price-setting and preferentiality.” POSCO, 296 F. Supp. 3d at 1356; see also CVD Preamble, 63 Fed. Reg. at 65,377–79 (discussing Commerce’s development of its regulations Consol. Court Number 17-00137 PUBLIC VERSION Page 18 in light of the changes resulting from the URAA and Commerce’s experience implementing the new standard). Nucor’s argument 10 that Commerce’s regulations give identical words different meanings is also unpersuasive. As discussed above, neither the statute nor the legislative history provide a precise method for calculating “adequate remuneration” or dictate how Commerce should weigh the different factors that comprise the “prevailing market conditions . . . in the country which is subject to the investigation or review.” In light of the flexibility of the adequate remuneration standard, it is reasonable for Commerce to adjust how it evaluates “prevailing market conditions” and “adequate remuneration” based on the context of the relevant market and the information available to Commerce when conducting its analysis. See also Nucor, 268 F. Supp. 3d at 1372 (“The phrase ‘adequate remuneration’ is capacious enough to be viewed as a standard to be applied to given contexts. In a tier three benchmark analysis, Commerce specifically looks at market principles to assess adequate remuneration.”) (citing 19 C.F.R. § 351.511(a)(2)(iii)). Nucor also contends that Commerce failed to consider costs, as provided in 19 C.F.R. § 351.511(a)(2)(iii), and that Commerce’s determination thus impermissibly rested solely on a preferential pricing analysis. Nucor’s Br. at 9–11, 25–30. However, Commerce did consider cost, and specifically, assessed how KEPCO’s standard pricing mechanism used costs as the basis for 10 Nucor argues that Maverick Tube was erroneously decided because its interpretation fails to give “identical words and phrases within the same statute . . . the same meaning.” Nucor’s Br. at 18–19 (quoting FCC v. AT&T Inc., 562 U.S. 397, 408 (2011) (citation omitted)). Specifically, Nucor suggests that the Maverick court impermissibly allowed Commerce to give “the term ‘adequate remuneration’ one meaning under tier one and tier two of Commerce’s regulations (where government distortions must be avoided to the greatest extent possible), and effectively the opposite meaning under tier three (where any price the government decides to charge must be blindly accepted as adequate remuneration).” Id. at 20. For these reasons, Nucor contends, this court should not find Maverick Tube’s reasoning persuasive and should instead find Commerce’s regulations to be impermissible under the URAA. Consol. Court Number 17-00137 PUBLIC VERSION Page 19 developing its electricity tariff schedule. IDM at 32. Commerce found that KEPCO calculated its overall cost, including an amount for investment on return, the operational cost for generating and supplying electricity to consumers, and taxes. Id. KEPCO then applied the following principles in allocating costs across tariff classifications: The cost for each electricity classification was calculated by (1) distributing the overall cost according to the stages of providing electricity (generation, transmission, distribution, and sales); (2) dividing each cost into fixed cost, variable cost, and the consumer management fee; and (3) then calculating the cost by applying the electricity load level, peak level, and the patterns of consuming electricity. Each cost was then distributed into the fixed charge and the variable charge. KEPCO then divided each cost taking into consideration the electricity load level, the usage pattern of electricity, and the volume of the electricity consumed. Costs were then distributed according to the number of consumers for each classification of electricity. Id. at 32–33 (internal citations omitted); see also GOK Section II Questionnaire Resp. (July 15, 2016) at 13–15, P.R. 208, C.R. 151. Commerce “verified that KEPCO applied th[e] same pricesetting method or standard pricing mechanism to determine the electricity tariffs for each tariff classification including the industrial tariff that was paid by the respondents during the POI.” IDM at 29. The GOK provided KEPCO’s cost data and explained its calculations and recovery costs, KEPCO’s electricity cost calculations, and data showing KEPCO’s cost and investment return during the POI. Id. at 29, 32. Based on its standard pricing mechanism analysis and KEPCO’s cost data for the POI, Commerce concluded that KEPCO more than fully recovered its costs for the tariff applicable to POSCO. 11 Id. at 32–33; GOK Questionnaire Resp. at 13–15. 11 Nucor claims that the KPX -- which purchases electricity from generators and then sells it to KEPCO -- cost-setting system is distorted because it systematically understates generation costs and undercompensates high-fixed-cost generators like nuclear plants. Nucor’s Br. at 26–30. However, Nucor failed to provide any record evidence supporting its contention that tariff rates are differentiated based on the manner of electricity generation. IDM at 32; see also POSCO, 296 F. Supp. 3d at 1358–60. Moreover, “[n]othing in the statute requires Commerce to consider how the authority acquired the good or service that was later provided to respondents.” Nucor, 286 F. Supp. 3d at 1376. Because “KEPCO is the exclusive supplier of electricity in Korea . . . Consol. Court Number 17-00137 PUBLIC VERSION Page 20 Nucor also claims Commerce ignored substantial evidence on the record that detracted from its conclusion. Nucor’s Br. at 22–31. In particular, Nucor points to a Korean National