South Korea's Cap and Trade Program Not ‘Direct Transfer of Funds,’ Hyundai Says

The Commerce Department still hasn't proven that Hyundai received a subsidy in the form of a “direct transfer of funds” from the South Korean government due to the country’s cap and trade program, the exporter said Feb. 5 in comments on the department’s remand results (Hyundai Steel Co. v. U.S. , CIT # 22-00170).

The case at the Court of International Trade contests the 2019 countervailing duty review on hot-rolled steel flat products from South Korea, for which Hyundai was the sole mandatory respondent and in which it received a 0.56% CVD rate.

Commerce is wrong to say that the Korean cap and trade program, which gives companies a number of carbon emission permits based on their size and trade capacity, is equivalent to a governmental financial contribution made by a “direct transfer of funds” to those companies, Hyundai said.

“Although the examples of financial contribution in the statute are not exhaustive, the fact they are not exhaustive does not mean that Commerce can disregard the examples in the statute, or that Commerce has discretion to create new types of financial contributions that are inconsistent with the examples in the statute,” Hyundai said.

Under the cap-and-trade program, some companies received 100% of the permits they are eligible for, while others receive only 97%, depending on different factors. Commerce initially found the program represented revenue forgone by the South Korean government to benefit certain companies, saying that the South Korean government was financially contributing to companies that received greater permit allocations because it would be unable to sell those excess permits elsewhere later (see 2401080027).

After CIT rejected Commerce's reasoning, the department switched up its financial contribution analysis to say that the program was a direct fund transfer to Hyundai (see 2310020025). It described the permits as representing a sort of monetary value, likening them to “loan guarantees,” “grants” or “stocks,” Hyundai said.

South Korean allowance units “do not represent an ownership interest in anything, but instead are just instruments designed to allocate the amount of emissions permitted to entities who otherwise would not subject themselves to emissions limits,” Hyundai said.

Participation in the cap-and-trade program is mandatory, unlike in India’s renewable energy credit program, Hyundai said in response to Commerce’s comparison of the two. The program is chiefly intended to incentivize environmental protection, it said.

The program also isn't specific to Hyundai, the exporter said. In its remand order, CIT said that Commerce, in basing its decision on the program's criteria that allowed some companies to receive more permits than others, “relied on the existence of the criteria per se to establish specificity.” The court said absent further analysis, that wasn't enough.

However, Commerce didn't provide adequate new analysis in its remand results, Hyundai said; it added only that the South Korean Ministry of Environment imposed “qualifying criteria in an explicit manner.”

If CIT affirms Commerce’s view, however, it should tell the department to calculate the resultant countervailable benefit based on the permits Hyundai resold during the review period, the exporter said, similar to how it does regarding India’s renewable energy credit program.