UNITED STATES COURT OF INTERNATIONAL TRADE

Slip Op. 25-06

Before the Court in Hyundai Steel Co. v. United States and Dongkuk Steel Mill Co. v. United States, (January 16, 2025) was the Department of Commerce’s redetermination in two countervailing duty cases involving South Korea’s greenhouse gas regulatory system, which the Court of International Trade (CIT) affirmed. This case follows a CIT decision, Hyundai Steel Co. v. United States, Ct. Nos. 22-00029 and 22-00032 in which it sustained the Department’s affirmative findings on the first and third elements of the test used in determining whether a domestic subsidy exists.

Generally, to determine whether a domestic subsidy exists, Commerce must find that (1) the foreign government provide a financial contribution (2) to a specific industry and (3) a recipient within the industry received a benefit as a result of that contribution. A domestic subsidy is specific when it is narrowly focused and provided to or used by discrete segments of an economy. Government assistance that is both generally available and widely and evenly distributed throughout the jurisdiction of the subsidizing authority is not an actionable subsidy. This test functions as an initial screening mechanism to spot those foreign subsidies which truly are broadly available and widely used throughout an economy. Thus, for instance a tax credit for expenditures on capital investment that is available to all industries and sector is not specific for purposes of this test. According to the statute, 19 U.S.C. § 1677(5A)(D)(i), subsidies are specific as a matter of law (de jure)“[w]here the authority providing the subsidy, or the legislation pursuant to which the authority operates, expressly limits access to the subsidy to an enterprise or industry.” They must be ”economic in nature and horizontal in application, such as the number of employees or the size of the enterprise.” SAA at 930, 1994 U.S.C.C.A.N. at 4243.

The Department of Commerce found that the subsidies in question were de jure specific because they target enterprises or industries that perform certain types of activities or use certain types of resources. On remand, Commerce explained that the South Korean Ministry of Environment imposes “international trade intensity” and “production cost” conditions “in an explicit manner to certain industries or ‘subsectors.’” Commerce reasoned that such an express, legal limitation eligibility for the additional three percent allocation is de jure specific.

Plaintiff asserted that the production cost and trade intensity criteria do not expressly limit access to the subsidy to an enterprise or industry as any entity may satisfy them. According to the company, these conditions are neutral and do not favor one enterprise or industry over another. The subsidies, according to Plaintiff, applied to all subsectors.

On the other hand, the Department observed that the South Korean greenhouse gas regulatory program does not apply to every industry in that country. Instead, it was limited to a subset of industries, carbon emitters. Moreover, only a part of that subset is eligible for the three percent unit bonus—those entities that fulfilled the same trade intensity and production cost criteria used by the European Union and California in implementing their emissions trading system. The Department found that these standards “are not horizontal in application and, thus, are not neutral In the same way, the “international trade intensity” criterion favors businesses that “are more dependent on international markets for sales and/or sourcing” over subsectors that rely less on such markets.

The Court agreed with Commerce based on the fact that the metrics used to select enterprises are based on the substantive character of their operations (i.e., their inputs, outputs, customers, or externalities) that are not neutral. The Court agreed with the agency’s explanation on remand that 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. Thus, the Court concluded, since a company’s eligibility turns on what it does, the criteria used by the South Korean government cannot be deemed “content neutral.” The Court did not agree with Plainiff that the subsidy is applied to all sectors. While the standards apply to all subsectors, the Court found this is not the same as saying they are “evenhanded” for countervailing duty purposes.

The Court concluded that the South Korean greenhouse gas program provides a subsidy, based not on company name or industry type, but rather on an entity’s operational characteristics, which give rise to a specific subsidy. On remand, the Department explained that operational characteristics are not neutral eligibility standards and the Court accordingly sustained the agency’s redetermination.