CIT Sustains de Facto Specificity Finding for Korean Cap and Trade Program
The Commerce Department properly found that the South Korean government's full allotment of emissions permits under the Korean Emissions Trading System (K-ETS) was de facto specific, the Court of International Trade held in a decision made public Oct. 1.
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Judge Mark Barnett rejected respondent Hyundai Steel's claim that Commerce should only compare companies that received the full allotment to companies eligible for the K-ETS program and not to the economy as a whole. The judge said "a subsidy that has some inherent characteristic that otherwise limits the number of recipients is not rendered non-specific" just because those who didn't receive the subsidy "were excluded by an inherent characteristic of the subsidy."
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.
Barnett previously remanded Commerce's finding in the 2019 CVD administrative review on hot-rolled steel flat products from South Korea that the full allotment of permits under this system is de jure specific (see 2405020073). The judge said the agency failed to explain why the "international trade intensity" or "production cost" criteria underlying the 3% extra allotments establish specificity. After Commerce stuck by the de jure specificity conclusion, Barnett remanded the case again, since the agency used de facto specificity factors to support a de jure specificity conclusion.
On remand for a second time, Commerce switched to a finding of de facto specificity (see 2407310039). The agency reopened the record on remand to get information on how many companies used the program. 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, concluding that a program with only 504 company recipients in an economy the size of Korea's can't be considered "widely used" throughout the economy.
Hyundai argued that Commerce should have limited the comparison only to companies that took part in the K-ETS program and not to the economy as a whole. Barnett rejected this claim, finding that the "fact that use of a subsidy may be limited by the 'inherent characteristics' of the good or service is irrelevant for de facto specificity."
The judge said both CIT and the U.S. Court of Appeals for the Federal Circuit have upheld Commerce's comparison of "the number of subsidy recipients to the number of companies or industries operating in the economy. While Hyundai said these cases are irrelevant, since they involved tax subsidies "such that the total number of taxpayers represented an appropriate denominator or otherwise involved distinct programs," Barnett said Hyundai's claim is "unpersuasive and in conflict with the purpose of the specificity test."
The specificity test isn't a "loophole through which" subsidies used by "discrete segments of an economy," such as the K-ETS, "may elude countervailability, the judge said. There's also "no requirement that recipients of the benefit of the full allocation share some other characteristic, such as participation in the K-ETS, with the group comprising the denominator," the court said. The CVD statute doesn't limit specificity analyses to looking at the subsidy "within the context of the economy as a whole," nor does it require Commerce to analyze why a subsidy given to a limited number of recipients may be limited, the judge said.
The fact that most companies operating in Korea don't receive K-ETS permits "merely reflects an inherent characteristic of the emissions trading system and is not a basis for finding the subsidy non-specific," Barnett said.
Lastly, Hyundai said the trade court's ruling in Mosaic Co. v. U.S. compels a different conclusion. In Mosaic, the court "remanded Commerce’s de facto specificity determination when the agency compared the number of corporate taxpaying recipients of penalty relief to the total number of corporate taxpayers." Barnett distinguished the cases, finding that in Mosaic, the court told the agency to consider the "potentially wider availability of the benefit" throughout the economy, whereas here, Hyundai is trying to get Commerce to narrow its comparison to a subset of the economy.
"While Hyundai Steel’s preferred equation may shed light on the prevalence of the full allocation among K-ETS participants, it does not speak to whether that benefit is widely available throughout the economy," Barnett said. In a footnote, the judge said if Mosaic "suggests a different conclusion," the court isn't bound by the decision.
(Hyundai Steel Company v. United States, Slip Op. 25-124, CIT # 22-00170, dated 09/22/25; Judge: Mark Barnett; Attorneys: Brady Mills of Morris Manning for plaintiff Hyundai Steel Company; Sosun Bae for defendant U.S. government; Alan Price of Wiley Rein for defendant-intervenor Nucor Corp.)