[00:00:14] Speaker 04:
We have four cases on the calendar this morning.

[00:00:19] Speaker 04:
It's from the Court of International Trade.

[00:00:23] Speaker 04:
Three patent cases, either from the PTAB or a district court.

[00:00:30] Speaker 04:
The first case is Luqor versus Oslo Metal, AK Steel and US Steel, 2018-1787, Mr. DeFrancisco.

[00:00:44] Speaker 02:
Thank you, Your Honor, and good morning.

[00:00:51] Speaker 02:
May it please the Court, I'm Robert DiFrancisco on behalf of Newcorp Corporation, plaintiff and appellate.

[00:00:57] Speaker 02:
The Commerce Department's application of the preferentiality test in this case does not comport with the statute and Congress's intent to replace the test with the adequate remuneration standard and therefore under Chevron step one is entitled to no deference and is contrary to law.

[00:01:12] Speaker 04:
Well, you could have.

[00:01:14] Speaker 04:
pretty steep hill to climb.

[00:01:15] Speaker 04:
You've got a thorough decision from a judge on a specialized court.

[00:01:23] Speaker 04:
Two other judges on that court have come to similar conclusions.

[00:01:30] Speaker 04:
They're affirming a specialized agency, and you're saying they're all wrong.

[00:01:36] Speaker 02:
Yes, Your Honor.

[00:01:37] Speaker 02:
We believe that the lower court, in the original case in Maverick,

[00:01:42] Speaker 02:
where this was an issue of first impression at that court, misinterpreted the application of Chevron.

[00:01:50] Speaker 02:
They did not apply Chevron step one.

[00:01:52] Speaker 02:
Instead, they applied Chevron step two.

[00:01:55] Speaker 02:
We believe Congress, in this instance, spoke directly to the issue about whether the preferentiality test should continue in existence.

[00:02:05] Speaker 02:
And in the legislative history, expressly said that it ought to be replaced and that under step one,

[00:02:11] Speaker 02:
that expressed intent has to be given meaning and means that you cannot continue to apply that test.

[00:02:18] Speaker 01:
Does that mean that Congress can never apply the test under no circumstances?

[00:02:24] Speaker 02:
Well, we believe in the legislative history, we believe Congress was pretty specific when it said you must replace the test.

[00:02:32] Speaker 02:
Congress didn't say you must replace the test, but you can keep it in certain circumstances.

[00:02:37] Speaker 02:
It just said replace the test, which means

[00:02:40] Speaker 02:
You cannot apply the preferentiality test any longer.

[00:02:43] Speaker 02:
Now, they have discretion to determine what adequate remuneration means.

[00:02:48] Speaker 02:
And Commerce has done that.

[00:02:50] Speaker 02:
But that deference only goes so far, and they cannot continue to apply it.

[00:02:56] Speaker 01:
If they have the discretion to define adequate remuneration, and a case comes along and takes you through the

[00:03:07] Speaker 01:
all the tiers.

[00:03:09] Speaker 01:
You are at the third tier and you still cannot figure for the circumstances of that case what adequate remuneration.

[00:03:17] Speaker 01:
Why is it unreasonable that commerce at that point would say, when we reach this point and there is nothing else for us to do, then we are going to define adequate remuneration to be under the application of something similar to the preferential benefits test.

[00:03:34] Speaker 02:
Your Honor, I think to answer that question, when you look at they can't apply tier one, they can't apply tier two, and they get to tier three, it's unreasonable to continue to apply the test that Congress said you should no longer apply.

[00:03:47] Speaker 02:
They could have applied other tests.

[00:03:49] Speaker 02:
They could have looked in other instances.

[00:03:52] Speaker 02:
In fact, in other cases where they're looking at a tier three, they have said, I cannot use the information in this particular market.

[00:04:03] Speaker 02:
and they've gone to the third country markets when they're valuing land or natural gas or the like, and we've discussed those in our brief.

[00:04:11] Speaker 02:
So there are instances where even under tier three, they haven't applied the preferentiality test and they've gone outside of that.

[00:04:19] Speaker 02:
Where Congress has said you must replace the test, it's unreasonable to continue to apply the test.

[00:04:24] Speaker 00:
Can I ask you this question?

[00:04:26] Speaker 00:
And I guess I'm looking at

[00:04:28] Speaker 00:
Appendix page 9028, which I think is page 23 of the relevant commerce decision.

[00:04:36] Speaker 00:
Why does that not say we actually examined whether KEPCO recovered its costs?

[00:04:50] Speaker 00:
This is now completely putting aside the KPX issue.

[00:04:56] Speaker 00:
So in what sense is it true that commerce relied only on an inquiry into preferential pricing?

[00:05:05] Speaker 00:
It seems to me that in that crucial paragraph, it actually asks, did Capco recover its costs, which is not just a preferential pricing inquiry, though preferential pricing might be evidentially relevant to that.

[00:05:22] Speaker 02:
Certainly, Your Honor.

[00:05:25] Speaker 02:
portion of the determination.

[00:05:27] Speaker 02:
The Department of Commerce's determination expressly says, we are coming to this conclusion based on the preferentiality test.