Assembly report and KEPCO’s 2013 application to increase tariff rates as substantial evidence that Korean electricity prices are not consistent with market principles. Nucor’s Br. at 22–23. However, Commerce did consider this information. For example, Commerce assessed the Korean National Assembly Report, but found it unusable because the data involved preceded the POI by several years and because KEPCO’s industrial electricity tariffs have increased multiple times since the report was issued. IDM at 33; see also GOK Questionnaire Resp. at Ex. E-3 at 50–51. Thus, for the reasons discussed above, Commerce’s determination was based on substantial evidence and is in accordance with law. B. Attribution. Nucor argues that Commerce’s determination that subsidies received by POSCO Energy could not be attributed to POSCO was unreasonable, unsupported by substantial evidence, and contrary to law. Nucor’s Br. at 31. Nucor notes that: POSCO and POSCO Energy are crossowned; POSCO Energy supplies electricity to KPX for more than adequate remuneration; and POSCO then purchased electricity from KPX for a lower price. 12 Nucor’s Br. at 32–33. Therefore, according to Nucor, the electricity production subsidy received by POSCO Energy should be attributed to POSCO. The court finds this argument unpersuasive. Commerce’s focus on KEPCO’s costs and rate-setting method is reasonable.” POSCO, 296 F. Supp. 3d at 1360 (citing Apex Frozen Foods, 862 F.2d at 1351) (internal quotations omitted). 12 Nucor also states that [[ ]] and [[ ]]. Essentially, Nucor alleges that POSCO engaged in a “lucrative scheme” by [[ ]]. Nucor’s Br. at 33; see also Nucor’s Case Br. at 4–10; POSCO Verification Report at 15. Consol. Court Number 17-00137 PUBLIC VERSION Page 21 19 U.S.C. § 1671(a)(1) requires Commerce to calculate countervailing duties based upon the net countervailable subsidy provided “directly or indirectly” with respect to “the manufacture, production, or export of a class or kind of merchandise imported [] into the United States.” Commerce’s regulations provide criteria for attributing subsidies received by one company to another, including cross-owned corporations. Relevant here: (iv) Input suppliers. If there is cross-ownership between an input supplier and a downstream producer, and production of the input product is primarily dedicated to production of the downstream product, [Commerce] will attribute subsidies received by the input producer to the combined sales of the input and downstream products produced by both corporations (excluding the sales between the two corporations). 19 C.F.R. § 351.525(b)(6). Under the regulations, cross-ownership is defined as one entity being able to use or direct the assets of the other entity as it would its own. 19 C.F.R. § 351.525(b)(6)(vi). POSCO Energy is an affiliate of POSCO dedicated to energy generation. See Letter from Morris, Manning & Martin LLP to Sec’y Commerce, re: Certain Carbon and Alloy Steel Cut-toLength Plate from the Republic of Korea, Case No. C-580-888: Response to “Other Companies Subject to Investigation” Questions for Initial Questionnaire (June 17, 2016) at Ex. 4, p.1, P.R. 124–28, C.R. 45–49. POSCO Energy produces electricity, and POSCO consumes electricity during its manufacturing. However, at no point during the POI did POSCO Energy sell or otherwise provide electricity to POSCO; indeed, other than sales to KPX, POSCO Energy was prohibited by law from selling electricity to third parties. 13 See POSCO Verification Report (Jan. 10, 2017) at 14–15, P.R. 469, C.R. 475. Commerce also verified that ownership of electricity was formally transferred from POSCO Energy to KPX when the electricity reached the KPX meter. 13 Specifically, “when POSCO Energy generates electricity, [it] [[ ]].” POSCO Verification Report at 15. Consol. Court Number 17-00137 PUBLIC VERSION Page 22 Id. at 12. Based on this record evidence showing POSCO Energy sold electricity directly to KPX, and not to POSCO, Commerce found POSCO Energy was not an input supplier to POSCO under 19 C.F.R. § 351.525(b)(6). IDM at 24. Nucor contends that the transfer of title is merely a “legal fiction” and that Commerce should ignore the transfer of ownership from POSCO Energy to KPX, but Nucor provides no authority for this position. For these reasons, Commerce’s determination was supported by substantial evidence and in accordance with law. II. AFA Claims. POSCO challenges Commerce’s application of AFA on account of M-Tech’s failure to report research and development (“R&D”) grants, POSCO’s Br. at 10; Chemtech’s initial failure to report certain port usage grants, id. at 20; and Hyundai’s tax return reporting error, id. at 33. Nucor alleges Commerce abused its discretion in its treatment of Chemtech’s R&D grants. Nucor’s Br. at 38. POSCO further argues that Commerce erred in applying the highest AFA rates to POSCO, POSCO’s Br. at 35, and that Commerce failed to corroborate the AFA rates applied to POSCO, id. at 38. The court determines that Commerce’s application of AFA is supported by substantial evidence and in accordance with law, except for the application of AFA to the countervailability determination of POSCO M-Tech’s R&D grants. There, the court finds that Commerce did not sufficiently justify its application of AFA to the benefit and specificity requirements of countervailability and remands the Final Determination on this issue for reconsideration. The court also finds that Commerce did not evaluate the application of the highest available AFA rates and remands the Final Determination for reconsideration on this issue. 