Before Bryson, Circuit Judge, Archer, Senior Circuit Judge, *fn1 * and
Gajarsa, Circuit Judge.
The opinion of the court was delivered by: Per Curiam
Appealed from: United States Court of International Trade
Chief Judge Gregory W. Carman
Opinion of the court filed PER CURIAM, Dissenting opinion filed by Senior Circuit Judge ARCHER
Defendants-Appellants Dongbu Steel Co., Ltd., et al. (collectively "Korean producers") appeal from the judgment of the Court of International Trade, British Steel P.L.C. v. United States, 941 F. Supp. 119 (Ct. Int'l Trade 1996) (British Steel II), sustaining the Department of Commerce's decision that the government of Korea had provided the Korean steel industry with preferential and disproportionate access to long-term domestic and direct foreign loans, had constructed infrastructure at the Kwangyang Bay Industrial Estate (KBIE) for the specific benefit of the Pohang Iron and Steel Company (POSCO), and had exempted POSCO from dockyard fees. See Final Affirmative Countervailing Duty Determinations and Final Negative Critical Circumstances Determinations: Certain Steel Products from Korea, 58 Fed. Reg. 37,338 (Dep't Commerce 1993) (Final Determination); Final Results of Redetermination Pursuant to Court Remand in British Steel P.L.C. v. United States, Slip. Op. 95-17 (Dep't Commerce 1995) (Redetermination) .
Plaintiffs/Cross-Appellants AK Steel Corp., et al., (collectively "domestic producers") appeal from the judgment of the Court of International Trade in British Steel II upholding Commerce's Conclusion in the Final Determination that the Korean government did not provide a specific benefit to the steel industry in Korea and in particular, POSCO, by the revaluation provisions of the Tax Exemption and Reduction Control Act (TERCL) Article 56-2.
We have jurisdiction to hear these appeals pursuant to 28 U.S.C. § 1295(a)(5) (1994). We affirm the Court of International Trade's decision with respect to the infrastructure at the KBIE, dockyard fees and the revaluation provisions of TERCL 56-2, and reverse the Court of International Trade's decision with respect to the long-term domestic and direct foreign loans.
This consolidated appeal arose from proceedings before the Department of Commerce to determine whether the Korean government conferred countervailable benefits on particular members of the Korean steel industry. The proceedings are summarized in the opinion of the Court of International Trade. See British Steel II, 941 F. Supp. at 123. For purposes of this appeal, the relevant background is as follows.
On July 9, 1993, Commerce issued its Final Determination concluding, inter alia, that "the [government of Korea] ha[d] provided the steel industry with preferential access to medium- and long-term credit from government and commercial banking institutions," 58 Fed. Reg. at 37345, and that as to both domestic and foreign loans this preferential access constituted a countervailable benefit. Commerce also determined that the Korean government's provision of infrastructure to POSCO at the Kwangyang Bay Industrial Estate and the exemption of POSCO from dockyard fees conferred countervailable benefits. Id. at 37346-48. In addition, Commerce determined that the revaluation provisions of TERCL Article 56-2 did not provide POSCO "with a selective exemption from the 25 percent requirement in the Asset Revaluation Act." Id. at 37351.
In the Korean producers' appeal of Commerce's determination, the Court of International Trade remanded the Final Determination, instructing Commerce to explain, if it is able, what evidence on the record demonstrates that programs existed during the period of investigation to benefit the respondent steel companies by giving them preferential access to both domestic and direct foreign credit markets, and how the respondent steel companies received that access to credit. British Steel P.L.C. v. United States, 879 F. Supp. 1254, 1331 (Ct. Int'l Trade 1995) (British Steel I).
Following Commerce's Redetermination, on remand, the Court of International Trade upheld Commerce's determination of the existence of a causal nexus between the Korean government's control of the financial system and preferential access to domestic and foreign credit by the Korean steel industry, see British Steel II, 941 F. Supp. at 127-30, and that such access constituted a countervailable benefit with respect to both domestic and direct foreign loans, see id. at 133, 135-36. In addition, the Court of International Trade affirmed Commerce's determination that the infrastructure provided to POSCO at KBIE and the exemption from dockyard fees were countervailable. See id. at 133-35. Finally, the Court of International Trade affirmed Commerce's Conclusion in the Final Determination that TERCL Article 56-2 did not constitute a countervailable benefit. See id. at 132-33.
On appeal to this court, the Korean producers challenge Commerce's determinations. Domestic producers challenge Commerce's finding of non-countervailability regarding TERCL Article 56-2.