[00:05:33] Speaker 00:
I don't know quite what the test is.

[00:05:37] Speaker 00:
Describe what they did.

[00:05:38] Speaker 00:
Don't use the word test.

[00:05:40] Speaker 02:
Sure.

[00:05:41] Speaker 02:
They examined the prices that KEPCO set for industrial users and then examined the prices that the Korean steel industry paid and found that the

[00:05:53] Speaker 02:
prices that were set for the large industrial users were in fact the prices that they paid.

[00:05:58] Speaker 02:
They essentially examined the government distorted price against itself, which is... But that's not all this paragraph does.

[00:06:06] Speaker 00:
Correct.

[00:06:06] Speaker 00:
It also says when we examine everything, we think HEPCO recovered its costs.

[00:06:11] Speaker 02:
Correct.

[00:06:12] Speaker 02:
In that cost section of their determination, they spend the beginning portion of it explaining why they don't need to look at cost, and then they get to the portion you're referring to where they said, we looked at

[00:06:23] Speaker 02:
KEPCO's cost, and we believe they recovered cost.

[00:06:27] Speaker 02:
In our case brief below, we explained in great detail why that's not the accurate cost that they looked at.

[00:06:34] Speaker 02:
Is this because of KPX?

[00:06:38] Speaker 02:
I think you have to understand in context how the entire market functions.

[00:06:43] Speaker 00:
Suppose it is determined, as I think that CIT determined, that you did not

[00:06:52] Speaker 00:
effectively preserve an argument that one has to look through KEPCO into KPX, for which you might well have a very good argument, but let's just assume that that was not preserved here, though it might be made in a new proceeding.

[00:07:08] Speaker 00:
Then in what sense did Commerce not properly determine that KEPCO recovered its costs?

[00:07:17] Speaker 02:
So in our case brief,

[00:07:19] Speaker 02:
where we lay this argument out, what we said to commerce was that KEPCO owns 80 to 85% of all the generators in Korea.

[00:07:29] Speaker 02:
Those generators are both nuclear, natural gas, and coal.

[00:07:34] Speaker 02:
Those generators are completely rolled up into KEPCO's financial statement.

[00:07:40] Speaker 02:
Those generators generate the electricity.

[00:07:44] Speaker 02:
The KPX, which is also owned by KEPCO,

[00:07:48] Speaker 02:
has a board, the electricity board.

[00:07:50] Speaker 02:
There are members of KEPCO that sit on that board, members of Korean government sit on that board, and members of the generators sit on that board.

[00:07:56] Speaker 02:
That board sets the price that will form the price that it will pay to the generators, and that price then becomes the price that KEPCO uses to set its price.

[00:08:06] Speaker 02:
The problem with that price, and this is what we described in our case brief, was that

[00:08:13] Speaker 02:
There are two components to that price, the variable cost, which is adjusted based on the fuel used by the generators, and the fixed price.

[00:08:19] Speaker 02:
When they set that price, the fixed price, they apply a levelized, unified fixed cost, regardless of the fixed cost of the actual generator, which is highly distorted.

[00:08:30] Speaker 00:
So nuclear power plants get the same treatment from others, and there's a radical difference in fixed versus variable costs.

[00:08:38] Speaker 02:
In our case brief, we detailed

[00:08:40] Speaker 02:
that in Kepko's financial statement, which rolls up the cost of those generators, you can see that the fixed cost for nuclear generators are three times higher than the other generators.

[00:08:51] Speaker 02:
And in the Korean government's statements to the Department of Commerce in its questionnaire responses, the Korean government said, the way to accurately measure this is to look at the electricity that the Korean steel industry consumed, which is mostly at night,

[00:09:10] Speaker 02:
And most of that electricity is generated by nuclear power generators.

[00:09:15] Speaker 02:
And so they told Commerce that that's how they ought to be examining it.

[00:09:17] Speaker 02:
And the evidence on the record shows that the massive amount of fixed costs for the nuclear generators and that you're setting that fixed cost price at a levelized price, then that doesn't reflect their fixed cost.

[00:09:29] Speaker 02:
And so that cost that KEPCO is using doesn't... But KPX is setting that price, is that right?

[00:09:36] Speaker 00:
The KPX is setting the price that is selling the resulting power to KEPCO.

[00:09:42] Speaker 02:
Correct.

[00:09:42] Speaker 02:
But that price not only forms the basis of the price KEPCO uses to set its tariff rate, but it's also the price that remunerates the generators and determines whether those generators are covering their costs.

[00:09:53] Speaker 02:
And those costs roll back into KEPCO's financial statement.

[00:09:57] Speaker 02:
So the door swings both ways, I think is what we would say.

[00:10:02] Speaker 02:
Beyond that, in the

[00:10:05] Speaker 02:
National Assembly Report, during verification, Commerce asked the Korean government about the National Assembly Report and why they shouldn't look at the National Assembly Report.

[00:10:16] Speaker 02:
And the Korean government said, well, when we supplied our generating costs to the National Assembly, we supplied the average generating cost per load amount.