14 14 The court need not address the corroboration issue at this time. Consol. Court Number 17-00137 PUBLIC VERSION Page 23 A. M-Tech. 1. Application of AFA for POSCO M-Tech Not Reporting Grants. POSCO first argues that Commerce erred in applying AFA for POSCO M-Tech’s failure to report certain R&D grants because the questionnaire did not require “that POSCO M-Tech report[] grants received by companies that no longer exist as ongoing entities.” POSCO’s Br. at 11. Specifically, POSCO contends that Commerce’s questionnaire did not require M-Tech “to report subsidies received by Ricco Metal and Nine-Digit prior to their acquisition by POSCO MTech.” Id. at 12. Commerce asked under Section D of its initial questionnaire, “Other Companies Subjection to Investigation,” for POSCO to report “alleged allocable, non-recurring subsidies that your company may have received during the AUL period” and provide a full response “if your company obtained all or substantially all the assets of another company during the AUL period and that company still exists as an ongoing entity.” Id. (citing Initial Countervailing Duty Questionnaire at 1–3). Ricco Metal and Nine-Digit ceased to exist as ongoing entities after their acquisition by M-Tech; therefore, according to POSCO, because that question called for subsidies provided to “ongoing entit(ies),” it did not include Ricco Metal or Nine-Digit subsidies. Id. As discussed above, 19 U.S.C. § 1677e(a) permits Commerce to use “an inference that is adverse to the interests of that party in selecting from among the facts otherwise available” when a respondent fails to provide requested information in a timely manner. Commerce need not conclude that respondent acted with “intentional conduct” to apply AFA. Nippon Steel, 337 F.3d at 1383. “‘Inadequate inquiries’ may suffice. The statutory trigger for Commerce’s consideration of an adverse inference is simply a failure to cooperate to the best of respondent’s ability, regardless of motivation or intent.” Id. Consol. Court Number 17-00137 PUBLIC VERSION Page 24 The court finds that M-Tech failed to report the subsidies received by Ricco Metal and Nine-Digit “under circumstances in which it is reasonable for Commerce to expect that more forthcoming responses should have been made.” Id. In Section II of its questionnaire, Commerce instructed respondents to report “any subsidy program(s)” and “describe such assistance in detail, including the amounts, date of receipt, purpose and terms, and answer all questions.” Initial Countervailing Duty Questionnaire at 21. This question calls for “any subsidy,” and thus it was reasonable for Commerce to expect POSCO to provide this information. POSCO contends that “POSCO M-Tech personnel at verification were not familiar with [the questionnaire] and thus initially responded incorrectly.” POSCO’s Br. at 10. The “best of its ability” standard, however, “assumes that importers are familiar with the rules and regulations that apply to the import activities undertaken.” Nippon Steel, 337 F.3d at 1382. Because lack of familiarity is not a cognizable excuse for failure to report, it does not preclude the application of AFA. POSCO, moreover, also told Commerce that it exercised its discretion in not reporting the Ricco Metal and Nine-Digit subsidies because their value was small. “It is Commerce, not the respondent, that determines what information is to be provided for an administrative review.” Ansaldo Componenti, S.p.A. v. United States, 10 CIT 28, 37, 628 F. Supp. 198, 205 (1986). Commerce noted in the IDM that “M-Tech also explained that it exercised its discretion and did not report these subsidies because the value of the subsidies was small (internal citations omitted).” IDM at 42 (citing Verification Report at 28). Commerce thus made a factual finding that POSCO exercised discretion in not reporting the subsidies. Because Commerce asked for “any subsidies,” and M-Tech either neglected to fully respond to the questionnaire from lack of familiarity or improperly exercised its discretion in not reporting, which Commerce addressed in the IDM, this court finds that Commerce’s application of AFA was supported by substantial evidence. Consol. Court Number 17-00137 PUBLIC VERSION Page 25 2. Necessary Factual Findings. POSCO next contends that Commerce failed to “make the necessary factual findings to satisfy the requirements for countervailability.” POSCO’s Br. at 15 (quoting Changzou Trina Solar Energy Co., Ltd. v. United States, 40 CIT __, __, 195 F. Supp. 3d 1334, 1350 (2016) (citing 19 U.S.C. §§1677e(a)–(c))). In particular, POSCO argues that Commerce failed to show that the assistance provided to Ricco Metal and Nine-Digit were sufficiently “specific” and “beneficial” so as to meet the statutory requirements of a countervailable subsidy. POSCO argues that, in terms of specificity, Commerce merely states in the IDM that “{a}s addressed above, we are finding, as AFA, that these subsidies are specific.” POSCO’s Br. at 15 (quoting IDM at 44). POSCO further contends that Tax Form 15 provides Commerce the requisite information to calculate a benefit of .001 percent, which Commerce considers not measurable and not countervailable. Id. at 16. As has been noted, supra, p. 3, to determine that a countervailable subsidy exists, Commerce must find that the assistance provided by a government to the respondent “provide[s] a financial contribution,” is specific, and “confer[s] a benefit.” 