We review a decision of the Court of International Trade by applying "anew the statutory standard of review applied by that court to the agency's decision." Torrington Co. v. United States, 82 F.3d 1039, 1044 (Fed. Cir. 1996). If a final countervailing duty determination is "unsupported by substantial evidence on the record, or otherwise not in accordance with law," it will be held unlawful. 19 U.S.C. § 1516a(b)(1)(B) (1988) (current version at 19 U.S.C. § 1516a(b)(1)(B)(i) (1994 & Supp. III 1997)); see also Creswell Trading Co., v. United States, 15 F.3d 1054, 1056 (Fed. Cir. 1994). "[S]ubstantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a Conclusion." Aimcor, Ala. Silicon, Inc. v. United States, 154 F.3d 1375, 1378 (Fed. Cir. 1998); Matsushita Elec. Indus. Co. v. United States, 750 F.2d 927, 935 (Fed. Cir. 1984) (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). Thus, our analysis is not whether we agree with Commerce's Conclusions, nor whether we would have come to the same Conclusions reviewing the evidence in the first instance, but only whether Commerce's determinations were reasonable. See United States Steel Group v. United States, 96 F.3d 1352, 1357 (Fed. Cir. 1996). "[T]he possibility of drawing two inconsistent Conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence." Consolo v. Federal Maritime Comm'n, 383 U.S. 607, 620 (1966) (citations omitted).
In its Final Determination, Commerce held that the Korean government effectively controlled long-term lending practices in Korea through (1) the General Bank Act and the Korean government's Monetary Board, (2) the appointment of banking officials, (3) informal control over loan allocations, i.e., through preferential rediscounting, and (4) strict control of interest rates. 58 Fed. Reg. at 37340-41. The Korean governmental control was deemed sufficient to establish a government program. See Proposed Regulations, 54 Fed. Reg. 23366, 23379 (§ 355.2(r) defining "program" as "any government act or practice"). Although de jure preferences were terminated by 1985, Commerce found that the pattern of long-term lending to the steel industry remained largely unchanged, and that in fact lending to that industry had slightly increased. Commerce also applied a disproportionality analysis that involved the comparison of the share of long-term loans received and held by the steel industry with that industry's share of gross domestic product (GDP). Based on data supplied by the Korean government, Commerce found that while the steel industry's contribution to GDP had remained relatively constant at approximately 2.0-2.5% since the early- to mid-1980s, the volume of loans the steel industry received had consistently remained two to four times higher than its contribution to GDP in percentage terms. 58 Fed. Reg. at 37343, 37345.
As previously noted, the Court of International Trade held in British Steel I, that "Commerce [did] not sufficiently explain . . . the connection between the government de facto program and the steel companies' alleged preferential access to specific sources of credit" and remanded the case. 879 F. Supp. at 1325. In its Redetermination, following remand, Commerce concluded that the causal nexus was shown by record evidence of the Korean government's control of the Korean financial system to create a shortage of credit and to selectively exempt the steel industry from the shortage by providing it preferential access. Commerce noted that benefits received by the steel industry resulted from "aggressive targeting" by the Korean government of scarce long-term credit to the steel industry. Redetermination, slip op. at 15. The targeting and resulting nexus, according to Commerce, "consist[ed] of (1) the de jure preferences for steel prior to 1985; (2) direct and indirect expressions of continued support for steel after 1985; (3) a major government sponsored investment project for the steel industry, i.e., the Kwangyang Bay Industrial Estate project; and (4) a volume of loans at favorable rates that exceeded the pre-1985 volume." Id. at 21-22. Finally, Commerce considered and rejected "three economic factors identified as possible reasons why the distribution of benefits was not disproportionate ... 1) the capital intensity of the steel industry (capital needs), 2) investment cycles, and 3) the fact that the steel industry was less dependent than other industries on external financing." Id. at 46.
The Court of International Trade thereafter held that Commerce had identified substantial evidence to support its finding of a nexus between the Korean government's program of general control over the Korean financial system and the provision of specific benefits to the steel industry in the form of preferential long-term loans. British Steel II, 941 F. Supp. at 130. Korean producers now appeal that decision.