[00:10:26] Speaker 02:
So when the particular electricity was generated, we supplied the average cost.

[00:10:31] Speaker 02:
And it was inappropriate to compare.

[00:10:33] Speaker 02:
the average cost of generating the electricity at the time with the price that the particular industrial user paid.

[00:10:42] Speaker 02:
And then they went on to say the proper analysis would have been to compare the actual cost of generating the electricity that was consumed by the particular company.

[00:10:54] Speaker 02:
So they told Commerce that the proper analysis was to compare the actual cost of the produced electricity.

[00:11:01] Speaker 02:
and was a justification for not using the National Assembly report.

[00:11:04] Speaker 02:
Yet that average fixed cost is exactly what they're doing by levelizing it when they're transferring the cost downstream and what KEPCO is using to set its prices.

[00:11:16] Speaker 02:
So they're logically inconsistent with one another.

[00:11:18] Speaker 02:
And in fact, the Korean government's correct.

[00:11:21] Speaker 02:
What commerce should have done is look at the actual cost of producing electricity.

[00:11:25] Speaker 02:
And the analysis in our brief, in our case brief,

[00:11:28] Speaker 01:
So where does the preferential benefit analysis come in that you say that commerce conducts?

[00:11:34] Speaker 01:
After they arrive at the government price, then you tell me if I'm wrong, then it appears that what commerce did is they looked at all the different categories of the sectors that use electricity and say no one's receiving preferential treatment here.

[00:11:51] Speaker 01:
Everyone's receiving the same price.

[00:11:53] Speaker 02:
Actually, Your Honor, the way they

[00:11:55] Speaker 02:
conduct the preferentiality test is to look at only industrial users.

[00:12:01] Speaker 02:
And they actually say that when they explain the test in magnesium from Canada, they say, when we examine preferentiality, we look at the government-provided price within that consuming group, and in this case, industrial consumers.

[00:12:16] Speaker 02:
And they said, we set a price for those industrial consumers.

[00:12:19] Speaker 01:
So to what extent, then, on this argument that you just

[00:12:23] Speaker 01:
you just made was that waived.

[00:12:26] Speaker 01:
There's a waiver issue here.

[00:12:29] Speaker 01:
If you fail to exhaust your remedies, you fail to bring up these arguments before commerce.

[00:12:34] Speaker 01:
What happens if we find that you waived those arguments?

[00:12:38] Speaker 01:
Do we need to get to the statutory interpretation issue?

[00:12:42] Speaker 02:
Well, the waiver argument goes back to this question about piercing through on the cost side.

[00:12:51] Speaker 02:
We disagree.

[00:12:52] Speaker 02:
We didn't waive those arguments.

[00:12:53] Speaker 02:
They're flushed out thoroughly in our case brief.

[00:12:55] Speaker 02:
And Commerce addresses those arguments in its decision memo when it talks about why it believes it doesn't need to go through and examine those costs.

[00:13:06] Speaker 01:
The discussion at the lower court about waiver had to be- In your arguments, you'd lean quite heavily on the KPX.

[00:13:18] Speaker 01:
So you separated them out from KEPCO.

[00:13:21] Speaker 01:
Why weren't you able to do that earlier in the investigation?

[00:13:27] Speaker 02:
Well, we didn't separate them out.

[00:13:30] Speaker 02:
We said consistently that KEPCO owns KPX, and they also own the generators.

[00:13:37] Speaker 02:
And as commerce's traditional practice has always been to take subsidiaries and entities that they own and roll them in together to treat them as one entity.

[00:13:46] Speaker 02:
In this instance, KEPCO KPX, I should say,

[00:13:51] Speaker 02:
is a not-for-profit entity, so they're not rolled into their financial statements because they don't show profits.

[00:13:56] Speaker 02:
It's just a pass through.

[00:13:57] Speaker 04:
Counsel, you want to save some time for a butthole?

[00:13:59] Speaker 04:
You're well into it.

[00:14:00] Speaker 02:
Yes, Your Honor, please, if I may.

[00:14:02] Speaker 04:
We will hold it for you.

[00:14:06] Speaker 04:
Mr. Prehan.

[00:14:18] Speaker 05:
Good morning.

[00:14:19] Speaker 05:
May it please the court?

[00:14:20] Speaker 05:
The court should affirm the Court of International Trade's judgment.

[00:14:23] Speaker 05:
First, with respect to the question of statutory interpretation, we respectfully disagree that Congress spoke to the issue here.

[00:14:33] Speaker 05:
The statute is clearly silent on the question of what is adequate remuneration.

[00:14:40] Speaker 01:
No, but they weren't silent when they said that we're replacing the preferentiality test.

[00:14:47] Speaker 01:
with adequate remuneration.

[00:14:48] Speaker 01:
That's pretty clear.

[00:14:51] Speaker 05:
Well, Congress didn't say, certainly they did change the language of the statute, but Congress never said, we don't want commerce to ever consider preferentiality.

[00:15:03] Speaker 01:
But they do say replace.

[00:15:06] Speaker 01:
They don't say replace except in certain situations or replace in part.

