CIT Says Full Credit Allotment Under Korean Cap-and-Trade Program de Jure Specific
The Court of International Trade on Jan. 16 said the Korean government's full allotment of carbon emissions credits to exporter Hyundai Steel Co. is de jure specific. Judge M. Miller Baker issued a decision in a pair of cases on the issue, finding that the conditions for eligibility for the additional credits aren't neutral and are based on "the substantive character" of the company's "operations."
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The program at issue, K-ETS, caps the amount of greenhouse gas emissions large emitters are allowed to release in a year. The South Korean government sets each company's maximum allotment, granting each company 97% of their allotment in credits.
The South Korean government grants certain companies 100% of that allotment -- a policy Commerce countervailed in the 2019 countervailing duty review on cut-to-length carbon-quality steel plate from South Korea. 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 relied on CIT's decision in Hyundai Steel Co. v. U.S. in which the court rejected a de jure specificity finding for K-ETS, while the government relied on CIT's ruling in BGH Edelstahl Siegen v. U.S., which said the EU's cap-and-trade scheme was de jure specific since it gave a subsidy to a subset of regulated entities based on their "risk of carbon leakage." Baker said the question is whether the conditions of eligibility are "neutral" and don't "favor one enterprise or industry over another."
The judge said standards that pick enterprises "based on the substantive character of their operations -- whether their inputs, outputs, customers, or externalities -- are not neutral," since they're not economic in nature and horizontal in application. In the recent case, "the South Korean regulatory program facially limits the subsidy to entities that are the heaviest carbon emitters, the most dependent upon international trade, or both."
Given that a company's eligibility turns on "what it does, the criteria are not content-neutral, as it were," the judge said.
Baker said Hyundai's claim that the criteria are neutral since they apply to all subsectors is "wordplay." The judge said "of course" the selection standards apply universally, adding that this "doesn’t mean they’re evenhanded for countervailing duty purposes."
Baker added that it's "of no moment that Commerce went further than needed by comparing the numbers of ineligible and eligible subsectors." The judge said that while these considerations are only relevant for a de facto specificity analysis, "this merely demonstrates that a de jure-specific subsidy is also necessarily de facto-specifc in its operation. At worst this was harmless error."
(Hyundai Steel Co. v. United States, Slip Op. 25-6, CIT # 22-00029, dated 01/16/25; Judge: M. Miller Baker; Attorneys: Brady Mills of Morris Manning for plaintiff Hyundai Steel Co., Jeffrey Winton of Winton & Chapman for plaintiff Dongkuk Steel Mill Co.; Brian Boynton for defendant U.S. government; Alan Price of Wiley Rein for defendant-intervenor Nucor Corp.)
(Dongkuk Steel Mill Co. v. United States, Slip Op. 25-6, CIT # 22-00032, dated 01/16/25)