Korea's Provision of Additional Carbon Emissions Permits Countervailable, US Argues at CIT
The Korean Emissions Trading System (KETS) conferred a countervailable benefit to countervailing duty respondent Hyundai Steel Co., the U.S. argued in a Nov. 1 reply brief at the Court of International Trade. The South Korean government foregoes revenue when it allocated certain business sectors, and by extension, Hyundai, an additional 3% of Korean Allowance Units (KAUs) to offset carbon emissions, the brief said (Hyundai Steel Co. v. United States, CIT #22-00029).
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The case concerns the Commerce Department's final results in the administrative review of the countervailing duty order on cut-to-length carbon-quality steel plate from South Korea. In South Korea, companies that emit certain volumes of carbon dioxide are subjected to KETS and are then given carbon emissions permits, KAUs, that limit the amount of emissions a company can produce. KETS, though, is a phased system that has greater emissions reduction targets with each phase. During the review period, the system was in phase two, and the Korean government only gave subject companies 97% of their alloted KAUs, meaning the firms either cut emissions by 3% or face a fine.
If a company is short on permits, it can either buy more from private companies either directly or via a government trading exchange, borrow against the next year's allotment, apply earned credits for other activities or claim entitlement to an exemption to the 97% rule. Hyundai utilized the latter option, claiming its exemption given its high international trade intensity and high production costs since it is part of the sub-sector of steel manufacturing -- one of the sectors for which the Korean government grants this exemption. Commerce said this was a de jure specific countervailable benefit since the recipient does not have to buy more permits and the South Korean government is deprived of the extra 3% in KAUs Hyundai would otherwise have had to obtain.
Hyundai took to the trade court (see 2202250055), arguing that KETS does not provide a financial contribution to the respondent since the government does not forgo revenue. In its reply, the U.S. said that the South Korean government forgoes revenue when it allocates the additional 3% in KAUs to certain business sectors at no cost via the exemption. The Korean government is entitled to this extra 3%.
"Plaintiffs['] assertions are incorrect and belied by the statute," the brief said. "Hyundai automatically received an additional three percent allocation of KAUs, and it is inherently placed into an advantageous position, where it will need to purchase fewer permits than necessary, because of the GOK’s involvement."
The respondent further argued that Commerce conflated its financial contribution analysis with a benefit analysis. The agency replied that the two are not mutually exclusive. "While the statute contemplates a finding of both a benefit and a financial contribution to establish the existence of a countervailable subsidy, it does not follow that the two cannot be intertwined," the brief said. "Indeed, while an entity may receive a benefit that is not financial in nature, a benefit can -- and often does -- take the form of a financial contribution."
Hyundai also said that Commerce's breakdown of the KETS program is "too focused on the fact that" certain companies are allocated 100% of their assigned permits, whereas others only get 97%, since Commerce instead should have found that KETS "imposes a burden." This analysis, though, "ignores the reality that Hyundai and Dongkuk receive a benefit compared to other Korean industries with a lower volume of international trade or production costs," the brief said. "If every entity received only the standard 97 percent allocation, then there would be no benefit because every entity would be treated the same."