[00:15:11] Speaker 01:
Don't you agree that the statement of administrative action says that,

[00:15:16] Speaker 01:
that the preferentiality treatment test is to be replaced?

[00:15:19] Speaker 05:
Well, what the SAA says is that the statute doesn't actually define what a benefit is, what adequate remuneration is.

[00:15:26] Speaker 05:
Congress left it up to commerce to make that determination.

[00:15:29] Speaker 05:
And even if it were true that Congress won.

[00:15:32] Speaker 01:
That's true.

[00:15:32] Speaker 01:
But it says, doesn't the SSA say, don't use a preferentiality test?

[00:15:38] Speaker 01:
Because we're replacing them.

[00:15:40] Speaker 05:
No, the SAA doesn't say that, Your Honor.

[00:15:42] Speaker 05:
There is some language in commerce when it set forth its regulations.

[00:15:47] Speaker 05:
Commerce did say that we are changing our analysis, which is exactly what it did.

[00:15:53] Speaker 05:
And what it did was it said, look, first we're going to look at market rates.

[00:15:57] Speaker 05:
If they're not available, then we'll look at world market rates.

[00:15:59] Speaker 05:
And only then do we consider preferentiality.

[00:16:02] Speaker 05:
And it's not just a pure preferentiality analysis.

[00:16:05] Speaker 05:
I want to emphasize that point.

[00:16:07] Speaker 05:
It's not just preferentiality.

[00:16:08] Speaker 05:
It's not just asking were the respondents treated differently.

[00:16:11] Speaker 05:
There's an added component to it, actually two added components here.

[00:16:17] Speaker 05:
The first is commerce looked at the actual process for how rates are set and said is that consistent with, is there a consistent process and is it discernible?

[00:16:27] Speaker 05:
Is it transparent?

[00:16:28] Speaker 05:
And in fact we know that it is based upon the fact that rates were increased three times in just the few years preceding the period of investigation here.

[00:16:38] Speaker 05:
And only then does commerce look and say,

[00:16:40] Speaker 05:
based upon that price structure, based upon that tariff structure, only then does Commerce look and say, well, did the respondents get a better deal than other similarly situated parties?

[00:16:50] Speaker 01:
Isn't that what Congress, when it amended the CVD statute, said, this is no longer going to be the test?

[00:17:00] Speaker 05:
No, it didn't, Your Honor.

[00:17:02] Speaker 05:
It never said that.

[00:17:02] Speaker 05:
And it never prohibited Commerce from including preferentiality as part of its analysis.

[00:17:07] Speaker 05:
And again, even if Congress had said, we don't want you to use preferentiality as a general matter, well, Commerce has effectuated that by first looking at... They don't say as a general matter.

[00:17:19] Speaker 01:
It's pretty clear.

[00:17:21] Speaker 05:
Well, it's not.

[00:17:22] Speaker 01:
Let's look at the language.

[00:17:24] Speaker 01:
Do you have the SSA?

[00:17:25] Speaker 05:
I do, Your Honor.

[00:17:27] Speaker 01:
All right.

[00:17:36] Speaker 01:
I'm looking at...

[00:17:38] Speaker 01:
Well, I'm looking at the actual copy.

[00:17:40] Speaker 01:
The statute itself?

[00:17:42] Speaker 01:
Sure.

[00:17:42] Speaker 01:
It says, with respect to the provision of business services, internal law relies on the standard of preferentiality to determine the existence and amount of a benefit.

[00:17:52] Speaker 01:
Section, and then it cites a section, replaces this standard.

[00:17:57] Speaker 01:
It doesn't say replace in part.

[00:17:59] Speaker 01:
It says, replaces this standard with a standard from Article 14 of the subsidies agreement, the less inadequate renumeration standard.

[00:18:07] Speaker 05:
Right.

[00:18:08] Speaker 05:
And that's true.

[00:18:09] Speaker 05:
It doesn't say in general.

[00:18:12] Speaker 05:
But if you look at the SAA, what it says is that the statute doesn't define what a benefit is.

[00:18:17] Speaker 05:
So it's still leaving up to the expert agency how to reach adequate remuneration.

[00:18:24] Speaker 05:
And what commerce has said is that yes.

[00:18:26] Speaker 01:
And it's clear that Congress left it up to the administrative authority, the Secretary of Commerce, to fill in the gaps.

[00:18:36] Speaker 05:
That's right.

[00:18:37] Speaker 01:
Right?

[00:18:37] Speaker 01:
And to define adequate enumeration.

[00:18:39] Speaker 05:
Right.

[00:18:40] Speaker 01:
But in that same delegation of authority and that mandate to fill in the gaps, isn't it also telling that this is a test that's being replaced?

[00:18:52] Speaker 01:
What does replace mean if it doesn't mean no longer usable?

[00:18:58] Speaker 05:
Well, I respectfully, Your Honor, they mean different things.

[00:19:01] Speaker 05:
Here, commerce did replace preferentiality.

[00:19:05] Speaker 05:
And it did so in two ways.

[00:19:06] Speaker 05:
Number one, as I said, it flipped the analysis.

[00:19:08] Speaker 05:
So the focus is on market prices and then world market prices.