The general rule is that a countervailing duty (in addition to any other duty) shall be imposed if
(1) the administering authority [Commerce] determines that -
(A) a country under the Agreement, or
(B) a person who is a citizen or national of such a country, or a corporation, association, or other organization organized in such a country, is providing, directly or indirectly, a subsidy with respect to the manufacture, production, or exportation of a class or kind of merchandise imported, or sold (or likely to be sold) for importation, into the United States, and
(2) the Commission [International Trade Commission] determines that-
(A) an industry in the United States-
(i) is materially injured or
(ii) is threatened with material injury, or
(B) the establishment of an industry in the United States is materially retarded, by reason of imports of that merchandise or by reason of sales (or the likelihood of sales) of that merchandise for importation, then there shall be imposed upon such merchandise a countervailing duty, in addition to any other duty imposed, equal to the amount of the net subsidy. For purposes of this subsection and section 1671d(b)(1) of this title, a reference to the sale of merchandise includes the entering into of any leasing arrangement regarding the merchandise that is equivalent to the sale of the merchandise. 19 U.S.C. § 1671(a) (1988).
The statute further provides that in order to countervail a governmental subsidy, Commerce must determine whether the bounty, grant, or subsidy in law or in fact is provided to a specific enterprise or industry, or group of enterprises or industries. Nominal general availability, under the terms of the law, regulation program, or rule establishing a bounty, grant, or subsidy, of the benefits thereunder is not a basis for determining that the bounty, grant, or subsidy is not, or has not been, in fact provided to a specific enterprise or industry, or group thereof. 19 U.S.C. § 1677(5)(B) (1988).
Thus, Commerce must determine whether a governmental program provided a benefit to a specific industry. Moreover, in the case of an indirect subsidy, evidence of a causal nexus between the program and the benefit is also required. See British Steel I, 879 F. Supp. at 1328.
In this case, Commerce determined that governmental control of lending institutions in Korea constituted a program, that the provision of preferential access to loans constituted a countervailable benefit, that a causal nexus in the form of "aggressive targeting" of loans existed between the program and the benefit to the Korean steel industry, and that access to the loans was provided specifically to the steel industry.
1. The basic premise of the "aggressive targeting" theory is that the Korean government exercised its influence over Korean commercial banks to direct credit preferentially to the steel industry. In reviewing the administrative record, however, Commerce was unable to identify a single piece of direct evidence in support of its theory. In verification interviews, governmental and banking officials uniformly asserted that the government did not direct credit to the steel industry during the pertinent period. In the course of its investigation, Commerce also conducted interviews with several executives of large Korean banks, selected by the United States embassy in Korea for their experience and familiarity with the Korean financial system. None of those bankers suggested that the Korean government had sought to allocate loans preferentially to the steel industry during the period under investigation. To the contrary, the bankers stated that the government had attempted through a variety of formal and informal means to direct credit to small and medium-sized businesses, while encouraging banks to reduce their lending to large companies such as POSCO.
Third-party source materials that were introduced into the administrative record supported the bankers' assertions that the government favored lending to small businesses during the investigation period. For example, a World Bank report on Korean economic development noted a "government policy to increase the bank lending to small/medium firms." Similarly, a 1991 article in the Financial Times examined the government policy of encouraging banks to lend to small companies, while expressing doubts as to its effectiveness.
The absence of direct evidence to support the "aggressive targeting" theory is striking, given that successful implementation of such a program would seemingly require the knowledge and cooperation of the government and banking officials who were interviewed by Commerce. In addition, it is troubling that Commerce apparently did not seek to obtain documentary corroboration for its targeting theory. Instead, Commerce took the position that "no company or government documentation exist[s] for a program such as direction of credit." As a result, Commerce's verification process consisted of "information gathering" rather than checking the accuracy of previously supplied information.
Commerce's position with respect to the unavailability of documentation is difficult to accept, because Commerce encountered no difficulty in finding documentation for the Korean government's direction of credit in other instances. The administrative record is replete with examples of preferential allocation of credit in favor of steel and other heavy industries in the late 1970s, before the period under investigation. And, as noted, there was ample evidence that the government shifted its policy and began to attempt to direct credit to smaller industries in the mid-1980s. In light of that evidence, the absence of corresponding documentation for a program of aggressive targeting to the steel industry suggests that the existence of such a program should be viewed with skepticism.
2. Because of the lack of direct evidence to support the aggressive targeting theory, Commerce had to look to circumstantial evidence to support its nexus finding. Commerce urges us to affirm based on what it terms "a series of interrelated determinations that, taken as a whole, demonstrate[ ] that a de facto program to provide steel 'preferential access' exist[s]." The problem with Commerce's argument, however, ...