Commerce Says South Korea’s Power Rates, ETS Are Subsidies
POSCO headquarters (Business Korea DB)
The U.S. government has intensified trade pressure on POSCO by classifying South Korea’s energy policy and environmental regulations as subsidies. This measure is expected to send considerable ripple effects through the domestic steel industry, given that it targets South Korea’s institutional framework rather than the conduct of any individual company.
The U.S. Department of Commerce made a final determination to impose a 3.7% countervailing duty on POSCO Holdings and POSCO, ruling that South Korea’s industrial electricity tariff structure and Emissions Trading System (ETS) constitute government subsidies. The measure applies to carbon steel and alloy steel heavy plates exported by these companies to the United States in 2023. Countervailing duties are punitive tariffs imposed when an exporting country is found to have secured an unfair price advantage through subsidies.
The key significance of this ruling lies in the fact that the United States has formally codified South Korea’s policy support as the basis for subsidy designations. The Department of Commerce determined that South Korea’s low electricity rates and the manner in which carbon emission allowances are allocated artificially reduce production costs for companies. This suggests that the entire range of steel products manufactured in South Korea could become potential targets for regulation, regardless of whether direct support has been provided to specific companies.
The sharp upward trajectory of the tariff rate is dealing a direct blow to South Korean exports. The countervailing duty rate, which stood at 0.87% for 2021 exports, climbed to 1.47% for 2022 exports and has now surged to 3.7%, representing a more than fourfold increase in just two years. Industry observers widely expect the United States to apply the same rationale to exports from 2024 onward, potentially driving the rate even higher.
The U.S. measures are simultaneously targeting not only POSCO but also other major South Korean steelmakers, including Hyundai Steel and Dongkuk Steel. In February, the Department of Commerce broadened the scope of its pressure by imposing a 2.21% countervailing duty on Dongkuk Steel’s cut carbon steel plates and a 1.31% countervailing duty on Hyundai Steel’s products. South Korean steel products have effectively become a permanent target of U.S. trade regulation.
Domestic companies now face a triple burden, having to contend with existing tariffs compounded by both countervailing duties and anti-dumping duties. With the U.S. government having raised the base tariff on South Korean steel to 50% last year, the additional punitive duties serve as a serious factor undermining price competitiveness. More troubling than the specific tariff figures is the fact that the United States’ position of treating South Korean policies as subsidies is becoming entrenched through annual administrative reviews.
“The United States is fundamentally rejecting the logic behind South Korea’s electricity rates and environmental policies, which makes it extremely difficult for private companies to mount a defense,” an industry official said. “The government must more actively counter these arguments and develop countermeasures in its trade negotiations with the United States.”
Jung Suk-yee
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