Opinion ID: 766349
Heading Depth: 1
Heading Rank: 6

Heading: tercl article 56-2

Text: 88 Korea adopted Article 56-2 of the Tax Exemption and Reduction Control Act (TERCL) on November 28, 1987. TERCL Article 56-2 allowed a company making an initial public offering after January 1, 1987 to revalue its assets without meeting the requirement in the Asset Revaluation Act 2 (ARA) of a 25% change in the wholesale price index since the company's last revaluation. Any company newly listed on the Korean Stock Exchange from January 1, 1987 to December 31, 1988 could revalue its assets until December 31, 1989. Pursuant to TERCL Article 56-2, 207 out of a total of 316 newly listed companies revalued their assets. 89 POSCO had previously revalued its assets in 1982. After its shares were offered to the public and listed on the Korean Stock Exchange on June 10, 1988, POSCO revalued its assets in 1989, as permitted by TERCL Article 56-2, even though wholesale prices had increased by only 5.09% from 1982 to 1989. As a result of the revaluation, the recorded value of POSCO's assets increased by 2.614 trillion won (approximately $3.3 billion). 90 In its Preliminary Determination, Commerce determined that the revaluation was not granted to POSCO on a selective basis, as the domestic producers contended, due to the fact that over 200 other companies also revalued under TERCL Article 56-2. See Certain Steel Products from Korea, 57 Fed. Reg. 57761, 57770 (Dep't Commerce 1992). Nevertheless, Commerce requested additional information concerning the magnitude of the revaluation and whether the methodology used in the revaluation was performed in accordance with standard Korean accounting principles. 91 The Korean government provided Commerce with data from a database maintained by the Korea Listed Companies Association (KLCA) on the 207 companies that had revalued under TERCL Article 56-2. POSCO also provided Commerce with information concerning the circumstances surrounding its revaluation. Thereafter, domestic producers submitted data to Commerce, contending that it showed that POSCO's revaluation may have been significantly more than that of other companies. The data, however, related to 45 of the 207 companies that revalued pursuant to Article 56-2. Because the information was untimely submitted, it could not be verified. 92 In its Final Determination, Commerce found that the evidence in the record indicated that POSCO did not revalue more of its assets than allowed under Korean law and that the Korean government did not intervene to allow POSCO to revalue more assets than other companies. Regarding the information submitted by the domestic producers, Commerce determined not only that the submissions were untimely and thus unable to be verified, but also that the information only contained data concerning 45 companies. Moreover, Commerce said the information was unclear as to which of the 45 companies had revalued under the general provisions of the ARA and which had revalued under TERCL Article 56-2. Commerce therefore drew no conclusions from this information regarding the relative benefit POSCO derived from the program compared to other companies. Because it found no de jure or de facto selectivity regarding the timing or the method of revaluation, Commerce determined that the revaluation program was not countervailable. 93 On appeal to the Court of International Trade, the domestic producers challenged Commerce's determination of non-specificity regarding the 1989 revaluation by POSCO. The Court of International Trade, however, agreed with Commerce, finding substantial evidence to support Commerce's determination that POSCO was not provided with a selective exemption from the 25% requirement in the ARA, and that the Korean government did not provide preferential treatment to POSCO concerning the revaluation.