[00:19:11] Speaker 05:
And only then does Commerce consider preferentiality and only as part of its tier three analysis.

[00:19:16] Speaker 05:
Preferentiality isn't the only part of it.

[00:19:19] Speaker 05:
And here Commerce didn't just look at did they get a better rate, but also looked at the process for how rates were established.

[00:19:25] Speaker 05:
And then it went on to also consider costs.

[00:19:29] Speaker 05:
So even if it were true that Commerce couldn't sort of as a general matter consider preferentiality,

[00:19:34] Speaker 05:
It's irrelevant here because it did consider the underlying costs for KEPCO.

[00:19:38] Speaker 00:
Can I just follow up?

[00:19:40] Speaker 00:
You just said something that seemed to me a little bit different from what you said about three minutes ago.

[00:19:45] Speaker 00:
When you said that when the regulations changed the number of things and it had

[00:19:50] Speaker 00:
two essentially comparative price possibilities and now you're down to the residual clause.

[00:20:00] Speaker 00:
And the first time you said that commerce under the residual clause, the third scenario or possibility or something, does two things.

[00:20:08] Speaker 00:
You said one

[00:20:12] Speaker 00:
transparency consistency, a pure processing, which is not substantive at all.

[00:20:16] Speaker 00:
And then you said preferential.

[00:20:17] Speaker 00:
And then about 30 seconds ago, you added in cost, which it seems to me is what Commerce did in this last section of this decision, which I will tell you strikes me as more or less necessary in order for this last thing to be something other than

[00:20:40] Speaker 00:
substantively more than preferential treatment.

[00:20:44] Speaker 00:
So is the third standard, the residual clause, one that includes in general, as it appears to here, an inquiry into cost recovery?

[00:20:57] Speaker 00:
It's not, we believe it's not required under the statute, but what commerce has said is that... How do you decide whether something is adequately remunerative if it, I mean that seems to me to practically mean

[00:21:09] Speaker 00:
recover your costs.

[00:21:11] Speaker 00:
Cost being measurable in a extremely wide range of ways.

[00:21:17] Speaker 05:
So a couple of points.

[00:21:18] Speaker 05:
First, even under Tier 1 and Tier 2, costs may not necessarily be recovered.

[00:21:22] Speaker 00:
Prices comparison to competitive markets necessarily carries information about costs.

[00:21:29] Speaker 05:
It does, but there may be situations where costs aren't recovered in any given year, for example.

[00:21:35] Speaker 05:
So we don't believe that the statute actually does require an analysis of costs, but also

[00:21:39] Speaker 05:
The statute says that prevailing, excuse me, that you look to whether or not... How do you know if you've been adequately renumerated, if you don't know what your costs are?

[00:21:52] Speaker 05:
Well, let me put it this way, and the court I think in Maverick said this, which is that if respondents were being charged less than others similarly situated, that would be evidence that the rate paid wasn't arrived at by the standard pricing mechanism, that is,

[00:22:06] Speaker 05:
not based on the electricity market in Korea.

[00:22:09] Speaker 05:
And that's what the statute tells us to look at.

[00:22:11] Speaker 05:
In other words, the statute recognizes that you should be looking at the relevant market here.

[00:22:16] Speaker 05:
And there may be situations where the market is largely a monopoly market, for example.

[00:22:21] Speaker 05:
I mean, that's often the case with electricity.

[00:22:23] Speaker 00:
So looking at the market to find out what?

[00:22:26] Speaker 00:
To find out whether the seller is adequately remunerated, which means getting in some

[00:22:35] Speaker 00:
in some way, it's cost-backed.

[00:22:37] Speaker 00:
Well, Commerce did that here, but... Right, and I know it did it here, but that's what I guess I'm trying to figure out, whether in this case, what it did was perfectly fine, though maybe your broader legal argument wouldn't be perfectly fine.

[00:22:51] Speaker 05:
Right.

[00:22:52] Speaker 05:
We don't think that analysis is always required.

[00:22:56] Speaker 05:
We believe that what the statute requires is for Commerce to look at the market conditions in Korea.

[00:23:03] Speaker 05:
and that an analysis of process, in other words, how the rates are set, is that a consistent process coupled with how are these respondents treated?

[00:23:14] Speaker 05:
satisfies the statute.

[00:23:15] Speaker 05:
But again, commerce did more here.

[00:23:17] Speaker 00:
It actually did look at... How does consistency... I think I have an intuition about this, but you tell me.

[00:23:23] Speaker 00:
How does consistency tend to support the idea that the seller is being adequately remunerated?

[00:23:32] Speaker 00:
Maybe it's just consistently subsidizing.

[00:23:34] Speaker 05:
Well, consistent with market principles is different from, say, consistent with free market principles.

[00:23:40] Speaker 05:
So you look to the market in Korea, we know

[00:23:42] Speaker 05:
that it is effectively largely a monopoly situation.

[00:23:47] Speaker 05:
And that's true with respect to electricity in many markets.

[00:23:51] Speaker 00:
But ordinarily in antitrust world, common carrier world, you would say monopolies don't tend to have a problem of getting their money back.