19 U.S.C. § 1677(5). “Because ‘all governments, including the United States, intervene in their economies to one extent or another, and to regard all such interventions as countervailable subsidies would produce absurd results,’ the specificity test is meant to exclude foreign subsidies that ‘are broadly available and widely used throughout an economy.’” Trina Solar, 195 F. Supp. 3d at 1348–49 (quoting SAA (citing Carlisle Tire & Rubber Co. v. United States, 5 CIT 229, 564 F. Supp. 834 (1983))). In determining whether assistance constitutes a countervailable subsidy, Commerce must avoid making “a sweeping legal conclusion lacking any factual foundation.” Id. at 1349. Here, Commerce contends that because it had no information on the record, besides respondents’ own tax treatment of the grants as “government subsidies,” it permissibly applied Consol. Court Number 17-00137 PUBLIC VERSION Page 26 AFA to the specificity and benefit inquiries. Def.’s Br. at 34; POSCO Verification Report at 28– 29. “[E]ven when using facts otherwise available with adverse inferences, Commerce must still point to actual information on the record to make required factual determinations.” Trina Solar, 195 F. Supp. 3d at 1350 (citing 19 U.S.C. §§ 1677e(a)-(c)). Commerce does not, however, point to information on the record to justify its application of AFA to the specificity and benefit inquiries in the IDM. The IDM says only that, “[a]s addressed above, we are finding, as AFA, that these subsidies are specific. Further, as AFA, we find that these subsidies confer a benefit under section 771(5)(E) of the Act,” where neither are addressed above. IDM at 44. In its brief, the Government cites to POSCO’s description of the assistance in Tax Form 15 as “government subsidies” to justify its financial contribution and specificity finding, Def.’s Br. at 34, yet at the same time argues that because Tax Form 15 was not verified, the “record contained no verified information for purposes of calculating benefit.” Def.’s Br. at 34. The IDM does not clarify whether Commerce relied on Tax Form 15 as record information to make a factual determination of countervailability or to justify the use of AFA to find countervailability. See IDM at 42–44. Commerce here “bypass[es] the prerequisite factual findings to reach the legal conclusion purely ‘as AFA,’” thus “illegally circumvent[ing] its obligation to make determinations that are supported by a reasonable reading of the record, including consideration of the relevant evidence that ‘fairly detract[s]’ from the reasonableness of its conclusions.” Trina Solar, 195 F. Supp. 3d at 1348 (citing Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951)). This court, therefore, remands to Commerce for reconsideration its determination that the assistance received by Ricco Metal and Nine-Digit was countervailable. 3. Rate Methodology. POSCO contends that “Commerce’s selection of the AFA rate is inconsistent with its Consol. Court Number 17-00137 PUBLIC VERSION Page 27 practice and is contradicted by record information.” POSCO’s Br. at 17. While POSCO opposes any AFA application here, it argues that if the court finds AFA application justifiable, then “it should find that the 1.05 percent rate used is unlawful.” Id. at 18. POSCO maintains that the R&D grants at use were received under the Industrial Technology Innovation Promotion Act (“ITIPA”) and cites to the verification report to support its contention. Id. Because Commerce calculated a rate of .02 percent for another ITIPA grant received by POSCO, POSCO argues that this rate, not the 1.05 percent AFA rate, should apply to these subsidies. Id. at 18–19, see also Def.’s Br. at 11– 12. This court concludes that Commerce’s application of the 1.05 percent AFA rate is supported by substantial evidence and in accordance with law. To calculate AFA rates in CVD investigations, Commerce uses a hierarchal methodology: when selecting rates, we first determine if there is an identical program and take the highest calculated rate for the identical program. If there is no identical program above de minimis, we then determine if there is a similar/comparable program (based on treatment of the benefit) and apply the highest calculated rate for a similar/comparable program. Where there is no comparable program, we apply the highest calculated rate from any non-company specific program, but we do not use a rate from a program if the industry in the proceeding cannot use that program. IDM accompanying Certain Frozen Warmwater Shrimp from the People’s Republic of China: Final Affirmative Countervailing Duty Determination, 78 Fed. Reg. 50,391 (Dep’t Commerce Aug. 19, 2013) at 13–14 (“Shrimp IDM”); see also Essar Steel Ltd. v. United States, 753 F.3d 1368, 1371 (Fed. Cir. 2014). Commerce then must “corroborate that information from independent sources that are reasonably at [its] disposal.” 