Opinion ID: 766349
Heading Depth: 1
Heading Rank: 4

Heading: foreign loans

Text: 49 In its Final Determination, Commerce found that the Korean government's control of long-term lending in Korea constituted a government act or practice, and that this control led to preferential access to direct foreign loans for the steel industry, which was a specific benefit not accorded other industries. Commerce based its benefit determination on the disproportionate share of foreign loans obtained by the steel industry in relation to all other industries. 58 Fed. Reg. at 37345. In particular, Commerce noted that the iron and steel industry has received approximately 60 percent of all direct foreign loans to the manufacturing sector since 1985, and over 40 percent of all direct foreign loans to all industries since this time. Id. 50 In British Steel I, the Court of International Trade held that Commerce has failed to direct the [Court of International Trade's] attention to other reasons that may explain why respondent steel companies have such a large share of direct foreign loans. 879 F. Supp. at 1327. Commerce has failed to point out or to invite the [Court of International Trade's] attention to evidence on the record to permit the [Court of International Trade] to conclude there is substantial evidence in the record to support the conclusion of Commerce that this program bestowed industry-specific benefits on respondent steel companies. Id. As a result, the Court of International Trade remanded the Final Determination to Commerce for further explanation. 51 In its Redetermination, Commerce concluded that record evidence demonstrates the Korean government's targeting of the steel industry for a disproportionate share of foreign credit through preferential access to foreign loans. Redetermination, slip op. at 38. Commerce pointed to record evidence of the Korean government's involvement in the allocation of foreign loans. In particular, the Foreign Capital Inducement Act and the companion regulations require governmental approval of all direct foreign loans, establish eligibility criteria, and require initial consultations with the Korean government before negotiating for a direct foreign loan. Id. at 37-38. 52 The Court of International Trade thereafter upheld Commerce's Redetermination, finding substantial evidence supporting its finding of a nexus between the government program of control of the financial system and the preferential access to direct foreign loans provided to the steel industry. British Steel II, 941 F. Supp. at 130, 135-36. Korean producers now appeal that decision.
53 Countervailing duties are authorized in response to government programs only when those programs constitute subsidies under the statute. See Kajaria Iron Castings Pvt. Ltd. v. United States, 156 F.3d 1163, 1174 (Fed. Cir. 1998). Commerce characterized the foreign loans as subsidies on the ground that preferential access to those loans benefited the Korean steel industry. See Final Determination, 58 Fed. Reg. at 37344. That is an inadequate basis under the governing statute for determining that the foreign loans constituted subsidies. 54 The statute in effect during the period pertinent to this case, 19 U.S.C. § 1677(5)(A) (1988), defined the term subsidy as including the following: 55 (ii) The following domestic subsidies, if provided or required by government action to a specific enterprise or industry, or group of enterprises or industries, whether publicly or privately owned and whether paid or bestowed directly or indirectly on the manufacture, production, or export of any class or kind of merchandise: 56 (I) The provision of capital, loans, or loan guarantees on terms inconsistent with commercial considerations . . . . 57 The Korean steel companies argue (1) that the terms of the foreign loans were negotiated with commercial entities, e.g., foreign banks and equipment suppliers, none of which were affiliated with the Korean government, and (2) that neither the government nor the domestic producers have identified evidence in the record indicating that the foreign lenders would have agreed to terms inconsistent with commercial considerations. In fact, Commerce found that the foreign loans were provided from foreign banks at world market rates suggesting that the terms of those loans were consistent with the terms to which those entities normally agreed. See Final Determination, 58 Fed. Reg. at 37345. 58 The Korean steel companies' statutory argument is persuasive, especially in light of the government and domestic producers' failure to confront the statutory language. Neither the government nor the domestic producers suggest that the Korean government induced or otherwise arranged for foreign lenders to provide below-market rate loans to POSCO, and there is no evidence that the Korean government took any other steps that affected the rates of those foreign loans. Commerce's entire case on the foreign loans rests on its assertion that the Korean government granted a subsidy to POSCO by preventing other Korean industries from borrowing on the international market, and that the steel industry thus obtained a benefit. 59 It may be that the steel industry obtained preferential treatment with respect to foreign loans vis-a-vis other Korean industries, but that is not enough to satisfy the statute. Section 1677(5)(ii)(I) required Commerce to show that POSCO obtained loans on terms inconsistent with commercial considerations. There was no evidence that the loans to POSCO resulted from anything but arm's-length commercial transactions governed by the market in international loans. Absent some evidence that the Korean government's conduct in preventing some Korean companies from obtaining foreign loans had some impact on the terms of the loans obtained by POSCO - and neither the government nor the domestic producers point to any such evidence - there is no basis on which to conclude that POSCO was provided loans . . . on terms inconsistent with commercial considerations. 19 U.S.C. § 1677(5)(ii)(I). 60 In its brief, Commerce characterizes the Korean government's conduct as the allocation of foreign loans. Underlying that characterization of the governmental prohibition of foreign loans to some Korean companies as an allocation of loans to the steel industry is the unarticulated assumption that foreign lenders had some irrational predisposition to provide a fixed number of loans to Korean entities regardless of their credit-worthiness and, barred from negotiating with a broad range of companies, they chose to provide all the earmarked Korean loans to the Korean steel industry. While such a scenario is not impossible, neither Commerce nor the domestic producers have identified record evidence of any such distortion of the international credit market. Nor has the government pointed to any record evidence of more direct intervention, e.g., loan guarantees by the government. 61 The domestic producers offer an analogy to support Commerce's characterization of the foreign loans as a countervailable subsidy. That analogy supposes that natural gas is available on the world market at $2 per cubic meter but available in Korea's internal market only at $5 per cubic meter. The domestic producers contend that if only one Korean company is selected to have access to the world market that company receives a benefit from the Korean government. 62 Whether or not a benefit is received in the natural gas case depends upon the baseline adopted: If the baseline is a system of no government regulation, then the selected company is not receiving a benefit, but all the other Korean companies are being harmed; if the baseline is a system of complete government prohibition then the selected company is receiving a benefit. While the natural gas analogy may present difficult questions in future cases, it is irrelevant to the issue at hand, because the section of the countervailing duty statute applicable to this case sets forth special and specific conditions for loans. Under the statute, Commerce was required to review the evidence in the record to determine whether the Korean government's actions somehow resulted in the foreign lenders agreeing to terms inconsistent with commercial considerations. Because Commerce did not conduct such a review and did not conclude that the terms on which foreign credit was offered to the Korean steel companies were inconsistent with commercial considerations, the loans cannot be regarded under the terms of the statute as the countervailable products of a subsidy from the Korean government. We therefore reverse the portion of the Court of International Trade's judgment affirming the assessment of countervailing duties based on preferential access to foreign credit.