[00:24:02] Speaker 00:
The problem is that they get more than that.

[00:24:05] Speaker 00:
This is an upside down, this is a flip situation, right?

[00:24:08] Speaker 00:
In which the worry is that the whole point of this statute is that maybe the government authority as seller is consistently subsidizing.

[00:24:18] Speaker 00:
And yet the 1994 statute says they have to be adequately remunerative.

[00:24:23] Speaker 00:
Doesn't that require something more than consistency?

[00:24:26] Speaker 05:
No, because you're looking to the market itself in essence.

[00:24:31] Speaker 05:
And yes, it's true, Commerce certainly did more here to look at KEPCO's costs.

[00:24:37] Speaker 05:
But again, Commerce has said that costs may not be a consideration in every case.

[00:24:42] Speaker 05:
So I don't want to cabin the agency's discretion and say that cost analysis is always required.

[00:24:49] Speaker 05:
And I'll fall back to what I said earlier, which is that even under Tier 1 and Tier 2,

[00:24:53] Speaker 05:
costs may not be recovered in any given year.

[00:24:55] Speaker 00:
But as the Supreme Court has said in various common carrier cases like Verizon, it's sort of standard.

[00:25:02] Speaker 00:
law in the economics of regulation, that one thing you could sort of count on as a logical economic matter is that if the market is competitive, then selling at competitive prices or selling at the same price as other competitors, businesses don't get to last if they're not recovering their costs.

[00:25:23] Speaker 00:
Governments do.

[00:25:25] Speaker 05:
No, I understand, Your Honor.

[00:25:27] Speaker 05:
I mean, I would just say again,

[00:25:29] Speaker 05:
The question is, is it consistent with market principles?

[00:25:32] Speaker 05:
That is, consistent with what the Korean market for electricity is.

[00:25:37] Speaker 05:
And looking at that process coupled with preferentiality, whether or not they received a better rate, we believe satisfies that.

[00:25:45] Speaker 05:
But again, Commerce did look at costs here.

[00:25:48] Speaker 05:
They did an extensive analysis of KEPCO's costs and concluded that KEPCO is recovering its costs.

[00:25:54] Speaker 05:
And just to touch on some of the evidence cited here,

[00:25:57] Speaker 05:
Much of that evidence concerns either KPX or concerns evidence that was outside of the period of investigation, that predated the period of investigation.

[00:26:06] Speaker 05:
For example, the Curia Assembly report was approximately two years earlier.

[00:26:11] Speaker 05:
We know that rates were increased at least three times since that report came out.

[00:26:14] Speaker 00:
Can you help me understand this question about non-exhaustion of some argument with respect to KPX?

[00:26:23] Speaker 00:
What is it that was missing from

[00:26:27] Speaker 00:
what your friend on the other side described as the case brief that seemed to want to talk about not just the immediate prices Kepco paid to its supplier, immediate supplier, namely KPX, but to underlying generators which were part of the Kepco family.

[00:26:47] Speaker 05:
What was missing was what counsel just said.

[00:26:49] Speaker 05:
He just referenced piercing through costs.

[00:26:52] Speaker 05:
There was no effort to sort of pierce the corporate veil

[00:26:56] Speaker 05:
before commerce and argue that the costs from KPX to the generators were the relevant costs.

[00:27:03] Speaker 05:
There was no argument about that.

[00:27:04] Speaker 05:
The only even mention was in the case brief where there was a parenthetical mentioning that KPX was 100% owned by, I believe, by KEPCO.

[00:27:15] Speaker 05:
But that certainly isn't sufficient to preserve an argument that commerce should actually conduct some sort of piercing analysis.

[00:27:21] Speaker 05:
And there was never any argument that KPX is part of the relevant authority.

[00:27:26] Speaker 05:
If you look at the petition, the petition was all about KEPCO and what KEPCO had done, not about KPX.

[00:27:33] Speaker 04:
Counsel, you were going to yield three of your minutes to Mr. Winton.

[00:27:40] Speaker 05:
Thank you.

[00:27:41] Speaker 05:
We respectfully request that the court affirm.

[00:27:46] Speaker 04:
Why don't just Mr. Green set that for three minutes.

[00:27:51] Speaker 03:
I'll try to speak fast.

[00:27:54] Speaker 03:
I'm Jeffrey Winton.

[00:27:55] Speaker 03:
Not too fast.

[00:27:55] Speaker 03:
We want to understand it.

[00:27:58] Speaker 03:
I'm Jeffrey Winton here today on behalf of Defending Appellee, the government of the Republic of Korea.

[00:28:03] Speaker 03:
I'm a last-minute substitute counsel.

[00:28:06] Speaker 03:
The lawyer who was responsible for drafting the brief has been promoted and is not available today.

[00:28:11] Speaker 03:
And since I have litigated this issue in other cases, he asked me to.

[00:28:15] Speaker 00:
He's arguing in the Supreme Court.

[00:28:17] Speaker 03:
Now, he's the director general for bilateral affairs now.

[00:28:22] Speaker 03:
I wanted to try to address some of the questions that you had in a somewhat different way.

