Korean Chemical Exporter Contests Commerce's Specificity Finding on Electricity Subsidy

Kumho said Commerce, in its countervailing duty investigation on epoxy resins from South Korea, failed to establish disproportionality, as required, to find de facto specificity. The agency didn't follow the statutory definition of the term "disproportionate" when it found the chemical industry, as a group of industries, is a "disproportionate user of electricity because the chemical industry consumed a larger percentage of electricity during the [investigation period] than many other manufacturing industries," the company said.

The trade court already has rejected this position in a string of cases, Kumho said. Prior CIT holdings have said the term "disproportionate" in the statute refers to "having or showing a difference that is not fair, reasonable, or expected," and that "disproportionality exists when something is ‘too large or too small in relation to something else,’" Kumho said.

For instance, in Hyundai Steel v. U.S., the court rejected Commerce's specificity analysis for the same electricity provision subsidy, which the agency claimed was specific given that the steel industry, when grouped with three unrelated industries, disproportionately consumed industrial electricity. The trade court said where the subsidy amount is tied to usage and no preferences are provided to any company or industrial user, Commerce's disproportionately finding elides "the reality that programs designed to confer benefits on usage levels will necessarily result in larger users receiving a proportionally larger percentage of the subsidy."

The investigation on epoxy resins involved the same subsidy program, which is "based on a standard pricing mechanism whereby no one company or industrial user receives a more preferential rate for electricity than other companies or industrial users," the brief said. The fact that usage of the subsidy is tied to electricity consumption coupled with the standard pricing mechanism means that a "larger company may receive a larger amount of the subsidy by virtue of their size alone," Kumho argued.

Commerce tried to distinguish this case from Hyundai, since the court there "took particular issue with the grouping of the steel industry with other industries," whereas the epoxy resins investigation only focused on the chemical manufacturing industry. Kumho said this isn't an "accurate characterization" of the court's decision, since the court held "more fundamentally" that disproportionality "requires that an enterprise or industry is favored in some way."

The agency justified its decision by noting that a "wide diversification of economic activities exists in Korea, including 19 industry groupings." However, the agency failed to link this diversification with the finding that the "chemical industry grouping received a disproportionately large amount of the subsidy," the brief said.

Commerce said its decision to countervail electricity provision is permissible despite being a "widely available commodity" of the type the Statement of Administrative Action accompanying the Uruguay Round Agreements Act warns not to countervail, since the specificity analysis is limited to industrial users.

In response, Kumho said the choice to center the analysis on industrial users doesn't change the fact that "the input at issue from this program -- electricity -- is the type of broadly available and widely used program that the SAA and numerous court decisions have cautioned against treating as countervailable at all." In addition, electricity rates for industrial users "are set based on a standard pricing mechanism and thus no enterprise or industry receives a more preferential rate for electricity than other companies or industrial users." And the industrial electricity rates are actually higher than the residential, general, agricultural and educational electricity rates, the respondent noted.