19 U.S.C. § 1677e(c). Here, Commerce, consistent with its practice, applied its hierarchal methodology to determine POSCO’s AFA rate. POSCO argues that Commerce should have stopped at the first step in its methodology: “tak[ing] the highest calculated rate for the identical program.” POSCO’s Br. at 12 (citing Shrimp IDM at 13–14). However, Commerce’s practice is to continue to the Consol. Court Number 17-00137 PUBLIC VERSION Page 28 second step when the rate at the first step is de minimis. Shrimp IDM at 13–14. Here, there is no dispute that the identical program had a de minimis rate. Therefore, because Commerce followed its established practice, and POSCO does not challenge Commerce’s corroboration of the Korean Washers rate, the court finds that Commerce’s AFA application to POSCO of 1.05 percent to be supported by substantial evidence and in accordance with law. 4. Arbitrary and Capricious. Lastly, with respect to M-Tech’s R&D grants, POSCO contends that Commerce acted in an arbitrary and capricious manner when it applied AFA to the Ricco Metal and Nine-Digit R&D grants, where it had not done so with other M-Tech R&D grants discovered at verification. POSCO’s Br. at 19–20. POSCO argues that Commerce failed to justify its decision to treat the grants differently by only applying AFA to the Ricco Metal and Nine-Digit R&D and not to other M-Tech grants. Id. “An agency action is arbitrary when the agency offers insufficient reasons for treating similar situations differently.” SKF USA Inc. v. United States, 263 F.3d 1369, 1382 (Fed. Cir. 2001) (quoting Transactive Corp. v. United States, 91 F.3d 232, 237 (D.C. Cir. 1996)). Here, however, the situations were different: the grants for which Commerce examined unreported benefit information were previously reported and included inconsistences which Commerce sought to reconcile. Verification Report at 32. The Ricco Metal and Nine-Digit grants, however, were unreported. The court thus concludes that Commerce did not act in an arbitrary and capricious manner regarding M-Tech’s R&D grants. B. Application of AFA for POSCO Chemtech’s Port Usage Grants. POSCO challenges Commerce’s application of AFA rates to POSCO for Chemtech’s port usage grants, arguing that (1) there was no factual basis for Commerce to find that Chemtech failed Consol. Court Number 17-00137 PUBLIC VERSION Page 29 to cooperate, POSCO’s Br. at 24; (2) Commerce failed to search the record for evidence, id. at 26; and (3) Commerce acted in an arbitrary and capricious manner, id. at 28. The court determines that Commerce’s application of AFA rates to POSCO Chemtech was supported by substantial evidence and in accordance with law. 1. Factual Basis for AFA Application. With respect to Commerce’s treatment of Chemtech, POSCO first contends that Commerce erred in applying AFA rates to port usage grants because POSCO Chemtech’s failure to report its port usage grants in the initial questionnaire was inadvertent. Id. at 23. POSCO argues that “POSCO Chemtech’s failure to report these port usage grants in its initial response was due to simple human error and POSCO Chemtech responsibly made two attempts to remedy this error.” Id. POSCO maintains that “[t]he statute does not support the use of AFA on the basis of an inadvertent failure to cooperate.” Id. (quoting Trina Solar, 195 F. Supp. 3d at 1346). POSCO argues that Commerce’s actions contravened the intent of the statute, as “it amounted to nothing more than punishment for a company that had never participated in a U.S. CVD investigation not discovering and reporting in its initial questionnaire response miniscule amounts of other assistance.” Id. at 24. The court finds Commerce’s application of AFA to POSCO Chemtech’s port usage grants to be supported by substantial evidence and in accordance with law. As discussed, supra, p. 5, 19 U.S.C. § 1677e(b)(1) permits Commerce to apply AFA rates when it finds that a respondent “has failed to cooperate by not acting to the best of its ability to comply with a request for information.” A party has acted to the best of its ability when it has “put forth its maximum effort to provide Commerce with full and complete answers to all inquiries.” Nippon Steel, 337 F.3d at 1382. Inadvertent error, when there is reason for confusion, “does not support the use of AFA.” Trina Consol. Court Number 17-00137 PUBLIC VERSION Page 30 Solar, 195 F. Supp. 3d at 1346. But where Commerce has made a determination that a party has “failed to cooperate by not acting to the best of its ability to comply with [a] request for information, by failing to report the additional grants . . . at verification, Commerce [may] reasonably resort[] to AFA.” Id. at 1347. Here, POSCO does not refute the fact that it failed to report port usage grants for Chemtech by the original deadline required. POSCO’s Br. at 22. POSCO objects to Commerce’s subsequent rejection of its attempts to report these port usage grants but acknowledges that Commerce did so based on “strict interpretation of its factual regulations.” Id. at 23. Because there is no dispute over POSCO’s initial failure to report the grants or over the regulations under which Commerce rejected POSCO’s subsequent attempts to report, the court must only address whether Commerce reasonably found that Chemtech failed to act to the best of its ability. In the IDM, Commerce found not only that Commerce failed to report its port usage grants between 2011 and 2015, but also that POSCO failed to cooperate fully with respect to Commerce inquiries about other forms of assistance. IDM at 37–38. Commerce explained its decision to reject POSCO’s additional information: M-Tech timely reported its receipt of port usage grants from Pohang Youngil Port in its first U.S. CVD questionnaire response. Further, weeks after POSCO Chemtech submitted its initial questionnaire response, POSCO reported the port usage grants that it received during the POI. POSCO Chemtech did not report its receipt of port usage grants at that time. Thus, we disagree with POSCO’s argument that the application of facts available with respect to POSCO Chemtech’s failure to report receipt. Id. at 37. This court, therefore, determines that Commerce’s finding that POSCO did not act to the best of its ability, as it did not “conduct prompt, careful, and comprehensive investigations of all relevant records,” to be supported by substantial evidence and in accordance with law. Nippon Steel, 337 F.3d at 1382. This action, moreover, was not arbitrary and capricious, as Commerce Consol. Court Number 17-00137 PUBLIC VERSION Page 31 followed the plain language of the statute and regulations. See 19 U.S.C. § 1677e(b)(1); 19 C.F.R. § 351.301–02. 