[00:28:31] Speaker 03:
When you talk about what does it mean to replace the statutory language, well, we all know what happened here.

[00:28:36] Speaker 03:
There was an agreement in Geneva defining a subsidy, and they defined subsidies when government sells goods or services in terms of adequate remuneration.

[00:28:47] Speaker 03:
And that language was adopted wholesale.

[00:28:51] Speaker 03:
into the U.S.

[00:28:52] Speaker 03:
statute.

[00:28:54] Speaker 03:
That's what replace means.

[00:28:55] Speaker 03:
We had, you know, preferential placing was the old standard.

[00:28:58] Speaker 03:
It had encrusted determinate decisions about what that meant.

[00:29:02] Speaker 03:
We have a new standard.

[00:29:03] Speaker 03:
Whether that new standard is the same, whether it overlaps, whether it's completely different is not addressed.

[00:29:08] Speaker 03:
The only issue is we're now using the WTO terminology.

[00:29:13] Speaker 03:
And there were a lot of other changes in the statute at the same time to replace.

[00:29:18] Speaker 01:
What does replace

[00:29:19] Speaker 01:
mean to you?

[00:29:20] Speaker 01:
When Congress says, we're replacing this standard for this one.

[00:29:24] Speaker 03:
In the old statute, it said you look at preferential pricing.

[00:29:28] Speaker 03:
In the new statute, it says you look at adequacy of remuneration.

[00:29:32] Speaker 01:
So one has been replaced with the other.

[00:29:34] Speaker 03:
They're different.

[00:29:35] Speaker 03:
But whether they are the same or different, the meaning of those two terms is not addressed by replace.

[00:29:40] Speaker 01:
We're just saying we had one word in the statute.

[00:29:45] Speaker 01:
Why go through the trouble of amending the law if it doesn't make a difference?

[00:29:51] Speaker 01:
And surely you're not going to tell me that going back to when this was negotiated, when the subsidies agreement was being negotiated, that this didn't make a difference.

[00:30:00] Speaker 01:
This has made a huge difference.

[00:30:03] Speaker 03:
But the reason Congress changed the words is because there was an agreement.

[00:30:08] Speaker 03:
Just focus on a portion of the statute that nobody's talked about.

[00:30:12] Speaker 03:
which is after defining, you should look at adequacy of remuneration, the statute goes on to say, for purposes of clause four, the adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service being provided and the goods being purchased in the country, in the country which is subject to investigation or review.

[00:30:33] Speaker 03:
Prevailing market conditions include price, quality, availability of market.

[00:30:36] Speaker 03:
Where are you reading from, sir?

[00:30:38] Speaker 03:
This is 19 U.S.C.

[00:30:39] Speaker 03:
1677.

[00:30:42] Speaker 03:
This is the statute.

[00:30:46] Speaker 03:
It's the actual statute.

[00:30:47] Speaker 03:
This is enacted by Congress.

[00:30:50] Speaker 03:
It doesn't mention, it doesn't say you look at costs.

[00:30:53] Speaker 03:
It doesn't say you look at profitability.

[00:30:55] Speaker 03:
It says you look at price, quality, availability, marketability, transportation, and other conditions of purchase or sale.

[00:31:02] Speaker 00:
And I would suggest... How can you be adequately remunerated if you don't get your costs back?

[00:31:07] Speaker 03:
Well, what does adequate remuneration mean?

[00:31:11] Speaker 03:
All I can tell you is what Congress wrote here sounds pretty much like you look to see that everyone in the market is treated the same, all other things being equal.

[00:31:23] Speaker 00:
I would not understand the English language term adequate remuneration to say everybody is getting equally subsidized.

[00:31:36] Speaker 03:
for purposes of clause for the adequacy of remuneration shall be determined.

[00:31:40] Speaker 03:
That's what Congress said.

[00:31:44] Speaker 03:
So you may say to me, Congress said something stupid, but I can't help you.

[00:31:48] Speaker 00:
No, it's not stupid.

[00:31:49] Speaker 00:
It seems to have a meaning.

[00:31:52] Speaker 00:
But taking account of all the conditions Congress mentioned, it has to be adequately remunerated.

[00:31:57] Speaker 03:
I would say to you, when this was negotiated, what the understanding is,

[00:32:03] Speaker 03:
The price has to be sufficient, adequate, whatever you want to call it.

[00:32:08] Speaker 03:
But how do you measure whether the price is sufficient or adequate?

[00:32:11] Speaker 03:
You want to say that means profitable.

[00:32:14] Speaker 03:
But sometimes in a market, people lose money.

[00:32:17] Speaker 03:
It happens.

[00:32:19] Speaker 03:
Our standard economic theory says in a competitive market, your price covers the marginal cost of the last supplier into the market.

[00:32:29] Speaker 03:
which doesn't mean necessarily he recovers all of his total costs.

[00:32:35] Speaker 03:
And here I would say that counsel for nuclear has misunderstood that basic economic concept.

[00:32:43] Speaker 03:
The Korean government KPX pricing is based on a marginal cost theory.

