Steel Exporters Contest Commerce's Grouping of 3 Unrelated Industries in Specificity Analysis

In their motions for judgment, Hyundai and Dongkuk argued that Commerce erred by "simply aggregating the total electricity consumption of the top three largest industries" and comparing their consumption to that of the next seven smaller industries to show the steel industry consumed a "disproportionately larger amount of industrial class electricity" than the other industries. The companies said this move failed to give meaning to the statutory term "disproportionate" and that the comparison "just makes the obvious point that the largest consumers consume more industrial electricity than the smaller consumers."

In response, the U.S. said the grouping was reasonable, since the statute lets Commerce group industries together, and the agency's regulations don't require the grouped industries to share "similar characteristics."

Hyundai said that while the statute does allow for such grouping, "that grouping must still be reasonable and Commerce must describe the basis for the grouping." The exporter added that it never argued that the grouped industries must have "shared characteristics," as the government suggested. Instead, Hyundai argued that "Commerce never explained the basis for its grouping," the brief said.

In its brief, Dongkuk echoed the point that the agency has to "provide an adequate explanation of how it determined that a disparate set of industrial consumers received a disproportionate amount of electricity compared to other industrial users." The exporter said Commerce didn't provide "adequate reasoning" for its decision, instead using an "arbitrary grouping of industries" to get its desired results "without any further analysis of how it created this group or what this group represented." Such an explanation is especially required in light of the fact that "all industrial consumers paid for electricity according to the same pricing mechanisms, with no preference demonstrated for the steel industry."

Dongkuk also said Commerce's reasoning would lead to "absurd results." Under the government's rationale, all the agency would have to do "is get a listing of the largest industrial users of electricity ranked from highest to lowest, determine the cut-off that comprises a majority or whatever threshold it arbitrarily sets, and conclude that this 'group' consumed a disproportionate amount."

Combining the industry under consideration with more electricity-intensive industries "provides no logical or substantial basis for finding that the electricity usage by the industry under consideration was 'disproportionate,'" the brief said.

Central to both companies' arguments was the trade court's decision in Bethlehem Steel v. U.S., in which the court said one or more groups will receive a greater share of the benefits than another group in virtually every program that "confers benefits based on usage levels." The court specifically held that to "impose countervailing duties on an industry where disparity alone is demonstrated, but no evidence is produced indicating that the benefit was industry specific, is anathema to the purpose of the countervailing duty laws."

The U.S. and petitioner Nucor Steel tried to distinguish Bethlehem Steel from the current review on the "differing nature of the program" at issue here. Hyundai and Dongkuk said this is a "distinction without a difference," since the program at issue in Bethlehem Steel involved "electricity discounts for companies that agreed to lower their electricity usage during certain designated times of high electricity demand." The program at issue in the present review "involves the provision of electricity for" less than adequate remuneration.

This difference doesn't render Bethlehem Steel inapposite, Hyundai said. The court's holding that "disparity in the amount of benefits received based on usage levels alone is not a sufficient basis to find that a subsidy is de facto specific based on disproportionate receipt of the subsidy" isn't "contingent upon the nature of the program," the exporter said.

In its response, the U.S. also offered a host of arguments looking to affirmatively support the disproportionality determination. Hyundai said all the arguments are unconvincing. For instance, the government said the statute doesn't require a particular method for a de facto specificity analysis, leaving the agency with discretion to apply a reasonable one. Hyundai said, while true, "this does not mean that Commerce is free to ignore the plain meaning of the term disproportionate or that the Court has to defer to Commerce’s method if it is inconsistent with the plain meaning of the statute."

The U.S. also said South Korea has a "well-diversified economy," indicating that this supports the grouping of the three industries as reasonable. The respondent said the government failed to link the fact of Korea's diversified economy to the agency's finding that the three grouped industries "received a disproportionately large amount of the subsidy."

Hyundai also challenged Commerce's use of the "original electricity consumption data" in the review. The agency relied on electricity consumption data as reported in the Korean government's initial questionnaire response for the de facto specificity determination. However, the Korean government later supplemented the data "with more complete and accurate data, and Commerce verified that data," Hyundai said.

The exporter argued that the agency "failed to provide any credible explanation as to why, despite the existence of updated data on the record that it verified, it continued to rely on incomplete and unverified information for its specificity analysis." While the U.S. said the agency didn't need to use the revised data, since it didn't request it, Hyundai said this doesn't justify disregarding the data. If Commerce felt the revised data was "unsolicited and unnecessary," then it should have rejected it as untimely submitted new information. Since the agency didn't do that, the data was part of the record.

And while the government also said the revised data wasn't usable because it was "reported at a lower level of industrial classification than what Commerce requested," Hyundai said the agency "should have raised any possible deficiencies in a supplemental questionnaire" if there were questions about the data. The agency still chose to verify the "not usable" data and "did not bother to verify the original data it relied upon in its specificity analysis," the brief noted.

"It is not credible for Commerce to disavow the very consumption data that it chose to verify," Hyundai argued.

Lastly, Hyundai contested Commerce's inclusion of certain pass-through amounts in its cost recovery analysis that were already captured in prior reviews' costs. Commerce declined to remove fuel costs in 2021 that the Korean government "carried forward" to 2022, even though the agency already used these costs to calculate Hyundai's cost recovery rate in the 2021 review of the CVD order, the brief said. The U.S. argued that the 2021 amounts may be included, since they are part of the Korean government's tariff schedule for the review period and relevant to the price of electricity charged to consumers.

In response, Hyundai said the government is "incorrect." Whether the 2021 amounts are part of the price charged to consumers doesn't mean that the "cost recovery rate that Commerce calculated is relevant to the adequacy of remuneration during the POR," the brief said.