2. Countervailable Benefit. POSCO argues that even if Commerce had a factual and legal basis to apply AFA, “it failed to point to any record evidence to demonstrate that POSCO Chemtech received a countervailable benefit from the port usage grants because it has refused to accept for the official record any information that was submitted by POSCO Chemtech.” POSCO’s Br. at 26. POSCO argues that Commerce failed to make the necessary findings regarding the benefit requirement in determining whether a subsidy is countervailable. Id. at 27. The court finds that Commerce supported its “benefit” determination with substantial evidence. As discussed above, for a subsidy to be countervailable, it must provide the respondent a financial contribution, be specific, and provide a benefit. 19 U.S.C. § 1677(5). In applying AFA rates, Commerce “must still make the necessary factual findings to satisfy the requirements for countervailability.” Trina Solar, 195 F. Supp. 3d at 1350 (citing 19 U.S.C. § 1677e(a)–(c)). Commerce “need not query [the respondent] again, but must nevertheless search ‘the far reaches of the record’-- and may re-open the record -- to make the prerequisite factual findings.” Id. (internal citations omitted). The court finds that Commerce reasonably relied on AFA for purposes of finding benefit. Because Chemtech failed to timely report the port usage grants, Commerce lacked information on the record to determine whether the port usage grants provided a benefit. While Commerce could have re-opened the record “to make the prerequisite factual findings,” it was not required to do so. Id. In the IDM, Commerce explained the complete lack of information on the record, POSCO Chemtech’s failure to cooperate, and its subsequent decision to apply adverse facts to the benefit Consol. Court Number 17-00137 PUBLIC VERSION Page 32 inquiry. IDM at 38. Commerce thus permissibly applied adverse facts to the benefit inquiry. The court, therefore, finds that Commerce’s determination that the subsidy was countervailable is supported by substantial evidence. 3. Arbitrary and Capricious. POSCO also contends that Commerce’s treatment of Chemtech was arbitrary and capricious because Commerce did not apply AFA and found that M-Tech’s grants provided no benefit, but did apply AFA to find that Chemtech’s port usage grants provided a benefit. POSCO’s Br. at 28. “An agency action is arbitrary when the agency offers insufficient reasons for treating similar situations differently.” SKF USA Inc., 263 F.3d at 1382 (quoting Transactive Corp., 91 F.3d at 237). Here, however, Commerce provided sufficient reasons for treating M-Tech and Chemtech’s port usage grants differently. As the Government explained in its brief, “POSCO Chemtech’s port usage grants did not constitute a previously reported program, but rather new information.” Def.’s Br. at 43. In the case of POSCO M-Tech, the grants had previously been reported, but Commerce “noted certain inconsistencies during [its] examination of POSCO MTech’s grants with respect to ‘R&D Grants under ITIPA,’” POSCO Verification Report at 32, and was reconciling certain inconsistences observed at verification for a previously reported program, id. Thus, the court concludes that Commerce did not act in an arbitrary and capricious manner because it offered sufficient reasons for treating M-Tech and Chemtech differently with regards to determining whether their respective grants provided a benefit. C. Treatment of Chemtech’s R&D Grant. Nucor challenges Commerce’s decision to treat Chemtech’s R&D grants as recurring, as well as its decision not to apply AFA to Chemtech for failure to report these grants. Nucor’s Br. at 38. In particular, Nucor argues that Commerce abused its discretion by “treating the exact same Consol. Court Number 17-00137 PUBLIC VERSION Page 33 subsidy as both recurring and non-recurring in the same investigation.” Id. at 39. This court is unpersuaded and finds that Commerce did not abuse its discretion in its treatment of Chemtech’s R&D grants. “[I]f Commerce has a routine practice for addressing like situations, it must either apply that practice or provide a reasonable explanation as to why it departs therefrom.” Save Domestic Oil, Inc. v. United States, 357 F.3d 1278, 1283–84 (Fed. Cir. 2004). The analysis thus becomes whether Commerce had a standard practice, whether it deviated from this practice, and whether it provided a reasonable explanation for the deviation. The agency record shows that POSCO and Chemtech reported R&D grants as recurring, but Commerce found in its Preliminary Determination that they were non-recurring. PDM at 27 n.149. Commerce issued supplemental questionnaires but “inadvertently addressed this questionnaire only to POSCO and not to any other firm which submitted a complete questionnaire response to the Department.” IDM at 47. In other words, Commerce addressed a supplemental questionnaire to POSCO but not to POSCO Chemtech. As Commerce explained in the IDM: Given that the Department did not address the supplemental questionnaire to POSCO Chemtech and that in the course of this investigation the Department issued questionnaires directly to POSCO’s cross-owned companies, the Department determines that POSCO Chemtech did not have notice that it was required to respond to the supplemental