94 The domestic producers do not contest that POSCO complied with the requirements of TERCL Article 56-2 or that POSCO was ineligible to revalue its assets pursuant to that provision. In this court, the domestic producers make three arguments: (1) Commerce erred when it determined the dominant or disproportionate share of the benefit conferred based on a percentage basis rather than on an absolute (or total benefit) basis; (2) Commerce erred by not relying on the information supplied by domestic producers as best information available (BIA), particularly given the Korean producers' earlier lack of cooperation; and (3) Commerce erred by relying on the information contained in the KLCA Report, belatedly supplied by the Korean government, which was not part of the record. 95 The domestic producers criticize Commerce's specificity analysis because the Final Determination failed to discuss whether the benefit received by the steel industry was dominant and disproportionate. According to the domestic producers, when analyzing disproportionality, Commerce must compare the industry's benefit to some reasonable benchmark of a non-specific distribution of governmental benefits, e.g., comparing an industry's share of benefits to its contribution to the gross domestic product (GDP) of the economy as a whole. In this regard, the domestic producers assert that the Korean producers contributed only 2% to GDP and received 86.6% of the benefit (POSCO itself received 75.7%), demonstrating the disproportionality of the benefit. 96 The Korean producers argue that the program did not confer a disproportionate or dominant benefit because 81 of the 207 companies that participated in the program had a greater percentage increase than POSCO in the revaluation of their assets and because POSCO's percentage increase fell below the average percentage increase for the companies that revalued their assets in the year in which POSCO revalued its assets. 97 In addition, the Korean producers argue that POSCO was not a dominant user of the program because Commerce determined that the program was available to over 200 companies in a wide variety of industries. Thus, Korean producers argue that Commerce's conclusion in the Final Determination that POSCO did not revalue more of its assets than is generally allowed under Korean law implies that Commerce did not consider POSCO to be a dominant user or to have received a disproportionate benefit. 98 Whether the benefit provided to the Korean steel industry, POSCO in particular, by the revaluation provisions of TERCL Article 56-2 is countervailable depends on whether the benefit was de facto specific. 3 See 19 U.S.C. §§ 1671, 1677 (1988). At the time of Commerce's investigation, de facto specificity was analyzed by considering four factors: 99 (1) The extent to which a government acts to limit the availability of a program; 100 (2) The number of enterprises, industries, or groups thereof that actually use a program; 101 (3) Whether there are dominant users of a program, or whether certain enterprises, industries, or groups thereof receive disproportionately large benefits under a program; and 102 (4) The extent to which a government exercises discretion in conferring benefits under a program. 103 Proposed Regulations, 54 Fed. Reg. at 23379 (emphasis added) (codified at 19 U.S.C. § 1677(5A)(D)(iii) (1994 & Supp. III 1997)). At issue here is factor (3), whether the Korean steel industry was a dominant user of or received a disproportionate benefit under TERCL Article 56-2. 104 Although not specifically discussed in the Final Determination, we conclude that Commerce relied on record evidence, specifically the Verification Report of the Government of Korea, as demonstrating that POSCO was not a dominant user of and did not receive a disproportionate benefit from the revaluation program. POSCO was not a dominant user because over 200 companies from a wide variety of industries revalued their assets pursuant to TERCL Article 56-2. Also, POSCO did not receive a disproportionate benefit because in the same year when POSCO revalued its assets upward by 94.0%, the average increase in asset value was 94.2%. Moreover, for the companies for which complete data was available, 81 out of 181 companies revalued their assets by a greater percentage than POSCO. Thus, Commerce's conclusion that the asset revaluation pursuant to TERCL Article 56-2 was not de facto specific is supported by substantial evidence. 105 The domestic producers' argument that Commerce must analyze (and always has analyzed) disproportionality by looking at the percentage of the total benefit of a subsidy program accruing to a particular company or industry is not correct. Determinations of disproportionality and dominant use are not subject to rigid rules, but rather must be determined on a case-by-case basis taking into account all the facts and circumstances of a particular case. See Proposed Regulations, 54 Fed. Reg. at 23368 ([T]he specificity test cannot be reduced to a precise mathematical formula. Instead, the Department must exercise judgment and balance various factors in analyzing the facts of a particular case.); see also PPG Indus. v. United States, 928 F.2d 1568, 1576 (Fed. Cir. 1991). Thus, it was not error for Commerce to rely on record evidence demonstrating no disproportionality based on the relative percentage benefit rather than on the absolute benefit conferred on POSCO. The domestic producers' methodology could produce an untenable result, i.e., that a benefit conferred on a large company might be disproportionate merely because of the size of the company. Because Commerce's methodology in determining disproportionality was reasonable, we will not disturb it on appeal. See Saarstahl, 78 F.3d at 1544. 106 We have considered the domestic producers' other arguments regarding disproportionality of the TERCL Article 56-2 benefits, including their contentions that best information available should have been used by Commerce and that reliance on the KLCA Report was improper, but find them unpersuasive. Because Commerce's determination that TERCL Article 56-2 did not provide a specific benefit to the Korean steel industry or to POSCO is supported by substantial evidence, the judgment of the Court of International Trade in this respect is affirmed.