[00:32:47] Speaker 03:
They set the price at the marginal cost of the last higher rate, which is exactly what a competitive market would do.

[00:32:55] Speaker 03:
Now, whether that is profitable overall over the course of the year or not.

[00:32:59] Speaker 00:
But there was no inquiry here into how KPX sets its price.

[00:33:05] Speaker 03:
So if there were an inquiry, you might prevail on it.

[00:33:09] Speaker 03:
Record evidence on this.

[00:33:10] Speaker 03:
But in any event, I would just say to you, when determining adequate remuneration, there is no evidence that Congress, other than your reading of the words, I understand you're reading the words a certain way.

[00:33:24] Speaker 03:
But there's no evidence that Congress meant it that way.

[00:33:27] Speaker 03:
And when they listed the things that you look at, they didn't say, is it a price that gives you a profit?

[00:33:33] Speaker 03:
It says, you look in the market under consideration, and you see what other people are paying, while other things being equal.

[00:33:41] Speaker 03:
And that's actually what statute says.

[00:33:45] Speaker 01:
Can you give an instance where you can determine whether you've been adequately renumerated?

[00:33:54] Speaker 01:
or that you've made a profit or a big profit without knowing what the cost was.

[00:34:01] Speaker 03:
Sure.

[00:34:01] Speaker 03:
I would say you were assuming that adequate remuneration means enough to make a profit.

[00:34:09] Speaker 03:
And I'm saying to you, I think what Congress said adequate remuneration, what they really were saying is whatever they agreed in Geneva, we're using that word.

[00:34:17] Speaker 03:
OK.

[00:34:18] Speaker 03:
That's what they said.

[00:34:18] Speaker 03:
But what did they agree in Geneva?

[00:34:20] Speaker 03:
I think you could say,

[00:34:23] Speaker 03:
Adequate remuneration means the price that you ought to get in a market.

[00:34:27] Speaker 03:
Now, whether that price in a market is an above-cost price or below-cost price, they just said it should be the price you get in the market.

[00:34:38] Speaker 04:
Even if it's counterintuitive, because normally adequate remuneration means making a profit.

[00:34:45] Speaker 03:
I don't know, because I lose money all the time.

[00:34:49] Speaker 04:
That's not adequate.

[00:34:52] Speaker 03:
I apologize for any inadequacies I've shown.

[00:34:56] Speaker 04:
Thank you, Counselor.

[00:34:59] Speaker 04:
Mr. DeFrancisco has some rebuttal time.

[00:35:04] Speaker 04:
Is that it for two minutes?

[00:35:07] Speaker 02:
Thank you, Your Honor.

[00:35:08] Speaker 02:
I'd just like to hit a few quick points.

[00:35:11] Speaker 02:
To the point about a monopoly situation, as the government was discussing, in

[00:35:18] Speaker 02:
When we're talking about a tier two benchmark, where the Commerce Department has recognized that the government so dominates the market that they can't accurately determine a market-determined price, they go outside the market and use a world benchmark.

[00:35:30] Speaker 02:
So the idea that certain monopolies are acceptable and certain monopolies aren't is inconsistent with what we think they should be doing.

[00:35:37] Speaker 02:
Beyond that, after the statute was changed, in subsequent cases, even Commerce itself has said

[00:35:44] Speaker 02:
that the new test, the government-determined price, must be compared with a market-determined price, it is no longer sufficient to say that the government does not discriminate among buyers.

[00:35:53] Speaker 02:
So commerce has recognized that they're not supposed to apply this test, but in certain circumstances, they still do.

[00:36:01] Speaker 02:
And then going to the KEPCO issue, and the council talked about going through the veil,

[00:36:08] Speaker 02:
There's no piercing of the veil because KEPCO owns the generators.

[00:36:12] Speaker 02:
The generators are 100% owned.

[00:36:14] Speaker 02:
They're rolled into their financial statements.

[00:36:16] Speaker 02:
They own KPX.

[00:36:18] Speaker 02:
It's all one entity.

[00:36:20] Speaker 02:
Just to make a fine point on the exhaustion argument, the argument they raised at the CIT dealt with whether the argument should have been made that KPX is an authority.

[00:36:30] Speaker 02:
The idea about who an authority is goes to where the financial contribution was made.

[00:36:35] Speaker 02:
Here, the financial contribution was that the Korean government, through KEPCO, set prices, and the issue is whether those prices are market determined.

[00:36:45] Speaker 02:
Our argument before commerce was fully flushed out that the prices, when they're examining whether that covers cost, they ought to be looking at the correct cost, and they're not.

[00:36:55] Speaker 02:
If they're stopping the analysis at only how KEPCO sets its price by the cost that's acquiring it, it has to look at its generators cost.

[00:37:04] Speaker 02:
And we walk them through that analysis as to how those generator costs are not appropriately set.

[00:37:10] Speaker 02:
I see I'm done.

[00:37:11] Speaker 02:
Again, the standard pricing mechanism is itself a subsidy.

[00:37:16] Speaker 02:
Thank you, your honor.

[00:37:16] Speaker 04:
Thank you, counsel.

[00:37:17] Speaker 04:
We'll take the case on revisions.