questionnaire concerning the ITIPA program. Consequently, consistent with section 782(d) of the Act, we determine that the application of AFA in this instance is unwarranted. As discussed above, POSCO, POSCO M-Tech, and POSCO Chemtech timely responded to the Department’s initial questionnaire to state that they considered grants received under the ITIPA to be recurring. For example, each company stated that the grants under this program span multiple years and that the funds received each year from the government are set out in the original contract. Because there is no other information on the record with respect to POSCO Chemtech’s use of the ITIPA program, the Department finds that, with respect to POSCO Chemtech only, it is appropriate to treat these grants as recurring. Consol. Court Number 17-00137 PUBLIC VERSION Page 34 Id. Because Commerce provided a reasonable explanation for its decision to treat POSCO Chemtech’s grants as recurring and not to apply AFA, the court finds that Commerce did not abuse its discretion. D. Application of AFA for Hyundai Corporation’s Reporting Error. POSCO next challenges Commerce’s application of AFA to Hyundai and its attribution of this rate to POSCO, arguing that Commerce’s actions were not supported by substantial evidence and not in accordance with law. POSCO’s Br. at 28. At issue here is Commerce’s application of AFA to assistance received by Hyundai under Korea’s Restriction on Special Taxation Act (“RSTA”) Article 22. Def.’s Br. at 22. POSCO first argues that Commerce erred in applying AFA to Hyundai because Hyundai’s reporting mistake was in an advertent error, and thus does not show that Hyundai “failed to cooperate by not acting to the best of its ability.” POSCO’s Br. at 29 (quoting 19 U.S.C. § 1677e(b)). In response to the Initial Commerce Questionnaire, Hyundai submitted its 2015 tax return filed in 2016 in lieu of its 2014 tax return filed in 2015. See Hyundai Corp.’s Initial Questionnaire Resp. (June 13, 2016) at 6 and Ex. 4, P.R. 156–58. Hyundai did, however, refer to the tax returns in its narrative response as its 2014 returns, which POSCO argues shows Hyundai intended to submit the proper returns. POSCO’s Br. at 29. POSCO argues that because this was “plainly an inadvertent human error,” AFA cannot apply. As discussed above, intent is not relevant to whether Hyundai acted to the best of its ability; rather, importers are expected to understand the organization of their own records and to diligently search their records for the information requested by Commerce. Nippon Steel, 337 F.3d at 1382. Here, Hyundai provided the wrong year’s tax returns, and explicitly asserted that it received no income tax deductions, exemptions, or benefits, other than a tax credit under Article 57 of the Corporate Tax Act. IDM at 51; Hyundai Initial Questionnaire Resp. at 26–27. Because Hyundai Consol. Court Number 17-00137 PUBLIC VERSION Page 35 submitted the wrong tax returns and failed to report the RSTA subsidy, the court concludes that Commerce’s decision to apply AFA was supported by substantial evidence and in accordance with law. POSCO next argues that “[e]ven if the Court concludes that Commerce’s application of AFA to Hyundai Corporation was proper, which it should not, there is no lawful basis to have attributed the 1.05 percent AFA rate to POSCO [because] Hyundai [] is an unaffiliated trading company, POSCO has no ownership or control of it, and POSCO was not responsible for the inadvertent human error in Hyundai Corporation’s separate response and had no ability to induce Hyundai Corporation not to make this inadvertent error.” POSCO’s Br. at 30. The Government contends that Commerce was justified in attributing Hyundai’s AFA rates to POSCO under its regulations, and that, in any event, “POSCO produced all of the subject merchandise exported through Hyundai” and “was in a position to induce the company to cooperate.” Def.’s Br. at 48 (citing IDM at 53). Under Mueller Comercial de Mexico, S. de R.L. De C.V. v. United States, Commerce may apply AFA rates when the respondent “could and should have induced [the unaffiliated party’s] cooperation by refusing to do business . . . stating that [the unaffiliated party] could otherwise evade its antidumping rate by funneling its goods through [respondent].” 753 F.3d 1227, 1233 (Fed. Cir. 2014). In that case, the Federal Circuit “conclude[d] that Commerce may rely on such policies as part of a margin determination for a cooperating party . . . as long as the application of those policies is reasonable on the particular facts and the predominant interest in accuracy is properly taken into account as well.” Id. While the Government and POSCO dispute whether POSCO had the power to induce Hyundai to comply fully with the investigation, the court concludes that the inducement analysis Consol. Court Number 17-00137 PUBLIC VERSION Page 36 set forth in Mueller is inapposite because Commerce did not apply AFA to POSCO here. Rather, the agency applied AFA to Hyundai Corporation and then attributed that benefit amount to POSCO in accordance with its regulations. See IDM at 52–53. 