Commerce Switches to de Facto Specificity Finding for Korea's Cap and Trade Program
The Commerce Department switched the basis on which it found the Korean government's full allotment of emissions permits under the Korean Emissions Trading System (K-ETS) was specific. Submitting its remand results under protest on July 31, Commerce said the full allotment of the permits was de facto specific after the Court of International Trade rejected the idea that the full allotment was de jure specific (Hyundai Steel Co. v. United States, CIT # 22-00170).
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The agency said it opened the record in the 2019 review of the countervailing duty order on hot-rolled steel flat products from South Korea on remand to get information from the Korean government on the program usage. With this data, Commerce noted that 504 companies got the full 100% allotment of the permits and that over 787,000 companies operated in Korea in 2019.
A program that only has "504 company recipients in an economy the size of Korea cannot be considered 'widely used' throughout the economy within the spirit of the specificity test as outlined in the [Statement of Administrative Action Accompanying the Uruguay Round Agreements Act]," the remand results said. The program is thus de facto specific since the actual number of recipients was "limited in number," the agency said.
Commerce found this decision to be in line with the agency's "long-standing practice of applying a de facto specificity analysis." The agency cited a recent U.S. Court of Appeals for the Federal Circuit decision also finding the number of subsidy recipients to be limited in number, though in that case an "even greater percentage of companies than at issue here was found to reflect a program applicable to participants that were limited in number."
K-ETS is a program that caps the amount of greenhouse gas emissions large corporate emitters are allowed to release for a compliance year. The Korean government uses baseline emissions data to set a company's maximum allotment. Each company receives 97% of their allotment, though certain subsectors that meet trade intensity or production cost requirements get the full 100% of their permits.
The trade court sent back Commerce's finding that the program is de jure specific on the grounds that the agency hadn't explained why the "international trade intensity" or "production cost" criteria underlying the 3% allotments establish specificity (see 2405020073). After the agency stuck by its de facto specificity conclusion, the court again rejected the finding on the basis that Commerce can't use de facto specificity factors to support a de jure specificity conclusion.
So the agency flipped to de facto specificity on remand, though it voiced its disagreement with the court's ruling. It said the SAA tells the agency to "apply the specificity test and conduct its analysis of de jure specificity on a case-by-case basis, and further notes that there is no mathematical formula for determining when a program is de jure specific." Commerce claimed that the international trade intensity and production cost criteria "expressly limit access to a sufficiently small number of enterprises," and that these "criteria aren't objective."