CIT Tells Commerce to Address Specificity Concerns on Provision of Extra Units in Korean Cap-and-Trade System

The Commerce Department didn't meaningfully respond to arguments regarding the specificity of the provision of Korean Allowance Units (KAUs) by the South Korean government's cap-and-trade system in a countervailing duty review, the Court of International Trade ruled on Dec. 18.

Remanding the 2019 review of the CVD order on cut-to-length carbon-quality steel plate from South Korea, Judge M. Miller Baker said he found an "inherent disconnect" between the program's reference to business types and the requirement that the program be limited to a specific type of industry.

However, Baker did rule that Commerce properly rejected exporter Hyundai Steel Co.'s claim that the Korean government didn't forgo revenue otherwise due, as well as the company's challenge to the finding that the provision of free KAUs constituted a "benefit."

Under the Korean cap-and-trade system, companies must pay to emit more than a certain volume of carbon by submitting KAUs. Certain sectors that meet "high international trade intensity" or "high product costs" criteria receive 100% of their assigned units, while others get only 97% of their assigned units. To get more KAUs, business can either borrow from their future allotment, buy more through a government auction, purchase more from other companies or pay a penalty.

Hyundai received 100% of its allotment due to its high international trade intensity and high production costs, leading to Commerce finding that this allotment, as compared with the 97% allotment, constituted a countervailable benefit. The exporter challenged this conclusion at the trade court.

The exporter said the Korean government did not forgo revenue otherwise due by providing the additional 3% allotment since there was no way to know whether the recipient will need all the units received and no way to know whether the buyer would use the government auction to get more KAUs. Baker said Commerce rightly rejected these arguments. Since most other entities needed to pay for more units that were "simply given away to Hyundai," the Korean government "failed to collect revenue that it otherwise would have received," the opinion said.

Hyundai also argued that the provision of the additional 3% allotment didn't amount to a benefit. Baker ruled that it's clear that the additional 3% confers a benefit even if Hyundai's theory that the system sets an overall burden on all subject companies is accepted. The judge said there is "no doubt" the system imposes a burden, but this claim "ignores that the free provision of additional units reduces the compliance burden that recipients would otherwise have to bear."

After rejecting these claims, Baker then sided with Hyundai regarding the program's specificity. Commerce said the system was de jure specific since the Korean statute and regulations delineated the criteria for finding which sectors qualify for the additional allotment. In attacking this conclusion, Hyundai relied on the trade court's 2021 decision in Asociacion de Exportadores e Industriales de Aceitunas de Mesa v. U.S. There, the court said a subsidy is de jure specific "when the authority providing the subsidy, or its operating legislation, directly, firmly, or explicitly assigns limits to or restricts the bounds of a particular subsidy to a given enterprise or industry."

The cap-and-trade system doesn't fit within this analysis since "nothing in the South Korean statute prescribes an express limitation whereby only specific industries or enterprises can be eligible for the additional three percent unit allotment," Hyundai argued. In assessing this claim, Baker looked to the Korean statute and regulations themselves, which provide two formulas used in the program's provision: one that calculates trade intensity and the other that sets the production costs incurrence rate.

Baker called out a disconnect between the Korean statue's reference to business types and CIT's requirement for a "specific enterprise or industry" in relation to a de jure specificity finding. The judge said the disconnect raises two questions, one which asks whether Commerce considered any large business that could qualify for the additional allotment regardless of its industry. The other asks whether Commerce considered if the Korean government's finding that "Manufacturing of Basic Steel" qualified for the additional allocation had any significance for whether any other enterprise does or doesn't qualify for the additional allotment.

Nothing in the record showed that the statute or regulations at issue "expressly restrict access to a particular (specific, as it were) and limited number of enterprises or industries," the opinion said. "There is also nothing to demonstrate why any particular enterprise or industry would not qualify as long as it met the statutory numbers." On remand, Commerce must provide a "reasoned analysis" addressing these issues.

(Hyundai Steel Co. v. United States, Slip Op. 23-182, CIT Consol. # 22-00029, dated 12/18/23; Judge: M. Miller Baker; Attorneys: Brady Mills of Morris Manning for plaintiff Hyundai Steel Co.; Ruby Rodriguez of Winton & Chapman for consolidated plaintiff Dongkuk Steel Mill Co.; Elizabeth Speck for defendant U.S. government; Derick Holt of Wiley Rein for defendant-intervenor Nucor Corp.; Christopher Cloutier of Schagrin Associates for defendant-intervenor SSAB Enterprises)