19 C.F.R. § 351.525(c) governs Commerce’s attribution of subsidy benefits, stating that “[b]enefits from subsidies provided to a trading company which exports subject merchandise shall be cumulated with benefits from subsidies provided to the firm which is producing subject merchandise that is sold through the trading company, regardless of whether the trading company and the producing firm are affiliated.” Here, the regulation required Commerce to apply the benefit received by Hyundai to the countervailing duty rate applicable to POSCO’s sales made through Hyundai. As Commerce complied with its own regulations and did not apply AFA rates to POSCO itself, Commerce’s actions were in accordance with law and supported by substantial evidence. E. CVD AFA Methodology. POSCO next argues that Commerce failed to “explain[] the circumstances that justified its usage of the highest non-de minimis rates available and just applied its AFA CVD methodology” in violation of 19 U.S.C. §1677e(d)(2). POSCO’s Br. at 35–38. POSCO contends that “[t]he Court should remand this case to require that Commerce base any AFA rates that it applies on an evaluation of the situation that resulted in the use of adverse inferences . . . [and] instruct Commerce that the statute does not permit it to automatically selected the highest rate and that it can only lawfully do so after an evaluation -- which it explains -- of why the facts and circumstances warrant such a result.” Id. at 36. The Government argues that, “[f]ar from acting ‘automatically’ to apply the highest calculated rates, Commerce thoroughly explained the discoveries of previously unreported information at verification which warranted an adverse inference.” Def.’s Br. at 51 (internal Consol. Court Number 17-00137 PUBLIC VERSION Page 37 citations omitted) (citing IDM at 11–13, 36–39, 42–44, 50–54.). The Government then contends Commerce “acted in accordance with § 1677e(d)(1)(A), guided by its methodology, and selected rates that were applied for the same or similar programs in a countervailing duty proceeding involving the same country.” Id. The Government lastly asserts that “section 1677e(d)(2) authorizes Commerce to rely on the highest rate.” Id. at 52. 19 U.S.C. § 1677e(d) governs “[s]ubsidy rates . . . in adverse inference determinations.” In cases in which Commerce applies an adverse inference, it may “use a countervailable subsidy rate applied for the same or similar program in a countervailing duty proceeding involving the same country” or “if there is no same or similar program, use a countervailable subsidy rate for a subsidy program from a proceeding that the administering authority considers reasonable to use.” 19 U.S.C. § 1677e(d)(1)(A)(i)–(ii). Commerce may apply any of these rates, “including the highest such rate or margin, based on the evaluation . . . of the situation that resulted in [Commerce] using an adverse inference in selecting among the facts otherwise available.” 19 U.S.C. §1677e(d)(2). As this court previously found in POSCO v. United States, 296 F. Supp. 3d at 1349, the statutory language requires Commerce to do “something more—i.e., an evaluation of the specific situation,” to justify its decision to apply the highest available rates out of all possible rates. See also NMB Singapore Ltd. v. United States, 557 F.3d 1316, 1319–20 (Fed. Cir. 2009); POSCO v. United States, 42 CIT __, __, Slip Op. 18-117 (Sept. 11, 2018) at 19. “The plain language of the statute allows Commerce to select the highest rate, but only after Commerce examines the circumstances that led to the application of AFA. In other words, 19 U.S.C. § 1677e(d)(2) clearly requires Commerce to conduct a fact-specific inquiry and to provide its reasons for selecting the highest rate out of all potential countervailable subsidy rates in a particular case.” POSCO, Slip Op. 18-117 at 19. “Moreover, because the requirement for this evaluation was added Consol. Court Number 17-00137 PUBLIC VERSION Page 38 to the pre-existing statutory requirements for using adverse facts available, clearly some additional evaluation is required beyond that which justified the adverse inference.” POSCO, 296 F. Supp. 3d at 1349. Because Commerce failed to evaluate -- beyond its adverse inference determination -- why the highest available rate should apply to POSCO, this court remands the final determination to Commerce. In its brief, the Government contends that § 1677e(d)(2) permits the highest non-de minimis rate. It does, so long as this application is “based on the evaluation . . . of the situation that resulted in [Commerce] using an adverse inference in selecting among the facts otherwise available.” 19 U.S.C. § 1677e(d)(2). Without such an evaluation, Commerce’s application of the highest non-de minimis rate is unsupported by substantial evidence and not in accordance with law. 15 CONCLUSION With the exceptions of the countervailability determination of M-Tech’s R&D grants and the application of the highest AFA rates, the court concludes that the Final Determination is in accordance with law and supported by substantial evidence. The court remands Commerce’s countervailability determination of M-Tech’s grants and the application of the highest AFA rates for reconsideration consistent with this opinion. Commerce shall file with this court and provide to the parties its remand results within 90 days of the date of this order; thereafter, the parties shall have 30 days to submit briefs addressing the revised final determination to the court and the parties shall have 15 days thereafter to file reply briefs with the court. SO ORDERED. 15 Because this court remands the issue of the use of the highest available AFA rate, as noted above, the court need not address POSCO’s contention that Commerce failed to corroborate the AFA rates under 19 U.S.C. §1677e(c)(1). POSCO’s Br. at 38. Consol. Court Number 17-00137 PUBLIC VERSION Page 39 /s/ Gary S. Katzmann Gary S. Katzmann, Judge Dated: 'HFHPEHU New York, New York

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