US Defends de Jure Specificity Finding on Korean Cap-and-Trade Program

The U.S. on Sept. 13 defended the Commerce Department's remand determination that the Korean government's full allotment of carbon emissions credits to exporter Hyundai Steel Co. is de jure specific. The government said Hyundai's claims that the Court of International Trade already rejected Commerce's reasoning and that the agency ignored the court's questions in the remand were unconvincing (Hyundai Steel Co. v. United States, CIT # 22-00029) (Dongkuk Steel Mill Co. v. United States, CIT # 22-00032).

Commerce said on remand in a suit on the 2019 countervailing duty review on cut-to-length carbon-quality steel plate from South Korea that the cap-and-trade program is de jure specific given the Korean government's criteria on which companies qualify for the full allotment of the carbon emissions credits. The program, K-ETS, caps the amount of greenhouse gas emissions large emitters are allowed to release in a year. The Korean government sets each company's maximum allotment, granting each company 97% of their allotment in credits.

The Korean government grants certain companies 100% of that allotment -- a policy Commerce countervailed in the review. The trade court remanded this finding for not being specific (see 2404170043). On remand, the agency said the program is de jure specific, since only industries with a certain level of international trade intensity or production costs qualified for the full allotment.

Hyundai claimed that the trade court already rejected the finding that K-ETS limits access to the subsidy to an enterprise or industry and that the Korean Ministry of Environment simply applies trade intensity and production cost criteria to find what sectors qualify for the full allotment. In response, the U.S. said Hyundai ignored Commerce's additional explanation.

This explanation said that the Ministry of Environment limited eligibility for the full allotment to a subset or group of industries that meet the trade intensity and production cost criteria. As a result, the "favored subsectors tend to be those with heavy polluting production processes and/or those more dependent on international markets," and the chosen companies have more carbon-intensive emissions processes or are more dependent on international markets than those that don't qualify, the U.S. said.

While Hyundai claimed that the Ministry of Environment couldn't have expressly limited allocations because it didn't initially know which subsector would meet the criteria until phase two, this ignores the fact that the Korean government expressly limited the 100% free allocation to a specific enterprise or industry, the brief said. Hyundai's claim cuts against the statute since it would let a government enact a law in phases to "escape countervailability," so long as the initial legislation didn't outright name the subsectors receiving the subsidy.

Hyundai additionally claimed that Commerce didn't directly answer the court's question on whether any large business could qualify for the additional allotment regardless of industry. The exporter bemoaned Commerce's claim that not every industry in Korea is subject to the program.

In response, the government said its explanation "goes beyond Hyundai's cursory summarization." The agency said at its most basic level, any large business couldn't qualify for the additional allotment since not all of them meet the trade intensity and production cost criteria. As a result, "Hyundai avoids Commerce’s full explanation, which responded to the Court’s first question," the brief said.

Hyundai also said Commerce erred in countervailing the K-ETS program since doing so doesn't "further the purpose of the CVD law or the specificity test." The government said the court "has already addressed whether the cap and trade system imposes a burden on companies subject to its requirements in its analysis of whether Hyundai received a benefit."

Lastly, the exporter said Commerce failed to address whether 19 U.S.C. 1677(5A)(D)(ii) applied. The statute says a subsidy isn't specific if eligibility is automatic, the eligibility criteria are strictly followed and the criteria are clearly laid out in the relevant statute or regulation. The government said Commerce explained that the criteria establish that some industries may benefit from additional assistance in the form of the allocation of additional permits, while others don't. The criteria aren't neutral since they "favor certain enterprises or industries over others and, therefore, are not objective," the brief said.